Circular on the Examination and Approval of Foreign-Invested Venture Capital and Venture Management Enterprises

In late 2008 and early 2009, China's Ministry of Commerce (MOFCOM) issued a series of circulars designed to make it easier for foreign investors and foreign-invested enterprises to do business in China by delegating responsibility and power for approving many new projects—and changes to existing enterprises—to lower levels of government.

China Law Update has followed that process, summarizing four circulars:

• the Circular on Delegating the Power of Approving Foreign-Invested Commercial Enterprises (November 2008);
• the Circular on Delegating the Power of Approving the Establishment and Alteration of Foreign-Invested Joint Stock Enterprises (December 2008);
• the Circular on Delegating the Authority to Approve the Establishment of Investment Companies by Foreign Investors (April 2009); and
• the Circular on Further Improving the Examination and Approval of Foreign Investment (May 2009).

Somehow we missed one: the Circular on the Examination and Approval of Foreign-Invested Venture Capital and Venture Management Enterprises (the Venture Capital Circular).

Following a similar course of delegation, the Venture Capital Circular delegates the authority for examining and administering venture capital enterprises with a total investment of less than US$100 million to MOFCOM's counterparts in provinces, centrally planned cities, state-level economic and technological development zones, and autonomous regions. Those agencies are required to regulate venture capital firms in accordance with China's Regulations on Administering Foreign-Invested Venture Capital Enterprises, which were issued in January 2003 and became effective on March 1, 2003.

In addition, the Venture Capital Circular allows foreign-invested venture capital enterprises that have been approved by MOFCOM to seek approval for most alterations (such as an increase in registered capital) from MOFCOM's lower-level counterparts, rather than the central agency. In addition to retaining its authority for overseeing large venture capital enterprises (over $100 million capital), MOFCOM also retains authority for one-time capital infusions to existing firms in excess of $100 million.

Taken together, this series of MOFCOM circulars delegating power has the cumulative effect of reducing control of the central government over foreign investment, reflecting MOFCOM's desire to reform and streamline China's administrative approval and licensing systems. As such, the circulars, and the changes embodied in them, ease the burden of foreign-investors and foreign-invested companies in China.