China's Foreign Investment Industries Guidance Catalogue Version

Transcription

1 China's Foreign Investment Industries Guidance Catalogue

2 China releases new Foreign Investment Industries Guidance Catalogue The National Development and Reform Commission ( NDRC ) and the Ministry of Commerce ("MOFCOM") released the new Foreign Investment Industries Guidance Catalogue on March 10, 2015 ( ) which will supersede the current 2011 Version from April 10, The Foreign Investment Industries Guidance Catalogue (the "FDI Catalogue") is one of the key mechanisms for regulating foreign direct investment in China. The is the sixth edition since the catalogue was first promulgated in It categorizes foreign invested projects as "encouraged", "restricted" and "prohibited" industrial sectors, and includes restrictions on investment forms and/or shareholding proportion. Foreign investment in industries not covered by the FDI Catalogue will be regarded as "permitted". In the, the number of projects under the restricted category has been narrowed down from 79 to 38. Projects requiring the invested enterprises adopting the form of Sino-foreign equity/cooperative joint ventures ("EJV/CJV")have decreased from 43 to 15. Projects requiring majority shareholding by Chinese parties have decreased from 44 to 35. The mainly lifts restrictions on manufacturing industries and service industries, including logistics, retail/wholesale, e-commerce and finance. According to NDRC, while formulating the, the authorities took into consideration the further reforms expected to impact the foreign investment regulatory regime and hence significantly narrowed down the restricted category. This approach is intended to make the FDI Catalogue ready for a smooth transition to the future "negative list" approach that is likely to be adopted when a new Foreign Investment Law is promulgated in the near future. Some provisions under the are inconsistent or contradict with other regulations and rules, and the government needs to make further clarification and explanation while implementing the. Contacts Rebecca Silli Yi Yi Wu Jem Li Barbara Mok Partner, Hong Kong Partner, Shanghai Partner, Beijing Partner, Hong Kong firstname.lastname@minterellison.com MINTER ELLISON NEWS ALERT COMMERCIAL-IN-CONFIDENCE 2 of 11

3 More encouraged industries Under the, the expanded encouraged category for foreign investment mainly covers manufacturing industries and other industries, such as supply of electricity and water, transportation and service sectors. We have summarized in the following table the new noteworthy changes to the encouraged category in the compared to the 2011 Version: 2011 Version 1. N/A Note: "Construction and operation of grids" provided under restricted category in 2011 Version 2. Scheduled or non-scheduled international marine transportation services (Chinese parties as controlling shareholders) 3. Accounting and auditing (limited to CJVs and partnerships) 4. Construction and operation of urban subway, light railway and other track transport (Chinese parties as controlling shareholders) Construction and operation of grids (Chinese parties as controlling shareholders) Scheduled or non-scheduled international marine transportation services (limited to equity or cooperative joint ventures) Accounting and auditing (the chief partner shall hold Chinese citizenship) Construction and operation of urban subway, light railway and other track transport Moved from restricted category to encouraged category No requirement for the Chinese parties holding majority equity interests Foreign investors can be the majority shareholders Partnership will be the permitted form of the invested enterprises, with chief partner to be a Chinese national. Although CJVs are not mentioned as a permitted form of foreign invested accounting/auditing enterprises, with the requirement for the chief partner being a Chinese national, it could be construed that foreign investors are still not allowed to set up a wholly foreign owned accounting/auditing firm. No more requirement for equity interests held by Chinese parties, which means wholly foreign invested enterprises ("WFOEs") are feasible in this industry. In case of the project company being an EJV/CJV, foreign investors can hold majority equity interests in the invested enterprises. MINTER ELLISON NEWS ALERT 3 of 11

