Investment & trade

China is one of the most attractive inbound investment destinations globally. The UN Global Investment Report ranks China at the top. This is due to the country’s rapidly expanding market for goods and services and its prospects for growth.

Covid-19 latest information

This guide is an accurate reflection of the pre-Covid-19 business environment in China. Please note that due to the current situation, some circumstances may have changed in this country. Figures and data in the guide were last updated in August 2020.

  • China can still be a challenging place to do business, even though the country’s reform agenda is helping provide more clarity with a number of investment and trade-friendly reforms.
  • The country’s GDP continues to grow at enviable rates with more industries and sectors open to foreign investment than ever.
  • If your investment agenda is aligned to China’s direction of travel, the potential is incredible.
FDI Net Inflows (Current USD)
USD12.41 billion in January 20191
Ease of doing business - Trading across borders (Rank)
561
Ease of doing business - Starting a business (Rank)
271
Enabling Trade Index (Rank)
612

Foreign direct investment into China is evolving as wages continue to rise and the country shifts from heavy industry to one focused on consumption and services. The Chinese government has been making moves to attract foreign investors, who are now more cautious about the sectors and businesses they invest into.

China’s State Council has called for the country to open up further to overseas corporations and outbound investment from domestic firms has also increased in recent years.

President Xi Jinping has also reaffirmed the country’s commitment to international trade and globalisation. The government has eased restrictions and pushed forward its business reform agenda, providing more clarity on which sectors overseas companies can invest in. Foreign invested enterprises (FIEs) play an increasingly significant role in China and are often involved in the very industries that the country is trying to cultivate.

Ease of doing business

In the World Bank’s Ease of Doing Business Index 2020, China is ranked 31st, which is above the regional average for the East Asia & Pacific region. China scores highly - second globally - regarding the enforcement of contracts.

The Chinese authorities have made it easier to start a business by streamlining the registration process. Just one form is needed to obtain a business licence, organisation code and tax registration. China has also made it easier for corporations to pay taxes by introducing a number of measures that ease compliance.

Foreign investment

In 2019, a new foreign investment law was passed, predominantly to prohibit the forced transfer of technology from foreign-invested businesses in China, increase protection of intellectual property and put international companies on an equal footing with domestic businesses.

Included in the change of rules is a list of 48 sectors that will not be open to foreign investment without special conditions. Partial investment will be allowed in other sectors.

For industries not on this list, the intention is that foreign companies and their Chinese counterparts will receive the same treatment.

Competitiveness

China is striving at all levels to become more competitive on the global stage. It is trying to raise innovation and push forward high-quality development. At present, it ranks 28th in the Global Competitiveness Report from the World Economic Forum. The IMD World Competitiveness Ranking for 2019 puts the economy at 14th place.

China’s leaders, via the State Council, are keen to boost the country in this regard by optimising the business environment. The government is already talking of further moves in 2018 to cut red tape, reduce taxes and slash fees for enterprises, as well as offer further equal treatment for local and foreign businesses.

Government incentives

These generally take the form of tax policies offered to incentivise foreign investment, including tax holidays and exemptions. They are directed at industries, sectors and regions of China that the government wants to promote and encourage. For instance, investors in integrated circuit products can enjoy a tax holiday of up to five years. Incentives are even more attractive if you invest in the less developed western regions of China, such as Xinjiang province.

China’s Ministry of Finance went one step further at the end of 2017 by saying it would exempt foreign enterprises from paying provisional withholding income tax on profits that are reinvested in the country. Again, this applies only to certain sectors and industries.

Capital markets & banking

Once closed off to overseas capital, foreign investors now enjoy a wide range of channels to invest in China’s financial markets. This comes at a time when China has ambitions to internationalise its currency and liberalise its capital markets.

Considering the size of the Chinese economy, as well as the scale of its equity and bond markets, it is still severely under-represented in many foreign portfolios. There is good reason to think that international investors will buy more Chinese securities. The 2018 inclusion of domestically-listed Chinese companies into a major international index for example will likely result in fund managers increasing their exposure to so-called A shares.

China established the Bond Connect scheme in 2017 with Hong Kong, creating a trading link that connects China’s bond market with global investors. There are now three schemes in place - Bond Connect, Shenzhen Stock Connect and Shanghai Stock Connect.

Intellectual property rights

China recognises the importance of protecting Intellectual Property Rights (IPR), which include patents, trademarks and service marks, copyright and industrial designs. Having been a member of the World Trade Organisation (WTO) since 2001, China is obliged to include intellectual property protection in its national laws. Furthermore, China is also a signatory to a number of other international agreements, including: the Paris Convention, Berne Convention, Madrid Protocol and Patent Cooperation Treaty. China's legal framework for the protection of intellectual property is built on three national laws: the Patent Law, the Trademark Law and the Copyright Law.

The State Intellectual Property Office (SIPO) is the authority responsible for the registration of Patent and the relevant rights, while SIPO offices at the provincial and municipal level are responsible for administrative enforcement. SIPO was originally set up to merge the patent, trademark and copyright offices, but this is yet to happen. Trademarks can be registered with the National Trademarks Office. The National Copyright Administration is responsible for copyright administration and enforcement.

China launched a nationwide campaign in 2017 to protect the intellectual property rights of foreign businesses, which shows how seriously the authorities are taking IP infringement. There has been a crackdown on the theft of trade secrets, trademark infringement, patent violations and online property rights violations.

China has already broken the patent application record, accounting for 1.3 million domestic submissions, according to an annual report by the World Intellectual Property Organisation - more than the US, Japan and South Korea combined.

1 World Bank Group, 2020

2 World Economic Forum, 2018