As lawyers, we spend a lot of time fielding good, bad, weird, interesting, deep, superficial, and all types of other questions from people. We’re generally expected to be oracle-level wizards, a lot like people are treating AI now. In this series, we’ll share some of these questions that people ask us, along with our answers.
What Do China’s Latest Negative List Changes Mean for My Business?
Quick Question. I heard that China recently updated its “negative list” for foreign investment. What do these changes mean for foreign businesses, and how could they impact my company’s operations in China?
Quick Answer. China’s newly revised 2024 negative list reduces the number of restricted sectors from 31 to 29. This reduction is somewhat symbolic but internally much lauded as crucial in the country’s ongoing effort to open its doors to foreign investment. This change could have important implications for your business, especially if you are operating in or considering entering the manufacturing sector for certain publication businesses and traditional Chinese medicinal manufacturing processes. While the opportunities are growing, it is crucial to understand how these changes may apply to your specific industry.
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Fewer Restrictions. A Positive Step for Some Foreign Businesses.
The 2024 negative list marks the first reduction in three years, signaling China’s commitment to welcoming more foreign investment. China’s government has been pleading for and encouraging foreign investment in recent months because foreign investment into China has been in near freefall since 2022. This negative list reduction has been touted in China (see here, here, and here).
Companies involved in publication and printing can now operate without restrictions, subject to general media and topical restrictions. And companies involved in manufacturing surrounding traditional Chinese medicine can now generally operate without restrictions.
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What Sectors Are Still Restricted?
While manufacturing is now fully open, other sectors require more nuanced analysis regarding ownership percentages and certain business outcomes. These items that remain on the negative list include: (1) agriculture, forestry, animal husbandry, and fisheries, (2) mining involving rare earths, radioactive materials, and tungsten, (3) nuclear power stations, (4) tobacco, (5) transportation (by water and air) and postal industries, (6) telecommunications and internet information and content services, (7) Chinese legal services; market and social surveys, (8) stem cell and gene research and treatment; humanities and social science research institutions; surveying and maps, (9) education, (10) medical institutions, and (11) publishing newspapers, books, periodicals, and audio and video products; radio and television; transmission networks; film production and distribution; auctions for cultural relics; and cultural and artistic performance troupes.
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What Should Your Business Do Next?
China’s leadership has determined that it must continue to show that it is continuing the decades-long process of reform and opening up. More importantly, China’s lackluster performance in many economic indicators means that the government must continue down this avenue. Some of the restricted categories will remain restricted, in line with other developed nations. Specifically, restrictions surrounding nuclear power stations, key transportation modes, legal services, genomic research, education, and publications will remain in place indefinitely under the current leadership.
But this ongoing reduction in overall restrictions highlights opportunities for companies in less restricted industries to expand their operations with fewer regulatory hurdles. China desperately needs investment dollars and product demand for its crucial manufacturing machine. For businesses already active in China, these changes will likely present an opportunity to explore new areas for investment and very willing partners. We have seen this happening this year in discussions with our clients.
If your business is already operating in China, now is a good time to reassess your strategy. Companies in the newly unrestricted sectors, particularly manufacturing, should evaluate the benefits of expanding their presence or operations. The loosening of these rules may also encourage businesses that were hesitant to enter the Chinese market to reconsider. Engaging with legal and regulatory experts is crucial to ensure compliance and to fully understand the opportunities available.
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The Role of Free Trade Zones.
China’s twenty-one free trade zones (FTZs) are a key part of the country’s strategy to attract foreign investment. The 2024 negative list continues to offer preferential terms in these areas, making them attractive hubs for international businesses. These zones often serve as testing grounds for broader policy shifts, and foreign businesses operating in these zones can benefit from more liberalized policies before they are rolled out nationwide.
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Navigating the Global Trade Environment.
China’s government will continue to praise its efforts to open up in contrast to the protectionist policies seen in some Western countries. U.S. businesses, in particular, need to navigate both the opportunities presented by these changes and the geopolitical challenges that come with them. While the latest update is promising, it is important to remain aware of potential trade tensions, tariffs, and changing supply chain dynamics.
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Key Considerations for Your Business.
We recommend the following for each business engaged in business in or with China:
Industry Review. Check the new list to determine whether your business sector is impacted. The elimination of manufacturing restrictions could mean significant new opportunities.
Evaluate Free Trade Zones. Consider expanding into China’s FTZs to take advantage of early access to liberalized trade policies.
Legal and Compliance Check. Work with legal counsel to ensure that your investment strategy aligns with China’s regulatory framework.
Monitor Future Changes. China is likely to continue evolving its investment policies, so keep an eye on potential future revisions to the negative list.
Conclusion
China’s updated negative list for 2024 is a clear signal that the country is continuing its push toward greater openness for foreign investment and that it desperately needs foreign investment. For businesses, this represents a potential turning point, particularly in manufacturing and other newly unrestricted sectors that require China’s level of manufacturing prowess. To take full advantage of these changes, companies should engage in a thoughtful strategy, grounded in legal and regulatory understanding.
For more reading, see:
What is China’s Game Plan for International Business Relations?
