Key points on the market access negative list system

By Sue Zhang and Tony Zhao, PacGate Law Group
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The State Council released the Opinions on the Implementation of the Market Access Negative List System on 31 October this year.

Although no concrete negative list is included in the opinions, the State Council laid down requirements on its departments for issues such as how to form and adjust the negative list, and how to implement relevant administrative measures on market access.

张素红 Sue Zhang 百宸律师事务所 律师 Associate PacGate Law Group
张素红
Sue Zhang
百宸律师事务所
律师
Associate
PacGate Law Group

It is seen as a signal indicating the government’s attitudes towards market access policies – i.e. what is not prohibited by the law should be permitted.

Below are our views on some key points of the opinions.

Formation of the negative list

The negative list system refers to a series of systems where industries prohibited or restricted in China are specified by the State Council in a list. For industries not included in the negative list, all market entities “may enter on an equal basis according to the law”.

赵曦 Tony Zhao 百宸律师事务所 律师 Associate PacGate Law Group
赵曦
Tony Zhao
百宸律师事务所
律师
Associate
PacGate Law Group

Types of negative list

The negative list could mainly be divided into two kinds – the market access negative list, which is applicable to both domestic and foreign investors, and the foreign investment negative list, which is applicable only to foreign investors.

Prohibition or restriction?

Both lists contain the prohibited sublist and the restricted sublist. For industries in the prohibited sublist, no market entity may enter.

For industries in the restricted sublist, two approaches are mentioned in the opinions: one is that the market entities may submit an application to the authorities for approval, and the other is that the government establishes the conditions and procedures for the market entities to comply with, which is very similar to the current rules in the Catalogue for the Guidance of Foreign Investment Industries and the Negative List for Free Trade Zones.

Formulation and adjustment

To formulate the negative list, relevant departments should propose their drafts, in accordance with the Classification of Industries in the National Economy, to the National Development and Reform Commission (NDRC) and the Ministry of Commerce (MOFCOM). The NDRC and MOFCOM should then summarize and review those drafts to prepare a uniform negative list draft, which should then be submitted to the State Council for approval.

If the local governments need to adjust the negative list afterwards, the relevant provincial governments should report the changes to the State Council for approval.

Sole authority

The opinions also set out that only measures on market access established “in accordance with the law, administrative regulations or decisions of the State Council” are allowed to be directly included in the negative list. Thus the departments and local governments are only entitled to submit proposals for approval, while the State Council is the sole authority for the formation and release of the negative list, which to some extent provides certainty to the negative list system.

Strict entry

For the adjustment procedure after the negative list takes effect, any addition of items in the negative list should be approved by the State Council. Any reduction of items in the negative list without any adjustment to significant items merely needs to be submitted for record, which reflects a “strict entry and tolerant exit” tone of policy.

Connectivity with other norms

Current norms concerning market access include the Summary List of Items Subject to Administrative Approval of All the Departments of the State Council (the State Council approval list), the Catalogue for Guiding Industry Restructuring (the industry restructuring catalogue), and the Catalogue of Investment Projects Subject to the Approval of the Government (the investment projects catalogue).

Items to be included

Pursuant to the opinions, all restrictive measures on market access included in the State Council approval list should be included in the negative list. Items set forth in the industry restructuring catalogue and the investment projects catalogue should be directly cited in the restricted access list.

The opinions also ask the NDRC to issue and implement the investment projects catalogue, so as to minimize the scope of investment approval and achieve online administration.

Pilot launch

The negative list system will be launched on a pilot basis in some areas on 1 December this year and a nationwide negative list system will be launched on 1 January 2018. It is worth noting that this schedule is only for the market access list. No time arrangement has been made for the foreign investment negative list except for the requirement of “speedy efforts”.

Standardization

Policies on market access have always been vague in China with all kinds of red tape and various regional standards. As a result, investors have to spend tremendous time and energy getting to know government policies before making investment into certain industries.

The issuance of the opinions provides strong support to the institutionalization and standardization of the market supervision system, and helps define the boundary of power of the government.

While a concrete negative list had not been released by the date that this journal went to press, we will continue to keep an eye on the specific list to be issued and how the authorities carry out the policies.

(PacGate Law Group)

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