Attracting foreign investment

The State Council recently issued new policies aimed at incentivising and protecting foreign investment

China’s National Bureau of Statistics (NBS) released the 2023 Half-year Economic Report on 17 July, announcing that GDP in the first half of the year reached RMB59.3 trillion (USD8.3 trillion), up by 5.5% year-on-year.

According to official data, 24,000 foreign enterprises were newly established in the first half of 2023, an increase of , and the actual use of foreign capital amounted to RMB703.65 billion, a slight decline of 2.7%.

On 25 July 2023, the State Council issued the Opinions on Further Optimising the Foreign Investment Environment and Increasing Efforts to Attract Foreign Investments (Order No. 11), putting forward a total of 24 measures in six key areas, aiming at creating a more optimised investment environment for foreign.

This article summarises the main measures and highlights the progress made in these areas since the issuance of Order No. 11, as the authorities concerned formulate relevant regulations and rules.

Better use of foreign investment and increased efforts to attract it in key areas. Order No. 11 supports foreign investors setting up R&D centres in China to co-operate with domestic enterprises, and encourages them to undertake major scientific research projects. The order further calls for an acceleration in the implementation of new biomedicine projects and, for drugs that have been launched in overseas markets, encourages clinical trials in China and simplified market application procedures.

The draft of Requirements for Declaration Information for Launch and Registration of Marketed Overseas-produced Drugs Transferred to Domestic Production (Chemical Drugs) was released by the Centre for Drug Evaluation of the National Medical Products Administration (NMPA) and is open for public comment. After the issuance of Order No. 11, it is believed that relevant regulations will soon follow and be quickly implemented.

The State Council supports foreign-invested enterprises in advanced manufacturing, modern services, digital economy and other fields to carry out vocational education and training with various vocational colleges and training institutions.

In the authors’ view, with China’s ageing population and low birth rate, a better-educated workforce can transform the “demographic dividend” into a “talent dividend”, injecting strong impetus into the economy.

On 18 October, President Xi Jinping announced at the opening ceremony of the Third Belt and Road Forum for International Co-operation that China would remove all restrictions on foreign investment access in the manufacturing sector.

Greater openness of service sector and wider access to foreign capital. Order No. 11 suggests expanding comprehensive pilot programmes to further open up the service sector. Currently, 11 cities in China have carried out pilot programmes, with the scope and intensity expected to increase.

In the field of value-added telecoms, open pilot areas should be added for IP-VPN (foreign ratio of no more than 50%), information services (app stores only), internet access services (for users only) and other businesses. Currently, value-added telecoms can only be found in pilot free trade zones, and in limited form, but the pilot areas are expected to expand after Order No. 11.

In addition, the State Council encourages convenient management of foreign exchange, supports qualified foreign limited partners (QFLPs) to use offshore renminbi in direct domestic investment, and is increasing the number of pilot areas for share transfer of equity investment and venture capital investment. For IP, the State Council also encourages pledge financing, and exploring IP securitisation.

More than 30 provinces and municipalities have issued QFLP pilot policies, but the mode of operation differs. After the issuance of Order No. 11, authorities are expected to further expand pilot areas or provide more relaxed pilot access, investment areas and ways to supply more channels for foreign investment.

Stronger financial and tax support. In terms of domestic reinvestment, no withholding income tax will be levied for the time being; foreign individuals will enjoy tax exemptions on allowances such as housing subsidies, language training fees and children’s education fees; local governments will offer incentives for qualified foreign-invested enterprises; and imported equipment for encouraged foreign-invested projects may be tax exempt.

Strengthened facilitation and protection of foreign investment. In terms of cross-border flow of data, a green channel should be established to efficiently carry out outbound data security assessment, and a general data list allowed to freely flow will be created in Beijing, Tianjin, Shanghai, the Greater Bay Area, etc.

In recent years, the Cybersecurity Law, Data Security Law, Personal Information Protection Law and other regulations were introduced one after another, and the green channel and general data list proposed by Order No. 11 is in line with foreign enterprises’ demands for facilitating operations.

The Cyberspace Administration of China (CAC) also issued the Provisions for Regulating and Promoting the Cross-border Flow of Data (Draft for Comments) at the end of September , with many of those provisions facilitating cross-border data transfer for multinational enterprises.

The State Council also proposes to optimise entry and exit policies for foreigners, facilitate applications for permanent residence, and ensure convenience for foreigners in scenarios such as public transportation, financial services, medical care and online payment.

Order No. 11 also proposes strengthening administrative protection of IP rights, and enforcement. It safeguards equal rights of foreign-invested businesses to legally participate in government procurement projects and standard formulation, and forbids exclusion or discrimination against foreign-invested enterprises by setting access limits on certain brands or rejecting foreign-invested brands.

Furthermore, no additional condition shall be required for foreign-invested enterprises and their products and services to be eligible for favourable policies. Transparency and predictability in the formulation of various foreign-related economic and trade measures should be improved, and the opinions of foreign-invested enterprises should be heard. A reasonable transition period should be allowed for new policies and measures.

Li Xing is a senior partner at Brightstone Lawyers. She can be reached by phone at +86 189 1760 5509 and by e-mail at lixing@brightstonelawyers.com
Lawrence Li is an associate at Brightstone Lawyers. He can be reached by phone at +86 139 6871 3367 and by e-mail at tianhan.li@brightstonelawyers.com

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