Observations on the Catalogue of Encouraged Industries for Foreign Investment

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Authored by: Edwarde Webre and Jenny Jin

On October 26, 2022, China’s National Development and Reform Commission and Ministry of Commerce jointly issued the Catalogue of Encouraged Industries for Foreign Investment (2022 Edition) (hereinafter referred to as the “New Encouraged Catalogue”), which will come into effect on January 1, 2023. There are three main preferential treatments applicable to investments in industries listed in the New Encouraged Catalogue: (1) the duty free import of equipment for self-used equipment within the value of it total investment amount (except for equipment specifically prescribed by the State as non-exemptible); (2) priority access to land supply for encouraged industrial projects with intensive land use and the base price for such land supply may be set at no less than 70% of the national lowest price for supplying the industrial land of the same grade as the land in question; and (3) a reduced corporate income tax rate of 15% may be applicable for investment in the western region and Hainan.

The New Encouraged Catalogue remains comprised of the National Catalogue of Encouraged Industries for Foreign Investment (hereinafter referred to as the “National Catalogue”), and the Catalogue of Advantageous Industries for Foreign Investment in Central and Western Regions (hereinafter referred to as the “Central and Western Catalogue”). Compared with the last edition (i.e. 2020 Edition), the New Encouraged Catalogue includes 1474 articles in total, with 239 articles newly added and 167 articles modified from the 2020 edition; among which, the National Catalogue has 519 articles, with 39 articles newly added and 85 articles modified, and the Central and Western Catalogue has 955 articles, with 200 articles newly added and 82 articles modified.

The New Encouraged Catalogue is intended to optimise the industrial landscape by continuing: (1) to encourage foreign investment in advanced manufacturing industries, and (2) to channel foreign investment into modern service industries.

The National Catalogue continues to give priority to encouraging foreign investment in the manufacturing sector, adding or modifying such articles as relating to the development, production and application of new technologies and new products relating to forestry biomass energy, the development and production of consumables relating to pharmaceutical manufacturing, the production of new and high-tech nonferrous metal materials and their products, the development and production of high-performance photoresist materials, and the development and production of glow discharge mass spectrometers. The New Catalogue also continues to guide foreign investment into such fields as production of critical instruments, equipment and components, R&D for new materials, etc. This is intended to encourage foreign enterprises to invest in related sectors, deepen their cooperation with local enterprises and play an active role in technology upgrades. The main articles deleted in this round of amendments are also concentrated in the manufacturing field. For instance, articles regarding robots and smart cars have been generally modified or deleted.

The National Catalogue also focuses on improving the development quality of the service industry and promoting the integrated development of the service industry and the manufacturing sector. It strives for this end by adding or modifying related articles, such as promoting advanced system integration technology and services for low-carbon, environmental friendly and green energy and water conservation, professional design services, language service industry (including translation, language resource services, etc.), vocational schools and colleges, non-academic art institutions, human resources services, tourism, conference and exhibition, and clean production evaluation certification and audit, etc.

The other main change in the New Encouraged Catalogue is to optimise the regional distribution of foreign investment by expanding the encouraged scope of investment in the Central and Western Catalogue and direct more foreign capital to invest in the Central and Western regions, the Northeastern region and Hainan Province so as to make full use of the labour resources and other special local resources of the regions shifting labour-intensive industries away from the coastal regions and promoting more balanced development. For instance, in the Central and Western Catalogue, Shanxi, Liaoning, Anhui, Ningxia and other provinces and regions have newly added the production of smart terminal products and key components such as smartphones and tablet computers, while Inner Mongolia, Jiangxi, Guizhou, Heilongjiang and other provinces and regions have newly added articles such as the development and utilization of clean coal technology products, and the R&D and innovation of black soil protection and utilization technologies.

The New Encouraged Catalogue reflects China’s desire to promote a high-level economic opening. It is intended to boost the confidence of foreign investors while promoting the use of foreign capital by domestic enterprises to achieve an industrial upgrade and transformation.

Deacons will continue to pay close attention to developments in legislation related to foreign investment in China and to provide updates on the changes that may impact foreign investment and operations. For specific advice on foreign investment legislation, please feel free to contact us.

Key Contacts

Edwarde Webre

Consultant | Corporate Commercial

Email or call +852 2825 9730