On 26 May 2017, the Ministry of Commerce (“MOFCOM”) circulated for public comment the Measures for Record-filing Administration of the Establishment and Change of Foreign-invested Enterprises (“Draft for Comments”).
The final version of the draft will replace the Interim Measures on Record-filing and Management of Establishment and Amendment of Foreign-invested Enterprises 2016.
Since the interim measures, foreign investors have been afforded pre-establishment national treatment in China (that is, they became subject to the same market access restrictions and prohibitions as domestic investors) in all industries except for those sectors subject to special management measures. Details of the special management measures are currently set forth in the Catalogue of Industries for Guiding Foreign Investment 2015 (which is soon to be replaced by a new version effective from 28 July 2017).
Where a foreign-invested enterprise (“FIE”) qualifies for record-filing and has obtained the pre-verification of its enterprise name, the designated representative or agent of all investors or the FIE must complete the online record-filing procedure for establishment before issuance of its business licence, or within 30 days after issuance of its business licence.
Under the interim measures, the record-filing system does not apply to, among others:
- Acquisitions by foreign investors of the assets or equity of domestic Chinese companies.
- Strategic investments by foreign investors in Chinese listed companies.
By contrast, the draft measures provide that these two situations qualify for record-filing.
In addition, the draft measures require a record-filing to be performed when changes occur to the ultimate controllers of the foreign investors.
Ren Qing, Partner, Global Law Offices, Beijing
"The most important change from the interim measures is that the record-filing regime will also apply to acquisitions by foreign investors of the assets or equity of purely domestic-invested companies. As acquisitions account for about half of the foreign direct investment into China, this is indeed a positive change for foreign investors. Another noteworthy change is that all foreign investors (including minority shareholders) will be required to disclose their ultimate controller when carrying out the record-filing procedure to establish or amend an FIE."
FIEs are not required to take specific action as a result of this development, unless the FIE is otherwise required to amend its business registration. Counsel should be aware of the expanded application of the draft to include acquisitions of domestic assets and equity interests and strategic investments in Chinese listed companies, and should pay particular attention to the additional disclosure requirements in relation to the ultimate controllers of the foreign investors.