On 7 May 2025, China’s financial authorities, led by the People’s Bank of China (PBOC), announced a sweeping 10-point monetary policy package designed to bolster market confidence and support economic stability. Unveiled at a joint press conference with the National Financial Regulatory Administration (NFRA) and the China Securities Regulatory Commission (CSRC), the measures respond to global economic uncertainties, including heightened US tariffs and domestic restructuring challenges. For British businesses, this package signals both opportunities and complexities as China seeks to maintain its position as a global economic powerhouse while fostering a more resilient domestic market.

The package, described by PBOC Governor Pan Gongsheng as a “coordinated” effort, includes a range of tools aimed at injecting liquidity, lowering borrowing costs, and supporting innovation-driven growth. Key among these is a 10-basis-point cut in the 7-day reverse repo rate, from 1.5% to 1.4%, and a 25-basis-point reduction in interest rates for structural monetary policy tools. Additionally, the PBOC has lowered the reserve requirement ratio (RRR) for banks, freeing up capital for lending, particularly to small and medium-sized enterprises (SMEs) and technology-driven firms. These steps, as reported by CGTN, are intended to stabilise market expectations and shore up economic momentum amidst external pressures.

China’s economic context underscores the urgency of these measures. The country has faced significant headwinds from a second trade war with the United States, with US tariffs impacting exporters and global trade dynamics. Bloomberg notes that Beijing’s response includes not only monetary stimulus but also efforts to mobilise medium- and long-term capital to support domestic industries. The package also introduces new financing tools for tech enterprises, reflecting China’s ambition to lead in sectors like artificial intelligence and green energy. For UK firms, particularly those in technology or manufacturing, these initiatives could open doors to partnerships or market entry, provided they navigate the accompanying regulatory landscape.

A notable aspect of the package is its focus on supporting SMEs, which are critical to China’s economic fabric. Enhanced financing mechanisms, including targeted loans and bond issuance support, aim to bolster these businesses, many of which have been hit hard by global market volatility. The CSRC has also outlined plans to deepen capital market reforms, encouraging listings by high-tech firms and improving market access for institutional investors. According to Reuters, these reforms are partly a tactical response to US trade pressures, aiming to reduce reliance on external markets. For British SMEs, this could mean increased opportunities to collaborate with Chinese counterparts, particularly in consumer goods and services, where demand remains strong.

However, the package is not without its challenges. While the monetary easing is designed to stimulate growth, it also raises concerns about potential inflationary pressures and asset bubbles, particularly in China’s property sector, which has been a focal point of economic strain. The South China Morning Post highlights that the government is simultaneously rolling out measures to stabilise the job market and boost domestic consumption, indicating a multi-pronged approach to economic recovery. For UK businesses, this dual focus on stimulus and stability suggests a market that is both dynamic and unpredictable, requiring careful strategic planning.

The international backdrop adds further complexity. The package comes at a time when China is pushing for greater internationalisation of the yuan, capitalising on volatility in the US Treasury market. A survey by Renmin University’s International Monetary Institute indicates growing enterprise interest in using the yuan for international settlements, a trend that could reshape trade dynamics. For British firms, this shift may necessitate adjustments in payment and financing strategies, particularly for those engaged in cross-border trade. The CBBC advises UK companies to leverage local expertise to navigate these changes effectively.

The package also aligns with China’s broader geopolitical and economic strategy. Reports from Yahoo Finance suggest that China has agreed to suspend certain non-tariff barriers to US imports, hinting at a potential de-escalation of trade tensions. This development, coupled with the monetary measures, reflects Beijing’s intent to balance domestic priorities with global engagement. For UK businesses, this creates a window of opportunity to engage with a market that is actively seeking to diversify its economic partnerships, particularly in sectors like education, healthcare, and green technology, where British expertise is well-regarded.

For British companies, the implications of the 10-point package are significant. The emphasis on technology and innovation opens avenues for UK tech firms to explore collaborations, though increased regulatory scrutiny in high-tech sectors, as seen in the 2025 Negative List for Market Access, necessitates robust compliance measures. The healthcare sector, buoyed by China’s focus on domestic consumption, presents opportunities for British pharmaceutical and medical device companies to tap into a growing market. Similarly, the easing of financing for SMEs could facilitate joint ventures or supply chain partnerships, particularly for UK firms in consumer goods, where China’s middle class continues to drive demand.

The UK-China economic relationship provides a strong foundation for capitalising on these opportunities. The CBBC underscores the potential for British SMEs to benefit from China’s expanding consumer market, though success hinges on understanding local regulations and building strategic partnerships. The monetary package, by enhancing liquidity and market access, could amplify these opportunities, but firms must remain vigilant about competitive pressures and policy shifts.

Critics of the package argue that while it addresses immediate market concerns, it may not fully resolve deeper structural issues, such as China’s reliance on debt-driven growth or vulnerabilities in its property sector. Bloomberg notes that monetary policy alone cannot address all economic imbalances, particularly in a global environment marked by trade disruptions. For UK businesses, this underscores the need for a long-term perspective, balancing short-term gains from market openings with caution about macroeconomic risks.

