More industries open to foreign investors under new catalogue

The 2015 revision of the Catalogue of Industries for Guiding Foreign Investment took effect 10 April. Formulated by the National Development and Reform Commission and Ministry of Commerce (MOFCOM), the catalogue supersedes an earlier revision of the catalogue issued 24 December 2011.

As in previous revisions, the catalogue is separated into three categories – encouraged, restricted and prohibited. Those industries not listed in the catalogue are to be considered permitted.

The catalogue has undergone six revisions since it was first introduced in 1995. This revision includes the most liberalizations in the catalogue’s history.

Q: What are the highlights of the revisions?

A: There are two main points to highlight. First is the significant reduction in limits on foreign investment compared to the previous catalogue. The catalogue has reduced restrictions on 41 industries and removed prohibitions on two industries.

Second, the catalogue further relaxes limits on the proportion of foreign investment in certain industries. The number of industries limited to equity and cooperative joint ventures has been reduced from 44 to 15, and restrictions on foreign investment have been removed outright in a few areas.

Q: Which industries will be significantly affected?

A: The revised catalogue will generally have a relatively significant effect in several industries, as set out below:

Manufacturing. The catalogue reduces the previously restricted 32 areas of manufacturing down to only eight. The specific areas removed cover a wide range of manufacturing, with limits on the manufacturing of beverages, chemicals, chemical goods, synthetic fibre and general equipment completely removed.

Healthcare: Medical institutions were restricted under the 2007 catalogue, then permitted under the 2011 catalogue. They are again among the restricted industries under the 2015 catalogue. It is clear that restrictions on foreign-invested medical institutions will not be cancelled for some time.

Finance: The catalogue includes clear definitions of the proportion of investment for a single or multiple overseas financial institution and their related Chinese bank. At the same time, the restriction on foreign investment into securities companies has been amended from “no more than 1/3” to “no more than 49%”, reflecting the continued loosening of limits on the financial services industry.

Real estate. Foreign investors can fully enter the Chinese real estate industry as the catalogue removes restrictions on all areas of real estate previously listed. Areas removed from the catalogue include land development, luxury hotels, the construction and operation of luxury office buildings and international convention centres, secondary market transactions, and real estate agencies and brokerages.

E-commerce, online industries and the internet of things. The catalogue removes the restriction on the proportion of foreign investment in e-commerce of value-added telecom services. However, restrictions on foreign investment of 50% and 49% remain for other value-added telecom services and basic telecom services, respectively.

The catalogue no longer restricts foreign investment in direct, postal and online sales.

It also introduces to the encouraged category the research, development and use of the burgeoning area of internet of things technologies.

Traditional industries. The catalogue removes restrictions on the production of rice wine and fine-quality sorghum wine (baijiu) and does not put any requirements on the proportion of foreign investment in these industries. Prohibitions on the processing of green tea and certain other teas which involves traditional Chinese processing techniques have also been removed.

Q: Are there any industries with more limited access?

A: There are a few industrial areas where restrictions on foreign investment have tightened.

Tertiary educational institutions, previously encouraged, are now restricted in the new catalogue. Foreign investment in all tertiary and preschool educational institutions is now restricted to cooperative joint ventures only. The catalogue stresses that the Chinese partner will hold the leadership role, and sets out a clear definition of that leadership.

Compulsory educational institutions remain prohibited to foreign investment, and restrictions on ordinary secondary educational institutions to cooperative joint ventures remain as well.

Complete automotive vehicle manufacturing was encouraged under the 2007 catalogue, then permitted under the 2011 catalogue; now, it is restricted under the 2015 catalogue. This mirrors authorities’ increasingly tight control over foreign investment in the complete vehicle manufacturing industry.

Finally, the catalogue prohibits online publishing services for the first time. Foreign investment is also prohibited in auction houses dealing in cultural relics, as well as in antique shops.

Q: What does the future have in store?

A: A series of regulations at the operational level are needed to guarantee that the policies set out in the catalogue can be put into effect, and it has been made very clear that these supporting regulations are being drafted.

MOFCOM released a draft of the Foreign Investment Law for public input at the start of the year. Once passed, the law would replace the three core laws governing foreign investment, creating a more stable, transparent and predictable legal environment for foreign investors via a single, unified statute.

Finally, a free trade zone has been established in Shanghai, and additional free trade zones have been announced in Guangdong, Tianjin and Fujian as well. These zones may have policies encouraging foreign investment which go beyond that in the 2015 catalogue.

Michael Gu is a partner of AnJie Law Firm