Problems relating to Trade and Investment on China
1. Restrictions on entry of foreign capitals |
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Issue |
Issue details |
Requests |
Reference |
| (1) Areas Foreign Investment is prohibited or restricted | - In the area of encouraged, restricted, prohibited categories in the catalogue of industries for guiding foreign investment (as Revised 2015), restricted, and prohibited categories that require deregulation, continue to exist. | - It is requested that the Government of China deregulates rare earth from the restricted category. | - Catalogue of Industries for Guiding Foreign Investment, as Revised 2015 CIGFI (issued on 1 December 2007) - Prohibited Category (2. Mining) and Restricted Category (3. Manufacture) and (9. Refining and Rolling of Non-Ferrous Metal Category) of Catalogue of Industries for Guiding Foreign Investment - Provisions of the State Council on the Standard for Declaration of Concentration of Business Operators - Provisions of MOC on the Implementation of the Security Review System for Mergers and Acquisitions of Domestic Enterprises by Foreign Investors |
| (Action) - On 28 June 1995, SDC/SETC/Ministry of Foreign Trade & Economic Cooperation promulgated, for the first time, Category of Industries Guiding Foreign Investments (CIGFI). Since then, CIGFI has gone through several amendments, the latest in 2015. CIGFI classifies foreign investors industry into three categories, Encouraged, Restricted and Prohibited. Industries excluded from CIGFI are deemed to be permitted unless specifically prohibited in laws and regulations. Foreign investors' enterprises investing in the Encouraged Category are authorised to invest subject to approval of the local authority at departmental level and certain restrictions. Foreign investors' enterprises may not invest into the Prohibited Category. - "Foreign Capital Utilization Work Policy" promulgated in 2007 incorporates, among others, the following objectives: 1) Upgrading of foreign capital utilization both in quality and level, 2) Maintaining continuity and stability in foreign capital investment policy, 3) Introduction of advanced technology, experienced high-level human resources and upgraded industrial structures, 4) Promotion on cooperative development of local economy through transfer of foreign investment policy in stages, and 5) Development of service industry through acceptance of outsourcing work. - State Development and Reform Commission promulgated CIGF on 1 December 2007, which was amended from the viewpoint of achieving the higher industrial structure, energy conservation and environmental protection for foreign investment. The List of CIGF promulgated in 2004 was repealed on the same date. The new CIGF, or the amended List, is characterized among others by the followings: 1) External liberalisation has been further expanded. Out of the 478 products listed in Encouraged Category (E-Cat), Encouraged Category (R-Cat) and Prohibited Category (P-Cat), 351 items are in E-Cat, up by 94 items from the previous list representing 73% of the total items listed up from 69%, while 87 items are in R-Cat down from 21% to 18%, and 40 items in P-Cat down from 9% to 8%. 2) PRC has incorporated in CIGF liberalisation of the specified categories and the equity ratio by FFEs in pursuance of its commitment made upon accession to WTO. 3) In order to promote autonomous reform and to materialise its target for optimising and advancing industrial structure, PRC has incorporated in E-Cat under CIGF up-to-date agriculture, high tech industry, up-to-date service industry, manufacturing foothold for high-end products, infrastructure, etc. 4) In order to encourage development of industries related to energy saving and environmental protection, E-Cat includes industries engaged in recycling-oriented economic system, clean pollution free operation, reusable energy, eco-balancing, and comprehensive and systematic use of resources. 5) Promotion of trade policy that materialises a balanced development. Removal of the article in the previous list of E-Cat that provides "Foreign Affiliated Investment Project that permits direct export of all products". - On 30 December 2009, Executive Meeting of the State Council announced 2010 Policy for attracting foreign investment, which envisages amendment of CIGFI in 2010. As regards the amendment, Foreign investors will seek expansion of the scope of permitted categories for foreign investors industry and to repeal foreign investment restriction on certain categories. - CIGFI 2011 amended on 24 December 2011 comprises of 473 items in total, and 354 items of them in E-Cat, 80 items in R-Cat and 39 items in P-Cat. In general, the number of items in E-Cat has increased, while those in R-Cat and P-Cat have decreased. The amendment prompts investment into strategic industries, namely, energy saving, environment, next-generation information technology, bio-technology, high-end equipment manufacture, new energy, new materials, and new energy motor vehicles, while curtailing investment into mature industrial sectors or sectors with surplus manufacturing capacity. The major amendments include: (1) Repeal of the conditional terms for joint venture on manufacture of natural food additives, food