China’s Upcoming 2016 Foreign Investment Law Revisions To Boost Service Sector

China’s revisions to its Foreign Investment Law are currently under consideration and are expected to be submitted to the National People’s Congress in November this year. Simultaneously, the Government has made part of the upcoming law available for public comment, allowing foreign investors to evaluate what areas the Government is looking at in order to rebalance the Chinese economy and enhance foreign investment.

Earlier last month, China’s Minister of Commerce, Gao Hucheng stated that China would further ease foreign investors’ access to service and high-end manufacturing sectors. Specifically, finance, education, culture and logistics industries will be opened wider to foreign capital, and restrictions on high-end manufacturing will be lifted. Gao also noted that the make up of China’s FDI was changing, with foreign investors shifting their focus from traditional manufacturing to high-tech manufacturing and service sectors, which was described as a “structural improvement” by Gao.

This means that the Chinese Government is both directing and following foreign investment trends. The move away from standard manufacturing towards the services sector is part of the country’s current Five-Year Plan, while foreign investors are also innovating and R&D investment dollars globally going into new technologies. China is expecting to learn, purchase and later innovate as it actively seeks FDI in these areas – good news for international businesses in the services industry. It is also completely in line with current FDI trends into China – FDI was up 4.7 percent in 2015 over the previous year, with service and high-end manufacturing sectors attracting over 70 percent of this total.

Furthermore, the “One Belt One Road” policy would also have an impact on the revision of Foreign Investment Laws, and especially in China’s less-developed central and western regions. “These regions boast huge potential as only 16 percent of foreign investment went there in 2015,” Gao said. In order to boost investment in these areas, China has also committed to build more land locked trans-border economic cooperation zones. We explored the potential for this development in the recent Asia Briefing article “China’s Overland vs. Maritime Routes” which explains the oft misunderstood logic behind China’s desire to develop its inland Ports.

“We can expect to see a change of landscape amongst in China’s foreign investors” says Chris Devonshire-Ellis of Dezan Shira & Associates. “We are already seeing labor intensive manufacturing investors in China relocate to Vietnam, the Philippines and Indonesia. However, they are being replaced by a new breed of services and high-tech industries coming into the market. Some foreign-invested companies are heading for the China exit doors, while many others are coming in as new entrants. The difference between them is their business models and what they do – the service sector is about to be a new boom for China.”

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