From 1st October 2016, the Chinese government has modified the approval procedures for foreign businesses to improve the business environment by creating a fairer market for foreign firms.
The new simplification regime, adopted by China’s Ministry of Commerce, is a revision and extension of the existing administrative procedures for foreign investments in Shanghai, Guandong, Tianjin and Fujian as a result of the success of these four pilot zones in which the system was introduced in 2013.
The nationwide adoption of the record filing system will repeal the current pre-approval procedure required for a foreign investment enterprise with the Ministry of Commerce, provided that the foreign investment is not to be made in a restricted area.
Under the former regime, government approvals were required before new and updated business licenses could be obtained. Now, under the new procedures, companies only need to register online. However, enterprises are required to file significant corporate events such as formation, demerger, merger, liquidation, shareholder change, capital increase, and other changes made to their basic information.
This change will substantially reduce administrative burdens since the former pre-approval procedure involved detailed review of various legal documents (e.g., Articles of Association, share transfer agreement, feasibility study) and was time consuming. Online registration only takes 3 days, while the former procedures could last not less than 20 days. This would mean a 95% reduction in time once the new system is fully operational.
It should be noted that there are still a number of areas which remain in need of further clarification, and that other existing business regulations administrated by the Industrial and Commercial Bureau, State Administration of Foreign Exchange, and other industry sector bureaus will likely require revision.
There are some uncertainties as to how the new record filing system will be coordinated with other existing business regulations until certain issues are clarified. However, these changes demonstrate a continuing effort by the Chinese government to support and facilitate its “go global” strategy.
The simplified Ministry Of Commerce regime is expected to create a much more flexible regulatory environment for investors and foreign enterprises’ stating new businesses in China.