TRADE, INVESTMENT AND COMPETITIVENESS TRADE, INVESTMENT AND COMPETITIVENESS EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT Business Registration Reforms in China A CASE STUDY Wenting Wei and Luis Aldo Sanchez Ortega © 2022 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy, completeness, or currency of the data included in this work and does not assume responsibility for any errors, omissions, or discrepancies in the information, or liability with respect to the use of or failure to use the information, methods, processes, or conclusions set forth. 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Cover design and layout: Diego Catto / www.diegocatto.com >>> Acknowledgements This note was prepared by Wenting Wei (Private Sector Specialist) and Luis Aldo Sanchez Ortega (Senior Private Sector Specialist, Consultant) under the technical guidance and supervision of Sylvia Solf (Global Product Specialist for Business Regulation) and Marcin Piatkowski (Senior Economist). The team is grateful for valuable comments by Alessio Zanelli (Senior Private Sector Specialist), Lars Grava (Senior Private Sector Specialist) and Sagita Muco (Senior Private Sector Specialist). The note was prepared under the overall supervision of Zafer Mustafaoglu (Practice Manager, East Asia and Pacific, Finance, Competitiveness and Innovation Global Practice) and Martin Raiser (Country Director, China, Mongolia, Korea). We are also grateful for the information provided by State Administration of Market Regulation of China and Administration of Market Regulation of Beijing and Shanghai. >>> Contents Acronyms 5 Executive Summary 6 1. Overview of business registration reforms in China 11 2. Background 13 2.1 Legal Framework 13 2.2 Institutional Framework 15 3. Reforms 17 3.1 Streamlining and deregulating pre-registration procedures for business 18 registration 3.2 Strengthening post-registration oversight based on corporate social credit data 19 3.3 Improving administrative efficiency through both online and offline one-stop shops 20 4. Planning and Process 22 4.1 Local experimentation and national roll-out 22 4.2 Monitoring and evaluation design 24 5. Implementation 26 5.1 Legal reforms 26 5.2 Institutional reforms 28 5.2.1 National institutional arrangements to facilitate reforms 28 5.2.2 Institutional arrangements for specific reforms—Integration of multiple 30 registration certificates as an example 5.3 Technical solutions 31 5.3.1 Development of e-government services and data sharing in China 31 5.3.2 An example – technical solutions for cross-agency data sharing for the 32 reforms to combine multiple business registration certificates 5.3.3 The National Enterprise Credit Information Publicity Platform (NECIPP) 32 5.3.4 Digitization of business registration in Shanghai 33 6. Impact 35 7. Remaining Challenges 38 8. Conclusion and Lessons 40 References 41 >>> Acronyms SAIC State Administration of Industry and Commerce AIC Administration of Industry and Commerce SAMR State Administration of Market Regulation AMR Administration of Market Regulation NDRC National Development and Reform Commission STA State Taxation Administration NECIPP National Enterprise Credit Information Publicity Platform MSME Micro, small and medium-sized enterprises EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 5 >>> Executive Summary The People’s Republic of China (PRC or China) has been making a great effort to simplify its business registration process, enhance its efficiency, and reduce its cost. China has reduced both the amount of time and the number of procedures required to start a business by more than two thirds within the past decade.1 In 2014, China launched a country-wide multi-year National Business System Reform Initiative to ease market access, making it easier to start a business by streamlining administrative procedures, while strengthening post-registration supervision by setting up the corporate social credit system. Background In the past, the business registration system in China was complicated and market access was highly restricted and regulated. The business registration process focused too much on administrative approvals for market entry and not enough on oversight of firm activities. Firms are not allowed to start operations before being registered and receiving a business license and the business license is the only document indicating a firm’s legal identity. Before the 2014 business reform initiative, firms were also legally required to obtain various registration certificates2 in addition to a business license. Firms in more than 500 sectors, or about 30 percent of all industries, were also required to obtain extra operation permits and approvals before even beginning the business registration process.3 Many local authorities also had their own permitting requirements on top of the national requirements. 1 According to measurements of the time and procedures it takes to register a business in the World Bank Doing Business project. 2 The registration certificates include tax registration certificate, organizational code certificate, the social security registration certificate, statistical certificate with Statistics Bureau, and record certificates by sectoral authorities, etc. 3 The registration bureau of the State Administration of Market Regulation, 2021. The operation permits are the permits or administrative approvals by sectoral oversight authorities indicating a firm’s eligibility to operate in certain sectors that are considered important for national security, public security, public interests, exploitation of scarce resources, etc. For example, such permits/approvals are required to set up a securities company or a private school, providing security services or manufacturing hazard- ous explosives. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 6 Reforms Planning and Process China has made remarkable progress to reform its business These business system reforms were implemented through a registration system over the past decade, cutting the number sequence involving strategic planning and local experimentation. of procedures to register a business by more than two-thirds, Before the reform initiative was launched at national level in and shortening time to register from 34 days in 2014 to 9 days 2014, comprehensive reforms were piloted in selected coastal in 2020.4 Evidence shows that these reforms could contribute cities in Guangdong Province in 2012. Upon successful to an increase in the number of businesses started.5 completion of each pilot, reforms were rolled out across the country as part of a central reform framework. The framework China officially launched a National Business System Reform clarified reform objectives, principles, and focus areas. Initiative6 in 2014. It aims to ease market access by streamlining the business registration process while strengthening post- The “local experimentation and scaling up” approach was also registration oversight. The initiative was launched within the adopted for certain individual reforms. For example, reforms wider context of market-oriented reforms to sustain economic to ease operation permit requirements for firms to operate in growth and promote entrepreneurship. Substantial reforms certain sectors8 were piloted in the Shanghai free trade zone in have taken place over the past few years, and more reforms December 2015, then expanded to ten free trade zones across are still ongoing. the country in 2017. They were further expanded to all 18 free trade zones across the country in December 2019. The scope Specifically, China has: of these reforms was also expanded from the 163 sectoral • Eliminated the minimum capital requirement to register operation permits piloted in Shanghai, to all of the more than a business 500 sectoral operation permits in all of the free trade zones. • Simplified the company name and address registration mechanism Within the central reform framework, specific reforms were un- • Combined various registration certificates into one dertaken in stages over years involving continuous learning and business license by using a nationally unique business adjustments. For example, the government began moving to- identification code, the social credit number ward a single business license by combining three registration • Eased the requirements for extra operation permits for certificates into a single business license. Eventually, a total of at firms to operate in certain sectors least 24 registration certificates were incorporated into that same • Strengthened post-registration controls by investing in single business license. In sectors requiring additional operation a corporate social credit system where the firms’ social permits, reforms were first taken to allow firms to obtain a busi- credit information7 is collected, shared and publicized for ness license before getting necessary sectoral operation permits. greater oversight by stakeholders Now, the government is piloting reforms that further decouple the • Improved the efficiency of business registration by business license from operation permits, reducing the number promoting online and offline “one-stop shop” services. of operation permits required for entering certain sectors, and streamline the approval process to obtain certain permits. These business registration reforms have been supported by reinforced cross-agency cooperation and stronger data sharing. In addition, a monitoring and evaluation mechanism has been put in place to ensure effective implementation of these reforms. The mechanism includes top-down inspections and reviews of local implementation practices, as well as regular progress reporting by local authorities. The State Administration of Market Regula- tion (SAMR), the leading central government agency responsible for guiding business registration reforms across the country, also monitors local reform progress using a variety of tools. 4 Based on Doing Business data, available at: https://www.doingbusiness.org/en/doingbusiness. 5 For example, Gathani, Santini and Stoelinga (2013) find that the introduction of one-stop shops to streamline business start-up in Rwanda led to a 188 percent increase in business registrations. Klapper and Love (2010) argue that high fees and abundant red tape during business registration reduces the number of new firm registrations. 6 According to the authorities, the so called “business system reforms” focus on the regulatory and institutional reforms to make it easier to start a business and to lower market entry barriers. 7 The firm’s social credit information collected include financial information, business registration information, tax and social security payment information and information on the administrative penalties the firm received. Some of this information is publicly available, such as firm registration information, information on permits, administrative penalties received and movable pledge registration information, etc. 8 These reforms are called “reforms to decouple business license and operation permits” as included in Chinese policy documents. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 7 is an important system that is designed to collect such infor- Implementation mation held by many different entities10 about registered firms and make some of that information publicly available under the firm’s nationally unique social credit code. This allows for better To support business system reforms at national level, the stakeholder supervision and enhanced firm compliance. Government of China has made substantial legal adjustments including revising laws and removing or amending administrative regulations. These revisions were followed by the release and implementation of detailed subnational and local regulations. Impact The Company Law was revised in 2014 and the Company China has seen remarkable growth in the number of registered Registration Management Regulations were amended in market entities11 since implementing these business system 2014 and 2016. The new Regulations on Commercial Entity reforms. Almost all cities have seen a sharp increase in Registration, effective March 1, 2022, replace the old set registration of new firms. The number of registered market of regulations on registering different types of commercial entities in China more than doubled between 2013 and entities. The Provisional Regulations on Enterprise Information 2021, resulting in a total of around 154 million registered Disclosure released in July 2014 paved the way to create market entities at the end of 2021.12 A study in 2019 analyzing a post-registration market oversight mechanism based on data in 283 Chinese cities, indicated that business system corporate social credit information. reforms have increased the growth rate of local newly- registered firms and they have led to a two percent increase in Necessary institutional arrangements were also put in place to local entrepreneurship.13 support reform implementation. To integrate the reform efforts, an inter-ministerial coordinating group was set up to oversee the According to a third-party study engaged by the central overall business system reform initiative and another group was government, from 2015 to 2017 business system reforms have set up to coordinate business environment reforms.9 Local gov- reduced the total cost of setting up businesses by more than ernments formed joint working groups to facilitate cross-agency RMB 4.5 trillion for both domestic and foreign firms. This is due coordination. China expanded the national State Administration in part to the elimination of the registration fee and the removal for Industry and Commerce (SAIC) and restructured it into the of the minimum capital requirement which had required firms SAMR in 2018 so that it could play a more comprehensive role to prepare and submit detailed capital verification reports.14 to support the implementation of these reforms. The Beijing municipal government has estimated that its initiative to provide free tax U-keys and company seals has Remarkably, China has deployed a large set of digital saved newly established firms in the city around RMB 100 technologies to facilitate cross-agency data sharing. Building million since January 2019.15 on its development of e-government services over the past two decades, the Government of China adopted unified data The private sector has also recognized improvements in standards and developed detailed lists of data to be shared the business registration system. In the latest business across the existing information systems or developed new environment survey carried out by the All-China Federation systems for data sharing. As a result, according to SAMR, by of Industry and Commerce in 2021, the ease of business the end of 2020 all local governments had set up their own “one- registration was listed among the top three areas in which stop shop” online platforms for business registration. Pioneering firms perceived the biggest improvement, along with online cities like Beijing and Shanghai have even started to provide e-government services and paying taxes. According to free electronic business licenses and electronic company seals. the Report on Business Environment in China and Survey In addition, the central government has created several national Among Private Entrepreneurs by Chinese Academy of Social platforms on corporate social credit information to support the Sciences released in 2019, more than 80 percent of surveyed collection, sharing, and publication of firm registration and op- firm representatives across 34 cities said it was now much erational information. The National Enterprise Credit Informa- easier to register a business and obtain a business license. tion Publicity Platform (NECIPP), launched in December 2016, 9 The business environment reform agenda is more comprehensive. 