Since China started to attract foreign investment in the late 1970s, one common complaint from foreign investors has been China’s bureaucratic red tape – excessive regulations that subject foreign investment to prior governmental approval, which adds cost in terms of both financial resources and time. Recently, however, there have been promising developments regarding this issue.

On October 10, 2012, China’s State Council issued its “Decision on the Sixth Batch of Items Subject to Administrative Examination and Approval to be Cancelled or Adjusted” (the “Decision”). In the Decision, the State Council announced that it has decided to abolish 171 administrative items that were subject to approval by the central government and to grant lowerlevel government departments the power of approval for another 117 items. Seventeen more items will be merged into other approval items, and nine others will now be subject to fewer government approvals.  

Administrative examination and approval refers to the practice of administrative authorities granting individuals, legal entities, or other organizations the right to engage in specified activities according to prescribed legal review and approval process. This kind of approval used to be an important component of the PRC’s planned economy policy. With the development of a market economy, to achieve a leaner, more efficient, and service-centered government, the government began to reform its administrative approval procedures starting in 2001. The reform attempted to curb China’s over-regulated administrative approval system, which led to unnecessary government intervention and resulted in low market efficiency and more corruption.  

The Decision re-emphasized that the government should refrain from interfering with economic activities that individuals, enterprises, or other organizations can handle on their own, that the market mechanism can effectively adjust, or that industrial groups and agencies can manage. To date, 2497 administrative approval items, or 69.3% of the total, have been abolished or adjusted since China initiated its first round such reform in 2001. This sixth round of reform mainly covers investment and social projects with a special focus on the small and micro-size enterprises and private investments.  

Among the 314 administrative approval items to be abolished or adjusted in this round, 16 items related to foreign investment will be abolished, and 21 items related to foreign investment will be adjusted. These improvements will reduce government bureaucracy and create a more attractive investment environment.

For example, in the past, foreign invested banks and their branches were all subject to the approval of the Banking Regulatory Commission with respect to certain internal operations such as change of business place, change of working capital, or establishment of self-help banking business. Following the implementation of the Decision, these requirements will be abolished. The elimination of these governmental approvals is expected to provide a boost for foreign invested banks in China.

The following list contains items related to foreign investment which will no longer need to be reviewed or approved by PRC authorities:

  1. Foreigners’ entry into nature reserves regulated by local government under the administration of environmental protection authority;
  2. The establishment of permanent office(s) in China by foreign operators of international road transportation;
  3. The establishment of permanent representative office(s) in China by foreign vessel inspection institutes;
  4. Foreigners’ entry into nature reserves regulated by local government under the administration of fishery authority;
  5. The management of joint ventures by foreign enterprises, and by enterprises in Hong Kong, Macau, or Taiwan through contract or trust; 
  6. Export quota and license of products under foreign-invested projects;
  7. The sale, transfer, lease, or change of use for other purposes of motor vehicles imported free of duty by permanent offices and expatriates of foreigners; 
  8. Foreign party exemption from withholding income tax on interest accrued from loans to domestic party at favorable rates; 
  9. Granting tax exemption treatment to foreign governments and non-profit institutions, etc. for establishing representative office(s) in China; 
  10. Foreigners hunting and collecting specimens of terrestrial wildlife not under the primary protection of the state, or engaging in any similar activities in China;
  11. The change of working capital of branches of operating facilities of foreign-invested banks;
  12. The change of business place of operating facilities of foreign-invested banks and their branches; 
  13. The establishment of self-help banking business by domestic commercial banks, small- and medium-sized rural financial institutes, urban credit cooperatives, branches of foreign banks, wholly foreign-owned banks, Sino-foreign equity joint venture banks, etc.;
  14. Verification of chief representatives of representative offices in China of foreign securities institutions;
  15. Sino-foreign cooperation on non-tobacco franchising products between and among tobacco enterprises; and 
  16. The remittance out of China of net profits in foreign exchanges or in foreign currencies converted from Renminbi by foreign-invested banks, and domestic banks with foreign investment and ownership.

In addition, there are a few industries which are particularly attractive to foreign investors, including international vessel transportation, international express delivery business, operating show brokers, insurance brokers, auctioneering, media distribution, medical joint ventures, travel agencies, advertising, etc. In the past, the establishment of foreign invested enterprises in such industries required central government approval. After this round reform, approval may be granted by lower level government departments which, in practice, will make approvals much easier and quicker to obtain.

The following list contains items related to foreign investment which will be delegated to lower level authorities (i.e., from the ministry level to the provincial level):

  1. Foreigners’ entry into national nature reserves under the administration of fishery authorities;
  2. The establishment or amendment of registration of foreign-invested road passenger transportation enterprises;
  3. The establishment or amendment of registration of foreign-invested urban zoning service enterprises;
  4. The establishment or amendment of registration of foreign-invested import and export inspection and appraisal enterprises;
  5. The establishment or amendment of registration of foreign-invested international vessel transportation enterprises;
  6. The establishment or amendment of registration of foreign-invested international shipping agents;
  7. The establishment or amendment of registration of foreign-invested disk reproduction enterprises; 
  8. The establishment or amendment of registration of foreign-invested certification training and consultation enterprises; 
  9. The establishment or amendment of registration of foreign-invested international cargo forwarding agents involved in international express business; 
  10. The establishment or amendment of registration of foreign-invested operating show brokers;
  11. The establishment or amendment of registration of foreign-invested insurance brokers;
  12. The establishment or amendment of registration of foreign-invested auction enterprises;
  13. The establishment or amendment of registration of foreign-invested distributors of books, newspapers, and journals;
  14. The establishment or amendment of registration of foreign-invested enterprises specializing in online sales;
  15. The establishment or amendment of registration of foreign-invested enterprises selling through vending machines; 
  16. The establishment or amendment of registration of Sino-foreign equity or cooperative medical joint ventures; 
  17. The establishment or amendment of registration of Sino-foreign cooperative audiovisual product wholesale enterprises;
  18. The establishment or amendment of registration of wholly foreign-owned shipping companies; 
  19. The establishment of foreign-invested travel agencies (except for outbound travel);
  20. The establishment of branches of foreign-invested advertising enterprises; and
  21. Foreign-invested advertising enterprises.