Fading Registered Capital Rules under the Amended Chinese Company Law : Sweeping Changes in Uncertain Contexts

Unlike corporate laws in common law jurisdictions, China's Company Law does not use the concept of shares. Instead, shareholders must contribute registered capital to the company as a capital contribution. For foreign-invested enterprises, the term registered capital must be used together with the concept of total investment while for domestic companies registered capital is paid-in capital. The rigidity of the registered capital rule increases transaction costs and discourages investment. In order to promote entrepreneurship and encourage investment and thereby increase total social welfare, China's legislature recently overhauled the corporate finance rule by amending the Company Law. While the latest amendments to the Company Law have been welcomed by the business and legal communities, it is unclear how the parallel regimes governing domestic companies and foreign-invested enterprises converge in terms of corporate finance rules. It is also uncertain how China will change the rules governing incorporation to reflect the amendments to the registered capital rule