CBL’s Introduction
This State Council opinion on how to utilize foreign investment, translated by CBL into American English, provides official insight from the Prime Minister’s office as to what the national policy for foreign investment should be in the 21st century. The opinion is intended to direct the activities of cabinet-level ministers when implementing China’s revised foreign investment law.
Opinion of the State Council of China on Utilizing Foreign Investment
GF (2019) No. 23
To all provincial, autonomous region, and municipal People’s Governments, ministries, and agencies under the State Council:
Internationalization is one of China’s fundamental national policies. Foreign Investment plays a unique and important role in the development of the Chinese economy and should be prioritized in the pursuit of high-quality development and modernization. The international investment landscape has recently undergone substantial changes, presenting new conditions, features, and challenges for China’s use of foreign investment. The implementation of the Five-in-One Plan and the Four Comprehensives is vital to fully realize the Xi Jinping Thought and fully enact the spirit of the 19th Party Congress and the 2nd, 3rd, and 4th Plenary Sessions of the 19th Central Committee. The execution of the Party Central Committee and the State Council’s decisions on maintaining foreign investment is also crucial for stimulating the market and boosting investor confidence, with an emphasis on maintaining national treatment for foreign owned entities. By focusing on creating an open, transparent, and predictable environment for foreign investment, China is streamlining the red tape reduction reform to further optimize foreign investment utilization, stabilize the scale of foreign investment, and improve the foreign investment structure. We hereby offer the following opinions:
- Expanding Internationalization
(i) Supporting Foreign Investment in New Industries Continue relaxing restrictions in the national foreign investment exceptions list and the Pilot Free Trade Zone foreign investment exception list, removing all restrictions not covered by the exceptions list to ensure the effective implementation of internationalization initiatives and improve the overall level of internationalization. (The lead agencies are the National Development and Reform Commission and Ministry of Commerce, with all appropriate agencies and provincial people’s governments dividing responsibilities based on their statutory powers)
(ii) Expedite the Internationalization of the Financial Industry Eliminate financial institution business activity restrictions, such as those for foreign banks, securities companies, and fund management companies in China, to diversify market offerings and improve economic vitality. Ease access restrictions for foreign investors forming banks and insurance companies and conducting related business activities. Eliminate asset requirements for foreign banks forming foreign owned banking entities and branches in China and term and total asset requirements for foreign insurance brokers to operate in China. Expand shareholder qualification in foreign banks and insurance companies, eliminate the requirement that the sole or major shareholder in a China-foreign joint venture bank must be a Chinese financial institution, and allow foreign insurance groups to form insurance companies in China. Continue supporting national treatment for foreign insurance companies and their branches in regulatory approval matters, such as entity formation and change registration. The restriction limiting foreign shareholding in securities companies, securities investment fund management companies, futures companies, and life insurance companies to a maximum of 51% will be lifted in 2020. (The People’s Bank of China, China Banking and Insurance Regulatory Commission, and China Securities Regulatory Commission shall be responsible for dividing work based on their statutory powers)
(iii) Optimize Foreign Investment Policies in the Automotive Industry Ensure equal market access for electric vehicles produced by both domestic and foreign automotive manufacturing companies nationwide. Amend administrative procedures governing average fuel consumption for passenger car manufacturers and electric vehicle credits. Allow foreign owned automotive entities to transfer credits after foreign investors reach an agreement with Chinese cooperative entities. (The Ministry of Industry and Information Technology and provincial people’s governments shall be responsible for dividing work based on their statutory powers)
(iv) Focus on Creating a Fair Business Environment. Government agencies at all levels should focus on improving market fairness and eliminating institutional barriers to fair competition. Efforts should be made to standardize permitted business activities for foreign and domestic business entities in the construction industry. Regulations governing foreign investor applications to engage in internet access services, entertainment venues, and other similar businesses should be improved. Adhere to the principle of equal national treatment for domestic and foreign entities when reviewing mandatory certificates issued by product certification organizations. Increase the number of organizations responsible for identifying chemical hazards, and do not set restrictions for foreign entities. (The Nation Development and Reform Commission, Ministry of Housing and Urban-Rural Development, Ministry of Commerce, Ministry of Culture and Tourism, Ministry of Emergency Management, State Administration for Market Regulation, and provincial people’s governments shall be responsible for dividing work based on their statutory powers)
- Increase Investment Attraction
(v) Optimize science and technology innovation services for business entities that have foreign investors. Improve the guidance and services for foreign owned entities applying for high-tech business entity licenses, organize policy training, improve policy awareness, and encourage and guide more foreign investment in high-tech industries. (The Ministry of Science and Technology, Ministry of Finance, State Administration of Taxation, and provincial people’s governments shall be responsible for dividing work based on their statutory powers)
(vi) Improve the Development of Pilot Free Trade Zones Support local agencies in addressing commercial enterprise expectations, recommend specific measures to increase internationalization and innovative development in Pilot Free Trade Zones, encourage the trial of comprehensive reform initiatives in Pilot Free Trade Zones, and fully utilize Pilot Free Trade Zones as testing grounds for the national internationalization reform. Grant certain Pilot Free Trade Zones more provincial economic regulatory authority, particularly in areas such as investment approval and market access. (The lead agencies are the Ministry of Commerce, appropriate agencies such as the National Development and Reform Commission and provincial people’s governments shall be responsible for dividing work based on their statutory powers)
(vii) Improve the Quality of Open Investment Attraction Platforms Local people’s governments are encouraged to support the creation of national economic and technology development zones with highly competitive industry clusters and to create branded investment attraction platforms. Establish a contact system for important businesses and provide them with comprehensive specialized services to develop a wide range of influential industry leaders. Prioritize the creation of additional free trade zones in central and western regions that have proven development needs and meet the necessary conditions. Effectively implement initiatives, such as expedited approvals, online government services, and one-stop solutions, in national economic and technological development zones. Innovate and improve the business entity service system, and create a first-class business environment. (The Ministry of Finance, Ministry of Industry and Information Technology, Ministry of Commerce, General Administration of Customs, State Administration of Taxation, and provincial people’s governments shall be responsible for dividing work based on their statutory powers)
(viii) Increase Support for Local Governments’ Foreign Investment Attraction Efforts. Encourage local governments to enact assessment and incentive policies and offer more flexible incentives for non-civil service positions within investment promotion agencies and teams based on local investment attraction conditions. Encourage local governments to reasonably determine investment attraction funding amounts and standards within their statutory authority and to support overseas investment attraction and group applications. (The Ministry of Foreign Affairs, National Development and Reform Commission, Ministry of Finance, Ministry of Human Resources and Social Security, Ministry of Commerce, and provincial people’s governments shall be responsible for dividing work based on their statutory powers)
(ix) Effectively Improve Policy Awareness and Interpretations. Government agencies across the country should actively promote policy awareness by establishing investment service platforms and policy help desks. These agencies should also engage with entities to explain the different policies, understand their concerns, and address the challenges they face while responding to corporate demands and assisting foreign owned entities in making full use of and benefiting from the various preferential policies available to them. (All appropriate agencies and provincial people’s governments shall be responsible for dividing work based on their statutory powers)
III. Strengthening the Investment Facilitation Reform
(x) Reduce cross-border funding costs. Promptly issue specific regulations supporting foreign entities’ cross-border use of RMB. Expand the scope of pilot reforms designed to facilitate capital project payments. Focus on reforming the registration system for the issuance of corporate foreign debt, enhance comprehensive macro-prudential management policies for cross-border financing, allow foreign investors to choose foreign debt borrowing methods, and reduce financing costs. Encourage foreign entities to use their capital for lawful domestic equity investment. (The Nation Development and Reform Commission, Ministry of Commerce, People’s Bank of China, and State Administration of Foreign Exchange shall be responsible for dividing work based on their statutory powers)
(xi) Facilitate the Employment of Foreigners in China. Support the relaxation of different restrictions, such as those for age, education, and work experience, for innovators, entrepreneurs, and skilled professionals in high-demand industries facing shortages based on local economic requirements. Foreign students aspiring to become innovators and entrepreneurs may apply for two-year temporary residence permits using their Chinese university diplomas. Foreign nationals who have been granted two consecutive work permits may be eligible to receive a five-year work permit upon their third application, provided they meet eligibility criteria. Streamline the foreigner work permit application process, improve inter-agency information sharing systems, and consolidate work permits and residency permits for foreign nationals working in China. (The Ministry of Foreign Affairs, Ministry of Science and Technology, Ministry of Human Resources and Social Security, National Immigration Administration, and provincial people’s governments shall be responsible for dividing work based on their statutory powers )
(xii) Streamline Land Use Planning for Foreign Investment Projects. Continually optimize the red tape reduction reform for land use planning while expediting foreign investment project progress. Consolidate site selection and approval processes, and site planning and use permits, eliminate duplicative approval processes, improve information sharing, and simplify application material requirements. (The lead agencies are the Ministry of Natural Resources, National Development and Reform Commission, Ministry of Housing and Urban-Rural Development, Ministry of Commerce, with provincial people’s governments responsible for dividing work based on their statutory powers)
- Protecting Foreign Investor Legal Rights
(xiii) Comprehensive Implementation of the Foreign Investment Act. Government agencies nationwide must strictly enforce the implementation of the Foreign Investment Act and its relevant regulations following its enactment. These agencies should also review and amend regulations as necessary, and promptly issue specific implementation guidelines and judicial interpretations. Additionally, more effort should be put into training and awareness to ensure the effective implementation of the different systems operated under the Foreign Investment Act. (The lead agencies are Ministry of Commerce, National Development and Reform Commission, Supreme Court, and Ministry of Justice, with provincial people’s governments and the appropriate agencies responsible for dividing work based on their statutory powers)
