What does China s sixth Foreign Investment Catalogue and the new framework for regulation and growth mean for you?

Transcription

1 1 April 2015 What does China s sixth Foreign Investment Catalogue and the new framework for regulation and growth mean for you? Contents The revisions to the Foreign Investment Industrial Guidance Catalogue ( Catalogue ) which the National Development and Reform Commission ( NDRC ) and Ministry of Commerce ( MOFCOM ) published on 13 March 2015 show China s gradual transformation to a high value-added economy with greater emphasis given to advanced services. The continued removal of foreign ownership restrictions and expansion of the Catalogue s encouraged category reflect the policy priorities of the Chinese government in attracting and liberalising foreign investment at a national level in a number of specific industries and sectors. The latest revised Catalogue (the New Catalogue ), which is the sixth version of the Catalogue since its inception, will come into effect on 10 April Industrial sectors... 1 Real estate... 3 Communication and distribution services... 3 Healthcare... 4 Education... 4 General trends... 4 A single list of caps on foreign investment?... 5 Reference... 6 We set out below a brief overview of the changes introduced in certain key sections of the New Catalogue. Industrial sectors Technology The New Catalogue underlines the Chinese government s drive to encourage foreign investment in several energy-efficient manufacturing sectors, including the manufacture of conductive glass, light and dissimilar composite non-ferrous materials, and the construction and operation of large-scale aircooling unit power stations in water-deficient areas. The New Catalogue removes the requirements for foreign investment in some energy-efficient sectors to be in the form of Sino-foreign joint ventures, such as crude oil yield enhancement technologies and oil exploration technologies, and shows the Chinese government s intention to encourage foreign investment in other high value-added sectors which have been added to the encouraged category, such as electronic design automation and industrial design. Machinery The New Catalogue significantly relaxes the restrictions on foreign investment in the manufacturing of specialised equipment. For example, the production of bulldozers, hydraulic excavators and wheeled and crawler cranes, as well and growth mean for you? 1

2 as deep ocean marine engineering equipment design, power transmission and high-voltage power generation no longer requires the establishment of a Sino-foreign joint venture. The encouraged category has been expanded to include most industrial bearings, enabling most of these projects to benefit from foreign investment approval at local level. Foreign investment in the manufacture of bulldozers, excavators, graders, road rollers, electrical and hydromechanical dump trucks has also been moved from the restricted category to the permitted category, thus replacing the need for NDRC approval at all levels by a filing with local NDRC 1 and removing many practical burdens facing investments in the restricted category (such as the ability to attract investment under various government policies). Chemicals The New Catalogue moves many chemical and petrochemical industries from the restricted category to the permitted category. Industries benefiting include certain crude oil by-products, PVC ethylene, small-scale ethylene, sodium carbonate, caustic soda, sulphuric acid, nitric acid and potash. Transportation The New Catalogue removes the restrictions on foreign investment in yacht, aircraft engine parts and components, aircraft auxiliary power and civilian airborne equipment design and manufacture, as well as scheduled and nonscheduled international sea transport. Chinese majority control continues to be required, however, in vessel maintenance, design and manufacture. Rail cargo and cross-border vehicle passenger transport are moved from the restricted category to the permitted category. Beverages The New Catalogue removes the prohibitions on foreign investment in the processing of traditional Chinese green tea and speciality teas. The manufacture of famous brand liquor and spirits and Chinese rice wine is moved to the encouraged category from the restricted category, removing the requirement for central government approval of projects of US$100 million and above in these sectors. All alcoholic and other beverages now fall into the encouraged category. Mining and metals Aiming to attract foreign investment into more sectors of China s commodities value chain, the New Catalogue moves exploration and mining of diamonds, barite, phosphorus, iron sulphur and various other minerals, as well as smelting of electrolytic aluminium, copper, lead, zinc and other non-ferrous metals, from the restricted category to the permitted category. Key mining industries remaining in the restricted category include prospecting and mining of precious metals (including gold, silver and platinum groups), 1 Measures for the Administration of Approval and Filing of Foreign Investment Projects ( 外商投资项目核准和备案管理办法 ), 17 May and growth mean for you? 2

