China publishes 2015 Negative List for FTZs | Practical Law

China publishes 2015 Negative List for FTZs | Practical Law

On 20 April 2015, the General Office of the State Council released a revised negative list governing foreign investment into China's free trade zones. The new list sets out 122 restrictions and prohibitions, referred to as special management measures (特别管理措施), that apply to foreign investment across 50 industry sectors.

China publishes 2015 Negative List for FTZs

Practical Law UK Legal Update 2-610-4726 (Approx. 10 pages)

China publishes 2015 Negative List for FTZs

by Practical Law China
Published on 28 Apr 2015 • China
On 20 April 2015, the General Office of the State Council released a revised negative list governing foreign investment into China's free trade zones. The new list sets out 122 restrictions and prohibitions, referred to as special management measures (特别管理措施), that apply to foreign investment across 50 industry sectors.
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On 20 April 2015, the General Office of the State Council released a revised negative list governing foreign investment into China's free trade zones. The new list sets out 122 restrictions and prohibitions, referred to as special management measures (特别管理措施) that apply to foreign investment across 50 industry sectors. Unlike the 2013 and 2014 negative lists, the 2015 Negative List applies to all four free trade zones (FTZs) in China.
The 2015 Negative List will be effective from 8 May 2015.

What's new in the 2015 negative list

Unlike its predecessors, the 2015 Negative List applies to all four of China's free trade zones (that is, the zones in Shanghai, Tianjin, Guangdong and Fujian).
Most of the changes in the list, which takes effect from 8 May 2015, mirror the changes made in the Catalogue of Industries for Guiding Foreign Investment (2015 Revision) (2015 Foreign Investment Catalogue).
These include:
For a table summarising these changes, see Table: Changes mirroring the 2015 Foreign Investment Catalogue.
The 2015 Negative List also goes beyond these changes, removing some restrictions and prohibitions that remain in force outside the FTZs. These items are likely to signal sector liberalisations that will be implemented nationwide if they are judged to have been a success in the FTZs. For a list of these, see Table: Changes going beyond the 2015 Foreign Investment Catalogue.
Set against that, some special management measures which were formerly part of broader categories are spelled out for the first time in the 2015 Negative List, most probably due to the Chinese government's increasing concerns over cyber security. These include, for example, "internet map compilation and publication activities" and "internet public information release services". There are also a number of special management measures which, although they have been removed from the 2015 Negative List (and are not mentioned in the Foreign Investment Catalogue), are still effective under industry-specific regulations. For example, "aviation ground services" and "aviation oil supply projects" do not appear on the 2015 Negative List, but restrictions on foreign investment in these industries remain effective under the Provisions on Foreign Investment in the Civil Aviation Sector 2002.
Overall, the regime that applies under the 2015 Negative List represents the least restrictive regulatory environment for foreign direct investment since China was opened up to foreign investors.

Table: Changes mirroring the 2015 Foreign Investment Catalogue

Industry sector
Restrictions and prohibitions removed in the 2015 Negative List
Already removed from the 2015 Foreign Investment Catalogue?
Sub-sector
What has been removed
Agriculture
Planting and cultivation of traditional Chinese medicine herbs.
Limited to EJVs or CJVs.
Yes
Processing of the lumber of precious varieties of trees.
  • Within the "restricted" category.
  • Limited to EJVs or CJVs.
Yes
Mining
Mining and mine selection of iron sulfur mines and mining and processing of ludwigite
Within the "restricted" category.
Yes
Exploration and mining of barites
  • Within the "restricted" category.
  • Limited to EJVs or CJVs.
Yes
Mining of marine manganese nodule and sea sand
  • Within the "restricted" category.
  • With the Chinese parties holding majority of the shares.
Yes
Beverage manufacturing
Production of rice wine and famous-brand spirits.
  • Within the "restricted" category.
  • With the Chinese parties holding majority of the shares.
Yes
Processing of green tea with Chinese traditional techniques.
With the Chinese parties holding majority of the shares.
Yes. Foreign investment into the "processing of green tea" fell into the "prohibited" category in the 2011 Foreign Investment Catalogue. The prohibition was first relaxed (by allowing a joint venture with a Chinese majority shareholder) in the Shanghai FTZ under the 2014 Negative List and the sector was subsequently fully opened up to foreign investors in the 2015 Foreign Investment Catalogue.
Processing of special tea with Chinese traditional techniques.
Within the "prohibited" category.
Yes
Tobacco products manufacturing
Processing and production of threshed and re-dried tobacco leaves
Within the "prohibited" category.
Yes
Processing of cellulose diacetate and tow.
Limited to EJVs or CJVs.
Yes
Manufacturing of raw chemical materials and chemical products
Major examples including the production of PVCs, butadiene rubber and precursor chemicals.
Within the "restricted" category.
Yes. The 2015 Foreign Investment Catalogue also moved the production of new downstream PVC products from the "restricted" category into the "encouraged" category.
Medical and pharmaceutical products manufacturing
Production of active pharmaceutical ingredients (APIs) for anaesthetics and Category I psychotropic drugs.
  • Within the "restricted" category.
  • With the Chinese parties holding majority of the shares.
Yes
Production of varieties of vaccines which have been incorporated into the national immunity planning.
Within the "restricted" category.
Yes
Production of blood products.
Within the "restricted" category.
Yes
Equipment manufacturing
Manufacture of wheeled, caterpillar hoisting machinery with a lifting capacity of less than 400 tons.
  • Within the "restricted" category.
  • Limited to EJVs or CJVs.
Yes
Design of deepwater (3,000 meters or more) marine engineering equipment.
Limited to EJVs or CJVs.
Yes
Manufacture of complete sets of large coal chemical equipment.
Limited to EJVs or CJVs.
Yes
Manufacture and research & development of automobile embedded electronic integrated systems.
Limited to EJVs or CJVs.
Yes
Design of low- and medium-speed diesel engines of vessels and parts and components of these engines.
Limited to EJVs or CJVs.
Yes
Manufacture of yachts.
Limited to EJVs or CJVs.
Yes
Manufacture of cabin machinery of vessels.
With the Chinese parties holding a relative majority of the shares.
Yes
Design, manufacture and maintenance of aircraft engines and aircraft auxiliary power systems.
Limited to EJVs or CJVs.
Yes
Design and manufacture of airborne equipment for civil aviation.
Limited to EJVs or CJVs.
Yes
Design and manufacture of civil helicopters of less than three tons.
Limited to EJVs or CJVs.
Yes
Certain electric machinery and equipment manufacturing, major examples including the manufacture of power transmission and transformation equipment.
Limited to EJVs or CJVs.
Yes
Manufacture of open (that is, acid mist directly coming out) lead-acid batteries, mercury-contained silver oxide button batteries, mercury-contained alkaline zinc-manganese button batteries, pasted zinc-manganese batteries and nickel-cadmium batteries.
Within the "prohibited" category.
Yes
Transportation
Construction and operation of branch railway lines and related bridges, tunnels, ferries and station facilities
Limited to EJVs or CJVs.
Yes
Comprehensive maintenance of infrastructures of high-speed railway lines, passenger railway lines and intercity railways.
With the Chinese parties holding majority of the shares.
Yes
Construction and operation of urban subway, light railway and other track transport.
With the Chinese parties holding majority of the shares.
Yes
Highway passenger transport.
Limited to EJVs.
Yes. Although the requirement to operate as an EJV has gone, this sector still falls within the "restricted" category under both the 2015 Foreign Investment Catalogue and the 2015 Negative List.
Cross-boundary automobile transport.
Within the "restricted" category.
Yes
 
