Chengdu Joins Shanghai & Pingtan in Adopting a Negative List for Foreign Investment

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CHENGDU—Located in southwest Sichuan, Chengdu is China’s fifth most populous city with a total population of about 11 million. It is also one of the most important economic, transportation and communication hubs in western China. For decades Chengdu has made great efforts to attract foreign investment, offering various incentives such as preferential tax policies and financial support for foreign investors. Recently, three pilot areas of Chengdu—the Chengdu High-tech Industrial Development Zone, Longquanyi District and Tianfu New District—released the details of their respective negative lists governing foreign investment into the city.

Following the precedent of the Shanghai Free Trade Zone (FTZ) and the Pingtan Comprehensive Pilot Zone (PCPZ), Chengdu is now the third city in China to adopt a negative list approach to foreign investment. Under this system, foreign investors enjoy equal treatment as Chinese domestic enterprises in any industry not explicitly restricted or prohibited on the list. Different from that implemented in the Shanghai FTZ, however, Chengdu has issued a “supervision list” and “permission list” alongside its “negative list” to further clarify the corporate establishment procedure and encouraged industries within the zone.

Matthew Zito of Asia Briefing comments, “This may be in response to the governmental ban on additional free trade zones issued in June of this year. Prior to this, some 20 cities were said to have submitted applications for approval by the Central Government. Chengdu’s negative lists may be an attempt to create a watered-down version of a free trade zone that attracts foreign investment while nominally avoiding the ban.”

Details of the negative lists released by the three pilot areas are as follows:

Chengdu High-tech Industrial Development Zone

Established in 1988, Chengdu Hi-tech Industrial Development Zone (CHIDZ) was approved as one of the first national high-tech development zones. It ranks 5th among the 53 national high-tech development zones in China in terms of comprehensive strength. By the end of June, 2014, over 1,000 foreign-invested enterprises (FIEs) have been established within the zone. The zone’s negative list includes two parts, for domestic investors and foreign investors, respectively; the latter covers the following 17 industries in six sectors, including 69 management measures for foreign investment:

  • New information technology
  • Bio-pharmaceuticals
  • High-end equipment manufacturing
  • Green technology
  • Services industry
  • Other supporting industries (e.g., construction and real estate)

Compared with the newly-revised negative list introduced in the Shanghai FTZ, the number of industries restricted for foreign investment has been substantially reduced by 50 percent. The list contains no restrictions on the agriculture and mining sectors, and reduces prohibited items in education, manufacturing and transportation. Meanwhile, foreign investors are restricted from the catering industry, including cafeterias that might produce smoke or harmful gases (permitted in the Shanghai FTZ), based on Chengdu’s regulations on air pollution. Foreign investors are also compelled to abide by the “Catalogue of Prohibited Industries for Foreign Investment (2011 Revision, released by the Chinese Government),” according to a CHIDZ official.

Longquanyi District (Economic Development Zone)

Longquanyi District, situated in southwest Chengdu, is one of the most prosperous areas of Chengdu. In 2013, the area’s GDP ranked first in Sichuan. The district’s negative list is divided between “non-manufacturing” and “manufacturing” industries, and subdivided into “leading industries (e.g., automotive and high-end equipment),” “developing industries (e.g., construction materials and pharmaceuticals)” and “restricted industries (e.g., petrochemicals and coal).” The list covers 44 industries in 16 sectors, including 157 management measures.

Tianfu New District

Aiming to become the Sichuanese equivalent to Pudong, the Tianfu New District is focused on the modern manufacturing and services industries. The district’s negative list covers 16 industries including 120 management measures (41 prohibited items and 79 restricted items). Notably, the negative list for domestic investment is longer than the one for foreign investment, with the former containing 164 management measures.

The complete negative lists of the three pilot areas, the Shanghai FTZ and Pingtan can be found below (Chinese):

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