China Announced The 2019 Negative Lists And Catalogue Of Encouraged Industries For Foreign Investment.

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Asia Pacific Legal Updates

 

24 July, 2019

 

China Announced The 2019 Negative Lists And Catalogue Of Encouraged Industries For Foreign Investment.

 

On 30 June 2019, the Chinese government announced the Special Administrative Measures (Negative List) for Foreign Investment Access (2019 Edition)1 (National Negative List), the Special Administrative Measures (Negative List) for Foreign Investment Access in Pilot Free Trade Zones (2019 Edition)2 (FTZ Negative List), and the Catalogue of Encouraged Industries for Foreign Investment (2019 Edition)3 (Catalogue of Encouraged Industries). All three documents will come into effective on 30 July 2019.

 

For the prohibited industries specified in the National Negative List and the FTZ Negative List (Negative Lists), offshore investors are not allowed to invest in such industries in the applicable regions4. As for other industries in the Negative Lists, offshore investors may invest inside the applicable regions after obtaining permission from the government (e.g., meeting the equity requirements and senior management requirements, etc.). In respect of those industries not included in the Negative Lists, offshore investors will be subject to the same investment restrictions as Chinese domestic investors (i.e., the offshore investors will enjoy national treatment). Regarding industries in the Catalogue of Encouraged Industries, offshore investors can enjoy preferential treatment such as taxation, land, etc., according to law.

 

I.  Negative Lists

 

The 2019 Editions of the Negative Lists have further broadened the opening up to offshore investors in the mining, manufacturing and service industries, etc. Compared with the 2018 Editions of the Negative Lists, the number of items specified in the National Negative List has been reduced from 48 to 40, and the number of items specified in the FTZ Negative List has been reduced from 45 to 37. The main changes include:

 

A.   The National Negative List

 

No.

Industry

Main Changes

1

Mining

Abolition of the restriction that the exploration and development of oil and natural gas are limited to equity joint ventures and cooperative joint ventures. In other words, a WFOE is now permitted to engage in such business.

2

Mining

Abolition of the prohibition against offshore investors investing in exploration and mining of molybdenum, tin, antimony, and fluorite.

3

Manufacturing

Abolition of the prohibition against offshore investors investing in the production of Xuan paper and ink sticks.

4

Production and supply of electricity, heating, gas and water

Abolition of the restriction that the construction and operation of gas, heating and water supply and drainage pipe networks for a city with a population of more than 500,000 must be controlled by the Chinese party. In other words, offshore investors may now hold the majority stakes in such business.

5

Transportation, warehousing and postal services

Abolition of the restriction that domestic shipping agencies must be controlled by the Chinese party. Offshore investors may now hold the majority stakes in such business.

6

Information transmission, software and information technology services

Abolition of the restriction on foreign investment in domestic multi-party communications, store and forward, and call centre businesses.

7

Water conservancy, environmental and public facilities management

Abolition of the prohibition against offshore investors investing in the development of wildlife and plant resources that are originated from and protected by China.

8

Culture, sports and entertainment

Abolition of the restriction that the construction and operation of cinemas must be controlled by the Chinese party. Offshore investors may now hold the majority stakes in such business.

9

Culture, sports and entertainment

Abolition of the restriction that performance agencies must be controlled by the Chinese party. Offshore investors may now hold the majority stakes in such business.


B. The FTZ Negative List (note: in addition to the National Negative List opening up measures, this List further opens up the following areas5):

 

No.

Industry 

Main changes 

1

Agriculture, Forestry, Animal Husbandry, and Fishery

Abolition of the regulation that offshore investors are prohibited from investing in fishery in China’s territorial and inland waters. 

Manufacturing

Abolition of the restriction that the printing of publications must be controlled by the Chinese party. Offshore investors may now hold the majority stakes in such business.

 

II.     The Catalogue of Encouraged Industries

 

Based on the different applicable regions, the Catalogue of Encouraged Industries is divided into two parts, i.e., the National Catalogue of Encouraged Industries for Foreign Investment (National Catalogue) and the Catalogue of Industries for Foreign-investment in Central and Western China (Central and Western Catalogue). There are 415 items in the National Catalogue and 693 items in the Central and Western Catalogue.

 

Compared with the previous edition of the Catalogue of Encouraged Industries6, the Catalogue of Encouraged Industries (2019 Edition) substantially expands or revises the encouraged industries, focusing on encouraging offshore investors to participate in the high-quality development of manufacturing industry (examples of the newly added items include 5G core meta-components, cloud computing devices, etc.) and, production service industry (examples of the newly added items include artificial intelligence, carbon capture, etc.), and supporting the transfer of foreign business to the Central and Western regions (examples of the newly added items include the construction and operation of natural gas fuelling stations in provinces with intensive logistics networks like Henan).

For further information, please contact:

 

Myles Seto, Partner, Deacons
myles.seto@deacons.com.hk

 

 

1 The Special Administrative Measures (Negative List) for Foreign Investment Access (2019 Edition) is applicable to mainland China, except the pilot free trade zones. On the effective date of the foregoing List, the Special Administrative Measures (Negative List) for Foreign Investment Access (2018 Edition) shall be repealed simultaneously.

2 The Special Administrative Measures (Negative List) for Foreign Investment Access in Pilot Free Trade Zones (2019 Edition) is applicable to China’s pilot free trade zones (note: as of the date of this article, China has established 12 pilot free trade zones in Shanghai, Guangdong, Tianjin, Fujian, Liaoning, Zhejiang, Henan, Hubei, Chongqing, Sichuan, Shaanxi, and Hainan respectively). On the effective date of the foregoing List, the Special Administrative Measures (Negative List) for Foreign Investment Access in Pilot Free Trade Zones (2018 Edition) shall be repealed simultaneously.

3 On the effective date of the Catalogue of Encouraged Industries for Foreign Investment (2019 Edition), the “encouraged industries” under the Catalogue of Industries for Guiding Foreign Investment (Revision 2017), and the Catalogue of Priority Industries for Foreign Investment in Central and Western China (Revision 2017), shall be repealed simultaneously.

4 With respect to the applicable regions, please see footnotes 1 and 2 above. 

5 Regarding the differences between the items of the FTZ Negative List and the National Negative List, apart from the further opening up of certain areas in pilot free trade zones specified in this article, others include: (1) The FTZ Negative List (2018 Edition) abolished the restriction on offshore investors investing in radioactive mineral smelting, processing and nuclear fuel production, which arrangement was also followed by the FTZ Negative List (2019 Edition). However, both the 2018 and the 2019 Editions of the National Negative Lists did not abolish the aforesaid items; (2) The FTZ Negative List (2018 Edition) stated that performing arts groups must be controlled by the Chinese party, the FTZ Negative List (2019 Edition) also followed the said arrangement. However, both the 2018 and the 2019 Editions of the National Negative List prohibited foreign investment on performing arts groups.

6 The last edition of the Catalogue of Encouraged Industries means the “encouraged industries” under the Catalogue of Industries for Guiding Foreign Investment (Revision 2017), and the Catalogue of Priority Industries for Foreign Investment in Central and Western China (Revision 2017).