China's new Foreign Investment Guidance Catalogue

The Foreign Investment Industry Guidance Catalogue is a document issued by China's National Development and Reform Commission (NDRC) and the Ministry of Commerce (MOFCOM) which governs foreign investment in Chinese companies. The Catalogue classifies foreign direct investment in various business activities as encouraged, restricted, prohibited or permitted. Activities not listed are, in the absence of other rules to the contrary, considered to be permitted to foreign investment.

The different categories are:

• permitted: the standard category, with no particular restrictive or favourable treatment;
• encouraged: investment in activities in this category is subject to less strict administrative requirements and may enjoy certain tax and other benefits;
• restricted: investment in activities in this category is subject to higher levels of scrutiny and stricter administrative requirements, and may be denied at the discretion of the approval authorities;
• prohibited: foreign investment not permitted.

The NDRC and MOFCOM have proposed considerable revisions to the Catalogue. The new Catalogue will impact all new foreign investments in China over the next few years. The changes reflect China's current emphasis on high technology, renewable energy, environmental sustainability, value-added manufacturing and enhanced human resources.

The revised Catalogue lists new encouraged and permitted industries. At the same time it raises standards for many encouraged industries and reduced others to mere permitted status. There is comparatively less change to the list of the most sensitive prohibited industries, although even here there are some interesting additions and deletions.

This guide lists some of the potentially more broadly interesting changes.

Newly encouraged activities

New additions to the list of encouraged activities are:

• vocational training;
• venture capital enterprises;
• construction and operation of vehicle charging stations and battery changing stations;
• construction and operation of water treatment plants;
• new types of high-technology glass and optics products.

Newly permitted activities

Activities which now fall into the permitted category, having previously been listed as restricted or prohibited, include:

• production of carbonated soft drinks;
• construction and operation of oil refineries with an annual output of eight million tonnes or less;
• various kinds of commercial companies engaged in franchise business, commission business and business management;
• automobile wholesale, retail and logistics – however, the Chinese party must have a controlling interest in any chain with 30 or more branches which distributes different varieties and brands of products from two or more suppliers;
• medical institutions – however, investment here is limited to equity joint ventures and contractual joint ventures;
• financial leasing companies;
• distribution and importation of books, newspapers and journals;
• importation of audiovisual products and e-journals;
• internet music services.

Newly prohibited areas

Foreign investment is now prohibited for the following activities:

• postal companies and domestic express mail delivery business;
• construction and operation of villas.