China: What Businesses are Open to Foreign Investors?

Excerpt from article in Practical China Tax and Finance Strategies prepared by By Janet Jie Tang , partner at the US law firm Akin Gump Strauss Hauer & Feld LLP and based in Beijing.

The threshold issue for every foreign investor investing in China is whether the business area it plans to invest is open to the foreign investor; if it is open, how open is open to the foreign investor. This threshold issue directly goes to the fundamental policy of the Chinese government regarding the Chinese industries.

One of the key legislations in this regard is the Catalogue Guiding Foreign Investment in Industries (the “Foreign Investment Catalogue”). The Foreign Investment Catalogue lists the business sectors where the Chinese government forbids, restricts (which means it is not forbidden but it is particularly regulated by the Chinese government) or encourages foreign investment. Anything outside of the Catalogue is deemed as a sector that the Chinese government allows for foreign investment. With the development of the Chinese economy and the adjustment of the industry policy due to such development, the Foreign Investment Catalogue, since it was initially issued in 1995, has been amended four times respectively in 1997, 2002, 2004 and 2007. The latest amendment became effective December 2007.

From the latest amendments to the Foreign Investment Catalogue, we can see the changes of the Chinese government’s attitudes towards foreign investment. For example,
(1) Purely export-oriented industries are no longer encouraged (this reflects our government’s adjustment of its policy on trade facing the tremendous trade surplus and rapid growth of the foreign exchange reserve in China);
(2) high-tech industries (such as new materials manufacturing) and certain service industries (such as modern logistics) are encouraged;
(3) For those industries involving natural resources that are non-renewable, they are either forbidden or restricted;
(4) For those business sectors, which may impact the national economic security, such as news websites, services of Internet audio-visual programs, business sites that provide Internet access services and Internet culture operations, they are no longer permitted for foreign investment, and now are forbidden for foreign investment.

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