[Direct answer]In the Beijing area, the core system is "national treatment before entry plus a negative list" — according to Article 4 of the Foreign Investment Law, the state implements national treatment before entry for foreign investment, and in areas outside the negative list, there is consistent management of domestic and foreign capital; within the negative list, there are two categories: prohibited investment and restricted investment. Common forms of restricted investment include foreign equity ratio restrictions, joint venture requirements, and executive requirements. Key points: First, the manufacturing industry has been largely fully liberalized (the latest version of the national negative list has cleared all restrictions on the manufacturing industry); Second, the areas still subject to regulation are concentrated in value-added telecommunications (with foreign equity ratio restrictions on some businesses), education (prohibited investment in compulsory education), healthcare (restrictions on some areas), news media and cultural entertainment (mainly prohibited), public resources, and some service industries; Third, the list in the free trade zone is more open, with more pilot and experimental items; Fourth, the list is updated dynamically, and investment decisions must verify the latest version; Fifth, areas outside the negative list are no longer subject to the "approval system" but to an information reporting system, but those involving security review (military, key infrastructure, core technologies, etc.) still require declaration. Arrangements such as contractual control (VIE) to circumvent the list face regulatory uncertainties, and special legal reviews before major investments are a standard requirement.

1. Problem background and typical scenarios

Foreign funds are looking at China's education technology and data businesses. The founder asked, "Can we set up a VIE?" A foreign manufacturing company wants to locate its new energy materials production capacity in a free trade zone and asked if its shareholding ratio can control the company. The regulatory framework for foreign investment access is simple (with a negative list divided into two categories for domestic and foreign investors), but when it comes to specific industry categories, shareholding ratios, and business models, there is immediately a lot of room for professional judgment. The quality of the design of the access plan directly determines the project's implementation and the transferability of subsequent financing.

II. Key points of contention

Firstly, the applicable version and update pace of the negative list; Secondly, the compliance design of equity and business forms under the restricted items; Thirdly, the triggering of security review and information reporting obligations; Fourthly, the risk assessment of circumvention structures such as agreement control.

III. Professional analysis by Henglue Lawyers

The first layer is the institutional framework: The Foreign Investment Law (implemented on January 1, 2020) establishes the "national treatment before entry plus negative list management" system, with the negative list issued and dynamically revised by the State Council. Free trade zones apply shorter negative lists. Foreign investment recognition covers direct investment, indirect investment, and rights acquired by "foreign investors through other methods prescribed by laws and regulations". Transparent review has been implemented in sensitive industries. "Consistent treatment of domestic and foreign investors" means that foreign investment in non-negative list sectors no longer requires case-by-case approval and enjoys the same treatment as domestic investors, but general thresholds for industry supervision (finance, data, medicine) still apply. The second layer is a map of key industries: Prohibited sectors mainly include ideology and public safety (news agencies, compulsory education, religious institutions, etc.); restricted sectors focus on value-added telecommunications (foreign equity requirements for e-commerce and domestic multi-party communication services), automotive special categories (historical liberalization items), certain fields of medical and elderly care, publishing and auction of cultural relics, etc. Financial sectors are managed separately according to foreign investment rules of financial regulators, with significant relaxation of foreign equity limits for securities firms, funds, and insurance companies. Data outbound and critical information infrastructure are a second compliance gateway superimposed on entry. The third layer is compliance path design: Compliance toolboxes for restricted items on the list - finding qualified Chinese joint venture partners, splitting businesses (separating restricted and open businesses), leveraging free trade zone pilot channels, and applying QFLP pilot programs. The historical prevalence of VIE structures and regulatory gray areas coexist, with significant increases in security review and "actual control" review risks in education and data-intensive industries. Major investments require special assessments and structural adjustment plans. The fourth layer is procedural obligations and risk control: Foreign investment information reporting systems (establishment, change, and cancellation reports) are submitted through registration systems. Mergers and acquisitions involving military industries, supporting industries, key technologies, important infrastructure, and foreign investors with high shareholdings trigger security review obligations. Penalties for non-reporting include ordering equity disposal and fines. Periodic compliance checks for existing structures (alignment with updated list versions) should be included in annual corporate legal schedules. The compliance logic of foreign investment access is "list as the framework, industry as the standard, and security as the boundary": The access scheme first screens through the list, then industry supervision, and finally security review, with each conclusion documented in written opinions. For "borderline" structure designs, regulatory policy changes must be factored into cost calculations - as demonstrated by multiple industry access policy reversals over the past decade.

