Ernst & Young (EY) has issued a global tax alert on foreign investments in China.

On 12 January 2017, China’s State Council released Guofa [2017] No. 5 (Circular 5) to provide additional guidance on market access and utilization of foreign capital. Circular 5 contains 20 actions related to active utilization of foreign capital, creation of an excellent business environment and optimization of government services.

Some of the key favorable actions include:
• Opening additional market access to selected service industries (such as financial institutions, telecommunications, internet, and education), manufacturing of rail transit equipment, motor, ethanol fuel and oil processing and mining of unconventional oil-and-gas resources.
• Encouraging foreign investors to invest in infrastructure development, research and development (R&D), high-end manufacturing, intelligent manufacturing, green manufacturing and production support services.
• Allowing local governments to specify supporting policies to attract , e.g., local financial subsidies.
• Revising the current Catalogue of Priority Industries for Foreign Investments in the Midwest region by expanding the scope of encouraged industries in the Midwest and Northeast regions.
• Allowing foreign multinational corporations to carry out centralized foreign exchange fund management function.
• Prioritizing substantial land use by offering lands to encourage foreign investment industrial projects.

Circular 5 serves as official guidance and detailed implementation measures will be released by the government authorities. Circular 5 clearly indicates China’s determination of moving up in the supply chain and its objective of encouraging high value-add services, R&D and high-end manufacturing. Companies in the encouraged industries may consider expanding investments into China. Local incentives may be available since local governments are now authorized to provide their own incentive policy.