4. Industrial Policies
To attract foreign investment, different provinces and municipalities offer preferential packages like a temporary reduction in taxes and/or import/export duties, reduced costs for land use, research and development subsidies, and funding for initial startups. Often, these packages stipulate that foreign investors must meet certain benchmarks for exports, local content, technology transfer, or other requirements. However, many economic sectors that China deems sensitive due to broadly defined national or economic security concerns remain closed to foreign investment.
As part of efforts to attract green investment, China and the EU issued a green investment taxonomy on the sidelines of the 26th U.N. Climate Change Conference of the Parties (COP26) on November 4. The International Platform on Sustainable Finance (IPSF) Taxonomy Working Group issued the Common Ground Taxonomy- Climate Change Mitigation (CGT) to accelerate cross-border sustainability-focused investments and scale up the mobilization of green capital internationally. The CGT listed 80 economic activities across six industries as sustainable, including: (1) agriculture, forestry and fishing; manufacturing; (2) electricity, gas, steam and air conditioning supply; (3) construction; (4) water supply, and sewage, waste management and remediation activities; as well as (6) transportation and storage. The taxonomy includes criteria for calculating a project’s contribution to mitigating climate change. This taxonomy was the result of consultations held between the EU and China over the two years to conduct analyses between China’s “Catalogue of Green Bond Supported Projects” and the “EU Taxonomy Climate Delegated Act.” Green finance contacts reported the CGT would likely promote the issuance of cross-border green investment products and lower or avoid the cost of double certification. Environmental NGO contacts, however, noted the CGT was focused on climate change mitigation, without taking into consideration the principle of “do no significant harm.” The CGT is not legally binding for either the EU or China and is not formally endorsed by other members of the IPSF. Please see climate issues section for additional information on government incentives towards attracting green investment.
In 2013, the State Council announced the Shanghai pilot FTZ to provide open and high-standard trade and investment services to foreign companies. China gradually scaled up its FTZ pilot program to a total of 20 FTZs and one Free Trade Port (FTP), which are in all or parts of Fujian, Guangdong, Guangxi, Hainan (FTZ and FTP), Hebei, Heilongjiang, Henan, Hubei, Jiangsu, Liaoning, Shaanxi, Shandong, Sichuan, Yunnan, and Zhejiang provinces; Beijing, Chongqing, Shanghai, and Tianjin municipalities. The goal of China’s FTZs/FTP is to provide a trial ground for trade and investment liberalization measures and to introduce service sector reforms, especially in financial services, that China expects to eventually introduce in other parts of the domestic economy. The FTZs promise foreign investors “national treatment” investment in industries and sectors not listed on China’s negative lists.
Special Economic Zones (SEZs) in China include: Shantou, Shenzhen, Zhuhai, (Guangdong Province); Xiamen (Fujian Province) Hainan Province; Shanghai Pudong New Area; and Tianjin Binhai New Area.
In 2021, the PRC formulated the first negative list in the field of cross-border trade in services, effective in Hainan Free Trade Port. Separately, the PRC government has shortened the negative list for foreign investment in Pilot Free Trade Zones. In 2021, the seventh revision to the free trade zone negative list reduced close off sectors from 30 items to 27 items. Please see above section on negative lists for more details.