IV. Practical suggestions and legal basis

The first step is to check the latest version of the national and free trade zone negative lists before investing to determine whether the target industry is prohibited, restricted, or open. The second step is to design the shareholding ratio and business structure of the restricted projects, and evaluate the joint venture partners and pilot channels. The third step is to fulfill the obligation of information reporting and submit an advance declaration for security review. The fourth step is to conduct a special risk assessment of special structures such as VIEs, and obtain a written legal opinion before signing the agreement. The main legal basis includes: Article 4 of the Foreign Investment Law of the People's Republic of China (effective January 1, 2020) regarding pre-entry national treatment and negative lists, Article 34 regarding information reporting, and Article 35 regarding security review; the Implementing Regulations of the Foreign Investment Law (effective January 1, 2020) regarding the application of negative lists and reporting procedures; the latest version of the Negative List for Foreign Investment Access Special Management Measures issued by the State Council and the negative lists of free trade pilot zones; and specific applications shall be subject to the currently effective regulations.

5. Henglu Law Firm's Reminder

The mantra for foreign investment access: Check the latest list, monitor the industry, declare early for security review, and prepare contingency plans for structural design—the trend of opening up and the red lines of the list go hand in hand. For matters involving foreign investment access and cross-border investment structures, you can proceed through the following channels:\nFinancial capital and cross-border transactions involving foreign entitiesObtain a comprehensive solution for the service; for matters involving other enterprises, you can combine them together.Intellectual property protection and corporate lawPlate; for those involving other commercial disputes, you can refer to it for reference.Special servicesColumn; for other cross-border matters, you can consult us for advice\nFinancial capital and cross-border transactions involving foreign entities.\nThe team corresponds to the corresponding line.

VI. Frequently Asked Questions

Q1: How often is the negative list updated?

It is subject to regular amendments, and in recent years, there has been a trend of continuous relaxation. Before making an investment decision, it is necessary to check the latest version of the document, and the conclusions from the old version cannot be used anymore.

Q2: Do industries outside the list still require approval?

No longer approve foreign investment on a case-by-case basis, and implement an information reporting system; however, the regulatory permits for industries such as finance, data, and pharmaceuticals apply equally to both domestic and foreign investors.

Q3: Is the VIE structure legal?

The law does not explicitly prohibit or grant a definite status, and there is genuine regulatory uncertainty; VIE structures in sensitive industries face the risks of security review and actual control review, which require case-by-case assessment.

Q4: Under what circumstances is a security review triggered?

Investments in military industries and supporting industries, key technologies, and important infrastructure, as well as mergers and acquisitions of a certain scale and shareholding ratio; those that meet the requirements should be reported, and those that fail to report will face disposal and punishment.

Q5: What are the advantages of foreign investment treatment in the free trade zone?

The shorter negative list applies, and some of the initial items allow for a higher equity ratio or a broader business scope. When selecting a location, the list of the free trade zone is an important comparison dimension.

The above answer is based on the judicial practice in the Beijing area. The adjudication standards in other provinces and cities may vary. For specific cases, please refer to the local rules and evidence situations.

If you are facing similar problems, it is recommended that you consult a professional lawyer as soon as possible with the evidence materials, so as to avoid missing the statutory time limit. →Financial capital legal services·Beijing Henglu Law Firm

Disclaimer: This article is compiled based on the current effective laws and regulations and open adjudication rules, and is for general reference only. It does not constitute a formal legal opinion on specific cases. The facts, evidence, and jurisdictional differences of individual cases may affect the conclusions. In case of disputes, please consult a practicing lawyer in time.