Does a Supplementary Agreement of the FIE Contract Need Government’s Review and Approval?

2020/1/8

The investors signed a supplementary agreement of the FIE contract after the FIE contract has been approved or kept for the record by the government. Is the supplementary agreement legally valid without government approval or record?

Previously, the FIE contract could become valid as long as the contract gets approved by the commerce bureau. Therefore, a supplementary agreement with significant or substantial change to the FIE contract could become valid upon the commerce bureau's approval. Otherwise, this supplementary agreement could not become valid. 

But this was the past. Everybody knows that the Chinese government has made very big changes to the government's review and approval. As a result, currently the FIE contract doesn't need to be reviewed and approved by commerce bureau if the industry to be invested is encouraged or permitted by Chinese law and the total amount of investment is less than 100 million USD, but just needs to be kept for the record by the commerce bureau. Certainly, the supplementary agreement doesn't need to be reviewed and approved by the commerce bureau. It can become valid as long as it is in line with the laws. 

However, the AIC (Administration for Industry and Commerce) will still review the FIE contract and articles of association even though the commerce bureau doesn't review and approve the FIE contract and articles of association. If the AIC doesn't think the FIE contract or articles of association is ok, the AIC will demand the investor(s) to amend it. Therefore, the content of the FIE contract and articles of association must be verbally in line with the Chinese foreign investment laws.

Moreover, the contract approved or kept for the record by the government may not be valid.

The AIC only reviews whether the contract is in line with foreign investment law. This is just a kind of censorship on content, rather than a substantial review of the contract. As a result, the AIC’s censorship cannot find out whether the parties’ intention to the contract is true. However, whether the contract party’s intention is true will affect the effectiveness of the contract. Therefore, even if a contract for a foreign-invested enterprise is approved by the examining and approving authority, it may still be invalid.