Foreign investors into china should be aware that the country’s foreign investment regulation is changing from an approval regime to a record-filing system. Peter Zhang, an experienced in-house counsel in a foreign-invested company, analyzes the practical implications
The Standing Committee of the National People’s Congress on 3 September 2016 adopted a decision to amend four laws, including the Law on Wholly Foreign-Owned Enterprises. Pursuant to the decision, where the establishment of, and changes in, a foreign-invested enterprise does/do not involve implementation of the special administrative measures for access specified by the state, the record-filing system will apply rather than the approval system.
Not long after that, the Ministry of Commerce (MOFCOM) issued the Interim Administrative Measures for the Record-filing of the Establishment of, and Changes in, Foreign-Invested Enterprises. On 8 October 2016, the State Administration for Industry and Commerce published the Notice on Duly Carrying Out Relevant Registration Work after Implementation of the Administration of Foreign-Invested Enterprises by Way of Record-filing.
This foreign investment administration regime is moving in a more relaxed and simplified direction. Although what is involved is a small part of the routine legal work of a corporate counsel, slackening in compliance management is not advisable. As legal practice relating to the establishment of, and changes in, foreign-invested enterprises is not unfamiliar to corporate counsel, this article addresses a few practice issues that are deserving of special attention.
Concurrent existence of approval and record-filing. After the change from the approval system to the record-filing system, the approval system will continue to exist in those sectors that are subject to administration of access. Pursuant to article 2 of the interim measures, administration by record-filing applies only to foreign-invested enterprises that are not subject to implementation of the special administrative measures for access specified by the state.
The so-called sectors in which the special administrative measures are implemented are those where what we commonly refer to as the negative list apply. More specifically, what is meant is that administration by approval will continue to be implemented in those sectors falling within the restricted category and prohibited category of the Catalogue for Guiding Foreign Investment in Industry (as amended in 2015), as well as those with equity requirements in the encouraged category. All of these sectors are subject to administration of access, regardless of the size of the investment, and regardless of whether the investment is a new investment or is one effected by way of an acquisition.
PETER ZHANG is the general counsel of Sony Mobile Communications (China) and a member of Asia Business Law Journal’s editorial board