On August 5, 2008, the Ministry of Commerce (MOFCOM) issued the Circular on Delegating Matters Concerning Amendments to, and Examination and Approval of, Foreign-Invested Companies Limited by Shares and Foreign-Invested Enterprises (the Circular), which went into effect on August 11. The Circular changes the level of authority that is responsible for examining and approving the establishment of and amendments to foreign-invested companies limited by shares and foreign-invested enterprises in general.

Previously, to increase the investment amount and registered capital of a foreign-invested company that was originally established through MOFCOM’s approval, the investors had to seek approval of the increase from MOFCOM. Now, however, the Circular states that the investors of such a company need only obtain approval of the increase from the provincial-level commerce department, so long as the increase is less than US$100 million for an encouraged or permitted industry in the Catalogue for the Guidance of Foreign Investment Industries (the Catalogue), or less than $50 million for a restricted industry in the Catalogue. If the provincial-level commerce authorities approve the increase, then they must file their decision with MOFCOM.

Under current regulations, whether the original establishment of a foreign-invested company may be approved by a provincial level commerce department or whether such establishment requires MOFCOM’s approval depends on the company’s industry and investment amount. The establishment of a foreign-invested company that does business in the encouraged or permitted category in the Catalogue, which is issued and periodically updated by MOFCOM and the National Development and Reform Commission (NDRC), requires MOFCOM’s review if the total investment is US$100 million or more. As for the establishment of a foreign-invested company that is engaged in an industry within the restricted category, however, the investment threshold for MOFCOM’s review is only $50 million (the Limit).

Before the Circular, approval for the incorporation of a foreign-invested company limited by shares was a two-step process: first, the company had to obtain the provincial-level commerce department’s consent for its incorporation, and then it had to await MOFCOM’s assessment and approval. Now, however, the Circular provides that the establishment of and amendments to foreign-invested companies limited by shares (including listed foreign-invested companies) need only be examined and approved by provincial-level commerce authorities, so long as their total investment and registered capital are less than the Limit.

Nonetheless, the Circular also states that enterprises in certain industries must continue to comply with the specific provisions that govern them. In addition, strategic investments in listed companies by foreign investors still have to be examined and approved by MOFCOM.