On 30 November 2004, the Foreign Investment Industrial Guidance Catalogue 2004 was promulgated jointly by the National Development and Reform Commission and the Ministry of Commerce ("the New Catalogue"). The New Catalogue lists in detail the industrial sectors which are encouraged, restricted or prohibited for foreign investment. Projects that do not belong to the categories of encouraged, restricted or prohibited are in the category of permitted. Permitted projects are not listed in the New Catalogue. The New Catalogue effective on 1 January 2005 replaces the old catalogue which was last amended on 11 March 2002.

The amendments made in the New Catalogue are intended to serve the following objectives:

(a) To further liberalize and attract high technology industries that are in high demand in China by including them in the "encouraged category". For example, the following items have been newly added in the encouraged category:

(i) transport equipment manufacturing sector:

  • research and development of assembled motor vehicles;
  • research and development of motor vehicle engines;
  • manufacture of motor vehicle electronic devices (including electronically-controlled engine systems, chassis systems, electronically-controlled car body systems) ;

(ii) electronic machinery and apparatus manufacturing sector: 300 megawatt large-scale circulating fluidized bed combustion boilers;

(iii) electronic and communication equipment manufacturing sector:

  • manufacturing of the key parts for large screen colour projection displays including optical engines, light sources, projection screens, high resolution projection tubes and LCOS modules;
  • reproduction of CD ROMs.

(b) To keep pace with the opening up of the service sectors by widening the scope for foreign investment. For example, the production and distribution of television programmes and the production of films are listed under the "restricted category" for the first time (they were originally classified under the "prohibited category" in the old catalogue).

(c) To achieve macro-economic control by cooling down over-investment in certain industries. Industries in which over-investment has occurred have been re-classified from the "encouraged category" to "permitted category". For example:

(i) petroleum processing and coking sector: production of tamped coke and dry-quenched coke;

(ii) transport equipment manufacturing sector: manufacturing of electronically-controlled fuel injection systems, electronically-controlled brake anti-lock systems, safety air-bags and other electronic equipment and systems for motor vehicles, and the manufacture of carburetors, magnetos, starting dynamos and disc brakes for motorcycles.

For more information on the above issues, or if you have any questions in relation to other China related matters, please contact our China Practice Group.

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