10 A registered firm’s information was held by different agencies. For example, the registration information was held by the registry, the tax information by the Tax authority and social security information by the social welfare and human resources bureau. 11 Registered market entities in China include firms, individual business and farmers’ specialized cooperatives. 12 The data is from SAMR. 13 Huang, et. Al. 2020. “Have the business reforms effectively incentivize entrepreneurship? --- evidence from municipalities”, Journal of Finance and Economics, Vol. 46 No.2, Feb. 2020. “Entrepreneurship” was measured by the increase of firm numbers. 14 The cost saving data was provided by SAMR at a press conference in 2018, available at: http://www.gov.cn/xinwen/2018-12/25/content_5352060.htm, accessed in December 2021. 15 The data was provided by Beijing authorities to the World Bank in 2021. The calculation was based on the unit prices of a company seal and a tax U-key and the numbers of free seals and U-keys provided to newly registered firms. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 8 Remaining Challenges China has made a promising start, but it still faces challenges More ambitious legal reforms are needed at the national level to bring these business system reforms to their full fruition. to support further reforms by local authorities. For example, Cross-agency coordination and data sharing remain prominent some permits currently issued by local authorities are required issues despite significant progress made over the past few by regulations at the national or provincial levels. Even if the years. A more holistic and permanent institutional mechanism local governments want to eliminate them, they cannot do so needs to be put in place to solve this long-standing issue. until the regulations are updated at the higher level. Many reforms currently take place through piecemeal changes to In addition, the country still faces acute challenges in setting regulations without changes to laws at the national level. For up the new post-registration oversight mechanism based on example, there is no law supporting the oversight mechanism corporate social credit information. There are challenges both based on corporate social credit information. The existing legal in collecting each firm’s social credit information in a timely and framework does not include much guidance for registering and accurate manner, and in using such information effectively. managing emerging technologies and new business models Implementation of the joint supervision mechanism has been either. This may cause confusion and could allow for too much a challenge due to limited availability of accurate corporate discretion when registering these new business types. social credit information and a lack of specific guidelines for implementation. Engagement with civil society to participate in Finally, despite the simpler business registration process post-registration oversight of firm compliance has also been a and increase in new businesses, stronger policy support is challenge. There are concerns that piecemeal implementation still needed to help individual businesses and micro-, small-, of the oversight mechanism could increase firms’ compliance and medium-sized enterprises (MSMEs) to survive and grow. burden, raise data privacy issues, and make the mechanism More than 90 percent of market entities in China are individual vulnerable to discretionary and biased use. businesses and MSMEs.16 They are facing acute challenges to grow, including invisible market access barriers, increasing Public access to information is important to improve labor costs, difficulty in recruiting employees, fast-growing transparency and facilitate external accountability during the operational costs, and limited access to credit. As a result, in reform process. It would be useful for China to further improve recent years, for every two new individual businesses entering public access to information by publishing all regulations online the market, there is one individual business exiting the and opening up access to the relevant data, such as business market.17 There is also a large number of “zombie enterprises” registry data. The mechanism to gain private sector feedback that are insolvent yet not officially deregistered likely because could also be further strengthened to make sure the needs of the complicated and lengthy deregistration process. In of entrepreneurs and the market can be promptly addressed. light of all this, it is important for China to take broader and better coordinated efforts to support individual businesses and MSMEs to grow while making it easier for them to be established. 16 This is calculate based on SAMR data about registered market entities as of the end of 2021. 17 The data is provided by SAMR at the press conference, available at: http://www.gov.cn/xinwen/2022-01/28/content_5673539.htm. Accessed in April 2022. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 9 Conclusion and Lessons China has made significant achievements since the Second, strong collaboration among different players has business system reform initiative was launched in 2014, and been key both in designing and implementing the reforms. It is the country has an opportunity to continue adjusting, important to engage all the relevant stakeholders at an early learning, and adapting, both in terms of institutional settings stage to ensure strong ownership and commitment from all and capacity building, as ongoing reforms continue. In the parties. The government is also trying to engage more players, meantime, other countries may draw some useful lessons particularly the private sector, through setting up an oversight from China’s experience. mechanism based on corporate social credit information. First, China’s approach, which began with strategic planning Finally, effective monitoring and evaluation of reform progress followed by phased implementation of reforms, has worked is vital to make sure reform implementation is on track. China well. Most reforms were initially piloted in selected cities and has mostly relied on inspections by the central government free trade zones before being replicated on a larger scale or and regular reporting by local authorities. This approach has across the country. worked well in the centralized governance system. Monitoring could also be strengthened by involving the private sector and members of the public by, among other things, expanding public access to reform data. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 10 1. >>> Overview of business registration reforms in China People’s Republic of China (PRC or China) has been making a great effort to simplify the business registration process, enhance its efficiency and reduce costs. China has reduced the time and number of procedures it takes to start a business by more than two thirds within the past decade. It has made significant progress particularly over the past several years (Figure 1). In 2020, China ranked among the top economies in East Asia and the Pacific (EAP) in the Doing Business Report’s Ease of Starting a Business indicator. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 11 > > > FIGURE 1. China has significantly improved the process of starting a business 95 85 DB score on Starting business (0-100) 75 65 55 45 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Global average OECD high-income China Source: Doing Business (DB) Data Note: The scores of Starting a Business in DB2018 and DB2020 were revised to reflect the data irregularities reported in June 2020. The corrected data was used here. In 2014, China officially launched a country-wide multi-year • Easing the incorporation requirements such as minimum National Business System Reform Initiative to ease market capital requirements, while strengthening post-registration access by streamlining administrative procedures to make oversight based on corporate social credit information it easier to set up a business, while strengthening post- • Decoupling operation permits and business licenses, registration supervision.18 allowing for streamlining or even removing requirements to obtain certain operation permits before registering Key features of the business system reform initiative in China a business include the following: • Digitizing services for entrepreneurs to start a business • Using a unique business identification number across • Strengthening data sharing and coordination among the country government agencies at various levels. 18 This initiative started with a local reform experimentation and was piloted in cities including Foshan, Shenzhen and Zhuhai cities in the coastal Guangdong Province. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 12 2. >>> Background The business registration system in China was developed starting in 1978 when China began opening up and it continued to evolve over the next several decades.19 The legal and institutional frameworks were developed gradually at the national and local level to support incorporation of both domestic and foreign businesses. Because the business registration system in China was developed from the planned economy regime, it was characterized by burdensome government regulation. Procedures for business registration were very complicated and market access was highly restricted. The process focused more on administrative approvals for business registration and less on oversight of firm activities. Since the launch of the business system reform initiative in 2014, the business registration system has been evolving towards a less regulated model with easier market access and strengthened post-registration oversight. 2.1 Legal Framework China has a multitier legal framework governing business incorporation at various administrative levels. The Company Law of PRC is the main act governing business incorporation in China.20 The Company Law is complemented by a series of more detailed administrative regulations, judicial interpretations, circulars and other policy documents. The legal framework also consists of laws and regulations for different types of market players, some of which are shown in Figure 2. In July 2021, the State Council released the Regulation on the Administration of the Registration of Market Participants. Beginning March 1, 2022, it replaced the old set of regulations, improving regulatory consistency. Each city in China also has its own standards and circulars for business incorporation. This results in some variations in the process of starting a business across the country.21 These laws and regulations have set specific requirements for business incorporation including the registration of a firm’s name and address, capital requirements, human resources, and licensing matters, among others. 19 Zhang & Zhang, 2015, “Business system Reforms and the Establishment of Enterprise Credit system”, Enterprise Credit System Development, 2015-5. 20 The 1993 PRC Company Law has been amended four times, in 1999, 2004, 2013, and 2018. 21 In recent years, as the national business system reform initiative moves forward, cities in China all started to adopt similar good practices in business registration by fol- lowing national regulations or updating local regulations to support such reforms. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 13 > > > F I G U R E 2 . Laws and regulations for business incorporation in China Laws Regulations • The Company Law • Regulation on the Administration of • Partnership enterprise Law Company Registration • Law on Individual Proprietorship • Regulation on the Registration of Legal Enterprises Person Enterprises • Measures for the Administration of Registration of Partnership Businesses • Provisions on the Administration of Enterprise Name Registration • Measures for the Registration of Sole Proprietorship Enterprises Source: the authors. Firms in China are not allowed to start operations before business license displays important information about the being registered. A business license, issued upon registration, firm, including firm’s name, address, registered capital, name is the only certificate indicating a firm’s legal identity. It must of the legal representative, and scope of business activities. be presented in almost all firm activities including business A firm is legally obligated to file for changes to its registered transactions, loan applications, and legal procedures. The information in a timely manner. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 14 2.2 Institutional Framework Business registration in China has been characterized by necessary registration record certificates. These included the a heavy administrative burden that has, in effect, become tax authority, the social security agency, the statistics bureau a substantive market entry barrier. Before the business and some industrial supervision agencies. The second type system reform initiative, a firm was required to obtain included industrial oversight agencies that approved and various certificates and permits in order to register and start issued operation permits required for firms to be registered operations. In addition to business registries, two additional and operate in certain sectors. 23 Figure 3 briefly presents the types of administrative agencies were involved in business agencies involved in business registration in China. incorporation.22 The first type were agencies that issued > > > F I G U R E 3 . Laws and regulations for business incorporation in China Business activities Industrial oversight agencies requiring pre-approvals issue operation permits General business activities Business registration Registry (AIC/AMR): Agencies issuing issuing business registration record license certificates Note: Currently for registering a business in a large majority of the restricted industries, the applicant is allowed to get the business license before getting the operation permit, as a result of the business system reforms. Source: the authors. 22 The ongoing reforms have made the process easier and faster, but many of such permits and certificates still exist. 23 Some such permits were eliminated through the reforms, but many of them are still required. