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JANUARY 2008
The Revised Investment Catalogue and New Foreign Investment Guidelines for China
The total foreign investment into China for the first 9 months of 2007 amounted to about US$47 billion, an increase of 10.9% from 2006.
In an attempt to cool down soaring house prices, clean up the environment and diverting foreign investments towards new industries, the China's National Development and Reform Commission ("NDRC") and Ministry of Commerce jointly announced the issue of a revised Guidance Catalogue for Foreign Investment (Revised 2007) ("the 2007 Catalogue") on 31 October 2007. The 2007 Catalogue because effective on 1 December 2007 and the old catalogue promulgated in 2004 ("the 2004 Catalogue") will be repealed.
Introduction
As with previous Catalogues, the 2007 Catalogue divides investment projects into three categories: Encouraged, Restricted and Prohibited, with unlisted industries and sectors being deemed to fall under a 4th category : Permitted. The 2007 Catalogue includes some modest revisions to the categories of foreign investment. The Encouraged category contains 351 investment areas. The number of investment areas in the Restricted category is increased to 81. The Prohibited category is up now to 40. The Catalogue is the first material to consult in order to determine if the intended foreign investment is Encouraged, Permitted, Restricted or Prohibited under PRC laws.
According to NDRC, the rationale of the 2007 Catalogue are as follows :-
(a) foreign investment with large consumption of energy and raw materials, high level of pollution will be further controlled and those that are environment friendly will be encouraged;
(b) adjusting the past practice of encouraging pure export to enlarge the fiscal deficits and expand foreign reserves;
(c) encouraging investment with high technology techniques and equipment manufacturing and new raw materials; and
(d) no more items specifically tailored for provinces in the middle or western area.
Real estate secondary market transaction, real estate brokerage and real estate agency are new items under the Restricted category, in addition to the development of land and construction and operation of luxury hotels, villas and high-class offices and international exhibition centers.
Development of residential property in the 2004 Catalogue has been completely taken out from the Encouraged category and is now permitted.
The construction and operation of golf courses previously Restricted is also now placed in the Prohibited category.
2. Services, retail and wholesales
Two new items of foreign investment, namely modern logistics and outsourcing services, are added in the Encouraged Industry. Outsourcing services are elaborated in the 2007 Catalogue as "engaging in management and maintenance of application system; support and management of information techniques; support center of bank; financial settlement; human resource services; call center; data handling and outsourcing of information techniques and business flow."
Advertisement companies and freight forwarding companies are now reclassified as Permitted and no longer under the Restricted category.
Credit rating and ranking companies are now placed under the Restricted category.
Foreign investment solely devoted to the export of products is no longer grouped under the Encouraged category in the 2007 Catalogue as a result of mounting trade deficits between China and other countries.
3. Entertainment and leisure
Foreign investment in the operation of sports centres, fitness centres and sports, competition, training and agency services are now expressly listed under the Encouraged category.
Operation of performing venues is added to the Encouraged category with the requirement of Chinese party holding at least the majority shareholding. However, operation of performing arts agency is now placed under the Restricted category. Similarly, operation of entertainment premises is now placed under the Restricted category and must be operated in the form of contractual or equity joint venture.
4. Internet Business
The operation of news websites, online audio-visual programmes and internet online service centres and internet cultural operations are listed under the Prohibited category.
5. Specialist equipment relating to environmental protection
Equipment for the manufacturing of solar cells, development and manufacturing of equipment for prevention of pollution; manufacturing of equipment for the handling garbage in city and organic usage of garbage in village; equipment for recycling of scrap plastic, electrical appliances, rubber and handling of worn battery, and equipment for re-using of the scrap tyres are listed under the Encouraged category.
Our Services
If you have any question about the above 2007 Catalogue or foreign direct investments in Mainland China, experienced lawyers in our China Business Department will be happy to assist you.
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