Analysis of the Current Status and Investment Access for Foreign-Invested Enterprises

Introduction

Since the opening up to the outside world, the Chinese government has created a stable political environment, advanced infrastructure, innovative science and technology, rich human resources, and a continuously optimized business environment for foreign investment. A sound investment promotion service system and a complete open platform have been established, fulfilling major decisions and deployments such as further expanding opening-up and stabilizing the basic foreign trade and foreign investment.

According to the “14th Five-Year Plan for Utilizing Foreign Investment,” China will continue to adhere to a high level of opening-up. This article combines the new situation and requirements to provide a feasibility assessment of foreign investment in China from the perspectives of the current status of foreign investment and investment access.

Current Status of Foreign Investment

(1) Overall Situation of Foreign Investment in China

According to the “China Foreign Investment Statistical Bulletin (2022 Edition)” (hereinafter referred to as the “Bulletin 2022”), 47,647 new foreign-invested enterprises were established in 2021, a year-on-year increase of 23.5%. The actual use of foreign capital reached USD 180.96 billion, a year-on-year increase of 21.2%. According to the Ministry of Commerce’s foreign investment statistics from January to October 2022, the national actual use of foreign capital was USD 168.34 billion, a year-on-year increase of 14.4%. The 2022 “Foreign Direct Investment Confidence Index” report released by the American consulting firm Kearney shows that China’s foreign investment confidence index ranking rose from 12th in January 2021 to 10th in 2022.

Based on the principle of “increasing the total amount and optimizing the structure” of foreign investment, the “Catalogue of Industries Encouraging Foreign Investment (2022 Edition)” (hereinafter referred to as the “Catalogue 2022”) came into effect on January 1, 2023. It includes the national catalogue of industries encouraging foreign investment and the catalogue of advantageous industries for foreign investment in the central and western regions, totaling 1,474 items, an increase of 239 items compared to the 2020 version, and 167 items were modified. Among them, the national catalogue added 39 items and modified 85 items, while the central and western catalogue added 200 items and modified 82 items.

Notes:

According to the “China Foreign Investment Statistical Bulletin (2022 Edition),” the actual use of foreign capital refers to the actual execution amount of the contract amount, including the registered capital actually paid by foreign investors, operating funds, and the transaction price actually paid for the transfer of equity by domestic investors.
Specifics of the national catalogue of industries encouraging foreign investment: a total of 519 items, including 23 items in agriculture, forestry, animal husbandry, and fishery; 5 items in mining; 368 items in 24 categories of manufacturing; and 21 items in electricity, heat, gas, and water production and supply.

From the above data, it can be seen that the scale of foreign investment in China and the number of enterprises have achieved stable growth in the past two years. The overall environment for foreign investment in China is good. At the same time, China continues to optimize policies in terms of reform and opening up, industrial structure upgrading, and investment promotion, continuously enhancing foreign investors’ confidence in investing in China and continuously expanding the benefits of foreign investment.

(2) Encouraged Development Industries and Regions for Foreign Investment from Statistical Data

1. Overview of Encouraged Development Industries for Foreign Investment

According to the “Bulletin 2022” by the Ministry of Commerce, “In 2021, foreign direct investment was mainly concentrated in manufacturing, leasing and business services, real estate, scientific research and technical services, information transmission, software and information technology services, wholesale and retail, and finance. The number of new enterprises in these seven industries accounted for 86%, and the actual use of foreign capital accounted for 89.5%.”

Notes:

Transportation, warehousing, and postal services: 22 items
Wholesale and retail: 7 items
Information transmission, software, and technical services: 2 items
Leasing and business services: 12 items
Scientific research, development, and product/technical services: 35 items
Water conservancy, environment, and public facility management: 6 items
Education: 4 items
Health and social work: 8 items
Culture, tourism, sports, and entertainment: 6 items

The specific situation of the advantageous industries for foreign investment in the central and western regions: a total of 955 items, including 43 items in Shanxi, 37 items in Inner Mongolia, 34 items in Liaoning Province, 43 items in Jilin Province, 50 items in Heilongjiang Province, 43 items in Anhui Province, 40 items in Jiangxi Province, 39 items in Henan Province, 48 items in Hubei Province, 46 items in Hunan Province, 50 items in Guangxi Autonomous Region, 72 items in Hainan Province, 45 items in Chongqing Municipality, 63 items in Sichuan Province, 44 items in Guizhou Province, 47 items in Yunnan Province, 26 items in Tibet Autonomous Region, 41 items in Shaanxi Province, 34 items in Gansu Province, 30 items in Qinghai Province, 33 items in Ningxia Autonomous Region, and 47 items in Xinjiang Autonomous Region (including the Xinjiang Production and Construction Corps).

This overview provides insights into the encouraged development industries and regions for foreign investment, showcasing the diversity and potential for growth across various sectors and regions in China.

Introduction

Since the opening-up policy, the Chinese government has created a stable political environment, advanced infrastructure, innovative scientific technology, rich human resources, and a continuously optimized business environment for foreign investment. A sound investment promotion service system and a complete open platform have been established, fulfilling major decisions and deployments such as further expanding opening-up and stabilizing the basic foreign trade and foreign investment.

