As a member of the WTO, the Chinese government is scheduled to fully open up its market to the international business community by 11 December 2004. The Chinese Ministry of Commerce recently issued a new foreign trading policy, Shangwubuling [2004]No. 8 "Administrative Measures of Foreign Investment in Commercial Sectors" ("Administrative Measures"), to meet the foreign trading requirements of the WTO treaty. As from 1 June 2004, this new policy will replace the current "Provisional Measures for Foreign Investment by Commercial Enterprise" ("Provisional Measures") issued in June 1999, which sets forth rules and regulations for Foreign Invested Commercial Enterprises ("FICEs") to conduct commission agency, wholesale, retail and franchise businesses in China.

Compared to the Provisional Measures, the Administrative Measures impose far fewer restrictions on foreign investors wishing to carry out trade in China.

Currently, foreign investors generally are not permitted to import or export goods and sell them directly to Chinese customers. In most cases, foreign investors must conduct their trading business through an import or export company or by establishing a trading company in one of the free trade zones. Alternatively, foreign investors may set up a FICE with a Chinese partner to conduct cross border trade and sell products directly to Chinese customers through wholesale, retail or franchise outlets. However, because the Provisional Measures impose numerous restrictions on foreign investors' ability to set up a FICE, many foreign investors are unable to satisfy the requirements and thus are left with few viable options.

As from 1 June 2004, the new rules for FICEs will significantly improve opportunities for foreign investors, in particular with respect to the wholesale, retail and franchise sectors. Major policy changes enunciated in the Administrative Measures include the following:

• Foreign investors will no longer be required to own less than 65% of a FICE. Further, after 11 December 2004, foreign investors will be allowed to set up a wholly owned foreign commercial enterprise that conducts a commission agency, wholesale, retail or franchise business with its own import and export rights.

• Now assets or sales volume requirements will be imposed on Chinese or foreign investors of FICEs.

• The minimum registered capital requirement of FICEs will be reduced significantly to the amount provided for in the PRC Company Law. According to the Company Law, the minimum registered capital should be no less than RMB500,000 for foreign-invested wholesale companies and RMB300,000 for foreign-invested retail companies.

As a result of these changes, the China market will become available, for the first time, to many small and medium-sized foreign companies that are interested in doing business in China through their own distribution systems and / or retail stores.

The Administrative Measures also provide that as from 1 January 2004, commercial service providers from the Hong Kong Special Administrative Region and the Macao Special Administrative Region may establish wholly owned foreign commercial enterprises in China to import and export goods and sell products through commission agency, wholesale, retail and franchise outlets.

According to the Administrative Measures, foreign investors that intend to establish a joint venture of a commercial enterprise or wholly owned foreign commercial enterprise after 11 December 2004 should apply to the local provincial Ministry of Commerce ("Local MOC") for approval. Once the Local MOC receives all the relevant documentation, it should take no more than one month to conduct a preliminary review and present the application to the MOC for final approval. The MOC should make its decision on the application within three months.

If a foreign investor has already set up a joint venture or wholly owned foreign enterprise in China, it may expand or change the scope of its business to include wholesale, retail, franchise and trade as permitted by the FICE from the effective date of the new policy. No further information is provided in the Administrative Measures as to the procedures and required documents for making such a change.

The new foreign trading policy will allow more foreign companies to conduct business in China in a more liberal and friendly commercial environment. Foreign investors that are considering entering the China market or that already have a presence in China should take a close look at the new policy and adjust their business and tax planning accordingly.

Revised Foreign Trade Law to take Effect

The Administrative Licensing Law and the revised Law on Foreign Trade, which experts say would help build a government under the rule of law and protect intellectual property rights in foreign trade, will take effect with 4 other new laws on Thursday (July 1) in China.

The Administrative Licensing Law, the first of its kind in the world, streamlines administrative approval procedures and removes restrictions considered unnecessary. Experts say the law helps curb protectionism and the abuse of power as it will restrict governments' power, help increase the transparency of the administrative approval procedures, and reduce the cost of administration.

