Understanding New Rules for Market Access in China

In 2016, the National Development and Reform Commission (NDRC) and the Ministry of Commerce (MOFCOM) jointly issued the trial Notice on the Release of the Draft Negative List for Market Access (Negative List for Market Access), which affected European Union (EU) small and medium-sized enterprises (SMEs) looking to do business in China. The implications of this notice are far reaching and complicated given its implementation in free-trade zones (FTZs). Explaining the ins and outs of this change in policy and what it means for business-related activities in China is Helen Ju, legal advisor at the EU SME Centre.

Like many countries, in China there are some business-related activities that market operators are restricted from engaging in. Prior to this notice, restrictions and prohibitions were previously scattered across various laws, regulations and orders from the State Council.

Investors, whether foreign or domestic, needed to search and find regulations that were applicable and check to see whether the entities they proposed to set up were allowed, or if any special conditions existed.

It was not always easy to find those relevant provisions and most people had no idea if the proposed investment was actually allowed. The need for a unifying document that clearly lists all existing prohibitions and restrictions for market access was clearly necessary.

The Communist Party of China’s Central Committee first raised the idea of a unified market access system in November 2013 and by its third plenary session, it proposed that “all sorts of market operators may enter into areas outside of the list on an equal basis and according to the law”. Then in June 2014, the State Council issued its opinion on Promoting Fair Competition and Maintaining the Normal Order of the Market in order to “implement market access reform and formulate a negative list for market access”.

Additionally, in the Government Work Report given by Premier Li Keqiang at the 12^th National People’s Congress, in March 2015, he emphasised the need to “formulate a market access list”. That same month, the NDRC and the MOFCOM invited all departments and authorities with market access administrative duties to comprehensively review industries, areas and businesses where investments and operations were restricted and to compile them into a list.

What’s in the list?

The trial Negative List for Market Access is based on the State Council’s current laws, administrative regulations and orders. Currently it includes 96 business activities and investment projects in the prohibited category and 232 in the restricted category. All activities and projects are further divided into 762 sub-sections in the prohibited category and 867 in the restricted category, in accordance with the Classification of National Economic Industries.

For those in the prohibited category, all market operators are not allowed to engage in such activities or participate in those listed projects, and administrative authorities shall not approve, verify, or engage in anything that falls in that category. For example, the trading of rhino horn and tiger bone is prohibited, while investing in projects that use out-of-date production techniques and equipment in certain listed industries is also prohibited.

In the restricted category, two scenarios exist. One scenario is administrative authorities making decisions for allowing, or not allowing companies to submit their applications for accessing the Chinese market. An example is the licensing requirement for engaging in telecommunications (including commercial trials). Another scenario is market operators entering into relevant industries, areas and businesses that comply with conditions specified by the government. For instance, advertising registration is needed for broadcasting stations, television stations and newspapers in order to advertise.

The negative lists for foreign investment

In China there are currently two negative lists for foreign investment. One is based on the Special Administrative Measures for the Access of Foreign Investment in Pilot Free Trade Zones (Negative List for Foreign Investment for FTZs) and is only applicable in FTZs, while another makes up part of the revised Catalogue of Industries for Guiding Foreign Investment 2017 and is applied in every areas except FTZs.[1]

Currently the trial Negative List for Market Access is being piloted in four FTZs—Tianjin, Shanghai, Fujian and Guangdong—where it applies to all investors and imposes unified requirements on all market operators. Additionally, all market operators can equally access industries, areas, and business activities outside the trial Negative List for Market Access.

If a foreign investor ascertains that their proposed investment in the four pilot FTZs is outside the trial Negative List for Market Access or can meet the conditions listed for specific investment in the restricted category, they needs to further check the negative list for foreign investment in FTZs.  Both the trial Negative List for Market Access and the Negative List for Foreign Investment for FTZs govern foreign investment in the four pilot FTZs.

Practice and future development

At present, the trial Negative List for Market Access does not apply to foreign investment in areas other than the four pilot FTZs.  Governmental authorities in these areas, though they may not admit it publicly, may refer to this document when reviewing and approving proposed investment since this list was based on the existing State Council laws, administrative regulations and orders.

By the end of 2018 the unified Negative List for Market Access will be published and implemented nationwide based on its pilot implementation in the four FTZs. After its implementation, foreign investment in the 12 FTZs will all be subject to the Negative List for Market Access and the Negative List for Foreign Investment for FTZs, while foreign investment in other areas will be subject to the Negative List for Market Access and the Negative List for Foreign Investment.

The Chinese Government’s motivation in formulating and implementing the Negative List for Market Access is to establish a market access system that is unified, open, transparent and orderly. For example, to prevent local protectionism from arising, local governments may propose adjustments to the unified Negative List for Market Access, but they are not allowed to make any adjustments without authorisation from the State Council.

Senior governmental officials have stated that the State Council will regularly review the unified Negative List for Market Access, which will be subject to dynamic adjustments based on market development in the future.

About the EU SME Centre

The EU SME Centre in Beijing provides a comprehensive range of hands-on support services to European small and medium-sized enterprises (SMEs), getting them ready to do business in China.

Our team of experts provides advice and support in four areas: business development, law, standards and conformity, and human resources. Collaborating with external experts worldwide, the centre converts valuable knowledge and experience into practical business tools and services easily accessible online. From first-line advice to in-depth technical solutions, we offer services through Knowledge Centre, Advice Centre, Training Centre, SME Advocacy Platform and Hot-Desks.

The centre is funded by the European Union and implemented by a consortium of six partners – the China-Britain Business Council, the Benelux Chamber of Commerce, the China-Italy Chamber of Commerce, the French Chamber of Commerce in China, the EUROCHAMBRES, and the European Union Chamber of Commerce in China.

To learn more about the centre, visit website www.eusmecentre.org.cn

[1] In total, there are 12 free trade zones in China (Shanghai, Guangdong, Tianjin, Fujian, Liaoning, Zhejiang, Henan, Hubei, Chongqing, Sichuan, Shanxi and Hainan).