China: New Catalogue For Foreign Investment In China

China's National Development and Reform Commission and Ministry of Commerce has issued a new catalogue of rules relating to foreign investments in China, effective as of 10 April 2015. This new catalogue shows that the Chinese market is increasingly opening up to foreign investors. But opportunities for foreign investment in certain industries are further restricted. We recommend that clients who are active in industries covered by the new catalogue identify how this may impact them.

On 10 March 2015, the National Development Reform Commission (NDRC) and Ministry of Commerce (MOFCOM) jointly adopted the final version of the new Catalogue for the Guidance of Foreign Investment Industries (Revision 2015). This 2015 Catalogue entered into force on 10 April 2015. This is the sixth revision of the catalogue since it was first introduced in 1995. In November 2014, the NDRC circulated a draft for public consultation which we reported on in our December 2014 edition. As anticipated, the 2015 Catalogue largely mirrors this earlier draft.

Compared to the current version of the catalogue, adopted in December 2011, the main changes in the 2015 Catalogue are as follows:

  • In the "encouraged" industries category, a few new sectors have been added, taking the total number of "encouraged" industries to 349. New "encouraged" industries include development and application of the "internet of things", industrial, architectural and costume design, other creative industries, and nursing institutions for the elderly. For the accounting and auditing sector, the restriction that foreign parties may only operate in this sector together with a local partner has been removed, but a new requirement has been added that the chief representative of an accounting or auditing firm must be a Chinese national.
  • In the "restricted" industries category, the number of listed items has been substantially reduced from 79 to 38. The sectors that have been removed from the "restricted" industries list mainly relate to manufacturing, real estate, wholesale and retail. Several items that were removed from the "restricted" industries list in the 2014 Draft have now been retained in the 2015 Catalogue, such as the printing of publications; the construction and operation of cinemas; and the construction and operation of large theme parks. For the "restricted" education sectors, in addition to being limited to Sino-foreign cooperative joint ventures, they are now further restricted with the newly introduced requirement that an educational institute has to be "led by the Chinese party". This means that the headmaster or the chief executive of a foreign invested educational institution must have the Chinese nationality and at least half of the members in the council, board of directors or joint management committee of a foreign invested educational institution should be representatives of the Chinese party.
  • With respect to the list of "prohibited" industries, the number of items has been slightly reduced from 39 to 36. However, this is because some industries that had been listed as "restricted" in the 2011 Catalogue have now been moved to the list of "prohibited" industries in the 2015 Catalogue. This includes the wholesale and retail sale of tobacco. Also, publishing and the production of audio-visual products, which was moved to the list of "restricted" sectors in the 2014 Draft, has been retained as "prohibited" in the 2015 Catalogue.

In general, the 2015 Catalogue provides more opportunities for foreign investors in China. It shows that the Chinese government continues to further encourage foreign investment, increase the transparency of administration, and lower the market entry barrier for foreign investors. We recommend that clients interested in investing in China review the opportunities provided by the 2015 Catalogue. And clients already present in China would be wise to assess how the 2015 Catalogue may affect their business plans and market position.

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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