March 2015 On the 10th, the National Development and Reform Commission and the Ministry of Commerce released the “Guidance Catalog for Foreign Investment Industries (Revised in 2015).” To understand the revision status of the Catalog and address issues of public concern, a reporter interviewed a relevant official from the National Development and Reform Commission.

　　 Q: Could you please provide some background on the revision of the “Catalog”?

　　Answer: Cross-border investment is a crucial driving force behind global economic growth and economic globalization. China adheres to the basic national policy of opening up to the outside world, and by actively and effectively leveraging foreign investment, we have promoted economic development, boosted trade growth, and facilitated industrial upgrading, thereby achieving mutually beneficial and win-win outcomes. At present, China is at an important stage of shifting its economic development model, deepening economic structural reforms, and perfecting the modern market system. As a result, international investment rules, competition for attracting foreign investment, and industrial relocation are all exhibiting new characteristics. This calls for us to further refine our policies on utilizing foreign investment, build a more open and transparent investment environment, and better harness the role of foreign investment in China’s economic development—using openness to drive reform and foster development.

　　The "Decision of the CPC Central Committee on Several Major Issues Concerning Comprehensively Deepening Reform," adopted at the Third Plenary Session of the 18th CPC Central Committee, proposes building a new open economic system, easing investment access restrictions, and promoting the orderly and free flow of both international and domestic factors as well as the efficient allocation of resources. In other words, while comprehensively deepening reform, we should also actively advance a new round of opening up to the outside world, ensuring that reform and opening-up proceed in tandem. This has been an important lesson learned from China’s economic development over the past three decades. To implement the spirit of the Third Plenary Session of the 18th CPC Central Committee and in response to new trends and circumstances in the utilization of foreign investment, the National Development and Reform Commission, together with the Ministry of Commerce and other relevant departments, has revised the "Catalog." The new "Catalog" will play a positive role in boosting foreign investment and optimizing the structure of investment.

　　 Q: What are the main principles behind the revision of the “Catalog”?

　　Answer: The main principles underlying this revision of the “Catalog” are as follows:

　　First, we will proactively and actively expand opening-up. We will further advance the opening-up of the primary, secondary, and tertiary industries, with a particular focus on expanding openness in the service sector and general manufacturing. We will replicate and promote the pilot experiences from the China (Shanghai) Pilot Free Trade Zone.

　　Second, we will shift the approach to foreign investment management. Fully leveraging the decisive role of the market in resource allocation, items that can achieve consistent regulation for both domestic and foreign investments through measures such as energy conservation, environmental protection, technology, and safety will not be included in the list of restricted items.

　　Third, adjust and optimize the economic structure. Encourage foreign investment in sectors such as modern agriculture, high technology, advanced manufacturing, energy conservation and environmental protection, new energy, and modern service industries, and facilitate the relocation of high-end industries. Also, encourage foreign investment in R&D activities.

　　Fourth, further enhance transparency. In accordance with the requirements of the negative list management model, projects of a similar nature will, in principle, no longer be subject to restrictions on foreign equity ownership; all foreign equity ownership regulations will be explicitly listed in the “Catalog.”

　　 Q: What are the main changes and features of the new “Catalog”?

　　Answer: The Catalog has been in existence since 1995. Since its initial promulgation, the policy has been revised appropriately at regular intervals in response to the needs of economic development and further opening up to the outside world. This is the sixth revision, and it represents the most extensive liberalization yet among all previous revisions.

　　Looking at the entries, first, the number of restricted items has been significantly reduced; the number of restricted items decreased from 2011. The number of entries in the annual edition of the “Catalog” has been reduced from 79 to 38. Second, restrictions on foreign equity ownership have been relaxed: the number of “joint venture and cooperative” entries has decreased from 43 in the 2011 edition of the Catalog to 15, and the number of “Chinese-controlled” entries has dropped from 44 in the 2011 edition to 35. Third, the number of encouraged-entry items remains largely unchanged, ensuring overall policy stability and continuity. A total of 76 encouraged-entry items have been revised, primarily involving adjustments to indicators and optimization of structure, with the aim of encouraging foreign investors to adopt new technologies, new processes, new materials, and new equipment, thereby further enhancing the quality of foreign investment utilization.

　　From an industry perspective, in the manufacturing sector, the equity requirement restrictions have been lifted primarily for steel, ethylene, oil refining, papermaking, lifting machinery, shipboard machinery, power transmission and transformation equipment, coal chemical equipment, light helicopters, automotive electronic integrated systems, and premium liquors. Nonferrous metal smelting, small construction machinery, ordinary bearings, photosensitive materials, and chloramphenicol are no longer classified as restricted industries, effectively liberalizing most general manufacturing sectors. In the service sector, equity requirement restrictions have been lifted or relaxed mainly for e-commerce, chain operations, branch railways, subways, light rail systems, maritime transport, and performance venues. Direct selling, mail-order sales, inspection and certification of imported and exported goods, railway freight transport, insurance brokerage firms, finance companies, trust companies, and currency brokerage firms are no longer listed as restricted industries. Moreover, architectural design and elderly care institutions have been added to the list of encouraged industries.

　　 Q: This revision of the “Catalog” introduces a series of opening-up measures. What policy considerations were taken into account?

　　Answer: This revision of the catalog represents an important step in promoting a new round of opening up to the outside world. Looking at the practice of reform and opening-up, the opportunities brought by openness generally outweigh the challenges. Over the past three decades and more, China’s manufacturing sector has significantly enhanced its overall competitiveness and has risen to become the world’s largest exporter of manufactured goods—largely thanks to comprehensive and deepened opening up to the outside world. Attracting foreign investment not only brings in capital but, more importantly, introduces advanced technologies and management expertise, fosters competition, and elevates the development level of various industries. Meanwhile, from an international perspective, openness is a major global trend, and countries around the world are vying with one another to attract foreign capital and boost their own economies. China is transitioning from a capital-importing country to a capital-exporting country, and its outbound investments are steadily increasing. This shift in role calls for us to adapt accordingly and proactively promote international investment cooperation through an open and proactive approach. Therefore, we should view the importance of opening up from a long-term and holistic perspective. Of course, while expanding our opening-up efforts, we must also strengthen regulatory oversight to guard against potential risks. We are currently studying ways to refine and improve the foreign investment security review system—both actively leveraging foreign investment and effectively safeguarding national security.

　　 Q: Could you please introduce the main functions and applicable policies of the “Catalog”?

　　Answer: The “Catalog” categorizes industries into three types: encouraged, restricted, and prohibited. All other industries fall under the “permitted” category and serve as the basis for applying relevant policies to foreign-invested projects. Currently, China adopts a management approach that combines general filing with limited approval for foreign-invested projects. With the exception of encouraged and restricted projects listed in the “Catalog of Industries for Foreign Investment Guidance” that require Chinese control (including relative control), all other projects are subject to filing procedures based on the principle of equal treatment for domestic and foreign investors. The vast majority of these filing procedures are handled by local authorities. For foreign-invested projects classified as encouraged, enterprises can enjoy preferential policies such as exemption from tariffs on imported equipment. In western regions, encouraged projects benefit from a reduced tax rate of 15%. The tax rate is used to levy corporate income tax.

　 　Q: Could you please tell me how the new “Catalog” compares with the 2011 one? How does the annual edition of the “Catalog” connect?

　　Answer: The new “Catalogue” will be released in 2015. Effective April 10, projects involving foreign investment that are approved or filed after this date shall be governed by the new “Catalog.” Projects approved or filed prior to this date shall continue to be governed by the 2011 edition of the “Catalog.”