Changes in China’s FDI Negative Lists in 2019

China has always contained one of the world’s largest markets that, in the past, have always shunned foreign investment. Yet in the modern era, China has continued to rollback many of its policies prohibiting foreign investment into its markets in an effort to continue it‘s economic expansion. This is only confirmed in 2019, as this year has seen the Negative Lists further reduced. China continues to be a hotbed for foreign investment, here is everything you need to know about this year’s Negative Lists.

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Introduction of the New 2019 Negative List

The National Development and Reform Commission (“NDRC”) and the Chinese Ministry of Commerce (“MOFCOM”) jointly issued the new Special Administrative Measures for Access of Foreign Investment (Negative List) (2019) for general use and a separate Negative List for the Pilot Free Trade Zone (FTZ), both taking effect on the morning of July 30th, 2019. Each of these negative lists details the prohibitions and restrictions placed upon foreign investment, WFOEs in China and the FTZ zones, respectively. However, much like the transition from the previous year, the 2019 Negative List has seen a reduction and relaxation of several measures. These relaxations are part of a gradual effort to open China towards more foreign investments and reflects the grander economic goals that the Chinese government continues to strive towards.

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Reduction in Policies and Format Updates in China

China’s Ministry of Commerce has relaxed several policies for foreign investment within various industry sectors as accordance to its gradual shift in opening to further foreign investment.

As a result, the number of policies within the General Use Negative List has been reduced by roughly 16%, reducing the total list of measures from 48 to 40.

Meanwhile, the FTZ Negative List has seen similar reductions, reducing the number of measurements by roughly 17%, from a total of 45 measurements to 37 measures.

Furthermore, the new 2019 Negative List has streamlined its organization of its measures, removing the previous serial number and specialized fields categories from its table. This groups each measure by just numbers and overall encompassing industry, simplifying the categorization.

Major Changes to the 2019 Negative List

Much like the General Use Negative List of 2018, the General Use Negative list represents China’s commitment to further attract foreign business investment by relaxing several measures within various industries. Industries that will see changes from the Negative List include a diverse range of industries as follows:

Oil and Natural Gas Industries

Beginning with the mining industry, the new Negative List lifts the prohibition on exploration and development of oil and natural gases by foreign companies. This has been one of the major measures that have been relaxed, as it has opened these energy sources towards foreign capital and development.

Mining

Furthermore, the Negative List has also further condensed the section on the mining section into one measure, continuing the prohibition of interments in mining and processing Tungsten, rare earth metals, and radioactive materials. However, the negative list has also reduced the measure  so that now the mining and processing of molybdenum, tin, antimony and fluorite have been opened to foreign investments.

Manufacturing

Next is the manufacturing sector, with the only major change being the prohibitions in investments into rice paper and iron ingots, which as of this announcement has been lifted.

Transportation, warehousing and postal services

The investment into the transportation, warehousing, and postal services sector have also seen one major change, specifically within to domestic shipping companies. The new negative list, previously mandating that domestic shipping company be exclusively Chinese owned, has relaxed the measure to attract further foreign investment.

Water conservancy, environment and public facilities

Another major change in the Negative List has been the complete elimination of the water conservancy, environment and public facilities management as a restricted industry. As a result, the only measurement that had been within this category has been eliminated: The measure that prohibited the exploitation of wildlife resource that originated in China and is under the protection of the state, which in it of itself is redundant to Chinese law.

Culture, sports and entertainment

Within the culture, sports, and entertainment sector we see several smaller changes, but are nevertheless important in attracting more foreign investment. The previous measure on exclusively Chinese constructed and operated cinemas within China has been relaxed, allowing foreign investment into their own cinema theaters. Additionally, performing brokers can now receive foreign investment, as opposed to previously being exclusively Chinese operated.

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Major General Use and FTZ Differences

While the General Use and Free Trade Zone Negative Lists are similar, there are several measures that set each apart.  These measures do not apply to foreign investments throughout the greater China, but are relevant in the various FTZ locations, as they will operate as an initial pilot before being implemented in the wider Negative List. All the changes listed above applies within the FTZ locations, in addition to the relaxation of the following measures:

Agriculture, forestry, animal husbandry and fishery

The first difference is exclusive to the FTZ negative list is within the agriculture, forestry, animal husbandry and fishery industries. The measure prohibiting investing into aquatic products within the seas under China’s jurisdiction and China’s islands bodies of water have been lifted.