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 15 Until 2018, the local Administration of Industry and Commerce firm’s business license and return it.27 If a company did not (AIC) was the main government agency supervising business complete its annual review in a timely manner, the AIC was registration, supervised by the State Administration of Industry authorized to enforce administrative penalties and even revoke and Commerce (SAIC) in a tiered system made up of national, a firm’s business license. provincial, municipal, and county level AICs. Local AIC’s oversaw firms’ operational activities.24 Newly registered firms were also required to obtain various registration certificates. These certificates included the Local AICs used to review business incorporation applications organizational code certificate issued by the quality supervision to ensure they complied with all laws and regulations and agency, the social security registration certificate issued by that the information provided in the application was accurate. the social security agency, statistical registration certifications This included verification of registered capital, firm address, issued by the statistical agency, and a record certificate of scope of business activities, and more.25 To facilitate this company seals issued by the public security agency. In order process, the AIC used to require the applicant to put the to get a record certificate, a firm’s registration records needed amount of registered capital in a designated bank account and to be filed with the relevant industrial supervision agency. Each submit a registered capital verification report. AICs were also different agency kept its own record for each firm. There was responsible for reviewing and verifying the stated business little exchange of data among those agencies, and firms had to activity. The applicant could propose one or multiple business file separately with each of them. activity categories based on the National Economic Industrial Categories,26 which would then need to be reviewed and In order to operate in certain sectors, many firms also had to approved by AIC. Once approved, the business entity would be obtain operation permits and approvals from national and local provided with an industrial identification code. sectoral oversight authorities.28 In many cases such operation permits and approvals were required before a firm could Local AICs also carried out annual reviews and inspections be properly registered and start operations.29 Permits were for firms to confirm their legal status. These reviews included required by national authorities for more than 520 industries, updates to each firm’s registered information, updates to real amounting to around 30 percent of all industries as classified capital contributions by shareholders or financiers, updates in the National Industries Classifications.30 Local authorities about the firm’s investment activities, whether the firm had set could also require their own operation permits. Each of these up new subsidiaries, and an evaluation of the firm’s operational administrative approvals had to take place in sequence because conditions. A firm had to apply, complete, and submit the annual some operation permits were pre-requirements to others. There review report including supporting documentation to the local were also some inconsistencies between requirements by the AIC, and pay an annual review fee. After each review was business registry and the sectoral authorities.31 As a result, the approved, the AIC would put an annual review stamp on the business registration process was extremely time-consuming. 24 In 2018, the AIC was restructured into the Administration for Market Regulation (AMR) with a larger role. 25 Wang & Wang, 2020, “The Practical Review of Business License System and the Legal Analysis—In the Context of business Registration”, Northern Law (Journal), Issue No. 84. 26 For the emerging new industries that are not included in the National Economic Industrial Categories, the applicant can propose the business category (ies) in line with the existing relevant regulations. 27 Lue, 2014, “Thoughts about cancelling the annual business reviews by the registers”, Management Observer, Issue No. 36, December 2014. 28 Such industries are considered relevant for national security, public security, public interests, exploitation of scarce resources, etc. 29 There were in total 226 pre-registration administrative approval items/permits required before the business system reforms were initiated in 2014. 30 The registration bureau of the State Administration of Market Regulation, 2021, “To strengthen the reforms and to resolve the prominent issues in business environment optimization”. 31 Zhang & Zhang, 2015, “Business system Reforms and the Establishment of Enterprise Credit system”, Enterprise Credit System Development, 2015-5. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 16 3. >>> Reforms The central government of China officially initiated business system reforms in 2014 within a wider context of market-oriented reforms to sustain economic growth. The key objective of these business system reforms was to “let the market play a decisive role in resource allocation and let the government play a better role”.32 The key principles of the business system reform initiative include deregulation, streamlining administrative procedures, easing market access requirements, and strengthening cross-agency coordination. The hope is that these reforms will also help promote entrepreneurship and innovation by simplifying the process to start a business. In 2015, China launched a national reform initiative, known as the Fang Guan Fu reforms, to delegate power both to the market and society, to streamline administration, and to optimize government services. This initiative laid the foundation for other important national reforms, including the national business system reforms. The initiative was designed primarily to simplify the pre-registration approvals needed to register a business while enabling a stricter post-registration supervisory system. The onerous pre-registration administrative approvals deterred entrepreneurship, and authorities found it increasingly difficult to supervise firm activities using traditional methods. For this reason, the government of China took steps to ease market access by simplifying the registration process and it strengthened post-registration oversight by establishing a new data-focused market supervision mechanism based on firm creditworthiness information. In this new mechanism, a firm’s creditworthiness information, or social credit information, is collected, integrated and publicized for oversight by all stakeholders. These reforms were supported by more robust cross-agency data sharing and coordination through digital means, and greater involvement of private sector stakeholders. 32 “Decision of the CCCPC on Some Major Issues Concerning Comprehensively Deepening the Reform”, released in November 2013. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 17 3.1 Streamlining and deregulating pre-registration procedures for business registration China implemented several specific reforms to streamline certificates with different identification codes into one business business registration procedures including the following: license with a nationally unique identification number called the Social Credit Number (SCN). Now the information required for Eliminating the minimum registered capital requirement. all these registration certificates can be submitted through a This reform was carried out in 2013 by revising the Company single window using a single form. The information submitted Law and simplifying the documents on registered capital is then shared among all agencies concerned. required to be filed with the AIC. Now, rather than paying the real paid-in capital, shareholders of a new firm are only In 2015, the State Council of China released national required to set out the number of shares or equity to be guidelines to combine three registration certificates – the tax subscribed by every shareholder in the Articles of Association. registration certificate, the organizational code certificate and In addition, newly registered firms are no longer required to the business license – into a single business license. One year submit a capital verification report to the AIC. later, the government incorporated two other certificates – the security registration certificate and the statistical registration Simplifying the company name registration mechanism. certificate – into that same business license. In 2017, the A revised Regulation on Company Name Registration, State Council released guidelines for local authorities to released by the State Council, became effective on March 1, integrate multiple local registration certificates to the national 2021, replacing the original version from 1991. Authorities no business license.34 In March 2018, the SAIC along with twelve longer need to pre-approve the name of each new firm. Firms other agencies, released a national guideline to integrate a can select any name they would like as long as it does not total of 24 certificates into the national business license.35 violate any existing law or regulation. The revised regulation The government also committed to regularly update the also established some basic rules for naming a company. For nationwide list of all registration certificates to be integrated instance, a company name should not cause any damage to into the business license. The key principle guiding each of the national and social interest and it cannot be defamatory. these reforms is that the AIC should collect all relevant firm Previously, a company’s proposed name needed to be information at registration and share it with other government manually checked and approved by the authorities and there agencies while issuing a single business license with a unique were no universal standards for such approvals resulting in identification number, rather than expect newly registered a lengthy process. The new regulation allows a firm to select firms to go to each agency to apply for individual registration a proposed name through the company name application certificates. system or the offline services provided by business registration authorities. It requires open access to firm name databases Removing permits as a prerequisite to licensing. Prior at the provincial, municipal and county levels. Many of these to these reforms, firms in certain sectors were required to databases have been publicly available since 2017. A national obtain operation permits before they could be registered and enterprise name database is still under development. A post- begin operation.36 A considerable number of permits were registration firm name dispute mechanism has also been required. Now, in order to simplify the business registration set up, but these principles need to be further established to process, many of these permits are listed as post-registration ensure their effective enforcement. requirements or they are simply no longer required. Now at registration, AICs advise each firm about which operation Reducing the number of registration certificates.33 permits they will need to get from which agencies. Firms China has taken continuous measures to simplify business are then required to certify in writing that they will obtain all registration procedures by combining various registration required permits before beginning operations. 33 These registration certificates are mostly for the purpose of information registration and record-keeping with different authorities. 34 The reforms to combine multiple registration permits into one certificate apply to all types of firms, including foreign invested enterprises, but there are certain industries that are exceptions, such as the industries concerning public security, economic security and safe production. Local governments can decide the specific types of certificates to be combined into the business license beyond the five combined certificates mentioned earlier. 35 Based on the original 5 certificates, the extra 19 certificates include the record certificate of company seals, registration certificate of provident housing fund payments by the employer company, record certificate of the business license of subsidiary companies, as well as the record certificates of firms and subsidiaries in various sectors, such as a grain and oil storage company, realtor company and its subsidiaries, asset evaluation companies and their subsidiaries. More information about the guideline can be found at http://www.gov.cn/xinwen/2018-03/14/content_5273934.htm. 36 The operation permit was used as a supporting document when applying for business registration with the AIC. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 18 Before these reforms, there were as many as 226 pre- 3.2 Strengthening post-registration registration administrative approvals37 required prior to registering a business, some of which were complicated oversight based on corporate and time-consuming to process. As a result, many new social credit data businesses opted to operate informally, without registering their businesses at all. From 2014 to 2015, the State Council eliminated 40 of those 226 approvals. Another 152 pre- In parallel with reforms related to business entry and licensing, registration approvals became post-registration approvals, China has started to set up a system for post-registration leaving only 34 required pre-registration approvals. Five regulatory compliance oversight based on corporate social more pre-registration approvals were removed in 2017. credit information.42 The old mechanism of carrying out Now, 87 percent of all pre-registration approvals have been annual reviews and inspections of firms’ operational activities removed or turned into post-registration approvals. These is replaced with a new mechanism in which firms voluntarily reforms have made it much easier for firms to register and submit their annual reports and updates about their operational obtain a business license. status to local AICs. These annual reports are then publicized on the NECIPP. In the new system, the AIC is no longer the Simplification of the process to obtain operation permits. main agency that carries out annual inspections. Instead, China has taken steps to decouple the business license from it shares firm registration information with the authorities the operation permits in order to reduce the number of required who approve the permits and are responsible for industrial post-registration permits and approvals and streamline the development.43 Firm operations are inspected at random process to obtain them. These reforms were initially piloted intervals by randomly selected officials and the inspection in the free trade zones. On July 1, 2021, they were scaled up results are made publicly available online.44 and implemented across the country. Now, additional reforms are being piloted in the free trade zones. In the latest round of A core component of the corporate social credit information reforms,38 68 post-registration approvals were eliminated from system is the rating of firm risk based on sectoral risk and a list of all 523 operation permits required for various sectors a firm’s social credit record. All relevant authorities including by 46 different central government agencies.39 Another 15 of business registries are supposed to share the information these approvals were converted into simpler record-keeping they have about each firm, some of which is made public. requirements and 37 were converted into approvals based Based on government records, data submitted by enterprises, on notification and commitment. In addition, the approval and consideration of sectoral risks, firms are classified into process has been streamlined for the remaining permits.40 different risk categories. These risk categories are associated More ambitious reforms were implemented in the free trade with different levels, frequencies and types of inspections. zones where an additional 14 permits were eliminated, 15 Firms with poor compliance records and negative ratings will converted into record keeping requirements and 40 converted be penalized and subject to public censure via “blacklists”. into notification and commitment-based approvals. A list of Joint penalties enforced by various authorities may also apply, these requirements is updated regularly and made available including reducing such firms’ access to market, restricting to the public. Subnational governments are authorized to take their public offering and excluding them from the preferential even more aggressive reforms within their jurisdictions.41 tax policies. In addition, since the social credit information of each firm is made publicly available, firms are subject to review and supervision by all relevant stakeholders and the general public. 