Quick Take: China Shortens the 2020 Negative Lists

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On June 24, China announced another reduction to its Negative Lists, which are the lists of sectors restricted or prohibited for foreign investment. The National Development and Reform Commission (NDRC) and the Ministry of Commerce (MOFCOM) released the 2020 versions of the lists, formally known as the Special Administrative Measures for the Access of Foreign Investment (Negative List) and Special Administrative Measures for the Access of Foreign Investmentin Pilot Free Trade Zones (Negative List in PFTZ). Both lists will take effect on July 23.

The nationwide list has been contracting over the past several years. This year, the covered sectors decreased from 40 to 33. The second list, which covers free trade zones, which are used to pilot increased access before being extended nationwide, was slimmed down from 37 sectors to 30.

In contrast, just in 2018, there was a major reduction from 63 to 48 sectors; and, in 2019 the list was shortened from 48 to 40. This shrinking negative list is one indicator that China points to as proof that it is moving to open the economy further to foreign business. This year’s list, however, does not contain many surprises as most of this opening reflects commitments that were included in the Phase One trade agreement with the United States.

The most significant changes were in the financial sector, the auto industry, and occupational education. In the financial sector, the 2020 list removes restrictions on foreign ownership for:

  • Securities and securities investment fund management companies: effective April 1, 2020
  • Futures companies: effective January 1, 2020
  • Life insurance companies: effective from January 1, 2020

In manufacturing and services (except financial), the following restrictions were lifted:

  • Foreign ownership caps for manufacturing commercial vehicles. Also, the government promised that by 2022, the restrictions will be lifted on the limits imposed for foreign stakes in passenger vehicle manufacturing as well as eliminating the prohibition of more than two equity joint ventures manufacturing the same line of complete automobiles in China.
  • Investment in air traffic control
  • Investment in the smelting and processing of radioactive minerals and manufacturing of nuclear fuels  
  • Foreign ownership in the building and operation urban water and drainage pipeline networks for cities with populations above 500,000

In agriculture, the 2020 list raises the cap of foreign ownership in the selection and cultivation of new wheat from 49% to 66%.

And finally, the free trade zone 2020 list opens pilot programs in the following two areas:

  • Wholly foreign-owned occupational skill training programs
  • Opening foreign investment in prepared Chinese medicinal herbs and manufacturing patented traditional Chinese medicine based on a classified formula

China recognizes that to stimulate the economy, it must continue to attract and expand foreign investment. This continued annual reduction of the negative lists is important both symbolically and in reality for foreign firms. The next important step, however, is to ensure that applications filed to take advantage of these opportunities result in approvals. Approving applications, particularly for securities and autos, is an important way to send a positive signal during these times of stress in the U.S.-China relationship.




June 24, 2020

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