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FDI Foreign Direct Investment in China

Meaning of FDI:

FDI (Foreign Direct Investment) refers to foreign direct investment. FDI is one of the main forms of modern capital internationalization. According to the definition of the International Monetary Fund (IMF), FDI refers to the investment behavior of investors from one country using capital in the production or operation of another country and having a certain degree of operational control.

FDI Filing Overview

The main legal basis for FDI filing is the "Measures for the Approval and Filing Management of Foreign Investment Projects" (Order No. 12 of the National Development and Reform Commission, hereinafter referred to as Order No. 12). FDI filing applies tovarious foreign investment projects such as Sino-foreign joint ventures, Sino-foreign cooperation, wholly foreign-owned enterprises, foreign-invested partnerships, foreign mergers and acquisitions of domestic enterprises, and capital increase and reinvestment projects of foreign-invested enterprises

Pre-filing Requirements for FDI

  • The country implements pre-entryNational TreatmentandNegative Listmanagement system for foreign investment.
  • Pre-entry national treatment means giving foreign investors and investments treatment no less favorable than that given to domestic investors and investments at the investment entry stage.
  • The so-called negative list refers to the special management measures for foreign investment implemented by the state in specific areas. For foreign investment outside the negative list, the state grants national treatment.

1. Provisions of the Negative List for Foreign Investment AccessProhibited Investmentareas, foreign investors shall not invest;

2. Provisions of the Negative List for Foreign Investment AccessRestricted Investmentareas, foreign investors can only invest after meeting the restrictive conditions.

FDI Management Model

Similar to ODI filing,the entire foreign investment project management of FDI filing is also divided into two methods: approval system and filing system. Except for projects that need to go through the approval system, other investment categories only need to go through the filing system.

FDI Approval System

Situations where FDI filing requires the approval system

Investment Project Type Investment Amount (USD) State Council National Development and Reform Commission Provincial Development and Reform Commission Local Development and Reform Commission
Foreign Investment Encouraged and Permitted Projects Investment Amount < $100 million     Approval
$100 million ≤ Investment Amount < $500 million   Approval   
Investment Amount ≥ $500 million Approval    
Chinese-controlled Investment Encouraged Projects Investment Amount < $300 million     
Investment Amount ≥ $300 million   Approval   Approval
Foreign Investment Restricted Projects Investment Amount < $50 million   Approval Approval  
$50 million ≤ Investment Amount < $100 million    Approval  

Three notes:

  1. Not in the above table, butbelonging to foreign investment projects listed in items 1 to 11 of the "Approval Catalog"shall be approved in accordance with the provisions of items 1 to 11 of the "Approval Catalog".
  2. Foreign investment projects that are not within the above scope (i.e.outside the scope of Article 4) shall be filed bythe local government investment authority
  3. In order to timely grasp the information of approved projects, for locally approvedforeign investment projects with a total investment of US$30 million or more, the provincial development and reform department shall, within 20 working days from the date of project approval, submit a copy of the project approval document to the National Development and Reform Commission.

The 2022 version of the "Encouragement Catalog" alsocontinues to guide foreign investment towards modern services. In the field of energy conservation and environmental protection, new entries have been added regarding advanced system integration technologies and services for low-carbon environmental protection and green energy saving and water saving, clean production evaluation, certification and audit; in the field of commerce and trade, new entries have been added for rural e-commerce and new rural services, and the entries for e-commerce retail and e-commerce supply chain companies have been revised to clarify that cross-border e-commerce is included in the scope of encouraged foreign investment; in the field of vocational education and training and human resources services, new entries have been added for vocational schools (including technical schools) and human resources services. The above revisions will help promote the integration of the service industry and manufacturing industry, and promote the high-end, intelligent, and green development of the manufacturing industry.

FDI Foreign Direct Investment Filing Process in China

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① Pre-approval of Enterprise Name (Administrative Authority for Industry and Commerce)

② Approval for the Establishment of a Foreign-Invested Enterprise (Ministry of Commerce)

③ Obtaining a Business License (Administrative Authority for Industry and Commerce)

④ Foreign Exchange Business Registration (Bank)

⑤ Opening a Bank Account (Bank)

⑥ Capital Account Entry (Bank)

⑦Currency Capitalization Entry (Bank)

⑧Tax Registration (Tax Authority)

⑨Existing Equity Registration (Companies self-report online before June 30 each year)

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