In order to further optimize the Chinese foreign investment environment and attract more foreign investment, China's State Council has issued “The Opinions of the State Council on Further Optimizing the Foreign Investment Environment and Intensifying Efforts to Attract Foreign Investment” (the “Opinions”). These 24 guidelines provide clear directives and policies to local governments to increase the protection of the rights and interests of foreign investors. This includes strengthening the enforcement of intellectual property rights, facilitating cross-border data flows, to increasing fiscal support and tax incentives for foreign-invested enterprises (FIEs), such as momentarily exempting withholding income tax for foreign investors' domestic reinvestment of their profits into China.

The Opinions emphasize and encourage to attract foreign direct investment in the following areas:

• R&D and technological development: enabling Foreign-Invested Enterprises (FIEs) to develop products and services within China and advancing China’s ambitions in key fields. To this end, the measures call for:

  1. Supporting FIEs to establish R&D centres, jointly carry out technology R&D and industrial applications with domestic companies and undertake major scientific research projects.

  2. Supporting foreign investment in the field of biomedicine and pharmaceuticals by accelerating the implementation and commissioning of foreign-invested projects in the field of biomedicine; encouraging clinical trials of overseas cell and gene therapy drugs; and optimizing drug marketing registration procedures for overseas-produced drugs transferred to domestic production.

  3. Encouraging qualified investors to establish investment companies and regional headquarters.

  4. Implementing the Qualified Foreign Limited Partnership (QFLP) pilot program, to support inbound investment program for foreign companies and investors and supporting direct domestic investment with RMB raised overseas.

• Improving access to green energy: to decarbonize and reduce FIEs’ and MNCs’ carbon footprints in China. The Opinions seek the “introduction of policies and measures to promote green power consumption, and support FIEs to participate more in Green Electricity Certificates (GECs) and cross-provincial and cross-regional Green Power Trading (GPT).”

• The Opinions stress the importance of treating FIEs equally when it comes to preferential and supporting policies. To this end, advocate for FIEs to have a fair role and participate in creating standards on a level playing field as per legal provisions, to involve and ensure transparency throughout the standardization process.

• Strengthening intellectual property rights: to improve the confidence of FIEs through refining the administrative ruling system for patent infringement disputes and enhancing the enforcement of these rulings. The Opinions stress a resolute stance against the infringement of IPR of FIEs, particularly for instances of cross-regional and successive violations, and at the same time, they also emphasize the need to penalize misinformation and “malicious speculation” that compromises the legitimate rights and interests of foreign companies and investors, such as publishing and spreading false and infringing information online.

• Optimizing visa and residence procedures for foreign employees: especially for “foreign executives, technicians, and their families”. Additionally, employees recommended by qualified FIEs as foreign senior management and technical personnel should be facilitated in applying for permanent residence.

• Improving cross-border data transfer procedures: the Opinions ask for establishing “green channels” for qualified FIEs to facilitate cross-border PI transfer procedures. This will facilitate the PI transfer, especially for companies wishing to transfer personal information collected from users in China to their overseas headquarters.

• Optimizing tax policies for FIEs: which range from funding support and tax exemptions for reinvestment to preferential treatment for foreign individuals and incentives for investments in specific sectors. Specific preferential tax policies for companies and their foreign employees include:

  1. Focus on bolstering services for key industrial chains of foreign companies.

  2. Further, encourages domestic reinvestment of foreign capital by waiving withholding income tax on profits earned by foreign investors within China, provided it is reinvested domestically.

  3. Extension of tax-exempt “benefits-in-kind” (BIK), which include tax-exempt items, such as the allowance of housing rental, children’s education fee, and language training fee.

The Opinions represent a comprehensive set of proposals to improve the business environment for foreign companies in China. They are expected to act as a guideline for local governments to carry out specific policies to strengthen support and boost business confidence among foreign companies.

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