Key Points:

  • The Catalogue for the Guidance of Foreign Investment Industries will be amended to support specified industries
  • Various incentives in terms of tax exemptions, land use rights and preferential tax rate are available for eligible foreign-invested enterprises
  • Local government authorities are granted more powers to verify or approve foreigninvested projects
  • Antimonopoly review and national security review related to acquisitions will be strengthened  

In recognition of the concern among non-China-based companies that it has become increasingly difficult to conduct business in China, the State Council of the People’s Republic of China issued the Opinions on Further Improving the Utilization of Foreign Investment (the Opinions) on April 13, 2010. The Opinions reflect the government’s determination to continue to create a favorable environment for foreign investment.

According to the Opinions, China will amend the Catalogue for the Guidance of Foreign Investment Industries (the Catalogue) with the aim of encouraging foreign investment in the advanced manufacturing, high- and new-technology, tertiary, new-energy and environmentally friendly industries, and to curb investment in sectors suffering overcapacity or causing pollution. In particular, the Opinions specify that policies will be developed to encourage foreign investment in the service outsourcing industry. In addition, as a part of China’s development campaign for the middle and western regions of the country, foreign investment in certain labor-intensive industries in those areas will be encouraged provided that the investment complies with environmental protection requirements.

Qualified foreign-invested research and development centers in China will enjoy tax exemption including import duty, import value-added tax and consumption tax for commodities imported for research and development until December 31, 2010. The Opinions also offer land use incentives to foreign-invested projects with intensive land use in the encouraged categories of the Catalogue. Specifically, a qualified foreign-invested project may obtain the usage rights to a piece of land at a price of 30 percent less than the applicable statutory bottom price. The Opinions also provide that preferential corporate income tax policies shall be continuously applicable to eligible domestic and foreign-invested enterprises in the western region of China.

The encouragement of foreign investment is also reflected in the State Council’s decision to authorize government authorities at the local level to approve or verify a foreigninvested project in the Catalogue’s encouraged or permitted categories with a total investment amount of less than US$300 million, except for those projects that must be verified by the State Council according to the “list of investment projects with government approval.” Prior to the issuance of the Opinions, local government authorities were allowed to approve a foreign-invested project with a total investment amount of less than US$100 million. In addition, the Opinions require government authorities to simplify the examination procedures and shorten the timeline for project review and approval.

The Opinions provide that China’s government will encourage foreign investors to recapitalize domestic enterprises, support qualified foreign-invested enterprises (FIEs) in issuing securities in China’s capital market and guide financial institutions in providing credit support to FIEs. The Opinions also encourage foreign investors to establish venture capital companies in China, which reflects a favorable attitude towards private equity funds. Moreover, the number of qualified overseas institutions authorized to issue RMB bonds will be steadily increased, according to the Opinions.

On the other hand, along with efforts to encourage foreign companies’ acquisition of Chinabased companies, China will continue to conduct antimonopoly reviews and develop the legal system for national security review related to acquisitions, which may signal strengthened supervision of acquisitions and, consequently, increase the risks faced by foreign investors.