Hot to trot Chinas State Council orders further liberalization to turn the tide on foreign direct investment in China

On 12 January 2017, China's State Council issued the Expansion of Liberalization and the Active Utilization of Foreign Investment Circular Several Measures (国务院关于扩大对外开放积极利用外资若干措施的通知, Guo Fa [2017] No. 5), (the "State Council Liberalization Measures").
The State Council Liberalization Measures set out framework policies to promote further liberalization of certain sectors of the Chinese economy to foreign direct investment  ("FDI"), against a background of China imposing new foreign exchange controls on outbound direct investment ("ODI") by Chinese investors as a result of China's concerns that its outflows of foreign currency are exceeding its inflows, leading to capital flight, a reduction in China's foreign exchange reserves and downward pressure on the Renminbi.
In short, China appears to be attempting to balance the books after a period where domestic concerns have grabbed the headlines with the Counter-Terrorism Law, the National Security Law and the Cybersecurity Law all being passed in the last two years.
Highlights include:

  • further expanding liberalization
  • further creating a level playing field
  • further enhancing efforts to attract foreign investment.

China has clearly been jolted into action by the levels of recent capital outflows, and having gone through a period of introspection, is now looking to try and reverse the trend by cooling down ODI and encouraging FDI. The State Council Liberalization Measures clearly suggest that China is now becoming increasingly concerned about FDI levels and the relocation of FDI projects to countries with a lower cost base than China, and hence needs to go deeper and further in terms of liberalizing various sectors to bring in more FDI.

What is less clear is how these policies will be implemented at the national and local levels, particularly in the industries such as telecoms, internet and culture (media) where many restrictions remain.

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