Category Investing in China

Reform opens up more sectors to foreign investment

China vows to further open up domestic markets to foreign investors with fewer restrictions as the country’s economic reform goes deeper.

“We have largely slashed restrictions to market access to the Chinese market to further lure foreign investment,” said Lian Weiliang, deputy head of the National Development and Reform Commission, at a news briefing on Wednesday.

He added that restrictions over the proportion of foreign equity have also been further eased in the foreign-invested projects, especially in the service and manufacturing sectors.

“It’s very important to set up a new system for an open economy and create a business environment that is more legalized and more international”, he said. “And the country’s efforts have paid off.”

China’s foreign investment has bucked the trend of the cooling global economy to increase 9.2 percent during January-August, among which investment in the service sector surged 20.1 percent from a year earlier.

In March, the country halved the number of industries that used to be off-limits to foreign investors, another big step toward a more favorable business environment amid reforms.

Lian said the country has been gradually shifting to the “negative list” approach to better regulate market access and encourage foreign investment.

The negative list, which identifies sectors and businesses that are off-limits for investment and allows investment in all other sectors, was first announced in September 2013 in the Shanghai Free Trade Zone and then extended to the other three FTZs in Guangdong, Tianjin and Fujian a year later.

Market gives back morning gains as cautious investors take profits

Mainland stock markets tumbled in late afternoon trading Thursday as investors cashed in on gains from earlier in the day.

The Shanghai Composite Index fell 3.46 percent or 162.37 points to 4,527.78 points Thursday. The Shenzhen Component Index lost 3.80 percent or 619.87 points to close at 15,692.44 points.

The CSI 300 Index of the biggest companies traded in Shanghai and Shenzhen fell 3.56 percent or 173.61 points to 4,706.52 points.

A total of 1.55 trillion yuan ($249.71 billion) changed hands on the two bourses, up from the previous trading day’s 1.49 trillion yuan.

News about the central government’s decision to scrap the debt-to-loan ratio for banks sent heavily weighted financial stocks soaring during morning trading, pushing the Shanghai benchmark above the 4,700 point mark by midday.

However, in the afternoon session, banking heavyweights took a hit as cautious investors decided to take some profit, dragging down the Shanghai index.

Despite the good news about the debt-to-loan ratio, the banking sector still suffered losses, indicating weak investor sentiment, New Times Securities said in a note Thursday.

The regulatory approval of a new batch of IPOs may have also contributed to the fragile sentiment.

The China Securities Regulatory Commission said late Wednesday that it has approved 28 new IPOs, which media reports said would freeze more than 1.4 trillion yuan.

The coal and nonferrous metal sectors were among the worst performers Thursday. Gansu Jingyuan Coal Industry and Electricity Power Co, Shaanxi Coal Industry Co, Anhui Jingcheng Copper Share Co and Shenghe Resources Holding Co fell 9.46 percent, 9.04 percent, 9.45 percent and 9.20 percent, respectively.

ChiNext, the country’s NASDAQ-style board for high-tech and emerging start-ups, slumped 5.23 percent or 177.02 points to close at 3,206.38 points.

Foreign banks optimistic about future performance in China: report

Foreign banks in the Chinese mainland continue to be optimistic about their future performance going forward, according to a report released by Ernst & Young Greater China here on Tuesday.

“The regulatory landscape continues to challenge foreign players, while alongside are also the opportunities generated from the evolving RMB internationalization and interest rate liberalization,” Managing Partner of Financial Services at Ernst & Young Greater China Jack Chan said.

In terms of total assets, based on the China Banking Regulatory Commission’s 2013 annual report, foreign banks’ market share in China was just 1.73 percent as of Dec. 31, 2013, below the market share of 1.84 percent back as of Dec. 31, 2004.

According to the report, foreign banks in China expect a modest improvement in performance over the next three years. Half of the participants predict a slight improvement, while 45 percent of them hope to see a significant improvement.

Despite the optimism, the report said many of the CEOs that they have surveyed find the market challenging and complicated by issues surrounding financial reform and economic uncertainty.

The most difficult regulatory challenge in 2014 was access to the bond market, followed by the myriad of rules and regulations and capital and liquidity constraints, Chan said.

As China’s economy evolves, the foreign banks believe it is critical that the capital markets open up and the foreign banks participate more fully in the bond market, he said.