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China’s economic allure, with a projected GDP growth of around 5% for 2025, continues to draw global investors, including British firms seeking to tap its vast consumer base and innovation-driven markets. However, the country’s foreign investment regime, governed by the Foreign Investment Law (FIL) of 2019, balances openness with stringent controls, particularly in sectors deemed sensitive to national security or cultural identity. For UK businesses, navigating these restrictions is essential to unlocking opportunities in a market where bilateral trade reached £111 billion in 2022.

The Framework: Foreign Investment Law and Negative Lists

Enacted on 1 January 2020, the FIL transformed China’s approach to foreign direct investment (FDI) by replacing a patchwork of approval-based rules with a unified framework. The law promotes “national treatment,” ensuring foreign investors are treated similarly to domestic ones, except in sectors outlined in the Negative List for Foreign Investment Access. The 2024 edition of this list, issued by the National Development and Reform Commission (NDRC) and the Ministry of Commerce (MOFCOM) on 8 September 2024 and effective from 1 November 2024, reduced restricted and prohibited sectors to 29 from 31 in 2021, signalling progressive liberalisation. Prohibited sectors include news media, internet publishing, and audio-visual production, reflecting China’s tight grip on information and cultural industries. Restricted sectors, such as telecommunications and medical institutions, often require joint ventures with Chinese partners, with foreign equity typically capped at 50%.

Complementing the Negative List is the Market Access Negative List, which applies to both domestic and foreign investors. In April 2025, this list was trimmed to 106 items from 117 in 2022, easing barriers in sectors like hotel management and construction. Free Trade Zones (FTZs), such as those in Shanghai and Guangdong, operate under a separate FTZ Negative List, which is less restrictive but still enforces sector-specific rules. For example, while the 2024 Negative List lifted all manufacturing restrictions nationwide, FTZs had already relaxed these rules in 2021, offering British firms in fintech and professional services a testing ground for investment. However, inconsistencies between these lists can complicate compliance, and firms should seek expert guidance.

Sector-Specific Restrictions

Manufacturing: A New Era of Openness

The most significant reform in 2024 was the complete removal of foreign investment restrictions in manufacturing. Previously, sectors like publication printing and traditional Chinese medicine processing faced ownership caps or joint venture requirements. Effective 1 November 2024, these barriers were eliminated, allowing wholly foreign-owned enterprises to operate freely in manufacturing. This aligns with China’s “Made in China 2025” strategy, which prioritises high-end manufacturing and innovation. For UK firms in advanced manufacturing, such as aerospace or clean technology, this presents a golden opportunity to establish fully controlled operations, though local competition and IP risks remain concerns.

Services: Gradual Liberalisation

The service sector, critical for UK exporters in finance, healthcare, and technology, is undergoing cautious liberalisation. In telecommunications, pilot programmes in cities like Beijing, Shanghai, and Hainan, launched in April 2024 and expanded in 2025, relaxed foreign ownership restrictions for value-added services, including Internet Data Centres and Content Delivery Networks. The 2024 Negative List also removed foreign equity caps in app store services, reflecting China’s push to integrate AI and digital services. However, basic telecommunications services still require Chinese control, limiting foreign influence in core infrastructure.

Healthcare, a priority under the “Healthy China 2030” initiative, saw a landmark reform in 2024. A joint circular from MOFCOM, the National Health Commission, and the National Medical Products Administration permitted wholly foreign-owned hospitals in nine cities, including Beijing, Shanghai, and Hainan. This shift, effective from 1 November 2024, opens doors for UK biosciences firms, but strict regulations persist. Approvals for medical services and compliance with human genetic resource rules for research involving stem cells or gene therapy are mandatory, requiring robust due diligence.

Financial Services and Listed Companies

China’s financial sector, a stronghold for UK firms like HSBC, has seen progressive easing. The 2020 Negative List lifted equity caps for foreign investors in banking, securities, and insurance, allowing full ownership in certain financial services. In November 2024, rules for foreign investment in listed companies were relaxed, lowering the asset threshold for non-controlling investors from $100 million to $50 million and introducing tender offers as an approved investment method. These changes aim to attract capital to China’s stock markets, though geopolitical tensions and market volatility may temper enthusiasm.

Data, Cybersecurity, and Anti-Espionage Laws

China’s data and cybersecurity regulations pose significant challenges for foreign investors, particularly in tech-heavy sectors where the UK excels. The Cybersecurity Law of 2017, updated in 2024, mandates local storage of personal and “important” data and requires government approval for cross-border transfers. The Personal Information Protection Law (PIPL) of 2021 further tightens data handling, impacting firms in e-commerce and digital services. The Anti-Espionage Law, amended in July 2023, expanded its scope to include “documents, data, or materials” related to national security, raising concerns about vague enforcement. Foreign firms, including UK tech companies, must navigate these laws carefully, as compliance failures can lead to fines or operational bans. The CBBC recommends partnering with local legal experts to ensure adherence while protecting IP, especially in China’s first-to-file patent system.