Manufacturing

Within the manufacturing sector, a couple of measures have been eliminated. The printing of publications within the Free Trade Zone no longer must be exclusively controlled by a Chinese entity, opening the production process to foreign capital within the FTZ. The prohibition on investing in smelting and processing of radioactive minerals and the production of nuclear fuel has also been lifted, opening the doors to invest into these types of resources.

Another of the major changes include a measure that affects how urban infrastructure is invested. The previous FTZ negative list detailed that the gas, heat, water and drainage of an area with an urban population over 500,000 must be controlled by the Chinese. While the restriction mains water and drainage systems must be still controlled by the Chinese, gas and heating have become open to foreign investment within the FTZ location.

Culture, sports and entertainment

Lastly, the area of culture, sports, and entertainment sector sees that there are many similarities between the two lists, however, the FTZ list comes with a whole host of caveats pertaining to various conditions where foreign investments are allowed. Many of these caveats involve approval from the Chinese Government and corporation with a Chinese company. Many of these measures have remained unchanged and retained from the 2018 FTZ Negative List. However, one notable exception to this list is the measure on literary and artistic performing groups; The prohibition on investment in these performing groups have been lifted, but these performing groups still need to be controlled by a Chinese institution.

Looking Forward, Towards the Future

The continue reductions implemented by both the NDRC and MOFCOM represents China’s gradual but continuous stride forward towards granting more access to foreign investments. As such, it is predictable that with time, China will continue to reduce the number of measurements of the negative list, serving to benefit both the country and investors.

Furthermore,  a day after the Negative lists came into effect(July 2, 2019)t, the Director(Tang Wenhong) of the Chinese Foreign Investment Department within the Ministry of Commerce announced that they will be rolling back all other foreign investment prohibitions outside of the Negative List, further reducing the barrier for foreign investment to enter China. Given these exciting new developments, now is the time to take advantage of such moments to start investing in China’s diverse range of industries, as an opportunity for further growth will only continue to expand as we progress into the future.

General Use Negative List Changes

PRODUCTION FIELD
2018 GENERAL USE NEGATIVE LIST
2019 GENERAL USE NEGATIVE LIST

Mining Industry

5. The exploration and development of oil and natural gas (excluding coaled methane, oil shale, oil sands, shale gas, etc.) is limited to joint ventures and cooperation. Measure has been eliminated
6. It is forbidden to invest in the exploration and mining of tungsten, molybdenum, tin, antimony and fluorite.

7. It is forbidden to invest in rare earth exploration, mining and mineral processing.

8. It is forbidden to invest in radioactive mineral exploration, mining and mineral processing.

Measures has been revised and condensed. Prohibition on foreign investment in exploration and mining and molybdenum, tin, antimony, and fluorite has been lifted. It is still forbidden to invest in the exploration and mining of tungsten. Measures 6, 7, 8 has been combined into a single measure.

Revised measure

5. It is forbidden to invest in rare earth, radioactive minerals, tungsten exploration, mining and mineral processing.

Manufacturing Industry

14. It is forbidden to invest in rice paper and ink ingot production. Measure has been eliminated

Transportation, warehousing and postal services

19. Domestic shipping agency companies must be controlled by the Chinese side. Measure has been eliminated

Water conservancy, environment and public facilities management industry

36. It is forbidden to invest in the exploitation of wildlife resources originating in China under state protection. Measure has been eliminated

The entire category of “Water, conservancy, environment and public facilities management industry has been eliminated in the 2019 list.

