The 2005 Foreign Investment Guidance Catalogue

By Z. Alex Zhang and Xiaofeng Cheng
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The Ministry of Commerce (MOFCOM) and the State Development and Reform Commission (SDRC) amended the Foreign Investment Industry Guidance Catalogue on November 30 2004, with changes effective from January 1 2005 (the 2005 Catalogue). Since its first release in 1995, the Catalogue has been amended four times. The first two releases, the 1995 Catalogue and the 1997 Catalogue, divided foreign investment into four categories: Encouraged, Restricted Category A, Restricted Category B and Prohibited.  After its formal entry into the WTO, China issued the 2002 Catalogue, which restructured investment projects into three categories: Encouraged, Restricted and Prohibited, with unlisted industries and sectors deemed to fall under the Permitted category.  The 2005 Catalogue reflects recent changes in response to demands from foreign investors.  Checking the Catalogue is the first step that a potential foreign investor in China should take to see if its intended foreign investment in the target sector is Encouraged, Permitted, Restricted or Prohibited under PRC laws.

The 2005 Catalogue includes some modest revisions to the categories of foreign investment.  The Encouraged category contains 256 investment areas, down from 262 in the 2002 Catalogue.  The number of investment areas in the Restricted category has decreased by three, from 80 in 2002 to 77. The Prohibited category is up one, to 33.