From “Industry & Commerce” to “Market”: How Business Scope is Licensed in China

The talk begins with a brief update on the impact of the Apostille Convention – discussed in the sixth episode of this series: Access to the Courts in China: In Anticipation of the Apostille Convention – highlighting the lack of nationwide regulation to implementing this domestically.

Shifting focus to the main topic, Hong discusses the evolution of business entity regulation in China. Previously, under the State Administration of Industry and Commerce (SAIC), a significant institutional reform in 2018 led to the emergence of the State Administration of Market Regulation (SAMR). SAMR, now ranks directly under the State Council and its jurisdiction has expanded to cover various aspects, including advertising, pricing, competition, and more.

The talk emphasises the significant changes in the identification system for businesses. While previously companies had separate business licence numbers and tax identification numbers, a Uniform Social Credit ID Number was introduced in 2015 to permanently identify business entities throughout China.

Hong draws attention to the intricate nature of business classification and licensing in China, likening it to the traditional metaphor of the PuoPuo (mother-in-law), symbolising the historically extensive and meddling role of government in the market economy. SAIC, and later SAMR, not only handle registrations but also specify permissible business activities on licences, known as “business scope.”

Hong highlights the challenges faced by business owners, especially foreign investors, in navigating the complex and evolving system of business scope classification. The lack of transparency in how classifications are generated adds to the frustration.

However, Hong notes a shift towards the rule of law, citing Circular No 7 issued by the State Council in June 2021. This directive states that no administrative penalty shall be imposed if enterprises conduct activities outside the scope listed on their licences unless administrative permits are required by law or regulation. This marks a significant departure from the previously unchecked power exercised by the regulatory authority over business scope.

The talk concludes with the introduction of the Regulation on the Administration of the Registration of Market Entities, which ensures that the wordings on business scope are no longer hidden, offering a publicly accessible menu of standardised wordings during business entity registration.

Hong’s talk provides insights into the transformation of business entity regulation in China, the challenges faced by businesses in understanding and adhering to business scope classifications, and the recent reforms indicating a move towards a more transparent and rule-of-law-oriented system.