The newest issue of China Briefing Magazine, titled “Employing Foreign Nationals in China,” is out now and available to subscribers as a complimentary download in the Asia Briefing Bookstore through the month of December. To subscribe to China Briefing and download this issue for free, please click here.
- Employing Foreign Nationals in China: Visa Procedures
- Retrospective: 15 Years of China Briefing
- Paying Foreign Employees: IIT and Bonus Planning
- Special Feature: Remitting Your RMB Abroad
Although some speculation has it that the population of foreigners working in China is in decline, our experience at Dezan Shira & Associates speaks otherwise, where questions regarding the individual income tax (IIT) liability of foreign nationals, as well as work visa procedures, continue to pour in at a steady stream. Continue reading…
China Briefing Magazine reaches a significant milestone tomorrow with the publication of our 150th issue over a period stretching back 15 years. The new issue, titled “Employing Foreign Nationals in China”, details all employer and employee-side responsibilities for expats working in China, including individual income tax liability, visa requirements and remitting RMB abroad, and will be available for download from the Asia Briefing bookstore tomorrow. It is a complimentary download for subscribers. Subscription to China Briefing is also free and can be obtained here.
The 150th issue of China Briefing “Employing Foreign Nationals in China”. Subscribe now to get your free copy.
SHENZHEN – South China’s Qianhai Development Zone – or to give it its full title, the Qianhai Shenzhen-Hong Kong Modern Service Industry Cooperation Zone – has opened a 15 square kilometer incubator hub for entrepreneurs from Hong Kong and overseas. The Zone itself has been billed as a Hong Kong-Shenzhen joint development, and to date has focused on attracting corporate financial services. Continue reading…
Dezan Shira & Associates Legal Christmas Cheer: (L-R) Chet Scheltema, Richard Cant, Chris Devonshire-Ellis
As we move into 2015 and a Chinese Government that has pointedly singled out “Rule of Law” as a key point for debate, what are the major challenges foreign companies are likely to face in China next year? We put this question to Dezan Shira & Associates US attorney Chet Scheltema, Australian lawyer Richard Cant and the firm’s Chairman, Chris Devonshire-Ellis. Their replies are summarized as follows:
Foreign Law Firm Operations
There are proposals to tighten restrictions on “legal consulting” at the same time as more opportunities for legal partnership between Chinese law firms and foreign law firms, indicating that for foreign lawyers operating in China, there will be a loosening on the one hand and tightening on the other hand. Dealing with China legal matters from purely overseas or from a Representative Law Office can be expected to become more problematic, while JV’s between foreign and Chinese law firms will start to become the norm. Continue reading…
By Zhou Qian, Kyle Freeman and Matthew Zito
Investing in China’s medical device industry requires knowledge of several key regulations governing the industry, including China’s complex and idiosyncratic licensing scheme for medical devices. In this article, we highlight several of these, as well as provide the most up-to-date information regarding the medical device industry’s place in China’s Catalogue of Industries for Guiding Foreign Investment.
