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Article China: Revision of Catalog of Industries for Foreign Investment

(Feb. 23, 2012) On December 24, 2011, China's National Development and Reform Commission (NDRC) and the Ministry of Commerce of China jointly issued the revised Catalog of Industries for Guiding Foreign Investment (Waishang Touzi Chanye Zhidao Mulu (2011 revision) [in Chinese], Central People's Government (CPG) website (Dec. 29, 2011)), to be implemented from January 30, 2012. The Catalog, in providing policy guidance to foreign investors, lays out three fundamental categories to specify industries where foreign investment is “Encouraged,” “Restricted,” or “Prohibited.” According to the Provisions Guiding Foreign Investment Direction, industries not listed in any of the three categories will be deemed to be “Permitted.” (Zhidao Waishang Touzi Fangxiang Guiding (Feb. 11, 2002), State Administration for Industry and Commerce website; Guiding the Direction of Foreign Investment Provisions [English translation of the Provisions] (posted Aug. 10, 2007), ENGLISHCN.)

The 2011 Catalog, the fifth revision of the document since its first promulgation in 1995, replaces the 2007 Catalog in response to Certain Opinions of the State Council on Further Facilitation of the Utilization of Foreign Investment (Guo Fa [2010] No. 9 (Apr. 6, 2010), CPG website). The Opinions suggested that an updated Catalog be promulgated to optimize investment structures and enlarge the open market, in order to satisfy the requirements of national policies for boosting economic growth by means of innovation and modernization while taking into account environmental protection. The changes in the 2011 Catalog reflect these concerns and the trend in China of transformative economic growth.

An NPRC official explained the key points and major changes in the 2011 Catalog in a published question-and-answer session with reporters. The changes he noted may be summarized as follows:

  • reducing the Restricted and Prohibited categories in line with commitments to the World Trade Organization and the state's open market economic policy. Eleven caps of foreign equity ownership proportion have been removed;
  • upgrading manufacturing through vigorously promoting high-end manufacturing industries, curbing sectors that are overcapacity, and improving traditional industries. Accordingly, the 2011 Catalog encourages investment in innovative technology and advanced materials and equipment in the areas of textiles, the chemical industry, and machinery, while downgrading the production of complete automobiles, polycrystalline silicon, and large-scale coal chemical products to the “Permitted” category by removing them from the “Encouraged” list;
  • fostering strategic emerging industries by largely incorporating them into the “Encouraged” list of industries, particularly those related to energy conservation, environmental protection, the new generation of information technology (e.g., the next-generation Internet system based on IPv6), biotechnology, high-end equipment manufacture, new energy resources, and clean-energy automobiles. Encouraging investment in these areas follows the Decision of the State Council on Accelerating the Fostering and Development of Strategic Emerging Industries (Guo Fa [2010] No. 32 [in Chinese] (Oct. 18, 2010), CPG website); and
  • developing service industries by adding to the “Encouraged” list the categories of venture capital companies and services related to vehicle charging stations, intellectual property rights, offshore oil pollution cleanup, and vocational skills training, coupled with five other industries. Financial leasing companies and medical institutions had been removed from the “Restricted” list in the 2007 Catalog and thus are classified in “Permitted” list. (Optimize Utilization of Foreign Investment Structure, Promote the Transformation of Economic Development Patterns – An NDRC Responsible Person in Charge Answers Reporters Questions on the Catalog of Industries for Guiding Foreign Investment (2011 Revision) [in Chinese] (Dec. 31, 2011), NDRC website.)

The new Catalog generally applies to projects that are approved after it came into force. Projects in the “Encouraged” and “Permitted” categories with a total investment of less than US$300 million are generally subject to the approval of local competent authorities, unless otherwise stipulated. (Id.) Projects on the “Encouraged” list are always supported by a number of preferential benefits, including tax incentives. For example, foreign investors engaging in encouraged projects in Western China may enjoy a reduced corporate income tax rate of as low as 15%. (Id.)

Prepared by Rong Xiang, Law Library Intern, under the guidance of Kelly Buchanan, Chief, Foreign, Comparative and International Law (FCIL) I. Ms. Xiang has a Bachelor of Laws degree from Nanjing University in China and an LL.M degree from the City University of Hong Kong. She recently earned an LL.M. in International Business Law from The American University Washington College of Law.

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