China Has Shortened the Negative List for FDI in 2020

China issued an update on its 2020 Negative List by shortening the number of restricted sectors for foreign direct investment (FDI) both nationwide and within the free trade zones (FTZs).

The newest version of the 2020 Negative List applies a reduction of the number of industries that were previously restricted or prohibited for foreign investment. In particular, the National Negative List cut the number of items from 40 to 33, and the Negative List for pilot FTZs was reduced from 37 to 30 items. On July 23th, 2020, the updated Negative Lists became effective.

The shortened National Negative List improves the level of openness in the service, manufacturing, and agricultural sectors. In the financial sector, the foreign ownership cap of securities, fund management, futures, and life insurance companies has been eliminated. For instance, BlackRock Inc. has already received approval from the China Securities Regulatory Commission to set up a wholly foreign-owned mutual fund unit.

Furthermore, in the manufacturing sector, foreign ownership caps on commercial vehicle manufacturing is lifted, while foreign investment is now allowed in the smelting and processing of radioactive materials as well as the production of nuclear fuel. In the agricultural sector, the ownership limit for foreign investors in wheat breeding and seed production will be raised to 66%.

Other updates include the cancelation of the prohibition of foreign investment in air traffic control and an ability to take majority shares in joint ventures engaged in the construction and operation of urban water supply and drainage networks in cities with a population of more than 500,000 people.

In the FTZs, foreign investors can now invest in the traditional Chinese Medicine field and in the education sector, restrictions on foreign investment in curriculum vocational education institutions and non-curriculum professional training institutions have been lifted.

The shortening of the 2020 Negative List has been long awaited and is welcomed by many foreign investors and domestic institutions in China. The announcement intends to support the business environment, attract foreign investors, and alleviate the effects of the coronavirus on the economy. Moreover, the implemented measures will continue to strengthen the role of FTZs in the process of opening up the Chinese economy.