Addressing Monday's meeting of the State Council, the Chinese government, Premier Wen Jiabao said the law will have a huge and far-reaching impact on the government work. Governments at all levels should speed up the management reform and improve officials' managing ability by strictly enforcing the law, said Wen. Under the revised law on foreign trade, China would protect intellectual property rights in foreign trade, according to its related laws and regulations on intellectual property. The law will enable trading companies in China for the first time to engage in foreign trade without obtaining government approval as of July 1 of this year.

According to the revised law, a company may engage in foreign trade after it registers with the government departments concerned, and no official permission is required so long as the applicant is a legal company. Previously, foreign trade companies had to obtain licenses from government departments before they could engage in foreign trade, and foreign trade companies have to meet official requirements before being granted the licenses.

A law on road transportation, and a regulation on information disclosure by investment fund companies would also go into effect on Thursday. A law on the interests and rights of overseas Chinese living in China will also take effect on Thursday, which will offer legal protection of the legitimate interests and rights of overseas Chinese who now reside in China. A licensing regulation on dangerous waste will also take effect onThursday, which bans unlicensed collection, storage and trading of dangerous waste. (Source: News Guangdong)

Corporate Bankruptcy Law Draft Submitted

China's draft corporate bankruptcy law, which aims to put businesses of varied ownerships, whether state-owned, private or foreign firms, on equal footing, was submitted to the Chinese legislature for a first hearing on Monday (Jun 21).

"It is high time for the draft cooperate bankruptcy law to be deliberated," said Li Shuguang, a drafter of the bill and vice-president of the Postgraduate School of the China University of Politics and Law, adding that the in-depth state-owned enterprise (SOE) reform and maturing social security system have offered a solid social and economic basis for the submission of the draft law. Some optimistic experts even predict that the corporate bankruptcy law draft will finally be adopted by the 10th Standing Committee of the National People's Congress (NPC) next year.

China had promulgated a corporate bankruptcy law (trial), which only regulated bankruptcy of SOEs as early as in 1986 and, in 1991,the NPC Standing Committee amended the relevant items of the civil procedural law, stimulating a debt-return order for insolvent corporations with legal persons. But there were no laws and regulation to define insolvency of partnership enterprises, private enterprises and foreign enterprises in China.

According to the trial corporate bankruptcy law, money recovered from insolvent SOEs was not to pay creditors, but to settle the unemployed first and with the leftovers going to creditors, or state-owned banks. However, as banks are also state-owned, the losses have to be covered by the government coffer in the end.

The severe governmental intervention in the SOE's bankruptcy went against the rules of market economy. Especially since China's entry into the World Trade Organization (WTO) in late 2002, a new corporate bankruptcy law, which adopted market economy, was in urgent need.

In 1994, the new corporate bankruptcy law started to be drafted, but it failed to be submitted to NPC Standing Committee for the fear that the new law may lead to massive close-down of SOEs, leaving a large number of people unemployed. Prof. Wang Liming, vice-president of Law School under the People's University of China said that after a decade of efforts in deepening SOE internal reforms, most SOEs have become strong enough to resist their insolvency risks. Meanwhile, the country's social security system has been in initial shape, which could relieve bankrupt SOE's burden of employee settlement. Therefore, it is the time for corporate bankruptcy law to be enacted.

The new corporate bankruptcy law is applicable to various kinds of enterprises, including SOEs, private enterprises and foreign enterprises, as well as state-owned banks. However, China's 23 million individual businessmen and individuals consumption bankruptcy is not included in the law's application scope, because of China's inadequate individual asset reporting system, according to the draft. The law has also for the first time introduced two new systems. One is trustee in bankruptcy, and another is merging system. (Source: News Guangdong)

Professional Services

Taxation

Financial Accounting

Management Solutions

Business Management