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HOME > Publications > Professional Articles > Restrictions on Foreign Investment in Manufacturing to be Lifted

Restrictions on Foreign Investment in Manufacturing to be Lifted

Author: Jeff Yao 2023-10-31

On October 18, 2023, President Xi Jinping delivered a speech at the opening ceremony of the Third Belt and Road Forum for International Cooperation and announced that China would fully lift access restrictions on foreign investment in manufacturing sectors. What can be learnt from such speech?


First, it reflects China’s determination to further deepen its reform and keep advancing high-level opening up. In the Report to the 20th National Congress of the Communist Party of China, President Xi Jinping put forward that China would advance high-level opening up, reduce the negative list for foreign investment access in a reasonable manner, protect legitimate rights and interests of foreign investors and create a market-oriented, legal and international first-class business environment; he also emphasized that China has always been committed to globalization and been against protectionism and unilateral sanctions. The restrictions on foreign investment in China have been reduced constantly since 2017. In accordance with the existing Special Administrative Measures (Negative List) for Foreign Investment Access issued in 2021, there are only two restrictions in the manufacturing sectors. In accordance with the existing Special Administrative Measures (Negative List) for Foreign Investment Access in Pilot Free Trade Zones issued in 2021, there are no restrictions on the manufacturing sectors. Following the above speech, those restrictions set forth in the Negative List will be fully lifted. In 2020, the PRC Foreign Investment Law came into force, repealing the Sino-Foreign Equity Joint Venture Law, the Wholly Foreign-Owned Enterprise Law and the Sino-Foreign Cooperative Joint Venture Law, which represents the establishment of legal system for foreign investment in the new era. China also has deployed and set up 21 free trade pilot zones and Hainan Free Trade Port, whose areas have covered 2/3 provinces of the whole country. This shows China’s confidence in the development of the domestic manufacturing sectors and China’s willingness to be actively involved in global competition and cooperation. Additionally, it will provide more convenience and opportunities for foreign-invested enterprises in China and attract more high-quality foreign investment in China.


Second, it reflects China’s determination to further advance the economic transformation and optimize its industrial structure. It is specified in the Report to the 20th National Congress of the Communist Party of China that China will continue to build a modernized industry system, focus on real economy, and promote high-end, intelligent and green development of manufacturing sectors. According to staff of the Foreign Investment Administration of the Ministry of Commerce, China’s actual use of foreign capital from January to September of this year amounted to RMB 919.97 billion, a year-on-year decrease of 8.4% compared with RMB 1003.76 billion from January to September of 2022, due to the sluggish global economic growth, worsened inflation, insufficient demand, and a continuing slump in global foreign direct investment, but from the positive perspectives, there is a rapid increase in establishment of foreign-invested enterprises in China. From January to September of this year, newly-established foreign-invested enterprises in China amounted to 37,814, a year-on-year increase of 32.4%, showing that China remains very attractive to foreign investors and multinational companies remain optimistic about their investment in China. The structure of foreign investment introduced into China keeps increasing. The foreign capital actually applied to China’s manufacturing sectors amounted to RMB 262.41 billion, a year-on-year increase of 2.4%, especially an increase of 12.8% in the high-tech manufacturing industry. Certain developed countries have increased their investments in China. Specifically, investment in China from France, UK, Canada, Switzerland and Netherlands grew rapidly by 121.7%, 116.9%, 109.2%, 76.9%, 32.6% respectively. This year, several new plants set up by Covestro in Shanghai have been put into production; ZEISS planned to build a platform for scientific R&D and talent incubator in the postdoctoral innovation and practice base in the Pudong New Area of Shanghai; Tesla announced its plan to open another factory to make Megapack batteries in Shanghai; DuPont officially opened its new adhesives production facility in Zhangjiagang (ZJG), East China. All of those reflect that China is attracting an increasing number of high-quality foreign investments, and foreign investors highly recognize and are confident in China’s high-quality economic development instead of just regarding China as a cheap production base. China’s domestic manufacturing sectors will achieve further growth and upgrades with more and more foreign investment introduced, especially in R&D, technologies, and talents.


Third, it reflects China’s determination to transform from a big manufacturing country to a powerful manufacturing country. Although the added value of China’s manufacturing sectors has accounted for 27.7% of its national GDP and nearly 30% of the global total manufacturing sector, ranking first in the world for 13 consecutive years as of 2022, China’s manufacturing sectors still have many problems. Specifically, there is a high degree of dependence on foreign countries in terms of key core technologies and high-end equipment; the production quality and efficiency of China’s manufacturing enterprises remain low; the innovation capabilities and innovative talents of China’s manufacturing enterprises are insufficient; China is incapable of supplying high-quality, high-complexity and high value-added products. It is pointed out in the Report to the 20th National Congress of the Communist Party of China that China will make its industrial and supply chains more resilient and secure. Take the automobile industry, one of China’s pillar industries, as an example. In the context of the outbreak of COVID-19 pandemic, China implemented a series of effective measures, such as establishment of a platform for coordination of automobile industry supply chain, so as to ensure stable development of the industrial chain. In 2022, the production and sales of China’s automobile industry showed a year-on-year increase of 3.4% and 2.1% respectively, and the annual sales of new energy vehicles exceeded 6,800,000. China has cultivated 8,997 small and medium-sized enterprises that focus on a market niche and master key technologies with a strong innovation capacity and big market share (“little giants”) at the national level and over 70 thousand of such SMEs at the provincial level. Since 2022 China’s manufacturing sectors remain secure and stable and the industrial and supply chains became increasingly resilient. The above speech has shown that China will continue to move towards becoming a manufacturing powerhouse.