State Issues New Foreign Investment Catalogue.

The 2015 Catalogue, issued by the National Development and Reform Commission and the Ministry of Commerce, introduces various changes to the existing catalogue issued in 2011 (“2011 Catalogue“).

 

Overview

 

The Catalogue has lifted many restrictions on foreign investment. Compared to the 2011 Catalogue:

 

• Industrial sectors restricted to foreign investors have been reduced from 79 to 38.
• Industrial sectors requiring majority shareholding or dominance by Chinese party have been reduced from 44 to 35.

 

However, restrictions on foreign investment in certain sensitive sectors remain, or are even further tightened, under the 2015 Catalogue.

 

The 2015 Catalogue provides possible insight into China’s continued reform of its foreign investment regime. It may also be China’s last foreign investment catalogue.

 

The Shanghai Free Trade Zone (FTZ) has already replaced the 2011 Catalogue with a negative list, which lists only those sectors and activities that are restricted or prohibited to foreign investment. Any foreign investment that is not on the negative list is permitted in the Shanghai FTZ (ie., no approval required). The negative list of the Shanghai Free Trade Zone contains significantly fewer restrictions and prohibitions than the 2011 Catalogue. If deemed successful within the three-year trial period, the negative list approach will be rolled out nationwide. It has been recently reported that the new FTZs in Guangdong, Tianjin and Fujian would likely to use the same negative list applied in the Shanghai FTZ. The negative list approach is also expected to be followed under the draft Foreign Investment Law.

 

The 2015 Catalogue is a step in the direction of the negative lists.

 

Highlights Of Certain Changes

 

Set out below are some highlights (for certain selected sectors only) from the 2015 Catalogue:

 

Automobiles

 

• Manufacture of Continuously Variable Transmission is classified as “encouraged” (as opposed to being “permitted” under the 2011 Catalogue)
• Manufacture of finished automobiles, special-use automobiles and motorcycles are classified as “restricted” (as opposed to being “permitted” under the 2011 Catalogue).

 

Aviation

 

• Investment in the following sectors is no longer restricted in the form of a joint venture (which is a further liberalizing step compared to the existing negative list of Shanghai FTZ):
  • Design and manufacture of civil helicopters of less than 3 tons
  • Design, manufacture and repair of aircraft engines and relevant components, as well as auxiliary power unit systems
  • Design and manufacture of airborne equipment for civil aviation
• Investment in private business flights and aerial touring services is classified as “restricted” (as opposed to being “permitted” under the 2011 Catalogue)

 

Life Science & Healthcare

 

• Investment in the cultivation of traditional Chinese medicinal ingredients is no longer restricted to the form of a joint venture
• The manufacture of medical and pharmaceutical products is classified as “permitted” (as opposed to being “restricted” under the 2011 Catalogue); such products include, among other things, blood products, API for narcotic drugs and Category I psychotropic drugs, and certain other medicines
• Medical institutions are classified as “restricted” (as opposed to “permitted” under the 2011 Catalogue) and foreign investment in this sector is limited to the form of a joint venture. This is contrary to the relaxation efforts the PRC government has made in the pilot program on WFOE hospitals in certain areas of China issued in July 2014.
• Retirement homes for the elderly are classified as “encouraged” (as opposed to being “permitted” under the 2011 Catalogue)

 

Financial Sector

 

• Financing companies, trust companies, currency brokerage companies and insurance brokerage companies are classified as “permitted” (as opposed to being “restricted” under the 2011 Catalogue)
• For the banking and securities sectors:
  • Foreign investors investing in small or medium-sized rural financial institutions must be banking institutions.
  • Maximum foreign investment in a securities company is increased from 1/3 to 49%, and a foreign-invested securities company is permitted to engage in a wider range of securities business.

 

E-commerce

 

• Foreign investment in e-commerce is no longer subject to foreign shareholding cap of 50%. In other words, foreign investors now are permitted to set up e-commerce WFOEs

 

Real Estate

 

• Foreign investment in following real estate sectors is classified as “permitted” (as opposed to being “restricted” under the 2011 Catalogue):
  • Development of tracts of land;
  • Construction and operation of high-class hotels, high-class office buildings, and international exhibition centers; and
  • Real estate secondary market transactions, real estate intermediary or brokerage companies

 

Education

 

• Foreign investment in certain education sectors are tightened:
  • Higher education institutions are classified as “restricted” (as opposed to being “encouraged” under the 2011 Catalogue), and foreign investment in this sector is limited to the form of a CJV (as opposed to any form of joint venture under the 2011 Catalogue);
  • Pre-school education institutions are classified as “restricted” and foreign investment in this sector is limited to the form of a CJV led by the Chinese party (as opposed to being “permitted” without any restriction in the form of investment under the 2011 Catalogue); and
  • The majority of the senior management of higher education institutions, ordinary senior high schools and pre-school education institutions are required to be served by Chinese nationals (there is no such requirement under the 2011 Catalogue).