3 special and scarce coal (where Chinese majority control continues to be required), and the mining and ore dressing of lithium. Real estate The New Catalogue removes restrictions on foreign investment in the development of land parcels, land development, the construction and operation of high-end hotels, office buildings, international exhibition centres, and real estate agency businesses. The New Catalogue s reclassification of the restricted category s real estate section into the permitted category (including land development, the construction and operation of high-end hotels, office buildings, international exhibition centres and real estate agency businesses), replacing the NDRC approval requirement at all levels by a filing with local NDRC, further extends the reforms of December 2014 which still required provincial level approval while removing the need for central government approval in these sectors (see our earlier alert). The pre-existing prohibition on foreign investment in the construction and operation of golf links and villas, however, is retained in the New Catalogue. Communication and distribution services Following the removal of foreign investment caps in e-commerce in the Shanghai Free Trade Zone ( SFTZ ) in January , the New Catalogue makes this relaxation applicable nationwide, along with a reclassification of direct sales, mail order sales and online sales from the restricted to the permitted category. The addition of researching and developing the Internet of Things into the encouraged category shows the drive to attract more foreign investment in these sectors. Liberalisation of the media sector introduced by the New Catalogue includes removing foreign investment caps on the distribution of audio and video products (movies excluded) and adding the manufacture of film machines including digital film projectors, cameras, imaging and editing equipment to the encouraged category. However, the New Catalogue also builds on the 2011 Catalogue by adding internet publishing into the prohibited category, reinforcing the prohibition on foreign investment in internet publishing first announced in a 2005 rule 3. The New Catalogue removes the previous requirement for Chinese majority control of crude oil wholesaling and the wholesaling, retailing and distribution of vegetable oil, sugar, pesticides, agricultural plastic film and chemical 2 Announcement of Ministry of Industry and Information Technology on Lifting Restrictions on Foreign Equity Ratio in Online Data Processing and Transaction Processing Business (Forprofit E-commerce) in China (Shanghai) Pilot Free Trade Zone ( 关于在中国 ( 上海 ) 自由贸易试验区放开在线数据处理与交易处理业务 ( 经营类电子商务 ) 外资股权比例限制的通告 ), 13 January Opinions of the Ministry of Culture, State Administration of Radio, Broadcasting and Television, News Publication Agency, NDRC and MOFCOM on Foreign Investment in the Cultural Sectors ( 文化部 国家广播电影电视总局 新闻出版署 国家发展和改革委员会 商务部关于文化领域引进外资的若干意见,), 6 July and growth mean for you? 3

4 fertiliser over a certain scale, and moves these sectors from the restricted to the permitted category. Healthcare The New Catalogue removes foreign investment restrictions in the manufacture of anaesthetic and class I psychotropic drugs. The manufacture of certain drugs and vitamins, and of national immunisation plan vaccines and blood products, is moved from the restricted to the permitted category. However, foreign investment in hospitals (which was placed in the restricted category in the 2007 Catalogue and elevated to the permitted category in the 2011 Catalogue) now appears in the restricted category, and under the New Catalogue can only be made by way of Sino-foreign joint venture. Despite the gradual removal of foreign investment caps in hospitals being on the State Council s agenda 4, the New Catalogue does not extend the current rules which permit qualified investors to set up wholly-owned hospitals in Guangdong, the SFTZ and other pilot provinces to China as a whole 5. The New Catalogue s continued encouragement of foreign investment in healthcare equipment manufacturing is seen by the inclusion of fully automated biochemical monitoring equipment, fully automated haematology and chemiluminescence immunity analysers and high throughput gene sequencing systems in the encouraged category. Education The New Catalogue tightens foreign ownership restrictions by moving higher education institutions and pre-school education institutions to the restricted category. In addition to requiring that foreign investment in these sectors be by way of Sino-foreign joint venture (as was the case in the 2011 Catalogue for higher educational institutions) with the Chinese party having a leading position, the New Catalogue further clarifies the definition of leading position by requiring these institutions to have a Chinese national as principal or chief officer, and for at least half of the joint venture s board or management committee to comprise Chinese nationals. General trends An overall review of the New Catalogue suggests the following key themes: Less government approval: The New Catalogue significantly reduces the scope of the restricted category, eliminating the need for NDRC approval at all levels in many sectors. It thus contemplates a new framework where the 4 5 Notice of the General Office of the State Council on Forwarding the Opinions of the National Development and Reform Commission, the Ministry of Health and Other Departments on Further Encouraging and Guiding Social Capital to Establish Medical Institutions ( 国务院办公厅转发发展改革卫生部等部门 关于进一步鼓励和引导社会资本举办医疗机构的意见 ), 26 November Notice of National Health and Family Planning Commission & Ministry of Commerce on a Pilot Scheme for the Establishment of Wholly Foreign-owned Hospitals ( 国家卫生计生委 商务部关于开展设立外资独资医院试点工作的通知 ), 25 July and growth mean for you? 4

