{"id":43634,"date":"2019-06-17T09:08:16","date_gmt":"2019-06-17T01:08:16","guid":{"rendered":"https:\/\/daxueconsulting.com\/?p=43634"},"modified":"2021-11-18T11:13:37","modified_gmt":"2021-11-18T03:13:37","slug":"china-negative-list-run-business-china","status":"publish","type":"post","link":"https:\/\/daxueconsulting.com\/china-negative-list-run-business-china\/","title":{"rendered":"China negative list: Is your company qualified to run a business in China? | Daxue Consulting"},"content":{"rendered":"\n

MOFCOM negative\nlist\nand NDRC negative list: What do\nall these abbreviations mean?<\/h2>\n\n\n\n

The negative list of Ministry of Commerce of the PRC or National development and reform commission negative list is a summary of three kinds of lists that are included in the foreign investment law of China. They are denoted as the MOFCOM negative list or the NDRC negative list. The MOFCOM negative list or NDRC negative list is the negative lists for Chinese market access because it provides the guideline to both domestic and foreign investors.<\/strong> In addition, the MOFCOM negative list or NDRC negative list are China foreign investment catalogs which give details to foreign investors on which industries are limited or prohibited to enter and which are encouraged. <\/p>\n\n\n\n

\"China<\/figure><\/div>\n\n\n\n
\"MOFCOM<\/figure><\/div>\n\n\n\n
\"negative<\/figure><\/div>\n\n\n\n
\"NDRC
[Source: MOFCOM \u201cThe Special Administrative Measures for Access of Foreign Investment (Negative List)]<\/figcaption><\/figure><\/div>\n\n\n\n

As\nthe table above shows, there are 34 industries have limits or prohibitions for\nforeign investors to enter the Chinese market. Although Shanghai Pilot-Free\ntrade zones and other similar free trade areas have fewer restrictions, sectors that are limited to foreign investment are\nalmost the same.<\/p>\n\n\n\n

Who are the issuers?<\/h3>\n\n\n\n

China negative list has\ntwo names because MOFCOM\nnegative list refers to The\nMinistry of Commerce of the People\u2019s Republic of China<\/a>,\nand NDRC negative list\nrefers to National Development and Reform\nCommission of China<\/a>; they are the issuers of China negative list and reserve all the rights of\ninterpretations.\nBoth departments are the central bodies\nthat regulate domestic and foreign investment and business operations, according to the China negative list. Branches of Industrial and\nCommercial Bureau all around the country help MOFCOM and NDRC to monitor\nwhether companies act by China negative list.<\/p>\n\n\n\n

Three kinds of negative lists in China<\/h3>\n\n\n\n

At first, the MOFCOM negative list or NDRC negative list included\nonly two sub-lists aiming at foreign\ninvestors. Now the MOFCOM negative list or NDRC negative list includes three kinds of negative lists in\nChina, according to the information released on the two websites: The Ministry\nof Commerce of the PRC and the  National\nDevelopment and Reform Commission of China, respectively are The Negative List\non Market Access, The Special Administrative Measures for Access of Foreign\nInvestment (Negative List) <\/a>and The Special Administrative Measures\n(Negative List) for Foreign Investment Access in Shanghai Pilot-Free Trade Zones.<\/p>\n\n\n\n

CONTACT US NOW TO ANSWER YOUR QUESTIONS ABOUT BUSINESS IN CHINA<\/a> <\/a><\/div>\n\n\n\n

Among these three lists, The Negative List on Market Access\naims to both domestic and foreign investors, and this list has three main\nenclosed documents: <\/p>\n\n\n\n

  1. A detailed list to demonstrate which industries are forbidden or permitted for investors to enter, what licenses do investors need to have before they operate a business in those industries; <\/li>
  2. The clauses of prohibitive actions, which demonstrates the prohibitive actions throughout the business operations;<\/li>
  3. An additional revision to the incorporated document – The Directory Catalogue of Industries Restructuring.<\/li><\/ol>\n\n\n\n

    The\nremaining two lists are known as China FDI negative lists, aimed at foreign investors. The lists\ndesignate how foreign investors can operate a business\nin both the general Chinese administrative area and a free trade area in terms of equity requirement, management\nrequirement, etc..<\/p>\n\n\n\n

