China further encourages foreign investment in green sectors by publishing new encouraged industry catalogue

On 28 October 2022, the National Development and Reform Commission (“NDRC”) and the Ministry of Commerce (“MOFCOM”) of China published the Catalogue of Encouraged Industries for Foreign Investment (2022 Version) (“鼓励外商投资产业目录（2022年版）”, the “2022 Catalogue”), which will come into force and replace the currently effective 2020 version on 1 January 2023.

China started to announce and update the list of industries where foreign investment is encouraged since 1995 in a catalogue consolidating the industries encouraged, restricted and prohibited for foreign investment. Since the reform of foreign investment regulatory regime in 2019, the encouraged industry list has been announced in a standalone catalogue and updated every one or two years. Analogous to its previous versions, the 2022 Catalogue contains two sub-catalogues setting out encouraged industries respectively for the whole nation and for only central, western, north-eastern regions and Hainan Province. The 2022 Catalogue has been regarded as an effort to stabilise foreign investment and further commitment to opening up the economy.

What are new in “E” related industries

Compared to the current 2020 version, the national sub-catalogue adds or expands items on advanced manufacturing of components, parts and equipment as well as production-oriented modern services; the regional sub-catalogue expands the scope of encouraged industries by reference to the advantages of each province.

In particular, the newly introduced items cover areas of ecological and environmental governance, renewable energy technologies and products, recycling and energy-saving technologies and products, related services, etc. A non-exhaustive list of these items include:

• Renewable energy technologies and products: development of green hydrogen fuel preparation technologies; development, production and application of new technologies and products of forestry biomass energy; research, development, manufacturing, construction and operation of new energy storage equipment;
• Recycling and energy-saving technologies and products: development and production of new technologies and products for recycling of used woods; low-carbon upgrade technique of petrochemical and chemical raw materials; development and application of industrial water-saving technology and manufacturing of related equipment; recycling of retired wind turbine blades and waste photovoltaic modules;
• Ecological and environmental governance: comprehensive utilisation of the Yellow River silt; farmland soil improvement and ecological management; comprehensive utilisation of arable land reserve resources such as saline alkali land, green farmland construction and technical development and application; construction, technical development and application of projects related to rural environmental improvement, rural domestic sewage and garbage treatment, water ecological and environmental treatment and restoration;
• Related services: clean operation, engineering and technical services of traditional energy; evaluation, certification and audit of clean production;
• Raw materials: deep processing of high-performance light metals and copper alloys used in energy-saving and renewable-energy vehicles as well as for energy saving and environmental protection; production of co-extruded backplane and plastic materials for such backplane for environment-friendly recyclable solar modules.

Benefits of investing in encouraged industries

The major benefits of investing in an encouraged industry include:

• Tariff exemptions: imported self-use equipment within the foreign investor’s total investment amount may be exempted from customs duties, except for products otherwise stipulated as not eligible for duty exemption;
• Preferential land access and price: land supply will be prioritised for encouraged foreign-invested projects with intensive land use. The land transfer reserve price may be determined by no less than 70% of the national minimum price for the transfer of industrial land of the same grade;
• Lower corporate income tax: the corporate income tax rate for investment in encouraged industries in the western regions of China and Hainan province may be further reduced to 15%;
• Other benefits: investment in encouraged industries may also enjoy streamlined approval process in practice.

Notably, the 2022 Catalogue was announced immediately following the conclusion of China’s 20th National Congress of the Chinese Communist Party, the most important political event held once every five years. By introducing a number of new items in relation to green development, the 2022 Catalogue echoes with President Xi’s recent speech at China’s 20th Communist Party Congress that stresses, among others, China’s transition to a green and low-carbon economy.

(Special thanks to Hunter Li for his contribution to this blog!)