The PRC State Administration for Industry and Commerce (“SAIC”) released a decision on April 29, 2016 to abolish 10 and amend 4 SAIC regulations with effect on the same day (“Decision”).

The purpose of the Decision is “administration streamlining, power delegation and service optimization” concerning SAIC’s competencies and work. This is in line with recent political reforms.

Key changes concern liaison offices and equity pledges of foreign invested enterprises (FIEs).

You may need to know:

  • Abolishment of SAIC registration for FIE’s liaison offices confirmed

The registration requirement for liaison offices established by FIEs was originally declared as abolished in a notice released by SAIC jointly with various other authorities in 2006 following the amendment of the PRC Company Law at that time. SAIC now reflected this also in theImplementing Rules to the Administrative Regulations on Registration of Enterprise Legal Person(last amendment in February 2014) to make legislation consistent.

Mandatory laws on the operation of liaison offices still exist. Liaison offices are in particular not permitted to engage in any “business activities” (经营活动), but without defining this term in more detail. In local practice, any active business activities beyond mere liaison activities might be construed as not allowed “business activities”. The easy setup should not be misused by a head company to circumvent any statutory rules requiring a business set up. Whether a liaison office would be the most optimal option from both a legal and economic point of view to carry out the intended activity, needs to be evaluated in each individual case. Legally problematic for liaison offices is often the social insurance, especially work-related injury insurance, for its staff.

  • Abolishment of SAIC’s review of approval for FIE equity pledge

SAIC deleted Article 5, 2nd sentence of the Measures on Equity Pledge Registration with Administration for Industry and Commerce (“Equity Pledge Registration Measures”, promulgated in September 2008) regarding the prior approval requirement for FIE equity pledge as one of the conditions for SAIC to register the equity pledge. This deletion might be misunderstood as abolishment of the approval requirement for FIE equity pledge, but we would like to caution for the following reasons:

  1. It is not SAIC but the PRC Ministry of Commerce (and is local departments) (“MOFCOM”) that is in charge of the approval for FIE equity pledge, according to the Several Provisions on Changes of Investors’ Equities in Foreign-invested Enterprises (“FIE Equity Change Provisions”, promulgated jointly by the former Ministry of Foreign Trade and Economic Cooperation and SAIC in 1997), which are still valid.
  2. A pledge of FIEs’ equity (right in rem) is invalid if the approval by MOFCOM and filing by SAIC are not handled according to Article 12 of FIE Equity Change Provisions.

But information obtained via public telephone enquiries shows inconsistent practice being applied by different local departments of MOFCOM. While e.g. the Beijing Commission of Commerce still applies the FIE Equity Change Provision and requires prior approval for FIE equity pledge, Shanghai Commission of Commerce allegedly no longer requires such approval (but it would still process any application if submitted and would approve it optionally), According to its explanation,FIE equity pledges could now be registered by SAIC without MOFCOM’s approval. There are further legal arguments which support an approval and those, based on which the need for an approval can be rejected. Ideally, the FIE Equity Change Provision should now also be made consistent with the amended Equity Pledge Registration Measures, and other laws and regulations..

Other amended and abolished regulations in brief:

Amended

  • Administrative Measures on Registration of Foreign Countries (Regions)’ Enterprises Engaging in Production and Operation Business Within PRC
  • Administrative Measures on Delegation of FIE Registration Powers

Abolished

  • Detailed Implementing Rules to the Administrative Regulation on Advertisement
  • Interim Provisions on Administration for Industry and Commerce
  • Administrative Measures on Supervision of Individual Industrial and Commercial Households in Tourism Attractions
  • Implementing Measures of Madrid International Registration of Trademarks
  • Administrative Measures on Brokers
  • Interim Measures on Administration of Tabaco Advertising
  • Measures on Inspection of Operation Qualification for Advertising
  • Measures on Administration of Print Advertising
  • Administration Provisions on Registration of Outdoor Advertising
  • Administrative Measures on Trademark Agency