37 These administrative approval items are permits or approvals required before firms can be registered and operate in certain sectors; for instance, they include the ex-ante approvals required for establishment of a securities company, tobacco sales company, security company, a publishing house, etc. 38 Accessible at: http://www.gov.cn/zhengce/content/2021-06/03/content_5615031.htm. 39 These 523 permits involve in total around 30 percent of all the 1381 industries as classified in the National Economic Industries Classification. 40 The four different ways of permit reforming are correlated to the importance and risk of the sectors for which these permits were required. For instance, the permits for sectors which were considered less risky and could be effectively supervised by non-government sectors were eliminated while the permits for certain important and high- risk sectors concerning national security and/or public security were kept. 41 http://www.gov.cn/xinwen/2021-06/03/content_5615188.htm. 42 The firm’s social credit information collected include financial information, business registration information, tax and social security payment information and information on the administrative penalties the firm received. 43 For example, the public security authority is responsible for approving and issuing the permit for a firm to provide security services and is thus responsible for supervising its compliance. 44 Business operating in certain sectors including those concerning public security, public health and other key sectors are not inspected randomly. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 19 The market supervision mechanism based on corporate social as firm registration information, information on permits, and credit data is far from being fully implemented, but some administrative penalties received. The general public can look progress has been made. up this information using the firm’s social credit number. In 2014, the State Council of China released the Outline During the first four years of implementing the annual of the Plan for Establishing Social Credit System (2014- enterprise reporting mechanism, more than 85 percent of 2020) and the Interim Regulation on Enterprise Information firms made their annual reports public each year.50 By July Disclosure,45 which laid the foundation for establishing the 2021, the NCIPP had seen an average of 102 million daily site supervision mechanism. Subsequently, the central and local visits and an average of 8.8 million daily searches.51 governments have released a series of regulations that also support its establishment. These regulations cover publication In 2019, China started piloting the mechanism of oversight of enterprise information, random review of firm credit based on corporate social credit risk ratings. Eleven provinces information, publishing and managing the list of enterprises and cities were selected for pilots that focused on four with irregular operations including a blacklist of enterprises areas: 1) collecting and integrating corporate social credit that have severely breached laws, and a joint penalty system information, 2) establishing the indicator system for credit for non-compliant firms. risk rating, 3) developing the auto-monitoring, and 4) creating an early warning system and exploring how to manage firm China has also set up multiple national and local credit compliance differently based on different risk classifications. information management systems for data sharing. The The SAMR aims to begin developing the national system of national government has launched a National Credit Information credit risk classification and differentiated oversight based on Sharing Platform (NCISP) and the Credit China platform in the results of this pilot. 2015,46 and each registered business entity has been given a unique social credit number. The NCISP is the central hub for all national credit information sharing among various agencies. 3.3 Improving administrative As of 2020, the NCISP had connected data from 94 central government agencies and 77 private social credit agencies, efficiency through both online and currently it covers all 32 jurisdictions.47 The Credit China and offline one-stop shops website allows public access to social credit information for both firms and individuals, including their credit records and related administrative approval and penalty records. Setting up one-stop shops for business registration. Over the past two decades, provinces, cities, and counties in China In December 2016, China launched the National Enterprise have set up integrated administrative service centers for Credit Information Publicity Platform (NECIPP).48 Subnational business registration where all approving public agencies are governments also set up their own credit information systems gathered in one place. Firms no longer need to visit separate that are connected to the NECIPP.49 This national platform agencies to obtain all the administrative approvals for business is designed to integrate enterprise information from various registration and operations. public agencies and put it together under each firm’s social credit number. A firm’s social credit information includes Several cities, including Beijing and Shanghai, have set financial information, business registration information, tax up a single window in these integrated service centers and and social security payment information, and information prescribed a time limit to complete business registration.52 on the administrative penalties the firm may have received. The goal is that through this single window, a firm can submit Some of this information is made publicly available, such all necessary documentation, complete the whole business 45 The Interim Regulation on Enterprise Information Disclosure was revised in 2019. One revision is that a firm’s business license would be revoked if it fails to submit the annual reports for two consecutive years. 46 The national credit information sharing platform was launched by National Development and Reform Commission (NDRC), which is responsible for formulating and imple- menting strategies for national economic and social development and coordinating major economic operations. “Credit China” was launched by NDRC jointly with People’s Bank of China. 47 The State Information Center, accessed in April 2021, http://www.sic.gov.cn/News/79/10738.htm. 48 The National Enterprise Credit Information Publicity Platform was launched by the State Administration for Market Regulation. 49 Once the business registration authority, which is the local Administration for Market Regulation, releases the business license with a unique social credit number, the registered information will be publicized at the National Enterprise Credit Information Publicity Platform and included into the National Credit Information Sharing Platform at the same time. 50 Interview with SAMR official on the national enterprise credit information publicity system, May 26, 2018, available at http://www.samr.gov.cn/hd/zxft/yshj/qwsl/201901/ t20190109_280136.html. 51 Data is from the website of SAMR, accessed in November 2021, available at: https://gkml.samr.gov.cn/nsjg/xyjgs/202011/t20201103_322904.html. 52 The central government has released regulations limiting registration times (the “business registration time” as defined by Chinese authorities) to be reduced continuously. According to the State Council Notice on Further Reducing the Time to Set up a Company released from May 2018, the State Council set a target to reduce the time by more than half in 2018, from an average of 20 days to less than 8.5 days in the larger cities by the end of 2018. Similarly, the time should be reduced to 8.5 days in all the cities in China by the end of June 2019. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 20 registration process and receive their business license. the central government mandated that all provinces and Application documents are received and shared with all municipalities should set up a single platform for business relevant agencies. Each agency processes the application in registration by the end of 2020.53 According to the SAMR, parallel within the prescribed time limit. these platforms had been set up in all localities. Web-based platforms, mobile apps, applets on WeChat54 and self-service Moving toward a fully online business registration terminals at the service centers are also being used more system. Over the past several years, Chinese authorities have widely for business registration across China. Statistics show been developing and promoting an online one-stop shop for that the ratio of online applications for business registration business registration. They have also been exploring the use of across the country rose from 30 percent in 2017 to 40 percent an electronic business license, electronic seals, and electronic in 2018, and the ratio reached more than 70 percent in some financial invoices. Through the online platform, applicants can areas.55 complete procedures including business license applications, tax registration, company seal requests, and social insurance Shanghai and Beijing are leading cites for one-stop shop registration – all with one single application. In August 2020, online platforms for business registration. > > > BOX 1: Digitalization of business registration services in Beijing and Shanghai Shanghai and Beijing launched online one-stop-shops for business registration in March 2018. These platforms integrate the public service platforms for the AMR, the Public Security Authority,56 the Tax Authority, the Human Resources Bureau, and the Social Security Bureau. These agencies share data through the platform in a timely manner, so the applicant does not need to go to each agency separately. Applications for company seals, financial invoices and employee social security registration can all be processed in parallel when registering a business. According to the Beijing AMR, more than 400,000 firms have been registered through the online platform, and more than 98 percent of newly established firms in the city are registered online.57 In April 2020, Shanghai set a precedent by making electronic business licenses and electronic seals available free of charge once a firm is registered. These services can even be accessed through a mobile app.58 Beijing followed suit and made electronic business licenses and electronic seals available for free starting in January 2021.59 The electronic business licenses and electronic seals60 can be used as a firm’s electronic identification to complete other administrative procedures on the e-government platform, such as tax and social security registration activities. Shanghai has even piloted allowing firms to use an electronic business license and electronic company seal to open a bank account.61 By the end of 2021, more than 60 percent of all the registered market entities in Beijing had downloaded and used an electronic business license.62 53 This requirement was included in the Notice on Further Improving Services for Starting a Business in August 2020, which was released by SAMR along with other five central government agencies. The full text of the Notice is available at http://gkml.samr.gov.cn/nsjg/xwxcs/202008/t20200811_320687.html?from=singlemessage&isappin- stalled=0. 54 WeChat is one of the most popular multi-functional social network apps in China, which also provides access to many types of city services such as making utilities pay- ments and medical appointments. 55 “Deepening the business system reforms to keep improving the business environment—interview with officials from SAIC”, Money China, http://www.moneychina.net.cn/ News/21/2906.htm. 56 The demographic information is with the Public Security Authority. 57 The data was provided by Beijing AMR in October 2021. 58 “Shanghai: electronic business license and electronic seals available at the same time”, http://www.gov.cn/xinwen/2020-04/03/content_5498602.htm. 59 Once a firm is registered, the electronic business license and electronic seals are generated automatically, and companies just need to download them from a mobile app. 60 The electronic seals include electronic company legal name seal, financial invoice seal, dedicated seal for financial use, dedicated seal for contracts, and the name seal of the legal representative. 61 “Shanghai: firms can use electronic business license and electronic company seals to open a Bank account”, August 20, 2020, Xinhua News, http://www.xinhuanet.com/ local/2020-08/20/c_1126389404.htm 62 The data was provided by Beijing Administration of Market Regulation in March 2022. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 21 4. >>> Planning and Process The National Business System Reform Initiative has been an evolving process moving forward in phases according to an overall framework. Reforms were piloted in a few cities or free trade zones before being scaled up across the country. The government also began by focusing on the most prominent or easy-to-implement measures such as removing the minimum registered capital requirement, before tackling more complex issues. In 2012, a range of reforms were piloted in China’s free trade zones and in several cities in Guangdong Province. These reforms were then expanded across the country with a top-down national guidance mechanism. The reforms began by combining three (and later five) registration certificates into one business license and they gradually evolved to combine a total of at least 24 registration certificates into one business license. The government has also put in place a monitoring and evaluation mechanism to ensure effective implementation and timely adjustments of the reform scope and scale. The mechanism primarily involves regular inspections and progress reporting. 4.1 Local experimentation and national roll-out Extensive local piloting has been an important first step before rolling out these business system reforms across the country. Since 2006, the SAIC has released dozens of policy documents en- couraging local governments to explore and experiment with business registration reforms. In 2012, Guangdong Province was authorized by the State Council and the SAIC to begin piloting business system reforms in selected cities within the province, including Shenzhen, Zhuhai, Dongguan and the Shunde District of Foshan City. Piloted reforms included removing registered capital requirement, removing some pre-registration permit requirements, simplifying corporate address registration, and replacing mandatory annual checks of firms’ business activities.63 In 2013, the pilot was expanded from those four cities to other locations in Guangdong province. The coastal provinces of Zhejiang and Fujian also began their own reform pilots in 2013.64 In February 2014, the State Council issued the Scheme for the Registration System Reform of Registered Capital65 based on these local pilot experiences. This outlined the broad scope of the reforms. As the reform initiative progressed, more detailed regulations and policy documents were developed to support reforms in specific areas. 63 Ai & Wang. 2012. “An Analysis from the Administrative Approval Perspective on the Business Registration System Reforms—the experience of business system reforms in Guangdong province and Shenzhen Municipality”, Chinese Public Administration, Issue No.1 of 2014. 64 Huang, et al. 2020. “Have the business system reforms effectively promote entrepreneurship? —evidence from cites”, Journal of Finance and Economics, Vol. 46 No.2, February 2020. 65 The guideline document can be accessed at: http://www.gov.cn/zwgk/2014-02/18/content_2611545.htm. