This is an updated version of our earlier newsletter dated June 30, 2017.
After seeking for comments with a draft on December 7, 2016 (“Draft”), on June 28, 2017, China’s National Development and Reform Commission (“NDRC”) and the Ministry of Commerce (“MOFCOM”) jointly issued the Catalogue for Guidance of Foreign Invested Industries (2017 Amendment) (“2017 Catalogue”, 《外商投资产业指导目录（2017修订）》). The 2017 Catalogue became effective on July 28, 2017 and replaced the current 2015 version.
On July 30, 2017, MOFCOM further released the Interim Administrative Measures on Filing of Incorporation and Change of Foreign-invested Enterprises (2017 revised version) (“Filing Measures”) and an explanatory announcement in relation to the filing of foreign-invested companies.
- In line with the legislative plan, the 2017 Catalogue now officially gives birth to a negative list for foreign investment enterprises (“FIE”) in China. The MOFCOM has further made it clear that the negative list in the 2017 Catalogue shall apply outside pilot free trade zones.
- The reform “from approval to filing” in market access control is continued. The MOFCOM filing procedure now also includes many cross-border mergers and acquisitions, where foreign companies buy into Chinese companies’ shares or assets.
- Compared with the 2015 version, the 2017 Catalogue reduces the restricted/prohibited industries from 93 items to 63 items, while keeping the number of encouraged industries basically unchanged.
Below, we highlight some details under the revised law affecting, among others foreign investment in infrastructure, automotive, medical instruments, chemicals, food and agriculture, as well as some high-end manufacturing, and services like banking, telecoms, logistics, credit rating, cultural and research activities.
1. New structure – “Encouraged + FIE Negative List”
The 2017 Catalogue officially adopts a new structure. It now consists of two parts:
- a list of all the encouraged industries including those with restrictions, and
- the Foreign Investment Access Negative List as special access administration measure (colloquially referred to as “FIE Negative List”).
The FIE Negative List comprises of general statements, and further sub-parts listing restricted and prohibited industries for foreign investment in China, plus the special encouraged industries with restrictions on management and/or shareholding ratios.
The birth of the FIE Negative List is one further step to the State Council’s goal of managing market access for both foreign and domestic investors with two negative lists starting from 2018:
- one master negative list to regulate market access for both domestic and foreign investment in general; and
- one FIE Negative List (i.e. the 2017 Catalogue for the time being) to additionally regulate aspects affecting solely foreign investment.
This is based on the Opinions of the State Council on Implementing of the System of Negative List for Market Access (《国务院关于实行市场准入负面清单制度的意见》) of December 1, 2015 and other related rules.
The Special Administrative Measures (Negative List) for Foreign Investment Access to Pilot Free Trade Zones issued by the General Office of the State Council on June 5, 2017, apply to within the Pilot Free Trade Zones as of July 10, 2017.
2. Changes proposed by the Draft – all accepted
The 2017 Catalogue officially accepted all changes proposed by the Draft (please refer to our previous article for details).
|Newly added as “Encouraged”||Deleted from “Restricted”|
3. Opening up in the high-end manufacturing industries, and introducing filing procedures in M&A
To promote high-end manufacturing, some cutting edge technologies (e.g. VR, AR, 3D printing etc.) have been added beyond the Draft as “encouraged” industries for foreign investment (see below table).
The automobile industry with “clean energy” technology is another winner. For new energy or pure electric cars, the 2017 Catalogue encourages foreign investment in the production of parts, removes the joint venture restrictions for automobile OEMs (note: normal car makers remain subject to share ratio restrictions and the limit of two joint ventures) and also encourages the building of hydrogen refueling stations.
Among certain other transactions, mergers and acquisitions of mainland Chinese companies and assets by foreign investors, as defined in the Provisions on Merger and Acquisition of Domestic Enterprises by Foreign Investors, are now generally subject to the simplified MOFCOM filing procedure instead of approval, unless the concerned industries fall in the FIE Negative List or M&A of domestic affiliates by foreign companies established or controlled by domestic entities or individuals. This shall encourage foreign investors and can be seen as a counter-measure to the reduced inflow of foreign investment in recent months.
Encouraged industries – key changes in comparison to the Draft (not exhaustive)
|Newly added as “Encouraged”||Deleted from “Restricted”|
4. Caution in the banking, telecom and cultural sectors
The 2017 Catalogue limits the telecom industries to the scope promised under the WTO agreements. Shanghai Free Trade Zone claimed to have exceeded the WTO promises in 2014. One may speculate that less-far reaching position might have resulted from the changed perspective under TPP (Trans-Pacific Partnership)/BIT (Bilateral investment treaties) and possibly a fading interest of China.
The shareholder qualifications in the banking industry are now also specified, enhancing the supervision and regulation of financial institutions.
Restricted industries – key changes in comparison to the Draft (not exhaustive)
|Added as “Restricted” / in the FIE Negative List|
5. The prohibited areas
In comparison to the Draft, the 2017 Catalogue tightens control over some news, media, and cultural related industries as well as research institutions of humanity and social sciences.
Prohibited industries – key changes in comparison to the Draft (not exhaustive)
|Added into the Prohibited / FIE Negative List|
The changes reflect the aim to safeguarding and further developing certain ideology. It follows the call of the Communist Party of China for the “three self-confidents” in 2012 when President Xi was elected as the Party leader.