In order to further promote opening-up, to accelerate the construction of a new open economy and to improve foreign investment policies, the State Development and Reform Commission and the Ministry of Commerce issued the Catalogue of Industries for Encouraged Foreign Investment (2019 Edition) (hereinafter referred to as the "Encouragement Catalogue (2019 Edition)") on 30 July 2019. On the same date, the encouraged fields detailed in the Catalogue of Industries for Guiding Foreign Investment (Amended in 2017) (hereinafter referred to as the "Catalogue of Industries Guidance (2017 Edition)") [see more details in KPMG’s China Tax Alert (Edition 21, June 2017)] and in the Catalogue of Priority Industries for Foreign Investment in Central and Western China (Amended in 2017) (hereinafter referred to as the "Catalogue of Industries for Central and Western China (2017 Edition)") have been abolished.

In addition, the General Administration of Customs issued its Announcement on Issues Concerning the Implementation of the Catalogue of Industries for Encouraged Foreign Investment (2019 Edition) (hereinafter referred to as "GAC Announcement [2019] No. 125"), which further clarifies issues related to the implementation of the Encouragement Catalogue (2019 Edition). Both became effective on 30 July 2019.

The Encouragement Catalogue (2019 Edition) includes two sub-catalogues: one is the Catalogue of Industries for Guiding Foreign Investment Nationwide (hereinafter referred to as the "National Catalogue"), which is applicable throughout the entire country. The other is the Catalogue of Priority Industries for Foreign Investment in Central and Western China (hereinafter referred to as the "Central and Western Catalogue"), which is only applicable to China’s central, western and northeastern regions. Compared with the Catalogue of Industries Guidance (2017 Edition) and the Catalogue of Industries for Central and Western China (2017 Edition), the industries where foreign investment are encouraged have been expanded. More specifically, there are in total 1,108 entries in the Encouragement Catalogue (2019 Edition), among which 415 entries are in the National Catalogue with 67 entries added and 45 entries revised, while 693 entries in the Central and Western Catalogue with 54 entries added and 165 entries revised. More than 80 percent of the new additions and revisions of National Catalogue fall within the manufacturing sector, which supports and encourages foreign investment into high-end manufacturing, intelligent manufacturing, green manufacturing and relevant areas. The Central and Western Catalogue is more focused on labor-intensive industries, advanced and applicable technology industries as well as the construction of supplementary facilities, encouraging foreign-invested businesses transferred to the central and western regions. The main adjustments are listed as below:

In addition, GAC Announcement [2019] No. 125 further clarified potential customs issues related to equipment, technology and accessories, and spare parts imported for self-use purposes during the implementation of the Encouragement Catalogue (2019 Edition).

• Further expansion of the industry fields open to foreign investment

In order to adapt to the ever-changing global economy and in light of the unique characteristics of China’s industrial development, the Encouragement Catalogue (2019 Edition) has expanded its scope and added more fields to encourage foreign investment in China. More than 80 percent of the new entries and revisions in the Encouragement Catalogue (2019 Edition) fall under the manufacturing sector. These changes provide more support for foreign investment in high-end manufacturing, intelligent manufacturing, green manufacturing and other areas. The catalogue will provide continued support for the further opening-up of producer services, while also promoting the transformation and upgrading of the service industries.

The catalogue also encourages foreign-invested businesses to transfer to China’s central and western regions from other regions of the country. In this way, the catalogue aims to promote foreign investment, optimize industrial structures, and better balance the allocation of foreign-invested businesses among the country’s regions. In particular, the Central and Western Catalogue promotes labor-intensive industries, Appropriate Technology industries, and the construction of supporting facilities.

• Preferential policies for encouraged foreign investment projects 

According to the Encouragement Catalogue (2019 Edition), the scope of encouraged foreign investment projects has been expanded, while tax incentives remain unchanged. These policies mainly include:

1. Encouraged foreign investment projects are eligible to enjoy  customs duty exemption on the imported self-use equipment within the total maximum investment amount. 
2. Qualified enterprises investing in encouraged industries in western regions are eligible for a lower CIT rate of 15%. 
3. The land for encouraged foreign investment projects of intensive use can be offered preferentially. The base price of land transfer fee can be carried out at that no lower than 70% of the corresponding lowest national standard price for industrial-used land.

The release of the Encouragement Catalogue (2019 Edition) demonstrates China’s determination and confidence in entering an entirely new era of opening-up, and represents a significant stride in the country’s efforts to promote foreign investment. Meanwhile, the relevant incentive policies will remain unchanged, which provides certainty and sustainability for numerous foreign-invested enterprises. The catalogue has expanded the scope of encouraged foreign investment projects in order to encourage foreign-invested enterprises to enter and take root in the China market more quickly. The Encouragement Catalogue (2019 Edition) will stimulate the high-quality development of China's economy, the upgrading of traditional industries, and the accelerated development of emerging industries. At the same time, it will also play a positive role in expanding investment channels for the flow of foreign capital into China so that foreign investors can share in the opportunities and achievements of China's development.

With an overall deepening of reform and opening-up, and in light of the ever-changing domestic and international economy, China is exerting even more effort to further its opening-up. Meanwhile, KPMG will continue to pay close attention to relevant policies. We are well-positioned to provide assistance to foreign-invested enterprises with respect to the following:

• Evaluating whether an investment project falls within the scope of industries listed in the Encouragement Catalogue (2019 Edition);
• Assessing whether specific imported equipment can enjoy the reduction or exemption of customs duty; 
• Submitting applications to in-charge customs authorities for tax deductions, duty exemptions of imported equipment, and etc.