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Investing in China: A summary of the first top-level 2018 document on foreign investment

On 15 June 2018, the State Council of China released to the public the Notice on Several Measures Concerning the Active and Effective Use of Foreign Investment to Boost High-quality Economic Growth (Notice). As the very first document released in 2018 concerning foreign investment from China’s top authority, the Notice deploys 23 measures in six aspects: investment liberalization, investment facilitation, investment promotion, investment protection, regional open-up layout, and national-level development zone innovation enhancement. In comparison with the same level documents issued by the State Council in 2017 (namely, the Notice on Several Measures concerning the Expansion of Opening-up and the Active Use of Foreign Capital, and the Notice on Several Measures to Boost the Growth of Foreign Investment), the Notice has outlined more systemically the recent and future changes to China’s foreign investment attraction policies. 

In light of the effects the Notice may possibly have on different stages of foreign investment, this article sets out some of the highlights as follows: 

I.        Project selection stage

  1. Amending the Negative Lists. Currently, China has two sets of special administrative measures for enabling foreign investment (namely the Negative Lists): one for China’s free trade zones (FTZs), and the other for mainland China excluding FTZs. It is notable that in case there are any further preferential opening up measures for qualified investors under other agreements, accords, or international treaties, then the relevant agreements or accords shall prevail. The Notice confirms the completion of the amendments on both Negative Lists by 1 July 2018. Highlights of the amendments include: (i) expanding the opening up of the financial sector; (ii) promoting the opening up of the service sectors such as transportation, trade logistics, and professional services; for FTZs, increasing the pilot programs for telecommunications, culture, tourism services and so forth; and (iii) deepening the opening up of agriculture, mining, and automobiles, ship and aircraft manufacturing industries. Two new Negative Lists were issued respectively on 28 June and 30 June 2018. We will discuss these separately in another article.
  2. It is worth noting that the Notice stresses that for business sectors not covered by the Negative Lists, no local governments or governmental departments shall specifically impose restrictions on foreign investment access. In past practice, some local governments did impose restrictions on foreign investment access outside the Negative Lists, due to, for example, a failure to repeal obsolete regulations or policies. The Notice emphasizes prohibitions against such practice. Another point to note is that the State Council and some local governments have also released national or local catalogues concerning investment guidance, restrictions or prohibitions for specific sectors. Such catalogues are formulated for all domestic and foreign investors, and should not be regarded as “special restrictions on foreign investment access”, i.e. foreign investors should continue to be bound by these catalogues in accordance with the law. 
  3. Improving the quality of investment. Highlights: (i) Support foreign investors to participate in the development of Hainan Free Trade Port, and direct foreign investors to invest more in modern agriculture, ecological construction, advanced manufacturing and modern services; (ii) implement tax policies to further encourage foreign investors to invest with their profits gained within China, and to encourage investment in technologically advanced services sectors; and (iii) encourage foreign investment in R&D centres, and new and high-tech areas.
  4. Encouraging foreign investment in M&A. Highlights: (i) Permit qualified foreign natural persons to invest in domestic listed companies according to the law; (ii) permit foreign investors to invest in companies listed in the National Equities Exchange and Quotations system; and (iii) improve the transparency of state-controlled listed companies and the transfer of the state-owned equity in such companies, and provide fair opportunities for domestic and foreign investors to participate in the reform of state-owned enterprises.

II.       Enterprise establishment stage

  1. Streamlining formalities. Highlights: (i) Further decentralization of the relevant approval power, i.e. for the establishment and alteration of a foreign-invested enterprise (FIE) in the Negative Lists whose investment is less than US$1,000 million, approval or administration shall be managed by a provincial-level government; and (ii) nationwide implementation of commercial record-filing and industrial and commercial registration of FIE outside the Negative Lists to be “handled through one platform”. (Note: according to the relevant policy, the one platform rule is required to be implemented nationwide from 30 June 2018; prior to this, commercial record-filing and industrial and commercial registration had to be done separately).
  2. Encouraging investment in Western China and in the old industrial bases located in Northeastern China. Highlights: (i) Permit a FIE which is located in Western China or in the old industrial bases of Northeastern China to issue offshore bonds denominated in RMB or foreign currencies. Such FIE may then remit all funds raised offshore back to China for business investment or operation in the province where the FIE is located; (ii) under certain conditions, support financial institutions or local asset management companies incorporated as approved in the foregoing regions to transfer RMB non-performing debts to offshore investors; (iii) based on full assessment, banking institutions located in the foregoing regions are permitted to transfer their RMB trade financing assets to offshore banks; and (iv) in Western China and in the old industrial bases of Northeastern China, build land-air joint open ports and multimodal transport hubs, strengthen the construction of infrastructure such as train stations and passages of China-Europe railway express, etc.

    In addition, the Notice also makes it clear that the government will encourage foreign investment towards China’s national development zones, by providing comprehensive governmental services, intensifying financial support and so forth.

III.      Business operation stage

  1. Facilitating fund utilization. Highlights: (i) Further streamline capital pool administration, allow banks to provide centralized foreign currency payment and receipt and netting settlement for enterprises; (ii) lower thresholds for multinationals to file records for pilot programs concerning foreign-currency concentrated management; and (iii) support multinational enterprise groups to engage two-way cross-border RMB capital pool services.
  2. Facilitating employment of foreign talents in China as well as border entry and exit procedures. Highlights: (i) Promote the "one-card" pilot program for high-end foreign talents, and streamline their work permit granting procedures; and (ii) Eligible foreign talents employed by enterprises incorporated in China can obtain work visas within two business days.
  3. Reducing the operating costs of FIEs. Highlights: Having regard to local conditions, local authorities may support manufacturing enterprises to lawfully add floors to their factories, renovate their factory premises, consolidate construction land, and expand manufacturing or storage areas; no additional land premium shall be charged in this connection.
  4. Strengthening Intellectual Property rights protection. Highlights: (i) Promote the revision of China’s Patent Law, etc., substantially increase the upper limits of statutory compensation for Intellectual Property rights infringement; (ii) impose heavier penalty against Intellectual Property rights infringement; (iii) prohibit government officials from using administrative means to force technology transfer; and (iv) strengthen relevant legal aid, dispute arbitration and mediation etc.

    For each measure, the Notice has set out the authorities responsible for leading or promoting the measure. Next, the relevant government authorities are expected to issue rules for implementing the relevant measures, and to revise or  repeal conflicting laws and regulations. We will follow up closely and provide updates on these developments in due course.

Key Contacts

Cynthia Chung

Partner | Corporate Commercial | Employment and Pensions

Email or call +852 2825 9297

Machiuanna Chu

Partner | Corporate Commercial

Email or call +852 2825 9630

Elsie Chan

Partner | Employment and Pensions

Email or call +852 2825 9604

Edwarde Webre

Consultant | Corporate Commercial

Email or call +852 2825 9730

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