21 February 2020
China aims to make it easier for entrepreneurs to set up small businesses. Photo: Reuters
China aims to make it easier for entrepreneurs to set up small businesses. Photo: Reuters

POLICY WATCH: Helping more start-ups get off the ground

As the Communist Party’s Central Committee prepares to hold a key policy meeting in November, China’s cabinet has unveiled a corporate registration system reform that aims to ease market access for smaller firms and stimulate private investment.

The move by the State Council late last month reflects its commitment for administrative reform, as well as the goal to foster a market environment of fairness and competition, mobilizing social capital, and encouraging small and micro enterprises to grow and boost employment.

Under the new policy, requirements for the minimum registered capital for limited liability companies, one-person limited liability companies, as well as joint-stock companies with limited liability, will be scrapped. Also, there will be easier rules on the registration of locations for business operations, according to a statement posted on the government website on Oct. 27.

The initiative comes as entrepreneurs in China have often complained about the high cost of starting a new business in the country. Currently, the registered capital for a limited liability company is 30,000 yuan (US$4,930), while that for one-person limited liability companies is 100,000 yuan and that for joint-stock companies with limited liability is 5 million yuan.

The minimum requirement of registered capital was initiated to protect the interest of creditors, but it served little purpose as in many cases the registered capital was actually borrowed.

The new measures solve the issue by lowering the threshold but strengthening mid-level supervision. The ultimate goal is to inspire entrepreneurship among private investors.

As the government regulations are eased, it should help in boosting economic activities through private investment to support the growth of new technologies and new industry. Such changes represent an innovative route for the government to monitor the market without too much intervention, as well as create more new jobs for the employment market.

By the end of September, there were 58.72 million registered business entities across the nation. The new policy is expected to spur the creation of more firms and rationalize the industry structure, while unleashing the potential of small and medium-sized enterprises, providing momentum for the economy.

To improve transparency and strengthen the business environment, the latest reforms also involve replacing the annual inspection of companies with a reporting system that can be viewed online. Requirements for company registration address will also be simplified.

In addition, authorities gave a call to speed up the establishment of a so-called integrity system and mechanism. Enterprises with deceptive practices will be put on a “blacklist” that will be publicly available.

Market watchers believe the reform could lead to more fair competition, which would encourage private enterprises to manufacture higher quality products with more innovative technology.

The lower registered capital requirement will definitely allow more individuals to launch their own firms with less money through a more convenient procedure.

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EJ Insight writer