Geopolitical and Trade Considerations

The U.S.-China trade war, escalating in 2025 with U.S. tariffs on Chinese goods reaching 145%, has ripple effects for foreign investors. Dual tariffs—125% on components imported into China and 145% on exports to the U.S.—complicate supply chains for manufacturers reliant on China for assembly. While the UK faces fewer direct trade barriers, China’s retaliatory measures, such as rare earths export controls in April 2025, underscore its economic leverage. British firms benefit from a stable UK-China relationship, reinforced by the UK-China Economic and Financial Dialogue (EFD) in 2025, which eased barriers in agri-food exports. However, the UK’s National Security and Investment Act (NSI) mirrors China’s scrutiny, requiring notifications for investments in 17 sensitive sectors, highlighting the need for transparency in bilateral deals.

Incentives and Challenges

China’s Catalogue of Encouraged Industries, updated in 2024, incentivises investment in high-tech fields like gene sequencing and green energy, offering tax breaks and land-use subsidies. The “24 Point Guidelines” of 2023 promote equal treatment in government procurement and streamline data flows, though local implementation varies. Despite these efforts, challenges persist. A 2023 CBBC survey found 73% of British multinationals faced restrictions, from opaque licensing to discriminatory procurement. The World Bank’s 2023 transparency score of 1.75 out of 5 reflects regulatory complexity, particularly for SMEs. Bureaucratic delays in profit repatriation and local competition further complicate operations.

Strategic Considerations for British Businesses

For UK firms, success in China hinges on strategic planning. The CBBC offers market insights and partner vetting, critical for navigating restrictions. Local partnerships can ease compliance, especially in restricted sectors like healthcare. Understanding consumer preferences and digital platforms like WeChat is vital, as is safeguarding IP through proactive registration. Collaborations, such as Westwell Holdings’ AI-powered trucks at Felixstowe port, showcase UK-China synergy in aligned sectors like AI and clean tech.

China’s investment regime is evolving toward greater openness, but restrictions in services, data, and sensitive sectors remain. For British businesses, the challenge is to balance compliance with ambition, leveraging China’s market while mitigating risks. With careful navigation, UK firms can capitalise on this dynamic economy, fostering mutual growth in a globally connected world.

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Chaired by Huang Shan, Director and Senior Fellow at Caixin Insight, the discussion featured insights from Joe Li, Head of China Desk at HSBC; Yang Ming, CEO of Westwell Holdings; Natasha Luther-Jones, Global Head of Energy and Global Resources Sector at DLA Piper; and John Dykes, Sales Director for Ming Yang Smart Energy. The panel explored how the UK can attract Chinese investment, the role of policy and infrastructure, and the synergies between the two economies in sectors like green energy and advanced manufacturing.

Huang Shan opened the discussion by referencing UK Prime Minister Keir Starmer’s commitment to cutting bureaucracy and creating a stable investment environment. “Starmer has emphasised the need to rip up red tape and ensure stability to attract investment,” she said. This sentiment was echoed by Joe Li, who noted the improving ties between the UK and Chinese governments. “It’s good to see the adults back in the room. The relationship is now being handled in a sensible and pragmatic way,” Li remarked. He highlighted HSBC’s unique position as a British bank with deep roots in China, symbolised by its name, which includes two Chinese cities. “We are at the core of this conversation, and we’ve already seen a significant increase in enquiries from Chinese investors,” he added.

Li also shared HSBC’s efforts to bridge the gap between UK SMEs and Chinese markets. “Last year, we took 20 SMEs on a week-long trip to China, and this year we plan to take 40 clients on a two-week trip. The interest is growing rapidly,” he said. However, he acknowledged the challenges posed by the UK’s regulatory environment, particularly in sectors like green energy. “When you have 4,000 documents required for planning permission, it’s hard for Chinese investors to understand. Grid reform is another major obstacle, with 700 megawatts of power projects pending due to outdated assessment processes,” Li explained. He welcomed recent efforts to prioritise “ready-to-go” projects, calling it a positive cultural shift.

Yang Ming, CEO of AI company Westwell Holdings, made his first public appearance in the UK at the forum, expressing optimism about the UK market. “The UK is a great market, with its ports, supply chains and growing demand for smarter, greener solutions,” he said. Westwell’s AI-powered autonomous trucks have been operational at Felixstowe, the UK’s largest port, for two years, improving efficiency and reducing carbon emissions. “Our focus is not just on what we do but on driving industrial change. The UK’s world-leading educational institutions and innovation hubs, like our partnership with a centre in Hong Kong, are key to this,” Yang added.

Natasha Luther-Jones provided a legal perspective on inward investment, particularly in the energy sector. She highlighted the National Security and Investment Act as a key concern for Chinese investors. “Energy is one of 17 sectors affected by the act, so each case needs to be assessed individually,” she said. Luther-Jones advised companies to make voluntary notifications to avoid delays, noting that only five out of 150 cases had been called in for review, with none being blocked outright. She also emphasised the importance of planning consents, local workforce considerations, and the potential for change-of-control issues. “Grid reform, expected in the first half of this year, will be a game-changer. It will prioritise projects that are ready to go, addressing the backlog of ‘zombie projects’ that have grid connections but lack land rights or funding,” she explained.

Luther-Jones also touched on the geopolitical dynamics shaping the energy sector. “European OEMs are struggling to meet demand, and Chinese manufacturers like Ming Yang are stepping in. For example, a German fund recently chose Chinese turbines over European ones because they were the only ones meeting the required specifications,” she said. She predicted that the UK and Europe would increasingly rely on Chinese manufacturers to meet net-zero targets, particularly in wind and battery storage. “The difficulty with net zero will be in heat, not power. We’ve seen this shift with solar, and now we’ll see it with wind and storage,” she added.

