On Dec. 30th, the Ministry of Commerce and the State Administration for Market Regulation formulated the Measures for Reporting Foreign Investment Information (MOFCOM Order No.2, 2019, hereinafter referred to as the Measures), which will become effective on Jan. 1st, 2020, in a major move to follow through on the requirements of the Foreign Investment Law of the People’s Republic of China (hereinafter referred to as the Foreign Investment Law) and the Implementation Regulations for the Foreign Investment Law of the People’s Republic of China (hereinafter referred to as the Implementation Regulations) and provide detailed rules for the administrative system of foreign investment information reporting.

In course of drafting the Measures, MOFCOM extensively solicited comments from foreign-invested enterprises and related chambers and associations in accordance with applicable legislative procedures and called for public comments through www.chinalaw.gov.cn and the official websites of MOFCOM and SAMR from Nov.8th through Dec. 2nd, 2019. In general, to provide further clarifications through departmental regulations for the implementation of the reporting system was widely welcomed. In the meantime, specific revisions were proposed by various sides to the contents of the Measures. We considered these suggestions carefully and further revised and improved related articles.

To ensure the effective administration of the reporting system and the smooth implementation of the Measures, heads of related departments of MOFCOM and SAMR took questions from the media relating to the Measures.

I. What is the background of the Measures’ introduction?

On Mar. 5th, 2019, the 2nd session of the 13th National People’s Congress voted through the Foreign Investment Law. Replacing the Law on Sino-Foreign Equity Joint Ventures, the Law on Foreign-invested Enterprises and the Law on Sino-Foreign Contractual Joint Ventures, it becomes the new fundamental law in foreign investment, establishing the basic framework for the new legal system of foreign investment in China. The Foreign Investment Law provides for the pre-establishment national treatment and the negative list approach for foreign investment while abolishing the approval and filing system for the incorporation and modification of foreign-invested businesses, echoing the requirement of promoting a new wave of high-level opening up.

While strengthening investment promotion and protection, the Foreign Investment Law further formalizes foreign investment administration, including establishing the information reporting system, among other important legal systems. Article 34 of the Law prescribes that ‘the State shall establish a foreign investment information reporting system. Foreign investors or foreign-funded enterprises shall submit the investment information to competent departments for commerce through the enterprise registration system and the enterprise credit information publicity system’. The just unveiled Implementation Regulations further provides for the foreign investment information reporting system, which will replace the current approval, filing and joint annual reporting systems for foreign-invested enterprises.

To enforce the provisions related to the reporting system in the Foreign Investment Law and the Implementation Regulations, MOFCOM and SAMR jointly formulated the Measures to further detail and clarify the foreign investment information reporting system, which will be implemented in sync with the Foreign Investment Law and the Implementation Regulations.

II. What is the nature of the information reporting? Is it a precondition for foreign investors or FIEs to process other matters?

The foreign investment information reporting system is an administration system set up under the new foreign investment legal framework aimed at providing information support for making and improving foreign investment policy measures, enhancing precision services, and delivering effective investment promotion and protection.

The Measures details the rules for the reporting of information by foreign investors and FIEs: foreign investors and FIEs shall report investment information in a timely manner according to law under the principle of truthfulness, accuracy and integrity; those who fail to do so shall assume legal responsibilities. The reporting as such is not a precondition for foreign investors or FIEs to process business registration or other business matters. Nor is it a new administrative approval targeting foreign investors or FIEs.

III. What foreign investors or FIEs are subject to the reporting system?

The Foreign Investment Law provides that foreign investment refers to the investment activity directly or indirectly conducted within the territory of China; foreign investors or foreign-funded enterprises shall submit the investment information to competent departments for commerce through the enterprise registration system and the enterprise credit information publicity system. The Measures further clarifies that under the following circumstances, foreign investors or FIEs need to report information regarding the foreign investment: first, foreign investors directly establish companies and partnerships (including in banking, securities, and insurance, among other financial sectors, the same below) in China; second, enterprises of foreign countries (regions) engage in production and operational activities in China; third, enterprises of foreign countries (regions) establish permanent representative offices engaged in production and operational activities in China; fourth, FIEs invest (multi-layered investing included) and establish companies in China.

It needs to be noted that the Implementation Regulations provides taht the Foreign Investment Law and the Implementation Regulations, including the information reporting system, are applicable to investing by investors from the Hong Kong SAR, the Macao SAR and the Taiwan region and Chinese citizens resident in foreign countries (overseas Chinese).

Ⅳ. How should foreign investors and foreign-invested enterprises (“FIEs”) submit investment information? What specific investment information should be submitted?

Measures for the Foreign Investment Information Reporting (the Measures) clearly stipulate the reporters, reporting method, and reporting content in different situations: First, foreign investors establishing FIEs within the territory of the PRC, equity mergers and acquisitions of domestic non-foreign-invested enterprises should submit the initial report, including the basic information of the enterprise, the investor, its actual controller, and investment transaction through an online enterprise registration system. Second, if the information in the initial report of FIEs is changed, a report on the changes in the basic information of the enterprise, the investor and its actual controller should be submitted through the corporate registration system. Third, FIEs shall submit an annual report for the preceding year through the National Enterprise Credit Information Publicity System between 1 January and 30 June of each year. The content of the report includes basic corporate information, information about investors and their actual controllers, corporate operating information, assets, and liabilities, etc. Fourth, relevant information about the deregistration or conversion of FIEs to domestic-funded enterprises is forwarded by the Market Supervision Administrations (MSAs) to the competent commerce authorities. Fifth, for FIEs establishing enterprises within the territory of the PRC (including multi-layer investment), there is no need to submit a separate report—all information is shared by the MSAs to the competent commerce authorities.

