- China is actively phasing out industries it considers to be backward, heavily polluting.
- The country is seeking greater investment in high-tech industries that will move China up the global value chain.
- Inclusion of specific industrial items in the Catalogue for Guiding Industry Restructuring may indicate future government support either through direct sops or through policy incentives.
On November 6, China's National Development and Reform Commission (NDRC) released the Catalogue for Guiding Industry Restructuring (2019 version), which will take effect January 1, 2020.
The upgraded Catalogue is aimed at adjusting and upgrading the industrial structure and shifting China's economy from high-speed growth to high-quality development.
The Catalogue is considered an important basis for guiding the direction of domestic and foreign investment and guiding government agencies to manage local investment projects and formulate fiscal, tax, credit, land, import, and export policies.
What is the Catalogue for Guiding Industry Restructuring?
The Catalogue for Guiding Industry Restructuring consists of three categories – "encouraged", "restricted", and "obsolete" industries (industries that do not belong to the Catalogue are "permitted"):
- The "encouraged" category refers to advanced technologies, equipment, products, and industries that play an important role in promoting high-quality economic and social development and need to be encouraged;
- The "restricted" category refers to backward technologies, equipment, and products that are not in line with the industry access conditions and relevant regulations and need to be reformed; and
- The "obsolete" category refers to backward technologies, equipment, and products that do not comply with the relevant laws and regulations, do not have conditions for safe production, seriously waste resources and pollute the environment, and need to be phased out.
For encouraged projects, government departments and financial institutions will possibly provide fiscal, tax, land, and credit support.
In the restricted category, new projects will be prohibited and ongoing production will be directed to innovate and upgrade within a specific period of time.
In the category deemed obsolete – existing projects will be banned from seeking investment and will be phased out. The rules apply to both domestic and foreign enterprises in China.
Foreign investors should focus on the negative list and catalogue of encouraged industries (which together used to be the Catalogue of Industries for Guiding Foreign Investment) when choosing to invest in China.
At the same time, investors should ensure their businesses do not fall into the "obsolete" category as stipulated in the Catalogue for Industry Restructuring. They are also advised to take note of the trends in China's plans for industry restructuring as implied by the Catalogue.
What's new in the 2019 version of the Catalogue?
The 2019 version enumerates 48 industries and 1,477 industry items, including 821 items that are encouraged for development in China, 215 items that will be restricted, and 441 items that will be phased out.
A total of 822 industry items, or more than 50 percent of the total, have been revised.
Compared with the previous version, the new catalogue added four industries into the encouraged category – human resources, artificial intelligence (AI), elderly care and nursery services, and domestic services; removed the fire protection industry from the restricted category; and added the mining industry to the obsolete category.
Similar to the encouraged catalogue for foreign investment, the 2019 version of the Catalogue for Industry Restructuring also gives greater prominence to the high-quality development of the manufacturing sector. It mentions around 900 manufacturing-related items, accounting for 60 percent of the content.
Industry item-wise – big data services, cloud computing services, blockchain services allowed by the state, construction, maintenance, and lease of cloud computing data centers, the infrastructure of big data centers and efficient computing centers, etc. were added in the encouraged category.
In addition to promoting high-quality manufacturing, the revision of the catalogue also aims to promote a strong domestic market, vigorously cutting excess output, and raise the level of scientific regulation.
To eliminate excess and environmental-unfriendly output, the Catalogue has raised restriction and elimination standards for the restricted and obsolete categories, and added or modified nearly 100 industry items to be restricted or phased out.
China wants to build a high-tech economy, promote sustainable production
Consistent with China's supply-side structural reform (SSSR), the Catalogue has been revised to eliminate supply-side distortions in the economy, promote advanced industries, and boost environment-friendly production.
China's integrated industrial classification system includes all the industrial categories listed in the United Nations industrial classification. China's economy sees a reasonable sectoral distribution with the primary sector accounting for 7.2 percent, secondary sector for 40.7 percent, and tertiary sector 52.2 percent.
However, the country's authorities still believe that the industrial structure is dominated by labor-intensive, heavy industries; high-tech manufacturing accounts for only 13.9 percent of the total industrial production. Service sector-wise, producer services are underdeveloped, and the financial and real estate sectors account for too much.
Thus the updated Catalogue for Guiding Industry Restructuring aims to optimize the allocation of stock resources and expand high-quality incremental supply through state support.
The ultimate goal here is to push Chinese industries up the global value chain. Through this Catalogue, global investors may get a sense of the direction of China's national support for different sectors.
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.