The Catalogue of Industries for Guiding Foreign Investment (revised in 2007) will be implemented as of Dec 1, 2007.

On Oct 31, 2007, the National Development and Reform Commission (the “NDRC”) and the Ministry of Commerce (the “MOFCOM”) jointly promulgated the newly revised Catalogue of Industries for Guiding Foreign Investment (revised in 2007) (the “2007 Catalogue”) to become effective as of Dec 1, 2007.  The existing Catalogue of Industries for Guiding Foreign Investment of 2004 (the “2004 Catalogue”) will be superseded from the same date.
Compared to the 2004 Catalogue, the 2007 Catalogue reveals the intents of the government to control the exploitation of mineral resources, to reduce industrial energy consumption, to upgrade industrial structure, to control investment in real estate industry and other policy orientations.  Below we further discuss the 2007 Catalogue based on its influence on each industry:

1. Mining Industry
The 2007 Catalogue no longer encourages foreign investment in the exploration and exploitation of coal mines and associated resources, the exploitation and ore dressing of low-grade and hard-to-dress metal mines, the exploration and exploitation of copper, lead, zinc and aluminum mines, the exploitation and ore dressing of sulfur, phosphor, potassium and other chemical mines.  Further, the exploration and exploitation of tungsten, molybdenum, tin, antimony and fluorite is covered in the sub-catalogue of industries prohibiting foreign investment in the 2007 Catalogue, rather than the sub-catalogue of industries restricting foreign investment in the 2004 Catalogue.  In addition, the sub-catalogue of industries restricting foreign investment in the 2007 Catalogue also covers the exploitation and ore dressing of phosphorite and the exploitation of deep-sea manganese nodules and sea sands (provided that the Chinese party shall have controlling interest).  To the contrary of restriction of foreign investment in the exploitation of mineral resources, foreign investment is still encouraged in the exploitation of oil and other relevant energy mineral resources.  The sub-catalogue of industries encouraging foreign investment in the 2007 Catalogue not only keeps the exploitation of oil and gas in the 2004 Catalogue, but also further covers the exploration and exploitation (limited to be in the form of cooperative joint venture) of oil shale, oil sands, heavy oil, extra heavy oil and other non-conventional oil resources, and the exploration and exploitation (limited to be in the form of cooperative joint venture) of deep-sea methane hydrates.

2. Manufacturing Industries
Most changes made in the 2007 Catalogue are in the sub-catalogue of manufacturing industries encouraging foreign investment.  The government will continue to encourage foreign investment in hi-tech industry, equipment manufacturing, manufacturing of new materials, etc. But foreign investment is no longer encouraged in traditional manufacturing industries where Chinese enterprises already have mastered mature technologies and have fairly strong production capacity.  Hi-tech, environmental protection and reduction of energy consumption and emission are the main purposes of the upgrade of industrial structure targeted by this adjustment of catalogue.  For instance, the 2007 Catalogue for the first time encourages foreign investment in the development of new plastic soft packing technologies, the production of new plastic soft packing products (high-barrier and multi-functional film and raw materials), the development and production of new types of energy-saving and environment-friendly construction materials, the production of energy-saving and high-efficient chemical construction materials by replacing steel and wood with plastic, the manufacturing and processing (including the printing and coating of the inside and outside surfaces of products) of metal packing materials (the thickness of which shall be 0.3mm or below) for packaging various kinds of grain-oil and foodstuffs, fruit and vegetables, beverages and chemical products for daily use, the manufacturing of complete sets of equipment or key equipment for power generation with new energy resources (limited to be made in the form of equity joint venture and cooperative joint venture), the manufacturing of Stirling power generation system, etc.  In addition, as consistent with above industrial policies, in the 2007 Catalogue, foreign investment is for the first time restricted in projects with high energy consumption, e.g., the smelting of tungsten, molybdenum, tin (excluding tin compounds), antimony (including antimony oxides and antimony sulfides) and other rare metals and the smelting of electrolytic aluminum, copper, lead, zinc and other non-ferrous metals.

3. Rail transportation Industry
To satisfy the needs of the rapid development of rail transportation in China, in the sub-catalogue of industries encouraging foreign investment in the 2007 Catalogue, the rail transportation will be fully open to the foreign investment.  The 2007 Catalogue integrates the “technical equipment for railway transportation” and “urban high-speed rail transportation equipment” in the sub-catalogue of industries encouraging foreign investment in the 2004 Catalogue into “rail transportation equipment” in its corresponding sub-catalogue, which includes vehicles and their key parts for rail transportation, facilities and equipment for passengers, information systems, signal systems, equipment for control of noise and vibration, decontamination equipment of railway passenger cars, safety monitoring equipment for railway transportation, etc..  However, contrary to that in the 2004 Catalogue, foreign investment in rail transportation equipment could only be made in the form of equity joint venture or cooperative joint venture, pursuant to the 2007 Catalogue.
In addition, the 2007 Catalogue also encourages foreign investment in the “comprehensive maintenance of infrastructures of high-speed railways, railway passenger-dedicated lines, and intercity railways”, provided that the Chinese party shall have the controlling interest.

