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Economic Watch: China to relax foreign investment rules amid further opening up

wuhan city

China will relax rules for foreign investment, increasing its market appeal to global investors and signalling its determination to deepen opening up.

The country’s Ministry of Commerce (MOC) has made public its plan for formulating regulations and laws in 2021, putting on agenda the revision of the guideline on foreign strategic investment in Chinese listed firms.

The revision seeks to “ease restrictions on foreign strategic investment, and introduce innovative supervision approaches for the sector,” the MOC said in a recent online statement.

The move came as the guideline, which was issued 15 years ago, cannot satisfy the current demand of foreign investment attraction given the country’s rapid development over the years.

Wang Jian, a professor at the University of International Business and Economics, said the revision was a signal to the world, indicating that China will continue its reform and opening-up policy, gradually loosen restrictions on foreign investment in listed firms, and foster a more enabling investment environment.

As the market is waiting for the upgraded guideline, a draft revision unveiled last June offered a glimpse of the upcoming rules.

The June draft lowered asset requirements for investments. It stipulated that foreign investors should either own at least 50 million US dollars or manage no less than 300 million dollars of assets for market entry, compared with the current thresholds set at 100 million dollars and 500 million dollars, respectively.

It also reduced the lock-up period for foreign shareholders’ stocks from three years to 12 months and removed shareholding limits of foreign strategic investment through listed firms’ targeted placements.

Commenting on the lowered bar for foreign investment, Wang said it meant that apart from productive investment, China also welcomes foreign strategic investment in listed firms with open arms.

“The changes showed that China is gradually opening its equity market to the world, which is also conducive to the sound and healthy development of its stock market,” Wang noted.

Opening up has been frequently brought up by China’s policymakers over the years of its rapid economic growth. Despite a virus-induced economic slowdown across the world, the country’s opening-up momentum remains unabated.

China has taken several major steps to open its door wider since last year: implementing the Foreign Investment Law, trimming the negative list for foreign investment and easing foreign access to the financial market.

The country’s new development blueprint, the 14th Five-Year Plan, reiterates the commitment to promoting reform and opening up while pursuing high-quality development.

With a 4 per cent growth in foreign direct investment (FDI) inflows last year, China stood out as the largest recipient of FDI in the world, according to a report from the United Nations Conference on Trade and Development.

In the first four months of 2021, FDI into the Chinese mainland, in actual use, surged by 38.6 per cent year on year, MOC data showed.

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