Over the past three decades, the economic reforms in China have led to an unprecedented change in the nature of the business environment in the country. Foreign Direct Investment (FDI) has been highly encouraged by the Chinese authorities over the recent past years, and measures have been taken to make the investment climate more favourable and less bureaucratic.
FDI: Do’s in China
China welcomes FDI that represents a commitment to economic development and technical exchange. FDIs are welcome by the Chinese Constitution, as well as by the main laws and regulations for foreign investments in China, such as:
- the General Principles of Civil Law of the People’s Republic of China (Chinese Civil Code);
- the Administrative Litigation Law of 1989;
- the Company Law of the People’s Republic of Chinaof 2005;
- the Law of the People’s Republic of Chinaon Foreign-Capital Enterprises of 2002;
- the Law of the People’s Republic of Chinaon Chinese-Foreign Equity Joint Ventures of 2001;
- the Law of the People’s Republic of Chinaon Chinese-Foreign Contractual Joint Ventures of 2000;
- the Law of the People’s Republic of Chinaon Foreign-Funded Enterprises of 2000;
- the Anti-monopoly Law of the People’s Republic of China of 2008;
- the Industrial Catalogue for Foreign Investment and the Interim Provisions Concerning the Investment within China of Foreign-invested Entreprises.
The Industrial Catalogue for Foreign Investment and the Interim Provisions Concerning the Investment within China of Foreign-invested Enterprises list the major policy objectives of the People’s Republic of China Government regarding FDI, as follows:
To encourage foreign investment while improving the overall quality and industrial composition of investment projects, particularly in high-technology sectors;
To encourage investment in environmentally friendly and energy-saving technologies;
To restrain and eliminate policies that exclusively serves to promote exports, and to address China’s trade surplus;
To encourage balanced development between the coast and the less-developed western, central, and northeastern regions; and
To protect “national economic security” and solely carefully open sensitive and strategic industries to FDI.
FDI: Don’ts in China
As per the Chinese legal framework FDI is forbidden in sectors considered crucial to national security; that endanger the state national security; that damage the public interest; that cause environment pollution and damage to natural resources and public health; that use large farmland and are hostile to the protection and development of land resources; and that endanger the security and normal function of military facilities. In brief, the prohibited sectors are: news agencies, broadcasting and programming, press and audiovisual products, arms production and manufacturing, and the mining and processing of certain minerals.
Furthermore, the new Industrial Catalogue for Foreign Investment and the Interim Provisions Concerning the Investment within China of Foreign-invested Enterprises lists “critical economic sectors” in which China should maintain strong state control and restricts foreign participation, such as automotive, chemical, construction, electronic information, equipment manufacturing, iron and steel, nonferrous metal, science and technology, survey and design sectors (Invest in China, SASAC’s website). Moreover, the Ministry of Commerce has the power to review foreign acquisitions that may have impact on “national economic security”. Last but not least, as per Article 31 of the Anti-monopoly Law of the People’s Republic of China, the Chinese Government has the discretion to exam foreign investment concentration transactions that may affect the national economy and national security.
Cross-borders flows of FDI have been a feature of the globalization era. FDI may play a leading role to trade and industry diversification, generating employment and strengthening the economic local system and China has made substantial strides in opening up their economies to FDI.