First, the formulation of questions

On September 9, 2015, the State Council promulgated the Notice on Adjusting and Improving the Capital System for Fixed Asset Investment Projects (Guo Fa [2015] No. 51) (hereinafter referred to as "Guo Fa No. 51"), which stipulates that except for affordable housing and ordinary commercial housing projects, the minimum capital ratio of other real estate projects shall be adjusted to 25%.

On July 11, 2006, the Ministry of Construction of the People's Republic of China, the Ministry of Commerce of the People's Republic of China, the National Development and Reform Commission of the People's Republic of China, the People's Bank of China, the State Administration for Industry and Commerce of the People's Republic of China, and the State Administration of Foreign Exchange jointly issued the Opinions on Regulating the Access and Management of Foreign Investment in the Real Estate Market (Jianhu [2006] No. 171, hereinafter referred to as "Zhujian No. 171"), which stipulates: "If the registered capital of a foreign-invested real estate enterprise has not been paid in full, Those who have not obtained the State-owned Land Use Certificate, or whose capital of a development project does not reach 35% of the total investment of the project, shall not handle domestic or overseas loans, and the foreign exchange administration department shall not approve the settlement of foreign exchange loans by the enterprise. ”

So, how is the capital ratio of real estate projects developed by foreign-invested real estate enterprises applicable, and can the 25% stipulated in Guofa Document No. 51 be applied?

2. Legal analysis

The Regulations of the State Council on the Proportion of Project Capital were first promulgated in 1996 and have been changed several times, as follows:

(1) On August 23, 1996, the State Council promulgated the Notice of the State Council on the Trial Implementation of the Capital System for Fixed Asset Investment Projects (Guo Fa [1996] No. 35, hereinafter referred to as "Guo Fa No. 35"), which stipulates: "Foreign-invested projects (including wholly foreign-owned enterprises, Sino-foreign joint ventures and Sino-foreign cooperative projects) shall be implemented in accordance with the relevant laws and regulations in force... For transportation and coal projects, the capital ratio is 35% or more; Steel, post and telecommunications, fertilizer projects, capital ratio of 25% or more; For projects in electric power, mechanical and electrical, building materials, chemical industry, petroleum processing, nonferrous metals, light industry, textile, commerce and trade and other industries, the capital ratio is 20% or more. ”

(2) On April 26, 2004, the State Council promulgated the Notice of the State Council on Adjusting the Capital Ratio of Fixed Asset Investment Projects in Certain Industries (Guo Fa [2004] No. 13, hereinafter referred to as "Guo Fa No. 13"), which stipulates: "... The capital ratio of real estate development projects (excluding affordable housing projects) will be increased from 20% and above to 35% and above. ”

(3) On May 25, 2009, the State Council promulgated the Notice of the State Council on Adjusting the Capital Ratio of Fixed Asset Investment Projects (Guo Fa [2009] No. 27, hereinafter referred to as "Guo Fa No. 27"), which stipulates: "The minimum capital ratio for affordable housing and ordinary commercial housing projects is 20%, and the minimum capital ratio for other real estate development projects is 30%. ...... Foreign-invested projects shall be implemented in accordance with the relevant laws and regulations in force. ”

(4) On September 9, 2015, the State Council promulgated the Notice on Adjusting and Improving the Capital System for Fixed Asset Investment Projects ("Guo Fa Document No. 51"), which stipulates: "Real estate development projects: affordable housing and ordinary commercial housing projects remain unchanged at 20%, and other projects are adjusted from 30% to 25%... From the date of issuance of this Circular, all fixed asset investment projects that have not yet examined and approved feasibility study reports, approved project application reports, and gone through filing procedures, as well as fixed asset investment projects for which financial institutions have not yet lend, shall be implemented in accordance with this Circular. Fixed asset investment projects that have gone through relevant procedures but have not yet started construction shall be implemented with reference to this notice. ”

(5) On November 20, 2019, the State Council promulgated the Notice on Strengthening the Capital Management of Fixed Asset Investment Projects (Guo Fa (2019) No. 26), without adjusting the capital ratio of real estate development projects.

Regarding the special requirements for the capital ratio of foreign-invested real estate projects, the author's team found the following provisions:

(1) On July 11, 2006, Document No. 171 stipulates: "If the registered capital of a foreign-invested real estate enterprise has not been paid in full, if it has not obtained the State-owned Land Use Certificate, or if the capital of the development project does not reach 35% of the total investment of the project, it shall not handle domestic or overseas loans, and the foreign exchange administration department shall not approve the settlement of foreign exchange loans of the enterprise." ”

(2) On August 19, 2015, the Ministry of Housing and Urban-Rural Development, the Ministry of Commerce, the National Development and Reform Commission, the People's Bank of China, the State Administration for Industry and Commerce, and the State Administration of Foreign Exchange jointly issued the Notice on Adjusting the Relevant Policies for Foreign Investment Access and Management in the Real Estate Market (Jianfang (2015) No. 122, hereinafter referred to as "Jianfang No. 122"), which canceled the requirement that foreign-invested real estate enterprises must pay the registered capital in full for domestic loans, overseas loans, and foreign exchange loans, and stipulated: In addition to the above policy adjustments, the " The Opinions on Regulating the Access and Management of Foreign Investment in the Real Estate Market (Jianhu [2006] No. 171) remain in force.

