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Asia Pacific Legal Updates

 

13 July, 2018

 

China Further Liberalizes Restrictions On Foreign Investment.

 

China's Ministry of Commerce (MOC) and National Development and Reform Commission (NDRC) have issued the Special Administrative Measures on Access to Foreign Investment (Negative List) (2018 Version), (the "Nationwide Negative List"), which will take effect on July 28, 2018 and replace the earlier Measures of 2017. In addition, MOC and NDRC issued the Special Administrative Measures on Access to Foreign Investment in Pilot Free Trade Zones (Negative List) (2018 Version), (the "FTZs Negative List"), which will take effect on July 30, 2018 and replace the earlier Measures of 2017. Each list further opens up certain sectors to foreign investment.

 

1. Nationwide Negative List

 

The Nationwide Negative List sets out the "restricted" and "prohibited" sectors in which foreign investment is either prohibited or restricted (thereby requiring pre-approval by MOC authorities). If a sector is not included in the list, it is classified as a sector in which foreign investment is "permitted". "Encouraged" sectors are listed in the Catalogue for the Guidance of Foreign Investment Industries which was last issued in 2017. The new Nationwide Negative List opens up 22 areas to foreign investment, predominantly in the services and manufacturing industries, and sets out a timetable for opening- up the automobile and finance sectors.

 

Comparison with the 2017 Negative List

 

Compared to the current nationwide negative list, the new version reduces the sectors in which foreign investment is restricted from 63 to 48, and includes openings in finance, infrastructure, transportation, commercial logistics, professional services, agriculture, coal and non-metal mining, and the manufacturing of autos, ships, and aircraft. In many of the newly liberalized sectors, limits on the proportion of equity that foreign investors may hold have also been lifted. With respect to the finance sector, under the new Nationwide Negative List, the maximum ratio of foreign-held equity in futures, life insurance, securities and fund management companies is increased to 51%.

 

We have summarized the major changes in the chart below: 

page1image29936 page1image30096 page1image30256

From Prohibited to Permitted

Manufacture of weapons and ammunition

Business premises for Internet access services

From Restricted to Permitted

  •   Selection and cultivation of new varieties of crops, and production of seeds, aside from wheat and corn

  •   Exploration and exploitation of special and rare kinds of coal

 

 

From Restricted to Permitted       

  •   Exploration and exploitation of graphite 

  •   Smelting and separation of rare earth and 

    smelting of tungsten 

  •   Manufacture of special use vehicles and new energy vehicles 

  •   Design, manufacture and repair of ships (including sections) 

  •   Design, manufacture and maintenance of aircraft for trunk and tributary lines, design and manufacture of helicopters at the level of 3 tons or more, manufacture of ground-effect and water-effect aircraft, and design and manufacture of UAV and aerostats 

  •   Design, manufacture and maintenance of general aircraft 

  •   Construction and operation of power grids 

  •   Construction and operation of network of trunk 

    railway lines 

  •   Railway passenger transport companies 

  •   International marine transportation companies 

  •   International shipping agencies 

  •   Purchase and wholesale of rice, wheat and corn 

  •   Construction and operation of gas stations 

  •   Banks (previous restrictions on the proportion 

    of foreign equity no longer apply) 

  •   Futures companies (foreign equity restriction increased to 51%) 

  •   Securities companies (foreign equity restriction increased to 51%) 

  •   Fund management companies (foreign equity restriction increased to 51%) 

  •   Insurance companies (foreign equity restriction increased to 51%) 

  •   Surveying and mapping companies 

 

Furthermore, the new Nationwide Negative List sets out a schedule for removing all foreign equity restrictions in the automobile and finance sectors. In the automobile sector, restrictions on the proportion of foreign equity in commercial vehicle manufacturing will be removed by 2020. In addition, restrictions on the proportion of shares in passenger vehicle manufacturing and limits on the number of joint ventures that foreign companies can establish will be removed by 2022. In the finance sectors, the restrictions on the proportion of foreign equity in securities companies, futures companies and life insurance companies will be removed by 2021. 

