Significant industrial and service sectors have just become open for German investment in China.
By Riccardo Benussi, German Desk, Dezan Shira & Associates Munich
A rare event occurred on Friday (November 4) when Germany’s Chancellor, Olaf Scholz, met with Chinese President Xi Jinping in Beijing. Due to strict Covid restrictions, it has been the first visit by a major Western leader in the past three years. Scholz’s delegation included numerous German business senior executives, indicating the visit included significant discussions about Germany-China trade and investment opportunities.
This itself is significant as China has just completed its CPC Congress during which new development policies were created that intend to expand China’s trade, both in maintaining China’s export growth and its consumer base. Of particular interest to German exporters will be the fact that Beijing intends to raise the numbers of the Chinese middle-class consumer base by another 400 million by 2035.
While Scholz will also be wanting to discuss the geopolitical situation and especially Russia, the Germans have long been pragmatic in terms of engaging with China as a customer. Current 2022 bilateral trade levels are running at growth rates of about 1% – Scholz and Xi will want to push that higher. China was once again Germany’s largest trading partner for goods in 2021, with a volume of trade of over €245 billion. To put that into the EU context, French bilateral trade with China was about €80 billion. The meeting also comes just two days after global bankers attending the Global Financial Investors Summit in Hong Kong said the international banking community was ‘very pro-China’.
Germany and China maintain regular, high-level coordination of policy conducted through a large number of dialogue mechanisms, as well as trade relations, investment, environmental cooperation, and cooperation in the cultural and scientific sectors. Germany advocates substantive and reciprocal relations between the EU and China, as well as increased EU unity towards China – meaning that in political terms it does not always follow the negative image of China that has emerged from some of the smaller EU nations in recent years.
There are several key trade and investment areas likely to be of interest to German manufacturers when it comes to China. Helpfully, Beijing released the ‘Catalogue of Encouraged Industries for Foreign Investment (2022 Version)’ (2022 FI Encouraged Catalogue) last week, which takes effect from 1st January 2023, and has further expanded the market sectors that China is looking for foreign investors to fulfill. The new Catalogue contains a total of 1,474 items and has increased by 19% the market sectors are now fully open to foreign investors.
The new Encouraged Catalogue is designed to serve three main purposes:
We can examine these as follows:
Manufacturing – New German FDI Into China
The Catalogue has added or expanded items on the manufacturing of components and parts and equipment. This includes:
China Service Industries: New Opportunities For German Investors
In the service industries, foreign companies are encouraged to invest in production-oriented services, with items such as professional design, technical services, and development, newly added to the national catalog. As follows:
New China Regional Investment Opportunities
China is always looking to attract foreign investment into Central and Western China. There are advantages here as these regions tend to have lower production costs, and especially in terms of labor. However, that needs to be paired up with sometimes less effective infrastructure, and skills.
The Regional Catalogue has added and expanded items catering to the specific advantages of China’s central, western, and northeastern regions, such as labor force availability, distinctive resources, and need for investment. These include tax incentives and other motivational devices to encourage FDI in these specific regions. Professional advice needs to be undertaken to examine this in detail, however, in broad terms, this includes the following:
Drilling Down For New German Opportunities In China
Taking a closer look, the revision to the encouraged catalogue is also in line with China’s priorities on further improving the country’s healthcare system, sports industry, elder care, rural revitalization, vocational education, and the transition to a green, low-carbon, and circular economy.
We highlight some of the investment opportunities for Germany in the promoted industries below. Businesses should seek professional support to understand the full extent of the opportunities available and potential access to incentives that may streamline costs and offer market benefits.
The 2022 FI Encouraged Catalogue adds multiple new items for the healthcare sector. Some areas where foreign investment is encouraged are:
To facilitate the development of the elder care sector, the 2022 FI Encouraged Catalogue encourages foreign investment in “research, development, and manufacturing of smart healthcare products for the elderly”, which include geriatric products and auxiliary products manufacturing, geriatric medical equipment and rehabilitation AIDS manufacturing, elderly intelligent and wearable equipment manufacturing.
Foreign investment is also encouraged for elder care-related services, including services for renovation and barrier-free transformation of homes, liveable environments, and public facilities for the elderly, eldercare-related professional education, training services designed for elder care, and education provided to the elderly.
Inspired by the success of the Beijing Winter Olympic Games, the 2022 FI Encouraged Catalogue encourages foreign investment into China’s snow and ice industry, with “research and development and production of snow and ice heavy equipment and light equipment for a ski resort, passenger ropeway, snow machine, snow press, and other special equipment” being added to the encouraged catalogue.
The 2022 FI Encouraged Catalogue also added “construction, operation, and management of fitness facilities such as outdoor sports camps” and “development, popularization, and promotion of intelligent sports products and services” as encouraged items for foreign investment. The esports market in China is also growing.
The 2022 FI Encouraged Catalogue adds multiple items that are designed to improve the agriculture, living environment, logistic, commerce, and industrial structure of the rural area. Among others, the below items are introduced in the encouraged catalogue:
To echo China’s plan to strengthen the country’s vocational education system, in addition to the Vocational Education Law that came into force recently on May 1, 2022, the 2022 FI Encouraged Catalogue adds “non-academic language training institutions” and “non-academic art training institutions”.
To be noted, this does not include language and art training services for primary and secondary school students and preschool children between the ages of 3 and 6, which are still subject to stringent supervision amid China’s effort to reduce the burden for students and parents.
Green and Low-Carbon
On top of the nearly 100 items that are relevant to China’s green transition in the 2020 FI Encouraged Catalogue, the 2022 FI Encouraged Catalogue introduces more, such as:
Market-Specific Sectors Of Note By German Manufacturers / Exporters
Other Favorable Policies to Facilitate German FDI into China
So far, the following favorable treatment is in place for foreign-invested enterprises (FIEs) engaged in doing business in the listed industries published in the encouraged catalogue:
Other Relevant China Policy Measures To Attract German Investment
On October 25, 2022, three days before the release of the 2022 FI Encouraged Catalogue, the NDRC released the Several Policy Measures to Stabilize Foreign Investment Stocks and Spur Foreign Investment Quality and Quantity with a Focus on the Manufacturing Sector, which details 15 measures to stabilize and attract foreign investment. In addition to tax breaks, financial support, land facilitation, and measures to improve fairness and business environment, it also pledges to relax travel restrictions for inbound travelers including executives, foreign talents, and their families, smooth COVID-19 related logistics bottlenecks that have seriously disrupted the operation of foreign businesses, and to support FIEs to list on domestic share trading market.
German investors looking at China opportunities may contact the Dezan Shira & Associates German desk in Munich for further discussions concerning China investment. Our practice has 13 offices across China, including Hong Kong, and has been assisting German and other foreign investors in the China market since 1992. Email: firstname.lastname@example.org
China Briefing is written and produced by Dezan Shira & Associates. The practice assists foreign investors into China and has done so since 1992 through offices in Beijing, Tianjin, Dalian, Qingdao, Shanghai, Hangzhou, Ningbo, Suzhou, Guangzhou, Dongguan, Zhongshan, Shenzhen, and Hong Kong. Please contact the firm for assistance in China at email@example.com.
Dezan Shira & Associates has offices in Vietnam, Indonesia, Singapore, United States, Germany, Italy, India, and Russia, in addition to our trade research facilities along the Belt & Road Initiative. We also have partner firms assisting foreign investors in The Philippines, Malaysia, Thailand, Bangladesh.
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