As one of the key tools used by the People's Republic of China (PRC) government to direct foreign investment into mainland China, the Encouraged Industry Catalogue is significant in international trade with mainland China. It classifies various industries into the four groups which are Encouraged, Permitted, Restricted and Prohibited which has subsequent effects on foreign firms wishing to operate in such sectors.
Encouraged industries generally receive favourable tax treatment whilst those in the Permitted category are treated on a quite neutral basis. If an industry is restricted, foreign investment is usually limited to a minority shareholding in a joint venture whilst Prohibited industries cannot have any form of foreign investment at all.