Doing Business with China

Trends in China's foreign investment policies in 2002

The year 2002 has been the first year of China's official membership of the WTO. The development and changes in the economic situation both at home and internationally have created unprecedented opportunities for China while, at the same time, bringing forward rigorous challenges. China will take advantage of the opportunities to make efforts to improve the legal, policy, administrative and market environment for foreign investment. Such efforts will bring the influx of foreign investment to a new level. In 2002, emphasis will be placed on the following areas.

Striving to improve the legal and policy environments for foreign investment

The continuing review of the laws, regulations and rules relating to foreign investment will be the starting point for further improvements in the foreign investment environment. The legal system regarding foreign investment will be further improved in compliance with China's commitments to the WTO and the requirements arising from the new situation. The enactment of new laws will be expedited while administration based on the rule of law will be vigorously promoted. Efforts to rectify local laws, regulations and related policy measures concerning foreign investment will be redoubled, bringing them in line with national laws and regulations, WTO rules and China's commitments to the outside world. While existing laws and regulations are being revised, special attention will be paid to maintaining stability, consistency, predictability and workability in foreign investment policies and laws, thereby creating a sound and favourable policy and a legal environment for foreign investors.

Maintaining and perfecting a fair and open market environment

The on-going nationwide effort to rectify and normalize the functioning of an open and fair market economy will be given added momentum by:

At the same time, further steps will be taken to perfect the environment for FIEs so that the rule of law prevails in the protection from infringement of legitimate rights and interests.

Further opening-up of the service sector to foreign investment

According to both the requirements of economic development and the commitments made to the WTO, China will actively, systematically and steadily open up the entire service sector to foreign involvement. Laws and regulations regarding foreign investment in construction, accounting services, education, commerce, foreign trade, civil aviation and medical services will be passed within the shortest possible time. Such efforts will help to build a complete, formalized and open market access system for foreign investors in the service sector. Foreign investment in logistics and distribution will be encouraged. FIEs will be encouraged to operate retail chains and establish foreign-invested export purchasing and commodity distribution centres . Investment in the service sector will be actively encouraged, as will the introduction of modern technologies as well as managerial and operational practices. All of this will help to improve both the structure and quality of China's entire service sector.

Encouraging foreign investors to go to Western China and striving to create favourable conditions for the western area to attract more foreign investments

In a proactive effort to implement the grand development strategy for the western area, China will push through foreign investment policies designed for the mid-western areas. For foreign investment in the midwestern area, foreign investment requirements in the service sector will be further relaxed, while at the same time foreign-invested projects in the area will also enjoy more relaxed financing requirements. Greater effort will be made to design an industrial policy biased in favour of the western area. In conjunction with the revision of the Catalogue of Industries for the Guidance of Foreign Investment , China will consider an appropriate expansion in the scope of the Catalogue of Advantageous Industries for the Absorption of Foreign Investment in the Mid-western Area , in order to encourage the flow of foreign investments in the region in projects such as infrastructure, development of mineral resources, tourism, bio-environmental protection, the processing of agricultural and livestock products and science and technology projects. Meanwhile, the necessary conditions will be created for FIEs in the coastal areas to reinvest in the mid-western area. In addition, foreign investors are encouraged to invest in the west-to-east gas pipeline project, the west-to-east power supply project and their ancillary projects.

Encouraging foreign investment in new and high technology industries, infrastructure and associated peripheral projects

FIEs are encouraged to bring in, develop and innovate technologies. Such encouragement is intended to promote foreign investment in capital and technology- intensive projects and to guide foreign investors in setting up more hi-tech projects. To enhance guidance in policy terms, restrictions on the ratio of registered capital and the requirements for capital contribution in the form of industrial properties will be relaxed at an appropriate time. Relevant regulations regarding venture capital will be further eased in order to create favourable conditions for the establishment and development of hi-tech enterprises . Meanwhile, favourable conditions will also be created for FIEs investing in industries that are in the lower reaches of the supply chain. They will be encouraged to source raw materials locally for their manufacturing. Medium- sized and small enterprises, including township and village enterprises, will be given external support and encouragement in introducing appropriate advanced technologies, in order to qualify themselves as competent suppliers to large FIEs and eventually to become established suppliers to multinationals.

Encouraging multinational companies to invest in China

Multinational companies (MNCs) are the leading force in the global economy. Efforts will be made to study possible policy measures aimed at attracting MNC investment and to encourage the establishment of MNC regional headquarters and to set up their international export purchasing centres in China. International experiences and practice in the area of mergers and acquisitions will be studied in the hope of quickly developing workable policies and regulations for foreign investment in the form of mergers and acquisitions. In doing so, the characteristics of the Chinese economic system and the unique conditions of Chinese enterprises will be taken into account. Regulations regarding foreign investment in investment-holding companies and joint-stock companies will be further reviewed and revised. The various rules and regulations regarding foreign investment in the form of build, operate and transfer (BOT), franchise transfers and the flotation of FIEs on domestic and foreign stock markets will continue to be enacted and improved. All these efforts will be directed at creating favourable conditions for MNCs to invest in China.

Accelerating the shift of government functions and enhancing the level of law-based administration

China is stepping up the transformation of government functions and work practices in an effort to build a government that is free from corruption, that is diligent, practical and highly efficient. Rationality, effectiveness, openness and responsibility are the basic principles that China will follow in its efforts to simplify examination and approval procedures. This will particularly be the case with the approval of contracts and articles of association. A formalized and standardized examination and approval system will be implemented. Civil servants in the government will be trained in enhanced awareness and recognition of the rule of law. They are expected to have a good knowledge and understanding of laws and to abide by the laws. Each should perform the correct duties and their conduct on behalf of the government should be open, fair and transparent. Random elements in the performance of government duties should be reduced. Continuous efforts will be made to raise the level of law-based administration in order to create a favourable administrative environment for foreign investment.

China officially became a member of the WTO in December 2001. The rules of the WTO will be strictly observed and China's commitments will be adhered to. China will proactively promote the comprehensive opening up of its economy at all levels, participating in the process of economic globalization in greater depth. With the sustained, rapid and healthy development of China's economy, the consolidated strength of the country and the gradual and steady advance in economic reform and opening-up to the outside world, foreign investment will have greater scope for development in China. Accordingly, the quality and overall level of foreign investment will reach new heights.

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