Jurisdiction - China
Reports and Analysis
China – A Balancing Act: Latest Amendment to Foreign Investment Catalog.

4 April, 2012

 

Legal News & Analysis – Asia Pacific – China – International Trade

 

On January 30, 2012, the fifth amendment to the Catalog for the Guidance of Foreign Investment Industries ("Catalog") went into effect. For Chinese policymakers, the Catalog has been a means to align foreign investments with the country’s economic and social policy goals. However, as China continues to ascend as a major player in the global economy, its industrial policy is coming under greater scrutiny. The Catalog then reflects a balance between China’s state planning priorities and the international community’s pressure to hold China accountable to its WTO commitments.
 
One example of this tension at play in the latest amendment to the Catalog is the importation and distribution of books, newspaper and periodical and importation of audiovisual products (including sound recordings and films for theatric release) and electronic publications (collectively, the "Relevant Media"). The express prohibition of foreign investments in these activities have been in place since the second amendment to the Catalog in 2002. The change in the latest amendment was largely driven by external forces, i.e. a WTO ruling against China in 2009.
 
In August 2009, a WTO panel established to consider a complaint by the
U.S. against China found that (1) the measures enacted by China through its foreign investment regulations (including the Catalog) prohibiting foreign-invested companies from importing and/or distributing the Relevant Media are inconsistent with China’s WTO trading rights commitments and its obligations under GATS and (2) China has not demonstrated that such measures are "necessary" to protect public morals in China and therefore, are justified under Article XX(a) of GATT 1994. China appealed the panel’s decisions on September 2009 but both findings were upheld by the WTO Appellate Body on December 2009. In response, China removed the importation and/or distribution of the Relevant Media from the "prohibited" category in the latest amendment. These activities are now "permitted" and may take the form of a wholly-owned foreign enterprise.
 
The latest amendment to the Catalog indicates that China is on an internally driven path to gradually open more industries to foreign investors. Nevertheless, external forces will continue to be required to liberalize activities deemed by Chinese policymakers to be core values in the "prohibited" category.

 

 

For further information, please contact:

 
Jeanette Chan, partner, Paul Weiss
jchan@paulweiss.com
 
Marianne Chow, Paul Weiss
mchow@paulweiss.com
 

 

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