China will maintain its fundamental rules on FDI, despite an announcement from the country’s State Council that changes were under way.

Called the Opinion on Taking Additional Steps in the Work to Improving the Utilization of Foreign Investment, the council’s announcement is more a statement of general principles and a declaration that the country will maintain the rules that have been in place since 2006.

There does, however, appear to be more emphasis and interest in cleaner technology and energy as well as in improving governance and transparency. The council also appears to be encouraging investment in central and western China through tax breaks and other fiscal incentives.

The announcement stated that investment in high-tech industries, service sectors, energy-saving and environmental protection would be encouraged.

More progress was promised on governance by the eventual standardisation of foreign mergers and acquisitions as well as foreign investment in Chinese securities. This will include the creation of a ‘security examination mechanism’ to oversee these investments.

Despite this, details on how both greener investment and better governance would actually be achieved were nowhere to be found. There were some rumblings on giving preference to investment in these companies and possibly some discounts on land rights. However, the council mainly gave vague statements about encouraging more environmentally friendly investment, such as saying investment in companies that wasted energy and caused too much pollution was “not wanted”.

Similarly, there was scant information available on how the security examination mechanism would work or when it might be put to use.

Yet perhaps the most interesting development for foreign investors was the inclusion of proposals to expand significantly the number of investment vehicles available to foreigners.

For one, the council will encourage the creation of venture capital companies that use foreign funds and investment.

The council will also continue to support Chinese A-share listed companies in finding them both foreign and domestic investors, and allow foreign investment into credit guarantee companies.

Alongside this, exit options for private equity investment funds will be improved. During the financial crisis, several investors could not get out of certain private equity and hedge funds until it was too late. While most of this happened in Europe and North America, it has become a much more important issue for investors.

Spencer Anderson