China Accelerates the Opening-up to Foreign Investment

Introduction

While trade tensions among various countries continue to cast dark clouds over the global economy, the Chinese government has been demonstrating to the world its firm resolution to accelerate the opening-up of its economy to foreign investment.

At the 14th G20 Summit in Osaka on June 28, 2019, Chinese President Xi Jinping reiterated China’s commitment to open up to foreign investment.There, President Xi disclosed that China will be releasing the 2019 edition of the negative lists on foreign investment, which willfocus on sectors of agriculture, mining, manufacturing and services.

Two days after President Xi’s announcement, the National Development and Reform Commission (NDRC) and the Ministry of Commerce (MOFCOM) jointly promulgated the 2019 edition of the Special Management Measures for the Market Entry of Foreign Investment (Negative List) (《外商投资准入特别管理措施(负面清单) (2019年版)》) (the New National Negative List) and the 2019 edition of the Special Management Measures for the Market Entry of Foreign Investment in Pilot Free Trade Zones (Negative List) (《自由贸易试验区外商投资准入特别管理措施 (负面清单) (2019年版)》) (the New FTZ Negative List, together with the New National Negative List, the New Negative Lists), both of which will come into effect on 30 July 2019. Compared to the legacy Foreign Investment Industrial Guidance Catalogue (《外商投资产业指导目录》) which was updated every 2-4 years, the New National Negative Lists has been updated annually since it was first introduced in 2017.

Since 2018, the New Negative Lists have further reduced the scope of industrial sectors in which foreign investment is subject to restrictive or prohibitive measures. Each of the New Negative Lists cuts eight items from the 2018 editionand currently contains only 40 restrictive or prohibitive measures. TheNew FTZ Negative List retains 37 restrictive or prohibitive measures.

Newly Opened-up Sectors under the New Negative Lists

The industrial sectors which are newly opened up for foreign investment under the New Negative Lists are summarised as follows:

Comments on the New Negative Lists and Other Recent Opening-up Policies

• It is reported that various PRC regulatory authorities have been reviewing the existing foreign investment related regulations with the aim to revoking all other restrictive or prohibitive measures for foreign investment outside the New Negative Lists by the end of the year. Simultaneously with the PRC Foreign Investment Law coming into effect on January 1, 2020, the New Negative Lists will become a one-stop shop setting out all restrictions or prohibitions on foreign investment under the PRC legal regime. Going forward, foreign investors will be subject to the negative lists only with respect to the market entry. As long as there is no restriction or prohibition under the negative lists, the foreign investors will be able to compete with the domestic enterprises in the China market on a fair and equal basis.


• Since the establishment of the first pilot free trade zone (FTZ) in Shanghai in 2013, those FTZs are purported to serve as the experimental fields for China’s reform and opening-up policies. For example, some of the restrictive or prohibitive measures which were newly eliminated in the New National Negative List had already been removed from the 2018 edition of the FTZ negative list, such as the requirement for Sino-foreign equity/cooperative joint venture operations in the exploration and development of oil and natural gas. It is noted that the existing differences between the New National Negative List and the New FTZ Negative List have been very minor. Accordingly, going forward there will not be much room for the national negative list to further mirror the FTZ negative List to narrow the gap. It is more likely that both negative lists will be updated in parallel in future editions. Optimisation of the experimental role of FTZs to introduce more pilot opening-up policies and lead the reform will be the biggest challenge to the FTZs.


• Both New Negative Lists retained the same timetables for further opening-up of the financial services and automobile sectors which were first introduced in the 2018 editions. In the financial services sector, all foreign shareholding restrictions in the financial services industries (including securities houses, securities investment fund management companies, futures companies and life science companies) will be lifted in 2021. Two days after the promulgation of the New Negative Lists, the Chinese Premier Li Keqiang announced at the opening ceremony of the 2019 Summer Davos Forum that the target deadline for the complete opening-up of the financial services sector is in 2020, one year ahead of the original schedule, which demonstrates the ambition of the Chinese government to accelerate the opening-up of the financial services sector which is in need of competition for sustainable and healthy development.


• Simultaneously with the promulgation of the New Negative Lists, NDRC and MOFCOM also promulgated the 2019 edition of the Catalogue of Encouraged Industries for Foreign Investment (《鼓励外商投资产业目录 (2019版)》) (the Encouraged Catalogue). The Encouraged Catalogue includes a national list setting out 415 industrial sectors in which foreign investment is encouraged nationwide and also a list of priority industries for foreign investment in each of the central and western regions (including three north-eastern provinces and the utmost southern province of Hainan island). The Encouraged Catalogue aims to encourage the flow of foreign investment into those less developed regions. Foreign investors following the Encouraged Catalogue would receive beneficial treatments in terms of corporate income tax, customs duties for imported self-use equipment and land price.


• In President Xi’s speech in Osaka, it is also disclosed that China will expand the territory of the Shanghai FTZ, set up six new FTZs and speed up the development of a free trade port in Hainan Province. Although the details of such plans have not been officially published, it is important to note that China is exploring creative opening-up policies to attract foreign investment in order to maintain a competitive position in the increasingly complex international economic environment.

For any further questions, please contact Sun Hong, Lynn Yang or Tony Zhong of Norton Rose Fulbright, Shanghai Office.