BOFIT Viikkokatsaus / BOFIT Weekly 2017/30

At the end of June, China's Ministry of Commerce (MofCom) and the National Development and Reform Commission (NDRC) released their latest Foreign Investment Industrial Guidance Catalogue, which sets out incentives and restrictions applicable to foreign direct investments in coming years. The new catalogue took effect today (July 28).

The catalogue lists those branches where incentives are available to foreign firms, as well as branches that are on the "negative list", i.e. where access by foreign investors is constrained. The catalogue divides branches on the negative list into two groups: those subject to a complete FDI ban and those subject to conditions (such as formation of a joint enterprise with a Chinese partner and ownership restrictions). While foreign firms receive nominally neutral treatment in relation to Chinese firms in branches not mentioned in the FDI catalogue, foreign firms report facing discrimination.

Officials report that the new catalogue reduces the number of restricted branches to 63 compared to 93 in the previous catalogue. Instead of 36 branches previously, only 28 of the 63 branches are still fully off-limits to foreign investors. The most extensive deregulation targets the service sector as well as the manufacturing and mineral extraction sectors. For example, motorcycle manufacturing or road passenger transport services are now free of foreign investment restrictions.

The EU Chamber of Commerce in China released a less sanguine assessment of the new catalogue. The Chamber noted that, even if 30 branches are supposedly open to foreign investment, only 18 of the branches are actually available to foreign investors. The remaining 12 branches were listed as off limits to both domestic and foreign actors in the 2016 Market Access Negative List, which has priority over the FDI catalogue. The Chamber also strives for transparent, simple FDI regulation. The Chamber above all is concerned about equal market access, noting that the new catalogue does nothing concrete to rectify the matter. The access of European firms to the Chinese market is still very restricted, while Chinese firms enjoy largely unfettered licence to operate within the EU.