The revised Company Law of China, approved on December 29, 2023, is set to be implemented from July 1, 2024. This law primarily aims at Enhancing the Structure of Corporate Governance, Refining the System of Shareholder Contributions, and Regulating the Procedures for Company Deregistration. It is expected to significantly influence the daily compliance activities of both local and international corporations. Here is a concise examination of the principal effects on Entities Invested by Foreigners.
- Entities with foreign investments now have greater flexibility in choosing their legal representatives, can choose not to form a supervisory board, and have the alternative to establish an audit committee to wield the powers of the supervisory board as required.
- The responsibilities of shareholders have been amplified, mandating that the subscribed capital of a limited liability company be fully paid up within five years from its inception.
- The range of methods for subscribed capital has been broadened to incorporate non-monetary assets such as equity and credit rights.
- The procedures for company deregistration have been standardized and simplified, making dissolution or deregistration more straightforward.
- A fresh clause has been introduced to impose liability for compensation when the liquidator neglects to meet liquidation duties, leading to losses.
The primary goal of these significant amendments is to boost the effectiveness and transparency of corporate governance, offer more precise guidelines for compliance practices, such as enforcing stricter rules on capital contributions to avert financial risks. It is suggested that businesses closely track these changes in their daily operations and make necessary compliance modifications in line with the new regulations. The trend of capital reduction has surfaced, and it’s crucial to remember that the public announcement period for capital reduction spans 45 days. It is recommended to plan ahead to guarantee timely disclosure.
For issues involving multiple regulations, companies might contemplate enlisting professional assistance from legal advisors, accountants, and so on, to ensure adherence to the rules.
Ministry of Commerce relaxes access to the Chinese market
The National Commerce Conference took place in Beijing on January 7-8, with a highlighted objective to establish the ‘Invest in China’ brand in 2024, ease market entry and bolster services for foreign investors, persistently improve the high-quality business environment and progressively broaden openness. The conference also detailed strategies to augment the roles of diverse zones, encompassing national-level economic and technological development zones, experimental free trade zones, and pilot demonstration zones for the service industry.
High-quality financial development in China
The Special Seminar on Advancing High-Quality Financial Development was inaugurated at the Central Party School on January 16th, with President Xi Jinping delivering a speech that underscored key aspects. These encompassed the vital components for establishing a financial stronghold, such as building a contemporary financial system, fortifying financial security, promoting openness, and intensifying financial risk mitigation. President Xi stressed the significance of harmonized regulation, integrating legal principles with ethical governance, battling financial illegalities, and cultivating China’s financial ethos. This finance-centric seminar is the first of its kind in 25 years since 1999, offering direction for the evolution of China’s unique financial system.
As per the data from the China Securities Regulatory Commission, in 2023, a total of 81 institutions received approval for Qualified Foreign Institutional Investor (QFII) status, spanning 15 countries, regions, and international organizations worldwide. Despite being slightly lower than the 118 approved in 2021, the rising number of QFII approvals indicates an escalating trust among foreign investors, contributing to the high-quality growth of China’s capital market.
New measures to ease the entry of foreign national to China
The National Immigration Administration of China has officially implemented new measures from January 11 to ease the entry of foreign nationals into the country.
- Easing the visa application process for foreigners coming to China.
- Providing a 24-hour direct transit without the need for border checks at nine major airports, including those in Beijing and Shanghai.
- Permitting foreign nationals in China to manage visa extension, renewal, and reissuance locally.
- Allowing foreign nationals in China who need to enter and exit multiple times to apply for a re-entry visa.
- Streamlining the documentation required for visa applications by foreign nationals in China.
These measures are designed to continually refine the policy for the entry, exit, and residence of foreign nationals, making it easier for them to come to China for business, study, tourism, and other purposes.
Social security declaration process
Starting from 2024, there will be an enhancement and modification in the procedure for declaring and paying social insurance contributions. Contributions towards basic endowment insurance, unemployment insurance, basic medical insurance, and so on, from employers and flexible employees, will now be declared and paid directly to the tax authorities independently.
This consolidated method unifies the declaration and payment process for social insurance matters, offering contributors an automated calculation and declaration service via the information system.
Compliance impact on profitability of business in China
Data suggests that despite the partial recovery of travel and goods trade due to factors like the pandemic and geopolitical conflicts, the global division of labor is intensifying. Key drivers of global development include the emergence of digital industries, with multinational digital corporations such as Microsoft, Meta, Google, Tencent, Alibaba becoming integral to the future of globalization. In the post-pandemic era, China’s role as a vital market endpoint and a significant node in the supply chain is becoming increasingly evident. Multinational companies are localizing their efforts in China to strengthen their market positions, while diversifying their supply chains and setting up manufacturing centers in other regions to cater to global demands, thereby enhancing business resilience against economic and geopolitical uncertainties.
At this juncture, compliance is crucial for the stable and long-term growth of both domestic and foreign entities. However, challenges in compliance practices include the impact of export control policies on global layouts, inefficient compliance functions, inconsistent objectives, and lack of funds and talent. The solution involves establishing a resilient supply chain, streamlining compliance workflows, setting shared goals, and specialized talent training.
It is suggested that top management closely monitor the latest policy direction, support the creation of a compliance culture, thereby contributing to the company’s profits by minimizing legal risks, enhancing efficiency, and exploring market opportunities. The effectiveness of these measures can be evaluated through audits, KPIs, risk assessments, ensuring the involvement of all employees, and fostering sound development while maintaining compliance.
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