China’s Foreign Investment Law and Updated Investment Negative List: New Opportunities for Foreign Investment in China | Womble Bond Dickinson

On December 27, 2021, China’s National Development and Reform Commission (NDRC) and the Ministry of Commerce (MOFCOM) released an updated negative list for foreign investment in China (the “2021 Negative List”). The 2021 negative list reduces the number of restricted or banned sectors from 33 to 31 and allows foreign investors to set up wholly foreign-owned vehicle manufacturing companies, including specialty vehicles, new energy vehicles, commercial vehicles and passenger cars. In addition, the restriction related to investments in the production of ground receiving equipment for satellite television will be lifted. In addition, the 2021 Negative List now requires that all Chinese domestic companies in companies banned by the negative list obtain the appropriate government approval before conducting an IPO outside of China.

Under the 2021 Negative List, there are currently 31 restricted and banned industries in China for foreign investment:

  1. Restricted: The domestic Chinese party must own at least 34% of an enterprise engaged in the selection and cultivation of new wheat varieties and the production of wheat seeds. Enterprises engaged in the selection and cultivation of new corn varieties and the production of corn seeds must be controlled by a domestic Chinese party.
  2. Prohibited: Research, development, breeding and planting of China’s rare and unique precious quality varieties and the production of relevant breeding material (including quality genes from planting, animal husbandry and aquaculture).
  3. Prohibited: The breeding of genetically modified varieties and the production of genetically modified seeds (seedlings) related to crops, breeding animals and poultry and aquatic seedlings is prohibited.
  4. Prohibited: Fishing for aquatic products in marine areas within Chinese jurisdiction and in China’s inland waters
  5. Prohibited: Rare earths and the exploration, mining and processing of radioactive minerals and tungsten
  6. Restricted: Investments in the publishing business must be controlled by a domestic Chinese party.
  7. Prohibited: Use of steaming, frying, firing, calcination and other Chinese medicine processing technologies, and the manufacture of confidential prescription products for proprietary Chinese medicines.
  8. Restricted: Construction and operation of the nuclear power plant to be controlled by a domestic Chinese party.
  9. Prohibited: wholesale and retail sale of tobacco leaves, cigarettes, dried tobacco leaves and other tobacco products.
  10. Restricted: Domestic waterborne carriers are controlled by Chinese parties.
  11. Restricted: A public air transport company must be controlled by a domestic Chinese party, and the investment of a single foreign investor together with its affiliated companies in such a company cannot exceed 25%, and the legal representative of this company must be a Chinese citizen. The legal representative of general aviation companies must be a Chinese citizen, of which those for the agriculture, forestry and fisheries industries are restricted to joint ventures only, while others are controlled by Chinese parties.
  12. Restricted: Investments in the construction and operation of civilian airports must be controlled by a Chinese party. Foreigners are not allowed to participate in the construction and operation of airport towers.
  13. Prohibited: postal services and the business of domestic mail delivery
  14. Restricted: Telecom companies – subject to China’s WTO accession commitments; the participation rate of foreign investment in a value-added telecommunications business (excluding e-commerce businesses, domestic multi-party communications, store-and-forward and call centers) shall not exceed 50%; the basic telecom business must be controlled by the Chinese party.
  15. Prohibited: Internet news services, online publishing services, online audiovisual program services, Internet cultural operations (excluding music) and public-facing Internet information publishing services (excluding services permitted under China’s WTO accession commitments).
  16. Prohibited: Chinese legal transactions (other than providing information on the impact of the legal environment in China); Become a partner in a domestic law firm.
  17. Restricted: The market research business is limited to joint ventures; Radio and television listening and rating surveys must be controlled by a domestic Chinese party.
  18. Forbidden: social polls.
  19. Prohibited: Development and application of human stem cell and gene diagnostic and treatment technologies.
  20. Prohibited: Humanities and social science research institutions.
  21. Prohibited: geodetic surveying, hydrographic surveying and mapping, aerial surveying and mapping, mobile ground surveying, administrative area boundary surveying and mapping, creation of topographic maps, world administrative maps, national administrative maps, administrative maps at the provincial level or below , provincial school maps, local school maps and real three-dimensional maps, creation of electronic navigation charts and regional surveys in the fields of geological mapping, mineral geology, geophysics, geochemistry, hydrogeology, environmental geology, geological catastrophes and remote sensing (Mining Law Owners working within their mineral rights are not subject to this specific administrative measure).
  22. Restricted: Preschool institutions, high schools and colleges are jointly operated by Sino-foreign institutions; such schools must be dominated by the Chinese parties (principals or chief administrators in charge of such schools must be Chinese nationals, and Chinese members must make up at least half of the council, board or joint management committee).
  23. Prohibited: Compulsory educational institutions and religious educational institutions.
  24. Restricted: Investments in medical facilities are restricted to joint ventures.
  25. Prohibited: News agencies (including but not limited to press agencies).
  26. Prohibited: Editing, publishing and production of books, newspapers, magazines, audiovisual products and electronic publications.
  27. Prohibited: all levels of broadcasting stations, television stations, radio and television channels and frequencies, radio and television transmission networks (including broadcasting stations, retransmission stations, radio and television satellites, satellite uplink stations, satellite signal receiving and retransmission stations, microwave stations, monitoring stations and cable broadcasting and television transmission networks, etc.) and engaging in the video-on-demand business of radio and television and in the provision of ground-receiver installation services for satellite television.
  28. Prohibited: production and operation of radio and television programs (including introduction).
  29. Prohibited: film production companies, distribution companies, cinema companies and the introduction of films.
  30. Prohibited: Auction of cultural property, cultural property shops and state cultural property museums.
  31. Prohibited: cultural and artistic performance groups.

Foreign investments in sectors not on the 2021 negative list are subject to the same regulatory approval requirements as Chinese domestic investments.

NDRC and MOFCOM also maintain a separate Free Zone Negative List, which applies only to foreign investments in designated Free Zones.

Accordingly a recent report by the US International Trade AdministrationDespite rising geopolitical tensions between the US and China, the enormous size of the market, continued growth of the middle and upper classes, changing demographics and China’s ongoing economic transformation continue to create market opportunities for well-prepared US companies and American products continue to be favored by Chinese consumers rated positive. Specifically, the International Trade Administration has identified the following industrial sectors as the leading sectors for US exports and investment: agriculture, aviation, automotive (including recreational vehicles and motorcycles), cosmetics and toiletries, design and engineering services, education, energy (including clean technology , natural gas, energy-efficient manufacturing, carbon capture, use and storage, and green building (a broad concept of green building processes and technologies)), environmental technology and healthcare (including medical devices, diagnostic imaging, implants, in vitro diagnostics and orthopaedics).

Taking advantage of these opportunities without the appropriate experience (knowledge of local laws and regulations) or resources (including language skills and cross-cultural communication skills) can be challenging. Therefore, it is important to work with professionals with experience in China to help you explore and make the most of the tremendous market opportunities in China.

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