China Update: Major Legal Developments in the Past Year

Author: Tina YE
Email: tinaye@jinmaopartners.com
Website: www.jinmaopartners.com

In the past year, the State Council of the People’s Republic of China (PRC) and relevant departments issued a number of new regulations and rules on foreign investment, a snapshot of which is provided below:

• Negative List for Foreign Investment Further Narrowed Down

In late June 2018, the National Development and Reform Commission (NDRC) and Ministry of Commerce (MOFCOM) collectively released the Special Administrative Measures for Market Access of Foreign Investment (Negative List) (2018 Version) (2018 Negative List) and the Special Administrative Measures for Market Access of Foreign Investment in Pilot Free Trade Zones (Negative List) (2018 Version) (2018 FTZ Negative List). The 2018 Negative List applies nationwide except in China’s pilot free trade zones (FTZ) and will take effect on 28 July 2018. The 2018 FTZ Negative List applies to the FTZs and will take effect on 30 July 2018. Compared with its 2017 predecessor, the 2018 Negative List cuts down the number of special administrative measures to 48 from 63. Furthermore, the restrictions for the automotive, banking, financial services and aviation industries are lifted in the 2018 Negative List.

The following sectors have been further opened up to foreign investors according to the 2018 Negative List:

• Automotive

The 2018 Negative List removed the restrictions for foreign investment in the manufacture of automobile special use vehicles and new energy vehicles. The 2018 Negative List further specifies that these restrictions will be removed for commercial vehicles by 2020 and for passenger cars by 2022.

• Banking

The restrictions set forth in the 2017 Negative List on foreign investment into the banking sector are no longer seen in the 2018 Negative List, which means that the banking sector is now totally open to foreign investors.

In accordance with this change in the Negative List, the China Bank Insurance Regulatory Commission issued a new policy on August 23, 2018 to remove the foreign equity cap restrictions on foreign investment in domestic banks and financial asset management companies.

• Financial services

The 2018 Negative List raises the foreign equity caps set forth in the 2017 Negative List with regard to foreign investment into securities, securities investment fund management and futures firms from 49% to 51%, and the foreign equity cap for foreign investment into life insurance firms from 50% to 51%. The 2018 Negative List further specifies that the above caps will be lifted by 2021.

• Aviation

The 2018 Negative List removed the restrictions previously specified in the 2017 Negative List for foreign investment into the aviation sector, such as the joint venture requirement for the design, manufacture and maintenance of general aircraft, and the foreign equity cap of 49% for the design and manufacture of certain special kinds of aircraft. Nonetheless, as in the 2017 Negative List, the 2018 Negative List continues to require that public air transportation companies be subject to a foreign equity cap of 49%, with investment from a single foreign investor and its affiliates not exceeding 25% and that general airline companies for agriculture, forestry and fishery be a Sino-foreign equity joint venture and other general airline companies be subject to a foreign equity cap of 49%. In addition, the legal representatives of these airline companies must have Chinese nationality.

• The Filing Procedure for the Establishment and Change of Foreign Invested Enterprises (FIEs) Simplified

On 29 June 2018, MOFCOM released the Decision to Revise the Interim Measures for Record-filing Administration of the Establishment and Change of Foreign invested Enterprises. The revised measures (Interim Measures) took effect on 30 June 2018, which applies to the establishment and change of FIEs falling outside of the areas subject to special administrative measures. According to the Interim Measures, the investors must submit their FIE establishment record-filing information to the State Administration for Market Regulation (SAMR) offices together with their company registration applications. This one-stop service window approach also applies to cases where domestic Chinese companies are converted into FIEs due to foreign acquisitions. Previously, the record-filing with MOFCOM and the company registration with a SAMR office were handled separately and an applicant could conduct the record-filing within 30 days either before or after the company registration. This new measure simplified the procedure for establishing and changing FIEs outside the Negative List and thus optimised the business environment.

In the past year, China has issued a series of policies to relax restrictions on foreign capital entering certain industries, and simplified the filing and registration procedures for the establishment and change of foreign invested enterprises, which is positive news for foreign invested enterprises intending to enter the Chinese financial industry.