China Further Loosen Foreign Investment Restrictions in FTZs

By Audrey Luo / Jim Wang

 

In order for smooth and lawful implementation of relevant reforming measures regarding foreign investment in pilot free trade zones across the nation, the State Council issued the Decision of the State Council on Temporally Adjusting Relevant Provisions of Administrative Regulations, Documents of the State Council and Departmental Rules approved by the State Council in the Pilot Free Trade Zones (Guo Fa [2017] No.57) (hereinafter referred to as “No.57 Decision”) on January 9, 2018 which have been in effect and applies to all pilot free trade zones since its promulgation date.

 

Relevant Areas and Sectors

 

The adjustment of No.57 Decision involves eleven administrative regulations, two documents issued by the State Council and two departmental rules approved by the State Council, which will further loosen limitations on market access of foreign investment into certain sectors. The adjusted sectors include:

 

  • maritime / air transportation (international shipping registration, foreign-funded international maritime transportation, air transportation and aviation maintenance)
  • manufacture (foreign-funded aviation manufacturing)
  • finance (RMB business of foreign-funded banks)
  • culture and education (foreign-funded public places of entertainment, performance brokerage agency, printing business, internet surfing premises, training institutions)
  • trade (foreign investment in purchase and wholesale of rice, wheat and corn)
  • construction (foreign-funded urban rail transit project)
  • travel (foreign-funded travel agency)
  • retail (foreign-funded gas stations)
  • other services (foreign-funded certification agencies)


Back to 2016, the relevant legal provisions of the above nine sectors mentioned in No.57 Decision had been partly adjusted in pilot free trade zone in Shanghai, Guangdong Province, Tianjin and Fujian Province according to the Decision of the State Council on Temporally Adjusting Relevant Provisions of Administrative Regulations, Documents of the State Council and Departmental Rules approved by the State Council in the Pilot Free Trade Zones (Guo Fa [2016] No.41) (hereinafter referred to as the “No.41 Decision”) issued by the State Council. No.57 Decision expands the same adjustments to all other pilot free trade zones in China currently including the pilot free trade zones in Liaoning Province, Zhejiang Province, Henan Province, Hubei Province, Chongqing, Sichuan Province and Shanxi Province.

 

Comparison with Relevant Policies in Pilot Free Trade Zones in Shanghai and Guangdong Province

 

Shanghai

 

Prior to No.41 Decision, the State Council published the Decision of the State Council on Temporarily Adjusting the Special Access Management Measures Prescribed by Relevant Administrative Regulations and the Department Rules Approved by the State Council for Implementation in the China (Shanghai) Pilot Free Trade Zone (Guo Fa [2014] No.38) (hereinafter referred to as the “No.38 Decision”) on September 2014. No.38 Decision had liberalized foreign investment restrictions within the territory of Shanghai Pilot Free Trade Zone for many sectors including foreign-funded international maritime and air transportation, certification agencies, salt wholesale business and a number of industries restricted by the Catalogue of Industries for Guiding Foreign Investment, while the adjusted sectors of No.57 Decision are comparatively limited. No.57 Decision also adopts certain policies which are similar to those under No.38 Decision, such as allowing foreign investors to engage in international maritime cargo loading and unloading services and international maritime container freight station and container yard services in the form of wholly foreign-owned operation, and cancelling special requirements for a foreign-funded certification body, etc. On the other hand, No.57 Decision also loosen foreign investment restrictions in certain sectors which are not covered by No.38 Decision, such as allowing foreign investment in purchase and wholesale of grains, allowing foreign investors and investors from Taiwan regions are permitted to establish the performance brokerage agencies wholly owned by such investors, and allowing foreign-funded internet surfing premises, etc.

 

Guangdong Province

 

On December 2017, Guangdong issued Certain Policies and Measures of Guangdong Province on Further Expanding Opening-up and Actively Attracting Foreign Investment (hereinafter referred to as “Guangdong Ten Principles”) aiming to further expand opening-up for foreign investments in the whole territory of Guangdong Province. No.57 Decision adopts some adjustments which are also set out under Guangdong Ten Principles including to cancel the related restrictions on foreign equity percentage of international maritime transportation company, business of maintenance of regional and general aircrafts, internet surfing premises, performance brokerage agencies, banking, etc. However, Guangdong Ten Principles are essentially guiding principles, while No.57 Decision sets out specific rules which can be directly applied in all pilot free trade zones in China. Moreover, No.57 Decision further adjusts certain new sectors such as foreign-invested purchase and wholesale of grains, urban rail transit project, etc. which are not covered in Guangdong Ten Principles.

 

Special Measures in Beijing without Pilot Free Trade Zone

 

Although Beijing currently has no pilot free trade zone and therefore No.57 Decision and other special rules for pilot free trade zones do not apply therein, Beijing is still one of spotlights in respect of opening-up for foreign investments in recent years. Since May 2015, the State Council successively issued special rules such as the Reply of the State Council on Approving the Overall Plan for Comprehensive Pilot Project in Further Opening-up of Service Industry in Beijing Municipality (Guo Han [2015] No.81), the Decision of the State Council on Provisionally Adjusting the Administrative Approval and Special Administrative Measures for Market Access in Beijing (Guo Fa [2015] No.60), and the Plan of Deepening the Reform and Promoting the Comprehensive Pilot Project of Expanding Opening-up of Beijing's Service Industry (Guo Han [2017] No.86), etc., to open up the service industry of Beijing to foreign investments in stages.

 

On December 10, 2017, the State Council further issued the Decision of the State Council on Temporary Adjustment to Relevant Special Administrative Measures for Administrative Approval and Admission in Beijing Municipality (Guo Fa [2017] No.55) to loosen foreign investment restrictions on performance venue operating entities, entertainment venues, RMB business of foreign-funded banks, air transport sales agency enterprises, and the business of producing audio and video products, etc. Compared to No.57 Decision, sectors in the service industry to be opened-up in Beijing are much broader which involve science and technology service, culture and education service, financial service, commerce and tourist service, and health and medical service, etc. However, all relevant opening-up measures for the service industry under the pilot project in Beijing will expire on May 5, 2018. After the expiry of the pilot project, it is expected that the government will further issue new special measures for foreign investments into relevant sectors in Beijing based on results of the pilot project implemented in the past three years.


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