07 July 2017

The New “Negative List” for Foreign Investment

This article was written by Huang Jianwen(partner).

The Catalogue for the Guidance of Foreign Investment Industries (2017 Revision) (the "2017 Catalogue") was issued by the National Development and Reform Commission and the Ministry of Commerce on 28 June 2017. It will come into force on 28 July 2017 and the Catalogue for the Guidance of Foreign Investment Industries (2015 Revision) (the "2015 Catalogue") will be abolished therefrom.

Changes between the 2017 Catalogue and the 2015 Catalogue are mainly in two areas:

Structural adjustment by implementation of a “Negative List”

The 2015 Catalogue was divided into three categories: encouraged, restricted and prohibited categories, whereas the 2017 Catalogue has only two categories: the encouraged category and the Special Administrative Measures for the Entry of Foreign Investment (Negative List). The Negative List is further divided in two parts: restricted and prohibited categories.

The Negative List borrows and integrates terms listed in the 2015 Catalogue.  In the 2017 Catalogue, restrictions on the entry of foreign investment in China are all listed in the Negative List, including the restrictions on equity ratios and senior executives.  However, restrictions which apply to both domestic and foreign investments and restrictions which are not relevant to entry are not included in the Negative List. 

Fewer restrictions, more opening up 

The 2017 Catalogue reduces the number of restrictive measures for the entry of foreign investment from 93 to 63, and several industry sectors like services, manufacturing and mining are now more open for foreign investment.  In the 2015 Catalogue, there are 38 items in the restricted category, 36 items in the prohibited category and 19 items in the encouraged category with specific restrictions, whereas in the 2017 Catalogue, there are only 35 items in the restricted category and 28 items in the prohibited category . 

Industry Sector

 

2015 Catalogue

 

2017 Catalogue

Category

Item

Mining  Encouraged (with equity ratio restrictions)  Exploration and development of oil and natural gas (including oil shale, oil sands, shale gas, coal bed methane and other unconventional oil and gas) and utilization of gas well (only in the form of equity joint venture or cooperative joint venture)  Exploration and development of oil and natural gas (including coal bed methane; oil shale, oil sands, shale gas and others excluded) (only in the form of equity joint venture or cooperative joint venture)
*Note: cancel the restriction on the exploration and development of oil shale, oil sands, shale gas and other unconventional oil and gas 
Restricted  Exploration and extraction of precious metals (gold, silver, platinum)  Removed 
Restricted  Mining and beneficiation of lithium ore  Removed 
Restricted  Smelting of rare metals such as tungsten, molybdenum, tin (except for tin compounds), antimony (including antimony oxide and antimony sulphate), etc.  *Note: the smelting of tungsten is still restricted; other restrictions have been removed 
Manufacturing  Restricted  Processing of edible oils such as soybean oil, rapeseed, peanut oil, cottonseed oil, tea seed oil, sunflower oil, palm oil (controlling stake to be held by Chinese party), processing of rice, flour and raw sugar, deep processing of corn  Removed 
Restricted  Manufacturing of liquid biofuel (fuel ethanol, biofuel) (controlling stake to be held by Chinese party)
Removed 
Restricted  Manufacturing of automotive vehicles, special purpose vehicles and motorcycles: Chinese equity ratio shall not be less than 50%, one foreign investor may establish no more than two equity joint venture enterprises in China to manufacture the same type of automotive products (passenger vehicles, commercial vehicles, motorcycles); the aforesaid restriction does not apply where the foreign investor and the Chinese equity joint venture partner jointly carry out a merger and acquisition of another car manufacturing enterprise in China  Manufacturing of automotive vehicles, special purpose vehicles: Chinese equity ratio shall not be less than 50%, one foreign investor may establish no more than two equity joint venture enterprises in China to manufacture the same type of automotive products (passenger vehicles, commercial vehicles); this restriction does not apply where the foreign investor and the Chinese equity joint venture partner jointly carry out a merger and acquisition of another car manufacturing enterprise as well as the establishment of equity joint venture enterprises manufacturing electric automotive vehicles in China.
*Note: the Negative List removes “motorcycles” and cancels the restrictions that one foreign investor may not establish more than two equity joint venture enterprises in China to manufacture electric automotive vehicles. 
Encouraged (with equity ratio restrictions)  Manufacturing and research and development of automotive electronic devices: engine and vehicle chassis electronic control and key parts, car electronics technology (car information and navigation systems), automotive electronic bus network technologies (only in the form of equity joint venture), electronic control system input (sensor and sampling systems) output (actuator) parts, electronic controllers for electric power steering systems (only in the form of equity joint venture)……   
Encouraged (with equity ratio restrictions)  Manufacturing of key parts for new energy vehicles: energy-based power batteries (energy density ≥ 110 Wh/kg, cycle life ≥ 2,000 times, foreign investment ratio shall not exceed 50%), battery cathode material…plug-in hybrid electromechanical coupling drive system  *Note: remove the requirement for an equity ratio in this item 
Encouraged (with equity ratio restrictions)  Rail transportation equipment (only in the form of equity joint venture or cooperative joint venture)  Removed 
Encouraged (with equity ratio restrictions)  Manufacturing and repair of marine engineering equipment (including modules) (controlling stake to be held by Chinese party)  Removed 
Encouraged (with equity ratio restrictions)  Manufacturing of low and medium-speed diesel engines and crankshafts for vessels (controlling stake to be held by Chinese party)  Removed 
Encouraged (with equity ratio restrictions)  Design and manufacturing of civil satellites, manufacturing of civil satellite payloads (controlling stake to be held by Chinese party)  Removed the requirement for an equity ratio in this item 
Services  Restricted  Railway passenger transportation company  Removed 
Restricted  Cargo handling (only in the form of equity joint venture or cooperative joint venture)  Removed 
Restricted  Creditworthiness investigation and rating services  Removed 
Encouraged (with senior executive restrictions)  Accounting and audit (managing partner must be a Chinese national)  Removed 
Wholesale and retail  Restricted  Construction and operation of large-scale agricultural product wholesale markets  Removed 
Water resources, environmental and public facilities management  Encouraged (with equity ratio restrictions)  Construction and operation of comprehensive water hubs (controlling stake to be held by Chinese party)  Removed 
Transportation  Encouraged (with equity ratio restrictions)  Regular and ad hoc international maritime transport businesses (only in the form of equity joint venture or cooperative joint venture)  Removed 
Restricted  Water transport company (controlling stake to be held by Chinese party)  Domestic water transport company (controlling stake to be held by Chinese party), international maritime transport company (only in the form of equity joint venture or cooperative joint venture)
*Note: this item is still restricted, but there are some changes to the equity ratio requirement 

