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Chinese Governments on Central and Local Levels Issue Additional Supporting Policies on Foreign Investment to Lessen Impact of COVID-19

4/16/2020

To stabilize foreign investment during COVID-19 epidemic and throughout 2020, on 1 April 2020 the PRC Ministry of Commerce (“MOFCOM”) issued the Circular on Further Expanding Reform and Opening up to Stabilize Foreign Investment during the COVID-19 Epidemic (the “Circular”). The Circular took effect on the same day.

The new Circular combines the relevant measures stated in the circulars previously promulgated by MOFCOM in the past few months. It serves as a comprehensive document that includes all measures intended by MOFCOM during COVID-19 epidemic and throughout 2020.

Some local governments, including the People’s Government of Shanghai Municipality (“Shanghai Government”), have also published local regulations to further support foreign investment. On 8 April 2020, the Shanghai Government issued the Several Measures on Implementing the Opinions of the State Council on Further Improving the Use of Foreign Capital (“Shanghai 24 Measures”). This regulation took effect on 10 April 2020.

Below is a short brief on the content of the new Circular and the Shanghai 24 Measures.

1. Fully Supporting Foreign-invested Enterprises to Resume Normal Production and Operation

a) The Circular stresses MOFCOM’s determination to fully support foreign-invested enterprises (“FIEs”) in their resumption of normal production and operation. Under the unified plan of the State Council, MOFCOM shall set up special working groups to improve its monitoring system and to strengthen its communication and coordination with FIEs.

Difficulties and problems commonly encountered by FIEs, for example, shortage of epidemic prevention materials, shortage of labour, problems with logistics, lack of coordination in resumption of supply chains, and tight capital supply etc. shall be solved as soon as possible. The specific problems of FIEs shall be accurately targeted and solved by the competent Authorities of Commerce along with other relevant Chinese governmental departments on a “one to one” basis. FIEs’ difficulties in air transportation, for example, are being tackled by MOFCOM together with the Civil Aviation Administration.

Leading provinces in foreign investment such as Shanghai, are further required to establish and improve their corresponding provincial working mechanisms and systems to assist FIEs. More support shall be given to leading FIEs and their key supporting enterprises in order to maintain the stability of both industrial and supply chains.

b) In addition to MOFCOM’s monitoring system on FIEs for their difficulties and problems during COVID-19, a tracking service mechanism shall be applied for initiation and implementation of major foreign investment projects. Such tracking service mechanism aims to solve problems in return to work, materials and logistics and to strengthen safeguards for land use, energy use and funds. It also aims to speed up the construction progress of all 241 ongoing major foreign investment projects.

2. Promoting Opening-to a Higher Level

a) According to the Circular, MOFCOM will speed up its revision of the Special Administrative Measures for Access of Foreign Investment (the “Negative List”) with the National Development and Reform Commission (“NDRC”) and other relevant departments. The number of items included in the current Negative List will be further reduced and certain service sectors (e.g. finance and new energy vehicles) will be opened up further. The number of items included in the current Negative List for free trade zones shall, at the same time, also be further reduced in order to promote development of free trade zones. The development of free trade ports, especially Hainan Free Trade Port, shall be promoted. The Circular emphasises that, it is prohibited to set separate access restrictions on foreign investment in sectors not included in the Negative List.

Further, the revision of the Catalogue of Encouraged Industries for Foreign Investment is now ongoing and shall also be speeded up. The number of sectors in which foreign investment is encouraged will be further expanded. This especially applies to foreign investment in advanced manufacturing industries, emerging industries, high-tech technologies, energy-saving, environmental protection, and likely telecommunication.

The Shanghai 24 Measures emphasise that China (Shanghai) Pilot Trade Zone (“Shanghai FTZ”) and Lingang New Area shall be further opened and confirm Shanghai’s further opening up of key industries including telecommunications, scientific research and technical services, education and health. Foreign investors are encouraged to invest in newly opened industries and high-technology industries in Shanghai.

