Four provinces and municipalities have been permitted to expand a pilot program to allow foreign-invested travel agencies to engage in outbound Chinese tourism business and foreign-funded non-profits to operate care homes. We explain the temporary changes and discuss what opportunities they may provide for foreign investors and non-profits.
On October 8, 2022, the State Council issued a notice stating that two provisions in laws relating to foreign investment in travel agencies and nursing homes in Tianjin, Shanghai, Hainan, and Chongqing have been temporarily adjusted, effective from the same day.
The adjustments, which will be implemented until April 8, 2024, will enable foreign-invested travel agencies to engage in international travel for mainland Chinese citizens for the first time and relaxes access to non-profit private non-enterprise institutions supported by foreign donors to operate care homes.
The adjustments were approved by the State Council upon a request from the four municipalities and provinces concerned to “carry out comprehensive pilot projects for the expansion and opening of the service industry”.
This indicates that the adjustment, though temporary, will act as a pilot project, which could be rolled out to more areas or extended beyond the initial time period.
This ruling has previously been made by the State Council in Beijing in 2019, when a temporary adjustment to nine articles in seven pieces of legislation was granted, which included giving permission for foreign-invested travel agencies in Beijing to conduct outbound travel for Chinese citizens, and for foreign-funded non-enterprise units to set up non-profit care homes. The pilot period ended on January 30, 2022.
Below we explain the significance of these adjustments and how they may impact foreign-funded travel agencies and privately funded social organizations.
The notice adjusts one provision each in the Travel Agency Regulations and the Interim Regulations on Registration and Administration of Private Non-Enterprise Units (“Non-Enterprise Units Regulations”).
The Travel Agency Regulations, as the name implies, regulate the administration of travel agencies within the PRC, which includes any company engaged in activities such as “soliciting, organizing, and receiving tourists, providing tourists with relevant tourism services, and conducting domestic tourism, inbound tourism, or outbound tourism”. The Travel Agency Regulations, which were promulgated in 2009, prohibit foreign-invested travel agencies from organizing any tourist or travel services for Chinese citizens outside of mainland China, including Hong Kong, Macao, and Taiwan.
The temporary amendment will enable foreign-invested enterprises in Shanghai and Chongqing to provide travel services to Chinese citizens outside of China for the first time, including Hong Kong and Macao, but excluding Taiwan.
The amendment states that foreign-invested travel agencies that “meet the conditions” are permitted to engage in outbound Chinese tourism, but the State Council or relevant government departments have not yet clarified what these conditions are.
The various provincial government and State Council departments will be responsible for making the corresponding amendments to the related laws and regulations, meaning that they will be able to stipulate the details and requirements of the pilot program.
The Non-Enterprise Units Regulations, meanwhile, outline the requirements for the registration of private non-enterprise organizations that engage in non-profit social services and activities. Previously, foreign investors were not allowed to register as the legal representative of private non-enterprise organizations, as only Chinese citizens were allowed to do so.
Now, the amendment states that China will relax access for foreign investors to set up non-profit eldercare institutions that register as private non-enterprise units in Tianjin, Hainan, and Chongqing.
The specific articles and their temporary adjustments are detailed in the table below.
Article 23: Foreign-invested travel agencies are not permitted to organize travel for mainland Chinese residents outside of China, or to Hong Kong, Macao, or Taiwan unless otherwise stipulated by a decision of the State Council, a free trade agreement signed by China, or an arrangement between the mainland and Hong Kong and Macao to establish closer economic and trade relations.
Article 2: The term “privately-run non-enterprise units” mentioned in these Regulations refers to social organizations organized by enterprises, public institutions, social groups, other social forces, and individual citizens using non-state-owned assets to engage in non-profit social service activities.
The new temporary amendment in theory provides an exciting opportunity for foreign-invested travel agencies based in Shanghai and Chongqing, who until now have been blocked from tapping into China’s huge market for international travel. There is, however, a considerable hurdle for these companies in the immediate short term. The current COVID-19 restrictions imposed upon all travelers entering China have almost entirely wiped out outbound Chinese tourism. According to data from the World Bank, there were over 150 million departures from China in 2019, a number that dropped to just over 20 million in 2020 and declined further to 8.5 million in 2021 by some estimates.
China’s restrictions for inbound travelers, such as quarantine requirements, have been loosened in the last few months and may continue to be shortened in 2023. The recent lifting of hotel quarantine requirements for inbound travelers to Hong Kong, for instance, prompted more searches for outbound travel than inbound travel, suggesting an impending international travel boom should China do the same.
Rather than offering a tangible opportunity for foreign-invested travel agencies in China in the short term, the new announcement, therefore, offers a glimpse of what could be in the near future, should China reopen its borders and expand the permissions for outbound travel. Foreign-invested travel agencies may therefore wish to view this latest development with cautious optimism, and closely monitor changes to travel restrictions and relevant legislation.
Foreign investors are currently permitted – and even encouraged, as seen in the Catalogue of Encouraged Industries for Foreign Investment – to invest in for-profit care homes. Non-profit care homes benefit from certain preferential tax policies, such as reductions or exemptions to corporate income tax, real estate tax, and urban land-use tax. However, due to restrictions on foreigners participating in private non-profits, they have been prohibited from setting up non-profit care homes. This temporary adjustment, therefore, works to further open up new operational models for foreigners in China and may help to provide more options for individuals and families.
China Briefing is written and produced by Dezan Shira & Associates. The practice assists foreign investors into China and has done so since 1992 through offices in Beijing, Tianjin, Dalian, Qingdao, Shanghai, Hangzhou, Ningbo, Suzhou, Guangzhou, Dongguan, Zhongshan, Shenzhen, and Hong Kong. Please contact the firm for assistance in China at email@example.com.
Dezan Shira & Associates has offices in Vietnam, Indonesia, Singapore, United States, Germany, Italy, India, and Russia, in addition to our trade research facilities along the Belt & Road Initiative. We also have partner firms assisting foreign investors in The Philippines, Malaysia, Thailand, Bangladesh.
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