Significant Breakthrough of Market Entry of Foreign Investment in Free Trade Zone
On June 5th of 2017, the Special Management Measures for the Market Entry of Foreign Investment in Pilot Free Trade Zones (2017 version of Negative List) (hereinafter referred to as the “2017 version of FTZ Negative List”) was promulgated by the General Office of the State Council and will enter into force on July 10th of 2017. The 2017 version of FTZ Negative List has largely broadened the extent of opening-up to foreign investmentin Free Trade Zone and in the industry of manufacturing such as aviation and auto as well as industry of financial services such as banking services and insurance services, etc. Thespecial management measuresstipulated in the 2017 version of FTZ Negative List have been reduced to less than one hundred. It is definitely another significant breakthrough of market entry system of foreign investment after the management system of negative list was established by the 2015 version of FTZ Negative List.
I. What is FTZ Negative List?
The system of Negative List first started in 2015 and is now applied to eleven Pilot Free Trade Zones (hereinafter referred to as “FTZ”) including Shanghai, Guangdong, Tianjin, Fujian and Liaoning, Zhejiang, Henan, Hubei, Chongqing, Sichuan, Shaanxi which are newly added in 2017. The Negative List specifiesthe special management measures applicable to the market entry of foreign investment which is not eligible for the principles of national treatment. Fields included in the FTZ Negative List in which investment is not prohibited shall be subject to themarket entry licensing of foreign investment. Fields not included in the FTZ Negative List shall be managed within FTZs according to the principle of equal treatment of domestic and foreign investment.
II. What is Updated in the 2017Version of FTZ Negative List?
Pursuant to the Industrial Classification of National Economic Activities (GB/T4754-2011), the 2017 version of FTZ Negative List contains 95 special management measures under 40 items across 15 categoriesand 27 measures under 10 items are reduced from the previous version.
6 items are reduced includingmanufacturing of rail transport equipment,pharmaceutical manufacturing, road transport, insurance business, accounting and audit and other business services, and 4 items are integrated. The reduced items are as follows:
|
Industry |
Area |
Reduction compared to the previous version
(Deleted parts are open to foreign investment) |
|
Mining |
Mining and dressing of metal ores and non-metallic ores |
1. The exploration and exploitation of precious metals (in the groups of gold, silver and platinum) fall under the categories where foreign investment is restricted. |
2. The exploitation and dressing of lithium ores fall under the categories where foreign investment is restricted. |
|
Manufacturing |
Aviation manufacturing |
3. The design and manufacturing of civil helicopters of three tonnes and above shall be controlled by Chinese shareholders. |
4. The design, manufacturing and maintenance of general aircrafts of six tonnes and nine seats and below shall be limited to the forms of Sino-foreign equity and cooperative joint ventures. |
|
Ship manufacturing |
5. The manufacturing of low and mid-speed diesel engines and crankshafts for vessels shall be controlled by Chinese shareholders. |
6. The manufacturing and repair of marine engineering equipment (including modules) shall be controlled by Chinese shareholders. |
|
Auto manufacturing |
7. The products produced by newly-established manufacturers of pure electric passenger cars shall have their own brands, own proprietary intellectual property rights, and possess relevant invention patents already licensed. |
Manufacturing of rail transport equipment
(Note: this item has been all deleted) |
8. The manufacturing of rail transport equipment shall be limited to the forms of Sino-foreign equity and cooperative joint ventures (excluding the R&D, design and manufacturing of supporting passenger service facilities and equipment for high-speed railway lines, special passenger railway lines and intercity railway lines, the R&D, design and manufacturing of track and bridge equipment related to high-speed railway lines, special passenger railway lines and intercity railway lines, the manufacturing of electric railway equipment and apparatuses, the manufacturing of pollutant discharge equipment for railway passenger compartments, etc.) |
9. 70% or more of the equipment used in urban rail transport projects shall be domestically manufactured. |
|
Manufacturing of communications equipment |
10. The design and manufacturing of civil satellites, and the manufacturing of civil satellite payloads shall be controlled by Chinese shareholders. |
|
Mineral smelting and rolling processing |
11. The smelting of tungsten, molybdenum, tin (excluding tin compounds), antimony (including antimony trioxide and antimony sulfide) and other rare metals falls under the categories where foreign investment is restricted. |
|
Pharmaceutical manufacturing |
12. Foreign investment in the processing of Chinese medicinal materials that are listed in the Regulations on the Administration over the Protection of Wild Medicinal Resources and the Catalogue of Chinese Rare and Endangered Plants for Protection is prohibited. |
|
Transportation Services |
Road transport
(Note: this item has been all deleted) |