additives, new energy power generation plant or main equipment under E-Cat. (2) Manufacture of motor vehicles (completely finished) is moved from E-Cat to Licence Category (L-Cat). (3) Addition into E-Cat of manufacture of equipment for collection/disposal of wastes/used spun goods, manufacture of refurbishing equipment for wastes/used mechanical and electrical equipment, collection/disposal of waste/used electronic products, motor vehicles, mechanical electrical equipment, rubber, metal, and battery, construction and operation of electric vehicle charging station, and battery exchange station, logistic information consultation service, founded investing enterprise, IPR service, housekeeping service, and vocational technical training. (4) Change into L-Cat from R-Cat, of franchise, finance lease operation and medical institutions. (5) Sale of audio-visual products (excluding movies) in R-Cat is deregulated to exclude the PRC partner's control requirement, provided, however, that joint venture requirement continues. (6) Deletion from P-Cat, of books, newspapers, periodicals, audio-visual products and import of electronic publications. - On 17 May 2014, "The China-Japan-Republic of Korea Agreement for Promotion, Facilitation and Protection of Investment" came into force. - On 10 March 2015, Catalogue of Industries for Guiding Foreign Investment (as revised 2015), the 6th Amendment (National Development and Reform Commission/Ministry of Commerce No.22) was promulgated and has been enforced since 1 April 2015. |
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| (Improvement) - On 1 April 2011, prior to the amendment of 2011 CIGFI, GOC released its invitation for public comment on proposed amendment. - GOC provided for transition measures for the grant of import duty exemption on enterprises that have been excluded from the E-Cat by the amended 2011 CIGFI, and have been authorised as E-Cat prior to 29 January 2012. Enterprises in concern must complete by not later than 29 January 2013 filing of the application for tax reduction, attaching the project confirmation letter, etc. issued by the presiding authority for the investment. (Announcement No. 4 [2012] of the General Administration of Customs). - In September 2013, Shanghai Municipal People's Government (SMPG) released, "Announcement of the Shanghai Municipal People's Government on Issuing the Special Management Measures on Foreign-invested Companies Entry into Pilot Free Trade Zone (2013 Shanghai Negative List)". The Negative List included 190-items. In addition, on 30 June 2014, SMPG released "Announcement of the Shanghai Municipal People's Government on Issuing the Special Management Measures on Foreign-invested Companies Entry into Pilot Free Trade Zone (2014 Shanghai Negative List)". The items included in 2014 Shanghai Negative List were reduced to 139-items in 16-business sectors, as the State Council granted SMPG's petition that had sought deregulation on the prohibited or restricted 31-business sectors. On the 27-business sectors out of the 31- prohibited or restricted business sectors, State Council, in order to temporality suspend implementation of these provisions, listed up the relative provisions of the departmental rules and regulatory documents, and promulgated on 28 September 2014, "Decision on Implementing Temporary Adjustment concerning Announcement of the Shanghai Municipal People's Government on Issuing the Special Management Measures Pilot Free Trade Zone" (Guofa [2014] No.38). - On 23 June 2014, "Measures for Management of Foreign-invested Companies in Modern Service Industries in Qianhai Shenzhen Modern Service Industry Cooperation Zone", prescribing the administrative method concerning establishment or change of foreign-invested companies, and 59-items in 11-business sectors are listed in "the Special Management Measures Pilot Free Trade Zone, Foreign-invested Companies entry into Qianhai Shenzhen Modern Service Industry Cooperation Zone" (2014 Qianhai Shenzhen Negative List). - On 10 March 2015, CIGF (the 6th Amendment, National Development and Reform Commission/Ministry of Commerce No.22) was promulgated. It reduced the restricted items from 79-items to 38-items. It reduced also the items subject to investment ratio restriction from 79-items to 38-items, deregulating foreign investment restrictions into servicing and manufacturing sectors. - On 20 April 2015, the State Council promulgated new Negative List in 4-Free Trade Zones (in Shanghai Municipality, Guangdong Province, Tianjin Municipality, and Fujian Province), No. 23 [2015] of the General Office of the State Council. The Items subject to Negative List have been reduced radically to 190 (items) ?2013 (Shanghai only), 139 (items) ?2014(Shanghai only), and 122 (items) ?2015. |
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| (2) Restricted Foreign Capital Entry into Service Sectors | - It is not authorised for fully or majority foreign funded enterprises to engage in PRC in commonly called ICP (Internet Content Provider) business. - Projects open for fully foreign-funded construction enterprises are restricted to construction work, etc., contracted by PRC-foreign joint construction work, etc. - A Member Firm considering to offer cloud service to prospective purchasers in PRC finds that entry into such business sector is per se closed to a fully foreign funded enterprise to enter by itself, unless by formation of a joint-venture with a LICENSED local partner enterprise at the risk and expense of additional substantial time and cost, relative to preparation for business commencement, and for business decision, etc. after finally starting the business. |
