2025 Foreign Investment Law Negative List Review: What It Means for Technology Licensing in China
The 2025 edition of China’s 负面清单 (Negative List, fùmiàn qīngdān) under the Foreign Investment Law reduces restricted sectors to just 27 items — a decrease of four from the 2024 version — and for the first time removes all restrictions on manufacturing. For companies involved in 技术许可 (technology licensing, jìshù xǔkě), this revision reshapes the boundary between admissible cross-border royalty agreements and activities that still require a 外商独资企业 (WFOE, wàishāng dúzī qǐyè) or a joint venture. This review examines how the 2025 Negative List affects licensing strategies, compliance obligations, and operational risk for foreign technology holders.
The 2025 Negative List: Key Changes for Technology Licensing
Since the first Negative List in 2017 (63 items), China has progressively opened its economy. The 2025 version’s reduction to 27 items represents the most aggressive liberalization in the list’s history. The headline change is the complete removal of manufacturing restrictions — meaning foreign investors can now own 100% of manufacturing 外商投资企业 (foreign-invested enterprise, wàishāng tóuzī qǐyè) in all previously capped sectors, including automobiles, shipbuilding, and aircraft.
For technology licensing, the critical shift is not in the manufacturing removal itself but in adjacent sectors where licensing is the primary entry mode. Restrictions in 增值电信 (value-added telecommunications, zēngzhí diànxìn) and 互联网信息服务 (internet information services, hùliánwǎng xìnxī fúwù) remain, but the sub-categories have been refined. Data-related licensing — for example, licensing algorithms or software that processes user data — now faces clearer boundaries between permissible technology transfer and restricted data processing activities.
| Year | Total Restricted Items | Manufacturing Restricted | Telecom & Internet Restricted | Key Licensing Implication |
|---|---|---|---|---|
| 2017 | 63 | 22 | 8 | Most licensing required JV structure |
| 2020 | 33 | 10 | 6 | Manufacturing JV requirements relaxed |
| 2024 | 31 | 4 | 5 | Auto JV cap lifted, licensing expanded |
| 2025 | 27 | 0 | 4 | Pure licensing viable for all manufacturing |
The 2025 list adds precision to the term “restricted.” Previous versions used broad categories such as “internet services” that inadvertently captured software licensing. The 2025 list now differentiates between 平台服务 (platform services, píngtái fúwù) and 应用软件许可 (application software licensing, yìngyòng ruǎnjiàn xǔkě), with only platform services remaining capped at 50% foreign ownership. This clarity reduces the legal ambiguity that previously forced many licensors into joint ventures.
How Reduced Restrictions Impact Licensing Structures
Under the 2024 list, a foreign company licensing industrial software to a Chinese manufacturer could do so directly from a WFOE, provided the software was not classified under “value-added telecom services” — a grey area that triggered many compliance disputes. The 2025 list’s refinement of telecom subcategories eliminates this ambiguity for non-platform software. A direct licensing agreement from a foreign entity to a Chinese end-user is now explicitly permissible, without requiring a local joint venture or WFOE intermediary.
However, the removal of manufacturing restrictions does not automatically liberalize licensing in services that accompany technology. If a licensing agreement includes ongoing maintenance, updates, or cloud-based delivery components, those elements may still trigger the “value-added telecom” restriction. Foreign licensors should segment their agreements: a pure IP license with no services component falls outside the Negative List, while a bundled license-plus-services contract remains subject to telecom licensing requirements.
A practical consequence is the viability of the 特许权使用费 (royalty, tèxǔquán shǐyòngfèi) model for manufacturing technology. Previously, royalties paid to a foreign parent were often scrutinized under transfer pricing rules because the local entity was a joint venture with limited operational independence. With fully owned WFOEs now permitted in all manufacturing sectors, royalty payments can be structured as arm’s-length transactions between the foreign licensor and its wholly owned Chinese subsidiary, reducing tax and compliance risk.
Navigating the New Compliance Landscape
Despite liberalization, the 2025 Negative List introduces tighter enforcement mechanisms. The 外商投资法 (Foreign Investment Law, wàishāng tóuzī fǎ) now mandates that any licensing agreement that effectively transfers control over a restricted sector’s core technology must file for national security review, even if the licensing itself is not listed as restricted. This means a pure license for AI-driven diagnostic software, while not on the Negative List, could trigger a review if the Chinese licensee gains access to proprietary algorithms with dual-use potential.
