China updates New Industry Catalogue

PRC reduces regulatory procedures for foreign investments following its 2016 reforms.

China creates a nationally applicable “negative list” for foreign investment, which opens up more industries for multi-national companies.

Foreign Investments Filing Administrative Rules will be updated and published soon by the Ministry of Commerce to clarify the filing procedures for foreign investments in the industries not on the “negative list,” which should simplify market entry regulations.

On June 28, 2017, the National Development and Reform Commission (NDRC) and the Ministry of Commerce (MOFCOM) of the People’s Republic of China (China) promulgated the 7th updated version of the Catalogue of Industries for Foreign Investments (the 2017 Catalogue), which will come into effect on July 28, 2017. The 2017 Catalogue includes two parts: (1) a category of industries that are encouraged for foreign investments (Encouraged Industries); (2) a “negative list” of industries, in which foreign investments market entry will be subject to special administration, i.e., pre-approval and examinations (Negative List).

The 2017 Catalogue opens various additional industries to foreign investors which previously were restricted or prohibited for foreign investments, mainly in the services, manufacturing and mining sections. Also, this is the first time that the Chinese government has formally published a nationwide applicable Negative List for foreign investments. The previous seven versions of the catalogue categorized industries for foreign investments into encouraged, restricted and prohibited industries. Industries not listed in such catalogue were deemed permitted for foreign investments.

Before October 1, 2016, foreign investments in all such four categories of industries were subject to substantial examination and pre-approval by the Chinese government. In October, 2016, China reformed its foreign investment market-entry regulatory regime by changing the pre-approval process for all foreign-invested projects to post-filing procedures for foreign investment in the industries not on the “Negative List”. However, during the transition period from last October to the promulgation of this 2017 Catalogue (including the nation-wide Negative List), foreign investors and China local enforcement authorities have had to use the 2015 version catalogue to determine what industries are on the Negative List, resulting in much confusion at the local government approval/filing level.

Highlights of the 2017 Catalogue

  • The Negative List in the 2017 Catalogue includes three types of industries, (a) Restricted Industries, (b) Prohibited Industries for foreign investments, and (c) certain Encouraged Industries in which foreign investments are subject to special administrative requirements, e.g. requirements regarding the foreign investor’s equity ratio and/or executive officers (Specially Administrated Encouraged Industries). Foreign investments in the industries not on the Negative List are only subject to post-establishment/changes filing with MOFCOM. Certain articles may have misunderstood that only Restricted Industries listed in the Negative List are subject to the examination and approval by MOFCOM or its counterparts. According to our confirmation with MOFCOM, foreign investment in both the Restricted Industries and Specially Administrated Encouraged Industries listed in the Negative List are subject to pre-establishment/pre-change approval by MOFCOM or its counterparts. Foreign investments in the Restricted Industries with total investment of more than $300 million are also subject to project approval by the NDRC and its counterparts.

  • Various industries previously prohibited or restricted for foreign investments are opened under the 2017 Catalogue, mainly in the services, manufacturing and mining sections, such as the following:
    • Highway passenger transportation (inter-city long-distance passenger transportation, excluding inside-city transportation such as taxis, buses, etc.);
    • Creditworthiness investigation and evaluation services and accounting and auditing services;
    • Construction and operation of wholesale markets for agricultural products;
    • Construction and operation of multipurpose water control projects;
    • Production of energy power batteries for new-energy automobiles;
    • Development and production of automobile electronic bus network technology or electronic controller for electronic power steering system;
    • Production of motorcycles;
    • Production of low or mid-speed diesel engines and crankshafts for marine vessels;
    • Processing of certain edible oil, rice, flour and raw sugar;
    • Production of bio liquid fuels;
    • Exploration and development of unconventional oil and gas, e.g., oil shale, oil sands, shale gas, etc.
    • Exploration or mining of precious metals (gold, silver, platinum).
  • Exploration or mining of precious metals (gold, silver, platinum).

  • A foreign investor which has already invested in two fuel based automobile joint ventures is now allowed to establish more joint ventures in China to produce purely electric automobiles but the foreign investor’s equity ratio must be no more than 50 percent in such joint ventures. (Note that foreign investors are still be restricted from establishing more than two joint ventures for the production of fuel based automobiles);

  • The 2017 Catalogue has deleted certain industries (such as gambling) where foreign and domestic investors are treated equally in term of market entry, which are already listed in the Draft Market Entry Negative List (Experimental Version) applicable to both domestic and foreign investors that was jointly published by MOFCOM and NDRC in April 2016. Foreign investors should also pay attention to such industries that are restricted or prohibited to both domestic and foreign investors, such as the restricted development and operation of theme parks, the prohibited development of golf courses and villas, prohibited development of natural conservation areas and internationally important wetlands, projects that harm military facilities and/or the gaming industries, etc.

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