Foreign Investment Bulletin May, 2016（I）

The State Administration for Industry and Commerce issued the Decision of the State Administration for Industry and Commerce on Abolishing and Revising Certain Administrative Rules for Industry and Commerce, in which ten departmental rules were abolished and four departmental rules were revised.
The Shanghai Head Quarters of the People’s Bank of China along with other organizations issued several regulations on the same date providing detailed rules for regulating investment activities of foreign investors in the interbank bond market.
The State Council and the Ministry of Commerce issued new rules to further promote trade liberalization between the Mainland and Hong Kong, as well as the Mainland and Macau.
1、The Decision of the State Administration for Industry and Commerce on Abolishing and Revising Certain Administrative Rules for Industry and Commerce
On April 29, 2016, the State Administration for Industry and Commerce (“SAIC”) issued the Decision of the State Administration for Industry and Commerce on Abolishing and Revising Certain Administrative Rules for Industry and Commerce (“Decision on Abolishing and Revising Administrative Rules”), in which ten departmental rules were abolished and four departmental rules were revised, namely the Implementing Rules for the Administrative Regulations of the People's Republic of China on the Registration of Enterprise Legal Persons, Administrative Measures for the Registration of Enterprises of Foreign Countries (Regions) Engaging in Production and Operation Activities within the Territory of China, Administrative Measures for Authorized Registration of Foreign-invested Enterprises, and Measures for Equity Pledge Registrations with Administrative Authorities for Industry and Commerce are revised.
1.1 Background
The SAIC initiated a centralized clean-up campaign of departmental rules and issued the Decision on Abolishing and Revising Administrative Rules (Draft for Comment) on March 29, 2016. The Decision on Abolishing and Revising Administrative Rules was officially issued and implemented on April 29, 2016.
1.2 Legal Review
The relevant content for foreign investment of the Decision on Abolishing and Revising Administrative Rules are as follows:
Firstly, the registration rules have been annulled for representative offices of all foreign-invested enterprises. In fact, as of April 24, 2006, according to Implementation Opinions on Several Issues of Administrative Rules on Examination, Approval and Registration of Foreign-invested Enterprises, the registration authorities no longer handle registrations for representative offices of foreign-invested enterprises. SAIC revised the Administrative Regulations of the People's Republic of China on the Registration of Enterprise Legal Persons based on the above implementation opinions.
Secondly, the registration authorities of foreign-invested enterprises engaging in production and operation business within the territory of China have been changed from SAIC and other authorized local administrations for industry and commerce to provincial level administrations for industry and commerce.
Thirdly, the requirements have been lifted for registration authorities to conduct annual inspections on branch offices of foreign banks, and foreign-invested enterprises engaging in operation and management and exploration and exploitation of mineral resources. The rules have been changed so that foreign-invested enterprises are required to submit an annual report for the previous year.
Lastly, the requirement has been lifted for foreign-invested enterprises to obtain approval from approving authorities before conducting equity pledge registrations. However, it is important to note that according to the Several Provisions on Change of Investors' Equity in Foreign-invested Enterprises, any pledge of equity by foreign-invested enterprises is still required to obtain prior approval from the approving authorities before filing with registration authorities, and any pledge of equity without obtaining approval and registering would be invalid. Therefore, although registration authorities would no longer require prior approval from approving authorities when handling equity pledge registration, foreign-invested enterprises should still obtain approval from approving authorities prior to submitting equity pledge registration.
1.3 Next Steps
Foreign-invested enterprises engaging in production and operation activities within the territory of China should note that they are required to submit annual reports for the previous year through Enterprise Credit and Information Publicity System to its original registration authority between January 1 and June 30 each year. If foreign-invested enterprises fail to submit annual reports according to the relevant provisions, they will face the risk of being punished by competent authorities.
2、Issuance of Several Regulations Governing Investment Activities of Foreign Investors in the Interbank Bond Market
On May 27, 2016, the Shanghai Head Quarters of People’s Bank of China (hereinafter “Shanghai HQ”) issued the Implementing Rules of Record-filing Administration of Investments of Foreign Institutional Investors in the Interbank Bond Market (Zhong Guo Ren Min Yin Hang Shang Hai Zong Bu Gong Gao [2016] No. 2) (hereinafter “No. 2 Rules”) which clarifies in detail record-filing administration of investments of foreign institutional investors in the interbank bond market. On the same date the State Administration of Foreign Exchange issued the Circular of the State Administration of Foreign Exchange on Foreign Exchange Questions Relating to Investments of Foreign Institutional Investors in the Interbank Bond Market (Hui Fa [2016] No. 12) (hereinafter “No. 12 Circular”). The China Central Depository & Clearing Co., Ltd. (hereinafter “CCDC”), the National Interbank Funding Center (hereinafter “NIFC”) and the Interbank Market Clearing Joint Stock Company (hereinafter “Clearing House”) jointly issued the Guide for Foreign Institutional Investors to Enter into the Interbank Market Network and Account Opening (hereinafter “NAO Guide”). No. 12 Circular and NAO Guide regulate the foreign exchange registration and remittance and exchange of capital, and account opening and networking.
