Navigating the new FDI regime

This article is from the Foreign Direct Investment chapter of the 2015 Annual Review and is available for download here.


Tiantian Ye of Jin Mao Partners explains which sectors are open and closed to FDI under the new Catalogue, the fate of VIEs and the rules for foreign-invested banks and projects

1. What are the main changes to the 2015 Foreign Investment Industrial Guidance Catalogue? How can foreign investors benefit from the new opportunities?

The major changes in the 2015 Foreign Investment Industrial Guidance Catalogue (Catalogue) include the following:

(1) the addition of items such as “elderly nursing homes”, “creative industries such as industrial design, architectural design and fashion design” and “construction and operation of sewage treatment plants” in the encouraged category;

(2) the moving of “construction and operation of power grids (the Chinese party having a controlling interest” from the restricted category to the encouraged category;

(3) the removal of a large number of items in the manufacturing industry from the restricted category;

(4) the removal of “direct sale, mail order, online sale” from the restricted category; the restriction on the foreign investment percentage in e-commerce projects has also been removed;

(5) the entirety of the real estate industry has been removed from the restricted category;

(6) the removal of “finance companies, trust companies, money brokerages” and “insurance brokerages” from the restricted category and their placement in the permitted category; furthermore, the restrictive conditions on “banks” have been given further detail and the restrictive conditions on “securities companies” have been revised;

(7) the addition of “manufacture of assembled vehicles, special purpose vehicles and motorcycles”, “institutions of higher education”, “pre-school education” and “medical institutions” as new items in the restricted category; and

(8) the removal of “legal advice” from the restricted category and its placement in the prohibited category.

For those items moved from the restricted to the encouraged category or removed completely, the approval procedure for foreign investors to invest in such projects is simpler than that in the past. Tax breaks and other incentives are available to foreign investors for items newly added or switched to the encouraged category. For those industries in which foreign shareholding percentage requirements have been relaxed, foreign investments are no longer subject to investment model and percentage restrictions.

2. Which sectors are now closed off to foreign investment and why? Will they remain closed?

The items newly added to the prohibited category of the 2015 Catalogue mainly include the following:

(1) “production of nuclear fuel” and “wholesale and retail of tobacco, cigarettes, flue-cured tobacco leaves and other tobacco products”: these two items have a bearing on national security and affect the public interest, accordingly, the new version of the Catalogue places them in the prohibited category;

(2) “China legal matters consulting”: current laws have expressly prohibited representative offices of foreign law firms from providing advice on China legal matters for some time, accordingly, placing it in the prohibited category is in fact only consistent with current law; and

(3) “online publishing services”: internet culture has always been a sector that has been strictly restricted or prohibited by foreign investment policies, so the most recent revisions are a reflection of the Several Opinions on Attracting Foreign Investment to the Cultural Sector issued in 2005.

3. What are the main takeaways from the draft Foreign Investment Law? How does this reshape the FDI regime?

The main takeaways from the PRC Foreign Investment Law (Draft for Comments) are as follows:

(1) it expressly abolishes the Sino-foreign Equity Joint Venture Law, the Wholly Foreign-owned Enterprise Law and the Sino-foreign Cooperative Joint Venture Law, with foreign-invested enterprises (FIEs) uniformly governed by the Company Law as are domestic companies;

(2) it adopts a broader meaning for “foreign investment” and “foreign investor”, bringing in criteria for determining “de facto control”, i.e. a domestic enterprise under the de facto control of a foreign investor is deemed a foreign investor; and where a foreign investor is under the de facto control of a Chinese investor, its investments in China are deemed investments of the Chinese investor;

(3) it abolishes the case-by-case approval system established by the three foreign investment laws, and designs a system for the administration of foreign investor access that is compatible with the pre-access national treatment plus Negative List administration model;

(4) it strengthens post-event oversight of foreign investment: a foreign investor or FIE is required to perform its obligation of reporting information to the foreign investment approval authority, regardless of whether it falls in a sector covered on the Negative List; and

(5) it provides for the national security review system in law, further improving the clarity of the factors and procedure for national security reviews.

