Easing of business registration brings good news for enterprises.
Release time:
2017-06-05 02:03
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On the 14th, the First Session of the 12th National People's Congress adopted a decision on the "Plan for Institutional Reform and Functional Transformation of the State Council." To maximize deregulation of various market entities from both institutional and systemic perspectives and to boost the entrepreneurial enthusiasm of enterprises and individuals, the "Plan" proposes five key measures. These five measures are: reducing approval procedures for investment projects; cutting down on approval requirements for production and business activities; decreasing the number of licensing and qualification permits; lowering administrative and public service fees; and gradually reforming the business registration system. Among these measures, the proposal to "gradually reform the business registration system" has drawn considerable attention. The specific wording in the Plan states: "Gradually reform the business registration system, replacing..."
On the 14th, the First Session of the 12th National People's Congress adopted a decision on the "Plan for Institutional Reform and Functional Transformation of the State Council." To maximize deregulation of various market entities from both institutional and systemic perspectives and to boost the entrepreneurial enthusiasm of enterprises and individuals, the Plan proposes five measures: reducing approval procedures for investment projects, cutting down on approval requirements for production and business activities, decreasing the number of licensing and qualification permits, lowering administrative and public service fees, and gradually reforming the business registration system.
Among these measures, the “gradual reform of the business registration system” has attracted considerable attention. The specific wording in the proposal is as follows: Gradually reform the business registration system by shifting from the current “permit first, then license” approach to a “license first, then permit” approach; replace the registered capital payment-based registration system with a subscribed capital registration system; and relax other requirements for business registration.
“License First, Certification Later” Provides Space for Entrepreneurship
Under the current system, to start a business, one must first obtain an administrative license from the relevant authorities before applying for a business license from the Administration for Industry and Commerce—this is known as the “license-first, then registration” approach. While waiting for the license approval, entrepreneurs often find it difficult to carry out preliminary business preparations such as recruiting staff, negotiating deals, signing contracts, and securing loans, precisely because they do not yet have legal person status as a business entity. This predicament was described by Zhou Bohua, Director of the State Administration for Industry and Commerce, as the classic “which came first, the chicken or the egg?” problem. He gave an example: “Some small and micro enterprise entrepreneurs have to first approach the pre-approval authorities and obtain their consent before they can apply for a business license from the Administration for Industry and Commerce. But these authorities might respond: ‘You don’t even have a company yet—how can we approve your application?’ As a result, entrepreneurs are passed around from one department to another, caught in a frustrating double-bind, running back and forth between two bureaucratic hurdles.”
After the reform of the business registration system, the “permit first, then license” approach has been abolished. Entrepreneurs now only need to obtain a business license from the industrial and commercial authorities to engage in general production and business activities. If they wish to engage in production or business activities that require specific permits, they can apply to the competent regulatory authorities afterward. During the waiting period for approval, entrepreneurs can already begin preliminary preparations, thereby gaining substantial time for the early development of their enterprises.
In fact, such reforms were first explored in Shenzhen three years ago, and Zhuhai’s Hengqin also began piloting them last year. The reforms implemented in Shenzhen and Zhuhai essentially involve lowering the threshold for business registration. To see the changes brought about by these reforms, the most immediate impact is the simplification of procedures. As long as all required documents are complete, the process can be completed on the same day—and a single business license now encompasses not only the permitted scope of operations but also all other aspects of business activities.
Those who have dealt with the Administration for Industry and Commerce may know just how time-consuming it is to obtain a business license, what procedures are involved in the annual review each year, and how cumbersome the whole process can be. According to the deputy director of the Zhuhai Municipal Administration for Industry and Commerce, if one were to summarize the key feature of the new business license, it would simply be “simplicity.” And if you ask what this means, it boils down to this: the government has reduced its power but increased its responsibilities, while businesses have fewer burdens and more freedom.
It is reported that since the pilot implementation of the business registration system reform in Hengqin, Zhuhai, last May, nearly 1,000 enterprises have registered there in less than a year. Perhaps, with greater freedom, the miracles of hotels giving rise to Microsoft and garages nurturing Apple could become a reality thanks to these institutional changes.
With reduced financial pressure, businesses face greater responsibilities.
