New China Foreign Investment Catalogue

The new China Foreign Investment Catalogue (外商投资产业指导目录) was published on 29 December 2011. The new Catalogue will come into force on 30 January 2012 and will replace the 2007 Catalogue. The new Catalogue (like the previous ones) was issued by the National Development and Reform Commission (NDRC) and the Ministry of Commerce. The Catalogue classifies foreign investments in China into three categories: encouraged, restricted and prohibited investments. Investments not included in any of these three categories are to be considered permitted.

Encouraged investments are favored by, among other things, a fast track approval process. On the other hand, restricted investments are subject to additional limitations or requirements.

For instance, the approval authority could be at a provincial or even at the national (ministerial) level, rather than local. Therefore, the approval process will be longer and more burdensome. In addition, certain restricted projects also require the participation of Chinese investors, at certain minimum thresholds.

From a preliminary review of the new Catalogue, the following points could have significant implications for foreign investors:

  • the provision of medical services, such as hospitals and clinics, as well as financial leasing are no longer restricted investments. In the 2007 Catalogue, for example, there were specific requirements for the approval procedure according to which the minimum registered capital and participation of a Chinese investor had to amount to 30% in hospitals or clinics and 20% in financial leasing companies;
  • franchising no longer appears among the restricted investments;
  • wholesale and retail selling of medicines or vehicles are not restricted investments any more;
  • the collection and processing of disused electrical and electronic appliances, automobiles, plastic, metal and batteries have been added to the list of encouraged investments;
  • there are eleven types of investments for which foreign investors are not longer required to have a Chinese partner. For example, the 2011 Catalogue does not mention that the foreign shareholding in companies producing motor vehicles must be capped at 50%. However, the production of motor vehicles has been removed from the list of encouraged investments.

We will have to look through the new implementing regulations for each relevant industry sector (e.g. medical services, financial leasing), as well as their practical implementation by the local approval authorities, to assess the impact of these changes.

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