Stance on State Council Document No. 39 Go back »

2017-08-18 | All chapters

Background

On 16^th August, 2017, the State Council released Several Measures for Promoting Foreign Investment Growth (State Council Document No. 39 or Guofa [2017] No. 39). A follow up to the State Council’s Notice on Several Measures on Promoting Further Openness and Active Utilisation of Foreign Investment (State Council Document No. 5 or Guofa [2017] No. 5), released in January 2017, State Council Document No. 39 was released following a slight decline of foreign direct investment (FDI) into China during the first seven months of 2017. It also follows the meeting of the Central Leading Group of Financial and Economic Affairs, convened in mid-July 2017 and the State Council’s meeting on 28^th July. State Council Document No. 39 contains 22 measures that are aimed at increasing foreign investment and optimising the utilisation of foreign capital. The State Council has designated a number of different authorities the responsibility for implementing each of the 22 measures.

Stance

The European Chamber is encouraged by much of the tone and focus of the State Council’s Several Measures for Promoting Foreign Investment Growth (State Council Document No. 39 or Guofa [2017] No. 39), particularly the calls for specific timetables and roadmaps on achieving openness in individual industries.

The intentions to increase protection of foreign-invested enterprises’ (FIEs’) intellectual property, establish a nationwide work permit system for foreign talent working in China and facilitate the smooth processing of work visas are warmly welcomed as they address some of the most basic challenges faced by FIEs in China. Furthermore, State Council Document No. 39’s statement that “openness should be constantly promoted” in industries like petrol stations and financial services indicates that some of the discriminatory policies that FIEs currently face will be phased out. The commitment made to ensuring that foreign investors are able to repatriate their profits is also very positive – this is an issue that the Chamber has discussed many times with the relevant authorities over the past few months.

If effectively implemented, these measures would greatly improve China’s business environment, increase predictability and make it a more attractive destination for foreign investment. 

However, the European Chamber notes that some of the industries specifically targeted for opening up, such as cyber cafes, are currently not of great interest to foreign business. In order to successfully meet the overall objective of facilitating more high-quality FDI it is important for China to ensure that market opening takes place in the areas that are of most interest to foreign investors.

The planned relaxation of the joint venture (JV) requirements for foreign car manufacturers in the new energy vehicle (NEV) industry initially seems to be a positive development, as this would theoretically allow foreign-invested enterprises (FIEs) to contribute more to the development of China’s NEV industry. In practice, however, investment in NEV production currently remains subject to restrictions that require NEV manufacturers to demonstrate complete mastery of relevant development and manufacturing technologies. It is not currently possible for the relevant competencies of FIEs’ parent companies to be attributed to their subsidiary Sino-foreign JVs. Instead, they have to transfer core technologies to the JV in order to gain market access. As a result, foreign manufacturers can be expected to remain cautious regarding investments in NEV production until further reforms are implemented. Creating an environment that offers all companies effective and transparent enforcement of intellectual property rights will be crucial in this respect. 

State Council Document No. 39 stipulates that “the harmonisation of laws and regulations for domestic and foreign capital” and the enactment of “new fundamental laws on foreign capital” should be accelerated. This aligns with the recent call from President Xi Jinping during a meeting of the Central Leading Group of Financial and Economic Affairs in mid-July 2017. The European Chamber has always advocated equal treatment for all market players and looks forward to providing input into the law-making process, to ensure that these ambitions are fully realised and result in a level playing field for foreign and domestic enterprises. The most effective way to achieve this would be to abolish all foreign investment laws. Reciprocal treatment is essential, not only for European business investing in China, but also for Chinese investments overseas. 

The Ministry of Commerce, along with other ministries, has been assigned the responsibility for rolling out a series of additional policies before the end of September in order to ensure that the guidelines are properly implemented. The European Chamber now looks to engage with all responsible authorities for further clarification and concrete implementation schedules for each of the 22 measures listed in State Council Document No. 39. 

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