Shanghai FTZ Foreign Investment Management Model Set to Expand Nationwide

Administrative examination and approval stipulated in China's foreign investment laws for implementation in the Shanghai Pilot Free Trade Zone have been temporarily adjusted with the exception of (industry sectors subject to) access restrictive measures. These laws are, namely, Law of the People's Republic of China on Wholly Foreign-owned Enterprises, Law of the People's Republic of China on Chinese-foreign Equity Joint Ventures and Law of the People's Republic of China on Chinese-foreign Cooperative Joint Ventures.

The adjustments will last for three years on a pilot basis till 30 September, 2016. Adjustments which prove to be viable will be adopted and the relevant laws will be revised accordingly. Adjustments which prove to be not suitable for adoption will be reverted and the relevant laws will stay put.

The timeline was set out in an earlier NPC Standing Committee decision authorising the State Council to temporarily adjust the relevant legal provisions of administrative examination and approval of foreign investment in the China (Shanghai) Pilot Free Trade Zone. The adjustments mean that the Shanghai experience on record filing as administrative examination and approval will be further extended to the whole country.

China introduced the reform and opening-up policies in 1978. From 1979 onwards, the foreign-funded enterprises laws (including Law on Chinese-foreign Equity Joint Ventures, Law on Chinese-foreign Cooperative Joint Ventures and Law on Wholly Foreign-owned Enterprises) were promulgated in succession, gradually putting in place a sound regulatory regime. These laws and regulations have played an important role for China to attract foreign capital.

China first released the Catalogue for the Guidance of Foreign Investment Industries in 1995, classifying the industries into encouraged, permitted, restricted and prohibited sectors.

The sixth and latest revision of the catalogue in March 2015 saw the slashing of the number of restricted sectors from 79 in 2011 to 38.

With the increase in the number of encouraged industries and decrease in the number of restricted and prohibited industries after each successive revision of the catalogue over the years, the trend of investment liberalisation has been clearly evident.

Lately China began to try new rules: negative list and pre-establishment national treatment.

Under the negative list management approach, sectors outside the list of industries, fields and businesses prohibited or restricted from access by the government are free to enter. Since the first edition of Shanghai FTZ negative list was published in September 2013, three updated versions have been issued.

The third edition of the negative list carries 122 items, down from the previous 190. However, not all sectors were reduced equally. While restrictions in some industries were lifted, requirements of some industries were greatly expanded

Industries with the most reduction in restrictions, such as the manufacturing sector was reduced to 17, from 63 in 2013, and the rest were mainly restrictions in transport vehicles.

However, requirements on financial and culture/entertainment industries were expanded. The negative list of the financial industry was expanded to 26 from five in 2013; negative list of culture/entertainment sector was also expanded to 24 from 12. Among the new additions, foreign enterprises shall not be a member of stock exchange and futures exchange, and they shall not open A -share accounts.