In addition, regarding foreign investment in other forms besides enterprises, foreign investors shall submit investment information referring to the provisions of the Measures on FIEs.

During the process of soliciting opinions on the Measures, relevant parties suggested to further specify the specific content of the foreign investment information report. In this regard, we have conducted a careful study and MOFCOM issued Notice on Matters Related to Foreign Investment Information Reporting (MOFCOM Notice 2019 No. 62) on December 31, providing detailed practice guide and specific content of initial report, change report, and annual report, among others.

Ⅴ. Will the state's implementation of the foreign investment information reporting system increase unnecessary burdens on foreign investors and FIEs?

During the process of soliciting opinions in the Measures, relevant parties proposed that the implementation of the foreign investment information reporting system should avoid adding unnecessary burdens to foreign investors and FIEs. In this regard, we have carried out a careful study and further improved the relevant system design. In general, the establishment and implementation of this system is set to greatly reduce the burden for foreign investors and FIEs.

First, major changes have been made in the foreign capital management system, which has simplified and optimized the procedures for foreign capital access management. According to the requirements of the FIL, the competent commerce authorities canceled the approval and filing system for the establishment and change of FIEs and established a foreign investment information reporting system in accordance with the requirements of the new foreign investment legal system. This is a major achievement in the reform to "simplify procedures, decentralize powers, enhance supervision, and optimize public services " in the foreign investment field, which will greatly reduce the burden on enterprises.

Second, the information to be reported by foreign investors and FIEs has been greatly streamlined. in accordance with FIL and its Implementing Regulations, we have set the content and scope of information submission in a scientific and reasonable manner in line with the principles of being indeed necessary as well as effective, and convenient, and the data items collected in the information report have been significantly streamlined.

Third, the information that can be obtained via departmental information sharing does not need to be submitted repeatedly. Under the information reporting system, nearly 30% of the data items can be collected through information sharing, and foreign investors or FIEs can avoid duplicative reporting. For example, the information submitted by FIEs to the MSAs will be forwarded to the competent commerce authorities; the information of FIEs setting up businesses within the territory of the PRC will be obtained through sharing, and the enterprise does not need to submit the duplicative report.

Fourth, the process of submitting the information is further consolidated and optimized. The initial, change and deregistration reports of foreign investment are synchronized with the establishment, change, and deregistration to the MSAs. The annual report and annual report to the MSAs are submitted during the same period with the same channel. Foreign investors or FIEs do not need to report the investment information to the two departments separately.

Ⅵ. The state has established an information reporting system. How to ensure that the information submitted by foreign investors and FIEs is true, accurate and complete?

First, it stipulates the obligation of foreign investors and FIEs to truthfully report investment information. Article 7 of the Measures stipulates that foreign investors or FIEs shall submit investment information promptly, follow the principles of truthfulness, accuracy, and completeness, shall not make false or misleading reports, and shall not have major omissions.

Second, foreign investors and FIEs shall supplement rand correct the relevant information on their own initiative or as required by the competent commerce authorities. Article 19 of the Measures stipulates that if foreign investors or FIEs find that it has not reported, misreported or omitted to report relevant investment information, it shall promptly make a supplementary report or corrections. If the competent commerce authorities discover such cases, it shall notify the foreign investor or FIEs to supplement or correct the relevant information within 20 working days.

Third, supervision and inspection are carried out to ensure that the information is true, accurate and complete. Article 20 of the Measures stipulates that the competent commerce authorities may cooperate with relevant departments to conduct supervision and inspection with spot checks, inspections in accordance with reports, recommendations and reports of relevant departments or judicial authorities, and initiating inspections ex officio. Article 22 of the Measures also stipulates that the competent commerce authorities may obtain information from other departments for supervision and inspection as needed, and may examine or require the inspected to provide relevant materials according to law.

Fourth, the legal liability for violation of information reporting obligations is clearly specified. For investment information that is not submitted as required or supplemented or corrected after being notified, the competent commerce authorities may order relevant parties to correct it within 20 working days. If it is not corrected within the time limit, it will be given penalties of 100,000 to 500,000 yuan depending on the circumstances. In the case of foreign investors and FIEs that failed to fulfill their obligations of reporting obligations in accordance with the law found during the inspections, the competent commerce authorities shall record that in the foreign investment information reporting system and publicize the relevant administrative penalties.

Besides, in the process of soliciting opinions in the Measures, relevant parties proposed to allow more time for foreign investors and FIEs to submit change reports following the law, make supplementary reports in accordance with the notification of the competent commerce authorities, and correct relevant information. In this regard, we conducted a careful study and extended the time limit for submitting information from 15 working days stipulated in the initial draft for comments to 20 working days.