Through a newly published foreign investment negative list, the Chinese government is offering incrementally greater market access to foreign investors in China. The 2018 Special Administrative Measures on Access to Foreign Investment(“2018 Foreign Investment Negative List” or “2018 FI Negative list”), issued by the Ministry of Commerce and the National Development and Reform Commission (“NDRC”) will replace the list of restrictions and prohibitions in the 2017 foreign investment negative list, which was part of the broader 2017 Catalogue for Guiding Foreign Investment. The “encouraged” section of that 2017 catalogue will remain in effect when the new negative list takes effect on July 28, 2017.

The introductory note to the 2018 Foreign Investment Negative List for the first time indicates that  “areas outside the negative list will be administered according to the principle of consistency between domestic and foreign investment.” However, the introduction later qualifies this statement by noting that existing rules remain in effect for unlisted sectors such as finance and culture, and those relating to administrative approvals, qualification conditions, and national security. Due to this ambiguous language, foreign investors should be cautious when relying on this negative list when making investment decisions. It may be used for quick reference purposes, but should not be seen as a substitute for careful legal research and analysis.

The new list ostensibly relaxes or removes restrictions or prohibitions on foreign investment in 22 areas. Some openings represent genuine market access opportunities for foreign investors, while others require further analysis to understand their full impact. (Note that some new restrictions were also added to the list, but they do not represent substantive change in practice, as mentioned below.)

Overall, the changes between the 2017 and 2018 foreign investment negative lists fall into one or more of the following categories:

• Genuine market access openings. See, e.g., the removal of Chinese control requirements on crop breeding and seed production (except for wheat and corn).
• Roadmaps/timelines for future market access openings. See, e.g., roadmaps for openings in the automobile manufacturing sector and the financial services industry.
• Negative List Restructuring. In some areas, the removal of a restriction or prohibition does not represent an actual legal opening, but rather a restructuring of investment-related legal documents. The foreign investment negative list is supposed to contain restrictions and prohibitions that apply to foreign investment in addition to those that already apply to private domestic investment—i.e., a negative list that represents exceptions from national treatment (equal treatment for foreign and domestic investment). Some restrictions and prohibitions, such as the prohibition on foreign investment in the manufacturing of weapons and ammunition, were removed as they were already off limits to domestic private investment.Note also that the new negative list also includes some newly added items. Those items to not represent new restrictions. Instead, they appear to represent an effort to ensure that the foreign investment negative list more comprehensively captures restrictions and prohibitions on foreign investment in one place. As the next item suggests, progress towards this goal has been uneven.
• Unlisted Constraints. Investments for which restrictions or prohibitions appear to have been lifted or relaxed may still be constrained in practice through the operation of (1) unlisted measures (see second paragraph of this article); and (2) discretion granted to officials in administering often opaque approval processes.
• Lack of opportunity in practice. This category represents openings in areas so dominated by state-owned enterprises that the relaxation of a restriction may not translate into an actual opportunity – see, e.g., the removal of Chinese control requirements in the construction and operation of power grids and railroads.

Foreign investors with interests in China are encouraged to examine the changes to the foreign investment negative list and conduct a deeper analysis of related laws and regulations to determine whether they offer new business opportunities.

Christopher Chen of Covington & Burling LLP assisted with the research and preparation of this article.