Promoting Regulation in Process and Afterwards and the Establishment of Social Credit System
(August 26, )
State Administration for Industry and Commerce
On July 23, an executive meeting of the State Council reviewed and passed the Provisional Regulations on Public Notice of Corporate Information (draft), which was officially issued recently and will come into force on October 1 this year. The enactment and implementation of the Provisional Regulations is an important part of the reform of industrial and commercial registration system, a legislative achievement of and basic institutional guarantee for the reform, and a basic step to implement “easy access and strict regulation” for market entities as required by the Reform Plan for Registered Capital Registration System of the State Council. While relaxing such access conditions as registered capital, the Provisional Regulations aims to apply public notice approach and credit constraint mechanism to further intensify enterprise’s responsibilities, expand social supervision, improve the government’s regulatory efficiency, and promote the establishment of social credit system.
I. Legislative background of Provisional Regulations on Public Notice of Corporate Information
According to the deployments made by the Reform Plan for Registered Capital Registration System of the State Council, industry and commerce administration bodies nationwide have energetically promoted the reform of industrial and commercial registration system since March 1 this year. Great efforts have been made to implement the registered capital subscription registration system, simplify the residence (premises) registration procedures, and promote electronic business license and whole-process electronic registration. These efforts have further stimulated people’s enthusiasm of business startup and resulted in a massive increase of market entities. In the reform of industrial and commercial registration system, the first step has been taken to implement the “easy access” for market entities by relaxing the access requirements, and has resulted in sound social effects. At the same time, “strict regulation” is indispensable for an orderly market environment and for ensuring the desired effects of the reform. The State Administration for Industry and Commerce (SAIC) has worked very hard to study the approach of “easy access” first and “strict regulation” later since the beginning of reform, in an attempt to apply the market mechanism to strengthen corporate regulation both in process and afterwards against the background of streamlining administration and delegating power. In November , the SAIC set up a work team to begin to draft the Provisional Regulations on Public Notice of Corporate Information.
The formulation and issuance of the Provisional Regulations is first and foremost required by the reform of industrial and commercial registration system, and is the legal basis to establish a series of credit management systems including the public notice of corporate information and the corporate annual report. Second, the formulation and issuance of the Provisional Regulations is necessary for “easy access and strict regulation”, and is a legal basis and procedural rule to put credit constraint on enterprises. Last, it is required by the establishment of credibility system, and is the institutional guarantee for “violation somewhere, restriction everywhere” and the driving force to establish social credibility.
II. Main contents and institutional design of Provisional Regulations on Public Notice of Corporate Information
i. Establishing the public notice system of corporate information. The center of the Provisional Regulations is establishing the public notice system of corporate information. It stipulates in great detail what corporate information is, who publicizes corporate information in what way, legal responsibilities for not publicizing corporate information, how to protect state and business secrets and personal privacy, how to establish the public notice system, and so on. It also specifies that as different entities of public notice, the industry and commerce administration, other administrative departments and enterprises assume different obligations of public notice. The information publicized by industry and commerce administration and other administrative departments refers to information formed during their performance of duty that reflects enterprise’s credit standing, such as administrative license or penalty, while the information publicized by enterprises includes annual report and real-time public information, which is formed during their producing and operating activities. Such information is the basis to evaluate and judge the enterprise’s credit standing. It is through the collection, public notice and use of the information that corporate credit is formed and accumulated, which will strengthen social supervision and credit constraint on the enterprises.
ii. Establishing the public notice system of corporate annual report. The Provisional Regulations proposes to establish the public notice system of corporate annual report. Enterprises shall submit their report of the previous year to the industry and commerce administration in the period from January 1 to June 30 every year, which shall be publicized through the public notice system of corporate credit information. The Provisional Regulations stipulates the way, content, procedure and other specific requirements regarding the submission and public notice of corporate annual report, and lays down corresponding constraint measures against enterprises that fail to submit the annual report as required or submit false reports. Main contents of the corporate annual report include the enterprise’s status of existence, outbound investment and other information. The industry and commerce administration will replace the prior review of the annual report with spot check afterwards. Unlike the previous annual inspection system, under the public notice system of corporate annual report, enterprises are not responsible for administrative bodies any more, but are responsible for the society. It is an important measure to relax the government’s direct interference in enterprises and facilitate industrial and commercial registration.