The issue of registered capital is also a “threshold” that many entrepreneurs find difficult to cross. Previously, starting a business required having registered capital—this sum had to be available in the company’s bank account for verification purposes and could not be used for other transactions. However, after the reform of the industrial and commercial registration system, the requirement for actual paid-up registered capital has been replaced by a system of subscribed registered capital. Under this new system, the industrial and commercial authorities only register the total amount of subscribed registered capital, without requiring the registration of actual paid-up capital, and no longer demand proof of capital verification. Industry insiders believe that switching from a system of actual paid-up registered capital to a system of subscribed registered capital is tantamount to eliminating the requirement for companies to have a minimum registered capital.
This means that companies no longer need to worry about the registered capital when applying for business registration. Following international practice, shareholders are only required to commit to contributing the amount they pledge—so, in theory, even a single yuan can be enough to establish a company, with the operator bearing the risks entirely on their own.
Industry insiders say that while the reform of the business registration system can restore the power of independent operation to market entities, making the most fundamental cells of the entire market economy more dynamic and granting enterprises greater autonomy over their business activities, it also means that enterprises will bear even greater responsibility for lawful operations, and the cost of engaging in illegal activities will be significantly higher than it is today.
Experts generally agree that, judging from the business registration system proposal, "easy entry" is clearly evident, while "strict regulation" is implied. This calls for enterprises to strengthen self-discipline and also requires relevant authorities to intensify their supervision and management of market entities and market activities.
It is understood that since 2011, the State Administration for Industry and Commerce has launched the construction of a “National Economic Registry Database.” The plan is to spend three years—through comprehensive management of enterprise registration information and resource sharing—to initially establish a punitive mechanism characterized by “a single instance of dishonesty leading to restrictions everywhere.” Zhou Bohua stated that if an enterprise engages in illegal business activities, it will receive a warning for the first offense, be given a deadline to make corrections for the second offense, and if it fails to comply by the third offense, its license will be revoked—and furthermore, it will find itself completely unable to operate anywhere across the country. Thus, it is clear that enterprises found guilty of illegal business practices will pay a heavy price.
As for regulation, Zhuhai also has valuable experience to draw upon. Currently, Zhuhai operates two distinctive online systems: the Zhuhai Municipal Business Registration Platform and the Zhuhai Municipal Registration, Licensing, and Credit Disclosure Platform. These systems serve as powerful tools for stringent enterprise management and are publicly accessible. As a result, enterprise oversight will no longer be the sole responsibility of the Administration for Industry and Commerce.
Under the government’s management, guidance, and services, leaving the survival and demise of enterprises to the market—and allowing the market to weed out the weak and reward the strong—may help make China’s commercial market even healthier and more prosperous.
More expectations from “few-certificate” enterprises
In fact, after seeing the “Plan,” companies also have their own expectations. Simplifying the approval process is one of them.
A relevant official from the Zhejiang Pledge Industry Association, who frequently deals with small and medium-sized enterprises, stated that business registration should not only follow the “license first, then permit” approach but also strive to minimize the number of permits required and streamline the approval process. Some business leaders also expressed their hope that, when making changes to company-related matters, there would be fewer administrative approval procedures involved.
Streamlining approval procedures and reducing administrative steps can unleash greater market vitality. In 2012, Huizhou took the reform of the business registration system as a breakthrough, piloting policies such as separating entity qualification from operational qualification, adopting a “zero initial capital” requirement, waiving the need for capital verification, and introducing a “commitment-based registration system,” thereby lowering the entry barriers. Furthermore, leveraging the online platform “Zhuce Yi,” Huizhou promoted process reengineering through “parallel” approvals. The number of pre-approval items required for enterprise registration was reduced from the original 80 to just 36, and the average approval timeframe was slashed from 26 working days to 3.9 days—a reduction of 85%. For some simple enterprises, the registration process can be completed in just a few hours. This has greatly boosted market dynamism: in 2012, Huizhou saw 67,530 business registration applications, representing a 65% increase over the previous year. Among these, 8,546 new enterprises were registered—70% of which were registered after the implementation of the reform measures.
In fact, experts believe that streamlining the administrative approval system and fostering enterprise development are not only important components of administrative reform but also reflect the government’s efforts to strengthen its social management and public service functions.
Streamlining approval procedures not only boosts market vitality but also strengthens the government’s role in providing public services. This approach benefits businesses and, at the same time, reduces opportunities for rent-seeking by government agencies—so why wouldn’t we embrace it? We believe that as government institutions undergo reform and their functions evolve, more and more governments will come to recognize this point and genuinely put it into practice, bringing tangible benefits to business operations and market development.
— Reprinted from the China SME Information Network —
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