March 22, 2012

Several Opinions on Supporting Innovative Transformation and Development of Enterprise Registration in Shanghai

Issuing Body: Shanghai Administration of Industry and Commerce
Issuing Date: February 16, 2012
Effective Date: February 16, 2012

Acting in response to a call from the State Administration of Industry and Commerce (SAIC) to improve the regulatory environment and promote industrial transformation and economic development in Shanghai, the Shanghai Administration of Industry and Commerce released the Several Opinions on Supporting the Innovative Transformation and Development of Enterprise Registration in Shanghai (the Enterprise Registration Opinions) on February 16, 2012. The opinions—some of which are more in the nature of policy statements than legislation—are intended to simplify enterprise registration procedures and promote development of the modern services industry and strategic emerging industries in Shanghai. They became effective on the day they were issued.

The SAIC and its provincial and local offices are responsible for the registration of enterprises in China. The SAIC is also responsible for regulating unfair competition, trademark registration, and the advertising industry. For several years, the SAIC has been making efforts to improve regulatory efficiency and create an investment-friendly regulatory environment, for example by promoting paperless processing of applications and one-stop services for registration of enterprises throughout China.

The SAIC selected Shanghai to be the pioneer city to implement the new enterprise registration measures on a pilot basis. Key elements of the Enterprise Registration Opinions are summarized below.

  • The Shanghai AIC is charged with helping the National Statistics Bureau update China's national industrial classification system (NICS) to accommodate the development of emerging industries. Changes will promote the development of producer services such as supply chain management, product certification, advertising, and finance leasing as well as strategic emerging industries, such as high-end equipment manufacturing, next-generation information technology, alternative energy, alternative materials, and alternative fuel vehicles. The purpose of the revisions is to ensure the relevance, accuracy, and timeliness of the classification system. Among the possible changes to the system may be the addition of new industries, revisions to the classification of existing industry descriptions, and the like. First released in 1984, the NICS was also revised in 1994, 2002, and 2011.
  •  The Enterprise Registration Opinions encourage foreign investors with advanced technology and managerial experience to establish enterprise partnerships. The rules also encourage qualified PRC nationals to establish joint ventures with foreign investors. It is noteworthy that, under the current legal regime governing joint ventures, only PRC business entities are entitled to set up joint ventures with foreign national individuals or foreign business entities. Given that legal hurdle and the non-binding nature of the Enterprise Registration Opinions, it remains to be seen how the government will make these rules enforceable.
  •  The Shanghai AIC will expedite the approval process for foreign-invested enterprises in the advertising industry, shortening the time frame to ten working days. Currently, it takes 20 working days for a foreign-invested advertising project to get approval.
  •  The Enterprise Registration Opinions simplify procedures by implementing completely paperless filing of annual inspections. Previously, enterprises had to file their annual inspection applications online and then submit hard copies to the government on site. In addition, the procedures for filing of branch offices have also been simplified. Previously, a parent enterprise had to file for the establishment of each branch office with the AIC office within 30 days; in accordance with the Enterprise Registration Opinions, a combined filing of multiple branch offices is allowed, provided that each branch office has been in existence for no more than a year.
  •  The opinions relax requirements for the registration of private equity enterprises. Private equity funds and managers will be able to include "Fund I," "Fund II," or "Fund III" in their names.
  •  The Enterprise Registration Opinions promise to encourage enterprises to make capital contributions in the form of equity or debt-for-equity swaps. They also expand the scope of forms of capital contributions, allowing for the contribution of intellectual property such as patent use rights and domain name rights. As with a number of other elements of the opinions, this feature is more a statement of policy than legislation.
  •  The Enterprise Registration Opinions call for improvement of China's credit evaluation system for enterprises. The new system should include information on enterprises with significant noncompliant activities and relevant responsible individuals.

Conclusion

Although broadly worded, the Enterprise Registration Opinions to some extent provide guidance and direction on how regulation of enterprise registration will be improved. We expect the Shanghai AIC to promulgate detailed implementing rules in the following months to make the measures enforceable. Enforcement of the new measures would enhance the regulatory environment in Shanghai and perhaps make it a more favorable destination for foreign investors.

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