4 2011 Version 5. N/A Note: Not provided in 2011 Version and therefore falling into the permitted category 6. Operation of performance sites (Chinese parties as controlling shareholders) Aged care institutions Moved from permitted category to encouraged category. Before promulgation of the, MOFCOM and the Ministry of Civil Affairs jointly issued a circular to encourage foreign investment in for-profit aged care institutions by adopting the form of WFOEs or EJVs/CJVs on November 24, The circular aforementioned prohibits foreign invested for-profit aged care institutions from offering aged care services if such services are paid through discounting residential houses owned by the elderly receiving their services. Operation of performance sites Moved from restricted category to encouraged category Indicating the continuous opening of entertainment industry to foreign investment although radio and television program production and operation companies, movie production companies, distribution companies, and cinema companies remain unchanged in prohibited category in the Operation of entertainment venues is also moved from restricted category to permitted category (to be discussed below) Notwithstanding the above restrictions being lifted, new restrictions are imposed on certain industries under the encouraged category in the : 2011 Version 7. Air transportation companies (Chinese parties as controlling shareholders) Air transportation companies (Chinese parties as controlling shareholders, and the shareholding proportion of one foreign investor and its affiliates shall not exceed 25%) New restriction added 1 Announcement of Ministry of Commerce and Ministry of Civil Affairs on Encouraging Foreign Investors to Establish in China For-profit Service Institutions for the Elderly, effective from November 24, MINTER ELLISON NEWS ALERT 4 of 11

5 Less restricted industries The list of restricted industries under the is narrowed down from 79 items to 38 items only. A lot of restricted sectors are now permitted. This indicates the trend of Chinese government shifting its regulatory approach in the field of foreign investment. As indicated by NDRC, both NDRC and MOFCOM aim to reduce the scope of restricted category of the. If the same regulatory measures (such as measures from the aspect of energy saving, environmental protection, technology, new energy, etc) could be imposed upon both domestic and foreign invested projects in certain industries, the authorities do not include such industries in the restricted category of. The reduced scope of the restricted category could be interpreted as an attempt of the authorities within the current legal regime of foreign investment to adapt to the "negative list" approach introduced by the draft PRC Foreign Investment Law promulgated by MOFCOM on January 19, 2015 for public opinions. Notwithstanding the fact that the restricted category is shrinking, some further restrictions have been added to certain restricted sectors such as education. Moreover, healthcare has been added back to the restricted list. The noteworthy changes to the restricted industries are summarized as follows: 2011 Version 1. Atmospheric and vacuum refinery production with an annual output below 10 million tons, catalytic cracking production with an annual output below 1.5 million tons, continuous reforming production (including aromatics extraction) with an annual output below 1 million tons, and hydrogen cracking production with an annual output below 1.5 million tons N/A Moved from restricted category to permitted category 2. Railway freight transport companies 3. Cross-border automobile transport companies N/A Moved from restricted category to permitted category N/A Moved from restricted category to permitted category 4. Telecommunication companies: value-added telecommunication Telecommunication companies: value-added telecommunication WFOEs would now be permitted in e-commerce business. "Online sale" was stipulated under restricted category in the 2011 Version, but it has MINTER ELLISON NEWS ALERT 5 of 11

6 2011 Version services (with the proportion of foreign investment not exceeding 50%); basic telecommunication services (with the proportion of foreign investment not exceeding 49%) 5. Purchase of grains; and wholesale, retail, and distribution of grains, cotton, vegetable oil, sugar, tobacco, crude oil, agricultural chemicals, agricultural plastic film, and fertilizers (in the case of selling products of different varieties and brands from multiple suppliers through more than 30 chain stores, the Chinese parties shall be the controlling shareholders) services (with the proportion of foreign investment not exceeding 50% except for e-commerce); basic telecommunication services (with the proportion of foreign investment not exceeding 49%) Purchase of grains; and wholesale of grains and cotton been deleted in the. Online sale is now regarded as part of the e- commerce business, in which WFOEs are allowed. Shanghai Pilot Free Trade Zone has implemented a new policy to permit WFOEs in the e- commerce business within the free trade zone since January This amendment to the with respect to e-commerce business could be an example of the Chinese Central Government's practice to replicate and promote the successful experience of the Shanghai Pilot Free Trade Zone practice. The restricted commodities have been reduced to two types of products and no more restrictions on retail. Retail and wholesale of tobacco leaf and tobacco products are moved to prohibited category and are no longer open to foreign investment. 6. Banks Banks (For one single foreign financial institution and affiliates subject to its control or joint control that act as promoters or strategic investors, their shareholding proportion in one single commercial bank shall not exceed 20%; for foreign financial Shareholding proportion by foreign investors is specified Qualifications for investors in small or middle-sized financial intuitions in rural areas are specified These restrictions newly specified in the have been in place since 2013, when China Banking Regulatory Commission ("CBRC") issued its rules on investment in banks. 3 The does not create or add new restrictions in foreign investment in the banking business but just incorporates the existing restrictions under the CBRC rules into the text of the FDI Catalogue. 2 Announcement of Ministry of Industry and Information Technology on Lifting Restrictions on Foreign Equity Ratio in Online Data Processing and Transaction Processing Business (For-profit E-commerce) in China (Shanghai) Pilot Free Trade Zone, effective from January 13, Measures of China Banking Regulatory Commission for the Implementation of Administrative Licensing Matters on Chinese investment Commercial Banks, effective from March 15, 2013 and Measures of China Banking Regulatory Commission for the Implementation of Administrative Licensing Matters on Small or Middle-sized Financial Intuitions in Rural Areas, effective from March 13, MINTER ELLISON NEWS ALERT 6 of 11

