Operating business in China? Here are two blacklists to avoid

blacklists

In today’s digital age, big data is utilised to optimise the business environment and ease doing business in China. Equally, big data assists government departments to investigate enterprises who do not operate accordingly to law, including foreign-invested companies. Over the years, several administrative regulations and management rules (‘regulations’) have been adopted to regulate business operations and development. Namely, such regulations oblige enterprises to conduct business in an orderly, honest, steady and healthy manner, and proactively observe relevant Chinese laws and regulations. Such regulatory framework include:

  • Provisional Regulations on Enterprise Information Disclosure (“Provisional Regulations”), effective from 1 October 2014
  • Interim measures for administration of List of Enterprise with Abnormal Operations (“Interim Measures”) effective from 1 October 2014
  • Administrative Measures for Market Regulation of the Seriously Illegal and Dishonest Entities List (“Administrative Measures for Dishonest Entities List”), effective from 1 September 2021
  • Administrative Measures for Market Regulation of Credit Restoration (“Administrative Measures for Credit Restoration”), effective from 1 September 2021

The Provisional Regulations requires enterprises to submit the annual report for the previous year between the 1st January to 30th June, and publicly disclose such information. The information submitted and disclosed shall include the address and contact number of the company, operation status of the company (open, closed or liquidated), investment or shares purchasing related information, capital contribution, contribution date and form of contribution by the company’s shareholder, number of employees, total assets, total liabilities, operating income, main business income, total profits, total tax paid, and so forth.

Enterprises who do not submit the annual report on time shall be listed as Enterprise with Abnormal Operations, as stipulated in the Interim Measures.

Also, enterprises will be listed as Enterprise with Abnormal Operations in the following cases:

  • Failing to disclose information upon alteration as according to Article 10 of the Provisional Regulations, and failing rectify the violation on time after being notified by the administrative management department
  • Concealing the real situation or practicing fraud when disclosing enterprise information
  • Failing to contact enterprise at the registered address (site of business operation)

If an enterprise is listed as an Enterprise with Abnormal Operations and rectifies such violations on time, may apply to be removed. Specifically, the Interim Measures, provision the specific rectifications:

  • Enterprises who fail to submit the annual report on time may apply to be removed upon submitting and publishing the annual report.
  • Enterprises who fail to disclose information after alteration on time shall publish the altered information. Then apply to regain its normal operation status record at the administration of industry and commerce.
  • Enterprises who could not be contacted at its registered address, may regain its normal operation status record after conducting the regular procedures for alteration of registered address or business operation site, or claimed that the Enterprise can contacted at its registered address.

From the listed date, enterprises listed as Enterprises with Abnormal Operations and exceeding three years will be listed as “seriously illegal and dishonest enterprises”. As “seriously illegal and dishonest enterprises”, enterprises will face severe negative image and reputation.

Therefore, enterprises should take corrective actions promptly when listed as “enterprises with abnormal operations”, and apply to be removed at the competent administration of industry and commerce as according to the aforesaid procedures.

Dishonest Entities List

The Administrative Measures for Dishonest Entities List, defines the Dishonest List as companies that:

  • seriously endanger people’s health and life safety,
  • seriously destroy the fair market competition order and normal social order,
  • refuse to perform legal obligations,
  • seriously affect the credibility of administrative organs and companies with other serious illegal and dishonest behaviors.

Generally, enterprises in industries directly related to the people’s life, health and safety are affected including food, drugs, special equipment, and other related sectors.

Similar to the “Enterprise with abnormal operations list”, enterprises, listed as “illegal and dishonest enterprise” for more than one year, may request to be removed at the competent Market Supervision Administration. Specifically, the Administrative Measures for Credit Restoration stipulates the below preconditions:

  • The enterprise has fulfilled the obligations provided in the administrative penalty
  • The enterprise has proactively rectified the negative impacts and consequences
  • The enterprise is no-longer subject to further serious administrative sanctions provisioned by the relevant administrative departments 

Removal from the “abnormal operations list” or “illegal and dishonest enterprises list” will not delete the historical record of enterprises being listed. Rather such records are held on the company’s credit file and publicly disclosed.

Therefore, understanding and comply with the Chinese laws and regulations is essential to enterprises’ operations and entire life-circle. Any irregularities detected by the competent authorities will be an irreversible record for the company.

If you have questions or concerns related to China administrative matters or other related matters, please contact Horizons at talktous@horizons-advisory.com to schedule a consultation session. From RMB 1,500 per session, Horizons can provide insight, expertise and the right solutions for you.