The author's team noted that when Circular No. 171 was promulgated in 2006, according to the Circular of the State Council on Adjusting the Capital Ratio of Fixed Asset Investment Projects in Certain Industries (promulgated on April 26, 2004, the "Guo Fa Document No. 13"), the project capital ratio of real estate projects was 35% (35% for both domestic and foreign investment), and the provisions of Zhujian Document No. 171 were consistent with the requirements of the State Council, and the capital ratio of foreign-invested real estate projects was not particularly increased at that time.

The author team also noted that the State Council promulgated Guo Fa No. 27 in 2009 adjusted the capital ratio of the project, but specifically clarified that foreign-invested projects are still implemented in accordance with the current relevant laws and regulations, and when Guo Fa No. 51 adjusted the capital ratio of the project again in 2015, the relevant documents did not contain an exception clause for foreign-invested enterprises to be applied in accordance with the current provisions or other special provisions, but only stipulated that "from the date of issuance of this notice, where the feasibility study report, the approved project application report, Fixed asset investment projects that have gone through the filing procedures, as well as fixed asset investment projects for which financial institutions have not yet lend, shall be implemented in accordance with this circular", without distinguishing between domestic and foreign investment. The Notice on Strengthening the Capital Management of Fixed Asset Investment Projects (Guo Fa (2019) No. 26) issued in 2019 clearly stipulates: "Clarify the scope and nature of the capital system for investment projects. This system applies to enterprise investment projects and government-invested business projects in China." In terms of scope of application, it is unified as "enterprises registered in China", and does not distinguish between domestic and foreign investment. It also stipulates that "if laws, administrative regulations and the State Council have other provisions on the capital ratio of relevant investment projects, follow those provisions", we understand that if there are special capital ratio requirements, laws, administrative regulations and the State Council must make regulations, and the above-mentioned Document No. 171 and Jianfang No. 122 are not within the scope of "other provisions".

Combined with the following policy orientations and trends of the state's unified supervision of foreign-invested enterprises in recent years:

The Decision of the Central Committee of the Communist Party of China on Several Major Issues Concerning the Comprehensive Deepening of Reform (adopted at the Third Plenary Session of the 18th Central Committee of the Communist Party of China on November 12, 2013) stipulates: "Establish fair, open and transparent market rules. Implement a unified market access system, and on the basis of formulating the negative list, all types of market entities can enter fields outside the list on an equal footing in accordance with the law. Explore the management model of implementing pre-establishment national treatment plus negative list for foreign investment. ...... Ease investment access. Unify domestic and foreign investment laws and regulations, and maintain stable, transparent and predictable foreign investment policies. ”

The Notice of the State Council on Several Measures to Expand Opening Up and Actively Use Foreign Capital (Guo Fa [2017] No. 5) stipulates: "2. Further create a level playing field... (8) In formulating foreign investment policies, all departments shall conduct fair competition reviews in accordance with the Opinions of the State Council on Establishing a Fair Competition Review System in the Construction of the Market System (Guo Fa [2016] No. 34), and in principle, opinions should be publicly solicited, and important matters should be submitted to the State Council for approval. All regions and departments should strictly implement national policies and regulations, ensure the consistency of the implementation of policies and regulations, and must not increase restrictions on foreign-invested enterprises without authorization. (The people's governments of all provinces, autonomous regions and municipalities directly under the Central Government and the departments of the State Council shall be responsible according to their duties and division of labor)"

The Notice of the State Council on Several Measures to Promote the Growth of Foreign Investment (Guo Fa [2017] No. 39) stipulates: "1. Further reduce the restrictions on foreign investment access (1) Fully implement the pre-establishment national treatment plus negative list management system. ...... V. Optimizing the Business Environment (15) Pay close attention to improving the legal system for foreign investment. Accelerate the unification of laws and regulations on domestic and foreign investment, and formulate new basic laws on foreign investment. ”

The Special Administrative Measures for Foreign Investment Access (Negative List) (2018 edition, Order No. 18 of 2018 of the National Development and Reform Commission and the Ministry of Commerce issued by the National Development and Reform Commission and the Ministry of Commerce clearly stipulates: "Areas not included in the Negative List for Foreign Investment Access shall be managed in accordance with the principle of consistency between domestic and foreign investment. "We have checked the above-mentioned Negative List and found no real estate sector. In addition, after searching, we found that the reply of the Department of Foreign Investment of the Ministry of Commerce on the "Minimum Capital Ratio Requirements for Foreign-Invested Real Estate Projects" (response time: October 10, 2015) mentions: "The minimum capital of foreign-invested real estate projects is still implemented in accordance with Guofa [2015] No. 51. Embody the principle of consistency between domestic and foreign investment. ”

The Foreign Investment Law of the People's Republic of China, which came into effect on January 1, 2020, also stipulates: "The State implements a pre-establishment national treatment plus negative list management system for foreign investment", "The State shall give national treatment to foreign investment not included in the negative list", and "Foreign-invested enterprises shall equally apply the state's policies to support enterprise development in accordance with the law". It also fully reflects the principle of consistency between domestic and foreign investment outside the negative list.

In summary, the author's team understands that the capital ratio of real estate projects of foreign-invested enterprises can be implemented at 25% of the provisions of Guofa Document No. 51.

(This article is translated by software translator for reference only.)