China Publishes 2024 Foreign Direct Investment Negative List
On 8 September 2024, the National Development and Reform Commission (NDRC) and the Ministry of Commerce (MOFCOM) of China jointly published the “Special Administrative Measures for Foreign Investment Access (Negative List) (2024 Version)” (Foreign Investment Negative List), demonstrating to the outside world China’s commitment to further opening up its market. In recent years, China has been pushing ahead with economic reforms aiming at strengthening its integration with the global economy. This process includes continued adjustments to (i) the Market Access Negative List, (ii) the Foreign Investment Negative List and (iii) Foreign Investment Negative Lists exclusively applicable for select free trade zones with more favorable treatments to foreign investors than the general Foreign Investment Negative List. This newly published Foreign Investment Negative List reflects China's commitment to a more open, fair and transparent investment environment.
The Market Access Negative List governs national treatment to all types of business entities, both domestic and foreign, to conduct business allowed by the government in China. The Foreign Investment Negative List, on the other hand, is part of the government’s foreign investment management regime which only applies to foreign investors. A foreign investor must comply with both lists in their investment and operation in China. In the following section, we will provide you with further information on these two lists, as well as some special open-door policies of the free trade zones.
The Foreign Investment Negative List
The Foreign Investment Negative List includes specific regulations for foreign-invested enterprises, including but not limited to share ratio restrictions, joint venture requirements and other types of market access conditions. In recent years, China has continued to loosen the restrictions on foreign investment. From 2017 to 2021, the country had revised the Foreign Investment Negative List for five consecutive years, reducing the number of restrictive measures from 93 to 20, and introduced a series of major open-door measures in the areas of manufacturing, mining, agriculture, finance, etc. These measures have helped to facilitate the inflow of international capital into China and enhance the confidence of multinational companies operating in the Chinese market. In the new 2024 version, restrictions on foreign investment access in the manufacturing sector have been completely abolished, and foreign-invested enterprises in the manufacturing sector have been granted national treatment.
The Market Access Negative List
The Market Access Negative List includes a list of industries, fields and businesses within the territory of China (excluding Hong Kong, Macau and Taiwan) in which the State Council prohibits or restricts investments and operations applicable to all market players. This list not only simplifies administrative procedures in business establishment and operation, but also provides a clear guideline for domestic and foreign investors concerning which areas are freely accessible and which are restricted or prohibited. The Market Access Negative List was first implemented in China in 2018. On 1 August 2024, the General Office of the State Council issued the "Opinions on Improving the Market Access System", emphasizing that "all types of business entities shall have equal access to areas outside the list in accordance with the law", and that "it is strictly prohibited to illegally set up access limitations (by local governments) outside the list, illegally add access conditions, formulate negative lists of a market access nature on its own, or illegally set up barriers to access during the implementation of franchising, designation of business, testing and certification, etc." At present, the Market Access Negative List has been revised for three times, with the number of items on the list reduced from 151 in 2018 to the current 117, representing an approximately 23% decrease in prohibited matters. For example, the latest version of the list, i.e. the 2022 Version, removes respective access restrictions in a number of areas such as manufacturing, finance, and entertainment, including but not limited to:
- Registration approval (drug registration certificate issuance; approval of applications for major changes affecting drug safety, efficacy, and quality control; domestic drug re-registration approval) on domestic drug and drug clinical trial approval.
- Registration approval (issuance of drug registration certificates; approval of applications for major changes affecting drug safety, efficacy, and quality control; re-registration approval after expiration of the validity period) on imported drugs and pharmaceutical products sourced from Hong Kong, Macao and Taiwan (including imported drugs, imported medicinal materials, temporarily imported drugs).
- Approval on clinical trials for new veterinary biological products.
- Approval on domestic financial institutions issuing CNY bonds overseas.
- License for operating the business of importing cultural products.
Policies in Free Trade Zone (FTZ) and Specific Industries
FTZs are one of the key platforms for China's opening up to the outside world, and they have played a pioneering role in experimenting with more aggressive investment policies compared with that of general policies. FTZs may offer incentives such as more favorable access conditions and open door policies, simplified approval processes, and other incentive measures to promote innovation and industrial upgrading. Policies that are successfully implemented in FTZs may be replicated in some other areas of the country or even upgraded into national policies. The negative lists of foreign investment in FTZs had been revised for five consecutive years from 2017 to 2021 and a series of significant opening measures introduced to areas such as biomedical, manufacturing , mining, agriculture, and finance which are subsequently adopted by the general Foreign Investment Negative List, including but not limited to :
- In the automobile manufacturing industry, the restriction in FTZs on the foreign shareholding ratio in the manufacture of commercial vehicles was removed in 2020, and the restriction on the foreign shareholding ratio in the manufacture of passenger cars and the restriction that the same foreign investor can set up two or fewer joint ventures in the country to produce the same kind of vehicle products were cancelled in 2022. Following this, Tesla became the first wholly foreign-owned automotive company in China approved, with a total investment of CNY 50 billion, to build the Tesla Shanghai Gigafactory, which is also Tesla's first Gigafactory outside the United States.
- In the financial sector, all financial sector restrictions in FTZs were lifted in 2021, including the restriction that foreign ownership in securities companies, securities investment fund management companies, futures companies, and life insurance companies should not exceed 51%.
- In agriculture and mining sectors, a series of measures such as fisheries prohibitions and restrictions on the mining of non-metallic minerals were removed in 2019 in FTZs.
With respect to industry specific policies, the most notable recent release of new foreign investment policy is in the biomedical sector. On September 8, 2024, the MOFCOM and the National Health Commission jointly issued a policy allowing foreign-invested enterprises to engage in the development of human stem cells, gene diagnostics and therapeutic technologies and technology applications for product registration for marketing, production and nationwide usage in four selected FTZs. Under this policy, it was proposed to allow the new establishment of wholly foreign-owned hospitals (except for Chinese medicine, and excluding mergers and acquisitions of public hospitals) in Beijing, Shanghai, Guangzhou, Shenzhen and other places.
Conclusion
To sum up, China is demonstrating its commitment to further opening up by continuously reducing and improving the negative lists and policies adopted in FTZs. These initiatives not only help to boost the confidence of foreign companies to develop in China, but also provide global investors with more opportunities to participate in China's economic growth.
Contact:
庄原
合伙人，上海
电话：+86 21 8013 5021
电邮：Frank.Zhuang@yaowanglaw.com
王明亮
合伙人，上海
电话：+86 21 8011 8323