- It is requested that GOC authorises fully or majority foreign owned enterprises to obtain ICP licence in PRC. - It is requested that GOC expands the scope of the construction work to include fully foreign owned enterprises in construction Business. - It is requested that GOC deregulates the entry requirements for foreign funded enterprises. |
- Regulation on Internet Information Service - Regulation on Telecommunications of PRC -Provisions on the Administration of Foreign-funded Telecommunications Enterprises - Rules for the Administration of Foreign-funded Construction Enterprises - CIGF List of Restricted Industries to Foreign Investors, No. 13.5.7 |
| (Action) - In September 2002, Ministry of Construction and Ministry of Foreign Trade and Economic Cooperation jointly promulgated No.113 "Rules for the Administration of Foreign-funded Construction Enterprises " and No.114 "Rules for the Administration of Foreign-funded Construction Engineering Design Enterprises", with which to promote the opening of the construction market in line with the WTO commitment by China. Effective 1 December 2002, Rules No.113 authorises establishment of an independent foreign construction enterprise in China, while it prohibits such foreign entity to contract domestically in the China construction work, unless it is locally incorporated in China. Rules No.113 authorises establishment of construction companies wholly owned by FFEs (CCW), provided however that, it requires such foreign funded construction companies to be locally incorporated in China before they can engage in construction work domestically in China. The same rules has repealed the restrictions concerning the registered capital of China-foreign joint venture in the construction work and the restrictions concerning the equity ratio of foreign enterprises for contract construction, under the same conditions as the domestic industry. This same rules further restricts the scope of the construction project contracts granted to CCW to the case where the following applies: 1) Construction project based on the foreign investment for the full amount of the project, or construction project supplied at free of charge; 2) Construction project executed by an international tender on the basis of financial aids from an international financial institution or on a foreign loan; 3) A China-foreign joint construction project in which the foreign capital ratio is more than 50%; and 4) Those construction projects which cannot be contracted solely by the domestic construction industry for reasons of technical difficulties, etc. and which are contracted by primary agencies of the construction administration. Furthermore, effective 1 April 2004, in line with the repeal of "Interim Procedures for Credit Quality Control of Foreign Businesses that Contract for Projects Inside China" that provides for the quality certification for foreign industry operating under contract, issuance of such quality certification has since been discontinued. Thus, it has become no longer possible for foreign construction industry to contract domestically in China, unless its operation is incorporated in China. The obligation to establish the local corporation is accompanied by a set of stringent mandatory requirements, such as the size of capital fund, and performance requirement for each grade of technical engineers (such as the number of the locally employed personnel, etc.) - While discrimination in qualifications for the principal contractor has been removed in the context of foreign vs. domestic contractors in plant construction, the qualification as principal contractor is confined to the domestic corporation/joint venture. Furthermore, additional severe conditions remain, such as the limit in the amount of business by the domestic corporation/joint venture to five times of the capital fund, and the existence of the past business performance results, as requisite conditions. - In June 2004, "The Measures for the Administration of Foreign Investment in the Commercial Sector" came into force, enabling, in principle, 100% FFEs investment in retail business and franchise management with the caveat, that foreign capital contribution is restricted to less than 49% in the case where the same foreign investor (1) establishes more than 30 stores, handling special items such as foods, vegetable oil, drugs, tobacco, agrichemical, auto-vehicles, and (2) or operates filling station. - MOFCOM on 11 August 2004 issued and enforced from 1 October "Circular of Ministry of Commerce on National Standard for Classification of Retail Business Category" that stipulates the basis for classification of retail business category. The New Trade Classification has further segmented the trade into 17 categories (12 categories with shop, namely, variety shop, convenience store, discount store, supermarket, large scale supermarket, warehouse type supermarket, department