2.1 Background
People’s Bank of China issued the Circular on Further Improving the Investments by Foreign Institutional Investors in the Interbank Bond Market (hereinafter “Circular”) on February 17, 2016. The Circular mainly clarifies the scope and requirements for qualified foreign institutional investors to invest in the interbank bond market, and system of trading and settlement by the clearing agents for the foreign investors.
Furthermore, the Circular also stipulates that the duties of relevant organizations in investment activities of the foreign institutional investors in the interbank bond market, including: (1) remittance and exchange of capital by the foreign institutional investors according to administrative rules of foreign exchange; (2) the Shanghai HQ is responsible for record-filing of foreign institutional investors and strengthening the interim and post surveillance and administration of foreign institutional investors and clearing agents; and (3) provisions of satisfactory services and surveillance by the interbank lending and borrowing center and bond registration, management and clearance organization. The No. 2 Rules, the No. 12 Circular and the NAO Guide correspond with the above provisions in the Circular. To date, the investments of foreign institutional investors in the interbank bond market under the framework of the Circular have been further regulated on an operation level.
2.2 Legal Review
As the implementing rules of the Circular, No. 2 Rules formulates two investment record-filing forms for juristic-person and non-juristic-person investors according to the Circular and further clarifies and specifies relevant provisions in the Circular, which mainly includes the follows:
(1) The Circular stipulates that for foreign institutional investors to enter into the interbank bond market, they shall apply for record-filing procedure via clearing agents with the Shanghai HQ. The No. 2 Rules further clarifies that the Shanghai HQ when upon receiving such record-filing application shall issue the notice of record-filing within 20 work days, and such notice of record-filing will be effective for three months from the date of issuance. At the same time, the No. 2 Rules stipulate that for foreign investors to alter the record-filing information or withdraw from the interbank bond market, they shall file application via clearing agents. If the foreign institutional investors fail to remit 50% or less of the intended investment amount in the record-filing within 9 months from the date of completion of record-filing, they shall resubmit relevant information regarding intended investment scale.
(2) The Circular stipulates that the Shanghai HQ is responsible for strengthening the interim and post surveillance and administration of the foreign institutional investors and clearing agents. Regarding this matter, the No. 2 Rules set out detailed measures for interim and post surveillance and administration, including: requiring the clearing agents to submit relevant information regarding the foreign institutional investors represented and report on operation of investment business of last month on a monthly basis; requiring the CCDC, the NIFC and the Clearing House to submit the report on operation of business operation of foreign institutional investors of last month on a monthly basis; the Shanghai HQ has the direction in conducting surveillance and administration of the foreign institutional investors and clearing agents by interviews and on-site inspections, and may adopt administration measures and administration punishments for its breaching of relevant rules and regulations, including admonishing communication, warning, suspension of business, and forced withdrawal.
The No. 12 Circular passed by the State Administration of Foreign Exchange regulates the investment activities of the foreign institutional investors in the interbank bond market in mainly three aspects: the first aspect is to conduct registration administration of foreign institutional investors and to require the foreign institutional investors to undergo foreign exchange registration, alteration, and deregistration procedure via the clearing agents; the second aspect is not to set a limit for any single organization or a total limit, and the foreign institutional investors can apply for remittance of capital, and settlement and purchase of foreign exchange at the banks with relevant registration information without obtaining examination or approval from foreign exchange authorities; the third aspect is to require the foreign institutional investors to keep the ratio of foreign-domestic currency of the outgoing capital the same as that of the incoming capital, with the difference not exceeding 10%.
2.3 Next Steps
Although the Circular sets out that the qualified foreign institutional investors can decide the investment scale on their own without a limit on their investment and the Qualified Foreign Institutional Investors (QFII) and Renminbi Qualified Foreign Institutional Investors (RQFII) have been accepted by the Circular as the qualified foreign institutional investors to invest in the interbank bond market. However, the No. 12 Circular passed by the State Administration of Foreign Exchange stipulates that the QFII and the RQFII investing in the interbank bond market shall still follow the foreign exchange rules currently applicable to them. Hence, the QFII and RQFII are still restricted in aspects including investment limit, ratio and remittance and exchange of currency.