Press Release

Information Office

State Council

People’s Republic of China

Promote Reform of the Registered Capital System,

Reduce Cost of Start-ups and

Stimulate Non-government Investment

(7 November 2013)

State Administration of Industry and Commerce (SAIC)

The 2nd Plenary Meeting of the 18th Congress of CPC explicitly required reform of the industry and commerce registration system. The Program for Institutional Reform and Functional Transformation of State Council adopted by the 1st Plenary Meeting of the 12th National People’s Congress regards reform of the industry and commerce registration system as an important component of transforming institutional functions of the State Council, specifically requiring “changing the registered capital system from actual paid-in of registered capital to commitment to payment of registered capital, and relaxing other conditions for industry and commerce registration”. On 25 October 2013, Premier LI Keqiang presided over the executive meeting of the State Council to arrange promotion of the registered capital system in a view to reduce cost of start-ups and stimulate non-government investment.

I. Promote reform of the registered capital system: a summary of practical explorations

The registered capital system is an important component of the industry and commerce registration system which is a basic system for the Chinese government to manage the economy and the society. The existing industry and commerce registration system, gradually established and improved during the transition of the Chinese socialist planned economy to the socialist market economy, has basically adapted to requirements of socioeconomic development at different historical stages and played a positive role in cultivating market players, ensuring safety of transaction and maintaining the market order. However, it also suffers from increasingly marked defects such as tedious administrative approvals and excessively high access thresholds.

Over the recent years, the industry and commerce administration sector has made proactive efforts to promote reform of the industry and commerce registration system. (1) Since 2006, SAIC has produced 40 policy documents supporting and serving local socioeconomic development, supported innovation of the registration and administration system and relaxed conditions for registration within its mandate according to law, for the purpose of upgrading efficiency and effectiveness of market regulation and optimizing the market access environment. (2) SAIC has promoted the establishment of the liaison mechanism for business registrars in some reform pilot areas. Specialized symposiums have been convened for four consecutive years since 2009 whereby in-depth discussions and steady promotion have been carried out pertaining the functions and roles of industry and commerce registration as well as the direction, objectives, contents, conditions and steps of the registration reform. (3) SAIC has rendered support to pilot reform of industry and commerce registration in some localities, with pilot projects in some parts of Guangdong Province and the Shanghai Free Trade Zone attracting extensive public attention in particular. Thanks to their legislative power, Shenzhen and Zhuhai, have basically restructured their industry and commerce registration systems. The Shanghai Free Trade Zone Dongguan and Shunde have standardized their local government documents to maximize the effectiveness of reform within the existing national legal framework. (4) Under the leadership of local party committees and people’s governments, the local industry and commerce administrations have made positive attempts to reduce market access thresholds, reform registration models and promote scientific effective regulation. In particular, local explorative practices such as registration upon commitment to payment of registered capital, “zero down payment”, extension of investment duration, relaxation regarding the proportion of monetary investment and simplification of formalities for domicile registration have accumulated useful experiences for reform of the industry and commerce registration system. Since 2008, the whole country has witnessed an over 8% average growth rate of market players.

As at the end of September 2013, China had 58.7193million market players of all types, a year-on-year growth of 8.9% (whose total possession of capital amounted to RMB96.98 trillion, up 17.3% year-on-year), among which 14.6931million businesses, an increase of 9.42% year-on-year, whose registered capital totaled RMB93trillion, up 17.18% year-on-year; 43.1157 million were sole proprietorships, up 8.20% year-on-year, recording total capital of RMB2.29trillion, up 21.89% year-on-year; and 910,600 were specialized farmers’ cooperatives, a year-on-year growth of 40.72%, boasting total investment of 1.69 trillion, up 66.90% year-on-year. This year China has hitherto recorded an incremental number of RMB8.1353 million new market players, up 14.97% year-on-year, and incremental registered capital of RMB7.77 trillion, up 45.17% year-on-year.

The areas enjoying earlier reform pilots have indicated that the reform has relaxed restrictions of market access, effectively facilitated the basic role of the market in resource allocation, stimulated non-government enthusiasm for investment and business start-ups and rapidly increased the number of market players. As at the end of September 2013, Guangdong Province had 5.6285million market players of all types, including 1.7176million businesses of various categories, growing 9.0% and 12.27% over the end of the previous year respectively; and Shenzhen, Zhuhai, Dongguan and Shunde had 2.0340 million market players of all types, including 838,100 businesses of various categories, up 16.82%and 16.72% over the end of the previous year respectively. Between January and September 2013, Guangdong recorded 805,000 newly registered market players of all types, including 247,600 newly registered businesses of various categories, up 21.90% and 30.57% year-on-year respectively; of which, Shenzhen, Zhuhai, Dongguan and Shunde had 368,500 newly registered market players of all types, including 148,700 newly registered businesses of various categories, up 57.91% and 54.13% year-on-year respectively.

