Since year 2015, the foreign investment control in China has taken the form of “Negative List”, i.e. foreign investments in the industry areas listed in the Negative List will be prohibited, restricted by specific corporate forms, specific percentage of shareholdings by foreign investors or limited to certain sub-areas, depending on the categories such industry areas are listed in.
In contrast, foreign investments in fields that are outside of the list shall receive national treatment, i.e. the foreign investors of such investments only need to follow the same procedures of establishing investments as domestic investors and their investments will receive the same treatments as domestic investments in the same areas. Such treatment is further regulated in the relevant domestic regulations (Market Access Negative List) which will be mentioned later.
Two sets of Negative List
Up to date, there are two sets of Negative List for foreign investments, a general Negative List and Negative Lists specifically designed for free trade zone (FTZ Negative Lists), and both will be updated yearly. For the relation between general Negative List and FTZ Negative Lists, more favorable measures in FTZ Negative Lists or relevant international treaties and agreements in the free trade zone, and any other special economic zone, will take precedence over the general one. Another exception for both two sets of Negative Lists is that upon review by the competent department of the State Council and approval by the State Council, a specific foreign investment may be exempted from either two sets of Negative List.
In year 2021, The National Development and Reform Commission and the Ministry of Commerce have released The Special Administrative Measures for Access of Foreign Investments (Negative List) 2021 Version (in Chinese “外商投资准入特别管理措施（负面清单）(2021版)”, hereinafter “the 2021 Foreign Investment Negative List”), which is a general Negative List and has come into effect on 1 January, 2022. This article will give a brief overview of the 2021 Negative List and the changes between the 2020 and 2021 versions.
The 2021 Foreign Investment Negative List covers the following twelve categories: (1) Agriculture, forestry, animal husbandry, and fishing; (2) Mining; (3) Manufacturing; (4) Electric power, heat, gas, and water generation and supply; (5) Wholesale trade and retail trade; (6) Transportation, warehousing, and postal service; (7) Information transmission, software, and information technology service; (8) Leasing and commercial services; (9) Scientific research and technical services; (10) Education; (11) Human health and social work activities; and (12) Culture, sports, and entertainment Therefore, foreign investors planning to invest in these areas are suggested to check the specific limitations and prohibitions in the list.
There are several changes compared to the 2020 edition, including confirming the application of “2020 Market Access Negative List” by both foreign and domestic investors and its relation with the 2021 Foreign Investment Negative List, adding limitations on offshore share issuance and listed transaction of certain domestic companies, and deleting two negative items from the manufacturing category
To begin with, according to the explanation of the 2021 Foreign Investment Negative List, the 2021 Foreign Investment Negative List and 2020 Market Access Negative List shall be applied in sequence. For foreign investors, if their investments fall inside the scope of the 2021 Foreign Investment Negative List, then they are subject to specific prohibitions and restrictions in the list. On the opposite side, if foreign investments fall outside the scope of the 2021 Foreign Investment Negative List, the investments, being treated like domestic investments as mentioned above, will still be regulated by the 2020 Market Access Negative List, an internal market regulation.
Moreover, if domestic enterprises engaged in business in areas that are prohibited for foreign investment under the 2021 Foreign Investment Negative List, and they would like to issue shares (such as initial public offering) abroad, the relevant Chinese official authorities shall review and give their consent beforehand. Furthermore, foreign investors of such enterprises shall not participate in the operation and management of the enterprise, and its shareholding ratio shall be regulated with reference to the relevant provisions of domestic securities investment management for foreign investors.
From 33 to 31 items
Finally, the 2021 Foreign Investment Negative List has been reduced from 33 to 31 items. Specifically, in the vehicle manufacturing area, both the restriction on foreign stake for the manufacturing of passenger vehicles and the limitation on the maximum number of joint ventures manufacturing the same line of complete automobiles in China that a foreign corporate is permitted to establish has been canceled. In addition, the prohibition on investment in the manufacturing of satellite television broadcast ground receiving facilities and critical components has also been removed from the 2021 edition. For foreign investors, these amendments mean that they will be enjoying more openness when they are entering into the China manufacturing market.
It is highly suggested that foreign investors who would like to invest in China should check the latest Negative List prior to their prospective actions. By doing this, investors will have prior knowledge of whether their investments will be subject to any restrictions or prohibitions. This can help them control the compliance risks for their investments.
Should you have any questions on the 2021 Foreign Investment Negative List and Market Access in China, please contact our China Practice: