On November 5, 2014, China’s National Development and Reform Commission (NDRC) released a draft on the latest revision of restrictions placed on foreign investors looking to participate in China’s market. The most recent revision includes an increase in the number of industries open to foreign investment. In China, foreign investors are restricted from participating in many industry sectors. Some sectors allow for limited participation either through a joint venture with a Chinese company, or ownership of only minority stocks. This revision proposed by the NDRC will offer foreign investors the opportunity to fully participate in 44 previously-restricted sectors including, real estate, batteries and oil refining.
However, markets such as tobacco, Chinese legal affairs and culturally-tied industries like antiques remain off-limits to foreign companies. The NDRC said the reforms are aimed to open up the Chinese market to active global participation and transparency.Long Guoqiang of the NDRC stated, “Allowing foreign investment to enter industries with overcapacity and outdated technology can accelerate efforts to upgrade the industrial structure through market competition.” Conversely, the European Chamber of Commerce in China believes that the proposal falls short of expectations. “The removal of the investment catalogue altogether and increased opening in the services sectors would have been more ambitious,” said Jorge Wuttke, Chairman of the European Chamber of Commerce in China. The reality is that by opening up the market, China will bring in much needed foreign investment and hopefully reverse the downward spiral of the Chinese stock market, which is one of the largest in the world but also one of the worst performing for the past four years. As Chinese companies increase their investments in foreign markets, there is a real fear that reciprocity on China’s tight-fisted approach to foreign investment at home may become a reality if changes are not made.
The NDRC has opened up their most recent revision to public comments until December 3, 2014 after which it will be reviewed by the State Council and expected to go into effect. Klueger & Stein, LLP represents many clients with interests in that region and will continue to advise our clients based on the updates.