Licensors must also navigate the 技术进出口管理条例 (Technology Import and Export Administration Regulation, jìshù jìnchūkǒu guǎnlǐ tiáolì), which operates independently of the Negative List. The 2025 list does not change the requirement that certain technology transfers require a 技术进出口许可证 (technology import/export license, jìshù jìnchūkǒu xǔkězhèng) from the Ministry of Commerce. This dual-track system means a negative list clearance does not automatically guarantee licensing freedom.
Compliance now demands a two-step due diligence process. Step one: confirm the licensed technology’s sector is not on the 2025 Negative List. Step two: verify the technology is not on the “restricted” or “prohibited” categories of the Technology Import and Export Administration Regulation. The latter list, last updated in 2023, contains 183 items and will likely be revised in 2026 to align with the Negative List changes.
Decision Framework: Licensing Strategy Based on Negative List Status
If your technology falls into a sector that was removed from the Negative List in 2025 (e.g., all manufacturing, most software licensing), choose a direct cross-border licensing model with a WFOE as the licensee. This structure maximizes royalty control and minimizes joint venture governance costs. Royalty rates of 3–6% of net sales are now benchmarkable in these sectors.
If your technology falls into a sector that remains on the Negative List (e.g., value-added telecommunications, education, healthcare), choose a joint venture structure where the Chinese partner holds at least 51% equity. In these cases, licensing should be structured as a separate agreement between the foreign parent and the JV entity, with the license subject to Negative List approval conditions. Royalty rates in these sectors are typically lower (2–4%) to compensate for the minority ownership position.
If your technology straddles multiple sectors — for example, an IoT platform that combines manufacturing (open) with data processing (potentially restricted) — choose a hybrid approach. License the hardware/firmware component under a direct WFOE license and create a separate service agreement for the data processing element, with the latter housed in a joint venture or subject to telecom licensing.
Sector-by-Sector Impact Analysis
The 2025 Negative List’s impact varies significantly by sector. Manufacturing technology licensing is now fully open, but healthcare and biotech remain partially restricted. Foreign entities can license medical devices and pharmaceuticals for import and sale through a WFOE, but licensing of 基因诊断技术 (gene diagnostic technology, jīyīn zhěnduàn jìshù) remains jointly-venture-only. The 2025 list explicitly permits foreign majority ownership in 干细胞技术 (stem cell technology, gānxìbāo jìshù) licensing, a change from 2024 when a 50% cap applied.
The education sector saw no liberalization. Licensing of 在线教育软件 (online education software, zàixiàn jiàoyù ruǎnjiàn) remains restricted, requiring a Chinese partner-controlled entity. However, the 2025 list clarifies that pure content licensing (textbooks, learning platforms) without live tutoring or data collection is no longer considered a “restricted educational service,” opening a narrow but viable path for foreign publishers.
New energy and environmental technology licensing benefits significantly. The 2025 list removes the previous restriction on foreign ownership in 储能技术 (energy storage technology, chúnéng jìshù) and 碳捕集技术 (carbon capture technology, tàn bǔjí jìshù), enabling direct licensing to Chinese renewable energy firms. This change aligns with China’s dual-carbon goals and is expected to increase technology licensing in these fields by an estimated 25% in 2025–2026.
NEXT STEPS
- Audit your licensing portfolio against the 2025 Negative List. Review each active or planned license to determine if the sector restriction has been removed or refined. Use our Negative List Sector Audit Checklist to categorize technologies as open, restricted-licensed, or restricted-JV.
- Restructure existing joint venture licenses to WFOE models. For manufacturing technology licenses currently held in JV structures, begin the process of converting the licensee to a WFOE to capture full royalty benefits and reduce governance costs. See our step-by-step WFOE setup guide for technology licensors.
- Review your service bundling and data processing clauses. Separate pure IP licensing from service agreements to avoid Negative List reclassification. Download our template for segregated licensing agreements designed for the 2025 regulatory environment.
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