beijing review
TRANSCRIPT
22 BEIJING REVIEW March 12, 2015 http://www.bjreview.com
Robert Parkinson, founder and CEO of RMG Selection, a China-focused interna-tional recruitment and human resources
consultancy company, recently applied for an ICP (Internet content provider) license for his company and it took him less than a month. When he carried out the same process for an-other website five or six years ago, the whole process took more than two months, Parkinson recalled.
The Chinese Government’s drive to stream-line administration and delegate power to lower levels has made it much more convenient for foreign companies to do business in China.
“Things have become a little bit easier. The reform has encouraged smaller and medium-
MAKING It SIMPLE Foreign companies are finding it easier to conduct businesses in China thanks to administrative reforms By Ji Jing
sized companies to enter the market because it becomes quicker to establish an enterprise within China,” Parkinson said.
Simplified proceduresJens-Peter Otto who had worked in China for six years as a PricewaterhouseCoopers partner, providing consultancy for German companies setting up branches in China, also welcomed the simplified administrative procedures. He was especially impressed with the abolishment of the capital verification report.
In the past, all companies, including foreign-invested entities in China, needed such reports verifying their paid-in capital upon initial es-tablishment of a company or when there was
a change in capital or shareholders. Reports had to be issued by certified public accounting firms.
The Third Plenary Session of the 18th Central Committee of the Communist Party of China terminated the practice in order to sim-plify approval procedures.
“Although we would earn money because we usually prepare this capital verification re-port, we welcome this change that has been an additional burden for companies,” Otto said.
The minimum of 30,000 yuan ($4,900) reg-istered capital requirement for starting a limited liability company was removed in 2013.
“Many approval procedures have been abolished, which has saved money and made it easier for foreigners to start a company. As a consequence, many of our member companies are showing a willingness to invest in China,” said Robert Sun, President of the American-Chinese CEO Society.
Broadened accessIn addition to measures of streamlining admin-istration, the negative-list approach first tested in the Shanghai Free Trade Zone (FTZ) has also made it easier for foreign companies to start businesses in China.
Under the negative-list approach, foreign investors will need to have their projects and companies approved only when the investment is on the negative list, which specifies areas pro-hibited or restricted for overseas investors.
China has been using the Catalogue for the Guidance of Foreign Investment to man-age foreign investment. The catalogue lists three categories of industries for foreign invest-ment: encouraged, restricted and prohibited. All foreign investments should be conducted following the catalogue and are subject to an approval process.
However, the negative-list approach has
A “negative list” is usually appended to a bilateral investment treaty. It specifies areas where foreign capital is banned or limited. Areas not listed are assumed to have no restrictions and only need to register with relevant authorities. In contrast, in the past, the establishment of foreign-invested enter-prises was subject to the development approvals, reform commissions and commerce authorities at both national and local levels.
The approach was first adopted in the China (Shanghai) Pilot Free Trade Zone (FTZ), an im-portant test field in China for freer trade and a more liberal business and financial environ-ment, launched in September 2013. It marks an attempt to transform the investment adminis-tration system in China from approval-based to a registration-based.
An updated version of the negative list released by authorities of the Shanghai FTZ on July 1 re-duces the restrictions and conditions for overseas investment from 190 to 139.
China will start substantive negotiations on the negative list with the United States in early 2015 as part of ongoing bilateral investment treaty talks between the world’s two largest economies.
The State Council decided last December to launch three new FTZs in north China’s Tianjin, southeast China’s Fujian Province and south China’s Guangdong Province, where many special measures piloted in the Shanghai FTZ will be repli-cated including the negative-list approach.
The Guangdong FTZ will mainly serve compa-nies in the high-end financial service industries located in Hong Kong, the Pearl River Delta region and Macao. The Tianjin FTZ targets those located in north China, where some 80 Fortune 500 com-panies have established their presence, including many international multinational firms. Meanwhile, the Fujian FTZ will focus on trade with Taiwan.
The negative-list approach was adopted by a draft Foreign Investment Law released by the Ministry of Commerce on January 19.
Application of the negative-List Approach
COVER STORY
(Compiled by Beijing Review)
http://www.bjreview.com March 12, 2015 BEIJING REVIEW 23
given foreign investors a higher degree of freedom as they only need to go through a registration pro-cess when the industries they invest in are not on the list, which can shorten the time to obtain a license to as little as four days.
“The negative-list model conforms to the interna-tional norm and the ongoing reform of streamlining ad-ministration in China,” said Shen Danyang, spokesman of the Ministry of Commerce.
“The difficulty people have found in the past in doing business is that the country gave us a very am-biguous business climate. No one was quite sure what the rules were. The government changed or had to change the rules very rapidly, leaving no time for administrators, lawyers and profes-sionals to catch up,” Parkinson said.
“What the government is trying to do with the negative-list approach and the whole con-cept of the Shanghai FTZ is to make it easier for people to know what is allowed and what isn’t,” he added.
Adapting to changesAlthough foreign companies are enjoying more convenience while doing business in China, the gradual abortion of the special national treat-ment and the rising labor and land costs in the country are causing some concerns among the foreign community.
In order to attract foreign investment at the beginning of the reform and opening-
Nam, and Indonesia are able to offer labor more cheaply,” said Parkinson.
However, he thinks that this should not be a question of concern because the key to China’s sustained economic growth is to spur domestic consumption.
“Once foreign investment is introduced to the service sector, there will be more competi-tion between domestic and foreign companies in the industry, which will inevitably lower prices and encourage spending,” said Parkinson
He also pointed out that Shanghai FTZ’s practice of opening up more service sectors to foreign investment will attract Western countries like the United Kingdom, which are service-based, to further export their services to China. n
up drive in the late 1970s, the Chinese Government has offered foreign firms special national treatment, exemplified by a lower tax rate or tax exemption and cheap land rent fees.
“These preferential treatments have been growing increasingly incompatible with the demand for fair competition of the market economy and imminent change,” said Kuang xianming, Director of the Center for Economic Transition under the Hainan-based China Institute for Reform and Development.
“As the special treatment is being phased out, foreign companies will be subject to more uniform supervision, fairer treatment and more transparent rules,” Kuang added.
“China is becoming less and less attractive to foreign companies as a workshop or manu-facturing base, because countries like India, viet
CH
EN FEI
EASy ACCESS: Company representatives go through
company registration processes at the service hall of the China
(Shanghai) Pilot Free Trade Zone on September 29, 2014