The report is based on interviews with 41 foreign bank CEOs and senior bank executives based in Shanghai, Beijing and Hong Kong and conducted during August and September 2014.

It examines the challenges facing players as they push to improve their footprint in China. It also looks at the trends and regulatory reform that is shaping the market and offer insights into ways of driving growth now and in the future.

Beijing targets high-end industry investors

This year’s “Invest in Beijing” Fair, which aimed at attracting more investment to the city’s high-end industries, opened in Beijing on Dec 9.

As an annual investment promotion event taking place in the city since 2009, this year’s Invest in Beijing attached more emphasis on social and private capital’s involvement in its cutting-edge sectors, such as the new generation of information technology, biological medicines, as well as energy conservation, and environmental protection.

The organizing committee also set up a service station to offer face-to-face counseling for potential investors and companies in various fields, such as laws and regulations, investment environment and planning of industries.

Representatives from the city’s governmental departments, including the commission of science and technology, commission of education and commission of development and reform, came to explain the investment policies at the station, as did the investment promotion organizations from all the districts and counties of Beijing, as well as the city’s major industrial clusters —Zhongguancun Science Park, Beijing Economic-Technological Development Area and Beijing Tianzhu Free Trade Zone.

At the Fair, the Beijing Municipal Commission of Development and Reform released a batch of pilot projects which call for social investment in public services and utilities, and the new list of industries that are prohibited or limited by the municipal government.

The China National Gold Group Corporation, the country’s biggest gold producer, Nanshan Group, a chemical firm based in east China’s Shandong province, and China Energy Conservation and Environmental Protection Group signed contracts worth 31.1 billion yuan ($5 billion), higher than the 27.9 billion yuan at the contract signing ceremony during last year’s “Invest in Beijing” Fair.

This year’s Fair highlighted the promotion of projects in high-end sectors and strategic emerging industries to help advance the city’s economic restructuring and strengthen its role as the country’s center of politics, culture, global exchanges and scientific and technological innovation.

More than 500 representatives from state-owned enterprises, large private companies, multinational corporations, leading players from different industries, as well as chambers of commerce from China and abroad attended the fair.

Ma Peihua, vice-chairman of the Central Committee of the China National Democratic Construction Association, Niu Youcheng, a member of the Beijing Municipal Party Committee and the city’s vice mayor Cheng Hong were present at the Fair.

Chinese stock benchmark index regains 3,000-point mark

Chinese shares continued rising on Monday, with the benchmark Shanghai index jumping over 2 percent to regain the 3,000-point psychological mark, the first time since April 25, 2011.

China renews innovation drive

China’s State Council, the Cabinet, has unveiled a series of measures to promote independent innovation and encourage entrepreneurship.

According to a statement released Wednesday after a State Council executive meeting presided over by Premier Li Keqiang, the country must expand pilot programs for independent innovation and seek “multiplication” in social enthusiasm for innovation and entrepreneurship with the “subtraction” of government grip.

Since 2010, China has experimented with policies promoting scientific and technological innovation in the Zhongguancun National Innovation Demonstration Zone in Beijing.

The government will roll out six Zhongguancun policies to the rest of country, including new rules on research funds and equity financing for small enterprises.

There will also be some tax preferences for innovation demonstration zones. For instance, the income tax for equity incentives given to technical and managerial employees can be paid by installment within five years, according to the statement.

The statement added that China will do research in Zhongguancun concerning overseas talent, diversify corporate financing channels and support the construction of bonded warehouses.

China has six national innovation demonstration zones and plans for more.

70% rise in angel investments in China

A total of 547 angel investment deals have been signed in the first 11 months in China totaling $341.4 million, a 69.6 percent increase compared with the whole last year, according to a report of Zero2IPO Group on Wednesday.

Ni Zhengdong, chairman of Zero2IPO Group, said that lots of angel investment institutions and funds were set up in 2014, stimulated by the rising number of start-up deals.

Ni said 55 new angel investment funds have been set up this year and their scale has reached $700 million.

Venture capital companies also have focused on deals at early development stage and about 60 percent of their funds are invested in these deals, said the report.

Relaxing restrictions on foreign investments

Vice-Premier Wang Yang (center) holds a golden key to signal the opening of the 18th China International Fair for Investment and Trade on Monday.

