FINANCE & BANKING

European Chamber: China’s Revised Foreign Investment Catalog Falls Short of Expectations

The European Chamber of Commerce in China recognizes that the restructuring of the Foreign Investment Industrial Guidance Catalogue brings some welcome clarification to investors.

Restrictions on equity are now better categorized under a new ‘Negative List’ section, and there have been some small steps towards further liberalization with certain sectors being removed from the catalogue.

However, the promulgation of this new catalogue means that a fundamental distinction remains between domestically-invested and foreign-invested enterprises with respect to market entry and approval requirements.

Foreign investment is still classified as being either ‘encouraged’, ‘restricted’ or ‘prohibited’ under terms that are vaguely defined.

In previous comments on a draft of this catalogue, the European Chamber conveyed expectations for a short, national negative list to replace the catalogue altogether, in order to create a level playing field in the Chinese marketplace, as the current gap in market access is unsustainable.

Reciprocal treatment is essential, not only for European business investing in China, but also for Chinese investments overseas.

The removal of the Foreign Investment Catalogue, in favor of a concise negative list, would have therefore demonstrated China’s publicly-declared ambitions to reform its national economy and fully open its markets, as outlined in President Xi’s Davos speech.

The continued use of such a discriminatory catalogue runs contrary to the spirit of this speech, as well as Guofa [2017] No. 5 and a host of implementing guidelines and announcements that been subsequently released at a central and local level, which also contain clear market opening pledges.

It was officially announced that the number of industries that are restricted to foreign investors have been reduced by 30, from 93 to 63. However, in reality only 18 of these can actually be considered to have undergone some opening.

The remainder have been removed from the list as they already appear in the Market Access Negative List (MANL), issued by the National Development and Reform Commission and the Ministry of Commerce in March 2016.

The MANL takes precedence over the Foreign Investment Catalogue, and these 12 sectors are out of bounds for both foreign and domestic companies in any case.

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