Draft foreign investment catalogue requires consistency and clarity
May 04, 2011 | BY
Janice QuSignificant opportunities await investors in seven strategic industries
With the release of draft foreign investment guidelines, overseas investors will be able to access a wider range of industry sectors. However, inconsistencies in interpretation and enforcement require an understanding
of local practices and rules, say counsel.
Furthering China's commitment to foreign direct investment, a draft of the Foreign Investment Industrial Guidance Catalogue (外商投资产业指导目录) (Catalogue) was issued in early April and is expected to be passed in the summer. It expands industry sectors that are available to foreign investors, including high-tech, clean energy, aerospace and aviation, new materials, high-end manufacturing and advanced logistics.
The draft regulation is a follow-up of the State Council's Several Opinions on Further Improving the Work on the Use of Foreign Investment (国务院关于进一步做好利用外资工作的若干意见) (Several Opinions) that was announced last April. It revises the 2007 version of the Catalogue.
Although the draft guidelines are broad in terms, foreign investors will need to maintain sound and focused strategies.
“Foreign investors must understand current bureaucratic practices as well as the rules,” said Brad Herrold, a Beijing-based counsel at Hogan Lovells. “This is often best accomplished through an integrated and coordinated team of government relations, business development and legal professionals.”
China's move to widen foreign investment aligns with its new 12th Five-year Plan (中华人民共和国国民经济和社会发展第十二个五年规划纲要), which extends policy support through tax, fiscal and procurement preferences to seven strategic industries. The Several Opinions had increased the approval authority of the relevant local government agencies and encouraged the establishment of foreign-invested venture capital enterprises.
“The policies appear to benefit foreign investment in advanced technology and R&D, high-end manufacturing, modern services industries, energy conservation and alternative energy, and the draft guidelines appear to offer significant opportunities in these sectors,” noted Herrold.
Changes in the draft guidelines from the previous Catalogue include the placement of vocational education and training in the services sector in
the “encouraged” category, and that medical industries are no longer prohibited.
Roy Zou, a Beijing-based partner at Hogan Lovells, says that there are provisions in the Draft Guidelines that are general and vague. “In this case, a word-for-word matching of the product specific category may not be possible through a literal reading.”He also cautions that inconsistent interpretations of the new draft will affect enforcement. -JQ
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