China Law Flash: November 2015: Legal Update from China

image001Dear Clients and Friends,

Interesting developments from China in the legal market. In this issue I will focus on new developments in the capital markets, corporate, and real estate industry.

The Bank of China International Holdings Limited, a wholly-owned subsidiary of the Bank of China, released the first RMB-denominated A share exchange traded funds (ETF) in China Europe International Exchange (CEINEX). CEINEX is a joint venture founded by Shanghai Stock Exchange, Deutsche Börse and China Financial Futures Exchange, each holding 40%, 40% and 20%.
China implements new business registration policy, called “Three Certificates in One”, under which a company registered in China after October 1, 2015 would only need to apply with Administration for Industry and Commerce for a new business license consisting of a unified social credit number that can be used for tax registration and used as organization code. Compared to applying for three separate licenses (business license, tax registration certificate and organization code certificate) in the past, this new policy can reduce the time and cost for the investor.

Six major Chinese ministries, including Ministry of Housing and Urban-Rural Development, Ministry of Commerce etc. have announced an adjusted policy on the access and administration of foreign investment in real estate market, according to which the ratio between registered capital and total investment amount is lowered, the requirement for obtaining loans is loosened and so on and so forth.

Also we are happy to announce the merger of Dacheng Dentons is formally initiated. The combination would bring a brand new, world-leading international law firm with global presence in more than 50 countries and regions over five continents. The new firm would have over 6,500 lawyers and professionals, more than any other firm in the world. The combination will provide clients with more advantages, including boarder and deeper offerings around the globe, a highly integrated platform breaking down east-west barriers and reinvented client service.

I hope that you will enjoy this publication.

Best regards,

Amit Ben-Yehoshua, Senior Counsel

(Licensed in California & Israel, Master of Law in Chinese Law)

 

Capital Market: The Establishment of China Europe International Exchange (CEINEX)

image002According to Sina News, the China Europe International Exchange was opened for business on November 18, 2015 in Frankfurt, Germany. CEINEX is a joint venture founded by Shanghai Stock Exchange, Deutsche Börse and China Financial Futures Exchange, each holding 40%, 40% and 20%.According to Sina News, the China Europe International Exchange was opened for business on November 18, 2015 in Frankfurt, Germany. CEINEX is a joint venture founded by Shanghai Stock Exchange, Deutsche Börse and China Financial Futures Exchange, each holding 40%, 40% and 20%.

The Bank of China International Holdings Limited, a wholly-owned subsidiary of the Bank of China, first launched RMB-denominated A share exchange traded funds (ETF) in CEINEX, which opens up a new channel for European investors to enter into Chinese market.

It is reported by Phoenix International iMarkets that in the early days of CEINEX, it will focus on spot product trading, like ETF and bonds, and will further expand to more RMB financial derivatives in the future to promote the internationalization of the RMB.

The establishment of CEINEX has profound meaning, because Chinese capital market is not completely opened to foreign investors. Previously, a foreign investor who would like to invest in Chinese stock market, the lawful way is to purchase through qualified foreign institutional investors. Now, CEINEX opened a new door for foreign investor.

Bank of China International Holdings Limited (BOCI) was the first Chinese-funded investment bank to enter the international capital markets,established 33 years ago. BOCI specializes in investment banking, including securities underwriting, mergers & acquisitions, financial advisory, equity sales & trading, equity derivatives, fixed income, asset management, private equity investments and global commodities. BOCI participated in the historical process of reform and opening up and has experienced first-hand the many changes in the domestic and overseas capital markets while leading numerous outstanding enterprises onto the international stage. It has subsidiaries in New York, London, Hong Kong and Singapore, and a sales network covering most major Chinese cities such as Beijing, Shanghai, Guangzhou and Chongqing.

 

CorporateBusiness Registration Reform in China: Three Certificates Combined into One

image004The Chinese national business registration reform was first brought by the State Council on June 4, 2014. In a document released by the State Council raised that the formalities for market entrance shall be reduced and simplified, it further encourages the registration policy of combining the business license, tax registration certificate and organization certificate into one certificate (the “Three Certificates in One”).

 

Previously, one who opens a company in China would need to file application with the Administration for Industry and Commerce (AIC), Tax Bureau and Administration of Quality Supervision respectively for business license, tax registration certificate and organization code certificate. Now, benefiting from this new policy, one may only need to file one application with AIC and obtain one business license that is combining the function of the old three certificates.

 

Compared with the old three certificates that have three different certificate numbers (business registration number, tax registration number and organization code), the new business license only contains one number, i.e. the unified social credit code, which consists of 18 digits. The first digit stands for the managing bureau for registration; the second digit represents the category of the entity, such as “1” is enterprise, “2” is individual business entity, “3” is farmers’specialized cooperative; the third to eighth digit demonstrates the administrative area code of the registration bureau; the ninth to seventeenth digit indicates that entity identification code (the former organization code); and the last digit is the verification code.

 

According to relevant report, from October 1, 2015, the enterprise to be established will obtain the new business license from AIC. For companies that established before this date can apply for replacement of the new business license. Both new application and replacement application will be free of charge. From October 1, 2015 to December 31, 2017 is the “transition period”, during which the old business license is still valid, but after the transition period, the old business license will automatically expire. Thus, for investors who are doing business in China shall pay attention to replace the old business license.

 

Real Estate: China Adjusted the Foreign Investment Market Entrance Policy concerning Real Estate

image005Six major Chinese ministries, including the Ministry of Housing and Urban-Rural Development,Ministry of Commerce,National Development and Reform Commission,People’s Bank of China,State Administration for Industry and Commerce,State Administration of Foreign Exchange, released a Notice for Adjusting Policies on the Access and Administration of Foreign Investment in Real Estate Market on August 19, 2015, in which the Notice adjusted the following four aspects:

  1. The ratio between the registered capital and total investment amount is lowered. In the previous rules, if the total amount of investment in a real property enterprise established with foreign investment exceeds 10 million US Dollars (inclusive), the registered capital shall not be less than 50% of the total amount of investment. Now, where the total investment amount exceeds 10 million US Dollars but less than 30 million US Dollars, the registered capital shall be at least 40 percent of its total investment.
  1. The requirement on a foreign-invested real estate enterprise to have its registered capital paid in full before it becomes eligible to obtain domestic or overseas loans, or make settlement of exchanges for its loans in foreign exchange is canceled.
  1. Branches or representative offices (excluding those engaged in the real estate business upon approval) set up in China by overseas entities and overseas individuals who work or study in China are eligible to purchase houses for self-use or self-occupation to meet their actual needs. However, overseas individuals shall comply with the house purchase quota policies as stipulated by each city.

 

  1. Commencing from the date of issuance of the Notice, foreign-invested real estate enterprises may, in accordance with relevant provisions on foreign exchange administration, go through the formalities of foreign exchange registration under foreign direct investment directly with banks.

 

This Notice is a product of Chinese current economic situation, especially the real estate market which is experiencing a downturn since last year. One who is familiar with Chinese real estate market may notice that real estate industry is once a restricted area for foreign investors from 2007. Chinese governmental bureaus have issued various regulations concerning tax, house purchase quota and restricted quota for medium and long-term foreign debt to limit foreign investment in real estate industry. Now, the issuance of this Notice has re-opened the door to foreign investors and Chinese Prime Minister Li Keqiang has also expressed his supportive attitude towards real estate industry.

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