Foreign investment in China are experiencing positive growth, cementing the country’s position as a global financial powerhouse. With the balance of payments and policy support, the Chinese market provides a wealth of opportunities and development potential for foreign enterprises.
China will continue to promote high-level opening up, optimize the business environment, attract more foreign investment, and promote high-quality economic development.
Foreign Enterprises’ Investment Intention in China Continues to Increase
According to the latest “2024 Third Quarter China Foreign Investment Business Environment Survey Report” released by the China Council for the Promotion of International Trade (CCPIT), nearly 20% of foreign enterprises plan to increase their investment in China, a sequential increase of 2.07 percentage points, among which European enterprises have a stronger willingness to increase investment, a sequential increase of 2.5 percentage points. This trend reflects the continuous confidence and expectation of foreign capital in the Chinese market. Behind the increase in investment intention is the expectation for future development.
At present, China’s economic fundamentals are stable and progressing, and comprehensive and pragmatic policy support provides a good macro environment for the development of foreign enterprises in China. Data shows that in the first three quarters, China’s Gross Domestic Product (GDP) grew by 4.8% year-on-year, with a scale above designated size industrial added value growing by 5.8% year-on-year, equipment manufacturing industry added value growing by 7.5%, and high-tech manufacturing industry added value growing by 9.1%.
China’s Economy Shows Strong Resilience and Determination for Deep Reforms
Since September, a series of incremental policies have been introduced to enhance market confidence and stimulate market vitality. In October, China’s Manufacturing Purchasing Managers’ Index (PMI) returned to the expansion range, indicating obvious positive changes in the current economic operation and the continued consolidation of the foundation for economic recovery.
The obvious recovery of demand and the further activation of the market have brought more confidence to foreign enterprises. The confidence that the Chinese market brings to foreign enterprises comes not only from its scale but also from the strong resilience of China’s economy and the Chinese government’s determination to continue deepening reforms and further expanding openness.
Sharing the Opportunities of China’s Transformation and Upgrading
In recent years, China has been continuously improving the resilience and security level of its industrial chains and supply chains, leveraging the advantages of a complete industrial support system to support foreign enterprises in deeply participating in China’s economy. Data shows that in the past five years, the return on direct investment by foreigners in China has been about 9%, ranking at the forefront globally.
Ji Dejiang, President of the Greater China region of LEK Consulting, said that China’s economy has entered a stage of high-quality development, and any industry that helps China’s development and improves the lives of Chinese residents will become the main position for attracting foreign investment. This process will further promote the structural upgrading of traditional industries and the development of emerging industries, and related industries will also benefit from this transformation and upgrading process.
At the just concluded 7th China International Import Expo (CIIE), there were 3,496 exhibitors from 129 countries and regions participating in the enterprise exhibition, with both the number of countries (regions) and enterprises exceeding the previous session. Many foreign enterprises that have participated in the exhibition for several consecutive years believe that from the company’s annual display of technology, products, services, and innovative results with partners, they can deeply feel the rapid development and changes of China’s industry.
Mark Meng, Chairman of Qualcomm China, said that key technologies represented by 5G and AI are driving the digital transformation and innovative development of many industries. At present, AI is widely applied in various consumer terminals and industries, and Qualcomm’s in-depth cooperation with Chinese industry partners has expanded from smartphones to PCs, intelligent connected vehicles, the Internet of Things, industrial manufacturing, and other fields.
“China’s supply chain is far superior to other markets in recycling capabilities and closed-loop recycling. Our products have achieved a complete industrial chain closed loop of planning, sourcing, production, sales, and recycling in China. The Chinese market will become increasingly important,” said Shinji Shimizu, Chairman and General Manager of MUJI China.
Creating a More Attractive Investment Environment
The continuous optimization of the business environment is an important driving force for “foreign enterprises to dare to invest.” The “Market Supervision Department’s Key Measures to Optimize the Business Environment (2024 Edition)” issued by the State Administration for Market Regulation proposes to unswervingly promote high-level opening up, promote systematic opening up of rules, regulations, management, and standards, actively align with internationally accepted commercial rules, respond to the convenience and fair competition of foreign investment enterprises in China, create a more attractive investment environment, and continue to build the “Invest in China” brand.
