Beijing’s Services Sector Opens More Areas to Foreign Investment
China’s capital received the green light from the State Council to further open parts of the Beijing service sector to foreign investment. The affected industries include areas that were previously off-limits, such as education, telecommunications, construction, performing arts, and more. We discuss what impact this could have on foreign investors.
On Monday, October 18, 2021, China’s State Council announced that it had permitted Beijing to temporarily adjust certain regulations to enable more access to areas of the services sector for foreign investors, effective immediately.
A document released by the State Council detailed the adjustments to specific articles in several pieces of legislation that restrict foreign participation in the service industries, covering areas like education, telecommunications, entertainment, tourism, and construction, among others.
The adjusted regulations also include temporary exemptions to items on the Special Administrative Measures for Foreign Investment Access (Negative List) (2020 Edition), an extensive list of industries and fields that are off-limits to foreign investors.
The new adjustments follow several policy reforms aimed at developing and expanding market access to Beijing’s thriving services sector.
In this article, we provide a complete translation of the adjusted regulations and discuss the potential impact this change will have upon foreign investors in Beijing.
Which areas have been further opened to foreign investors?
The document released by the State Council covers eight key areas of the services sector and makes exemptions to articles in several pieces of legislation that prohibit or restrict access to foreign investors.
In the embattled education sector – which has undergone a heavy regulatory crackdown, including a ban on operating for-profit K12 schools – the adjustments encourage the participation of foreign investors in for-profit adult education and vocational training institutes. This move is in line with China’s recent push to develop this sector as a means of upskilling its workforce.
Another significant change is the removal of the equity cap on foreign companies providing telecommunications services. Under national laws, foreigners may only hold a minority stake in companies engaged in basic telecom services and most value-added telecom services, with certain exceptions.
The new adjustment waives the 50 percent cap on foreign ownership for companies engaged in mobile app store information services and internet access services in specific areas of Beijing. The document also encourages foreign investors to set up joint ventures to offer virtual private network (VPN) services to foreign-invested enterprises based in Beijing, although the 50 percent equity cap remains for this sector.
Foreign participation in arts and culture has generally been limited due to its potentially sensitive nature. Now, Beijing will allow foreign investors to invest in performing arts groups in the district of Tongzhou, which has cultivated a vibrant arts and entertainment industry. Foreign investors will not be permitted to hold majority ownership.
Below is the full catalogue of regulations that have been temporarily adjusted.
|Catalogue of Administrative Regulations and State Council-Approved Departmental Regulations Temporarily Adjusted in Beijing|
|No.||Sector||Relevant administrative regulations and State Council-approved departmental regulations||Implementation of adjustment|
|1||Education||Regulations of the People’s Republic of China on Chinese-Foreign Cooperation in Running Schools
Article 60 Measures for administration of for-profit training institutions which are cooperatively run by Chinese and foreign parties and registered at the administrative department for industry and commerce shall be formulated separately by the State Council.
|Beijing will formulate and release specific administrative measures to encourage foreign investors to invest in for-profit adult education and training institutions and encourage foreign investors to invest in the establishment of for-profit vocational skills and training institutions.|
|2||Telecommunications||Provisions on Administration of Foreign-Invested Telecommunications Enterprises
Article 2 Foreign-invested telecommunications enterprises refer to enterprises providing telecommunications services that are established according to law with joint investment and in the form of Chinese-foreign joint ventures by foreign and Chinese investors within the territory of the People’s Republic of China.
Article 6 paragraph 2 The proportion of foreign investment in a foreign-invested telecommunications enterprise providing value-added telecommunications services (including radio paging in basic telecommunications services) shall not exceed 50%.
|Remove equity cap on foreign investors in the information services business (limited to the app store) in the Zhongguancun National Innovation Park in Haidian District, Beijing.|
|Special Administrative Measures for Foreign Investment Access (Negative List) (2020 Edition)
16. Telecommunications companies are subject to the provision of telecommunications services opened up pursuant to China’s WTO commitments; the foreign share ratio for value-add telecommunications services (except for e-commerce, domestic multi-party communications, storage-forwarding and call centers) shall not exceed 50 percent; and the controlling stake shall be held by the Chinese party for basic telecommunications services.
|Removal of the equity cap on foreign investors engaged in value-added telecommunications business, such as internet access services (limited to those providing internet access services to users), in Beijing’s Service Industry Expansion and Opening-up Comprehensive Demonstration Zone and the Demonstration Park.|
|3||Entertainment||Regulations on the Administration of Commercial Performances
Article 10 paragraph 1 Foreign investors may establish performance brokerage agencies and performance venue business units within China in accordance with the law; they may not establish performing arts groups.
Special Administrative Measures for Foreign Investment Access (Negative List) (2020 Edition)
33. Investment in performing arts groups is prohibited.
|Allow foreign investors to invest in performing arts groups in the Beijing Tongzhou Culture Tourist Zone (the Chinese party must hold the controlling stake).|
|4||Construction||Regulations on the Quality Management of Construction Projects
Article 11 paragraph 2 Construction drawings and design documents that have not been reviewed and approved shall not be used.
