Research Report
Ⅰ. Background and Purpose of Research
□ Due to China's recent expansion of economies of scale, the proportion of its domestic market is growing and the structure of the global economy has changed significantly. China is rapidly developing as global economic power enough to be called G2 after the United States. As a result, the policies and legislation on Foreign Direct Investment (FDI) are rapidly changing.
□ China's foreign investment policy is closely connected as following government policies: the abolishing of a low-lax policy for foreign investment enterprises and the differentiated industrial policy, reinforcement of labor-related regulations, reinforcement of antitrust and M&A regulations, Bridging the regional gap, Resource reallocation, Suppression of the industries (over-consumption of energy, resource, and industrial polluters), Green Growth policies, Backup of high-tech industries.
□ China's economy-related legislations are constantly evolving, so that legislations on Foreign Direct Investment (FDI) are also changing. Given Korea's trade dependence on China and scale of investment, continued interest and research on China's investment-related legislation are needed.
□ Existing domestic studies of China's laws do not covering the latest investment laws, even though they are updating ones, they have a limitation in that each research is being carried out sporadically.
□ This study is aimed at presenting legislation on Chinese foreign investment to domestic investors systematically by analysing the latest legislation with government policy.
□ The contents of this study are including revision of legislation on China's foreign direct investment and comparative research and analysis of the relevant foreign economic legislation from the perspective of domestic investors.
Ⅱ. Main Contents
□ It is necessary to study China's economic policy changes and investment-related legislation first, in order to understand the direction of the change of Foreign Investment Law accurately.
□ The Chinese government is recently trying to attract actively foreign capital in the field of value-added industries, high-tech industries, eco-friendly industry, and give tax-benefit mainly to high-tech industries, eliminate differentiated tax system between domestic and foreign investor.
□ It should be noted that China's regulations on the establishment of Foreign companies have been changing and gradually strengthening, while seeking to change the direction toward corporate diversification.
□ The Chinese government is increasing tax credits for newly growing industry through the amendment of “Corporate Income Tax,” in 2008, with elimination of differentiated tax system between domestic and foreign. In addition, VAT and business tax reform proposals are expanding.
□ To accelerate the internationalization of the renminbi, the Chinese government strives to reduce financial risks according to the cross-border movement of capital, facilitating for foreign investors to invest by the currency of renminbi.
□ Anti-monopoly Law refers to several provisions on the investment to the Chinese companies by foreign investors through M&A. The law serves as the basis of national security screening system and delegate comprehensively enactment of guidelines on Anti-monopoly Law to the State Council by stipulating a couple of basic provisions in the Undertaking Concentration(Merger).
□ Korean firms need to establish aggressive countermeasures to advance into China's domestic market, considering the situation that Preferential policies granted to foreign-funded enterprises have been abolished, in the aftermath of that, Korean firms have already lost price competitiveness compared to the Chinese domestic companies. In addition, Korean firms such as high-tech companies enjoying preferential benefit of corporate income tax should review thoroughly a prerequisite for preferential benefits and at the same time, the risk when they do not meet a prerequisite for preferential benefit.
Ⅲ. Expected Effect
□ This study is intended to provide the legal framework on foreign investment necessary to advance into chinese domestic market by presenting and analysing related legislations based on the Chinese government's basic policy on foreign investment.