On 3 September 2016, the Standing Committee of the PRC National People's Congress adopted a decision to revise the three laws governing foreign invested enterprises in China, i.e. the PRC Law on Wholly Foreign-owned Enterprises, the PRC Law on Sino-Foreign Equity Joint Ventures and the PRC Law on Sino-Foreign Cooperative Joint Ventures (collectively “FIE Laws”). The following clause was newly added into the FIE laws respectively: “The approval and examination procedures for foreign invested enterprises (“FIEs”) shall be replaced by recordal procedures if such FIEs are not listed in the Negative List. The Negative List is to be published by the State Council”. The amended FIE Laws will take effect on 1 October 2016.
On the same day, the PRC Ministry of Commerce published the Provisional Measures on Management of the Establishment and Changes of Foreign Invested Enterprises (Draft) (“Draft Provisional Measures”) for public comments until 22 September 2016. The Draft Measures stipulate the rules for recordal procedures for establishment and changes of those FIEs whose industries are not included in the Negative List.
We summarise the key content of the Draft Provisional Measures below:
1. New establishment of FIEs which do not fall in the Negative List
Upon completion of the name pre-registration, the establishment of a new FIE shall be filed for recordal with the competent examination and approval authority (“Authority of Commerce”) either by the authorised representative of the foreign investor before the issuance of the FIE’s business license or within 30 days after the issuance of the FIE’s business license by the authorised representative of the newly established FIE.
2. Changes in FIEs which do not fall in the Negative List
In case of the following changes, an FIE shall file these changes for recordal with the competent Authority of Commerce within 30 days after the occurrence of the changes:
•general information of the FIE: name, address, company type, business term, business scope, registered capital and total amount of investment;
•general information of the shareholder: name, address, registration number, shareholding ratio, capital contribution term and method;
•change of rights of shares, including share pledge;
•merger, spin-off and termination;
•mortgage or transfer of property rights; and
•advance recovery of investment by a foreign shareholder and commissioned management of Sino-foreign Cooperative Joint Venture.
3. Method and timeline for recordal procedures
The recordal procedures for establishment and changes of FIEs shall be handled through the online platform of the competent Authority of Commerce by uploading the relevant application documents. It will take the Authority of Commerce three working days to complete the recordal procedures after full information has been submitted.
4.New certificate to be issued
Upon completion of the recordal procedures, the competent Authority of Commerce will not issue an Approval Letter and a Certificate of Approval any longer. Instead, a relevant recordal certificate will be issued to the FIE.
Please note that for those FIEs listed in the Negative List, the current examination and approval procedures remain unchanged.
Starting from 2013, the free trade zones (“FTZs”) in Shanghai, Tianjin, Guangdong and Fujian Provinces have already replaced the examination and approval procedures with recordal procedures for such FIEs which do not fall in the FTZs Negative List. The amended FIE Laws and the Draft Provisional Measures mirror the measures implemented in the FTZs and aim at shortening the time frame for foreign investment in China as well as enhancing the certainty of transactions involving FIEs. Once and if implemented, the shift to the Negative List system will be a huge step forward in further liberalisation of foreign direct investment into China.
To implement the amended FIE Laws, it is expected that the State Council will issue a new nationwide Negative List soon. Further, it is also expected that the Draft Provisional Measures will be officially promulgated within short time.