On September 22, 2008, the State Administration for Industry and Commerce (SAIC) and the Ministry of Commerce (MOFCOM) promulgated the Provisions on the Administration of Foreign- Invested Advertising Enterprises (FIAEs) (the 2008 Provisions). The 2008 Provisions took effect on October 1, 2008 and replaced their predecessor promulgated on March 2, 2004 (the 2004 Provisions).

The Procedure to Establish an FIAE Under the 2008 Provisions

Under the 2008 Provisions, an FIAE can be structured as a Sino-foreign equity joint venture or Sino-foreign cooperative joint venture (collectively, a Joint Venture) or as a wholly foreign-owned enterprise (a WFOE) governed by relevant PRC laws and regulations. Subject to government approval, an FIAE may provide advertising services such as designing, producing and publishing domestic and foreign advertisements. The SAIC or provincial-level administrations for industry and commerce (AIC) authorized by the SAIC verify and approve the specific business scope of an FIAE.

The investors must satisfy certain requirements to establish an FIAE. In the case of a Joint Venture, the investors must (1) be enterprises that are engaged in the advertising business; (2) have operated for no less than two years; and (3) have achieved results in the advertising industry. In the case of a WFOE, the investors must (1) be enterprises that are engaged primarily in the advertising business and (2) have operated for no less than three years. In general, under the 2008 Provisions, establishing an FIAE involves the following steps:

(a) The SAIC or the provincial-level AICs authorized by the SAIC (the Approval Authority) reviews and approves the investors’ project proposal, feasibility study report and other required application documents. The Approval Authority is required to issue a project opinion letter concerning the proposed FIAE (the Project Opinion Letter) within 20 days of its receipt of the application documents.

(b) Upon issuance of the Project Opinion Letter, the application dossier is submitted to the provincial-level commerce authorities, who then review the proposed FIAE’s articles of association and joint venture contracts. If they are satisfied with the application, the commerce authorities issue a Foreign-Invested Enterprise Approval Certificate (Approval Certificate) to the investors.

(c) The investors submit the Project Opinion Letter, Approval Certificate and other required documents to the SAIC or qualified local AIC for registration and issuance of a business license.

Comparison of the 2008 Provisions and 2004 Provisions

The 2008 Provisions reflect the Chinese government’s attempt to liberalize foreign investment in the advertising industry by removing the restrictions on equity holdings and streamlining the examination and approval procedures for establishing an FIAE.

Under the 2004 Provisions, foreign investors were allowed to control up to 70 percent of the equity interest in a Joint Venture advertising enterprise. The 2008 Provisions remove the 70 percent equity holding cap.

The 2004 and 2008 Provisions also apply to Hong Kong, Macau, and Taiwan investors. Since January 1, 2004, Hong Kong and Macau service providers have been permitted to control 100 percent of the equity interest in advertising enterprises in the mainland according to the closer economic partnership arrangements (CEPAs) between the mainland and Hong Kong and Macau. According to the 2004 and 2008 Provisions, Hong Kong and Macau investors must fall within the definition of “service providers” under the CEPAs, and they must be corporate legal persons operating advertising businesses.

Under the 2004 Provisions, foreign investors in a WFOE advertising enterprise must apply to the SAIC in Beijing for a Project Opinion Letter. The 2008 Provisions, however, permit foreign investors to apply to either the SAIC or SAIC-authorized provincial-level AICs to issue the letter. The 2008 Provisions also simplify the commerce authorities’ approval process. Under the 2004 Provisions, in the case of a WFOE, the provincial-level commerce authorities would conduct a preliminary review of foreign investors’ applications, and then transfer the application to MOFCOM for the issuance of an Approval Certificate. Now, under the 2008 Provisions, the provincial-level commerce authorities decide whether or not to issue an Approval Certificate. In addition, the provincial-level commerce authorities must make their decision within 20 days of their receipt of the application documents. In practice, this delegation of the final approval decision will substantially expedite the FIAE establishment process.

In the case of the establishment of a Joint Venture advertising enterprise, both the 2004 and 2008 Provisions require that the primary Chinese party in the Joint Venture initially apply to a qualified local AIC. The local AIC provides a preliminary opinion, and transfers the application to the authorized provincial-level AIC, which may verify and approve the application, or else transfer it to the SAIC for its approval. Neither Provisions specify the circumstances under which an application goes all the way up to the SAIC.

Conclusion

Although the Chinese government still heavily regulates the advertising industry in China, it is trying to expand the room for foreign investment in the industry. The Chinese government has also streamlined the examination and approval procedures for FIAEs by delegating responsibility from the central level to provincial levels.