John Dykes, representing Ming Yang Smart Energy (MYSE), outlined the company’s strategy for aligning with the UK’s growth goals. “We focus on technology adaptation, innovation, and market integration,” he said. MYSE’s European R&D centre collaborates with top institutions to develop next-generation turbines and smart grid technologies. “Our aim is to meet UK and EU standards while contributing to net-zero goals,” Dykes explained. He highlighted the booming global demand for clean energy as a tailwind for MYSE, driven by sectors such as data centres and electric vehicles. “Policy incentives and technological innovation are key growth drivers. For example, our twin-rotor turbines maximise efficiency, and we’re now selling them globally, with plans to expand further west,” he said.

However, Dykes also acknowledged the headwinds facing the industry. “Inflation in raw materials like aluminium, copper, and resin has created significant challenges. Contracts signed years ago at outdated prices can lead to heavy losses,” he said. Regulatory compliance and the need to build trust with local suppliers were additional hurdles. “For a Chinese OEM, engaging local suppliers is crucial. It’s not just about investment; it’s about creating relationships and upskilling the workforce,” Dykes added.

The panel concluded with a consensus on the immense potential for UK-China collaboration, particularly in green energy and advanced manufacturing. Huang Shan summarised the discussion by emphasising the importance of stability, policy clarity, and cultural understanding. “The UK offers a wealth of opportunities, but to fully capitalise on them, we need to address regulatory barriers and build trust. Chinese investors are looking for long-term partnerships, and the UK has the expertise and infrastructure to make these partnerships successful,” she said.

As the forum demonstrated, the UK and China are at a pivotal moment in their economic relationship. With the right policies, infrastructure, and collaboration, the two nations can unlock significant mutual benefits, driving innovation and sustainability in an increasingly interconnected world.

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Are there any sectors that L&P is specifically targeting from China?

London & Partners is focusing on supporting Chinese investment into areas where London is really strong or is looking to develop its global reputation in new tech of the future. This includes technology which London has traditionally been strong in, like FinTech, AI and green finance. Financial services and real estate are still big areas of interest, too. There’s also growing attention on creative industries, healthcare, and green energy as Chinese investors look for diverse opportunities in London.

What kind of London businesses has China traditionally invested in?

Chinese investors have traditionally put their money into real estate and financial services in London. But over time, we have seen this shift into technology, especially AI and FinTech, as well as renewable energy. This shift shows how Chinese companies are looking to get into new and innovative industries that fit with their global goals.

How has investment from China changed over the last decade?

Over the last ten years, Chinese investment in London has changed a lot. It started with a focus on real estate and infrastructure, but now Chinese companies are investing more in technology, healthcare and creative industries. There are more Chinese-led projects in London now (over 200 since 2013), that are creating jobs (more than 16,000 since 2013) and bringing in money (over £7.5 billion since 2013), which shows how Chinese investors are looking for new markets and advanced technologies.

What are the biggest opportunities for Chinese businesses investing in London?

London offers many opportunities for Chinese businesses, especially in technology, where it’s a world leader in FinTech and AI. There are opportunities for London and China to collaborate around technologies that are addressing some of the major challenges we both face – these are global challenges and need global solutions. London is good at that. Financial services are also a big draw because London is a major financial hub. London’s lively cultural scene offers unique chances in creative industries, and the city’s focus on sustainability makes it a great place for investments in green technology and energy.

How much does cultural influence and the UK’s soft power attract Chinese investors?

The UK’s cultural appeal plays a big role in attracting Chinese investors. London’s rich history, top universities and global arts scene make it a very attractive place for Chinese businesses. These factors, along with London’s reputation as an international hub, help bring in Chinese companies that want to build their global presence.

Are there any good examples of Chinese companies launching (or investing in) London in recent years?

Yes, several big Chinese companies are investing in London. For example, we have seen major commitments from Chinese electric vehicle manufacturers in the UK and London specifically. BYD, the world’s largest maker of electric vehicles, has set up its UK office in London and has delivered over 1,000 electric buses to the city. Chinese real estate developers are also buying and building properties in London. Plus, Chinese banks have opened offices in London, highlighting how important the city is for global finance. Overall, London is the second largest destination city for Chinese foreign direct investment (FDI), behind only Singapore.

How important is the tech business to London investment, and how does the UK compare with other major European markets when it comes to being regarded as a tech capital?

Technology is really important to why investors choose London. London is Europe’s leading and largest tech hub, especially in FinTech, AI and cybersecurity. It has grown in size over the last decade from $70 billion to over $620 billion, with more growth capital and unicorns than anywhere else in Europe. This strong tech scene attracts many Chinese investors, who find London’s mix of tech, financial services, and academic excellence particularly appealing.

2025 will see the first SXSW London – can you tell us more about how this came about and the reasons it is coming to London?

SXSW coming to London in 2025 is really exciting. London’s lively arts scene and strong focus on tech and creativity make it an ideal place for such an event. This decision shows that London is a leading city for fresh ideas and creative thinking.

