The National Development and Reform Commission of China and Ministry of Commerce of China jointly released, on December 27, 2021, the “Special Administrative Measures for Foreign Investment Access (Negative List)” (2021 Version) (the “National List”) and the “Special Administrative Measures for Foreign Investment Access in the Pilot Free Trade Zone (Negative List)” (2021 Version)(the “FTZ List”).  These negative lists have become effective on January 1, 2022 and on the same day, the 2020 version of these negative lists were repealed. These negative lists set forth categories of industries and businesses in which China has imposed restrictions (e.g., cap on shareholding percentage) or prohibitions on foreign investment or ownership. For example, the National List states that healthcare institutions shall not be wholly owned by foreign investors.

As compared to their respective 2020 version, the 2021 version of negative lists include a reduced number of restrictions and prohibitions on foreign investment. As a result of such latest amendments to these negative lists, China has further expanded foreign investors’ access to the domestic manufacturing industry, and has started to explore providing foreign investors with increased access to the service industry in the pilot free trade zone, including without limitation, in the space of market research and social research.

The National List has also specified that, with respect to any onshore company whose business falls into a category where foreign ownership is prohibited, if such company wants to seek public listing overseas, it shall obtain the approval of competent government authorities. In addition, foreign investors cannot participate in the management of such companies, and foreign investors’ shareholding percentage should comply with the relevant rules and regulations applicable to foreign investors’ investment in securities listed in China.

Management Measures of Foreign Investment in Fixed Assets in Shanghai

Recently Shanghai Municipal People’s Government released the “Shanghai Municipality’s  Management Measures for Approval and Filing of Foreign Investment Projects” (the “Measures”), which will be effective for five years from March 1, 2022 to February 28, 2027.

• Article 2 of the Measures states that the Measures are applicable to foreign investors or foreign invested enterprises’ new investment projects or M&A projects, provided these projects are related to investment in fixed assets in Shanghai (the “Investment Projects”). Article 3 of the Measures specifies that the Investment Projects should be either approved by or filed with the applicable government authorities in accordance with laws and local rules and regulations.

• Article 4 of the Measures responds to the issue of whether an approval or filing is required with respect to an Investment Project. For example, according to Article 4 of the Measures, with respect to Investment Projects which are in industries listed in the National List or FTZ List, but in which foreign investment is not prohibited, approval needs to be obtained: if the aggregate investment amount of such an Investment Project equals to or is less than US$300 million, then the Development and Reform Commission of Shanghai shall be responsible for approving such Investment Project; if the aggregate investment amount of such an Investment Project exceeds US$300 million, the approval procedures should be determined according to relevant national rules.

• Article 4 further states that, Investment Projects that fall out of the industries listed in the National List or the FTZ List should be treated in the same manner as domestic investment projects. In other words, if such Investment Project is one of those listed in Articles 1 to 10 of the “Catalogue of Investment Projects for Approval by Shanghai Municipal People’s Government”, then it needs to be approved; otherwise, only filing is required.

• Article 5 emphasizes that the government authorities in charge of the approval or filing process outlined above should not illegally interfere with foreign investors’ right to make investment decisions autonomously, and should not set entry barriers targeting at foreign investors in industries not listed in the National List or the FTZ List.

• Articles 11 – 24 of the Measures provide specific procedures for obtaining approval with respect to an Investment Project, and Articles 25-29 of the Measures provide specific procedures for obtaining filing with respect to an Investment Project. Compared to the prior version of these measures, the Measures require less application materials and have simplified the application process. For example, financial statements and credit reports/certificates are no longer required to be submitted as part of the application for an approval; and applications for filing can now be submitted through an online portal, and applicants can print out the certificates of filing from that online portal by themselves.