China Sets Stricter Capital Rules for New Companies Amid Slumping Economic Confidence

Companies rush to reduce registered capital ahead of new rule. The law adds to a host of factors that are driving negative economic sentiment in China.

An investor looks at an electronic stock index display at a securities company in Shanghai, on June 8, 2005. China Photos/Getty Images

The Chinese Communist Party (CCP) has rolled out changes to the country’s Company Law, tightening the capital rules for new firms. The new law, which imposes a five-year deadline for payment of registered capital, has triggered a surge of capital reductions across the country.

Registered capital is the initial investment committed to a company by its shareholders. In China, this amount must be registered with the State Administration of Market Regulation (SAMR) at the time of incorporation. The amount is included in the company’s business license, its articles of association, and the investment certificate issued to its shareholders.