Guangzhou Encourages Better Utilization of Foreign Capital

June 3, 2011 Posted by China Briefing Reading Time: 4 minutes

Jun. 3 – South China’s economic hub, Guangzhou, recently issued a new official document emphasizing that the government will give more incentives to foreign direct investment (FDI) attraction. The document pushes Guangzhou to have more sectors open to FDI, offer more fiscal support as well as regulatory convenience, and build up better infrastructure.

The “Opinions on Further Improving Foreign Capital Utilization (yuefu [2010] No.117)”, issued by the Guangzhou government on May 5, aims to promote the quality of FDI inducement, so that it better serves the city’s economic structural upgrade.

“More open”
As one of the pioneers in China’s opening up policy implementation, Guangzhou now wants itself to be more open for increasing FDI involvement across distinct sectors. It encourages FDI into sectors of urban transport, public services as well as infrastructure construction, and supports foreign investors’ involvement in the restructuring of state-owned enterprises.

Document No.117 specifically calls for more FDI into equity investment enterprises as well as equity investment management enterprises, hoping to promote Guangzhou into one of the pilot cities included in China’s Qualified Foreign Limited Partner Program.

Guangzhou also intends to diversify the avenues for foreign investors to increase registered capital, maintain cash flow and raise additional capital. In the future, foreign investors will be able to utilize distinct types of capital – including capital funds, undistributed profits, domestic company equity, registered foreign debt and reserve funds – to increase their registered capital for the companies. It is also hoped that companies can obtain local currency more easily by completing foreign exchange settlements due to various company needs, rather than payment needs only, and also by being allowed to invest with their legal RMB income overseas. Moreover, the government even plans to recommend qualified foreign joint-stock companies to list at home and abroad, providing them with a larger platform of capital-raising.

Specific incentives to HQs, SMEs and high-tech businesses
Headquarters (HQs) of foreign invested enterprises (FIEs) as well as small and medium-sized FIEs settled in Guangzhou are going to enjoy favorable tax treatment and other public services provided by the government. While access to sufficient capital is critical to many small and medium-sized FIEs, the document promises to develop feasible channels to ensure the capital raising of those enterprises.

More incentives will also go to FIEs that are involved in technological innovation, strategic emerging industries and outsourcing services. FIEs will receive incentives for participation in major scientific research projects, benefit from the government’s special fund for the development of strategic emerging industries, and enjoy business tax exemption on their offshore outsourcing services. Companies certified as service providers with advanced technologies will continue paying their corporate income tax at a favorable 15 percent-rate between January 1, 2009 and December 31, 2013.

Increasing physical and soft support
Guangzhou will have more lands available for FDI. Various development zones will emerge, providing foreign investors with a series of efficient services. In addition, FIEs that are involved in Guangzhou’s encouraged industries can obtain the land use rights faster and at lower prices.

The review and approval procedures of foreign invested projects will become more efficient, especially for those FIEs with a sizable scale. FIEs that are listed on Guangzhou’s “Fortune 100” in terms of turnover or have both their annual trade volume and profit reaching over RMB10 million can receive “express services,” which will greatly shorten the review and approval period.

Guangzhou also vows to promote a more international business and living environment in the city, so that business and public services are more understandable and accessible.

A prominent part in the document that will make Guangzhou more attractive to FDI is the several regulatory reforms suggested.

First of all, human resource mobility will be less difficult. If an FIE has a registered capital of over US$30 million in Guangzhou or engages in key industries, its foreign staff who need to travel overseas frequently for work can apply for a one-year F Business visa with multiple entry, while its senior managers and technicians can apply for a two to five-year F Business visa with multiple entry, and its legal representative, (deputy) general manager and chief financial officer can apply for a two to five-year residence permit. The Chinese staff who need to travel to Hong Kong and Macau often for work in such an FIE can also apply for an exit-entry permit for travelling to and from Hong Kong and Macau with multiple-entry endorsement. In addition, the high-level talents FIEs hire will also enjoy favorable policies from the government, including benefits given to their spouse and children.

Secondly, intellectual property of FIEs – the important part of a company’s intangible assets – will be more secured. The Guangzhou government will make attempts to crack down on the violation of intellectual property rights (IPR) and provide legal services to FIEs that encounter IPR issues in the city.

Finally, customs clearance will be more efficient. The Guangzhou Customs Department is undergoing reforms that will make clearance more orderly, convenient and inexpensive. It will also carry the responsibility of releasing national trade information to help enterprises deal with trade disputes and maintain trade fairness.

This article is also available on Dezan Shira & Associates’ online business resource library. To view the article, and other regulatory updates, please click here.

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