Hainan’s Negative List for Overseas Service Providers: An Explainer

Hainan has launched the country’s first negative list for cross-border trade in services. This article explains how the negative list for cross-border services trade differs from other negative lists in China. We also compare the level of openness in Hainan’s services negative list with China’s WTO commitments as well as RCEP commitments. Overseas services providers are suggested to read the list carefully or consult local professionals to assess new market opportunities.   

China unveiled its first negative list for cross-border trade in services, which is to be implemented in the Hainan Free Trade Port (FTP) from August 26, 2021.

The list, officially called the Special Administrative Measures for Cross-Border Service Trade at Hainan Free Trade Port, includes 70 regulatory measures targeted at overseas services providers in 11 sectors.

What is the negative list for cross-border trade in services?

Under the World Trade Organization (WTO) General Agreement on Trade in Services (GATS), trade in services is defined as the supply of services through the following four modes:

• Cross-border supply
• Consumption abroad
• Movement of natural persons
• Commercial presence

The supply of services through the first three modes are collectively referred to as cross-border trade in services, while through the fourth mode (commercial presence) is referred to as cross-border investment.

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Therefore, Hainan’s negative list for cross-border trade in services is different from its negative list for foreign investment access – the latter is more about cross-border investment.

Under Hainan’s negative list for cross-border services trade, overseas service providers are not allowed to provide the services prohibited by the list through the first three modes (that is, cross-border supply, consumption abroad, and movement of natural persons) in the whole Hainan island.

At the same time, it implies that unlisted economic activities are considered allowed, and domestic and overseas services providers should enjoy a level playing field and equal market access in unlisted sectors.

Which Hainan services sectors are restricted or prohibited by the negative list?

The Hainan FTP services negative list specifies 70 special administrative measures for 11 sectors:

1. Agriculture, forestry, animal husbandry, and fishery
2. Construction
3. Wholesale and retail
4. Transportation, storage, and postal services
5. Information transmission, software, and information technology services
6. Financial industry
7. Leasing and business services
8. Scientific research and technical services
9. Education
10. Health and social work
11. Culture, sports, and entertainment

China Briefing produced a free translated version of Hainan’s negative list for cross-border trade in services. You can find the full text in English here to assess whether your business is affected.

To take a few examples, in the financial sector, the list stipulates that without the approval of China’s banking regulatory authority, overseas service providers shall not engage in business activities of banking financial institutions, financial asset management companies, trust companies, finance companies, financial leasing companies, consumer finance companies, and auto finance companies through the mode of cross-border supply.

In the leasing and commercial services sector, foreign individuals are:

• not allowed to take part in the national uniform legal professional qualification examination to obtain the legal professional qualification certificate;
• not allowed to take part in the national tour guide qualification examination; and
• not allowed to serve as security guards to engage in security services.

In the information services industry, overseas service providers shall not engage in news information services or public information release services on internet.

Which Hainan services sectors have been relaxed by the negative list?

Hainan’s negative list for cross-border services trade is expected to widen market access in professional services, transport services, and financial services.

According to China’s vice-commerce minister Wang Shouwen, the “liberalization level (of Hainan’s negative list for cross-border services trade) goes beyond China’s commitments for WTO accession and its main free trade agreements (FTAs) in corresponding areas.”

Hainan’s services negative list vs. China’s WTO commitments

Of the 160 services sub-sectors under the 12-sectors in the WTO classification, China committed to opening up 100 sub-sectors under nine sectors.

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However, under Hainan’s negative list for cross-border services trade, there are about 120 sub-sectors where the liberalization levels are higher than China’s WTO commitment, according to Wang.

For example, in the legal services sector, under China’s WTO commitments, overseas service providers are banned from providing legal services in China. However, Hainan’s services negative list allows the representative offices (ROs) of foreign law firms in Hainan to engage in some non-litigation legal affairs related to Hainan’s commercial affairs.

In the education industry, the WTO commitment of China is that foreign individual education service providers that offer education services in China must have a bachelor’s degree or above, the corresponding professional title or certificate, and two years of professional work experience. Hainan’s negative list removes the restriction of two years’ professional work experience.

Hainan’s services negative list vs. China’s services positive list under RCEP

The Regional Comprehensive Economic Partnership (RCEP) agreement that China signed with 14 Asia-Pacific countries also provides for the liberalization of trade in services among the member states.

The member states set out their respective “positive list” or “negative list” in opening up their service sectors to the trade partners:

• “Negative list” approach – Australia, Brunei, Indonesia, Japan, Malaysia, Singapore, and South Korea.
• “Positive list” approach – Cambodia, China, Laos, Myanmar, New Zealand, Philippines, Thailand, and Vietnam (member states that adopt the “positive list” approach are required to transition to “negative list” within six years of entry into force of the agreement).

China is one of the countries adopting the “positive list” approach under RCEP. The “positive list”, as the name suggests, is a list of service sectors that foreign service providers are allowed to enter. In other words, the areas that are not on the list are closed to foreign service providers. This means the level of openness of the “positive list” is lower than that of the “negative list”.

Compared with the RCEP agreement, of the 160 sub-sectors, in more than 110 sub-sectors, the level of openness of Hainan’s services negative list exceeds China’s RCEP commitments, according to Wang.

For instance, in the sub-sector of air transport support services, China did not make commitments under the RCEP agreement, nor did it make commitments when it joined the WTO. However, under Hainan’s services negative list, the restriction that foreign service providers are not allowed to engage in aviation weather services has been lifted.

In the sub-sector of urban planning services, China has made no commitment regarding the “movement of natural persons” under the RCEP. However, Hainan’s services negative list has lifted the restriction that prohibits overseas individuals from applying for the qualification examination of registered urban and rural planners.

Overall, the list scraps limits on more than 10 vocational exams for overseas citizens in a bid to push for greater financial opening and free flow of talent.

China Briefing has been paying close attention to the development of Hainan FTP and its preferential policies on market opening, trade facilitation, import and export duties, customs supervision, and financial reforms. For more information and assistance, please contact us at China@dezshira.com.

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