Introduction
Following the call for public comments in April 2011, the National Development and Reform Commission (NDRC) and the Ministry of Commerce (MOFCOM) formally promulgated the Foreign Investment Industrial Guidance Catalogue (2011 Revision) (外商投资产业指导目录（2011年修订）) (the "2011 Catalogue") on 24 December 2011. The 2011 Catalogue will take effect from 30 January 2012 and replace the current version, which took effect in December 2007 (the "2007 Catalogue").
The Foreign Investment Industrial Guidance Catalogue (the "Catalogue") was first issued in 1995 by NDRC and MOFCOM. It set out categories of "encouraged", "restricted" and "prohibited" industries and activities for foreign investment. Any industry or commercial activity not included in the Catalogue is deemed to be in the "permitted" category. To reflect the updated objectives for foreign investment and the priority sectors for development in China, the Catalogue has been revised five times so far (in 1997, 2002, 2004, 2007 and 2011) but its structure remains unchanged. Foreign investors are advised to consult the Catalogue before entering the Chinese market.
In line with the State Council Opinions on Further Improving the Utilization of Foreign Investment (国务院关于进一步做好利用外资工作的若干意见) and the PRC Outline of the 12th Five-year Plan for National Economic and Social Development (中华人民共和国国民经济和社会发展第十二个五年规划纲要), the 2011 Catalogue mainly focuses on encouraging development of high and new technologies, environmentally-friendly industries, healthcare industries and service industries, as well as promoting the extensive usage of new energy. It not only reflects the commitment to further open the market for foreign investment but also shows China's attempt to better use foreign investment for upgrading industrial structure and protecting national interests.
We outline below the major changes in the 2011 Catalogue.
Encouraged industries and activities
Foreign investment in any industry or activity listed in the encouraged sector of the Catalogue may benefit from simpler approval procedures and preferential treatment, such as customs incentives, taxation deductions and financial support.
The 2011 Catalogue adds more environmentally-friendly, energy-saving and high-end projects for foreign investment in the encouraged sector, including but not limited to the following industries and activities:
- Mining – in addition to contractual joint ventures, foreign investment in the form of equity joint ventures will also be encouraged in the exploration and exploitation of unconventional natural gas resources and oil resources.
- Specialized equipment manufacturing – foreign participation is encouraged in the manufacturing of waste textile recycle and treatment facilities, waste electrical products remanufacture facilities, equipment for comprehensive usage of waste tires, removable and composite water purifying devices and water quality monitoring devices.
- Electricity supply– construction and operation of charging stations and battery changing stations for automotive vehicles have been encouraged.
- Automobile and equipment manufacturing– the manufacturing of the key components of new-energy automobiles is a new addition in the encouraged sector of the 2011 Catalogue.
- Wholesale and retail – chain distribution in the rural areas, construction and operation of shared systems for pallets and assembly units, and modern logistics and related services for distribution of commodities have been welcomed in the 2011 Catalogue.
- Commercial services – the establishment and operation of venture capital enterprises, intellectual property services and family services have been added to the encouraged sector in the 2011 Catalogue. The Catalogue also encourages foreign capital to invest in logistics consultation services.
Permitted industries and activities
As indicated earlier, industries and activities that are not specified in the "encouraged", "restricted" or "prohibited" categories in the Catalogue fall under the default category of "permitted".
The 2011 Catalogue liberalizes several sectors for foreign investment from the restricted and prohibited categories listed in the 2007 Catalogue.
- Manufacturing – the 2011 Catalogue no longer restricts production of carbonated beverages, containers and fiscal casher register products, etc.
- Healthcare – the construction and operation of medical institutions will be open for foreign investment. This means that the establishment of wholly foreign owned medical institutions is theoretically feasible.
- Wholesale and retail – the establishment and operation of commercial companies engaged in franchising, entrusted operations and business management have been released from restricted category listed in the 2007 Catalogue. Moreover, involvement in commodity auctions by foreign investment is no longer restricted in the 2011 Catalogue.
- Financial services – the establishment and running of financial leasing companies is permitted in the 2011 Catalogue.
Restricted industries and activities
Industries or commercial activities that fall within the "restricted" category in the Catalogue are subject to stricter requirements and more complicated approval procedures by higher levels of authorities.
In the 2011 Catalogue, several industries and activities previously listed in the restricted category have been liberalized. However, industries and activities that apply outdated technology, that are harmful to the environment or that relate to social and public services remain restricted for foreign investment.
Prohibited industries and activities
The prohibited industries and activities for foreign investment are mainly those that endanger national security or military installation, or cause harm to public interest. Key newly-added prohibited industries and activities for foreign investment in the 2011 Catalogue are:
- Real estate – foreign investors are not permitted to construct and operate golf courses and villas in China as regulators seek to control housing bubbles.
- Postal services – delivery of letters by domestic courier services has been added to the prohibited category in the 2011 Catalogue. This is in line with the 2009 PRC Postal Law, which allows only China Post to deliver letters posted within China.
Conclusion
Certain industries and activities that were encouraged by the 2007 Catalogue but are deleted in the 2011 Catalogue will be reviewed in the course of amending the Catalogue of Priority Industries for Foreign Investment in Central and Western region of China (中西部地区外商投资优势产业目录).
Following the promulgation of the 2011 Catalogue, it is likely that existing laws and regulations will be updated to reflect changes in the Catalogue and that new rules will be issued to clarify and implement the 2011 Catalogue. Foreign investors need to follow the new rules and also remember that procedures may vary from place to place when investing and doing business in China.