Requirements Cut for Business Startups

China has removed the minimum capital requirements for registering a new company, among other reforms aimed at lowering the threshold for business startups and stimulating the private economy.

The minimum registered capital requirement of 30,000 yuan (US$4,900) to start a limited liability company will be removed, as will the 100,000 yuan requirement for an individual company and the 5 million yuan requirement for an incorporated company.

There will also be no more limitations on the proportion and duration of the paid-in capital, and it will be no longer a matter of business registration. Instead, the amount and duration of registered capital will depend on the founder of the company.

The reforms were announced at an executive meeting of the State Council led by Premier Li Keqiang on Friday.

"By widening the market access and establishing a transparent and efficient modern company registration system, we aim to further streamline government administration, create fair competition and support smaller businesses, especially innovative enterprises," Li said.

The measures will help expand private investment, strengthen the foundation for the economic recovery, as well as create more job opportunities, Li said.

The latest reforms also involve replacing the annual inspection of companies with a reporting system that can be viewed online to increase the transparency of business operations. Requirements for company registration address will also be simplified.

In the meantime, Li called for advancing the building of an integrity system: Enterprises with deceptive practices will be put on a "blacklist" that will be publicly available.

Ju Jinwen, an expert on private economy at the Chinese Academy of Social Sciences, hailed the reform measures as "long-awaited breakthroughs" in company registration.

He said the minimum requirement of registered capital was meant to protect the interest of creditors, but it performed little function as in many cases the registered capital was actually borrowed.

"The reform solves the issue by lowering the threshold but strengthening midlevel supervision. It is in line with many other market-oriented reforms pushed forward by the new leaders," he said.

"Its ultimate goal is to inspire entrepreneurship among private investors," Ju said.

From 2006 to 2012, the proportion of private investment as a percentage of total volume in China has increased from 49.8 percent to 61.4 percent.

"The changes made by the State Council in the registration system of enterprises is likely to attract more small and micro-sized enterprises with quite low registered capital, and will contribute to the recovering economy," said Zhang Beilei, the general manager of Wenzhou Gaotian Shoe Co, which exported nearly 50 percent of its products to regular clients in Japan.

Zhang added that the reform was expected to create fair competition, which would encourage private enterprises to manufacture higher quality products with more innovative technology.

"The lower requirement for enterprises’ registered capital will definitely allow more individuals to launch their companies with less money through a more convenient procedure," said Zheng Da, the owner of Yuyao Chezhiku automotive supplies in Zhejiang province

A micro-sized enterprise launched in 2011, Zheng’s factory has about 20 workers and monthly sales revenue of more than 200,000 yuan.

Zheng added that more measures would hopefully be issued to help existing private enterprises with tax deductions and lower labor costs.