Around half a year after the period for public comments on the draft ended, the final version of the Foreign Investment Industrial Guidance Catalogue (2017) (the “2017 Catalogue”) was officially published on 28 June 2017.
The 2017 Catalogue has been formulated against the background of China’s reforms to the foreign investment systems that were implemented in October last year. The 2017 Catalogue includes a section listing industries in which foreign investment is encouraged (the “Encouraged Category”) and a section listing special administrative measures on access for foreign investments (the “Negative List”).
The Negative List is further divided into two categories: the “Restricted Category” and the “Prohibited Category”. The Restricted Category includes some industries where foreign investment will be subject to shareholding restrictions, administrative approvals and other special administrative measures. A few industries included in the Restricted Category also fall within the Encouraged Category, meaning that foreign investment in these industries will also benefit from the preferential policies for encouraged projects. The Prohibited Category lists the industries in which foreign investment is not allowed. All other industries that are not included within the Encouraged Category or the Negative List fall within the “Permitted Category”, meaning that foreign investors will not be subject to special restrictions or administrative measures compared with domestic investors.
Compared with the previous Foreign Investment Industrial Guidance Catalogue (2015) (the “2015 Catalogue”), the 2017 Catalogue reduces the number of restrictions or special administrative measures on foreign investment from 93 to 63. The 2017 Catalogue also further opens the Chinese market. For example (without limitation), the special restrictions on foreign investment have been lifted in the following industries:
- Service industry: operation of highway passenger transport services; operation of ocean shipping tally companies; operation of credit investigation and rating services; operation of accounting and auditing services; and the establishment and operation of comprehensive water conservancy projects.
- Manufacturing industry: manufacture of rail transport equipment; research, development and manufacture of automobile electronic bus network and electronic controllers for electric power steering systems; manufacture of high energy power batteries for new energy automobiles; manufacture of motorcycles; design and manufacturing of civil satellites; processing of edible oil and fats from soybean, rapeseed, peanut, cottonseed, camellia seed, sunflower seed, and palm; processing of rice, flour and crude sugar, and deep processing of corn. This means that the long standing previous requirement to establish a joint venture (“JV”) with a Chinese party (who holds at least 50% ownership) for the manufacturing of motorcycles, has been abolished nationwide for the very first time. Motorcycles can now be produced by a wholly foreign-owned enterprise (“WFOE”). In contrast the JV requirement continues to apply for manufacturing automobiles, as does the limit to establish no more than two JVs for the same type of conventional automobiles (i.e. passenger automobiles and commercial automobiles). However, there is an exception to the "no more than two JVs" limitation if the foreign investor conducts an acquisition of other domestic automobile manufacturers jointly with its Chinese JV partners. In contrast to the 2015 Catalogue, the 2017 Catalogue does now permit a foreign investor to establish more than two joint ventures manufacturing purely electric automobiles.
- Mining industry: exploration and development of oil shale, oil sands, shale gas, and other unconventional oil and gas; exploration and mining of precious metals (gold, silver, platinum group); lithium mining and mineral processing; and smelting of rare metals including tungsten, molybdenum, tin (excluding tin compounds), and antimony (including antimony oxides and antimony sulphides).
Meanwhile, following general national industry development policies, the 2017 Catalogue adds a few new industries in the Encouraged Category, including (without limitation) the manufacturing of intelligent emergency medical rescue devices; research, development and manufacture of virtual reality (VR) and augmented reality (AR) devices; the establishment and operation of city parking facilities; and the development and manufacturing of key components for 3D printing devices.
In addition, the 2017 Catalogue emphasises that a foreign investor cannot be the investor of a sole proprietorship enterprise. Following the increasingly strict requirements on news services and cultural services in China, the 2017 Catalogue also restates that relevant security assessments might be required where necessary.
The 2017 Catalogue will replace the 2015 Catalogue and take effect from 28 July 2017.
Please click here to read the full text (Chinese only) of the 2017 Catalogue.