According to the National Bureau of Statistics, China experienced a 6.3% growth in GDP during the second quarter of 2023, albeit starting from a relatively low point. Nevertheless, when comparing this growth to the first quarter, the increase in China’s GDP from April to June was merely 0.8%, a significant drop from the 2.2% quarter-on-quarter growth observed in Q1. In terms of foreign direct investment (FDI), China received a total of USD 84.35 billion from January to May 2023, marking a 5.6% decline compared to the previous year. Moreover, FDI in the first half of 2023 decreased by 2.7%.
In the second half year of 2023, net FDI in the Chinese mainland tumbled to its lowest quarterly level in over two decades in the three months through June, buffeted by overseas companies’ supply chain concerns and geopolitical tensions. According to preliminary data released by SAFE in early August, China’s net FDI totaled USD 4.9 billion, down 87% year-on-year and 76% quarter-on-quarter. That is the lowest reading since the data series began in 1998.
To attract foreign investment and bolster confidence, on August 13, 2023, the State Council released the Opinions to Further Optimize the Environment for Foreign Investment and Increased Efforts to Attract Foreign Investment (“Opinions”). The Opinions include 24 policy measures in six aspects, including lifting the quality of using foreign investment, ensuring equal treatment of domestic and foreign businesses, and increasing financial and tax support in a bid to enhance the business environment for foreign investors and boost foreign investor confidence amid an economic slowdown, bleak foreign investment outlook, and more challenging international trade environment.
Improving the quality of foreign capital utilization.
According to the Opinions, there will be a push to attract foreign investors to establish research and development (R&D) centres within China, where they can undertake significant scientific research initiatives. Additionally, the government intends to expedite the execution of foreign-backed biomedicine projects. This includes encouraging foreign companies to conduct clinical trials of cell and gene therapy drugs already available in overseas markets within China. Furthermore, there will be a streamlining of the registration process for drugs that have previously been marketed abroad and will now be manufactured in China. The government also plans to expand the number of cities with certain value-added telecommunications services open to foreign investment through pilot programs.
Foreign investors are also encouraged to collaborate with vocational education and training institutions in advanced manufacturing, modern services, and the digital economy to contribute to vocational education and training efforts. Special working mechanisms will be established for major and essential foreign investment projects to provide policy support and services to facilitate their swift implementation.
The emphasis on R&D aligns with China’s broader goals of increasing self-sufficiency and overcoming trade restrictions on exporting advanced technology products, particularly those imposed by the United States and other countries.
The Opinion will also support the industrial gradient transfer of foreign-invested enterprises. Relying on various types of open platforms, such as pilot free trade zones, state-level new zones, and state-level development zones, eastern regions are encouraged to explore collaboration on industrial transfer in pairs with central and western areas, as well as with northeastern and border regions, through mechanisms for the sharing of production values and benefits. Foreign-invested enterprises undergoing an overall gradient transfer within China will be supervised by the customs credit rating obtained in the region of origin.
In October 2022, the National Development and Reform Commission (NDRC) and the Ministry of Commerce (MOFCOM) released the Catalogue of Encouraged Industries for Foreign Investment (2022 Version), which came into force on January 1, 2023. 239 new items were added to the Catalogue to encourage foreign investment in advanced manufacturing, modern services, high technology, and the green economy, especially in the country’s less developed regions. Foreign-invested enterprises investing in industries listed in the Catalogue for the Guidance of Foreign-invested Industries are entitled to preferential policies from local governments.
Guaranteeing national treatment for foreign-invested enterprises.
The Opinions pledge to provide foreign-invested companies with equal treatment on a national level about government procurement, involvement in setting industry standards, and supportive policies. Concerning equal treatment in government procurement, they plan to swiftly introduce new policies and measures to clarify further the criteria for defining “production in China.” They will also speed up amending the Government Procurement Law and conduct special inspections to ensure foreign businesses have fair access to government procurement opportunities. Unless explicitly stated in laws and regulations (or for reasons related to national security), foreign-invested enterprises and their products and services will not face exclusion or discrimination based on factors such as their foreign branding. The government will continue to enhance safeguards for foreign investments and the protection of intellectual property rights while improving administrative enforcement. Simultaneously, efforts will be made to reduce bureaucracy, for instance, by potentially decreasing regulatory inspections for foreign-invested companies with low credit risk and streamlining assessments conducted by various regulatory authorities.
Increase financial and tax support.
The Opinion encourages foreign-invested enterprises to reinvest within the country. It implements the policy of not imposing withholding income tax on reinvestment of profits made by foreign investors within the country.
The Opinion also drives the implementation of tax incentives for foreign-invested enterprises. Provide counselling and assistance to foreign individuals to enjoy preferential policies on tax exemptions for housing subsidies, language training fees, children’s education fees and other allowances by relevant state regulations. Guide to help foreign-funded R&D centres enjoy the import tax policy for supporting scientific and technological innovation and the VAT refund policy for purchasing domestically produced equipment following relevant state regulations.
The overall trend of foreign-funded enterprises expanding investment in China remains unchanged.
On 18 August, Starbucks announced the establishment of a Starbucks Innovation and Technology Centre (SITC) in Shenzhen, Guangdong, with an initial investment of about CNY1.5 billion (USD 205.7 million) to enhance its technology capabilities and data infrastructure to drive the digitalization of its shops and other channels. According to the Chairman and CEO of Starbucks China, the Starbucks China Innovation and Technology Centre will help it digitally innovate and create new experiences with coffee and people by constantly challenging itself through big data, insight analytics, and other technologies. The latest technological inspiration and innovative solutions will enhance Starbucks China’s unique competitive advantage and contribute to the high-quality development of China’s boutique coffee and retail industries.
This year, the Starbucks China Coffee Innovation Industrial Park in Kunshan, Jiangsu, will open soon.
In the first seven months of this year, the total import and export value of AstraZeneca’s manufacturing and supply base in Jiangsu exceeded US$2.65 billion, an increase of more than 26 percent year-on-year. With its enormous market and resilient supply chain, China has become AstraZeneca’s second-largest global market and an essential engine for future growth. Wang Lei, AstraZeneca’s global executive vice president, said the Opinion proposes to “accelerate the landing and commissioning of foreign-invested projects in the field of biomedicine”, which undoubtedly brings more positive signals to enterprises. AstraZeneca has seized the opportunity of the policy to reach several co-operation agreements, one after another, in Wuxi, Jiangsu Province, Taizhou and Qingdao, Shandong Province, to increase the investment and layout of production and supply in China.
In the long run, China’s competitive advantage in the global arena remains evident, given its outstanding advantage in the economy’s mega-market, its large number of innovative application scenarios, and its abundant resources of highly qualified personnel. China’s strengthened openness and cooperation and its interaction with the global economy will help to enhance the efficiency and level of its domestic economic operation and form a closer and more stable international economic circulation system.
Sources:
- People’s Daily: Optimizing the Foreign Investment Environment, Increasing Investment Attraction Efforts – 24 Practical Measures to Enhance Foreign Investment Confidence
- National Bureau of Statistics
- National Development and Reform Commission: Industrial Catalogues for encouraged foreign investments
Contact our teams for expert support and further information about China’s economy.
Russel Brown OBE, Vice Chairman, Partner, r.brown@acclime.com
Robin Tabbers, Partner, r.tabbers@acclime.com
Maxime Van ‘t Klooster, Partner, m.vantklooster@acclime.com
