Foreign investment policies in China

According to the 2016 World Investment Report published by UNCTAD, China has lost its position as the world’s largest FDI (Foreign Direct Investor) recipient to the United States and Hong Kong, and now ranks third. The country’s economy also ranked the second most attractive to multinational companies in 2016-2018, after the United States. The absorption of FDI is part of the policy of opening China to the outside world. In 2016, FDI followed their upward trend and reached USD 139 billion, a new record level. FDI flows from China abroad, valued at USD 161 billion in 2016, outpaced FDI flows into the country. China has a large and rapidly expanding market, which was not overly affected by the financial crisis. With a strong potential, a wealth of employees and potential partners eager to learn and evolve, the country is a base for low cost production. Nevertheless, certain factors can hinder investments, such as China’s lack of transparency, legal uncertainty, low level of protection of intellectual property rights, corruption or protectionist measures which favour local businesses.

Why You Should Choose to Invest in China

*Strong Points
China’s strong points include:- China is the biggest internal market in the world with 1.3 billion potential customers.
– It is a rapidly growing market (usually at least 7% growth per year).
– Even though the situation is changing in certain areas, labour costs remain comparatively low.
– With the development of the Western provinces (particularly, the Sichuan province), China offers new opportunities.
*Weak Points
China’s weak points include:- An ever-changing legal context.
– Bureaucratic and administrative complexities.
– Reports of a lack of transparency, corruption and weak intellectual property rights protection.
– Cultural differences in business practice may be difficult for foreigners to learn and apply in new business situations.
– An underdeveloped middle management level and high staff turnover rate, which may cripple market acquisition.
*Government Measures to Motivate or Restrict FDI
The Government of China has stated that it will encourage investment in the following industries or sectors: high technology, production of equipment or new materials, the service sector, recycling, clean production, the use of renewable energies and environmental protection. On the other hand, the Government’s foreign investment guide has stated that investments in sectors or Chinese companies that already have a relatively strong production capacity and use advanced technologies ‘will not be encouraged’ (State Commission for Development and Reform, November 2007). In addition, the country appears to discourage foreign investment in sectors deemed key to social stability, sectors for which China seeks to develop domestic firms into globally competitive multinational corporations and sectors that have historically benefited from State-sanctioned monopolies or a legacy of State investment. The Government also discourages investments intended to profit from speculation (currency, real estate, or asset). Moreover, the Government has indicated that it plans to restrict foreign investment in resource-intensive and highly-polluting industries.

Investment Aid

Forms of Aid
Foreign investors enjoy corporate tax reductions, exemptions of tax on dividends repatriated during a certain period and other tax advantages. Moreover, foreign direct investment incentives include packages of reduced income taxes, resource and land use fees, and import/export duties, as well as priority treatment in obtaining basic infrastructure services, streamlined Government approvals, and funding support for start-ups. The Ministry for Foreign Trade and Economic Cooperation (MOFTEC) can be contacted for any information concerning opportunities in China.
Privileged Domains
China encourages foreign investment primarily in high technology, clean energy and export-oriented sectors.
Free Zones
The Government has created various zones, granting each tax exemptions or tax incentives to attract overseas investments. They are primarily the 5 special economic zones and the 14 coastal cities.
The special zones are Shenzhen (at the border of Hong-Kong), Zhuhaï (close to Macau), Shantou, Xiamen (vis-à-vis Taiwan) and the island of Hainan. They were selected because they were completely under-developed.The 14 coastal cities are Dalian (in the province of Liaonong), Shanghai, Ningbo, Wenzhou (in the province of Zhejiang), Fuzhou (in the province of Fujian), Guangzhou, Zhanjiang (in the province of Guangdong), Beihai (in the autonomous region of Guangxi Zhuang), Tianjin, Yantai, Qingdao (in the province of Shandong) and Lianyungang, Nantong (in the province of Jiangsu). For the past few years, other cities have also been regarded as coastal towns profiting from the same status. Unlike the 5 special zones, these cities were not underdeveloped, but key industrial centres in China. Overseas investment has facilitated improvements to the infrastructure and the creation of new, more advanced ones.

The Key Sectors of the National Economy
Agriculture, breeding, forestry and fishing, extraction, manufacture and services.
High Potential Sectors
Chemical industry, insurance and bank, high technology, renewable energy, environment.
Privatization Programmes
– Telecommunications
– Energy
– Environment
– high-technology
– Services

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