Shanghai Municipality, Examination and Approval of, and the Provision of Services to, Foreign-invested Projects in the Municipality Several Opinions

(Issued by the Shanghai Foreign Investment Commission and the Shanghai Construction and Management Commission on August 22 2003.)

All relevant departments:

Duly attracting foreign investment is a long-term task in achieving economic development and implementing the strategy of "internationalization, orientation toward the market, regulation by means of a legal framework and computerization" in Shanghai. In the spirit of "making more and better use of foreign investment and promoting the sustained, rapid and sound development of the national economy", we should adhere to the policy of making "positive, rational and efficient" use of foreign investment and the whole city should further free itself from outmoded idea, develop new ideas, further concerted efforts, do a solid job, pay special attention to the global shift of industries and the opportunities arising from China's accession to the WTO, open more sectors to foreign investment, create new methods to attract foreign investment, become more skillful at attracting foreign investment and thus take Shanghai's attraction of foreign investment to unprecedented heights.

We have formulated the following opinions on how to improve the examination, approval and administration of foreign-invested projects, enhance government efficiency and provide better service to investors in the face of the new situation.

I. PROJECT EXAMINATION AND APPROVAL

At this stage, the system of examining and approving foreign-invested projects is still firmly on the statute books, and matters such as the establishment of and changes in foreign-invested enterprises remain subject to administrative examination and approval by government departments. Following China's accession to the WTO, there has been a gradual shift in government functions from a focus on prior examination and approval to subsequent administration and service. Shanghai's system for the examination and approval of foreign-invested enterprises and its methods of administering such enterprises are also continuously being improved and progressing toward the provision of services to investors and closer compliance with international practice. The process of examining and approving foreign-invested projects should become a process of coordination, provision of services and constant optimization of the investment environment. During such process, the problems encountered by investors in the course of preparing the establishment of their projects should be resolved and the investment risks should be reduced.

1. Examination and Approval Limits

(1) According to State provisions, the examination and approval limits of the Shanghai municipal government are as follows: the upper limit for each foreign-invested project is a total amount of investment of US$30 million. Projects that have a total amount of investment of US$30 million or higher, or that are contemplating an investment increase that will take its total amount of investment beyond US$30 million must be submitted to the relevant ministries and commissions of the central government for examination and approval, except that Shanghai may approve (but must report to the relevant ministries and commissions of the central government for the record) those projects that fall under the encouraged category of the Foreign Investment Industrial Guidance Catalogue that do not require overall balancing by the State. On the other hand, foreign-invested projects that are subject to special examination and approval provisions of the State must be examined and approved in accordance with such provisions.

(2) The people's governments of Shanghai's districts and counties are authorized to approve encouraged foreign-invested projects below US$30 million and permitted foreign-invested projects below US$10 million (the People's Government of the Pudong New Area is authorized to approve encouraged foreign-invested projects below US$30 million). Where such projects are in the encouraged or permitted category and are established in a development zone at or above the municipal level, the people's governments of Shanghai's districts and counties may approve those below US$30 million. The authority to approve matters involving administration of the construction industry is delegated along with the above-mentioned authority. In line with the principle of consistency between rights and duties, whichever authority approves a project will be the authority that is to administer and be responsible for it.

(3) The Waigaoqiao Free Trade Zone Administrative Committee, the Zhangjiang Hi-Tech Park Leading Committee Office, the Shanghai Diamond Exchange Administration, the Shanghai Chemical Industry Park Administration Committee and the administrative committees of State-approved export processing zones, which function as governmental administrators, may, subject to authorization, approve encouraged and permitted projects within their jurisdictions that are below US$30 million.

(4) The Caohejing Development Zone Administrative Committee, the Minhang Development Zone Administrative Committee and large group companies belonging to the municipality such as Shanghai Electric (Group) Corp., Shanghai Light Industry Holding Company (Group), Shanghai Textile Holding (Group) Corporation, Shanghai Electronics Development Holding (Group) Company, SVA (Group) Co., Ltd., Shanghai Building Materials Group Corporation, Shanghai Construction Group, Shanghai Pharmaceutical Co., Ltd., Shanghai Hua Yi (Group) Co., Shanghai Agriculture, Industry & Commerce General Company (Group) and Shanghai Automotive Industry Corporation (Group), which do not function as governmental administrators but do have experience in the administration of foreign-invested enterprises, are entrusted by the Shanghai Foreign Investment Commission with the preliminary examination of, forwarding of submissions by, drafting of official replies on behalf of the Shanghai Foreign Investment Commission for, and keeping the files concerning, newly established foreign-invested enterprises and changes in respect of existing foreign-invested enterprises within their jurisdictions.

