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

Executive Summary

  • The US-China Business Council (USCBC)’s annual membership surveys cite administrative licensing as a top challenge for conducting business in China, consistently ranking among the top 10 priority issues over the past decade.
  • To address these challenges, China should ensure that foreign-invested and domestic firms are treated equally in all licensing processes throughout China. 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.
  • An array of government approvals and licensing processes qualify as “administrative licenses,” many of which are specific to particular industries. These recommendations build on the findings of USCBC’s April 2016 Licensing Challenges and Best Practices report.
    • 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 during 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 expert panel nominations and instituting a formal process to dispute nominations of experts from competing enterprises.
    • Clear, consistently implemented timelines help ensure transparency in any licensing process. Companies say that timelines often are not followed in certain approval processes, which creates significant delays in the process of investing in China. To improve transparency and predictability in approvals, USCBC recommends that the government develop clear guidelines requiring agencies to provide more frequent and timely updates to applicants. If the agency misses a deadline, agencies should explain why the approval was delayed.
    • China should ensure that governments at all levels do not mandate use of specific third-party entities in the licensing process. In instances where the use of a third-party service provider is required, companies should be able to choose their own service providers, including foreign companies licensed to undertake that work.
  • Finally, implementation of a nationwide market access negative list would clarify which sectors are open to foreign investment and ensure consistent enforcement by local and provincial governments.