China’s State Council Pledges to Improve Business Environment
Attempting to Attract Foreign Firms in High-Tech and Encourage R&D
In an effort to attract more foreign direct investment (FDI), on China’s State Council last month issued a series of measures designed to improve China’s business environment for foreign firms.
According to a report from the US-China Economic and Security Review Commission, the benefit of the reforms to foreign firms will hinge heavily on implementation by other authorities.
Many of the measures are designed to attract foreign firms in high-tech sectors and to encourage foreign firms to conduct research and development in China. Measures such as improving China’s visa process may complement other efforts the Chinese government has made to attract foreign talent, including relaxing Chinese residency rules for foreign students and researchers.
The State Council’s measures also appear to be aimed at addressing growing concerns among foreign businesses regarding China’s worsening investment environment. In the American Chamber of Commerce in China’s 2016 business climate survey, 81 percent of surveyed US businesses stated they felt less welcome in China in 2016 than in 2015, and only 24 percent felt China’s overall business environment is improving. Declining FDI inflows bear out these negative perceptions: according to China’s Ministry of Commerce, foreign investment in China was down 1.2 percent year-on-year in the first half of 2017.
Under the new measures, China would allow foreign investment in new energy vehicles, ship design, and aircraft maintenance. The State Council also promised to develop plans for opening the banking, financial securities, insurance, passenger rail, and gas station sectors to foreign investment.
“The extent to which US business benefit will rely on implementation,” the report noted. “Many sectors are officially open to foreign firms but require them to assume a junior position in a Chinese joint venture. Previous pledges to open sectors to investment have resulted in modest outcomes.”
The measures also call for local governments to introduce tax and financial policies to encourage foreign firms to establish headquarters in China. It directs local governments to create preferential income tax policies for foreign high-tech and high-value-added services firms investing in China.
The State Council directed China’s IP regulators to strengthen and increase enforcement of legal protection for IP rights. It also called for stiffer penalties for violations of IP rights. China has introduced dedicated courts for IP cases—which has resulted in higher penalties for violators—but US firms continue to cite poor IP enforcement as a risk of doing business in China.
The measures also promise to allow foreign businesses to transfer revenues from their operations in China out of the country without restriction.