Author Archives: China Briefing

Expecting in China: Employee Maternity Leave and Allowances

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By Rainy Yao and Steven Elsinga

In 2012, the State Council released and implemented the “Provisions on Female Labor Protection under Special Circumstances (State Council Decree No. 619),” which extended maternity leave for female employees in China to 14 weeks (98 days) from the previous 90 days-just meeting the minimum maternity leave stipulated by the International Labor Organization (ILO).

However, maternity leave in China can vary widely by location, especially in terms of ‘late maternity leave’ as determined by the local government. Also, it can be quite complex for an employer to calculate how much maternity leave and allowance that female employees are entitled to. In this article, we explain maternity and paternity leave in China and detail the payment of maternity allowances.  

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Beijing-Promoted FTAAP Will Delay TPP, Driving US Companies to ASEAN for FTA Benefits

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CDE Op-Ed Commentary

The main outcome of the Asia-Pacific Economic Cooperation (APEC) annual meeting in Beijing has been an agreement to  launch a “strategic study” of a trade pact known as the Free Trade Area of the Asia-Pacific (FTAAP). Scheduled to take two years to complete, APEC officials have been keen to stress that the study is not an opening of negotiations. Notably, it is backed by China.

Through APEC’s agreeing to the study however, the alternatives – the long-promoted Trans-Pacific Partnership (TPP) and Regional Comprehensive Economic Partnership (RCEP) agreements – will, in my opinion, probably fall by the wayside. The TPP is led by Washington and excludes China, while the RCEP is promoted by China and excludes the United States. Negotiations for each will continue – officials from the countries concerned will want to keep up political and trade pressure on any future FTAAP agreement through using the TPP and RCEP negotiations to push their own agendas.

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China Regulatory Brief: Revised Foreign Investment Catalogue, SH-HK Connect

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China-Regulatory-Brief

Revised Foreign Investment Catalogue Released for Public Commentary

On November 4, China’s National Development and Reform Commission (NDRC) released an ‘opinion-seeking draft’ of the “Catalogue for the Guidance of Foreign Investment Industries,” which substantially reduced restrictions on foreign investment in areas including general manufacturing and the finance industry. Overall, more than 40 previously restricted items have been removed from the Catalogue. Wholly foreign-owned enterprises (WFOEs) will be newly approved in industries such as oil exploitation, mining and component manufacturing for vessels. Further, foreign investors will benefit from relaxed restrictions on the percentage of shareholder equity that must be controlled by the Chinese partners to joint ventures across a number of industries.

Shanghai-Hong Kong Stock Connect to be Launched on November 17

On November 10, Hong Kong’s Securities and Futures Commission (SFC) and the China Securities Regulatory Commission (CSRC) jointly announced that the Shanghai-Hong Kong Stock Connect will be officially launched on November 17, provided that all relevant regulations and supporting policies are approved by both sides. Launched by the CSRC and the SFC in April this year, the RMB 550 billion initiative will permit Hong Kong investors to invest in select stocks (A shares) listed on the Shanghai Stock Exchange. Meanwhile, eligible mainland investors meeting the minimum asset requirements will also be able to invest in Hong Kong stocks. Continue reading…

With Revised Guidance Catalogue, China Introduces Sweeping FDI Reforms

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By Rainy Yao and Steven Elsinga

Rectification: a previous version of this article said that foreign investment in hospitals was only allowed with a Chinese majority shareholder, whereas the new draft speaks of a cooperative joint venture. We apologize to our readers for this oversight.

SHANGHAI—On November 4, the Chinese government released the latest update to the “Catalogue for the Guidance of Foreign Investment Industries,” outlining which industries shall be encouraged, restricted or prohibited for foreign investment. A draft of the revised list has been released for public commentary and will be officially implemented on 3 December.

