China is maximizing its efforts to accelerate the opening of its economy by enabling more opportunities for foreign companies to invest. In 2019, authorities released the Catalogue of Industries for Encouraged Foreign Investment, which consists of more than 1,400 items which detail the types of investments and industries that can benefit from the country’s improved investment policies.
What is the Encouraged Catalogue in China?
The Catalogue of Industries for Encouraged Foreign Investment (hereafter referred to as the catalogue) is a list of sectors and industries where the Chinese government is aiming to promote foreign investment activities in. In order to encourage investment these industries may be eligible for certain benefits such as tax benefits, exemptions on import duties and as well as other favorable policies.
The latest catalogue has been divided into 2 sub-catalogues: the national catalogue and another catalogue which covers the northern, central and western areas of the country. The national catalogue is applicable throughout the entire country while the regional catalogue is only applicable to the country’s central, northeastern, and western regions. Both catalogues have been expanded to include more industries, with a large portion coming from the manufacturing sector.
Some of the incentives offered to foreign investors include tax breaks, relaxed restrictions on foreign ownership, subsidies, and funding for research and development. The government provides additional support through the development of special economic zones and the establishment of national and regional parks where companies can establish their foothold.
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Key Sectors for Foreign Investment in China
- High-tech manufacturing
The high-tech manufacturing sector in China is 1 of the most exciting and lucrative industries for foreign investment. The Chinese government has been promoting this sector as part of its “Made in China 2025” plan, which aims to develop the country into a global leader in advanced technologies and high-end manufacturing.
This sector covers a wide range of industries, including robotics, semiconductors, biotechnology, advanced materials, renewables, and aerospace.
China aims to transform its economy from being low-cost and labor-intensive to high-tech and innovative. Foreign investors in this sector are encouraged to engage in the research and development of advanced technologies, including new materials, biomedicine, renewable energy, and IT.
- Smart city development
With urbanization being one of China’s foremost challenges, the government has planned to create smart and sustainable cities that are capable of meeting the demands of modern life. The goal of this initiative is to create an environment that attracts cutting-edge technologies, innovative companies, and foreign investment.
The development of smart cities has become a key focus area for the Chinese government in recent years, with the aim of creating sustainable, efficient, and livable urban environments through the integration of advanced technologies.
Innovative development tools and methodologies for China’s development strategy include big data, IoT (internet of things), and artificial intelligence. This sector provides a wealth of opportunities for investment, including in areas such as urban planning, renewable energy, and transport infrastructure.
Foreign investors are encouraged to participate in this initiative, particularly in the development of smart transportation systems, smart energy systems, and smart buildings.
- New Energy Vehicles
The Chinese government has been actively promoting the development of new energy vehicles (NEVs) in the country as part of its efforts to reduce emissions and improve energy efficiency.
Some of the specific areas of focus for foreign investment in the NEV sector include the development of NEV components, such as batteries and charging infrastructure.
Moreover, emphasis has also been placed on the manufacturing of complete vehicles, such as electric vehicles (EVs) and hybrid EVs. Additionally, the development of intelligent transportation systems (ITS) and related technologies, such as autonomous driving capabilities, is also an encouraged area for foreign investment.
- Healthcare
China’s healthcare sector has been growing rapidly in recent years, with the main driving factors being the country’s aging population and increasing levels of wealth. The government has also been actively promoting healthcare development as part of its efforts to improve the quality of life for its citizens.
Foreign investment in the healthcare sector is highly encouraged, notably in areas such as pharmaceuticals, medical devices, and health services. Core initiatives include the development of new drugs and treatments, as well as the production of medical equipment and the provision of healthcare services.
Moreover, investment in medical research and development is also encouraged, with a focus on areas such as regenerative medicine, biotechnology, and traditional Chinese medicine.
- E-commerce and digital economy
China has emerged as a leader in the e-commerce industry, and the country has encouraged foreign investment in this sector through its Catalogue of Industries for Encouraged Foreign Investment.
The growth of e-commerce and the digital economy has been fueled by the increasing use of smartphones and the internet, as well as the rise of online shopping and financial services.
Foreign investment in this sector presents an attractive opportunity for companies and individuals to tap into the vast Chinese consumer market. Through increased investment in technologies such as mobile payments, cloud computing, and big data, as well as access to cutting-edge technology and advanced digital infrastructure, foreign companies are encouraged to participate in the market.
