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Negative List and National Security Review Rules Take Effect in Four FTZs

China’s State Council announced on 20 April two sets of rules to be implemented in the four pilot free trade zones (FTZs) in Shanghai, Guangdong, Tianjin and Fujian. The measures deal respectively with the access of foreign investment (the “negative list” approach) and the system of national security review of foreign investment projects in the FTZs.

Consisting of 122 items under 50 industry sectors, the negative list sets out special management measures for businesses and industries in which foreign investment does not qualify for national treatment. Key features include:

First, open up further to foreign investment. Any sector not included on the negative list is fully open to foreign investment. Instead of issuing industry-specific liberalisation measures as in the past, the negative list approach offers more leeway for foreign investment in the zones. Compared with the current foreign investment policy, the negative list further reduces foreign access restrictions in the services and manufacturing sectors.

Second, change the management mode. There will be a level playing field for foreign and domestic capital in sectors outside the negative list. Establishment of foreign investment projects and enterprises will basically follow a filing system, investment facilitation will be effectively improved, and improvements in the modern market system will be accelerated.

Third, improve the access system. The negative list approach systematically sorts out all kinds of policies and regulations related to foreign investment, uniformly sets out all provisions related to foreign investment restrictions. The special management measures in the negative list relating to national treatment, senior management requirements and performance requirements will greatly enhance the transparency of foreign investment policy, giving investors a comprehensive market access guide.

Compared with the 2014 version of the Shanghai pilot FTZ’s negative list, the latest negative list is more comprehensive, aligning further with international practice while cancelling more than 60 restrictions to give foreign investors more leeway.

In order to further open up while strengthening supervision, preventing risk and guiding the orderly development of foreign investment, foreign investment national security review measures compatible with the negative list management approach is planned to be introduced on a trial basis in the pilot FTZs. According to the new features of the opening-up of the FTZs, the pilot measures aim to adjust and improve the existing foreign mergers and acquisitions national security review system in the areas of review scope, content and procedures, and establish a linkage mechanism in  information sharing, real-time monitoring, interactive management and periodic verification. Implementation of the pilot measures is expected to help build a more secure and efficient open economy, promoting a new round of opening-up under the premise of safeguarding national security.

See full text (in Chinese) of Special Administrative Measures (Negative List) on Foreign Investment Access.

Content provided by Picture: HKTDC Research
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