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 22 Free trade zones have also provided a unique opportunity for zones across the country in 2017 and then later expanded to all strategic planning for the business system reform initiative. The 18 free trade zones by December 2019. During this pilot period, regulatory framework in free trade zones may be temporarily the scope of these reforms was gradually expanded from the adjusted to pilot reforms before expanding to other parts of first batch of 163 operation permits piloted in Shanghai to the country. In this context, in December 2015, the initiative include all of the more than 500 operation permits in all the free to decouple operation permits from the business license was trade zones.66 More details about the expansion and extension piloted in the Shanghai free trade zone. Based on the experience of these reforms can be found in Box 2. in Shanghai, these reforms were expanded to ten free trades > > > BOX 2: The Shanghai free trade zone pilot reforms In December 2015, the State Council authorized the Shanghai Pudong New Development Zone to pilot an initiative to decouple the business license from operation permits. The pilot focused on 116 operation permits which were closely related to business operation and which were most frequently reviewed. In January 2018, the State Council approved Shanghai to start piloting reforms to decouple another batch of 47 operation permits from the business license. Shanghai piloted five ways to decouple these operation permits from the business license: (i) removing them; (ii) changing the review and approval requirements into record-keeping requirements; (iii) putting in place the “notification and commitment” mechanism in which the applicant made a written commitment to conform to the relevant regulations; (iv) improving the transparency and predictability of the review process; and (v) strengthening market access oversight. In September 2017, the State Council made the decision to replicate the useful experiences from the Shanghai free trade zone pilot to other ten free trade zones in various provinces. Moreover, with approval by the provincial governments, eligible national innovation demonstration zones, national high-tech zones, national economic development zones, and national new development zones67 can replicate the Shanghai pilot and adjust their practices to fit their local conditions. The scope of the reforms was also expanded in these zones to include analyzing and regulating the inventory of operation permits, strengthening post-registration regulation, promoting information-sharing and integrating the reforms to decouple the business license from the operation permits and the reforms to combine registration certificates. The piloting jurisdictions were then required to summarize their good practices and submit them to the central government to be replicated in a larger scale. In November 2018, based on all of these pilot experiences, the State Council started to promote reforms across the country, affecting a total of 106 business operation permits. These 106 business operation permits were selected from the total of 163 permits piloted in Shanghai. Experimentation with the remaining permits continued in the pilot zones. After around ten months of preparation and several rounds of consultations with the relevant national and local authorities, the reform scope was expanded to cover all 523 national business operation permits and all 18 free trade zones across the country. There were some issues encountered during the scaling-up process. The piloted business operation permits only accounted for around one fourth of the total operation permits required and reforms were not sufficiently standardized. In some cases, reforms were not fully implemented by local authorities due to insufficient data sharing across agencies and insufficient commitment from local authorities. This led the State Council to expand the scope of the reforms to cover all required business operation permits and to begin allowing firms to start operations as soon as they obtain a business license, rather than requiring them to have obtained all their operation permits as well. Note: It is a long-term policy to continue the reforms to decouple the business license from the operation permits in the free trade zones in China. Source: Xiong, 2020, “Policy Arrangements for Full-range Piloting of the reforms to decouple the operation permits from the business license”, China Market Supervision Study, 2020-1. 66 Xiong, 2020, “Policy Arrangements for Full-range Piloting of the reforms to decouple the operation permits from the business license”, China Market Supervision Study, 2020-1. Xiong is the head of the business registration department of SAMR. 67 Such national demonstration, innovation and economic development zones are set up by the central government of China which were granted with more discretion in exploring reforms to promote economic development. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 23 4.2 Monitoring and evaluation design Regular inspections by the central government have been inspections was also made public. These included insufficient an important tool to monitor and evaluate implementation of data-sharing among government agencies, extra barriers set the business system reform initiative. Since 2013, the State by local authorities to deter firms entering certain sectors, Council of China and central government agencies have carried and other non-compliant local administrative requirements. out annual field inspections to check the implementation of Responsible authorities were required to submit a Correction national strategies and initiatives. Subnational governments Progress Report to the State Council by the end of 2020. The also carry out inspections of local governments.68 This tiered State Council Inspection Office has been tracking the progress inspection mechanism was set up to ensure national policies of these corrections and will hold leaders accountable if such are properly implemented, particularly those included in the issues persist. These public lists of issues can be useful for central government’s annual work reports. These inspections other jurisdictions, enabling them to identify similar problems. also enable the central government to get firsthand local The general public can also report issues to the State Council feedback to improve policy making from the top. through the online platform.71 In May 2017, the State Council organized a dedicated team Launched in April 2019, the online platform known as Internet to visit 10 provinces and cites to check the progress of the + Inspection collects feedback from the general public in the business system reforms.69 Field inspections take place following areas: (i) insufficient or inappropriate implementation in a variety of formats, including unannounced visits to the of the national strategies and tasks; (ii) malpractices, non- government service counters and discussions with business actions or delays by the government agencies; (iii) inconsistent representatives and stakeholders. A summary report including or non-coordinated government policies or actions; and (iv) good practices and opportunities for improvement is published recommendations to improve government work. The feedback after each inspection. Cities and provinces may be awarded collected through the platform is forwarded to the responsible with financial support, policy support, or opportunities local authorities to be addressed. For frequent or significant to participate in additional reform pilots based on good issues identified through the platform, the State Council may performance. If a city or province is performing poorly, a send an inspection team immediately to help address them. notice of criticism is circulated listing issues to be solved and Replies and proposed solutions may also be posted at the the responsible authorities. These issues are required to be platform.72 Since it was launched in 2019, tens of millions of corrected by a certain time and progress must be reported messages have been received and more than 100,000 issues regularly to the State Council. have been addressed as a result of comments made on this platform.73 In the 7th State Council General Inspection, carried out in October 2020, inspection teams visited 14 provinces and Based on the results of these inspections, the State Council cities to review local implementation of several national released a notice in April 2021 rewarding 216 localities who initiatives, including the reforms to improve the business performed well in 2020 in implementing national strategies registration process and the business environment. They including business environment reforms, innovation promotion, also evaluated the implementation of policies for employment village revitalization and poverty alleviation. Specifically, 20 support, innovation support, foreign investment support, and jurisdictions were rewarded for their performance promoting the COVID-19 response. Upon completion of this inspection, business system reforms. These jurisdictions were also the State Council released a list of 43 good practices found in selected as pilot areas to advance additional reforms in 2021 the inspected provinces and cities. These included a range of including further streamlining business registration procedures, reforms by Beijing to improve its business environment and by reforming the mechanism for firm annual reports, wider Shanghai to promote the use of electronic business licenses stakeholder engagement, and social credit risk oversight.74 and electronic company seals.70 A list of issues found during the 68 Subnational national governments include provincial governments, municipalities directly under the central government (like Beijing and Shanghai) and autonomous re- gions. The governance hierarchy in China includes the central government, provincial governments, municipal governments, county governments and townships. 69 http://www.gov.cn/xinwen/2017-06/11/content_5201594.htm. 70 http://www.gov.cn/hudong/ducha/2020-11/29/content_5565399.htm. 71 http://www.gov.cn/hudong/ducha/2020-11/25/content_5564025.htm. 72 The platform can be accessed at: https://tousu.www.gov.cn/dc/index.htm. 73 http://www.gov.cn/xinwen/2021-04/25/content_5602082.htm 74 The notice is available at: http://www.gov.cn/zhengce/content/2021-05/07/content_5605131.htm. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 24 The SAMR also monitors local implementation progress development. It summarizes key information about registered through additional measures. It organizes annual conferences firms including the registration information provided by local attended by local AMRs to report progress over the previous authorities, such as the number of new firm registrations in year and plan reforms for the next year. The SAMR also various sectors, the number of firms exiting the market, and monitors progress on key reform tasks by reviewing the data the time it takes to process a business registration application about business registration submitted by local AMRs. By in each locality. This report is distributed among local AMRs so analyzing data such as the average time it takes to process a that they can compare themselves to their peer regions. Lastly, business registration application, the SAMR is able to monitor the SAMR carries out regular and random field inspections to improvements in the business registration process. The check the reform progress of local AMRs. SAMR requires local AMRs to submit regular written reform progress reports that include local progress, challenges, Local authorities implement a similar top-down mechanism and recommendations for better implementation. The SAMR to monitor reform progress. Box 3 presents the example prepares annual national white papers on market entity of Beijing. > > > BOX 3: Local monitoring and evaluation of reform progress— the example of Beijing The municipal government of Beijing has developed reform policies and action plans to facilitate business registration in accordance with the national guidance on business system reforms and World Bank Group (WBG) indicators. These action plans are implemented by district-level75 government agencies and led by the local AMR. To monitor and evaluate progress on these action plans, Beijing’s AMR, along with other relevant agencies, developed a list of specific reform tasks based on Beijing’s performance in starting a business as measured by the WBG. The reform tasks were then assigned to an agency or specific department with a clear timeline for completion and their progress was monitored on a daily basis. When the Beijing AMR and other government agencies jointly established regulations to require a single window for business registration, application processing data was recorded and analyzed daily. This included the number of applications received, the total number of procedures, the time taken for each procedure, and the number of licenses and company seals issued.At the same time, they conducted regular field inspections to check the implementation progress. The Beijing municipal AMR set up seven inspection teams chaired by senior officials. Each inspection team participated in a two-week-long inspection trip to all downtown districts. There were dedicated inspections to check whether single windows were set up and operating as required and whether the front-line staff were well trained and familiar with the new reform policies. The inspection teams also collected first-hand information through onsite consultations with stakeholders including the applicants, business representatives, and others. Source: Ji. 2018. “Keep improving the efficiency of business registration and the business environment in the capital city”, China Market Supervi- sion Study, 2018-12. 75 Beijing municipality is composed of 16 districts, with each district has its own district level government. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 25 5. >>> Implementation 5.1 Legal reforms A set of laws and regulations have been amended or released to facilitate the business system reforms. In December 2013, the Company Law was revised to support the upcoming business system reform initiative. This revision included: (i) the paid-in registered capital system was changed to require registration of subscribed capital;76 (ii) the minimum registered capital requirement and the requirement to obtain a capital verification report from an auditing firm were eliminated; and (iii) the process to register a business address was simplified.77 In February 2014, the State Council of China released the Scheme for the Registration System Reform of Registered Capital,78 which marked the official commencement of the national business system reform initiative. This fundamental set of administrative regulations specified the principles, scope, and targets of the nationwide business system reform initiative. In June 2014, the State Council released another set of regulations, called Several Opinions on Promoting Fair Competition in the Market and Maintaining the Normal Order of the Market. This provided overall guidance for the national reforms to combine multiple registration certificates into a single business license and to decouple business license and operation permits. Building on the revised Company Law and the overall guidance by the State Council, more detailed national administrative regulations were also developed or revised to support specific reforms. For example, the PRC Company Registration Management Regulations were amended in both 2014 and 2016. The Provisional Regulations on Enterprise Information Disclosure were released in July 2014. These regulations defined the setup of the national enterprise credit information system, the information to be disclosed in the system, the establishment of a credit- based inspection mechanism, and other credit-based post-registration supervision activities. The SAIC released additional detailed administrative regulations covering specific areas, including random checks of public enterprise information, management of the list of non-operating firms, and publication of administrative penalties by AICs. 76 Investors no long need to put in the real amount of registered capital within certain time limit. Instead, the agreed subscription plan of the firm’s registered capital among investors, including the subscription amounts, payment timeline and ways of payment, only needs to be recorded in the articles of association. 