On December 27, 2021, the Ministry of Commerce and the National Development and Reform Commission of China jointly issued the Special Administrative Measures for the Market Entry of Foreign Investment (2021 Edition) (2021 National Negative List) and the Free Trade Zone Special Administrative Measures for the Market Entry of Foreign Investment (2021 Edition) (2021 FTZ Negative List).

The 2021 National Negative List and 2021 FTZ Negative List (together the 2021 Negative Lists) came into effect on January 1, 2022 and supersede the earlier national and free trade zone negative lists issued in 2020.

In this article we provide a brief summary of the 2021 Negative Lists.

Greater access to more industry sectors

The number of industry sectors which are subject to either restrictions or prohibitions from foreign investment has been reduced from 33 to 31 in the National Negative List and from 30 to 27 in the FTZ Negative List. This change increases access to more industry sectors in China by foreign investors and is considered to be a strategic move to further open up China’s markets to foreign investors in order to promote high-quality development amid the COVID-19 pandemic and economic slowdown.

The 2021 National Negative List - Fewer restrictions in the manufacturing sector

The 2021 National Negative List relaxes the restrictions in the vehicles and the satellite television broadcast ground receiving facilities manufacturing sectors.

  • Vehicles

As contemplated in the 2020 version of the National Negative List, the 2021 National Negative List has lifted foreign shareholding restrictions in the manufacturing of passenger cars. As a result, from January 1, 2022, wholly foreign-owned enterprises may manufacture not only special vehicles, new energy vehicles and commercial vehicles but are now also able to manufacture passenger vehicles. The previous restriction prohibiting the same foreign investor from establishing two or more Sino-foreign equity joint ventures in China to manufacture vehicles of the same category has also been lifted.

Notwithstanding the relaxation of rules relating to foreign investment in the vehicle manufacture industry, certain regulatory restrictions and requirements which apply to both domestic and foreign investments in this sector remain in place. For instance, the new establishment of an independent oil-fuelled automobile enterprise is still prohibited and in order to avoid excess capacity, there are still strict controls in place on pure electric automobile investment projects.

  • Satellite television broadcast ground receiving facilities

The changes introduced by the 2021 National Negative List now allow foreign investors to invest in the manufacturing of satellite television broadcast ground receiving facilities (Satellite Receiving Facilities) and its key parts.

Satellite Receiving Facilities are facilities used to receive television programs transmitted through satellite, such as antennae, tuners, receiving sets and decoders.

The manufacture, import, sale, installation and use of Satellite Receiving Facilities are strictly controlled by the Chinese government and a prior approval or a license is required to manufacture Satellite Receiving Facilities. Satellite Receiving Facilities may also only be sold to a limited number of institutions that are established and licensed to install such facilities.

2021 FTZ Negative List – Easing of restrictions in the survey services sector

The 2021 FTZ Negative List removes some restrictions in the survey services sector, indicating more preferential policies in free trade zones in China.

  • Market surveys

Foreign investors are now permitted to invest in market survey services in China through wholly foreign-owned enterprises or Sino-foreign joint ventures established in a free trade zone. However, foreign shareholding restrictions applicable to the conduct of rating survey of radio listeners and television viewers remain, i.e. the Chinese shareholder(s) must have a controlling stake in the business.

  • Social surveys

Foreign investors are now able to establish Sino-foreign joint ventures in a free trade zone in China to conduct a social survey business. The Chinese shareholding ratio in the venture must not be less than 67% and the legal representative must be a Chinese national.

It is worth noting that if a foreign-invested entity conducts “foreign-related surveys” (see below for details), further specific regulatory approvals are required. Under the Measures for the Administration of Foreign-related Surveys (effective on October 13, 2004, the Foreign-related Survey Regulations), market or social foreign-related surveys can only be conducted in China by qualified and licensed entities in China. In addition, in order to conduct a foreign-related social survey, prior approval on a project-by-project basis is required from the competent Chinese regulatory authorities.

Foreign-related surveys” refers to certain categories of activities under the Foreign-related Survey Regulations, including (i) market and social surveys conducted under the entrustment or engagement of an overseas organization or individual; (ii) market surveys conducted by an overseas organization’s agency in China; and (iii) market and social surveys whose materials and results are to be provided to overseas organizations, individuals or an overseas organization’s agency in China. If the business of a foreign-invested entity in the market and social survey sector falls within the scope of “Foreign-related surveys”, relevant regulatory approvals will need to be obtained from the competent Chinese regulatory authorities for the conduct of that business.

Note that under item (ii) above, an overseas organization’s agency in China means the branch or representative office of the overseas organization established in China, and the market survey permitted to be conducted by such an agency is limited to the products or services of such overseas organization.

Other updates

The 2021 Negative Lists also provide clarity on certain rules relating to the management of foreign investment in China:

  • Overseas public offering of the domestic enterprise engaging in prohibited business under the 2021 Negative List

Subject to the applicable approval procedures, the overseas public offering of a domestic enterprise engaging in any business that is prohibited from foreign investment under the 2021 Negative Lists is generally permitted. Foreign investors are permitted to invest in such enterprises through a public offering pursuant to the relevant listing rules and regulations.

However, foreign investors are not allowed to participate in the operation and management of such domestic enterprise. In addition, the shareholding ratio of the foreign investors in such domestic enterprise after the public offering must not exceed the following thresholds: (i) 10% of all the shares held by a single foreign investor and its affiliates; and (ii) 30% of all the shares held by all foreign investors and their affiliates.

We understand that the China Securities Regulatory Commission is leading a project to revise the administrative rules on the overseas public listing of domestic enterprises.. Although discussions and a review by the relevant Chinese authorities are currently underway, the exact timing for the official promulgation of such revision is, as of the date of this article, unclear.

  • Foreign investment management

The 2021 Negative Lists expressly provide (by way of clarification) that (i) if a foreign invested entity makes further investments in China, the 2021 Negative Lists shall apply; and (ii) the market access negative list, which imposes industrial-specific regulatory restrictions, shall apply to both domestic and foreign investors.

Further to the issuance of the 2021 Negative Lists, the relevant Chinese authorities are also expected to promulgate revisions to associated rules and regulations so as to align them with the 2021 Negative Lists.

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