Reform on China's FDI Regime

China’s Foreign Investment Policy Moving into the Era of “Pre-establishment National Treatment + Negative List”
By International Investment and Trade Committee, Anli Partners
On September 3rd, 2016, the Chinese legislature revised four laws related to foreign investment, changing the procedure for establishment of and change to foreign invested enterprises (FIEs) and Taiwanese invested enterprises which are not subject to the special access administrative measures (i.e. excluded from the negative list) from approval to record filing. The revised laws will take effect as from October 1st, 2016.
Such reform means that, the “Pre-establishment National Treatment + Negative List”, a foreign investment policy that has been piloted in four free trade zones (FTZs), i.e. Shanghai, Guangdong, Tianjin and Fujian since 2013, will be officially implemented nationwide.
The “Pre-establishment National Treatment + Negative List” applicable to foreign investments refers to, the Chinese government will prepare the negative list, and treat and regulate the foreign investment projects differently depending on whether they are included into or excluded from the negative list in industries that introducing foreign investments into China. For projects included into the negative list, the government will continue following a “case-by-case approval” policy, while for projects excluded from the negative list, the government will implement a consistent market access policy for both domestic and foreign investments, which will require the foreign investors to complete record-filing instead of obtaining pre-approval.
Under legal authorization, the State Council will publish orapprove to publish the special access administrative measures prescribed at national level (i.e. National Negative List). However, at present, the State Council hasn’t clearly explained whether there are differences or not between the National Negative List and Special Administrative Measures on Foreign Investment Access to the Pilot Free Trade Zones (Negative List of FTZs)which was issued and implemented by the State Council in 2015, and how these two versions of negative list will beconcurrently applied or fitted together.
On the same day, the Ministry of Commerce released the Interim Measures on the Administration of Record Filing for the Establishment of and Change to Foreign Invested Enterprises (Draft for Comments) (hereinafter referred to as Interim Measures),to solicit public opinions and perform the subsequent implementation of the revised laws. The Interim Measures will also take effect as from October 1st,2016.
As a supporting measure for the newly revised foreign investment laws, the Interim Measures contain specific provisions on the scope, competent authorities, time,procedure, supervision and administration and legal liabilities of the recordfiling for the qualified FIEs.
I. Scope of Record Filing
The FIEs that are not subject to the special access administrative measures (i.e. excluded from the negative list), will no longer need to obtain pre-approval, and instead directly submit record-filing materials to competent authorities upon their establishment or making the following changes aftertheir establishment:
(1) Changes of basic information on a FIE,including name, registered address, type of enterprise, operating period, investment industry, business type, business scope, project nature, registered capital, total investment, organizational structure, legal representative, ultimate actualcontroller of the FIE, contacts or contact details;
(2) Changes of basic information on the investors of a FIE, including name, nationality or address (registered place or address),ID card type and No., subscribed capital contribution, form of contribution,period of contribution, source of fund, and type of investors;
(3) Changes of equity (shares), and cooperation rights and interests, including equity pledge;
(4) Merger, separation, termination;
(5) Mortgage and transfer of property rights andinterests of FIEs;
(6) Advance recovery of investment by foreign investors in Sino-foreign co-operative enterprises; and
(7) Delegation of operation and management of Sino-foreign co-operative enterprises.
II. Authorities to accept the record filing
According to the Interim Measures, the local commercial department under the government above sub-provincial level, and relevant authorities of the pilot FTZs and national economic and technical development zones are responsible to accept the recordfiling regarding the establishment of and change to FIEs in their respective regions, with the coordination and guidance of Ministry of Commerce.
III. Time of Record Filing
According to the Interim Measures, record filing upon the establishment of FIEs which are excluded from the negative list, is not the prerequisite for business registration. After the pre-approval of the name of FIE, such enterprises can submit the record filing materials prior to the issue of business license, or within 30 days after the business license is issued. If any changes made to the FIEs need to be filed, such record filing should be submitted within 30 days after the changes. The period to complete the filing by the competent authorities is also reduced to 3 business days.
IV. Conditions under which record filing should be changed to approval
If any changes made to the FIEs qualified for record filing are subject to the special administrative measures on foreign investment access (Negative List), such changes should be approved in accordance with laws and regulations on foreign investments.
Moreover,in the supplementary provisions of the Interim Measures, there are also rules specifying the applicability of anti-trust investigation and national security review to the foreign investment qualified for record filing, and detailing the record filing of investors from Hong Kong, Macao and Taiwan and service providers from Hong Kong and Macao. The Interim Measures also clearly indicate that the foreign funded investment companies,venture capital companies, and equity investment companies shall be deemed as foreign investors, and therefore shall be applicable to the Interim Measures.
By revising the foreign investment laws and implementing the “Pre-establishment National Treatment + Negative List” nationwide, the Chinese legislature has made a significant reform to China’s foreign investment policy, symbolizing that the reform of economic system and openness to foreign investment are moving into a new era.
We will continue to follow the updates on the legislation and revision of foreign investment laws and regulations, and keep our clients updated on the legal development in China.