4. What will happen to foreign investors using the VIE structure?

The draft Foreign Investment Law formally places variable interest entity (VIE) structures within the scope of China's administration of foreign investment. As the Foreign Investment Law implements the Negative List model, foreign investors may not invest in projects in the prohibited category of the List. Accordingly, with respect to a VIE structure actually controlled by a foreign investor, if the Negative List of the officially promulgated Foreign Investment Law places the industry invested in by the foreign investor in the prohibited category, the VIE structure actually controlled by the foreign investor will be impossible to implement. However, the necessity of the continued existence of VIE structures will ultimately be decided by whether the specific sectors invested in are open to foreign investment under the Foreign Investment Law's Negative List. If the Negative List comprehensively opens sectors, such as the internet, in which VIE structures are widely used for foreign investment, the VIEs in these sectors will no longer need to exist, and there will be no need to make changes to existing VIE structures actually controlled by foreign investors. On the other hand, if a foreign investor does not exercise de facto control over a VIE structure and the VIE enterprise satisfies the criteria for de facto control by Chinese investors, the structures will not be affected. Of course, the official version of the Foreign Investment Law will further expressly address the issue of whether existing VIE structures can continue to be retained.

5. What will the Foreign Investment Law's Negative List look like? Will it be more relaxed or restrictive than the current Catalogue or Free Trade Zones' Negative List?

The Negative List under the Foreign Investment Law will further relax access to foreign investors, further loosening the bonds on foreign investment on the basis of the 2015 Catalogue and the Free Trade Zones' Negative List.

6. What are the unique features of the three FIE structures: WFOE, Sino-foreign equity joint venture and Sino-foreign cooperative joint venture? What are the benefits and risks of each?

A wholly foreign-owned enterprise (WFOE) is an enterprise in which all of the capital is contributed by foreign investors. It usually takes the form of a limited liability company.

The main feature of a Sino-foreign equity joint venture is that the Chinese and foreign investor jointly invest in it, and participate in its management and share in the profits, risks and deficits in proportion to their capital contributions. It takes the form of a limited liability company.

The main feature of a Sino-foreign cooperative joint venture is that the Chinese and foreign investor invest in or provide the cooperation conditions to the cooperative joint venture in accordance with the cooperation contract, but are not required to calculate their investment percentages based on a strict monetary calculation. The profits or products are distributed, and risks and deficits shared, in accordance with the cooperation contract, not necessarily in proportion to their capital contribution. It may take the form of a limited liability company or, alternatively, of an economic entity without legal personality.

7. Certain restrictions have been lifted for foreign-invested banks in China. How does this affect their business?

According to the PRC Regulations for the Administration of Foreign-funded Banks (2nd Revision), the following changes have been made in terms of the access permission of foreign-funded banks:

(1) the prior establishment of a representative office in China is no longer a condition for a foreign bank (foreign financial institution) to establish a wholly foreign-owned bank, Sino-foreign equity joint venture bank or first Chinese branch of a foreign bank in China;

(2) for the establishment of branches in China by wholly foreign-owned banks and Sino-foreign equity joint venture banks, the requirement that the head office allocate it operating capital of not less than Rmb100 million or the equivalent in a freely convertible currency without consideration is abolished;

(3) the conditions for a business institution of a foreign-funded bank to engage in renminbi transactions have been relaxed to a relatively large extent.

8. Have the regulations for the record filing of foreign-invested projects been further clarified? What is the process and which foreign projects are still subject to approval?

