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September 29, 2016

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Home » Opinion » Foreign Views

Less bureaucracy for foreign investments will make China even more competitive

ON September 3, the National People’s Congress Standing Committee adopted crucial amendments to China’s foreign-invested enterprise legislation, namely China’s Wholly Foreign-Owned Enterprise Law, Sino-Foreign Equity Joint Venture Law and Sino-Foreign Contractual Joint Venture Law.

These amendments, which will come into effect on October 1, are intended to streamline foreign-invested enterprises’ incorporation procedures by replacing the current government approval procedure of foreign investments with an easier filing regime. This new regime will affect foreign-invested enterprises whose business scope is not included in the Negative List, an official document listing those industries in which foreign investment is restricted or prohibited.

On the same day, the Standing Committee also approved specific provisional measures, the so-called “Interim Filing Measures,” which define the main features of the new regime. These measures will also come into force on October 1.

Under the current regime, in order to incorporate a foreign-invested enterprise in China, regardless of its business scope, it is required to obtain the approval of the competent Commerce Committee before registering the company at the competent Administration for Industry and Commerce and thus obtaining the company’s business license.

Furthermore, once the foreign-invested enterprise has been established, any change in the fundamental features of that same enterprise (i.e. name, legal address, business scope, registered capital, total investment amount, legal representative, shareholders, articles of association, etc.) will require a new approval of the competent Commerce Committee.

From next month, foreign investments not included in the Negative List will no longer require the preliminary approval of the Commerce Committee. In order to implement this new incorporation regime, the State Council will release a further Negative List, which is intended to be effective on a national level. This new list will probably be very similar to the one currently effective in the Free Trade Zones (Shanghai, Tianjin, Guangdong and Fujian), but it will also include some changes reflecting the experience acquired by the Chinese Authorities in the Free Trade Zones. The details of the new Negative List are yet to be disclosed.

From October, foreign-invested enterprises engaged in activities not included in the list, after obtaining the pre-registration approval of the foreign-invested enterprise’s name, will have to be filed with the competent Commerce Committee. This filing procedure shall be made either before obtaining the business license or within 30 days after the issue of the business license. Moreover, if any changes of the main features of the company occur, these changes will also need to be filed with the Commerce Committee within 30 days after the change is formally adopted by the company’s Board of Directors.

Online filing

Under the new regime, the filing procedure with the competent Commerce Committee will be completed online, and the investor will be required to provide fewer documents than under the current regime. As regards foreign-invested companies established before October 1, they are not required to conform immediately to the new filing regime; however, in case of substantial changes in a company’s structure, the already established foreign-invested enterprise will have to file changes with the competent Commerce Committee.

The introduction of a national Negative List can be interpreted as a significant change towards further liberalization of foreign investment outside of the Free Trade Zones. This follows the successful experience of the Pilot Free Trade Zones and confirms at the same time a general trend of modernization of the Chinese Law system. Furthermore, the possibility to obtain the business license and the consent of commerce authorities more rapidly is a clear sign of less governmental involvement in company’s incorporation procedures.

Nonetheless, despite these streamlined procedures, the new regime also includes stricter measures concerning specific aspects. For instance, the Commerce Committee will have more supervisory powers on foreign-invested enterprises that do not strictly meet the filing requirements. This supervision will result in random checks and on-site inspections. Additionally, the new regime requires the foreign investors to provide more information on shareholders and actual controlling persons of the foreign-invested enterprise.


Giovanni Pisacane is Managing Partner and lawyer at GWA Law, Tax & Accounting, Shanghai. Shanghai Daily condensed the article.


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