1. Amended Foreign Invested Enterprise Laws And Interim Measures
On September 3, 2016, the Standing Committee of the National People’s Congress issued Amendments to the current Chinese laws on Sino-foreign equity and cooperative joint ventures and wholly foreign-owned enterprises (collectively, the Amended FIE Laws). Once effective, the Amended FIE Laws will radically change and simplify the regulations and procedures governing (i) foreign direct investment into China and (ii) changes to existing foreign invested enterprises (FIE).
Until now, China has: (i) used a “catalogue” that classifies all inbound foreign investment as “encouraged,” “restricted,” or “prohibited,” and (ii) required a Ministry of Commerce (MOFCOM) pre-approval for (a) all new foreign-invested projects or (b) changes to existing foreign-invested projects.
Under the Amended FIE Laws, which become effective on October 1, 2016: (i) the catalogue will be replaced by a “negative list” that will only cover areas for which foreign investment is still “restricted” or “prohibited”; (ii) the MOFCOM pre-approval will only be required for projects covered under the negative list; and (iii) any projects not covered by the negative list will only require a filing with the MOFCOM.
In order to aid with the implementation of the Amended FIE Laws, the MOFCOM has also issued the Interim Measures on the Administration of the Establishment and Changing of Foreign Invested Enterprises (the Interim Measures).
2. Key Highlights
a. Proposed Investment or Change NOT COVERED by the Negative List
- Timing of MOFCOM Filing: The investor(s) or the actual FIE (if already existing) may file with the MOFCOM either before or up to 30 days after the PRC State Administration of Industry and Commerce (SAIC) has issued the new or revised (as the case may be) business license for the relevant FIE.
- Filing Procedure: All filings will be completed online via a “Foreign Investment Integrated Administration Information System.”
- Effectiveness of Changes: Any change to an FIE will generally take effect when the FIE’s board (in the case of a joint venture) or foreign investor (in the case of a wholly foreign-owned enterprise) adopts the change.
- Timing of MOFCOM Reply: The MOFCOM must, within three “working days” after receipt, either (i) review the notification and issue a “completion notice,” or (ii) notify the party making the filing of any changes that must be made before the MOFCOM will issue a completion notice.
- Timing of MOFCOM Filing: No change. The new procedure will closely follow the old procedure under which the MOFCOM approval will be required as a pre-condition to the application for the new or revised business license with the SAIC.
- Filing Procedure: No change. In general, the electronic filing procedure will, at least initially, only be available for matters not covered by the negative list. Thus, investors or the FIEs will need to follow the old format and submit their applications directly to the MOFCOM for review and approval.
- Effectiveness of Changes: No change. No changes will be effective until the MOFCOM approves the investment or change.
- Timing of MOFCOM Reply: No change: usually around 20 working days to complete.
The negative list is, as yet, unpublished, but it should be made available before October 1, 2016. However, and in light of the fact that MOFCOM has already issued the Interim Measures, investors should expect this new legislation to be implemented fairly quickly. This is especially true given that this system has already been successfully tried out on a pilot basis in special zones that were created in several major cities across China over the past several years.