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China's new 'negative list'

China publishes new negative lists for foreign investment and further simplifies foreign investment regulatory procedures

New negative lists

On 28 June 2018, China’s National Development and Reform Commission (NDRC) and Ministry of Commerce (MOFCOM) jointly released the Special Administrative Measures on Access to Foreign Investment (Negative List) (2018 Version) (the 2018 Nationwide Negative List) which will take effect on 28 July 2018. The 2018 Nationwide Negative List contains 48 restricted and prohibited sectors for foreign investment, reduced from 63 in the 2017 negative list. Under the “negative list” regime implemented since 2016, foreign investment in sectors outside the negative list is regulated in essentially the same manner as investment by domestic investors, and does not require prior approval from MOFCOM.

Most of the revisions in the 2018 Nationwide Negative List reflect recently announced measures aimed at relaxing certain foreign investment restrictions, including removing, in respect of the relevant specified sectors: (1) the prohibition on foreign ownership, (2) the requirement for Sino-foreign joint venture, (3) the requirement for Chinese majority ownership, or (4) foreign ownership cap, and other operational restrictions (as the case may be). Affected sectors range from financial services, transportation, professional services, infrastructure, energy, resources, to agriculture. The particularly notable changes include increasing foreign ownership limit to up to 51 per cent for certain financial services businesses – with the cap to be abolished altogether by 2021, and foreign ownership limits in various automobile sub-sectors will be abolished between 2018 and 2022.

On 30 June 2018, NDRC and MOFCOM further jointly released the Special Administrative Measures on Access to Foreign Investment in Free Trade Zones (Negative List) (2018 Version) (the 2018 FTZ Negative List) which will take effect on 30 July 2018. The 2018 FTZ Negative List applies to the twelve Pilot Free Trade Zones from Shanghai to Hainan, and touches upon 45 restricted and prohibited sectors, and further opens up certain sectors that are either restricted or prohibited under the 2018 Nationwide Negative List.

A detailed summary of the key revisions under the 2018 Nationwide Negative List and the 2018 FTZ Negative List is set out here.

Combined filings

On 29 June 2018, MOFCOM also issued new Interim Administrative Measures for the Record-filing of Incorporation and Change of Foreign-invested Enterprises (the New Filing Measures), which became effective on the same date. The New Filing Measures took one further step beyond the previous regulations in streamlining foreign investment regulatory procedure: namely filings with MOFCOM and the State Administration for Market Regulation (SAMR, the new regulatory agency that replaced the State Administration for Industry and Commerce from 17 March 2018) required for establishing, or making any material corporate changes to, a foreign invested enterprise will now be made together. Under the new regime, the required information filing with MOFCOM shall be submitted to SAMR at the same time as the SAMR filing, after which SAMR will forward such information to MOFCOM for it to complete its filing procedure. The applicants therefore no longer needs to submit two separate filings with substantially similar information.

This is another step that China takes to further promote foreign investment and ease administrative burden on foreign investors. MOFCOM, as well as a few other governmental agencies, has indicated on several occasions in 2018 that further streamlining the foreign investment regulatory regime, and further measures in this regard (e.g. consolidating the annual reporting with multiple governmental authorities that a foreign invested enterprise currently has to carry out separately) can be expected in the near future.