High-Tech in Shanghai: Zhangjiang Courts Investors

Administrative Framework

Under the Regulations, a park management office under the authority of Shanghai Municipality will administer the Park. The park management office is responsible for making policies, managing and providing services for the Park, and participating in the examination and approval of investment projects, as well as basic construction projects within the Park. The park management office, the Administration for Industry and Commerce branch established within the Park (the AIC Branch), and the Shanghai Foreign Investment Commission branch office established within the Park (the SFIC Branch) together have jurisdiction, plenary or partial, over the approval, if applicable, and registration of domestic and foreign investment enterprises (FIEs) established within the Park.

A Streamlined Business Formation Process

Like Beijing's Zhongguancun Science and Technology Park Regulations that became effective January 1 2001 (the Zhongguancun Regulations), the Zhangjiang Regulations distinguish between companies that require approval prior to obtaining a business licence and those that do not require such prior approval, and provide more streamlined and investor-friendly business formation procedures for both types. Where prior approval is not required, as is the case with most domestic companies, a business may simply register with the AIC Branch, and as long as the applicant satisfies all the conditions for forming such a company the AIC Branch is required to complete the registration within three working days. Where prior approval is required, as is true of all FIEs, the applicant only needs to submit its application materials to the AIC Branch. If the investment amount is less than US$30 million and in an industry that is not designated as a restricted industry for foreign investment, the AIC Branch is obligated to copy the materials to, and work in conjunction with, the SFIC Branch to complete the examination and approval process within five working days. If the investment is in a restricted industry or in an amount in excess of US$30 million, the AIC Branch will coordinate with all other relevant government agencies outside the Park to complete the approval and registration of the FIE within 15 to 20 working days.

Lifting Restrictions On Business Scope

As with the Zhongguancun Regulations, a fairly drastic step taken by the Zhangjiang Regulations is elimination of the requirement for a business in the science and technology area established within the Park to define its scope of business, as is generally required by the PRC Company Law (中华人民共和国公司法). Thus, a prospective business in the Park no longer needs to carefully craft the scope of its planned business activities. In other words, the company will be free to engage in any business activity not prohibited by the law, and the AIC or SFIC authorities no longer will have the authority to monitor the company's business activities in regard to its defined business scope. Nor will these authorities be able to penalize the company for any inadvertent breach of its business scope.

Additional Forms Of Capital

The Regulations now allow investment in the form of intellectual property of up to 35% of the registered capital of a company (an even higher percentage is allowed if agreed to between the investing parties). Investors with management and technological skills may also contribute such skills as capital contributions of up to 20% of the registered capital of the company.

Lower Registered Capital And A More Flexible Contribution Schedule

The Regulations have lowered the minimum amount of registered capital for a company to be established within the Park from Rmb30 million to Rmb10 million, and provide that the company needs to contribute at least 10% of its registered capital upon its formation (instead of 15% within three months after a FIE's formation as required by the relevant national regulation).

More Transparent Administration

Under the Regulations, the Park administration authorities are required to make known in writing to the parties affected what their legal obligations are, and to receive complaints regarding the conduct of the Park administration authorities. Before conducting any legally required inspection or examination, the Park administration authorities have to notify the parties that are inspected or examined. The Park administration authorities are also subject to clear restraints on their authority to charge fees from companies within the Park.

Conclusion

As with the Zhongguancun Regulations, the Zhangjiang Regulations have broken some new ground in their efforts to provide simplified company formation procedures and requirements and to facilitate capital investment. But some of the provisions rest on untested legal ground where the Regulations may clash with some national law provisions. Investors are therefore advised to seek legal advice to maximize their benefit from investment in Zhangjiang.

By Ling Zhu, Annie (Ran) Yan
and Ron (Rongwei) Cai,

Davis Wright Tremaine LLP^©,
Shanghai