China's National Development and Reform Commission has
started a consultation round on its new catalogue of rules relating
to foreign investments in China. The draft catalogue shows that the
Chinese market is slowly, but surely, further opening up to foreign
parties active in areas such as investment banking, trust services,
high-tech and alternative energy. But opportunities for foreign
investments in the motor vehicle industry are further restricted.
On balance, the new catalogue provides a little more room for
foreign investments. We recommend that clients who are active in
industries affected by the new rules identify how this may provide
new opportunities to them.
On 4 November 2014, the NDRC released for public consultation a
draft revision of its Catalogue for the Guidance of Foreign
Investment Industries. The catalogue was first introduced in 1995
and has been revised almost every three years. The latest revision
took place in 2013.
As one of Chinese government's core regulations on foreign
direct investment, the catalogue divides foreign investments in
Chinese industries into three categories:
Investments in "encouraged" industries will be
generally approved by local authorities and enjoy certain tax or
Investments in "restricted" industries are subject to
a higher level of scrutiny, and the competent authority can suspend
or withhold its approval of an investment at its sole
Investments in "prohibited" industries are not
Industries not listed in the catalogue are considered
"permitted" and will generally be approved by local
authorities. Moreover, the catalogue sets out shareholding
restrictions and models for foreign investment in specific
industries. Those restrictions mostly concern restricted
industries, but even some encouraged industries still have foreign
Compared to the current catalogue, the new draft catalogue
from 79 to 35, the number of restricted industries, making it
easier to obtain approval for foreign investments in sectors such
as investment banking, trust services, insurance brokerage, and
real estate development.
from 43 to 11, the number of industries which foreign parties
may only operate in as part of a joint venture with a local party.
This means that foreign parties no longer require a local partner
to operate in areas such as production of automobile parts,
aircraft or vessel engines and components, and accounting and
from 44 to 32, the number of industries in which foreign
parties can only hold minority shareholdings. This change enables
foreign parties to be majority shareholders in companies active in,
for example, international sea transportation, and the
construction, maintenance and operations of railways.
The current revision of the catalogue follows the NDRC's
revision of the catalogue for Chinese outbound investments, which
we reported on in our
May 2014 edition. The new draft catalogue sets out a foreign
investment scheme that is more favourable to foreign investors than
the investment scheme currently adopted in the Shanghai Pilot Free
On the other hand, the new draft catalogue imposes tighter
control over a number of industries, including the manufacturing of
motor vehicles. New foreign investors can no longer become majority
shareholders in this industry, and the manufacturing that foreign
investors can be involved in will be limited to a number of
specific vehicles. The new draft catalogue is therefore not good
news for all foreign investors.
The deadline for public comments on the draft revision was 3
December 2014, and the final version is expected before the end of
2014. In order to take effect, the catalogue must be implemented by
specific laws and regulations. It therefore remains to be seen how
and when the new catalogue will be implemented in practice. We
recommend that clients active in industries that are affected by
the rules set out in the new catalogue identify how these rules may
impact their business plans and opportunities.
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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