The Revised Foreign Investment Catalogue: Grounds for Optimism?

By Hongchuan Liu,
Yiwen Law Firm,
Beijing

On March 11 2002, the State Development and Planning Commission, the State Economic and Trade Commission and the Ministry of Foreign Trade and Economic Cooperation promulgated the long-awaited revised version of the Foreign Investment Industrial Guidance Catalogue (外商投资产业指导目录) (the New Catalogue). The New Catalogue is effective as of April 1 2002. It has been more than four years since the last revision, effective December 31 1997 (the 1997 Catalogue). The original intention of the drafters was for the Catalogue to be revised and updated every two or three years. The significant delay in this round of revisions was mainly due to the prolonged WTO negotiations that culminated in China's accession to the World Trade Organization. China intended to use the opening of some of its key industries as bargaining chips, and thus it would have undermined China's negotiating position if it voluntarily and prematurely opened up new industries (some of which China had already decided to open for its own interests anyway) until the conclusion of the WTO accession negotiations.

Foreign investors' expectations ran high for the revised Catalogue given China's formal entry to the WTO last year and the widespread commitments that China made to open many of its key industries in the Protocol of Accession to the WTO Agreement (the Protocol). Whether the revision has met those expectations depends on one's industry and perspective: is the cup half empty or half full? For optimists, there are many positive and encouraging changes: the number of projects in the encouraged category has increased from 186 to 263 while the number of restricted projects has been reduced from 112 to 75. For pessimists, the New Catalogue brought no significant breakthrough other than the existing commitments contained in the WTO Protocol; moreover, while the total number of encouraged projects may have increased and the number of restricted areas is fewer, some of the key industries and big ticket items, such as construction and operation of power grids, and futures, are still off-limits to foreign investors.