b) Foreign investors are also encouraged by the Circular to make investments in central, western and north-eastern regions. The Circular states that MOFCOM will implement strategic measures for the large-scale development of the western region, the revitalization of the north-eastern region, the renovation of the central region, the coordinated development of Beijing, Tianjin and Hebei, the development of the Yangtze River Economic Belt, the integrated development of the Yangtze River Delta Region and development of the Guangdong-Hong Kong-Macao Greater Bay Area. MOFCOM will promote the ecological protection and high-quality development of the Yellow River Basin and the development of the Chengdu-Chongqing economic circle, and will continue promoting regional opening-up and development, including steadily advancing the development of cross-border economic cooperation zones.

c) Further, following the Opinions of the State Council on Promoting National Economic and Technological Development Zones to Innovate, Improve and Build Themselves into New Highlands of Reform and Opening up (Guo Fa [2019] No.11) and the Circular of the General Office of the Ministry of Commerce on Coordinating COVID-19 Epidemic Prevention and Control and Economic Development to Ensure Effective Work on National Economic Development Zones in a Comprehensive Way, it is again confirmed in the Circular that the national economic and technological development zones (“NETD zones”) will play a driving role in stabilizing foreign trade and foreign investment. NETD zones in Guangzhou, Tianjin, Ningbo and Wuhan, for example, have published preferential policies on FIEs covering return of unemployment insurance premiums, providing loan discounts, reducing property rents and lowering energy costs.

The Shanghai 24 Measures stress that pilot measures and experience in Shanghai FTZ are also encouraged to be promoted into practice in Shanghai’s NETD zones.

3. Further Promoting the Reform of "Delegating Power, Improving Regulation, and Upgrading Services” in Commerce

a) MOFCOM will accelerate the transformation of governmental functions of the Authority of Commerce at different levels and strengthen supervision while streamlining administration and delegating power. It is expressly stated that, examination, approval and filing matters for establishment of and changes in FIEs with the Authority of Commerce at all levels have been abolished following the new PRC Foreign Investment Law (“FIL”) and its implementing regulations. Instead, only reporting with the competent Authority of Commerce is required since the effectiveness of the Measures for Foreign Investment Information Reporting and other relevant provisions on 1 January 2020. For NETD zones, MOFCOM will further step up the empowerment of these zones and encourage localities to further promote the reform of “delegating power, improving regulation, and upgrading services” in order to improve administrative efficiency and raise the level of services. Examples are to promote the online administration service and promote the pilot reform of “separation of permits from business license”.

b) To promote the development of various open platforms and to improve the foreign investment service system during COVID-19, the Circular further asks for good use of the special funds. The special funds for foreign trade and economic development focus on promoting the development of various open platforms and improving the foreign investment service system. Such issues had already been regulated in the Circular of the Ministry of Commerce and the Ministry of Finance on Making Good Use of the Special Funds for Domestic and Foreign Trade to Support Stabilizing Foreign Trade and Foreign Investment and Boosting Consumption (Shang Ban Cai Han [2020] No.98).

4. Strengthening the Service and Promotion of Foreign Investment

a) MOFCOM intends to make full use of informatization means for long-distance business and investment promotion such as video conferencing, online negotiation and “on-cloud contract signing”. As stated in the Circular, MOFCOM will also utilize all kinds of business promotion resources (e.g. entrusted business promotion and business promotion through business) and the platforms of overseas business promotion agencies, for investment promotion purpose.

As stated in the Shanghai 24 Measures, Shanghai’s NETD zones are further encouraged to set up overseas investment promotion centres for better coordination with foreign investors. 

b) Service information platforms for foreign investment shall be created and improved (e.g. www.fdi.gov.cn). A number of attractive projects with development potentials shall be released online and be effectively connected with foreign investors. Relevant information on investment projects, Chinese laws, regulations and policies as well as matter-handling guidelines shall all be uploaded on these platforms to better serve foreign investment. In Shanghai according to Shanghai 24 Measures, investment guidelines such as a Shanghai Foreign Investment Guideline will be issued this year to provide more service and convenience for foreign investors and FIEs.

c) Exhibition platforms for foreign investment promotion are also to be developed for targeted investment promotion activities. Despite of large exhibitions including China International Import Expo and China International Fair for Investment and Trade, other investment and trade exhibition platforms which suit the actual situations of various localities shall also be built and enhanced.

