Lex in IT

Foreign Investment in China switching to Record-filing System

Foreign Investment in China switching to Record-filing System

By Li CHEN for Lex-in-it

On 30 July 2017, the Ministry of Commerce (“MOFCOM”) issued two documents relating to foreign investment in China: the Decision on Revising the Interim Administrative Measures for the Record-filing of the Incorporation and Change of Foreign-invested Enterprises and the 2017 No. 37 Announcement on Matters Related to the Administration of the Record-filing of the Incorporation and Change of Foreign-invested Enterprises (“the Announcement”). This marks the beginning of a new chapter for foreign investment in China and new opportunities.

These two regulatory documents confirm the ultimate switch of foreign investment regulatory regime from case-by-case approval to the record-filing being on three years’ trial in free trade zones since 2014. Since the adoption of record-filing for incorporation and change of foreign-invested enterprise in October 2016, procedural requirements have been greatly simplified. Record-filing takes only 3 working days on average. This is much more efficient than the 20 working days for registration or 30 working days for M&A applicaiton that a general approval previously took. Material can now be filed online via the foreign investment integrated management information system (the “integrated management system”).

In order to advance the opening-up of key sectors and ease market access for foreign investment and improve the opening-up level in the service, manufacturing, and mining industry,  the Catalogue for the Guidance of Foreign Investment Industries (2017 Revision) (the “2017 Catalogue”) issued jointly by NDRC and MOFCOM on 28 June 2017 replaced the existing 2015 Catalogue. Instead of dividing industries into encouraged, restricted and prohibited categories, the 2017 Catalogue has only two categories: the encouraged category and the Special Administrative Measures for the Entry of Foreign Investment (the “negative list”), which is dedicated to cover restricted and prohibited categories. These restrictions equally apply to both domestic and foreign investments and restrictions which are not relevant to entry are not included in the negative list. The 2017 Catalogue provides a uniform negative list on a national level and perfects the management model of pre-establishment national treatment plus a negative list.

The success of record-filing for incorporation and change of foreign-invested enterprises in free trade zone eventually expands the record-filing system to the application of foreign M&A. According to 2017 Revision, unless a special administrative measure(Negative List) or a related-party M&A involved, a M&A of non-foreign-invested Chinese enterprises, or a M&A of strategic investments in listed companies by foreign investors will be simply subject to record-filing.

The most significant change brought by the foreign M&A record filing system is its simplification of application materials as well as the sharp drop of processing time. In principle, the record filing and the industrial and commercial registration of foreign-invested enterprises may proceed at the same time, which further speeds up the process. It is expected that foreign M&A will become the major model for foreign investment in China in coming years.

The “single window, single format” administration over foreign investment, and “Pre-establishment National Treatment (PENT) and negative list” policy represent China’s resolutions to authority streamlining, combining delegation and regulation, service optimization and attracting foreign investment.

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