Nov. 5 – The Development Research Center (DRC) of China’s State Council, which is known as the official think tank of China, recently released the “383 Scheme” for the Third Plenary Session of the 18th Central Committee of the Communist Party of China (hereinafter referred to the “Third Plenum”). The Third Plenary Session of each round of Communist Party’s Central Committee usually determines the economic theme in the next few years. The Third Plenum will be held on November 9th to November 12th in Beijing.
The so-called “383 Scheme” is a proposed roadmap for the next round of China’s reform after the Third Plenum and is widely expected to serve as a blueprint for the final document of the meeting. It refers to “a three-in-one reform principle in eight key reform areas, with three correlated reform combinations,” which puts an emphasis on an economic structure ruled by the law.
The “three-in-one principle” means reforms will be conducted to propel a better market system, transform government functions, and inspire an innovative business system. The Scheme stipulates that the key to enforce the “three-in-one principle” is to correctly handle the relationship between the government and the market, which implies that there will be less government intervention in the market, and more power to the “invisible hand.”
The principle should be implemented in eight areas as proposed by the Scheme. We’ve selected some key points as follows:
- Administrative approvals will be substantially decreased to increase efficiency and government transparency
- Macro-economic measures such as monetary and fiscal policies will be used to adjust the market instead of direct government intervention
- Breaking up monopolies and promoting competition, especially in the railway industry, petroleum products industry, electricity industry, and telecom and broadcasting industry
- Build a land market with equal entry and fair trade
- Lower entry barriers to financial markets to form a diversified competitive financial system
- Propel interest rate liberalization and RMB internationalization
Tax and fiscal system
- Establish a “basic social security package” for all citizens to equalize social security nationwide and improve regional mobility of social insurance accounts
- Eventually the social security system will replace the current hukou system
- Gradually expand the pilot collection of property tax, and improve the real estate registration system
- Switch consumption tax and vehicle tax from a state tax to local tax
State-owned assets administration system
- Redefine the functions of state-owned enterprise into four categories:
- Social security;
- Non-profit public service;
- Industry stabilizing/competing/innovating; and
- National security.
- Creating a market environment with less government intervention and more market regulation and toleration in a new technology and business mode
Openness to outside world (especially in service sector)
- Open energy, telecom, and financial industries to competitive foreign investors
- Use “negative list” in industry access and unify laws that regulate domestic investments and foreign investments in China to build a fair and competitive market environment
- Lessen upfront examination and approval procedures for foreign investment
- Improve the export tax refund system, implement structural decreases in tariffs, and escalate the establishment of free trade zones (i.e. most recently, the China-Japan-Korea FTA)
In addition, the Scheme proposed three cut-in points to the eight areas described as follows:
- Loosen access to the Chinese market and introduce foreign investors to add competition
- Deepen the reform of the social security system and establish “basic social security packages for citizens”
- Deepen the reform in the land system and allow collectively-owned land to be listed in the market
The proposed schedule for the reform is divided into three periods: from 2013 to 2014, 2015 to 2017, and finalize from 2018 to 2020.
Although lots of public attention has been drawn to this comprehensive reform package, the content of the Scheme need to be discussed by the Third Plenum, and technically it is unclear how much of the content will be accepted.
Dezan Shira & Associates is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia. Since its establishment in 1992, the firm has grown into one of Asia’s most versatile full-service consultancies with operational offices across China, Hong Kong, India, Singapore and Vietnam as well as liaison offices in Italy and the United States.
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