5. A Mainland investor investing in Hong Kong shall comply with the requirements in paragraph 2 of Article 2 (Definitions) of this Agreement.
6. In this Annex, "commercial presence" means any type of business or professional establishment of one side, including through:
6.1 The constitution, acquisition or operation of an enterprise, or
6.2. The constitution or operation of a branch or a representative office, within the area of the other side.
Annex 2. Schedules of the Mainland and Hong Kong
Part I. Schedule of the Mainland (1)
Table 1. Negative List of Non-Rollback Provisions)
Notes
1. Pursuant to Article 9 (Non-Conforming Measures), the schedule of the Mainland in this Annex stipulates the existing measures which are not subject to some or all of the obligations imposed by the following provisions:
1) Article 5 (National Treatment);
2) Article 6 (Most-Favoured Treatment);
3) Article 7 (Performance Requirements); or
4) Article 8 (Senior Management, Boards of Directors and Entry of Personnel).
2. Each item stipulates that:
1) Sector refers to the corresponding sector of the item as agreed by the two sides;
2) Obligations concerned clarifies the provisions aforementioned in paragraph 1. Pursuant to sub-paragraph 1(i) of Article 9 (Non-Conforming Measures), the provisions as mentioned do not apply to the non-conformities of the description as referred to in paragraph 3; and
3) Description sets out the contents of the non-conforming measures of the item.
3. Pursuant to sub-paragraph 1(i) of Article 9 (Non-Conforming Measures) and subject to sub-paragraph 1(iii) of Article 9 (Non- Conforming Measures), the provisions of this Agreement listed in the obligations concerned of an item do not apply to the non- conformities in the description of that item.
4. When interpreting an item of the schedule, all parts of the item and the corresponding provisions of this Agreement for that item should be considered. Unless otherwise clearly provided in a particular item, the description prevails over all other parts in the interpretation of an item.
5. Where there is any overlap between Table 1 and Table 2, notwithstanding the obligations under paragraph 1 of Article 9 and this Annex, one side still holds the right to adopt or maintain the relevant measures under paragraph 2 of Article 9 and Table 2.
6. For the purpose of the schedule of the Mainland in this Annex:
1) Hong Kong investors should meet the relevant requirements of Annex 1 to this Agreement.
2) Hong Kong investors shall not invest refers to the fact that Hong Kong investors shall not invest directly or indirectly in the Mainland, including directly or indirectly possessing shareholding, shares of any amount, or other forms of investment interests.
3) The Mainland side being the controlling shareholder refers to the situation that the sum of proportion of direct or indirect investments made by external investors (including Hong Kong investors) shall not exceed 49%.
4) The Mainland side being the corresponding controlling shareholder refers to the sum of proportion of investments made by investors of the Mainland in a foreign-funded enterprise is larger than the proportion of investment made by external investors.
5) Restricted to equity joint venture refers to the fact that only equity joint venture by investors from the two sides are allowed.
6) Investment proportion refers to the proportion of accumulated investments or shareholding of direct or indirect investments made by an investor and its related parties in individual enterprises.
7) Hong Kong financial institution refers to an institution that is registered in Hong Kong and its establishment has been approved or permitted and is regulated by financial regulatory authorities in the area it is located.
1. Development of Exclusive Economic Zones and Continental Shelf
Sector: Development of Exclusive Economic Zones and Continental Shelf
Obligations concerned: National Treatment (Article 5)
Description: Any organisations or individuals (including international organisations) from Hong Kong shall obtain the approval from the Central Government or relevant Mainland authorities to develop the natural resources of the Exclusive Economic Zones and continental shelf, or to drill for any purposes on the continental shelf, as stipulated in the Law on the Exclusive Economic Zone and the Continental Shelf.
2. Exploitation of Petroleum Oil and Natural Gas
Sector: Exploitation of Petroleum Oil and Natural Gas
Obligations concerned: National Treatment (Article 5)
Description: Hong Kong investors can only exploit petroleum oil, natural gas or coal seam gas through signing of production sharing contract with petroleum oil and gas companies (2) which are approved by the Central Government or relevant Mainland authorities to have the franchise of forming partnerships with foreign investments. For the purpose of land-based petroleum oil, natural gas or coal seam gas, when the franchise is completely liberalised to Mainland investors, Hong Kong investors are allowed to perform exploitation of land-based petroleum oil, natural gas or coal seam gas the form of equity joint venture or cooperation. For greater certainty, the investments made by Hong Kong investors in the exploitation of non-conventional resources, such as oil shale, oil sands or shale gas, are not restricted by the measures of this item.
