In order to implement the “integrated development of the Yangtze River Delta” which has been supported and promoted by President Xi Jinping as national strategy, the Shanghai Market Supervision Administration (“Shanghai MSA”), the Jiangsu MSA, the Zhejiang MSA and the Anhui MSA have recently jointly made and respectively published three trial measures in relation to foreign-invested enterprises (“FIEs”). These measures are the Administrative Measures on Permitting Domestic Natural Persons to Invest In and Establish FIEs (“Measures on Domestic Natural Persons Establishing FIEs”), the Trial Measures on Simplifying Registration Materials and Implementing Mutual Recognition of Subject Qualification Evidence Documents (“Measures on Simplifying ID Documents”) and the Trial Measures on Foreign Natural Persons Holding Permanent Resident ID Cards Establishing Science and Technology Enterprises (“Measures on Permanent Resident Foreigners Establishing Sci-tech Enterprises”). These three Measures will come into force on January 1, 2020 and remain valid until December 31, 2021 (“Validity Period”). They will apply within the territorial jurisdictions of Shanghai, Jiangsu, Zhejiang and Anhui (the “Territory”).
Below is an overview on the key content of the above Measures.
1. Measures on Domestic Natural Persons Establishing FIEs
Within the Validity Period and the Territory, Chinese domestic residents who hold an ID card of the People’s Republic of China will be permitted to invest in and establish foreign-invested enterprises jointly with foreign natural persons, enterprises or other organizations within the Territory. This means that Chinese domestic natural persons will be permitted to directly establish new Sino-foreign equity joint venture enterprises (“EJVs”) and Sino-foreign contractual joint venture enterprises (“CJVs”) with foreign investors, or to become direct shareholders of any existing FIEs. This is generally not permitted under the current Chinese laws on national level and administrative practice.
According to the current Law of the People’s Republic of China on Sino-foreign Equity Joint Ventures (“EJV Law”) and the Law of the People’s Republic of China on Sino-foreign Contractual Joint Ventures (“CJV Law”), which will anyway be abolished on January 1, 2020, EJVs and CJVs are defined as enterprises established by foreign enterprises, other economic organizations or individuals with “Chinese enterprises or other economic organizations”. The wording of the law literally excludes “Chinese natural persons” from establishment of greenfield EJVs and CJVs. Although the EJV Law and the CJV Law will be abolished on January 1, 2020, it would have been uncertain after such date, without the Measures on Domestic Natural Persons Establishing FIEs, whether Chinese domestic natural persons would be permitted to establish or invest in FIEs directly. This issue has now been clarified at least temporarily within the Territory and will very likely be regulated consistently on a national level soon.
2. Measures on Simplifying ID Documents
Within the Validity Period and the Territory, the formality requirements on identity documents of foreign investors, i.e. passports of foreign individuals and incorporation registration certificates of foreign companies (the “ID Documents”) will be simplified. Foreign investors, which have already established any FIEs within the Territory and submitted ID Documents in notarized and legalized form for such establishment, will not be required to submit any new ID documents in notarized and legalized form if they make new investments (i.e. greenfield establishment or acquiring existing companies) in any other provinces or cities within the Territory provided that the old ID Documents are still within their validity period. The foreign investors shall only provide either a photocopy of the old ID Documents they used for the existing FIEs within the Territory which shall be stamped with the archive stamp of the competent MSA, or a certificate issued by the competent MSA and photocopy of the old ID Documents.
It usually takes 2 – 3 weeks for foreign investors to have their ID documents notarized by the competent company registration authorities / public notaries, and further legalized by the competent Chinese embassy or consulate in their home country. This new rule will simplify the formalities for foreign investors to make further investments within the Territory.
3. Measures on Permanent Resident Foreigners Establishing Sci-tech Enterprises
Within the Validity Period and the Territory, foreigners holding a Permanent Resident ID Card will be permitted to use their Permanent Resident ID Card as their identity document to establish or invest in “sci-tech enterprises”. Sci-tech enterprises are enterprises engaging in development and transfer of technologies, technical consultancy, service and testing, or R&D, production and distribution of hi-tech products or services. The industrial sectors of the sci-tech enterprises shall not be subject to the “Negative List” administration and the legal forms of such enterprises are limited to limited liability companies, partnerships and sole proprietorship enterprises. Foreigners are encouraged to use their self-owned intellectual properties and proprietary technologies as capital contributions to invest in sci-tech enterprises.
These Measures will simplify the formalities for foreigners to invest in sci-tech enterprises as they will not need to undergo the lengthy process of notarization and legalization of their passports.