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11 Oct 2016

China Officially Cancels Overall Approval Regime for Foreign Investment

On 8 October 2016, the Ministry of Commerce (MOFCOM) officially released the Interim Measures for Record-Filing Administration for the Establishment and Change of Foreign-Invested Enterprises (Measures, Order No. 3 of 2016, effective as of the date of release) after seeking public comments this September. On the same day, the National Development and Reform Commission (NDRC) and MOFCOM jointly issued an announcement (Announcement, No. 22 of 2016) specifying the scope of the special measures for the administration of market entry through foreign investment (Negative List) which will serve as the basis for the implementation of the Measures. The release of the Measures and the Announcement signifies that China's foreign investment administration system has been officially changed from the approval regime that has been used for nearly 40 years to a record-filing regime, and is of great significance for facilitating and promoting foreign investment.

1. Record-filing Regime 

According to the Measures, except in some special circumstances (as detailed below), foreign investment in China and relevant changes of foreign-invested enterprises (FIEs) will only require AIC registration or changes thereof, as compared to the current system of receiving prior approval from the competent MOFCOM branch. Further, FIEs may undergo record-filing procedures with the local MOFCOM branch within 30 days following an establishment or change, which greatly simplifies the overall process. After the reform is fully implemented, it is predicted that most of the approvals needed for the establishment and change of FIEs will be cancelled.

2. Exceptions

Exceptions to the record-filing regime mainly include: items specified in the Negative List (which remain subject to the previous approval regime), mergers and acquisitions of purely domestic enterprises (i.e., no prior foreign investment) by foreign investors (which will remain subject to, among others, the Provisions on the Merger and Acquisition of Domestic Enterprises by Foreign Investors currently in effect), and mergers and acquisitions of domestic listed companies by foreign investors (which will remain subject to, among others, theAdministrative Measures for Strategic Investment by Foreign Investors in Listed Companies currently in effect).

3. Negative List 

According to the Announcement, the Negative List will be implemented pursuant to relevant provisions of the Catalogue for the Guidance of Foreign Investment Industries (amended in 2015) (Catalogue) on restricted and prohibited foreign investment industries, as well as encouraged industries with specific equity ownership and senior executive requirements.Compared to the negative lists currently used in China’s free trade zones (FTZs), there are more restricted and prohibited industries in the Catalogue. It is expected that the NDRC and MOFCOM will further revise the Catalogue in the near future to allow foreign investment in more industries.

4. Matters Requiring Record-filing 

Matters subject to record-filing, as specified in Article 6 of the Measures, are essentially the same as those in the Administrative Measures for the Record-Filing of Foreign Investment in Pilot Free Trade Zones (for Trial Implementation) released on 8 April 2015 by MOFCOM. Some additional information required for filing includes industries, business type (such as domestic resident round-trip investment, investment in investment companies, investment in venture capital companies and investment in equity investment companies), the actual beneficial owner, and other related matters. Thus, the Measures have made certain adjustments to the current FTZ record-filing regimes when implementing the regime nationwide.

5. Competent Authorities

Under the approval regime, MOFCOM was the main authority in charge of foreign investment administration, with the AIC, taxation, customs, foreign exchange and securities authorities using the approval opinions of MOFCOM as the basis for administration. After the implementation of the record-filing regime, most foreign investments will be subject to the review of the competent AIC (which will play a significant role) and record-filing with the local MOFCOM (which will only play a complementary role).

In summary, the release of the Measures and the Announcement marks a new era for China’s foreign investment administration system, and will play a significant role in promoting foreign investment in China. It also lays a solid foundation for the future promulgation and implementation of a new Foreign Investment Law

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