China Releases Updated Versions Of Its Two Negative Lists And Encouraged Foreign Investment Catalogue To Promote Foreign Investment.

The Chinese Government has recently updated its two negative lists and encouraged foreign investment catalogue to liberalise its foreign investment regime and promote foreign investment in high-end industries.

BACKGROUND

The new negative lists (which set out industries where foreign investment is prohibited or restricted) and the new catalogue (which sets out sectors where foreign investment is encouraged) set out below were issued by the National Development and Reform Commission and the Ministry of Commerce on 30 June 2019 and took effect on 30 July 2019. They replace their earlier versions and further open the Chinese market to foreign investment, particularly in the manufacturing and service sectors.

• The 2019 version of the Foreign Investment Market Entry Special Management Measures (2019 National Negative List);

• The 2019 version of the Free Trade Zone Foreign Investment Market Entry Special Management Measures (2019 FTZ Negative List); and

• The 2019 version of the Industrial Guidance Catalogue for Encouragement of Foreign Investment (2019 Encouraged Catalogue).

HIGHLIGHTS

2019 National Negative List

The 2019 National Negative List now contains 40 restricted and prohibited items, 8 items fewer than in the 2018 version. The changes lift foreign investment restrictions in a number of areas including mining, infrastructure, manufacturing and service industries:

• Manufacturing: The restriction on foreign investment in manufacturing of rice paper and ink ingot has been lifted.

• Mining: The restriction on foreign investment in exploration and exploitation of petroleum and natural gas, as well as reconnaissance and exploitation of molybdenum, tin, antimony and fluorite, has been lifted.

  The removal of the foreign shareholding restriction on the exploration and exploitation of petroleum, previously only applicable to free trade zones, has now been rolled out across the whole nation.

• Infrastructure: The foreign shareholding restriction on constructing and operating gas and heat pipe networks in cities with more than 500,000 people has been lifted.

• Transportation: The foreign shareholding restriction on domestic shipping agency companies has been lifted.

• Value-added telecommunication: The 50% foreign shareholding restriction on domestic multi-party communication, store-and-forward and call centre businesses has been lifted.

• Culture: The foreign shareholding restriction on performance brokerage institutions and the construction and operation of cinemas has been lifted.

  The removal of the foreign shareholding restriction on performance brokerage institutions, previously only applicable to free trade zones, has now been rolled out across the whole nation.

• Water conservancy, environment and public facilities administration: The prohibition on foreign investment in the development of China’s native wild animal and plant resources has been removed.

2019 FTZ Negative List

The 2019 FTZ Negative List now covers 37 industry items, 8 items fewer than the 2018 version. The FTZ Negative List and the 2019 National Negative List are substantially the same, although the 2019 FTZ Negative List has further opened up the following additional sectors:

• Fishery: The prohibition on foreign investment in the fishing of aquatic products in sea areas under China’s jurisdiction and in inland water areas has been removed.

• Manufacturing: The foreign shareholding restriction on publication printing has been lifted.

2019 Encouraged Catalogue

The 2019 Encouraged Catalogue comprises the National Industrial Guidance Catalogue for Encouragement of Foreign Investment (National Catalogue) and the Catalogue of Priority Industries for Foreign Investment in Central and Western China (Central and Western China Catalogue). By way of background, the National Catalogue is supplemented by the Central and Western China Catalogue which lists additional encouraged activities and sectors for projects in Central and Western China. Encouraged projects can benefit from incentives prescribed by law such as customs incentives.

The number of items in the National Catalogue has been increased to 415, with 67 new items and 45 updated items compared with the 2017 version. More than 80% of the changes are in manufacturing industry categories. There are 693 items in the Central and Western China Catalogue, with most of the new and updated items in categories relating to labour intensive industries, advanced appropriate technology industries and supporting facilities.

New items in the 2019 Encouraged Catalogue include:

• Computer, communications and other electronic equipment manufacturing industry: Development and manufacture of visual sensors and their core components and parts applicable to the fifth generation mobile terminals; development of cloud computing equipment, software and system; manufacture of chip packaging equipment.

• General equipment manufacture: Development and manufacture of robots and industrial robots integrated systems.

• Pharmaceutical manufacture: Development and production of new key raw materials for production-use (such as cell therapy medicines) and large-scale cell culture products.

• New materials: Development and production of new materials for aerospace use.

• Scientific research and technical services: Development and application of artificial intelligence; development and services for clean production technology; development and application of energy saving and recycling economy technology.

OUR OBSERVATIONS

• The changes to the negative lists and encouraged foreign investment catalogue are consistent with the principles for promoting foreign investment contemplated in the Foreign Investment Law promulgated on 15 March 2019 and which will come into effect on 1 January 2020.

• The two negative lists are shorter than their 2018 versions, which demonstrates the Chinese government’s continuous commitment to opening up its market to foreign investors step by step.

• There have been considerable changes to the encouraged foreign investment catalogue compared with the previous versions. Foreign investors may want to consider investment opportunities in the newly added encouraged sectors.

• The opening-up measures in certain sectors previously applicable to free trade zones only have been rolled out to the whole country, which indicates the continuous trial function of free trade zones.

• We expect to see further implementing rules or revisions to the existing rules to support and guide the further liberation of the market for foreign investors.