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Foreign investors see opportunities in 2021 negative list for market access

China's top economic regulator, the National Development and Reform Commission (NDRC), recently published the latest version of the negative list for market access, injecting new energy in the economy and promoting high-quality development for the long run.

The government's intensified efforts to revise and update the nationwide negative list have shown its determination to expand market access and build an efficient, fair and unified domestic market.

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The latest list, approved in October 2021, indicates areas where investment is prohibited or restricted; all other areas are presumed to be open. It now comprises 117 items, compared with 123 in the 2020 version, according to the NDRC.

The negative list consists of two categories: the prohibited access, which lists the industries where market players cannot enter, and the permitted (but restricted) access, where an entity can enter only when authorized.

Unlike the negative list for foreign investment access, the negative list for market access applies to domestic and foreign entities, including state-owned enterprises, private companies, joint-ventures, and foreign-invested firms.

The 2021 version of the negative list includes six prohibited sectors, one more than the previous negative list, and 111 restricted sectors subject to regulatory approval, seven less than the one for 2020. In total, investments in 117 sectors are thus either prohibited or restricted, six less than in 2020.

The new item in the prohibited access category refers to the prohibition to conduct news and media-related businesses.

Non-public capital entities are not allowed to engage in activities and businesses such as news gathering, editing, and broadcasting, invest in the establishment and operation of a news organizations, engage in the live broadcasting of political, economic, military, diplomatic, social, cultural and technological events. Introducing news released by foreign media is also forbidden.

In addition, the 2021 list bars non-financial institutions from involvement in wealth management, equity-based crowdfunding and exchange businesses. Mining of cryptocurrencies has been included among the forbidden businesses, resulting in a complete ban in the country. China’s central bank announced that business activities involving cryptocurrencies are considered illegal.

Seven items in the licensing category have been deleted in the new list. These are some of the changes:

In the field of finance, obtaining approval is no longer required for issuing shares or carrying out mergers and acquisitions of specific listed companies, while the item "no one may conduct foreign-related statistical investigation business without obtaining approval" was deleted.

Business related to medical radioactive products can be carried out without obtaining the license or meeting qualification conditions, and in the catalogue of prohibited items for internet market access, the license for providing internet financial information service is no longer needed.

In the field of culture, sports and entertainment, it is not allowed to establish a publishing media organization or engage in specific publishing media related business without approval.

Further restricted industries include the manufacturing industry related to the production, operation and project construction of specific chemicals, as well as the fields of water resources, environment and public facilities management.

With the nationwide implementation of the negative list system, the government has shifted from focusing on prior approval to strengthening in-process, record-filing and supervision.

The Chinese government’s efforts to further shorten the negative list are supposed to contribute to further market access, and at the same time support the country’s "dual circulation" policy, where the domestic market is the mainstay, while the domestic and foreign markets complement each other.

According to analysts, China will continue to shorten the negative list for market access this year, as part of the country's ongoing efforts to optimize its business environment.

Pang Chaoran, a researcher at the Chinese Academy of International Trade and Economic Cooperation, said the changes are part of the country's ongoing efforts to continuously deepen reforms and expand opening-up.

Pang said a unified negative list for market access in all regions will help China build a high-standard market system that is open and competitive, providing a driving force for high-quality development.

Citing the 14th Five-Year Plan (2021-25), Pang said the government should also ramp up efforts to improve the systems and mechanisms for the market allocation of production factors, promote the building of a high-standard market system and form a unified, efficient and well-regulated domestic market featuring fair competition.

NDRC data show that China unveiled and revised the negative list for market access for three consecutive years, 2018 to 2020, and the number of items on the list has been reduced by nearly one-fifth.

Updated versions of two other negative lists were announced on December 27, 2021, by the NDRC and the Ministry of Commerce (MOFCOM). Both will take effect on January 1, 2022.

These are the national negative list for Foreign Investment Access, and the negative list for Foreign Investment Access in Pilot Free Trade Zones, which enumerate the industries where foreign investment will either be prohibited or restricted.

The 2021 National Negative List has removed two restricted items, taking it from 33 to 31, while the new 2021 FTZ Negative List extracted three items, cutting it down to 27 from 30.

The new negative lists further liberalize restrictions on foreign ownership in the field of automobile manufacturing. The restrictions that were loosened are the cap on the share ratio of foreign investment in passenger car manufacturing and the regulation dictating that one foreign investor cannot establish more than two joint ventures to manufacture the same type of vehicles in China.

The negative lists lift the restrictions on foreign investment in satellite television broadcasting ground receiving facilities and the production of key components in the field of radio and television equipment manufacturing.

There will be no restrictions on foreign investment in the manufacturing sectors in Pilot Free Trade Zones. Restrictions on foreign investment in market research have now been lifted. However, radio and television rating surveys must still be controlled by the Chinese party.

Foreign investors will now be allowed to invest in the field of social surveys, but the Chinese shareholding ratio can be no less than 67%, and the legal representative must be a Chinese national.

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The negative lists further clarify restrictions on Chinese companies that are operating in fields that are prohibited from receiving foreign capital. Chinese companies engaged in one of these sectors must undergo a review and approval process by the government before they can list on a stock market overseas.

Foreign investors are not permitted to participate in the operation and management of these enterprises, and their shareholding ratio must be governed in accordance with the relevant regulations on the management of foreign investment in domestic securities.

China’s securities regulators and relevant authorities will implement precise management of overseas listing and financing of these domestic enterprises.

Foreign-invested enterprises must comply with the relevant provisions of the Negative Lists for investing in China, in accordance with the foreign investment law.

In order to properly link the Negative Lists and the Negative List for Market Access, the explanatory notes add that “Foreign and domestic investors must uniformly apply the relevant provisions of the Negative List for Market Access”.

According to the NDRC, if the current laws or regulations need to be adjusted, the relevant departments will do so within two years. All the new opening measures are expected to be implemented by the end of 2024 at the latest.

The changes implemented by the new lists will continue to reshape the foreign investment landscape in China. This trend will likely attract the attention of more investors looking to profit from China’s large market base and manufacturing capabilities.

Negative lists are expected to be shortened even more. Foreign companies interested in participating in relevant market areas in China should follow closely future developments.


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