Since China opened its doors to foreign investors around forty years ago, it has been a top recipient for international direct investments. Despite the gradual slowdown of the country’s overall economic growth, foreign interest in China continues to be strong. After a slight decline in 2016, foreign direct investment increased again by 3% to US$134.97 billion in 2018.
The relatively steady increase in foreign investments has been accompanied by a structural shift in the projects financed and locations selected. Rising costs – particularly in the previously favoured coastal provinces – have led to a shift to the more technologically demanding production and services industries. Investment in the inland areas has also sharply increased in the past decade.
The changes in government subsidies are other drivers for the structural transformation in foreign investment. For example, since 2008 foreign invested manufacturing companies no longer receive tax exemptions. Now only hi-tech companies, or those that settle in less developed regions of China’s inland, receive such tax incentives.
The Chinese legal regime for foreign investment is not completely straightforward – given its requirement for government approvals, filing and other China-specific requirements, such as foreign exchange control. Recent years have witnessed a series of substantial changes in China's foreign investment regime, including the promulgation of the PRC Foreign Investment Law, which may appear confusing or complicated to investors who are exploring and investigating investment opportunities in China. This Guide aims to provide existing and potential investors with a snapshot of the key legislation that may have an impact on foreign investment in China, as well as major issues that foreign investors should be aware of when making an investment in China. We hope you will find this Guide useful.