Recently, the State Council has officially approved the establishment of the China (Shanghai) Pilot Free Trade Zone. Among its numerous institutional innovations and policy incentives, the "negative list management model" in the investment system has undoubtedly attracted significant attention.

The so-called "negative list management model" refers to the establishment of an investment access management system that "prioritizes post-access supervision and supplements it with pre-access licensing management via a negative list". That is, the government lists industries in which foreign investors are not permitted to invest in the "negative list"; beyond this list, the government should not impose overly stringent regulation. In other words, "what is not prohibited by law is permissible".

Under the current legal system, China adopts a "positive list" and pre-approval system for foreign investment: the Catalogue for the Guidance of Foreign Investment Industries clearly specifies foreign-invested projects that are encouraged, restricted, or prohibited. To establish a foreign-invested enterprise, prior approval by the relevant commerce authorities in accordance with laws and regulations is required before conducting industrial and commercial registration. The introduction of the "negative list management model" in the Shanghai Pilot Free Trade Zone means that within the Zone, pre-approval in the field of foreign investment will gradually be replaced by filing management, and the market will play a more important role in regulation and management.

To support the implementation of the "negative list management model" in the Pilot Free Trade Zone, the Standing Committee of the National People's Congress adopted a relevant decision on August 30, 2013, which temporarily adjusts the application of the laws on Sino-foreign equity joint ventures, Sino-foreign contractual joint ventures, and foreign-capital enterprises within the Shanghai Pilot Free Trade Zone, modifying relevant administrative approval items for foreign investment to filing management. These primarily include the following 11 items:

1. Establishment of foreign-capital enterprises;

2. Division, merger, or modification of other important matters of foreign-capital enterprises;

3. Term of operation of foreign-capital enterprises;

4. Establishment of Sino-foreign equity joint ventures;

5. Extension of the term of Sino-foreign equity joint ventures;

6. Dissolution of Sino-foreign equity joint ventures;

7. Establishment of Sino-foreign contractual joint ventures;

8. Major modifications to the agreements, contracts, and articles of association of Sino-foreign contractual joint ventures;

9. Transfer of rights and obligations under the contract of Sino-foreign contractual joint ventures;

10. Entrustment of others to operate and manage Sino-foreign contractual joint ventures;

11. Extension of the term of Sino-foreign contractual joint ventures.

The above 11 administrative approval items, which originally had a maximum approval period of ninety days, have all been adjusted to filing management. It can be seen that this is creating conditions and removing obstacles for the formulation of the "negative list".

However, the shift from pre-access supervision to post-access supervision means that the government needs to develop an efficient and comprehensive filing system and other public disclosure and credibility mechanisms, strengthen post-access supervision, and proactively address potential issues in the filing system to control market risks and ensure market order. Additionally, under the "negative list management model", how to effectively connect with pre-approval processes of other departments and approval systems outside the Zone is also an urgent issue to be resolved.

Therefore, the above reform of foreign investment filing is only a preliminary preparation for the "negative list model". As a major transformation of the foreign investment system, the "negative list management model" should be implemented progressively, and both the government and enterprises should gain experience in practice. We look forward to the Ministry of Commerce and other government departments promptly issuing the "negative list" and other supporting laws and regulations.