What kind of industries you’d better avoid if you want to invest in China

Despite the recent trade conflict between China and the USA, China has become one of the most attractive destinations for investors. However, because of its unique political system, China is still not a fully open market, especially for foreigner investors.

China has many state-owned companies who are usually monopolies in their industries. In addition, some industries are only open to domestic companies who have the government’s approval. one of the first things a foreigner company needs to figure out before setting up their business in China is whether its business scope has any restrictions or is only allowed under special permits and regulations.

The Ministry of Commerce of China has regularly published the Foreign Investment Catalogue which is divided into three sectors:

Encouraged Industries

The Chinese government is actively seeking foreign investments for these industries. Sometimes tax incentives, cheaper land costs, and simplified approval procedures are granted to investors in these industries.

For example, manufacturing and technology are encouraged by the government since China has announced the policy “China Manufacturing 2025”, which intends to build China into a strong manufacturing nation. Given the environment pollution and social problem China are facing recently, the government also support industries such as the environmental management industries and health service.

Restricted Industries

On these industries, the government has imposed restrictions for foreign investments. For example, they have imposed foreign shareholding ratio’s, special approvals requirements and limits on the operation of the company.

Restricted industries in China include telecommunication industry, purchase of wholesale of rice, wheat, and corn industry, and securities companies. These industries are usually related to national security or to the people’s livelihood, and are usually under high regulations from the government.

Prohibited Industries 

Prohibited industries are not allowed to any company who has foreign investments. An example of a prohibited industry is the operation of news agencies. Since the special political environment, the government only allow state-owned companies to active in this industry to facilitate the regulation. There are other prohibited industries which might be more unexpected. Making ready-to-use traditional Chinese medicines industry is prohibited in China as well, although one could have thought this would be legal.

Below is a brief summary of the Foreign Investment Catalogue:

 

Zhouqin Zhang

Tulane University

Asia-Global Leadership Program