A recent report at the 19th National Congress of the Communist Party of China stated that a high level of trade and investment liberalization and facilitation policies have been implemented, along with a comprehensive pre-admission national treatment plus negative list management system.
Market access was relaxed, the service industry was opened up, and the legitimate rights and interests of foreign investment was protected.
On March 15, 2019, the “Foreign Investment Law” was formally voted on and passed at the second meeting of the Thirteenth National People’s Congress and will be officially implemented on January 1st, 2020.
Among them, “a pre-admission national treatment system for foreign investment and a negative list management system” are key components of Foreign Investment Law.
What is “pre-admission national treatment”?
National treatment means that foreigners will receive the same rights as nationals.
Pre-establishment national treatment refers to the treatment given to foreign investors and their investments at the investment access stage, which shall not be lower than that accorded to domestic investors and their investments.
Both domestic and foreign-funded enterprises, as long as they are registered in China, are to be treated equally. The core premise is to grant foreign investment access, and give legal and substantive equal treatment in the aspects of national supervision and tax treatment.
What is a “negative list”?
Pre-admission national treatment is not absolute and exceptions are allowed. Most countries around the world commonly use the negative list approach. When a country implements a Pre-admission national treatment plan for foreign investment, it generally makes a “negative list”.
Negative list refers to the list of industries in which foreign investment may enter, or be restricted as to the proportion of foreign investment allowed, and is a special administrative measure for admitting foreign investment in specific areas. On this list, the country clearly states the areas that are not open to foreign investment or are subject to restrictions, while the areas outside the list are fully open. The country shall give national treatment to foreign investment not included in the negative list.
The negative list is getting shorter
China has released the 2019 edition of the Negative List for Foreign Investment in the national and Pilot Free Trade Zones.
This is the fourth time in five years that China has revised the negative list for foreign investment access.
The two negative lists were reduced from the 2018 negative lists, of which the national version list was reduced from 48 to 40, and the free trade pilot zone list was reduced from 45 to 37.
The negative list for Pilot Free Trade Zones is shorter because the policies are stress tested there first. After successful implementation in the Free Trade Zones, they will be rolled out throughout the country.
In short, a pre-admission national treatment plan is usually combined with a negative list system and is an internationally accepted standard for investment rules.
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