November 7, 2007 / 11:30 AM / 11 years ago

China sets out restrictions, shopping list for FDI

BEIJING (Reuters) - China issued on Wednesday a new set of guidelines for foreign direct investment, detailing sectors in which it will either promote, restrict or ban foreign investment.

The catalogue, issued by the National Development and Reform Commission (NDRC) and the Commerce Ministry, will make it more difficult for foreign firms to enter a number of sectors that Beijing is trying to rein in, including some energy and mining projects.

By contrast, the agencies said they would encourage foreign investment that will help China to protect the environment, cut pollution and develop renewable energy.

Investment in high technology, advanced materials and equipment manufacturing will also be welcome.

In a statement on the NDRC’s Web site, the agencies said the new guidelines would help put FDI to better use to spur innovation, promote industrial restructuring and ease regional imbalances — priorities set at the recent Communist Party Congress.

“(They) mark a departure from the policy of simply encouraging exports,” they said. “Facing an overly large trade surplus and rapid growth in foreign exchange reserves, we will no longer employ a policy that gives blanket encouragement to exports.”

The guidelines, which take effect on December 1, update the existing set, issued in late 2004.

The statement marks the latest policy initiative by Beijing to upgrade the structure of its economy, rein in exports and direct investment to priority sectors. It also underlines Beijing’s increasing pickiness with foreign investment.

For example, while China will now bar foreigners from projects mining rare minerals or those that are non-renewable, it will continue to encourage them to put money into difficult mines or those in under-invested areas.

Foreigners will also be prohibited from investing in small and mid-sized refineries.

Foreign firms will now be banned from building or managing golf courses; in the past, they fell into the restricted category.

The new regulations also state that foreign companies will be banned from investing in news Web sites, Internet audio-visual services and Web cafes.

The agencies set out a very specific shopping list for investment in a range of sectors, from automobiles to printing machinery to electronics. For example, only investment in high-performance digital cameras with a resolution of 6 megapixels or above will be encouraged.

The catalogue is used by other agencies and local governments in interpreting related regulations on foreign investment.

Generally, industries or projects in the “encouraged” category can receive preferential tax and other treatment; those considered “restricted” face a higher bar for approvals.

Reporting by Jason Subler, Langi Chiang and Zhou Xin; editing by David Stamp

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