Author Archives: China Briefing

Xi’s Visit to Sri Lanka Heralds a Coming Free Trade Agreement

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SHANGHAI – An MoU on the development of a free trade agreement (FTA) and 20 other bilateral deals were all in two-days’ work for Chinese President Xi Jinping this week during the Sri Lankan leg of his South Asian tour.

The FTA, projected to cover trade in goods and services, investment, and economic and technological cooperation, comes after a feasibility study was jointly completed by the two nations earlier this year, to positive results.

Meanwhile, the crown among the infrastructure deals was China’s commitment of US$1.4 billion for construction in the port city of Hambantota, home constituency of Sri Lanka’s Economic Minister, Basil Rajapaksa. Continue reading…

Optimizing Employee Take-home Pay in China through Annual Bonuses (Part 2)

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By Zhou Qian and Rainy Yao

SHANGHAI — According to a survey conducted by China Youth, 36.2 percent of employees considered their annual bonus to be a major factor in whether or not they will change jobs in the next year. When determining bonuses, it is critical that employers pay close attention to the calculation of individual income tax (IIT), as this can considerably diminish employee take-home pay.  In this second part of a two-part article, we discuss how to calculate IIT for foreign employees, as well as provide tax planning advice for employers.

IIT on the annual bonuses of foreign employees should be calculated based on their residency status in China, as explained below. Continue reading…

Logistics in the Shanghai Free Trade Zone

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By Matthew Zito and Maria Kotova

The benefits of the Shanghai Free Trade Zone (FTZ) for the logistics industry have the potential to affect all businesses that rely on moving goods to or from China. In terms of numbers, prior to their incorporation as the Shanghai FTZ, the city’s four designated bonded areas were home to over 11,000 trade and logistics-related enterprises, based on CBRE figures. While the FTZ is often touted as a centerpiece in the transformation of Shanghai into a regional financial center, its promotion of the city as a logistic hub is equally if not more significant.

With its amalgamation of four bonded zones—the Waigaoqiao Free Trade Zone, Waigaoqiao Free Trade Logistics Park, Yangshan Free Trade Port Area and Pudong Airport Comprehensive Free Trade Zone—the FTZ has been shaking the traditional concentration of logistics operations in the city’s Hongkou District, where more than 3,500 companies in related industries contribute roughly 28 percent of the district’s GDP.

According to CBRE, high-quality warehousing space in the FTZ totaled 780,000 m2 in October 2013, and this figure is expected to rise to 210,000 m2 by 2015 with the completion of several high-profile projects. As of 2013 Q3, there remained a strong discrepancy in vacancy rates between logistic properties in Puxi (1.4 percent) and Pudong (22.4 percent), Shanghai’s old and new urban districts, respectively.

The FTZ’s original Framework Plan introduced the following policies in direct connection with the logistics industry:

  • Relaxation of limitations on the share of foreign ownership in shipping enterprises, under which wholly foreign-owned vessel management may be established in the Shanghai FTZ.
  • Relaxation of restrictions on cargo relay via Shanghai Port by foreign ships owned or indirectly owned by Chinese-invested enterprises.
  • Relaxation of limitations on the share of foreign ownership in ship management enterprises, under which wholly foreign-owned enterprises may be established in the Shanghai FTZ.
  • Establishment of an international ship registration system, under which a controlling share of foreign investment is permitted for the registering entity. Additionally, the registration system newly relaxes “age of vessel” standards and institutes a filing rather than approval system for foreign crew members. Lastly, the system introduces a dual port of registry system based on the duty status of ships and expands the registry categories to include the financial leasing of vessels.

