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China to Expand FTZ Negative List Model Nationwide

As disclosed by Minister of Commerce Gao Hucheng, the pilot reforms conducted in the free trade zones (FTZs) in the past two years have produced remarkable results and are ready to be replicated and promoted nationwide. For this reason, it is necessary to upgrade into law the reform measures that are being carried out in the FTZs with the authorisation of the NPC Standing Committee.

The four laws to be amended are the “three foreign investment laws (Law on Chinese-foreign Equity Joint Ventures, Law on Chinese-foreign Co-operative Joint Ventures and Law on Wholly Foreign-owned Enterprises) and Law on the Protection of Investment of Taiwan Compatriots.

Gao explained the draft amendment of the four laws at the 22nd session of the 12th NPC Standing Committee on 29 August. After the passage of this amendment, the negative list management model for foreign investment will be expanded nationwide and the era of examination and approval will end.

Record-Filing for Administrative Examination and Approval

With the authorisation of the NPC Standing Committee, the State Council began conducting foreign investment management reforms in the Shanghai, Guangdong, Tianjin and Fujian pilot FTZs successively since October 2013 to explore the replacement of the traditional “case by case approval” model with the “pre-establishment national treatment + negative list” approach.

The authorisation gave the green light to record-filing as administrative examination and approval for 11 items that previously required government approval, including “period of operation of wholly foreign-owned enterprises” and “major changes to the agreement, contract and articles of association of Chinese-foreign co-operative joint ventures”.

This authorisation will expire on 30 September 2016. Gao pointed out that the amendment strictly adheres to the demands of the NPC Standing Committee’s authorisation decision and its content is in line with the authorisation decision.

He also pointed out that the government intends to include the following provision in the four laws: Record-filing will replace administrative examination and approval unless special management measures for foreign investment access is required by the government. These special management measures will be promulgated or approved for promulgation by the State Council.

Negative List Approach

The number of foreign-invested enterprises (FIEs) has increased markedly since the trial implementation of the negative list approach in the four pilot FTZs. According to figures released by the Ministry of Commerce, a total of 5,984 FIEs were established in the Shanghai FTZ up to June 2016. Between their establishment on 21 April 2015 and the end of 2015, the FTZs in Guangdong, Tianjin and Fujian saw the number of newly set-up FIEs increase by 287%, 235% and 506% year-on-year respectively, with contractual foreign investment up by 225%, 220% and 548% respectively.

China has made it clear that it will experiment with the negative list approach for market access in some regions between the end of 2015 and 31 December 2017 to explore the formation of a unified market access negative list system and the relevant institutional mechanisms and will officially enforce the negative list approach nationwide from 2018 onwards.

Related article:

Shanghai FTZ Foreign Investment Management Model Set to Expand Nationwide


Content provided by Picture: HKTDC Research
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