Culture, sports, and entertainment

44. The construction and operation of cinemas must be controlled by a Chinese entity. Measure has been eliminated

47. The performance brokers must be controlled by a Chinese entity. Measure has been eliminated

FTZ Negative List Exclusive Changes

PRODUCTION FIELD 2019 FTZ NEGATIVE LIST 2019 FTZ NEGATIVE LIST

Agriculture, forestry, animal husbandry and fishery

4. It is forbidden to invest in fishing of aquatic products in sea areas under China’s jurisdiction and inland waters. Measure has been eliminated
7. It is forbidden to invest in the smelting and processing of radioactive minerals and the production of nuclear fuel. Measure has been eliminated

Manufacturing Industry

8. Printing of publications must be controlled by the Chinese side Measure has been eliminated

Electricity, heat, gas and water production and supply industries

14. The construction and operation of urban gas, heat, and water supply and drainage networks within an urban population of over 500,000 shall be controlled by a Chinese entity. Measure has been eliminated

Water conservancy, environment and public facilities management industry

14. The construction and operation of urban gas, heat, and water supply and drainage networks within an urban population of over 500,000 shall be controlled by a Chinese entity. Measure has been reduced. Gas and heat within an urban population of over 500,000 is open to foreign investment. Water supply and drainage networks within an urban population of over 500,000 shall continued to be controlled by a Chinese entity.

Revised measure

The construction and operation of urban water supply and drainage pipe networks with an urban population of over 500,000 shall be controlled by the Chinese side.

2019 General and FTZ Comparison

The green represents the major changes/differences to the measure.

PRODUCTION FIELD 2019 GENERAL NEGATIVE LIST 2019 FTZ NEGATIVE LIST

Agriculture, forestry, animal husbandry and fishery

4. It is forbidden to invest in fishing of aquatic products in sea areas under China’s jurisdiction and inland waters. Measure has been eliminated

Mining Industry

5. It is forbidden to invest in rare earth, radioactive minerals, tungsten exploration, mining and mineral processing. Additional conditions

4.  It is forbidden to invest in rare earth, radioactive minerals, tungsten exploration, mining and mineral processing. (Access to rare earth mining areas or acquisition of geological data, ore samples and production technology are prohibited without permission.)

Manufacturing Industry

8. Printing of publications must be controlled by the Chinese side Measure has been eliminated

7. It is forbidden to invest in radioactive mineral smelting, processing, and nuclear fuel production. Measure has been eliminated

Transportation, warehousing and postal services

14. Domestic water transport companies shall be controlled by the Chinese side. Additional conditions

11. Domestic water transport companies shall be controlled by the Chinese side.

(and shall not operate or lease Chinese vessels or cabins in disguised form to operate domestic waterway transport business and ancillary business; waterway transport operators shall not use foreign vessels to operate domestic waterway transport business, but with the approval of the Chinese Government, there are no Chinese vessels in China that can meet the requirements of the application for transportation.

In the case of ports or waters open to the outside world where ships are berthing, waterway transport operators may temporarily use foreign vessels to operate maritime transport and towing between Chinese ports within the time limit or voyage prescribed by the Chinese Government.)

Information transmission, software and information technology services

20. Telecom Company: Limited to the telecommunication business promised to open after China’s entry into WTO, the proportion of foreign capital in value-added telecommunication business shall not exceed 50%(except electronic commerce, domestic multi-party communication, storage and forwarding, call center). The basic telecommunication business shall be controlled by the Chinese side. Additional conditions

17. Telecom Company: Limited to the telecommunication business promised to open after China’s entry into WTO, the proportion of foreign capital in value-added telecommunication business shall not exceed 50%(except electronic commerce, domestic multi-party communication, storage and forwarding, call center). The basic telecommunication business shall be controlled by the Chinese side

(and the operator shall be a public company specializing in basic telecommunication business established according to law). The pilot policy for the original area of Shanghai FTA (28.8 square kilometers) has been extended to all FTA pilot areas.

Education

31. Pre-school, ordinary high school and higher education institutions are limited to Sino-foreign cooperation in running schools. They must be led by the Chinese side(principals or principal administrators) Additional conditions

28. Pre-school, ordinary high school and higher education institutions are limited to Sino-foreign cooperation in running schools. They must be led by the Chinese side(principals or principal administrators should have Chinese nationality (and settle in China). The Chinese members of the board of directors, board of directors or joint management committees should not be less than 1/2). (Foreign educational institutions, other organizations or individuals may not set up separate schools and other educational institutions with Chinese citizens as the main target of enrollment (excluding non-school-based occupations). However, foreign educational institutions may cooperate with Chinese educational institutions in organizing educational institutions with Chinese citizens as the main target of enrollment.)

