Directing growth

One of the more interesting aspects of China's foreign investment regime is the concept of a limited business scope. Unlike many other countries, nearly every foreign-invested commercial entity in the PRC operates within a narrowly-defined scope of activities that is expressly authorised by the entity's regulator(s). The government approval process that determines the appropriate business scope is carried out by reference to a set of catalogues that are published collectively in the NDRC and Mofcom, Foreign Investment Industrial Guidance Catalogue (国家发展和改革委员会、商务部外商投资产业指导目录). The Catalogue sets forth the industry sectors in which foreign investment projects are regarded as “encouraged”, “restricted” or “prohibited” under China's current macro-economic policy.

Prohibited projects are not open to foreign investment. Restricted projects are open to foreign investment, but may be subject to ownership caps, higher approval thresholds or other limitations. Encouraged projects may be eligible for certain incentives and/or the regulatory approval process may involve a lower level of scrutiny, though ownership caps and other limitations, including restrictions or conditions imposed at the local level, may apply in certain sectors. Industry sectors not listed in the Catalogue are viewed as permitted for foreign investment. As China's economy develops and its priorities change, the government sets new policies and periodically revises the Catalogue accordingly.