77 There were no clear statements in the Company Law about what types of address could be used for business registration. In the revision, provincial level governments were authorized to specify what type of address could be used for registration purpose in line with local situation and requirements, which made it easier and clearer for the registration corporate address. 78 The Scheme is available at http://www.gov.cn/zwgk/2014-02/18/content_2611545.htm. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 26 The State Council also released guidance documents and notices on specific reform areas. For instance, in October 2018, the State Council released a notice to scale up the reforms to decouple the business license from the operation permits across the country,79 and another notice in June 2021 to further expand and extend such reforms across the country.80 These State Council notices were sent to provincial level governments and central government agencies, which then released localized guidance documents. Table 1 provides some examples of the different types of legal documents supporting the business system reform initiative. > > > T A B L E 1 . - Examples of the legal documents used to support business system reforms in China Overall guidance policy More detailed policy for implementation The Company Law (revised), Scheme for the Registration Provisions on the Administration of Registered Capital Registered capital reforms System Reform of Registered Capital by the State Council Registration of Companies Reforms to combine Several Opinions on Promoting Fair Competition in the Guidance on Implementing the Reforms of “Multiple multiple business Market and Maintaining the Normal Order of the Market by Certificates in One” by SAIC registration certificates the State Council Reforms to decouple the Several Opinions on Promoting Fair Competition in the Guidance on Implementing the “Zheng Zhao Fen Li” reforms business license from Market and Maintaining the Normal Order of the Market by and Promoting Unified Standards of Enterprise Registration operation permits the State Council and Supervision Source: Ye, 2019, “Review of the Commercial Systems in Major Cities in China”, Legal Forum, Issue No.52. The draft Regulations on Commercial Entity Registration were approved by the State Council in April 2021. This is the first administrative regulation in China that establishes unified rules governing the registration of various types of commercial entities.81 It covers various areas of business registration including streamlining registration procedures, promoting electronic business licenses, conducting market supervision based on corporate social credit information, and facilitating business deregistration.82 79 http://www.gov.cn/zhengce/content/2018-10/10/content_5329182.htm. 80 http://www.gov.cn/zhengce/content/2021-06/03/content_5615031.htm. 81 The commercial entities in China include various types of firms, individual business, and farmers’ specialized cooperatives. 82 http://www.gov.cn/zhengce/2021-04/15/content_5599752.htm EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 27 5.2 Institutional reforms 5.2.1 National institutional arrangements key central government agencies. Under this “Fang Guan Fu” to facilitate reforms reform coordination group, there is a dedicated working group Strong top-level design and guidance has been provided for business system reforms, along with four other working throughout the business system reform initiative thanks to groups on improving the business environment, streamlining institutional arrangements intended to facilitate reforms. administrative procedures, promoting innovation and entrepreneurship, and improving social services. The working As the business system reform initiative moved forward, in groups report directly to the State Council and the Premier. April 2018, the responsibilities of the SAIC were expanded and it was restructured into the SAMR. The establishment of The working group on deepening the business system reforms the SAMR integrated all the market supervision related roles is led by the head of the SAMR and it is comprised of deputy into one agency to avoid conflicting responsibilities among ministers and deputy heads of eight ministries and central central government agencies. It assumed the responsibilities government agencies, including the NDRC and the State of the original State Administration of Quality Supervision, the Taxation Administration (STA) (Figure 4). Its roles include: (i) China Food and Drug Administration, and the State Council’s reducing the time to start a business, scaling up the reforms Anti-trust Office. It also took over price supervision and anti- to decouple the business license from the operation permits, monopoly legal enforcement from the National Development deepening the reforms to integrate multiple registration and Reform Commission and the Ministry of Commerce. The certificates into one business license, promoting the reforms SAMR has dedicated departments for business registration, on industrial manufacturing operation permits, and promoting legal enforcement, credit-based supervision, and anti-trust simpler business deregistration through deregulation work. Local AICs were also restructured into AMRs accordingly. (“fang”); (ii) streamlining administration (“guan”), developing the market supervision mechanism based on social credit In July 2018, the State Council set up an inter-ministerial information, promoting cross-agency supervision and internet coordination group for the “Fang Guan Fu” reform agenda. based supervision; and (iii) optimizing government services Its responsibilities include coordinating the development and (“fu”), strengthening government service standards and the implementation of key reform policies, proposing the list of certification and inspection systems. The working group is reform topics to be discussed at the State Council executive responsible for developing phased reform tasks that are meetings, addressing key reform challenges in a coordinated quantifiable and measurable with clear timeline for completion. way, and providing guidance to local authorities in enforcing The working group also plays a key role in facilitating central the reform agenda. The group is directly managed by the Vice level cross-agency coordination. Premier and it consists of State Councilors and the ministers of EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 28 > > > F I G U R E 4 . Central cross-agency institutional settings to facilitate and oversees national business system reforms The State Council The iner-ministerial coordination group on “Fang Guan Fu” Reforms Team leaders: Vice premier and 2 state Councilors Working group on Working group Working group on Working group on Working group on deepening commerce on streamlining business environment promoting innovation improving social system reforms administrative procedures improvement and entrepreneurship services Team leader: Head of SAMR; Co-Team leaders: vice ministers/deputy heads of NDRC, MEE, MoT, MoARA, MoCT, GAC, STA. Local AMRs (leading) and other relevant local authorities Note: “Fang” means deregulation; “guan” means (streamlining) administration; and “fu” means (improving) government services. MEE: Ministry of Ecology and Environment; MoT: Ministry of Transport: MoARA: Ministry of Agriculture and Rural Affairs; MoCT: Ministry of Culture and Tourism: GAC: General Administration of Customs; STA: State Taxation Administration. Source: the authors. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 29 5.2.2 Institutional arrangements for specific standards and a standard form for each applicant to provide reforms—Integration of multiple registration both business registration information and information needed certificates as an example by other sectoral supervision agencies. In response to the State Council requirement to combine multiple registration certificates across the country, the SAIC Applications are collected by the AIC which reviews the consulted with 12 other central government agencies and business registration information and grants the business ministries83 and released joint guidance requiring a first batch license. Then, within one business day following the approval of 24 registration certificates to be integrated into one business of the application, the AIC shares the registration data and license.84 They also clarified the principles, procedures, and any additional information with all relevant agencies through coordination mechanisms for implementation. provincial level cross-agency data sharing systems or bilateral data sharing channels.86 Provincial level sectoral supervision The SAIC put in place an institutional coordination mechanism agencies confirm receipt of the shared information within three specifically for these reforms. Implementation is coordinated business days. Sectoral supervision agencies update the AIC at the provincial level with unified process standards and a on any changes to the recorded information. Provincial-level unified list of registration certificates to be combined. The data is shared using various systems including the credit county and municipal authorities then implement the reforms information sharing platform, e-government service platforms, under the unified planning at the provincial level.85 and the national credit information publicity system.87 Following central government guidance, local authorities upgraded their Integrating the registration certificates requires effective data information systems to facilitate better data sharing. sharing, coordination among government agencies at various levels, and adjustments to the procedures of each agency The relevant government agencies have been carrying out involved. For this purpose, the relevant central government joint inspections to review progress of this reform task, find agencies including the SAIC developed national data sharing implementation issues, and make necessary adjustments. 83 The 12 other central government agencies and ministries are the NDRC, Ministry of Public Security, Ministry of Finance, Ministry of Human Resources and Social Security, Ministry of Housing and Urban-rural Development, Ministry of Agriculture (restructured into the current Ministry of Agriculture and Rural Affairs), Ministry of Commerce, General Administration of Customs, State Administration of Quality Supervision and Quarantine Inspection, National Radio and Television Administration, State Tourism Administration (the current Ministry of Culture and Tourism), and China Meteorological Administration. 84 The list of 24 registration certificates is a minimum requirement across the country. Local authorities are encouraged to integrate as many registration certificates as possi- ble based on local conditions. Among the 24 registration certificates, most of them are record certificates required by sectoral oversight authorities for the purpose of record keeping. 85 SAIC Guidance on Implementing the Reforms to Combine Multiple Registration Certificates, http://www.gov.cn/gongbao/content/2018/content_5271801.htm. 86 An exception is that the sharing of business registration data and customs data is done at the national level between SAIC and General Administration of Customs. 87 The Joint Guidance by Thirteen Central Government Agencies including SAIC on Putting Forward the Reforms to Combine Multiple Business Registration Certificates. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 30 5.3 Technical solutions 5.3.1 Development of e-government The State Council of China set a clear timeline for cross- services and data sharing in China agency data sharing. All government agencies were required China has been making steady progress to digitize government to clarify the scope of data sharing and the way to use the services over the past two decades. The government released shared data by the end 2017. The integrated government data a first guideline document88 for developing e-government sharing platform was required to cover all central government services in 2002, along with specific plans for the development agencies by 2018. The central government also released a of: (i) e-government internal networks and external holistic implementation plan for the integration of government networks, (ii) the government portal, (iii) four databases service information systems across the country for the first of demographics, legal entities, geospatial, and natural time in 2017.93 resources and macroeconomic information, and (iv) twelve key government services information systems, including those The national data sharing and exchange platform was for social security, tax and economic information collection launched at the end of 2017. It connects with the provincial and distribution.89 In addition, China developed around 100 and municipal level data sharing platforms and provides significant government service information systems during the data set exchange for other platforms including the national eleventh Five-Year Period (2006-2010).90 e-government service platform and national credit information sharing platform. By January 2018, 71 government agencies By 2009, China had established national e-government system and 31 jurisdictions had connected with the national data external networks covering all provinces, cities, counties, and sharing platform and more than 600 data sets in more than 40 townships. This laid the foundation for data sharing among State Council affiliated agencies had been shared.94 By June government and judiciary agencies.91 Furthermore, the Report 2021, the national data sharing platform had connected 937 on the Work of the Government in 2015 included a firm operation systems of government agencies at various levels commitment to the development of “smart cities” and digital and it supported more than 7,400 exchanges of datasets government is an important part of this initiative. Since then, among 44 government agencies.95 municipalities in China have been racing to set up their digital government portals.92 Digitalization of business registration information and online data sharing laid the foundation for the following business China is also making continuous progress promoting data system reforms. SAIC started to plan for and pilot the sharing among government agencies. Data collected by local digitalization of business registration information in selected authorities can be used by central government agencies for cities beginning in 2002. In January 2003, Beijing was the operations and decision-making purposes. Initially, there first city in the country to launch the business registration was little information sharing between agencies, but the archive information management system, which digitized government has been taking various steps to address this the recorded information on registered companies and made challenge, including joint development of agency information it publicly available.96 The system was designed to scan systems, sharing project data in various agencies’ information and store records and set up a unified business registration systems, promoting integrating the various information database. Following this initiative by Beijing, AICs, and later systems with the national planning of e-government services, AMRs, in other cities began to gradually develop or improve developing new data sharing platforms, formulating a catalog their information systems for business registration to allow for of standard data to be shared among government agencies, online access to business registration data.97 and unifying the technical standards for data sharing. 