Beijing has suspended issuing business licenses to new companies using a virtual address in their filing, according to several people familiar with the matter.

The new rule has come into force across several districts in the Chinese capital, including Chaoyang, Fengtai, and Haidian where the branch bureaus of the Administration for Industry and Commerce have stopped accepting business registration applications using addresses of spaces like a co-working office or incubator. No official announcement has been made.

China’s co-working market is booming under the authority’s vision for an innovation-driven economy. Zhang Peng, Chief Strategy Officer of co-working unicorn URWork, said in September that 3% of Beijing office space is now made up of co-working hubs. Foreign players also want a slice of the big pie; American unicorn WeWork is in full force with China expansion.

The crackdown on virtual addresses aims to clean up the “messy” co-working industry, insiders told local media. Lax regulation over shared spaces has led to discrepancies in a company’s registered address and working address. In addition, there are tax issues created by operating from a virtual address that need to be addressed.

Business registration has traditionally been a laborious process in China but co-working businesses have invented a fast track: By renting as little as a desk inside a co-working space, startups can get their business registered. Beijing’s new enforcement requires that companies provide a physical location for the filing with a corresponding property ownership certificate.

“A lot of startups join a co-working space on the condition that we can help them with business registration,” says an employee at a leading Chinese co-working space. “The new rule will have some impact on these startups, but won’t have a huge effect on our business in general. The number of small startups with such requests that end up joining us is limited. In addition, startups can get this type of [business registration] service from external agents.”

Telling the uncommon China stories through tech. I can be reached at ritacyliao [at] gmail [dot] com.

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