A Revision to the Law of the People’s Republic of China on Wholly Foreign-Owned Enterprises (“WFOEs”) came into effective on October 1, 2016. A new article was added as Article 23, which stipulates that: Where the establishment of wholly foreign-owned enterprises does not involve the implementation of special access administrative measures prescribed by the State, the approval items stipulated in Article 6, Article 10 and Article 20 of this Law are subject to record-filing management. The special access administrative measures prescribed by the State shall be promulgated by or approved for promulgation by the State Council.
In the past, we usually followed the Catalogue for the Guidance of Foreign Investment Industries to define whether an industry is encouraged, restricted or prohibited to be operated by a WFOE, and then we would choose the right ones to build up the WFOE’s business scope. The formation or any change of WFOE’s business scope would have been approved by the State Council department in charge of foreign trade and economic relations or an agency authorized by the State Council. Normally, we had to submit the applications to both the commerce bureau and the AIC for approval and registration.
Now, the so called “special access administrative measures” in the Revision regulates and manages the industries in which the establishment of WFOEs is prohibited or restricted. The new Revision allows those WFOEs which intend to operate in the encouraged industries to only go through a record-filing procedure.
This simplifies the approval of foreign business investments and also eases the burden of the WFOEs with regards to making applications before different authorities for the same issue. Making foreign investments more convenient will help boost the economy. There is no doubt that the Revision is targeted at attracting more foreign investments.