China implements a method of administration of foreign-invested projects in which the majority of projects are subject to record filing and a minority to check and approval. According to the Catalogue of Investment Projects Subject to Government Check and Approval (2014), projects in the encouraged category with a total investment (including capital increases) of at least US$1 billion that require the Chinese party to have a controlling interest (including relative control) and projects in the restricted category (other than real estate) with a total investment (including capital increases) of at least US$100 million are subject to check and approval by the National Development and Reform Commission (NDRC), and among those, those with a total investment (including capital increases) of at least US$2 billion are required to be filed with the State Council for the record. Real estate projects in the restricted category and other projects in the restricted category with a total investment (including capital increases) of less than US$100 million are subject to check and approval by the provincial-level government. Projects in the encouraged category with a total investment (including capital increases) of less than US$1 billion that require the Chinese party to have a controlling interest (including relative control) are subject to check and approval by the local government. Projects other than those specified above covered by Articles 1 to 10 of the Catalogue of Investment Projects Subject to Government Check and Approval (2014) are subject to check and approval as provided for in Articles 1 to 10. Foreign-invested projects other than those requiring check and approval as set forth above are subject to record filing with the local development and reform commission.

9. What are the implications of the draft laws on NGOs, national security and anti-terrorism? Will they affect FDI?

The Law for the Administration of Overseas Non-governmental Organisations (2nd Draft for Deliberation) sets forth the system for the registration and administration of all non-profit and non-governmental social organisations established abroad that carry on activities in China.

The PRC National Security Law sets forth the systems and measures for protecting the security of national politics, national territory, military affairs, culture, science and technology, etc. and requires the conduct of a national security review for foreign investments, specific items and key technologies that have or could have an impact on national security.

The PRC Anti-terrorism Law (Draft) is a law for comprehensively guarding against and cracking down on terrorism. Foreign-invested telecommunications services and internet enterprises will be affected by oversight of data and equipment security specified in the Draft.


Author biography

Tiantian Ye
Partner

Tiantian Ye obtained her LLB from the Fudan University Law School in 2003 and her LLM from Duke University in 2010. She is admitted to practise in China and New York. She has represented numerous multinational corporations in their FDI, financing and M&A projects, including: the sale by IBM China of its printer business to Ricoh, the establishment by IBM China of a server remanufacturing centre in Shenzhen, the contribution by BRED Banque Populaire to the capital increase of Chongqing Liangjiang Financial Development and the capital increase and expansion project of the Otsuka Pharmaceutical Research Center in Shanghai International Medical Zone. Tiantian has also provided legal services for investments by numerous private equity investment funds, including: representing the Zhanghiang Group's investment platform in investing in a number of biopharmaceutical and technology enterprises. She has also provided long-term legal counsel services for companies such as IBM China, Infineon Technologies, Fuji Film China, SAIC Motor, Kao China, Galderma China and EPCOS China.
Tiantian's working languages are Chinese and English.

金茂凯德律师事务所的叶甜甜律师阐述在新的投资目录下哪些产业开放、哪些封闭、VIE的命运及有关外商投资银行和项目的法规

1. 2015版的《外商投资产业指导目录》有哪些主要改变﹖外商如何把握这些新机遇？

《外商投资产业指导目录（2015年修订）》的主要变化有：

(1) 新增了“养老机构”、“工业设计、建筑设计、服装设计等创意产业”、“污水处理厂建设、经营”等鼓励类条目。

(2) “电网的建设、经营（中方控股）”由限制类被调整为鼓励类。

(3) 制造业大量条目从限制类中删除。

(4) “直销、邮购、网上销售”从限制类中删除。也不再限制电子商务项目的外资比例。

(5) 房地产业从限制类中整体删除。

(6) “财务公司、信托公司、货币经纪公司”、“保险经纪公司”从限制类中删除。并将“银行”的限制条件细化，对“证券公司”的限制条件进行了调整。

(7) “汽车整车、专用汽车和摩托车制造”、“高等教育机构”、“学前教育”、“医疗机构”等被列为新增的限制类条目。

(8) “法律咨询”则由限制类调整为禁止类。

对于由限制类调整为鼓励类或从限制类中删除的项目，外国投资者投资该类项目所需的审批程序较以前更为简便。对于新增或调整为鼓励类的项目，外国投资者投资该类项目还能享受到税收优惠或其他奖励措施。对于放宽外资股比要求的产业，外国投资者在这些领域进行投资不再受到投资模式和投资比例的限制。

