On December 27, 2021, China’s National Development and Reform Commission (NDRC) and Ministry of Commerce (MOFCOM) released an updated negative list for foreign investment in China (the “2021 Negative List”). The 2021 negative list reduces the number of restricted or prohibited sectors from 33 to 31 and allows foreign investors to set up wholly foreign-owned enterprises for the manufacture of vehicles, including special purpose vehicles, new energy vehicles, utility vehicles and passenger vehicles. It also removes the restriction on investment in the manufacture of ground reception facilities for satellite television broadcasting. In addition, the 2021 Negative List now requires all Chinese domestic companies engaged in activities prohibited by the Negative List to obtain relevant government approval before pursuing an IPO outside of China.
According to the 2021 negative list, there are currently 31 restricted and prohibited industries in China for foreign investment:
- Restricted: The Chinese national party must own at least 34% of a company specializing in the breeding and cultivation of new varieties of wheat and the production of wheat seeds. A company specializing in the breeding and cultivation of new varieties of corn and the production of corn seeds must be controlled by a domestic Chinese party.
- Prohibited: The research, development, breeding and planting of rare and unique valuable quality varieties in China and the production of relevant breeding material (including quality genes of planting, breeding and aquaculture).
- Prohibited: The breeding of genetically modified varieties and the production of genetically modified seeds (fingerlings) in relation to crops, breeding stock and poultry, and aquatic fry are prohibited.
- Prohibited: Fishing for aquatic products in sea areas under Chinese jurisdiction and in China’s internal waters
- Prohibited: rare earths and the recognition, extraction and beneficiation of radioactive minerals and tungsten
- Restricted: Investment in the publishing industry must be controlled by a domestic Chinese party.
- Prohibited: Application of steaming, stir-frying, burning, roasting and other Chinese medicine processing technologies and production of confidential prescription products for exclusive Chinese medicines.
- Restricted: The construction and operation of a nuclear power plant must be controlled by a Chinese national party.
- Prohibited: wholesale and retail sale of leaf tobacco, cigarettes, dried leaf tobacco and other tobacco products.
- Restricted: Inland waterway transport companies must be controlled by Chinese parties.
- Restricted: A public air transport company must be controlled by a Chinese national party, and the investment made by a single foreign investor with its related enterprises in this company must not exceed 25%, and the legal representative of this company must to be a Chinese. citizen. The legal representative of general aviation companies must be a Chinese citizen, of which those for agriculture, forestry and fishing industries are limited to joint ventures only, while others must be controlled by parties Chinese.
- Restricted: Investments in the construction and operation of civil airports must be controlled by a Chinese party. Foreign parties are not allowed to participate in the construction and operation of airport towers.
- Prohibited: postal service and domestic mail delivery service activity
- Restricted: Telecom companies – subject to China’s WTO accession commitments; the participation rate of foreign investment in a value-added telecommunications business (excluding e-commerce business, domestic multiparty communications, storage and forwarding, and call centers) must not exceed 50% ; the basic telecommunications activity must be controlled by the Chinese side.
- Prohibited: Internet news services, online publication services, online audiovisual program services, Internet cultural operations (except music) and Internet public information dissemination services (except exclusion of services permitted under China’s WTO accession commitments).
- Prohibited: Chinese legal business (with the exception of providing information relating to the impacts of the Chinese legal environment); become a partner in a national law firm.
- Restricted: market research activity is limited to joint ventures; broadcasting and television viewing and rating polls should be controlled by a national Chinese party.
- Prohibited: social surveys.
- Prohibited: development and application of technologies for the diagnosis and treatment of human stem cells and genes.
- Prohibited: research establishments in the humanities and social sciences.
- Prohibited: geodetic surveys, hydrographic surveys and mapping, aerial photography surveys and mapping, mobile ground surveys, administrative area boundary surveys and mapping, compilation of topographic maps, world administrative maps, national administrative maps, administrative maps at the provincial level or lower , national school maps, local school maps and true three-dimensional maps, development of electronic navigation maps and regional investigations in geological mapping, mineral geology, geophysics, geochemistry, hydrogeology, environmental geology, geological disasters and remote sensing geology (Mining Law owners working within the framework of their mining rights will not be subject to this particular administrative measure).
- Restricted: Preschools, middle schools, and colleges must be jointly operated by Sino-foreign entities; these schools must be dominated by the Chinese parties (the principals or the principal heads of administration in charge of these schools must be of Chinese nationality, and the Chinese members must constitute at least half of the council, the board of directors or the joint management committee).
- Prohibited: Compulsory education establishments and religious education establishments.
- Restricted: Investments in medical facilities must be limited to joint ventures.
- Prohibited: news agencies (including, but not limited to, news agencies).
- Prohibited: editing, publishing and production of books, newspapers, periodicals, audiovisual products and electronic publications.
- Prohibited: all levels of broadcast stations, television stations, radio and television channel and frequency, radio and television transmission networks (including radiating stations, rebroadcast stations, broadcast and television satellites , satellite uplink stations, satellite signal receiving and rebroadcasting stations, microwave stations, monitoring stations and television broadcasting and cable television transmission network, etc.) and the commitment in the radio and television video-on-demand sector and in the provision of installation services for ground reception facilities for satellite television broadcasting.
- Prohibited: production and exploitation of radio and television programs (including the introduction).
- Prohibited: film production companies, distribution companies, cinema companies and the introduction of films.
- Prohibited: sale of cultural relics at auction, cultural relics shops and state-owned cultural relics museums.
- Prohibited: cultural and artistic performance groups.
Foreign investments in sectors not included in the 2021 negative list are subject to the same administrative approval requirements as Chinese domestic investments.
The NDRC and MOFCOM also maintain a separate free zone negative list that applies only to foreign investment in designated free zones.
According to a recent report prepared by the US International Trade Administration, despite growing geopolitical tensions between the United States and China, the vast size of the market, the continued growth of the middle and upper class, changing demographics and the transformation China’s protracted economy continues to create market opportunities for well-prepared American companies, and American products continue to be viewed favorably by Chinese consumers. In particular, the International Trade Administration has identified the following industry sectors as top U.S. export and investment sectors: agriculture, aviation, automobiles (including recreational vehicles and motorcycles), cosmetics, and toilets, design and construction services, education, energy (including technologies, natural gas, energy-efficient manufacturing, carbon capture, use and storage, and green building (a broad concept of environmentally friendly construction process and technology ) environmental technology and healthcare (including medical devices, diagnostic imaging, implants, in-vitro diagnostics and orthopaedics).
Taking advantage of these opportunities without appropriate experience (knowledge of local laws and regulations) or resources (including language ability and cross-cultural communication skills) can be difficult. Therefore, it is important to work with professionals with experience in China to help you explore and make the most of the vast market opportunities that exist in China.