The Ease of China’s Foreign Direct Investment & Its Impact

Chinese authorities have realized that in order to maintain the sharp rise of their economy, it is paramount to portray the image of this country as the most conducive to invest for the foreign companies. Last year, the State Council issued a circular on a new foreign direct investment policy to open up China’s economic system. The intention of the new regulations is to reduce irrational outbound investment and to improve the development of China’s overseas investment setting out 20 measures. This clarified that the Catalogue would be amended to relax restrictions on foreign investment and operations in the Chinese service, manufacturing and mining sectors.

Sectors such as large-scale theme park construction, lithium mining, credit rating services, precious metals and internet access services that are previously restricted are now opened up to the foreign capital. In manufacturing, foreign companies are allowed to produce their own rail transport facilities, instead of having to set up joint ventures with local firms. Rules were also eased for foreign companies manufacturing electric vehicles and related products.

Chinese Vice Finance Minister Zhu Guangyao said in a statement that “ As a key WTO member, we firmly support free global trade and the implementation of WTO principles.” Citing a WTO principle, Zhu said that although the decision of easing market access to the financial sector for foreign investors was announced during a meeting of Chinese and U.S. state leaders, it applies to all countries.

Till now, an overseas investor can have twenty percent stake in the Chinese banks and financial asset management companies and a group of foreign investors can have maximum twenty-five percent stake. With the new rule, the higher cap will be removed soon. In finance, foreign banks are allowed to underwrite government bonds and they do not have to wait for a minimum period of operation to launch RMB services.

Foreign Direct Investment

The National Development and Reform Commission (NDRC) and the Ministry of Commerce (MOFCOM) released a new version of the Catalogue regulating foreign investment on a national scale. The state council also said in a statement foreign-invested firms would be allowed to list on the Shanghai and Shenzhen exchanges as well as a New Third Board, the country’s biggest over-the-counter (OTC) equity exchange.

It was the first time the government has made clear that foreign companies will be allowed to sell shares publicly on both the Shanghai and Shenzhen exchanges, apparently overturning a previous plan for an international board in Shanghai. However, while differences may remain in the treatment of domestic and foreign investments, those operating in the Catalogue’s freshly opened sectors will find appealing new opportunities for investment.

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