13. Road passenger transport companies fall under the categories where foreign investment is restricted. |
|
Water transport |
14. Ocean shipping tally falls under the categories where foreign investment is restricted, and shall be limited to the forms of Sino-foreign equity and cooperative joint ventures. |
|
Information technology services |
Internet and Internet-related services |
15. Foreign investment ininternet access service business establishmentsis prohibited. |
|
Financial services |
Banking services |
16. The branches of a foreign bank shall not engage in the business of "agency issuance, agency redemption and underwriting of government bonds" |
17. A foreign-funded bank shall meet the requirements on the minimum period of business operations before being approved to engage in RMB business. |
18. Overseas investors that invest in financial asset management companies shall comply with the requirements on a certain amount of total assets. |
Insurance business
(Note: this item has been all deleted) |
19. Unless approved by China's insurance regulatory authorities, a foreign-invested insurance company shall neither act as a ceding company nor as a reinsurer with regard to reinsurance business with its affiliated enterprises. |
|
Leasing and business services |
Accounting and audit
(Note: this item has been all deleted) |
20. Only Chinese citizens can serve as the chief partners of, (or hold other positions that perform supreme management duties in,) accounting firms of special general partnership. |
|
Statistics compilation and survey |
21. Foreign-related survey agencies shall be subject to qualification accreditation, and foreign-related social investigation projects shall be subject to examination and approval. |
|
22. Rating services fall under the categories where foreign investment is restricted. |
Other business services
(Note: this item has been all deleted) |
23. The legal representative of an intermediary providing services for entry and exit due to private reasons shall be a Chinese citizen who has both a Mainland permanent household register and full civil capacity. |
|
Education |
Education |
24. Foreign education institutions may cooperate with Chinese education institutions to run education institutions that mainly enroll Chinese citizens. Chinese and foreign parties that cooperate with each other in running schools may run all levels and types of education institutions in the form of Sino-foreign cooperative joint ventures, provided that:They shall not run education institutions that provide military, police, political and Party education as well as education of other special fields. |
|
Culture, sports and entertainment |
Press and publication, radio, film and television, and financial information |
26. Performance brokerage agencies fall under the categories where foreign investment is restricted, and shall be controlled by Chinese shareholders (change from “excluding those that only provide services in the provinces or municipalities of their registration” to “excluding those that only provide services for provinces or municipalities with FTZs”). |
|
Culture and entertainment |
27. The construction and operation of large theme parks fall under the categories where foreign investment is restricted. |
It should be noted that the special management measures relevant to national security, public order, public culture, financial prudence, government procurement, subsidies, special procedures, non-profit organizations and taxation that are not included in the 2017 version of FTZ Negative List shall still be governed by existing provisions.FTZ foreign investment that involves national security shall be subject to security review in accordance with the Trial Measures for the National Security Review of Foreign Investment in Pilot Free Trade Zones.
III. Comments on the 2017 Version of FTZ Negative List
The 2017 version of FTZ Negative List is the first amendment after the previous version of FTZ Negative List was promulgated. It is indicated by the General Office of the State Council upon promulgation of the 2017 version of FTZ Negative List that this amendment has further relaxed the restrictions on market entry of foreign investment which represents an important measure for implementing a new round of high-level opening-up.
Compared with the management system of foreign investmentin the past which is focused on pre-approval, the management system of negative list represents a brand new idea and philosophy which is linked to internationalization. In addition, according to the Opinions of the State Council on Implementing the Market Access Negative List System, the negative list system of national market access will be officially carried out from 2018 throughout the country. Therefore, it will be helpful to understand and predict the future direction of reform of market access system involving foreign investment in China by following the 2017 version of FTZ Negative List.
In the 2017 version of FTZ Negative List, it should be aware that the management of the market entry of foreign investment has become looser and there is also a tendency of turning management system of market entry from pre-approval into middle and post-management which is currently advocated by the government. We believe that the further innovation of management system represented by the 2017 version of FTZ Negative List will well facilitate higher level of opening-up and further restructuring of economic system in China.