Regulations on the Supervision and Administration of Medical Devices (State Council Order No. 650), effective June 1, 2014
Order 650 is the highest level regulation governing the registration and record-keeping of medical devices, requirements for product manufacturing and distribution, and liability for illegal behavior. A revised version of the Regulations on the Supervision and Administration of Medical Devices (2000), the 2014 amendment introduces the following reforms of the regulatory regime for medical devices in China:
- Improvement to the risk-based classification system of medical devices
- Revocation of the re-registration requirements
- Changed order of approval to encourage innovation
- Heavier punishment for violations
- Stronger after-sales supervision
China Food and Drug Administration (CFDA) regulations
To support the implementation of Order No. 650, the China Food and Drug Administration (CFDA) has passed several legal regulations in the past year regarding the registration, manufacture and distribution of medical devices, including:
- Administrative Measures for the Registration of Medical Devices (CFDA Order No. 4)
- Administrative Measures for the Registration of In Vitro Diagnostic Reagents (CFDA Order No. 5)
- Administrative Rules for the Instructions and Labelling of Medical Devices (CFDA Order No. 6)
- Administrative Measures for the Supervision of Medical Device Manufacturing (CFDA Order No. 7)
- Administrative Measures for the Supervision of the Distribution of Medical Devices (CFDA Order No. 8)
RELATED: Market Overview: The Medical Device Industry in China
Catalogue of Industries for Guiding Foreign Investment (2011 Revision)
The Catalogue is the framework document for setting restrictions/prohibitions on foreign investment into certain industries in China, and is jointly issued by the National Development and Reform Commission and Ministry of Commerce. Regarding the medical device industry specifically, the revised version of the Catalogue from 2011 removed previous restrictions on the manufacture of non-auto-disposable syringes, infusion sets, blood transfusion devices and blood bags – giving foreign investors access to the manufacture and distribution of all types of medical devices in China.
The Catalogue also includes several types of high-end devices under the category of industries “encouraged” for foreign investment, including electronic endoscopes, fundus cameras, key components of medical imaging equipment, (3D) ultrasonic transducers for medical use, equipment for boron neutron capture therapy (BNCT), image-guided intensity modulated radiation therapy systems, hemodialysis machines and hemofiltration machines, as well as equipment for fully automated enzyme immunoassay (EIA) systems.
Most recently, further revisions to the Catalogue were released on Nov. 4, 2014 in the form of an opinion-seeking draft (the deadlined for public commentary is Dec. 3, 2014). In its current draft, the revised Catalogue newly includes several types of devices under the Encouraged category, namely, blood cells analyzers, automatic chemiluminescence immune analyzers, and high throughput sequencing systems.
Supervisory and administrative authorities for the medical device industry
In China, the supervisory and administrative authorities for the medical device industry can be classified at the national or local level. At the national level, the China Food and Drug Administration (“CFDA”), known as the State Food and Drug Administration (“SFDA”) prior to 2013, is in charge of the regulation and control of the medical device industry for the whole of China.
In practice, the CFDA delegates a great deal of administrative powers to its local branches, the Food and Drug Administrations (“FDAs”) of provinces, autonomous regions and directly-controlled municipalities.
These bodies are authorized to issue specific licenses and product registration certificates to medical device companies at the provincial level. One thing worth noting for foreign investors, however, is that local FDAs may have more detailed and specific examination and approval requirements than those of the CFDA. Consequently, when investing in the medical device industry, both national and local requirements must be adhered to.
Risk-based classification and administration
The classification regime for medical devices in China differs significantly from those in the European Union and United States. For example, a device considered Class II in the U.S. or Class II-a/II-b in the E.U. may be considered Class III in China, meaning its registration process will be longer and more costly.
Basically, medical device classification in China is determined according to CFDA Order No. 15 (under revision) and other CFDA documents. While there are many factors related to classification, essentially devices are divided into three classes based on the risk they present to patients or users.
Investing in China’s medical device industry is expected to be a major gain for foreign investors over the coming decades as China’s population ages. The current number of elderly Chinese is estimated to be some 194 million, and this will rise to 300 million by 2025. Running concurrently with this is the fact that China’s social security system as concerns retirement pensions is modest. The implications of this are that China will be calling on its working population to practice traditional “family piety” as a Chinese national characteristic and support the old and infirm.
As China’s middle class is set to rise to some 600 million by 2025, the message is clear: the need for specialist healthcare and lifestyle equipment for the elderly will boom, and will be spearheaded by middle-class consumers. Dealing with investments in the medical device industry however is not so straight forward. Industry and product specific licences have to be obtained, and the procedure is more complex than a straightforward foreign investment. Interested investors are recommended to discuss the regulatory and market entry complexities with China business consultants familiar with the industry.
|This article is an excerpt from the November issue of China Briefing Magazine, titled “China Investment Roadmap: The Medical Device Industry.” In this issue of China Briefing, we present a roadmap for investing in China’s medical device industry, from initial market research, to establishing a manufacturing or trading company in China, to obtaining the licenses needed to make or distribute your products. With our specialized knowledge and experience in the medical industry, Dezan Shira & Associates can help you to newly establish or grow your operations in China and beyond.
China Retail Industry Report 2014
In this special edition of China Briefing, we provide an overview of the retail industry in China and the procedures for setting up a retail shop, focusing specifically on brick-and-mortar physical retail stores. Further, we have invited our partner Direct HR to offer some insights on the talent landscape in the retail industry, as well as tips for recruiting retail personnel in China.
Adapting Your China WFOE to Service China’s Consumers
In this issue of China Briefing Magazine, we look at the challenges posed to manufacturers amidst China’s rising labor costs and stricter environmental regulations. Manufacturing WFOEs in China should adapt by expanding their business scope to include distribution and determine suitable supply chain solutions. In this regard, we will take a look at the opportunities in China’s domestic consumer market and forecast the sectors that are set to boom in the coming years.
Revisiting the Shanghai Free Trade Zone: A Year of Reforms
In this issue of China Briefing, 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.
China Cancels Four Consumption Taxes Starting December 1
On November 25, the Ministry of Finance (MOF) and State Administration of Taxation (SAT) jointly released the “Announcement on Adjusting Consumption Tax Policies (Cai Shui  No.93),” which took effect on December 1, 2014. According to the Announcement, consumption tax has been removed for the below items:
- Automobile tires;
- Automobile leaded gasoline; and
- Small displacement motorcycles with a cylinder capacity of less than 250 ml.
Meanwhile, consumption tax of three and 10 percent will continue to be levied on motorcycles with a cylinder capacity of 250 ml and 250+ ml, respectively.
China to Launch VAT on Financial Services
China’s Ministry of Finance recently announced that the country is looking to expand its current value-added tax (VAT) reform to include financial services from early next year. It is widely expected that a VAT rate of either 6 or 11 percent will be levied on insurance premiums, but reportedly the rate could go as high as 16 percent. It has been confirmed that the VAT pilot scheme will fully extend to the financial sector by January 2016, which may also mark the end of several years of VAT reform for China. At the start of 2012, China launched a massive reform to replace its business tax (BT) with VAT, two of the country’s now three major indirect taxes. China has yet to confirm more details regarding the VAT rate on financial services, as well as the inclusion of the construction, real estate and “lifestyle services” sectors in the VAT reform.
China’s VAT Reform to be Extended to Telecom Sector
Chris Devonshire-Ellis has highlighted the various China-ASEAN trade routes as specific areas of high growth for 2015 at the Dezan Shira & Associates annual meetings currently taking place in Shanghai.
The firm, which specializes in foreign direct investment tax-law, compliance and strategic investment issues on behalf of global mid-cap manufacturers, has 12 China offices, as well as a significant presence in India, Singapore and Vietnam, and Alliance members in Indonesia, Malaysia, the Philippines and Thailand. Continue reading…
Chris Devonshire-Ellis, currently in Shanghai attending the Dezan Shira & Associates Group annual meetings, warned that whilst 2014 has been a satisfactory year for foreign investors in China, 2015 poses a number of difficulties.
“China is facing economic pressures and, when this occurs, the government tends to point the finger at foreign influences,” he said. “In foreign investment terms, this will manifest itself in stricter interpretation of rules and the imposition of fines and penalties on foreign corporations considered in breach of laws. Grey areas will become an increasing concern for foreign investors looking to stay clean. However, many will inevitably face unprecedented pressures from Chinese authorities next year. This, coupled with a continued favouritism to domestic companies, will force foreign investors competing with domestic brands to become more innovative in their efforts to sell to the Chinese market.”
