What are the sector restrictions for wholly foreign-owned enterprises under Chinese law?

According to Guidance Catalogue for Foreign Investment (2012 Catalogue), which is jointly published by the National Development and Reform Commission and Ministry of Commerce, sector restriction applies to the business activities that the Wholly Foreign-Owned Enterprise can engage. There are three categories:

• Encouraged – These sectors are deemed beneficial for the sustainable development of China’s economy, and special incentives might be applicable;
• Restricted – These industries include those which are on a pilot basis, and industries that are technologically backwards or those which are environmentally unfriendly, and normally they require governmental approval;
• Prohibited – These sectors are those that use technology that is unique to China, or those that harm the national interests, environment, human health, or security or those are politically sensitive.

For business located in Central or Western China, foreign investors should look to Catalogue of Priority Industries for Foreign Investment in Central and Western China. Within this catalogue, however, only priorities of industries are listed, accompanied with relevant preferential policies.