Inclusion on the list of encouraged industries is often coupled with the easing of restrictions on foreign investment, such as the ability to operate as a wholly foreign-owned enterprise (WFOE) rather than being restricted to a Sino-foreign joint venture (JV). The revised Catalogue newly permits WFOEs in the following industries:

  • Traditional Chinese medicine
  • Oil field exploration and development
  • Automobile parts
  • Aircraft engines and components
  • Vessel engines and components
  • Equipment manufacturing for air traffic control systems
  • Accounting and auditing

Meanwhile, foreign investors will soon be allowed to act as the controlling shareholder in JVs engaged in the following industries:

  • Manufacturing of ground-based and water-based aircraft
  • Design and manufacture of vessel cabin machinery 
  • Design and manufacture of civil satellites
  • Construction, maintenance and operation of railways
  • International sea transportation
  • Operation of performance venues

Overall, the 2014 Guidelines are set to lift restrictions on foreign investments across a wide array of sectors, with the number of restricted items more than halved, from 79 to 35. Here we provide a summary of the major changes compared to the 2012 Guidelines. For more details on how your business may be specifically affected, please contact us at china@dezshira.com.

For starters, most restrictions on the mining industry shall be lifted, with only the mining of special and rare types of coal, lithium, granite and precious metals being restricted to investment with a Chinese controlling partner. The previous prohibition on foreign investment in the rolling and smelting of non-ferrous metals will be removed as well.

Nearly all restrictions on manufacturing are to be withdrawn as well, the only major exceptions being the processing of edible oils and fats, production of biological fuels (e.g. ethanol), smelting of rare metals and rare earth elements, and the manufacture and repair of vessels. Prior to these changes, foreign investment in the production of numerous types of batteries was forbidden, as was any investment into traditional Chinese tea – both of which will now be open to investment.

Investment in the finance industry is also to be considerably liberalized. There will no longer be limitations on foreign investment in finance companies, trust companies, currency brokerages and insurance brokerages. Foreign investment in banks would now be allowed as well, provided that no single financial institution or entity controlled by such an institution may control over 20 percent ownership of a Chinese commercial bank. Furthermore, foreign financial institutions combined may not own more than 25 percent of the shares of any bank. Lastly, only foreign banks (rather than other types of foreign companies) may invest in rural commercial banks.

Restrictions on investing in securities companies are to be eased as well. Foreign investors will now be allowed to invest in securities companies underwriting and sponsoring RMB-denominated ordinary shares, foreign shares, government bonds, corporate bonds, as well as brokering foreign shares, government bonds and corporate bonds. The limit of shares a foreign entity may own in such a company has also been raised from one-third to 49 percent.

The real estate sector is now set to fully open to foreign investment, with previous restrictions like those on land development, and the construction of offices, high-end hotels and real estate brokerages to be fully lifted. So too with limitations on building and operating movie theaters, theme parks, recreation venues and power grids.

Foreign investors may now open and operate hospitals as cooperative joint ventures with a Chinese partner.

However, several new constraints have been added to the list. One that stands out is a new restriction on the manufacture of motor vehicles. In any JV producing vehicles, the Chinese party must now own over 50 percent of shares. Furthermore, such companies may only engage in up to two of the following three sectors: passenger vehicles, work-related commercial use vehicles (such as trucks or vehicles used in construction) and motorcycles. The latter restriction shall not apply where the third category is added via a merger or acquisition undertaken by the Chinese party.

Limitations shall also be extended to pre-school and tertiary education, where a Chinese majority shareholder is required.

The 2014 Guidelines also introduce several new prohibitions on foreign investment. These extend to the production of genetically modified plant seeds, processing of petroleum and coking, processing and production of nuclear fuel, sale of tobacco, Chinese legal consulting (restraints on non-Chinese legal consulting, however, have been completely lifted) and the operation of antique stores and auction houses selling Chinese cultural relics.

Lastly, with this document the Chinese government intends to tighten control on viewing flights over China and aerial photography, and several activities related to geographical surveying and mapping.