 

Furthermore, 12 measures in the restricted and prohibited categories of the 2015 Catalogue have been removed, which means that foreign and domestic investors will be treated in the same way in these fields.

Industry sector

2015 Catalogue

2017 Catalogue

Category

Item

Power, heat, gas and water production and supplying industries

Restricted

Within small power grids, construction and operation of condensing steam coal-fired power plants of stand-alone capacity of 300,000 KW and below, condensing steam extraction coal-fired cogeneration plants of stand-alone capacity of 100,000 KW andbelow

Removed to be administered according to the principle of consistent treatment for domestic and foreign investments

 Prohibited

Within big power grids, construction and operation of condensing steam coal-fired power plants of stand-alone capacity of 300,000 KW and below, condensing steam extraction coal-fired cogeneration plants of stand-alone capacity of 200,000 KW and below

See above

Culture, sports and entertainment


Restricted

Construction and operation of large theme parks

See above

Prohibited

Construction of golf courses and villas

See above

Medical and pharmaceutical manufacturing industries

Prohibited

Processing of Chinese medical herbs listed in the Administration Rules for Protection of Wild Medical Herb Resources and the "Catalogue of Chinese Rare and Endangered Plants"

See above

Other manufacturing industries

Prohibited

 

Ivory carving

 

See above

 

Prohibited

Tiger bone processing

See above

Education

Prohibited

Compulsory education institutions, special training institutions such as military, police, political or Chinese Communist Party schools

*Note: “Compulsory education institutions” remain prohibited; other prohibitions are removed

Other industries

Prohibited

Projects which endanger the security and efficiency of military facilities

Removed to be administered according to the principle of consistent treatment for domestic and foreign investments

Gambling industry (including gambling racecourses)

See above

Pornography industry

See above

 

Construction and operation of natural reserves and wetlands of international importance

 

See above

The 2017 Catalogue, together with the Special Administrative Measures (Negative List) for the Entry of Foreign Investment to Pilot Free Trade Zones (2017 Version) issued in early June, shows the Chinese government’s intention to open further, to use foreign capital actively and to improve the foreign investment environment.  By implementing the management model of pre-establishment national treatment (“PENT”) with a negative list, new vigor and vitality will be brought to the development and growth of Chinese economy.

The 2017 Catalogue has several new items in the encouraged category such as Foods for Special Medical Purposes (FSMP), Virtual Reality (VR) and Augmented Reality (AR) equipment, and key functional parts of Three-dimensional (3D) printers.  It’s easy to see that innovation-driven development and structural optimization of industries will be important in improving the competitiveness of Chinese manufacturing in the new era.


2017 Catalogue

2017 Catalogue

2017 Catalogue

A Guide to Doing Business in China

We explore the key issues being considered by clients looking to unlock investment opportunities in the People’s Republic of China.

Doing Business in China
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