Setting Up a Business in China - Part III Licenses

Setting up a Business in China

By Jing Zhang

As we introduced in the previous section, we know the main procedures go through several ministries and bureaus, and quite a few licenses are required to apply.  You probably are curious about the reason why enterprises should apply and obtain all these licenses.  You may also wonder why there are so many ministries and bureaus that the procedures of setting up a foreign capital enterprise should go through and what’s their functions.  We will introduce the licenses in China in Section 3 and discuss about the topic of ministries and bureaus in Section 4.  Other related issues will be discussed from Section 5.

 

Section 3

Licenses

License System in China

The license system in china reflects Chinese characters.  Historically, there were a variety of licenses in China.  Before the reform and opening-up, licenses are basically control-type evidences, the products of control-type society.  They are used to indicate the positions and privileges of the entities.  Under the condition of shortage economy in the past, the role of licenses is used to limit consumption, which is a reflection of a government function.  However, China has entered a society of market economy for several years.  In theory, licenses are more often used to serve the society (service function) as a management tool rather than a management tool of limitation in China nowadays.  

The service function firstly reflects on the recognition features.  With the development of China, the circulation of wealth, substance, resources and talents is increasing and more frequent.  However, the circulation brings chaos of identification because of the undeveloped science and technology as well as the poor legal system.  For example, there is no unified identification system which can record all the personal information including the basic information, business information, and credit records on.  The legal system is still developing and some punishments are still too light to make people exactly follow the laws and regulations.  Plus, the population in China is huge[1]and there are lots of differences between regions.  All of the reality mentioned above will bring some falsification issues. (We will discuss about the trust issue in Section 6.)  In this case, licenses certify the entities’ status and technical abilities, which is used to serve the society.

The service function secondly reflects on the guarantee of the social security function.  In order to better promote the development of Chinese society, to ensure the personal and property safety of enterprises, society and country, the unified management of entities registration, examination and verification is needed.  Licenses are the proof to show that the entities are comply with national laws and regulations and have got approved from the relevant authorities. 

In fact, there are many licenses required not only to set up a business but also required in a Chinese daily life.  For instance, Chinese have Allowed to Birth Permit[2] (exchanging to Medical Certificate of Birth after the child is born), Certificate of First Marriage and First Fertility[3], Certificate of Premarital Check-up[4], Newly-Married Training Certificate[5], etc.  As we can see, licenses are widely used to certify the entities’ status and technical abilities.  They are also the proof to show that the entities meet the legal requirements and get the permission from the relevant authorities to do the activities. 

To most extent, licenses are the required documents to proceed to the next step in the relevant applications and activities.  Although licenses serve the society, they bring people and enterprises hassle when going through the process of applying them to proceed further.  Licenses, essentially, are the products of the government and the derivatives of the government management.  The inefficiency of the application process reflects the inefficiency of the government management.  The administrative departments of the People’s Republic of China are many and complex.  The lack of unified coordination between departments actually reduces the economic efficiency.  The government has realized the problem and lots of reforms are promoting in recent years. (We will discuss the topic of reforms in Section 5.)

Required Licenses in the Procedure of Setting up a Business

All licenses have the basic function as proof of legitimacy to show that the entities are comply with laws and regulations and get approval from the relevant authorities.   For instance, The Notice on the Pre-approval of Enterprise Name” issued by SAIC includes the statement of approval and the contents of proposed name, basic information of the company and the period of validity of the pre-approved name.  According to Measures for the Implementation of Administration of Enterprise Name Registration and Administration of Enterprises’ Name Registration (use Shanghai as an example, Provisions of Shanghai Municipality on the Administration of Enterprises’ Name Registration), enterprises should apply and get approval for the proposed name.  “Agreed to set up the Company's Approval” issued by MOFCOM or authorities authorized by the state council indicates that the enterprises are allowed to establish with the contents including the name of the company, the investment, the business scope, the statement that the enterprise should follow the laws and regulations to run the business.  “Account Opening License” issued by PBC is used in enterprise accounts related activities.  It can be used when paying taxes, since it presents the information needed to pay taxes including the name, account number and the bank of opening the account of the enterprises.

Most licenses have functions of certification of the entities’ status, especially the status of registration.  Use “Foreign Exchange Registration for Enterprises with Foreign Investment” as an example, it indicates that enterprises have registered in relevant authorities and are under the supervision.

Some of them are used as an identification.  For instance, “Organization Credit Code Certificate” is a code identification which is used to identify the entities which covers organs, institutions, enterprises, social organizations, groups and other kinds of institutions.  It is the “economical ID” of the organizations, which issued by the People's Bank of China Credit Reporting Center. 

Some of them are not only the proof of legitimacy but also the proof of privileges.  For instance, “Certificate of Approval for Establishment of Enterprises with Foreign Investment in the People’s Republic of China” issued by MOFCOM or authorities authorized by the state council indicates that the enterprises with foreign investment are allowed to establish and it states that they are comply with the standards to use the preferential policy for foreign capital enterprises in the practical business operation.

Four Most Important License that Enterprises Should Obtain

It is due to the fact that they are the most often used in business operation activities.  The four major licenses are “Business Licenses”, “Organization Code Certificate”, “Tax Registration in SAT” and “Tax Registration in Local Tax Bureau” (“Tax Registration for Enterprises with Foreign Investment”).

“Business Licenses”

The business license indicates that the organizations and enterprises have legal operation rights.  The registered items of the business license include the name, address, the person in charge, fund amount, economic sector, scope of business, operation mode, number of employees, operation period, etc.  The original business license and the duplicates have the same legal effects.  In terms of use, the original business license must hang in the obvious place of the operation area.  Otherwise, enterprises might be punished.  The duplicates are used for business activities, such as applying for licenses, signing contracts, etc.

“Organization Code Certificate”

Distinguish from “Organization Credit Code Certificate”, the “economical ID”, “Organization Code Certificate” is the nationwide only “ID” of organizations and enterprises which issued by AQSIQ.  It indicates that the organizations are registered in accordance with the laws and regulations, and is a constant code identification which cannot be changed.  The registered items include the name, address, type of organization, economic nature, industry classification, size, legal representative, etc.

“Tax Registration in SAT” and “Tax Registration in Local Tax Bureau”

In some areas, “Tax Registration in SAT” and “Tax Registration in Local Tax Bureau” are combined as one Tax Registration Certificate.  Tax Registration Certificate is widely used in tax, invoice, and business change related business activities during the operation and production.

 

[1] China is the world's most populous country, with a population of over 1.35 billion. Resource from Wikipedia.

[2] Chinese people in the basic state policy of family planning, birth rights are severely limited. Without a paper of permit, child is illegal to come to this world. Without registering permanent residence, the child cannot go to school.

[3] The certificate to prove that both husband and wife are married and give birth at the first time.  It is required document to get Allowed to Birth Permit.

[4] Chinese should get premarital check-up before wedding according to the law.  According to Chinese Law of Marriage and Law of the People’s Republic China on Maternal and child care, one main check is whether husband and wife have disease to affect the baby, to avoid aggravating the disease to infect or hurt each other and avoid genetic offspring.  The certificate proves that the new couple has been check-ups and qualified.

[5] The training include training about laws and regulations of family planning, physiological health care in the newly-married period, prenatal and postnatal care, contraception and birth control, HIV/AIDS prevention knowledge.