store, specialized shop, home-centre, shopping centre, and factory outlet; and 5 categories without shop, namely, TV shopping, mail order, web sales, auto-vending shop, and telephone shopping) compared to the previous 9 categories, based upon the elements, among others, location of the retail shop, customers, scale of business, merchandise mix, sales method, service function, and information control system. - MOFCOM promulgated and enforced on 2 April 2005 "Circular of the Ministry of Commerce on Expanding the Business Scope of Non-commercial Foreign-funded Enterprises to Include Commodities Distribution" that stipulates the basis for classification of retail business category. This Notice provides for the practical basis in which the license is granted to non-commercial enterprises (inclusive of manufacturing enterprises) as commercial enterprises to expand their scope of business. For example, it provides that the sales of purchased commodities should be less than 30% of the total sales revenue if such enterprises desires to enjoy the tax benefit after the expansion of the scope of business, provided however that, in the event the 30% threshold is exceeded, such enterprises no longer enjoy the tax benefit granted to manufacturing enterprises. On 16 August 2005, GOC promulgated "Provisions Related To Processing for Establishment of Foreign-funded Commercial Enterprises", which prescribes, among others, the processing period of examination (one month at local authority and three months at MOFCOM) and the requisite application materials. By virtue of "MOFCOM's Notice on Entrusting Local Departments to Check Foreign-funded Commercial Enterprises " issued on 9 December 2005 and enforced on 1 March 2006", the approval of the local authority now suffices to establish stores not reaching certain level in terms of the operation scale. - At "The Third U.S. - China Strategic Economic Dialogue" held in Beijing on 13 December 2007, both governments agreed on a number of issues concerning liberalisation of financial services. - On 3 March 2008, the U.S. filed complaint with WTO's Dispute Settlement Board in regard to certain PRC's restrictive measures pertaining to the activities of foreign financial information service suppliers (joined by EU on 14 March 2008). EU, et al contend that since September 2006, PRC has not authorised Reuter UK and others to distribute information direct to their clients, but that GOC has made it a mandatory requirement for them to route such information through an agent designated by the "Xinhua News Agency", the State news agency in PRC. Furthermore, GOC prohibits foreign financial service providers from establishing their business footholds in the local areas in PRC. Hereafter, EU and the U.S. will enter consultation with GOC, failing which they will seek setting up of a dispute settlement panel. - In 2007, the U.S. filed complaint with WTO's Dispute Settlement Board alleging that GOC's restriction amounts to violation of the WTO Agreement as regards import and domestic distribution of publications such as books and newspapers, music CDs and various DVD software, limiting such activities only to certain state-owned enterprises. WTO Panel ruled that the regime such as this amounts to violation not only of the WTO Agreement that provides for repeal of discrimination between the domestic vis-a-vis foreign enterprises but also of the PRC's WTO accession commitment, namely, external liberalisation of the domestic sales and distribution within 3-years of its WTO accession. - PRC represented at the forum for the Transitional Review Mechanism that it granted licence to 49-foreign funded advertising enterprises during January through October 2008, without, however, providing any elucidation on advertising business of an enterprise, whose advertising business does not constitute its primary business. - In October 2009, General Administration of Press and Publication (GAPP) prohibited wholly owned, joint venture or cooperative foreign enterprises (Foreign Entities) from engaging in service operation for on-line games. Furthermore, it prohibited such Foreign Entities from effective control or effective participation in the operation of the domestic enterprises. - In September 2010, MOC promulgated rules on the foreign affiliated enterprises sales by internet, automatic vending machines, etc. subject to the following obligations: (1) To obtain permit of the authority in concern at Departmental Level, (2) To file application at the Industrial Information Department for Business Licence for Value Added Network operation, in the case where Network Service is provided to other dealers, (3) To file application at the Industrial Information Department for Business Licence for Value Added Network operation, in the case where goods are sold directly via the applicant's own internet pages, (4) To file application in the case where goods are sold directly via the applicant's own internet pages. - On 9 August 2012, the Association for Relations Across the Taiwan Strait ("ARATS") of PRC and the Strait Exchange Foundation ("SEF") of Taiwan signed Cross-strait Investment Protection and Promotion Agreement (CIPPA) and Cross-strait Customs Cooperation Agreement (CCCA). Protected investment includes provisions concerning