China: China's Shortened Negative List For Foreign Investment Further Liberalises Its Markets

Last Updated: 25 July 2018
Article by Echo Li

On 28 June 2018, the National Development and Reform Commission (NDRC) and the Ministry of Commerce (MOFCOM) jointly issued the Special Administrative Measures on Access of Foreign Investment (the Negative List 2018 Edition).

Further liberalisation in China

The objectives of the government introducing the revised Negative List is to promote China's economic liberalisation in all directions and widen the market access for foreign investors into the country's primary, secondary and tertiary industries.

Compared with the previous Negative List (2017 Edition), the new list has been shortened from 63 to 48 articles, further loosening restrictions on market access, as well as announcing 22 opening-up measures in various industries including finance, transportation, professional services, infrastructure, energy, resources and agriculture.

Affected industries and the changes in the new Negative List

Financial industry

The most significant change coming from the revision will be on the financial sector. For the banking sector, the government has removed the restriction on the foreign share ratio of the banks. This means foreign investors are now allowed to set up a fully-owned banking business in China.

As for securities companies, fund management companies, futures companies and life insurance companies, the new list has increased the cap on foreign ownership from 50% to 51%, indicating that foreign companies or investors can now be the majority shareholder in these companies. The government also promised to remove the limitation on the proportion of foreign capital completely by 2021.

Manufacturing industry

In the aeronautic, automobile and shipbuilding industries, the restrictions on foreign shareholding ratio have been removed for:

- the manufacture of special purpose motor vehicles and new energy automobiles

- the manufacture of commercial vehicles, from 2020

- the manufacture of passenger cars and the limitation of having no more than two joint venture companies invested, from 2022

- the design, manufacture and repair of ships

- the manufacture of cargo aircraft, regional aircraft, utility aircraft, helicopters, unmanned aerial vehicles, and aerostats.

Transportation industry

The new list has removed restrictions on foreign investment by railway passenger transportation companies, international maritime transportation businesses and international shipping agents.

Up until now, equity Joint Ventures (JVs) and corporative JVs had been restricted to no more than 49% foreign ownership for transportation and maritime companies. Moving forward foreign maritime and transportation companies will be able to establish wholly-owned subsidiaries in China.

We expect relevant regulations on the maritime industry, such as the Regulation of the Peoples Republic China (PRC) on International Maritime Transportation and Regulation on Vessel Registration of the PRC to be adjusted in the near future in order to be consistent with the new negative list.

The new list has also removed restrictions on foreign investment in the main railway network and the power grid in the country.

Information technology industry

The prohibition of foreign investment in business premise that provides internet access services, such as internet cafes and bars, has been lifted.

Under the Negative List 2018 Edition, the value-added telecommunications services are still constrained with the proportion of foreign investment remaining at less than 50%, excluding e-commerce business.

Nonetheless, following the announcement of the revised Negative List, the Special Administrative Measures (Negative List) for Foreign Investment Access in Pilot Free Trade Zones (2018 Edition) which is promulgated on 30 Jun 2018 and will be effective from 30 July 2018 frees up more opportunity to the value-added telecommunications services.

The pilot approval policy in the Shanghai FTZ (28.2 square kilometres) will be expanded across all the free trade zones in China. With that being said, a wholly foreign-owned enterprise (WFOE) in value-added telecommunication services industries comprising of store-and-forward service, call centre service, domestic multi-party communication services, internet connection services can be set up in the country. This breakthrough brings significant benefits to the e-commerce platform.

Commercial circulation industry

Restrictions on foreign investment in petrol stations, grain, wheat and corn purchasing and wholesale have been removed.

Cultural and Entertainment Industry

Production of radio and television programmes and movies were limited to cooperative joint venture operations in the previous edition of Negative List, but now it fully prohibits foreign investment to conduct this business in China.

Legal services industry

The negative list retains the ban on foreign investment in China's legal and consulting businesses and added a new policy banning foreign firms from becoming a partner of any domestic law firm in China.

Agriculture and energy resources industry

In the agriculture sector, the new negative list has removed restriction on the foreign investment in the production of seeds for crops, except for wheat and maize. In the energy sector, the list has lifted restriction on the foreign investment in particular scarce coal mining. In the resources sector, it has also lifted restriction on the foreign investment in graphite mining, rare earth smelting separation, and tungsten smelting.

What else is changing?

The Negative List (2018 Edition) will act as the major reference for the approval criteria of the industries not categorised in the list.

However, it is not the sole policy regulating foreign direct investment (FDI) approval. Some of the restrictive or prohibitive rules applied to both domestic and foreign investors are not indicated in the negative list.

Furthermore, the new Negative List will take time to be fully implemented across the country as relevant authorities need time to update and issue new rules and regulations that fall within their areas of responsibility.

Talk to TMF Group

TMF China has the depth and breadth of knowledge and experience you need to make your business feel at home and adapt quickly into the local market. If you want to tap into the opportunities that arise from the latest policy revisions, we can help you to navigate the changing compliance environment and guide your business to adapt quickly so that you can focus on achieving success.

The industries highlighted above are only part of the new Negative List. Want to know more about the revised Negative List or our services? Talk to us.

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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