Regulations on the Administration of Construction Engineering Survey and Design
Article 33 paragraph 2 Construction drawings and design documents that have not been reviewed and approved shall not be used.
|Allow Beijing to explore reforms in the examination and approval system in the field of construction and engineering, such as cancelling or reducing the scope of review of construction drawings, implementing a notification and commitment system and a designer lifetime responsibility system.|
|5||Tourism||Article 23 Foreign-invested travel agencies are not allowed to provide tours to mainland Chinese residents to destinations outside of China or to the Hong Kong Special Administrative Region, the Macau Special Administrative Region, or Taiwan. Exceptions are made in cases where other provisions have been made in State Council decisions, a free trade agreement signed by China, or through arrangements on establishing closer economic and trade relations between the Mainland, Hong Kong, and Macau.||Allow foreign-invested travel agencies that are established in Beijing and meet certain requirements to provide overseas tours for mainland Chinese residents, except to Taiwan.|
|6||Private non-enterprise units||Interim Regulations on Registration and Administration of Private Non-Enterprise Units
Article 2 The private non-enterprise units referred to in these Regulations mean social organizations which are established by enterprises, institutions, associations, or other social forces, as well as individual citizens using non-state assets and conducting non-profit-making social service activities.
|Relax access to non-profit private nursing homes private non-enterprise units to permit foreign investors to donate and establish nursing homes.
|7||Virtual private networks||Special Administrative Measures for Foreign Investment Access (Negative List) (2020 Edition)
16. Telecommunications companies are subject to the provision of telecommunications services opened up pursuant to China’s WTO commitments; the foreign share ratio for value-add telecommunications services (except for ecommerce, domestic multi-party communications, storage-forwarding and call centers) shall not exceed 50 percent; and the controlling stake shall be held by the Chinese party for basic telecommunications services.
|Open domestic virtual private network (VPN) business to foreign investment (the foreign party stake must not exceed 50 percent). Attract overseas telecommunications operators to provide domestic VPN services to foreign-invested companies in Beijing by establishing joint ventures.|
|8||Audiovisual products||Special Administrative Measures for Foreign Investment Access (Negative List) (2020 Edition)
28. Investment in editing, publishing, and production of books, newspapers, periodicals, audio-visual products, and electronic publications shall be prohibited.
|Allow foreign investors to invest in the production of audiovisual products (restricted to collaborating within the Beijing National Music Product Base, the Beijing Publishing Creative Industry Park, and the Beijing National Digital Publishing Base. The Chinese party must have operational leadership and final adjudication of the content.)|
|Note: The above translation was created by the China Briefing team for reference only.
Source: State Council
Why is Beijing opening its services sector?
The economy of Beijing is one of the most mature in the country, having moved to rely almost entirely on its services sector. In 2020, the tertiary industry accounted for 83.8 percent of the local GDP, reaching a value of over RMB 3 trillion (over US$470 billion).
Therefore, to sustain growth, Beijing is keenly aware that it will need to continue upgrading and improving innovation in its service industries. This latest move to open portions of the sector marks another step in Beijing’s efforts to improve market access and develop its ‘new services’ sector.
This movement was kicked into high gear about a year ago when Beijing released the Work Plan for Deepening the New Round of Service Industry Opening-up and Comprehensive Demonstration Zone (‘Work Plan’). The Work Plan laid out reform measures for nine key services industries and involved relaxing market access to certain areas, expanding the development of existing industrial parks, and ongoing institutional and supply-side reform.
Many of the new decisions were previously mentioned in this Work Plan. For example, the Work Plan proposed to allow foreign telecom companies to form joint ventures to provide VPN services to companies in Beijing.
The Work Plan also outlined plans to encourage foreign company participation in setting up adult education and vocational training institutes and to expand and open key industrial parks, including allowing majority foreign ownership of companies engaged in information services available on mobile app stores in the Zhongguancun National Independent Innovation Zone.
What will be the impact of the adjustments?
The regulatory exemptions will make it easier for foreign investors to participate in Beijing’s booming services sector by expanding access to areas that were previously off-limits. The exemption of the majority stake rule for internet service providers to provide internet access services will make it an easier decision for foreign companies to enter joint ventures in Beijing.
The rules on the education sector also provide a legal pathway for foreign investors to remain in the industry, which has otherwise become all but impossible to participate in. The opening of the tourist industry to allow foreign travel agencies to organize overseas tours for Chinese travelers may also prove to be a lucrative business once international travel fully reopens.
However, strict limitations are still in place on many parts of the most lucrative portions of the services sector, such as equity caps on basic telecommunications services. Participation in publication and media remains largely off-limits, as do the performing arts and cultural sectors.
In addition, the latest relaxation of regulations does not amount to permanent nationwide amendments, and their restriction to the city of Beijing means that companies will have limited room to grow.
Investor concerns over the stability of Chinese investments have been exacerbated by recent regulatory crackdowns on sectors such as education and technology. How effective this development will be in attracting foreign investors, therefore, remains in question.
On the other hand, these adjustments will almost certainly be followed by more, and it is clear that Beijing’s service sector is on a trajectory of increased liberalization. Some areas are likely to remain off-limits for many years yet – such as the media industry – but we expect to see better access to industries such as telecom, technology, finance, healthcare, and professional services in the near future.
In the Work Plan released last year, Beijing said it would aim to realize “free and convenient investment” and “convenient cross-border flow of funds” by 2030. This sets a clear and tangible timeline for the opening of the city’s service sectors.
China Briefing is written and produced by Dezan Shira & Associates. The practice assists foreign investors into China and has done so since 1992 through offices in Beijing, Tianjin, Dalian, Qingdao, Shanghai, Hangzhou, Ningbo, Suzhou, Guangzhou, Dongguan, Zhongshan, Shenzhen, and Hong Kong. Please contact the firm for assistance in China at firstname.lastname@example.org.
Dezan Shira & Associates has offices in Vietnam, Indonesia, Singapore, United States, Germany, Italy, India, and Russia, in addition to our trade research facilities along the Belt & Road Initiative. We also have partner firms assisting foreign investors in The Philippines, Malaysia, Thailand, Bangladesh.
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