5 role of pre-investment government approval will be significantly reduced and, eventually, foreign investment approval limited to certain sectors (for further details, see our alert covering the Draft Foreign Investment Law). A single list of caps on foreign investment? It has been a feature of China s foreign investment landscape that in addition to the Catalogue, other industry-specific rules and regulations must also be consulted in determining the receptiveness of foreign investment in a particular sector. The New Catalogue, by removing the general note to the Catalogue providing for special provisions in specific industry sectors or which are otherwise passed by the State Council to be followed in addition to the Catalogue, suggests a shift in this general framework, requiring all foreign investment restrictions to be ascertainable by reference to the Catalogue alone. In its press conference, a MOFCOM official confirmed the intention for all foreign investment caps in permitted category industries to be removed (which by definition are not set out in the Catalogue). However, as China s foreign investment restrictions are imposed by multiple regulators, what this will mean for foreign investment in practice is less clear. In both the restricted and prohibited industry categories of the New Catalogue, there remains scope for new restrictions supplementing those in the Catalogue to be introduced through further industry-specific rules passed by the National People s Congress or the State Council, and for those supplemental industry restrictions pre-dating the New Catalogue (such as those applicable in the steel industry, and to trust companies and asset management companies) to continue to apply. It would best serve the interests of certainty if all the remaining restrictions on foreign investment in specific industry sectors could be harmonised in the way that the removal of the reference to other industry restrictions in the New Catalogue indicates, through repealing these restrictions entirely or incorporating them expressly into the Catalogue. In the steel industry, a further step in this direction was taken in a consultation paper 6 released by the Ministry of Industry and Information Technology on 20 March 2015, which proposes a policy of equal market access to foreign and domestic investors, removing the limits on foreign control of Chinese steel enterprises in the 2005 steel industry policies, together with the use of a negative list to regulate entry into certain steel subsectors to be defined. SFTZ and other pilot zones lead the way: The relaxation and removal of foreign investment restrictions in the New Catalogue in many ways tracks the position in equivalent sectors of the negative list in the SFTZ. As the first version of the Catalogue to be dated after the launch of the SFTZ, the New Catalogue sets a marker for future foreign investment reform to be implemented in the SFTZ (as well as other new economic zones such as the free trade zones in the process of being established in Tianjin, Guangdong and other regions) before it is applied nationwide. 6 Revised Steel Industry Policy (2015 Revision) (Draft for Consultation) ( 钢铁产业调整政策 ( 2015 年修订 )( 征求意见稿 ) ), 20 March and growth mean for you? 5

6 Reference Catalogue of Industries for Guiding Foreign Investment (Revision of 2015), 外商投资产业指导目录 (2015 修订 ), dated 10 March 2015 Contacts For further information please contact: Jian Fang Partner (+86) Betty Yap Partner (+852) Simon Poh Partner (+86) Richard Gu Senior Consultant (+86) John Xu Counsel (+86) Authors: Bryan Chan; John Xu This publication is intended merely to highlight issues and not to be comprehensive, nor to provide legal advice. Should you have any questions on issues reported here or on other areas of law, please contact one of your regular contacts, or contact the editors. Linklaters LLP. All Rights reserved 2015 Linklaters LLP is a limited liability partnership registered in England and Wales with registered number OC It is a law firm authorised and regulated by the Solicitors Regulation Authority. The term partner in relation to Linklaters LLP is used to refer to a member of the LLP or an employee or consultant of Linklaters LLP or any of its affiliated firms or entities with equivalent standing and qualifications. A list of the names of the members of Linklaters LLP and of the non-members who are designated as partners and their professional qualifications is open to inspection at its registered office, One Silk Street, London EC2Y 8HQ, England or on This firm is not authorised under the Financial Services and Markets Act 2000 but we are able in certain circumstances to offer a limited range of investment services to clients because we are regulated by the Law Society of England and Wales. We can provide these investment services if they are an incidental part of the professional services we have been engaged to provide. We currently hold your contact details, which we use to send you newsletters such as this and for other marketing and business communications. We use your contact details for our own internal purposes only. This information is available to our offices worldwide and to those of our associated firms. If any of your details are incorrect or have recently changed, or if you no longer wish to receive this newsletter or other marketing communications, please let us know by ing us at marketing.database@linklaters.com. john.xu@linklaters.com Linklaters LLP Shanghai Office 29th Floor Mirae Asset Tower 166 Lu Jia Zui Ring Road Shanghai People's Republic of China Telephone Facsimile Linklaters 10th Floor, Alexandra House Chater Road Hong Kong Telephone Facsimile / Linklaters.com and growth mean for you? 6 A /0.11/01 Apr 2015