d) The Circular also stresses the strengthening in establishment of mechanisms for promoting multilateral and bilateral investment. China will actively promote the negotiation processes of the China-EU Investment Agreement, the China-Japan-South Korea Free Trade Zone, the China-Gulf Cooperation Council (GCC) Free Trade Zone, etc. to communicate information and cooperation projects. It will, as well, strengthen cooperation with the United Nations, the G20, APEC, BRICS and other international governance platforms, and will make full use of the multilateral and bilateral investment promotion mechanisms with Japan, South Korea, Singapore, Europe, the United States and other countries and regions. Epidemic prevention and control and international coordination and cooperation in economic and trade exchanges shall be effectively carried out to minimize the adverse impacts of COVID-19 on foreign investment.

e) The Shanghai 24 Measures provide further clarification of the measures stipulated in the Opinions of the State Council on Further Improving the Use of Foreign Capital. For qualified FIEs it shall be allowed to facilitate certain payments from capital accounts without having to submit supporting documents to proof the authenticity of each payment in advance. General FIEs, which are not foreign invested holding companies, are also permitted to establish subsidiaries or to acquire domestic companies by using their registered capital. This is in fact nothing new. That such FIEs can use their registered capital for establishing or acquiring subsidiaries is already possible for several years.

5. Continuing to Optimize the Environment for Foreign Investment

a) The Circular emphasizes the full implementation of the FIL and its implementing regulations. With more supporting documents to be promulgated and more trainings to be regularly held by the Authorities of Commerce at different levels, some outdated laws and regulations in relation to foreign investment are also to be either revised or abolished. The draft of the Measures for Work on Complaints from Foreign-invested Enterprises has been published on 23 March 2020 for public comments, and will be officially promulgated after amendment, in order to better safeguard the legitimate rights and interests of foreign investors. The inter-ministerial joint conference system for the work on complaints from foreign-invested enterprises shall be effectively leveraged, not only to promptly correct acts of unfair treatment against FIEs, but also to smoothly perform all kinds of contracts legally signed and to promptly realize policy commitments made to foreign investors and FIEs.

Local regulations and supporting policies for implementation of the FIL are also expected to be issued later this year. FIEs in Shanghai, as again stressed in the Shanghai 24 Measures, will enjoy fair treatments in standard-making and government procurement. FIEs may be invited to participate in Shanghai’s Technical Committees for Expertise Standardization and be recommended to join the National Technical Committees for Expertise Standardization. The Shanghai 24 Measures also again repeat Shanghai’s intention to protect foreign investors’ intellectual property rights. Such protection can be based on a joint working mechanism of intellectual property rights or through a diversified mechanism for dispute resolution.

b) Following the Opinions of the State Council on Further Improving the Use of Foreign Investment (Guo Fa [2019] No.23), the local authorities are encouraged to formulate and issue targeted supporting policies in light of their respective actual situations. It is stressed that both, FIEs and domestic companies shall be equally enjoying China’s preferential policies issued due to COVID-19. Further, the withholding tax deferral policy on using dividends for re-investment in China shall be further promoted and foreign investors shall be encouraged to use their profits in China to make further investment. In Shanghai, the procedures for examination and approval of FIEs’ planned land use shall also be further optimized to ensure fair treatment.

c) The Circular also confirms that MOFCOM and the Authorities of Commerce at different levels shall strengthen cooperation with the investment promotion agencies, chambers of commerce and associations to better communicate and coordinate with FIEs by holding symposiums, conducting surveys and visits and holding other regular events. Corporation with Chinese agencies, chambers of commerce and associations overseas to introduce China’s major policies and planning of important work on foreign investment by holding release conferences, briefings and other forms of publicity are also intended. Typical experiences and cases of existing FIEs may also be used during such investment promotion activities.

6. Conclusion

Compared to the previous documents promulgated by MOFCOM in this regard, the Circular serves as a comprehensive document. It guides the work of local governments in stabilizing foreign investment during the COVID-19 epidemic and throughout 2020 and the measures announced all focus on further supporting foreign investment and FIEs. So do the Shanghai 24 Measures. However, overall the measures stated in this Circular and the Shanghai 24 Measures are still vague and mostly general descriptions of working plans of MOFCOM and the Shanghai Government. Detailed implementing measures and policies still need to be announced and carried out.

Authors

Picture of Ulrike Glueck
Dr. Ulrike Glueck
Managing Partner
Shanghai
Angela Chen
Angela Chen
Junior Associate
Shanghai