88 The guideline document is Guideline by the National Informatization Leading Group on the Development of E-Government Services in China. 89 http://www.e-gov.org.cn/article-166340.html, accessed in August 2021. 90 Zhang & Zhang. 2018. “Integration and Data Sharing among E-government Service Systems: Journey, Lessons and Direction”, Chinese Public Administration, Issue No.3, 2018. 91 Ma. 2016. “Exploring the Reforms to Combine Multiple Business Registration Certificates from the Perspective of Informatization”, Supervision and Development, Decem- ber, 2016. 92 United Nations. 2020. UN E-government survey 2020. 93 Zhang & Zhang. 2018. “Integration and Data Sharing among E-government Service Systems: Journey, Lessons and Direction”, Chinese Public Administration, Issue No.3, 2018. 94 He &Liu. 2018. “The ‘Aorta’ of National Information Sharing is Made Patent”, China Reforms Newspaper, January 23, 2018. 95 “ Interview with the Deputy Director of National E-Government External Network Management Office, Information Security and Communication Confidentiality”, Information Security and Communications Confidentiality Magazine, June 2021. 96 At that time, an applicant could only check business registration information at offices of Beijing’s AICs with an authorization. 97 At that time, after a firm was registered with the AIC, it would be granted with an organizational code by the Quality Supervision Agency and then complete the tax regis- tration within 30 days. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 31 Over time, a national system developed connecting the SAIC When China began to implement reforms to combine three system with the local AIC information systems in different business registration certificates into one business license, regions.98 In the meantime, in 2002, the SAIC along with data was shared in one direction. The AICs shared basic other relevant central government agencies, decided to pilot business registration data with the tax and quality supervision cross-agency online sharing of business registration and tax agencies. When reforms were expanded to combine five information in four cities including Beijing and Shenzhen.99 business registration certificates into one business license, This data sharing was later scaled up across the country data was shared back and forth between relevant government and expanded to cover other information related to business agencies through provincial level platforms. Each province had registration. More recently, when the national business system their provincial level social credit information sharing platforms reform initiative commenced, the SAIC’s information center where business registration information was uploaded and was involved at an early stage to provide technical support shared, along with data collected by the social security and to the national business registration information system. This statistics authorities. Each year after firms submit their annual included planning, design, and responses to detailed data reports, AICs forward this information in batches to the social revision arrangements. This work also paved the way for the security and statistics agencies through the NECIPP.101 launch of the NECIPP. In the business system reform process, authorities had to keep upgrading their own information systems to accommodate 5.3.2 An example – technical solutions for wider data sharing. They also opened new channels for data cross-agency data sharing for the reforms sharing with the provincial level online platforms.102 to combine multiple business registration certificates Data sharing among authorities has been a fundamental 5.3.3 The National Enterprise Credit component of the efforts to combine multiple business Information Publicity Platform (NECIPP) registration certificates into a single business license. The NECIPP is a key platform to facilitate credit data-based First, a nationally unique social credit code was created to post-registration market oversight. It is the official platform replace the original organizational codes used within each to integrate and publish enterprise information. Through this government agency. National standards were developed for platform, the Government collects firms’ information including coding social credit numbers, that were compatible with the as the registration information obtained by the AMRs and the many existing agency codes as possible in order to minimize business supervision information collected by other sectoral changes to existing information systems. Now, every newly agencies. This can include information on the administrative registered market entity is granted an 18-digit social credit permits granted to firms and administrative penalties imposed number when receiving a business license.100 For existing on them. Firms are required to submit an annual report each entities, a new social credit number is generated by the year and to provide timely updates to the platform at other times registry in the information system and linked to the existing if needed. These might include updates to registered address, registration code. A social credit number database was set contact information, business operational status, equity up and is being managed by the central government. The investments, real paid-in capital, and financial information.103 relevant public agencies at both central and local levels have also upgraded their information systems to accommodate the Through this platform, information about each firm that use of social credit numbers. Application of the unique social was once held by different entities in different places, can credit code laid the foundation for the subsequent data sharing be accessed in one place. Government agencies use this and collaboration among government agencies. platform to share information among themselves, and to carry out supervision and joint inspections. Some data is also 98 Sun. 2016. “‘Social duty’ oriented government information sharing practice—successful experience and perfection of the national enterprise credit information publicity system”, Archives Study, Issue No.3, 2016. 99 In 2002, the Cyberspace Administration of China, SAIC, State Taxation Administration, and the State Administration for Quality Supervision and Quarantine jointly released the Notice on Carrying out Pilot for Exchanging Basic Enterprise Information (Guo Xin Ban (2002) No. 62). 100 The 18-digit social credit code includes one digit of registry code, one digit of sectoral code, six digits of codes indicating the administrative district where the registry be- longs, nine digits of organizational code of the entity and one digit of verification code. 101 Ma. 2016. “Exploring the Reforms to Combine Multiple Business Registration Certificates from the Perspective of Informatization”, Supervision and Development, Decem- ber 2016. 102 The Joint Guidance by Thirteen Central Government Agencies including SAIC on Putting Forward the Reforms to Combine Multiple Business Registration Certificates. 103 It is optional for firms to publicize their financial information at the platform. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 32 made publicly available and the general public can access it 5.3.4 Digitization of business registration freely and easily through the platform by typing in the firm’s in Shanghai social credit number.104 By the end of May 2020, the national Shanghai has been a leader in developing local e-government publicity system had 126 billion site visits, with average daily services, powered by an integrated big data policy and visits of more than 100 million.105 supporting institutional mechanisms. The Shanghai Government Data Service Portal has been one of the The NECIPP platform has gone through several development most successful local projects providing a one-stop shop stages. In March 2014, the SAIC set up an interim nation- for public services.110 Shanghai has also seen steady wide enterprise credit information system by upgrading the progress in digitizing its business registration services in an existing e-government service platforms and connecting the integrated way. information systems of the SAIC and the provincial AICs. The scope of data shared at the platform has been gradually In March 2018, Shanghai became the first city in the country expanded from business registration record information to to launch a one-stop shop online platform for business include each firm’s annual report information, the lists of firms registration. It did so by upgrading and integrating the various that have not publicized the right information as required or e-government service systems including those used by the AIC, firms that have severely broken the law, the results of random public security, taxation and social security authorities. Using firm checks, and more.106 However, this interim platform could the e-government cloud infrastructure, various data including not effectively solve the issue of cross-agency data sharing. business registration, property registration, tax records, bank Therefore, in March 2015, guided by Premier Li Keqiang, account information and data in the demographic database China started to build a national integrated enterprise credit held by the public security authority were all integrated into a information data platform, which became known as the new firm database. The new database enabled data exchanges NECIPP. It was launched at the end of 2016, and functional among relevant agencies in a timely manner. For example, optimizations of the platform are ongoing.107 the AIC could obtain demographic and property registration information when reviewing the business registration An effective coordination mechanism was set up in order to application. The public security and taxation authorities could create the NECIPP in such a short period of time. The SAIC was obtain the business registration information before a business authorized by the State Council to lead the work of developing license was issued. This data sharing made it possible for the the national platform. It organized several field trips to pioneering business registration process to be carried out by different cities and provinces such as Beijing and Shanghai to learn from agencies in parallel and in a coordinated way.111 local experiences promoting the integration and sharing of enterprise credit information. The SAIC also coordinated with 56 In April 2020, Shanghai also started to issue legally effective government agencies, co-signed the Action Plan for Integration electronic business licenses and electronic seals. Once a and Publicity of Enterprise Information Held by Government firm has been registered, its legal representative can obtain Agencies, and signed a MOU with 37 government agencies for the electronic business license and electronic seals through carrying out joint administrative penalties based on the shared a mobile app or other smart terminals at the administrative information.108 service center. This is supported with wider data sharing among government agencies on the electronic business In parallel, the SAIC also developed a national database of license, the electronic seals, and the physical seals. At the legal entities with full data on registered firms and firms’ annual same time, Shanghai is developing or upgrading various types reports. All this information is currently shared with other of e-government platforms to allow for wider use of electronic relevant government agencies. Provincial SAICs took the lead business licenses and seals. Currently, firms may use an in developing the provincial level enterprise credit information electronic business license and seal to complete online identity publicity systems which were an important foundation for the verification, sign online documents, and complete procedures establishment of the national platform.109 104 The public can check information of a firm in certain location by logging onto the National Enterprise Credit Information Publicity Platform. For instance, credit information about firms in Beijing can be accessed at : http://bj.gsxt.gov.cn/index.html. 105 Interview with the Director General of SAMR, Yan Liu, Xinhua News, June 12, 2020, http://www.xinhuanet.com/food/2020-06/12/c_1126107604.htm. 106 The Interim Regulation on Enterprise Information Disclosure was released in August 2014, which also legalized the publication of more detailed information at the national platform. 107 For instance, the SAIC released guidelines to strengthen the application and management of the national enterprise credit information publicity system in 2018 (http://www. xinhuanet.com/food/2020-06/12/c_1126107604.htm), and guidelines to further optimize its functions in 2019 (http://gkml.samr.gov.cn/nsjg/xyjgs/201907/t20190719_305040. html). 108 The website of SAIC, http://www.gov.cn/xinwen/2017-03/21/content_5179369.htm, accessed in August 2021. 109 The website of SAIC, http://www.scio.gov.cn/xwfbh/gbwxwfbh/xwfbh/gszj/Document/1449957/1449957.htm, accessed in August 2021. 110 United Nations. 2020. UN E-government survey 2020. 111 Business Registration Department of Shanghai AIC. 2019. “Reforms on starting a business in Shanghai and the Doing Business 2019 report”, China Market Supervision Study, 2019-1. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 33 related to taxation and social security. In August 2020, electronic sharing and exchange for government, industry and social business licenses and seals could be used to open a firm’s data.” The Center is designed to support the data ecosystem, bank account with Shanghai Communications Bank.112 primarily through data governance and coordination. Its task is to promote the integration of technology, business, The electronic business license is becoming more widely used. and data, and to help build a data-sharing system for the According to the Shanghai AMR, legal representatives from city. It is responsible for formulating technical standards and around 1.32 million companies in Shanghai had downloaded developing management approaches “for the collection, electronic business licenses by December 2021, and the management, sharing, opening, application and security of electronic business licenses have been used around 13.3 data resources.”114 million times at e-government service and business platforms for various administrative activities, including annual reporting On the ground, the center facilitates the sharing and exchange and record checking with the SAMR, tax services with the of data between multiple levels of government and between Tax Authority, and employee social insurance services with the government and users. It is engaged in the analysis and the Social Security Authority and with the Housing Provident application of different types of public data, including geospatial Fund Agency.113 and real-time data, in support of operational, people-centric e-services. More than 1,000 e-services with a foundation of The Shanghai Municipal Big Data Center played an important more than 16,000 data resources and 14 billion data points role in supporting digitization of government services and data across 50 agencies are available through the Big Data Center, sharing. It was set up by Shanghai municipal government in which is hosted in the dedicated e-government cloud. In 2019, 2018 to serve as a one-stop shop service platform for “cross- there were around 540 million data requests.115 level, cross-department, cross-system and cross-service data 112 Kang. 2021. “To improve business registration efficiency through digital means”, China Market Supervision Study, 2021-2. 