In order to bring foreign investments into close alignment with
China's policy goals, the Foreign Investment Industrial
Guidance Catalogue ("Catalogue"),
jointly issued by China's National Development and Reform
Commission ("NDRC") and Ministry of
Commerce ("MOFCOM"), was most recently
amended on 24 December 2011.
Under the Catalogue, foreign direct investment in various business activities are classified as encouraged, restricted or prohibited. Foreign investors in encouraged industries are mostly permitted to establish wholly foreign-owned enterprises ("WFOEs"), and they are also generally eligible for investment incentive programs such as tax holidays and exemptions from some governmental fees. Restricted industries have certain restrictions, such as more rigorous requirements for approving the establishments of foreign investment entities. Industries in the prohibited category are closed to foreign investment. Industries not listed in the catalogue are generally open to foreign investment unless specifically barred in other PRC regulations.
The 2011 Catalogue will take effect on 30 January 2012. Compared to the last version from 2007 the main change is an increase in the number of industries in the encouraged, permitted and prohibited categories.
- Encouraged categories now include venture capital enterprises, construction and operation of vehicle charging stations and battery changing stations, production of film battery conductive glass and solar energy collection light glass, construction and operation of water treatment plants, production of new types of materials in the aviation industry, and nine service industries including venture capital enterprises, intellectual property rights services, marine oil pollution clean-up technical services, and vocational skills training.
- Permitted categories now include the production of carbonated soft drinks, financial leasing companies, distribution and import of books, newspapers and journals, import of audiovisual products and e-journals.
- Prohibited categories now include foreign investments in the research and development of genetically modified organisms, domestic express parcel services and construction and operation of villas.
In addition, the 2007 version of the Catalogue contained multiple restrictions on the equity percentage foreign investors could hold in joint-ventures operating in certain sectors. Some of these restrictions have been eased in the 2011 version. For instance, pursuant to the 2007 Catalogue, the Chinese shareholder(s) of the joint venture distributing audiovisual products (other than movies) should be the controlling shareholder(s), but in the 2011 Catalogue this restriction has been removed.
These changes basically reflect changes in policy in, among others, China's 12th Five Year Plan issued in 2011 to encourage the transformation and upgrading of the manufacturing industry, cultivate strategic new industries and promote the development of service industries. The changes also reflect priorities established by the State Council in the Several Opinions on Further Utilizing Foreign Capital, which aims to steer foreign capital to high-end manufacturing, high-tech industries, new technology, service industries, alternative energy and environmentally friendly industries.
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