iii. Establishing the spot check system and the complaint and reporting system of information publicized by enterprises. The Provisional Regulations stipulates that the industry and commerce administration shall select randomly a certain proportion of enterprises and supervise and inspect the information they publicize through the public notice system of corporate credit information. A fair and standard spot check system well reflects the government’s transformation of regulating approaches and is an important step to improve the credit regulation mechanism and establish regulation in process and afterwards. This system will not only help supervise the enterprises to perform their obligation of public notice according to law, but can also ensure fair and equitable inspection and avoid random inspection. To compensate for the shortcoming of the spot check system in insufficient coverage and give full play to social supervision in corporate regulation, the Provisional Regulations puts in place a complaint and reporting system regarding the publicized information. With this system, the general public, if they find false information publicized by enterprises, can report to the industry and commerce administration, which shall investigate and deal with the situation within a certain period and notify the informer in writing of the handling result.
iv. Establishing the credit constraint mechanism. To reduce the direct interference in enterprises, the Provisional Regulations doesn’t directly stipulate administrative penalty, but relies on the public notice of corporate information to set up a credit constraint mechanism and intensify the restraint of corporate behaviors with market mechanism. First, a list of abnormal operation shall be formed. Enterprises that don’t perform their obligation of public notice as required or whose publicized information conceals or falsifies the truth shall be put in the list of abnormal operation, and publicized through the public notice system of corporate credit information. Second, a list of enterprises that seriously violate the law shall be formed. Enterprises that haven’t performed their obligation of public notice after being put in the abnormal operation list for three full years shall be put in the list of serious law violators and publicized to the general public. The legal representative or responsible person of such enterprises shall not serve as legal representative or responsible person of other enterprises within three years. Third, an interdepartmental coordination and response system shall be formed. The Provisional Regulations stipulates that the industry and commerce administration shall publicize corporate information through the public notice system of corporate credit information, while other government departments shall either use this system or other systems to publicize such information, but corporate information publicized through other systems shall be shared among all departments. The Provisional Regulations demands the departments to build an interdepartmental coordination and response mechanism, and take corporate information as a key consideration in government procurement, project tendering and bidding, transfer of state-owned land, and grant of honors. Enterprises that are in the list of abnormal operation or the list of serious law violators shall be restricted or denied access according to law, so as to make sure that “violation somewhere leads to restriction everywhere” and give full play to the role of big data in corporate regulation and credit constraint.
v. Establishing the corporate credit restoration mechanism. After corporate information is publicized, it will become public knowledge and exert major influence on the market evaluation of corporate credit standing. To fully protect enterprise’s legal rights and interests, the Provisional Regulations offers a mechanism for enterprises to restore their credit. First, enterprises can correct the information they publicize. Second, enterprises that are in the abnormal operation list can apply to be removed from the list. The Provisional Regulations stipulates that if the reason that puts the enterprise in the abnormal operation list disappears within three years from the day of listing, the enterprise can apply to be recorded as in normal operation again. Third, enterprises that are in the list of serious law violators can be removed from the list if they meet certain conditions. If enterprises haven’t violated any law or rule for five full years from the day they are put in this list, the industry and commerce administration will remove them from the list of serious law violators.
vi. Establishing the national public notice system of corporate credit information. The Provisional Regulations stipulates to establish the public notice system of corporate credit information and specifies the responsibilities of the industry and commerce administration and other relevant departments of the State Council, provincial governments, and governments above the county level. The public notice system of corporate credit information is the basic guarantee to realize public notice of corporate information and a fundamental instrument to strengthen social credit supervision. It is also an important means to highlight the use of credit constraint mechanism and innovate ways of government regulation in the age of informatization and big data, and an inevitable step to reform the market regulation system and improve the modern market system at a faster pace. The establishment and improvement of the public notice system of corporate credit information achieves a series of credit regulation goals including public notice of corporate information, spot check of information, credit constraint and interdepartmental response.
