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China: New plans to promote foreign investment and manage outbound investment


In the run up to the 19th National Congress of the Communist Party of China in October 2017, at which far-reaching changes in the make-up of the top leadership of the Communist Party are anticipated, a series of new investment promotion and economic reform measures were outlined in July and August 2017.






Measures to boost foreign investment in China

In a statement on July 28, followed up by a circular issued on August 8, the State Council (i.e. cabinet) outlined a series of measures to boost inbound investment:

  • Reinvestment in China of the distributed profits of foreign invested enterprises (FIEs) will be permitted without imposition of dividend withholding tax (WHT). WHT is normally imposed at 10% on FIE distributions out of China, subject to tax treaty relief, and existing measures to limit tax leakages (such as by setting up onshore holding companies in China) are hampered by regulatory limitations. The new incentive will therefore be a great boon to the use of Singapore and Hong Kong offshore holding companies for China operations. The details of the incentive are to be clarified in the near future.

  • The corporate income tax (CIT) incentives for advanced technology services enterprises (ATSEs) will be expanded nationwide. The existing ATSE regime, operating in a number of pilot cities, provides a low 15% CIT rate (standard rate 25%) to Chinese enterprises engaged in information technology outsourcing (ITO), business process outsourcing (BPO), and knowledge process outsourcing (KPO) service activity. An increased ceiling for a CIT deduction of staff education expenses also applies under the ATSE scheme, and the regime is complemented by the recent national rollout of VAT zero-rating for the export of high-end outsourcing services;

  • Relaxation/elimination of requirements for foreign investors to have Chinese co-investors in invested Chinese entities in several sectors. Sectors currently restricted include the manufacturing of automobiles, vessels and planes, transportation services, telecommunication services, financial services, and culture and entertainment services, and clarification of the planned liberalisation is expected as soon as September 2017; and

  • With a view to encouraging the establishment of multinational enterprise (MNE) regional headquarter companies in China, enhancements are to be made to the foreign tax relief for overseas dividends received by Chinese enterprises, alongside other rule enhancements.

These new initiatives are accompanied by commitments to continue efforts on other measures to assist foreign investors, such as:

  • Streamline the working permit/visa process for foreigner workers;

  • Enhanced legal protection for foreign enterprise intellectual property rights;

  • Ensure the system of foreign exchange control does not hinder FIE profit repatriation out of China;

  • Inbound investment regulatory environment to be further improved, with updated rules governing foreign invested Chinese companies, and continued roll out of the 'negative list' approach to screening foreign investment in different economic sectors; and

  • Establishment of further special incentivised zones for high-tech investment, foreign investors in which will receive priority land grants and financial support. There is a focus on drawing foreign investment into the underdeveloped west of China and the old industrial northeast of China.

Domestic enterprise reforms to encourage growth and manage outbound investment

In parallel with the planned enhanced incentives for inward investment, the State Council made several announcements concerning domestic enterprise reform and management:

  • The July 28 State Council statement included a plan to encourage private investment in infrastructure and public utility construction via public-private partnerships (PPP). This was paralleled by a plan issued on July 18 by the State Council to convert the remaining state-owned enterprises (SOEs) to limited companies to facilitate private investment in these and a move to a 'mixed ownership' model;

  • China's system of enterprise credit rating is, as per the July 28 statement, to be upgraded to facilitate greater bank lending to Chinese private enterprises. This parallels a recent agreement with the US to facilitate the operation of foreign credit rating agencies in China, which was subsequently reflected in the new 2017 Catalogue Guiding Foreign Investment; and

  • In parallel with measures taken in late 2016/early 2017 to bring runaway expansion of Chinese private enterprise outbound investment under control, Ministry of Finance measures came into effect from August 1, obliging SOEs to establish better decision-making controls and review procedures over their outbound investments. This parallels measures recently taken to formalise the role of SOE Communist Party committees in oversight and strategic decision-making roles at SOEs, including updates to SOE articles of association to reflect this. This was followed by an August 18 State Council notice that classifies outbound investments as encouraged, restricted and prohibited, promoting investment in foreign technology and in infrastructure investment in Belt and Road Initiative (BRI) countries, while limiting the scope for investment in, amongst others, foreign real estate, hotels, entertainment and sports club assets.

Khoonming Ho ( and Lewis Lu (

KPMG China

Tel: +86 (10) 8508 7082 and +86 (21) 2212 3421


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