Key Points

  • Negative List does not allow further relaxation of market access to foreign investors.
  • Further relaxation of restriction may happen in the 2014 Negative List.
  • Change of approval system to filing system in other non-restricted areas.

Background

The China (Shanghai) Pilot Free Trade Zone Foreign Investment Market Access Special Administrative Regulation (widely known as the “Negative List”) was published by the Chinese government authorities on September 29, 2013. The Negative List contains 190 special regulatory measures covering a wide range of activities out of the 1,069 small sectors that all industries in China are divided into.

Highlights of the Negative List Introduction

The main idea of Shanghai Free Trade Pilot Zone (“PFTZ”) is that anything not specifically prohibited or restricted in the Negative List would be allowed. In other words, the Negative List indicates that foreign investors “may” enjoy national equal treatment in other industries or business activities compared with Chinese firms unless it is explicitly prohibited or restricted in the Negative List. We are yet to see how this will be implemented.

However, to the disappointment of the foreign investors, by comparison with the current Foreign Investment Industrial Guidance Catalogue (the “Catalogue”), we can hardly find any further relaxation of the current foreign investment restrictions under the Catalogue in the Negative List. Certain industries, which are currently not clearly prohibited under the Catalogue, are now explicitly prohibited in the Negative List, such as the online game and internet data center services. Thus, as of the date of this article, the PFTZ does not allow any further market access to foreign investors according to the restrictions stipulated in the current Negative List.

Shanghai Mayor Yang Xiong defended the Negative List by saying that the rules will eventually be loosened and pledged that the Negative List will continue be shortened without providing any concrete timetable. We hope to see in the 2014 revision of the Negative List further market access to the foreign investors and the further increase of industries or business activities that foreign investors are able to invest in China, compared to the prohibited or restricted sectors under the current Catalogue.

As of today, the major change “promised” in the Negative List is the approval system where a foreign investor is no longer required to obtain prior approval for engaging in business scope, activities or industries that are not prohibited or restricted under the Negative List or other relevant rules and regulations. Merely filing in an application with the relevant government authorities should be sufficient. This change will only apply to companies incorporated within the PFTZ, but it remains to be seen how this change will actually be implemented.

We will continue monitor the development and further updates of the Negative List and will share with you any further developments.