The new 2018 “Negative lists” for foreign investments

The new 2018 “Negative lists” for foreign investments

In China, not all industry sectors are open to foreign direct investment. Since 1995, every two to five years, the PRC government has been publishing the catalogues for the guidance of foreign investment industries (Catalogues), which list the specific industrial sectors in which foreign investors could operate within. In the Catalogues, industry sectors are grouped into four categories: “encouraged”, “permitted”, “restricted” and “prohibited” to foreign investment. As for the industries listed as “encouraged” investments, the foreign investor could operate at the same conditions of a domestic company; as for industries listed as “restricted” investments, the foreign investor could perform the investment under certain conditions and limitations, e.g. in terms of foreign share limitation; lastly, the industries listed as “prohibited” were totally forbidden to foreign investors. Any industry not expressly mentioned in the catalogue would fall into the “permitted” category.

On the contrary, in the various Free Trade Zones established in China, a “Negative list” approach was adopted towards FDI management: in fact, within the FTZ’s territory, foreign investment is allowed in all sectors which are not prohibited or restricted under the “FTZ Negative List”.

The 2017 version of the Catalogue, whilst keeping the previous categories of “encouraged”, “permitted”, “restricted”, and “prohibited” industries, merged the industries under the restricted category and the prohibited category into a section called “special management measures for the market entry of foreign investment”, to create a “negative list” to guide foreign investors on market access policies. Foreign investors can therefore refer to the list to determine whether an investment project is subject to MOFCOM’s traditional examination and approval procedure or instead can benefit from MOFCOM’s new record-filing regime.

These days, both “Negative Lists” have been emended with the aim to further ease the current restrictions on foreign direct investments in China.

In particular, the new version of the Special Administrative Measures for Foreign Investment Access (“Negative List 2018”) which was released on 28 June 2018 by the NDRC and the Ministry of Commerce, with the aim to further ease the current restrictions on foreign investments. The length of the Negative List has been further shortened from 63 items to 48 items and market access in 22 industry sectors have been liberalized. The above include the cancellation of the restriction on foreign shareholdings in the banking industry and in special purposes, motor vehicles and new energy automobiles. Moreover, the new Negative List directly and uniformly lists the special administrative measures on foreign investment access (e.g. shareholding requirements).

On 30 June 2018, the NDRC and MOC also issued the revised negative list for FTZs (“FTZ Negative List 2018”), which will take effect from 30 July 2018. Compared to the FTZ Negative List 2017, the number of the items in the FTZ Negative List 2018 has been reduced from 95 to 45. The interested business fields mainly include agriculture, mining and the cultural industry. Among the other modifications, we can recall that foreign investors will be allowed no more than a 66-percent stake in breeding new wheat and corn varieties and their seed production, compared with a cap of 49 percent in the previous list. Restrictions on joint ventures or foreign cooperation in exploration and exploitation of petroleum and natural gas will be removed. The list also eased restrictions in the cultural sector, as foreign investors will be allowed to own a majority stake in performing arts agencies.

The changes indeed represent a big step forward and show the commitment of Chinese government to further open up the market access to foreign investors step by step.

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