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2009-03-14 | All chapters

China Eases Investment Approvals
Terence Poon, Wall Street Journal, 13th March 2009

BEIJING -- China's government has allowed local governments to approve certain foreign investments, shifting control away from Beijing in a move to ease foreign investment at a time when it has been declining sharply.

Under the new rules, which took effect last week, foreign businesses setting up an investment company with registered capital of less than $100 million will need to seek approval only from local commerce bureaus, the Ministry of Commerce said Thursday.

China previously required local and ministry-level approvals for foreign investments.

Local commerce bureaus have been given the authority to review plans by foreign-invested auto makers to expand production capacity. The bureaus can also now approve deals by foreign companies to buy domestic firms in certain industries, where the deal value is less than $100 million.

The Commerce Ministry said it is easing regulations to facilitate investment. Foreign direct investment into China has fallen in recent months as companies world-wide are hurting from the financial crisis. In January, the Commerce Ministry said, foreign direct investment fell 33% from a year earlier to $7.54 billion.

Foreign investment in China, while not huge in comparison to the country's gross domestic product, has been vital for providing jobs and introducing new technology and management practices.

However, many foreign companies are now cutting back. A survey of U.S. companies in the country published this week by the American Chamber of Commerce in China found that 39% of respondents are postponing or have canceled planned investments this year, while 21% expect to shrink their China work forces.

In recent months, China has actively sought to paint itself as a good international trade participant, sending Chinese officials and business executives on shopping trips to Europe to buy machinery and other products. Such spending sprees come amid concern in Beijing that the global recession could prompt protectionist moves by its trading partners.

The European Union Chamber of Commerce in China said it welcomed the relaxation of the rules. "The Chamber strongly supports China's efforts to ensure continued economic growth, and hopes to see the introduction of more policies like this that help to build a level playing field for all businesses," it said in a statement. The Chamber also called for "greater transparency of approval processes on a local government level."

Foreign businesses looking to invest in China have often complained of heavy bureaucratic hurdles and that several sectors, such as telecommunication services, remain severely restricted for foreign companies.

To read MOFCOM's announcement on this policy, please click here.

To view the European Chamber's comment on this announcement, please click here.

Source: http://online.wsj.com/article/SB123685761921206681.html#articleTabs%3Darticle