This perspective has been echoed by White Papers issued by both the European and American Chambers of Commerce in China. Dezan Shira & Associates are long term members of both, with Alberto Vettoretti, Dezan Shira’s China Managing Partner, Chairman of Eurocham’s South China board.
In addition to a tougher China regulatory environment, the U.S. Foreign Account Tax Compliance Act (FATCA), has impacted on American investment into China via Hong Kong. Hong Kong banks have been denying U.S. citizens the ability to open corporate bank accounts in the city, which has wider implications for foreign investment into China. “We have had several US clients cancel China investments as they could not open accounts in Hong Kong” says Devonshire-Ellis. “They eventually gave up on their China plans. This compliance issue needs to be addressed between Hong Kong’s banks and the US threat of prosecution over money-laundering, which is now catching bona fide businessmen in its nets in an unintended side effect of this legislation”.
“Dezan Shira & Associates met its set growth targets in 2014, and we have enjoyed a productive 12 months”, explained Devonshire-Ellis. “However, we view 2015 as being a tougher environment than 2014. In order to maintain our growth position, we have to come up with innovative solutions to deal with a harder market. The concern for all businesses in China is that, if no operational or strategic changes are made for the new year, growth levels will inevitably be negatively affected.”
“China is not yet realising its potential as a fast growing consumer market,” says Devonshire-Ellis. “It is still concentrating on exports.” In terms of compliance, Devonshire-Ellis said 2015 will be a busy year for legal services in China. “There will be an increase in the number of cases brought against foreign investors for multiple infringements; everything from scope of business issues to tax avoidance. In fact, China’s rules are specifically constructed to make full compliance almost impossible, as much is open to interpretation.
This is now being exploited by the government as a means to score political points at home, and consequently acts as a barrier to foreign investors competing with domestic companies. Law firms able to provide professional advice on China’s policies may find opportunities to act as a negotiator and go-between their clients in China and the Chinese Government.”
Devonshire-Ellis added that the foreign legal profession itself in China is facing serious restructuring challenges. “Foreign law firm Representative Offices are being discouraged, and we have seen a number of foreign law firms completely exit China over the past year. Firms are being pushed to establish joint-ventures with local practices, and pressure to do this will become more intense.”
He also said that the consulting business is changing: “Consultants are nearly dead in China. Next year will see the demise of many smaller foreign invested names. They are being priced out of the China market by local competitors. The only way for smaller firms to survive is to invest in IT and offer software based administration solutions. The days of accounting being conducted by hundreds of local Chinese staff in an office are long gone. Services such as payroll and treasury functions will become more prevalent. Consultants merely offering basic set ups and trademark applications will die off unless they can provide real added value, including compliance, and that has to be supported by a strong IT platform.”
While China based businesses will have to adapt, Devonshire-Ellis did note that there are some positives to take into the coming year: “The 2015 AEC Compliance will be a boost for Vietnam as the China-ASEAN Free Trade Agreement makes Vietnamese products able to enter the China market at close to zero duty. Due to its lower operating costs, light manufacturing industries will increasingly start to relocate to Vietnam. We are bullish on Vietnam-China trade, as we are through China trade with much of ASEAN.”
This view has been borne out by recent trade statistics. China-ASEAN trade has being growing at high rates of between 7-11% per annum for the past three years, and is expected to reach USD500 billion in 2015. To put that into perspective, China-ASEAN trade now exceeds that of China-US trade, which has been in decline for the past twelve months. The China-ASEAN FTA has reduced tariffs on 90% of all traded products between the two to zero.
Related: Is Your China Manufacturing Business Ready for Next Year’s Flood of Cheaper Vietnamese Products?
“A key challenge posed to foreign investors in China is how to integrate the emerging ASEAN supply chain into their China and global businesses”, says Devonshire-Ellis. “ASEAN will be the big story of next year.”
