Shanghai facilitates reinvestments in China for MNCs

Shanghai's continued efforts to improve its business environment will further consolidate its appeal to multinational companies, facilitating the city's high-quality economic growth, said officials and experts.

Their comments were made after the Shanghai municipal government released a set of 20 new measures on Jan 6 to encourage foreign-invested companies to make reinvestments in the domestic market.

Foreign-invested enterprises legally established in China are encouraged to use undistributed profits for reinvestment purposes. Overseas investors are encouraged to make the same moves by using their legally obtained profits in the onshore market, whether they are denominated in domestic or foreign currencies. Reinvestment methods include investing in newly established enterprises registered in Shanghai, increasing capital in existing companies, acquiring shares, equities and property interests, as well as investing in projects, according to the public circular.

As explained by Huang Feng, director of the Shanghai Foreign Investment Association (SFIA), foreign companies have accumulated considerable retained earnings after years of operation in China. These earnings are mainly used in three ways, including daily operations, reinvestment and direct distribution to shareholders.

Shanghai's new measures are projected to direct these retained earnings to industries and encourage foreign-invested companies to further expand their footprint in China, Huang said.

The highly efficient and precise government support regarding tax and market supervision, the increasingly transparent regulatory environment in Shanghai and the wider Yangtze River Delta region, China's complete industrial chain and infrastructure, as well as the country's opening-up policies have ensured foreign companies' long-term development in the Chinese domestic market, according to Simon Lichtenberg, CEO and founder of Danish furniture company Trayton Group.

According to officials from the Shanghai Municipal Development &Reform Commission (SMDRC), the new measures have streamlined areas of key concern to multinational companies, including tax, the registration and use of foreign exchange, the allocation of land resources, a simplified process for transferring medical device production, and coordination of multi-warehouses for pharmaceutical wholesale, among others.

While Shanghai is home to nearly 80,000 foreign-invested companies and accommodates the regional headquarters of over 1,000 multinational companies, a large number of them have used their undistributed profits obtained in the city for setting up new production lines, technology upgrading and transformation, and building new research centers, said SMDRC officials.

According to the proposal for formulating the 15th Five-Year Plan (2026-30) released in October, foreign companies' reinvestment in China will serve as a major method to advance the country's high-level opening-up. The National Development and Reform Commission, the country's economic regulator, released in July a circular to facilitate foreign companies' reinvestment, including providing flexible long-term leases for industrial land, shortening the registration time for newly registered companies and favorable foreign exchange policies, among others.

The introduction of the 20 new measures in Shanghai responds to the latest edition of the business environment improvement action plan released by the municipal government at the beginning of the year, said Huang of the SFIA.

The action plan, which is now version 9.0 since it was first rolled out in 2018, said that efforts will be made to secure the execution of foreign-invested projects, which include reinvestment projects and existing ones. These are substantial measures much applauded by companies, said Huang.

Yang Hongwei, chief researcher at the Shanghai Zhongchuang Institute for Industry and Innovation, said the latest action plan has directed the focus from bettering services provided to companies to creating a more favorable industrial ecosystem in general. This is in line with the changes underway in Shanghai's industrial landscape.

According to Chen Yanfeng, deputy director of the SMDRC, Shanghai has rolled out more than 1,300 measures in the previous editions of the action plan to address the problems most encountered and raised by foreign companies.

This year's action plan will make the optimized measures more inclusive and fair. In this way, Shanghai can better prepare for the beginning of the 15th Five-Year Plan period and seek even bigger leapfrog opportunities in its development, Chen said.