    Which sectors are now at risk<\/h3>\n\n\n\n

    The China negative list, also known as\nthe negative industry list\nin China, is for investors to find out whether the industries they\ndecide to enter is in violation with China\u2019s policies.. Above all, the Special Administrative Measures\nfor Access of Foreign Investment and Foreign Investment in Free Trade\nZones are the prior industry references for foreign investors, and these\nregulations are also deemed as China FDI negative list or China\nforeign investment catalog. Despite China having eliminated some sectors on\nthe lists to promote an open market, basic industries – including the power\nsector, transportation, telecommunication, and\nmining<\/strong> – are still prohibited or largely\nlimited to foreign investors in general Chinese administrative area, as\nwell as broadcasting, the legal profession, and environment-related<\/strong> ones. Exceptions exist for foreign\ninvestors who pour their capital into Shanghai Pilot-Free Trade Zones, with fewer prohibited or\nlimited industries and fewer restrictions on shareholding and management level.\n<\/p>\n\n\n\n

    \"China
    [Source: CGTN \u201cChina Footprint: Shanghai free trade zone attracts major multinational corporations\u201d]<\/figcaption><\/figure>\n\n\n\n

    Although\nrestrictions are evident, the China FDI negative list removes some limits and prohibitions in\nsome industries, downsizing the negative industry list to some degree. The financial sector seems to\nbenefit most in the change, especially for service industries. For example, although\nthe shareholding remains under 51% in total for foreign investors in\nsecurities, futures and insurance companies now, these companies will have no\nforeign shareholding restrictions\nin China after 2021, according to the clauses on the Special Administrative Measures for Access of Foreign\nInvestment and Foreign Investment in Free Trade Zones.<\/p>\n\n\n\n

    \"China
    [Source: Forbes \u201cElon Musk Accelerates Tesla’s China Strategy With Shanghai Gigafactory Groundbreaking\u201d]<\/figcaption><\/figure>\n\n\n\n

    The automotive industry<\/a> is also another potential market. Special purpose vehicle and new-energy vehicle\nsectors are welcomed to foreign investors\nin any corporate mode. Despite the foreign shareholding restrictions in China on commercial vehicle and\npassenger car sectors remain, China FDI negative list shows that the limits will be phased out in 2020 for commercial vehicle and in\n2022 for a passenger car. Currently, Tesla<\/a>, the advanced electronic car\nmanufacturer, has been permitted to set up its car production site in Shanghai,\nChina, without any Chinese shareholders.<\/p>\n\n\n\n

    However,\nThe Negative List on Market Access, the negative list for the Chinese market access, also need to be\nconsidered as a part of negative\nindustry list when foreign investors invest in an industry in China, and\nbased on the content of this list, industries related to finance and internet\nare right now under China government\u2019s severe scrutinization. For example,\ncompanies which are not financial institutions or do not operate economic activities cannot name themselves with\nwords related to finance such as banking, insurance, asset management, and etc.. <\/p>\n\n\n\n

    Consequences and developments of the negative list in China<\/h2>\n\n\n\n

    MOFCOM negative list\nor NDRC negative list\nbrings limits to foreign investors to expand their business empire in China.\nExcept for the industries that are prohibitive to enter, the remaining sectors\nhave limits for foreign investors on shareholding, making them consider the\nways of starting their business in China market. Entry mode is one of the\nelements.<\/p>\n\n\n\n

    Partnership or Associates as a\ncorporate entry model instead of WFOE?<\/h3>\n\n\n\n

    The China negative list restrains the\nentry of foreign investors to China. In industries that have limits on\nshareholding or forms of enterprises, foreign investors may give up on WFOE (wholly\nforeign-owned enterprises) and turn to\nother ways of entering China\u2019s market. China FDI negative list, the Special Administrative Measures for\nAccess of Foreign Investment and Foreign Investment in Free Trade Zones,\ndoes provide individual instructions or\nrecommendations like partnerships or associates as choices for foreign\ninvestors to enter certain industries.\nHowever, investors who are inclined to maintain full control of the company\nwould try on different resorts to enter the Chinese market as well as fulfill their ownership without violating the regulations of Negative list for the Chinese\nmarket access. <\/p>\n\n\n\n

