[author: Yan Zhang]
In late 2011, China’s National Development and Reform Commission (“NDRC”) and Ministry of Commence (“MOFCOM”) jointly announced the new Foreign Investment Guidance Catalogue (2011 Amendment) (“New Catalogue”). For years, China’s Foreign Investment Guidance Catalogue (“Catalogue”) has been among the most essential regulations and industrial policies in guiding foreign investment. The New Catalogue became effective on January 30, 2012, replacing its predecessor which became effective in December 2007.
The Catalogue categorizes the specific industries in which foreign investment in China is “encouraged”, “restricted” or “prohibited” (industries not specifically mentioned in the Catalogue are generally considered “permitted”). The Catalogue was first announced in 1995 in order to meet the needs of China’s growing economy and economic reform. The NDRC and MOFCOM have since revised the Catalogue several times, with the New Catalogue being the Catalogue’s fifth revision.
Several key aspects of the New Catalogue:
There are 473 articles in total, including 354 articles regarding encouraged industries, 80 articles regarding restricted industries, and 39 articles regarding prohibited industries; as compared to 351 articles, 87 articles and 40 articles in the 2007 Catalogue, respectively. Meanwhile, the New Catalogue has deleted 11 articles requiring joint capital proportion in encouraged and restricted industries, resulting from a more proactive opening principle.
In an attempt to restructure manufacturing, the New Catalogue puts advanced manufacturing among the focus of encouraged industries. Vehicle manufacturing, the polysilicon industry and the coal chemical industry are no longer encouraged industries. According to a spokesman of the NDRC, these changes are based on estimates of the level of China’s domestic vehicle manufacturing and the attempt to avoid unnecessary construction.
Several articles related to emerging industries have been classified as encouraged industries, which can be considered a sign of the government’s determination in cultivating the emerging industries. This includes, among others, the manufacturing of key parts and components of new energy automobiles, and the development and manufacturing of certain next generation Internet system equipment.
Nine of the items classified as encouraged industries are new, largely in order to stimulate the development of the service sector. These include the construction of vehicle charging stations, venture capital enterprises, intellectual property right services, offshore oil pollution cleaning and ecology recovery technology and relevant product development, occupational skills training, foreign invested medical institutions, and financial lease companies.
Items removed from the encouraged industries classification are being considered with respect to the Catalogue of Priority Industries for Foreign Investment in Central and Western China, according to a spokesman of the NDRC, as part of a policy that seeks to balance development among China’s various regions.
In practice, foreign investment projects approved before the January 30, 2012 effective date of the New Catalogue shall comply with the 2007 Catalogue. However, in the event a foreign invested project applies for a capital increase, equity assignment or overseas listing, among others, then it shall comply with the New Catalogue.