China Foreign Investment update: Negative Lists and Encouraged Catalogue in 2019

On July 31st, 2019, the new Special Administrative Measures on Access to Foreign Investment, (negative list) and Catalogue of Encouraged Foreign Investment took effect, further easing restrictions in sectors that were previously off limits to foreign investment.  The lists themselves represent a progressive opening of the PRC’s markets from the previous procedure of requiring approval from the Market Supervision Administration for various foreign investments, and 2019 marks the furthest extent of accessibility in the history of FDI in China. The Foreign Investment Law enacted this year prevents local government agencies from restricting any foreign investment outside of these lists, (with protections also extending to areas specified in the encouraged catalogue) demonstrating their importance to investing in China in 2019.

 

These lists consist of various administrative measures relevant to both domestic and foreign enterprises. The 2019 Special Administrative Measures on Access to Foreign Investment (National negative list) and Free Trade Zone Special Administrative Measures on Access to Foreign Investment (FTZ negative list) are applicable to overseas investors while the 2011 Guidance Catalog of Industrial Structure Adjustment and 2018 Negative List for Market Access continue to apply to both domestic and foreign enterprises.

 

The national negative list is now down from 48 restricted areas to 40, while the FTZ negative list consists of 37 items, down from 45. The Encouraged Catalogue has 1108 items, the majority being investment opportunities in Central and Western China, while slightly over 35% of the encouraged investment categories are nationwide. The national negative list differs from the FTZ negative list, reflecting the general difference in commercial laws (particularly with regard to foreign investment) between Free Trade Zones and the rest of the country.

 

Free trade zones continue to serve as experimental environments for the initial phase of potential nationwide reforms. In 2019, printing publications, cultural and artistic performance groups (with minority shares), radioactive mineral processing, fishing aquatic products and nuclear fuel production have all had previous restrictions removed in Free Trade Zones, while they will still be restricted in the rest of the P.R.C.

 

 

What are the major changes to the negative lists, and what new benefits do they bring to investing in China?

 

In the field of Water Conservancy, Environment and Public Facilities management, foreign investment is now permitted in the development of wild animal and plant resources. In the Transportation industry, foreign shareholders can now own more than 51% in domestic shipping enterprises. In Infrastructure, gas and heating utility providers in cities with a population of over 500,000 are no longer required to have their controlling shares held by the domestic partner. In Manufacturing, the production of Xuan paper and ink ingots used in traditional Chinese calligraphy is now open to foreign investment. Controlling shares in movie theaters and performance management enterprises can now be held by foreign investors in the Culture, Sports and Entertainment industry, while restrictions on foreign ownership in domestic multi-party communications, store-and-forward and call centers (value added telecom) have been removed. In the Mining industry, foreign invested enterprises are no longer required to be Equity Joint Ventures or Co-operative Joint Ventures and can instead set up as Wholly Foreign Owned Enterprises. Foreign Invested Enterprises are also permitted to invest in previously restricted metals.

 

The Catalogue of Encouraged Foreign Investment has been updated with 121 new items. The Services and Manufacturing sectors present notable new investment opportunities in China. Engineering consultancy, accounting, and tax inspection have been identified in the business service sector to encourage foreign investment. In technology services, investment is encouraged in A.I, carbon capture and environmentally sustainable manufacturing. In commercial circulation, cold chain logistics, e-commerce and railway construction now encourage foreign investment.

 

In the electronic information sector, 5G components and cloud computing equipment are identified as areas of encouraged foreign investment. In the new materials industry, investment is invited in large wafers and monocrystalline silicon, used in aerospace manufacturing. In pharmaceuticals, foreign investment is encouraged in raw materials for cell therapy medicine manufacturing and industrial scale cell culture. In equipment manufacturing, key components for industrial robots, alternative energy fueled/self driving automobiles are a targeted sector for FDI in China. All industries that utilize advanced technology in Central and Western China are identified in the Encouraged Catalogue.

 

The Encouraged Catalogue 2019 and updated National Negative List and FTZ Negative List open new possibilities for FDI in China, bolstered by the new Foreign Investment Law. Particularly encouraged are advanced technologies, especially in Central and Western China. Many Free Trade Zones are already technology hubs, and the updates to the Special Administrative Measures serve to further accelerate innovation and support collaboration.

 

These reforms in foreign market access present more opportunity for foreign investment in China than ever before. They are not, however, to be confused with the kind of wholesale reforms that would make the P.R.C identical to free market economies. Nonetheless, with the size of the China market, these identified sectors open up exciting new investment possibilities for entrepreneurs and enterprises. To navigate between markets, cultures and systems, you can trust that our comprehensive and always up to date business advisory and tax services can address all concerns about doing business in China. Don’t hesitate to contact us with any enquiries you may have about Hong Kong/China cross border taxation, setting up a Wholly Foreign Owned enterprise, or company registration in Hong Kong and Mainland China. 

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