4. Service Industry
In the 2007 Catalogue, foreign investment is newly encouraged in the modern logistics industry and in the undertaking of outsourced services such as management and maintenance of system application, management of information technology support, bank back-office services, financial settlement, human resources services, software development, calling centre and data processing.  We understand that, on one hand, service outsourcing is covered in the sub-catalogue of industries encouraging foreign investment for the first time, and it is vigorously encouraged by the state.  But on the other hand, industries included in the business of service outsourcing are quite wide in the 2007 Catalogue.  Foreign investment was restricted in some industries such as human resources services and calling centre, and the proportion of foreign capital is restricted.  Therefore, detailed understanding and implementation shall subject to further specification.
In addition, the 2007 Catalogue also makes some minor adjustments to the sub-catalogue of service industries restricting foreign investment.  For example, foreign investment is no longer restricted in “foreign trade companies” in the 2007 Catalogue, which, instead, restricts foreign investment in “companies providing credit investigation and rating services” and “photography services (including aerial photography and other special photography services (excluding aerial photography for mapping), and foreign investment is limited to be made in the forms of equity joint venture and cooperative joint venture)”.

5. Culture, Sports and Entertainment Industries
The 2007 Catalogue newly encourages foreign investment in the “operation of performance venues (provided that the Chinese party shall have the controlling interest)”, “the operation of sports facilities, body-building, contest performance, sports training and intermediate services”, and it newly restricts foreign investment in “brokerage agencies for stage performance (provided that the Chinese party shall have the controlling interest)” and the “operation of entertainment venues (limited to be made in the forms of equity joint venture and cooperative joint venture)”.
The 2007 Catalogue makes more changes in foreign investment in TV, Movie and media industries.
First, as to radio and TV programs, the 2004 Catalogue prohibits foreign investment in the publishing and broadcasting companies of radio and TV programs, while the 2007 catalogue amends the same to the prohibition of foreign investment in the production and operation companies of radio and TV programs and the channels (frequencies) of radio and TV.  However, pursuant to Several Opinions Regarding the Introduction of Foreign Investment into the Cultural Industries (promulgated on Jul 6, 2005), foreign investment is still prohibited in the establishment and operation of broadcasting companies of radio and TV programs.  In addition, the 2004 Catalogue restricts foreign investment in the production and publication of radio and TV programs and movie-making (provided the Chinese party shall have the controlling interest), while the 2007 Catalogue amends the same to the restriction of foreign investment in the production projects of radio and TV programs and movie-making projects (limited to be in the form of cooperative joint venture).  Since the 2007 Catalogue prohibits foreign investment in the production and operation companies of radio and TV programs and the production and operation companies of movies and restricts the same in the production projects of radio and TV programs and the movie-making projects (limited to be in the form of cooperative joint venture), the business model to be adopted by foreign investors for their engagement in the production of radio and TV programs and the production of movies needs to be further confirmed.
Second, as to movie industry, the 2007 Catalogue prohibits foreign investment in movie-making companies, publication companies and cinema line companies.  Compared to the 2004 Catalogue, the “publication companies and cinema line companies” are newly prohibited in the 2007 Catalogue.  As a matter of fact, this sub-catalogue of the 2007 Catalogue is only an extension and reaffirmation of relevant provisions of the Interim Provisions on Foreign Investment in Cinemas (promulgated on Nov 25, 2003), which regulates that foreign investors shall not establish cinema line companies, and Several Opinions Regarding the Introduction of Foreign Investment into the Cultural Industries (promulgated on Jul 6, 2005), which regulates foreign investors shall not establish or operate movie-making companies.
Last, as to network media, the 2007 Catalogue for the first time clarifies prohibition on foreign investment in news websites, network audio and radio program services, business places providing internet-surfing services and operation of internet culture, which further perfects and maintains relevant provisions of Several Opinions Regarding the Introduction of Foreign Investment into the Cultural Industries (promulgated on July 6, 2005).

6. Financial Services
Restriction of foreign investment in financial industry is mainly adjusted in the 2007 Catalogue as follows:
First, the securities companies (the proportion of foreign capital shall be 1/3 or below) may only underwrite A-shares, and underwrite or trade B-shares, H-shares and governmental bonds and corporate bonds;
Second, in the 2007 Catalogue, foreign investment is no longer prohibited in futures companies, but restricted, provided that the Chinese party shall have controlling interest.

7. Real Estate Industry
To further implement the macro-economic control policies of the state to control the over-development of the real estate industry, the 2007 Catalogue makes great adjustments in relation to real estate industry, which are detailed as follows:
First, foreign investment is no longer encouraged in the development and construction of residential projects.
Second, the 2007 Catalogue newly restricts foreign investment in “real estate secondary market transactions and real estate intermediate or brokerage companies”.  However, the scope of real estate secondary market shall subject to further detailed rules.
Last, foreign investment is prohibited in the “construction and operation of golf courses” in the 2007 Catalogue, while pursuant to the 2004 Catalogue, foreign investment is only restricted in such business.

8. Other Major Adjustments
We set out two other noticeable adjustments reflected in the 2007 Catalogue as follows:
First, the export-oriented encouragement policy that has been implemented for years is cancelled.  Foreign investment is no longer encouraged in businesses where all the products are directly exported and where foreign investment is permitted.
Second, foreign investment is no longer prohibited in the construction and operation of power grid, provided that the Chinese party shall have controlling interest.

Reference Law Information

Catalogue of Industries for Guiding Foreign Investment (Revised 2007)