China is Backing A Business Comeback - the PRC prepares to support investors as the country starts to get back to work

As new restrictions impact populations around the world and fear grips global markets, it is increasing clear that the situation in several Asian countries has started to improve. The COVID-19 virus originated in Wuhan China during late 2019 and after a period that has seen China suffer the effects of over 80,000 cases the outlook is now brighter. New infections are at much lower levels and outside of the Wuhan area there are very few reported new cases. Although the crisis is far from over, confidence is beginning to return and the Chinese population is feeling more optimistic about the future. 

At the same time the authorities are clearly concerned about the economic impact of the COVID-19 crisis. Recent statements by senior government officials have suggested that growth in China could fall from the 5.8% projected for 2020 to as low as 4.1%. This is very worrying by Chinese standards and growth at such a low level has not been experienced for decades. Although Government remains cautious in an effort to ensure that a second wave of infections does not undo the benefits of the sacrifices that have been made by the Chinese population over the course of the last two months, the fact that Chinese authorities are looking at ways of supporting business signals a determination to counter this downturn. 

At its executive meeting on 10 March, the State Council decided to implement a range of measures designed to help to trade and investment. For example, it will accelerate the process of shortening the Negative List for foreign investment and expand the catalogue of industries for which foreign investment is encouraged. Essentially, this means cutting the number of business sectors that are highly regulated or subject to restrictions (in particular it is thought that finance and motor vehicle manufacturing may benefit) will be reduced and the number of sectors that are actively encouraged with tax incentive available will be expanded. Although these statements are short on detail, they are consistent with other reform measures introduced in recent years and signal the continuation of the positive approach the Chinese authorities are taking. We expect further concrete measures in the months ahead. 

This welcome news followed action taken by the National Development Reform Commission (“NDRC”) and Ministry of Commerce (“MOFCOM”), both of which issued notices signalling that the government is intent on encouraging foreign investment.

The NDRC issued a Notice on Further Deepening the Reformation in Handling Foreign Investment Projects to Fight the Epidemic on 9 March, promising that government will:

• Assist foreign-invested projects resume full operations; 
• Facilitate progress of key foreign investment projects;
• Take steps to free investors of unnecessary red tape by not imposing restrictions on foreign investment other than those provided under the Negative List;
• Simplify filing and approval procedures by using online platforms and simpler documentation requirements;
• Streamline application procedures for foreign investment project in encouraged industries; and
• Further expand the catalogue of industries in which foreign investment is encouraged.

MOFCOM issued a Notice on Stabilizing Foreign Trade and Foreign Investment and Promoting Consumption to Fight COVID-19 Epidemic on 18 February 2020 in which it said it would provide similar support by:

• Supporting enterprises to resume operation;
• Stressing that foreign-invested enterprises would be treated equally with domestic business;
• Offering support to solve problems in areas such as land use, human resources, electricity and water supply, and logistics;
• Making use of modern technology by allowing for online negotiation between government bodies and foreign investors, video conference meetings, online execution of documents and similar modern machinery.

China is also supporting businesses in other ways, to soften the considerable impact of the COVID-19 including by: 

• Exempting or reducing employers’ social insurance contributions; 
• Exempting VAT for severely impacted small-scale taxpayers; 
• Extending the maximum carry-over term for losses in 2020; and 
• Deferring tax and social insurance payment dates. 

Some subsidies for training costs and remote work products/services have been made available in some cities, while others including Beijing, Shanghai and Chongqing have offered discounts on utility costs to further reduce operational costs. 

Notwithstanding the positive steps the authorities have taken , serious difficulties remain. Having achieved stability, China is now focused on preventing new COVID-19 outbreaks. Business is subject to multiple restrictions and reporting obligations that, in Beijing, includes a limit on office staff numbers. Social distancing rules, special hygiene standards and strict quarantine also apply to travellers arriving in China. Business is far from normal and these measures are likely to be in place for some time to come. 

Notwithstanding the ongoing challenges, China is sending a clear, positive message to the international business community. The country is cautiously recovering from the COVID-19 crisis and is moving into a new period of investor-friendly policies aimed at getting China back to work.