China’s Foreign Investment Law starts to pay dividends

Foreign direct investment into the Chinese mainland jumped to at least 1.15 trillion yuan ($170 trillion) in 2021, up from 999.98 billion yuan ($147.6 billion) in 2020, according to new figures from China’s Ministry of Commerce.

The ministry said key to the growth was the introduction in 2020 of the Foreign Investment Law, a comprehensive set of legal standards for foreign investors designed to better protect their rights and interests

In the first 11 months of 2022, FDI grew 9.9% year-on-year to nearly 1.15 trillion yuan, guaranteeing that China would secure a record inflow for another year.

Zhao Beiwen, deputy director of the Institute of World Economy at the Shanghai Academy of Social Sciences, said: “The Foreign Investment Law ensures China’s investment environment and foreign investment system in legal form and plays an important role in stabilizing the confidence of multinational companies in China, as the world faces slower economic growth and surging inflation.”

With unified rules for the protection and management of foreign investment, the Foreign Investment Law addresses overseas entities’ concerns about investing in China, Zhao said.

In the light of this levelling of the playing field for domestic and foreign companies, overseas companies continued to expand their footprint in China, with an average of 43,000 foreign-owned enterprises newly established each year in 2020 and 2021, according to the Ministry.

As of the end of September 2022, some 455,000 foreign enterprises were registered in China, with more than 2,000 regional headquarters and R&D facilities of multinational companies set up in the country, the Ministry said.

“Foreign enterprises, especially high-tech foreign-invested enterprises, pay more attention to intellectual property protection than labour-intensive ones,” Zhao said. “The Foreign Investment Law has ensured a fair competition environment with rules and transparency,” he said, adding that the protection of intellectual property rights has boosted China’s attractiveness for foreign investors.

From January to November 2022, FDI in high-tech manufacturing rocketed by 58.8% over the same period of the previous year, while that in the high-tech service sector rose 23.5 percent year-on-year, the MOC added.

From 2020 to 2022, China scrapped laws, and regulations inconsistent with the Foreign Investment Law, and promoted the establishment, revision and abolition of more than 500 statutes, said the National Development and Reform Commission.

A survey by the Ministry of Commerce of 3,130 foreign firms showed that the implementation of the Foreign Investment Law has boosted confidence in the Chinese market among nearly 90%.

GLP, a global investment company, has seen its business volume continuously expanding, with assets under management in China hitting $72 billion.

Zhuge Wenjing, executive vice-chair of GLP China, said: “GLP has witnessed a continuous improvement of the business environment in China, with higher level of internationalization and opening-up. Our business has achieved sound growth as the country continues to deepen reform and opening-up.”

The annual Central Economic Work Conference, which took place in mid-December, reaffirmed China’s commitment to continue to open up for foreign investment.

“The conference stressed efforts to attract and utilize foreign capital and made precise arrangements. It is unprecedented in my memory,” said Long Guoqiang, deputy head of the Development Research Center of the State Council, China’s Cabinet.

 

China to waive VAT for some smaller taxpayers

China is set to exempt small businesses with monthly sales of 100,000 yuan ($14,800) or less from value-added tax (VAT) throughout 2023, according to the tax authorities.

The Ministry of Finance and State Taxation Administration also outlined tax relief policies for taxpayers engaged in producer services, such as postal and telecom services.

As part of efforts to support economic growth, China has carried out a wide range of tax and fee cuts over the years. In 2022, the country implemented record-high value-added tax credit refunds, totalling 2.4 trillion yuan ($356 billion).