PRC leaders recently shed light on how China intends to incorporate foreign investment into its goals for developing strategic emerging industries. A mix of seven high-tech sectors, the strategic emerging industries (SEIs) will account for roughly eight percent of China’s total gross domestic product by 2015 and 15 percent by 2020, according to government targets.

Until recently, PRC regulators had been largely silent about the role foreign investment would play in the strategic emerging industries, prompting questions about how willing the government would be to permit foreign participation in China’s next round of industrial development. Though the latest opinions do not address key issues such as the types of ownership structures foreign companies will be permitted to establish, existing policy documents—namely the Catalogue Guiding Foreign Investment in Industry—already restrict foreign ownership in new-energy vehicle, renewable energy, and other industry sectors that fall within the SEIs.

Released by the PRC National Development and Reform Commission (NDRC), the Ministry of Commerce (MOFCOM), and eight other government ministries and offices, the Guiding Opinions on Promoting the International Development of the Strategic Emerging Industries provide a broad framework for policymakers to formulate specific policies that aim to advance the development of SEIs. The opinions primarily discuss China’s goal to turn its domestic companies into global competitors, using tools such as partnerships between foreign and domestic entities for research and development (R&D) and imports of essential products. Indeed, many of the themes discussed in the opinions—such as advocating joint cooperation between domestic and foreign companies and importing key equipment that China lacks—are not new and are mentioned in other policy documents.

Foreign investment in emerging industries

The opinions selectively promote foreign investment in three sectors: information technology, advanced equipment manufacturing, and new materials.

  • Information technology The opinions encourage foreign investors to establish 3G R&D centers and high-performance integrated circuit enterprises.
  • Advanced equipment manufacturing Companies are encouraged to develop platforms for joint investment and cooperation between domestic and foreign companies. Domestic and foreign companies are also encouraged to cooperate in developing seaborne engineering construction equipment.
  • New materials The opinions also encourage foreign producers of value-added new materials products to establish and invest in factories.
  • The opinions do not offer guidance on how foreign investment will be utilized in the remaining four industries—biology, environmental protection and energy conservation, new energy, and new-energy vehicles.

Programs in high-tech industries

The opinions also call on regulators to update the Annual Guidelines for the Priority Programs of High-Tech Industries—a list of 137 high-tech industrial programs, products, and projects that the central government encourages for development. The products span 10 industries, including advanced energy, advanced manufacturing, biotech, modern agriculture, and new materials. NDRC, MOFCOM, the Ministry of Science and Technology, and two other PRC government agencies released the 2011 annual guidelines on October 20. Though the annual guidelines did not include policy guidance, previously released documents—such as those that direct how funds should be used for industrial upgrading—may also apply to products included in the new list.

[author] Kyle Sullivan ([email protected]) is a manager of Business Advisory Services for the US-China Business Council (USCBC) in Shanghai. This article is adapted from a report that first appeared in China Market Intelligence, USCBC’s members-only newsletter. [/author]

Posted by Joseph Luk