China Looks to Attract Foreign Investment as Its Economy Struggles 

China’s latest attempt to reverse the nation’s foreign investment slump includes pledges to offer overseas firms better tax treatment and make it easier for them to obtain visas, as officials try to allay fears about doing business in the world’s second-largest economy.

(Bloomberg) — China’s latest attempt to reverse the nation’s foreign investment slump includes pledges to offer overseas firms better tax treatment and make it easier for them to obtain visas, as officials try to allay fears about doing business in the world’s second-largest economy. 

The 24-point plan from the State Council — China’s cabinet — also promises to relax regulations on transferring data overseas, among other measures. The policies are intended to address long-standing concerns held by foreign companies about their ability to fairly compete in the government procurement process and protect their intellectual property, among other things.

Beijing earlier this year declared 2023 as the “Year of Investing in China.” But that campaign was quickly met with skepticism among foreign companies, which expressed concerns about the difficult business environment, unpredictable policy making, worsening geopolitics and the health of the domestic economy. 

In a survey published this spring by the American Chamber of Commerce in China, most companies that responded said they didn’t see the country as a “top 3” investment priority. Other indicators have shown a rapid slowdown of investment by overseas firms this year.

The State Council plan published Sunday includes a government pledge to accelerate foreign projects related to the biopharmaceutical industry, as well as to increase the trial area for certain telecommunication services. Qualified foreign companies will also be encouraged to set up investment units and regional headquarters.

The government will also make it more convenient for employees of foreign companies to apply for visas and residence permits, and it will increase fiscal and taxation support for those businesses, according to the statement.

These new policies “could go a long way to improving business confidence if they are implemented in timely, coordinated and consistent manner,” the European Union Chamber of Commerce said in a statement. “The publication of detailed implementation guidelines will be an extremely important part of this process.”

Earlier this month, President Jens Eskelund told Bloomberg News that foreign businesses were experiencing “promise fatigue,” as they remain skeptical about whether the government will deliver meaningful policy support.

The chamber has called for China to open up more sectors of the economy to foreign businesses, ensure they have fair competition with state-owned firms and de-politicize the business environment, according to its most recent position paper in September 2022.

Many of the topics from the Sunday announcement — including preferential tax policies, data transfers and support for companies focused on research and development —  “have been on our list” of areas needing policy improvement, said Michael Hart, president of AmCham China.

“The next area to watch is the actual implementation of announced policies which is sometimes where the real challenges lie,” he added. 

The government will continue to reduce the number of sectors that ban investment from foreign firms, China’s Assistant Minister of Commerce Chen Chunjiang said at a press conference Monday afternoon to explain the new policy. 

Authorities will also relax restrictions on “strategic” investments into listed Chinese firms, Chen added.

Pharmaceutical Focus

The part of Sunday’s proposal focused on the pharmaceutical industry is notable given the size of China’s drug market, the second-largest in the world. It’s very attractive to foreign drug companies, which have been increasing their footprint in the country since its pandemic restrictions ended.

Last month, American firm Moderna Inc. said it would push toward producing messenger RNA vaccines for China. This month, UK-based AstraZeneca Plc signed a cooperation agreement with a Chinese company to work on mRNA technology. 

However, a widening campaign against corruption in the drug sector may make it harder for the government to achieve its goal of attracting investment.

The nation’s top graft buster said last month that authorities would conduct a year-long, nationwide crackdown to root out corruption in the pharmaceutical sector. At least 155 officials at hospitals nationwide were being probed for allegedly violating laws and regulations as of late July. 

An extension of that campaign to drug companies would add to the growing anxiety among foreign companies. They’re already experiencing concern this year after a Japanese pharmaceutical executive was arrested, and after the country passed a new anti-spying law. A crackdown on foreign consulting firms has also sparked worries.

Another area of interest in Sunday’s statement was a promise to “streamline” cross-border data flows. That might make it easier for foreign firms to export personal data from China. 

The increasing difficulty of moving such data out of China has been of rising worry to foreign firms. The restrictions risk making the country a “data island,” according to a report last year from the US-China Business Council.

Most large foreign firms have submitted the documents needed to be licensed to export data, but the approval process is going very slowly, according to Rich Bishop, co-founder and CEO of AppInChina, which helps international companies publish software in China. 

He added, though, that Sunday’s statement indicates authorities will take steps to improve that process.

–With assistance from Jing Jin and Sarah Zheng.

(Updates with statement from the European Chamber of Commerce in China.)

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