China issued a nationwide negative list that drastically reduces barriers for foreign investment for the fifth year in a row, scrapping restrictions on foreign ownership in passenger car manufacturing and further easing foreign investment in the production of key communications equipment. The updated list could pave the way for China to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and reboot the stalled China-Europe Comprehensive Agreement on Investment (CAI). In addition to the nationwide negative list, China also unveiled its 2021 negative list for foreign investment in pilot free trade zones. The number of items that are off-limits for foreign investors will be cut to 31 for the nationwide version, and 27 for the free trade zone version, a reduction of 6.1% and 10% respectively. In 2017, there were 93 and 122 items on the two lists. Jointly released by the National Development and Reform Commission (NDRC) and the Ministry of Commerce (MOFCOM), the lists took effect on January 1, 2022.
“China has not only fulfilled its pledge to the WTO, but has now also voluntarily relinquished certain special treatments accorded to developing nations. The new list is both a vote of confidence in the competitiveness of the domestic industry and an embodiment of China's image as a responsible nation, offering support to the rest of the world amid the repercussions of the pandemic,” Wang Yiwei, Director of the Institute of International Affairs at Renmin University of China in Beijing, told the Global Times.
One significant change is increased opening-up of the domestic manufacturing industry. Restrictions on foreign ownership in passenger car manufacturing and on the establishment of two joint ventures in China for the production of the same type of vehicles will be lifted. In terms of radio and television equipment manufacturing, restrictions on foreign investment in the production of ground reception facilities and key components for satellite television and radio broadcasting will be scrapped.
The opening-up of the auto sector conforms to a plan the NDRC laid out in 2018, under which China would remove foreign ownership caps for companies making fully electric and plug-in hybrid vehicles in 2018, for makers of commercial vehicles in 2020, and the wider passenger car market by 2022. The new rule on communication equipment manufacturing represents a change from a complete ban in the last version to being fully open. With the development of the internet in China, demand is increasing for media companies to use more up-to-date and comprehensive solutions, which pushes the country to welcome larger companies, including international firms, as suppliers. Analysts expect companies, such as Japanese and German automakers Toyota and Volkswagen, media hardware firms like Sony and Canon, as well as EU tech companies such as Ericsson and Siemens, to increase investments in China. The terms for media equipment, among others, could serve as a catalyst to reactivate negotiations on the CAI. In 2020, China attracted a total of USD149.3 billion in foreign investment, ranking second in the world.
Under the negative list on free trade zones, restrictions on market research will be lifted, except collecting views on radios and TVs, and social research for foreign investment will be allowed. But the proportion of shares held by Chinese enterprises should not be less than 67%, and the legal representative should be a Chinese national. The new list also includes specific terms on the overseas listing of Chinese enterprises engaged in businesses prohibited by the negative list, as well as caps on foreign investors' shareholding in Chinese companies listed in the mainland through various means such as the Stock Connect, QFII and RQFII.
According to the new list, some restrictions on foreign investment are still in place, such as a ban on investing in rare-earths, and the wholesale and retail of tobacco products. The shares held by foreign investors in telecom value-added businesses must not exceed 50%, while the construction and operation of nuclear plants must be controlled by Chinese firms, the Global Times reports.
