On 24th December 2011, China’s National Development and Reform Commission (NDRC) and Ministry of Commerce (MOC) jointly issued a new, revised version of its Foreign Investment Industries Guidance Catalogue (the “Catalogue”), effective from 30th January 2012, that replaces the existing version of the guidance catalogue published in late 2007.
Foreign investment in China must be made in a manner that is consistent with Chinese policy and in a way that will promote China’s development. The Catalogue is the Bible as regards this kind of “guided” investment. Moreover, Chinese government approval (before that of MOFCOM or its local offices) is required for all foreign investments according to the policy of guided investment and the national centralised economic plans; the so called “Five year plans”.
The Catalogue classifies foreign direct investment in the various Chinese industry sectors as encouraged, restricted, permitted, or prohibited. Activities not listed are considered to be permitted for foreign investment. If an investment is categorized as encouraged (e.g. electric car charging stations; or intellectual property consulting), the investor enjoys certain tax benefits and is often subject to less strict administrative requirements from the authorities than in the restricted categories.
Foreign investment is not permitted in industries categorised as “prohibited”, such as weapons and ammunition manufacturing or social investigation.
The Catalogue also indicates which sectors the Chinese government has decided to limit or reduce. For the developed Eastern regions of China, the goal of the Catalogue is to move foreign investment away from conventional technology as well as high-pollution and resource-intensive technologies. The government intends to push investment towards technically advanced manufacturing and services or low-pollution energy-saving technologies. These goals are reflected by the entire Catalogue in addition to the latest five year plan, the goals of which will influence the manufacturing world for the next several decades in areas such as hybrid and electric cars, fuel-cell batteries as well as environmental and energy-saving technologies. Interestingly, investments in the construction of high-end villas have now been classified as prohibited, as part of efforts to keep control of the real estate market.
If you are planning an investment in China, the legal framework shall be designed depending on the Chinese government’s consideration of your presence within her borders. The Catalogue therefore becomes your principal consideration since the breaking of any of its provisions could endanger your entire investment endeavour.
This article is intended solely for informational purposes and does not constitute legal advice. Although the information in this article was obtained from reliable official sources, no guarantee is made with regard to its accuracy and completeness. For more information please visit dandreapartners.com or WeChat: dandreapartners.