2. Simplification of Examination, Approval and Verification Procedures

(1) The examination and approval of the establishment of foreign-invested projects is divided into three stages, namely examination and approval of the project proposal, examination and approval of the feasibility study and examination and approval of the contract for the establishment, and the articles of association, of the company. At present, the three stages can be combined into one examination and approval exercise so as to reduce the approval lead time, with three exceptions (projects to be submitted to relevant State Council departments for examination and approval, projects involving infrastructure and projects subject to separate provisions of the State).

(2) The official replies in respect of matters such as ordinary amendments to contracts and articles of association, e.g. change of the enterprise's name, change of the enterprise's registered address, change of house number, adjustment of the product export ratio, adjustment of the number of seats on the board of directors, change of the time limit for capital contributions, etc. are entered on the forms on which the matters were submitted. These forms can be downloaded from government websites and printed, thus facilitating the procedures for the enterprises.

(3) When the Foreign Investment Commission issues certificates for foreign-invested projects approved by district and county authorities, it no longer gives out a number after verifying each individual project. Instead, the certificates are issued directly by the district and county authorities, and supervision and examination are carried out afterwards. The Shanghai Foreign Investment Commission should strengthen the training and guidance in respect of the relevant tasks.

3. Reduction of Time Required for, and Simplification of Matters Subject to, Examination and Approval and Gradual Introduction of a Notification and Undertaking System

In providing services to foreign-invested enterprises, it is necessary to enhance the transparency of the examination, approval, administration and registration procedures of all levels of government and to provide efficient, high-quality services. The Shanghai Municipality, Examination and Approval of Foreign-Invested Enterprises Regulations formulated by the Shanghai Municipal People's Congress in 1996 stipulate a 20-day time limit for the examination and approval of project proposals and a 30-day time limit for the examination and approval of contracts for the establishment, and articles of association, of foreign-invested enterprises. In practice, the examination and approval departments have greatly reduced the time for which documents circulate within government offices. These departments are now required to complete the examination and approval of each project within 10 working days, except for projects requiring coordination or submission to the central government. Official replies in respect of ordinary amendments to contracts and articles of association are to be entered on the forms on which the amendments were submitted, and the time by which such replies are issued should be reduced to 3working days upon receipt of the forms. Certain items of service that involve the handling of matters, such as the verification of imports of equipment for own use (including four categories of equipment, namely tax-free equipment, taxed equipment, second-hand equipment and equipment for technological improvement projects), the issuance of import licenses for raw materials for own use (e.g. steel, chemical fibres and plastics), etc. should be handled with keen responsiveness to the needs of the enterprises and abide by the efficient processing system where matters are completed in one go on a "ready while you wait" basis, thus reducing the time spent by enterprises on back-and-forth correspondence or visits. Those other items of service that can be completed in one go should be completed in one go on a "ready while you wait" basis. In accordance with the guiding opinions of the relevant State departments, Shanghai will gradually introduce a notification and undertaking system for the examination and approval of foreign-invested projects. Encouragement should be given to the implementation of positive and effective innovation methods that further simplify foreign-invested project matters subject to examination and approval and reduce the time required for examination and approval. Most districts and counties have established organizations that attract and approve foreign-invested projects under one roof, thus facilitating communication among different functional departments of government. Such kinds of positive experiences and practices should be summed up and popularized in a timely manner. A system of dedicated officials in charge of administering foreign-invested projects should be established. To raise the professional level of the approval personnel of the foreign investment departments at all levels, approval personnel at all levels should be given job training and be allowed to assume their positions only after they have been assessed and certified.

