CHINESE UPDATE – China Publishes New Industry Catalogue for Foreign Investment
- The new Foreign Investment Industrial Guidance Catalogue encourages foreign investment in more areas by removing several restrictions and adding several encouraged industries. Caps on foreign equity are lifted in some industries.
- The New Catalogue promotes investment in energy-saving, environmental protection, new-generation information technology, biology, high-end equipment manufacturing, new energy, new materials, and new energy vehicles. It removes whole vehicle manufacturing, polysilicon and coal chemical products from the encouraged category.
- Western and Central China may be taking over the industries otherwise not encouraged in this Catalogue.
On December 24, 2011, the National Development and Reform Commission and Ministry of Commerce promulgated the new Foreign Investment Industrial Guidance Catalogue (the Catalogue). The Catalogue is the key industrial policy for guiding the foreign direct investment in China. It was amended as a result of change in the political and social environment. This is the Fifth Amendment to the Catalogue since it was initially introduced in 1995.
A. The key adjustments and changes in the new Catalogue are summarized below:
- The new Catalogue has 473 sectors. Foreign investment is encouraged in 354 sectors, restricted in 80 sectors and prohibited in 39 sectors. Compared with the 2007 Catalogue, in the new Catalogue, three sectors have been added to the encouraged category, seven sectors have been removed from the restricted category, and one sector has been removed from the prohibited category. Additionally, restrictions on foreign investment equity percentage are removed in certain sectors, and number of sectors with the equity ratio restrictions in the encouraged and restricted categories is reduced by 11.
- The high-end manufacturing industry is one of the key sectors in which foreign investment is encouraged, aiming to upgrade the traditional industry with new technologies, new crafts, new materials, and new facilities. Various new products and technologies in textile, chemical and mechanical manufacturing have been added to the encouraged category in the new Catalogue. A number of sectors, such as, whole vehicle manufacturing, polysilicon and coal chemical products have been removed from the encouraged category.
- Foreign investment is encouraged in strategic industries such as energy-saving and environmental protection, new-generation information technology, biology, high-end equipment manufacturing, new energy, new materials, and new energy vehicles. A number of sectors, such as, key component parts for new energy vehicles and next-generation internet system equipment based on IPv6, terminal equipment, inspection equipment, software and development and manufacturing of core plate have been added to the encouraged category.
- Foreign investment is encouraged in “modern” services industry. Nine services industries have been added to the encouraged category in the new Catalogue, including motor vehicle charging stations, venture capital enterprises, intellectual property services, marine oil pollution clean-up technical services, vocational skills training, etc. Meanwhile, foreign-investments in medical institutions and finance lease companies have been moved from the restricted to the permitted category.
B. The transition between the new Catalogue and the 2007 Catalogue
In accordance with the official website of the National Development and Reform Commission, the new Catalogue will take effect from January 30, 2012. The new Catalogue will apply to the foreign investment projects approved after January 30, 2012. As for foreign invested enterprises whose projects are restricted or prohibited by the new Catalogue, but not by the old one, the new Catalogue would not retroactively apply, unless the old projects are now seeking capital increase, sales of equity, or for domestic enterprises seeking overseas listing, etc., in which case the new Catalogue would apply.
The National Development and Reform Commission indicates on its website that certain sectors that have been removed from the encouraged category are under consideration to be included when the Central and Western Region Foreign Investment Preferred Industries Catalogue is revised and updated.