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China further relaxes restrictions on foreign investments

China further relaxes restrictions on foreign investments
  • Hong Kong
  • China
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On 28 June, 2018, the PRC National Development and Reform Commission (NDRC) and the Ministry of Commerce announced significant changes to the regulatory framework governing foreign investment in China. These measures are designed to attract foreign investment, promote market competition, strengthen innovative capabilities, and support economic globalisation.

The changes are detailed in the "Special Administrative Measures on Access to Foreign Investment (Negative List) (2018 Version)," and encourage increased foreign investment in various sectors, including financial services, the automotive industry and energy. Under the previous scheme, these and a number of other sectors were off-limits to foreign investment.

The key sectors, and changes, are as follows:

  • For financial services, the restrictions on foreign shareholdings in banks have been removed. The maximum shareholding ratios for foreign investors in security, fund management, futures and life insurance organisations have been increased to 51%. The previous cap was 49% for security, fund management, futures and 50% for life insurance. Restrictions on foreign shareholdings in all financial services organisations will be abolished in 2021.
  • In the automotive industry, restrictions on foreign shareholding ratios to manufacture special purpose, new energy and commercial vehicles have been removed. Restrictions on foreign shareholdings and the limitation of two joint venture companies per foreign investor for manufacturing of passenger cars will be removed in 2022.
  • There have also been significant changes in the transport sector. Restrictions on foreign investment in railway passenger transportation companies, international maritime transport and shipping agencies have been removed together with restrictions on foreign investment in the construction and operation of cargo trains and rolling stock.
    China’s shipbuilding industry, which was ranked number one globally in 2017, will benefit from the relaxation of previous restrictions governing foreign investment in the design and construction of seagoing vessels.
    Restrictions on foreign shareholdings in the aircraft industry have also been lifted. These changes cover cargo and utility aircraft, helicopters, unmanned aerial vehicles and aerostats.

Other changes that have been announced include opening up the Chinese agriculture and mining sectors to encourage research, further exploration and development.

In other announcements, the NDRC has simplified a number of procedures in the approval process. From 30 June, 2018, a new application form will be introduced, together with a “one-stop” service to allow foreign-funded companies to lodge these forms online.

The release of 2018 Negative List marks the 40th anniversary of the beginning of China’s reform and liberalisation era (改革开放).

This is a great sign that China is further opening up some of its crucial domestic markets to foreign investors, despite of the friction in its trading relationship with the US developing in the background. On the other hand, interested parties will no doubt closely watch how the changes will be implemented in practice.