- Environmental protection and clean energy
China is committed to reducing its carbon footprint and improving its environmental sustainability. As such foreign investment and contributions in this sector are highly encouraged by the Chinese government.
The clean energy sector in China has been growing rapidly, driven by the increasing demand for renewable energy sources, such as wind, solar, and hydropower. There has also been additional interest in the waste management sector.
Investing in environmental protection projects can help China mitigate the impact of climate change and contribute to sustainable development in the country, a target China will be aiming to achieve in the coming years.
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Latest Updates To China’s Encouraged Industries List
The Foreign Investment Encouraged Catalogue List, which has last been updated in 2022, has been further expanded to cover more industries, including:
- Manufacturing Sector
Advanced manufacturing sectors are being heavily favored for foreign investment, with new additions to the list to include industries involved in autonomic driving components and ground equipment for aviation.
Expansions to the catalogue list have also included sectors within end-product and raw materials manufacturing such as for water-saving equipment and high-quality coatings.
- Services
Under the service industry, the focus has been expanded to production-oriented services.
In the field of technical services, China encourages investment from companies working on advanced system integration technology and service of low carbon. Additionally, the country invites businesses involved in environmental protection, and the development and application of environmentally friendly technology.
Under business services, those providing clean operation of traditional energy, engineering construction and technical services, as well as language services are encouraged to engage in foreign investment as well.
The new catalogue list has expanded with regards to the service industry to encourage investment in numerous sectors. An emphasis has been placed on environmental sustainability and protection with new advanced technologies systems and low carbon initiatives.
Efforts directed at encouraging new investment in sectors such as technical services and professional design were made as to bolster future production capabilities within the country. With a core goal being environmental protection, new items were introduced to support initiatives such as energy conservation, traditional operations, and construction.
- Healthcare
For the healthcare sector, China encourages investors to put their money in industries that are involved in the development and production of drugs.
Other encouraged foreign investment areas include services for postpartum mothers and children as well as the manufacturing of consumer pharmaceuticals and implants.
- Winter Sports
After completing the 2022 Beijing Winter Olympic Games, China now aims to invest in the winter sports industry. The development of sports camps and fitness facilities has experienced a surge in demand, especially among young athletes.
Investments in China’s snow and ice industry involving the development of sports equipment was spurred by the popularity and success of the 2022 Beijing Olympic Games. Investment in the industry is expected to hit $150 billion by 2025.
- Rural restoration
Items aimed at supporting rural development have been introduced in the new catalogue list of encouraged industries. Targeted areas include improving logistical networks, agricultural revitalization and enhancing environments for rural living.
- Vocational education
China plans to improve vocational education in the country As such, initiatives have been arranged for the construction of institutions for language training and art instruction.
Why the Encouraged List is Important
- Economic Development
The Chinese government has identified several industries and fields to be eligible for preferential tax treatment and other incentives, given their importance for the country’s economic growth. Certain industries will receive special attention from both the local governments and federal authorities.
Business owners are encouraged to invest in these areas as they are more likely to turn a higher profit in comparison with other industries that do not have access to such incentives.
By promoting investment in these industries, the government aims to stimulate economic growth, create jobs, and improve living standards across China.
- Competitive Advantage
In the Chinese market, local companies generally have a competitive advantage over their foreign competitors, as they may have access to resources and capital not available to foreign companies. The Encouraged Catalogue, however, affords foreign companies the opportunity to participate in the market.
While Chinese companies have an advantage when it comes to specific industries as well as new products and services in the Chinese market, having additional participants allows China to drive their competitiveness in the global market.
Moreover, it also encourages innovation, as Chinese companies are incentivized to develop products faster than their foreign counterparts with access to resources from the list.
By encouraging investment in particular industries, China ensures that it stays competitive with other leading markets, further increasing its attractiveness to foreign investors and potentially increasing exports.
- Technology Transfer
Foreign firms can leverage their expertise and knowledge when it comes to developing new technologies and processes, thereby helping Chinese firms become more efficient and competitive in global markets. Furthermore, this allows Chinese companies access to advanced technologies which can then be used domestically as well as exported globally for further profitability gains.
Want to Know More About the Encouraged List?
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