Stance on the Updated Negative List for Foreign Investment Go back »

2020-07-02 | All chapters

Stance on the Updated Negative List for Foreign Investment

Background

The State Council released an updated version of China’s Negative List for Foreign Investment on 24th June 2020. The number of items on the list, which sets restrictions or completely bars foreign investors from certain industries, has been steadily decreased over the last several years. This latest update removed seven items from the Negative List for Foreign Investment, bringing the total from 40 to 33, while the parallel Negative List for Foreign Investment for China’s Free Trade Zones (FTZs) also decreased by seven, from 37 to 30.

The update also includes a new mechanism that allows the State Council to selectively override the Negative List for Foreign Investment and permit specific foreign investors into the market upon their approval.

Stance

The European Union Chamber of Commerce in China (European Chamber) views the updated Negative List for Foreign Investment as another small step forward in China’s reform and opening up agenda.

While welcome, the relaxation of restrictions in seed development, nuclear fuel and nuclear radiation processing, oil and gas exploration, and pipe network facilities are of limited significance to European Chamber members. Other changes based on previous commitments had been expected instead, such as in the automotive sector for commercial vehicles.

The removal of equity cap restrictions in financial services, like asset management, futures and insurance, brings completion to the timeline set out in November 2017. Such steps could have a meaningful impact for European financial institutions, but the opening of these sectors remains incomplete and have come at a late stage in China’s economic development, which could diminish its significance.

In recent years, equity caps were also lifted in banking. However, the similarly late opening of the sector, which was already dominated by enormous state-owned banks, left European banks with only niche opportunities.  Furthermore, the areas of most interest to them—in particular cross-border services—required licences that have remained out of reach to all but a few.  

The European Chamber sees the addition of a mechanism for the State Council to override the Negative List for Foreign Investment through two different lenses.

It could be used as a way to ‘test’ the effects of foreign investment into certain areas by allowing ad hoc approvals. If the end result is further market opening in a more timely and confident manner, then this would be positive.

However, such a mechanism also raises considerable concerns. Major investment decisions require the certainty of a transparent and predictable approval system, not goodwill. The increasingly politicised nature of doing business could result in companies suddenly finding themselves out of favour depending on the actions of their home-country governments.

“These openings into largely saturated markets mean that European companies will, once again, only be likely to compete for a tiny amount of market share,” said Joerg Wuttke, president of the European Union Chamber of Commerce in China. “Nevertheless, the size of China means that even a small slice of the pie could be good business for some European players.”

For more information please contact

Yichi Zhang

Related EURObiz articles