7 2011 Version 7. Securities companies (limited to underwriting of A Shares and underwriting and trading of B Shares, H Shares, and governmental and corporate bonds, with the proportion of foreign investment not exceeding 1/3) institutions and affiliates subject to their control or joint control that act as promoters or strategic investors, their shareholding proportion in one single commercial bank shall not exceed 25%, and the foreign financial institutions investing in China's small or middle-sized financial intuitions in rural areas must be banking financial institutions) Securities companies (upon its establishment, the business is limited to underwriting and sponsoring of RMB ordinary shares and foreign invested shares, governmental bonds and corporate bonds; brokering of foreign invested shares; brokering and trading of governmental bonds and corporate bonds; securities companies may apply for expanding business scope after expiry of the 2nd anniversary if prescribed conditions are met; shareholding proportion of foreign investment in these companies shall not exceed 49%) Shareholding proportion by foreign investors is increased to 49% but some restrictions on scope are imposed on first two years 8. Development of tracts of land (limited to EJV/CJV) N/A Moved to permitted category Other restrictions on foreign investment in real estate industry still exist in a serial of MINTER ELLISON NEWS ALERT 7 of 11

8 2011 Version 9. Construction and operation of high-class hotels, high-class office buildings, and international exhibition centers 10. Real estate secondary market transactions and real estate intermediary or brokerage companies 11. Market investigations (limited to EJV/CJV) N/A N/A Market investigations (limited to EJV/CJV; majority shareholding by Chinese parties required for ratings survey of radio or television broadcasting) governmental circulars and rules issued by NDRC, MOFCOM, Ministry of Construction, State Administration for Industry and Commerce, People's Bank of China and State Administration for Foreign Exchange respectively due to the government's concern of the rapid growth of the Chinese real estate market during the last decade. These restrictions, still being in place, include prohibiting foreign investors from directly owning real properties, requiring foreign investors to set up project company in China to carry out real estate development and operation, requiring newly incorporated real estate development companies owned by foreign investors to be filed with MOFCOM (failing to do so, the new companies are prohibited from converting foreign investors' capital contribution into RMB for use in China), prohibiting foreign invested real estate development companies from borrowing loans from abroad, etc. With the implementation of the, such restrictions on the real estate industries may need to be amended or abolished by the Chinese government. New restriction added 12. Imports and exports inspection, identification and certification companies N/A Moved to permitted category 13. N/A Note: "Higher educational institutions (limited to EJV/CJV) " provided under encouraged category in 2011 Version 14. Ordinary senior high schools (limited to CJV) Higher educational institutions (limited to CJV; Chinese parties being the leading party) Ordinary senior high schools (limited to CJV; Chinese parties being the leading party) "Chinese parties being the leading party" means that the principal or administrative person in charge of the institution shall hold Chinese citizenship and at least half of the members of administrative council, board of directors or joint management committee of the CJV shall come from the Chinese parities 15. N/A Pre-school education institutions (limited to CJV; Chinese parties MINTER ELLISON NEWS ALERT 8 of 11

