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New opportunities in the Shanghai FTZ: revisions to restricted industries.

As of last year, the Shanghai municipal government has revised its restricted industries list for foreign investors and updated it for the Free Trade Zone (FTZ). Amendments made to current list are not considered a major change but a revision to the 2014 initiatives. The list below outlines industries where foreign investors are treated differently to domestic companies. There are number of changes where we believe there are various opportunities for new investors in the three FTZs.
 

Agriculture in General
 - Agriculture, crop seeds, fishery and animal husbandry is a critical subject and remains sensitive to Chinese citizens. Fishing in certain waters is due to approval from Chinese   government.
 

Mining, Natural Resources and Exploitation
 -All initiatives needs to be approved by concerned government bodies.
 -Oil and Gas exploitation needs to be contractual or joint venture with a Chinese partner
 

Other Sources/Materials
 -rare earths, radioactive materials, tungsten, molybdenum, tin, antimony and fluorite is prohibited. It is restricted for lithium, precious metals and graphite.
 

Manufacturing
- Multiple restrictions in manufacturing industry is now lifted. These includes, the processing of rice, corn, edible oils, tea, alcohol, tobacco and chemicals, anesthesia and blood products are now allowed.
- Construction vehicles, motorcycles and new energy vehicle batteries is lifted.
- Aircraft, drones and helicopters requires prior approval
- Finished cars and car parts are fully open to foreign investment with maximum 50% stake of ownership
- Ships, ship engines and marine engineering equipment requires prior approval
- Rail transport equipment needs to be contractual or joint venture with a Chinese partner
- Satellites for civilian use, requires prior approval
- Tungsten, molybdenum, tin, antimony needs to be contractual or joint venture with a Chinese partner
- Processing of radioactive materials are prohibited
- Chinese herbal medicine prohibited
- Ivory, tiger bones and traditional Chinese handicrafts: prohibited
 

Utilities and Infrastructure
 -Airports; railroads; power grids; water, heat, gas and drainage supply for cities; postal services; telecom and internet infrastructures remains sensitive and prohibited
 

Wholesale and Retail
 -Restrictions on fertilizers, agricultural film (greenhouses), sale of petrol through petrol stations and books, newspapers and magazines are not lifted
 -tobacco, lottery tickets and auctioning of cultural relics remains restricted
 

IT and Telecom
- It is still prohibited to operate news websites, online publications, online audiovisual programs or broadcasting of information on the internet. Except for music and those sectors that have been lifted as China’s membership of the World Trade Organization.
- It is restricted to create and publish maps on the internet
- If a domestic enterprise cooperates with a foreign enterprise to create official online content and news, needs prior approval from National Security Review.
- Foreign investors can now set up e-commerce companies in Fujian, Guangdong, Tianjin as well as Shanghai.
 

Finance
- Wholly foreign-owned or a Sino-foreign joint venture must be a financial institution and the controlling entity a commercial bank
- The investor in a Chinese-owned bank or trust company must be a financial institution
- Only foreign banks may invest in Chinese rural-commercial banks, rural cooperative banks or rural credit cooperative unions
- The investor in a financial leasing company must itself be a financial leasing company
- The main capital contributor in a consumer finance company must be a financial institution
- The investor in a currency brokerage must itself be a currency brokerage
- The investor in a financial asset management company must itself be a financial institution, but not allowed to be involved in the establishment of a new asset management company
- The investor in a financial institution will be subject to asset requirements – the Negative List does not specify the amounts
- Foreign banks may not conduct the following activities, also included in the Commercial Banking Law: acting as an agent to issue, honor and underwrite government bonds, issuance of bank cards and the acting as an agent for receipt and payments of funds. Apart from taking time deposits for Chinese nationals of less than 1 million RMB, foreign banks in China may not engage in RMB activities for Chinese nationals.
- The parent company of a foreign invested bank in China must provide its operational funds free of charge. The foreign invested bank must operate with an eight percent RMB capital reserve. Banks providing RMB services must follow the minimum required business hours.
 

Professional Services
- Accounting: the main partner must be a Chinese national
- Foreign law firms may only be present in China through a representative office, which is subject to approval. Foreign nationals may not advice on Chinese law or become partners of a Chinese law firm. Representative offices of foreign law firms may not hire Chinese legal professionals, and its support staff may not provide legal advice.
- Credit rating activities are restricted
- Investment in polling and social surveys are restricted
- Market research is restricted to contractual or joint ventures with Chinese controlling interest.
- The legal representative of a visa agency must have Chinese nationality and domicile
 

Education
- Foreign entities may not independently establish schools and educational institutions mainly enrolling Chinese nationals. This does not include "non-academic vocational training"
- Foreign entities may establish and run educational institutions in cooperation with a Chinese party, under the following conditions:
a. Education cannot cover; the military, law enforcement, politics or political activates

b. Foreign entities may not provide religious education

c. Regular high schools and other education institutions must be led by the Chinese party, i.e. the principal or main administrator must be a Chinese national and be domiciled in China; the board of the school must have a Chinese majority and the education program must be in line with Chinese law
 

Health Care
- Medical institutions can be set up as an equity or contractual joint venture.
 

Media, Culture and Entertainment
- The establishment and operation of television, radio, television channels, broadcast networks, satellite television, TV on-demand and other broadcast media is prohibited
- The production of television and radio shows is prohibited
- Foreign satellite channels are subject to approval by concerned government bodies
- Sino-foreign productions of television and film series are subject to a licensing.
- The establishment of news and press agencies, publishing companies, newspapers is prohibited
- Foreign news agencies may set up a representative office in China and employ foreign reporters upon approval of the Chinese government.
- Foreign press agencies may provide news services in China upon approval of the Chinese government.
- The production of newspapers, books, audiovisual materials, periodicals, electronic publications, is prohibited
- Cooperation between Chinese and foreign news agencies must be led by the Chinese party and subject to approval by Chinese government
-  Provision of financial information is subject to approval by Chinese government
-  The construction and operation of cinemas is prohibited
- The establishment of performing arts groups in China is prohibited, and performance agencies must have Chinese controlling.
 
 
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