3. Exploitation and Smelting of Mineral Products
Sector: Exploitation and Smelting of Mineral Products
Obligations concerned: National Treatment (Article 5)
Description:
1. Hong Kong investors shall not invest in the exploitation of rare earths. Investments of Hong Kong investors in smelting and separation of rare earths are restricted to equity joint ventures.
2. Hong Kong investors shall not invest in the exploitation of tungsten, molybdenum, tin, antimony or fluorite.
3. Hong Kong investors are restricted to equity joint ventures in the investment of graphite exploitation.
4. Manufacture of Transportation Carriers
Sector: Manufacture of Transportation Carriers
Obligations concerned: National Treatment (Article 5) Performance Requirements (Article 7)
Description:
1. The shareholding percentage of the Mainland side with respect to investments by Hong Kong investors in the manufacture of vehicles (passenger and commercial vehicles) or specialised vehicles shall not be less than 50%.
2. A Hong Kong investor may establish at most two equity joint venture enterprises manufacturing vehicle products of the same category (passenger or commercial vehicles). Investors who form equity joint ventures with Mainland partners to acquire other Mainland automobile manufacturing enterprises are exempted from the above restriction. 3. The Mainland side must be the controlling shareholder in the investments of Hong Kong investors in the manufacture of ground effect or water effect aeroplanes and the manufacture of drones and aerostats.
5. Franchise Authorised by the Government
Sector: Franchise Authorised by the Government
Obligations concerned: National Treatment (Article 5)
Description: Hong Kong investors shall not invest in the production of tobacco leaves, cigarettes, re-dried tobacco leaves, cigars, smoking tobacco and other tobacco products (3)
6. Atomic Energy
Sector: Atomic Energy
Obligations concerned: National Treatment (Article 5)
Description: Hong Kong investors shall not invest in the exploitation, smelting, purification, conversion or isotope separation of radioactive mineral resources or the production and processing of nuclear fuels.
7. All Sectors
Sector: All Sectors
Obligations concerned: National Treatment (Article 5)
Description: With respect to the sectors involved in the non- conforming measures in Table 1 and Table 2 of Annex 2 to this Agreement, the relevant Mainland authorities will administer the admission of investments by Hong Kong investors.
8. All Sectors
Sector: All Sectors
Obligations concerned: National Treatment (Article 5)
Description:
1. Hong Kong investors investing in the Mainland shall register for foreign exchange in accordance with regulations, and comply with relevant regulations on foreign exchange management with respect to the opening of accounts, transmission of capital, receiving and paying, cross-border securities investment quotas, etc. Hong Kong investors using Renminbi (RMB) for investments in the Mainland shall comply with the relevant regulations with respect to cross-border RMB business management.
2. Unless otherwise provided in the following paragraphs, Hong Kong investors shall not trade via their own accounts or accounts of others in the exchange markets, open markets or over-the- counter markets in the Mainland (4), or invest in the Mainland by other means: 1) money market instruments (including cheque, bill, deposit certificate); 2) foreign exchange; 3) derivative products including, but not limited to, futures and options; 4) exchange rate and interest rate instruments, including products such as swaps, forward rate agreements, etc.; 5) transferable securities (except B-shares); 6) other negotiable instruments and financial assets.
3. Notwithstanding the requirements in paragraph 2 of this provision, Hong Kong investors, provided that they meet the requirements set by the Central Government or relevant authorities in the Mainland, shall be allowed to open relevant securities accounts and relevant futures accounts, including but not limited to: 1) Qualified Foreign Institutional Investors (including QFII and RQFII) (5); 2) Hong Kong permanent residents working and living in the Mainland; 3) Hong Kong investors investing with reference to the strategic investment regime for foreign investors investing in Mainland listed companies; 4) Hong Kong natural persons as participants of equity incentive scheme of Mainland listed companies; 5) Hong Kong investors engaging in trades in specific types of Mainland futures; 6) nominee holders of Hong Kong investors participating in Shanghai Connect or Shenzhen Connect (i.e. Hong Kong Securities Clearing Company Limited); 7) nominee holders of Hong Kong investors participating in Bond Connect (i.e. debt securities custody and settlement institutions in Hong Kong designated by the Hong Kong Monetary Authority).