Service sector will be steadily opened-up

China will further open its investment and cooperation system and optimize the environment for foreign investment, Vice-Premier Wang Yang said on Monday.

“China’s policy of investment and cooperation will be kept in the long run, although the inbound and outbound investment situation is witnessing big changes,” said Wang.

Wang made the remarks at an international investment forum during the 18th China International Fair for Investment and Trade, which opened on Monday in Xiamen, Fujian province.

The annual international investment event provided more than 30,000 potential investment projects and attracted companies and government organizations from 54 countries and regions, according to the organizers.

The competitiveness of the domestic companies in the world’s second-largest economy has grown remarkably and there are fundamental changes that foreign investment will have to adapt to, said Wang.

Traditional manufacturing businesses are returning to developed countries and developing economies are boosting efforts to introduce foreign investment, which has affected the international capital flows, he explained.

But he said, “We will not ignore the role that foreign investment plays in the Chinese economy and will not reject foreign-invested companies.”

However, according to Wang, China will not simply introduce foreign capital in the future, instead it will look to introduce advanced technology, managerial experience and intelligence resources and build various market-oriented systems in accordance with international practices.

“We will relax the restrictions on foreign investments, and steadily open-up the finance, education, culture and healthcare markets,” Wang said.

According to Wang, the Chinese government will strengthen efforts to protect foreign investors’ interests by tackling the problems of monopolies, commercial bribery and copyright infringements to improve the domestic investment environment.

This year marks the 30th anniversary of China’s first group of national-level economic and technology development zones, and Wang said such zones need to be further transformed and upgraded.

“China’s economic and technology development zones should be driven by innovation and they should make better use of foreign investment for their future success,” Wang said.

Such zones are also being encouraged to enhance communication with their foreign counterparts to promote new growth models, according to Wang, who pointed out that China’s 215 national-level economic and technological development zones realized one-fifth of the country’s foreign investment and one-eighth of its GDP in 2013.

Commerce Minister Gao Hucheng said the Chinese government will adhere to its policy of mutual benefits and strive to build an open economic system, actively working with international organizations and governments to promote a healthy recovery of the global economy.

“The annual international investment fair has proved to be an efficient platform to create investment and cooperation opportunities. I hope all participants will take full advantage of this event to boost investment and cooperation,” Gao said.

Gao urged domestic economic and technological development zones to play an active role in boosting international investment.

“Such development zones have not only promoted the country’s development they have also become an important platform for international investment,” Gao said.

By attracting foreign direct investment, catalyzing the development of industrial clusters and adopting new technologies and management practices, the economic and technology development zones have played a key role in China’s economic success, said Cai Jinyong, chief executive officer of the International Finance Corporation.

“Successful programs, which can contribute to the long-term future of the zones, are the ones that focus on market demand and are integrated into the domestic economy. The development of any zone should be based on an identified market opportunity,” he said.

Shanghai unveils measures to bolster VC

Shanghai announced new measures to encourage private investment in small and micro companies, the latest move to boost venture capital in the city.

The local government said in an online statement yesterday that it is striving to build Shanghai into an international venture capital center.

By 2017, the city is expected to accumulate an additional 100 billion yuan (US$16 billion) in capital for investing in innovative companies. The city also forecasts attracting an extra 1,000 venture capital professionals and 100 influential venture capital firms in a bid to help start-up companies receive the guidance they need.

The city’s Venture Capital Investment Guidance Fund increased 1 billion yuan annually in the past three years. The fund invests in targeted sectors and also serves as a guide for privately owned funds. District and county-level governments are encouraged to establish similar funds.

Shanghai plans to simplify foreign investment procedures in domestic venture capital firms by piloting a foreign exchange settlement trial.

State-owned enterprises are also being encouraged to form VC firms.

The new measures are part of the government’s efforts to support small and micro companies in Shanghai. Apart from direct financing solutions, Shanghai has also encouraged banks to lend money to cash-strapped small companies.

Executive Deputy Mayor Tu Guangshao’s said earlier this week that Shanghai will improve fundraising services for small and micro companies.

There were about 370,000 small and micro enterprises in the city as of the end of 2013. They accounted for 97.1 percent of incorporated companies and provided 54 percent of the city’s jobs.

