Amid the social and economic disruption of the coronavirus (Covid-19) outbreak, the Chinese government has released a variety of measures to help foreign-invested enterprises (FIEs) withstand the economic impacts.
To date, the coronavirus has infected over 80,000 people in China, causing immense disruption to both the domestic economy and international supply chains. As a result, China’s first quarter economic growth is expected to slip to about 3 percent or lower, down from 6 percent in the previous quarter.
In response, the government has put forward numerous policies aimed at cushioning the coronavirus’s impact on businesses and restoring confidence among foreign investors, from issuing low-cost loans, to expediting major foreign investment projects.
Together, the measures offer foreign investors assistance in mitigating disruptions caused by the coronavirus and signal continued government support as the economy gradually returns to normalcy.
On February 10, the Ministry of Commerce (MOFCOM) released the “Circular on Strengthening Services to Foreign Enterprises and Attracting Investments During the Coronavirus Epidemic,” which delineates a variety of tasks for local governments in support of foreign-invested enterprises.
Primarily, the circular directs local governments to actively assist foreign-invested enterprises to resume normal operations. As many businesses temporarily closed down during the coronavirus outbreak, local governments should assist these firms to resolve practical difficulties they may have as they reopen.
For instance, to help foreign firms reopen, the circular directs local governments to help them resolve labor shortages and other employment issues they may face as a result of the outbreak. It also tells local governments to provide assistance for other issues and complaints businesses may have, including support for foreign employees and their families based in China.
Beyond helping firms return to normalcy, the circular instructs local governments to ensure that they have necessary protective materials to cope with the outbreak and to adjust practices in line with public safety needs. Local governments are told to give extra assistance to firms involved in the production of medical equipment, such as protective clothing, masks and goggles.
Special government assistance also extends to major investment projects. Local governments should work closely with foreign investors involved in such projects and help them resolve issues they face, especially disruptions to construction. Beyond offering solutions like fast-tracking services and ensuring land use, labor and hydropower protection, the circular encourages governments to establish active lines of communication with foreign investors.
Amid the ongoing practical hurdles to doing business in China due to the virus, such as arranging travel and business meetings, the circular suggests that local governments should deepen their use of online resources to communicate with foreign investors and manage their projects. More broadly, the circular also calls on local governments to fully implement existing policies, such as the Foreign Investment Law, to improve the business environment.
On February 18, MOFCOM (China’s Ministry of Commerce) issued additional measures to support foreign trade and investment in the “Circular on Stabilizing Foreign Trade and Investment and Stimulating Consumption in Response to the Novel Coronavirus Pneumonia.”
The circular contains 20 points on ways in which local governments can spur foreign trade and investment in the face of the coronavirus. They cover a wide range of tasks, from strengthening legal services, to developing street-level stores and markets.
Similar to the February 10 circular, this circular also encourages governments to communicate closely with foreign investors, accelerate their approvals for import and export licensing, and help them resume operations. Beyond logistical and administrative support, local governments are instructed to cooperate with insurance agencies to increase their support for firms impacted by the coronavirus, such as assisting firms affected by unexpected order cancellations.
The circular emphasizes the importance of shoring up the business confidence of foreign firms, including via the formulation of special supportive policies for foreign-invested enterprises according to local conditions. Many regional governments, including Beijing, Shanghai and Guangdong province, have already come out with their own preferential policies.
Additionally, the circular places considerable attention on developing e-commerce services for foreign trade. As Chinese consumers remain hesitant to shop in crowded spaces during the outbreak, e-commerce currently plays an especially important role for millions of shoppers. Local governments, therefore, should help foreign investors adapt to cross-border e-commerce and utilize free trade zones.
The two circulars issued by MOFCOM put forward a variety of instructions for local governments to assist foreign investors impacted by the coronavirus.
While some of the measures are vague or redundant, much of their importance lies not in their specific content, but in what they demonstrate about the government’s priorities. One theme that is constant across the measures is that local governments should go above and beyond to assist FIEs to resume operations and resolve the practical issues they are facing.
More impactful measures on the macro-economic scale will likely be released in the form of stimulus and other policies to counter the coronavirus’s impact on economic growth in the first quarter. Already, for example, China cut its benchmark lending rate to assist businesses hit by the outbreak.
In the meantime, the importance that the government has placed on restoring the confidence of the foreign business community serves as a signal that foreign investors’ concerns are heard and being taken seriously, and that support will continue to be offered in the weeks and months ahead.
Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN.