CBL Team’s Introduction
If you have been wondering what a ‘negative list’ in China’s FDI regulations refers to, it encompasses the exceptions to market access shown in CBL’s American English translation of these Special Administrative Regulations. The ‘Pilot Free Trade Zone Exception List’ describes the specific exceptions to market access in particular industries and the extent of those limitations. In other words, these are regulations on whether foreign investment is allowed in China’s free trade zones. An understanding of it can enable American business professionals engaged in China to fine-tune their approach to strategic investment, ensuring compliance with the PRC’s evolving laws.
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. | |