Elsewhere, the People’s Bank of China’s Shanghai Headquarters agreed to loan 1 billion yuan (US$161.1 million) to Shanghai Rural Commercial Bank.

Guangdong outlines big FTZ plans

A booth showcasing Guangdong-based businesses at an expo in Guangzhou, the province’s capital. Guangdong is currently seeking central government approval of a Guangdong-Hong Kong-Macao free trade zone. Provided to China Daily

Southern province aims to capitalize on links with neighboring regions

The Guangdong provincial government has vowed to realize liberalization of trade in services in the South China province and its neighboring Hong Kong and Macao special administrative regions by this year through CEPA (the Closer Economic Partnership Arrangement).

“It is a task assigned to Guangdong by the State Council,” Vice-Governor Xu Shaohua told a Monday news conference. “We are striving for the central government’s approval of specific preferential projects and policies.

“At the same time, we will open up more fields for investors from Hong Kong and Macao, including those in the service sector, using a ‘negative list’.”

Xu also said Guangdong is currently seeking central government approval of a Guangdong-Hong Kong-Macao free trade zone.

“We are talking with ministries about the construction plan and preferential policies,” Xu said.

At a joint meeting between Guangdong and Hong Kong in September, Guangdong Governor Zhu Xiaodan said that the new free trade zone will focus on liberalizing trade and building a platform for the cooperation in the high-end service industry, capitalizing on Hong Kong’s reputation as a premier international finance center.

A focus on liberalizing trade in services will set this free trade zone apart from the China (Shanghai) Pilot Free Trade Zone, which focuses on financial openness, according to Lin Jiang, dean of the public finance and taxation department of Lingnan College at the Guangzhou-based Sun Yat-sen University.

“The volume of trade in services has surpassed that of trade in goods in international trade,” said Lin, who also is vice-director of the university’s research center of Pearl River Delta, Hong Kong and Macao.

“The Guangdong-Hong Kong-Macao free trade zone is the pilot zone in China to make breakthroughs in fields such as offering tax refunds for service exports, which are intangible goods,” Lin said.

“Liberalizing trade in services also answers the province’s need for upgrading and transforming its processing trade. That’s why the province doesn’t stress liberalizing trade in goods,” said Lin, who gave as examples of modern service industries high-end design and management consultancies.

Zhu also noted at the September meeting that the new free trade zone will help adapt the mainland’s financial management mechanism to international practices in Hong Kong.

Lin said it will benefit the province to make business laws and regulations according to international practices in Hong Kong, since that will be one of the free trade zone’s major incentives for international investors, compared with the Shanghai free trade zone.

Xu listed several items on the Guangdong government’s action plan for liberalizing trade in services in the zone. They include: relaxing or canceling restrictions on Hong Kong and Macao investors’ qualifications, shareholding ratios and/or scope of business; promoting mutual attestation of professional qualifications; and exploring possible business modes for individual professional services.

“The Hengqin New Area in Zhuhai, the Nansha New Area in Guangzhou and the Qianhai experimental zone in Shenzhen are the three areas opened up for Hong Kong service industry,” Xu said. “In addition, Zhongshan, Foshan and Dongguan cities are proposing platforms to attract investors from Hong Kong and Macao.”

The latest announced preliminary plan of the Guangdong-Hong Kong-Macao free trade zone includes the three new areas and experimental zones plus Guangzhou Baiyun International Airport, taking up an area of more than 1,300 square kilometers, which is 47 times of that of the Shanghai free trade zone.

Lin warned that it would be a challenge for the Guangdong government to figure out a way to coordinate so many areas.

Part of the reason for Monday’s news conference was to interpret the provincial Party committee’s suggestions for Guangdong’s implementation of the central government’s comprehensive reforms.

The suggestions were approved by the Third Plenum of the 11th General Assembly of the Guangdong Provincial Party Committee, held last weekend in Guangzhou.

“To further open up the province, Guangdong will also strengthen its cooperation with the US and European developed countries by establishing overseas offices of economic trade in these countries,” Xu said, adding that an office in Germany already has been set up.

“This is to get in touch directly with big multinational corporations to attract investments and technologies that will assist in upgrading and transforming Guangdong’s economy,” he said.

Guangdong, the largest Chinese trader for ASEAN countries, also will further promote its foreign trade with these countries and spearhead the central government’s strategy of building the Maritime Silk Road of the 21st century.