China is reaching out to attract foreign investment as its economy faces challenges due to the impact of the COVID pandemic, such as a slowdown in exports and ongoing issues in the property market. For this reason, China is putting significant effort into welcoming more foreign investment in recent years.
With its massive market, China aims to make itself even more appealing to international investors. These efforts come at a crucial time, considering the sluggish global economic growth and declining foreign investments. These policies are focused on enhancing China’s global engagement. The goal is to leverage their substantial and profitable market to attract more foreign investment and establish a business environment that adheres to market rules, and the law, and is integrated into the global economy.
The State Council of China, often referred to as the cabinet, has just revealed a substantial 24-point guideline outlining its proactive approach to enhancing efforts in attracting foreign investments. This guideline encompasses six key areas and aims to enhance the environment for foreign investments, encouraging greater financial inflow. This initiative represents the most recent effort to secure and strengthen economic growth in the latter part of the year.
Understanding the 24-Point Guideline
In a comprehensive document comprising 24 guidelines, the State Council has emphasized the importance of enhancing the safeguarding of foreign investors’ rights and interests. This commitment extends to bolstering the enforcement of intellectual property rights. The document outlines measures aimed at providing increased fiscal support and tax incentives to foreign-invested enterprises. One such measure involves the temporary exemption of withholding income tax for foreign investors who choose to reinvest their profits within China.
Chen Chunjiang, the assistant minister of commerce, emphasized during a press conference in Beijing that these policies are designed to provide strong support for foreign companies operating in China.
“The Ministry of Commerce will strengthen guidance and coordination with relevant government branches on policy promotion, create a more optimized investment environment for foreign investors, and effectively boost their confidence,” Chen said.
The document extends a warm invitation to foreign investors, encouraging them to establish research and development centers right here in China. It’s an open door to engaging in substantial scientific research initiatives within our borders. In addition, foreign-backed projects, especially in the biomedicine sector, will find expedited implementation processes, making China an even more attractive destination for their endeavors.
General Requirements
Guided by Xi Jinping’s thoughts on Socialism with Chinese Characteristics for a New Era, and in alignment with the spirit of the 20th National Congress of the Communist Party of China (CPC), China is committed to maintaining stability while pursuing progress. The comprehensive implementation of the new development concept is a priority, with a focus on establishing a new development paradigm and fostering high-quality growth.
China’s aim is to effectively navigate both domestic and international landscapes. This involves the creation of a world-class business environment founded on market-oriented principles, the rule of law, and international integration. Leveraging the advantage of China’s vast market, the nation is determined to attract and utilize foreign investments more vigorously. These efforts contribute significantly to advancing high-level openness and building a socialist modernized country.
Improving the quality of utilizing foreign investment
China is taking determined steps to enhance its appeal to foreign investors, particularly in critical sectors. This initiative includes strong support for foreign-invested enterprises to establish research and development centers within China. These centers will serve as hubs for collaborative efforts with domestic companies, focusing on technology research, development, and real-world applications. Furthermore, foreign investors and their research centers are encouraged to embark on substantial scientific research projects, reinforcing China’s commitment to innovation and technological advancement while promoting international cooperation and investment.
This guidance encourages qualified foreign investors to establish investment firms and regional headquarters. These enterprises funded by relevant investment companies may be eligible for treatment as foreign-invested entities according to the applicable national rules. The comprehensive adoption of the Qualified Foreign Limited Partner (QFLP) domestic investment pilot program is emphasized, accompanied by the development of a robust facilitation system for QFLP foreign exchange management. Furthermore, support is provided to facilitate investments with foreign-raised RMB.
For example, China had stringent restrictions on foreign equity investment in the past. However, recent developments signal a significant shift. The current statement highlights the encouragement of qualified foreign investors to establish investment firms and regional hubs. Enterprises backed by these investment firms can now benefit from preferential treatment in line with pertinent regulations. These investment companies not only offer commercial and advisory services but also facilitate financial solutions for associated enterprises. This approach is poised to empower foreign investors to efficiently allocate their resources, including capital, on a broader scale, fostering a more open and inviting investment landscape.
Strengthening the protection of foreign investment
This document is set to enhance the framework for safeguarding the rights and interests of foreign-invested enterprises. It aims to refine the mechanism for addressing international investment disputes, reinforcing the accountability of all involved parties. Conducting targeted inspections is now a top priority to ensure that businesses have a fair shot at participating in government procurement activities. Any unlawful or biased treatment of foreign-invested enterprises will be thoroughly investigated and handled according to legal procedures, with noteworthy cases of violations being publicly disclosed when appropriate.
Additionally, the State Council has articulated its intent to delve into the development of a practical and secure framework for managing cross-border data flows. This initiative gains significance against the backdrop of ongoing tensions between regulatory authorities and international corporations, including major global accounting firms, regarding the critical issue of data security.
For instance, when enterprises engage in research and development (R&D) activities and expand their global footprint, there’s often a need for the seamless transfer of data across international borders. The document underscores the imperative of exploring a streamlined and secure system to manage such cross-border data flows effectively. This entails the establishment of a specialized pathway, often referred to as a “green channel,” exclusively for qualified foreign-invested enterprises. This green channel will enable them to efficiently conduct security assessments when exporting essential data and personal information. Ultimately, the objective is to facilitate the safe, orderly, and unimpeded exchange of data.
