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China restricts investments in services: USTR

China seeks to protect many national industries through a restrictive regime on investments in services and other sectors, the United States Trade Representative (USTR) reported Thursday.

China’s latest version of its Foreign Investment Negative List, which came into force in January 2022, leaves significant restrictions on investment in a number of areas important to foreign investors, such as key service sectors, agriculture, certain extractive industries and certain manufacturing industries.

With respect to service sectors in particular, China maintains prohibitions or restrictions on key sectors such as cloud computing services, telecommunications services, film production and distribution services, and video and entertainment software services.

For the USTR, many aspects of China’s current investment regime continue to cause serious concerns to foreign investors.

Investments in services

For example, China’s Foreign Investment Law and implementing regulations, which came into force in January 2020, perpetuate separate regimes for domestic investors and investments and foreign investors and investments and invite opportunities for discriminatory treatment.

There has also been a lack of substantial liberalization of China’s investment regime, evidenced by the continued application of bans, foreign capital ceilings and joint venture requirements and other restrictions in certain sectors.

China’s Foreign Investment Law, implementing regulations and other related measures suggest that China is pursuing the goal of replacing its case-by-case administrative approval system for a wide range of investments with a system that would only apply to “restricted” sectors. .

However, from the USTR’s point of view, it is not clear whether China is fully achieving that goal in practice.

Furthermore, even for sectors that have been liberalized, the possibility of discriminatory licensing requirements or discriminatory application of licensing processes could make it difficult to achieve meaningful market access.

Also the potential for a new and overly broad national security review mechanism, and the increasingly adverse impact of China’s Cyber ​​Security Law, Data Security Law and Personal Information Protection Law and implementation measures related, including those that restrict cross-border data flows and impose data localization requirements, have serious negative implications for foreign investors and investments.

Investigation and development

According to the USTR, foreign companies continue to report that Chinese government officials may condition investment approval on the requirement that a foreign company transfer technology, conduct R&D in China, meet export-related performance requirements or the use of local content or make valuable and specific commercial concessions.

Over the years, the United States has repeatedly raised concerns with China about its restrictive investment regime.

Since China’s investment restrictions put pressure on US companies to transfer technology to Chinese companies, they were the focus of the USTR Section 301 investigation.

 

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