On 24 December 2011, the National Development and Reform
Commission ("NDRC") and the Ministry of Commerce
("MOFCOM") jointly issued a new Guideline Catalogue of
Industries for Foreign Investment (Amended 2011) ("2011
Catalogue"). The new Catalogue will come into effect on
30 January 2012. It will replace the old Catalogue of 31 October
2007 ("2007 Catalogue"). A working translation
of the 2011 Catalogue is available on our
website.
All foreign investment into China is subject to approval and
registration by the competent Chinese authorities. Foreign
investment is divided into the following four categories:
encouraged, permitted, restricted and prohibited. The type of
category a project belongs to has influence on which level of
authorities are in charge of a project and also decides on access
to certain incentives.
For the Chinese Government the Guideline Catalogue is an
instrument to exercise macro-economic guidance in accordance with
its general industry policies. In line with the current policies,
the 2011 Catalogue encourages foreign investment in the
areas of high technology, advanced manufacturing, new energy and
modern service industries. In contrast, sectors which are
considered to be overheating, have been removed from the encouraged
category, e.g. production of multi-crystal silicon.
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On 24 December 2011, the National Development and Reform
Commission ("NDRC") and the Ministry of Commerce
("MOFCOM") jointly issued a new Guideline Catalogue of
Industries for Foreign Investment (Amended 2011) ("2011
Catalogue"). The new Catalogue will come into effect on
30 January 2012. It will replace the old Catalogue of 31 October
2007 ("2007 Catalogue"). A working translation
of the 2011 Catalogue is available on our
website.
All foreign investment into China is subject to approval and
registration by the competent Chinese authorities. Foreign
investment is divided into the following four categories:
encouraged, permitted, restricted and prohibited. The type of
category a project belongs to has influence on which level of
authorities are in charge of a project and also decides on access
to certain incentives.
For the Chinese Government the Guideline Catalogue is an
instrument to exercise macro-economic guidance in accordance with
its general industry policies. In line with the current policies,
the 2011 Catalogue encourages foreign investment in the
areas of high technology, advanced manufacturing, new energy and
modern service industries. In contrast, sectors which are
considered to be overheating, have been removed from the encouraged
category, e.g. production of multi-crystal silicon.
Some major changes brought along by the 2011 Catalogue are as follows:
1. The 2011 Catalogue continuously encourages foreign
investments in advanced manufacturing industries. In order to
update the traditional manufacturing industries, the Chinese
government encourages enterprises with foreign investment to use
new technologies, new processes, new materials and new equipments.
For example, manufacturing of environmentally friendly special
clothing with certain functions and production of functional glass
using new technologies have been added into the encouraged
category.
2. Foreign investment in strategic new emerging industries is also
encouraged. E.g. construction and operation of electricity charging
stations and battery replacement stations for automobiles have been
newly added into the encouraged category.
3. In the past decades, both foreign as well as domestic car brands
have been developing very well in China. On this background, the
2011 Catalogue removes the production of complete automobiles from
the encouraged category. The manufacturing of key components of
new-energy automobiles has been added into the encouraged category.
For these items, the first draft of the new Catalogue had required
the establishment of joint ventures. Luckily, this restriction has
not been adopted in the enacted version. An exception is the
production of high energy power batteries. In this industry only
joint ventures are allowed and foreign shareholdings are limited to
50%.
4. Due to overheating investment in the production of multi-crystal
silicon and large chemical products using coal as raw material,
these two items have also been removed from the encouraged
category.
5. China intends to open up more service industries for foreign
investment. The 2011 Catalogue has added 9 service industries into
the encouraged category, including marine oil pollution clean-up
services, venture capital enterprises, intellectual property
services, housekeeping services, vocational skills training
services, etc. The 2007 Catalogue restricted foreign investment in
medical institutions and financial leasing companies. The 2011
Catalogue moves these two items from the restricted category into
the permitted category.
6. The 2011 Catalogue has modified limitations on foreign
shareholding ratios in a number of industries. For example,
according to the new Catalogue, for production of complete sets of
equipment or key equipment for generating electricity with new
energy resources also wholly foreign-owned enterprises are allowed.
The limitation to joint ventures in this industry in the 2007
Catalogue has been abolished.
7. The 2011 Catalogue confirms restrictions in certain
strategically important or politically sensitive industries. For
example, foreign investment in most sectors of the mining industry
is still limited to the form of joint ventures. Foreign
shareholdings in value-added telecommunication services industry
continues to be limited to 50%, in fundamental telecommunication
services to 49%. The publication of books, newspapers and
periodicals remains closed for foreign investors.
The 2011 Catalogue shows that the Chinese Government has modified and will continue to modify its policies towards foreign investment by shifting its focus from traditional manufacturing industries to technologically advanced industries and service industries. After over 3 decades of opening-up, the manufacturing industries have absorbed sufficient foreign investment. China now focuses its efforts on trying to attract high technology, know how and technology in newly emerging strategic industries and in services industries. Since for efficient implementation still the regulations pertinent to the relevant industry sectors need to be also amended, it remains to be seen what results the 2011 Catalogue will trigger in practice.
This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq
Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.
The original publication date for this article was 31/01/2012.