China: General Analysis on Several Opinions of the State Council on Further Utilizing Foreign Capital

Description

 On April 6, 2010, the State Council issued the Several Opinions of the State Council on Further Utilizing Foreign Capital("Opinions" ,Guo Fa [2010] No. 9). The Opinions refer to the five matters as follows:

A.      General Introduction of Opinions
1.         Optimizing the structure of utilizing foreign capital
l The Catalogue for the Guidance of Foreign Investment Industries (CGFII) will be sixthly revised to expand the open areas and encourage foreign capital to high-end manufacturing, high and new technology industry, modern service industry, new energy and energy-saving and environmental protection industry
l "High-polluting, high-energy-consuming and resource-dependent" and low-level and overcapacity expansion projects will be strictly restricted.
l Qualified foreign-invested enterprises shall be simultaneously subject to the policies and measures in the national industrial restructuring and revitalization plan.
l The priority of land use shall be given to the national encourage foreign-invested intense land use projects, which shall be executed based on no less than 70% of the corresponding land as prescribed in the National Standards for the Minimum Transfer Prices of Land for Industrial Purposes after confirming the minimum price.
l Foreign investment in hi-tech enterprises shall be encouraged and hi-tech enterprise recognition improved and perfected.
l Domestic and foreign enterprises shall be encouraged to strengthened R&D cooperation and qualified foreign-invested enterprises supported to cooperate with domestic enterprises and research institutes to apply for the national scientific development projects and innovation capability construction projects and the recognition of the establishment of the national technical center.
l Transnational companies shall be encouraged to set up such functional institutes as regional headquarters, R&D centers, purchase centers, finance management centers, settlement center and cost and profit calculation centers within China. No tariffs and value-added tax and consumption tax of import shall be levied on the products for scientific development use indeed needed by qualified foreign-funded R&D centers prior to December 31, 2010.
l Supporting policies shall be implemented and perfected to encourage foreign investment in the service outsourcing industry so as to bring in advanced technologies and management experience to raise the international competitiveness of China’s service outsourcing industry.
2.         Guiding foreign capital to central and west China and increase of investment
l In accordance with the amendment of the CGFII in the future, the Catalogue of Priority Industries for Foreign Investment in the Central-Western Region shall be supplemented to add the items of labor-intense projects and encourage foreign businessmen to develop the labor-intense industries qualified for environmental protection in the central and western region.
l The preferential policies of enterprise income tax shall be continuously subject to qualified domestic and foreign-invested enterprises in the central and west China to maintain the good momentum of growth in attracting foreign investment in the region.
l The shift of foreign-invested enterprises in the east to the central-western region shall be strengthened the support in policy opening and supporting technologies and funds, and simultaneously, administrative services perfected to provide facility in handling such procedures as industry and commerce, taxation, foreign exchange and social insurance and encourage and guide foreign-funded banks to set up branches and conduct business in the central and west China.
l The east and the central-western region shall be encouraged to be market-oriented to jointly construct development zones in the principle of complementing advantages each other, industrial combination and jointly sharing profits in the forms of mandatory management and investment cooperation.
3.         Promoting diversification of utilizing foreign capital
l Foreign capital shall be encouraged to participate in the restructuring and merger of domestic enterprises by means of equity participation and acquisition, A-share listed companies supported to bring in domestic and overseas strategic investors, regulations shall be made for foreign capital participating in domestic securities investment and acquisition and antitrust scrutiny executed according to law and the establishment of the system of foreign capital merger and acquisition security scrutiny sped up.
l Qualified enterprises shall be continuously supported to utilize overseas capital market to be listed in overseas market and make full use of two markets and two kinds of resources to constantly raise competitiveness in accordance with the national development strategy and self-development.
l The pilot project in utilizing foreign capital to set up the minor enterprises guarantee companies shall be advanced and foreign businessmen encouraged to invest to set up investment enterprises, private equity and investment funds proactively utilized and exit mechanism perfected.
