China Unveils New Guidelines in Fresh Bid for Foreign Investment

The Lede: On Sunday, China's State Council issued a set of guidelines that aim to improve the environment for foreign investment and attract more funds as the country moves to stabilize its second-half economic growth. China’s economic outlook has dimmed after weaker than expected data and increasing geopolitical tensions since the first-half of the year.

What We Know:

The State Council’s 24-point list of guidelines include measures that outline six key approaches to strengthen the foreign investment climate in China. They include improving the quality of utilizing foreign investment, ensuring national treatment for foreign-backed enterprises, strengthening the protection of foreign investment, improving investment and business facilitation, increasing fiscal and tax support, and upgrading the facilitating mechanism for foreign investment. China's foreign direct investment (FDI) in the first half of 2023 amounted to 703.7 billion yuan ($97.24 billion), which is down 2.7 percent year-on-year
The guidelines include specific backing of investments in the biotech industry with the aim of encouraging foreign investors to set up research and development (R&D) centers in China and extending support for their involvement in major scientific research projects. It also mentioned a “fast track” for cross-border data transfer for foreign investors who fulfill certain conditions.

The Background: China has been voicing its desire to attract foreign investment following a weaker than expected economic recovery after re-opening from COVID-19 pandemic measures. This comes amid weak export demand from its key trade partners, concerns surrounding its property market, and high youth unemployment. Nevertheless, China has been struggling to attract such investment from foreign enterprises and investors due to the increasing political risk. China’s enforcement of more stringent national security measures and the impact of deteriorating relations between Beijing and many Western nations has made potential investors wary of dedicating resources and capital to doing business in the country. The Chinese Ministry of Commerce held a round-table on July 21 on policy interpretation and communication for foreign business associations with representatives from the American Chamber of Commerce in China, the EU Chamber of Commerce in China, the Japanese Chamber of Commerce and Industry in China, the South Korea Chamber of Commerce in China, and more than 30 enterprises in attendance.

Likely Outcomes:

Pending the implementation of these new guidelines, the soured sentiment of doing business with China will likely persist amid the sharp tightening of the country’s regulatory environment on foreign firms in recent months as well as the heightened geopolitical risks tied to its competition with the West. Foreign firms and investors will likely consider the new guidelines to reassess the risks of doing business in China, but will probably trend toward more caution with regard to investment opportunities in the countries. However, some more risk-tolerant investors may see this as good news and keep an eye out for details of implementation in anticipation for future investments in China.
Those in countries that are not necessarily aligned with the U.S. and the West may see these new guidelines as additional assurance that investing in China will be safe and profitable. China may experience an uptick in investments from those countries as a result of these new guidelines even if the measures are intended to attract investments from the West.

Quotables:

"Multiple trial free trade zones across China and policies that were already implemented have facilitated foreign investors' local business by offering tax reductions. The latest measures were in line with China's consistent policy of high-quality opening-up, and also generated more opportunities for foreign investors.” – Li Yong, senior research fellow at the China Association of International Trade

"China's FDI growth is under pressure, but the demand for high-quality merchandise and services in China's large-scale market still offers a predictable outlook for international investors." – Dong Shaopeng, senior research fellow at the Chongyang Institute for Financial Studies at the Renmin University of China

"In the second half of the year, a number of executives of multinational companies plan to visit China, and we will provide maximum convenience for them to come to China to inspect the investment environment, buttress their development strategies and discuss cooperation projects. We welcome multinational companies to continue to invest in China and share the dividends of China's huge market and open development." – Zhu Bing, director general of the foreign investment administration department at the Chinese Ministry of Commerce

“We should also note that British businesses in China have gone through three years of the pandemic, and many of them are still recovering under the current economic environment, concerned about the weak domestic demand. Therefore, rebuilding trust and confidence will still take time.” – Rachel Tsang, managing director of the British Chamber of Commerce in China

Good Reads:

China State Council issues guidelines in bid to increase foreign investment (Reuters)

China Looks to Attract Foreign Investment as Its Economy Struggles (Bloomberg)

China investment: Beijing hones in on biotech in fresh pitch to woo foreign business (SCMP)

China's State Council issues 24-point guideline to optimize foreign investment (Global Times)

Foreign investment remains stable in H1, reaching 703.7 billion yuan: Commerce Ministry (Global Times)