RELATED: Logistics, Warehousing and Transportation in China (Part 1 and 2)

More recently, the Revised Negative List introduced further liberalizations to the industry:

Transportation, warehousing, and postal services

Ship Transport

In terms of ship transportation, Shanghai retains a wide margin in its title as the world’s busiest port in terms of cargo volume (seven of the ten busiest are located in China). In 2013, container throughput at Yangshan Port rose 3.3 percent to a record 33.6 million TEUs, having previously surpassed Waigaoqiao Port in late 2012. As an indication of the potential for further growth in the industry, only 5.5 of cargo was classified as international transshipment, compared with over half of shipments in Hong Kong. With the simplified Customs procedures adopted in the FTZ, this imbalance is likely to correct itself over the coming years.

One of four bonded zones comprising the FTZ, Yangshan Free Trade Port Area offers state-of-the art facilities and exemptions on import tariffs as long as goods remain within the zone. The port features 16 modernized berths with a total quay length of 5.6 kilometers and is joined to the mainland by the 32.5 km Donghai Bridge. Expansion of the port to a total area of 14.16 m2 is to be completed by December 31, 2015, adding seven additional 50,000 to 70,000-ton berths. All companies registered before this date engaged in domestic carriage, warehousing, or loading and unloading services can obtain an immediate refund of the levied taxes.

While Waigaoqiao Port remains a crucial part of the broader logistics framework of Shanghai and China, there is indication that the area has reached its saturation point, with warehouse rents significantly higher than Yangshan and little room for future construction. However, the savings on logistics costs offered by Waigaoqiao’s centralized location and its one-stop shop for international freight forwarders to arrange and organize shipments will ensure that it remains a competitive alternative to Yangshan well into the future.

Air Transshipment

Air Cargo into the FTZ flows through the Pudong Airport Comprehensive Free Trade Zone, where giants such as China Cargo Airlines, Lufthansa Cargo and UPS have all established operations. DHL was selected as the first company to set up international transshipment operations in the Pudong Airport Comprehensive FTZ (part of the larger Shanghai Free Trade Zone), including a new international transit air route linking Leipzig to Tokyo.

This entails 24-hour processing of overseas cargo (receiving, sorting, and dispatching), in cooperation of Shanghai Airport Customs and Shanghai International Airport Entry-Exit Inspection & Quarantine Bureau. Similar to elsewhere in the FTZ, air shipments through Pudong Airport are unimpeded by customs procedures or import duties. With international transshipments surging as a result, companies like DHL plan to add more routes in the coming years to keep up with demand.

Customs

The FTZ offers several Customs policies to benefit logistics operations in the Zone. Companies are afforded the option of delivering overseas shipments to the Zone using just a shipping bill, rather than a formal customs declaration. As of March of this year, Shanghai Customs has offered a paperless declaration system in the FTZ, allowing companies to submit electronic documentation rather than apply in person.

Enterprises importing goods into the Zone may decide on the timing of the declaration and inspection process—reduced from three days to one day (or even a half day)—before goods are transferred outside the Zone. Conversely, the FTZ allows for exemptions on export goods to be obtained faster when goods are delivered to bonded warehouses within the zone.

Whereas previously, China Inspection and Quarantine (CIQ) monitored cargo from multiple angles, in the FTZ only the status of the cargo (bonded or not bonded) is monitored, and goods with different status can be placed together in one warehouse. The requirement to move goods outside of the zone within six months of entry, as applying to other bonded areas in China, has been abolished in the FTZ.

Lastly, in April of this year, the General Administration of Customs launched a “single window” pilot project at Yangshan Port integrating functions which outside the zone are separately executed by CIQ, Border Control, and Customs.

CB_2014_09_cover_90x125This article is an excerpt from the September 2014 edition of China Briefing Magazine, titled “Revisting the Shanghai Free Trade Zone: A Year of Reforms.” In this issue, we revisit the Shanghai FTZ and its preferential environment for foreign investment. In the first three articles, we highlight the many changes that have been introduced in the Zone’s first year of operations, including the 2014 Revised Negative List, as well as new measures relating to alternative dispute resolution, cash pooling, and logistics. Lastly, we include a case study of a foreign company successfully utilizing the Shanghai FTZ to access the Outbound Tourism Industry.

Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira 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 China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email china@dezshira.com or visit www.dezshira.com.

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Moving Shop: Changing the Registered Address of a Business in China (Part 1)

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China OfficeBy Maria Kotova and Matthew Zito

Success in China means being able to adapt. Foreign-invested enterprises (FIEs) that thrive in the world’s second largest economy are those that can stay abreast of China’s ever changing tax and regulatory environment, especially in terms of locating the most favorable areas for company operations. For the savvy business owner, this can even mean relocating to a new premises to secure long-term gains.

However, as a company’s business address is a part of its core registered information (along with its business scope, registered capital and company name), any change to this information is a complex process, comparable to newly registering a company. In Part 1 of this two-part article, we provide a list of the do’s and don’ts of changing your business address, based on Dezan Shira & Associates’ over twenty years of experience in facilitating foreign investment into China. Continue reading…

China Regulatory Brief: Carbon Trading in Shenzhen and New Measures for Outbound Investment

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Foreign Investors Allowed to Trade Carbon Permits in Shenzhen

The Shenzhen State Administration of Foreign Exchange (SAFE) recently announced that foreign investors will be allowed to trade carbon permits in Shenzhen, the nation’s first carbon trading platform open to foreign investors. In 2013, in a bid to curb emissions of key pollutants and clean up the environment, the National Development and Reform Commission (NDRC) launched a pilot carbon emission trading scheme in seven cities including Shenzhen, Shanghai, Beijing, Tianjin, Chongqing, Hubei and Guangdong. China also plans, within the next three years, to launch a nationwide pollution permit trading scheme to boost industrial restructuring. Continue reading…

The Balanced Flavors of Success in China’s Food & Beverage Industry

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Internet-start_food_300x230pixBy Mary Field

After another food safety scandal rocked American fast-food giant McDonalds in July, the company announced that it will be stepping up the number of audits it performs on its Chinese suppliers. Today, foreign brands are increasingly wary of approaching China’s volatile yet hugely lucrative market, even as Chinese consumers remain hungry for the perceived quality, and more importantly, safety, of imported goods.

This is reflected in the sheer number of international food companies in the country, for whose products Chinese consumers are willing to pay a premium. Getting foreign food and beverages onto the tables of Chinese consumers requires an understanding of China’s import regulations, corporate establishment procedure and viable marketing strategies. Continue reading…

Bilateral Investment Treaties: What They Are and Why They Matter

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The United States and China—the world’s two largest economies—agreed at the 2013 Strategic and Economic Dialogue to restart negotiations on a bilateral investment treaty (BIT). But what are bilateral investment treaties (BIT)? Why do we need them? Who benefits from them? And how will the United States benefit from a BIT with China? Here’s what you need to know.

What is a BIT?

A BIT is an agreement between two countries that sets up “rules of the road” for foreign investment in each other’s countries. BITs give US investors better access to foreign markets—and on fairer terms. The United States currently has BITs with 42 countries.

Continue reading…

Scotland’s Lack of Foreign Investment Infrastructure With China

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Op-Ed Commentary: Chris Devonshire-Ellis

As September 18th, the date on which Scotland will undergo a referendum on whether to remain part of the United Kingdom, draws ever closer, debate has been raging throughout the UK as to the economic viability of such a split. However, research conducted by Dezan Shira & Associates on foreign investment between Scotland and China has revealed a paucity of related statistics, suggesting that the country is not mature enough in its institutions to go it alone when looking to attract FDI. The northern country has little available data on investments with China, one of the largest recipients of FDI in the world.

Searches conducted online revealed no immediate data made publicly available on the extent of Scottish investment into China, and little on Chinese investment into Scotland. While it is likely that these figures are collated and recorded as part of the overall data pool for the United Kingdom, Scottish institutions themselves appear to have been remarkably lax in seeking to attract FDI from what has become the world’s second largest economy. Continue reading…

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