China: Foreign investment

FDI in Figures

According to the 2018 World Investment Report published by UNCTAD, China was ranked the world's second largest FDI recipient after United States and before Hong Kong. The country's economy was ranked the second most attractive to multinational companies for 2017-2019, after the U.S. With steady growth for several years, FDI inflows continue to increase between 2016 and 2017, from $ 133 billion to $ 136 billion. This growth is favored by liberalization plans, the rapid development of the high-tech sector and the establishment of free trade zones. The absorption of FDI is part of the policy of opening China to the outside world, aiming at creating a better business environment, structure and distribution of investment. The government's efforts to achieve a better geographical spread of investments have allowed Central China to see its FDI increase.

According to a statement released in early 2018 by the Chinese Ministry of Commerce, 35.652 foreign-funded companies were set up in China last year, up 27.8% from 2016. FDI in the 11 free trade zones hit almost USD 16 billion in 2017, up 18.1% year on year, much higher than the national average. In contrast, the MOC’s data showed non-financial outbound direct investment (ODI) declined in 2017 amid government curbs on investment overseas. FDI stocks are up 10% between 2016 and 2017 and reach $ 1491 billion.

In 2017, Hong Kong is the largest investor in China. Singapore, Taiwan, South Korea, Japan, the United States, the Netherlands, Germany, the United Kingdom and Denmark are other major investors. Investments were mainly oriented towards business services, manufacturing, trade, new technologies, real estate and financial intermediation.

With a wealth of employees and potential partners eager to learn and evolve, the country is a base for low cost production. Nevertheless, certain factors can hinder investments, such as China’s lack of transparency, legal uncertainty, low level of protection of intellectual property rights, corruption or protectionist measures which favour local businesses. China was ranked 78th out of 190 countries in the World Bank ranking for business climate Doing Business 2018.

What to consider if you invest in China

Protection of Foreign Investment

Procedures Relative to Foreign Investment

Freedom of Establishment

Varies according to the sector. There is a requirement to submit a 'business plan' for approval prior to setting up.

Acquisition of Holdings

The acquisition of majority interest in a local company is authorised in China, according to the sectors.

Obligation to Declare

The China International Investment Promotion Agency facilitates the distribution of information on necessary authorisations for establishing a business in the country. All proposed foreign investment projects in China must be submitted for 'verification' and approval to the National Development and Reform Commission (NDRC) or to provincial or local Development and Reform Commissions (depending on the sector and value of the investment).

Competent Organisation For the Declaration

National Development and Reform Commission (NDRC)
Ministry of Commerce (MOFCOM)
State Administration for Industry and Commerce (SAIC)

Requests For Specific Authorisations

Business plans must be submitted for approval to competent authorities prior to the beginning of business activity. Greenfield investment projects must also seek approval from China's Environmental Protection Ministry and its Ministry of Land Resources. The Chinese Government maintains 'absolute control' over sectors including: aviation, coal, defence, electric power and the state grid, oil, petrochemicals, shipping and telecommunications. It also holds 'relative control' over the following sectors: automotive, chemical, construction, exploration and design, electronic information, equipment manufacturing, iron and steel, nonferrous metal, science and technology.

Learn more about Foreign Investment in China on Globaltrade.net, the Directory for International Trade Service Providers.

Office Real Estate and Land Ownership

Possible Temporary Solutions

Rental and Business center. Purchase by foreign companies is subject to restrictions.

-         Telecommunications
-         energy
-         environment
-         high technology
-         services

The Possibility of Buying Land and Industrial and Commercial Buildings

Not possible to buy land in China. Only a right of use of 50 to 70 years can be approved.

Risk of Expropriation

The risk of expropriation is high. The law envisages a compensation but no indication is given on the amount or its calculation. Chinese law prohibits nationalization of foreign-invested enterprises except under"special" circumstances, including national security and obstacles to large civil engineering projects.

Investment Aid

Forms of Aid

Foreign investors enjoy corporate tax reductions, exemptions of tax on dividends repatriated during a certain period and other tax advantages. Moreover, foreign direct investment incentives include packages of reduced income taxes, resource and land use fees, and import/export duties, as well as priority treatment in obtaining basic infrastructure services, streamlined Government approvals, and funding support for start-ups. The Ministry of Commerce (MOFCOM) can be contacted for any information concerning opportunities in China.

Privileged Domains

China encourages foreign investment primarily in high technology, clean energy and export-oriented sectors.

Free Zones

The Government has created various zones, granting each tax exemptions or tax incentives to attract overseas investments. They are primarily the 5 special economic zones and the 14 coastal cities.
The special zones are Shenzhen (at the border of Hong-Kong), Zhuhaï (close to Macau), Shantou, Xiamen (vis-à-vis Taiwan) and the island of Hainan. They were selected because they were completely under-developed.

The 14 coastal cities are Dalian (in the province of Liaonong), Shanghai, Ningbo, Wenzhou (in the province of Zhejiang), Fuzhou (in the province of Fujian), Guangzhou, Zhanjiang (in the province of Guangdong), Beihai (in the autonomous region of Guangxi Zhuang), Tianjin, Yantai, Qingdao (in the province of Shandong) and Lianyungang, Nantong (in the province of Jiangsu). For the past few years, other cities have also been regarded as coastal towns profiting from the same status. Unlike the 5 special zones, these cities were not underdeveloped, but key industrial centres in China. Overseas investment has facilitated improvements to the infrastructure and the creation of new, more advanced ones.

Investment Opportunities

The Key Sectors of the National Economy

Manufacturing sector, automobile industry, information and communication technology, aeronautic, energy (including nuclear energy), services, finance, building, tourism, health, agriculture, mining extraction, health, online sale (first world market), transport infrastructure. 

High Potential Sectors

Chemical industry, insurance and bank, high technology, renewable energy, environment, waste treatment, franchise, medical devices. 

Privatization Programmes

China, whose economy is mixed, possesses a high number of state corporations. Nevertheless, they are suffering from disadvantages (over-indebtedness and low efficiency, among others). Chinese state wants to open them to private capitals. Nevertheless, the question of partial privatisation of numerous Chinese enterprises has been discussed since 1993, without having led to deep evolution in the Chinese economic landscape. End 2017, the State announced the end of the monopoly on salt production.  

Sector that may be concerned by privatization are: 
- Telecommunications (China Unicom)
- Energy
- Environment

Tenders, Projects and Public Procurement

Chinabidding, Tenders in China
Tenders Info: Global Procurement Facilitator, Tenders in China
Asian Development Bank, Procurement Plans in Asia
DgMarket, Tenders Worldwide

Sectors Where Investment Opportunities Are Fewer

Monopolistic Sectors

-         weapons

-         telecommunications

-         energy

-         environment

-         high- technology

-         water supply

-         electricity distribution

-         services

Finding Assistance For Further Information

Investment Aid Agency

Ministry of Commerce: Invest in China

Other Useful Resources

Chinese Council for the promotion of international investments

Doing Business Guides

The 'International Tax and Business Guide' of Deloitte on China
China Business handbook of the US State Department of Trade

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