On June 30th, 2019, the National Development and Reform Commission (NDRC) and Ministry of Commerce (MOC) jointly issued two “negative lists” outlining industries and sectors where foreign investment is prohibited or restricted in China. Simultaneously, the NDRC and MOC also jointly issued the 2019 Encouraged Catalogue outlining industries and sectors where foreign investment is encouraged.

Changes made to the two “negative lists” show an opening up for numerous sectors previously restricted or prohibited, notably in the services, manufacturing, mining, and agriculture sectors. Similarly, the “encouraged list” saw many new additions with the largest number of additions being made in the field of manufacturing. With a reduction of industry sectors prohibited or restricted and an increasing number of encouraged sectors, China seems to be following a pattern of expanding market access for foreign investment.

 

Notable Changes to the Negative Lists

There are two Negative Lists that prohibit or restrict foreign investment in select industries in China. They are the Special Administrative Measures for Foreign Investment Access, 2019 version (“2019 National Negative List”) (Available here in Chinese) and the Special Administrative Measures for Foreign Investment Access to Pilot Free Trade Zones, 2019 version (“2019 FTZ Negative List”) (Available here in Chinese).

The 2019 FTZ Negative List, as the name implies, applies to pilot Free Trade Zones in China. The 2019 National Negative list applies to all territories outside of designated pilot free trade zones.

Outside the FTZ Negative List and National Negative list, no region or department may impose additional restrictions on foreign investment.

Compared to the National Negative List published in 2018, the number of restrictions has decreased from 48 to 40, with no new items added in 2019. Notables changes contained within the 2019 National Negative list are;

  • Movies & Entertainment – a requirement for a Chinese party to own a majority share in the building and operation of a movie theater has been removed.
  • Transportation – a requirement for a Chinese party to take a controlling stake in domestic shipping agents has been removed.
  • Telecommunication – Limitation of not exceeding 50% foreign share in multi-party communication, store-and-forward, and call center businesses has been removed.
  • Infrastructure – a requirement for a Chinese party to take a controlling stake in the construction and operation of gas, heat, and water supply and drainages networks has been removed.
  • Manufacturing – a prohibition of foreign investment in the production of Xuan paper has been removed.
  • Mining – prohibition of foreign investment in the exploration and mining of molybdenum, tin, antimony, and fluorite has been removed.
  • Agriculture – prohibition on foreign investment in the development of wild animal and plant resources has been removed.

Compared to the FTZ Negative List published in 2018, the number of restrictions has decreased from 45 to 37, with no new items added in 2019. Notable changes contained within the 2019 FTZ Negative list are;

  • Agriculture – Prohibition of foreign investment in aquatic product fishing in China and within China’s territorial water has been removed.
  • Manufacturing – requirement for a Chinese party to take a controlling stake in the printing of publications has been removed.

Its worth noting that China tends to provide market access in pilot FTZ on a trial basis before rolling out said changes nationwide. If successful, we could see such restrictions lifted nationwide.

For industries not mentioned on the negative lists, both foreign investors and domestic investors are granted equal access under the law.

 

Notable Changes to the 2019 Encouraged List

In 2019 the NDRC and MOC issued a new list titled the Catalogue of Encouraged Industries for Foreign Investment, 2019 version(“2019 Encouraged Catalogue”)(Available here in Chinese). The new 2019 Encouraged Catalogue contains two sections, one national section and regional section for 22 provinces and municipalities located in Central and Western China (the regional section includes Shanxi, Inner Mongolia, Liaoning, Jilin, Heilongjiang, Anhui, Jiangxi, Henan, Hubei, Hunan, Guangxi, Hainan, Chongqing, Sichuan, Guizhou, Yunnan, Tibet, Shaanxi, Gansu, Qinghai, Ningxia, and Xinjiang).

The national sub-section of the 2019 Encouraged Catalogue contains 415 industry sectors which encourage foreign investment. Compared to 2017, 67 items have been added and 45 items revised. Notable changes contained within the 2019 Encouraged Catalogue national sub-section are;

  • Electronic equipment manufacturing – such as 5g equipment (mobile phones, cars, drones, etc.) and their core components, etchers for integrated circuits, chip packing equipment, cloud computing equipment, etc.;
  • Equipment manufacturing – such as industrial robots, key components of new-energy vehicles, smart vehicles, etc.;
  • Pharmaceutical industry – Manufacturing of new raw materials for vaccines, cell therapy medicine, large-scale cell culture products, etc.;
  • New materials – New materials for aerospace, monocrystalline silicon, and large wafers, etc.;
  • Commercial Services – Engineering consultation, accounting and tax consulting, inspection, and detection, etc.;
  • Logistics – Development of cold-chain logistics, e-commerce, construction and operation of special railway lines, etc.;
  • Technical Services – AI technology, clean production, carbon capture, and circular economy.

The regional sub-section of the 2019 Encouraged Catalogue also increased from 639 to 693, with 54 items added and 165 items revised, compared to 2017. The encouraged items contained in the Regional Encouraged Catalogue for the 22 provinces and municipalities are based on the economic and social development needs of each region. A full list of the regional sub-catalogue is available here in Chinese or contact us for more details on the regional sub-section of the 2019 Encouraged Catalogue.

 

Preferential Policies for Encouraged Sectors

According to the NDRC, those who fall within the scope of the 2019 Encouraged Catalogue will be eligible for preferential policies, such as simplified approval procedures, discounted land prices, and tax incentives. The regional sub-section of the 2019 Encouraged Catalogue is also intended to incentivize businesses to transfer their investment to the less developed regions of central and western China.

With the number of prohibited and restricted industries reduced and the number of industries encouraged for foreign investment, China follows a pattern of expanding market access for foreign investment. Foreign investors looking to enter the Chinese market are urged to examine these lists to check whether foreign investment is permitted or perhaps encouraged in one of China’s central or western regions. To take advantage of preferential policies available in sectors where foreign investment is encouraged, investors must ensure compliance. For more information on China market entry and preferential policies available, feel free to contact us.

 

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