Out-Law / Your Daily Need-To-Know

China plans the "most cuts in history" to restrictions on foreign investment

Out-Law News | 10 Nov 2014 | 10:36 am | 1 min. read

Proposed changes to China's Foreign Investment Guidance Catalogue will encourage more foreign companies to invest in the country, the Chinese National Development and Reform Commission (NDRC) has said.

Wang Dong, an NDRC official, told state-owned news agency Xinhua that the proposed changes included the greatest number of changes removing restrictions on foreign investment in the catalogue's history. The proposed changes would reduce the number of sectors that limit foreign investment from 79 to 35, and cut the number of sectors where Chinese investors must hold a larger share from 44 to 32.

First issued in 1995 and revised every three years, the Foreign Investment Guidance Catalogue governs foreign investment in Chinese companies. It classifies foreign direct investment in various business activities as encouraged, restricted, prohibited or permitted. Investment in 'encouraged' activities is subject to less strict administrative requirements and may enjoy certain tax and other benefits, while investment in 'restricted' activities is subject to higher levels of scrutiny and may be denied at the discretion of the approval authorities.

According to Xinhua, the draft no longer limits foreign investors in sectors including steel, ethylene, oil refining, paper making and premium spirits. Some of these sectors have faced production overcapacity or require the incorporation of new technologies to improve output. The draft also removes restrictions on foreign participation in some financial services, including finance companies and insurance brokers.

The draft also adds a number of sectors to the 'prohibited' list. Foreign investment in domestic legal affairs consulting, tobacco and cultural relics businesses would be banned under the proposed changes, according to Reuters.

Business group the European Union Chamber of Commerce in China said that although the new draft was "another incremental and positive development", the removal of the investment catalogue altogether in favour of a "short, negative list" of prohibited sectors would be "more ambitious".