 

2. FTZs Negative List

 

Under the new FTZs Negative List, restrictions on foreign investment in several more sectors are loosened. Similar to the new Nationwide Negative List, the new FTZs Negative List also offers a clear timeline for the opening- up of the automobile and finance sectors to foreign investment. The list applies to all of the free trade zones in China.

 

Comparison with the 2017 FTZs Negative List (i.e., Current Version)

 

Compared with the current version, the new FTZs Negative List cuts restrictions on foreign investment from 95 sectors to 45 and eases restrictions in the culture, petroleum and natural gas, agriculture, mining and finance sectors.

 

We have summarized the major changes in the chart below: 

 

From Prohibited to Permitted

  •   Smelting and processing of radioactive minerals

  •   Ivory carvings and tiger bone processing

  •   Production, import and export of tobacco leaves, cigarettes, re-dried tobacco leaves and other tobacco products

  •   Operation of air traffic control systems

  •   Internet map compilation and publishing

  •   Becoming a member of a securities exchange or a member of a futures exchange

  •   Collection or purchasing of wildlife and microbe under national key protection

From Restricted to Permitted

  •   Exploration and exploitation of graphite

  •   Smelting of tungsten

  •   Manufacture, operation, import and export of nuclear fuels, nuclear materials, uranium products and related nuclear technologies

  •   Solid radioactive waste treatment

  •   Central reserve grains (oil)

  •   Selection and cultivation of new varieties of crops, and production of seeds, aside from wheat and corn for which the restriction on foreign equity is increased from 49% to 66%

  •   Collection of genetic resources of crops

  •   Fishing business besides fishing in the seas

    and inland waters under China's jurisdiction

  •   Exploration, exploitation and development in the exclusive economic zones, continental shelves and other waters under China's jurisdiction

 

From Restricted to Permitted 

    •   Exploration and exploitation of oil, natural gas and coal-bed methane

    •   Manufacture of special use vehicles and new energy vehicles

    •   Design, manufacture and repair of ships (including sections)

    •   Design, manufacture and maintenance of aircraft for trunk and tributary lines, design and manufacture of general aircraft at the level of 6 tons 9 seats or more, manufacture of ground- effect and water-effect aircraft, and design and manufacture of UAV and aerostats

    •   Smelting and separation of rare earth

    •   Sale of duty-free goods

    •   Issuance and sale of lotteries

    •   Construction and operation of power grids

    •   Construction and operation of network of trunk railway lines

    •   Railway passenger transport companies

    •   International marine transportation companies

    •   International shipping agencies

    •   Foreign aircraft or expatriates using Chinese aircraft for general aviation flight activities in China

    •   Cooperation between an Internet news information service entity and a foreign investor concerning Internet news information services

    •   Investment in a banking financial institution

    •   Futures companies (foreign equity restriction

      increased to 51%)

    •   Securities companies (foreign equity restriction increased to 51%)

    •   Fund management companies (foreign equity restriction increased to 51%)

    •   Life insurance companies (foreign equity restriction increased to 51%)

    •   Investment in listed Chinese-funded securities companies

    •   Application for A-share securities account and A-share futures account

    •   Investment in insurance companies

    •   Surveying and mapping companies

    •   Foreign media activities 

    •  

    • Performance brokerage institutions

    •  

    • Telecommunications (current Shanghai FTZ policy expanded to all FTZs) 

     

Newly

Prohibitedpage5image8024

Fishing in the seas and inland waters under China's jurisdiction

 

China's newly issued Negative Lists demonstrate that China is taking concrete and significant steps to open up previously restricted sectors to foreign investment at a faster rate than has been seen in previous years.

 

The new Negative Lists should present many opportunities for existing and prospective foreign investors active in the liberalized sectors. 

 

Baker McKenzie

For further information, please contact: 

 

Stanley D. Jia, Partner, Baker & McKenzie FenXun

stanley.jia@bakermckenzie.com

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