Official Reply of the State Council to the Overall Proposal for the Pilot Reform Program to the Separate of Business Certificates and Licenses in the Shanghai Municipality(Mainland China)

James Cheng
On December 22, 2015, the State Council adopted its official reply to the Overall Proposal of the Pilot Reform Program to the Separation of Business Certificates and Licenses in the Shanghai Municipality the ” Proposal”), in which the three-year pilot system for the “separation of business certificates and licenses” in the Pudong New Area in Shanghai has been given the go-ahead. This reform seeks to stimulate the entrepreneurial and business environment and address past issues with difficulties in obtaining licenses and certificates. The Proposal strives to improve market access, promote and transform administrative philosophy and enhance supervisory efficiency through reforming the examination method and strengthening general supervision. This reform will involve as many as 116 types of administrative approvals, and the State Council will promulgate provisional adjustments to relevant administrative laws and regulations, State Council documents and departmental rules and regulations approved by the State Council for consistency with the reform.
In the past, market access is regulated by a supervision-before-the-fact regime where “business certificates precede business licenses”. A business seeking to enter into a particular market would have to file an application to request a certificate of approval in that market, and only then can it obtain a business license. Under the reform system implemented in the Shanghai Pilot Free Trade Zone, enterprises may be established and a business license obtained first, then after the enterprises have gained a foothold in the market, they could then proceed with obtaining the business certificates, which better fits how enterprises operate. With the State CouncilÕs formal approval to conduct the pilot reform of “separation of business certificates and licenses” in the Pudong New Area, putting business licenses before certificates, the market entry barrier is thereby further reduced.
With respect to the market access model of “separated business certificates and licenses,” the Proposal enumerates 116 administrative approval items, with different reform methods for the details of each item. The different methods are split into the cancellation and the maintenance of an approval system. The cancellation of an approval system includes the complete cancellation of the voting system and a recordation management system. For matters whose approval requirements are maintained, the notification commitment will be honored, and the transparency and predictability of the examination process is improved. However, enterprises whose operation involves public safety are subject to stricter market access supervision.
The Proposal takes five supervisory measures to address potential difficulties with supervision under the “separation of business certificates and licenses” system. The most important highlight is the establishment of a “dual notification” mechanism, and the sharing of market supervision information. The “dual notification” mechanism means that after an enterprise is registered and established, it will receive a “notice” which should be presented to relevant authorities when relevant administrative approvals are sought. In addition to indicating the nature of the notification, such “notice” will also requires the enterprise to not commence business prior to obtaining the business license as a way to reinforce the concept of self-governance for the enterprise.