China Market Watch: China’s FDI Inflows in 2015 and Recent Policy Changes to the Labor Market
China’s FDI Inflows and the Actual Use of FDI in 2015
On December 11, China’s Ministry of Commerce (MOFCOM) released the country’s latest foreign direct investment (FDI) inflows from January to November this year. A total number of 23,648 foreign-invested enterprises (FIEs) had been newly established (11 percent growth) in China by the end of November; 10,811 FIEs were set up in the Yangtze River Delta, accounting for 45.7 percent of the new FIEs in the whole country. Meanwhile, the actual use of FDI rose 7.9 percent to US$114.04 billion. It is noteworthy that the actual use of FDI in the service sector was US$69.58 billion, constituting over 60 percent of the total FDI in China. Among this, the actual use of FDI in the high-tech customer service sector rose 51.7 percent to US$7.23 billion – 85.9 percent growth in digital content and services, 55.1 percent in IT services and 29.7 percent growth in R&D services. In the manufacturing industry, a remarkable 366.3 percent growth rate occurred in the bio-pharmaceutical manufacturing sector.
The U.S., Japan, Taiwan, the EU and ASEAN nations remained the major investors in China. MOFCOM stated that growth in China’s FDI was expected to quicken to around four percent in 2015 from the previous year on government efforts to improve its investment environment.
Hong Kong and Mainland China Mutual Recognition of Funds
On December 18, China officially launched the first batch of authorized funds under the mutual recognition of funds (MRF) arrangement between Mainland China and Hong Kong. According to the arrangement, qualified China and Hong Kong funds may be offered directly to the public in each other’s market after obtaining authorization or approval under streamlined procedures. Initially there will be a quota of RMB 300 million (US$46.3 billion) in each direction, and funds are required to have been established for at least one year to take part in the scheme. Currently, seven funds have obtained the qualification (three Hong Kong and four China funds).
Starting July 1, 2015, regulators from both sides have started accepting applications under the mutual recognition of funds arrangement between the mainland and Hong Kong. Following the Agreement, the Chinese government released the “Caishui  No 125,” which clarified tax implications on non-resident investors deriving income from a mutually recognized fund.
China’s Labor Market Going through Changes
The Chinese government just approved the amended “Population and Family Planning Regulations,” which advocates that one couple should have two children and the new law will take effect on January 1, 2016. The new regulations stipulate that qualified couples shall be entitled to longer maternity/paternity leave or other benefits based on the local regulations. This move is estimated to affect 100 million couples in China and tackle the country’s aging population problem. Previously, couples nationwide are allowed to have a second child if either parent is an only child.
Earlier this year, China released a proposal to extend its mandatory retirement age, first change since the 1950s, in a move to ease social and fiscal pressures. As China’s labor market is undergoing changes, companies should keep updated with the relevant policy changes and adjust their HR policies accordingly.
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