One of the first questions to be asked before stepping into China market is “Is my business restricted in China?”.
Foreign investors will find this information in China’s foreign direct investment list.
On a national level, there are five lists that affect foreign investments in China:
- Special Administrative Measure (Negative List) for the Access of Foreign Investment (hereinafter referred as Negative List) – Chinese version available here
- Special Administrative Measure (Negative List for FTZ) for the Access of Foreign Investment in Pilot Free Trade Zones (hereinafter referred as Negative List for FTZ) – Chinese version available here
- Catalogue of Industries for Encouraging Foreign Investment (hereinafter referred as Encouraging Catalogue) – Chinese version available here
- Market Access Negative List – Chinese version available here
- Catalogue for Guiding Industry Restructuring (hereinafter referred as Restructuring Catalogue) – Chinese version available here
There might be some other lists that only function on certain provinces and cities, and some list related to custom’s regulation on importing or exporting. In this article, we will only focus on the five lists on the national level.
What is China’s foreign direct investment list?
These lists serve different functions, some only apply to foreign investors, some apply to all entities, whether domestic or overseas.
Below we give you a short introduction to each list:
- Negative List is the national level’s guide to list all the industries that have restrictions on foreign investors. In this list, either it clearly says certain business is prohibited (like number 4, investment in the harvesting of aquatic products in the territorial waters or inland waters of China shall be prohibited), or it says that certain business can only be conducted with some requirements (like number 6, for printing of publications, the Chinese party shall have a controlling stake). As its name explains, for those industries that are not listed here, this list proposes no restrictions;
- Negative List for FTZ is almost the same as the national level’s Negative List, except that it only applies to those foreign investors who register the company in the free trade zone. Its system is the same as national level one, with prohibitions or special requirements. As the Negative List, if for the industries not listed, then there is no restriction;
- Encouraging Catalogue contains all the businesses for which the Chinese authority encourages foreign investors to invest. It has two parts, the first part is the general list applied at the national level, the second part is a special list that only applies to the Mid-West area of China. The actual benefits are decided by the local or national government in other regulations. The list itself is the general trend on what business is encouraged.
The above lists are those who are only applied to foreign investors. The other two lists apply nationwide, including domestic investors and foreign investors:
- The Market Access Negative List is the list where all kinds of business restrictions or extra business approval certificate are recorded. Similar to the other negative lists, there are forbidden and restricted industries. For forbidden industries, no investor can invest such businesses (domestic and foreign). For restricted industries, the investor shall first meet the relevant requirements and get the relevant certificate, and then the investor can operate the business. Although the detailed restrictions may be different for foreign investors and domestic investors, this list only contains the information if you need to apply for this extra certificate, but it does not contain the detailed requirements for the certificate;
- Restructuring Catalogue is the general guide on the policy side about which industry shall be promoted and which industry is so obsolete that needs to be washed out. At the same time, it also contains industries in which certain restrictions shall apply. According to the policy, no new entity can be registered or established to restricted industries, although existed company can still operate for a while. This means that, for foreign investors who have not established entities in these industries, it can be considered as forbidden. Again, it is a general policy guide, although it does have a binding power nationwide, it does not contain detailed instructions or requirements.
After hearing all these introductions, it is still possible that foreign investors may not understand how to use these lists.
In this section, we will show you the steps to actually use these lists according to your own business.
Step 1
Foreign investors shall check the Negative List (or Negative List for FTZ if the entity is going to be registered at FTZ) to see if the business the investor wishes to conduct is forbidden. If not, then we can move to step 2. If yes, then sorry, what the investor is trying to do does not open to foreign investors.
Foreign investors shall check if the business is regarded as an obsolete or restricted industry in the Restructuring Catalogue. If not, then we can move to step 3. If yes, then the business intended is not possible in China as the authority considers this business obsolete and needs to be washed out.
Foreign investors shall check if the business is forbidden in the Market Access Negative List. If not, then we can move to step 4. If yes, then the business intended is forbidden not only for foreign investors but also to domestic investors.
This step is a little bit more complicated. At this stage, the foreign investor has confirmed that the business intended is not forbidden in China.
The next procedure is to make sure if there is any restriction on the business according to the Negative List/Negative List for FTZ/Market Access Negative List.
One of the most common restrictions for foreign investors is the limit of share. Certain businesses can only be operated if there is another Chinese partner with a majority share in the company.
Other restrictions could be like having an actual office space that is big enough or hiring a certain number of employees with knowledge in some area or having the registered capital meeting a certain amount.
If there is such restriction, then the business can operate after the requirements or extra certificates are fulfilled. If there is no restriction or the business is not recorded in any of these lists, then congratulations, the business can start immediately after the entity is set up.
It is actually an extra step. Foreign investors can check the Encourage Catalogue and the Restructuring Catalogue to see if the business is encouraged.
If so, then it is possible that the foreign investor can apply for the extra benefit for the company. Possible benefits could include tax return or reduction, tax-free for importing self-use equipment. However, detailed benefits and the condition is decided in other regulations. The list itself is only a policy trend.
With this article, the foreign investor can have a basic understanding of the lists related to foreign investments in China. However, the policies are only the general guide. The actual operation is still complicated, therefore we suggest foreign investor to use professional agencies to avoid potential risks. If you have other questions or if you want to know more about the lists, feel free to contact us for a detailed consultation.
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