China has made changes to encourage foreign investment. On 28 October 2015, the Ministry of Commerce issued the “Decision of the Ministry of Commerce on Revising Certain Regulations and Normative Documents” (Ministry of Commerce 2015 No.2, hereby referred to as the Decision). This amended and reformed the system for registered capital in 29 pieces of regulation and normative documents. The Decision came into effect on the date it was issued.

The amendment was made to implement new policy for registered capital and to simplify industrial and commercial registration laid out in the “Circular of the State Council on Printing and Issuing Reform Proposals for the Registered Capital Registration System” (issued by State Council [2014] No.7) and the “Notice of the General Office of the State Council on Accelerating the Implementation of the Relevant Matters Concerning the Reform of the Registration System for Registered Capital” (Notice of the General Office of the State Council [2015] No.14). The key aim of the Decision is to promote foreign investment in PRC by eliminating restrictions on such things as registered capital, period of investment and initial capital contribution ratio, as well as simplifying annual inspections and other registration matters. Below is a summary of the main amendments set out in the Decision.

Amendments to the regulations governing establishment, registration and annual inspection of foreign invested enterprises

1. Foreign Invested Joint-Stock Companies

Abolishing the requirements that:

  • The registered capital of a company must be at least 30 million RMB and the value of the foreign capital no less than 25% of total registered capital.
  • The registered capital must be paid up within 90 days of the approval date.
  • The promoters must pay for the subscription of shares before they can establish boards of directors and supervisors and register the company’s founding documents.
  • The promoters must pay for the subscription of shares before they can apply to transform Sino-foreign joint equity ventures, Sino-foreign joint cooperative ventures and solely foreign funded enterprises into companies.
  • The promoters must pay for their shares before they can apply to transform state-owned and collective enterprises into companies.

2. Investment Companies Established by Foreign Investors

  • Foreign funded investment companies may now adopt the forms of a limited liability or joint stock limited company, and are no longer limited to the former
  • Registered capital may be less than 30 million USD.
  • The company need no longer pay USD 30 million within 2 years of establishment and pay the remainder within 5 years.
  • When setting up, submission of a capital verification report from a Chinese CPA on the enterprise it invests in is no longer needed
  • The investments need no longer be fully paid up within 2 years
  • When applying for running a specific business, a capital verification report by a Chinese CPA on the investee enterprise is no longer needed
  • When applying for the annual joint examination by Chinese authorities, information from the previous year on its investment and operation need no longer be filed.

3. Foreign Venture Capital Enterprises

The amendments have removed a number of requirements

  • Investors are no longer subject to minimum capital subscriptions (except for those categorized as “indispensable” investors) whether in non-legal-person or incorporated venture capital entities.
  • Payment of subscribed capital by installments within 5 years is now not necessary
  • An investor may reduce its subscribed amount of capital during the life of a venture capital enterprise without needing to maintain a minimum registered capital.
  • There is no longer a minimum registered capital or total investment requirement for venture capital management firms.
  • The certificate showing that the venture capital enterprise has registered its previous year’s fund raising and utilization is no longer needed to complete the annual joint examination .

4. Foreign Commercial Enterprises

  • The prerequisite that foreign businesses must have paid up registered capital and have participated in the annual joint inspection of foreign owned enterprises on time and passed the annual inspection to set up stores is abolished.
  • If established foreign invested businesses are applying to set up stores they no longer need to file a capital verification report.

Amendments to the regulations governing mergers, division, and investment of foreign capital within the PRC

1. Merger and Division of Foreign Invested Enterprises

  • Entities may now freely merge or split up without having fully paid up capital, completing cooperation conditions or commencing production or operation.
  • II. Merger or divestment can occur without the filing of a capital verification report from the previous year. 

2. Reinvestment by Foreign Invested Enterprises within the PRC

  • The requirement that a foreign invested enterprise may reinvest in the PRC only after its registered capital has been paid up and verified is abolished.
  • The investment amount may now exceed 50% of the company’s net assets.
  • If a foreign business is investing in the ‘Encouraged’ or ‘Permitted’ industry categories, it need not file a verification report proving that its registered capital has been paid up.

3. Foreign Invested Enterprise Making a Capital Contribution with Equity

  • The requirement that the equity of a foreign invested firm cannot be used as its capital contribution if that firm’s registered capital has not been paid up is abolished.
  • The equity of a foreign invested company may now be used as a capital contribution even if that firm did not participate in or failed to pass the foreign invested enterprises’ annual joint inspection for the preceding year.
  • The requirement that an invested enterprise’s capital contributed with equity or other non-cash consideration shall not exceed 70% of its registered capital is abolished.
  • An investor intending to pay up capital with equity, need no longer apply for approval with a certificate evidencing that it has passed the foreign invested enterprises’ annual joint inspection.

4. Listed Company Strategic Investment

  • Where foreign capital does a private placement for shares in a listed company, it is no longer required to obtain the Ministry of Commerce’s permission in principle, before applying for the China Securities Regulatory Commission’s approval.

Abolition of the minimum registered capital in selected industries

1. Auction Enterprises

  • The registered capital minimum has been removed.
  • Auction branches no longer need a minimum amount of cash or assets.

2. Foreign Leasing Industry

  • The registered capital requirement has been abolished.

3. Foreign International Freight Agents

  • The registered capital requirement has been abolished.
  • The setting up of branch offices of foreign invested international freight agents no longer requires a capital verification report.

4. Wholesaling and Storage of Refined Oil

  • The requirements for registered capital have been abolished. 

5. Sale and Storage of Crude Oil

  • The registered capital requirements have been abolished. 

6. Foreign Engineering Contractors

  • The registered capital requirements for all companies engaging in engineering and construction have been removed. 

7. Foreign Aid Material

  • The registered capital requirement for enterprises that apply for an enterprise qualification (A grade or B grade) to carry out projects with foreign aid material has abolished.

8. Foreign Logistics

  • The registered capital requirement has been abolished. 

9. Commercial Factoring

  • The requirement for registered capital has been abolished, including for companies in the Chongqing Liangjiang New Area, South Jiangsu Modernized Development Model Area and Suzhou Industrial Park.