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China acts to encourage and support foreign investment as it recovers from COVID-19

China acts to encourage and support foreign investment

China is taking a number of steps to maintain, support and encourage inward investment into the country in the wake of the coronavirus crisis.

Due to the outbreak of the pandemic, 2020 got off to a bad start, as the combined value of China’s imports and exports of goods fell by 9.6% in February compared with the same period last year, and the country also experienced a trade deficit of CNY42.59bn over the first two months.

The setbacks caused by the virus followed what had been a milestone year for the country’s inward investment policies. In March 2019 the National People’s Congress of China passed the Foreign Investment Law which came into effect on 1 January 2020 and is the cornerstone of China’s foreign investment legislation.

And last October, the State Council published a document looking at the best way to encourage foreign investment, producing 20 proposals covering four key areas: opening up the market, encouraging investment, making it easy to invest, and protecting investment from overseas.

Countering coronavirus

To counteract the impact of the pandemic on investment in China, on 19 March 2020, the Chinese Ministry of Commerce began public consultations on further revising and expanding the list of industries eligible for foreign investment and to establish preferential policies to actively promote the growth of long-term and stable investment.

The new policies will focus on the development of high-quality manufacturing, agriculture and service industries to increase industrial potential in the central, west and north eastern areas of China, which need upgrading when compared to the east of the country.

Guangzhou Xin Zhong Nan CPA, a Nexia International member firm in China, says this will have the greatest impact on service industries – making China’s medical treatment, pensions, finance, transportation, logistics, tourism, education and training, and telecommunications sectors, among others, more open to foreign investors.

“This will bring more client enquiries and business opportunities for accounting and consulting firms in China like us,” Xin Zhong Nan says.

“Another interesting point is that of the manufacturing industries now eligible for foreign investment, 80% are involved in high-end, intelligent or green-related manufacturing. We really look forward to these high-tech industries developing prosperously in China and believe our country’s friendly investment environment and huge market will be a win-win for overseas investors.”

Emerging industries

Eva Tian, tax partner of fellow Nexia International member, Chung Rui Tax Group, is also very positive about the future of foreign investment performance in Shanghai as the coronavirus crisis subsides, judging by recent activities.

 “The 14-day quarantine has been relaxed in stages and now most people have resumed work by wearing a mask and government at all levels is providing extra support to foreign enterprises to help production resume.”

Eva Tian, tax partner of fellow Nexia International member, Chung Rui Tax Group 2
Eva Tian, tax partner of fellow Nexia International member, Chung Rui Tax Group

She says: “We’ve been seeing foreign investment going into emerging industries. For example, in January 2020, Allianz Group stablished Allianz (China) Insurance holding Co. Ltd as China’s first wholly foreign-funded insurance holding company.

“Retail giant Costco, the largest membership-only warehouse supermarket chain in the US, will be expanding its presence in Shanghai by opening its second store at the end of this year or early 2021, an indication of the promising prospects for commerce and trade in Shanghai.”

“In Shanghai, Guangzhou, Jiangsu and Jiangxi many foreign-funded projects were launched using ‘online contract signings’. Moreover, local government has introduced preferential tax, financing and rent-reduction policies for all enterprises – including foreign-invested entities.”

Confidence

While COVID-19 has been harmful to some areas of the Chinese economy including catering, tourism and retail, it has had little or no impact on others like online education, training and insurance, she asserts.

After all this policy revision, China’s high-end manufacturing and service industries will be more open to foreign investment, with preferential policies aimed at benefiting businesses in central, western and north-eastern China, rather than the east of the country.

Xin Zhong Nan concludes: “With the government financially supporting the resumption of business across the country, investors will no doubt feel encouraged and confident.

“However, it should also be noted that, given the context of the current global epidemic, it is likely that any new investments will be relatively conservative in the short term. We look forward to seeing the outcomes of the new policies with interest.”

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