On March 11, 2020, the Chinese government announced that the novel coronavirus epidemic had peaked within the country, with the number of new cases falling significantly. By March 16, for the first time since the coronavirus was first identified last year, there were more reported cases outside of China than inside.
While maintaining the efforts of containing and wiping out the virus, we expect the Chinese government will make further efforts to boost foreign investment and tackle the sharp economic downturn. In particular, the coronavirus will likely encourage the Chinese government to expedite opening up of the healthcare and health insurance sector to foreign investors. Since February 2020, China’s central and local governments have issued a series of policies to support foreign-invested enterprises (“FIEs”) in resuming normal operations and restore the confidence of foreign investors. For example, MOFCOM has issued two circulars outlining a variety of measures for local governments in improving government service for FIEs and stabilizing foreign investment during the coronavirus epidemic. These included assisting FIEs in resolving labor shortages and other employment issues they may face as a result of the outbreak and formulating other supportive policies for FIEs according to local conditions. In addition, the following measures already have been announced:
Relaxation on foreign access.
In recent years, the Chinese government has been issuing a record number of policies to open up its market to foreign investors. Under the phase one China-US trade agreement signed on January 15, 2020, China also committed to removing foreign ownership caps in various financial services sectors and providing greater access to the Chinese market for U.S. companies. For example, the foreign ownership cap on Chinese life insurers was removed on January 1, 2020. On March 13, 2020, the China Securities Regulatory Commission announced that the current 51% foreign ownership cap on Chinese securities companies will be removed on April 1, 2020. On the same day, a senior MOFCOM official disclosed that the negative list for foreign investment (the “Negative List”), which specifies the industries in which foreign investment is prohibited or restricted, will be further shortened.
Simplified regulatory process.
The Chinese government also has been simplifying the approval or filing requirements on foreign investment since 2016. Under a recently introduced mechanism, approval from or filing with MOFCOM is no longer required for the establishment of FIEs in China. Unless otherwise required by the Negative List or industry-specific regulations, foreign investors may now apply directly to the State Administration for Market Regulation and its local counterpart, the business registration authority in China, for registration of FIEs.
National treatment.
The new PRC Foreign Investment Law and its implementing rules (the “FIL”) became effective on January 1, 2020 and replaced the existing laws that had governed FIEs since the early 1980s. Among other improvements for foreign investors, the FIL emphasizes national treatment of foreign investment in areas not on the Negative List and better protection of the rights and interests of foreign investors. Although the FIL provides only a general and high-level framework, it is expected to be supplemented by additional implementing rules.
While it remains to be seen how these various measures will be implemented in practice by the Chinese government, foreign investors are expected to benefit from the continued opening up of the Chinese market and could consider expanding their presence in China.
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If you have questions on FIEs in China, you are welcome to contact Miss Vera Zhang by calling 86-755-82213750/13530066130(wechat), email to fxy@citilinkia.com.