(xiv) Protecting the Legal Rights of Foreign Owned Companies. Local government agencies should set up complaint mechanisms for foreign owned entities, formulate process rules, standardize procedures, and improve processing efficiency. Local government agencies must strictly follow the Foreign Investment Act, Administrative Licensing Act, and other laws governing administrative licensing for foreign entities. They shall not change administrative approval scope, processes, or standards without authorization. Administrative agencies and their employees must not directly or indirectly cause foreign investors or their entities to transfer their technology through coercion, administrative licensing, oversight and inspection, or other administrative means. (The lead agencies are the Ministry of Commerce, with the appropriate agencies and provincial people’s governments responsible for dividing work based on their statutory powers)
(xv) Streamlining the Implementation of Regulatory Standards Optimize regulatory approaches and adopt an evidence-based approach when determining the frequency of regulatory inspections, such as those related to environmental protection and production safety, to reduce compliance costs for foreign owned entities. Local people’s governments should implement precautions against heavy pollution in accordance with the Act of the People’s Republic of China on the Prevention and Control of Atmospheric Pollution and other applicable laws. Local governments should also issue guidance on refining and quantifying discretionary standards for administrative penalties imposed for noncompliance with market regulations. (The Ministry of Ecology and Environment, Ministry of Emergency Management, and State Administration for Market Regulation shall be responsible for dividing work based on their statutory powers)
(xvi) Improving Transparency on Regulatory Document Enactment. Government agencies across the country shall focus on improving the legal review process when drafting and issuing foreign investment regulatory documents. The time between issuance and implementation of regulatory documents governing entities’ business activities should be determined reasonably and only as necessary to improve predictability and transparency. (All agencies and provincial people’s governments shall be responsible for dividing work based on their statutory powers)
(xvii) Enhancing the Judicial Protection of Intellectual Property Rights. Make full use of asset preservation, evidence preservation, and injunction relief mechanisms to improve the efficiency and accessibility of legal remedies for intellectual property rights issues. Refine evidence requirements for intellectual property cases involving foreign investors and employ factual presumptions to reasonably reduce litigation burdens for foreign investors. Enhance trade secret protection in compliance with the law, and reasonably allocate the burden of proof to improve both civil and criminal protections. Centralize and standardize patent infringement and appeal hearings to improve trial quality and efficiency. Fully respect the market value of intellectual property rights, actively impose punitive damages, and strengthen enforcement against malicious and repeat infringements. Continue improving the technical investigator system and strengthen the development of an alternative technical fact-finding system. Improve the standard essential patent trial process to ensure fair market competition. Make full use of alternative mediation approaches in intellectual property cases and to effectively resolve disputes. Centralize evidence and adjudication standards for intellectual property litigation, issue appropriate judicial interpretations in a timely manner, publish precedent-setting cases, and constantly improve the standardization, use evidence-based approaches, and improve the internationalization of intellectual property litigation. (Led by the Supreme Court.)
(xviii) Improving Intellectual Property Protection Processes. Develop and optimized coordination for the protection of intellectual property rights and credit-based penalties, continuously improve arbitration and mediation procedures for intellectual property disputes, and establish alternative dispute mediation processes. Improve trademark cancellation procedures. Establish an effective system for the protection of geographical indications. Improve the intellectual property protection system for e-commerce businesses by enhancing decision-making and notice rules for patent infringement disputes involving e-commerce platforms, and improve the system for enforcing e-commerce patents and rights protection. Proactively employ standardized methods to enhance the protection of intellectual property rights. (The Ministry of Commerce, State Administration for Market Regulation, National Intellectual property Administration, and provincial people’s governments shall be responsible for dividing work based on their statutory powers)
(xix) Support participation in establishing standards. Guide all government agencies to fully implement the national treatment of domestic and foreign owned entities in the formulation of national standards, and encourage foreign owned business entities to participate in standards development for medical devices, food and drugs, and information technology products to enhance the transparency and scientific basis of industries standards and technical specifications revision. (The lead agencies are the State Administration for Market Regulation, with provincial people’s government agencies responsible for dividing work based on their statutory powers)
(xx) Ensure Equal and Lawful Participation in Government Procurement. Foreign Owned entities shall receive equal treatment and not face discriminatory practices in the publication of government procurement information, determination of supplier conditions, or bid evaluation criteria. No restrictions shall be imposed on ownership structures, entity forms, shareholding structures, investor nationality, or product or service brands. (The lead agencies are the Ministry of Finance, with provincial government agencies responsible for dividing work based on their statutory powers)
All national and jurisdictional agencies shall comprehensively implement the requirements of the Party Central Committee and State Council to support foreign investment and shall acknowledge the importance of optimizing foreign investment utilization. They should take the initiative to improve their positions, strive for effective results, and ensure the effective implementation of foreign investment policies. Any amendments or repeals of administrative regulations, State Council decrees, or administrative codes that have been approved by the State Council must be reported to State Council for approval by the responsible regulatory agencies or the Ministry of Commerce and appropriate agencies. The Ministry of Commerce and appropriate agencies shall improve foreign investment guidance and coordination and promptly report any major concerns to the State Council.
State Council of the People’s Republic of China
October 30, 2019
(This document is publicly available.)