China: New Policies For Inbound Investment

Last Updated: 10 August 2017
Article by Pan Xiaodong, Rose Zhou, Li Zhaoxia, Wilfred Chiu and Roy Zhang

The < Catalogue for the Guidance of Foreign Investment Industries > (hereafter referred to as "The Catalogue"), being as the crucial industrial guidance for foreign investments in China, has been amended in accordance with the needs of economic development and the open-up since its first promulgation in year 1995. On June 18, 2017, the National Development and Reform Committee and the Ministry of Commerce of China promulgated < Catalogue for the Guidance of Foreign Investment Industries (Amended in 2007) >, which is the 7th amendment of the Catalogue and reflects further release the admission of foreign investments in the service, production and mining industries. The amended Catalogue has nationally copied the open-up measures implemented in the pilot free trade zones based on the experience gained from the launch of the pilot free trade zones. The new Catalogu shall be executed from July 28, 2017.

The major changes of the Catalogue (Amended in 2017)

Comparing to the Catalogue amended in 2015, this version includes two major amendments.

I.Further widen the coverage of the open-up

The new Catalogue further decreases the restrictive measures and enhances the coverage for foreign investments. The new Catalogue includes 63 restrictive measures (including 35 restrictive industries and 28 prohibited industries), which reflects the reduction of 30 restrictive industries comparing to the Catalogue amended in 2015.

Simultaneously, the encouraged industries are almost kept unchanged by continuously encouraging foreign capital to invest in the advanced production, high-tech, energy saving and environmental protection, modern service and etc.

In addition, the new Catalogue further enhances the open-up in certain industries including service, production and mining. In terms of the service industry, the restrictive measures have been removed for the industries of highway passenger transportation, ocean shipping, credit information and grading service, accounting and auditing, resale of agricultural goods and etc. For the production industry, the amendments of the new Catalogue including removing the restrictive measures for the industries of production of railway traffic equipment, automotive electronics, batteries for new energy vehicles, motorcycle, edible oil and fat, fuel ethanol and etc, as well as relaxing the restrictive measures for the production of non-hybrid electric vehicles. In terms of the mining industry, the restrictive measures have been removed for certain industries including unconventional oil and gas, precious metal, and lithium mineral. In addition, the new Catalogue has increased the programs that are in line with the direction of streamlizing industrial restructuring into the encouraged category, which include foods for special medical purpose, equipment for visual reality or augmented reality, key components for 3D printing equipment, urban parking facilities and etc.

II.Introduction of the negative list for foreign investments

The new catalogue has been restructured by introducing the special administrative measures for foreign investments (the negative list for the entry of foreign investments).

Based on the reform requests in terms of the administration model of negative list for foreign investments, the new Catalogue has generated the negative list that includes the items with shareholding restrictions in the encouraged industries and the items in the restricted and prohibited industries which were included in the previous versions of the Catalogue. The negative list is used to back up the administration model of national treatment and negative list for foreign investments, which in principle shall not enforce any restrictive measure on foreign investments and shall allow the foreign invested projects beyond the negative list to follow the registration procedures.

In addition, in accordance with the nature of the administration model of negative list for the entry of foreign investments, the new Catalogue no longer includes the restrictive measures that are applicable to both domestic and foreign investments. For instance, the constructions of large theme park invested by domestic or foreign capitals shall be both subject to the approval procedures, the new construction projects of golf courses and villas as well as the gaming industry and the pornography industry are prohibited for both domestic and foreign investments.

The China Pilot Free Trade Zones and its Special Administrative Measures (Negative List)

In order to build a competitive international commercial environment that is attractive to both domestic and foreign investments and conforms to international practices, the National Congress has approved the establishment of Shanghai Pilot Free Trade Zones on September 27, 2013, the square of which has been further enlarged on April 20, 2015. On the same date, the establishment of other three Pilot Free Trade Zones in the Guangzhou city, Fujian province and the Tianjin city was also approved by the National Congress. On March 31, 2017, the National Congress has further approved the establishment of other 7 Pilot Free Trade Zones which are located in the province of Liaoning, Zhejiang, Henan, Hubei, Chongqing (city), Sichuan and Xiaanxi. With this China now has 11 Free Trade Zones and occupies over 1,300 square kilometers.

At the same time that the establishment of the Pilot Free Trade Zones in Guangzhou, Tianjin and Fujian was approved on April 20, 2015, the National Congress also promulgated the The Special Administrative Measures of the Pilot Free Trade Zone for Admittance of Foreign Investments (Negative List) (thereafter referred to as "Negative List for FTZs"), which lists out the industries in the Pilot Free Trade Zon s in Shanghai, Guangzhou, Tianjin and Fujian that are subject to the special administrative measures and that the national treatment shall not be applied for foreign investments. The foreign investments in the industries within the negative list shall be subject to the permission procedures, and the domestic and foreign investments in other industries shall be subject to the equal administration measures.

With the aim to further enlarge the admittance of foreign investments in the Pilot Free Trade Zones and to launch a new round of the open-up, the National Congress promulgated The Special Administrative Measures of the Pilot Free Trade Zone for Admittance of Foreign Investments (Negative List) (Amended in 2017) , which has been executed in the 11 Pilot Free Trade Zones since July 10, 2017.

Comparing to the version of 2015, the new Negative List for FTZs decreases 10 industries and 27 special administrative measures, and enlarges the open-up in certain industries such as production of aviation and automotive, and financial industries including banking and insurance. The number of items included in the Negative List has been decreased to less than 100.

Free Trade Agreement

The Free Trade Agreement usually refers to the deal signed by more two countries or territories, aiming to further open up markets to each other based on the WTO most-favoured national treatment, to remove the tariff and non- tariff walls for most goods, to improve market access conditions, open-up for investments, enhance free flow of the factors of productions including goods, service, capital, technology and people, to realize freedom of trading and investing, and to realize advantage complement and mutual development.

Till now, China has entered into 15 Free Trade Agreements that involves 23 countries and territories including Hong Kong and Macau. In addition, the Chinese government has been negotiating with many other countries and territories for signing new Agreements and upgrading the existing Agreements, as well as carrying out the feasibility study for signing new Agreements.

The increased number of the Free Trade Agreements reflects the further open- up of China markets to more and more foreign nations and territories, as well as decrease of the operation costs.

Grant Thornton opinion

The current pattern of the world economy has been changed, the global multinational investment appears new characteristics, utilization of foreign capital in China is facing a new situation. By centrally focusing on the changing situation both at home and abroad, the Chinese government has carried out a series of policies and measures including adhering to the open-up and development, actively expanding the open-up, further relaxing foreign access to the service, manufacturing and mining industries, continuing to encourage foreign investments in the fields conforming to direction of the national industrial structure adjustment and optimization, adopting the internationally adopted administrative measures of national treatment and negative list to foreign investments.

These measures are undoubtedly good news for foreign investment in China.

The new policy will also bring the change and uncertainty in terms of implementation. Therefore, we would like to remind that before coming to China to invest, foreign companies shall understand the investment policies in China, industry guidance catalogue and other relevant laws and regulations, and shall carry out professional plannings in advance according to their own characteristics, reasonable use of the existing policy to enjoy the biggest benefits, so as to improve the capital efficiency. At the same time, compliance requirements in China shall be obtained to reduce the incompliance risks.

Since the reform and open-up in China, Grant Thornton China has been providing commercial services for many foreign invested enterprises, and has gained fruitful professional knowledge and practical experiences. We hope to obtain more opportunities to contribute our knowledge and experience for foreign investments in China. Let's grow and develop together!

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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