On June 28, 2017, the National Development and Reform Commission and the Ministry of Commerce jointly issued the Catalogue on Industry Guidelines for Foreign Investment (2017 Revision) (hereinafter referred to as the “Catalogue 2017”), and it will take into effect on July 28, 2017.
The main changes between Catalogue 2017 and the previous version in 2015 (“Catalogue 2015”) shall be as follows:
- Further expand fields for the foreign investment
With respect to the measures, Catalogue 2017 further reduces the restrictive measures and liberalizes the foreign investment threshold, comparing to Catalogue 2015. Catalogue 2017 includes 63 restrictive measures in total (35 restrictive measures and 28 prohibitive measures), which is 30 measures less than those in Catalogue 2015. Meanwhile, the encouraged measures are kept almost the same, which continue to encourage the foreign investment in fields of advanced manufacturing, high-technology, energy saving and environmental protection, modern service industry and other fields.
With respect to the industries, Catalogue 2017 further increases the level of openness in the service industry, manufacturing, mining and other areas. For service industry, the restriction on the road passenger transportation, foreign tally, credit investigation and rating services, accounting and audit, agricultural products wholesale market access, are cancelled. For manufacturing industry, the restriction on the rail transportation equipment, automotive electronics, new energy automotive batteries, motorcycles, edible oil, fuel ethanol, etc., are cancelled. For the mining industry, the unconventional oil and gas, precious metals, lithium, etc., are cancelled. Meanwhile, in order for the industry restructuring and adjustment, the special medical use formula food, virtual reality (VR) / enhanced reality (AR) equipment, 3D printing equipment, key parts, urban parking facilities, etc., are added to the encouraged measures.
- Filing management system replaces the approval system regarding the foreign mergers and acquisitions not involving foreign restrictive measures, except mergers and acquisitions with related parties
Regarding the negative list in the Catalogue 2017, where the domestic company, enterprise or natural person use the overseas company which they legally establish or control, to merge or acquire the domestic company which is related to the final beneficiary, the corresponding projects and establishment or registration changes still need the review and approval by the Chinese authority according to the current regulation (Merger and acquisition with related parties in the “Provisions on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors”). Except the rule mentioned above, foreign mergers and acquisitions not involving foreign restrictive measures, including the strategic investment to the listed company in China by foreign investors, will be applied to the filing management system. This change will definitely simplify the procedure of foreign mergers and acquisitions, which will create more flexible arrangements on the foreign investment in order to meet the real request of transactions in the market.
- Propose a negative list for the foreign investment
Another main change in the Catalogue 2017 is the adjustment of the structure, which refers to the explicit establishment of special management measures on the market entry of the foreign investment (negative list of foreign investment market entry). In September 2016, the filing management system was regulated to apply to the foreign invested enterprises in which the special management measures are not involved. In October 2016, the National Development and Reform Commission and the Ministry of Commerce issued a public notice where the scope of special management measures for foreign investment market entry shall be implemented in accordance with Catalogue 2015. Based on the requirements on the reform of the negative list model, Catalogue 2017 will integrate part of the original encouraged measures, the restricted and prohibited measures as the negative list of foreign investment market entry, which will be regarded as the legal basis on the model management of application of national treatment before the market entry plus the negative list regarding the foreign investment in China. In principle, the fields out of the negative list shall not apply to the restrictive measures of the foreign investment market entry. The foreign investment projects and enterprises establishment shall apply to the filing management system.
Catalogue 2017 has removed the restrictive measures of the equal treatment between domestic and foreign investment included in Catalogue 2015. The “11 items” in the original restricted and prohibited measures are managed according to the principle of equal treatment between domestic and foreign investment. For instance, the large-scale theme park construction is required to fulfill the project approval procedures. New golf courses and villas are prohibited to develop for both domestic and foreign investment. Gambling industry and sex industry are always prohibited for both domestic and foreign investment.