Answers to Questions on Foreign Investment and M&A in China
The entry into force of the Regional Comprehensive Economic Partnership Agreement (RCEP) has provided legal protection for Chinese enterprises’ foreign investment and also created new opportunities for foreign investment in China. China practices a management system of “pre-establishment national treatment plus a negative list” for foreign direct investment (FDI). The organizational form, organizational structure, and operational guidelines of foreign-invested enterprises are subject to the same legal provisions as domestic enterprises, including the “Company Law of the People’s Republic of China (2018)” and the “Partnership Enterprise Law of the People’s Republic of China (2006)”.
- Regulatory Framework for Foreign Direct Investment
Create seamless experiences with multilingual signage, Chinese-speaking staff, and payment options like Alipay and WeChat Pay. A friendly, welcoming attitude goes a long way. - Industry-Specific Restrictions on Foreign Investment
China implements a market access negative list system that all enterprises must follow. Foreign investment must also comply with the “Special Administrative Measures (Negative List) for the Access of Foreign Investment”. The restrictions include prohibiting investment, allowing investment but prohibiting operation, and allowing investment but requiring a Chinese controlling stake. - Localization Requirements for Foreign Direct Investment
China does not have localization ratio requirements for foreign-invested enterprises. However, key personnel such as legal representatives in certain industries must have Chinese nationality, such as legal representatives of public air transport companies and general aviation companies, who must be Chinese citizens. - Foreign Exchange Control Restrictions for Foreign Direct Investment
China implements strict foreign exchange control measures, and the renminbi cannot be fully freely converted. However, profits and dividends of foreign-invested enterprises that comply with relevant foreign exchange management regulations can be converted into foreign currency and remitted abroad after paying corporate income tax and extracting the statutory surplus reserve.
- Types of Legal Entities Established for Foreign Direct InvestmentCreate Foreign investors can establish limited liability companies and joint-stock companies in China. A limited liability company is established with capital from no more than 50 shareholders, each of whom bears limited liability to the company up to the amount of their subscribed capital contributions. A joint-stock company’s registered capital consists of equal shares raised by issuing stocks, and each shareholder is liable for the company up to the amount of their subscribed shares.
- Registration and Establishment Procedures for Foreign-Invested Companies
The registration of foreign-invested enterprises is handled by the State Council’s Administration for Market Regulation or its authorized local people’s government market regulatory departments according to the law. The process includes determining whether a pre-approval procedure is required, submitting materials, handling licenses, and synchronizing information. - Documents and Materials Required from Foreign Investors
If a pre-approval procedure is involved, it is necessary to go through the relevant departments for approval or filing. The materials required to apply for a license usually include an application for establishment registration, a certificate of appointing or entrusting an agent, articles of association, a qualification certificate of shareholders or identity certificate of natural persons, a certificate of senior management appointment, a legal representative’s appointment document and identity certificate, a company residence certificate, a power of attorney for service of legal documents, an initial report, and other documents. - Time to Complete the Entire Registration and Establishment Process
The specific situation depends on each enterprise and the local Administration for Industry and Commerce. For foreign direct investment without approval requirements, the fastest time required is only 7 working days. For foreign direct investment that requires approval, the application and approval period is more than 32 working days.
Given the complex and dynamic nature of Chinese policies, having a clear understanding of the regulatory environment is crucial for any business looking to invest or operate in China.
Eastora prides itself on maintaining a team of experts who specialize in the detailed study and tracking of Chinese policies. This team is comprised of seasoned professionals with a deep understanding of the Chinese political and economic landscape. Moreover, we have assembled a diverse group of consultants from prestigious academic institutions and leading enterprises, which enables us to offer a multifaceted perspective on policy trends.
