On September 3^rd 2016, the twenty-second meeting of The National People’s Congress (NPC) Standing Committee voted for the decision to amend the law on foreign-funded enterprises (FFE), which consist of domestic wholly foreign owned enterprises and Sino-foreign joint ventures.

Features and Impacts of the new regime:

The amendments replace the existing the Ministry of Commerce (MOFCOM) approval requirements with filing requirements for all foreign-funded enterprises. Also, on the 3^rd of September 2016, the MOFCOM published draft rules that will shorten the processing time and enhance certainty of transaction involving the FFEs.

The new regime builds on and replaces the existing negative list system from October 1^st 2016 on. MOFCOM also publishes a new nationwide negative list in parallel with the implementation of the new system. This new negative list is fundamental to how the new regime will operate, because it will determine which sectors and which matter are covered by the new filing requirements, and which parts will still need approval.

Highlights of the new regime:

• The filing of all newly established FFE’s must be filed after the pre-registration approval of the FFE’s name with the provincial or city MOFCOM.
• When a FFE undergoes a change in certain key characteristics it must file the change with Local MOFCOM within 30 days of the change developing.
• In the case Local MOFCOM confirms a filing to be outside the negative list and with no more information is required to be submitted, the filing must be completed with 3 working days of submission, hence shortening the processing time. For example, a filing under the Sino-Foreign Equity Joint Venture Law Implementing Rules, a decision is required only within three months after receipt of complete submission).
• Under the new regime, companies need to submit more extensive information than under the current foreign investment approval regime in several respects. For instance, the requirements for information on the FFE’s and investors’ ultimate controllers to be filed on the new establishment of a FFE.
• Another important change is that the completion of the filing is not dependent on the effectiveness of the establishment or change of particulars of the relevant FFE. Instead, when the FFE doesn’t make the filing, they could be ordered by the MOFCOM to comply and fined up to RMB 30,000. If the FFE is subject to national market access restrictions this might be different.

The amendments of the law:

The Law of The People’s Republic of China on Foreign-Funded Enterprises

Article 23 is added:

“If a foreign-funded enterprise, which is not subjected to special administrative measures for the entry of state-determined access, the examination and approval requirements as prescribed in Articles 6, 10, and 20 of this code shall be subject to the filing administration. Access subjected to special administrative measures shall be promulgated or approved by the State Council.”

The Law of The People’s Republic of China on Sino-Foreign Equity Joint Ventures

Article 15 shall be added:

“If a joint venture is not subjected to special administrative measures for the entry of state-determined access, the examination and approval requirements as prescribed in Article 3, 13, and 14 of this code shall apply to the filling administration. Access subjected to special administrative measures shall be promulgated or approved by the State Council.”

The Law of The People’s Republic of China on Sino-Foreign Contractual Joint Ventures

Article 25 shall be added:

“If a joint venture is not subjected to special administrative measures for the entry of state-determined access, the examination and approval requirements as prescribed in Article 5, 7, 10, 12 paragraph 2, and 24 of this code shall be subject to the filing administration.” Access subjected to special administrative measures shall be promulgated or approved by the State Council.”

The Law of the People’s Republic of China on the Protection of Investment by Taiwanese Compatriots

Article 14 shall be added:

“If an investment enterprise of a Taiwanese compatriot is not subjected to special administrative measures for the entry of state-determined access, the examination and approval requirements as prescribed in Article 8 paragraph 1 of this code shall be subjected to filing administration.  Access subjected to special administrative measures shall be promulgated or approved by the State Council.”

The amendments are supposed to enter into force on October 1^st this year.

Lingxi Zhong and Boyd Ronald Postema