Foreign Investment Bulletin October and November, 2015（II）

4 MOFCOM and SAFE have cancelled the filing and publication procedures for foreign investments in real estate on the MOFCOM website
On 6 November 2015, MOFCOM and SAFE issued the Notice of MOFCOM and SAFE on Further Improving the Filing of Foreign Investment in Real Estate (“Notice on Further Improving Filing”) which cancelled the filing and publication procedures on the MOFCOM website.
4.1 Background
On 23 May 2007, MOFCOM and SAFE issued the Notice of MOFCOM and SAFE on Further Strengthening and Regulating the Approval and Supervision of Foreign Direct Investment in the Real Estate Industry, which required foreign-funded real estate enterprises approved for establishment by local approving authorities shall be timely recorded with MOFCOM pursuant to laws for the first time.
On 10 July 2007, SAFE issued the Notice of the General Affairs Department of SAFE on Issuing the List of the First Group of Foreign-Funded Real Estate Projects Having Passed the Filing Procedures with MOFCOM, which further indicated that, for foreign-funded real estate enterprises (including newly established enterprises and enterprises with a capital increase) that have obtained the approval certificates issued by the commerce authorities and passed MOFCOM’s filing procedures after 1 June 2007, their applications to register and settle foreign debts shall not be accepted by the branches; and for foreign-funded real estate enterprises that have obtained the approval certificates issued by local commerce authorities but not passed MOFCOM’s filing procedures after 1 June 2007, their applications to register (or change) foreign debts and to sell and settle foreign exchange in capital accounts shall not be accepted by the branches (such Notice was abolished by SAFE on 13 May 2013).
In 2008, MOFCOM issued, one by one, the Notice of MOFCOM on Doing Well in Filing of Foreign Investments in the Real Estate Industry and the Notice of MOFCOM on Streamlining Procedures for Filing of Foreign Investments in Real Estate to streamline procedures for filing of foreign investments in real estate. MOFCOM has delegated to provincial commerce authorities the verification of filing materials of foreign investments in the real estate industry, and after provincial commerce authorities have completed reviewing such filing materials and affixed with their official seals on real estate filing forms, these forms will be directly filed with MOFCOM. Meanwhile, local commerce authorities will submit electronic information relating to establishment and changes or relevant enterprises to MOFCOM through the foreign investment examining and approving management system and MOFCOM will still publicize the list of enterprises which have passed the filing on the internet.
On 24 June 2014, MOFCOM and SAFE issued the Notice of MOFCOM and SAFE on Improving the Filing of Foreign Investments in Real Estate to further streamline filing procedures of foreign investments in real estate. MOFCOM’s filing procedures were changed from paper filing to electronic data filing with interim and post filing random inspections.
On 6 November 2015, MOFCOM and SAFE issued the Notice on Further Improving Filing, which finally cancelled the filing and publication procedures of foreign investments in real estate on MOFCOM’s website.
4.2 Legal Review
Since the Catalogue of Industries for Guiding Foreign Investment (revised in 2015) has deleted the real estate industry from the restricted catalogue of industries for foreign investments as a whole, MOFCOM and other authorities have gradually lowered the access threshold for foreign investments. After adjustments to regulations relating to foreign investments and personal purchase of real estate in the Opinions Concerning Regulating the Access to and Administration of Foreign Investment in the Real Estate Market issued by MOFCOM and other five state departments on 19 August 2015, MOFCOM issued the Notice on Further Improving Filing. Although there are only four provisions in the Notice, it finally cancels the filing and publication procedures of foreign investments in real estate on the MOFCOM website which lasted eight years. This marks a turning point in foreign investments in China real estate sector.
4.3 Next Step
After cancelling the MOFCOM filing requirements pursuant to the Notice on Further Improving Filing, there is still a need for SAFE to further clarify whether foreign-funded real estate enterprises (including newly established enterprises and enterprises with a capital increase) are allowed to have foreign debts within the scope of “difference between total investment and registered capital”.
