In­vest­ment law im­poses re­port­ing re­quire­ments

China Daily (Canada) - - FRONT PAGE - By ZHONG­NAN zhong­nan@chi­nadaily.com.cn

The three re­port­ing obli­ga­tions out­lined in the draft for­eign in­vest­ment law will pre­vent de­lib­er­ate changes in the na­ture of a business after over­seas in­vestors setup new com­pa­nies in China, as well as keep­ing the gov­ern­ment bet­ter in­formed, ex­perts said.

Zhao Xudong, a pro­fes­sor of com­mer­cial law at the Beijing-based Chi­naUniver­sity of Po­lit­i­cal Sci­ence and Law, said most for­eign in­vest­ment, in­clud­ing set­ting up a new company, will no longer need preap­proval from the State Coun­cil.

The re­port­ing mech­a­nism will be­come a prac­ti­cal method to com­mu­ni­cate be­tween­govern­ment en­ti­ties and for­eign com­pa­nies in­China.

“As a cer­tain num­ber of for­eign com­pa­nies pre­vi­ously chose to op­er­ate other busi­nesses with­out gov­ern­ment per­mis­sion after they gained business li­censes in China, for­eign com­pa­nies, in par­tic­u­lar chem­i­cal and elec­tronic prod­uct man­u­fac­tur­ers, have caused en­vi­ron­men­tal dam­age and dis­turbed the or­der of the do­mes­tic mar­ket,” Zhao said.

Zhao said the new draft can ef­fec­tively halt such prac­tices and fur­ther stan­dard­ize for­eign com­pa­nies’ business ethics in the Chi­nese mar­ket.

The new re­port­ing mech­a­nism in­cludes ini­tial, sub­se­quent and pe­ri­odic re­port­ing obli­ga­tions. All re­ports must be sub­mit­ted based on the facts, and mis­rep­re­sen­ta­tions and omis­sions will re­sult in se­vere con­se­quences.

The ini­tial re­port­ing obli­ga­tion stip­u­lates that for­eign in­vestors must sub­mit an in­vest­ment in­for­ma­tion re­port within 30 days after the im­ple­men­ta­tion date for the in­vest­ment or the com­ple­tion date of the in­vest­ment trans­ac­tion.

The sub­se­quent re­port­ing obli­ga­tion re­quires over­seas in­vestors to de­liver an up­dated in­vest­ment in­for­ma­tion re­port within 30 days after any change to the mat­ters re­ported in the ini­tial in­vest­ment in­for­ma­tion re­port.

The an­nual re­port­ing re­quire­ments (which con­sti­tute the pe­ri­odic re­port­ing obli­ga­tion) ap­ply to all for­eign-in­vested en­ter­prises. Quar­terly re­port­ing re­quire­ments will ap­ply to any for­eign-in­vested en­ter­prise that has to­tal as­sets, sales in­come or rev­enue ex­ceed­ing 10 bil­lion yuan ($1.63 bil­lion) per an­num or that has more than 10 sub­sidiaries.

The only ex­cep­tion is where a for­eign party in­tends to invest in one of the re­stricted in­dus­tries on the “neg­a­tive list” — likely to be based on the Cat­a­logue of Re­stricted and Pro­hib­ited In­dus­tries for For­eign In­vest­ment — or the in­vest­ment amount ex­ceeds the level set by the State Coun­cil.

He Jing­tong, pro­fes­sor of for­eign in­vest­ment at the Tian­jin-based Nankai Univer­sity, said most of the con­cerns about for­eign in­vest­ments are those as­so­ci­ated with merg­ers, ac­qui­si­tions and takeovers of es­tab­lished do­mes­tic com­pa­nies, rather than newones.

“Coun­tries like Ger­many, Aus­tralia, the United States and Canada have all im­ple­mented sim­i­lar re­port­ing sys­tems in their gov­ern­ment and leg­isla­tive sec­tors to main­tain or­der in their mar­kets,” saidHe.

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