China names and shames local governments for mistreating foreign investors

  • China’s national audit office lists 45 local authorities for violations relating to levying unauthorised fees and delays in granting business licenses
  • China is trying to attract increased overseas investment with some parties looking elsewhere due to the US-China trade war and increasing costs
Topic | China economy

Amanda Lee

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Foreign direct investment in China rose 3 per cent to US$21.7 billion in the first two months of 2019, according to China’s Ministry of Commerce. Photo: AFP

China has publicly named and shamed dozens of its local governments for mistreating foreign businesses in the latest effort to woo overseas investment with the country’s role in the global value chain under threat from the trade war with the United States.

The National Audit Office said in its quarterly report that it had found 45 local authorities who had committed violations relating to levying unauthorised fees and delays in granting business licenses.

The Hunan provincial government, for example, continued to demand service charges from foreign businesses even after they had been officially removed by the central government in March 2016, collecting 4.77 million yuan (US$710,000) from 46 foreign companies as of the end of 2018.

Local authorities in the coal-rich province of Shanxi, Hunan and the autonomous regions of Inner Mongolia and Ningxia failed to complete foreign business registration within the required three working days.

Shanxi’s commerce department registered 101 foreign businesses between July to December 2018, with 21 completed outside the limit, the longest being 55 working days, the audit office found.

The quarterly audit is a broad review on whether local governments are implementing Beijing’s rules and policies covering poverty reduction, pollution control, financial risk management, reducing business costs and improving business environment. However, it is rare for Beijing’s audit office to name the local governments for mistreating foreign investors.

Foreign investment is listed as one of the top six economic priorities by the Chinese government as the world’s second largest economy is gradually losing its attractiveness due to rising costs as well as an increasingly intrusive state.

The trade war with the United States has partly accelerated the shift of industries away from China, and Beijing is now trying to convince the world that China still welcomes and values foreign investors. Last month, China approved its new foreign investment law, which will come into effect in January, after rushing the legislation through the country’s largely ceremonial legislature in an effort to fend off complaints from the US and Europe about unfair trade practices.

China passed the new foreign investment law during the closing session of the National People's Congress in Beijing's Great Hall of the People in March. Photo: AFP

Foreign direct investment in China rose 3 per cent to US$21.7 billion in the first two months of 2019, according to China’s Ministry of Commerce. At the same time, the number of newly registered foreign-funded enterprises dropped 26.4 per cent to 6,509 in January and February from the same period last year.

But according to the latest “Doing Business” report by the World Bank in late 2018, China moved up 32 places to 46th.

Among other findings by the audit office, it found that many local governments were late on key national projects due to poor management and a lack of funding.

The 13.65 billion yuan (US$2 billion) Hunan motorway, designed to connect two cities in the province, had made no progress for over a year due to a longer than expected approval process.

In addition, 32 infrastructure and community improvement projects were overdue by more than a year, involving a total investment of 13.94 billion yuan.

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Beijing-based correspondent Amanda Lee covers markets and the economy for the Post, with an interest in China's economic and social landscape. A graduate of the London School of Economics, she joined the Post in 2017 and has previously worked for Thomson Reuters and Forbes.
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