China Regulatory Brief: Revised Foreign Investment Catalogue, SH-HK Connect
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.
Shanghai FTZ Further Liberalizes Foreign Investment in Transportation
The Shanghai Transport Administration Commission has announced that to date, nine liberalization measures for the transportation industry have been implemented, among which, six were newly approved in 2014, including:
- WFOEs permitted to participate in the railway freight transportation industry
- JVs permitted to operate in the road freight industry
- Investors from Hong Kong, Macao and Taiwan permitted to participate in the entry-exit automotive freight industry in the form of JVs (shares limited to 40 percent)
- FIEs permitted to engage in international sea carriage
- JVs permitted for public international shipping agencies (restriction on ownership by a foreign party raised to 51 percent)
- WFOEs permitted to engage in the construction and operation of local railways, bridges, ferries and stations
Hong Kong Designers to Enjoy 15 percent CIT Rate in Qianhai
On November 1, Shenzhen and Hong Kong jointly held a SZ-HK Culture Creative Forum, which stipulated that professional Hong Kong designers seeking to start a business in Qianhai will be granted a preferential corporate income tax (CIT) rate of 15 percent. Meanwhile, financial support will be provided for enterprises participating in the ‘creativity industry.’ By the end of September, 2014, 15,000 enterprises have been registered in Qianhai, among which, financial enterprises account for over 60 percent. Tian Min, deputy director of the Qianhai Administration Bureau, said that design companies established in Qianhai will be provided with the best finance services available.
Parallel Imports of Automobiles Approved in the Shanghai FTZ
On November 6, the General Office of China’s State Council released “Several Opinions on Strengthening Imports,” which announced that a pilot scheme of parallel imports for automobiles in the Shanghai FTZ has been approved by the Ministry of Commerce (MOFCOM) and will be launched before the end of this year. It is widely expected that prices for parallel imported automobiles will be 15 percent to 30 percent lower than average prices for imported vehicles. A parallel import, also referred to as grey product, is a non-counterfeit product imported from another country without the permission of the relevant intellectual property owner.
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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.
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