China Announced The 2020 Negative Lists For Foreign Investment Access.

Legal News & Analysis - Asia Pacific - China - FDI

13 July 2020
 

On 23 June 2020, the Chinese government announced the Special Administrative Measures (Negative List) for Foreign Investment Access (2020 Edition) (2020 National Negative List) and the Special Administrative Measures (Negative List) for Foreign Investment Access in Pilot Free Trade Zones (2020 Edition) (2020 FTZ Negative List). The 2020 National Negative List and the 2020 FTZ Negative List (2020 Negative Lists) will come into force on 23 July 2020. The 2019 National Negative List and the 2019 FTZ Negative List (2019 Negative Lists) will be repealed on that same day.
 

In comparison with the 2019 National Negative List, the 2020 National Negative List has the following major changes:
 

Type

Specific provision

Relaxation of restrictions

(1) Allowing foreign investors to hold higher percentage of equity interest in enterprises engaging in the “seed selection and production of new wheat varieties” (i.e., the minimum equity-holding ratio of Chinese investors has been reduced from “controlling share”[1] to “no less than 34%”).
 

(2) Allowing foreign investors to invest in some “air traffic control” industries (i.e., the original provision of “prohibiting investment in air traffic control” is now changed to merely “disallowing participation in the construction and operation of airport towers”).
 

Lifting of prohibitions or restrictions

(1) Removing the “prohibiting investment in smelting and processing of radioactive minerals, and production of nuclear fuel” provision.
 

(2) Removing the restriction on the maximum ratio of foreign equity-holding in construction and operation enterprises engaging in urban water supply and drainage pipeline networks for a city with an urban population of more than 500,000 (the original restriction required the Chinese investors to have “controlling interest”).
 

(3) Removing the restriction on the maximum ratio of foreign equity-holding in commercial vehicle manufacturing enterprises (the original restriction required the Chinese investors’ equity-holding ratio to be “no less than 50%”).
 

(4) Removing the restriction on the maximum foreign equity-holding ratio for securities companies, securities investment fund management companies, futures companies and life insurance companies (the original restriction required foreign equity-holding ratio “not exceeding 51%”).
 

Special provision 

Adding a new provision specifying that “upon review by the State Council’s relevant departments and approval of the State Council”, specific foreign investment projects can be exempted from the 2020 National Negative List.
 

 

Compared with the national negative list, the FTZ negative list usually has a higher degree of opening up to foreign investment. For example, in 2019, the 2019 FTZ Negative List already allowed foreign investors to invest in the fishing of aquatic products in sea areas and inland waters governed by China, and that businesses engaging in the printing of publications were no longer required to be controlled by Chinese investors. However, the prohibition and restriction over these areas are still not relaxed under the 2020 National Negative List.
 

In comparison with the 2019 FTZ Negative List, the 2020 FTZ Negative List basically adopts the same arrangements[2] on “Relaxation of restrictions”, “Lifting of prohibitions or restrictions”, and “Special provision”, as set out in the above table regarding the 2020 National Negative List. In addition, the 2020 FTZ Negative List also has the following major changes:
 

Type

Specific provision

Lifting of prohibitions or restrictions

(1) Removing the “prohibiting investment in the application of steaming, stir-frying, roasting and calcining techniques on Chinese herbal medicines, and in the production of secret prescription products of proprietary Chinese medicines” provision.

 

(2) Allowing foreign educational institutions, other foreign organisations and individuals to set up wholly-owned academic vocational education institutions that mainly enrol Chinese citizens.

 

 

This article is only an overview of China’s latest negative lists for foreign investment access[3]. When investing, foreign investors may also need to consider the additional access requirements equally applicable to Chinese and foreign investment, the further preferential policies in specific regions, and so forth. Should you require further information, please do not hesitate to contact us.

For further information, please contact:

 

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

 

[1] Based on the Regulations on Foreign Investment Guidelines, “controlling interest” refers to the investment of Chinese investors in a foreign investment project totalling 51% or higher.

[2] The only differences are that the 2019 FTZ Negative List had already (a) reduced the Chinese investors’ minimum equity-holding ratio in the “seed selection and production of new wheat varieties” industry to “no less than 34%”, and (b) removed the “prohibiting investment in smelting and processing of radioactive minerals, and production of nuclear fuel” provision. 

[3] This article did not discuss some minor changes regarding areas such as “geodetic survey” and “market survey”