On October 31, 2014, the Chinese State Council released the 2014 edition of the Catalogue of Investment Projects Subject to Government Verification and Approval (the “Investment Projects Catalogue”). Four days later, the National Development and Reform Commission (“NDRC”) issued an announcement to seek public comments on the Draft Amendments to the Catalogue of Industries for Guiding Foreign Investment (the “Draft Amendments”). It is also announced that the Draft Amendments have been preliminarily reviewed by various major foreign investment governing authorities including NDRC and the Ministry of Commerce (“MOFCOM”).
The Investment Projects Catalogue lists a series of infrastructure investment projects that trigger the requirements for different governmental approval or filing. Such regulatory requirements generally apply to both domestic and foreign investors doing business in China. On the other hand, the Catalogue of Industries for Guiding Foreign Investment (the “Foreign Investment Catalogue”) regulates foreign direct investment in China only.
The Foreign Investment Catalogue has been acting as one of the most important regulatory documents in regulating inbound investment in China since its first promulgation in 1995. The purpose of the Foreign Investment Catalogue is to guide and encourage foreign investment into prioritized industry sectors and restrict or even prohibit investment activities in certain areas. The Foreign Investment Catalogue categorizes all foreign investment projects into three classes: “encouraged,” “restricted” and “prohibited.” Apart from the explicitly listed “encouraged,” “restricted” and” prohibited” industries, any other industries not included in the Foreign Investment Catalogue are deemed as “permitted” sectors for foreign direct investment. It also contains certain shareholding percentage or corporate form requirements for foreign investors to comply with when entering into several sectors in China.
Major Proposed Changes to the Foreign Investment Catalogue
Compared to the latest version taking effect in January 2012, the Draft Amendments propose substantial relaxation on foreign investment in various sectors:
- the number of “restricted” sectors has been reduced from 79 to 35;
- the number of sectors that require “Chinese parties as the controlling shareholders” has been reduced from 44 to 32; and
- the number of sectors that are limited to be engaged in only by “Sino-foreign equity/cooperative joint venture enterprises” (respectively, “EJV” or “CJV”) has been reduced from 43 to 11.
These proposed updates primarily cover modern agriculture and services, clean energy, high-tech, and general manufacturing industries, which also mirror the recently updated foreign investment “negative list” implemented in the China (Shanghai) Pilot Free Trade Zone. Simultaneously, the Draft Amendments also proposed to tighten the regulation of foreign investment in certain sectors to meet the requirement of restraining those overheated industries. A brief summary of certain noteworthy updates as proposed by the Draft Amendments is listed as follows:
Click here to view table.
The Draft Amendments were published for public comment until December 3, 2014. The final official version may contain further modifications subject to the State Council’s approval. It is anticipated that the new version of the Foreign Investment Catalogue will aim to attract more foreign investment and facilitate the country’s further industry reform.