The Gavel – Dec 2014 – New Catalogue for Foreign Investment

 

On November 4th 2014, MOFCOM issued the modified Catalogue for the Guidance of Foreign Investment (herein referred to as “Catalogue”). MOFCOM also solicited public opinion from November 4th till December 3rd 2014; if the general attitude is favourable, the authority will renew some terms of the Catalogue. The modifications are considerable. Restricted Industries declined dramatically from 79 to 35. Moreover, articles which require joint ventures were reduced from 43 to 11 and the activities only for joint ventures “controlled by the Chinese parties” decreased from 44 to 32. Yet, more restrictions were added, e.g. “China legal affairs consultation services” was moved from Restricted Industries to Prohibited Industries and Manufacturing of whole-unit automobiles is now restricted.

1. Manufacturing
The changes to the manufacturing sector are significant. A large number of articles were deleted from the Restricted Industries, including farming the subsidiary foodstuff industry, beverage manufacturing, printing and copy of recording vehicle, petroleum processing and coking, chemical raw material products manufacturing, chemical fiber production, etc. No limitations apply for foreign companies to invest in these industries.

2.Medical Industry
All the previous restrictions on medical and pharmaceutical products have been cancelled, indicating the government hopes the market can regulate itself. Yet, healthcare institutions are newly restricted and limited to contractual joint venture. Although the negative list of the Shanghai free trade zone allows foreign-owned healthcare institutions, the restriction still remains.

3. Automobile Manufacturing Industry
In terms of manufacturing of key spare parts for automobiles and R&D of key technologies, the revised draft ends the limit to “equity joint ventures or contractual joint ventures”. Manufacturing of whole-unit automobiles, special-use automobiles and motorcycles has been restricted; the share of the Chinese partner should be no less than 50 percent. Any foreign investor can establish no more than two joint venture entities that manufacture whole-unit automobiles of the same category; in case of merging other domestic automobile manufacturers jointly with a Chinese partner, the foreign investor can be exempted from the above-mentioned maximum two restriction.

4. Infrastructure and Real Estate
Construction and management of railways is encouraged, the industry is no longer limited to equity joint ventures or contractual joint ventures. As for comprehensive maintenance of the infrastructure of lines, the Chinese partner need not necessarily hold the majority of shares.

5. Education
The Catalogue adds more burden to foreign investment in the education industry. Higher education institutionsare now limited to equity joint ventures or contractual joint ventures, and Common high school education mechanisms are limited to contractual joint ventures led by a Chinese partner.

6. Service Industry
Stationary, art products, sporting goods and recreational products have been added to encouraged industries. Accounting and auditing is no longer limited to cooperation and partnership.China legal affairs consultation services and sellers of cultural relics are now prohibited industries.

The Catalogue has improved considerably; yet, the education sector has been severely restricted and some sections need to be improved. For example, the Catalogue remains separate from the negative list of the Shanghai free trade zone with 139 restricted items. It would be a beneficial move for the two regulations to be unified, with the negative list enlarging its scope of application and finally replacing the Catalogue in the near future.

 

Disclaimer
This article is intended solely for informational purposes and does not constitute legal advice. Although the information in this article was obtained from reliable official sources, no guarantee is made with regard to its accuracy and completeness.