Issuing Body: State Administration of Industry and Commerce     
Issuing Date: May 7, 2010
Effective Date: May 7, 2010

China's State Administration of Industry and Commerce (SAIC), the central registration authority for foreign-invested enterprises, has issued a broadly worded document intended to improve its efficiency and enable it to provide better service for foreign investors. At the same time, the Several Opinions Concerning Further Providing Service for the Development of Foreign-Invested Enterprises and Giving Full Play to the Function of the Administration of Industry and Commerce (SAIC Service Opinions) are designed to implement China's latest national policies on the utilization of foreign capital, as expressed in the State Council's Several Opinions on Further Utilizing Foreign Capital. 

Background

The State Administration of Industry and Commerce, along with its provincial and local counterparts, are responsible for the registration of foreign investment throughout China. SAIC registration encompasses a broad range of activities, including the establishment of foreign-invested enterprises, and myriad changes to registration items, such as the enterprise name, registered capital, address, shareholding status, legal representative, and termination of a foreign-invested enterprise. As such, the SAIC and its branches play a central role in almost every stage of foreign investment in China.

The SAIC Service Opinions provide guidance to the SAIC and its provincial and local counterparts for their work in relation to certain aspects of the registration, capitalization, and operations of foreign-invested enterprises (FIEs) in China, as noted below.

Establishment of Business Groups by Foreign Investors

Under the Provisional Regulations on Administration of the Registration of Business Groups, issued by the SAIC in April 1998, a business group is an alliance of multiple-enterprise legal persons that includes a parent company, subsidiaries, associated companies, and other member companies. Business groups must be registered with the SAIC. Foreign investors are allowed to establish business groups in China subject to the following requirements:

• The parent company must be a foreign-invested enterprise.
• The parent company's registered capital must be RMB50 million or more, and subsidiaries must have registered capital of at least RMB5 million.
• Total registered capital of the parent company and its subsidiaries must be RMB100 million or more.
• All member companies must have legal person status in China.

The SAIC Service Opinions encourage the establishment of business group companies in China by foreign-invested holding companies. To some extent, however, the opinions merely restate ideas contained in the SAIC's 1998 regulations, reiterating that parent companies are allowed to use "business group" in titles, while subsidiaries and associated companies can use the trade name of the business group in names and titles.

Capital Contributions by Foreign Investors in the Form of Creditors' Rights

As a result of the worldwide financial crisis of 2008 and 2009, some shareholders of foreign-invested enterprises may be in financial trouble, and debt-for-equity swaps between shareholders and foreign-invested enterprises provide a workable way of restructuring capital to help shareholders survive the financial hardship. The SAIC calls on its lower-level counterparts to support debt/equity swaps, and to carefully carry out registration of changes to capital contribution methods, subject to approval and registration.

Capital Contribution Schedule Extensions

The SAIC Service Opinions direct local AICs (subject to Ministry of Commerce approval) to register extensions of capital contribution schedules for foreign-invested enterprises that have made their first installment of registered capital and have no record of non-compliance.

Relocation of Foreign-invested Enterprises to Central and Western China

The SAIC Service Opinions call on the SAIC's provincial and local counterparts to fully support the relocation of foreign-invested enterprises registered in eastern China to central and western China. AICs in central and western China will be delegated more registration authority by their upper-level counterparts as needed.

Participation of Foreign-invested Enterprises in the Restructuring and Takeover of Domestic Enterprises

The SAIC Service Opinions call for the SAIC, along with other competent authorities, to take an active role in the joint review of foreign takeovers and improve the registration system in relation to foreign capital mergers and acquisitions.

Online Service Functionality

In order to increase the efficiency of registration for foreign-invested enterprises, the SAIC Service Opinions call for the step-by-step online processing of registrations, including online applications and online reviews. The agency should also provide a search service offering basic information on foreign-invested enterprises to the public.

Industrial Policies for Foreign Capital

The SAIC directs its provincial and local branches not to register foreign investment that falls under the "prohibited" category, to clamp down on foreign-invested enterprises that operate in "prohibited" sectors, and to address the illegal involvement of foreign-invested enterprises in "restricted" businesses without approval.

Annual Inspections of Foreign-invested Enterprises

The SAIC Service Opinions direct the agency and its branches to conduct more rigorous examinations of foreign-invested enterprises with a poor credit rating, as well as FIEs in key or popular sectors. On the other hand, annual inspection procedures will be simplified for foreign-invested enterprises that do business lawfully and maintain good compliance records.

In addition, the SAIC Service Opinions outline other broad policies for generally improving the foreign investment climate in China:

• Improve protection of FIEs' famous trade names.
• Seriously investigate and handle cases of unfair competition.
• Effectively protect FIEs' trademark rights.
• Trademark review and adjudication cases involving scientific and technical innovation, industrial upgrades, and balanced regional development should be heard ahead of schedule if necessary.
• Establish a working system for dealing with complaints lodged by foreign-invested enterprises.
• Actively contact associations of FIEs to collect opinions and suggestions.

Conclusion

The guidance provided by the SAIC Service Opinions in relation to the subjects covered in them is at a fairly high level. More detailed rules for the SAIC and its local branches to follow are expected in the coming months.