China's Encouraged Catalogue Updated for 2023: Key Points for Investors – China Briefing

  • November 1, 2022

We highlight new opportunities in China’s “2022 Catalogue of Encouraged Industries for Foreign Investment”, which contains 1,474 items. These align with China’s plans to attract foreign investments into high-tech manufacturing, production-oriented service industries, as well as regional advanced industries in the central, western, and northeastern regions. Opportunities also exist in industries linked to green, healthcare, elder care, sports, and vocational education sectors besides rural revitalization.
On October 28, 2022, the National Development and Reform Commission (NDRC) and the Ministry of Commerce (MOFCOM) released the Catalogue of Encouraged Industries for Foreign Investment (2022 Version)(hereafter the “2022 FI Encouraged Catalogue), which will come info force on January 1, 2023.
Once enacted, the 2022 FI Encouraged Catalogue will replace its 2020 version.
Similar to the previous version, the 2022 FI Encouraged Catalogue includes two sub-catalogues – one covers the entire country (“national catalogue”) and one covers the central, western, and northeastern regions (“regional catalogue”). Together, the 2022 FI encouraged catalogue identifies industries where foreign direct investment (FDI) will be welcome and treated with favorable policies in China.
The newly released 2022 FI Encouraged Catalogue contains a total of 1,474 items (519 in the national catalogue and 955 in the regional catalogue), increased by 19 percent from 1,235 items (480 in the national catalogue and 755 in the regional catalogue) in the 2020 version.
The lengthening of the catalogue demonstrates China’s firm standing on economic opening-up and the fact that more investment fields will favor foreign investors.
To break this down: the 2022 FI Encouraged Catalogue has added 239 items and modified 167 items (mainly expanding the area covered by the original entry). In the national catalogue, 39 new items have been added and 85 items modified, while 200 new items have been added and 82 items modified in the regional catalogue.
According to the official interpretation, the revision of the 2022 FI Encouraged Catalogue will serve three main purposes:
The additions to the regional catalogue account for 84 percent of all new entries. This can also be viewed as part of China’s efforts to promote common prosperity, a key task emphasized during the recent 20th Party Congress that aims to reduce wealth inequality and balance the level of social and economic development across different regions of the country.
Nationwide, the catalogue has added or expanded items on manufacturing of components and parts and equipment. To be more specific:
In the service industries, foreign companies are encouraged to invest in production-oriented services, with items such as professional design, technical services, and development, newly added to the national catalogue. To be more specific:
The regional catalogue has added or expanded relevant items catering to the specific advantages of China’s central, western, and northeastern regions, such as labor force availability, distinctive resources, and need for investment. For example:
Taking a closer look, the revision to the encouraged catalogue is also in line with China’s priorities on further improving the country’s healthcare system, sports industry, elder care, rural revitalization, vocational education, and the transition to a green, low-carbon, and circular economy.
We briefly highlight some of the investment opportunities in the promoted industries below. Businesses should seek professional support to understand the full extent of the opportunities available and potential access to incentives that may streamline costs and offer market benefits.
The 2022 FI Encouraged Catalogue adds multiple new items for the healthcare sector. Some areas where foreign investment is encouraged are:
Inspired by the success of the Beijing Winter Olympic Games, the 2022 FI Encouraged Catalogue encourages foreign investment into China’s snow and ice industry, with “research and development and production of snow and ice heavy equipment and light equipment for ski resort, passenger ropeway, snow machine, snow press, and other special equipment” being added to the encouraged catalogue.
The 2022 FI Encouraged Catalogue also added “construction, operation, and management of fitness facilities such as outdoor sports camps” and “development, popularization, and promotion of intelligent sports products and services” as encouraged items for foreign investment.
To facilitate the development of the elder care sector, the 2022 FI Encouraged Catalogue encourages foreign investment in “research, development, and manufacturing of smart healthcare products for the elderly”, which include geriatric products and auxiliary products manufacturing, geriatric medical equipment and rehabilitation AIDS manufacturing, elderly intelligent and wearable equipment manufacturing.
Moreover, foreign investment is also encouraged for elder care related services, including services for renovation and barrier-free transformation of home, livable environment, and public facilities for the elderly, eldercare related professional education, training services designed for elder care, and education provided to the elderly.