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With our business-friendly institutions, vibrant markets in high-growth and innovative sectors and a clear track record of international collaboration, the UK offers Chinese companies, investors and organisations access to multiple growth opportunities. We benefit from a transparent legal system, a stable investment environment and a pro-business regulatory approach, while our London-based financial and professional services hub – unrivalled across Europe – is globally connected and respected. We are a centre for international talent, possessing a strong innovation base combining industry and world-leading universities, four of which rank in the global top 10. We are also a global fintech and medtech pioneer, as well as the home of a mature and sophisticated consumer market.

Furthermore, the UK’s regions provide unrivalled access to world-class innovation parks, manufacturing bases, world-class talent and growth opportunities. We are one of the most innovative nations, driving advancements in modern industries and leading the way in setting global industry standards. With a comprehensive range of local development bodies, partnerships and world-leading government-led initiatives to support overseas investors, the potential to work together in the pursuit of internationalisation makes the UK a natural fit for companies across China.

Chinese success in the UK

Chinese investment is of great importance to the UK and our market also offers Chinese companies a unique platform for growth.

Firstly, the UK’s investment environment is amongst the most open and liberal anywhere in the world. Getting a business established in the UK is very straightforward, taking 13 days on average, compared to more than 30 days across the EU – ranking 1st in Europe and 6th in the world. We stand out clearly amongst our comparators.

Of the 970 largest Chinese-owned companies in the UK, over 59,000 people are directly employed, with over 100,000 jobs created within the UK economy by Chinese investment. This number has continued to rise. In 2023, these companies generated a combined turnover of £116.4 billion and 2023 also saw revenues increase overall by a healthy 21% – demonstrating vibrancy in the market for Chinese companies to explore.

• Chinese investment in the UK accounts for 28% of the total figure for Chinese investment shared across all other European markets.
• Cumulative Chinese investment in Europe between 2000-2022 shows the UK as by far the most trusted destination by Chinese investors with a transaction value of 81.4 billion euros, which is substantially more than the other main markets – France, Germany and Italy – combined. We stand out clearly amongst our comparators.
• Finally, 7% of the UK’s total imports come from China, and this is set to grow – particularly in key areas such as healthcare and the automotive sector, where China is emerging as a globally competitive manufacturer. The UK imported £63.5 billion of goods and services from China in 2022 Q4-2023 Q3, making it the UK’s fourth largest source of imports.

CBBC UK Investment Conference & Investment Guide Launch, 24 September 2024

The UK Investment Conference 2024 will be an opportune moment to reflect on investment successes to date, focus on future opportunities and demystify challenges and complexities.

We will invite 150-200 attendees, with the majority of seats reserved for representatives from Chinese companies. Our conference speakers will also primarily be from the UK’s world-leading financial and professional service sector and Chinese companies with existing investments in the UK or those with strong intentions to invest. We will also hold a pre-event VIP reception the evening before on 23 September.

UK Investment Guide

The UK Investment Guide will be launched at the UK Investment Conference before heading on a multi-city roadshow around China together with our sponsors, which will run into 2025. The guide will be published in Chinese and will address the pertinent themes impacting Chinese investors, drawing on the expertise of CBBC’s members. These will include:

• The UK’s investment environment
• Regional opportunities in the UK
• Practical considerations for investment and business growth
• Safeguarding investments
• Case studies

Explore sponsorship opportunities

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There is widespread relief at the prospect of a more predictable operating environment and the resumption of connectivity with the rest of the world since China dropped its zero covid policy. Recovering the more robust levels of confidence common among foreign investors pre-2019 will now need to be the goal if China seeks to capitalise on its reopening, stabilise, grow levels of inbound investment, and return to the “new normal” of annual GDP expansion of 5% or above.

Initial signs of recovery are beginning to emerge as China’s economy begins to come back to life after a year of heavy disruption. Fortunately for the economy, the impact from the first wave of infections arrived early enough in December and January for the process of recovery to capture a significant chunk of the annual Spring Festival boost to travel, leisure and consumption more broadly.

Travel rebounded strongly over the seven-day holiday up 50.9% on 2021, though still significantly lower than 2019 trip volumes (47%) according to the Ministry of Transport. The box office also sprung back to life with around $1 billion generated over the seven-day national holiday, aided by a strong line-up of domestic films and beating 2019 takings. Data from Meituan indicates a recovery of China’s restaurant sector has also started, with Spring Festival revenues for some chains already recovering to pre-pandemic levels.

Signals from China’s leadership such as China’s Vice Premier Liu He’s Davos speech, which included a declaration that China’s economy ‘will get back to normal in 2023,’ have also added further fuel to the relief rally. As have the recent approvals for foreign finance firms to set up or acquire wholly owned mutual funds as well as securities brokerages. One interpretation of this sudden raft of approvals is that they are evidence of a more welcoming stance toward foreign business (and the private sector more broadly). Foreign investors, however, continue to hold a range of concerns that will be more challenging to shake off for the economy than the reversal of zero covid has proven to be, or the lower-hanging fruit of granting approvals.

