The Chinese State Council has adopted the negative list for foreign investment in 2024. Restrictions on foreign investment in the manufacturing sector are to be completely lifted, while the telecommunications, education and health services sectors are to be further opened up.

On August 19, Premier Li Qiang presided over an executive meeting of the State Council to review and approve the “Special Administrative Measures for Foreign Investment Access (Negative List) (2024 Edition)” (2024 FI Negative List), the first update since the Release of the previous version End of 2021.

Find business support

Although the full text of the document has not yet been released, the State Council meeting emphasized that China will “further relax access for foreign investment, completely remove restrictions on foreign investment in the manufacturing sector, and accelerate the opening up of the telecommunications, education and health services sectors.” This gives us some clues about how the 2024 FI negative list will change.

In addition, the meeting suggested that China should adapt to the new circumstances by optimizing its strategies for attracting foreign investment, promptly responding to reasonable requests from foreign investors, and introducing more practical measures to improve the business environment and increase service guarantees.

In this article we discuss the possible changes in the FI negative list 2024 and their impact.

Possible changes in the FI negative list 2024

Manufacturing

Over the past 10 years, China has continuously reduced the number of measures restricting access to foreign investment. Currently, there are only two special measures for foreign investment in the manufacturing sector in the 2021 FI Negative List:

Consequently, the “complete lifting of restrictions on foreign investment in manufacturing” could mean:

• The cap on foreign ownership rights in printing publications is to be lifted in the FI Negative List 2024.
• Foreign investors should be allowed to invest in the traditional Chinese medicine manufacturing sector.

telecommunications

In the FI Negative List 2021, there are two special limits for foreign investment in telecommunications companies:

• The share of foreign participation in value-added services in the telecommunications sector (excluding e-commerce, domestic multi-party communications, store-and-forward and call centers) may not exceed 50 percent.
• The basic telecommunications services are to be controlled by the Chinese side.

In early April 2024, China launched a pilot program to relax foreign ownership restrictions on certain telecommunications value-added services (VATS) in four pilot regions – Beijing, Shanghai, Hainan and Shenzhen. In the designated pilot regions, restrictions on foreign ownership will be lifted in various VATS sectors, including internet data centers (IDCs), content delivery networks (CDNs), internet service providers (ISPs), online data and transaction processing, and certain types of information services. In addition, information protection and processing services will also benefit from this relaxation.

It is expected that at least part of the pilot relaxations for value-added services in the telecommunications sector will be reflected in the 2024 FI negative list.

Training

In the FI Negative List 2021, there are two special measures for foreign investment in the education sector:

While the ban on investment in compulsory education and religious education institutions may remain in place, restrictions on foreign investment in pre-primary, general education and higher education could be relaxed to some extent.

Healthcare

In the 2021 FI Negative List, there is only one specific restriction on foreign investment in the healthcare sector: medical institutions are limited to Chinese-foreign joint ventures.

Consequently, the “acceleration of the opening of the healthcare services sector” suggests that wholly foreign-owned medical institutions may be included in the new FI negative list of 2024.

Analysis of the impact of the FI negative list 2024

Zhong Huiyong, associate researcher at the China Development Institute, believes that lifting all restrictions on foreign investment in the manufacturing sector can attract advanced foreign technologies, which will actively promote the transformation and upgrading of the domestic industry. However, the increased competitive pressure from foreign investment will also push domestic manufacturers to innovate and upgrade. Especially with the emergence of artificial intelligence, foreign investment will help the domestic manufacturing sector better integrate AI, thereby improving its overall capabilities.

Find business support

Although the easing of the FI negative list in 2024 is a positive step to boost confidence in foreign investment, more extensive stimulus measures and coordinated efforts may be needed to reverse the downturn in the sector. A significant increase in domestic consumption is also eagerly awaited.

From January to July 2024, 31,654 new foreign-invested enterprises were established nationwide, an increase of 11.4 percent year-on-year. However, the actual use of foreign capital during this period was RMB 539.47 billion (US$74.2 billion), a sharp year-on-year decrease of 29.6 percent.

Broken down by industries, the actual use of foreign capital in the manufacturing sector reached RMB 154.48 billion (USD 21.2 billion), accounting for 28.6 percent of the national total and up 2.9 percentage points year-on-year. In the high-tech manufacturing sector, the use of foreign capital was RMB 69.58 billion (USD 9.6 billion), accounting for 12.9 percent of the national total and up 2.6 percentage points year-on-year. In particular, in the medical equipment and instrument manufacturing, professional technical services, and computer and office equipment manufacturing sectors, the use of foreign capital increased by 87 percent, 41.3 percent, and 32.4 percent, respectively.

According to sources, actual investments from Germany and Singapore in China increased by 26.4 percent and 11 percent respectively.

The China Briefing team closely monitors developments in foreign investment. Stay up to date by signing up for our Weekly newsletter.