China greens rules for foreign investment

China has released new rules on foreign investment that seek to promote renewable energy and clean technologies - but raise the bar for foreign firms hoping to enter polluting or energy hungry sectors. 

Posted to the Ministry of Commerce’s website on 27 November, the new Catalogue for the Guidance of Foreign Investment Industries is set to take effect from 1 December - updating rules in place since 2004. 

The new guidelines mark a shift of emphasis away from encouraging foreign investment to boost the country’s exports. The move comes amid concerns over China’s surging foreign trade surplus, which grew by 59 per cent to US$212.4 billion in the first 10 months of 2007. 

For the petrochemical industries, the most notable change is that foreign investment in high energy- and raw material consuming products - such as ethylene tetrafluoroethylene, aluminium fluoride and hydrofluoric acid production - will now be restricted. 

Meanwhile, engineering plastics, for example, and environmentally friendly fertilizers or pesticides will join a list of ’encouraged’ sectors that will enjoy faster approval and, in many cases, preferential tax treatment. Coal chemical manufacturing too is on the list of approved industries.

 ’I think the new guidelines will help attract more foreign investment into renewable energy and clean technology developments,’ says Yu Jing, a senior researcher at the China National Chemical Planning Institute (NPCPI). 

But Guillaume Lesage, chair of the petrochemical, chemical, oil and gas working group of the EU Chamber of Commerce in China (EUCCC), warns that the chemical industry could be hit by the new guidelines. 

Firms that invested in export-oriented production facilities when that was being encouraged by the Chinese government are particularly vulnerable, he says. ’EUCCC has already initiated various communication channels with relevant Chinese regulatory authorities, but the regulatory authorities persist in applying policies with immediate effect and without prior consultation of involved parties.’ 

Ye Yingmin, a partner of Chem1 Consulting in Beijing, believes that the rules alone are not enough to stimulate foreign investment in renewable energy and clean technology. 

’The availability of cheap energy in China and the control of downstream uses of new energies and clean technologies by major State-owned enterprises (SOEs) make it difficult for foreign investors to have a satisfactory return in these fields,’ Ye told Chemistry World. 

Yu of the NPCPI believes government subsidies for technologies on the list of ’encouraged’ sectors will help to increase the profitability of foreign investment. But Ye argues that the administration already subsidises SOEs by cancelling debts they owe to the government. ’Unless foreign investors form joint ventures with major SOEs, they will find it difficult to reap the benefits of the current incentives.’ 

Hepeng Jia