在现行有效的《外商投资产业指导目录》，"音像制品和电子出版物的编辑、出版、制作业务"列入"禁止外商投资产业目录"中，不允许外商投资；即使在多个自贸区内，音像制品的制作仍属于自贸区的负面清单范围，并禁止外商投资（基于内地与香港、澳门的安排例外）。但近期在北京市试点地区，上述情况有了新变化，外商可以在试点范围投资音像制品的制作。

Audiovisual products, due to their sensitive nature, have long been closed to foreign investment in China.  Since mid-2017, however, foreign businesses have been allowed to invest in this area, although investment is currently limited only to Beijing and with various conditions in terms of operation.

According to the Provisions on the Administration of Audiovisual Products (音像制品管理条例), audiovisual products refer to audio tapes, videotapes, recordings, compact discs and laser disks recorded with contents.  Further, the production of audiovisual products, as specified in the Regulations on the Administration of Production of Audiovisual Products (音像制品制作管理规定), refers to the activity of processing audio, images and texts into audiovisual products through technical means such as recording and video recording.

Under the latest version of the Catalogue for the Guidance of Foreign Investment Industries (外商投资产业指导目录) ("Catalogue"), the editing, publication and production of audiovisual products and electronic publications are still listed in the "Prohibited" category for foreign investment.  Even in some free trade zones where foreign investment commonly enjoys relatively favorable policies, the production of audiovisual products still falls within the scope of the negative list of the Catalogue which forbids the entry of foreign investment.

Following the Mainland and Hong Kong Closer Economic Partnership Arrangement (内地与香港关于建立紧密经贸关系的安排) ("CEPA") which was signed in 2003, the Supplementary Provisions on the Regulations Governing the Production of Audiovisual Products (关于<音像制品制作管理规定>的补充规定), promulgated in 2010, permitted service providers from Hong Kong and Macao to invest in China to engage in the production of audiovisual products. However, to qualify as a service provider, the following conditions must be met:

1. the nature and scope of services it provides in Hong Kong should include the nature and scope of services to be provided in the Mainland;
2. it should be registered or established in Hong Kong and engage in substantive business operations for 3 years or more;
3. it pays tax on its profits according to the law during substantive business operations in Hong Kong;
4. it operates substantive business at the place it owns or rents in Hong Kong, and such a place should be in accordance with its business scope and scale; and
5. over 50% of its total workforce should be permanent residents/residents-without-restrictions of Hong Kong and residents in Hong Kong from the Mainland holding one-way permits.

In addition to these strict conditions, business operations are relatively costly in Hong Kong or Macao.  Consequently, foreign investors may not be willing or qualified to engage in the production of audiovisual products under CEPA.

This tightened policy orientation changed slightly after the State Council officially replied and approved the Plan for Deepening the Reform and Promoting the Comprehensive Pilot Program of Expanding Opening-up in the Service Industry of Beijing Municipality (国务院关于深化改革推进北京市服务业扩大开放综合试点工作方案的批复) on 11 June 2017.  It is noted in the reply that foreign investment is permitted in the production of audiovisual products, but only in Beijing National Music Industry Base, China Beijing Publishing Creative Industry Park, Beijing National Digital Publishing Base, and only in cooperation with a Chinese entity that has controlling rights of business operations and the right to final review of content.  It also mentioned that during the Pilot Program, relevant administrative regulations, state council documents, and some rules within the department regulations approved by the State Council shall be adjusted temporarily, to be followed by detailed rules promulgated separately.  To this end, the State Council reaffirmed the above policy by promulgating the Decision on Temporarily Adjusting the Special Administrative Measures for Administrative Approval and Access in Beijing Municipality (国务院关于在北京市暂时调整有关行政审批和准入特别管理措施的决定) ("Decision") on 10 December 2017, providing a more definitive legal basis.

Nevertheless, there are no clear rules on the controlling rights of business operations and the right to final review of content.  However, our understanding is that the following may be required by the authorities:

1. the type of cooperation (e.g., a Chinese state-owned enterprise shall be involved, the Chinese co-operating entity shall hold a higher proportion of equity, or the Chinese co-operating entity has special voting rights);
2. its management rules (e.g., the Chinese co-operating entity shall be entitled to nominate the majority of the board/management members); and
3. decision procedures (e.g., the foreign entity may be prohibited from participating in the editing of the contents of the audiovisual products).

Due to the sensitivity of the production industry for audiovisual products, foreign investment into this industry is limited only to certain areas (Beijing National Music Industry Base, China Beijing Publishing Creative Industry Park, Beijing National Digital Publishing Base), and only the co-operating Chinese entity will have controlling rights of business operations and the right to final review of content.  However, despite these limitations, we believe that this trend presents massive business opportunities for foreign investors given the significant growth recently of China’s consumer economy.