The Chinese Ministry of Commerce issued a decree introducing substantial changes to the current Chinese foreign investment regime on 28 October 2015. The decree primarily focuses on “foreign-invested enterprises” and includes the lifting of certain registered capital requirements and investment scale limitations. As a consequence, foreign investors now enjoy greater flexibility in structuring capitalisations and equity investments in China. Companies should check how the changes affect their business in China. We will of course continue to update you on this subject.
The new decree is primarily based on China’s “Company Law” and amends 29 administrative rules and normative documents concerning registered capital requirements, capital contribution installments, and Chinese holding company structures, among other things.
The minimum registered capital requirements for foreign-owned enterprises in a number of industries in China have been abolished. Foreign-invested venture capital firms, freight forwarding agency enterprises, commercial enterprises which operate retail shops, financial leasing companies and logistics enterprises no longer have minimum registered capital requirements. In addition, minimum registered capital requirements and minimum foreign shareholding ratios for companies limited by shares have been cancelled altogether.
Foreign-invested Chinese holding companies can now be established as a limited liability company or a company limited by shares, while a capital verification report is no longer a prerequisite for incorporation. Furthermore, the Decision annuls minimum registered capital requirements and limitations on the duration of full capital contributions for foreign-invested Chinese holding companies. Although requirements concerning the total asset size and investment scale of foreign direct investors remain unchanged, the new measures are likely to make it easier for medium-sized company groups to establish holding structures in China.
Finally, the Decision removes the limitation on the size of equity investments by foreign-invested enterprises. From now on, foreign-invested enterprises are allowed to make equity investments with an accumulated size exceeding 70% of their own registered capital. In addition, foreign-invested enterprises are now allowed to carry out domestic reinvestments irrespective of their capital contribution status and total size of assets.
The decree is the latest in a series of regulatory efforts to standardise China’s foreign investment regulatory regime in line with prevailing international practice. The removal of minimum registered capital requirements and investment size limitations for certain foreign-invested enterprises ensures that foreign investors enjoy greater flexibility in structuring capitalisations and equity investments according to their preferences. Although the old registered capital requirements for foreign-invested companies in China still await further legislative action, the changes recently introduced can be seen as another step in the right direction.