China releases its revised Negative List for Market Access 2020 and Catalogue of Industries for Encouraging Foreign Investment 2020

China

On 10 December 2020, the National Development and Reform Commission ("NDRC") and the Ministry of Commerce ("MOFCOM") jointly issued the Negative List for Market Access (2020 Version) (the "Market Access Negative List 2020"). It took effect on the same day.

On 27 December 2020, the NDRC and the MOFCOM revised and approved the Catalogue of Industries for Encouraging Foreign Investment (2020 Version) (the "Encouraged Catalogue 2020"), which will take effect from 27 January 2021. Concurrently with the coming into effect of the Encouraged Catalogue 2020, the Catalogue of Industries for Encouraging Foreign Investment (2019 Version) (the "Encouraged Catalogue 2019") will cease to be effective. Encouraged projects under the Encouraged Catalogue 2020 will enjoy certain preferential policies, e.g. tariff exemption of imported equipment for self-use purpose, application of a 15% corporate income tax rate (limited to certain encouraged projects in Western China only) and priority in land supply.

Below, please find an overview on some key changes brought by the Market Access Negative List 2020 and the Encouraged Catalogue 2020.

1. Negative List for Market Access 2020

The Chinese government manages and controls market access through so called negative lists. Different from the foreign investment negative list (for more details, please refer to our newsletter dated 7 July 2020, "China Introduces New Negative List 2020 and New FTZ Negative List 2020"), the market access negative list applies to all kinds of investment in the People's Republic of China ("PRC") and does not distinguish between domestic and foreign investors.

The previous Market Access Negative List was issued on and effective since 24 October 2019. The Market Access Negative List 2020 reduced the listed items to 123, 8 less than the Negative List for Market Access (2019 Version). The main changes are the following:

a) Cancellation and deletion of certain measures

Certain restricted measures, e.g. "approval for evaluation projects of forest resource assets", "qualification accreditation of mining right appraisal agencies" and "qualification accreditation for verification institutions of carbon emissions right trading" have been deleted. Approval requirements on "examination and approval for qualifications for securities services of asset evaluation agencies" and "approval for job qualifications of directors, supervisors and senior officers of securities companies", licensing requirements on "licensing and registration of enterprises applying for customs declaration" and "inspection licensing for imported and exported commodities inspection and certification business" are also deleted.

b) Addition of new restrictive measures

According to the Decision of the State Council on Implementing the Access Administration of Financial Holding Companies, measures on the management of establishment of financial holding companies are now added into the Market Access Negative List 2020. Such measures cover the approval on the establishment of financial holding companies; change of name, domicile, registered capital, shareholders and actual controllers holding more than 5% of the equity; amendment to the articles of association of the company; investment and control of other financial institutions; increase or decrease of the proportion of capital or shareholding in the controlled financial institutions leading to change or loss of control; division, merger, dissolution or bankruptcy. It is also newly added that enterprises must pass qualification review or project review to obtain land management rights. The land management rights must not be transferred to anyone without the required license or qualification.

In addition, with the changes in the other administrative documents, some wording of the measures listed under the Market Access Negative List 2020 are further standardized or revised and updated to be in line with the currently effective PRC laws and regulations.

2. Catalogue of Industries for Encouraging Foreign Investment 2020

The Encouraged Catalogue 2020 in total contains 1,235 items, of which 480 items are encouraged nationwide and 755 items are encouraged in Central and Western China. Compared to the Encouraged Catalogue 2019 (for more details, please refer to our newsletter dated 3 July 2019, "China Enacts New Negative Lists and New Catalogue of Industries for Encouraged Foreign Investment"), the Encouraged Catalogue 2020 has increased the number of encouraged items by 127 (65 items are encouraged nationwide and 62 items are encouraged in Central and Western China) and have amended 88 items (51 items are encouraged nationwide and 37 items are encouraged in Central and Western China) to further expand the scope of encouraged foreign investment.

a) Continuous encouragement of foreign investment in the manufacturing industry

Nationwide speaking, the Encouraged Catalogue 2020 continues encourage foreign investment in the manufacturing industry.

(1) With respect to raw materials, the Encouraged Catalogue 2020 adds or modifies encouraged items on manufacturing of high-purity electronic grade hydrofluoric acid, hydrogen fluoride, special glass fiber, polarizer base film, diffusion film, mask, polyethylene polyamine and high-performance fiber, etc.

(2) With respect to components, the Encouraged Catalogue 2020 adds or modifies items on manufacturing of high-pressure vacuum components, special valves, special bearings, special glass and wheel speed sensors, etc.

(3) With respect to products finally received by end users, the Encouraged Catalogue 2020 adds or modifies items on manufacturing of integrated circuit testing equipment, L3/L4/L5 autonomous driving hardware, laser projection equipment, ultra-high-definition televisions, ventilators, ECMO and artificial intelligence assisted medical equipment, etc.

b) Encouragement on foreign investment in services

Of the 480 items which are encouraged nationwide, foreign investors are further encouraged to invest in certain services.

(1) In the area of research, development and design, the Encouraged Catalogue 2020 adds or modifies items on the research and development of fifth-generation mobile communication technologies, development of blockchain technologies, and design of sewage treatment facilities.

(2) In the area of business services, the Encouraged Catalogue 2020 adds items on maintenance of high-end equipment, transformation and integration of digital production lines.

(3) In the area of modern logistics, the Encouraged Catalogue 2020 adds or modifies items on cross-border e-commerce retail, distribution centers for import and export of bulk commodities, and community chain distribution.

(4) In the area of information services, the Encouraged Catalogue 2020 adds online education, online medical treatment, and online office.

c) Encouragement of foreign investment in Central and Western China

Further, the Encouraged Catalogue 2020 deepens the encouragement of foreign investment in Central and Western China by newly adding 37 items. Among them are the following:

(1) Agricultural product processing and tourism development have been added for Heilongjiang and Yunnan Provinces.

(2) Manufacturing of medical equipment, epidemic prevention and protection products and raw material medicine have been added for Henan, Shaanxi and Guangxi Provinces.

(3) Semiconductor materials and industrial ceramics have been added for Hubei and Sichuan Provinces and Chongqing Municipality.

(4) Vocational college entries have been added for Anhui and Shaanxi Provinces.

(5) For Hainan Province, business operation and trading (e.g. operation of luxury goods and international trade), shipping, finance, tourism and other related items have been added to support the construction of the Hainan Free Trade Port.

3. Conclusion

The Market Access Negative List 2020 and the Encouraged Catalogue 2020 further reduce restrictions and prohibitions for foreign investors in certain industries. The new regulations follow the old pattern which has proven to be very successful for China in the past decades. Encouraged are investments in such industries in which China still hopes to get more technologies, such as high-end manufacturing industries and producer services etc. as well as locations where China would like to attract more foreign investment such as Central and Western China. Any liberalizations and openings of market access is positive and may bring along extended possibilities for foreign investors in the PRC.