On January 12, 2017, the State Council issued the Notice on Several Measures for Opening Wider to the Outside World and Make Active Use of Foreign Investment (“Several Measures”) presenting 20 specific measures in three areas in respect of furthering utilization of foreign funds, creating favorable business environment and deepening decentralization.

Background

Several Measures were issued at a significant point in time and has its own profound historical background.

Since 1992, in the perspective of using foreign investment, China has experienced a long-term boom. However, on account of decelerated growth of the global economy, structural, geographical and industrial imbalance of China’s use of foreign investment and other multiple causes, China’s attracting and using of foreign investment have entered a period of slowdown and reflection. In 2016, the global economy was in deep adjustment, with insufficient recovery power and transnational corporations showing a weak willingness to invest. Under these circumstances, compared to 2015, the overall scale of China’s use of foreign investment was basically flat in 2016 and growth rate slowed down, nonetheless there were further optimization of the structure. For instance, the attraction of foreign investment in the service industry increased by 8%; the rate of real estate industry decreased by 31.1% in the first 11 months in 2016; the using of foreign investment in manufacturing industry was overall declining, including labor intensive manufacturing, however, the rate of high-technology manufacturing industry increased by 3.6%.

The abovementioned structural adjustment and optimizing of using foreign investment have certain relationships with industry transformation, upgrade of model of labor intensive industry and rising of labor force cost in China, marking a forthcoming new stage of attracting and using foreign investment. In 2015, the CPC Central Committee and the State Council issued Several Opinions on Developing a New System of Open Economy, raising new requirements and measures of foreign investment introduction. After that, Wholly Foreign Owned Enterprises Law, Sino-Foreign Equity Joint Venture Enterprise Law and Sino-Foreign Cooperative Joint Venture Enterprise were revised. Measures including changing the establishment system of foreign-invested enterprises from examination and approval system to filling system were all in spirit of developing a new system of open economy and created a more convenient and high-quality investment and business environment in order to attract and use foreign investment. Therefore, under these circumstances, the Ministry of Commerce, together with the National Development and Reform Commission and other relevant departments of the State Council issued Several Measures, presented 20 measures in three areas and explicitly assigned the responsible departments for each measures, showing great determination and execution on establishing a high-quality business environment and providing preferential policies and facilitation measures for foreign investment.

Main content

1. It is imperative to open wider to the outside world. The deregulation will be focused on market entry barriers for foreign investors in the service, manufacturing and mining industries. Foreign investors are encouraged to invest in high-end, smart and green manufacturing; to participate in infrastructure construction; and R&D cooperation. The specifics measures are as follow:

• Revising the Catalogue for the Guidance of Foreign Investment Industries. The deregulation will be focused on market entry barriers for foreign investors in the service, manufacturing and mining industries.

• Foreign-invested enterprises and Chinese-funded enterprises will be eligible on an equal basis for the policy measures under the “Made in China 2025” strategy. Encouraging foreign investors to invest in high-end manufacturing, smart manufacturing, green manufacturing, as well as in the production-oriented services industry, such as industrial design and innovation, engineering consulting, modern logistics and inspection, testing and certification.

•  Supporting foreign investment to participate in infrastructure construction based on the model of concession operations.

• Supporting foreign-invested enterprises to participate in R&D cooperation, to undertake national science and technology programs and to establish R&D centers. Moreover, foreign-invested enterprises shall be eligible for the preferential policies such as the additional deduction of R&D expenses, high-tech enterprises, R&D centers, etc. on an equal basis to Chinese-funded enterprises.

2. The importance of further creating a level playing field. Measures are adopted to promote equal treatment and fair competition of both Chinese-funded enterprises and foreign-invested enterprises. The specific measures are as follows:

• Supporting foreign-invested enterprises to broaden their financing channels, so that they can be listed on Main Board, SME Board, GEM and New Third Board and issue bonds.

• Rigorous protection of foreign-invested enterprises’ intellectual property.

• Abolishing the requirement of minimum registered capital of foreign-invested enterprises. Implementing a unified registered capital system subjecting both foreign-invested enterprises and Chinese-funded enterprises.

3. More effort shall be made to attract foreign investment. Allowing local governments to formulate preferential policies for attracting investment, especially on supporting foreign investment to invest in regions around central and western regions and northeastern regions. In addition, support and facilities are on offer for foreign investment projects needed by foreign-invested enterprises, in respect of land, capital, overseas financing and establishment/change of foreign-invested enterprises. The specific measures are as follows:

• Local governments will formulate preferential policies for attracting foreign investment and also for creating favorable investment environment, lowering operating costs and protecting the rights and interests of foreign-invested enterprises.

• Supporting the central and western regions and northeastern region to undertake the transfer of foreign-invested industries. A preferential policy on enterprises income tax will be implemented for eligible foreign-invested enterprises, which engage in encouraged industries in western regions. Foreign-invested enterprises that transfer their operation to central and western regions or northeastern region would enjoy State supports in the form of preferential policies on capital, land, etc.

• Supporting will be given to the land use needs of foreign investment projects.

• Allowing foreign-invested multinational enterprises to carry out centralized operation of RMB and foreign currency to promote two-way flow of funds and improve the efficiency of capital use and the level of investment facilitation.

• Unified the management of external debt by Chinese-funded and foreign-invested enterprises，which can improve the foreign exchange management regime of foreign-invested enterprises and also enhance the ability of, and convenience for, foreign-invested enterprises to raise funds overseas.

• Promoting the full adoption of the model of pre-entry national treatment plus negative list in foreign investment management, and simplify the procedures for managing foreign investment projects and the establishment and change of foreign-invested enterprises.

Commentary

As we can see in Several Measures, Chinese government provided a lot of support, preferential policies and facilitation measures. First of all, China enlarged open fields, especially in service industry, manufacturing industry and mining industry, and greatly encouraged foreign investment to flow to service, high technology, environmental protection and infrastructure construction industries, etc. Secondly, Chinese government is simplifying the formalities of foreign invested enterprises’ establishment, gradually taking off the restriction of registered capital, expanding financing channels, protecting intellectual property, treating foreign invested enterprises equally without discrimination as Chinese-funded enterprises, lowering institutional costs and creating a convenient and high-quality business environment. Furthermore, Chinese central and local government will all issue various preferential policies for business invitation, including tax, capital and land preferences, in order to attract foreign investment.

However, according to the context of Several Measures, it only provided a framework and guidance suggestions on open wider and attracting foreign investment, in which the implementation of all the measures are waiting for specific regulations issued by responsible departments. We will continue to interpret relevant policies according to following new regulations.