Aug. 23 – China’s State Council has recently approved proposals aimed at further liberalizing the use of foreign capital.

Guobanhan [2010] No. 128, issued on August 18, states that China should optimize the structure of foreign capital. On one hand, China will encourage foreign investors to invest in industries such as high-end manufacturing, high-tech, modern service, new energy and energy saving fields, while strictly limiting the low level and overcapacity projects. On the other hand, multinational companies are encouraged to set up regional headquarters, R&D centers, procurement centers, financial management centers, settlement centers, cost and profit accounting centers and other functional agencies in China.

According to the notice, the necessary imported technology development goods of eligible R&D centers can enjoy corresponding tax incentives and exemptions.

Foreign capital is also encouraged in central and western regions. Moreover, to diversify the channels of utilizing foreign capital, China will make good use of foreign capital markets and support the eligible enterprises’ listing and public offering of stock, corporate bonds and medium-term notes.

The financing channels will also be expanded and credit supports will be increased. To create a good investment environment, China will further improve their management of foreign exchange funds and simplify foreign exchange settlement procedures for foreign invested enterprises.

Richard Hoffmann of Dezan Shira & Associates appeared on CCTV’s Biz Asia on Aug. 20 to speak on this subject, the interview can be seen here.