China: China Plans To Revise The Foreign Investment Catalogue

Last Updated: 19 December 2016
Article by Betty Tam and Frank L. Qi

On 7 December 2016, the National Development and Reform Commission (NDRC) and the Ministry of Commerce (MOFCOM) jointly released the latest revised draft of the Foreign Investment Industrial Guidance Catalogue (外商投资产业指导目录(修订稿)) (Draft Catalogue) soliciting public comments. The deadline to submit comments is 6 January 2017.

Background

Since the Foreign Investment Industrial Guidance Catalogue (Catalogue) was first issued in 1995, it has been one of the most fundamental legal documents regulating foreign investment in China. On 1 October 2016, a nation-wide reform on foreign investment was launched resulting in the removal of the requirement to obtain approval from MOFCOM or its local branches for projects which do not fall within a negative list. However, no separate negative list has been issued by the government so far, instead, reference was made to the current catalogue adopted in 2015 (2015 Catalogue). To correspond to this negative list approach, NDRC and MOFCOM changed the structure of the 2015 Catalogue to form the Draft Catalogue. In addition, changes were made to relax certain restrictions on a number of industry sectors.

Highlights

Structural Changes to the Catalogue

One of the main changes in the Draft Catalogue relates to its structure. Under the 2015 Catalogue and all previous versions of the Catalogue, industries were classified under the following categories: (a) encouraged, (b) restricted and (c) prohibited, with those industries which are not expressly listed in the Catalogue falling under the "permitted" category. To implement the recent reform on foreign investment, the Draft Catalogue groups industries under the following two main headings: (a) encouraged and (b) negative list. The negative list section is further divided into three categories:

  • Industries under the encouraged category but subject to restrictions on foreign equity holding;
  • Industries under the restricted category; and
  • Industries under the prohibited category.

As its name suggested, if a foreign investor would like to know whether its investment falls within the negative list (and if so, requires MOFCOM approval), it should refer to this negative list section. Compared with the 2015 Catalogue, where references to these items are scattered throughout, such amendment provides easier reference and clearer guidance to foreign investors.

Encouraged Category

  • Restrictions on foreign equity holding have been removed for a number of industries (i.e., 100% foreign ownership is allowed), such as:
    • manufacturing and R&D of automobile electronic bus network technologies (汽车电子总线网络技术) and electronic controllers for electric power steering systems (电动助力转向系统电子控制器);
    • manufacturing of new energy automobiles power batteries (新能源汽车能量型动力电池制造) – this has been changed from an encouraged industry to a permitted one; and
    • manufacturing of track transportation equipment (轨道交通运输设备) – this has been changed from an encouraged industry to a permitted one.
  • Due to structural changes to the Draft Catalogue, the encouraged industries with restrictions on foreign equity holding also appear under the new negative list section. The Draft Catalogue clarifies that while these industries are subject to the applicable foreign equity restrictions, they will continue to enjoy preferential policies available to any encouraged industry (such as tax reduction on imported equipment).

Restricted Category

  • A number of industries, including those listed below, have been removed from the restricted category and have now become permitted industries:
    • highway passenger transportation service (公路旅客运输);
    • credit investigation and evaluation service (资信调查与评级);
    • exploration and exploitation of precious metals (贵金属勘探、开采);
    • processing of rice, flour and crude sugar (大米、面粉、原糖加工); processing of edible oil and fats (食用油脂加工) – restriction on foreign equity holding has also been removed;
    • production of biological liquid fuels (生物液体燃料生产) – restriction on foreign equity holding has also been removed; and
    • motorcycles manufacturing (摩托车制造) – restriction on foreign equity holding has also been removed.
  • Compared with the 2015 Catalogue, there are around 11 fewer industries under the restricted category in the Draft Catalogue. However, some of these industries have been removed from the Draft Catalogue because they are restricted to both foreign investment and Chinese investment and have already been covered by the Draft Pilot Market Access Negative List (市场准入负面清单草案(试点版))circulated in March 2016, which applies to any investment in China (whether foreign or not). These sectors include, for example, construction and operation of large-scale theme park (大型主题公园建设、经营).

Prohibited Category

Similarly, a number of prohibited industries have been removed from the Draft Catalogue because they are prohibited to both foreign and Chinese investment, such as construction of golf course and villa (高尔夫球场、别墅的建设), gambling and lottery (博彩业).

Other Highlights

The Draft Catalogue clarifies that foreign investors are not allowed to set up a foreign-invested partnership in any restricted industry where restrictions on foreign equity ratio exist.

The Draft Catalogue reiterates that the current regulatory regime on acquisition of associated Chinese companies in the form of round-trip investment remains effective and must be complied with. This seems to suggest that MOFCOM approval under Rules on Foreign Investors Acquiring Domestic Companies 关于外国投资者并购境内企业的规定 is required for such round-trip acquisition regardless of industry sectors.

Comments

The key highlight in this round of amendments is that a new negative list section has been added to the Draft Catalogue. Although this is more a reorganisation of the existing categories, it does provide easier reference to foreign investors. The changes also reflect a move towards a regulatory regime where two negative lists will apply, one specific for foreign investment and the other which generally applies to both foreign and Chinese investment. However, the negative list section in the Draft Catalogue is still rather lengthy with very broad language on restrictions. Therefore, while the regulatory regime on foreign investment has been largely relaxed since 1 October 2016, there is still a long way to go in implementing national treatment for foreign investors.

Visit us at www.mayerbrownjsm.com

Mayer Brown is a global legal services organization comprising legal practices that are separate entities (the Mayer Brown Practices). The Mayer Brown Practices are: Mayer Brown LLP, a limited liability partnership established in the United States; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales; Mayer Brown JSM, a Hong Kong partnership, and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. "Mayer Brown" and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.

© Copyright 2016. The Mayer Brown Practices. All rights reserved.

This article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein. Please also read the JSM legal publications Disclaimer.

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

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

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
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”

Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
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
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions