Caixin
Jun 29, 2017 07:08 PM
ECONOMY

China to Roll Out First Nationwide Negative List

(Beijing) — China has published its first nationwide negative list for foreign investment, in the latest move by Beijing to woo overseas investors back after years of rising labor and land costs helped drive capital elsewhere.

A “Negative List on Foreign Investment Access” is included in the 2017 version of the Foreign Investment Industrial Guidance Catalogue — one of the fundamental rules regulating the sector in China — that will take effect on July 28, according to a document released by the Ministry of Commerce and the National Development and Reform Commission (NDRC), the country’s top economic planning agency.

The list, also called “Special Administrative Measures,” names 35 industries under a restricted category, including the raising new crop varieties, the production of seeds and the refining and separation of rare earth minerals. In addition, it tallied another 28 sectors under the prohibited category, such as air traffic control, film production and distribution, and internet news information services.

It is the first directory that has explicitly been named a “negative list” on foreign investment for the whole country. A draft of the list was released for public comment in December. The draft covered all but humanities and social sciences research under the prohibited category in the final version.

The introduction of the negative list has been viewed as a move to ease market access for foreign investors because projects that do not fall within the list only need to be registered with the government and no longer require official approval.

The government has been publishing the foreign investment catalogue since 1995. The 2017 version is its seventh edition. The catalogue has traditionally classified industries under encouraged, restricted and prohibited categories, and those industries left out of the document have been regarded as those that foreign individuals or companies are “permitted” to invest in.

In 2017, there were a combined 63 industries under the restricted or prohibited categories, or the negative list, compared with a total of 93 sectors under the same categories, as well as the encouraged category with limits on foreign equity holdings in the previous version of the catalogue from 2015.

So far, China has only introduced negative lists on foreign investment in the country’s 11 free trade zones in areas such as Shanghai.

In October, the government started to regulate foreign investment nationwide using the “special administrative measures,” based on the 2015 foreign investment catalogue, but stopped short of putting them straight on a “negative list”.

The move to adopt a negative list comes at a time when foreign investment in China has slowed in recent years, as rapidly rising labor and land costs in the country have forced investors to move their manufacturing to cheaper locations in Southeast Asia, while developed economies including the U.S. have been encouraging their companies to return to create jobs.

In 2016, foreign direct investment in nonfinancial sectors fell 0.2% year-on-year to $126 billion, down from an increase of 5.6% in 2015.

Contact reporter Fran Wang (fangwang@caixin.com)

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