In today's digital age, big data is increasingly utilised to optimise the business environment and ease doing business in China. Equally, big data assist government departments to investigate enterprises that do not operate accordingly to law, including foreign-invested companies. Over the years, several administrative regulations and management rules ('regulations') have been adopted to regulate business operations and development. Namely, the regulations oblige enterprises to conduct business in an orderly, honest, steady, and healthy manner and proactively observe relevant Chinese laws and regulations. Such regulatory frameworks include:

  • Provisional Regulations on Enterprise Information Disclosure (“Provisional Regulations”), effective from 1 October 2014
  • Interim Measures for the administration of List of Enterprise with Abnormal Operations (“Interim Measures”) effective from 1 October 2014
  • Administrative Measures for Market Regulation of the Seriously Illegal and Dishonest Entities List (“Administrative Measures for Dishonest Entities List”), effective from 1 September 2021
  • Administrative Measures for Market Regulation of Credit Restoration (“Administrative Measures for Credit Restoration”), effective from 1 September 2021

The Provisional Regulations require enterprises to submit the annual report for the previous year between the 1st of January and the 30th of June and publicly disclose such information. The information submitted and disclosed includes the address and contact number of the company, operation status of the company (open, closed, or liquidated), investment or shares purchasing related information, capital contribution, contribution date, and form of contribution by the company's shareholder, number of employees, total assets, total liabilities, operating income, main business income, total profits, total tax paid and so forth.

Enterprises that do not submit the annual report on time shall be listed as Enterprise with Abnormal Operations, as stipulated in the Interim Measures.

Also, enterprises will be listed as Enterprise with Abnormal Operations in the following cases:

  • Failing to disclose information upon alteration according to Article 10 of the Provisional Regulations, and failing to rectify the violation on time after being notified by the administrative management department
  • Concealing the real situation or practicing fraud when disclosing enterprise information
  • Failing to contact the enterprise at the registered address (site of business operation)

Once the enterprise is listed as Enterprise with Abnormal Operations and rectifies such violations on time, the company may apply to be removed. Specifically, the Interim Measures provisions the specific rectifications:

  • Enterprises that fail to submit the annual report on time may apply to be removed upon submitting and publishing the annual report.
  • Enterprises who fail to disclose information after alteration on time shall publish the altered information. Then apply to regain its normal operation status record at the administration of industry and commerce.
  • Enterprises that could not be contacted at their registered address, may regain their normal operation status record after conducting the regular procedures for alteration of registered address or business operation site or claim that the Enterprise can be contacted at its registered address.

From the listed date, enterprises listed as Enterprises with Abnormal Operations exceeding three years will be listed as “seriously illegal and dishonest enterprises”. As "seriously illegal and dishonest enterprises", enterprises will face severe negative image and reputation.

Therefore, the enterprise should take corrective actions promptly when listed as "enterprises with abnormal operations” and apply to be removed at the competent administration of industry and commerce as according to the aforesaid procedures.

Dishonest Entities List

The Administrative Measures for Dishonest Entities List defines the Dishonest List as companies that:

  • seriously endanger people's health and life safety,
  • seriously destroy the fair market competition order and normal social order,
  • refuse to perform legal obligations,
  • seriously affect the credibility of administrative organs and companies with other serious illegal and dishonest behaviors.

Generally, enterprises in industries fields directly related to people's life, health, and safety are affected including food, drugs, special equipment, and other related sectors.

Similar to the “Enterprise with abnormal operations list”, enterprises listed as "illegal and dishonest enterprises" for more than one year, the company may request to be removed by the competent Market Supervision Administration. Specifically, the Administrative Measures for Credit Restoration stipulates the below pre-conditions:

  • Enterprise has fulfilled the obligations provided in the administrative penalty
  • Enterprise has proactively rectified the negative impacts and consequences
  • Enterprise is no longer subject to further serious administrative sanctions provisioned by the relevant administrative departments

Removal from the “abnormal operations list” or “illegal and dishonest enterprises list” does not delete the historical record of enterprises being listed on such lists. Rather such records form the company's credit file and are publicly disclosed.

Therefore, understanding and complying with the Chinese laws and regulations is essential to the enterprises' operations and entire life circle Any irregularities detected by the competent authorities will be an irreversible record for the company.

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.