China: China welcomes foreign investment - With the draft revision of the Foreign Direct Investment Industries Guidance Catalogue, China plans sweeping foreign investment reforms

Last Updated: 19 November 2014
Article by Xu Ping, Yao Lijuan and Gao Wei

On November 4, 2014, the National Development and Reform Commission ("NDRC") released the latest draft updating the current 2011 "Foreign Direct Investment Industries Guidance Catalogue ("2014 Draft")," and called for public opinions on the draft until December 3, 2014.

The Foreign Direct Investment Industries Guidance Catalogue ("Catalogue") is the central policy of the Chinese government that regulates the inflow of foreign investment in various Chinese industries. The Catalogue classifies foreign direct investments in the industrial sectors as "encouraged," "restricted," "permitted," or "prohibited" and imposed restrictions on foreign investment forms and shareholdings on certain key industrial sectors. Since its inception in 1995, the Catalogue has been revised once every few years. The 2014 Draft, once takes into effect, will become the sixth revision and replaces the current 2011 Catalogue.

Since the resumed discussion between US and China on the Sino-US Bilateral Investment Treaty in July 2013, the topics of further liberation on Chinese industrial sectors and simplifying the government administrative approval procedures to foreign investments have attracted much attention. Under such pretext, in Sept. 2013, Shanghai Free Trade Zone ("FTZ") initiative was launched and it bypassed the Catalogue by adopting the "negative list" approach which specified the industries in which foreign investment is either restricted or prohibited. When the 2013 Negative List was first introduced, it included virtually all of the restrictions and prohibitions on foreign investment set out in 2011 Catalogue thus disappointed many foreign investors. In response, 2014 Negative List, which introduced in June 2014, reduced the number of industries and activities that are restricted from 190 to 139. However, as many viewed 2014 Negative List, which is only applicable to FTZ, as a limited improvement over 2011 Catalogue, the public has been expecting greater degree of reform to be carried out by the Chinese government.

Then comes 2014 Draft, which promises to offer the most considerable changes to date. 2014 Draft proposes to reduce the number of "restricted" industrial sectors to foreign investors by more than halved, from 79 to 35, significantly cut the number of industrial sectors that currently limited to joint ventures and partnerships from 43 to 11 and decrease the numbers of industrial sectors that require a Chinese majority shareholder from 44 to 22.

The key changes in different major industrial sectors can be summarized as follows:

  1. Manufacturing

Under 2014 Draft, the restrictions on manufacturing industry has been greatly lifted. The beverage manufacturing, chemical raw material and products manufacturing, chemical fiber production, general machine building, special equipment manufacturing (excluding arms and ammunition, which still fall under the "prohibited" category), transportation equipment, communication equipment, computers and other electronic equipment manufacturing are removed from the "restricted" category. It implies that the aforementioned activities will be considered as "permitted" where foreign investment can be carried out without restrictions on shareholding or investment forms.

  1. Pharmaceutical and Medical

We also see a considerable change in the health care industry under 2014 Draft. 2014 Draft categorizes certain pharmaceutical products plagued with overcapacity to the "restricted" category (such as multivitamins and calcium) and categorizes narcotics and "A" class psychoactive drugs as "permitted", which allows market screening instead of pure administrative regulation in the manufacture of these types of drugs .

On the other hand, under 2014 Draft, we notice the government imposes tighter control over the establishment of foreign invested medical institutions. Medical institution was once categorized as "restricted" industry under 2007 Catalogue, which only allowed foreign investment in the form of joint ventures. Then under the current 2011 Catalogue, medical institution was removed from the catalogue completely suggesting that foreign investors should be "permitted" to invest in medical institutions without restrictions. However, in practice, the establishment of wholly foreign-owned medical institutions remains difficult in China, and, only recently, FTZ begins to allow wholly foreign-owned medical institutions to be established. Since 2014 Draft moves medical institution back to the "restricted" category, it suggests that foreign investment in medical institution will remain restricted in the near foreseeable future.

  1. Auto Industry

Under the current 2011 Catalogue, a number of activities under the automobile electronic device manufacturing and R&D sector are in the "encouraged" category, but foreign investors are required to work with Chinese partners in the form of joint ventures in certain areas, such as manufacturing of automobile electronic bus network technology, electronic controller for electric power steering system and embedded electronic integrated system. 2014 Draft has abolished such restriction, hence once it takes into effect, foreign investors are permitted to establish WFOEs in the aforesaid sectors.

