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CHINA | What the Liǎng huì (Two Sessions) 2023 Means for Foreign Investment

posted 11 months ago

China finished its annual legislative meetings of the Chinese People Political Consultative Conference (CPPCC) and the National People’s Congress (‘NPC’) in Beijing – commonly referred to as the Two Sessions (Liǎng huì).

For foreign investors, the Two Sessions is an insight into the overarching economic and political direction. Especially, in the current geopolitical tensions between China and the West coupled with cabinet changes, this year’s Two Sessions are more significant and historical for businesses than previous years. 

Notable, the Two Sessions highlighted priorities to stabilise the economy and unemployment rates. With significant impacts from the three-year pandemic, the GDP growth target is set around a modest 5.5 %, with a strong emphasis on stimulating domestic consumption, restoring business confidence, and increasing high-quality sustained investments. 

Subsequently, the Two Sessions this year shifts from previous ideology-centred priorities to practical targets in recovering economic growth. Such shifts are positive for international businesses with China interests, it marks steps to optimise foreign investments in China and reestablish market confidence.

Below are key takeaways from the Two Sessions for foreign businesses.    

New Cabinet Appointment

This year, the Two Sessions marks the outgoing Premier Li Keqiang and the appointment of his successor Premier Li Qiang, former Mayor of Shanghai Municipality. From his previous roles in Shanghai and Zhejiang, Li Qiang is seen as an advocate for foreign business and investment. 

At the press conference, Li Qiang reiterated several times that China remains open to foreign investment and continues to open by aligning with international trade regulations and establishing better business environments and services. In terms of geopolitics, Li Qiang noted that China-US relations must cooperate and will achieve a lot by working together.

Equally, Li Qiang outlined ‘People-Centre Development’ to improve people’s livelihoods through rural regeneration dependent on local conditions. He echoed that officials of all levels should engage the community and actively address the needs of the local people.

For foreign companies, the new appointment could bring economic stimulus in favourable tariffs, import-related taxes, and tax refunds. So it’s worthwhile to stay attuned to emerging policies. 

Geopolitical Tensions

Recent geopolitical tensions between China and the West have left many companies rethinking their China strategy. Whilst, previous cross-border business between China and the West bridged cultural and political differences, such businesses are now caught in the rising distrust and decoupling agenda. Facing government pressures at home has resulted in many foreign businesses carefully evaluating their political risks in large-scale investment projects. 

However, the Government Work Report delivered at the opening ceremony of the Two Session noted that trade in goods exceeded expectations in 2022. Additionally, outgoing Premier Li Keqiang sets objectives to boost foreign investor confidence and greater efforts to attract and facilitate large-scale foreign investment. 

It is important to note that the foreign investment landscape has significantly changed since China opened its doors in 1978. Significant emphasis on sustainable and high-quality foreign investment dominates foreign investment policies. And investment must be fully compliant otherwise face legal penalties. 

Data to Drive Development

The Two Sessions also announced the establishment of a new bureau ‘ the National Data Bureau’ (‘NDB’). The NDB shall govern the development and utilization of digital resources and the digital economy. The new bureau reflects the government’s recognition of data as an asset and its value to transform industries. It also falls in line with Data Security Law, in which overarching provisions for a data trading market and data exchange is established for further formulation and implementation. 

For foreign companies, the data market could offer opportunities to tap into. Specifically, in Shanghai, the Shanghai Data Exchange opened in November 2021. The Exchange offers big data access in various sectors including China Eastern Airlines, Cosco Shipping, China Mobile and so forth. The objective is to monetize data as an open market in which data is purchased to drive productivity and transformation.

Overall, the Two Sessions signifies optimism for economic recovery and stability in post-COVID. Many foreign companies may still be hesitant to jump into the China market after three years of zero COVID, however, there is no denying that China for many businesses is still an attractive and profitable market. However, investing in China is not a short-term game for the faint hearted. Stiff competition from local companies means that foreign companies need to bring their A-game. And compliance is a must. Regulators are active and companies can face several penalties for violations.

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