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20 Mar 2015

China Promulgates the Catalogue for the Guidance of Foreign Investment Industries (Amended in 2015)

On 10 March 2015, China’s National Development and Reform Commission (“NDRC”) and Ministry of Commerce (“MOFCOM”) promulgated the Catalogue for the Guidance of Foreign Investment Industries (Amended in 2015) (“2015 Catalogue”). The 2015 Catalogue will be implemented as of 10 April 2015, at which time the existing catalogue from 2011 (Catalogue for the Guidance of Foreign Investment Industries (Amended in 2011), “2011 Catalogue”) will be repealed simultaneously.

A proposed revised draft of the 2011 Catalogue (“Draft”) had been released by NDRC and MOFCOM for public comments on 21 November 2014, our analysis of which can be found at the following web link:

http://www.dahuilawyers.com/publications/Chinese-Government-Proposes-Revisions-to-the-Catal/

The 2015 Catalogue is largely consistent with the Draft, save for some significant changes as outlined below:

Publication

In the Draft, the “printing of publications” and the “production of audiovisual products and electronic publications” were provisionally placed in the “permitted” and “restricted” categories, respectively. In the 2015 Catalogue, however, the “printing of publications” remains in the “restricted” category while the “production of audiovisual products and electronic publications” remain in the “prohibited” category.

Education

In the education field, the 2015 Catalogue has made the following changes vis-à-vis the Draft:

  • The “vocational skills training” within the “encouraged” category in the Draft has been renamed as “non-degree-granting vocational training institutions” in the 2015 Catalogue;
  • The “childcare education” within the “restricted” category in the Draft has been renamed as “preschool education” in the 2015 Catalogue; and
  • With respect to higher education, secondary education and preschool education, all of which fall within the “restricted” category under the Draft and the 2015 Catalogue, the 2015 Catalogue makes it clear that the requirement that these institutions be “managed by Chinese parties” shall mean: “the president and/or key person(s) responsible for administration shall be of Chinese nationality; and no less than half of the members of the management council, board of directors and/or joint administration committee of a Sino-foreign cooperative educational institution shall be appointed by the Chinese parties”.

Entertainment

Compared to the Draft, the 2015 Catalogue has clarified that the “construction and operation of cinemas (controlled by Chinese party)” and the “construction and operation of large-scale theme parks” belong in the “restricted” category, while the “operation of theater chains” remains in the “prohibited” category.

Medical Institution

In the Draft, only “medical institutions (limited to Sino-foreign cooperation)” were allowed in the “restricted” category. In comparison, the 2015 Catalogue has further lowered the threshold so that “medical institutions (limited to Sino-foreign joint venture and/or Sino-foreign cooperation)” are allowed in the “restricted” category, thus adding “joint venture” as an alternative means for foreign capital to enter medical institutions.

PRC Legal Services

The 2015 Catalogue squarely puts “consulting on Chinese legal issues” in the “prohibited” category, with only very limited exceptions for “the provision of information on the China’s legal environment and its impact”. That means, foreign law firms are expressly “prohibited” from providing consulting and other legal services with respect to any specific legislation, projects and cases in China.

Foreign Investment Law / Negative List

According to the draft Foreign Investment Law that was released for comment earlier this year, the Chinese government will adopt a new foreign investment regulatory regime that is centered on the so-called "Negative List", the arrival of which list is eagerly anticipated by the market. Compared to the 2011 Catalogue, the 2015 Catalogue kept items in the “encouraged” and “prohibited” categories largely unchanged, but the scope of the “restricted” category has been substantially reduced (from 79 industry items to 38), the number of industry items that require joint ventures have been reduced from 43 to 15, and items that must be controlled by Chinese parties have been reduced from 44 to 35. These changes reflect the government's movement towards the "Negative List" approach; and the impact of their implementation on relevant industries and governmental oversight will be closely watched.

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