The current Chinese foreign investment laws were enacted decades
ago. Under these laws the approval process is typically
time-consuming and burdensome for a foreign investor. In an attempt
to streamline the regulatory framework, as well as to attract
foreign investment at a time of weak economic growth, the Chinese
government has initiated a reform to the existing foreign
On September 3, 2016, the Standing Committee of the National
People's Congress adopted amendments to the four existing
foreign investment laws1 ("Amendments"),
replacing the current approval system with a "filing &
negative list" approach to foreign-invested enterprises
("FIEs")2 in China. On the same day, the
Ministry of Commerce ("MOFCOM") published the draft
Interim Measures on Administration of Filing in respect of
Establishment and Change of Registration of FIEs ("Draft
Measures") for public consultation, which set forth detailed
rules regarding the new regime. Both the Amendments and the Draft
Measures will take effect on October 1, 2016.
Some highlights of the changes:
"Case-by-Case Approval" to "Filing &
Negative List Approach"
For many years, foreign investment in China has been approved on
a case-by-case basis, regardless of the type of investment or its
industry. A simplified record-filing process will replace the
existing approval requirement for foreign investment projects that
are not subject to a "negative list." Unlike the existing
system, it will not be necessary to complete a filing in most cases
before an FIE can be established, or before major changes can be
made to an FIE.
However, if a FIE's underlying business falls within the
scope of the "negative list," approval will still be
required. The national-wide "negative list" to be issued
by the MOFCOM will therefore be decisive for how the new system
Scope and Procedures of Filing
Both the establishment of FIEs and major changes to them must be
filed. Major changes include a change of basic information of the
FIE/foreign investor(s), change of equity interest, and transfer of
the FIE's assets. Notably, the Draft Measures require
disclosure of information regarding ultimate controller(s) of the
FIE and the source of funds for the investment.
For establishment of a FIE, the filing procedure should be
completed either prior to or within 30 days after the incorporation
of the FIE. For any change of company particulars to the FIE after
its incorporation, filings should be completed within 30 days upon
the occurrence of the change. Foreign investors are required to
submit documents electronically on an online platform. The filing
will be processed within three working days.
What the Change May Bring About
By reducing governmental approval formalities and introducing
consistency throughout the country, the new regime is likely to
lead to a more efficient and transparent legal system governing
foreign investment in China. The new regime is considered to be a
significant move to relax the regulatory control over foreign
investments pending the promulgation of the PRC Foreign Investment
Law. However, under this welcome change, a number of uncertainties
remain. These include the interpretation of coverage of the
"negative list," the implementation of subsequent
examination, and lack of clarity in how the new regime will
interact with other current foreign investment regulations.
1 Sino-Foreign Equity Joint Ventures Law, Sino-Foreign
Contractual Joint Ventures Law, Wholly Foreign-Owned Enterprises
Law, and the Law on the Protection of Investment of Taiwan
2 FIEs include Sino-foreign equity joint ventures,
Sino-foreign cooperative joint ventures and wholly foreign-owned
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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