With China now emerging from the coronavirus crisis and ‘open for business‘, the government is taking renewed steps to support, encourage and boost inward investment.
In fact, China was already in the process of passing new legislation and drafting regulations to encourage more inward investment when the virus struck. Its new Foreign Investment Law, passed in 2019, came into effect on January 1 this year, effectively laying down the legal cornerstone on which its FDI policies and strategy are based.
Also in 2019, the State Council published a document looking at the best ways to proactively encourage FDI, including 20 proposals for opening up the Chinese market to make it easier to invest in the country, while reducing potential risk.
But progress in ramping up FDI understandably stalled once the coronavirus outbreak really began to gather pace in January and February and, naturally, the country focused on containing the pandemic.
Nonetheless, the state was looking to the long-term resumption of the economy. As early as March the Chinese ministry of Commerce began consultations on revising and expanding the list of industries eligible for foreign investment and started to establish policies to actively promote the growth of long-term and stable inward investment.
In April, Shanghai announced 24 proposals of its own for encouraging FDI, through a series of reforms designed to create a favourable business environment. In Shanghai, and the provinces of Guangzhou, Jiangsu and Jiangxi, many foreign-funded projects were launched through online contract signings.
Moreover, local governments across the country have introduced preferential tax, financing and rent-reduction policies for all enterprises, including foreign-invested entities.
Many of these new policies are intended to inject foreign investment into high-quality manufacturing, agriculture, technology, logistics and warehousing, and service industries to increase industrial potential in the central, west and north eastern areas of China that lag behind the east of the country in terms of investment.
Importantly, 80% of the manufacturing industries now eligible for foreign investment are high-end, focusing on technology and sustainability, so we can expect to see these high-tech industries develop significantly through FDI.
I would also expect Chinese service industries to benefit strongly from these new policies, with the healthcare, pensions, finance, transportation, logistics, tourism, education and training and telecommunications sectors more open to foreign investors.
Indeed, foreign investment is already reaching emerging industries. For example, in January Allianz Group established Allianz (China) Insurance as China’s first wholly foreign-funded insurance holding company, while retail giant Costco, the largest membership-only warehouse supermarket chain in the US, will expand its presence in Shanghai by opening its second store at the end of this year or early 2021.
Of course, the pandemic is still impacting the economies of countries where potential FDI might come from, so it’s likely any new foreign investment will be fairly conservative in the short term.
Will China’s strategy pay off in the longer term? Most probably yes, given China’s huge market and the significant efforts it’s making to create an increasingly friendly investment environment in the post-pandemic world.
It seems highly likely these reforms will restore overseas investors’ confidence and drive a resurgence of FDI, possibly at even higher levels than before.
Eva Tian is a Shanghai-based partner with the Chung Rui Tax Group, a member of Nexia International.