China Gears Up for More Stimulations of Foreign Investment

安杰世泽律师事务所

2017-08-21

导读：A series of new incentive measures for foreign investment have been put into place by the Chinese go

Authors: Simon Li, Dane Li

Over the past few months, a series of new incentive measures for foreign investment have been put into place by the Chinese government. In June, the Catalogue for the Guidance of Foreign Investment Industries (Revised in 2017)(the“Foreign Investment Catalog 2017”) was published and one month later, the Ministry of Commerce promulgated the latest revision to the Interim Measures of Administration of Foreign Invested Enterprises Establishment and Alteration Filing (the “New FIE Rule”). It appears that China does not intend to slow down its pace to put forward more implementations to further boost foreign investment growth. On August 16, 2017, China’s State Council promulgated the Circular on Several Measures for Foreign Investment Growth (the“Circular”). The Circular sets forth a number of new measures for foreign investments, which we think are more encouraging compared to the previous policies.

The Circular introduces the measures in five aspects, and of all these measures, the highlights below are noteworthy:

Continuing relaxing restrictions on access of foreign investment

The Circular proposes to further expand market access by fully implementing national treatment subject to negative list management system. Actually, shortly before the issuance of the Circular, the Foreign Investment Catalog 2017 has already provided certain relaxation on the access of foreign investment, particularly in the sectors of service, manufacturing and mining, while the Circular require seven further opening up in the service, manufacturing and transportation industries, such as special purpose vehicles and new energy vehicles, railway passenger transportation, maintenance and repair of feeder and general purpose aircraft, gas stations, and banking. Also, it requires the responsible ministries and departments to prepare the opening timetable and the roadmap in details. This measure implies that the concessions made in the Foreign Investment Catalog 2017 are still limited, not meeting the central government’s expectations, and the service and manufacturing industries remain as the focus of foreign investment growth.

Introducing financial and tax support policies

The Circular introduces preferential financial and tax policies to promote foreign investment growth. Where foreign investors apply the profits they obtain from the irinvestments tore-investments in encouraged projects in China, the foreign investor may enjoy the deferred tax policy and the with holding tax will not be levied. In addition, the Circular encourages local government to adopt financial support policy to attract multinational corporations to establish regional headquarters. The Circular also indicates that the government will direct foreign investment to the western region and the northeast old industrial base by means of financial supports.

Upgrading investment environment of state-level development zones

According to the Circular, the government will upgrade the comprehensive investment environment of state-level development zones through the following four measures: to further delegatead ministrative authorities to state-level development zones, to prioritize the zoning of state-level development zones, to support the expansion of investment space of state-level development zones, as well as to enhance industrial supporting services of state-level development zones.

Facilitating entry and exit of foreign talent

The Circular proposes first ever the method of “acceptance despite errors or deficiencies”in application procedure for work permit. It means even if the application documents fail to fulfil the requirements, bureau of foreign experts affairs may still accept and process the application so long as the problems are not material, and the applicant can correct the errors or make up the deficiency later. It will certainly bring great convenience to the foreign employees and their employers.

The Circular also stipulates that by 2017 new policy will be launched to broaden the scope of foreign talents who can obtain working visas and to extend the effective term of working visas.

Optimizing business environment of foreign investments

The Circular reassures that the profits, dividends and other investment income law fully gained by foreign investors in China can be freely remitted out. The background behind this measure is that from the end of 2016 through the first half of 2017, the rumor that“China puts restrictions on remittance of profits out of China”spread among foreign investors. Although the State Administration of Foreign Exchange denied the rumors in many occasions, it has caused a lot of concerns of many foreign investors including the ones having investments in China and also the ones planning to invest in China. The government is trying to dispel foreign investors’ anxiety and hesitance by emphasizing the said assurance in the Circular.

The Circular introduces a new pilot system of “single window, single form” for company registration and recordation of foreign invested enterprises. Under the current regime, the establishment and alteration of a foreign invested enterprise shall require application to both Ministry of Commerce or its local counterparties and the Administration for Industry and Commerce. Many of the requirements from these two departments are repetitive. The new system will allow the foreign invested enterprise to make one application at one venue to satisfy two departments’ requirements. The costs and time spent on red tapes will be saved significantly.

According to the Circular, mergers and acquisitions of domestic companies will be particularly encouraged, and foreign investments will be welcomed to participate in the “diversified ownership” restructuring of state-owned enterprises. Although it still remains silent on the details, the Circular sets the principle that the procedure will be simplified and limitations will be relaxed. Actually, the reform on the administration regime of mergers and acquisitions has been already initiated by the New FIE Rule which was promulgated last month. Pursuant to the New FIE Rule, acquisition by foreign investors of domestic companies not falling within the negative list will be subject to a relatively simple filing procedures only, while no approval by the government is required. Apart from this, we can also foresee that the Provisions on the Merger and Acquisition of Domestic Enterprises by Foreign Investors (a.k.a. Circular 10) will usher in a significant revisions soon.

In the end, the Circular stresses that local governments at various levels shall strictly observe their commitments to foreign investors in respect of the preferential treatments, and earnestly carry out various contracts signed with foreign investors in their promotion for investments. We have seen cases where local governments failed to abide by their promises after investments were made by foreign investors, and thus the preferential treatment policy is lack of stability and continuity. We are of the view that it largely attributes to the incompliance of the preferential treatments promised by local governments with laws or policies of the central government (e.g., tax regulations or land use right regulations). Therefore, on one hand the central government shall require local governments observe their commitments, on the other hand and more importantly, it shall adopt constant and effective supervision regime so as to make sure all preferential treatments promised by local governments are lawful and recognized by the central government.

It is interesting that the State Council also designates specific departments responsible for each of these measures in the Circular. For instance, the National Development and Reform Committee and the Ministry of Commerce are designated to be responsible for further expanding market access for foreign investors; the Ministry of Finance and the State Administration of Tax will be responsible for implementation of the financial and tax support policies. In the coming months, we will see a great number of specific regulations or policies to be issued by the responsible departments to implement the measures provided in the Circular.