On March 2015, the PRC Ministry of Commerce and the National Development and Reform Commission, with approval from the State Council, released Decree 20 and published the Foreign Investment Industrial Guidance Catalogue (2015 Amendment) (“2015 Catalogue”). The 2015 Catalogue will repeal the Foreign Investment Industrial Guidance Catalogue (2011 Amendment) (“2011 Catalogue”) and will come into force on 10 April 2015. This Update will give a short summary of the key differences between the 2011 Catalogue and the 2015 Catalogue, in particular, the changes to the industries categorised as “prohibited”, “restricted”, and “permitted”.
Foreign Investment Industrial Guidance Catalogue
Foreign investment in China is subject to the Foreign Investment Industrial Guidance Catalogue (“Catalogue”) in terms of whether certain industries are “prohibited”, “permitted”, “restricted”, or “encouraged” for foreign investment purposes. Foreign companies/individuals are not allowed to invest in a “prohibited” industry and are encouraged to invest in an “encouraged” industry. Compared to foreign investment in industries classified as “encouraged” or “permitted”, foreign investment in an industry classified as “restricted” is subject to greater scrutiny and will require the approval of a higher authority. It also generally takes more time to get the approval. Anything not categorised as “prohibited”, “restricted”, or “encouraged” in the Catalogue is considered “permitted”. The first Catalogue was released in 1995, and the PRC authorities update it from time to time. The latest version is the 2011 Catalogue which was effective from 30 January 2012. The 2011 Catalogue has 354 “encouraged”, 80 “restricted”, and 39 “prohibited” industries.
Major Changes in 2015 Catalogue
The 2015 Catalogue has 349 “encouraged”, 38 “restricted” and 36 “prohibited” industries. There has accordingly been a steep reduction in the number of “restricted” industries from 80 to 38. The number of “prohibited” industries has been reduced slightly from 39 to 36. The main changes are summarised below.
Foreign investment in the following industries is no longer “restricted” and is now “permitted”:
• Processing of the logs of precious varieties of trees;
• Processing of seed cotton;
• Exploration for and exploitation of certain minerals;
• Construction and development of power grids;
• Transportation of goods by rail;
• Transportation using road vehicles into and out of China;
• Direct sales, mail orders, and online sales;
• Purchase of grain;
• Wholesale, retail, and distribution of grain, cotton, vegetable oil, sugar, crude oil, agricultural chemicals, agricultural plastic film, and fertilisers;
• Distribution of sound and video recordings (excluding movies);
• Carrying on business as a finance company, trust company, and currency brokerage company;
• Insurance brokerage;
• Development of land;
• Construction and operation of high-class hotels, high-class office buildings, and international exhibition centres;
• Real estate secondary market transactions and carrying on business as a real estate intermediary or brokerage company;
• Inspection, identification, and certification of imports and exports;
• Photography services (including aerial photography and other trick photography services but excluding aerial photography for survey and mapping purposes;note that foreign investment in this is limited to Chinese-foreign equity joint ventures); and
• Operation of recreation facilities.
Industries removed from “prohibited” category
Foreign investment in the following industries is no longer “prohibited” and is now “permitted”:
• Research and development into and using transgenic plants and animals;
• Traditional Chinese processing of green tea and special tea;
• Manufacturing of open lead-acid batteries, mercury-containing silver oxide button batteries, mercury-containing alkaline zincmanganese button batteries, pasted zinc-manganese batteries, and nickel-cadmium batteries;
• Production of bodiless lacquerware;
• Production of enamel products;
• Production of carcinogenic, teratogenic, and mutagenic products and persistent organic pollutants;
• Establishing and operating cinema chains; and
• Operation of golf courses and villas (note, however, that the construction of golf courses and villas are still “prohibited” industries).