The Special Administrative Measures (Negative List) for Admission of Foreign Investments (2020) (the “National Negative List”) and the Special Administrative Measures (Negative List) for Admission of Foreign Investments to Free Trade Zones (2020) (the “FTZ Negative List”) shall be implemented with effect from July 23, 2020. In particular, the number of items in the National Negative List is reduced from 40 to 33, and that of the FTZ Negative List is reduced from 37 to 30. The main changes are as follows:
(1) Speed up the opening up of major fields in the service sector. In the financial sector, the restrictions on the proportion of foreign capital shares in securities companies, securities investment fund management companies, futures companies and life insurance companies were cancelled. Up to now, the financial sector has been fully opened to foreign investors. In the field of infrastructure, the requirement that the construction and operation of urban water supply and drainage pipe networks with a population of more than 500,000 must be controlled by the Chinese Party is cancelled.
(2) Relax admission to manufacturing and agriculture. In the manufacturing sector, the restrictions on foreign equity ratios in the manufacturing of commercial vehicles were canceled, and foreign investment is allowed in radioactive mineral smelting, processing and nuclear fuel production. In the agricultural sector, in the past, the controlling shareholder of the company engaged in breeding of new varieties of wheat and seed production must be Chinese Party. But now, it only requires that Chinese Party hold 34% or more of the shares.
(3) Continuing to launch pilot programs in the FTZ. On the basis of national opening-up trend, the Shanghai FTZ shall continue to carry out pilot practices. In the field of medicine, the prohibition on foreign investment in Chinese herbal medicine was cancelled. In the field of education, wholly foreign owned enterprises are allowed to set up vocational education institutions in the educational system.
Comparison of the National Negative List for Admission of Foreign Investment | ||
No. | 2019 Version | 2020 Version |
1 | Selection and cultivation of new varieties of, and production of seeds of, wheat and corn, must be undertaken by a company controlled by the Chinese party. | The Chinese party shall hold at least 34% of the shares of a company undertaking the selection and cultivation of new varieties of, and production of the seeds of, wheat; selection and cultivation of new varieties of, and production of seeds of, corn, must be undertaken by a company controlled by the Chinese party. |
2 | Foreign Investment in smelting and processing of radioactive minerals, manufacturing of nuclear fuel shall be prohibited. | (deleted from the list) |
3 | Except for special vehicles and new-energy vehicles, shares of a manufacturer producing other types of vehicles, held by Chinese parties, shall be 50 percent at least, and a single foreign investor may establish up to two joint ventures in China to manufacture the same type of vehicles (Limits on the foreign shareholding will be removed for commercial vehicles in 2020. In 2022, limits on the foreign shareholding will be abolished for passenger vehicles, and the restriction that a single foreign investor may establish up to two joint ventures in China to manufacture the same type of vehicles will be eliminated as well). | Except for special vehicles, new-energy vehicles and commercial vehicles, shares of a manufacturer producing other types of vehicles, held by Chinese parties, shall be 50 percent at least, and a single foreign investor may establish up to two joint ventures in China to manufacture the same type of vehicles (In 2022, limits on the foreign shareholding will be abolished for passenger vehicles, and the restriction that a single foreign investor may establish up to two joint ventures in China to manufacture the same type of vehicles will be eliminated as well). |
4 | Construction and operation of urban water supply and drainage network for urban population of 500,000 and above, must be undertaken by a company controlled by the Chinese party. | (deleted from the list) |
5 | Investment in the construction and operation of civil airports must be relatively controlled by the Chinese party. Foreign parties are not allowed to participate in air traffic control system. | Investment in the construction and operation of civil airports must be relatively controlled by the Chinese party. Foreign parties are not allowed to participate in the construction and operation of airport towers. |
6 | The proportion of foreign capital invested in a securities company shall be less than 51 percent, the proportion of foreign capital invested in a securities investment fund management company shall be less than 51 percent (this limit on the foreign shareholding proportion will be canceled in 2021). | (deleted from the list) |
7 | The proportion of foreign capital invested in a futures company shall be less than 51 percent (this limit on the foreign shareholding proportion will be canceled in 2021). | (deleted from the list) |
8 | The proportion of foreign capital in a life insurance company shall be less than 51 percent (this limit on the foreign shareholding proportion will be canceled in 2021). | (deleted from the list) |
9 | Investment in a market survey is limited to equity joint venture and cooperative joint venture; specifically, investment in a broadcasting and television listening and rating survey must be controlled by the Chinese party. | Investment in market surveys is limited to joint ventures[1]; specifically, investment in broadcasting and television listening and rating surveys must be controlled by the Chinese party. |
10 | Investment in geodetic surveying, hydrographic surveying and charting, surveying and mapping via aerial photography, ground mobile surveying, surveying and mapping of administrative area borders, compiling of topographical maps, world administrative maps, national administrative maps, administrative maps at the provincial level or below, national school maps, local school maps and true three-dimensional maps, compiling of navigation electronic maps and regional investigations in terms of geological mapping, mineral geology, geophysics, geochemistry, hydrogeology, environmental geology, geological disasters and remote sensing geology is prohibited. | Investment in geodetic surveying, hydrographic surveying and charting, surveying and mapping via aerial photography, ground mobile surveying, surveying and mapping of administrative area borders, compiling of topographical maps, world administrative maps, national administrative maps, administrative maps at the provincial level or below, national school maps, local school maps and true three-dimensional maps, compiling of navigation electronic maps and regional investigations in terms of geological mapping, mineral geology, geophysics, geochemistry, hydrogeology, environmental geology, geological disasters and remote sensing geology is prohibited (Mining right owners working within the scope of their mining rights will not be impacted by this special administrative measure). |
11 | Investment in medical institutions is limited to equity joint venture and cooperative joint venture. | Investment in medical institutions is limited to joint ventures.[2] |
In addition, other highlights of this Amendment are as follows:
Article 5 is added to the Preamble of the 2020 Negative Lists, which reads as, "After being examined by the relevant competent departments of the State Council and reported to the State Council for approval, specific foreign investments may not be subject to the restrictions set out in the Negative List for Admission of Foreign Investment on the relevant sectors. "
Neither the Foreign Investment Law nor the Implementing Regulations of the Foreign Investment Law has specified the supervision over the VIE structure to which the industry and market pay close attentions. However, according to the definition of "foreign investment" set forth in Article 2 of the Foreign Investment Law, it is theoretically possible to cover the investment made by Chinese investors or foreign investors in China in the form of VIE structure within the scope of "foreign investment".
As Article 5 is added to the Preamble of National Negative List and FTZ Negative List (2020 version), we understand that this provision provides a policy space of "special approval" for certain regulatory exceptions to the negative lists, which may grant permission to Chinese investors making a round-trip investment or investing through the VIE structure.
[1] We understand that such amendment is made because cooperative joint venture is no longer a valid company form for foreign invested enterprises after the implementation of the Foreign Investment Law.
[2] Ibid.