113 The electronic business license has two major functions: business identity verification and enabling the electronic signature. Around 84,000 companies have used the electronic business license to complete the electronic signature. These data was provided by Shanghai AMR in January 2022. 114 Quoted information is said by Zhou Bo, Shanghai’s executive vice mayor, at a press conference, as reported in “Big Data center launched to drive smart Shanghai”, Shang- haiDaily.com (13 April 2018), available at https://archive.shine.cn/business/it/Big-Data-center-launched-to-drive-smart-Shanghai/shdaily.shtml. 115 United Nations. 2020. UN E-government survey 2020. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 34 6. > > > F I G U R E 5 . New registrations of firms in selected cities (2000-2019) 450000 400000 350000 300000 >>> Impact Along with the ongoing business system reforms, China has seen a remarkable increase in the number of market entities which include firms, individual businesses and farmers’ specialized cooperatives. There has been a sharp increase in the number of newly registered firms in Chinese cities since the business system reform initiative was officially launched in 2014. Leading cities such as Beijing, Shanghai and Shenzhen, which have been leaders in implementing business system reforms, have seen even greater progress in improved entrepreneurship ( Figure 5). At the end of 2021, there were in total around 154 million of registered market entities in China, compared to around 61 million market entities at the end of 2013.116 Since 2010, annual GDP growth rates in China have been systematically decreasing (Figure 6).117 Yet, the number of newly registered firms and newly registered market entities in China have been steadily growing from 2013 (Figure 7). Business system reforms have increased local entrepreneurship by around 2 percent, according to a study which analyzed the reform data in 283 municipalities in China in 2019.118 Number of firms 250000 200000 150000 100000 50000 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Beujing Shanghai Shenzhen Tier 1&2 average Source: the World Bank, based on statistical research conducted by the Center of Enterprise Research at Peking University on industry and commerce data 116 The data is from SAMR. 117 World Bank, World Development Indicators. 118 Huang, et. Al. 2020. “Have the business reforms effectively incentivize entrepreneurship? --- evidence from municipalities”, Journal of Finance and Economics, Vol. 46 No.2, Feb. 2020. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 35 > > > F I G U R E 6 . China’s Annual GDP Growth Rate (%) 16 14 12 10 8 6 4 2 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Source: the authors based on data from World Development Indicators. > > > F I G U R E 7. Newly registered firms and market entities in China between 2013 and 2021 35 30 25 20 15 10 5 0 2013 2014 2015 2016 2017 2018 2019 2020 2021 Number of newly registered firms (in million) Number of newly registered market entities (in million) Source: the authors, based on data from SAMR of China, 2021. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 36 Business system reforms have also reduced the costs of Feedback from the private sector has also been positive. starting and operating a business. Before the reforms, firms According to the latest survey by the All-China Federation of had to meet a minimum registered capital requirement and Industry and Commerce (August-October 2021), the ease of submit a capital verification report with could be costly. Each business registration was listed among the top three areas firm also had to submit a registration fee which was 0.1 to 0.5 in which firms perceived the biggest improvement and with percent of its registered capital.119 These fees were eliminated which they were most satisfied. In this survey, a total of 69,120 along with the auditing costs for annual inspection and questionnaires were sent out to privately owned firms of review. According to a third-party study, the registered capital different sizes in various sectors across the country.122 In the registration reforms helped domestic firms save 1.02 trillion Report on Business Environment in China and Survey Among yuan in 2015, 1.45 trillion yuan in 2016, and 1.87 trillion yuan in Private Entrepreneurs by the Chinese Academy of Social 2017. Foreign-invested firms saved around USD 838.9 million Sciences which was released in 2019 and covers 34 cities in in 2015, USD 12.339 billion in 2016, and USD 19.677 billion in China, more than 80 percent of surveyed firm representatives 2017.120 In Beijing, according to the authorities, the municipal considered it much easier to register a business and get the government has provided more than 90,000 free tax U-keys business license. for newly registered firms and has provided free company seals to more than 98 percent of newly established firms as part of the reform initiative. This has saved firms around 100 million yuan since January 2019.121 119 The registered fee was waived if the registered capital amount was more than 100 million RMB. 120 The cost saving data was provided by SAMR at a press conference in 2018, available at: http://www.gov.cn/xinwen/2018-12/25/content_5352060.htm, accessed in Decem- ber 2021. 121 The data was provided by Beijing AMR in October 2021. 122 This annual survey is called “Evaluation of the business environment by thousands of private firms”. Conclusions of the 2021 survey can be found at: http://www.acfic.org. cn/zzjg_327/nsjg/yjs/yjssjgk/202101/W020210112334437202141.pdf EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 37 7. >>> Remaining Challenges Despite the progress and achievements made reforming China’s business system, there are still challenges moving forward. More needs to be done to achieve the reform targets. Challenges include existing issues such as the long-standing matter of cross-agency coordination and data sharing. They also include new obstacles that may emerge as the reforms move forward, for example challenges implementing the new post-registration supervision mechanism based on corporate social credit data. Another potential issue is that updates to the legal framework cannot keep up with the quickly evolving reforms. This could deter more substantial reforms. Cross-agency coordination and data sharing still represents a challenge for successful implementation of the business system reforms. When different government agencies set up their own information systems, they did not consider the need for data sharing. As a result, these information systems have different data standards and in some cases are completely incompatible. This problem exists among peer agencies as well as among authorities at different administrative levels. For instance, according to a 2017 survey in the northwestern Yinchuan City of Ningxia Province, the Municipal Administrative Approval Service Bureau had in total 30 information systems in operation, 16 of which were used by eight central government agencies, 12 systems used for business processing by seven provincial level governments agencies and two information systems used by two departments of the municipal government.123 Many local public agencies are unwilling to exchange data with their peers either out of a desire to protect their own interests or because of their mindset of working in silos. More efficient and effective cross-agency data sharing is required as the reform initiative moves forward. China is at an early stage of developing a post-registration market oversight mechanism based on corporate social credit data, and there is still a long way to go to integrate the correct firm information under one identification code to achieve effective joint supervision. It can be difficult to collect or update a firm’s social credit information accurately in a timely manner. Some government agencies are still reluctant to share data through the NECIPP. Some of the collected firm data are missing or inaccurate, including in the annual reports submitted by firms themselves. Data shared by different public institutions is not always consistent. Insufficient or inaccurate corporate social credit information makes it difficult to carry out effective compliance monitoring and supervision. 123 Wang. 2018. “Study on the “Fang Guan Fu” reforms from the perspective of modern national governance ---- based on field study in 6 jurisdictions in 5 provinces”, Admin- istrative Legal Study, Issue 4, 2018. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 38 Implementation of market supervision system based on to accommodate the management of emerging technologies, corporate social credit information also faces other challenges. industries and business models such as the ridesharing and In the new post-registration oversight model, a broad group online medical services. This could cause some gaps and of stakeholders including the private sector are supposed to confusion when registering and supervising firms in these take a stronger role in overseeing compliant firm activities. emerging sectors.126 However, the new supervision model is still led by the public sector without an efficient mechanism to mobilize other Lastly, despite the simpler business registration process stakeholders to fully participate.124 There are also concerns and increase in new businesses, stronger policy support is in the business community about the implementation of the still needed to help individual businesses and micro-, small-, oversight mechanism. For example, it could increase firms’ and medium-sized enterprises (MSMEs) to survive and grow. compliance burden and raise data privacy issues. It is also More than 90 percent of the registered market entities are vulnerable to discretionary and biased application. individual businesses and MSMEs. Of the in total 154 million registered market entities at the end of 2021, there were in Public access to information is extremely important because it total around 103 million individual businesses and 48 million improves transparency and facilitates external accountability. firms. More than 83 percent of these registered firms were Chinese authorities need to keep improving in this aspect, MSMEs.127 These firms and individual businesses face particularly as they are planning to have a deeper engagement acute challenges to grow. The challenges include invisible with the private sector and the general public to ensure reform market access barriers, increasing labor cost and difficulty implementation and oversee firm compliance. This could in recruiting employees, fast growing operational costs and include publishing all the regulations online in a timely manner, limited access to credit. MSMEs are also more vulnerable to and opening up access to reform data, such as business economic shocks including those brought by the COVID-19 registry data. pandemic. As a result, there have also been a large number of individual and small businesses exiting the market. In 2021, The current legal framework is not always updated in a timely for every two new individual businesses entering the market, manner which can deter some more innovative reforms. Some there is one individual business exiting the market. This ratio pioneering localities are discouraged from undertaking certain has been constant in recent years.128 In addition, there are a reforms because they would require legal amendments large number of “zombie enterprises” that are insolvent yet not at a higher administrative level. For example, some of the officially deregistered likely because of the complicated and administrative permits currently issued by local authorities are lengthy deregistration process. In light of all this, it is important required by regulations set at the national or provincial levels. for China to take broader and better coordinated efforts to Even if the local governments want to eliminate them, they make it easier to establish individual businesses and MSMEs cannot do so until the regulations are revised at higher level.125 and support them to grow. In addition, regulations are not updated in a timely manner 124 He. 2020. “Study on the post-registration supervision in the context of ‘Fang Guan Fu’ reforms”, available at http://sfj.sh.gov.cn/ztzl_xsqk/20201126/d2977fb4ad504c16881e- 1a23e62d4b59.html 125 Wang. 2018. “Study on the “Fang Guan Fu” reforms from the perspective of modern national governance ---- based on field study in 6 jurisdictions in 5 provinces”, Admin- istrative Legal Study, Issue 4, 2018. 126 Wang. 2019. “Challenges of the business system reforms and the solutions”, China Market Supervision Study, 2019-9. 127 http://finance.people.com.cn/n1/2022/0205/c1004-32345803.html 128 The data is provided by SAMR at the press conference, available at: http://www.gov.cn/xinwen/2022-01/28/content_5673539.htm. Accessed in April 2022. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 39 8. >>> Conclusion and Lessons China has made significant achievements since the business system reform initiative was launched in 2014 and the country has an opportunity to continue adjusting, learning, and adapting both in terms of institutional settings and capacity building. The reforms are still ongoing. Other countries may draw some useful lessons from China’s experience. First, China’s approach, beginning with strategic planning followed by phased implementation of reforms, has worked well. The central government of China designed an overarching reform framework when launching the business system reform initiative in 2014. Then the outlined reforms were implemented according to a phased approach under the guidance of the State Council. This gradual reform process allowed for continuous learning and necessary adjustments as reforms were implemented. Most reforms were initially piloted in selected cities and free trade zones before being replicated on a larger scale, or across the country. Second, strong collaboration among different players has been key in both designing and implementing the reforms. It is important to engage all the relevant stakeholders at an early stage to ensure strong ownership and commitment from all parties. The inter-ministerial coordination working group has helped ensure joint efforts by relevant ministries to support the reforms and encourage cross-agency exchanges and data-sharing. The SAMR has also conducted substantive joint meetings and consultations with relevant government agencies, reached agreements on implementation details, and jointly developed reform guidelines. Local governments have set up joint working groups and joint meetings to support cooperation among peer agencies. The government is also trying to engage more players, particularly the private sector, through setting up an oversight mechanism based on corporate social credit data. Still, more can be done to engage the private sector. In particular, holistic institutional reforms are needed to further improve cross-agency data sharing and public participation in advancing the reforms. Finally, effective monitoring and evaluation of reform progress is vital to make sure reform implementation is on track, and to identify issues during implementation in order to make necessary adjustments. China has mainly used top-down inspections and regular reporting of reform progress by local authorities. These measures have worked well in the centralized governance structure of China. Monitoring can also be strengthened by involving the private sector and members of the public by expanding public access to reform data. 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