In response to complaints from several Western nations, China recently announced new policies to ease regulatory burdens and encourage foreign investment.

China's State Council issued "Several Opinions on Further Improving the Work of Foreign Capital Utilization." The Opinions propose several changes to the current foreign investment system, most notably:

  • Approval processes will be shorter.
  • Time extensions will be available for meeting capital contribution requirements.
  • Venture capital funds and private equity funds will be encouraged.
  • China's stock exchanges will allow listing of certain foreign-owned companies.
  • Real estate tax and other incentives will become available for certain projects.
  • The list of industries open to foreign investment will be expanded.

The approval process for foreign invested enterprises (FIE) will become shorter and more streamlined by raising the dollar size of FIE projects which provincial or local government branches of the Ministry of Foreign Commerce (MOFCOM) are authorized to approve. FIEs may also obtain time extensions for meeting capital contribution requirements in the event that they encounter funding difficulties.

The Opinions also offer improved access to and avenues for use of capital in China. Foreign investors are encouraged to establish venture capital and private equity funds in China, and better exit strategies for those investments will become available. Qualified FIEs will be permitted to list on the domestic stock exchanges and to issue RMB-denominated corporate bonds in China. Also, certain tax, real estate and other investment incentives will be made available to foreign investors which invest in China's less developed Central and Western regions.

Finally, the Opinions require amendment to the Catalogue of Foreign Investment Industries. The Opinions create a directive to expand the list of industries open to foreign investment under the Catalogue; however, the new industries will be limited to those which most benefit China's domestic development, such as high-end manufacturing, high technology, modern services, alternative energy and energy efficiency businesses.

Liu Yajun, Director General of the Ministry of Commerce's Foreign Investment Department, announced in mid-September that the Catalogue is currently being revised and that changes will be forthcoming. However, Director General Liu emphasized that while China welcomes foreign investment, that investment must be beneficial to China's economic growth and be sustainable.

The Opinions, together with Director General Liu's comments, make clear that China wishes to remain a sought-after destination for foreign investment. However, China intends to channel those investments to the industries which are most beneficial to its economic development, rather than provide a wholesale easing of investment restrictions. How the Chinese government walks this policy tightrope remains to be seen, but changes to the foreign investment landscape are on the horizon and promise to offer at least limited improvements in the coming months.