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China did not make any commitment in the Protocol in respect of tract land development. Under the new Catalogue, tract land development is categorized as "restricted" and foreign investors are only permitted to participate in such projects in the form of equity or cooperative JVs. Although there is no PRC law or regulation that explicitly limits foreign equity participation in tract land development JVs, in practice, officials of the Ministry of Commerce have stated that they generally discourage foreign investors from holding equity interests of more than 75% in tract land development JVs.
In respect of companies engaging in real estate services on a fee or contract basis (such as real estate brokerage services), the Protocol provides that foreign companies are permitted to participate in this sector only in the form of equity JVs, with foreign companies allowed to hold majority shareholding percentage in such enterprises. Nevertheless, there is no such restriction under the new Catalogue and it is well known in the industry that there are a number of real estate agencies or brokers already operating in China in the form of WFOEs.
Notwithstanding China’s reservation of rights in the Protocol to restrict foreign investment in certain real estate sectors, current PRC laws and practice give more leniencies to foreign investors than China’s Protocol commitments require. China reportedly already has more than 5,000 foreign-invested real estate enterprises, which constitute an astonishing 20% of all real estate development enterprises in the country. While China’s WTO accession has created greater opportunities for foreign investors in the market, who in general find themselves on a more equal footing with domestic players, the country is certainly not immune to the cyclical nature of the global real estate market and China’s government is not yet beyond attempts to micro-manage sub-sectors of the industry.
[Related Laws & Regulations]
Catalogue for the Guidance of Foreign Investment Industries (Promulgated by The State Development Planning Commission, the State Economy and Trade Commission, the Ministry of Foreign Trade and Economic Cooperation, effective as of 11th Mar. 2002)
Catalogue of Encouraged Foreign Investment Industries
VIII. Real Estate Industry 1. Development and construction of ordinary residential houses
Catalogue of Restricted Foreign Investment Industries
VIII. Real Estate Industry 1.Development of pieces of land (equity joint ventures or contractual joint ventures only) 2. Construction and operation of high-ranking hotels, villas, high-class office buildings and international exhibition centers
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