Recently, the PRC National Development and Reform Commission (“NDRC”) and the PRC Ministry of Commerce jointly released a revised version (“Consultation Draft”) of the Foreign Investment Industrial Guidance Catalogue (“FDI Catalogue”) for a one-month public consultation ending on 3 December 2014. The Consultation Draft makes sweeping changes to the current version issued in 2011, easing regulation on foreign investment by removing foreign ownership restrictions and substantially cutting down the list of restricted industries. These changes are especially welcome to those foreign investors looking to tap the dynamic Chinese market.
First released in 1995, the FDI Catalogue has been serving as the fundamental piece of guidance for foreign investors in China. It classifies industries into three categories under which, foreign investment is encouraged, restricted or prohibited. Those industries that are not listed in the FDI Catalogue are deemed as permitted categories for foreign investment.
So far, the FDI Catalogue has experienced six rounds of changes with the latest, and most aggressive, round reflected in the Consultation Draft. Through the draft, several industries have been opened up including those that are not even available for investment in China’s most progressive frontier, the Shanghai Free Trade Zone.
The key changes introduced by the Consultation Draft that lift foreign investment restrictions and promote the development of desirable industries are as follows:
Despite the sweeping changes, there are some industries where restrictions have been imposed or enhanced. For instance, the manufacturing of entire automobiles, special vehicles and motorcycles has become restricted. So is the establishment of higher education institutions and kindergartens. The scope of prohibited mapping and survey activities has also been substantially expanded.
The Consultation Draft was released amid the campaign of the new administration of the PRC government for economic structure adjustment, development mode transformation, less government intervention and more market roles. The scale of the reforms to the FDI Catalogue (eclipsing the added regulation) reflect the government’s determination to further open up the markets and level the playing field for both Chinese and foreign participants.
Adding to this encouraging move is that the PRC State Council has recently further raised the approval threshold for foreign investment projects in the new version of Catalogue of Investment Projects Subject to Government Review and Approval. Many projects which were previously required to be approved by the NDRC or even the State Council can now be approved by local-level governments.
The official new version of the FDI Catalogue is expected to be released before long and not differ much from the Consultation Draft. Foreign investors, especially those from previously restricted or prohibited industries are sure to be watching this development closely and preparing to enter the market once the final hurdles have been lifted.
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