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FINANCE: Negative List of Industry Catalogue Guide for Foreign Investment
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Negative List of Industry Catalogue Guide for Foreign Investment

Further Shortened To Deepen the Opening Up To Foreign Capital

By Kelvin Lee, PwC Tianjin
 

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      2017年对于外商投资者而言是投资回暖的一年。在国务院及相关部门多次发布对市场的调整政策后,我国公布了新版自贸试验区外商投资负面清单 2,以及《外商投资产业指导目录(2017 年修订)》,落实了相关行业对外资的开放。该《目录》首次以负面清单的形式,列示了外商投资限制和禁止准入的特别管理措施,并修改了鼓励外商投资产业相关条目。《目录》自 2017 年 7 月 28 日起实施。此次修订版目录首次将负面清单模式引入其中,其中一个是市场准入负面清单,适用于境内外投资者的一致性管理措施;另一个是外商投资负面清单,适用于全国所有地区。2017 版《目录》中的负面清单由原鼓励类中有限制的条目与限制类、禁止类措施组成。负面清单之外的领域实施备案管理。此外《目录》进一步放开了外资投资制造业的限制, 特别是针对高端制造业,如电动汽车、新能源汽车电池等领域,取消了外资准入的限制。

      在服务业领域,开放有松有紧。金融、保险、互联网业开放程度不变,专业服务业进一步开放:2017 版《目录》取消资信调查与评级服务,会计审计等专业服务领域的外资准入限制,但文化宣传等领域对外资收紧,外资禁止投资图书、报纸、电子出版物等编辑,禁止从事互联网新闻信息服务、互联网公众发布信息服务等业务。

      值得一提的是,目前中国仅有中西部地区、深圳前海、珠海横琴和福建平潭给予符合条件的企业享受 15%的企业所得税优惠税率,因此建议外国投资者在选择投资地点时,也要充分考虑以上因素。

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In brief

In early 2017, the State Council released a notice setting out 20 measures to attract more foreign investment. Surrounding the theme of “further actions”, the notice raises 20 specific tasks in three aspects including expanding the opening up of more sectors for foreign investments, creating a fair competitive environment and attracting foreign capital. Soon after that China released the new PFTZ negative list for foreign investments and Industry Catalogue Guide for Foreign Investment (2017 version) (the “2017 version Catalogue”) to implement the opening-up policies of relevant sectors to foreign capital.
 

The 2017 version Catalogue is, for the first time, in form of a negative list which lists out special administrative measures relating to restricted and prohibited items for foreign investments. Meanwhile, it also amends certain relevant items in the encouraged industries. The 2017 version Catalogue shall take effect from 28th July 2017.
 

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In detail

Overview of the Current Situation of Foreign Investment in China

According to statistics released by the Ministry of Commerce, China has attracted foreign capital of RMB 813.22 billion in 2016 with a year-on-year growth of 4.1%, among which the growth of foreign investments in certain sectors such as information consultation services, computer application services, retail and distribution service, as well as pharmaceutical and medical equipment in manufacturing sectors has been relatively faster. In 2016, foreign capital invested in the 4 PFTZs of Shanghai, Guangdong, Tianjin and Fujian has achieved a year-on-year growth of over 80%, which accounted for 10.8% of foreign investment nationwide.
 

In 2016, investment growth from the U.S., 28 European Union member countries, Macao and Republic of Korea remained at a relatively fast pace, while the decline in investment from Japan has bottomed out. Besides, since the new record-filing administration system for foreign investment became effective from October 2016, more than 95% of registration and modification of foreign-invested enterprises (FIE) has been implemented under this new system which significantly facilitated FIE’s investment activities in China.
 

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Major Changes of the 2017 Version Catalogue

The negative list administration model is introduced in the 2017 version Catalogue for the first time.

Based on the decision on Major Issues in Comprehensive In-depth Reform released in 2015, China launched the reform on the administration on market access for foreign investment and converted from a “positive list” administration model to a “negative list” administration model. Under the negative list administration model, China has released two negative lists - one for market access and the other for foreign investments. The negative list for market access is a set of measures that applies equally to both foreign and domestic investors, which is currently implemented in Shanghai, Guangdong, Tianjin and Fujian on a pilot basis. Likewise the negative list for foreign investment, i.e. the 2017 version Catalogue, shall apply nationwide to the investment activities of foreign investors in China.
 

Negative list in the 2017 version Catalogue is comprised of restricted items under the encouraged categories in the old catalogue, as well as the restricted and prohibited categories. Sectors outside of the negative list shall be subject to record-filing administration.
 

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Foreign investments in high-end manufacturing sectors are further encouraged.

The 2017 version Catalogue further removes restrictions on foreign investments in manufacturing sectors, e.g., the access limitations on high-end manufacturing sectors such as electronic automobiles, batteries of new energy automobiles, etc., have been lifted. Meanwhile, certain sectors, such as R&D and manufacturing of virtual reality (VR) and augmented reality (AR) equipment, R&D and manufacturing of key components of 3D printing equipment, etc. have been added to the encouraged category of foreign investment. The opening up of the high-end manufacturing sectors to foreign capital is in line with China’s objective for adjusting and optimising its industry structure and also reflects China’s attitude to encourage foreign investors to actively participate in the “Made in China 2025” national strategy.
 

