China Eases Rules on Foreign Investment

Date: Friday, August 17th, 2018 by Michaela Hickson.

Article originally published here on 23rd July 2018.
By the end of June 2018, the regime of foreign investment in China has met two significant changes. One is a shortened Negative List for Foreign Investments (the “2018 Negative List”) jointly released by National Development and Reform Commission (NDRC) and the Ministry of Commerce (MOFCOM) which becomes effective on July 28, 2016; the other one is the promulgation of the revised Interim Administrative Measures for the Record-filing of the Incorporation and Change of Foreign-invested Enterprises (the “2018 Interim Measures”) by MOFCOM which takes effect on 30 June 2018. The two changes have signified China’s firm determination on attracting more foreign investments by further opening-up to the world, and simplifying the governmental formality.

The 2018 Negative List – Opening-up Market Access 

The Negative List includes a list of industries in which foreign investment is either prohibited or restricte0d. Restricted industries usually require investment through joint ventures with Chinese companies. For industries which are not included in the List, foreign investors are basically given equal treatment to domestic Chinese investors. Compared to the Negative List issued in 2017, the 2018 Negative List has a significantly reduced number of restrictive measures, from 63 to 48. Recent announcements of an opening in the financial services, agriculture, shipbuilding, aircraft manufacturing and auto sectors have now been reaffirmed in official documents.

A summary of the key opening-up measures for the 2018 Negative List can be found in the list below.

1. Agriculture

• Removed the equity requirement for the selection of new crop varieties and the production of seeds, except the restriction on wheat and maize.

2. Mining

• Removed restrictions on the exploitation and exploration of graphite and special/rare coal.
• Removed restrictions on the smelting and separation of rare earth and tungsten (although exploration and mining of tungsten is still prohibited).

3. Manufacturing

3.1 Automotive

• Will remove the restriction on foreign capital share ratio of special vehicle and new energy vehicle manufacturing in 2018.
• Will remove the restriction on foreign capital share ratio of commercial vehicle manufacturing in 2020.
• Will remove restrictions prohibiting a foreign company from setting up more than 2 joint ventures manufacturing the same kind of vehicles  in China in 2022.

3.2 Shipbuilding industries

• Removed restrictions on design, manufacture and repair of ships.

3.3 Aviation manufacturing

• Removed restrictions on design, manufacture or maintenance of mainline/ regional aircraft, design and manufacture of helicopters of 3 tones or above, manufacture of surface/surface effects aircraft, design and manufacture of drones/aerostats and design, manufacturing and maintenance of utility aircrafts.

3.4 Manufacturing of weapons

• Removed restriction on the manufacturing of weapons and ammunition.

4. Wholesale and retail industries

4.1 Grain

• Removed restrictions on the acquisition and wholesale of rice, wheat and maize.

4.2 Gas station

• Removed restrictions on foreign investors not being able to establish more than 30 branches of chain petrol stations and not being able to sell different types and brands of refined oil from multiple suppliers.

5. Transportation, warehousing and postal service industries

• Removed restriction on the construction and operation of railway trunk line network and railway passenger transportation companies.
• Removed restrictions on international shipping agencies and international maritime transport companies.
• Removed restrictions on foreign-invested-to-equity-ratio of passenger vehicles.

6. Financial Industry  

• Removed the restriction stating that “shares of a single overseas financial institution and related parties under its control or joint control as the originator or strategic investors shall not exceed 20% in a single Chinese commercial banks; total share of multiple overseas financial institutions and related parties under its control or joint control as the originator or strategic investors shall not exceed 25%”.
• Changed the allowed proportion of foreign investment in securities companies from 50% to 51% in 2018. Will lift the proportion restriction in 2021.
• Changed the allowed proportion of foreign investment in futures companies from 50% to 51% in 2018. Will lift the proportion restriction in 2021.
• Changed the allowed proportion of foreign investment in insurance companies from 50% to 51% in 2018. Will lift the proportion restriction in 2021.

7. Scientific research and technological services industries

• Removed restrictions on surveying and mapping companies.

8. Cultural Entertainment

• New restriction on investing in performing art groups.

The 2018 Interim Measure – “One Window, One Form”

The release of 2018 Interim Measures mainly serves as a further enactment and confirmation of the simplified registration formality reform for foreign-invested enterprises – “One Window, One Form” – as put forward earlier this year on February 28 in the Circular jointly issued by MOFCOM and the State Administration for Industry and Commerce (SAIC). According to the Interim Measures, starting form 30 June, 2018, a foreign investor is able to incorporate a foreign-invested enterprise (FIE) by filling in one single form, electronically submitted, to one government office, insofar as the industry he invests in does not fall into the 2018 Negative List as introduced above. This means that a foreign investor no longer needs to go through the procedures with MOFCOM (i.e. record-filing of setup) and SAIC (i.e. registration of setup) separately. Which previously meant filling in the same information repeatedly. Furthermor the new process will be realized as fully “paperless”, “no on-site presence”, and “free of charge”.  It is believed that this new reform introduced will generally improve the service effectiveness and streamline the registration procedure, which in turn will reduce the burden of foreign investors.