China is looking to attract foreign investment as its economy struggles

China is looking to attract foreign investment as its economy struggles

(Bloomberg) — China’s latest attempt to reverse stagnant foreign investment in the country includes pledges to provide better tax treatment for offshore companies and make it easier for them to obtain visas, as officials try to quell concerns about doing business in the world’s second-largest economy. .

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The 24-point plan from the State Council — China’s cabinet — also promises to ease regulations on data transfers abroad, among other measures. The policies aim to address long-standing concerns foreign companies have about their ability to compete fairly in the government procurement process and protect their intellectual property, among other things.

Beijing earlier this year declared 2023 the “Year of Investment in China”. But that campaign was quickly met with skepticism among foreign companies, who expressed concerns about the difficult business environment, unpredictable policymaking, deteriorating geopolitics and the health of the local economy.

In a survey released this spring by the American Chamber of Commerce in China, most companies that responded said they did not see the country as a “top 3” investment priority. Other indicators showed a rapid slowdown in investment by foreign companies this year.

The State Council plan published Sunday includes a government pledge to accelerate foreign projects related to the biopharmaceutical industry, as well as increasing the trial area for some telecom services. Qualified foreign companies will also be encouraged to establish 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 will increase financial and tax support for those companies, according to the statement.

It is unclear whether the plan will motivate foreign investors to increase their presence in China. Foreign companies are already experiencing “promise fatigue” as they remain skeptical about whether the government will offer meaningful political support, according to the head of the EU Chamber of Commerce.

President Jens Esklund said in an interview with Bloomberg News earlier this month that only a “small part” of the policy proposals put forward by the European Chamber over the past two decades have been adopted. The chamber has called on China to open more sectors of the economy to foreign companies, ensure it has fair competition with state-owned enterprises, and depoliticize the business environment, according to its latest position paper in September 2022.

Pharmaceutical focus

The part of Sunday’s proposal that focused on the pharmaceutical industry is noteworthy given the size of the pharmaceutical market in China, the second largest in the world. It is very attractive to foreign pharmaceutical companies, which have increased their presence in the country since pandemic restrictions ended.

Last month, the US company Moderna said it would push to produce mRNA vaccines for China. This month, UK-based AstraZeneca Plc signed a cooperation agreement with a Chinese company to work on mRNA technology.

However, the breadth of the crackdown on corruption in the drug sector could make it difficult for the government to achieve its goal of attracting investment.

The country’s top official in cracking down on corruption said last month that the authorities will launch a nationwide campaign for a year to root out corruption in the pharmaceutical sector. As of late July, at least 155 hospital officials across the country were being investigated for allegedly violating laws and regulations.

The extension of that campaign to include pharmaceutical companies would add to the growing concern among foreign companies. They are already suffering from anxiety this year after a Japanese pharmaceutical executive was arrested, and after the country passed a new anti-espionage law. A crackdown on foreign consulting firms has also raised concerns.

Another area of ​​interest in Sunday’s statement was the promise to “streamline” data flows across borders. This may make it easier for foreign companies to export personal data from China.

The increasing difficulty of moving such data out of China has caused concern among foreign companies. The restrictions risk making the country a “data island,” according to a report last year by the US-China Business Council.

Most large foreign companies have submitted the documents required to obtain a license to export data, but the approval process goes very slowly, according to Rich Bishop, co-founder and CEO of AppInChina, which helps international companies deploy software in China.

But he added that Sunday’s statement indicated that the authorities would take steps to improve the process.

– With assistance from Jing Jin and Sarah Cheng.

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