China's Support to Foreign-Invested Enterprises Amid COVID-19

Since the beginning of the COVID-19 outbreak, the Chinese government has been concerned about the pandemic’s economic impact and swiftly adopted a range of measures to support businesses, foreign trade and investments.

In the past month, China has emerged from COVID-19 lockdown, businesses have restarted, and it is likely that China will come out of this pandemic ahead of other countries. While the Chinese government remains cautious to prevent a second wave of infections, it has also given signals that it is focused to support foreign investments in China with the rollout of new preferential policies to mitigate disruptions caused by COVID-19. The following is a summary of the key measures that foreign invested enterprises (FIEs) may be interested in and should pay attention to.

Assist FIEs Resume Full Operations

Since the COVID-19 outbreak, China’s Ministry of Commerce (“MOFCOM”) has issued four notices to support FIEs to help mitigate the pandemic’s impact (Notice on Actively Strengthening Services to Foreign Enterprises and Attracting Investment During the COVID-19 Epidemic, February 7, 2020; Notice on Stabilising Foreign Trade and Foreign Investment and Promoting Consumption to Fight COVID-19 Epidemic, February 18, 2020; Notice on Effectively Using Special Funds for Domestic and Foreign Trade to Stabilise Foreign Trade and Foreign Investment and Promote Consumption, March 6, 2020; Notice on Further Opening Up and Stabilising Foreign Investment in Response to COVID-19, April 1, 2020).  The MOFCOM notices urge the local governments to proactively discuss with FIEs any problems they may face in resuming operations and production and actively seek solutions to rapidly resolve them. MOFCOM anticipates that some problems the FIEs may face in light of the COVID-19 pandemic include shortages of PPE, labour shortage, impeded or blocked logistics, uncoordinated up-stream and down-stream resumption of work throughout a FIE’s supply chain, and reduced capital.  In addition, MOFCOM urges the local authorities to provide bespoke, "one-on-one" solutions to the FIEs to resolve individualized problems.

Green Channel for Key Foreign-Funded Projects

The National Development Reform Commission (“NDRC”) issued a notice on March 9, 2020 (Notice on Further Deepening Reform and Properly Handling Foreign-invested Projects to Fight the Epidemic) that categorizes any foreign-funded project that is currently in negotiation, execution or under construction in the manufacturing or high-tech service industries with a total investment amount of US $1 billion or greater as a “Key Foreign-Funded Project”. Key Foreign-Funded Projects are then assigned a special team at the NDRC and that special team will facilitate coordination with the proper authorities so that the project is designated a green channel with the goal to implement and complete the project as soon as possible.

Further Opening Up

Both the NDRC and MOFCOM stated in their notices that they are in the process of revising and expanding the Catalogue of Industries Encouraging Foreign Investment and the relevant preferential tax policies to offset any negative impact from COVID-19 and significantly, to further attract foreign investment in the following industries: advanced manufacturing industry, emerging industry, high and new technology, energy preservation and environmental protection.

On April 27, 2020, China’s State Council approved the establishment of 46 new pilot zones for cross-border e-commerce.  This is in addition to the 59 pilot zones that has already been established since March 2015. Companies in the new pilot zones are encouraged to innovate in terms of technical standards, business processes, regulatory approaches and information sharing in B2B cross-border e-commerce. In addition, any cross-border e-commerce retail exports from the new pilot zones would be exempt from value-added tax and consumption tax, and would enjoy a preferential rate for enterprise income tax. The specific implementation rules for the pilot zones will be issued by the various local provincial governments and we will provide further updates as they are announced. 

Furthermore, NDRC and MOFCOM stated in their notices that China will continue to encourage foreign investments through additional designated zones, such as free trade zones, economic and technological development zones, and border economic cooperation zones.

Cancellation of MOFCOM Filing for the Incorporation of FIEs

Pursuant to China’s new Foreign Investment Law, which went into effect on January 1, 2020, and the publication of certain implementation rules^[1] governing the information reporting regime for FIEs (“Information Reporting Regime”), FIEs are now able to report and update its information through an online company registration system.  In the past, the incorporation of an FIE or an amendment to any of its charter documents would require MOFCOM’s review and confirmation before it can be finalized.  With the online company registration system, FIEs are now able to enjoy the same information reporting process and system as Chinese domestic companies. 

With the COVID-19 pandemic behind China, the Chinese government will likely resume strategic moves to attract foreign investments at a rapid pace.  In addition to resolving issues for FIEs arising from the pandemic, there will likely be additional changes to increase transparency, efficiency and enhanced protections and communications to FIEs.