Articles
24/08/2020
Corporate & Commercial Law

New openings for foreign investment in China

In the year of the coronavirus, China continues to surprise us with a series of reforms, long awaited and urged, and now finally approved quite on the sly. After the promulgation of the Foreign Investment Law and the new Civil Code, on 23 June 2020 the National Development and Reform Commission and the Ministry of Commerce of the People’s Republic of China promulgated the 2020 edition of the Special Administrative Measures (Negative List) for Foreign Investment Access.

The negative list contains the areas of restriction on foreign investment in the People’s Republic of China, and has been promulgated so far every year. Already in 2019, China reduced the sectors in which foreign investment is restricted from 48 to 40. The 2020 edition further reduces the number of restricted sectors to 32, divided into 12 categories. Article 1 of the notes to the negative list expressly states that Chinese and foreign-owned enterprises are treated equally in sectors not listed.

As a general principle, however, foreign investors are prohibited from operating a sole proprietorship and/or joining an agricultural cooperative.

The negative list is divided into 12 major sectors: agriculture, mining, manufacturing, energy, trade, logistics, information and telecommunications, business services, science and technology, education, health, culture and entertainment.

  • In the agricultural sector, foreign investment in China’s rare plants and genetically modified organisms as well as in fishing and harvesting marine products is prohibited. In the field of seed breeding and seed production for new varieties of wheat, a Chinese investor with no less than a 34% stake is needed, while for sweet corn, the Chinese investor must hold a controlling stake.
  • In the mining sector, foreign investment is prohibited in the field of rare earths, radioactive minerals and tungsten.
  • In the manufacturing sector, foreign investment is prohibited in the processing of traditional Chinese pharmaceuticals, for the production of satellite television reception equipment or related key components. For the printing of publications, a Chinese controlling interest is required. A Chinese shareholding of no less than 50% is also required for the production of whole vehicles, with a warning that this restriction will be removed in 2022 for passenger vehicles.
  • In the energy sector, foreign participation in nuclear power plants is prohibited.
  • In the commercial sector, foreign participation in trade in tobacco and tobacco products is prohibited.
  • In logistics, foreign investment in postal and courier services continues to be prohibited, as is the operation of control towers. Foreign investment cannot exceed 25% in airlines, for which a Chinese legal representative is also required. A controlling interest is required for domestic shipping and the management of civil airports.
  • Foreign investment is prohibited in the field of Internet publications, with the exception of music and open sectors according to the commitments made by China upon entering the World Trade Organization. Foreign investment in the telecommunications sector is also subject to the same limit, and a Chinese investor with a stake of no less than 50% for value-added telecommunication services, and a controlling stake for basic telecommunication services is required too.
  • Market research is reserved for joint ventures, if the subject of the research is radio and television programs, the Chinese partner must have a controlling interest.
  • The research and education sectors are probably the ones subject to the most extensive restrictions. Foreign investment in stem cell research and development and genetic diagnostics, in human and social science research centres, mapping, aerial photography, mineral geology, geophysics, geochemistry, hydrogeology, etc., as well as in compulsory education or religious instruction are prohibited. Foreign investment in non-compulsory education is permitted insofar as the institution is operated by Chinese nationals.
  • Investments in the health sector can only be made with a Chinese partner.
  • Finally, in the culture and leisure sector, foreign investment is prohibited in press agencies and, in any event, in companies related to the collection and dissemination of information, publishing, radio and television, video, cinema and entertainment, trade and exhibition of cultural goods.

It is hoped that restrictions will continue to be progressively eased in the years to come.

 

Edited by Hermes Pazzaglini.

The content of this article is for information purposes only and is not, and cannot be intended as, professional advice. For further information please contact your counsel.

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