29 August 2019

On 30 June 2019, China’s National Development and Reform Commission and Ministry of Commerce jointly issued the following three revised lists relating to foreign investment:

  • Negative list applicable to foreign investment nationwide (“Negative List 2019”)
  •  Negative list applicable to foreign investment in China’s pilot free trade zones (“FTZ Negative List 2019”)
  •  Catalogue of sectors in which foreign investment is encouraged (“Encouraged Catalogue 2019”)

The lists and catalogue came into effect on 30 July 2019.

Neither the Negative List 2019 nor the FTZ Negative List 2019 has imposed any new restrictions or prohibitions for foreign investment in China. Instead, the Negative List 2019 reduces the number of sectors in which foreign investment is restricted or prohibited to 40 from 48 in the 2018 negative list. Similarly, the FTZ Negative List 2019 reduces restricted or prohibited sectors to 37 from 45 in the 2018 FTZ negative list.

Negative List 2019 and FTZ Negative List 2019

The following is a summary of restrictions and prohibitions that have been removed from the Negative List 2019 and the FTZ Negative List 2019 (collectively, “Lists”) set out per affected sector.

  • Mining
    • The restriction of exploration and development of oil or gas (including coal-bed methane but excluding oil shale, oil sands, and shale gas) to equity joint ventures and contractual joint ventures has been removed from the Negative List 2019. This restriction had been removed in an earlier version of the FTZ Negative List.
    • Also removed from both Lists is the restriction on foreign investment in exploration and mining of molybdenum, tin, antimony and fluorite removed from both Lists.
  • Manufacturing
    • Both Lists have removed the prohibition on foreign investment in manufacturing of Xuan paper or ink.
  •  Transportation
    • The requirement for a Chinese party to take a controlling stake in a domestic marine shipping agency company has been removed from both Lists.
  • Electric power, heat, gas and water generation and supply
    •  The Lists remove the restriction on foreign participation in the construction and operation of gas and heat in cities with a population of over 500,000.
  •  Protection of wild fauna and flora
    • The prohibition of foreign investment in the exploitation of wildlife resources originally produced in China and protected by the country has been removed from the Lists.
  •  Culture, sports and entertainment
    • Both Lists have removed the requirement that the Chinese party should have a controlling stake in the building or operation of a motion picture theatre.
    •  The requirement that the Chinese party should have a controlling stake in a performance brokerage agency has also been removed from the Negative List 2019. This requirement had been removed in an earlier version of the FTZ Negative List.

In relation to value-added telecommunications, there has been a general requirement that the foreign shareholding should not exceed 50%. As an exception, however, such requirement for e-commerce had been removed in 2015. The Negative List 2019 has further removed such requirement for domestic multi-party communications, store-and-forward and call centre services. As a result, a foreign investor may own up to 100% of shares of a company engaged in any of those four value-added telecommunications business in China.

In addition to the revisions set out above, the FTZ Negative List 2019 also makes the following changes:

  • Removal of prohibition of foreign investment in the harvesting of aquatic products in the territorial waters or inland waters of China;
  •  Relaxation of Chinese controlling stake requirement for the selection and cultivation of new wheat or corn varieties or production of seeds to a stake of not less than 34%; and
  •  Removal of requirement that the Chinese party must have a controlling stake in the printing of publications. 

The above prohibition and the Chinese controlling stake requirement still exist in the Negative List 2019, and thus apply to foreign investment in the relevant sectors outside of FTZs in China.

As of 30 June 2019, there are 12 FTZs in China, namely: Shanghai, Guangdong, Tianjin, Fujian, Liaoning, Zhejiang, Henan, Hubei, Chongqing, Sichuan, Shaanxi and Hainan.

Encouraged Catalogue 2019

The Encouraged Catalogue 2019 sets out 415 industrial sectors in which foreign investment is encouraged nationwide. It also includes an aggregate of 693 priority industries for foreign investment in the central and western regions. The Encouraged Catalogue 2019 aims to encourage the flow of foreign investment into modern and advanced industries as well as to less developed regions.

The Encouraged Catalogue 2019 replaces the 2017 version of both the encouraged catalogue applicable nationwide and the encouraged catalogue for the central and western regions from 30 July 2019.

Comment

Issuance of the Negative List 2019, the FTZ Negative List 2019 and the Encouraged Catalogue 2019 is part of China’s efforts to meet its commitment of further opening its door to the outside world. With these new instruments in place and China’s market environment becoming more stable, transparent and predictable, it is anticipated that more foreign investment will be attracted to the country.

 

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