Easing of the negative lists for foreign investment in China

published on August 6, 2019 | reading time approx. 2 minutes

With effect from 30 July 2019, new negative lists concerning prohibitions and restrictions of foreign investments in China with national applicability or applicability in the free trade zones came into force (Special Management Measures for the Market Entry of Foreign Investment (Negative List) (2019 Version) and Special Management Measures for the Market Entry of Foreign Investment in Pilot Free Trade Zones (Negative List) (2019 Version)). Those lists replace the corresponding negative lists from 2018. Both lists reduce the sectors and areas in which restrictions or prohibitions for foreign investment apply.

Reduction of restricted sectors

In the 2019 national list, the number of restricted sectors will be reduced from 48 to 40. In some sub-sectors, the requirement of Chinese majority ownership has been abolished, such as domestic shipping agencies, the construction and operation of gas and steam pipelines in cities with more than 500,000 inhabitants (water supply restrictions remain) and the construction and operation of movie theatres. Also, some previously prohibited value-added telecommunications services, such as call centers, can now be 100% foreign invested. Further, the joint venture requirement for investments in oil and gas exploration and production as well as in mining for some minerals has been removed. In addition, the negative list stipulates that foreign shareholding restrictions in the automotive industry shall be abolished in 2020 and in the production of buses in 2022.

The new negative list for free trade zones reduces the number of restricted sectors from 45 to 37, for example in fisheries and aquaculture.

Encouraged catalogue provides further promoted investment areas

In addition to the two negative lists, the list of encouraged investment areas has also been updated (Catalogue of Encouraged Industries for Foreign Investment (2019) – „Encouraged Catalogue").The Encouraged Catalogue consists of two parts, one applicable to the entire country and the other to 22 provinces, particularly in central and western China. In the nationwide catalogue, the number of encouraged industries increased from 348 to 415 and in the sub-catalogue for central and western China even from 639 to 693.

The industrial sectors encouraged are mainly High-tech and New Technologies, environmental protection, Information Technology, manufacture of industrial equipment (e.g. robots), new materials and certain sectors of the pharmaceutical industry. The Encouraged Catalogue also includes services (e.g. engineering services, accounting and tax consulting, testing and certification services, technical services such as supply chain management, circular economy, energy) as well as areas such as advanced agriculture and other industries and services depending on the level of development of the province or region.

Negative list for market access remains

It should be noted that, in addition to the negative lists, the negative list for market access (Negative List for Market Access 2018) with prohibitions and restrictions for foreign and domestic investments still applies and needs to be heeded.