Amidst worldwide economic uncertainty and complex international relations, investors are trying to navigate toward opportunities that position them to succeed. Many of those opportunities can be found in China.
At Horizons, we’re confident of China’s economic stability, growth and effort to move past the negative effects of COVID-19. In the latest World Bank Asia Pacific Region economic forecast, China is predicted a two percent growth rate for 2020 and 7.9 percent in 2021. This stands in contrast to the rest of the EAP (East Asia and Pacific) region, which is projected to contract by 3.5 percent.
For foreign investors with ambitions to invest in China, there are two essential items to consult when assessing opportunities — the “Negative List” and the “Encouraged Catalogue”.
Firstly, there are a number of prohibited or restricted sectors for foreign investment in China. The Special Administrative Measures on Access to Foreign Investment (‘Negative List’) outlines sectors which are either prohibited or restricted for foreign investment. “Restricted”, in essence means that foreign investors must meet specific conditions, such as shareholding limits, as stipulated by the negative list.
Equally, the Catalogue of Industries for Encouraged Foreign Investment (‘Encouraged Catalogue’) establishes a list of encouraged sectors for foreign investment. Encouraged industries come with preferential incentives established by the national and local governments. They include tax incentives, streamlined approval procedures and discounted land prices.
Therefore, foreign investors seeking to invest in China should make themselves familiar with Negative List and Encouraged Catalogue as they formulate their investment strategies and plans. Below, we highlight some key points from the 2020 Negative List and the draft 2020 Encouraged Catalogue, which underlines Chinese foreign investment trends for 2020 and beyond.
2020 Negative List
The National Development and Reform Commission (‘NDRC’) and the Ministry of Commerce (‘MOF’) have jointly issued two “negative lists” that were updated on 23 July 2020. They are the general Negative List and the Free Trade Zone Special Administrative Measures on Access to Foreign Investment (“FTZ Negative List”). The updated versions of the negative lists reduce the numbers of restricted sectors from 40 to 33 and 37 to 30, respectively.
The main sectors with relaxed restrictions include:
Manufacturing
The restrictions on the share ratio of foreign investment in commercial vehicle manufacturing have been reduced.
Agriculture
The selection and breeding of new wheat varieties and the production of seeds are no longer required to have a majority Chinese shareholder.
Financial
Caps on foreign ownership of securities companies, securities investment fund management companies, futures companies and life insurance companies have been lifted.
Pharmaceutical
Within FTZ, measures prohibiting foreign investment in traditional Chinese medicine units have been removed.
Education
Within FTZ, wholly foreign-owned enterprises are allowed to establish vocational training institutions.
Draft 2020 Encouraged Catalogue
On 31 July 2020, the NDRC and MOF issued the draft of the 2020 Encouraged Catalogue, which has been expanded by 125 industries and made amendments to 76 industries included in its predecessor. Primarily, there are three main areas emphasised in the catalogue:
High-end manufacturing, including manufacturing of certain raw materials, certain components and parts, and end products, with a focus on the automobile, computer, communications and electronics industries.
Production-oriented service industries, including research and development, commercial services, modern logistics services and information service.
Investment in China’s central, western and northeastern provinces, with the list for these regions expanded, according to each province’s local conditions.
Foreign investment within the encouraged sectors will benefit from preferential treatment, including tariff exemptions on imported equipment, access to preferential land prices and looser regulation of land use and lower corporate income tax, among other advantages.
The Outlook
We advise foreign investors to monitor both the Negative List and the 2020 Encouraged Catalogue, whose official announcement will come later this year. Revisions to both items will serve to spur quality development of China’s economy, the upgrading of traditional industries and the accelerated development of emerging industries. What’s more, it will expand investment channels for the flow of foreign capital into China, allowing foreign investors to benefit from the shrewd decision-making by China’s governmental bodies in the face of 2020’s unique challenges.
Contact Us
If you would like more information about foreign investment or other related corporate matters, send us an email at talktous@horizons-advisory.com, and we’ll have a Horizons professional contact you.