FTZ Negative List on Foreign Investment

China’s State Council released an updated foreign investment negative list for its 11 free trade zones (FTZs) on June 16, 2017, removing a number of restrictions on foreign investment. The lifted restrictions on foreign investment apply to a number of industries, including mining, manufacturing, transportation, information, commercial service, finance, scientific research, and culture. The updated negative list presents new opportunities for investment in China’s growing number of FTZs, and provides a glimpse into future economic reforms.

Changes in the New Negative List
Overall, the new negative list reduces restrictions in over twenty industries, including railway transport equipment, pharmaceuticals, road transport, insurance, accounting and audit, and other commercial services.

Foreign investors are no longer be obligated to enter into a JV when engaging in rail transport equipment or civilian satellite manufacturing, as well as certain types of civilian helicopter design and production, for instance. The full list of removed special administrative measures can be found at the end of this article.

Notably, restrictions may still apply for items removed from the negative list. An industry’s absence on the negative list simply means that foreign investors will be treated the same as Chinese investors in that industry.

Evaluating the New Negative List
The updated Catalogue is expected to introduce a similar style of negative list for the rest of China, effective in 2018, and to ease restrictions in similar industries as the FTZ negative list, including rail transport equipment and mining. FTZs are often treated as grounds for experimental reform in China, making it unsurprising that policies tested since the Shanghai Pilot FTZ opened in 2013 are now being carried over to the rest of China.

Many of the newly liberalized industries, however, are sectors in which Chinese companies are already dominant. China is known for its high-speed rail development, for example, a strength it hopes to export through the One Belt, One Road project.

Further, foreign investors in China’s FTZs may still be subject to national security reviews when participating in sensitive industries. Although the updated negative list provides new areas for investment, foreign investors should carefully study the opportunities and challenges that may arise in practice prior to entry.

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