To learn more about the consequences of these regulations for your business, please contact us at china@dezshira.com.

A Chinese version of the new Catalog can be found here.


About Us

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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Shanghai: The Economic Nexus of China

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With a population of over 25 million, Shanghai, often referred to as the “Paris of the east,” is the economic nexus of China. Situated in the Yangtze River Delta (YRD) in east China, the city aims to be the world’s global financial and economic center and international transport hub by 2020.

In this article, Rainy Yao from Dezan Shira & Associates takes a closer look at this modern metropolis with its well-developed infrastructure and sound investment environment.

Economic overview

Shanghai accounts for one-eighth of China’s total financial income while taking up only 0.06 percent of the nation’s land. In 2013, the city’s gross domestic product (GDP) exceeded RMB 2.16 trillion, the highest in all of China. Of this total, the city’s primary industry contributed RMB 12.9 billion and its secondary industry RMB 802.7 billion (up 6.1 percent from 2012). The most notable contribution was from the service sector – a monumental RMB 1.34 trillion, or 62.2 percent of total GDP. In the first half of 2014, the city’s GDP stood at RMB 1.09 trillion with a stable annual growth rate of 7.1 percent.

The finance sector has also played a key role in Shanghai’s economic development, with an added-value in 2013 of RMB 282.3 billion (up 13.7 percent from 2012). By the end of 2013, 215 foreign-invested financial institutions and 198 representative offices had been established in the city.

From January to September 2014, Shanghai has witnessed a sharp increase in foreign direct investment. Over 400 foreign-invested projects were introduced in September alone – a y-o-y growth rate of 34.1 percent. Continue reading…

Qualifying for DTA Benefits in China

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By Eunice Ku, Zhou Qian and Matthew Zito

China has made great strides in the past five years in building up its regulation in the area of double taxation avoidance, as well as implementation assurance techniques, but qualifying for DTA benefits remains a complex procedure.The first step is to determine whether you are a tax resident of a country that has an effective DTA agreement with China (i.e. a non-resident with respect to China). For a list of relevant countries, see below.

DTAchart Continue reading…

Hong Kong Murders And Expatriate Psychological Issues in China

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The recent murder of two Indonesian women in Hong Kong by a young British banker working in the territory raises significant issues concerning the mental health of expatriates in China and the responsibility of company HR departments. Rurik Jutting, aged just 29, is alleged to have stabbed two prostitutes to death in his apartment, just days after resigning from his position at a top banking firm. Jutting had been working abroad for little over a year.

News concerning the mental condition of Jutting apparently reveals that he was suffering from depression after the breakup of a previous relationship. While quite likely true, the onus cannot purely be put on this as a trigger. Indeed, expatriates living and working in China can invariably become unhappy with the different pace and drastic change in lifestyle. Unable or unwilling to quit and return home, they can remain stuck. This may very well have been the fate that befell Jutting, just as it has many other foreigners who have moved to China. Continue reading…

Breaking Up is Hard To Do: Terminating an Employee in China (Part 2)

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By Zhou Qian

Heightened pressure in China’s labor market means that employers are commonly required to terminate employees to optimize their business operations. Legally speaking, however, this is by no means an easy thing to do, especially under the comparatively stringent regulations on terminating employment contracts since 2008. In Part 2 of this two-part article, we detail the calculation of severance payments in China and provide our practical advice for terminating employees in China.

Severance payments

The formula to calculate a severance payment is as follows:

Severance payment = One month’s salary × Years of service

Here, ‘one month’s salary’ is calculated by taking the average monthly salary earned by the employee over the previous twelve months. However, following the enactment of the new Labor Contract Law on 1 January 2008, severance payments are capped at three times the average monthly salary in the given location. Note: this only applies where the terminated employee’s salary exceeds three times the average local salary, and does not apply to employment prior to 1 January 2008. Continue reading…

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