China to further relax foreign investment in 12 areas
August 29, 2017 Category Foreign investment, Weekly
China will reduce restrictions on foreign investments in 12 areas, including new-energy cars, ship design, international maritime shipping, banking and securities, Wang Shouwen, Vice Minister of Commerce, announced at a press conference. China currently adopts strict requirements on foreign shareholders’ equity in some sectors. For example, in terms of new-energy vehicles (NEVs), foreign investors are not allowed to hold more than 50% of the shares in a joint venture.
The government will also open new investment areas to foreign investors, such as internet access services. The negative-list management that has been tested in pilot free trade zones will be applied nationwide. The negative list for foreign investors now only includes 95 items in which they are not allowed to invest.
There will also be an adjustment in the withholding tax. The withholding tax, whose rate in China is 10%, will be exempted for profits earned by foreign companies in China if the profits are used to reinvest in another project, instead of being transferred to the home country. It will also be made easier for high-level professionals to obtain visas and work permits.
Xu Hongcai, Deputy Chief Economist at the China Center for International Economic Exchanges, said that the new guidelines show China’s determination to go against the global protectionist trend. Details of the new measures will be announced by the end of September.
At first glance, foreign direct investment (FDI) in China is not so important. FDI has accounted for only about 2.5% of China’s gross capital formation and foreign invested enterprises (FIEs) have supplied around 0.5% of its fixed asset investment (FAI). The contribution to GDP of the net exports (exports minus imports) of foreign-invested companies is only about 2%.
However, FIEs generate more than 20% of sales, employment, and value-added in China’s industrial sector, and in some advanced areas the percentages are substantially higher. Since the industrial sector accounts for roughly half of China’s GDP, industrial FIEs contribute approximately 10% of China’s GDP just through their own operations.
When all of their contributions are included, the total impact of the FIEs in the industral and services sectors rises to about 33% of GDP. Due to the positive impact of FDI and FIEs on China’s economy, the government wants to further promote foreign investment, which also facilitates several of its initiatives, such as the Belt and Road initiative and the Made in China 2025 strategy, the South China Morning Post reports.
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