China eases rules for foreign investors in FTZs

China has free trade zones in Shanghai (above) and Tianjin municipalities, as well as Guangdong and Fujian provinces. The central government yesterday said it will relax restrictions on foreign enterprises investing in these fledgling free trade zone
China has free trade zones in Shanghai (above) and Tianjin municipalities, as well as Guangdong and Fujian provinces. The central government yesterday said it will relax restrictions on foreign enterprises investing in these fledgling free trade zones in a bid to attract more overseas capital.PHOTO: REUTERS

Bid to attract more overseas capital includes allowing for wholly-owned foreign ventures

SHANGHAI • China yesterday said it will relax restrictions on foreign enterprises investing in its fledgling free trade zones (FTZs) in a bid to attract more overseas capital.

The government will temporarily replace an unwieldly approval mechanism with a registration system that will allow the establishment of foreign firms or joint ventures in the FTZs and facilitate major mergers and acquisitions involving foreign companies, the Cabinet said in a statement on its website.

"The move is another step in China's reforms to open up its domestic market and to support free trade zone development," said economist Liao Qun at Citic Bank International in Hong Kong.

"As for the timing, it will help ease the pressure of yuan depreciation and capital outflows since the adjusted measures will encourage more foreign investment in China."

The relaxation will allow foreign investors to found wholly-owned enterprises in a number of fields,including iron and steel production and petrol station operations, according to the government website. It also approved wholly foreign-owned enterprises in dozens of areas outside of the negative list on foreign investment, covering sectors ranging from agriculture to transportation.

China has free trade zones in the municipalities of Shanghai and Tianjin, as well as the southern province of Guangdong and the south- eastern province of Fujian.

The government would temporarily scrap a requirement blocking foreign investors from taking controlling stakes in domestic steel mills, and also allow overseas firms to set up solely-owned steel producers in the FTZs, the statement said.

Previous rules stated that foreign steel firms investing in China would have to possess their own production technology, while non-steel firms had to demonstrate "strong funding power and high credibility" before investing.

Partly as a result of the ownership curbs, China's huge steel sector has not attracted much foreign investment. Dwindling demand growth, low profit margins and mounting losses have also made the sector less attractive.

REUTERS, XINHUA

A version of this article appeared in the print edition of The Straits Times on July 20, 2016, with the headline 'China eases rules for foreign investors in FTZs'. Print Edition | Subscribe