Highlights of the Revised Negative Lists for Foreign Investment Access

On June 30, 2019, National Development and Reform Commission and the Ministry of Commerce of the People’s Republic of China (the “PRC”, for the purpose of this document, shall exclude Special Administrative Regions of Hong Kong, Macau and Taiwan Region) jointed issued the 2019 Edition of the “Special Administrative Measures for Foreign Investment Access (Negative List)” (hereinafter referred to as “National Negative List”) and the “Special Administrative Measures for Foreign Investment Access in Pilot Free Trade Zones (Negative List)” (hereinafter referred to as “FTZ Negative List”). Both of the above 2019 Editions of the negative lists will enter into force from July 30, 2019.

Both of these 2019 Edition of the negative lists were made shorter than its respective 2018 Edition, namely, the number of restrictions listed in the negative lists for foreign investment access has been reduced, for National Negative List, from 48 to 40, and for FTZ Negative List, the number of restrictions has been reduced from 45 to 37.

I. Revisions of the National Negative List

II. Revisions of the FTZ Negative List

III. Comparison of National Negative List and FTZ Negative List

Normally, the FTZ Negative List is shorter than the National Negative list, in other words, there are less restrictions for foreign investment access in the Pilot Free Trade Zones than in other areas of the PRC. For some fields, the PRC authorities may choose to firstly remove restriction from the FTZ Negative List, and then remove restriction from the National Negative List. This kind of arrangements can be regarded as the preference for Pilot Free Trade Zones, as well as experiments in Pilot Free Trade Zones. For instance, “performance brokers shall be controlled by the Chinese party” was removed in the 2018 Edition of the FTZ Negative List but still retained in 2018 Edition of the National Negative List, which means performance brokers in the Pilot Free Trade Zones can be 100% controlled by foreign investors while in other areas of the PRC performance brokers shall be controlled by the Chinese party. Furthermore, as “performance brokers shall be controlled by the Chinese party” was also deleted in the 2019 Edition of National Negative List, there will be no shareholding restriction for foreign investment in the field of performance brokers since July 30, 2019, the date when 2019 Edition of the National Negative List will enter into force.

As can be clearly seen from the tables in Section I and Section II above, most of the new revisions to the FTZ Negative List are the same as the revisions to the National Negative List. For example, in the mining industry, the prohibition to the “exploration and mining of molybdenum, tin, antimony and fluorite” has been deleted; In the transportation industry, the shareholding restriction to the “domestic shipping agencies” has been deleted; In the infrastructure industry, the shareholding restriction to the “construction and operation of urban gas pipe networks and heating power pipe networks in a city with more than 500,000 residents” has been deleted; In the telecommunication industry, the shareholding restriction to the “value-added telecommunication business such as domestic multi-party communications, store-and-forward and call center” has been deleted.

Notwithstanding the above, it is worth noting that the restrictions to the following two fields have been removed in the FTZ Negative List but still retained in the National Negative List:

1. Investment in fishing aquatic products in sea areas and in inland waters under Chinese jurisdiction shall be prohibited;
2. Printers of publications shall be controlled by the Chinese party.

Thus, in accordance with the 2019 Edition of the FTZ Negative List, in the Pilot Free Trade Zones, the above two restrictions have been abolished, while in other areas of the PRC, in accordance with the 2019 Edition of the National Negative List, the above two restrictions shall still apply. Foreign investors who are interested in investing in these two fields in the PRC may consider to start their business in Pilot Free Trade Zones. Currently there are 12 Pilot Free Trade Zones which have been approved and established in designated areas in the PRC, locate in Shanghai, Tianjin, Chongqing, Guangdong Province, Fujian Province, Liaoning Province, Zhejiang Province, Henan Province, Hubei Province, Sichuan Province, Shaanxi Province and Hainan Province.