Further Opening-Up of China’s Markets with New Negative Lists and Encouraged Catalogue

Introduction

On 30 June 2019, the 2019 versions of Special Administrative Measures on Access to Foreign Investment (the “Negative Lists”) applicable to the Pilot Free Trade Zone (the “2019 FTZ Negative List”) and the whole nation (the “2019 National Negative Lists”) were rolled out jointly by the National Development and Reform Commission (“NDRC”) and the Ministry of Commerce (“MOFCOM”) in China. The Negative Lists spell out industries and sectors in which foreign investments are either restricted or prohibited, which have been updated and issued on an annual basis since 2017.

The two 2019 Negative Lists will replace their respective 2018 versions and come into effect on July 30. The revisions are part of the Chinese government’s effort to ease market access for foreign investment by lifting restrictions and prohibitions. In the 2019 version restrictions and prohibitions in multiple industries and sectors are lifted.  Compared to the 2018 versions of FTZ Negative Lists and the National Negative Lists where 45 items and 48 items are listed respectively, the current 2019 FTZ Negative Lists have been shortened to 37 items while the 2019 National Negative Lists have been shortened to 40 items.

Main Changes in the 2019 Negative Lists

1. Further opening-up of the  agriculture, mining and manufacturing industries

In the mining sector, two requirements have been completely lifted; i) the requirement that foreign investors can only be active in the exploitation and development of oil and natural gas in a joint venture with a domestic Chinese party, and ii) the prohibition on foreign investment in the exploration and exploitation of molybdenum, tin, antimony and fluorite. 

In the agriculture sector, prohibition on foreign investment into the exploitation of wildlife resources has been removed. And in the manufacturing sector, prohibition has been lifted on foreign investment into the production of Xuan paper and ink ingots.

2. Broadening access to the transport, infrastructure, culture and value-added telecommunications industries

Restriction that domestic shipping agencies must be controlled by the Chinese party, namely that foreign shareholder(s) cannot hold more than 50% of shares, has been revoked. In the sector of infrastructure, the restriction that states that gas and heat pipelines in cities with a population exceeding 500,000 shall be controlled by the Chinese party has also been eliminated. 

In addition, in the fields of culture and value-added telecommunication services, the restriction which states that cinemas and performance brokerage institutions must be controlled by the Chinese party, and the restriction on foreign investment in domestic multi-party communication, store-and-forward business, as well as call center services is released. 

3. Restrictions being lifted in aquatic products fishing and publication printing in pilot FTZs

Taking the role as a pilot ground for reform and opening-up policies, the prohibitions on foreign investment in fishing aquatic products in FTZs have been removed. Furthermore, the Chinese party controlling requirement in publications printing has been deleted from the 2019 FTZ Negative List.

2019 Encouraged Catalogue

Along with the two sets of 2019 Negative Lists NDRC and MOFCOM also jointly issued the 2019 version of Catalogue of Encourage Industries for Foreign Investment (“2019 Encouraged Catalogue”), which will come into effect simultaneously with the 2019 Negative Lists. The 2019 Encouraged Catalogue enumerates industries and sectors into which foreign investments will be granted preferential policy treatments including exemption of custom duty and reduction of corporate income tax. Major additions to the 2019 version of the lists can be summarized as below: 

• Further expanding the fields in which foreign investors are encouraged to invest, both nationwide and in specifically in central and western China. 
• Foreign investment is encouraged in high-quality development of the manufacturing sectors, including high-end manufacturing, intelligent manufacturing, and green manufacturing, e.g. 5G core components in the electronic information sector and new energy automobiles and intelligent automobiles in the equipment manufacturing sector.
• Foreign investment is encouraged in the productive service sectors, e.g. engineering consultancy, accounting and tax in the business service sector as well as artificial intelligence in the technology sector.
• Foreign investors are increasingly encouraged to transfer their investment to central and western regions, such as Anhui, Hunan, Sichuan, Henan, Yunnan provinces, and Inner Mongolia, in labor-intensive industries, industries of applied advanced technology and supporting facilities.

Outlook 

The 2019 Negative Lists and 2019 Encouraged Catalogue both send signals of further opening-up and increasing market access of foreign investments into China. However, relevant administrative measures adapting to and implementing this change must be kept into account since they may vary in specific industries and sectors. With the Foreign Investment Law taking effect as of next year (please click here to find articles related to the new FIL), it is expected that the Chinese government will introduce a series of implementing measures and policies in the coming months.