China trims FDI negative list

China has cut the number of sectors that are off-limits to foreign investment from 48 to 40, continuing to formally open its economy to foreign investors amid calls by the US to rectify its allegedly unfair trade and investment practices. 

The revised ‘negative list’, which will take effect on 30 July, also cuts the number of restricted sectors in free trade zones from 45 to 37. The changes will widen market access for foreign investors into agriculture, mining and manufacture, and will abolish restrictions upon foreign investment in aquatic products, fishing and wildlife resources, as well as cinemas and performance institutions.

The nationwide negative list, officially the Special Administrative Measures for the Entry of Foreign Investments, was unveiled alongside a revised catalogue for investment and was jointly released by the National Development and Reform Commission (NDRC) and ministry of commerce on 30 June, 2018. 

The new catalogue to guide foreign investment was released alongside the negative list, and features 67 newly added items and 45 modified items from the 2017 version. More than 80% of these items are related to the manufacturing industry, and foreign investment is increasingly encouraged in sectors such as modern agriculture, and high-end, smart and green manufacturing.

The catalogue includes a list of advantageous industries for foreign investment in the central, western, and north-eastern regions of China. New items have been added to encourage foreign investment in 5G core components, cloud computing equipment, artificial intelligence, clean production and carbon capture.

The NDRC list states that domestic shipping agencies, and gas and heat pipelines in cities with more than 500,000 people, no longer have to be controlled by Chinese entities. It also widens access to petroleum and gas exploration, agriculture and some metals resources exploration.

China’s move to liberalisation is evidenced by the improvement in its World Bank Ease of Doing Business Ranking to 46 in 2019 from 78 in 2018. Recent reforms include the 2016 Five-in-One business licence to ease corporate establishment, the 2018 One Window, One Form policy designed to cut red tape and bureaucratic obstructions for foreign-funded enterprises, and the recently implemented foreign investment law.

Despite liberalisation efforts in recent years, China is still one of the most restrictive countries in terms of FDI regulation, ranking third in the OECD’s global FDI regulatory restrictiveness index.

Against the backdrop of the Sino-US trade war, China maintains that these decisions are based on the economy’s needs rather than external pressure. Bai Ming, deputy director of the commerce ministry’s International Market Research Institute was quoted by the Global Times saying: “Shortening the negative list is by no means a forced move, but rather China’s new effort to further pursue opening-up at a wider scope and to a deeper degree.”

China achieved its highest year of greenfield FDI inflows in a decade in 2018. It attracted $107.3bn from 706 greenfield projects, which was more than double the level of investment in 2017, according to greenfield monitor fDi Markets. 

Regarding future prospects, there are already plans in place to continue this economic liberalisation. The NRDC has already made clear that China intends to cancel foreign equity caps for passenger vehicle manufacturers and terminate restrictions on foreign investors to two joint ventures by 2022.