He was also cautiously optimistic about India. “The country remains a tough destination for many foreign investors”, he said. “However, the worker age demographics are beginning to resemble that of China in the early 1990’s. If the Modi Government can match that demographic dividend with some well-planned tax and structural reforms designed to attract investment, then you’ll really start to see India move.”
Related: Why Your 2015 China Business Strategy Must Include Asia
Dezan Shira & Associates also announced some changes in personnel. Richard Cant, the firm’s Regional Tax Director in Shanghai, is relocating to join the firm’s office in Boston, United States. His position in Shanghai is being filled by American attorney Chet Scheltema, who currently acts as the manager for the International Business Advisory team in Beijing. Charles Small joins the practice in the Dezan Shira & Associates Ho Chi Minh City office in Vietnam, while Tarun Manik has been promoted to Corporate Accounting Services Manager in Mumbai. Adam Pitman also joins Dezan Shira & Associates from Control Risks in India, and is now a manager in Dezan Shira & Associates’ International Business Advisory team in New Delhi.
Moving Around: Dezan Shira & Associates personnel Richard Cant (Boston), Chris Devonshire-Ellis (Singapore), Alberto Vettoretti (Hong Kong), Charles Small (Ho Chi Minh City) Tarun Manik (Mumbai), Chet Scheltema (Shanghai)
“We are continuing to grow our team across Asia”, says Devonshire-Ellis. “The opportunities are there for young professionals to gain experience in multiple countries throughout Asia, and those that do will both have a great time and later add significant value to their CV’s. I would particularly encourage young executives to break out of the China mould and go get experience in countries such as Vietnam, Indonesia, and the Philippines. There will be a great demand for multi-Asian experience in the next two to three years as the reality of the China-ASEAN free trade agreement kicks in.”
“Future investment growth into China will be driven by the U.S. However, foreign investment into China now requires Asian sensibilities. Businesses that have both multiple presences in Asia and a strong IT platform will survive and prosper. China’s future growth depends strongly upon its trade routes with Asia and it is crucial that foreign investors understand these dynamics.”
Chris Devonshire-Ellis is the Founding Partner and Chairman of Dezan Shira & Associates, and the Publisher of Asia Briefing. He began the Dezan Shira & Associates practice from a single office in Shenzhen in 1992. Today it is a multinational firm with 28 offices throughout China, India and ASEAN employing several hundred staff, advising foreign investors on their strategic planning, legal and tax advisory across Asia. He is now based from the firms Singapore office. For further information, please email email@example.com or visit www.dezshira.com.
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ASEAN’s Investment Horizons: Key Industries for AEC 2015
In this issue of Asia Briefing, we forecast the effects of ASEAN Economic Community on foreign investment into the region in the lead up to 2015. Following this, we highlight what is happening in some of ASEAN’s hottest industries for investment, including electronics, information and communications technology, textiles and medical devices. Lastly, we examine the growing potential of bilateral trade between ASEAN and India in light of recent historic developments in the latter.
Sourcing From China
In this issue of China Briefing Magazine, we outline the various sourcing models available for foreign investors and discuss how to decide which structure best suits the sourcing needs of your business. Perhaps the most important factors to consider when choosing a sourcing structure are your staffing requirements, your need for operational flexibility, and which option offers the greatest cost efficiencies.
Developing Your Sourcing Strategy for Vietnam
In this issue of Vietnam Briefing Magazine, we outline the various sourcing models available for foreign investors – representative offices, service companies and trading companies – and discuss how to decide which structure best suits the sourcing needs of your business.
Establishing Your Sourcing Platform in India
In this issue, we highlight the advantages India possesses as a sourcing option and explore the choices available to foreign companies seeking to create a sourcing presence here. In addition, we examine the relevant procurement, procedural and tax duty concerns involved in sourcing from India, and conclude by investigating the importance of supplier due diligence – a process that, if not conducted correctly, can often prove the undoing of a sourcing venture.\