Fast Changing Chinese Regulations

by | November 8, 2016

Fast Changing Chinese Regulations

by | November 8, 2016

There is a tree called the Chinese Pistache (Pistacia Chinensis). When autumn kicks in, the tree changes color in a beautiful fashion. Before falling from the tree, the 30cm leaves change to yellow, orange or red.

In some form, China resembles the Chinese Pistache tree in autumn. The tree will change in many ways from the tree you saw in summer. You do not know exactly when the tree starts to change, or what the tree will look like. If you have not seen the tree since summer, you might not even recognize it anymore.

Over the past 30 years China has undergone many color changes with significant impact. When doing business in China, it is important to know which leaves changed color. Knowledge about the recent changing Chinese regulations might be the difference between succeeding or failing in the Chinese market.

Yellow leaf: One-child policy

The One-child policy, initiated 35 years ago, is illustrative of efficient Chinese rule making. No Western citizen would have ever accepted such a drastic regulation. According to the Chinese government, the regulation prevented the conception of approximately 400 million Chinese. The one-child policy had a lot of influence on the enormous economic growth China made over the past 30 years. As a result, the growth lifted about 650 million people out of poverty.

However, during the past years it was starting to become a challenge to the government. The one child-policy has created an aging population. Simply put: every child has two parents and four grandparents, which makes affordable pensions quite a challenge.

Between October 26 and October 29 of 2015 the communist party announced the changed regulation. Implemented on the first of January 2016, Chinese are now allowed to have two children

Red leaf: VISA regulations

In September this year, China announced new VISA regulations for expats working in China. The pilot to test the new system started on the first of November in Beijing, Shanghai and Tianjin. The new system ranks foreigners on their desirability for China. The pilot divides foreigners amongst three categories; Top talent, professional talent and unskilled workers.

The system is aimed at encouraging top talent, limiting the professional talent and restricting the unskilled workers to join the Chinese labor market. To determine the expat’s category, the government looks at; salary, education background, experience in China, Chinese language proficiency, age and location.

For Foreign Invested Entities (FIE’s), it becomes increasingly difficult to hire Western employees. The ranking system will have to be taken into account, before being able to hire a foreigner in China.

Orange leaf: Foreign direct investment regulatory regime

Registering FIE’s, like Wholly Foreign Owned Entities (WFOE’s) and Joint Ventures (JV’s), has been an administrative nightmare. Until now, the process took very long due a lot of paperwork, which was required from the applicants.

On the third of September 2016, China’s Standing Committee of the Nationals People Congress (NPCSC) and the Ministry of Commerce (MOFCOM) announced that they will abolish the current rules and will present a simplified process to register FIE’s. The details of the new process are still unknown, but it will be based on the following key points:

  1. Filing procedure can be completed within 30 days (currently up to 6 months).
  2. The People’s Republic of China will tighten post-investment supervision.
  3. The information of the ultimate controller of the FIE and any subsequent change must be filed with MOFCOM.

For foreigners looking to start up a business it is good news. The simplified process will drastically decrease the lead-time to set up an organization. However it will become more important to make sure an organization is compliant to the rules and regulations.

Falling fast

The leaves do not just change color; they also fall from the tree in the same season. Between announcing changing Chinese regulations and implementing them, the efficient Chinese government does not waste time. The implementation of the two-child rule was announced at the end of October and came in to effect two months later on the first of January. Visa regulations where announced at the end of September, to start in pilot cities at the first of November.

As an owner of a FIE in China, the changing Chinese regulations can be crucial to the future of your organization. Sometimes changed regulations make life easier (new FIE rules), but other times they can be a big problem (new VISA rules). Therefore keeping a close eye on the changing rules and regulations is imperative. Before you know it, the tree has completely changed and winter is around the corner!

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