Boardrooms are asking more questions of China as the number of fronts that present risk or uncertainty has grown. Whether regulatory, geo-political or the shock of zero covid on the operating environment and supply chains, decision-makers will need to recover the belief that China presents not just growth potential but a predictable enough environment to invest long-term.

Relations have been strained between China and several of its closest neighbours, as well as some of its largest trade and investment partners, including the US, Europe, Canada and the UK. Reducing diplomatic tension will have a positive knock-on effect on foreign businesses that have consistently listed geopolitics as a key factor affecting decision-making since 2018 and the onset of the US-China trade war.

A recent PwC survey of CEOs in China indicates a high degree of concern about the long-term viability of their business models in large part due to the shifting geopolitical landscape and the uncertainty that has formed as a result. Geopolitical conflict sat in third place on the list of business risks that CEOs globally are bracing for over the next 12 months and five years respectively, sitting behind only inflation and macroeconomic instability.

China’s recent efforts to reengage with international partners, including Chinese Xi Jinping’s attendance at the November G20, the healing of relations with Australia and the rush of outward official visits expected to take place in the months following Spring Festival, are all encouraging signs. The lack of interaction between the governments of the UK and China, for example, has created a void in recent years where normally there would be regular engagement at both senior and working levels. Resuming dialogue while accepting both sides will continue to have, at times, significant differences, will be a crucial step to rebuilding trust and constructive exchange.

Foreign investors will also be watching closely for signs the economy remains a high priority. The sudden nature of the restrictions imposed on the education sector, for example, sent a chill through the economy and left many businesses concerned their sector might be next in the firing line. Providing businesses with greater transparency and advanced consultation on decisions regarding future legislation or adjustments to rules and regulations will help create a more predictable environment and contribute toward restoring trust among investors. Continued steps toward increasing market access and tackling business environment issues will also play a big role.

Regarding the economy, strong growth appears possible in 2023 with projections generally falling between 4% and 5.5%. The second quarter in 2023 is likely to be a bumper one with growth potentially into the double-digits given the low performance of the second quarter of 2022. Although down to an accounting quirk, this will present an opportunity to signal China’s pro-growth stance and provide further evidence of the strength of recovery to the international business community at a time when the global economy is likely to be struggling for positive narratives. The upcoming Two Sessions in March also provides an opportunity to provide reassuring signals to investors.

If strong economic growth is to be a priority for China over the coming years, then recovery of investor confidence will need to feature high on the list of short to medium-term objectives. Any recovery of sentiment, however, will take more than just one of the factors highlighted above to succeed. China’s management of its economy and business-related policies will play a significant role, but unless the backdrop of heightened geo-political tensions eases, uncertainty will persist and continue to weigh upon decision-making for investments, supply chains and any exposure to China more generally.

Initial signs suggest the cautious optimism for 2023 that is increasingly prevalent among foreign business is not misplaced. For board room-level confidence to return, it will require China to take a sustained, collaborative and transparent approach in addition to the return of long-lasting strength in the economy beyond the inevitable bounce from reopening.

The coming months will show what China’s post-zero covid “reset” will mean for business and perhaps provide an early indication of what to expect over the longer term. Foreign investors will be hoping for more efforts to promote confidence and trust in the operating environment for international business, a strong focus on restoring stable long-term growth and predictability in the Chinese economy, alongside visible efforts to dial down geopolitical tensions.

This article was originally published by Caixin as “Opinion: to Capitalise on Reopening, China Needs to Rebuild Investor Confidence”

Call +44 (0)20 7802 2000 or email enquiries@cbbc.org now to find out how CBBC’s market research and analysis services can provide you with the information you need to succeed in China.

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The catalogue identifies industries where foreign direct investment (FDI) will be welcome and treated with favourable policies. Investments in encouraged industries can usually enjoy benefits such as exemption from import duty for the import of equipment to be used by the investing company, or priority land-use rights for certain industrial projects.

The catalogue now lists a total of 1,474 items, a net increase of 239 over the 2020 edition of the catalogue. Further modifications were made to 167 items that were already included. The main changes are as follows:

1. The catalogue continues to focus on manufacturing – notably, manufacturing in IT, advanced machinery, energy conservation, environmental protection and modern transportation – as a key industry through which to encourage foreign investment and upgrade the industrial and supply chain. Many items related to components, spare parts, and equipment manufacturing have been added to the list or expanded.
2. The catalogue continues to guide foreign investment in production-oriented services. It will focus on promoting the integrated development of the service and manufacturing industries and many items in the realms of professional design, technical services, and development have been added to the list.
3. The catalogue continues to optimise the regional allocation of foreign investment and expands the list of incentives in the central and western regions of China* in light of their comparative advantages in terms of labour force and distinctive resources. Foreign investments in western China and Hainan Province may also be able to access a reduction in corporate income tax of up to 15%.

Following the release of the catalogue, some of the industries that boast improved investment opportunities include healthcare (both medical devices and pharmaceuticals), sports (notably winter sports), green and low carbon technologies and vocational education (although not language and arts training schools for primary and secondary school children).

Click here to read the original notice from Mofcom.

Call +44 (0)20 7802 2000 or email enquiries@cbbc.org now to find out how CBBC’s market research services can help you build knowledge and understanding of the Chinese market prior to investment.

