Sketching Opportunities in China’s Cartoon and Animation Industry

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By Rainy Yao

AnimationOn August 1, several Chinese authorities, including the Ministry of Finance (MOF), the General Administration of Customs (GAC), and the State Administration of Taxation (SAT), released a new round of tax incentives targeting certified animation enterprises. This is the latest move made by the Chinese government to boost the development of China’s domestic animation industry.

China’s animation industry has seen dramatic growth over the past few years thanks to increasing government support. The total output value of China’s cartoon and animation industry increased from RMB 62.17 billion (US$9.8 billion) in 2011 to more than RMB 100 billion (US$15.7 billion) in 2014, displaying a compound annual growth rate of 17.17 percent. A total of 45 animated movies were released in China’s theatres in 2014, generating total box office revenue of nearly RMB 3 billion, RMB 1.9 billion of which was contributed by 17 imported animated movies and RMB 1.06 billion by 28 domestic ones. Japanese animations take up 45.5 percent of the market share in China, followed by Chinese domestic animations at 33.5 percent, and European and American animations at 20 percent. Today, China has more than 4,600 animation companies, 24 of which have an annual industrial output of over RMB 30 million. The country’s animation market is expected to double in value to US$31 billion by 2020.

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Investing in China’s Education Industry – Part 1

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By Dezan Shira & Associates
Editor: Zhou Qian

Despite China’s promise to gradually open up its education sector to the world following its accession to the WTO in 2001, the country’s education industry is still a highly sensitive area for foreign investment. This is mainly due to how closely intertwined it is with Chinese ideology and identity and its propensity to influence children’s beliefs, resulting in foreign investors engaging in education in China usually being faced with closer scrutiny.

Market Entry Policies

According to China’s Catalogue of Industries for Guiding Foreign Investment (2015), the education industry is divided into three separate categories. While compulsory education institutions (primary and middle schools) and special training institutions (such as military, police, political, and Chinese Communist Party schools) are still considered prohibited areas, foreign investors are allowed to invest in pre-school educational institutions, high schools, and tertiary educational institutions in the form of Sino-foreign joint ventures, in which foreign majority ownership is allowed but only when the Chinese party is in a leading position. That is to say, the principal or key administration officer in such institutions is required to be a Chinese national and the council, the board of directors, or joint administration committee of the school must be majority Chinese.

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Resolving Labor Conflicts: New Regulations on Wage Payment Methods in Shanghai

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By Dezan Shira & Associates
Editors: Mia Yiqiao Jing and Allan Xu

According to the Shanghai Municipal Human Resource and Social Security Bureau, a new regulation on wage payment methods for Shanghai-based organizations has been released and brought into effect on August 1, 2016. The new regulation, issued to replace the 2003 version, expands the scope of application and makes several clarifications and improvements on wage calculation and standards. The new regulation is expected to minimize law disputes regarding wage issues with more specified guidance and solutions.

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China Market Watch: Insurance Industry and Shenzhen-Hong Kong Stock Connect

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China to Become the World’s Second Largest Insurance Market

China is expected to become the world’s second largest insurance market this year, overtaking Japan, owing to the rapid increase of the middle class. The China Insurance Regulatory Commission has reported that China’s premium income reached RMB 1.9 trillion in the first half, up 37.3 percent on the previous year. This growth rate has accelerated fast, compared to 17.5 percent in the first half of 2014 and 20 percent in the first half of 2015. There are now 330 million policy holders in China, triple that of stock investors, and with a lack of insurance companies and products, China’s insurance market has a lot of potential.

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Assessing the Hong Kong – Russia Double Taxation Agreement: Another Step Towards Amplifying China’s Eurasian Connection

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By Dezan Shira & Associates
Editor: Xiao Anna Wang

The long-awaited Comprehensive Double Taxation Agreement (CDTA) between Hong Kong and Russia entered into force on July 29, 2016. The agreement will take effect on April 1, 2017 in Hong Kong and January 1, 2017 in Russia.

Signed at the beginning of 2016, the CDTA aims to provide greater certainty on taxing rights between Hong Kong and Russia, incentivizes foreign investment with reduced income tax and withholding tax rates, and helps investors to better assess their potential tax liabilities on business transactions.

Before the CDTA came into effect, companies operating in Hong Kong but listed in Russia were subject to income tax in both jurisdictions. In some cases, the taxation of repatriated profits of a Hong Kong company based in Russia would be determined by the tax bureau individually, depending on the source of the income.

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Knowledge is Power: Understanding the Education Market in China

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China education illustrationBy Dezan Shira & Associates
Editor: Alexander Chipman Koty

China’s already immense education industry is poised to further expand in the coming years as Chinese parents prepare their children to compete in an economy far different than the one they grew up in. After decades of relentless growth facilitated by an abundance of low cost workers, China is transitioning to a more mature development model reliant on services and skilled labor – and increasingly affluent Chinese families are investing in education to meet these needs. Already worth RMB 1.6 trillion (US$240 billion) in 2015, China’s education market is projected to nearly double to RMB 3 trillion (US$450 billion) by 2020.

The growth of China’s education industry is striking. Investment cases grew from 190 in 2014 to 270 in 2015 – an increase of 42 percent – and the amount of mergers and acquisitions and IPOs rose by 165 percent and 76 percent, respectively. All told, investment catapulted from RMB 6.1 billion ($913.4 million) to RMB 15.9 billion (US$2.4 billion) year-on-year.

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Registered Capital, Company Loans, and the Timely Repatriation of Profits for WFOEs in China

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By Thibaut Minot
Associate, International Business Advisory, Dezan Shira & Associates

The Wholly Foreign-Owned Enterprise (WFOE) remains the most popular investment structure of foreign investors setting up a company in China. Early on in the process of incorporating a WFOE, investors are faced with the critical task of deciding how much Registered Capital to commit to their company. Because overcommitted funds may become idle and delay profit repatriation – and running out of working capital puts the WFOE at risk of insolvency – the careful planning of Registered Capital commitments is necessary. For investors looking for the right balance between under-commitment and over-commitment of Registered Capital, the ability to fall back on company loans offers welcome flexibility, and can help speed up the much anticipated process of profit repatriation.

In this article, we discuss some key points to consider when committing Registered Capital to a WFOE in China, and shed light on the role that company loans can play in facilitating this decision.

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China Regulatory Brief: New Safety Standards for Cosmetics & Shanghai Wage Payment Measures

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New Chinese Safety Standards for Cosmetics to Enter into Force as of December 2016

By Cisema GmbH

As announced in June 2015, new safety standards for cosmetics in China will replace the previous standards issued in 2007. Major changes concern ingredients, quality control, and packaging. The changes regarding ingredients are required to be implemented by December 1, 2016, while it will be sufficient to follow the new requirements for quality control and packaging for any first prolongation application after that date.

The changes include:

  • Prohibited ingredients: 1388 (added: 133, modified: 137)
  • To a limited extent permitted ingredients: 47 (added: 1, modified: 31, removed: 27)
  • Preservatives: 51 (modified: 14, removed: 5)
  • Sunscreen products: 27 (modified: 6, removed: 1)
  • Colouring agents: 157 (added: 1, modified: 69)
  • Hair dyes: 75 (modified: 63, removed: 21)

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