CBL’s Introduction

This Notice from China’s lead market regulator, translated by CBL into American English, provides official insight into Chinese regulators’ priority for the regulation of foreign investment in China. In particular, the Notice describes how China will split regulatory authority over foreign investors between two agencies, on one hand the commerce ministry and the other hand the market regulator, providing a set of checks and balances that provides foreign investors with additional avenues for protecting their rights within the bureaucratic system.

Notice on the Implementation of the Foreign Investment Act and the Effective Completion of Registration of Entities that have Foreign Investors (National Administration for Market Regulation)

No. 247 [2019] National Administration for Market Regulation

Market regulation agencies (including the agencies and commissions) in all provinces, autonomous regions, municipalities directly under the Central Government, and Xinjiang Production and Construction Corps:

The PRC Foreign Investment Act (the “Act”) and its Administrative Regulations (the “Regulations”) shall take effect on January 1, 2020. The purpose of this notice is to enable complete implementation of the Act and Regulations provisions on administrative process for pre-establishment national treatment and exception list that governs foreign investment by mandating the following requirements for effectively completing the registration of entities that have foreign investors as required by the law:

1. Standardize the Registration Process for Entities that have Foreign Investors
2. Standardize the application process. Applicants must request entity registration within the business filing system. Investors must certify that their application or amendment of an entity’s registration does not violate the exceptions list and must accurately verify the sectors included on the exception list based on the conditions at the time of application or amendment. (the full title of the exception list is “Special Administrative Procedures for Admission of Foreign Investments (Exception List)”) Prior approval from the jurisdictional agency is required for initial application, amendment, or cancellation of registration required by law. The certificate of approval must then be submitted to the registration agency.
3. Standardize the evaluation process. The registration agency will perform a pro forma review of applications. Foreign investors or entities that have foreign investors in sectors not subject on the exception list must be treated equally to domestic investors. Foreign investors or entities engaged in industries subject to the exception list must be lawfully registered under the special administrative procedures if they satisfy the requirements such as capital contribution ratio and statutory representative nationality (primary responsible person). The registration agency may waive reevaluation of whether entity registration complies with the special administrative procedures if its business license has already received prior approval by the jurisdictional agency. Registration is barred for foreign investors or entities in sectors the exception list prohibits to foreign investment. To ensure information is shared between governmental organizations, the registration agency must send the registration information to the provincial sharing platforms (i.e., provincial credit information sharing and exchange platforms, government information platforms, and inter-agency portals).
4. The Foreign Investment Information Reporting Process Implementation
5. Assisting the jurisdictional commerce agency in the implementation of the Foreign Investment Information Reporting Process. From January 1st, 2020, “one-stop services” for business registration, and industrial and commercial registrations for entities that have foreign investors shall cease. The applicants must complete the foreign investment initial or amendment reports prior to registering for the initial or amendment report for entity formation. Entity registration does not require submitting a report in the Foreign Investment Information Reporting System. The Foreign Investment Information Reporting System will not be reviewed by the registration agency. After the submission of their registration application, applicants may proceed to complete the registration in the Foreign Investment Information Reporting System. Foreign investors and entities that have foreign investors must submit the “consolidated” annual form through the National Business Credit Lookup System. Regulatory agencies at both the national and regional levels are required by law to safeguard any trade secrets and investment information of foreign investors and entities that are collected during the registration process.
6. System Improvement The jurisdictional regulatory agency in each region must regularly improve and update the Business Filing System and the National Business Credit Lookup System in accordance with the following two regulations: the Foreign Investment Information Reporting Procedures and Plan for Improvement of Foreign Investment Information Reporting Registration System (hereinafter referred to as the “Technical Plan”). Entities’ initial, amended, dissolution, and annual reports shall be collected through the data center and submitted to the National Administration. The National Administration is responsible for forwarding the shared Foreign Investment Information Reports to the jurisdictional commerce agency.

III. Guidelines for Materials on Entities that have Foreign Investors

5. Determine the certification of good standing requirements for entities. Any certification of good standing or identity document for entity registration submitted by to the registration agency must be notarized notarized and subsequently legalized by a Chinese Embassy or consulate in the country where the applicant is located. Applicants in countries without diplomatic relations with China should obtain legalization from an embassy or consulate of a third country that does, and subsequently obtain legalization from a Chinese Embassy or consulate in the third country. Documents issued in some countries’ overseas territories must first be notarized then certified by the diplomatic corps of the country, and then legalized by the Chinese embassy or consulate there, unless otherwise provided for in international treaties signed between or jointly participated in by China and the applicable countries. Foreign natural persons with a permanent resident card investing in China to form entities do not need notarization.

6.Determine the certification of good standing for Hong Kong, Macao, and Taiwan Investors. Pursuant to any specific laws or agreements and as required by law, investors from the Hong Kong Special Administrative Region, Macao Special Administrative Region, or Taiwan must submit their certification of good standing or identification documents notarized by a local notary organization. For natural person investors from the Macao and Hong Kong Special Administrative Regions, passports, residence permits for Hong Kong, Macao, and Taiwan residents issued by mainland China law enforcement agencies, and mainland travel permits issued by the mainland Exit and Entry Administration are acceptable forms of identification. No notarization is required for Mainland Travel Permits or Residence Permits for residents of Hong Kong and Macao. Residence Permits for Taiwan Residents issued by mainland law enforcement authorities or Mainland Travel Permits for Taiwan Residents issued by the mainland Exit and Entry Administration do not need to be notarized when provided as identification documents by natural-person investors from Taiwan. The identity verification system for national business entity registration is available for natural persons from Hong Kong Special Administrative Region and Macao Special Administrative Region with their Mainland Travel Permits as well as for Chinese citizens (overseas Chinese) residing abroad with their passports. There is no need to verify the documents offline.

7. Determine Legal Document Service of Process Requirements. A Legal Service of Process Agent Letter signed by and between the foreign investor (principal) and the recipient for legal service of process (agent) to the registrar is required when requesting registration and formation of a an entity that has foreign investors The agent may be any of the following: the foreign investor’s satellite office in China; the new entity where the agent-principal relationship takes effect upon entity formation; or other domestic organizations or individuals as appropriate. The aforementioned papers must also be submitted to the registration authorities by a foreign owned entity when a new foreign investor is added. Any changes to the legal service of process recipient (agent) such as its name, address, and other information shall be applied and updated to the registration agency by the foreign investor (principal). The registration authority shall record it in the entity registration file.

Article 4 Improving the Entity Registration Process

8. Authorized Capital Currency (Contribution Amount) The authorized capital (or contribution amount) can be presented in RMB or other freely convertible foreign currencies. The mid-rate of the exchange rate stated by the People’s Bank of China on the day of payment should be used to convert authorized capital between foreign currencies and RMB or between two other distinct currencies. The requirements of such legislation, administrative regulations, or State Council decisions shall apply unless specifically stated otherwise.
9. Determine Registration Regulations for Entities The registering office shall determine if the application requires registering the domestic capital companies as ‘LLC,’ ‘Corporation,’ or ‘Partnership,’ and then label it as an investment with foreign investors or investment with investors from Hong Kong, Macao, and Taiwan. The original Sino-Foreign Joint Venture Entities / Sino-Foreign Cooperative Enterprise business category requirements will continue to apply until registration of changes to the company’s organizational form and structure is complete. The jurisdictional market regulatory agency shall coordinate changes such as material license streamlining reform and use of documents & code lists, in accordance with the Technical Program. They will also coordinate with the appropriate government agencies.

Article 5 Registering entities that have foreign investment during the transition period

10. Registering Amendments to the Organizational Structure Business organization form change registration is waived for companies and partnerships that were legally formed prior to January 1, 2020. Entities that lack legal personality formed under the PRC Administrative Rules for Sino-Foreign Cooperative Enterprises or the PRC Administrative Rules on Foreign Investment Entities can convert to a partnership after 5 years of Act has taken effect and submit registrations in accordance with the conditions set forth in the PRC Partnership Act (hereinafter referred to as the ‘Partnership Act’). When a subsidiary amends its organizational structure, the local office must promptly submit an application for the registration of such change.
11. Filings for Organizational Changes In the first five years of the Act taking effect, entities formed before January 1, 2020 must amend the articles of incorporation and apply to the jurisdictional registration office when making changes to anything out of compliance with the mandatory rules in the PRC Companies act, such as: changes its highest decision-making body, statutory representative, the method of electing directors, or the voting procedures.
12. Achieve Registration for Other Amendments Requests by an entity formed prior to January 1, 2020 for change to entity form or structure submitted during the first five years after which the Foreign Investment Act takes effect, shall be processed by the registration office based on the entity form, structure, and voting methods.
13. Achieve Interagency Coordination after the Transition Period Once the entity form of an existing China-Foreign Joint Venture/Collaborative Entity has been modified, the registering office shall process any share assignments under a valid contracts that is part of a request for registration of shareholder changes (this does not apply to new agreements negotiated by shareholders). Starting January 1,2025, the registering office shall no longer process other filings or registrations for entities whose organizational form or structure is out of compliance with the mandatory provisions of Companies Act or Partnership Act that have not requested filing for change registration, article of incorporation, or directors. The relevant announcement will also be made.
14. Implementing Foreign Investment Authorization Registration Administration
15. Implement the Administrative System for Registering Entities that have Foreign Investors The local market regulator for foreign owned entities that was approved by the National Administration, is responsible for the administering entity registration within its jurisdiction. The National Administration may grant administrative powers over entities to local market regulation agencies that meet the requirements for foreign owned entity authorization registration. The National Administration will regularly publish a list of authorized market regulation agencies for foreign investment.

This Notice shall take effect on January 1,2020. This Notice is applicable to investors from Hong Kong Special Administrative Region, Macao Special Administrative Region, and Taiwan, as well as entities formed with investment by Chinese citizens residing overseas, foreign owned entities, foreign owned startup and investment companies, and investment entities formed by foreign investment partners investing in China.

Authorized jurisdictional regulatory agencies shall continuously enhance and update the registration processes and services efficiently. During or after the transition period, guidelines for foreign investment entity registration policies must be effectively improved. Resolve any new problems that may arise during the process and report to the National Administration immediately.

National Administration for Market Regulation

2019-12-28