* According to the NDRC, central and western regions include Chongqing, Sichuan, Guizhou, Yunnan, Tibet, Shanxi, Gansu, Qinghai, Ningxia, Xinjiang , Inner Mongolia and Guangxi Province.

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“The world is not waiting for China to resolve its Covid challenge… [foreign companies] move on, and China runs the risk of falling behind and losing the competitive advantage [it] had.” So says Joerg Wuttke, President of the European Chamber of Commerce in China, who is just one of at least a dozen prominent businesspeople in China to have expressed concern at the country’s about-face to foreign investors in the name of Covid. Indeed, while publicly adamant that they are ‘in China, for China,’ as so many executives in the market like to say, behind the scenes, multinational companies are beginning to get a bit tetchy. 

Questions abound. Did MNCs get the wrong end of the stick? Is China finished with foreign investors, and have the tens of thousands of business people who’ve been coming to China determined to cultivate the country’s 1.4 billion consumers been reading the room wrong? For example, was the announcement of the ‘Dual Circulation Strategy’ in fact Beijing giving foreign investors notice that it planned to become self-sufficient rather than another opportunity for foreign firms to ‘contribute to China’s rise?’ Some 30 years after opening its doors to the international business community, China now appears to be reconsidering the relationship. 

This Policy Update aims to shed light on the numerous calculations that currently might be taking place in Zhongnanhai concerning the international business community and explain why it will not be business as usual once China does decide to reopen to the world.

Background 

First, it is important to define how China views its place in the global economy and how, as a result, it engages with foreign firms. 

Despite what some commentators have suggested, China is not about to become a larger, more tech-savvy North Korea. But the country is also not about to become a free-trade loving, rules obeying, Westward-leaning trade partner, either. Instead, China will most likely up the ante in competing for economic dominance, underpinned by greater financialisation and promotion of Chinese law. It wants to be able to play by its own rules — and that will bring with it seismic changes to the global economy. Foreign firms may become far more dispensable, for a start. 

What is more, China has been laying the foundations for such a shift for years, meaning that one should view more recent factors, such as Covid-19 and the war in Ukraine, as catalysts rather than causes in terms of the country’s new coolness in the face of trade partners and foreign firms.

So, is China finished with foreign investors? 

The short answer is: no. But has China come to see foreign investors differently, particularly post-Covid and Ukraine? Yes, by making international travel nigh on impossible for foreign business people, shuttering factories in city after city, and being generally apathetic to the fact that its current economic malaise could put the global economy into a recession, all in the name of zero Covid, it is clear that the Chinese government now looks at the world through red-tinted glasses. 

Foreign firms have been pushed to the periphery of the Chinese government’s worldview. And the once irreproachable annual GDP target is no longer the lynchpin of Chinese policymaking that it was before. In this ‘new era’, it’s zero Covid and ‘adherence to the Party and President XI Jinping at its core’ that drive policy. 

But are foreign investors finished with China? 

Not quite, which is good because China will need to attract lots more to continue its zero Covid strategy. Local governments are reportedly beginning to grumble over who’s going to foot the bill for the mass testing, and with tax hikes or handouts and commercial subsidies all unpopular or ineffective options – China has one of the highest saving rates in the world, meaning consumers would likely elect to save the money rather than re-inject it into the economy – the government has suggested foreign investors could pay. 

Multinational companies within China have made it clear to the Chinese government that if the country does not become more welcoming, they could become less inclined to be ‘in China, for China’ and start moving their non-China facing business out of the country. While MNCs have refrained from announcing plans to exit the market entirely, India and several markets in Southeast Asia have seen a surge in FDI from Chinese and foreign firms alike who are gradually adopting a ‘China Plus One’ strategy. 

China’s trade data also suggests that foreign businesses and investors are growing weary of the country’s economic struggles. As it became apparent that the government was determined to pursue its zero Covid strategy as Shanghai went into lockdown in February, and continued over the course of March, foreign investors pulled out of RMB 193 billion (£23.3 billion) worth of Chinese bonds – the greatest outflows since the beginning of China’s bond market – while early-stage investment by venture capitalists declined by 90% year-on-year.

Such a state of affairs is tricky for Beijing, as foreign firms could be key to affording the country’s short-term political endeavours, including maintaining a costly zero Covid strategy. What is more, China does not want to lose investors to the United States, where rising yields spurred by Federal Reserve monetary policy are turning heads. Ergo, somewhat paradoxically, Beijing is now trying to win foreign investors back. On 27 May, the People’s Bank of China announced it would open up the last 10% of its onshore bond market to try and reignite global interest in RMB-denominated debt. However, analysts do not anticipate the move will improve China’s fortunes much, considering that the foreign investors are already in China, they have their doubts, and having access to more does not necessitate investing more. 

Which foreign investors does China want? 

Those that are ‘in China, for China’ – but not in the way Western businesses often profess to be. While demand for foreign technologies and know-how that can assist China with its development remains, a new type of investor is beginning to find itself more welcome in China: those from the BRICS nations or developing states. Such economies are more likely to take Beijing’s side in questions of global governance as well as in advancing Chinese law and capital on the world stage. 

