China snips red tape for foreign investors in global race for funds and expertise

PUBLISHED : Monday, 31 July, 2017, 3:13pm
UPDATED : Monday, 31 July, 2017, 10:59pm

China has revamped one of its regulations to cut red tape for foreign firms buying into Chinese businesses, a move expected to ease the way for more mergers and acquisitions as Beijing tries to expand inflows of foreign investment.

Under updated regulations released on Sunday, foreign investors will only need to complete one set of standard forms and notify the Ministry of Commerce if it takes a stake in a local company – as long as the deal does not involve a monopoly or national security.

The revisions are designed to eliminate some of the costly and labyrinthine administrative reviews that have held back foreign direct investment (FDI) in China.

Conditions have deteriorated to such an extent that German ambassador to China Michael Clauss said last year it was “more or less impossible” for a German firm to invest in China through acquisition.

As a result FDI inflows into China have stagnated, amounting to 441.5 billion yuan (US$65.5 billion) in the first half, down 0.5 per cent from a year earlier.

Shanghai bears the brunt of anti-globalisation and protectionism with sharp decline in FDI

Vice-commerce minister Qian Keming said on Monday that international competition to attract foreign investment was fierce but the latest data showed that the FDI inflows to China were basically “stable”.

The lack of fresh FDI is causing concerns among China’s top leadership, prompting the authorities to step up their efforts to woo foreign investors. “Stabilising” foreign investment is now a priority economic policy for Beijing.

In June, China changed its investment guidelines to open up more sectors to foreign funds.

And Premier Li Keqiang said last week that China would roll out its “free trade zone” policies across the country to open the domestic market wider to foreign investment.

Li also said China would lift caps on foreign stakes in service and manufacturing projects and make it easier for foreign nationals to work in China, adding that all the measures had to be implemented by the end of September.

Once the darling of global investors, China is facing tougher competition to attract interest as domestic costs rise. Electronics giant Foxconn, which employs more than a million workers across China, announced last week that it was spending US$10 billion to set up a factory in the US state of Wisconsin.

Why America may prove a cheaper option than China for Foxconn

China Minsheng Bank chief economist Wen Bin said a key economic job for China was to compete with other countries for investment.

“Foreign investment is very important for local businesses, private and state-owned, as they can bring in new management mindset and increase competitiveness,” Wen said.

Lu Zhengwei, chief economist with Industrial Bank in Shanghai, agreed that foreign investors brought more than just funds.

“It is not the problem of money. The most competitive industries in China are the ones that have the greatest amount of opening up, such as cell phones and home electronic appliances,” Lu said.

That is also the message from the top. President Xi Jinping said told a meeting of the Central Leading Group on Financial and Economic Affairs last month that foreign investment could help promote the country’s development and reforms.

Warning for China as electronics giant Foxconn plugs into US incentives

But not everybody is convinced yet.

The European Union Chamber of Commerce in China, an influential business lobby group, responded to Xi’s call by saying the best bet would be to level the playing field completely.

“The European Chamber believes the most pragmatic approach would be to replace China’s existing foreign investment regime with a regulatory framework that applies equally to both domestic and foreign enterprises, as soon as possible,” the chamber said.