1. What role does the government of China play in approving and regulating foreign direct investment?
In the past, foreign investment in China was highly regulated. However, following China’s entry into WTO a decade ago, governmental approvals and regulations on foreign investments in many sectors have become more routine and less formal. Nevertheless, foreign direct investors still need to go through approval procedures with the competent Chinese commerce authority as their first step for establishing a business vehicle, or for acquiring ownership in a Chinese entity.
The initial question for a foreign investor to ask is whether the proposed investment in a particular sector is permitted under Chinese laws. The Foreign Investment Industrial Guidance Catalogue issued by the National Development and Reform Commission (NDRC) and the Ministry of Commerce (MOC) lists the industries where foreign investment is encouraged, permitted, restricted, or prohibited. The “restricted” or “prohibited” categories can be considered as the “negative list” for foreign investment. The current catalogue is the fourth edition since it was first published in 1995.
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