5 PBOC and SAFE issued operating guidelines regulating administration of cross-border issuance and sales of securities investment funds
To support mutual recognition of publicly offered securities investment funds between mainland China and Hong Kong (“Mutual Recognition of Funds”), the PBOC and SAFE jointly issued Operating Guidelines on 6 November 2015. The main content of the Operating Guidelines includes: SAFE shall only monitor the total limit for Mutual Recognition of Funds, rather than examining and approving limits for individual products or a single institution; fund-raising for cross-border fund issuance may be imported and exported in RMB or foreign currency, and if such import and export involve currency exchanges, procedures may be directly dealt with by the trustees or agents with banks; sales of cross-border issuances is encouraged to be calculated in RMB and cross-border receipt and payment of funds are encouraged to be denominated in RMB; the information reporting system is to be implemented, and information reporting of mutually recognized funds shall be handled by trustees (banks) or agents (banks or fund management companies); systematic data statistics and reporting procedures are to be established, without the need to manually complete forms or to submit reporting entity information and to open fund-raising accounts repeatedly.[1]
5.1 Background
On 14 May 2015, China Securities Regulatory Commission (“CSRC”) issued Interim Provisions on Administration of Recognized Hong Kong Funds to regulate qualifications, application procedures, operational requirements and regulatory arrangements of mutually recognized funds. These provisions were implemented on 1 July 2015.
On 22 May 2015, the CSRC and Hong Kong Securities and Futures Commission (“SFC”) jointly issued the Announcement to Develop the Mutual Recognition of Publicly Offered Securities Investment Funds between Mainland China and Hong Kong, and announced mutual agreements were achieved regarding the implementation principles, the mode and the operation scheme of the Mutual Recognition of Funds. The CSRC and SFC would, through setting reciprocal mutual recognition conditions, promote the development of the mutually recognized funds in both markets and achieve general balance of import and export of funds. The initial investment limit of the mutually recognized funds is set at RMB 300 billion for import and export of funds, respectively. Mutual Recognition of Funds would be formally implemented on 1 July 2015. On the same day, the SFC issued the Mutual Recognition of Funds between the Mainland and Hong Kong.
On 6 November 2015, the PBOC and SAFE jointly issued the Operating Guidelines.
5.2 Legal Review
Before the issuance of Hong Kong funds registered with the CSRC in mainland China, the managers of such funds shall, through mainland agents of such funds (“Agents”), report relevant information via the capital accounts information system of SAFE (“System”). Where the entity information of Hong Kong funds has been reported, the managers shall engage the Agent to open fundraising-specific accounts (denominated in RMB and/or foreign currency, hereinafter referred to as "fundraising-specific accounts") for each Hong Kong fund in the name of the Hong Kong fund manager in the designated sales bank by virtue of relevant business vouchers generated after information has been reported in the System. The funds in fundraising-specific accounts denominated in RMB and foreign currency may be transferred between both accounts after settlement and purchase of foreign exchange.
Before the issuance of mainland China funds recognized by SFC in Hong Kong, the mainland managers of such funds shall, through mainland trustees of such funds (“Trustees”), report relevant information via the System. Where the entity information of mainland funds has been reported, the mainland managers shall open fundraising-specific accounts (denominated in RMB and/or foreign currency) for each mainland fund with the trustee or the bank designated by the trustee by virtue of relevant business vouchers generated after information has been reported in the System. The funds in fundraising–specific accounts denominated in RMB and foreign currency may be transferred between both accounts after settlement and purchase of foreign exchange.
The most prominent highlights of the Operating Guidelines is the supervision by SAFE on total limit of Mutual Recognition of Funds. When the net export of funds of the issuance of all Hong Kong funds in mainland market or the net import of funds of the issuance of all mainland funds in Hong Kong market reaches RMB 300 billion, SAFE will release a public announcement on its website. Accordingly, Hong Kong (mainland) fund managers shall cease registration (recognition) of mainland (Hong Kong) funds and cross-border issuance and sales of funds until it is indicated in the export (import) monthly data published on SAFE’s official website that the net export (import) of funds is below RMB 300 billion.
