On 28 June 2018, China’s authorities issued the Special Administrative Measures (Negative List) for Foreign Investment Access (Edition 2018) (National Negative List). Such list will take effect from 28 July 2018, and will apply to mainland China except for China’s free trade zones (FTZs) [1].

On 30 June 2018, China’s authorities further issued the Special Administrative Measures (Negative List) for Foreign Investment Access to Free Trade Zones (Edition 2018) (FTZs Negative List). This list will take effect from 30 July 2018, and will be applicable to FTZs within mainland China[2].

Both the National Negative List and the FTZs Negative List (New Negative Lists) set out the restricted and prohibited business sectors for foreign investment. Foreign shareholding ratio restrictions and/or senior management restrictions are also set out in the New Negative Lists. Timetables for the further opening of certain restricted industry sectors are also included in the New Negative Lists. Sectors not included in the New Negative Lists will be regulated under the principle of identical treatment for both domestic and foreign investment, i.e. no special restrictions should be imposed on foreign investment in those sectors.

Compared to the 2017 edition Negative Lists, the New Negative Lists significantly relax investment restrictions. Relevant changes are outlined as follows:

I. National Negative List

i. Service industry

No.

Sector

Changes

1

Finance

Cancels foreign shareholding ratio restrictions in the banking industry. Raises the foreign shareholding ratio limit to 51% in security companies, security investment fund management companies, futures companies, and life insurance companies. In 2021, all restrictions in the financial industry, including the foregoing shareholding ratio limit, will be cancelled.

2

Infrastructure construction

Cancels restrictions on the building and operation of railway arterial networks and power girds.

3

Transportation

Cancels restrictions on investment in passenger railway transportation companies, international maritime transportation companies, and international shipping agency companies.

4

Commercial and trade distribution

Cancels restrictions on the building and operation of petrol stations. Cancels restrictions on grain purchasing (note: here “purchasing” means to purchase from farmers or other producers) and grain wholesaling.

5

Culture and entertainment

Repeals the prohibition on investment in Internet cafes.

6

Professional services

Cancels restrictions on investment in surveying and mapping companies.

ii. Manufacturing

No.

Sector

Changes

1

Automobile

Cancels the foreign shareholding ratio limit in the complete vehicle manufacturing of both special vehicles and new energy vehicles. In 2020, cancels the foreign shareholding ratio limit in commercial vehicle manufacturing. In 2022, cancels the foreign shareholding ratio limit in passenger-car manufacturing, and repeals the rule providing that a foreign company shall not establish more than two joint ventures for manufacturing the same type vehicles in China.

2

Ship and boat

Cancels restrictions on designing, manufacturing and repairing ships and boats.

3

Aircraft

Cancels restrictions on designing or building or repairing mainline and regional aircraft, general purpose aircraft, helicopters, ground effect and sea skimmer aircraft, drones and stratospheric airships.

4

Others

Repeals the prohibition on investment in the manufacturing of weapons and ammunition.

iii. Agriculture

No.

Sector

Changes

1

Seed industry

Cancels restrictions on the cultivation of new crop varieties and the production of crop seeds, except for wheat and corn.

iv. Mining industry

No.

Sector

Changes

1

Mining and auxiliary mining activities for non-ferrous metal ore and non-metal ore

Cancels restrictions on exploration and mining of precious and rare coal.

Cancels restrictions on exploration and mining of graphite, smelting and separation of rare earth, and smelting of tungsten.

Please note that in business sectors related to culture, publicity and so forth, foreign investment restrictions have been clarified and tightened by the National Negative List. The main changes include:

No.

Sector

Changes

1

Education

Adds a prohibition on investment in religious education institution.

2

Film production, distribution, and screening

Adds a prohibition on investment in film import business.

3

Relic conservation

Adds a prohibition on investment in state owned cultural relic museums.

4

Culture and entertainment

Adds a prohibition on investment in arts performance organizations.

5

Legal services

Adds a prohibition on becoming a partner of a domestic law firm.

II. FTZs Negative List

The FTZs Negative List and the National Negative List are roughly identical in their content, except that restrictions in some sectors under the FTZs Negative List have been further relaxed. A comparison is set out as follows:

i. Service industry

No.

Sector

National Negative List

FTZs Negative List

1

Telecommunications

For a telecommunications company, the telecommunication services are confined to those promised at China’s WTO accession, and foreign-investment in value-added telecommunications services must not exceed 50% (excluding e-commerce); basic telecommunications services must be controlled by the Chinese side[3].

Further to the policies under the National Negative List, the pilot policies previously applicable only to Shanghai FTZ is extended to all FTZs[4].

2

Culture and entertainment

An entertainment artist agency must be controlled by the Chinese side.

Cancels restrictions on foreign investment in entertainment artist agencies.

Foreign investors are prohibited from investing in arts performance organizations.

Relaxes the requirement that “arts performance organisations must be controlled by the Chinese side”.

ii. Manufacturing

No.

Sector

National Negative List

FTZs Negative List

1

Nuclear fuel and nuclear radiation processing

Foreign investors are prohibited from investing in the smelting and processing of radioactive minerals, and the production of nuclear fuel.

Repeals the prohibition on investment in smelting and processing of radioactive minerals, and the production of nuclear fuel.

iii. Agriculture

No.

Sector

National Negative List

FTZs Negative List

1

Seed industry

For wheat and corn, the cultivation of new varieties and production of seeds must be controlled by the Chinese side.

Relaxes the restriction that “the shareholding ratio of the Chinese side shall be no less than 34%” when it comes to the cultivation of wheat and corn new varieties or production of wheat and corn seeds.

iv. Mining industry

No.

Sector

National Negative List

National Negative List

1

Oil and natural gas mining

The exploration and development of oil and natural gas (excluding coalbed methane, oil shale, oil sands, shale gas, etc.) should be limited to Sino-foreign equity joint venture and Sino-foreign cooperative joint venture.

Cancels restrictions on foreign investment in the exploration and development of oil and natural gas (excluding coalbed methane, oil shale, oil sands, shale gas, etc.).

Please note there are further specifications and explanations attached to some items in the FTZs Negative List, so as to clarify access requirements or distinguish applicable measures. For example, for film production, distribution and screening, the New Negative Lists provide that “Foreign investors are prohibited from investing in film production companies, distribution companies, cinema companies, and film import businesses”. Further, the FTZs Negative List provides further that “however, upon approval, foreign enterprises are allowed to cooperate with Chinese enterprises to jointly shoot films”. From our understanding, such specifications or explanations can be used as reference when it comes to interpreting specific provisions under the National Negative List.

III. Assessment of the New Negative Lists

The New Negative Lists are welcome developments and implementation of many of the market opening-up initiatives announced by China recently. It should be noted however that other regulatory restrictions may remain applicable to investing in specific industry sectors notwithstanding the relaxations under the New Negative Lists[5]. Further, the industry sector openings reflected in the New Negative Lists will not cancel contractual commitments that foreign investors have already entered into. For example, many automobile manufacturers may already be locked up in exclusive joint venture arrangements that may make taking a 51%ownership, setting up a wholly foreign owned enterprise or establishing multiple joint ventures more difficult. The New Negative Lists, however, reflect China’s ongoing commitment to the opening-up of its economy to foreign investment, and its promises of equal treatment for foreign and domestic investors.