investment into tax-haven third countries such as Hong Kong, Cayman Islands, etc. and restrictions on expropriation and arbitration by governmental departments and institutions. - On 14 August 2012, Ministry of Commerce announced its approval of American Wal-Mart's acquisition of 51.3% interest in the online supermarket in PRC under conditions that Wal-Mart refrains from selling commodities through the online supermarket. - On 17 May 2014, "The China-Japan-Republic of Korea Agreement for Promotion, Facilitation and Protection of Investment" came into force. - On 17 May 2014, Notice of the National Development and Reform Commission on Matters concerning the Implementation of the Measures for the Administration of the Confirmation and Recordation of Overseas Investment Projects (came into force on 17 June 2014). (1) Addition of the notification scheme to confirmation, (2) Partial transfer to local government of confirmation authority, (3) Provision of specific items requiring inclusion into "the Project Application Report", namely, Investors' state of affairs, Deployment of natural resources, analysis of ecological impact, economic/social analysis (In the case of the Project involving acquisition of PRC domestic enterprises, purchaser's state of affairs, purchase plan, financing method, acquired party's state of affairs, managerial method after purchase, operational scope, status of the shares owned, deployment of income revenue, etc. (4) Examining and confirming agency's explicit across-the-board correction notification, as well as explicit deadline for producing examiners' opinion, and the examination result. - "CIGFI, revised in April 2015 has classified Internet Publication Service" in the "Prohibited Industries". "Provisions on the Administration of Online Publishing Services promulgated on 4 February 2016" also prohibits provision of "Online Publishing Services" by foreign funded enterprises. Furthermore, formation of joint venture with foreign funded enterprises, etc. requires prior approval of the General Office of the State Administration of Press, Publication, Radio, Film and Television. |
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| (Improvement) - Measures for the Administration on Foreign Investment in Commercial Fields (MAFICF) were issued on 16 April 2004 and enforced on 1 June 2004. The minimum amount of the registered capital FFEs is established as RMB 500 thousand for wholesale and RMB 300 thousand for retail business in pursuance of Company Law (compared to RMB 80 million for wholesale and RMB 50 million for retail businesses required under the old law). Furthermore, the stringent requirements imposed on FFEs investing in foreign-funded commercial enterprises are repealed (namely, the average annual sales in three years preceding the filing of application and the annual assets in one year prior to the filing of application of more than 2.5 billion U.S. dollars and 300 million U.S. dollars, respectively, for wholesale business, and more than 2 billion U.S. dollars and 200 million U.S. dollars, respectively for retail business). These requirements are replaced by the only provision, "Foreign investors must have a sound credit standing and must have no record of conducts violating the laws, administrative legislative provisions and the related regulations. "In addition, wholesalers are expressly made eligible to export/import of commodities, while the cap on the annual total import of commodities is repealed (no more than 30% of the total annual sales of the commodities for the year in concern). The provision, "Other related incidental business", can be interpreted as inclusive of after sale service business that provides the legal basis to enhance efficiency in providing the after sale service. - Since March 2005, GOC has started liberalizing its distribution market in pursuance of its WTO commitment. A member firm has obtained licenses in 25 cases. - Since 2005, it has been made possible for manufacturing oriented enterprises to sell purchased goods from others up to 30% of its total purchases. Such purchase was not authorized till then. - On 3 February 2005, DOC issued and made effective on 5 March 2005 "Measures for the Administration of Foreign-funded Lease Industry" to execute its WTO commitment, namely, to liberalise establishment of wholly foreign invested lease enterprises (WFILE) within 3 years of its WTO accession. Among others, the main revisions include GOC's: (1) authorising FFEs to establish fully foreign funded enterprises engaged in lease business and finance lease business; (2) stipulating the amount of not less than 5 million U.S. dollars the total assets of the foreign investors in the foreign lease business and foreign finance lease business and reducing from 20 million to 10 million U.S. dollars the minimum capital of foreign invested finance lease enterprises while repealing the previous minimum capital requirement for 5 million U.S. dollars of foreign invested lease enterprises; and (3) transferring to regional authority the right of examination and approval for establishment of leasing enterprises in the form of limited liability companies. - State Council's "Regulation on the Administration of Commercial Franchises" issued on 6 February 2007 and enforced on 1 May 