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China’s cabinet, The State Council, on Saturday eased China’s foreign investment rules for the service industry, including the elderly care and tourism sector, in major cities and the tourism-centric Hainan province.
The announcement comes amid rising concern from foreign investors regarding the Covid-19 restrictions in the country, data security owing to government monitoring as well as the politicization of economic issues. Foreign investors are also worried about market barriers and an uneven playing field.
The new measures are components of a pilot project that was announced in April 2021 that will continue till April 2024, and impact firms located in Shanghai, Tianjin and Hainan province.
In August this year, Chinese Vice-Premier Hu Chunhua emphasized that it was necessary to “make great efforts to attract new foreign investment”. Hu stressed that China needed to stabilise existing foreign investment, work more to keep supply chains steady and “reinforce the confidence of foreign-funded enterprises with practical actions”.
Easing rules for China’s foreign investment
The plan from April 2021 for China’s foreign investment includes 203 pilot projects that cover 12 important service industries such as financial services, technology services, e-commerce, healthcare and education. China wants the related departments to adapt and create a management system to facilitate expansion and open the private sector to foreign investors.
The recent easing in China’s foreign investment aims to ease market access to private corporates engaging foreign investors to run non-profit nursing homes in Chongqing, Tianjin and Hainan. According to the plan, competent travel agencies having foreign investments in Shanghai and Chongqing will be permitted to offer overseas travel services.
The previous relaxations under China’s foreign investment only comprised measures to support the establishment of wholly foreign-owned financial companies in Shanghai and Hainan.
Significance of easing FDI rules
The new measures announced by the State Council on easing foreign investment in service sectors assume significance keeping in view the considerable population in the four areas – Shanghai, Tianjin, Chongqing and Hainan. Opening up the elderly care and tourism sectors in these areas will allow foreign investors to access about 80 million people, local media reported quoting Zhao Xijum, a finance professor at Renmin University who specialises in trade and investment.
The measures are being initiated as pilot projects, first in small cities and industries. After gaining experience, the government plans to promote them in more areas of the country steadily, Zhao added.
Beijing has been worried that the economic setbacks suffered by the country in 2021 and longer-term market changes are preventing foreign firms from investing more money in China. However, the easing of China foreign investment rules has already borne positive results. For instance, as per the new policy, Chongqing and Hainan have allowed foreign banks to play a part in import and export tax payment services and related business guarantees. Similarly, Hainan also urges foreign financial institutions to invest in and establish securities companies.
When the government announced the pilot programme in 2021, the Foreign Investment Management Division of China’s Commerce Ministry said it had seen encouraging results when comparable measures were introduced in 2015. Those measures helped the per capita GDP to exceed $10,000, while foreign investment in the services sector accounted for 70% of the total, it said.
