CBL’s Introduction
CBL’s translation of the Notice on the Reform of Consolidated Annual Reports describes how foreign businesses must report on their investments in China. A pertinent part of these rules not previously addressed in the Foreign Investment Act, but that is highly essential, is the requirement to make consolidated reports about investment activity that will be displayed online.
National Administration for Market Regulation (the “Administration”), Ministry of Commerce, and National Administration of Foreign Exchange Notice on the Reform of Consolidated Annual Reports in China
All provinces, municipalities, and autonomous regions under the Central Government, Administration (agencies and committees), and Xinjiang Production and Construction Corps (XPCC), jurisdictional commerce agencies, and jurisdictional foreign exchange agencies:
The Administration, Ministry of Commerce and State Administration of Foreign Exchange passed the Consolidated Annual Report reform in 2019 to facilitate the Central Party Committee’s and State Council’s red tape reduction reform, implement the Foreign Investment Information Reporting System under the Foreign Investment Act, and continue reducing the burden on companies, lower institutional transaction costs, improve credit regulation, and optimize the business environment. The notice covered the following:
- Specific Reporting Requirements.
From 2019, foreign owned entities (or organizations) will be required to submit a Consolidated Annual Report via the National Business Credit Lookup System (www.gsxt.gov.cn, hereinafter the “Lookup System”) in accordance with the Foreign Investment Act. In addition to the current report submitted to the Administration, additional information required by the jurisdictional commerce agency and State Administration of Foreign Exchange (please refer to the annual report in Exhibit 1) will be added to the report, and the new Consolidated Annual Report will no longer be made available to the public.
“Foreign owned entities (or organizations)” in this Notice refers to any companies or partnerships directly invested in and formed by foreign investors in China, foreign (regional) companies producing and operating in China, foreign (or regional) company offices in China, foreign owned businesses, venture capital companies, and foreign investment partnership entities formed in China to invest in mainland Chinese entities.
The Administration will share the annual report information submitted by foreign owned entities with the Ministry of Commerce. Entities are required to submit their 2019 Consolidated Annual Reports between January 1 and June 30, 2020. The jurisdictional regulatory agency will add any companies who fail to submit their annual reports by June 30 as to their List of Untrustworthy Entities.
- Ensuring a Smooth Transition
2020 is the first year foreign owned entities (or organizations) would be required to submit Consolidated Annual Reports via the Lookup System, so cooperation is needed to ensure a smooth transition and a successful reform.
(1) Lookup System Upgrade: Market regulatory agencies in all provinces (including autonomous regions and municipalities) will upgrade the Lookup System according to the requirements provided in the Notice, so that entities (organizations) would be able to submit their consolidated annual reports under the new requirements as of January 1, 2020. Technical plans (Attachment 2), data specifications (Attachment 3), website demos (Attachment 4), and aggregated data structures (Attachment 5) can be downloaded via the Administration business portal (172.16.1.48/saicport). Entities (or organizations) submitting additional information for annual reports dated 2018 or earlier can submit such in compliance with the original rules and via the original channels.
(2) Improving Publications and Training: Local market regulatory, commerce, and foreign exchange agencies should improve publications and training for the new foreign owned entity Consolidated Annual Report, particularly for reporting channels, new information requirements, and submission times for the 2019 annual reports, to better assist entities complete and submit their annual reports according to the new requirements. Training for employees responsible for submitting annual reports should be improved to ensure they understand the new policies for consolidated annual reports, know how to correctly prepare annual reports, and know how to properly answer questions to streamline the implementation of the new report process.
III. Creation of New Systems
(1) List Management System: Market regulatory agencies shall group foreign owned entities based on the established rules and focus on upgrading annual report submission functionality in the Lookup System. Commerce agencies and market regulators should coordinate to quickly resolve any cases where foreign owned entities cannot be grouped to ensure they can submit their annual reports without issue.
(2) Information Sharing Process: Provincial market regulatory agencies (including autonomous regions and municipalities) will share consolidated annual reports submitted by foreign owned entities (institutions) with the Administration via the centralized Publicity System portal, and the Administration will share the same with the Ministry of Commerce within 48 hours of their submission. The Administration will then share annual reports submitted by Chinese businesses invested in by foreign investors (including pass-through entities) with the Ministry of Commerce within one month of the completion of all annual report work. The Administration will share any additional report information submitted by foreign-invested entities with the Ministry of Commerce within 48 hours of its submission.
(3) Emergency Response Process: Foreign owned entities unable to submit consolidated annual reports via the Lookup System and whose annual reports do not contain any new matters required to be reported shall submit their reports to their jurisdictional commerce agency, who will then verify details such as the entity’s unified social credit code, commercial enterprise type, and registration time before escalating the matter to the Ministry of Commerce before 12:00 every Monday. The Ministry of Commerce and the Administration will resolve any such issues based on their individual responsibilities.
(4) Inquiry Response Process: The Administration, Ministry of Commerce and the State Administration of Foreign Exchange should focus on consolidated annual report policy guidance and advice to resolve any matters that may arise, improve coordination, and divide work appropriately to ensure the success of the consolidated annual report reform. Jurisdictional market regulatory agencies will be responsible for providing guidance on matters related to annual reports and Lookup System technical issues, while jurisdictional commerce agencies will be responsible for providing guidance to foreign owned entities (organizations) submitting their consolidated annual reports, as well as assisting any entities unable to submit their reports. Inquiry phone numbers for all provincial (including autonomous regions and municipalities) commerce agencies will be published via the Lookup System.
(5) Internal Review Process: National market regulatory, commerce, and foreign exchange agencies may conduct internal reviews of the information submitted to jurisdictional market regulatory, commerce, and foreign exchange agencies in compliance with regulatory requirements and to ensure all work is being performed as it should. New information reported by foreign owned businesses will not be included in the internal reviews conducted by regulatory agencies. The Administration, Ministry of Commerce, and the State Administration of Foreign Exchange will actively share the results of any internal reviews conducted, and jurisdictional regulatory, commerce, and foreign exchange agencies may then conduct additional inter-agency reviews to lower the burden on entities and improve review efficiency.
- Improving Interagency Cooperation
With 2020 being the first year for both the new Foreign Investment Act and consolidated annual reports system for foreign owned entities, regulatory, commerce, and foreign exchange agencies across the country need to focus on improving organizational management and implementing the consolidated annual report reform in line with the requirements to ensure its success. Further coordination and collaboration between market regulators, commerce, and foreign exchange agencies across the country is necessary to develop a sound administrative process, divide responsibilities, and promptly resolve any issues encountered during the consolidated annual report reform, while also assisting foreign owned businesses.
Those agencies must also submit contact details for those responsible for the new consolidated annual report system to the credit regulatory agency under the Administration, the foreign investment agency under the Ministry of Commerce, and the capital management agency under the State Administration of Foreign Exchange before December 20, 2019 to create a smooth communication process. Please contact the above agencies should you encounter any issues.
National Administration for Market Regulation, Ministry of Commerce, and National Administration of Foreign Exchange
December, 16, 2019