2. 有哪些行业现在外商投资是禁足的？为什么？它们会否一直被禁止？

《外商投资产业指导目录（2015年修订）》中新增的禁止类条目主要有：

(1) “核燃料的生产”，“烟叶、卷烟、复烤烟叶及其他烟草制品的批发、零售”：这两项关乎国家安全，影响社会公共利益，因此新版目录将其纳入禁止类。

(2) “中国法律事务咨询”：现行法律中对外国律师事务所驻华代表处不得从事中国法律事务咨询早有明文规定，因此，将其列为禁止项其实是与现行法律规定接轨的做法。

(3) “网络出版服务”：互联网文化一直属于被外商投资政策严格限制或禁止的领域，此次修订也是与2005年发布的
《关于文化领域引进外资的若干意见》相呼应的做法。

3. 《外国投资法（草案征求意见稿）》有什么主要看点？这些新草案建议如何改造FDI的体制？

《外国投资法（草案征求意见稿）》的主要看点有：

(1) 明确废止《中外合资经营企业法》、《外资企业法》和
《中外合作经营企业法》，外商投资企业将与国内公司一样统一适用《公司法》。

(2) 采取了较为宽泛的“外国投资”和“外国投资者”定义，引入“实际控制”的判断新标准，即受外国投资者实际控制的境内企业视为外国投资者；外国投资者受中国投资者实际控制的，其在中国境内的投资视为中国投资者的投资。

(3) 取消了外资三法确立的逐案审批制度，设计了与准入前国民待遇加负面清单管理模式相适应的外资准入管理制度。

(4) 对外国投资加强了事后监管。外国投资者或外国投资企业对其投资经营行为，无论是否属于负面清单列明的领域，都要向外国投资主管部门履行信息报告义务。

(5) 以法律的形式对国家安全审查制度作出规定，进一步完善了国家安全审查的审查因素和审查程序。

4. 对于采用VIE结构的外国投资者会有什么改变？

《外国投资法（草案征求意见稿）》将VIE架构正式纳入了中国外资管理的范畴。由于《外国投资法（草案征求意见稿）》实行负面清单管理模式，外国投资者不得投资负面清单中所列的禁止类项目。因此，对于外资实际控制的VIE架构，如果正式颁布的《外国投资法》负面清单仍将该外商投资的产业列为禁止类的话，则外资实际控制的VIE架构将无法实施。但最终VIE架构是否还有存在的必要，还需视具体投资的领域在《外国投资法》负面清单下是否最终对外资开放而定。如果正式颁布的《外国投资法》负面清单全面放开互联网等广泛使用VIE架构的领域，则这些领域的VIE架构将不再有存在的必要，已设立的外资实际控制的VIE架构也无需作出改变。另一方面，如果外资在VIE架构中并未达到实际控制的程度，VIE企业符合中国投资者实际控制的标准，则这类VIE架构不受影响。当然，对于已设立的VIE架构是否可以继续保留，《外国投资法》正式稿中会对此进一步加以明确。

