Changes in China 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 roll back many of its policies prohibiting foreign investment into its markets in an effort to continue its 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 China Negative Lists

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 China Negative Lists have 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 in accordance to its gradual shift in the 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 China Negative Lists have streamlined the organization of its measures, removing the previous serial number and specialized field categories from its table. This groups each measure by just numbers and overall encompassing industry, simplifying the categorization.

Major Changes to the 2019 China Negative Lists

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 has also seen one major change, specifically within 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 investing in 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 continued 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 China negative lists came into effect (July 2, 2019), 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 Lists, 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 China Negative Lists 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.

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