In order to supplement and implement the Further Improving the Utilization of Foreign Investment Several Opinions (the State Council Opinions) released by the State Council on 6 April 2010, the State Administration for Industry and Commerce (SAIC) and the National Development and Reform Commission (NDRC) have recently published relevant supplementary documents and notices.
SAIC: to serve FIEs
In the Fully Leveraging Industrial and Commercial Administrative Functions Further to Improve Services to the Development of Foreign Investment Enterprises Several Opinions (Gongshang Waiqizi [2010] No. 94) (the SAIC Opinions) issued by the SAIC on 7 May 2010, specific initiatives have been proposed to encourage foreign investment in the following five respects.
Encouraging foreigners to invest more
- The naming of groups formed by foreign companies of an investment nature will be closely regulated. The SAIC Opinions allow enterprise groups to abbreviate their names. A parent company may use the word “group” in its name, and with consent, subsidiaries and equity-invested companies may take the names of enterprise groups and their name abbreviations. This is consistent with Article 14 of the SAIC’s Management of the Registration of Enterprise Groups Interim Measures. In accordance with Article 28 of these Interim Measures, an FIE that sets up an enterprise group as a parent company is governed by the clauses of the Interim Measures regarding the set-up requirements and application documents.
- FIEs are encouraged to increase capital by means of their credit rights, subject to registration with the State Administration of Foreign Exchange and to the prior consent of the approval authorities. Any change in the method of capital contribution must also be registered.
- Foreign enterprises or individuals with cutting-edge technology and current management experience are encouraged to form partnerships in China.
- To complement Article 19 of the State Council Opinions, which addresses the temporary failure of properly operating FIEs to contribute capital in time due to short-term financial difficulties, the SAIC Opinions accordingly help FIEs in such situations to mitigate their financial problems by allowing them to change their contribution schedule, provided that they have paid up their initial registered capital, have no record of conviction and have gained the consent of the approval authorities.
Using foreign investment to best effect
- In order to support the development of foreign investment service enterprises, the SAIC Opinions provide that a wholly foreign-owned enterprise or a foreign investment enterprise in which the foreign party has a controlling stake, which uses the name of the foreign party and is engaged in contemporary service or high-tech industries, can use the word “China” in its name if its registered capital reaches RMB30 million.
- To encourage multinational corporations to set up functional offices and foreign investment service outsourcing companies, the SAIC Opinions allow these companies to use such words in their names and business scopes as can represent their functions and characteristics.
- To encourage FIEs to relocate to other regions, particularly due to the trend to switch from the eastern part to the central and western parts of China, the SAIC Opinions require the industrial and commercial departments in all places to provide efficient relocation registration services (see Switch of Domicile by Foreign Enterprises (I) and (II) in Volume 1 Issues 1 and 2 of China Business Law Journal for more detail on the switch of domicile within China by FIEs).
- In relation to foreign companies which participate in the reorganization, transformation, restructuring, merger or acquisition of Chinese domestic enterprises by means of equity investment, merger or acquisition, the SAIC Opinions take a supportive stance, but also require the industrial and commercial departments to “take an active role in jointly screening mergers and acquisitions involving foreign companies”.
- For energy-intensive, resource-intensive and highly polluting FIEs, or those with low or excessive production capacity, the SAIC Opinions stipulate that the relevant industrial and commercial departments should cooperate with other relevant departments in changing or cancelling the registration of such enterprises or revoking their business licences.
Improving service quality
- The SAIC Opinions propose improving the quality of registration services for FIEs and minimizing approval processes. For the registration of major foreign investment projects, the authorities must get involved early and assign specialist staff to process the registration, offer follow-up services and complete the registration as quickly as possible.
- To increase the efficiency of the registration of FIEs, it is necessary gradually to carry out on-line submission of registration documents and on-line pre-screening as a one-stop service.
Creating a good market environment
- The SAIC Opinions seek to strengthen the enforcement of competition law and strictly investigate unfair competition cases involving the violation of the rights and interests of FIEs.
- The SAIC Opinions seek to protect the trademark rights of FIEs effectively by continuing to speed up the review of trademark registrations, stepping up trademark protection and trying foreign trademark review cases impartially and according to law.
- As to administrative licensing, the provincial administrations for industry and commence are authorized by the SAIC Opinions to approve foreign investment advertising companies, and to offer support to the development of foreign investment automobile sales companies.
- Moreover, the SAIC Opinions also stress the use of different means of administrative guidance during administrative law enforcement against FIEs.
Improving service mechanisms
- To facilitate FIEs registering at their nearest register offices, the SAIC Opinions propose the grant of rights to approve FIE registration to industrial and commercial administrations in the central and western regions as well as in national-level economic and technological development zones and high-tech industrial development zones where large numbers of FIEs are located. Territorial control over FIEs will also be enhanced.
- The SAIC Opinions also point to the need to increase the consistency of law enforcement and supervision, properly exercise discretion and establish a working mechanism for receiving complaints from FIEs and dealing with their problems according to the law.
Decentralizing approval authority
- On 4 May 2010, the NDRC published the Decentralization of Authority to Approve Foreign Investment Projects Notice, adding the following supplementary provisions to Article 16 of the State Council Opinions regarding delegation of authority.
- The State Council Opinions stipulate that any projects involving a total investment (including capital increases) of less than US$300 million under the encouraged and permitted project categories of the Foreign Investment Industrial Guidance Catalogue are to be approved by the relevant departments of the State Council. But the relevant departments of local governments, i.e. provincial development and reform commissions, are also delegated with the authority to approve these projects.
- Following the delegation of approval authority, project application reports as well as the details of projects, approval requirements and procedures in respect of foreign investment projects should continue to be handled in accordance with the Approval of Foreign Investment Projects Interim Administrative Measures.
- Approval authority is delegated for any projects under the encouraged and permitted project categories in the Foreign Investment Industrial Guidance Catalogue, while authority is not delegated for any projects under the restricted project category unless otherwise provided by legislation.