Culture, sports and entertainment

34. It is prohibited to invest in news agencies (including, but not limited to, news agencies). Additional conditions

31. It is prohibited to invest in news agencies (including, but not limited to, news agencies).

The establishment of permanent news organizations in China by foreign news organizations and the dispatch of permanent journalists to China shall be subject to the approval of the Chinese Government. The news service provided by foreign news agencies in China shall be examined and approved by the Chinese Government. Business cooperation between Chinese and foreign news organizations must be led by the Chinese side and approved by the Chinese government.

35. It is forbidden to invest in the editing, publishing and production of books, newspapers, periodicals, audio-visual products and electronic publications. Additional conditions

32. It is forbidden to invest in the editing, publishing and production of books, newspapers, periodicals, audio-visual products and electronic publications.

However, with the approval of the Chinese Government, under other conditions that ensure the dominance of the Chinese side in the operation and the right to final examination of the content and comply with the approval of the Chinese Government, Chinese and foreign publishing units may carry out Sino-foreign cooperative publishing projects in press and publishing. It is forbidden to provide financial information services in China without the approval of the Chinese government.

36. It is prohibited to invest in broadcasting stations (stations), television stations (stations), radio and television channels (rates), radio and television transmission coverage networks (transmitting stations, broadcasting stations, radio and television satellites, satellite upstream stations, satellite reception and transfer stations, microwave stations, monitoring stations and cable radio and television transmission coverage networks) at all levels, and to engage in broadcasting and television. Frequency on Demand Service and Satellite TV Broadcasting Ground Receiving Facility Installation Service. Additional conditions

33. It is prohibited to invest in broadcasting stations (stations), television stations (stations), radio and television channels (rates), radio and television transmission coverage networks (transmitting stations, broadcasting stations, radio and television satellites, satellite upstream stations, satellite reception and transfer stations, microwave stations, monitoring stations and cable radio and television transmission coverage networks) at all levels, and to engage in broadcasting and television. Frequency on Demand Service and Satellite TV Broadcasting Ground Receiving Facility Installation Service.

(Examination and approval system shall be applied to the landing of satellite channels abroad.)

37. It is forbidden to invest in broadcasting and television production and operation (including imported business) companies. Additional conditions

34. It is forbidden to invest in broadcasting and television production and operation (including imported business) companies.

(The introduction of overseas film and television dramas and the introduction of other overseas TV programs by satellite transmission will be reported by the units designated by the State Administration of Radio, Film and Television. The licensing system for Chinese-foreign cooperative production of TV dramas [including TV cartoons] will be implemented.)

38. It is forbidden to invest in film production companies, distribution companies, cinema line companies and film introduction businesses. Additional conditions

35. It is forbidden to invest in film production companies, distribution companies, cinema line companies and film introduction businesses.

(But with approval, Chinese and foreign enterprises are allowed to co-produce films.)

39. Auction companies, cultural relics stores and state-owned cultural relics museums are prohibited from investing in the auction of cultural relics. Additional conditions

36. Auction companies, cultural relics stores and state-owned cultural relics museums are prohibited from investing in the auction of cultural relics.

(It is forbidden to transfer, mortgage or lease immovable cultural relics and cultural relics that are prohibited by the State from leaving the country to foreigners. It is forbidden to set up and operate non-material cultural heritage investigation institutions; overseas organizations or individuals shall cooperate with China in the form of investigation, archaeological investigation, exploration and excavation of non-material cultural heritage within China and shall be subject to special examination and approval.)

40. It is forbidden to invest in literary and artistic performing groups. Modified Measure

Literary and artistic performing groups are open to foreign investment as long as they are primarily controlled by a Chinese institution

Revised Measure

37. Literary and artistic performing groups shall be controlled by the Chinese side.