5.3 Next Step
Implementation of the Mutual Recognition of Funds promotes the progress of convertibility of RMB capital accounts, as well as interconnection between domestic and foreign capital markets. On 18 December 2015, the first group of three Hong Kong mutually recognized funds was formally registered with the CSRC, and on the same day, the first group of four mainland mutually recognized funds was formally registered with the SFC.[2] Whether implementation of the Mutual Recognition of Funds between mainland China and Hong Kong would promote the establishment of regional asset management platforms and attract investors from other areas to conduct regional investments and assets management services on these platforms is worthy of attention.[3]
6 SAIC revised Measures for the Administration of Registration of Enterprises from Foreign Countries (Regions) Engaging in Production and Business within the Territory of China
The SAIC revised Measures for the Administration of Registration of Enterprises from Foreign Countries (Regions) Engaging in Production and Business within the Territory of China, where the registration authority for foreign enterprises engaging in production and business within the territory of China has been changed from the SAIC to provincial level of administration of industry and commerce authorities, and issued consultation papers on 17 November 2015 for soliciting public opinion.[4]
6.1 Background
Under the Measures for the Administration of Registration of Enterprises from Foreign Countries (or Regions) Engaging in Production and Business within the Territory of China, implemented on 1 October 1992, Article 2 states that “According to relevant laws and regulations, foreign enterprises, approved by the State Council and administrative authorities authorized by the State Council (hereinafter referred to as examination and approval authorities) and engaged in production and business with the territory of China, shall register with the SAIC or the local administrations for industry and commerce authorized by the SAIC (hereinafter referred to as the administrative authorities of registration). Foreign enterprises may commence operations once their applications for registration have been examined and approved by administrative authorities of registration and they have obtained a Business License of People Republic of China (hereinafter referred to as “Business License”). Foreign enterprises, who fail to be approved by the examination and approval authorities and whose applications for registration fail to be examined and approved by administrative authorities of registration, shall not operate in China”.
On 15 May 2013, the State Council issued the Decision of the State Council on Matters Concerning Cancellation of Administrative Approval Items and Delegation to Lower Levels where the authority to review the enterprises from foreign countries (or regions) engaging in production and business activities within China is delegated to provincial industry and commerce administrative departments. However, the SAIC still has not adopted any measures to revise relevant regulations pursuant to the above-mentioned decision made by the State Council in more than two years’ time.
6.2 Legal Review
According to the State Council’s decision, the SAIC revised Measures for the Administration of Registration of Enterprises from Foreign Countries (Regions) Engaging in Production and Business within the Territory of China, where the registration authority for foreign enterprises engaging in production and business within the territory of China has changed from “the SAIC or authorized local administration of industry and commerce authorities” to “provincial level of administration of industry and commerce authorities” while other provisions remain unchanged. Once the consultation papers have been passed, it will facilitate registration procedures of foreign enterprises engaging in production and business within the territory of China.
6.3 Next Step
The revised Measures for the Administration of Registration of Enterprises from Foreign Countries (Regions) Engaging in Production and Business within the Territory of China was open for public opinion until 1 December 2015 and is expected to be issued and implemented within a short period of time.
[1]http://www.pbc.gov.cn/goutongjiaoliu/113456/113469/2973781/index.html
[2]http://www.csrc.gov.cn/pub/newsite/zjhxwfb/xwdd/201512/t20151218288314.html
[3]http://www.csrc.gov.cn/pub/newsite/zjhxwfb/xwdd/201512/t20151218288314.html
[4]http://www.chinalaw.gov.cn/article/cazjgg/201511/20151100479494.shtml