The 2022 FI Encouraged Catalogue adds multiple items that are designed to improve the agriculture, living environment, logistic, commerce, and industrial structure of the rural area. Among others, the below items are introduced in the encouraged catalogue:
To echo China’s plan to strengthen the country’s vocational education system, in addition to the Vocational Education Law that came into force recently on May 1, 2022, the 2022 FI Encouraged Catalogue adds “non-academic language training institutions” and “non-academic art training institutions”.
To be noted, this does not include language and art training services for primary and secondary school students and preschool children between the ages of 3 and 6, which are still subject to stringent supervision amid China’s effort to reduce burden for students and parents.
On top of the nearly 100 items that are relevant to China’s green transition in the 2020 FI Encouraged Catalogue, the 2022 FI Encouraged Catalogue introduces more, such as:
So far, the following favorable treatment is in place for foreign-invested enterprises (FIEs) engaged in doing business in the listed industries published in the encouraged catalogue:
How to read China’s recent efforts on improving foreign investor access
China’s strict curbs implemented to prevent and control the COVID-19 pandemic, especially lockdowns and restrictions on movements has seriously hampered the national economic growth in 2022, together with an uncertain international environment caused by the Russian-Ukraine conflict, geopolitical confrontation among the superpowers, shrinking overseas demand, and the recession concern in major economies.
According to preliminary estimates of the National Statistic Bureau, the gross domestic product (GDP) in the first three quarters of 2022 reached RMB 87,026.9 billion, up by 3.0 percent year on year at constant price. Although the third quarter’s GDP growth rate jumped to 3.9 percent year on year from the 0.5 percent in Q2 2022, the initial growth target of 5.5 percent by the end of the year still seems too far to achieve.
All these factors have taken their toll on business confidence. In a recent survey conducted by the American Chamber of Commerce in Shanghai, 19 percent of the 307 respondents decreased investment in China this year, rising from 10 percent in 2021, though more than half said they remained optimistic about the five-year business outlook.
Given that FIEs account for about a quarter of China’s industrial output, a fifth of its tax revenue, and about 40 percent of its total imports and exports – stabilizing foreign investment and optimizing the distribution of foreign capital is a top priority for the government and policymakers. This is reaffirmed in the 20th  Party Congress Report delivered by President Xi Jinping on the first day of the week-long 20th Party Congress on October 16, 2022.
The shortening of the FI negative lists as well as the lengthening of the FI encouraged catalogue marks further liberalization of the Chinese market for foreign investors, as promised by the country’s government.
On the other hand, however, analysts hold the view that further relaxations to improve market access alone is not enough to boost foreign investment. China will need to substantially loosen COVID-related restrictions and implement more concrete stimulus measures, among others, to restore business confidence in China.
On October 25, 2022, three days before the release of the 2022 FI Encouraged Catalogue, the NDRC released the Several Policy Measures to Stabilize Foreign Investment Stocks and Spur Foreign Investment Quality and Quantity with a Focus on the Manufacturing Sector, which details 15 measures to stabilize and attract foreign investment. In addition to tax breaks, financial supports, land facilitation, and measures to improve fairness and business environment, it also pledges to relax travel restrictions for inbound travelers include executives, foreign talents, and their families, smooth COVID-19 related logistics bottlenecks that have seriously disrupted the operation of foreign businesses, and support FIEs to list on domestic share trading market.
Investors are suggested to keep a close eye on China’s policy developments that impact the foreign investment environment.
About Us
China Briefing is written and produced by Dezan Shira & Associates. The practice assists foreign investors into China and has done so since 1992 through offices in Beijing, Tianjin, Dalian, Qingdao, Shanghai, Hangzhou, Ningbo, Suzhou, Guangzhou, Dongguan, Zhongshan, Shenzhen, and Hong Kong. Please contact the firm for assistance in China at [email protected].
Dezan Shira & Associates has offices in Vietnam, Indonesia, Singapore, United States, Germany, Italy, India, and Russia, in addition to our trade research facilities along the Belt & Road Initiative. We also have partner firms assisting foreign investors in The Philippines, Malaysia, Thailand, Bangladesh.
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