Enterprising new steps

Simplified company registration rules will attract foreign investment

Simplified procedures for the registration of new companies in China announced recently by the State Council will attract more foreign investment and further stimulate the domestic economy, experts say.

As part of the reforms, China has reduced the minimum capital requirements for registering a new company and the entry threshold for business startups.

The 30,000-yuan ($4,900) entry threshold for limited liability companies, the 100,000-yuan requirement for an individual company, and the 5 million-yuan cap for an incorporated company have all been done away with in the new set of reforms announced on Oct 25.

The State Council also stipulated that there would be no limits or mandatory time frame for paid-up capital, and the same would no longer be binding for registration of companies. Instead, the amount and duration of registered capital will depend on the founder of the company.

"By widening the market access and establishing a transparent and efficient modern company registration system, we aim to further streamline government administration, create fair competition and support smaller businesses, especially innovative enterprises," said Premier Li Keqiang.

According to Li, the measures are expected to stimulate private investment, strengthen the foundation for economic recovery, and create more job opportunities.

Zhang Yazhou, partner of Beijing-based law firm Unitalen, says the new policies "show that the new government clearly understands the legislative intent and principles of China's Company Law".

However, he feels that the simplified registration procedures should extend to foreign companies also.

"China has promised to adhere to the WTO rules, and the government has reiterated its commitment to provide a level playing field for foreign companies in China. In this regard, it would be better if both Chinese and foreign companies follow the same set of rules for setting up and registering companies," Zhang says.

Huang Weihua, senior manager for China at the Brussels office of global consultancy firm KPMG, says the new policy will help attract more foreign investment.

"There are two factors that will spur foreign investment in China," Huang says. "Due to the simplified rules, foreign companies will be able to save time and other costs. The future credit system will also give overseas investors more faith in setting up joint ventures in China."

The latest reforms also involve replacing the annual inspection of companies with a reporting system that can be viewed online to increase the transparency of business operations.

Premier Li, in his address, called for the building of an integrity system and the creation of a public blacklist of enterprises that follow deceptive practices.

Huang says such a system would instill confidence in foreign investors and facilitate more direct investment.

Ju Jinwen, an expert on private economy at the Chinese Academy of Social Sciences, considers the new reforms a "long-awaited breakthrough" in company registration.

He says the minimum requirement for registered capital was envisaged as a means to protect the interests of creditors. However, it has not made any real difference, as in many cases the registered capital was actually borrowed, Ju says.

"The new measures address this aspect by lowering the threshold and strengthening mid-level supervision. It is in line with many other market-oriented reforms promoted by the new leaders," he says, adding that the "ultimate goal of these measures is to inspire entrepreneurship among private investors."

From 2006 to 2012, the proportion of private investment as a percentage of total volume in China increased from 49.8 percent to 61.4 percent.

"The changes made by the State Council in the registration system of enterprises are likely to attract more small and micro-sized enterprises with low registered capital, and will contribute to the recovering economy," says Zhang Beilei, general manager of Wenzhou Gaotian Shoe Co, which exports nearly 50 percent of its products to Japan.

Zhang says that the reforms will lead to fair competition and encourage private enterprises to manufacture higher-quality products with more innovative technology.

"The lower requirement for enterprises' registered capital will definitely allow more individuals to launch their companies with less money through a more convenient procedure," says Zheng Da, the owner of Yuyao Chezhiku, an automotive supplies company in Zhejiang province. A micro-sized enterprise launched in 2011, Zheng's factory has 20 workers and monthly sales revenue of more than 200,000 yuan.

It is common for blue-collar workers to own a company in western Europe, says Huang from KPMG, adding that the simplified registration process will encourage more people to start their own businesses in China.

For small and medium-sized companies, it is an encouraging step, and these companies can help create more job opportunities in China, says Zhang from Unitalen.

However, there are still some concerns about the new rules.

Realistically speaking, most of the established companies have a good reputation. However, there are some people in these companies who engage in illegal activities and in most cases, the company becomes a conduit for the illegal activities, Zhang says.

Trouble also arises when these companies go under due to debt and the resultant actions have an impact on other business associates. To solve this problem, supervision needs to be strengthened further, he says.

At the same time, Zhang says, companies should move toward a network system of corporate integrity, and publish regulatory information in a timely manner to improve transparency.

As far as foreign investment is concerned, the new policies are clear signals that China intends to be more international and market friendly, experts say.

"In the future, we can expect more sophisticated and mature measures for other important regulations," Huang says.

Contact the writers at tuoyannan@chinadaily.com.cn and weitian@chinadaily.com.cn.

(China Daily Africa Weekly 11/01/2013 page21)