China's high-standard opening up: Opportunities and strategies for foreign investors in the new era of reform

"Reform and opening up are an ongoing endeavor rather than a task to be completed," says the Resolution of the Third Plenary Session of the 20th CPC Central Committee.

The Resolution has made new deployments to pursue high-standard opening up, which is a defining feature of Chinese modernization. It has also proposed further reforming management systems for inward and outward investment.

"We will foster a first-rate business environment that is market-oriented, law-based, and internationalized and protect the rights and interests of foreign investors in accordance with the law," says the Resolution.

In an exclusive interview with Shanghai Daily, Professor Ding Haoyuan, Deputy Dean of the College of Business at Shanghai University of Finance and Economics, talks about why it is a good time for foreigners to come and grow their businesses in China, and how China (Shanghai) Pilot Free Trade Zone is making efforts to facilitate foreign trade and investment.

Shanghai Daily: How do you understand "high-standard opening up"?

Ding: I think the "high-standard opening-up" means developing a broader, wider, and deeper opening-up. It means not only relaxing market access but also systematically opening up in terms of rules, standards, and regulations.

China has already achieved significant results in high-standard opening-up.

In terms of broader opening-up, the "Belt and Road" initiative has promoted the interconnected development of the world economy through infrastructure construction, bilateral trade, and industrial cooperation, expanding friends and broadening the opening-up.

In terms of wider opening-up, the negative list for foreign investment access has been continuously shortened, reducing restrictions on foreign investment in various industries and fields, thus enhancing the openness of our market. The reduction from the initial 190 items to 31 items, and 27 items in the free trade zone version, shows our determination and efforts in opening the market.

In terms of deeper opening-up, more free trade zones have been established. So far, there are 22 free trade zones nationwide. The China (Shanghai) Pilot Free Trade Zone, established ten years ago, has continuously developed and experimented, promoting the liberalization of trade and investment.

Shanghai Daily: The "Resolution" proposed to "further reforming the management systems for inward and outward investment." What message is this sending?

Ding: It clearly released the signals that we have to further promote a high level of opening up through reforms by attracting foreign investment.

It also shows the determination of our country to welcome foreign investment into China, to enhance the attractiveness of foreign investment, and to improve the confidence of foreign investors to develop in our country.

In March this year, our country launched an action plan aimed at promoting high-standard opening-up and attracting and utilizing foreign investment with greater effort. This plan focuses on five major areas: expanding market access, providing various tax and financial incentives, optimizing a fair competitive environment, promoting personnel exchanges, and aligning with international high-standard economic and trade rules.

Shanghai Daily: Is there something in the "Resolution" about improving foreign investment that has particularly caught your attention?

Ding: That is to support foreign investment to set up R&D centers in China. The action plan launched in March emphasizes supporting foreign investors in establishing R&D centers in China and collaborating with domestic enterprises on technological research and industrial application.

Before that, China also issued an official document with several measures to further encourage foreign investment in setting up R&D centers. These measures aim to support technological innovation, increase R&D convenience, encourage the introduction of overseas talent, and enhance intellectual property protection.

This series of documents provides confidence and institutional support for foreign investors to establish R&D centers in China and expand international technological exchange and cooperation.

Shanghai Daily: Is it a good time for foreign investors to come to China and grow their businesses here?

Ding: It is undoubtedly a good time to come and develop in China.

First, the recent plenary session of the Communist Party of China, which focused on deepening reforms, has further emphasized the signal of promoting high-standard opening up by attracting foreign investment. It shows China's institutional advantage.

Second, China has a large population and a substantial number of highly skilled workers and entrepreneurs. Currently, China has a diverse talent pool of 220 million people. Foreign investors in China can fully leverage this talent advantage.

Third, China has deep cultural advantages. Its rich cultural diversity and inclusiveness offer a diversified market environment for foreign enterprises, helping them to better adapt to and meet the needs of different consumers. China's long history and cultural traditions also have a unique appeal to foreign investors. For example, traditional festivals and modern celebrations not only enrich social life but also provide opportunities for foreign enterprises to market and promote their brands.

Shanghai Daily: What draws foreign investors to Shanghai?

Ding: Shanghai's policies are very transparent and stable, which is highly attractive to investors. According to the "China Government Transparency Index Report" in 2023, Shanghai ranks first among provincial governments, with Putuo District also at the top of the list among 120 county-level governments. Specifically, Shanghai has launched a policy integration library that makes it easy to find various policy information. This information covers seven themes, including business environment and preferential policies, with over 4,000 policy documents from 4 official levels, involving 32 municipal departments.

Also, Shanghai shows significant attractiveness in cross-border capital mobility for several reasons.

First, the convenience of cross-border trade and investment. Shanghai has established a free trade account system to support financial regulation in the Free Trade Zone, promote the construction of an international financial center, and facilitate cross-border financial services in RMB.

Second, the development of cross-border cash pooling business allows multinational companies to centrally manage domestic and international funds, improving the efficiency of cross-border operations.

Finally, Shanghai is a pioneer in the cross-border use of RMB, launching innovative services such as RMB overseas direct investment and cross-border two-way RMB cash pools.

What's more, Shanghai keeps improving in intellectual property protection, working closely with the World Intellectual Property Organization (WIPO). For example, the WIPO Arbitration and Mediation Center in Shanghai is operational. The city has established an Intellectual Property Innovation Award and actively hosts international intellectual property forums. Shanghai is also strengthening its foreign-related legal services. The Shanghai International Legal Service Center in Xuhui District introduced the city's first international mutual recognition agreement for legal service agencies, and Xuhui's International Commercial Mediation and Intellectual Property Mediation Centers explored new commercial dispute resolution methods for diversified resolution of international trade disputes.

Lastly, in terms of taxation, the central government issued the overall plan for the Lingang section of the Shanghai Pilot Free Trade Zone in July 2019, proposing internationally competitive tax policies. Shanghai has implemented the "two 15%" income tax policies in Lingang to support key industry development and attract high-end talents. Specifically, for newly established enterprises engaged in the production and R&D of key areas in industries, such as integrated circuits, artificial intelligence, biomedicine, and civil aviation in the Lingang section, the corporate income tax is reduced to 15% for the first five years.

Also, for overseas and returning talents working in key industries in the Lingang Section, individual income tax exceeding 15% is subsidized, and the income tax is exempted. Additionally, there are other preferential policies, such as tax-free for income from transportation, loading, unloading, and warehousing services provided within the Yangshan Special Comprehensive Free Trade Zone, and VAT rebates for international shipping vessels.

Shanghai Daily: What unique business opportunities can foreign investors find in Shanghai?

Ding: Regarding the unique market opportunities for foreign investors in Shanghai, the artificial intelligence (AI) industry is worth noting. In July 2024, Shanghai hosted the World Artificial Intelligence Conference, attracting scientists and entrepreneurs from various countries and regions to discuss the future of AI.

Shanghai is actively building a world-class AI industry cluster. As early as 2017, Shanghai released some policies on promoting the development of the new generation of AI. Then, from 2018 to 2023, the number of AI companies in Shanghai increased from 183 to 348, and the industry scale grew from 134 billion yuan to over 380 billion yuan.

This indicates that Shanghai's AI industry has great potential, offering broad investment opportunities and market prospects in the future.

Shanghai Daily: Do you have any advice for foreign investors?

Ding: China's policy environment and market dynamics change rapidly, requiring foreign investors to maintain sharp market insight and adopt flexible response strategies. Therefore, I suggest that investors participate in government-organized investment policy training to get the latest policy information. Besides, I also suggest that foreign investors hire professional agents when investing in China. These agents can help understand the content and developments of these policies.