The Catalogue for the Guidance of Foreign Investment Industries (2017 Revision) (the “2017 Catalogue“) was issued by the National Development and Reform Commission and the Ministry of Commerce on 28 June 2017. It will come into force on 28 July 2017 and the Catalogue for the Guidance of Foreign Investment Industries (2015 Revision) (the “2015 Catalogue“) will be abolished therefrom.

Changes between the 2017 Catalogue and the 2015 Catalogue are mainly in two areas:

Structural adjustment by implementation of a “Negative List”

The 2015 Catalogue was divided into three categories: encouraged, restricted and prohibited categories, whereas the 2017 Catalogue has only two categories: the encouraged category and the Special Administrative Measures for the Entry of Foreign Investment (Negative List). The Negative List is further divided in two parts: restricted and prohibited categories.

The Negative List borrows and integrates terms listed in the 2015 Catalogue. In the 2017 Catalogue, restrictions on the entry of foreign investment in China are all listed in the Negative List, including the restrictions on equity ratios and senior executives. However, restrictions which apply to both domestic and foreign investments and restrictions which are not relevant to entry are not included in the Negative List.

Fewer restrictions, more opening up

The 2017 Catalogue reduces the number of restrictive measures for the entry of foreign investment from 93 to 63, and several industry sectors like services, manufacturing and mining are now more open for foreign investment. In the 2015 Catalogue, there are 38 items in the restricted category, 36 items in the prohibited category and 19 items in the encouraged category with specific restrictions, whereas in the 2017 Catalogue, there are only 35 items in the restricted category and 28 items in the prohibited category .

Furthermore, 12 measures in the restricted and prohibited categories of the 2015 Catalogue have been removed, which means that foreign and domestic investors will be treated in the same way in these fields.

The 2017 Catalogue, together with the Special Administrative Measures (Negative List) for the Entry of Foreign Investment to Pilot Free Trade Zones (2017 Version) issued in early June, shows the Chinese government’s intention to open further, to use foreign capital actively and to improve the foreign investment environment. By implementing the management model of pre-establishment national treatment (“PENT”) with a negative list, new vigor and vitality will be brought to the development and growth of Chinese economy.

The 2017 Catalogue has several new items in the encouraged category such as Foods for Special Medical Purposes (FSMP), Virtual Reality (VR) and Augmented Reality (AR) equipment, and key functional parts of Three-dimensional (3D) printers. It’s easy to see that innovation-driven development and structural optimization of industries will be important in improving the competitiveness of Chinese manufacturing in the new era.