4. Publication of the Basis of and Procedures for Examination and Approval, and Gradual Shift to Handling Matters Online

The examination, approval and administration of foreign-invested projects is a task involving foreign elements. The transparency of the bureaucratic process seems very important and is attracting a lot of attention. At present, the website of the Shanghai Foreign Investment Commission already publishes all matters and contents relating to examination, approval and verification, and this information is kept up-to-date. The said information includes project names, basis of and procedures for the handling of matters, list of materials, times for handling matters, supervisory departments, etc. All forms to be completed by applicants can be downloaded from the website.

As the website is upgraded and improved, it should not just publish and keep up-to-date information on examination and approval, but also provide dynamic display or searching of the examination process and examination results for each project and permit the online exchange of electronic documents.

II. DULY PROVIDING SERVICES TO ESTABLISHED FOREIGN-INVESTED ENTERPRISES

Shanghai currently has more than 20,000 foreign-invested enterprises, with a combined production output accounting for more than 50% of the city's total output and a total work force of 1.18 million employees. More than 60% of the city's export-generated foreign exchange, and more than one-third of the profit turned over and enterprise income tax paid in the city, come from foreign-invested enterprises. Foreign-invested enterprises are the main force driving the economic development of Shanghai. One-third of the foreign investment attracted by the whole city consists of investment increases of existing foreign-invested enterprises. Accordingly, further improving the investment environment in terms of the legislative and policy framework and duly providing services to foreign-invested enterprises are important tasks in promoting Shanghai's economic development and form a major aspect of the attraction of foreign investors and money. The following steps should be taken in order to duly provide services to existing foreign-invested enterprises:

1. Establishment of a System for Communication With Foreign-invested Enterprises and Creation of an Atmosphere in Which Foreign Investors Feel Welcome and Appreciated

Using a number of flexible means, leaders at all levels of government in Shanghai should regularly communicate with the top managers of foreign-invested companies. They should decide on the subject matter of their communications on the basis of the State of the foreign-related economy and the types of business engaged in by the foreign-invested enterprises in Shanghai as a whole and in their respective districts, and listen to the comments of the foreign investors. Following the meetings, the general office of the government should supervise the steps taken by the relevant departments to resolve the problems raised by the foreign investors and ensure that a reply is given in respect of each matter. By analyzing the information from key areas and enterprises, a database should be established and hotline contacts should be maintained with such enterprises, so as to keep abreast of their external development trends.

2. Establishment of a Publication System for Information on Policies and Enhancement of Policy Transparency

The transparency of policies should be increased, so as to enable foreign-invested enterprises to keep abreast of policy changes; in addition, policies, laws and statutes concerning the attraction of foreign investment, taxation, foreign exchange, commodity inspection, business registration, etc. should be published in various ways:

(1) A press spokesman system should be established.

(2) Information should be posted on the Internet using government websites, including both general and specialized websites, particularly by making full use of the website of the Shanghai Foreign Economic Relations and Trade Commission and the Shanghai Foreign Investment Commission (www.smert.gov.cn) and that of the Shanghai Association of Enterprises With Foreign Investment (SAEFI) (www.saefi.org.cn).

(3) Foreign-invested enterprises should get free delivery of the SAEFI periodicals Foreign Investment Information (published twice monthly in a Chinese edition and a foreign-language edition), Foreign Investment in Shanghai (published quarterly) and Laws and Statutes (published quarterly).

(4) Policy reporting meetings should be held on an irregular basis. Officials from relevant specialized government departments should be invited to such meetings to answer questions from foreign-invested enterprises concerning policies, laws and statutes.

(5) A system should be established whereby hearings are held when new local statutes involving foreign-invested enterprises are formulated.

3. Strengthening of the Citywide Complaint Network for Foreign-invested Enterprises

In accordance with the principle of "two-tiered government, two-tiered administration and consistency between rights and duties", 24 complaint offices have been established citywide with the municipal authorities, the district authorities and the development zone administrative committees. In addition, persons have been designated as complaint contacts in 14 specialized departments, such as those for finance and taxation, business registration, labour, customs, foreign exchange, etc. As a result, basically the entire city is now covered by a complaint network. All levels of government should take the handling of complaints seriously and increase the rate of closed cases. Cases that have defied solution for years should be earnestly straightened out, goals should be defined for them, and deadlines for their closing should be set.