Comments to the MOFCOM, NDRC on Catalogue of Industries for Encouraged Foreign Investment (2019 Edition)
2020-04-15 | Beijing, Shanghai
European Chamber appreciates the government’s effort in taking into account our last comments on the Encourage Catalogue (2017) by adding in Article 10, 21, 24, 25, 26 into the Encourage Catalogue (2019).
The 40 years of reform and opening-up policy, especially the period since China joined WTO, we have seen more investment from foreign enterprises in China, foreign enterprises jointly work with state-owned enterprises and private enterprises have made great contribution to the economic development of China. According to Xinhua News Agency on January 16th, 2018 quoting introduction by the person in charge of foreign investment division of the Ministry of Commerce, “by less than 3% of national share, but the foreign investment enterprises contributed nearly half of the foreign trade volume, one fourth of profits from scaled or larger industrial enterprises and one fifth of national tax revenue, playing an important role in pushing forward physical economic development and improving structural reform from the supply side”.
The European Chamber believes that effective utilization of foreign investment is not an expedient measure but rather a strategic guidance for long-term persistence. Active and encouraging use of foreign investment is not reflected in using the foreign capital, but more importantly introduction of advanced technology, operational and manage concepts, and international market opportunity. It is the effort to lead Chinese enterprises into global industrial chain, value chain, technology chain and innovation chain. Meanwhile, experiences of international corporations in global investment and global multinational company management in different regions in the international market should be helpful to the Chinese government when they feed comments and recommendations to the Chinese government. On February 20th, Premier Li Keqiang held the State Council Standing Committee Meeting. He requested that drafting of any enterprise-related policies, regulations and government papers of policy nature needs to seek consultation from related enterprises, associations and trade unions. And that will make the government decisions reflecting real needs more.” The European Chamber supports the requirement set in this meeting and we wish that the requirement can be followed by all government organizations.
According to our Business Confidence Survey, in 2019, 45% of members said they faced market access barriers. 1/3rd of those said they mainly faced direct barriers like the negative lists while the remaining 2/3rds said they faced indirect ones like licensing and administrative approvals. The percentage is identical in the 2020 BCS findings. which says a lot about how effective the negative list revisions have (not) been. The European Chamber hope the government can take a holistic approach to removing these barriers, both direct and indirect and follow the principle of fair competition during the approval of foreign investment.
With regard to the Encouraged Catalogue now under discussion, the European Chamber would like to make the following general points:
1) It is suggested to set a special chapter in the catalogue of encouraged industries for foreign investment or draft supplementary opinions to describe what specific incentive measures will be given by the government for the encouraged industries in the catalogue and fully implement the incentive measures accordingly;
2) 50 percent foreign ownership is allowed for those covered within the promised scope when made in 2001. In a positive sense, the government has eased the restriction allowing up to 50% and even 100% foreign ownership for some mentioned services. We would not provide opinions on basic telecom parts, while as for value-added telecom services, we suggest that the government shall further relax the restriction on value-added telecommunication services.
Importantly, there have been updates on the Telecom Catalogue with additional services types enlisted since China’s entry into WTO in 2001. At the time, the commitment was made to relax the restriction on E-Mail, Voice Mail, Online Information and Data Search, Electronic Data Interchange, Value-Added Fax Service, Code & Protocol Translation Services. While with the technology advancement and emerging services, the government also kept up with the regulations by releasing the Revised Telecom Catalogue, for example, adding Internet Resource Collaboration as a subcategory of Internet Data Center, Content Delivery Network, Domestic IP-VPN, Internet Service Provider etc. (If within Shanghai FTZ, there are more services that are open to as much as 50% foreign ownership.) In essence, these revised parts are not considered as WTO concession. Nevertheless, foreign companies would be pleased to see if the government further open up the types of services and have such articulation embodied in the Encouraged Catalogue and Negative List for Foreign Investment accordingly.
3) During the Covid-19 crisis a huge challenge to companies operating in China was that global online resources and technology solutions were blocked in China unless someone had a VPN, and these were heavily restricted as well. Companies needed these tools to collaborate and keep operating. Normal business and day to day technology solutions and applications will be blocked without a VPN.
In addition, European Chamber hopes that the government can release its restriction on foreign investment over cloud services. Foreign enterprises face the challenge of lacking sufficient reliable cloud service providers. Meanwhile, China has largely withheld necessary licences from foreign companies in its own market that are eager to offer digital goods and services like blockchain, cloud and 5G.