China further relaxes foreign investment rules via 2020 Negative Lists

The National Development and Reform Commission (NDRC) and the Ministry of Commerce (MOF) jointly issued two new ‘negative lists’ – National and Free Trade Zone (FTZ) – that set out the industries where foreign investment will either be prohibited or restricted. The new lists will replace their respective 2019 versions when they take effect on 23 July 2020.

The new negative lists continue to relax market access for foreign investment. The new 2020 National Negative List has cut the number of restrictive measures from 40 in 2019 to 33, while the new 2020 FTZ Negative List has cut the number of restrictive measures from 37 to 30.

The new 2020 National Negative List aims to further open key areas in service industries. In the financial sector, the caps on foreign ownership of securities companies, securities investment fund management companies, futures companies and life insurance companies are lifted. This is in line with China’s commitments under the ‘phase one’ trade agreement signed with the US in January. Previously, foreign investors were not allowed to exceed ownership stakes of 51% and were limited to joint venture structures.

For manufacturing, the restrictions on the share ratio of foreign investment in commercial vehicle manufacturing, and in the smelting and processing of radioactive minerals as well as the production of nuclear fuel are lifted. Foreign investment caps in the processing of radioactive minerals and nuclear fuel production have been lifted. For agriculture, foreign ownership in wheat breeding and seed production has been lifted to 66%.

In the infrastructure sector, restriction on foreign participation in the construction and operation of water supply and drainage networks in cities with a population of more than 500,000 will be removed. In the field of transportation, the ban on foreign investment in air traffic control is being lifted, while the limits on civil airports will also be adjusted.

The role of FTZs as a pioneer of the country’s reform and opening-up will be further strengthened. In the field of medicine, the regulations prohibiting foreign investment in traditional Chinese medicine decoction were lifted. In the education sector, wholly foreign-owned enterprises are now allowed to establish vocational training institutions.

With the Foreign Investment Law in force since 1 January 2020, the Law on Sino-foreign Cooperative Joint Ventures has been repealed. The measures that restrict foreign investment into cooperative joint ventures are no longer applicable, and are therefore revised in the new negative lists.

An exceptional mechanism has also been added, such that the provisions of the two negative lists can be disapplied to specific foreign investments with the approval of the State Council.