Special Administrative Measures for Foreign Investment Access (Negative List) (2018 Version) (Mainland China)

Teresa Huang

On June 28, 2018, the National Development and Reform Commission and the Ministry of Commerce jointly issued the Special Administrative Measures for Foreign Investment Access (Negative List) (2018 Version) (the “2018 Negative List”), which came into effect on July 28, 2018, and the Special administrative measures for foreign investment access under the Catalogue Guiding Industries for Foreign Investment (amended in 2017) (the “2017 Negative List)”) were abolished, while the catalogue encouraging foreign investment will continue to remain in effect.  Compared to the 2017 Negative List, the 2018 Negative List has 15 less special access administrative measures.  The following primary characteristics are observed:

I. More systematic arrangements

As its name suggests, the 2018 Negative List only covers “special access administrative measures” without adding promoted industry categories and is the first “negative list” independently released.   In terms of formatting, the 2018 Negative List adopts a tabular form and is classified according to the Industrial Classification of National Economic Activities (GB/T 4754-2017), making the list compatible with the provisions on foreign investment recordation and industrial and commercial registration.  This means that for enterprise registration, and changes to the registration, etc., the applicable laws may be more clearly applied, thereby improving efficiency.

II. More comprehensive open sectors

Compared to the 2017 Negative List, the 2018 Negative List relaxes across the board market access for the first, second and third industries, with 22 liberalization measures covering sectors including finance, transportation, commerce, professional services, manufacturing, infrastructure, energy, resources and agriculture.  The following measures are highlighted:

1. In the financial sector, there is no longer a cap on foreign shareholding cap in the banking industry, and the foreign shareholding cap for securities companies, fund management companies, futures companies and life insurance companies is relaxed to 51%, and all foreign shareholding cap will be removed in 2021.

2. In the infrastructure sector, foreign investment restrictions on railway networks and power grids are lifted.

3. In the transportation sector, foreign investment restrictions on railway passenger transportation companies, international maritime transportation and international shipping agencies are lifted.

4. In the commerce sector, foreign investment restrictions on gas stations and food acquisition and wholesale are lifted.

5. In the cultural sector, the prohibition against investment in Internet service providers is removed.

6. In the automobiles sector, the foreign shareholding cap on special vehicles and new energy vehicles entities is removed; in 2020 the foreign shareholding cap on commercial vehicles will be removed, and in 2022 the foreign shareholding cap on passenger vehicles, as well as the restriction on no more than two entities in a joint venture will also be removed.

7. Foreign investment restrictions on shipbuilding, including design, manufacture and maintenance, are removed.

8. Foreign investment restrictions on the aircraft industry, including investment in trunk route aircraft, regional route aircraft, general aircraft, helicopters, drones and aerostats, are lifted.

9. In the agriculture sector, foreign investment restrictions on the selection and production of seeds other than wheat and corn are lifted.

10. In the energy sector, foreign investment restrictions on special scarce coal mining are removed.

11. In the natural resources sector, foreign restrictions on graphite mining, rare earth smelting and separation, and tungsten smelting are lifted.

III. More specific restrictions on certain sectors

Amidst the deregulation in the 2018 Negative List of 2018, current restrictions on certain sectors have been made clearer.   For example, investment in state-owned cultural artifacts museums, cultural performance groups and religious and educational institutions are now specifically prohibited.  For the production of radio and television programs and films, the original limitation on cooperation is now revised to l prohibition against investing in radio and television production and operations (including introduction) companies as well as film production companies.  In the legal services sector, foreign investors are now prohibited to as partners of a domestic-funded law firm.

In general, the new negative list is clearer with the removal of some restrictive rules.  For the easing of restrictions in certain sectors, a timetable is announced so that the legal requirements for sectors with foreign investment are clearer and more favorable for investment planning and arrangements.