Since 2013, the Shanghai Pilot Free Trade Zone has been implementing, on a trial basis, a negative list system for market access. This system consists of a list of the sectors —industries, fields and businesses— in which investment is restricted or completely prohibited, granting all market players equal access to the sectors not specified on the list.
The State Council has now announced China’s intention to implement a unified national negative list system (“Negative List”) by 2018, and it has issued its opinions on how to achieve this. These are the main highlights:
- The Negative List will be formulated by the State Council, and any adjustment made by local governments will be subject to its approval.
- The Negative List will include two separate lists: (1) a negative list with general market administration measures for all market players in China, including both domestic and foreign investors, and (2) a genitive list with specific market access restrictions for foreign investment.
- The Negative List will be divided into two categories that will apply to all investment and operation activities (i.e., initial investment, capital increase, M&A and other market access approaches):
- A prohibited category, listing sectors for which investment will not be allowed and the relevant authorities will not review or approve applications, without exception.
- A restricted category, listing sectors for which market access will be allowed subject to administrative approval and according to specified access conditions.
- Restrictions and prohibitions are mainly related to national security, widely defined and ascertained as the “security of people's livelihood and property, political security, national defense and homeland security, economic security, financial security, cultural security, social security, science and technology security, information security, ecological security, resource security, nuclear safety and security of new sectors.”
- The Negative List will be gradually implemented in selected areas, on a trial basis, from December 1, 2015, to December 31, 2017, before nationwide implementation in 2018.
The Negative List is expected to provide a higher degree of predictability and simplified approval procedures for foreign investors when establishing in China, while binging China to level with international markets by giving domestic and foreign investors equal, standardized access to all other markets. However, the extent local government discretionary approval will influence market access for activities not listed under prohibited and restricted categories remains to be seen.
Date of issue: October 2, 2015. Effective date: December 1, 2015.