Ensuring national treatment for foreign-backed enterprises
China is embarking on innovative procurement methods to support foreign-invested enterprises in the development of globally competitive innovative products through initial purchases. Simultaneously, efforts to revise the Government Procurement Law are being promoted. The government will conduct targeted inspections to ensure fair participation by business entities in government procurement processes, and any instances of illegal or discriminatory treatment against foreign-invested enterprises will be thoroughly investigated and resolved according to the law, with transparent reporting of notable violation cases when appropriate.
Improving investment and business facilitation
China is taking steps to improve policies related to the residence of foreign employees in foreign-invested enterprises. This includes ongoing efforts to refine entry and exit procedures with the goal of ensuring a smoother and more convenient experience for foreign executives, technical personnel, and their families. They want to simplify the procedures for qualified foreign-invested enterprises to seek permanent residency for foreign senior management and technical personnel endorsed by these enterprises. This effort is geared towards making it more convenient for foreigners to use their permanent residency identity cards, particularly in areas such as public transportation, financial services, healthcare coverage, and online payment services.
Increasing fiscal and tax support
China is committed to enhancing financial support for the advancement of foreign investment. This will be achieved by utilizing special funds dedicated to the central development of foreign trade and economic relations, with a specific focus on enhancing support for noteworthy foreign-funded projects and expediting their implementation. Furthermore, they will extend their support to regions within their legal jurisdiction to facilitate investment projects undertaken by major multinational corporations.
China is planning to implement tax-preferential policies for foreign-invested enterprises. These policies are designed to facilitate and guide foreign individuals in taking advantage of tax exemptions related to housing subsidies, language training expenses, and children’s education fees, all in accordance with relevant national regulations.
Furthermore, these initiatives will extend to assisting foreign-funded research and development centers in accessing tax benefits for importing technological innovations and obtaining value-added tax refunds for locally procured equipment, all in accordance with pertinent national regulations.
Upgrading the facilitating mechanism for foreign investment
China is taking steps to enhance its investment promotion system by launching a series of “Year of Investing in China” campaigns. These initiatives are part of a continuous effort to strengthen the “Invest in China” brand. The strategy involves the development and improvement of operational mechanisms, providing guidance and support to local governments engaged in foreign investment promotion, and promoting the establishment of investment promotion cooperation mechanisms with eligible regions and countries. Furthermore, various forms of investment promotion platforms will be established to facilitate collaboration.
The good news is in the case of significant and pivotal foreign investment projects, China will grant multiple-entry business visas to foreign personnel associated with these projects as per their work requirements.
Facilitating mechanisms for foreign investment
Every part of the country, government departments, and related groups should work hard to follow the directions and plans given by the CPC Central Committee and the State Council. They should understand the importance of these plans and take an active part in making the foreign investment environment better and attracting more foreign investments. The main goal is to use foreign investments to make things stable and better.
The Ministry of Commerce, along with other relevant departments and groups, should lead and coordinate efforts. They will explain the rules and policies, quickly putting them into action, and making things better for foreign investors. The big aim is to make foreign investors feel very confident about choosing China for their investments.
Benefits for Foreign Investors
The policy’s goal of creating a friendlier environment for foreign investment and its emphasis on boosting foreign direct investment (FDI) indicate an acknowledgment of the concerns within the international business community.
For instance, it’s great to notice that the document highlights the simplification of the relocation process to China, making it easier for foreign executives, technical staff, and their families regarding entry, exit, and residence. Another positive move is the extension of China’s policy on non-taxable allowances for foreign employees for an additional four years, covering expenses such as children’s education, housing, and language training. This extension, now in effect until December 31, 2027, has been warmly embraced by many.
According to the document, China is determined to establish a top-tier international business environment characterized by market-driven principles and adherence to the rule of law. They aim to fully utilize their incredibly vast market to attract and effectively engage foreign investments.
The document also encourages foreign investors to set up research and development centers within China and participate in significant scientific research endeavors. Additionally, foreign-backed projects in the field of biomedicine are set to enjoy expedited implementation processes. These initiatives reflect China’s commitment to fostering a welcoming and supportive atmosphere for foreign investment.
Key Takeaways
In an effort to enhance China’s foreign investment environment and draw in more international capital, the State Council has released a set of guidelines. Within this document, comprising 24 specific directives, the State Council emphasizes the importance of safeguarding the rights and interests of foreign investors. This includes a focus on reinforcing the protection of intellectual property rights, signaling a commitment to provide a more favorable and secure environment for foreign investments.
These measures have set out to strengthen the foreign investment landscape in six key dimensions. Their objectives include enhancing the quality of foreign investments, ensuring that foreign-backed enterprises receive the same treatment as domestic ones, reinforcing the safeguarding of foreign investments, streamlining investment procedures, offering increased fiscal and tax support, and modernizing the mechanisms that facilitate foreign investments. These initiatives underscore China’s dedication to creating an even more appealing environment for foreign investors.