2007 clarifies the scope of the requisite documentation (copy of franchising business license, sample copy of contract, work manual, marketing plan, certificate showing the ownership of more than 2 directly operated stores, which are directly operated, etc.), while as regards those already engaged in franchising business prior to 1 May 2007, it expressly states that the filing may be submitted within one year from the effective date of the Regulation (instead of the regular mandate of within 15 days), and exempts the requirement that the applicant must have operated more than 2 directly operated stores for one year minimum. - On 13 November 2008, GOC notified EU and the U.S. that it would authorise foreign news agencies to provide directly financial information to financial institutions, namely, their customers, allowing free business activities to foreign news agencies. Up till then, it was a mandatory requirement for foreign press agencies to provide financial information service only through the state owned Xinhua News Agency. To this measure, EU and the U.S. had jointly filed complaint with the WTO Dispute Settlement Board. - The amended 2011 CIGFI has: (1) excluded from P-Cat, Commodity Auction Service, Financial Lease Service, and Medical Service, and enabled 100% foreign investment; (2) added to the E-Cat List, Logistic Information Consultation Service, Founded Investing Enterprises, Intellectual Property Right Service House Keeping Service and Vocational Technical Training; (3) moved from R-Cat to L-Cat franchise and financial lease operation and medical institution; (4) removed PRC partner's control requirement in sales of audio-visual products (excluding movies), so that joint venture requirement serves as the only condition that must be satisfied; and (5) removed from P-Cat import business of books, newspapers, periodicals, audio-visual products, and electronic publications. - Under "Regulation on the Administration of Domestic Waterway Transportation", effective 1 January 2013, operation of domestic waterway transportation business is prohibited to Foreign Funded Enterprises, other foreign economic organisations, and foreign individuals. - On 24 December 2011, National Development and Reform Commission (NDRC)/Ministry of Commerce (MOC) promulgated and enforced since 30 January 2012, CIGFI (2011 Amendment) which has excluded from the Prohibited Category general publication/import business of books, newspapers, magazines, import business of audio/video products and electronic publication, and electronic distribution music all of which are not included in the Restricted Category, either. Presumably all these businesses are turned into Permitted Category. (2013 Report on Compliance by Major Trading Partners with Trade Agreements). - From September 2013, People's Government of Shanghai City deregulated restricted capital contribution or business in the service business sector, such as banks, game machines, traveling service, amusement facilities, and hospitals. - On 28 September 2014, State Council published "Catalogue for Special Management Measures for Entry" comprising of 27-items additionally deregulating FFEs entry into China (Shanghai) Pilot Free Trade Zone, authorising fully (100%) foreign funded enterprises' entry into international ocean cargo' loading and unloading business, manufacture of cranes over 400 tons, R&D, design, and manufacture of the passenger service facilities for express railways, passenger railways, etc. |
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| (3) Restricted Foreign Capital Majority Investment | - The 2011 Revision of CIGFI restricts foreign capital interest equity interest ratio so that it must not exceed 50% on production of car mounted batteries in Encouraged Category (E-Cat), while no restrictions on foreign capital interest equity interest apply to lithium ion batteries in E-Cat. While both products share the common technology and production engineering/facilities, wholly foreign owned FFEs manufacturing lithium ion batteries are no longer allowed to manufacture car mounted batteries. - Development policies for the iron and steel industry only allow foreign capital investment ratio of up to 50% of the equity interest. |
- It is requested that GOC repeals restrictions on foreign capital interest equity interest ratio. - It is requested that GOC repeals the restrictions. |
- Catalogue of Industries for Guiding Foreign Investment - Policy on Development of Automotive Industry, Articles 48 and 50 - Development Policies for the Iron and Steel Industry, Article 23 |
| (Action) - In May 2004, National Development and Reform Commission (NDRC) promulgated "policy on development of automotive industry", the policy provides the requirement for the PRC shareholdings of more than 50%, while a single foreign investor may establish no more than 2-joint venture firms. - In July 2005, NDRC promulgated "development policies for the iron and steel industry". As regards foreign investment into iron and steel industry in PRC, foreign investors, in principle, are not authorised to own the controlling share interests. - On l7 June 2014, MOFCOM promulgated "Notice of NDRC on Matters concerning Improvement for the Implementation of the Measures for the Administration of the Confirmation and Recordation of Overseas Investment Projects. (Notice)" Excepting the enterprises in the business sectors under the minimum registered capital requirement, The Notice has lifted the restrictions or regulations for startup foreign capital ratio, monetary capital subscription ratio, and investing financial institution. |