III. Significance of the enactment and implementation of Provisional Regulations on Public Notice of Corporate Information
i. It is good for further reinforcing enterprise’s responsibility as market entities and urging them to act in good faith and with self-discipline. As the central concept of the Provisional Regulations, public notice of corporate information resumes the most fundamental function of industrial and commercial registration, makes corporate behaviors more transparent, and incorporates industry’s self-governance and social supervision into corporate regulation on the basis of the former government regulation. As corporate behaviors are publicized to become public knowledge and subject to supervision, enterprises must observe the law and operate in good faith in order to be recognized in the market, which reinforces their responsibility as market entities and creates an environment featuring self-discipline, credit and compliance with the law.
ii. It is good for further straightening out the government-market relation and promoting the transformation of government functions. The 3rd plenary session of the 18th Central Committee of the Communist Party of China (CPC) puts forth to make the market play a decisive role in resource distribution and bring the government’s role into better play, which is also the basic principle of the Provisional Regulations. Proposing to replace the traditional administrative regulation with credit regulation and regulate corporate behaviors with market mechanism, the Provisional Regulations changes the former situation that administrative bodies take on everything in market regulation. As a result, the government no longer interferes in things that should be independently decided by enterprises based on the market. Instead, it provides various corporate information for the market to decide whether to increase or decrease resources in which enterprise. This not only ensures the regulatory effects, but also stimulates the vitality and enthusiasm of all parties in the market and advances the transformation of government function.
iii. It is good for further improving the social credit system and expanding corporate credit constraint. The Provisional Regulations emphasizes the role of credit constraint. Fully mobilizing the forces from all sides to participate in credit constraint can help enterprises form credit awareness on the one hand, and guide the society to form credit awareness on the other. With the implementation of the Provisional Regulations and the operation of the public notice system of corporate credit information, enterprises and all walks of life will take a bigger part in public notice, which will give a strong impetus to forming the credit awareness in the society and establishing social credit.
iv. It is good for further promoting the application of the Internet, big data, cloud computing and other modern information technologies and improving the efficiency of government regulation. The Provisional Regulations proposes to concentrate various corporate information under the name of the corresponding enterprise through the public notice platform of corporate credit information and share such information among all departments, so that industrial organizations, the public and government departments can all supervise and restrain the enterprises. The centralization of various types of corporate information will lead to a large amount of basic data, which can be used to identify prominent problems in relevant fields and enterprises, thus making regulation more targeted and effective. The enactment and implementation of the Provisional Regulations introduce the Internet and big data into corporate regulation, which will considerably improve the efficiency of government regulation.
IV. Provisional Regulations shall be carefully implemented and regulation in process and afterwards shall be intensified
To implement the Provisional Regulations, the SAIC also formulated five other regulations and regulatory documents to intensify corporate regulation in process and afterwards with the focus on public notice and credit constraint. They are the Provisional Measures for Management of the List of Abnormal Operation, Provisional Measures for Spot Check of Information Publicized by Enterprises, Provisional Measures for the Annual Report of Private Business Owners, Provisional Measures for Public Notice of Annual Report of Farmer’s Cooperatives, and Provisional Regulations on Public Notice of Administrative Penalty by Industry and Commerce Administration. Meanwhile, the SAIC is working hard to build and improve the national public notice system of corporate credit information, based on which it will publicize credit information and provide transparent and open corporate information to the society, so as to intensify corporate regulation and credit constraint. Besides, the work on the annual report this year is proceeding steadily, and public notice of the annual report will be launched nationwide after the Provisional Regulations takes effect on October 1.
