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

The so-called "negative list management model" refers to the establishment of an investment admission management system that "focuses on post-admission supervision while supplementing with pre-admission negative list permitting management," meaning the government lists industries where foreign investors are not allowed to invest in the "negative list." Outside this list, the government should not impose overly strict regulation. In other words, "what is not prohibited by law is permitted."

Under the current legal system, China adopts a "positive list" and pre-approval system for foreign investment: the "Catalogue of Industries for Guiding Foreign Investment" clearly specifies encouraged, restricted, and prohibited foreign investment projects. To establish a foreign-invested enterprise, prior to industrial and commercial registration, approval from relevant business administrative departments must be obtained according to laws and regulations. The introduction of the "negative list management model" in the Shanghai Free Trade Zone means that within the zone, pre-approval for foreign investment will gradually be changed to record-keeping management, and the market will play a more important role in regulation and management.

To coordinate the implementation of the "negative list management model" in the free trade zone, on August 30, 2013, the Standing Committee of the National People's Congress passed relevant decisions, which temporarily adjusted the application of the Three Foreign-Invested Enterprise Laws within the Shanghai Free Trade Zone, changing relevant administrative approval matters for foreign investment to record-keeping management, mainly including the following 11 items:

1. Establishment of foreign-invested enterprises;

2. Division, merger of foreign-invested enterprises or changes to other important matters;

3. Operating period of foreign-invested enterprises;

4. Establishment of equity joint ventures;

5. Extension of the joint venture period for equity joint ventures;

6. Dissolution of equity joint ventures;

7. Establishment of cooperative joint ventures;

8. Significant changes to agreements, contracts, or articles of association of cooperative joint ventures;

9. Transfer of contractual rights and obligations of cooperative joint ventures;

10. Delegation of management of cooperative joint ventures to others;

11. Extension of the cooperative period for cooperative joint ventures.

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

However, the transition from pre-supervision to post-supervision means that the government needs to establish an efficient and complete filing system and other publicity and public trust systems, strengthen post-supervision efforts, and actively handle potential issues in the filing system to control market risks and ensure market order. Under the "negative list management model," how to effectively connect with pre-approval from other departments and approval systems outside the zone is also an urgent issue to be resolved.

Therefore, the above foreign investment filing reform is only the preliminary preparation for the "negative list model." As a major reform of the foreign investment system, the "negative list management model" should proceed gradually. Both the government and enterprises should learn from experience in practice. We look forward to the Ministry of Commerce and other government departments issuing the "negative list" and other supporting laws and regulations as soon as possible.