National Development and Reform Commission and Ministry of Commerce jointly published the newly revised Foreign Investment Industrial Guidance Catalogue (2011 Amendment) (hereinafter “2011 Catalogue”) on December 24, 2011, and this 2011 Catalogue shall go into effect from January 30, 2012. After the date of entry into force, foreign investment projects approval will execute in accordance with 2011 Catalogue, and before the date of entry into force, the foreign investment projects shall be approved in accordance with the 2007 Catalogue. For the items with newly added restrictions (including those in the prohibited category), policy at the time of approval shall be applied to the foreign investment enterprise which has been established before January 30, 2012 and still in operation. However, in case that these old enterprises need capital increase, stock transfer or to be listed on overseas stock markets as domestic enterprises, the 2011 Catalogue shall be applied.
In order to accelerate transformation in the direction of economic development, optimize foreign investment structure, and promote technological innovation and industrial upgrading, the new Catalogue pay attention to the key area of high-end manufacturing, strategic and emerging industries, modern service industry as well as new energy, energy-saving and environmental protection industry.
The 2011 Catalogue made several amendments in the new sectors and the key adjustments and changes in the 2011 Catalogue are summarized below:
First, further expanding the opening-up. To promote reform and development and create a good investment environment, the 2011 Catalogue increased the number of items in the encouraged categories, and reduced items under the restricted and prohibited categories. The 2011 Catalogue has a total of 473 items, of which 354 are of the “encouraged category”, 80 are of the “restricted category”, and 39 are of the “prohibited category”, which has been increased by 3, reduced by 7 and by 1 respectively compared to the 2007 Catalogue. Additionally, restrictions on the share of foreign investment equity in some areas are deleted in the 2011 Catalogue and items with restrictions on the share of foreign investment equity are reduced by 11 compared to the previous Catalogue.
Second, promoting the development of high-end manufacturing and transforming and upgrading the traditional manufacturing industry. In the 2011 Catalogue, the high-end manufacturing is one of the key areas in which foreign investment is encouraged to introduce new technologies, new processes, new materials, and new equipment to improve the traditional industries. The items of new products and new technology from the textile, chemical industry and machinery manufacturing are added into the “encouraged” category. Meanwhile, in the 2011 Catalogue, encouraged category includes the recovery and recycling of waste electrical and electronic products, electromechanical equipments, and battery recycling to further encourage foreign investment into cycle economy and environmental protection industries. In consideration of the healthy development of automobile industry, automobile whole manufacture is removed from the encouraged category. In order to restrain the overcapacity and blind repeated construction in some sectors, polysilicon, and coal chemical manufacturing industries are removed from the encouraged category.
Third, encouraging and developing the strategic new industries. According to the 2011 Catalogue, foreign investment is encouraged in development of energy-saving and environmental protection industry, next-generation Internet industry, biotechnology, high-end equipment manufacturing, new energy, new materials, new energy vehicles and other strategic emerging industries to enhance the level and capacity for carrying on the international industry transfer and promote international cooperation and new competitive advantage. Therefore, in the 2011 Catalogue, the key components of new energy vehicles and the next-generation internet system equipment are added to the encouraged category, and even removed the limitation of the equity share of the new energy power generating equipment industry.
Fourth, promoting the development of modern service industry. In the 2011 Catalogue, 9 service industry are added to the “encouraged” category, including motor vehicle charging stations, venture capital business, intellectual property service, marine oil pollution clean-up technology service, and the proportion of service industry in the encouraged category is further increased. Additionally, foreign-invested medical institutions and financial leasing companies are adjusted from the “restricted” to the “permitted” category.
Fifth, coordinating and balancing the middle and western regional economy development. Certain items that have been removed from the encouraged category in 2011 Catalogue will be taken into account according to the principles of “developing the Mid-west regional industrial development and encouraging the local advantage industries” when amending the “Foreign Investment Industrial Guidance Catalogue of the central and western regions of China”.
The Catalogue is a guidance and basis of foreign investment when applying regulations and laws in China. Since it published in 1995 for the first time, the Catalogue has been amended from time to time, and the 2011 Catalogue is the fifth edition. According to the new Catalogue, projects with the total investment under 300 million US dollars in the encouraged and permitted categories can be approved by local government, with exception of the items prescribed in the “government approval of Investment Projects” that need approval by the State Council. Besides, foreign-invested projects in encouraged category can enjoy the corresponding preferential policies, and those encouraged items in the western region can enjoy 15% reduction of enterprise income tax.
Since the accession to the WTO, the Chinese government has been insisting on positive and effective policies to attract foreign capital, including perfecting foreign investment regulations and laws; granting national treatment to foreign-invested enterprises; fully protecting the legal rights of foreign-invested enterprises and striving to create a sound investment environment. The Chinese government attaches great importance on IPR protection and has established an IPR legal system not only in compliance with international rules but also in line with China's development.