Current Status of Foreign Investment

(1) Overall Situation of Foreign Investment in China

Notes:

According to the “China Foreign Investment Statistical Bulletin (2022 Edition),” the actual use of foreign capital refers to the actual execution amount of the contract amount, including the registered capital actually paid by foreign investors, operating funds, and the transaction price actually paid for the transfer of equity by domestic investors.
Specifics of the national catalogue of industries encouraging foreign investment: a total of 519 items, including 23 items in agriculture, forestry, animal husbandry, and fishery; 5 items in mining; 368 items in 24 categories of manufacturing; and 21 items in electricity, heat, gas, and water production and supply.

(2) Encouraged Development Industries and Regions for Foreign Investment from Statistical Data

1. Overview of Encouraged Development Industries for Foreign Investment

Notes:

Transportation, warehousing, and postal services: 22 items
Wholesale and retail: 7 items
Information transmission, software, and technical services: 2 items
Leasing and business services: 12 items
Scientific research, development, and product/technical services: 35 items
Water conservancy, environment, and public facility management: 6 items
Education: 4 items
Health and social work: 8 items
Culture, tourism, sports, and entertainment: 6 items

Encouraged Development Fields and Regional Overview of Foreign Investment

1. Encouraged Development Fields for Foreign Investment

According to the Ministry of Commerce’s “China Foreign Investment Report (2022 Edition)” (hereinafter referred to as the “Report 2022”), in recent years, due to factors such as the upgrading of China’s industrial structure and the accelerated development of the manufacturing service industry, foreign investment in China has increasingly flowed into the service industry. Among them, the top five industries in terms of actual use of foreign capital in the service sector are leasing and business services, real estate, scientific research and technical services, information transmission, software and information technology services, and wholesale and retail. According to the Ministry of Commerce’s foreign investment statistics from January to October 2022, the actual use of foreign capital in the service sector was RMB 798.84 billion, an increase of 4.8%. The actual use of foreign capital in high-tech industries increased by 31.7%, including a 57.2% increase in high-tech manufacturing and a 25% increase in high-tech services.

According to the “Catalogue 2022” national section, the country still encourages foreign investment in manufacturing, with the highest proportion of items in the manufacturing sector. New or expanded items related to components, parts, and equipment manufacturing have been added. The focus of the revisions was to promote the integration of the service and manufacturing industries, with new or expanded items related to professional design, technical services, and development.

On October 13, 2022, the National Development and Reform Commission and other departments issued a notice on several policy measures to promote foreign investment focusing on manufacturing, stabilize existing investment, and improve the quality of investment. The third section, “Guiding Investment Direction and Improving the Quality of Foreign Investment,” mentions:

In terms of advanced manufacturing and high technology, foreign investment is encouraged in high-end equipment, basic components, and key parts.
In terms of modern services, foreign investment is encouraged in R&D design and modern logistics.
In terms of energy conservation and environmental protection, foreign investment is encouraged in new energy, green low-carbon key technology innovation, and demonstration applications.

From the above information, it can be seen that foreign investment in advanced manufacturing, modern services, high technology, and energy conservation and environmental protection has more advantages.

2. Overview of Encouraged Development Regions for Foreign Investment

According to the Ministry of Commerce’s “Bulletin 2022,” the regional distribution of foreign investment is as follows: “In 2021, the proportion of new foreign-invested enterprises in the eastern, central, and western regions was 88.3%, 5.7%, and 5.9%, respectively.” The distribution of foreign investment by province shows that “In 2021, the top ten provinces in terms of the number of new foreign-invested enterprises were Guangdong, Shanghai, Jiangsu, Zhejiang, Shandong, Fujian, Hainan, Beijing, Sichuan, and Tianjin, accounting for 88% of the national total.”

The notice on several policy measures to promote foreign investment focusing on manufacturing, stabilize existing investment, and improve the quality of investment also mentions policy support for basic manufacturing, applicable technology, and consumer goods in the central and western regions and the northeast.

Therefore, it can be seen that foreign investment in China is currently concentrated in the eastern region, with a good development trend in the central region under policy guidance, and great development potential in the western and northeastern regions.

Preferential Policies for Encouraged Development Fields of Foreign Investment

According to the General Administration of Customs’ announcement on the implementation of the “Catalogue 2022” and the Ministry of Commerce’s “China Foreign Investment Guide (2022),” the fields in the “Catalogue 2022” can mainly enjoy three preferential policies:

Within the investment total, imported self-use equipment and technology, accessories, and spare parts imported with the aforementioned equipment under the contract are exempt from customs duties, except for products specified by the state as not exempt from tax, and are subject to import value-added tax according to regulations.
Foreign-invested enterprises investing in encouraged fields in the western region can enjoy a reduced enterprise income tax rate of 15%.
For encouraged foreign-invested manufacturing projects with intensive land use, land will be given priority, and the land transfer reserve price can be determined according to no less than

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Yu Zhou

PARTNER