All material subject to strictly enforced copyright laws. © 2022 ITR is part of the Euromoney Institutional Investor PLC group.

China: FDI restrictions continue to be relaxed

Sponsored by sponsored-firms-kpmg.png
China is undertaking a range of measures to facilitate outbound investment

Lewis Lu of KPMG China explains how the country has introduced a range of business-friendly policies to incentivise foreign investment in 2021.

Foreign direct investment (FDI) has long played a crucial role in driving the development of China’s economy. China continues to be one of the world's most attractive investment destinations, being the second largest FDI recipient for the past several years.

It is estimated that in 2020, even against the backdrop of a challenging global economic environment, China hit a new record of more than $140 billion in FDI, up more than 6% on the year. The Chinese authorities have recently made a whole series of regulatory changes to support the continuation of this trend.




To promote FDI, China’s new foreign investment law came into effect from January 2020. This was followed in June 2020 with updated nationwide and free trade zone (FTZ) ‘negative lists’ for foreign investment, which reduced the industries for which foreign investment is restricted or prohibited. This was followed in December 2020 by an update to the ‘negative list for market entry’, which governs the sectors in which private enterprise (both domestic and foreign) can invest – this needs to be read in parallel with the foreign investment lists. Under this, just 123 sectors are now off limits to private capital – down from 328 in 2016.



In December 2020, a new Catalogue of Encouraged Industries for Foreign Investment was released, applicable from January 2021. Enterprises in business sectors designated as ‘encouraged’ may be granted a range of tax, customs and other support, such as preferential awards of land use rights, by local governments. Encouraged sectors have been increased from 1108 to 1234, relative to the 2019 catalogue. These include advanced manufacturing (e.g. new materials, environmental protection), modern services (e.g. research and development, cross-border e-commerce, online education and medical) as well as food processing, tourism, medical devices, and shipping. Some of these sectors are nationally encouraged and others are encouraged for the less developed western region of China, for the old industrial north east, and for the key development focus area of Hainan island.



From February 2021, there is also a new ‘negative list’ for the Hainan free trade port (FTP), which is even more permissive than the existing national and FTZ lists. This drops the remaining restrictions for mining and auto manufacturing and further reduces those on telecommunications, education and legal services.



In parallel to all this, the newly agreed China-EU Bilateral Investment Treaty (BIT) (announced in December 2020) also commits China to further open up the manufacturing, automotive, financial services, medical, cloud services, shipping and air transport sectors to European investment.



China is also undertaking measures to facilitate outbound investment, including recent rule changes made by China’s central bank and foreign exchange administration in January 2021 to permit Chinese enterprises to lend more to their overseas subsidiaries.





Lewis Lu

Partner

E: lewis.lu@kpmg.com



More from across our site

This week European Commission officials consider legal loopholes to secure minimum corporate taxation, while Cisco and Microsoft shareholders call for tax transparency.
The fast-food company’s tax settlement with French authorities strengthens the need for businesses to review their TP arrangements and documentation.
The full ALP model will be adopted through a new TP regime, which is set to boost the country’s investments and tax certainty.
Tax professionals have called on the UK government to reconsider its online sales tax as it would affect the economy at the worst time.
Tax professionals have called on companies to act urgently to meet e-invoicing compliance targets as the EU plans to ramp up digitisation.
In the wake of India’s ambitious 25-year plan for economic growth, ITR has partnered with leading tax commentators to discuss what the future will look like for India and for the rest of the world.
But experts cast doubt on HMRC's data and believe COVID-19 would have increased the revenue shortfall.
EY’s plan to separate its auditing and consulting businesses might lessen scrutiny from global regulators, but the brand identity could suffer, say sources.
Multinationals are asking world leaders to put a scale on carbon pricing to tackle climate change at the 48th G7 summit in Germany, from June 26 to 28.
The state secretary told the French press that the country continues to oppose pillar two’s global minimum tax rate following an Ecofin meeting last week.
We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree