The government has taken further steps to reduce bureaucracy in China by amending 14 and abolishing six sets of regulations. The bureaucratic changes aim to cut red tape for enterprises in a wide range of industries. This push forms part of China’s long-term reform efforts to reduce regulatory hurdles and boost market activity. The amended regulations cover industries, such as telecommunications, healthcare, transport, customs, and internet access services, among others. We provide an overview of the changes most pertinent to foreign investors in China.
On April 7, 2022, the State Council issued an order to amend 14 and abolish six sets of administrative regulations across a wide range of industries in order to further cut red tape for companies and help stimulate market activity. The changes will take effect from May 1, 2022.
The order forms a part of China’s reform push to “separate operation permits and business licenses”, which reviews existing laws and regulations to: 1) reduce bureaucratic procedures for businesses by abolishing approval requirements, 2) optimize market access services, and 3) base certain approval procedures on “informed commitment” rather than inspections, among other measures.
The affected regulations cover foreign investment in the telecommunications industry, medical institutions, customs inspection, transport, internet access services, and many more.
Below we provide an overview of the legal changes that may benefit foreign investors in China.
The amended laws cover the following fields:
Meanwhile, the six abolished laws are:
By far the most significant development for foreign investors is the amendments made to the Provisions on the Administration of Foreign-Invested Telecommunications Enterprises (the ‘provisions’). Under these provisions, China imposes several restrictions on foreign investment in the telecommunications industry, including caps on foreign ownership and significant reliance on the Chinese partner to handle bureaucratic procedures.
Notably, the telecommunications industry is included on the Negative List for Foreign Investment Access, which lists the industries that are restricted from foreign investment.
Although the caps on foreign share ratios remain in place, the provisions have been significantly stripped down, with several articles deleted entirely, streamlining registration procedures and easing restrictions on foreign-invested telecommunications enterprises (FITEs).
Below we outline some of the most significant amendments made to the provisions.
This is less demanding than the project application report, which required the investors to disclose information, such as the total investment in the FITE, registered capital, and the duration of the joint venture, among other details.
The State Council order makes changes to Regulations on the Administration of Medical Institutions (the “Regulations”), simplifying bureaucratic procedures for establishing and making changes to medical institutions.
The main change to the regulations is an amendment to the wording to enable some medical institutions to be exempt from obtaining an “approval letter for the establishment of the medical institution”. The regulations have been changed to require only some medical institutions – those stipulated by the State Council – to obtain this certificate. This refers to amended requirements released in 2020 that exempted some medical institutions, mostly domestic institutes that provide non-core medical services, from obtaining the license. Many of the below changes reflect this overarching amendment.
Some minor changes have been made to other laws governing a range of fields, which may be significant for companies seeking to set up in the related fields. Below we outline some of these amendments.
Changes to the Regulations for the Implementation of the Import and Export Commodity Inspection Law of the People’s Republic of China reduce requirements for the establishment of customs inspections agencies, and certain punishments have been abolished.
The Regulations on the Administration of Business Sites for Internet Access Services, which regulates internet access service sites, such as internet cafes and computer lounges, have been changed to ease cybersecurity review requirements for companies to receive approval to begin operations.
Now, rather than having to undergo a cybersecurity inspection by the public security bureau (PSB) before getting approval to begin operations, companies only need to make a promise to the PSB that it will meet certain cybersecurity requirements, and then sign a letter of commitment after receiving approval from the PSB.
However, a new article has also been added (Article 32), which requires the PSB to conduct a spot cybersecurity inspection of the premises within the first 20 days of the company starting operations. If in the process of this inspection, the company is found to have reneged on the promised cybersecurity responsibilities, it can be liable for a fine of up to RMB 15,000 (US$2,350) and in serious circumstances be ordered to close or have its license revoked.
Amendments to the Pesticide Management Regulations relax requirements for the registration of new pesticides. In order to register a new pesticide for sale, the pesticide needs to undergo a “registration test”. A previous requirement for this registration test to be submitted to the agricultural department of the State Council. However, this requirement has now been removed, and applicants are only required to submit the test to the local agricultural department instead.
The Measures for the Administration of Radioactive Drugs have been amended to streamline procedures for establishing a radioactive drug production and operation enterprise. Previously, companies were required to seek approval from the relevant department of the State Council in order to receive a “Radioactive Drug Manufacturing Enterprise License”. Now, the measures have been amended to allow companies to seek approval from the local department in their jurisdiction instead. The review and approval of the company’s establishment will also be handled by local authorities instead of the central government.
It will be difficult to see the effects of the amendments to the regulations in the short term, especially as companies grapple with more imminent issues, such as the ongoing supply chain issues, COVID-19 restrictions, and high commodity prices, to name a few.
However, though some of the amendments may be small, they may have a significant impact on players in the various sectors affected in the longer term, especially in the possible recovery period after the current COVID-19 restrictions are lifted and operations return to normal.
For instance, the amendments to the regulations on foreign investment in China’s telecom industry will allow for more streamlined procedures for foreign investors to enter an industry that has been relatively difficult to operate in the past, even if some restrictions still remain. The changes to the requirements for medical institutions may also help cultivate more companies in the medical services industry, in particular those providing non-core medical services.
It is also possible we will see further reductions in bureaucratic requirements in the future, as the government continues to review regulations as part of the reform to separate operation permits and business licenses.
China Briefing is written and produced by Dezan Shira & Associates. The practice assists foreign investors into China and has done so since 1992 through offices in Beijing, Tianjin, Dalian, Qingdao, Shanghai, Hangzhou, Ningbo, Suzhou, Guangzhou, Dongguan, Zhongshan, Shenzhen, and Hong Kong. Please contact the firm for assistance in China at email@example.com.
Dezan Shira & Associates has offices in Vietnam, Indonesia, Singapore, United States, Germany, Italy, India, and Russia, in addition to our trade research facilities along the Belt & Road Initiative. We also have partner firms assisting foreign investors in The Philippines, Malaysia, Thailand, and Bangladesh.
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