 
 
Telecoms
Certain value-added telecoms services including application store, domestic virtual private network services and operating e-commerce.
Covering some (but not all) of the restrictions and beneficial policies implemented in the Shanghai FTZ under other domestic industry regulations.
No. Removing the beneficial policies out of the 2015 Negative List makes the list consistent with nationwide policy as set out in the 2015 Foreign Investment Catalogue. The removal of these policies indicates that the special telecoms treatment implemented in the Shanghai FTZ will not be extended to the other FTZs. For an overview of telecoms regulation in China and the preferential policies applied in the Shanghai FTZ, see Practice note, Telecommunications and internet content regulation in China: overview.
Wholesale and retail
Distribution of audio-video products (excluding movies).
  • Within the "restricted" category.
  • Limited to CJVs.
Yes
Wholesale and distribution of agricultural chemicals, agricultural plastic film and bonded oil.
Within the "restricted" category.
Yes
Retail and distribution of agricultural chemicals and agricultural plastic film.
  • Within the "restricted" category.
  • With the Chinese parties holding majority of the shares (for chain stores with more than 30 stores and selling products of different varieties and brands from multiple suppliers).
Yes
Direct sales and online sales.
Within the "restricted" category.
Yes
Real estate
Construction and operation of high-class hotels, high-class office buildings and international exhibition centres.
Subject to the project company rule.
Yes
 
Real estate secondary market transactions.
Subject to the project company rule.
Yes
Technology services
Photography services (including aerial photography).
  • Within the "restricted" category.
  • Limited to EJVs.
Yes

Table: Changes going beyond the 2015 Foreign Investment Catalogue

Industry
Restrictions and prohibitions removed in the 2015 Negative List
Still in the 2015 Foreign Investment Catalogue?
Sub-sector
What has been removed
Mining
Exploration and mining of special and rare kinds of coal
  • Within the "restricted" category.
  • With the Chinese parties holding majority of the shares.
Yes.
Agricultural and food products processing
Processing of edible oils and fats from soybean, rapeseed, peanut, cottonseed, camellia seed, sunflower seed and palm.
  • Within the "restricted" category.
  • With the Chinese parties holding majority of the shares.
Yes.
Processing of rice and flour, and deep processing of corn.
Within the "restricted" category.
Yes.
Manufacturing of weapons and ammunition
Within the "prohibited" category.
Yes.
Transportation
Scheduled or non-scheduled international marine transportation services.
Limited to EJVs or CJVs.
Yes.
Wholesale and retail
Wholesale of grains and cotton, and construction and operation of large-scale agricultural products wholesale markets
Within the "restricted" category.
Yes.
Construction and operation of gas stations
  • Within the "restricted" category.
  • With the Chinese parties holding majority of the shares (for chain gas stations with more than 30 stores funded by the same foreign investors and selling product oil of different varieties and brands from multiple suppliers).
Yes.
Water Conservancy
Construction and operation of comprehensive water control projects.
With the Chinese parties holding majority of the shares.
Yes.
Environmental protection
Construction and operation of natural reserves and internationally important wetlands
Within the "prohibited" category.
Yes.
Real estate
Construction and operation of villas and golf courses.
Within the "prohibited" category.
Yes.