On October 28, 2015, the Ministry of Commerce of People’s Republic of China issued the Decision of the Ministry of Commerce on Revising Certain Regulations and Normative Documents (“Decision”), which took effect on the same day. The Decision aims to deepen the reform of foreign investment enterprises (“FIE”) in respect of registered capital registration system and the transformation of government functions, move forward the facilitation of the business registration system, effectively optimize the business environment, and further stimulate the vitality of market.

According to the Decision, the main changes are listed as follows:

1. Modifications regarding the Establishment and Annual Inspection of FIE

The Decision abolishes the requirements and restrictions on the minimum registered capital, the time limit of capital contribution, the percentage of first-time capital contribution, percentage of contribution by cash, and further simplifies the procedure of the establishment and the annual joint inspection, and the following kinds of enterprises shall be applicable:

a. Foreign Investment Joint Stock Companies;
b. Foreign Invested Venture Capital Enterprises; and
c. Foreign-Invested Commercial Enterprises.

2. Merger and Division of FIE

The Decision abolishes the following requirements:

a. Any merger and division of foreign-invested enterprises shall be not allowed until the foreign investors have paid up their capital contribution or provided cooperation conditions pursuant to the provisions of the company's contract and articles of association and actually commenced production and operation; and
b. Any merger or division of the FIE shall submit the capital verification reports to relevant approval authorities.

3. Reinvestment of the FIE

The Decision abolishes the following requirements:

a. Before making investments in China, the FIE shall pay up the registered capital;
b. When the FIE reinvests in China, its accumulated investment shall not exceed 50% of its net assets; and
c. Where the FIE reinvests in any encouraged or permitted sector to establish any new entity, the FIE will not be required to submit the capital verification reports, which demonstrates that the registered capital has been paid up in full amount.

4. Equity Contribution of the FIE

The Decision abolishes the following requirements:

a. The equity shall not be used for the capital contribution under the circumstances that the registered capital of the FIE has not been paid up and the FIE fails to participate or pass the joint annual inspection of the previous year;
b. The total amount of equity contribution by all shareholders of the FIE and other non-monetary contributions shall not exceed 70% of the registered capital of the invested enterprise; and
c. Where the FIE intends to make equity contribution, it shall submit relevant certificate to the approval authority in order to prove it has passed the joint annual inspection.

5. Minimum Registered Capital Reform regarding Several Industries

The Decision abolishes the requirements on the minimum registered capital of the FIEs in the following industries:

a. Lease sector;
b. International freight forwarding sector;
c. Refined oil market;
d. Contract work on outbound construction projects; and
e. Logistics sector.

Comments:

The Decision further loosens the strict requirement on FIEs especially regarding the registered capital registration system, which is consistent with the reform of registered capital registration system for domestic enterprises. In a word, the capital registration system for both FIEs and domestic enterprises are almost unified.

However, the Decision still couldn’t sort out relevant regulations thoroughly. For instance, regarding the investment FIE setup, although the Decision abrogated the requirements on minimum registered capital of USD 30 million, there are still provisions concerning such minimum registered capital exiting in Provisions on the Establishment of Investment Companies by Foreign Investors.