The Special Administrative Measures for Access of Foreign Investment (Negative List) (2019) (the “Negative List”) promulgated by National Development Reform Commission and Ministry of Commerce went into effect 30 July 2019. The Negative List is revised on a yearly basis to establish the industries in which foreign investment is prohibited or that foreign investors can only take a limited share – typically 25% or 49%. Below, we provide some insight and guidelines for foreign investors in navigating the negative list.
Q: What is the Negative List?
A: The Negative List centrally regulates China industry access for foreign investors. Certain industries are limited in the equity share of foreign investors or require certain senior management personnel. For sectors which are not listed on the Negative List, the administration shall follow the principle of equal treatment for domestic and foreign investors.
Other certain sectors may establish a transition period in which restrictions are abolished or relaxed once the transition period expires.
Q: What industries are prohibited?
A: Overall, foreign investors are prohibited from engaging in investment and business activities as sole/family proprietors, in wholly individual-owned enterprises or members of farmer cooperatives. Prohibited sectors are largely related to the manufacture of Chinese medicine, nuclear plants, transportation and so forth (you can view the complete list below).
Q: What are the changes for the 2019 Negative List?
A: In comparison to the 2018 Negative List, in the 2019 list the number of industries is reduced from 48 to 40 items, while no new items are added. The 2019 Negative List further opens sectors in services, agriculture mining and manufacturing.
Q: Can foreign investors merge and acquire (“M&A”) domestic companies within the Negative Lists?
Foreign investors engaging in an M&A of a domestic company shall strictly abide by the Negative List. M&As in the restricted industries are required to be established as an Equity Joint Venture with the Chinese party holding a dominant or relative share of the enterprise and where such percentages shall be maintained after the M&A. Where a foreign investor is forbidden to operate in certain industries, M&A of domestic companies are strictly forbidden.
Q: What is the Negative List for Market Access 2018 Version (MA Negative List)?
A: The MA Negative List was released by the NDRC on 25 December 2018. It is a unified table of prohibitions and licensing requirements applied to both domestic and foreign companies. In other words, the foreign investors should analyse the Negative List in conjunction with the MA Negative List, as the latter establishes specific procedures such as obtainment of special license or certificates (for more details on the MA Negative List, please the previous article titled China business: market-entry ‘Negative List’ updated).
Special Administrative Measures for Access of Foreign Investment (Negative List) (2019)