In its latest bid to offset its slowing GDP by attracting inward FDI, the Chinese government has announced a new policy – its "notice on further improving and adjusting foreign exchange control policy for direct investment" – that will simplify the foreign exchange administration process for foreign companies. The new registration-based foreign exchange system will streamline the approval process for foreign enterprises establishing operations in China. According to Henry Tan, the director of consulting firm Nexia China, which is part of Nexia International, it could boost FDI into China’s domestic market.
A primary benefit of the new scheme, which took effect in mid-December 2012, is that no approval certification will need to be issued, and once a foreign company registers with the State Administration of Foreign Exchange (SAFE), it can go to a bank, which will handle the remaining procedures.
“Previously, a foreign invested enterprise [FIE] had apply to the local SAFE branch for the approval of a transaction, and it could wait for up to 30 days for an approval certificate,” said Mr Tan. “[Although] the FIE will still have to provide SAFE with the same documentation that was required under the old system, the approval step has been eliminated, so the process is quicker. The nature of FDI is changing and FIEs are now focusing on participating in China’s growing consumer market. So this is one of many steps that China is taking to encourage FDI.”
The scheme, which is also known as Notice 59, has reduced the number of special foreign exchange accounts required by the government and quotas for crossborder cash flow for FIEs will be set through the same registration process, for bank approval and processing.
“The old system was basically a paper trail system,” said Mr Tan. “[The FIE] had to submit paper documents to the SAFE authorities, and then they had to go to the bank and at times, even they had to go to Beijing for some documents. In China, you must first secure your location and you start paying rent, so by the time you get your business approved, that [process] creates a lot of debt. With the new system everything will be put online, in the SAFE direct investment foreign exchange information system.”
China’s economic growth has been losing steam in 2013, and recent the government estimate of 7% growth in 2013 is a marked departure from the double-digit growth that the country has achieved over the past decade. In addition, FDI into the country has been waning. Greenfield investment monitor fDi Markets found that the value of projects into the country reduced from a peak of $130bn in 2008 to $73bn in 2012.
According to Mr Tan, the country’s slowing GDP is a positive sign of economic maturity. “China’s economy is maturing – the previous double-digit growth was not sustainable, and the global economic crisis in some ways helped China to adjust its model to be more sustainable in the long term,” said Mr Tan.
“Notice 59 is one of many steps that China is taking to continue its encouragement of FDI, especially in the services and financial industries. Now that [the government is] talking of a domestic, consumer-based industry, we now see clients coming to China for its market. This move is in line with China’s own intention of increasing its domestic rather than export businesses.”