In order to bring foreign investments into close alignment with
China's policy goals, the Foreign Investment Industrial
Guidance Catalogue ("Catalogue"),
jointly issued by China's National Development and Reform
Commission ("NDRC") and Ministry of
Commerce ("MOFCOM"), was most recently
amended on 24 December 2011.
Under the Catalogue, foreign direct investment in various business
activities are classified as encouraged, restricted or prohibited.
Foreign investors in encouraged industries are mostly permitted to
establish wholly foreign-owned enterprises
("WFOEs"), and they are also generally
eligible for investment incentive programs such as tax holidays and
exemptions from some governmental fees. Restricted industries have
certain restrictions, such as more rigorous requirements for
approving the establishments of foreign investment entities.
Industries in the prohibited category are closed to foreign
investment. Industries not listed in the catalogue are generally
open to foreign investment unless specifically barred in other PRC
The 2011 Catalogue will take effect on 30 January 2012. Compared
to the last version from 2007 the main change is an increase in the
number of industries in the encouraged, permitted and prohibited
Encouraged categories now include venture capital
enterprises, construction and operation of vehicle charging
stations and battery changing stations, production of film battery
conductive glass and solar energy collection light glass,
construction and operation of water treatment plants, production of
new types of materials in the aviation industry, and nine service
industries including venture capital enterprises, intellectual
property rights services, marine oil pollution clean-up technical
services, and vocational skills training.
Permitted categories now include the production of
carbonated soft drinks, financial leasing companies, distribution
and import of books, newspapers and journals, import of audiovisual
products and e-journals.
Prohibited categories now include foreign investments
in the research and development of genetically modified organisms,
domestic express parcel services and construction and operation of
In addition, the 2007 version of the Catalogue contained
multiple restrictions on the equity percentage foreign investors
could hold in joint-ventures operating in certain sectors. Some of
these restrictions have been eased in the 2011 version. For
instance, pursuant to the 2007 Catalogue, the Chinese
shareholder(s) of the joint venture distributing audiovisual
products (other than movies) should be the controlling
shareholder(s), but in the 2011 Catalogue this restriction has been
These changes basically reflect changes in policy in, among
others, China's 12th Five Year Plan issued in 2011 to encourage
the transformation and upgrading of the manufacturing industry,
cultivate strategic new industries and promote the development of
service industries. The changes also reflect priorities established
by the State Council in the Several Opinions on Further Utilizing
Foreign Capital, which aims to steer foreign capital to high-end
manufacturing, high-tech industries, new technology, service
industries, alternative energy and environmentally friendly
If you would like to receive the original Chinese version or an
English translation of the 2011 Catalogue please send us an e-mail
by clicking here.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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