However, 2014 Draft moves the manufacturing of complete auto vehicles, special purpose vehicles and motorcycles to the "restricted" category. It also mandates that Chinese ownership cannot be less than 50% and the same foreign investor is not permitted to invest in more than two joint ventures which manufacture the same category of auto vehicles (i.e. passenger cars, commercial cars and motorcycles) in China. Notwithstanding, such restriction will not apply if the foreign investor acquires or merges other automobile manufacturers in China together with a Chinese joint venture partner. The above restriction is consistent with the Automobile Industry Development Policy issued in 2004, except that the manufacturing of agricultural vehicles is not covered in the "restricted" category under 2014 Draft.

The manufacture of auto vehicles was once categorized as "encouraged" under the 2007 Catalogue, but later was categorized as "permitted" under the 2011 Catalogue subject to regulation by the Automobile Industry Development Policy. 2014 Draft for the first time explicitly categorizes auto manufacturing as "restricted" industry. This signifies the policy trend and the attitudes of regulatory authorities on gradual tightening of foreign investment in the auto manufacture industry and their on-going support for the development of domestic auto brands. On the other hand, it is envisaged from this draft that further relaxation of foreign equity ratio in auto manufacturing joint venture, which has drawn significant attention recently, may be temporarily halted.

  1. Telecommunication and Internet

The Chinese governments are generally in support of the development of emerging technology sectors such as telecommunication and internet. Under "restricted" category of 2014 Draft, foreign investment in "e-commerce" now can exceed 50%. Currently, in FTZ, foreign investment in e-commerce business can be made up to 55%. As such, it would be interesting to see whether the FTZ will further lift the restriction on foreign investment in e-commerce business (i.e. from 55% to above) or area outside of FTZ will follow the 55% threshold set by the FTZ.

In addition, the development and application of technologies related to Internet of Things is added to the "encouraged" category for the first time. We understand that this new addition is in line with the Chinese government's continuing efforts in obtaining leading advantage in technologies related to Internet of Things in era of mobile internet. For certain technologies in the telecom industry that may potentially fall into the "technologies related to Internet of Things" (the definition is subject to the authorities' further interpretations), such as Internet of vehicle technology, smart grid technology and mobile wearable devices technology, the foreign companies investing in the development and application of such technologies may enjoy some preferential policies including tax.

On the other hand, internet publishing related services are "prohibited activities" which is not surprising as it is consistent with the views of the Ministry of Culture and Press and Publication Administration where they explicitly prohibit foreign investment in internet publication in their jointly issued "Opinions on Foreign Investment in the Cultural Sectors" in 2005.

  1. Infrastructure and Real Property

Compared with the current 2011 Catalogue, 2014 Draft lifts the restriction on foreign investment in metro and real property projects. Specifically, the construction and operation of rail transit such as city metro and light rail under the "encouraged" category no longer have the Chinese majority shareholding requirement. Hence, once 2014 Draft takes into effect, foreign investors are permitted to establish WFOEs to operate and construct the aforesaid projects.

In addition, real property projects are now falling under "permitted" category under 2014 Draft, which means that there are no more restrictions on foreign investment in land development and the construction and operation of luxury hotels, office buildings and international convention centers.

  1. Education

Contrary to the liberalization trends enjoyed by other industrial sectors, generally 2014 Draft imposes more stringent restrictions on foreign investment in educational sector. Higher education and day-care are added to the "restricted" category and are limited to cooperative joint ventures led by the Chinese party. High school education remains "restricted" which also must be led by the Chinese party. Compulsory education is categorized as "prohibited," which means compulsory education remains off-limit to foreign investors.

  1. Service Sector

For accounting and auditing services which fall under the "encouraged" sector, 2014 Draft removes the "the form of cooperative joint ventures and/or partnership" requirement. This signifies that foreign investors are permitted to establish WFOEs to run accounting firms for provision of accounting and auditing related services in China.

Restrictions on entertainment industry are also liberalized. Under 2014 Draft, the operation of performance venues under the "encouraged" category no longer require Chinese majority shareholdings, while the construction and operation of large-scale theme parks and entertainment venues are now categorized as "permitted" activities.

However, services such as legal advice and auction of Chinese cultural relics are under tighter control. Under the current 2011 Catalogue, providing legal advice is categorized as "restricted". In 2014 Draft, however, providing Chinese law related consulting services is explicitly listed as "prohibited". In addition, operating auction houses selling Chinese cultural relics and antique stores is also explicitly listed as "prohibited" under 2014 Draft.

In general, 2014 Draft is further relaxed by lifting restrictions on foreign investments across a wide array of industries and business activities. At the same time it also indicates that we can expect to see a series of major reforms to the foreign investment regulatory regime in the foreseeable future.

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.