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22 Jul 2015

New SAIC Rules Lift Controls on Foreign-Invested Advertising Enterprises

Recently, the State Administration of Industry and Commerce (“SAIC”) has issued the Decision on Abolishing the Administrative Provisions on Foreign-Invested Advertising Enterprises (Order No. 75 of SAIC, effective from the date of issue, the “Order No. 75”). Order No. 75 expressly abolished the Administrative Provisions on Foreign-Invested Advertising Enterprises (Order No. 35 of SAIC and the Ministry of Commerce, issued on 22 August 2008, the “Administrative Provisions”). The abolishment of the Administrative Provisions, which were previously the most significant obstacle for foreign-invested enterprises to conduct advertising businesses in China, means foreign capital will potentially be granted full access to the Chinese advertising industry. The background and main consequences of Order No. 75 are set out below.

Background

Early this year, the 14th session of the Standing Committee of the 12th National People's Congress adopted the newly amended Advertising Law, effective from 1 September 2015. The SAIC’s abolishment of the Administrative Provisions followed the “easy access but stringent regulation” regulatory principle required by the Advertising Law, which namely, reduced the barriers to entry and deregulated the entry of enterprises on the one hand, whilst improving the regulatory regime in the market and promoting the establishment of a fair market environment on the other hand. 

Cancellation of Prior Approval

Before the issuance of Order No. 75, under the Administrative Provisions, foreign investors who intended to establish foreign-invested enterprises engaging in advertising business in China were required to obtain prior approval by undertaking certain procedures. These procedures included: submitting relevant documents and materials and obtaining an Opinion on the Approval of Foreign-Invested Advertising Enterprise Project issued by the SAIC (or its authorized administration for industry and commerce at the provincial level), and subsequently applying to the relevant commerce departments and industry and commerce administrative departments for establishment and registration matters. After the abolishment of the Administrative Provisions, foreign investors can now directly handle the establishment and registration matters and they no longer need to apply for prior approval.

Cancellation of Qualification Restrictions

Before Order No. 75 was issued, under the Administrative Provisions, foreign investors who sought to establish a wholly foreign-owned advertising enterprise were required to be enterprises that were mainly engaged in the advertising business. They were also required to have established business operations for a period of over three years. All partners of Sino-Foreign equity joint ventures and Sino-Foreign contractual joint ventures were required to be enterprises engaged in the advertising business, and were required to have been in existence with business operations for over two years. They were also required to have a performance record in the advertising business. 

In addition, foreign invested enterprises had to meet the requirements relating to documents, procedures and qualifications set out in the Administrative Provisions when they engaged in mergers and acquisitions with inbound advertising enterprises. 

These regulations substantially affected the entry of foreign investors into the Chinese advertising industry. The issuance of Order No. 75 completely cancels such restrictions including the industry qualifications of the investors, requirements for advertising business performance and periods of established operations.

Summary

Order No. 75 is another significant step taken by the Chinese industry and commerce administrative departments in legislation to implement and give effect to the regulatory principle of “easy access but stringent regulation”. It removes regulatory barriers for the establishment of foreign invested advertising enterprises, and allows foreign invested non-advertising entities to potentially add “advertising business” to their business scope.  

We would recommend and advise that foreign investors and other relevant entities pay close attention to the changes to the relevant rules and regulations on advertising, and if appropriate to their own circumstances, actively consider expanding their business operations to include advertising. 

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