4. Notwithstanding the requirements in paragraph 2 of this provision, Hong Kong investors, provided that they meet the requirements set by the Central Government or relevant authorities in the Mainland, shall be allowed to invest in the interbank bond market: 1) Monetary authorities in Hong Kong, international financial organisations or sovereign wealth funds shall be allowed to engage in bond transactions in cash, bond repurchase, bond lending, bond futures, as well as interest rate swaps, forward rate agreements and other transactions approved by the People's Bank of China (PBOC) in the interbank market. 2) Qualified financial institutions such as Hong Kong commercial banks, insurance companies, securities firms, fund management companies and other asset management institutions, and their investment products, as well as mid-to-long-term institutional investors such as pension funds, charity funds, endowment funds etc. shall be allowed to engage in trading approved by the PBOC, such as bond transaction in cash in the interbank bond market. 3) Qualified Foreign Institutional Investors (including QFII and RQFII) are allowed to engage in transactions approved by the PBOC, such as bond transaction in cash in the interbank bond market. 4) Hong Kong RMB business clearing banks or Hong Kong participating banks that have already entered the interbank bond market shall be allowed to engage in transactions in bond repurchase.
5. Notwithstanding the requirements in paragraph 2 of this provision, Hong Kong investors, provided that they meet the requirements offset by the Central Government or relevant authorities in the Mainland, shall be allowed to engage in foreign exchange transactions in the Mainland interbank foreign exchange market: monetary authorities in Hong Kong, official reserve management institutions, international financial organisations, sovereign wealth funds, RMB business clearing banks, or Hong Kong participating banks of RMB purchase and sales business that meet certain requirements.
9. All Sectors
Sector: All Sectors
Obligations concerned: National Treatment (Article 5)
Description:
1. Hong Kong investors shall neither engage in business operations in the Mainland in the form of sole proprietors, nor become members of farmers' professional cooperatives.
2. Hong Kong investors shall not establish foreign-funded partnership enterprises with respect to the industries, areas or businesses containing restrictions of "Hong Kong investors shall not invest", "the Mainland side being the controlling shareholder", "the Mainland side being the corresponding controlling shareholder" as set out in Table 1 and Table 2 of Annex 2 to this Agreement, as well as those with required foreign capital ratio.
Table 2. (Negative List of Rollback Provisions)
Notes
1. Pursuant to Article 9 (Non-Conforming Measures), the schedule of the Mainland in this Annex stipulates, with respect to specific sectors, sub-sectors or activities, that the Mainland may maintain the existing restrictive measures or adopt revised or more restrictive measures that do not conform with the obligations under the following provisions:
1) Article 5 (National Treatment);
2) Article 6 (Most-Favoured Treatment);
3) Article 7 (Performance Requirements); or
4) Article 8 (Senior Management, Boards of Directors and Entry of Personnel).
2. Each item stipulates that:
1) Sector refers to the corresponding sector of the item as agreed by the two sides;
2) Obligations concerned clarifies the provisions mentioned in paragraph 1. Pursuant to paragraph 2 of Article 9 (Non- Conforming Measures), the provisions as mentioned do not apply to the non-conformities in the sectors, sub-sectors or activities listed in relevant provisions; and
3) Description set out the scope of the sectors, sub-sectors or activities of the item.
3. Pursuant to paragraph 2 of Article 9 (Non-Conforming Measures), the provisions of this Agreement listed in the obligations concerned of an item do not apply to the sectors, sub-sectors or activities in the description of that item.
4. For the purpose of the schedule of the Mainland in this Annex, Hong Kong investors should meet the relevant requirements of Annex 1 to this Agreement.
