State Council Issues Decision To Abolish or Revise Certain Administrative Licenses

December 19, 2012

In October 2012, the State Council issued its decision on abolishing or revising a batch of administrative licenses, or examinations and approvals. The decision, which covers a total of 314 items, is the sixth batch of cuts to administrative examinations and approvals since the government initiated the reform of the administrative approval system in 2001. According to the Chinese press, the reform's goal is to improve the environment for social and economic development and to curb corruption. Foreign investors increasingly have problems obtaining the administrative licenses they need to do business in China.

On October 10, 2012, the State Council issued its Decision on the Sixth Round of Items for Which Administrative Examination and Approval Will Be Abolished or Adjusted (2012 Decision). The 2012 Decision lists 171 administrative approvals that will no longer be required and 143 that will be adjusted. Of these 143, 117 will be devolved to a lower level government department (e.g., moved from the central level to the provincial level), the number of government departments required for an approval will be decreased for 9 items, and the approvals for 17 items will be combined with other approvals. The 2012 Decision also lists the original legal basis for such approvals, and the relevant implementing department. According to an October 11, 2012, article in People's Daily, this batch of cuts and adjustments focuses on investments, social enterprises, and non-administrative department licenses.

The deleted items cover approvals in a broad range of areas, such as the qualification for a registered consulting engineer (item 1), approvals for foreigners to hunt in certain areas (item 92), various forestry-related approvals (see, e.g., items 86 and 87), and approvals related to finance (see, e.g., items 97 to 120) and aviation (see, e.g., items 138 to 146). As to the items for which approvals will be devolved to lower levels of government, a number relate to foreign investment in service industries such as road transport (item 30) and auction companies (item 40). In these two examples, the approval authority will be moved from the central to the provincial level. Others devolved items relating to approvals in a range of areas such as family planning services (item 50), various types of standards (see, e.g., items 57 to 63), and fireworks wholesaling (item 75).

The People's Daily article notes that the government began to reform the administrative licensing and approval system in October 2001. According to a Xinhua report of August 22, 2012, "a total of 2,497 administrative approval items, including those in the sixth round, have been rescinded or adjusted in the past 10 years, accounting for 69.3 percent of the total." The report notes that the goal is to improve the environment for social and economic development and curb corruption. During this 10-year reform period, on July 1, 2004, the Administrative Licensing Law came into effect. The law was intended to limit the creation and implementation of administrative licensing (Article 1), and lists six areas where licenses may be required (Article 12). Also on July 1, 2004, the State Council Decision Establishing Administrative Examination and Approval Matters That Must Remain Subject to Administrative Licensing (Order 412) came into effect, listing 500 items for which approvals would be required. The 2012 Decision removes or adjusts over 100 of these listed items.

Administrative licensing has posed a problem for foreign investors in China. In the 2012 Business Climate Survey conducted by the American Chamber of Commerce in China, 37 percent of respondents said that licensing procedures were becoming more difficult. Respondents noted that licensing slowed their expansion and investment in China, put them at a competitive disadvantage vis-a-vis their domestic Chinese competitors, slowed their hiring in China, limited their ability to export products from the United States to China, and limited profits. The US-China Business Council's 2012 China Business Environment Survey Results raised similar concerns, noting that "a potentially straightforward procedure, such as getting a business license, which ranked second in the list of challenges US companies [in China] face, can be a tool of government policy—in appearance or in fact—to restrict foreign entrants." Respondents reported administrative licensing as the second most significant challenge they faced doing business in China and the top area in which they experience Chinese protectionism.

As the US-China Business Council's survey report notes, "Licenses or approvals are required for each aspect of doing business in China, governing everything from the specific products or services the company can provide, to the testing and approval of the product itself, to reviews of business transactions, including both greenfield investments and mergers and acquisitions." (p 8) While administrative licensing poses problems for foreign companies operating in China, in a China Law & Practice article published in June 2004, attorney Lester Ross notes that "those most affected have been Chinese citizens lacking sufficient guanxi." While the reforms under the 2012 Decision are a step in the right direction, considerable work remains to be done.

For a Commission analysis of an early case brought under the Administrative Licensing Law, see "Farmers Claim Administrative License for Power Plant Was Issued Illegally."