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Attitude towards foreign investments in service sectors varies.

- Opening-up of financial services, insurance and Internet sectors remain unchanged

It is mentioned in the 20 Measures to lift restrictions on foreign investments in financial services, insurance and securities sectors and promote the opening-up of Internet sectors. However, the 2017 version Catalogue has not further relaxed restrictions in these sectors and on the contrary it has clarified relevant restrictions in relation to foreign investor’s participation in banking sectors.

- Further opening-up of professional services


The 2017 version Catalogue lifted the access restrictions on foreign investment in credit investigation, rating service, accounting and auditing as well as other professional services, which not only conforms to the new 2017 PFTZ Negative List, but also lives up to China’s commitment set forth in the 20 Measures to open up professional services to foreign investments.

- Tightened regulations in culture and publicity sectors


Prohibition on investment in culture and publicity sectors is added in the 2017 version Catalogue, e.g., foreign capital is prohibited to invest in the editing of books, newspaper and electronic publications, etc., engage in Internet news information services and provide platform for public to release information. These new prohibited items are consistent with the Cyber Security Law and Administrative Provisions for Internet News Information Services released earlier in China.
 

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How the 2017 Version Catalogue Applies To Foreign Investors

The 2017 version Catalogue removes restrictions that apply to both foreign and domestic investments in the 2015 version, e.g., approval for construction and operation of large theme parks, prohibited investment in the construction of golf course and villa and prohibited investment in 11 sectors such as lottery and porn businesses. These sectors will be administered based on the principle of non-discriminatory equal treatment for both foreign and domestic investors.
 

Items under the restricted category in the 2017 version Catalogue follow access restriction on foreign investments. If there is foreign investment shareholding percentage restriction requirement for the restricted item, then the investment cannot be in the form of a foreign-invested partnership. However, foreign-invested projects and establishment of enterprises to invest in sectors that are not in the restricted or prohibited category of the 2017 version Catalogue are subject to record-filing administration. Besides, FIEs that are transformed from non-FIEs (including: foreign investors acquire domestic non-FIE, strategic investment in domestically listed companies by foreign investors, etc.) will be subject to record-filing administration provided that they do not fall under the special administrative measures. However, this is not applicable to a domestic company using its foreign capital to acquire its domestic affiliated company.
 

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The Takeaway

The 20 Measures released in early 2017 sets forth the directional measures for China to actively attract foreign capital at the next step. We are glad to see the Chinese government’s positive attitude in implementing the 20 Measures by timely release of the relevant policies, which includes amending the industry catalogue guide for foreign investment, and releasing the new PFTZ negative list, etc. In addition, we saw some local-level governments have been gradually issuing policies to attract foreign investments and talents in order to follow the state’s direction in actively attracting foreign capital and improving their own capacity in foreign capital utilisation.
 

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With the deepening reform of market access administration system for foreign investment, foreign investors planning to invest in China need to consider the following catalogues: (1) Industry Catalogue Guide for Foreign Investment which applies to foreign investors investing in Mainland China nationwide; (2) Market Access Negative List which applies to both foreign and domestic investors investing in Mainland China and is currently implemented in Shanghai, Guangdong, Fujian and Tianjin on a pilot basis; (3) Special Administrative Rules for Foreign Investments in the Pilot Free Trade Zones (i.e., the PFTZ Negative List) which applies to foreign investors investing in areas covered by the PFTZs; (4) Preferential Industry Catalogue for Foreign Investment in Central and Western Regions which applies to foreign investors investing in China’s central and western regions and qualified enterprises are eligible to a preferential CIT rate of 15%.
 

With the release of 2017 version Catalogue, PFTZ Negative List and amendment of the Closer Economic Partnership Arrangement between Mainland China and Hong Kong (CEPA), it is necessary for foreign investors (including Hong Kong-invested enterprises) to compare these different catalogues so as to understand the advantages in each of the catalogues and choose an optimised investment plan. In terms of the 2017 version Catalogue and 2017 version PFTZ Negative List, there is not much difference on the extent of opening-up inside and outside the PFTZ, however, the designing and manufacturing of helicopters with a capacity of 3 tons or above in the PFTZs is being relaxed. In terms of the 2017 version Catalogue and the CEPA, CEPA remains more advantageous for Hong Kong investors in sectors such as hospital, international shipping agency, school, performance agency institution, and exhibition services.
 

Last but not least, currently only the central and western regions, Shenzhen Qianhai, Zhuhai Hengqin and Fujian Pingtan provide qualified enterprises with a preferential CIT rate of 15%. As such, it is recommended that foreign investors should fully consider the above factors in deciding on their investment location in China. We will keep an eye on the development of relevant foreign investment policies and share our insights.
 

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