l Qualified foreign-invested enterprises shall be bolstered to publicly issue stocks, corporate bonds and medium-term notes within China to widen financing channel and financial institutes guided to continuously strengthen support of credit loan for foreign-invested enterprises. The scale of overseas subjects issuing Renminbi within China shall be steadily expanded.
4.         Deepening the reform of the foreign investment management system
l The projects of encouragement and permission in the CGFII with the total investment (inclusive of increase of capital) below USD300m shall be approved by local governments except those approved by relevant departments under the State Council as prescribed in the Catalogue of Investment Projects Approved by the Government. Relevant departments under the State Council may authorize the local government to approve their responsible items under the premise of strengthening supervision except that laws and regulations specifically provide the projects shall be approved by relevant department under the State Council. The establishment of foreign-invested enterprises in the service area (exclusive of finance and telecommunication service) shall be approved by local government according to relevant provisions.
l Approval contents shall be adjusted and approval procedures shall be simplified to narrow the approval and check scale to the maximum and strengthen the transparency of approval. Full clearance of approval items related to foreign investment shall be made to shorten the time of approval, improve the approval mode, gradually conduct the format approval of contract and article of association of foreign-invested enterprises across the country on the basis of conducting pilot program and summing up experience and strongly promote online administrative licensing and regulate administrative acts.
5.         Creating a good investment environment
l Development zone development shall be regulated and promoted to exert the carrier and platform role of development zones in institutional innovation, scientific leading, industrial cluster and land consolidation. Qualified provincial development zones shall be supported to upgrade and qualified national and provincial development zones supported to expand districts and adjust the locations of districts, with the policies and measures to speeding up the construction of border economic cooperation zones to formulate.
l Foreign exchange management of foreign-invested enterprises shall be further perfected and the procedures of foreign exchange capital settlement for foreign-invested enterprises simplified. The foreign-invested enterprises operating by law but temporarily failing to make contribution on time for lack of capital shall be allowed to extend the deadline of contribution.
l Investment promotion shall be intensified to strengthen the promotion and introduction to key countries, regions and industries to publicize Chinese policies of utilizing foreign capital and positively participate in multilateral investment cooperation to combine “absorb foreign capital” and “expand export” to boost the constant improvement of cross-border investment policy environment.
B.      Comments
1.       Just Principal Policy but with some detailed provisions , further detailed measures needed
The Opinions are just general policy stated by the State Council, but there are do some detailed provisions in theOpinions, such as:
l  the priority of land use shall be given to the national encourage foreign-invested intense land use projects, which shall be executed based on no less than 70% of the corresponding land as prescribed in the National Standards for the Minimum Transfer Prices of Land for Industrial Purposes after confirming the minimum price.
l  no tariffs and value-added tax and consumption tax of import shall be levied on the products for scientific development use indeed needed by qualified foreign-funded R&D centers prior to December 31, 2010.
However, most of these provisions are just too general for implementation. We can anticipate that in the near future government departments may enact detailed measures in accordance with the spirit of the Opinions. This is very common under China legal system, the State Council provides a general outline for some a issue, then government departments in charging with the said issue may enact detailed measures for application.
2.       Foreign Investment still welcomed but may under new regulations in the near future
The Opinions reflect fundamental position to welcome foreign investment and adjustment for utilizing foreign investment. Also these Opinions reflect the attraction of foreign capital without any differentiation policy held by Chinese government is changed to the selective utilization mode in the near future.
After a period of over 30 years’ economic development with high rate, foreign investments play an more and more important role in China economy. Foreign investments are always welcomed and enjoy super national treatment with more preference comparing with some national companies in some areas. The Opinions may represent that Chinese government will adopt more specific measures to regulate foreign investment with selective utilization mode.

Source:

The State Council, Several Opinions of the State Council on Further Utilizing Foreign Capital ("Opinions" ,Guo Fa [2010] No. 9)

Government Response: