Foreign investors are prohibited under China’s law from investments that involve certain activities. Typically, the investor must file a report describing their activities to a regulator, who then provides clearance. However, this should not be relied on as it is not a guarantee you will not be penalized, and moreover the Supreme Court Rules on foreign investment provide for invalidation of non-compliant agreements. China provides a list of exceptions to foreign investment access, with different versions for free trade zones.
The full content of the lists is translated below by the CBL team.
Contents
General Foreign Investment Access (2021)
Free Trade Zone Specific List (2021)
Special Administrative Procedures for Foreign Investment Access (Exception List) (Issued 2021)
- Special Administrative Procedures for Foreign Investment Access (hereafter referred to as the “Foreign Investment Access Exception List”) provides a policy for foreign investment access, such as rules about controlling shares and who may be executive managers. The principle of fair and equal treatment for both domestic and foreign investments shall be applied to all industries and sectors excluded from the Foreign Investment Access Exception List. The rules in the Exception List for Market Access shall be applied to both domestic and foreign investors.
- No foreign investor may engage in business operations or investments as a shareholder or act as a sole proprietor or a member of a farmer’s cooperative.
- Foreign owned entities investing in China shall comply with the requirements set forth in the Foreign Investment Access Exception List.
- Foreign investors who fail to meet the requirements stated in the Exception List for Foreign Investment shall be denied business entity registration and licensing by the jurisdictional agency. Foreign owned partnership entities shall not be formed in industries with equity requirements.
- The Foreign Investment Access Exception List restrictions may be waived with approval from the jurisdictional agency and the State Council.
- Jurisdictional agency approval is required to issue stock or list on an exchange of mainland China for any domestic entity whose activities fall under the Foreign Investment Access Exception List. Foreign investors may not be involved in such companies’ management; shareholding ratios will be governed by regulations governing the foreign investors’ domestic securities investments.
- Acquisitions of a domestic business by its domestic affiliated business, entity, or natural person and foreign entity owned by the natural person shall be subject to applicable foreign investment, overseas investment, and foreign exchange administrative regulations.
- The current and existing regulations shall be implemented and applied to cultural and financial industries not covered by the Foreign Investment Access Exception List (or other regulations for administrative approvals, qualifications, and national security).
- Regulations that provide foreign investors preferential access other than the Mainland and Hong Kong Closer Economic Partnership Arrangement, Mainland and Macao Closer Economic Partnership Arrangement, Cross-Straits Economic Cooperation Framework Agreement, and their respective amendments, or other international treaties or agreements to which China is a party. Further trade liberalization rules may be adopted for qualified investors in Special Economic Zones and Pilot Free Trade Zones.
- The National Development and Reform Commission, the Ministry of Commerce, and other appropriate agencies are responsible for the interpretation of the Foreign Investment Access Exception List.
- The Foreign Investment Access Exception List (2020 Edition) issued on June 23, 2020, by the National Development and Reform Commission and the Ministry of Commerce shall be repealed on January 1, 2022.
Special Administrative Procedures for Foreign Investment Access (Exception List) (2021 Edition)
| No. | Special Administrative Regulations |
| I. Agriculture, Forestry, Animal Husbandry, and Fishery | |
| 1. | The Chinese Party shall regulate the selection of new varieties of corn, and there shall be a minimum of 34% selection and production of new varieties of wheat. |
| 2. | Investment in the research and development, breeding, cultivation, and production of rare and unique Chinese species (including exceptional genes for agriculture, animal husbandry, and aquaculture) is prohibited. |
| 3. | Investment in crop breeding, livestock, and poultry breeding, and genetically-engineered aquatic breeding and production is prohibited. |
| 4. | Investment in fishery within the Chinese maritime regions and under the Chinese sovereignty and territorial waters is prohibited. |
| II. Mining | |
| 5. | Investment in tungsten, rare earth, and radioactive minerals exploration, mining, and selection is prohibited. |
| III. Manufacturing | |
| 6. | The Chinese Party shall be responsible and in control of the printing of publications. |
| 7. | Investment in the use of steaming, stir-frying, moxibustion, calcination of Chinese herbal medicines, and other processing techniques including the production of trade secret prescription products of patented Chinese medications is prohibited. |
| IV. Production and Supply of Electricity, Heat, Gas, and Water. | |
| 8. | The Chinese Party shall be responsible and in control of the construction and operation of nuclear power plants. |
| V. Wholesale and Retail Trading | |
| 9. | Investment in wholesale and retail trading of tobacco, cigarettes, re-dried tobacco, and other tobacco products is prohibited. |
| VI. Transportation, Storage, and Postal Industries | |
| 10. | The Chinese Party shall control the domestic water transportation business. |
| 11. | The Chinese Party shall control and regulate the public air transport entities. A foreign investor and its affiliated entities are allowed to have a maximum of 25% of the investment and whose statutory representative is a Chinese national. The statutory representative of a general aviation enterprise must be a Chinese national. General airlines for agriculture, forestry, and fishery shall be limited to joint ventures and other general airlines shall be owned by a Chinese national. |
| 12. | The Chinese Party shall relatively control the construction and operation of civil airports. The foreign party is prohibited from the construction and operation of the airport towers. |
| 13. | Investment in postal entities and domestic delivery businesses is prohibited. |
| VII. Information Transmission, Software, and Technical Services Industries | |
| 14. | Telecommunication entities are subject to telecommunications services regulations in pursuant to China’s WTO commitments. The percentage for shares of foreign investors for value-add telecommunications services (excluding e-commerce, domestic multi-party communications, storage-forwarding, and call centers) shall be a maximum of 50% of the shares, and the Chinese party shall have the controlling stake for basic telecommunications services. |
| 15. | Investment in services involving Internet information, Internet publishing, Internet audio-video programs, internet culture (except for music), and internet information dissemination (except for contents available in China’s WTO commitments) is prohibited. |
| No. | Special Administrative Regulations |
| VIII. Leasing and Business Service | |
| 16. | Foreign investors are prohibited to practice their law profession in China, serve as a partner in a law firm nor should engage in Chinese legal matters (except for providing information related to the Chinese legal industry) |
| 17. | Market research shall be limited to joint ventures, and the Chinese Party shall control the radio and television rating surveys. |
| 18. | Investment in social surveys and research is prohibited. |
| IX. Scientific Research and Technical Service Industry | |
| 19. | Investment in the research, development, and application of human stem cells, gene diagnosis, and treatment technologies is prohibited. |
| 20. | Investment in research agencies for humanities and social sciences is prohibited. |
| 21. | Investment in geodetic surveying, marine surveying and mapping, aerial photography surveying and mapping, ground motion surveying and mapping, administrative boundaries surveying and mapping, topographic maps, world administrative area maps, national administrative area maps, maps of administrative areas at or below the provincial level, national teaching maps, local teaching maps, true three-dimensional maps, electronic navigation maps, regional geological mapping, mineral geology, geophysics, geochemistry, hydrogeology, environmental geology, geological disasters, remote sensing geology, and other surveys (the mining right holders carrying out work within the scope of their mining rights are not subject to these special administrative regulations) shall not be prohibited. |
| X. Education | |
| 22. | Primary education, public high school, and higher education institutions are subject to Sino-Foreign cooperation, which shall be headed by the Chinese Party. The President and Chief Executive Officer shall all be Chinese nationals, whereas the members of the council, board, or joint administrative committee can be half-Chinese. |
| 23. | Investment in compulsory education and religious education institutions is prohibited. |
| XI. Healthcare and Social Work | |
| 24. | Medical institutions are limited to joint ventures. |
| XII. Culture, Sports, and Entertainment | |
| 25. | Investment in news agencies (excluding telecommunication agencies) is prohibited. |
| 26. | Investment in editing, publishing, and producing books, newspapers, periodicals, audio-video products, and e-publications businesses is prohibited. |
| 27. | Investment in various levels of radio stations, television stations, radio and television channels (frequencies), radio and television transmission networks (such as transmitter stations, relay stations, radio and television satellites, satellite up-link stations, satellite receiving stations, microwave stations, surveillance stations, and cable radio and television transmission network.) is prohibited. Engaging in the business of broadcasting video content for radio and television, as well as installation services for satellite TV broadcasting facilities also be prohibited. |
| 28. | Investment in broadcast program production and operation companies(including introduction business) is prohibited. |
| 29. | Investment in agencies engaged in film and theatre production, publication, and distribution is prohibited. |
| 30. | Investment in cultural antique auction companies, heritage shops, and state-owned heritage museums is prohibited. |
| 31. | Investment in performing artist groups is prohibited. |
Special Administrative Regulations for Foreign Investment Access in Pilot Free Trade Zones (Exception List) (2021)
I.The Special Administrative Regulations for Foreign Investment Access in Pilot Free Trade Zones (hereinafter referred to as the “Pilot Free Trade Zone Exception List”) standardize administrative regulations and requirements, such as equity and executive requirements, for foreign investments in Pilot Free Trade Zones. Any foreign investment matters not covered by the Pilot Free Trade Zone Exception List shall be administered following the same regulations for domestic investments. Both foreign and domestic investments will be subject to the Market Access Exception List.
- Foreign investors shall not invest or conduct business as family proprietorships or members of farmers’ cooperatives.
III. Foreign owned entities investing in Pilot Free Trade Zones shall comply with the Pilot Free Trade Zone Exception List.
- The jurisdictional agency shall not approve, issue licenses for, or register any investments by non-mainland China investors in industries restricted by the Pilot Free Trade Zone Exception List that do not meet list criteria, and shall not approve any fixed asset investment projects. Foreign investment partnership entities may not be formed in areas with shareholding restrictions.
- Certain foreign investments may be exempt from the Pilot Free Trade Zone Exception List after review and approval by the jurisdictional agency under the State Council and approval by the State Council.
- Mainland China entities in industries where the Pilot Free Trade Zone Exception List prohibits foreign investment must seek approval from the jurisdictional agency under the State Council before issuing shares to overseas investors and listing on overseas securities markets. Foreign investors shall not participate in the operation and management of such businesses, and their shareholding ratios must comply with applicable rules governing domestic securities investment by foreign investors.
VII. Mergers and acquisitions of affiliated domestic entities by foreign businesses legally formed or controlled by domestic businesses, entities, or individuals shall be subject to foreign investment, overseas investment, and foreign exchange administrative regulations.
VIII. Administrative approval, eligibility criteria, and national security regulations for investments in cultural, financial, and other industries not covered by the Pilot Free Trade Zone Exception List shall be subject to current regulations.
- Where applicable, foreign investors may be entitled to preferential market access for foreign investments provided under the Mainland and Hong Kong Closer Economic Partnership Arrangement and its follow-up agreements, Mainland and Macau Closer Economic Partnership Agreement and its follow-up agreements, Cross-Strait Economic Cooperation Framework Agreement and its follow-up agreements, and any international treaties or agreements to which China is a party.
- The Pilot Free Trade Zone Exception List shall be subject to the interpretation of the National Development and Reform Commission, the Ministry of Commerce, and other appropriate agencies.
- The 2020 Pilot Free Trade Zone Exception List issued by the National Development and Reform Commission and Ministry of Commerce on June 23, 2020 shall be repealed on January 1,2022.
Special Administrative Regulations for Foreign Investment Access in Pilot Free Trade Zones (Exception List) (2021)
| No. | Special Administrative Regulations | |
| I. Agriculture, Forestry, Animal Husbandry, and Aquaculture | ||
| 1 | Chinese entities shall hold a minimum of 34% equity in investments related to the selection, breeding, and production of wheat and corn. | |
| 2 | Investments in the research and development, breeding, cultivation, or production of rare and unique Chinese varieties (including desirable genes for agriculture, animal husbandry, or aquaculture) are prohibited. | |
| 3 | Investments in agricultural, husbandry, or aquaculture selective breeding and genetically modified seed (seedling) production are prohibited. | |
| II. Mining | ||
| 4 | Investments in the prospecting, mining or processing of rare-earth elements, radioactive minerals, or tungsten are prohibited. (the unauthorized access to rare-earth element mining areas or acquisition of geological data, samples, and production technology is prohibited). | |
| III. Electricity, Heat, Gas, and Water Production and Supply | ||
| 5 | Any construction or operation of nuclear power plants must be controlled by Chinese entities. | |
| IV. Wholesale and Retail | ||
| 6 | Investments in the wholesale and retail sales of tobacco leaf, cigarettes, cured tobacco, and other tobacco products are prohibited. | |
| V. Transportation, Storage, and Postal Services | ||
| 7 | Domestic water transportation companies must be controlled by Chinese entities. (Foreign investors may not operate or charter Chinese-flagged vessels or space for domestic water transportation and support operations, and water transportation operators may not use foreign-flagged vessels for domestic water transportation services without the approval of the Chinese government. Water transportation operators may temporarily use foreign-flagged vessels to operate marine transportation and towing services between Chinese ports for the duration or to the extent approved by the Chinese government should there be no appropriate Chinese-flagged vessels available in ports or waters open to foreign vessels.) | |
| 8 | Commercial airlines may only be controlled by Chinese entities with Chinese statutory representatives, and each foreign owned entity and their affiliates may hold a maximum of 25% equity. Statutory representatives for general aviation companies must be Chinese citizens, of which general aviation companies in the agriculture, forestry, and aquaculture industries shall be limited to joint ventures, and other general aviation companies may only be held by Chinese entities. (Only Chinese commercial airlines are permitted to operate domestic air services and provide scheduled or unscheduled international air services as Chinese flag carriers.) | |
| 9 | The construction or operation of of civilian airports may only be controlled by Chinese entities. Foreign investors may not participate in the construction of operation of air traffic control towers. | |
| 10 | Investments in postal services (including postal service operations) and domestic express mail services is prohibited. | |
| VI. Information Transmission, Software and Information Technology Services | ||
| 11 | Telecommunications companies: Investments are limited to the telecommunications services outlined in China’s WTO commitments. Foreign ownership in value-added telecommunications service is limited to a maximum of 50% (excluding e-commerce, local multiparty communications, store-and-forward services, and call centers), and basic telecommunications services must be controlled by Chinese entities (and operators must be legal entities specializing in basic telecommunications services). The pilot policies implemented in the initial Shanghai Pilot Free Trade Zone 〔28.8 square kilometers〕shall be extended to all free trade zones. | |
| 12 | Investments in online news information services, online publication services, online audiovisual programs, online cultural services (excluding music), and online public information services are prohibited (excluding those services covered by China’s WTO commitments). | |
| VII. Leasing and Business Services | ||
| 13 | Investments in Chinese legal services (excluding the provision of information on the impact of the Chinese legal climate) are prohibited, and foreign nationals are not permitted to become partners in Chinese law firms. (Foreign law firms are only permitted in China as representative offices and may not employ practicing PRC attorneys, nor may their hired support staff provide legal services for clients. Law firms forming representative offices or assigning representatives in China must seek approval from the jurisdictional Chinese justice administration agency). | |
| 14 | Radio and television audience surveys may only be conducted by Chinese entities. Chinese entities must hold a minimum of 67% equity, and statutory representatives must be Chinese citizens. | |
| VIII. Scientific Research and Technical Services | ||
| 15 | Investments in the development and application of human stem cells, gene diagnosis, and gene therapy are prohibited. | |
| 16 | Investments in liberal arts research institutions are prohibited. | |
| 17 | Investments in surveying and mapping services, including land surveying, hydrographic surveying, aerial surveying, mobile mapping, administrative boundary surveying, topographical mapping, political mapping, administrative region mapping, provincial and sub-provincial administrative mapping, nationwide teaching maps, local teaching maps, 3D and navigational mapping, regional geological mapping, minerals and geology, geophysics, geochemistry, hydrogeology, environmental geology disasters, and geologic remote sensing (services carried out by mining rights holders within their rights are exempt from these special administrative regulations) | |
| IX. Education | ||
| 18 | Foreign investment in pre-schools, senior high schools, and higher education institutions is limited to China-Foreign partnership institutions, which must be controlled by Chinese entities (the president or main person in charge must be a Chinese national (residing in China) and at least half of the board of directors, board of supervisors, and joint management committee members must be Chinese nationals). (Foreign educational institutions, organizations, or individuals are not permitted to set up schools or other educational institutions that primarily enroll Chinese citizens (excluding vocational training institutions and schooling vocational education institutions). However, foreign educational institutions may partner with Chinese educational institutions set up educational institutions that primarily enroll Chinese citizens.) | |
| 19 | Investments in compulsory education and religious educational institutions are prohibited. | |
| X. Health and Social Work | ||
| 20 | Investments in medical institutions are limited to joint ventures. | |
| XI. Culture, Sports, and Entertainment | ||
| 21 | Investments in news organizations (including news agencies) are prohibited. (Foreign news organizations must seek Chinese government approval to set up permanent news offices, assign permanent correspondents to China, or provide news services within China. Partnerships between Chinese and foreign news organizations must be controlled by Chinese entities and approved by the Chinese government.) | |
| 22 | Investments in editing, publishing, or production services for books, newspapers, magazines, audiovisual products, or electronic publications are prohibited. (Under certain circumstances, Chinese and foreign publishers may form joint ventures with the approval of the Chinese government, provided that the Chinese partner controls operations and has final decision-making authority over published content. Providing financial information services in mainland China without government approval is prohibited.) | |
| 23 | Investments in radio (stations), television (stations), radio and television channels, wireless radio and television broadcast infrastructure (transmitters, relay stations, radio and television satellites, satellite uplinks, satellite ground stations, microwave stations, monitoring stations, and wired radio and television broadcast infrastructure) are prohibited. Foreign investment in radio and television on-demand services and satellite television and radio ground station installation services is also prohibited. (There is an existing review and approval system for foreign satellite channels.) | |
| 24 | Investments in radio and television program production services (including introduction services) are prohibited. (Introduction of foreign films, TV series, and other TV programs via satellite transmission may only be requested by agencies designated by the National Radio and Television Administration. A licensing system is in place for the production of TV series (including animated series) by China-foreign partnerships.) | |
| 25 | Investments in film companies, production companies, theater chains, and film imports are prohibited. (Chinese and foreign entities are permitted to co-produce films with government approval.) | |
| 26 | Investments in auction houses, stores selling cultural artifacts, and state-owned heritage museums are prohibited. (Foreign nationals are prohibited from transferring, pledging, or loaning immovable cultural artifacts and artifacts prohibited from leaving China. Foreign nationals or entities are not permitted to form or operate archaeological or intangible cultural heritage research institutes. Any intangible cultural heritage research, archaeological surveying, exploration, or excavation conducted by foreign organizations or individuals within China may only be conducted in collaboration with China and with special approval.) | |
| 27 | Cultural performance art groups must be majority owned by Chinese entities. | |