    One\nway to bypass the regulations of China negative list for investors is setting up a subsidiary in\nChina as a Chinese corporation, and use this subsidiary – which is not limited\nby China FDI negative list\n– to invest the industries that foreign investors are not allowed to enter. Another\nway is to leverage the contracts signed by both investors and investees who are\nin prohibited industries for foreign investors to control the investee and\nobtain economic benefits, which is a way similar to how Chinese\ncompanies to be listed outside mainland\nChina (e.g., Hong Kong)<\/a>. Other than that is is time-consuming, the breach of\ncontracts is a potential risk.<\/p>\n\n\n\n

    Narrowing scopes and reducing sectors on the China FDI negative list<\/h3>\n\n\n\n

    Fortunately,\nthere is good news for foreign investors wanting to get access to the Chinese\nmarket directly. The Chinese government now\nstrives to remove redundant restrictions in the negative list for Chinese market access in order to\nstimulate its economy, and this trend is expected to continue. Below shows the changes\nof negative list for the\nChinese market access,\nand it reduces the restrictions every\nyear.<\/p>\n\n\n\n

    \"Negative
    [Data Source: QQ.com \u201cForeign investment negative list: 23 years, 8 revisions, 9 editions, what changes does cultural sector have?\u201d]<\/figcaption><\/figure>\n\n\n\n

    What are unreliable entities list in China? <\/h2>\n\n\n\n
    \"Shareholding
    [Source: China Daily \u201cChina outlines factors for consideration in listing unreliable foreign entities\u201d]<\/figcaption><\/figure>\n\n\n\n

    In\nearly June, The Ministry of Commerce of China stated that China would issue the\n\u201cUnreliable Entities List\nin China\u201d to safeguard national security, public interest, and Chinese enterprises\u2019 legal interest. Four factors are put forward as\nthe consideration of putting any foreign individuals or enterprises on the\nlist. The unreliable entities list is seen\nas a new part of the MOFCOM negative list or\nNDRC negative list,\nand as a signal that foreign capital is\neven harder to enter the\nChinese market.<\/p>\n\n\n\n

    Standards and target entities of unreliable entities list in China<\/h3>\n\n\n\n

    The\nunreliable entities list\nin China is somewhat different from existed negative list of Ministry of Commerce of the PRC or China negative list. MOFCOM negative list or NDRC negative\nlist can be seen as the negative industry list,\nand it sets up the limits and prohibitions on industries and shareholdings,\nwhich are denoted in the clauses of MOFCOM negative\nlist or NDRC negative list . However, the targets\nof unreliable entities\nlist in China are more specific: instead of industries or shareholding\nlimits and prohibitions, China would ban foreign individuals or enterprises if\nthey don\u2019t obey market rules, violate contracts and block, cut off supply for\nnon-commercial reasons or severely damage the legitimate interests of Chinese\ncompanies. <\/p>\n\n\n\n

    Is it harder to enter the\nChinese market now? <\/h3>\n\n\n\n
    \"Shanghai
    [Source: Twitter \u201cUnreliable Entities List\u201d]<\/figcaption><\/figure><\/div>\n\n\n\n

    On\nTwitter, reactions are different for the\nissue of unreliable\nentities list in China. Some only express the desire to see the result\nof this incident; others oppose or\nsatirize Chinese unreliable entities list.<\/p>\n\n\n\n

    \"Negative
    [Source: Weibo \u201cUnreliable Entities List\u201d]<\/figcaption><\/figure>\n\n\n\n

    When\nit comes to the reactions of Chinese netizens, comments are more unified and official\nas they support this countermeasure in response to Huawei\nban<\/a>.<\/p>\n\n\n\n

    The reactions of netizens look like the small picture of the incident of unreliable entities list in China. Most believe that the unreliable entities list in China is a response to the Huawei ban. Whether this policy will be enforced permanently and effectively depends on the following reactions and policies of the U.S. government. Considering this situation, it seems investors from the U.S. may encounter potential risks due to the changing trends of US-China trading relationships than investors from other areas.<\/p>\n\n\n\n

    \n\nAuthor: Dennis Deng<\/a><\/p>\n\n\n\n\n\n

    \n\n\n\n

    Make the new economic China Paradigm positive leverage for your business <\/strong><\/p>\n\n\n\n