Improving China’s Licensing System: Recommendations for Key Sectors 2014

Executive Summary

• US-China Business Council (USCBC) member companies have regularly highlighted administrative licensing as a primary concern for the China market. In USCBC’s 2013 member company survey, members ranked administrative licensing as their third most significant concern.

• To help address these challenges, USCBC encourages China to commit to ensuring that foreign-invested and domestic firms are treated equally in all licensing processes throughout China. Ensuring equal treatment would guarantee US companies are able to fully participate and contribute to China’s economy, and would help strengthen China’s business environment and international competitiveness.

• There are an array of government approvals and licensing processes that qualify as “administrative licenses,” many of which are specific to particular industries. This report does not seek to document problems and specific recommendations for every licensing process that a given company will face. Instead, it builds on interviews with member companies – particularly those in the manufacturing sector – to discuss broadly the types of problems that companies face and recommendations that cut across licensing processes. USCBC will continue to raise and make recommendations separately on more specific licensing issues, including those in the services sector.

• To help address other areas of concern in China’s licensing process, USCBC has developed the following recommendations. USCBC recommends policymakers consider changes in four specific areas of the licensing process: information disclosure, expert panel reviews, approval timelines, and third-party recommendations.

• Documentation and information disclosure requirements for companies going through the licensing process can place companies' intellectual property - especially trade secrets - at risk of exposure. USCBC recommends that the government consult with companies to develop standardized documentation- disclosure requirements at all levels of government. Requirements should include procedures for the destruction of confidential and sensitive information that the company deems proprietary and has submitted in the licensing process.

• Expert panel reviews, such as those used in the environmental impact assessment review process, pose the risk of intellectual property loss for companies seeking to license products or invest in China. To create more security for companies going through the expert panel review process, USCBC recommends allowing greater input from applicants on experts nominated to the panel and instituting a formal process for applicants to dispute experts nominated to the panel from competing enterprises.

• Clear timelines that are consistently implemented help ensure transparency in any licensing process. Companies say that often, timelines are not followed in certain approval processes, creating significant delays in the process of investing in China. To improve transparency and predictability in government approvals, USCBC recommends that the government develop clear guidelines requiring agencies to provide more frequent and timely updates for applicants. If the agency misses a deadline, agencies should explain why the approval was delayed.

• Some companies have experienced strong pressure to use third-party consultants recommended by local government agencies in the licensing process. These recommendations raise ethical issues and compliance risks and can slow the licensing process. USCBC recommends that officials at all levels do not mandate the use of specific third-party entities in the licensing process.