Since 2018, China started to implement the “Negative List” approach for the administration of foreign investment nationwide, and has updated the Negative Lists periodically since then. The Negative Lists set out in a centralized manner special administrative measures with respect to the access of foreign investment. Business sectors not specified in the Negative Lists are subject to administration under the principle of treating domestic investment and foreign investment equally.
On December 27, 2021, China’s National Development and Reform Commission and Ministry of Commerce jointly released the 2021 Editions of the Negative Lists, including the Negative List applicable nationwide (excluding free trade zones) and the Negative List applicable to free trade zones. The new Negative Lists have come into force on January 1, 2022.
Compared with the 2020 Editions, the new Negative Lists further remove restrictions on foreign investment in the manufacturing and business services industries in China. Meanwhile, it also provides for requirements on Chinese domestic companies under certain industries seeking overseas listing.
Currently, foreign investment in China is governed by the administration of negative lists, which set out restrictive measures or bans with respect to access of foreign investment in certain special business sectors in China. Foreign investment in sectors not specified in the negative lists is subject to the same administrative measures as Chinese domestic investment.
Before the administration of negative lists, foreign investment in China was subject to the administration of the Catalogue for the Guidance of Foreign Investment Industries (“Catalogue”). In 2018, the Chinese government replaced the latter with the administration of negative lists nationwide, which reorganized restrictive measures and bans in the Catalogue and removed or loosened considerable number of restrictions or bans from the Catalogue.
In general, there are three versions of negative list for foreign investment in China, each with its different jurisdiction: (i) the national negative list, applicable to foreign investment in China nationwide (excluding free trade zones and Hainan free trade port), (ii) the negative list for free trade zones, applicable to pilot free trade zones in China, and (iii) the negative list for Hainan free trade port, only applicable to Hainan Island.
The government will update these negative lists periodically.
Release of New Negative Lists
On December 27, 2021, China’s National Development and Reform Commission and Ministry of Commerce jointly released the Special Administrative Measures for Access of Foreign Investments (Negative List) (2021 Edition) (the “2021 National List”) and the Special Administrative Measures for Access of Foreign Investments in Pilot Free Trade Zones (Negative List) (2021 Edition) (the “2021 PFTZ List”) (collectively the “New Negative Lists”), which become effective since January 1, 2022.
Compared with the 2020 Editions, the New Negative Lists further remove restrictions on foreign investment in certain industries in China.
They also add requirements on Chinese domestic companies under certain industries seeking overseas listing. Below please find a brief summary of highlights of the New Negative Lists.
1.- Further Opening-up in the Manufacturing Industry Nationwide
Both the 2021 National List and the 2021 PFTZ List remove the following restrictions under the manufacturing industry:
Except for special vehicles, new-energy vehicles and commercial vehicles, for a manufacturer producing other types of vehicles, shares held by Chinese parties shall be at least 50%, and a single foreign investor may only establish up to two joint ventures in China to manufacture the same type of vehicles.
Investment in the manufacturing of ground receiving facilities and key parts for satellite television broadcasting.
After such modification, foreign investors will be able to invest in such industries the same as Chinese domestic investors. Foreign investment in such industries will be subject to the same administration requirements as Chinese domestic investment, and will not be subject to any special restrictions.
2.- Further Opening-up in the Business Services Industry in the Free Trade Zone
The 2021 PFTZ List further removes or loosens restrictions on foreign investment in free trade zones in the business services industry:
The restriction that “investment in market surveys is limited to joint ventures” is removed. (However, restriction still remains that “investment in broadcasting and television listening and rating surveys must be controlled by the Chinese party”.)
The ban on “investment in social surveys” is loosened. According to the 2021 PFTZ List, foreign investors are allowed to invest in social surveys in the form of Chinese-foreign joint ventures; however, the shareholding ratio of the Chinese party shall not be less than 67%, and legal representative of the joint venture must have Chinese nationality.
3.- Adding Requirements on Chinese Domestic Companies under Forbidden Industries Seeking Overseas Listing
Both the 2021 National List and the 2021 PFTZ List add the requirements that “for Chinese domestic companies conducting businesses that are forbidden by the Negative List (i.e. foreign investment is not allowed to be made to such companies), if said companies want to issue shares and be listed overseas, they must be approved by relevant government authorities in China. Foreign investors must not take part in the management of such companies, and shareholding ratio of foreign investors in such companies shall be referred to the regulation requirements applicable to foreign investors investing in securities in China.”
These requirements provide for procedures and restrictions for Chinese domestic companies seeking overseas listing.
For full English translation versions of the New Negative Lists:
 Compared with the national negative list and the negative list for free trade zones, the negative list for Hainan free trade port further loosens restrictions in certain sectors, such as the mining, telecommunication and education industries.