On February 22, 2018, the Ministry of Commerce issued Decision of the Ministry of Commerce on Amending Some Rules and Regulatory Documents (Order No. 1 [2018] of the Ministry of Commerce), in which it decided to annul Measures for the Administration of Foreign-funded Lease Industry which was released on February 17, 2005, effective March 5, 2005 and amended on October 28, 2015 (Order No. 5 [2005] of the Ministry of Commerce). This caused widespread concern in the industry about what impact the annulment of such Measures would have on the foreign-funded lease enterprises and the development of the industry. The author here holds:

01

According to Catalogue for the Guidance of Foreign Investment Industries (Revised in 2017) (Order No. 4 of National Development and Reform Commission and the Ministry of Commerce) and Special Administrative Measures (Negative List) for Foreign Investment Access, generally known as Negative List for Foreign Investment Access, that is subject to it, financial lease has been removed from the constrained category to the encouraged category, and is not involved in the negative list in Catalogue for the Guidance of Industries for Foreign Investment. In addition, according to Interim Administrative Measures for the Record-filing of the Incorporation and Change of Foreign-invested Enterprises (Revised) (Order No. 2 of the Ministry of Commerce in 2017), the formation and modification of foreign-funded enterprises which do not involve national special management measures for the access of foreign investment, namely not on the negative list, will have to handle the formation and modification archival filing formalities as required.

Therefore, the author understands that the general background of and basic reason for the annulment of Measures for Administration on Foreign Investment in Leasing Sector shall be that no examination and approval of the formation or modification of foreign-invested financial lease enterprises is required in advance because of the revision of the Law of the People’s Republic of China on Foreign-capital Enterprises and China’s gradually opening up to foreign investment. As the author and those working in the same sector understand, different places have different specific procedures and requirements on the formation or modification of financial lease enterprises that are under the supervision and administration of the Ministry of Commerce, and investors are suggested to fully communicate and confirm with the local competent department of commerce and company registration department beforehand to know whether to first handle the industrial and commercial registration formalities at the department of commerce or fulfill the recordation formalities at the department of commerce after obtaining corresponding business license from the administration for industry and commerce.

02

Measures for Administration and Supervision of Financial Leasing Enterprises (Sh. L. T. F. [2013] No. 337) that are effective now make uniform regulations on the business norms, supervision and administration of financial lease enterprises (including foreign-funded financial lease enterprises and home-funded pilot financial lease enterprises) clearly provide that the Ministry of Commerce and the provincial competent department of commerce are the supervisory departments of financial lease enterprises; the main scope of business of financial lease enterprises; the requirements on the leases; the requirements on venture capital; guidance and supervision of indicators such as the proportion of connected transactions, the proportion of single lessee business and the rate of overdue rent; registration of annual reports, etc.

Measures for Administration and Supervision of Financial Leasing Enterprises have consistent essence and contents with Measures for Administration on Foreign Investment in Leasing Sector in terms of the supervision and control of financial lease enterprises. Therefore, the annulment of the latter does not affect the supervision and control of financial lease enterprises by the Ministry of Commerce and competent departments of commerce at different levels at the present stage.

03

Former Measures for Administration on Foreign Investment in Leasing Sector had clear provisions and requirements on aspects including investors and professionals in terms of the access of financial lease companies. After the annulment of the same Measures, there are no clear provisions on relevant requirements.

Therefore, although an archival filing system for the formation or modification of financial lease enterprises has been implemented so far, it is full of uncertainties on aspects such as whether the existing way of access will continue, whether there will be new access conditions on the formation of foreign-funded financial lease enterprises. The author will also continue to pay attention to the development and introduction of relevant supervisory measures and specific contents by the new department of industrial supervision and control of the financial lease industry.

04

In addition to the examination and approval requirements on the formation of enterprises and the requirements on the supervision and control of enterprises, the former Measures for Administration on Foreign Investment in Leasing Sector listed and clarified the categories and requirements of leases. However, the much discussed or most controversial issue in the industry is whether immovable properties and intangible assets attached to tangible assets can be used as leases.

We understand that the leases used by foreign-funded financial lease enterprises when engaging in financial lease transactions shall no longer be supervised, controlled or constrained by Measures for Administration on Foreign Investment in Leasing Sector along with the annulment of the Measures. However, according to Measures for Administration and Supervision of Financial Leasing Enterprises, the leases in financial lease transactions shall also meet the basic condition of having clear ownership, truly existing and being capable of generating usufruct. Relevant registration formalities shall be handled in accordance with the law if the ownership of a lease shall be registered according to national laws. Therefore, when engaging in financial lease transactions that involve immovable properties or intangible assets, financial lease enterprises shall handle corresponding recordation formalities according to legal provisions and contract stipulations in order to avoid transaction-based legal risks and corresponding economic risks.