Cookies on Pinsent Masons website

This website uses cookies to allow us to see how the site is used. The cookies cannot identify you. If you continue to use this site we will assume that you are happy with this

If you want to use the sites without cookies or would like to know more, you can do that here.

Amendments to Chinese foreign investment law

Significant changes have been made to the law on foreign investment in China, expanding the successful 'negative list' approach that has been used in the free trade zones (FTZs) in Shanghai, Tianjin, Guangdong and Fujian to apply nationwide.

The negative list approach means that all sectors are opened up apart from those on the list, and there is no need for individual approval of businesses in non-listed sectors. Those whose sectors are on the list are still subject to national market access registrations.

 A new, potentially narrower negative list is expected to be published soon.

Laws changed

Four laws have been amended, with the changes coming into force on 1 October, covering foreign-owned enterprises; Chinese-foreign equity joint ventures; Chinese-foreign contractual joint ventures, and the protection of investments of Taiwan compatriots.

The bodies covered by these laws are collectively referred to as foreign invested enterprises or FIEs.

FIEs whose sector is not on the new negative list will no longer need approval from the Ministry of Commerce (MOFCOM). MOFCOM has also asked for comment on provisional rules for the establishment of, and changes to, these FIEs. An updated version based on this feedback is expected to become effective on 1 October. The rules also apply to Hong Kong, Macau and Taiwan enterprises, and to foreign-funded investment companies, venture capital enterprises and equity investment enterprises, which are deemed to be FIE-equivalents. 

Time limits

The new rules set time limits for FIEs to register their formation and changes to company registration. This will now be done online, and processing time will be faster.

Formation

Once a proposed FIE has pre-registration approval of its company name it must file a formation report via the online filing system. This can be done before its business licence is issued, if the filing is by a representative of all investors, or by a representative of the FIE within 30 days of the licence being issued.

Changes

If an FIE makes any of the following changes, a representative should file a change report via the online filing system:

  • Change in basic registration information including name, address, enterprise form, operating term, operating industry, nature and scope of business, nature of a project, registered capital, total investment value, organisational structure, legal representative, details of the ultimate controlling person and his or her contact details;
  • Change in basic information about the FIE’s investors including name, nationality, address, type of licence/certificate and licence/certificate number, value of subscribed shares, methods of capital contribution, term by which capital contribution must be fulfilled, source of funding and changes in the investor type;
  • Change in shareholding and cooperative interest
  • merger, spin-off and termination;
  • Pledges or transfer of foreign investors' proprietary interest;
  • Premature return of investment to the foreign investor(s) of a Sino-foreign contractual joint venture; and
  • Sino-foreign contractual joint venture's appointment of a third-party management entity.

Unless otherwise required by law, the change should be filed online within 30 days of the adoption of the resolution by the highest authority within the FIE.

It is worth noting that a change in an FIE's ultimate controlling person and his or her contact details should be reported through the online filing system. The government's interest in collecting information about an FIE's ultimate controlling person can also be seen in the draft foreign investment law published in January 2015 which said that a change in the ultimate controlling person of FIEs subject to national market access registrations needed to be approved.

If an FIE changes its "nature and scope of business" by moving into sectors subject to national market access registration then it cannot file online and must apply for approval.

Unlike the previous approval system, filing online is not essential before forming or making changes to the relevant FIE. Nonetheless, FIEs are required to file online in an accurate and timely manner. If online filing by the FIE or its investors is inaccurate or late, it will be required to complete or correct the filing and could be fined up to RMB 30,000.