In order to further implement the Several Opinions on Further Improving the Utilization of Foreign Investment issued by China’s State Council in April 2010, National Development and Reform Commission (“NDRC”) and State Administration on Industry and Commerce (“SAIC”) promulgated regulations that improve and simplify their administration on foreign investment. Although many provisions in the implementation regulations either reiterate the existing regulatory regime or are high-level policies without implementation details, they do contain some concrete provisions that immediately benefit foreign investors. Highlights of the regulations are:

NDRC Delegates Approval Authority and Improves Approval Procedures

On May 4, 2010 NDRC issued a Circular on Doing a Good Job of Delegating the Foreigninvestment Project Approval Authorities (the “NDRC Circular”), which delegates NDRC’s foreign-investment project approval authorities to NDRC’s counterparts at provincial levels and requires all levels of NDRC to improve their project approval procedures.

Generally, instead of applying to the NDRC, foreign investors can now apply directly to provincial NDRC branches for approval of “encouraged” or “permitted” investment projects under the 2007 Foreign Investment Industrial Guidance Catalogue (the “Catalogue”) if their investment (including capital increase) exceeds US$100 million. Before the NDRC Circular, provincial NDRC branches’ authority to approve “encouraged” and “permitted” projects was limited to those with total investment of up to and including US$100 million. For the time being, NDRC retains its authority to approve “restricted” projects under the Catalogue with total investment above US$50 million.

The NDRC Circular also requires NDRCs at every level to improve their project approval procedures by simplifying the approval steps, reducing the approval time and increasing the transparency of approvals.

The delegation of approval authority and improvements to the approval procedures seem likely to create benefits in efficiency. However, a drawback of local approval may be that variation will develop among local authorities as to approval time and the approval steps that are required in practice.

SAIC Simplifies and Improves Business License Registration Procedures

On May 7, 2010 SAIC issued the Several Opinions on Fully Utilizing the Industrial and Commercial Administrative Functions to Improve Services for Foreign-invested Enterprises (the “SAIC Opinions”). Highlights in the SAIC Opinions are measures that diversify and improve methods of contributing toward an FIE’s registered capital, and simplify foreign-invested enterprises’ (“FIEs”) business license registration procedures.

Foreign investors now have a new option in contributing toward the increased capital of their FIEs. Under the SAIC Opinions, foreign investors may convert the loans they issued to the FIE into equity. However, such new use of foreign debt must be approved by and registered with the State Administration of Foreign Exchange (“SAFE”) before local SAIC branches can amend business licenses to reflect the increased capital. SAFE is expected to issue relevant regulations that govern the approval of such use of foreign debt.

The SAIC Opinions also relaxed FIEs’ capital contribution obligations by allowing FIEs to apply for an extension in registered capital contribution deadline if they face a shortage in funds, provided that the FIE has made the initial registered capital payment and has no records of illegal activity. The SAIC branches shall promptly revise the payment schedule upon examination and approval of the application.

The SAIC Opinions require the local SAIC branches to reduce the number of steps for registering an FIE’s business license and prioritize the registration of foreign investment projects that the central or local SAIC branches determine to be “significant.” Some SAIC branches have issued lists that identify the types of significant projects, but currently there are no uniform guidelines that define “significant” projects. Local SAIC branches are expected to issue further regulations that address this issue.

Please refer to the full text of the NDRC Circular via the following Chinese language link:

http://www.sdpc.gov.cn/zcfb/zcfbtz/2010tz/t20100507_345477.htm

Please refer to the full text of the SAIC Opinions via the following Chinese language link:

http://www.saic.gov.cn/zwgk/zyfb/zjwj/wstzqyj/201005/t20100512_ 84707.html