The CBBC View 

There’s a chance Wuttke got it wrong: China is indifferent to whether the world is waiting for it. The country has designs to be far more assertive in the international political economy, whilst domestic politics give cause to further insulate the economy at home. That said, China is not ready or interested in dispensing with foreign investors entirely. The country’s zero Covid strategy, for a start, could come to depend on them. But Beijing does appear to be more bullish with regard to how its trade partners engage with it economically and who those trade partners are in the first place. As a result, foreign investors can expect their interactions with China to increasingly happen on its terms, most tangibly through increased pressure to accept Chinese law (both domestically and in third markets) and participate in RMB financing overseas.

If you are a British company in China concerned about how the country’s latest policies affect you, call +44 (0)20 7802 2000 or email enquiries@cbbc.org to find out how CBBC can help.

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The UK government has implemented the National Security and Investment Act, which came into force on 4 January 2022.  The Act allows the government to scrutinise and intervene in certain acquisitions that could harm the UK’s national security.  This includes imposing certain conditions on an acquisition, including unwinding it or blocking it completely.  The Act applies to acquisitions that are in progress, in contemplation or have been contemplated but excludes acquisitions completed before 12 November 2020.

How will the new Act affect UK-China collaboration?

Under the Act, investors and businesses have a legal obligation to notify the government about certain acquisitions across 17 sensitive areas of the economy:  

• Advanced materials
• Advanced robotics
• Artificial intelligence
• Civil nuclear
• Communications
• Computing hardware
• Critical suppliers to government
• Cryptographic authentication
• Data infrastructure
• Defence
• Energy
• Military and dual-use
• Quantum technologies
• Satellite and space technologies
• Suppliers to the emergency services
• Synthetic biology
• Transport

This could have an impact on UK companies looking to collaborate with Chinese companies and on UK start-ups seeking Chinese capital investment.

Depending on the nature of the acquisition, the notification may be mandatory, such as in the acquisition of a controlling right or interest in a qualifying entity above a certain threshold or voluntary, such as in the acquisition of a qualifying asset, including intellectual property (IP).  Interestingly, the term “qualifying entity” applies not only to UK entities but also to non-UK entities carrying out activities in the UK or supplying goods and services to the UK.  From an IP perspective, the Act could be interpreted as applying to non-UK IP rights that can be enforced in the country of origin to restrict the supply of goods and services to the UK.

Non-compliance with the Act will result in the acquisition being deemed void and the offender risking exposure to civil and criminal penalties.  A civil penalty could be as much as 5% of an organisation’s global turnover or £10 million, whichever is greater.

Will a government intervention delay my company’s acquisition? 

As recently as September 2021, the proposed acquisition of the Perpetuus Group by a China-linked group of companies, led by Taurus International, was the subject of a public interest intervention under the Enterprise Act 2002, which provided the government with similar powers to intervene on grounds of national security.  The intervention process is ongoing as of the date of this article.

Nevertheless, the government has provided assurance that the vast majority of acquisitions will require no intervention and will be able to proceed quickly.  Nevertheless, it is critical to consider government guidance and professional advice for any acquisition in the named sensitive areas to avoid downstream problems.  This is particularly relevant to the growing collaboration between UK and Chinese entities in company mergers and acquisitions, investments and IP purchase and licensing.

Government legislation and guidance to help investors and businesses understand their obligations under the new rules can be found here:

https://www.gov.uk/government/collections/national-security-and-investment-act

Jason Teng is a partner with Potter Clarkson LLP, a full-service intellectual property law firm.

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Speaking to the results of the survey, Sir Sherard Cowper-Coles, Chair of the China-Britain Business Council and Group Head of Public Affairs at HSBC, said: “Companies from the UK and around the world clearly continue to see the China market as a significant driver for the growth of their business and the global economy; for UK firms in particular, no other market is growing as quickly.”

The survey was conducted by HSBC and confirms that China remains at the forefront of investors’ minds owing to its sizeable market, expectations of continued economic growth, and well-developed supply chains. A total of 2,174 foreign firms participated. Of those, 19% plan to invest 25% or more of their operating profit in China, while 42% reported intended investment of between 11% and 25% of their profits. The bank also discovered that while there is a perception that manufacturing firms are leaving China in favour of lower-cost markets such as India and Vietnam, six in 10 respondents are either currently expanding their supply chains in China or plan to do so over the next year.

Research conducted by CBBC has uncovered that British firms held foreign direct investment (FDI) positions worth £10.7 billion in China at the end of 2019; the stock of Chinese FDI in the UK stood at £35.2 billion.

British firms are by no means alone in their positive outlook towards China. HSBC’s survey considers the views of respondents across 10 markets, including the UK, the US, Singapore, and Australia, with an average of 87% of companies reporting that they expect an increase in their sales or exports to China in the next 12 months. The report did not include responses from Japanese, South Korean or Taiwanese firms, all of which are also significant investors in the Mainland China market.

China’s commitment to achieving carbon neutrality by 2060 was also flagged as an attractive proposition to foreign firms looking to grow their presence in the market, who see increasing business opportunities stemming from the net-zero agenda, according to the report.

With businesses turning their attention to the calendar year’s end, it’s worth considering that the value of actually utilised foreign capital in China is also on track to exceed the record set in 2020, with the continued growth in inbound investment being reflected in official data, too.

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