9 2011 Version Note: Not provided in 2011 Version and therefore falling into the permitted category 16. N/A Note: Not provided in 2011 Version and therefore falling into the permitted category being the leading party) Medical institutions (limited to EJV/CJV) Moved from permitted category to restricted category (this is a reinstatement as this was the case in the 2007 version of the FDI Catalogue) WFOEs are still not allowed in healthcare sector The prohibition of WFOEs in healthcare industry contradicts with a circular jointly issued by MOFCOM and the National Health and Family Planning Commission in 2014, which implements a pilot scheme in Beijing, Tianjin, Shanghai, Jiangsu Province, Fujian Province, Guangdong Province and Hainan Province to approve WFOE hospitals 4 It is not sure whether the will trump the aforementioned circular (as a result of which, WFOEs would no longer be allowed in these pilot areas), or whether the pilot scheme remains as an exception to the and WFOE hospitals are still feasible in such pilot areas. This needs further clarification from NDRC, MOFCOM and the National Health and Family Planning Commission. 17. Operation of entertainment venues (limited to EJV/CJV) N/A Moved from restricted category to encouraged category 4 Notice of National Health and Family Planning Commission & Ministry of Commerce on a Pilot Scheme for the Establishment of Wholly Foreign-owned Hospitals, effective from July 25, MINTER ELLISON NEWS ALERT 9 of 11

10 New Prohibitions Although prohibited foreign investment industries in are reduced from 38 items to 36 items by number, new prohibited foreign investment industries are added to the prohibited category while some have been moved out of the list: 2011 Version (Prohibited Category) 1. N/A Note: "legal consultancy" provided under restricted category in 2011 Version (Prohibited Category) Consultancy on Chinese legal issues (except for providing information about impact of Chinese legal environment) New prohibition added 2. N/A Online publishing services New prohibition added This prohibition newly added to the is consistent with China's World Trade Organisation commitments and has been in place since the Chinese government promulgated the regulatory rules for representative offices of foreign law firms in Construction and operation of golf courses and villas Construction of golf courses and villas Foreign investment in operation of golf courses and villas now becomes permitted 5 Regulations on the Administration of Resident Representative Offices in China of Foreign Law Firms, effective from December 22, MINTER ELLISON NEWS ALERT 10 of 11

11 An Inclusive and Uniform Catalogue for All Restrictions on Foreign Investment? Another noteworthy change to the 2015 version is that it deletes one of the notes of the FDI Catalogue, which originally provided "if the special regulations or industry policies of the State Council provide otherwise, the relevant provisions thereof shall prevail." The deletion of this note could be interpreted to mean that the of FDI Catalogue shall prevail over any special regulations or industry policies of the State Council. This would be consistent with the goal of Chinese government to shift to the "negative list" approach in regulating foreign investment. However, there are still some restrictions on foreign investment in certain industries under regulations adopted before the, but not incorporated in or explicitly cancelled by the, e.g. restrictions on real estate industry under other regulations and rules as discussed above. Some existing regulations or rules are in contradiction with restrictions newly added in the, e.g. WFOE hospitals in certain areas of China being allowed under a pilot scheme but prohibited by the. These inconsistent/contradictive provisions will need to be clarified by the PRC authorities, including MOFCOM, NDRC, but also the relevant ministries/commissions under the State Council. Summary The illustrates the industrial policies of the Chinese government addressed by Premier Li Keqiang in his Report on the Work of the Government (2015) during the session of the National People's Congress in early March 2015, where Premier Li mentioned that the government desires to attract more foreign investments in service and manufacturing sector. The shrunk restricted category in the is also consistent with the goal set forth in Premier Li's report to introduce a new management system under which foreign investment projects generally need only to be filed, with government review/approval required in only a limited number of cases. Disclaimer The information contained in this publication is intended as a guide only. Professional advice should be sought before apply any of the information to particular circumstances. While every reasonable care has been taken in the preparation of this update, Minter Ellison does not accept liability for any errors it may contain. MINTER ELLISON NEWS ALERT 11 of 11