China’s State Council issued “Opinions” about inward investment in mid-April 2010. Opinions are a form of guidance document that signals to central, provincial and local government officials the general direction the central government wishes them to follow. While not having the force of law as understood in the USA, the Opinions issued in mid-April are important to US investors looking to increase or start operations in China. They set a tone and direction. The guidance was issued in a context of Google’s withdrawing from China (to Hong Kong, considered a foreign country by China while being part of China), Rio Tinto criminal headlines and other publicity that cast a cloud and raised questions about how open China is to foreign investment.

The Opinions represent a means of reassuring global investors that China very much wants continued inward investment (few countries do not), but also that China is not ambivalent about the type of investment being made by foreigners. The Opinions have a combination of flashing green, yellow and red lights, depending on what a foreign investor hopes to achieve.

A red flashing light is for projects that are “high-polluting, high-energy-consuming and resource-dependent” or that require low-level and excessive production capacity. This is an indication that China may refuse investments at the formation stage if they fall into these categories. Already manufacturing investors understand that environmental assessments are done up-front at the time of company formation, unlike in the USA, where a company is easily and readily formed, and after formation the company must comply with pollution, energy and other rules in place for companies generally.

Yellow lights are showing for certain financial companies. This is a major step forward (see my post of April 27, 2010). The Opinions seem to welcome foreign investment by means other than simply start-up, and encourage investment through reorganization, merger and acquisition of domestic enterprises. There is much work to be done in this area to make such opportunities practically efficient and possible for foreign investors. The door is open a crack for steps to allow certain foreign companies to raise capital within China, and for private equity funds to be more multinational.

The green light is on for higher-end technology investments, service industries, environmental protection businesses and other “up-the-chain” enterprises. And encouragement is given to attract foreign investment to western and central China.

For an excellent review of the Opinions, click on this link – http://www.junhe.com/marketing/201005/Corporate&Investment-20100429.pdf