- A View from China: China Simplifies its Foreign Direct Investment Regulatory System
- December 21, 2016 | Authors: Calvin Ding; George Qi; Dawn (Dan) Zhang
- Law Firm: Greenberg Traurig, LLP - Shanghai Office
- On Sept. 3, 2016, the Standing Committee of the National People’s Congress issued its decision to amend the four statutes regarding enterprises funded by foreigners and Taiwanese investors, namely, the Foreign-Invested Enterprise Law, the Foreign-Sino Equity Joint Venture Law, the Foreign-Sino Contractual Joint Venture Law, and the Investment Protection Law for Taiwanese Compatriots. The amendment, taking effect from Oct. 1, 2016, will formally replace the existing approval regime with a filing system in respect to the establishment, certain changes and dissolution of foreign-invested enterprises (FIE). Also on Sept. 3, to enforce the proposed filing system, the Ministry of Commerce (MOFCOM) published its for-comment draft of the Interim Administrative Measures on Filing of Establishment and Change of Foreign-Invested Enterprises (the Draft Measures). Comments on the Draft Measures were accepted by MOFCOM until Sept. 22, 2016. A few key points of the Draft Measures are highlighted below.
- Reduced Paperwork and Shortened Time for Filing
- Scope of the Filing System and the Proposed Negative Sheet
Filing System Applicable to FIE Changes
The Draft Measures further require an FIE to file with MOFCOM changes to the following within 30 days after such change has occurred:
i.The FIE’s basic information, including its name, address, registered capital, composition of constituent institutions;
ii.The investor’s basic information, including its name and nationality, way and time of capital contribution, change or pledge of equity interest or shares, merger, acquisition, and termination;
iii.Transfer or pledge of corporate assets;
iv.Earlier retrieval of investment by investors from contractual joint ventures; and
v.Entrusted management of contractual joint ventures.
It is noteworthy that the Draft Measures mandate investors to disclose the “ultimate controller” of an FIE and file with MOFCOM any change thereof. However, the Draft Measures do not provide a definition or guideline to identify such “ultimate controllers.”
Enforcement of Filing System and Punishment
MOFCOM promised to enhance post-filing supervision of FIEs. The Draft Measures authorize MOFCOM to randomly select FIEs through a lottery system for inspection, which can include requesting and examining related materials of the FIEs. The FIEs who fail to comply with the filing requirements will be compelled to complete the filing, or in cases of repeated contraventions or other extreme scenarios, will be subject to a monetary fine of no more than RMB 30,000. The FIEs who violate the restrictive and prohibitive provisions under the negative sheet will be subject to a fine of no more than RMB 30,000 and the prohibited/restricted activity will be discontinued.
Despite the simplification, the amendment and the Draft Measures leave many other issues unanswered, such as whether the filing system will apply to a foreign investor’s acquisition of existing domestic corporations, whether the Catalogue of Industries for Guiding Foreign Investment will be repealed, and how to define and identify the “ultimate controller” of an FIE. To answer such questions, MOFCOM is expected to promulgate new regulations and alter, and even repeal, certain existing regulations concerning the FIE regulatory system in the near future.
- Decision of the Standing Committee of the National People’s Congress to Amend the Four Statutes including the Foreign Invested Enterprise Law of the People’s Republic of China
- Date of Issuance: September 3, 2016 / Effective Date: October 1, 2016
- Interim Administrative Measures on Filing of Establishment and Change of Foreign-Invested Enterprises (Draft for Comment)
- Issuing Authority: Ministry of Commerce
- Date of Issuance: Sept. 3, 2016 / Deadline for Comment: Sept. 22, 2016