China Esquire

China Law Blog recently did a post about the revised edition of Guidance Catalogue for Overseas Investment Industries. However, what caught my eye was Bill Dodson’s response at This is China! because he saw the revisions as being a codification of what has already been happening with Chinese local governments restricting investment. (which is wonderful news because China has a long way to go to clean up its act environmentally)

I won’t comment as I think Bill’s post says it all:

At the local levels of government at which I work – second- through fourth-tier cities – officials have been talking for the past year-and-a-half about no longer accepting polluting and labor-intensive industries; eg, textile and chemical processing. The revision to the Catalog of Overseas Investment really just codifies what was already happening in wealthier Economic Development Zones (EDZs): a movement away from unpopular and energy-intensive industries. Fourth-tier and fifth-tier cities are more open to the light industries cited in the Catalog revision, especially the further inland one goes into China.

The shadowy Adjustment Catalog of 2005 that Steve refers to has been the proverbial writing on the wall for the EDZs that have been denying license renewals and business approvals these past two years for industries that no longer fit in the resource- and environmental-imprint China is trying to create over the next twenty years. There are dozens of those sorts of EDZs now throughout Jiangsu Province (especially after last year’s algal bloom in Lake Tai), and around the cities that are positioning themselves as IT-, BPO and R&D hubs.

As well, most of the kinds of companies affected in the catalog are the tens of thousands of Asian SMEs that we’ve all been reading about and seeing closing shop in Guangdong Province (Taiwanese and Hong Kong companies), and in Shandong Province (South Korean companies). Remember, they’re “foreign” too, and haven’t contributed much to the overall evolution of Chinese industry and society beyond sopping farmers from the fields and workers from shuttered State-Owned Enterprises. Now, many of those former employees are finding the work pays less than what they now have in their counties and towns – and even fields.

Do I think the announcement radically changes the shape of FDI flowing into China’s second- through fourth-tier (what I call “x-tier”) cities from Western countries? No. But the revision to the Catalog of Overseas Investment certainly gives EDZs more guidance in what kinds of investments to deny. However, it certainly behooves Western companies to check the sources ahead of time should they stumble upon a more devolved x-tier location that chooses to ignore the Catalogs and encourages a Western investment that actually contravenes national-level policy. Should policy winds change and suddenly the x-tier EDZ has to confess it’s sins, the Western company will find when it loses its investment that ignorance is no defense in China.

All good advice.

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