Key Points

  • 24 approvals for foreign investment in PFTZ are suspended
  • Service sectors to be opened up in PFTZ for investment by foreign investors

Background

On December 21, 2013, the State Council issued the Decision on Adjustment in PFTZ of the Administrative Approvals or Market Entries Provided in the Administrative Regulations and State Council Documents (the “Decision”), which has suspended a series of measures on foreign investment approval in China (Shanghai) Pilot Free Trade Zone (“PFTZ”) and opened up certain restricted service sectors to foreign investors.

Highlights of the Decision

Suspended Approvals in PFTZ

To echo the decision issued by Standing Committee of the National People’s Congress in August 2013 (“NPC Decision”) regarding suspension in the PFTZ of certain approvals provided in the Law on Wholly Foreign-owned Enterprise, the Law on Sino-foreign Equity Joint Ventures and the Law on Sino-foreign Cooperative Joint Ventures (collectively, the “FIE Laws”), the Decision focuses on waiver of the approvals specified in various implementation rules of the FIE Laws. Foreign investors are not required to obtain such approvals  for investment in PFTZ unless the invested sectors are listed in the Negative List. According to the Decision, there are 24 approvals in total to be suspended in PFTZ including the establishment of foreign invested enterprise (FIE), division and merger of FIE, capital contribution by foreign investors, equity transfer of the FIE, and the termination and dissolution of FIE. Instead, foreign investors will only need to file relevant documents with the competent authorities.

To some extent, the Decision does not suspend any new approvals, but reiterates and provides further details on the suspended approvals in the NPC Decision.

Opening Up of Service Sectors

Under current laws, foreign investors are prohibited or restricted from investing in shipping and transportation enterprise, credit investigation enterprise, performance brokerage, entertainment venues, education and training institutions, telecommunication enterprise and game consoles production. The Decision provides that certain restrictions or prohibitions applicable to foreign investment in the above industries will be suspended in PFTZ. However, the Decision does not specify any replaced provisions for these suspended regulations. Relevant authorities – including the Ministry of Transport, Ministry of Industry and Information Technology, Ministry of Culture and the Shanghai government – will further formulate detailed implementation rules  to effect such open-up measures in practice. Following issuance of the Decision, the Ministry of Industry and Information Technology and the Shanghai Government jointly issued the Opinions on Further Opening up Value Added Telecommunication Services to Foreign Investors in PFTZ to liberalize foreign investment rules applicable to the telecommunications sector.

Conclusion

The Decision reaffirms the open-up measures provided in the so-called “Overall Plan” issued by the State Council in November 2013. It is unclear at this time to what extent such restrictions will be removed  in the PFTZ and how attractive these open-up measures will be to the foreign investors. More implementation rules that the Decision commits to publish will come soon.