5. 《外国投资法》项下的负面清单将会是怎样的？它会否比现在的投资目录或自贸区的负面清单更开放或更限制呢？

《外国投资法》项下的负面清单将进一步放宽外资准入，在《外商投资产业指导目录（2015年修订）》和自贸区负面清单的基础上进一步为外资松绑。

6. 现在外资企业的三大结构（外资企业、中外合资经营企业、中外合作经营企业）各有什么特点？它们各自有什么优点和风险？

外资企业是全部资本由外国投资者投资的企业，组织形式一般为有限责任公司。

中外合资经营企业的主要特点是由中外投资人共同投资，按照各自的出资比例参与管理、分享利润和分担风险及亏损，组织形式是有限责任公司。

中外合作经营企业的主要特点是由中外合作者依照合作合同的约定向合作企业投资或提供合作条件，但无须以货币作价计算投资比例，各方按照合作合同的约定分配收益或者产品，承担风险和亏损，而不是必须按照合作各方的出资比例。组织形式可以是有限责任公司，也可以是其他不具有法人资格的经济实体。

7. 对在华外资银行的一些限制被取消了，这对外资银行的业务有什么影响？

根据《中华人民共和国外资银行管理条例（2014年第2次修订）》，外资银行的准入许可方面有如下修改：

(1) 不再将已经在中国境内设立代表处作为外国银行（外国金融机构）在中国境内设立外商独资银行、中外合资银行，以及外国银行在中国境内初次设立分行的条件。

(2) 对于外商独资银行、中外合资银行在中国境内设立的分行，取消了其总行无偿拨给最低1亿元人民币或等值的自由兑换货币的营运资金限额。

(3) 对外资银行营业性机构经营人民币业务的条件作了较大幅度的放宽。

8. 有关外商投资项目备案的法规是否有进一步明确？现在的审核程序是怎样的？有哪些外资项目仍需核准？

我国对外商投资项目实行普遍备案和有限核准相结合的管理方式。根据《政府核准的投资项目目录（2014年本）》，
《外商投资产业指导目录》（《目录》）中有中方控股(含相对控股)要求的总投资(含增资) 10亿美元及以上鼓励类项目，总投资(含增资) 1亿美元及以上限制类(不含房地产)项目，由国家发改委核准，其中总投资(含增资) 20亿美元及以上项目报国务院备案。《目录》限制类中的房地产项目和总投资(含增资)小于1亿美元的其他限制类项目，由省级政府核准。《目录》中有中方控股(含相对控股)要求的总投资(含增资)小于10亿美元的鼓励类项目，由地方政府核准。上述规定之外的属于《政府核准的投资项目目录（2014年本）》第一至十条所列项目，按照该目录第一至十条的规定核准。除上述所列需核准的项目外，其他外商投资项目由地方发改委备案。

9. 有关非政府机构、国家安全和反恐的法律草案带来了什么影响？会否影响外商直接投资？

《境外非政府组织管理法（草案二次审议稿）》规定了所有在境外成立的非营利、非政府的社会组织来华开展活动的登记和管理制度。

《国家安全法》明确了保护国家政治、国土、军事、文化、科技等各方面安全的制度和措施，要求对影响或可能影响国家安全的外商投资、特定物项和关键技术等进行国家安全审查。

《反恐怖主义法（草案）》是一部全面防范和打击恐怖主义的法律，外商投资电信业务企业和互联网企业会受到该草案中关于数据和设备安全方面的监管。


作者简历

叶甜甜
合伙人

叶甜甜律师于2003年获得复旦大学法学学士学位，于2010年获得美国杜克大学法学硕士学位。叶律师持有中国和美国纽约州律师执业资格。她曾代表众多跨国公司为其外商直接投资、融资及并购项目提供法律服务，包括：IBM中国向理光出售打印机业务项目，IBM中国在深圳设立服务器再制造中心项目，法国BRED大众银行增资重庆两江金融发展有限公司项目，日本大冢药物研究中心在上海国际医学园区的增资扩建项目，等等。叶甜甜律师还曾为多家私募股权投资基金的投资业务提供法律服务，包括：代表张江集团旗下投资平台投资众多生物医药和科技企业项目。她还为IBM中国、英飞凌科技、富士胶片中国、上海汽车、花王中国、高德美中国、爱普科斯中国等公司提供常年法律顾问服务。
叶甜甜律师的工作语言为中文和英文。