Since the initiation of its pilot reform in September 2013, Shanghai Free Trade Zone has practiced the work mechanism of “applying with one form and processing at one window”. With the industry and commerce authority reviewing, approving and issuing the business license within 3 working days and the quality inspection and tax authorities approving and issuing the organizational code certificate and the tax registration certificate within 1 working day afterward, a Chinese business only needs 4 working days to complete its incorporation process, 6-9 working days fewer than in non-pilot areas; while a foreign-invested business only needs 9 working days to complete this process, more than a month quicker than in non-pilot areas; The reform has brought 444 incremental businesses to the Shanghai Free Trade Zone already.

II. Promote reform of the registered capital system: Basic principles and major contents

2.1. Basic principles

Reform of the registered capital system will be promoted on the principles of convenience, efficiency, standard and uniform practice, and easy access but stringent regulation, for the purpose of innovating the business registration system, reducing access thresholds, reinforcing responsibilities and accountability of market players, and facilitating the formation of an honest, fair and orderly market.

“Convenience and efficiency” means facilitating applicants’ completion of registration formalities to become market players according to principles of right conditions, simple procedure and low cost, and aims at encouragement of investment and business start-ups, innovation of service models and higher registration efficiency. “Standard and uniform practice” means uniform registration procedures and requirements plus basically identical registration items for market players of all types, standard conditions and information for registration, and reduction of intervention into discretionary items of market players. “Easy access but stringent regulation” means that relaxation of market access such as registered capital shall go hand in hand with efforts to reinforce responsibility and accountability of market players, improve supplementary systems for regulatory purpose, intensify regulation of market players, promote the construction of a business integrity and public trust system and maintain a market order that features lenient access and fair competition.

2.2. Major contents

The reform will cover five aspects: (1) Relax thresholds of registered capital: Unless otherwise stipulated by laws and regulations, restrictions regarding registered capital, i.e., minimum RMB30,000 registered capital for a limited liability company, minimum RMB100,000 registered capital for a one-person limited liability company, and minimum RMB5 million registered capital for a company limited by shares, shall be lifted; upon incorporation shareholders (sponsors) shall no longer be restricted in terms of the proportions of “down payment” and duration for full payment of investment; actual paid-in capital shall no longer be included in the list of items of industry and commerce registration. (2) Change the system of annual business inspection to the system of annual reporting whereby any employer or individual may search for relevant information of businesses as such information will become transparent. A fair and standard sample inspection system will be set up to overcome the arbitrary nature of inspections and increase fairness and effectiveness of government administration. (3) Simplify registration of domicile (business premise) of market players, with specific regulations to be determined by local governments. (4) Vigorously promote the construction of a business integrity system. With the use of information announcement and sharing and via the system for announcement of market player credit information, information of businesses such as registrations and filings, annual reports, qualifications and accreditations will be made available to the public. E-business licenses and total-process electronic registration administration will be practiced, enjoying equal legal effect as hard-copy licenses. The credit constraint mechanism will be improved whereby irregular market players will be put on the “black list” of businesses in abnormal operation and announced to the whole society, as a result of such businesses will “be restricted everywhere for any irregularity in any one aspect” and thereby suffer higher cost of “losing credit”. (5) Reduce the cost of start-ups by changing actual paid-in of registered capital to commitment to payment of registered capital. Based on more intensive efforts to improve relevant laws and regulations, shareholders (sponsors) shall be allowed to determine the amounts of investment commitment, pattern of investment and duration of investment at their own discretion and shall be held liable to the truthfulness and legitimacy of their payment of investment.

III. Prepare for reform of the registered capital system

Reform of the registered capital system features extensive coverage and strong policy implications. The executive meeting of the State Council put forward work requirements in five aspects to help the reform measures effectively “take root”, and thereby further release the reform dividends, stimulate entrepreneurship and catalyze new motivation for growth: (1) Intensify efforts to amend relevant laws and regulations according to statutory procedures; (2) Relevant localities and competent authorities to speed up improvement of supplementary measures as a measure of close mutual cooperation; (3) Provincial governments to efficiently construct the local systems for announcement of market player credit information in line with uniform standards and norms; (4) The industry and commerce administration sector to optimize relevant work flows and improve systems for steady transition of administration work before and after the reform; (5) Reinforce self governance of businesses, self regulation of trade associations and supervision by civil society organizations to enhance market regulation.

Reform of industry and commerce registration is an inclusive reform arranged by the State Council rather than a departmental task confined to the industry and commerce administration sector alone. Its relevant work requirements target governments and government departments at all levels nationwide. The industry and commerce administration sector needs to fulfill both shared tasks and specialized requirements. At present, SAIC is making intensive efforts to: (1) Research and produce recommendations regarding amendment of relevant laws, administrative regulations and State Council decisions including the Company Law and the Regulations on Business Registration, and report them for review and approval according to due procedures; (2)Improve supplementary regulations and measures based on the aforementioned amendments; (3) Accelerate construction of the system for announcement of market player credit information, renovate the existing IT system for registration administration, develop options for e-business licenses and thereby provide the foundation and guarantee for reform; (4) Intensify communication and training to ensure smooth progress of the reform. Meanwhile, we will also enhance instructions for the entire sector to effectively implement the various reform items.