Update: Latest Guidance Catalogue for Foreign Investment Industries Released

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China

By Rainy Yao

SHANGHAI—On March 10, the much anticipated “Catalogue for the Guidance of Foreign Investment Industries (2015)” was jointly released by the National Development and Reform Commission (NDRC) and the Ministry of Commerce (MOFCOM). The Catalogue will enter into force on April 10, 2015.

The Guidance Catalogue is comprised of encouraged, restricted and prohibited lists. Foreign companies that are engaged in the encouraged industries may enjoy preferential policies such as tariff exemptions for imported equipment, or tax incentives. For industries that are listed as restricted, investors often need to get pre-approval from the government. Some of these sectors may also have a limit on the number of shares of a foreign entity may own. For industries not included in the catalogue, foreign investors only need to complete filing procedures with the local government.

The latest draft version of the investment catalogue was released in November 2014. Several slight changes have been made since then, but most of the changes introduced in the 2014 draft have made it into the 2015 document now going into force.

The final version lifts restrictions on service industries such as accounting and auditing, legal consulting and market survey, while it encourages foreign investment into R&D in the fields of medicine and technology. Following our previous article on the release of the draft document, we provide a summary of major changes compared to both the 2014 draft and the previous regulation. 

Encouraged Industries

One thing that stands out is that foreign investors are now encouraged to set up and operate wholly foreign-owned nursing homes. The Chinese government released a set of rules last year to encourage the development of elderly care industry in the country, with tax incentives and subsidies provided for both domestic and foreign-owned nursing homes.

While accounting and auditing is also included in the encouraged list, the final version now specifies that foreign-invested accounting firms are required to have a Chinese national as their main partner.

Related Link IconRELATED: 2011 Foreign Investment Industrial Guidance Catalogue Promulgated

Restricted Industries

Most restrictions on manufacturing, wholesale and retail trading and real estate have now been lifted. A total number of 41 restricted items have been removed from the 2011 list.

The new Catalogue now allows foreign investors to set up telecommunications companies to provide basic telecommunication services and value-added telecommunication services (VATS). The foreign entity may own up to 50 percent of shares in enterprises providing VATS and up to 49 percent in providing basic telecommunication services. Crucially, all equity restrictions on e-commerce enterprises have been lifted, which means that as of April 2015, foreign entities are allowed to invest in and set up enterprises that engage in e-commerce.

Foreign investors will soon also be allowed to set up foreign-invested hospitals with a Chinese partner.

As largely laid out in the 2014 Draft Version, the finance industry will largely be liberalized. For more details on the lifting of these restrictions, please refer to our previous article.

On the other hand, new restrictions have been added to the education, culture and entertainment industries, as well as the conducting of market surveys.

Whereas the 2011 Catalogue only restricted foreign investment in Chinese high schools, restrictions now extend to pre-school and tertiary education. In all these cases, the education institution must be a joint venture with a Chinese party. In addition, the school must be “led by a Chinese party,” meaning that the headmaster or the chief administrator in a foreign-invested education institution must be Chinese nationals. The Chinese party must account for half of the members in the board of directors or the joint management committee.

The restrictions on culture and entertainment industry, while originally removed from the 2014 Draft version, were however maintained in the final version now coming into force, specifically:

  • Printing of publications (Chinese party as majority shareholder)
  • Construction and operation of theaters and cinemas (Chinese party as majority shareholder)
  • Construction and operation of large theme parks (government pre-approval)
  • Performance brokerage institutions (Chinese party as majority shareholder)

As for conducting market surveys, foreigners now need to have a Chinese controlling partner to conduct audience measurement (e.g. radio listenership and television viewership). In the 2011 Catalogue, foreign investors are allowed to act as the controlling shareholder in JVs to conduct all types of market survey.

Related Link IconRELATED: Further Liberalization for E-commerce in the Shanghai FTZ

Prohibited Industries

The revised Catalogue also introduces several new prohibitions on foreign investment, including:

  • Production of genetically modified plant seeds
  • Processing of petroleum and coking
  • Processing and production of nuclear fuel
  • Sale of tobacco
  • Chinese legal consulting (exclude providing information relevant to Chinese legal environment)
  • Operation of antique stores and auction houses selling Chinese cultural relics
  • Operation of theater line companies
  • Production of sound and video recordings and electronic publications

The list has not yet clarified the definition of “information relevant to Chinese legal environment.” Another notable point is that “production of sound and video recordings and electronic publications” was previously removed from the prohibited list in the 2014 Draft Version. 

To learn more about the consequences of these regulations for your business, please contact us at china@dezshira.com.

A Chinese version of the new Catalogue can be found here


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6 responses to “Update: Latest Guidance Catalogue for Foreign Investment Industries Released”

  1. […] important fact to take into consideration: it is not possible to set up a WFOE in every sector. The Foreign Investment Catalogue provided by the Chinese Government lists all restricted sectors as well as those for which […]

  2. […] importante da prendere in considerazione: non è possibile creare una WFOE in ogni settore. Il Foreign Investment Catalogue viene distribuito dal governo cinese ed elenca tutti i settori ristretti, nonché quelli nei quali […]

  3. […] cuenta: no es posible establecer una sociedad de capital 100% extranjero en todos los sectores. El Catálogo de Inversión Extranjera, promovido por el gobierno chino, enumera todos los sectores restringidos así como aquéllos en […]

  4. […] Tale catalogo viene aggiornato periodicamente. In generale, i settori incoraggiati sono quelli che promuovono l’innovazione in aree quali la protezione ambientale, l’esportazione o lo sviluppo delle zone più povere del paese. Giusto per fare un esempio, nel 2015 gli ospizi sono diventanti un settore incoraggiato, probabilmente a causa del fatto che in Cina vi è un bisogno crescente di tale tipo di servizio. Un esempio di settore ristretto è quello delle industrie che hanno un impatto negativo sull’ambiente. I settori proibiti includono quelli considerati politicamente sensibili, o che possono recare un danno al paese. […]

  5. […] This catalogue is updated periodically. In general, the sectors that are encouraged are those that promote innovations in areas such as environmental protection, export or the development of the poorest regions of the country. Just as an example, in 2015 the elderly care industry became an encouraged sector, probably due to the fact that in China there’s a growing need for that type of service. An example of a restricted sector would be one of the industries that have a negative impact of the environment. Forbidden sectors include those considered politically sensitive, or that can be damaging to the country. […]

  6. […] this is highly important, as the government plays a significant role in the local high-tech ecosystem. Foreign companies who engage in promoted industries can enjoy tariff exemptions, tax incentives, and more. However, if a company chooses to operate within restricted industries, it will likely have to get prior approval from the government in order to operate, and in some cases, face a limit on the amount of shares held by foreign citizens. This information can be found in the official government guidelines that address specific economic areas. Examples of such can be found in the 13th Five-Year Plan and the Foreign Direct Investment Industries Guidance Catalogue. […]

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