1. Atomic Energy
Sector: Atomic Energy (6)
Obligations concerned: National Treatment (Article 5) Performance Requirements (Article 7) Senior Management, Boards of Directors and Entry of Personnel (Article 8)
Description: The Mainland reserves the right to adopt measures with respect to spent fuel reprocessing, nuclear facility decommissioning, radioactive waste disposal, and business in nuclear import.
2. Traditional Arts and Crafts and Chinese Medicines
Sector: Traditional Arts and Crafts and Chinese Medicines
Obligations concerned: National Treatment (Article 5) Performance Requirements (Article 7) Senior Management, Boards of Directors and Entry of Personnel (Article 8)
Description: The Mainland reserves the right to adopt or maintain any measures with respect to the traditional arts and crafts (7) in the production of rice paper and inksticks etc. The Mainland reserves the right to adopt or maintain any measures with respect to the application of processing techniques such as steaming, stir-frying, broiling or calcining of Chinese medicine decoction pieces, and the production of proprietary Chinese medicinal products formulated with confidential prescriptions.
3. Land
Sector: Land
Obligations concerned: National Treatment (Article 5) Performance Requirements (Article 7) Senior Management, Boards of Directors and Entry of Personnel (Article 8)
Description: The Mainland reserves the right to adopt or maintain any measures with respect to restricting Hong Kong investors and their investments in the use of or contracting for the operation of agricultural lands (8).
4. All Sectors
Sector: All Sectors
Obligations concerned: National Treatment (Article 5)
Description:
1. The Mainland, on the basis of foreign debts management system, reserves the right to adopt measures with respect to the borrowing of foreign debts by domestic enterprises and individuals.
2. Notwithstanding the requirements in paragraph 1 of this provision, Hong Kong investors shall be allowed to provide Renminbi and foreign currency financing to Mainland domestic enterprises under the policy framework of Nationwide Macro- prudential Management of Full-scale Cross-border Financing.
5. All Sectors
Sector: All Sectors
Obligations concerned: National Treatment (Article 5)
Description: The Mainland reserves the right to adopt or maintain any measures with respect to policy-based or development financial services (9) received by Mainland investors and their investments.
6. All Sectors
Sector: All Sectors
Obligations concerned: National Treatment (Article 5) Performance Requirements (Article 7) Senior Management, Boards of Directors and Entry of Personnel (Article 8)
Description: The Mainland reserves the right to adopt or maintain any measures with respect to the assessment, transfer and disposal of any types of interests resulting from direct or indirect investments by the government in an enterprise. For greater certainty, this item does not apply to the assessment, transfer or disposal of any types of interests resulting from direct or indirect investments by the government in an enterprise, if following the transaction, the relevant assets will no longer be owned by the government.
7. Minority Nationalities
Sector: Minority Nationalities (10)
Obligations concerned: National Treatment (Article 5) Performance Requirements (Article 7) Senior Management, Boards of Directors and Entry of Personnel (Article 8)
Description: The Mainland reserves the right to adopt or maintain any measures with respect to any rights of or preferential measures accorded to an area where people of a minority nationality live in a concentrated community in order to balance economic development and maintain social fairness.
Part II. Schedule of Hong Kong (11) (12)
Annex 3. Expropriation
The two sides confirm their shared understanding that:
1. Paragraph 1 of Article 11 (Expropriation) addresses two situations. The first situation is direct expropriation, in which an investment is directly expropriated through formal transfer of title or outright seizure. The second situation is indirect expropriation, in which an action or a series of actions by one side has an effect equivalent to direct expropriation without formal transfer of title or outright seizure.
2. The determination of whether an action or a series of actions by one side, in a specific fact situation, constitutes an indirect expropriation, requires a case-by-case, fact-based inquiry that considers, among other factors:
(i) The economic impact of the action by one side, although the fact that an action or a series of actions by one side has an adverse effect on the economic value of an investment, standing alone, does not establish that an indirect expropriation has occurred;
(ii) The extent to which the action or the series of actions interferes with distinct, reasonable investment-backed expectations; and
(iii) The character and objective of the action or the series of actions.
3. Except in rare circumstances, a non-discriminatory measure of one side that is designed and applied to protect legitimate public welfare objectives, such as public morals, public health, safety and the environment, does not constitute an indirect expropriation.