China’s 2022 Negative List – more sectors opened for private investment

According to a new update to the Negative List for Market Access, published on 25 March 2022, China has opened up more sectors of its economy to private investment. 

This, alongside other recent regulatory changes, could potentially pave the way for the further liberalisation of its financial sector, enabling it to benefit from an influx of capital and expertise.

What is the negative list?

The negative list is released annually by the Ministry of Commerce and the National Development and Reform Commission.

Somewhat counterintuitively, the document shows which industries are subject to bans or restrictions on foreign and domestic investment – meaning that any industry not included on the list is presumed open to investment without additional administrative approvals being required.

How does it work?

The list includes two categories: prohibited and restricted markets. For the former, foreign and domestic companies are strictly forbidden from engaging in these industries in any way, be it through investments, partnerships or takeovers. Alternatively, when it comes to accessing restricted markets, foreign and domestic companies must fill out an application and gain prior administrative approval.

It’s worth noting that the negative list applies to both foreign and domestic investors. There are separate negative lists that apply exclusively to foreign investors, including the Special Administrative Measures (Negative List) for Foreign Investment Access and the Special Administrative Measures (Negative List) for Foreign Investment Access in Pilot Free Trade Zones. Foreign investors therefore need to consult both the negative lists for foreign investment and the negative list for market access to ascertain whether they can invest in a particular area.

What are the key changes for 2022?

According to the updated list, the number of industries with restrictions has been cut to 117. In fact, the number of restricted industries has been in gradual decline over the past few years, down from 151 in 2018, which represents a gradual opening up of the investment space in China.

In particular, the updated list for 2022 removes restrictions on stock issuance, mergers and acquisitions of listed companies, and internet financial information services, meaning that investors no longer need to seek approval if they wish to participate in these industries. It is worth noting, though, that industry-specific regulations do still apply.

Despite the number of restrictions decreasing for 2022, some new restrictions have also been introduced. These pertain to the news media sector, among others. For instance, unless private investors gain special approval, they are no longer permitted to engage in news gathering, broadcasting and distribution, nor are they permitted to reproduce content published by foreign media outlets – in what is already a highly restricted sector.

What other changes have taken place?

The changes to the list represent a gradual ease in restrictions, which can be viewed in the context of other regulatory changes.

The 2021 negative list for market access was broadly welcomed as it relaxed several rules in the manufacturing sector and removed restrictions on foreign investors holding a majority stake in the automotive and television manufacturing industries, as well as holding stakes in two or more vehicle manufacturers.

Beyond the list itself, other changes have been underway. On 2 April 2022, the China Securities Regulatory Commission and other agencies introduced draft rules to ensure greater cross-border regulatory cooperation: from now on, Chinese offshore-listed firms will no longer have to have their on-site financial data inspections conducted by Chinese regulators.

There are also plans to develop a framework to allow US regulators to gain full access to audit reports for Chinese companies listed in New York, as part of a compromise to allow Chinese firms to keep their US listings.

Moreover, despite the challenges involved in navigating the complex regulatory environment of China’s financial sector, opportunities for foreign investment have opened up, particularly in FinTech and green finance, while other measures have been developed with the aim of turning Shanghai into an international finance centre.

What does the future hold for investment in China?

Viewed in the context of the changes outlined above, the gradual easing of restrictions on China’s negative list holds promise for strengthened investment in the country and potentially marks the beginning of a new liberalised era for investment in China.

Lynn Lin, Partner and Head of Asia at Gerald Edelman, has worked with many companies and individuals who are interested in China market entry. Her expertise in the Chinese market and wide network of strategic partners including free trade zones, provisional trade and investment bureaus, and leading professional service providers in China makes her the ‘go to’ for those considering China market entry. Lynn also has accounting and tax expertise and can assist with all cross-border enquiries.

Gerald Edelman also offers a one-stop-shop range of services, from market research, company formation, legal, taxation, advisory, local licensing, supply chain management, standard accounting, and back office outsourcing solutions including audit, HR and payroll services, so are well placed to assist you in your business requirements both locally in the UK and in China.

To discuss your specific requirements please contact Lynn Lin or one of our experts who will be happy to assist.