Investors seeking to invest in China should be aware that PRC
laws regulate the type of industries foreigners may invest in.
These industries are set out in the Foreign Investment Industry
Guidance Catalogue ("Catalogue").
The Catalogue distinguishes industry categories into
"Encouraged", "Restricted" and
"Encouraged" sectors are industries where foreign
investments are encouraged, and tax and other regulatory or
financial incentives may be in place to attract foreign
investments. "Restricted" sectors are industries where
strict regulatory requirements have to be complied with and onerous
approval procedures complied with, before foreign investments are
permitted. "Prohibited" sectors are industries where
foreign investments are not allowed. All other industries not
listed under any of the aforesaid are regarded as permitted
industries where foreign investors are not differentiated
On 24 December 2011, the National Development and Reform
Commission and the Ministry of Commerce jointly issued the newly
amended Catalogue ("2011 Catalogue"), which takes effect
from 30 January 2012. This is the fifth revision to the Catalogue
(the last revision was in 2007) in line with China's WTO
The 2011 Catalogue has been revised to reflect following major
Encouraging investment in high-end manufacturing sectors using
new and high technology, and by removing sectors currently
experiencing overcapacity from the encouraged category, such as
production of polycrystalline silicon and coal chemistry. This is
to upgrade the PRC manufacturing sector.
In a shift to cultivate emerging strategic industries, such as
environmentally friendly and resource-saving technologies, and new
generation information technology by adding specific provisions to
the Encouraged category such as:
manufacturing key parts and components of certain types of
development and manufacturing Internet system equipment,
terminal equipment, software and chips based on IPv6 technology,
recycling sector, specifically the recycling of electronic
products, automobile, mechanical and electrical equipment, rubber,
metal and battery.
To boost development of modern service sector by introducing
new businesses to the Encouraged category, such as:
construction and operation of recycled water plant,
charging station and battery change station for hybrid /
venture capital investment company,
intellectual property service, and
family service (not defined)
and by reclassifying certain sectors from the Restricted
category to the Permitted category, such as:
health care institution, and
finance lease company.
In addition, in light of the Chinese government's efforts to
cool down the overheated real estate market, the 2011 Catalogue
reclassifies the construction and operation of certain properties
to the Prohibited category.
The PRC government also plans to balance regional development by
providing favorable treatment for foreign investment in central and
western regions by shifting some of the previously encouraged
sectors under the Catalogue to the Catalogue of Priority Industries
for Foreign Investment in the Central and Western Regions, which
provides detailed encouraged sectors for foreign investment in the
less developed central and western regions and is expected to be
amended next year.
Compared to the last revision in 2007, the 2011 Catalogue
continues the trend to further liberalise foreign investment, and
even restriction in the portion of foreign shareholding has been
eliminated in some sectors.
Responding to the fast changing environment, further revisions
on laws and regulations on foreign investment are expected to be
implemented by the PRC government, as it continues to monitor the
evolving needs to local industries and adjusts the Catalogue to fit
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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