Amendment Draft of Foreign Investment Industrial Guidance Catalogue (the “Draft Catalogue”) (《外商投资产业指导目录》修订稿), issued by the National Development and Reform Commission (the “NDRC”)

The Draft Catalogue introduces a series of amendments to the current Foreign Investment Industrial Guidance Catalogue (the “Current Catalogue”), which is one of the most important regulations under China’s legal framework of foreign direct investment.

The Draft Catalogue includes a large number of policies that are applied in the China (Shanghai) Pilot Free Trade Zone in relation to foreign investment, aiming to lift the cap on foreign investment nationwide.

The Draft Catalogue maintains the basic framework of the Current Catalogue, by dividing the industrial sectors for foreign investment into three categories: Encouraged Sectors, Restricted Sectors and Prohibited Sectors.

The main highlights of these three categories are as follows:

Encouraged Sectors

The Draft Catalogue newly includes a few new sectors to the Encouraged Sectors and significantly relaxes foreign investment restrictions in the Encouraged Sectors, for example, it greatly reduces the number of sectors that are subject to foreign shareholding restriction.

The Encouraged Sectors newly open to 100% foreign ownership of the investment in various sub-sectors related to automobile electronics, technology for oil exploration, paper production, the manufacture of civil airplanes and vessels, the construction and operation of rail transit, and international maritime transport, accounting and auditing service, which means that foreign investors are permitted to set up Wholly Foreign Owned Enterprises (“WFOE”) to run business in the aforementioned sectors.

Encouraged Sectors may be privileged with exemption from tariff and import VAT for imported equipment. Also, they will be subject to the approval of lower level governmental authority compared to permitted sectors.

Restricted Sectors

The Draft Catalogue significantly reduces the number of Restricted Sectors. Foreign enterprises will be able to invest in the removed sectors once the Draft Catalogue takes effect.

The Draft Catalogue lifts the limitation on foreign shareholding proportion of the following sectors:

  • Wholesale, retail, and distribution of plant oil, sugar and fertilizer; retail and distribution of grains and cotton (49% cap on foreign shareholding has been removed);
  • E-Commerce (50% cap on foreign shareholding has been removed);

The Draft Catalogue removes the following sectors from the Restricted Sectors.:

  • Mining of certain important non-metallic metals;
  • Petroleum processing at a certain capacity;
  • Manufacturing of various chemical raw materials and chemical products;
  • Construction  and  management  of  luxury  hotels,  office  buildings  and international convention centers;
  • Companies engaging in real estate secondary market trading and the real
  • estate intermediary or brokerage business;
  • Construction     and    management    of   large-scale    theme    parks    and entertainment venues; and
  • Performance brokerage agencies.

Prohibited Sectors

The Draft Catalogue also shortened the list of prohibited sectors and opened more industries to foreign investors. Sectors that have long been closed to foreign investors, such as the processing of green tea and other special tea with traditional Chinese techniques, are now open to foreign investment.

Date of issue: November 4, 2014. Deadline for soliciting public comments: December 3, 2014.