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What are the Opportunities in China for foreign investment?

Recently, the National Development and Reform Commission and the Ministry of Commerce (MOFCOM)^[1], the Government of China, released the Catalogue of Encouraged Industries for Foreign Investment (2022 Edition) (hereinafter referred to as Exposure Draft) to obtain the opinion of the public until 10th June 2022. Once enacted, this 2022 Edition is set to replace the previous 2020 version. This piece of writing identifies the opportunities in China for foreign investment.

What is the encouraged industry catalogue for foreign investment in China?   

There are two parts of the Catalogue of Encourage Industries for Foreign Investment (2022 Edition); one covers the entire country (national catalogue), and the other covers the central, western and northeastern catalogue (regional catalogue). These two catalogues cumulatively list down the sectors/industries where Foreign Direct Investment (FDI) will be welcomed and treated with favourable policies by the Chinese government.

Major opportunities in China for foreign investment: 2022 Catalogue

The 2022 edition of the catalogue contains a total of 1435 items, where 238 items have been added, 114 items modified, and 38 items have been removed from the previous 2020 edition. The 2022 edition of foreign investment encouraged catalogue aims to lure foreign investment in the following three main areas:

Production-oriented service industries

In the services industries, foreign investors are lured to make investments in production-oriented services along with items such as technical services, professional design and development etc.

Manufacturing sectors

The catalogue has expanded the number of items manufactured in China, including the manufacturing components, parts and equipment. The Chinese government aims to solidify the manufacturing process of the country by acquiring considerable investment from foreign countries.

Regional advanced industries in China’s western, central and northeastern regions

The regional catalogue has added and modified several items taking into account the local advantages of China’s central, western and northeastern regions. These advantages include the availability of labour force, distinctive resources etc.

Taking a closer look at the list of sectors, it is apparent that the expanded list is in line with the Chinese government is prioritising the development of specific sectors of the economy. These include sectors like healthcare, sports, elderly care, vocational care, rural revitalisation, green economy, low carbon and circular economy. Let us discuss some of these sectors briefly. 

1. Healthcare sector

Research and development and production are encouraged, especially for the development of medical textiles, hernia repair materials, artificial skins, new dialysis membrane materials, high-end biomedical dressings, drugs for rare diseases and children-specific problems, minimally invasive surgery equipment, 3D imaging, surgical robots, mechanical arm, and rehabilitation of autistic children etc.

2. Sports industry

After the successful conclusion of the Winter Olympics, China has focussed on the development of the snow and ice industry, light equipment for ski resorts, snow machines, etc. Further, emphasis has also been made on developing outdoor sports camps, intelligent sports products and services.

3. Elder care industry

The Chinese government has stressed the development of innovative healthcare products for the elderly such as intelligent and wearable equipment, geriatric medical equipment etc.  

4. Revitalisation of the rural sector

Several items have been added in the sector of the revitalisation of the rural sector for the improvement of agriculture, logistics, commerce and overall living conditions in the rural areas. These items include efficient water-saving irrigation systems, green farmland construction, cold chain storage logistics, rural tourism, rural e-commerce, smart agriculture etc.

5. Vocational training

With a view to strengthening the country’s vocational education and training system, the catalogue has added the development of non-academic art vocational training institutions.

6. Green, low carbon and Circular economy

China has been making considerable efforts to transform its economy into a greener, low-carbon, circular economy. This is the reason why more than 100 items have been added to transition the Chinese economy. Emphasis has been laid on the following:

Technological improvements in the wood structure and wood building materials, industrial water saving technologies, upgradation of petrochemical raw materials, clean energy production, engineering construction and technical service, traditional energy clean operation, advanced system integration technologies for low carbon and development of eco-friendly technologies.

Favourable policies by the Chinese government to facilitate these sectors

The government of China has introduced the following favourable policies to facilitate foreign investors to make investments in the areas mentioned in the catalogue:

1. Reduced corporate tax: the foreign enterprises making investments in the areas of central, western and northeastern regions of china will be charged a corporate income tax rate as low as 15 per cent.
2. Relaxed regulations for land use: preferential treatment can be made for foreign investments for industrial land supply. The land transfer price can be as low as 70 per cent of the national minimum price to incentivise foreign investment.
3. Exemption on tariffs on imported equipment:foreign-funded projects are exempted from the customs duties on importing self-use equipment, which should not be more than the total amount of investment.

Conclusion 

A number of factors, such as lockdowns due to the pandemic, disrupted supply chains due to global conflicts, and shrinking demand, are responsible for the expansion in the scope of the 2022 encouraged catalogue. Additionally, one-fifth of China’s tax revenue is generated from its exports, making it the government’s top priority to incentivise foreign investors to invest in China. With the increase in opportunities reflected in the Encouraged Catalogue 2022 edition and the existing complementary ecosystem, it is an excellent opportunity for foreign investors to make investments in China. To know more about the opportunities in china for foreign investment, get the consultation offered by global incorporation experts at Enterslice.

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