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Legal Update

Catalogue Of Industries For Guiding Foreign Investment (2007 Revision) Of The PRC

16 November 2007
Mayer Brown JSM Legal Update

Summary

The National Development and Reform Commission and the Ministry of Commerce jointly promulgated the Catalogue of Industries for Guiding Foreign Investment (2007 Revision) (the "New Catalogue") on 30 October 2007. The New Catalogue will become effective on 1 December 2007, and the old Catalogue of Industries for Guiding Foreign Investment promulgated on 30 November 2004 (the "Old Catalogue") will be repealed simultaneously on that date.

Full Update

As in the case of the previous Catalogues, industries are classified in the New Catalogue under the encouraged, restricted and prohibited categories. All those industries which do not appear in the New Catalogue belong to the permitted category.

Major amendments introduced by the New Catalogue in respect of different industries are highlighted as follows:

I.    Mineral Resources Industry

Apart from introducing a few new industries to the encouraged category, the New Catalogue has tightened the restrictions on the industries concerning mineral resources in the following ways:

(a) some industries are now removed from the encouraged category, such as exploration and mining of coal and associated resources;
(b) some encouraged industries are now re-categorized as restricted industries, such as exploitation and selection of phosphorite;
(c) for some industries in the encouraged category (such as exploration and exploitation of coal bed gas), foreign investment is restricted to the form of equity or co-operative joint ventures only; and   
(d) some restricted industries are now re-categorized as prohibited industries, such as exploration and mining of tungsten, molybdenum, stannum, antimony and fluorite.

II.   Services Industry

1.   Encouraged Category

In the New Catalogue, wholesaling and retailing of general commodities has been removed from the encouraged category and is now reclassified as a permitted industry. On the other hand, some new industries are now listed in the encouraged category, such as engagement in (a) outsourcing service of information technology and process, or (b) modern logistics, in specific areas by undertaking outsourcing services.

2.    Restricted Category

In the New Catalogue, industries such as companies engaging in commodity trade and sales agencies, freight forwarding agency companies, advertising agency companies, goods leasing companies and foreign trade companies have been removed from the restricted category and are now reclassified as permitted industries. One of the restricted industries which was described as wholesaling of refined oil products and construction and operation of gas stations in the Old Catalogue is now described in the New Catalogue as "chain gas stations with more than 30 branches which are established by the same foreign investor and sell refined oil products of various kinds and brands from different suppliers shall be controlled by the Chinese partner".

Credit reporting and rating service companies are now listed in the restricted category.

III.   Real Estate Industry

1.    Encouraged Category

In the New Catalogue, development and construction of ordinary dwelling houses is removed from the encouraged category and is now reclassified as a permitted industry.

2.    Restricted Category

Secondary real estate market transactions, and real estate agencies or brokerage companies are now listed in the restricted category.

IV.    Finance Industry

1.    Restricted Category

 Money brokerage companies are now listed in the restricted category, whilst foreign exchange brokerage is removed from the restricted category and is now reclassified as a permitted industry.

The scope of business of securities companies under the restricted category is now limited to the underwriting of A Shares, B Shares and H Shares and the underwriting and trading of government and corporate bonds.

2.   Prohibited Category

 In the New Catalogue, futures companies which were originally listed in the prohibited category are now reclassified as one of the restricted industries with the requirement that such futures companies shall be controlled by the Chinese partner.

V.    Construction and Operation of Power Grid

The construction and operation of power grid has been removed from the prohibited category and is now reclassified as a restricted industry with the requirement that the Chinese partner shall hold a majority interest.

VI.  Public Utility Services

According to the New Catalogue, whilst the construction and operation of networks for gas, heat, water supply and water drainage in large cities (which must be controlled by the Chinese partner) remain under the restricted category, the construction and operation of networks for gas, heat, water supply and water drainage in medium sized cities is no longer listed in the restricted category and has now been reclassified as a permitted industry with no requirement for the Chinese partner to hold a majority interest.

VII.  Civil Aviation, Communication and Transportation Industries

Maintenance of civil aircrafts is now listed in the encouraged category, and one of the encouraged industries, namely "the design and manufacture of civil aircrafts (which must be controlled by the Chinese partner)" is now described in the New Catalogue as "the design, manufacture and maintenance of civil aircrafts: trunk-line and regional aircrafts (which must be controlled by the Chinese partner); general aircrafts (limited to equity joint ventures and cooperative joint ventures)".

In addition, the comprehensive maintenance of high-speed railway, railway passenger-dedicated lines and infrastructures of intercity railway (which must be controlled by the Chinese partner) is now listed in the encouraged category.

The construction and operation of petroleum wharfs has been removed from the encouraged category and is now reclassified as a permitted industry.

VIII. Manufacturing Industry

In the New Catalogue, a lot of hi-tech industries, equipment manufacturing companies, new material manufacturing companies, such as re-manufacturing of machine tools, automobile components and parts (except for assemblies) and engineering machinery, are now listed in the encouraged category.

On the other hand, some industries have now been removed from the encouraged category whilst some encouraged industries are now re-categorized as restricted industries.

IX.  Environmental Protection Industry

The New Catalogue introduced a number of environmental protection industries to the encouraged category, such as manufacturing of environment-friendly printing ink and environment-friendly aromatic oil, development and production of novel energy-saving and environment-friendly construction materials, and provision of environmental protection information consulting services etc.

X.  Permitted Projects Whose Products Are to Be Wholly Exported

The policy of encouraging export is no longer implemented in the New Catalogue. Therefore, permitted foreign investment projects whose products are to be wholly exported directly has now been removed from the encouraged category. 


For further information, please contact:

Name: Elaine Y.M. Lo
Position: Senior Partner
Phone: +852 2843 2295
Fax: +852 2103 5033

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