By: Mark Schaub, Partner Shanghai Office of King & Wood，Corporate Group
Despite 30 years of opening up, actual Chinese government policy remains opaque. Although not as incomprehensible to the outsider as Kremlin watching was in the Cold War there are still few opportunities to really grasp what type of foreign investment is actually in favor at any given time. Circular 57, also known as Catalogue for the Guidance of Foreign Investment Industries (“Catalogue”) was overhauled late last year and does provide some hints in this regard.
More than anything else the Catalogue shows increased regulation as the number of industries subject to specific restrictions or encouragement has been increased since the 2004 version (i.e. encouraged category now has 351 subjects compared to 257 in 2004; restricted has increased from 78 to 87; prohibited from 35 to 40). Activities not mentioned within the Catalogue are considered “permitted” and are not subject to any specific restrictions or preferential treatment.
Naturally there are winners and losers.
Some winners include 1) environmentally friendly industries; 2) some forms of media (restrictions on foreign investment in sports, entertainment, radio and television program production have been loosened from prohibited to restricted); 3) telecommunications (maximum foreign share raised from 35% to 49%).
Some losers include: 1) heavily polluting manufacturing (in particular batteries have been hit hard); 2) internet news and services are prohibited (although this may have been more a clarification than a change of existing policy); 3) foreign activities in real estate (due to, a possibly misguided, assumption that foreign investment is driving real estate prices ever higher).
Naturally the Catalogue is only one part of the picture. Investors will also need to examine what operational licenses and approvals are required and different localities also have different local policies. Despite this the Catalogue remains a useful initial tool for investors to gauge the likely attitude of the approval authorities to their project.