China expands foreign investment access in manufacturing and medical sectors

知识亮点 1 November 2024

On 8 September 2024, the National Development and Reform Commission (“NDRC”) and the Ministry of Commerce (“MOFCOM”) of the People’s Republic of China (“PRC” or “China”) jointly issued the Special Administrative Measures (Negative List) for the Access of Foreign Investment (2024 Edition) (《外商投资准入特别管理措施（负面清单）（2024年版）》) (“Negative List”) which will replace its  previous iteration, issued in 2021, when it comes into effect on 1 November 2024.

The MOFCOM, the National Health Commission, and the National Medical Products Administration also issued a Circular dated 7 September 2024 on launching a pilot program to expand opening-up in the medical field (“Circular”). The Circular came into force upon issuance.

This article provides a brief overview of the updated Negative List and the Circular.

Negative List 2024

The Negative List sets out sectors where foreign investment in China is prohibited or restricted. To invest in restricted sectors in China, foreign investors are required to team up with a Chinese partner (in some cases, the Chinese partner must maintain a controlling stake, or the Chinese partner must hold a management position). Foreign investment in sectors not included in the Negative List will be subject to the same market access rules applicable to domestic investment, a policy known as “national treatment”.

The 2024 version of the Negative List reduces the total number of restricted and/or prohibited sectors from 31 to 29, with the number of restricted items from 10 to nine and the number of prohibited items from 21 to 20. The updated Negative List effectively removes all remaining restrictions to foreign investment in the manufacturing sector, demonstrating China’s continuing policy of opening up to foreign investment, with the following changes:

• Removal of the foreign ownership cap on the printing of publications. The Negative List had previously mandated that a Chinese party hold the controlling stake.
• Foreign investors are permitted to invest in the traditional Chinese medicine production and processing sector.

Apart from the nationwide Negative List, there is a less restrictive foreign investment negative list (“FTZ Negative List”) applicable to pilot free trade zones (“FTZs”) in selected cities or regions except Hainan Free Trade Port (which adopts its own foreign investment negative list). Such FTZ Negative List affords foreign investors fewer restrictions and broader exemptions compared to foreign investments outside the FTZs. It is worth noting that China has not concurrently updated the FTZ Negative List and the existing 2021 version of the FTZ Negative List remains in effect. China had previously removed all foreign investment access restrictions in the manufacturing sector in the FTZ Negative List.

Circular

The Circular outlines China’s plans to relax the restrictions on wholly foreign-owned hospitals in select cities and regions in an effort to open up the medical sector. The establishment of wholly foreign-owned hospitals will be permitted in Beijing, Tianjin, Shanghai, Nanjing, Suzhou, Fuzhou, Guangzhou, Shenzhen, and across Hainan Island. The Circular adds that specific conditions, requirements, and procedures for the establishment of these hospitals will be detailed at a later stage.

Additionally, the Circular also states that foreign-invested enterprises will be permitted to develop and apply biotechnology, specifically the technology of stem cell and gene diagnosis and treatment, for relevant product registration, launch, and manufacturing in FTZs in Beijing, Shanghai, and Guangdong, and in the Hainan Free Trade Port. All the relevant products may then be utilised nationwide upon being registered and approved for manufacturing.

While the lifting of restrictions relating to wholly foreign-owned hospitals and biotechnology are currently limited to specific regions, this initiative signals an increased openness to foreign investment in China’s healthcare sector.