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Focus on Regulation

A new era unfolds as China unveils its new negative list approach for foreign investment nationwide

On 28 June 2018, the National Development and Reform Commission and the Ministry of Commerce released the Foreign Investment Market Access Special Administrative Measures (Negative List) (2018 Version), which will become effective from 28 July 2018. This Negative List is significant because it will replace the Guidance Catalogue for Foreign Investment Industries, the latest iteration of which became effective on 28 July 2017 (the “2017 Catalogue“), which has been the official policy statement on foreign investment for almost twenty years.

The Negative List identifies areas where foreign investment is restricted, where special requirements in terms of shareholding percentages or appointments of certain officers apply, or where foreign investment is prohibited. For sectors and areas outside of the Negative List, China will offer national treatment, meaning it will treat domestic and foreign investors equally, and local governments or departments must not impose any special restrictions on foreign investments. The Negative List sets out a series of new measures to further expand market access for foreign investment in primary, secondary as well as tertiary sectors, including finance, transportation, professional services, infrastructure, energy, resources, and agriculture. This Negative List also sets out a timetable for opening-up the finance and automobile sectors.

For the financial sector, the maximum shareholdings of foreign investors in securities firms, securities investment fund management entities (Chinese party holding a relative controlling interest under the 2017 Catalogue), futures companies (Chinese party holding a relative controlling interest under the 2017 Catalogue) and life insurance companies (foreign investment not to exceed 50% under the 2017 Catalogue) will be increased to no more than 51%, starting from 2018. The equity caps imposed on foreign investors in all three financial sectors will be completely removed in 2021. Restrictions on foreign investment into sectors such as power grids, railway passenger transportation, international marine shipping and petrol stations have been completely removed.

For the automobile industry, foreign investment in special purpose motor vehicles (e.g. tunnelling vehicles) and new energy vehicles (such as electric cars) are no longer subject to any shareholding restrictions. The equity restrictions on foreign investment in manufacturers of commercial vehicles (under the 2017 Catalogue 50% is the maximum permitted stake in all types of complete vehicle joint ventures) will be cancelled in 2020, and the corresponding caps on equity investments in joint ventures to manufacture passenger vehicles as well as on the maximum number of equity joint ventures invested in to manufacture the same type of complete vehicles will be abolished by 2022. The shareholdings limits on foreign investment in the ship and aircraft manufacturing industries have also been cancelled.

Market access to the agricultural and energy sectors has been expanded. For instance, foreign investment restrictions in agricultural seeds producers (except wheat and corn) have been cancelled, and foreign investment restrictions in the mining and related activities for non-ferrous metals and non-metals, as well as for certain (but not all) rare minerals have been eliminated. Also, in addition to the proposed phased lifting foreign ownership restrictions in the life insurance sector, the China Banking and Insurance Regulatory Commission has recently issued detailed implementing rules to further open up the insurance industry to foreign investment, such as the draft decision1 to remove the requirement that a foreign insurance company must have maintained a representative office in China for at least two years before setting up an insurance company, and opening up insurance loss adjustment, insurance agency and insurance brokerage.

1 Decision to Amend the Regulations on the Administration of Foreign-Funded Insurance Companies (Draft for Comments) issued by the China Banking and Insurance Regulatory Commission on May 30, 2018 for public comments.