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| (4) Restricted Minimum Capital Contribution Ratio | - The legislative provision requires minimum capital ratio of 33.33% against the total invested capital (TIC) (in the case where TIC exceeds USD30 million). It heavily burdens the parent company by way of investment and financing. | - It is requested that GOC repeals restrictions on the minimum capital ratio. | - Implementing Regulations for Law on Individual Proprietorship Enterprises - Measures for the Administration on Foreign Investment in Commercial Fields - Provisional Regulations for the Proportion of Registered Capital to Total Amount of Investment of Joint Ventures Using Chinese and Foreign Investment - The Interim Provisions on the Management of Foreign Debts, etc. - Rules for the Administration of Foreign-funded Construction Enterprises (09-27-2002) |
| (Action) - In December 2013, by amendment of the Company Law, the registered capital fund system has been repealed, in principle. |
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| (Improvement) - On 24 June 2014, MOFCOM promulgated "Notice of NDRC on Matters concerning Improvement for the Implementation of the Measures for the Administration of the Confirmation and Recordation of Overseas Investment Projects". Excepting the enterprises in the business sectors under the minimum registered capital requirement, the Notice has lifted the restrictions or regulations as regards foreign funded enterprises (FFEs): (1) Repeal of the minimum registered capital amount requirement for the company, excepting where the minimum registered capital amount is specifically set forth in the specific business sector, (2) Repeal of the restrictions on the initial capital ratio and investing institution, upon company incorporation, (3) Liberalisation in the amount of capital of the investor's subscription, etc. |
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| (5) Restrictions on the Business Scope of Foreign Funded Investment Companies | - Any investment company, established under the Provisions MOC No.22 (2004) on the Establishment of Investment Companies by Foreign Investors (ICFI), may not engage in manufacturing activities directly by itself under its Article 28. For this reason, manufacturing company's operational efficiency is aggravated, having to establish at all times a separate investment company. | - It is requested that GOC amends the Provisions so that ICFI may engage directly in manufacturing activities in the investment company to assure an efficient and effective business operation. | - Provisions on the Establishment of Investment Companies by Foreign Investors Article 28, (Shangwubu Ling 2004, No.22) |
| (6) Restricted Reinvestment of Capital Fund after Conversion into RMB | - While some deregulation has taken place in part, such as approval on overseas' capital fund into PRC in RMB, reinvestment in the domestic PRC remains prohibited. Although it is understandable that inflation prevention is the purpose, this restriction is excessive for FFEs so that reinvestments made in RBM from the capital fund originally compel to face extremely high hurdle. - Since August 2008, GOC prohibits general business enterprise's (other than Investment Company's) investment into business purposes by conversion of the Capital Fund in foreign currency, allowing investment from only own funds (operational profit). |
- It is requested that GOC lower the hurdle for foreign investment by further deregulation. - It is requested that GOC takes step to include an exception clause for non-speculative investment. |
- Paragraph No. 3 of "Notice of the General Affairs Department of SAFE on FFEs' Payment of Capital Fund in Foreign Currency and Overhaul in Handling of RMB Conversion" |
| (7) Nebulous and Delayed Investment Procedures in RMB from Overseas | - Our member firm investing in a Chinese enterprise, attempted remittance by RMB in hand, in response to the request for capital increase by the Chinese enterprise. However, due to the complex and time consuming procedures, timely remittance was not possible. In the end, remittance in RMB missed the deadline. The firm had to remit in foreign currency. | - It is requested that GOC streamlines and expedites the remittance procedures in RMB from overseas. | - Catalogue of Industries for Guiding Foreign Investment |
| (8) Mandatory Establishment of Branch/Subsidiary for Building Licence | - Establishment of Branch/Subsidiary is a mandatory requirement for acquisition of the building licence in certain domestic regions in PRC. This requirement materially impacts builders in cost/time necessary for the licence acquisition, including the total project schedule to the extent some builders are compelled to give up the construction work. | - It is requested that the central authority harmonises the legislation uniformly to annihilate the regional gaps. | |
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