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China Reforms Foreign Invested Enterprise System

This article is extracted from Global Insight - April 2017, Nexia International

The Chinese Government has announced a number of reforms to the rules around Foreign Invested Enterprises aimed at attracting foreign investment.

China has historically used its four regional Free Trade Zones (FTZs) to carry out trial reforms of the regulations that govern the establishment of Foreign Invested Enterprises (FIEs). If successful, they tend to be rolled out nationwide. In September 2016, national revisions to the four major FIE laws and supporting measures were released.

Simple changes with profound impact

The most significant change applies to any FIE business that is not restricted or prohibited as described in the State Council’s yet-to-be-published ‘negative list’, which is modelled on FTZ negative lists. Unrestricted FIEs may be established and registered at the local State.

Administration of Industry and Commerce (SAIC) level without having to first apply for Ministry of Commerce (MOFCOM) approval. Furthermore, whereas previous rules required MOFCOM approval to change the FIE’s legal representative, registered capital, or business scope, the revised laws now allow for such matters to be handled through record filing at the local SAIC level.

Online record filing and applications

To streamline the FIE registration process, MOFCOM is establishing an online ‘integrated management system’, through which FIEs may handle applications and other setup or change matters, including uploading supporting documentation. Local SAIC branches will monitor the record filing process and issue relevant acknowledgements and registration certificates. Additionally, the SAIC has announced plans to develop and use a corporate name database system, which new FIEs can use to perform their own company name check and application. These moves toward online systems are expected to greatly reduce the amount of time required to establish or make changes to an FIE.

Looking to the future

The Chinese Government views foreign investment as vital for the country’s economy, not only for foreign capital injection, but also for continuous improvement or introduction of new technology for manufacturing, energy development or environmental protection. So it is assumed that the reforms outlined above are only the beginning when it comes to easing restrictions or regulations on FIEs. Other areas of reform in the FTZs include easing regulations on trade, foreign currency and the renminbi. If these trial reforms are successful, they will no doubt be rolled out across the country.

 

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