The negative list reform of China, which is now in an aggressive and stable progress, has become an important advantage for attracting foreign investment. Cancellation of examination and approval procedures does not mean that there is no management. Instead, there are high requirements for supervision. Therefore, whether risks can be controlled effectively become an important criterion for evaluating the success of a reform policy.

 

Since October 1, 2016, China has substituted the foreign investment management mode of “Pre-establishment National Treatment + Negative List” for the traditional “case-by-case examination and approval” mode. In other word, foreign investors can go through the registration procedures instead of the examination and approval procedures for investment in the fields that are not on the negative list.

 

Currently, the competition between different countries for attracting foreign investment is going increasingly fierce. The United Nations Conference on Trade and Development predicted that the global growth of foreign investment may have a drop of 10% and 15% in 2016. Under such a circumstance, the adoption of the negative list management mode nationwide is doubtfully an action to release considerable institutional dividend and therefore becomes an important advantage for attracting foreign investment.

 

In China, the relaxing of restrictions on access of foreign investment experienced a gradual process, which is based on three-year exploration by China (Shanghai) Pilot Free Trade Zone and other free trade zones. On September 29, 2016, China (Shanghai) Pilot Free Trade Zone celebrated its 3^rd anniversary for inauguration. In the past three years. It has been a pioneer for building a law-based, internationalized and convenient business environment as well as further facilitating investment and trade, with remarkable achievements. Therefore, it accumulated rich experience in the implementation of the foreign investment management mode based on negative list and provided good conditions for a nationwide extension of such mode. So far, China has made amendments of the People's Republic of China on Foreign-funded Enterprises, the Law of the People's Republic of China on Chinese-Foreign Equity Joint Ventures, the Law of the People's Republic of China on Chinese-Foreign Contractual Joint Ventures and the Law of the People's Republic of China on the Protection of Investments of Compatriots from Taiwan. A provision was added to these laws: For investment not covered by the special access management measures as required by the Chinese government, related examination and approval should be changed into registration management; the special access management measures as required by the Chinese government should be released by the State Council or by other authorities under the approval of the State Council. This indicates that the negative list reform is now in an aggressive and stable progress.

 

The release of a series of institutional dividends will certainly promote further opening-up of China and improvement of investment environment to a fairer, more transparent and predictable one. For foreign investors, investment falling in the range of negative list shall be subject to the examination and approval procedures, while the other investment shall be subject to registration procedures. In this way, the boundary is clearly defined for easy operation. At the same time of providing more convenience, it makes China more attractive to foreign investors. Relevant data can prove it. The foreign investment attracted to China increased by 6.4% in 2015 and 4.5% in the first eight months of 2016. A survey of the American Chamber of Commerce in China indicated that, more than 60% of its members consider China as one of the three hottest investment destinations in the world, and 68% of its members are planning to expand their investment in China. All of those indicated that China has won more confidence of foreign enterprises in investment in China during continuous promotion of reform.

 

Of course, cancellation of examination and approval procedures does not mean that there is no management. Instead, there are high requirements for supervision. Therefore, whether risks can be controlled effectively become an important criterion for evaluating the success of a reform policy. There are a number of feasible measures for supervision, including establishing foreign investment security review system, foreign investment registration management information system with real-time data updating as well as full-chain cooperative supervision mechanism among different departments. The effectiveness of these measures has been verified relying on the platforms of the free trade zones. To sum up, foreign investment can be managed well under a more relaxed environment only when the negative list reform is carried out on the premise of enhanced supervision.

 

Source: Translated from Invest Guangzhou, September 29, 2016