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Issue 02, 2002 (15 February)
 Policy and Law

New Rules for Foreign-invested Road Transport Service

On 20 November 2001, the Ministry of Communications (MOC) and Ministry of Foreign Trade and Economic Cooperation (MOFTEC) jointly announced the "Regulations on the Administration of Foreign-invested Road Transport Service", which came into effect on the same day replacing the provisional regulations promulgated in 1993.

The major changes in the new regulations are as follows:

  1. The old rules only governed the establishment of enterprises. The revised regulations clearly spell out the requirements in each step of the process from establishment to cessation, suspension or termination of such enterprises, as well as all aspects of their business operation.

  2. Before, there were no detailed guidelines concerning the equity ratio of a JV or scope of road transportation service. Under the revised regulations, road transport is defined to include passenger service, cargo service, loading and unloading of cargo, warehousing and other road-related services, and vehicle repair. In terms of equity ratio, different services have different requirements. For example, a JV offering passenger service must be majority-owned by the mainland partner. The foreign partner can hold no more than 49% shares. Besides, at least 50% of the registered capital must be spent on building or improving the infrastructure for the passenger service.

  3. Foreign investors were not allowed to operate wholly-owned road transport service. But now foreign participation is allowed in three ways, i.e. Sino-foreign equity and contractual JVs, and wholly foreign-owned operations. However, the actual implementation schedule for wholly foreign-owned operations will be jointly announced by MOC and MOFTEC at a later date in line with China's WTO entry.

  4. The old rules did not specify the operation period of equity or contractual JVs. The new regulations state that the term of a foreign-invested road transport enterprise generally should not exceed 12 years. However, there is a provision for extension. Also, if over 50% of the registered capital is invested in the infrastructure facilities, the duration may be set at 20 years.

It is understood that foreign-invested road transport enterprises do not come under any geographical restrictions. For example, passenger and cargo service may be operated across provinces, cities and regions. However, passenger and cargo service providers are classified into five categories based on their service standard and reputation. Enterprises with a low rating are not allowed to operate certain passenger routes or offer certain cargo services. Newly formed JVs will be rated and categorised based on the credentials of the mainland partner. JVs engaged in repair service must operate at fixed locations, but branches at other locations may be allowed upon approval.

Foreign investors interested in setting up road transport JVs should first submit a proposal to the local communications department. Upon approval, they should apply to the local foreign economic and trade department for FIE establishment. Road transportation, as a crucial component of the logistics sector, is one of the sectors China will further open up after WTO accession. Road transport in the mainland has enormous market potential and offers immense opportunities, but the risks involved are also high. Interested investors should carry out in-depth market studies and assess their own capabilities before moving in.

Import Licensing Control Slashed in 2002

MOFTEC and the General Administration of Customs (GAC) have jointly issued the 2002 Catalogue of Commodities Subject to Import Licensing Management. Starting from 1 January 2002, the number of categories of commodities subject to quota management and licensing control has been reduced from 33 in 2001 to 12.

According to the new catalogue, 12 categories of commodities, covering a total of 170 eight-digit tariff items, are subject to import licensing in 2002. Among these, eight categories are under quota licensing management, namely refined oil products, natural rubber, vehicle tyre, motor vehicle and key parts thereof, motorcycle and key parts thereof, camera and body thereof, watch, and crane lorry and chassis thereof. The remaining four categories, namely CD-ROM manufacturing equipment, classified chemicals, poisonous chemicals and ozone-depleting substances, are subject to import licensing.

The difference between quota licensing and licensing control is that, for commodities under quota licensing control the importing enterprise must first obtain a quota before an import licence would be issued. For commodities under licensing control, quota is not required and the importing enterprise only needs to apply for the licence.

Details of the reduction of quota control for 2002 are as follows:

  1. The number of categories of mechanical and electronic products subject to import quota licensing has been lowered from 12 (covering 152 tariff items) in 2001 to five (covering 76 tariff items):
    (i) Motor vehicle and key parts thereof (48 eight-digit tariff items);
    (ii) Motorcycle and key parts thereof (11 eight-digit tariff items);
    (iii) Camera and body thereof (4 eight-digit tariff items);
    (iv) Watch (6 eight-digit tariff items);
    (v) Crane lorry and chassis thereof (7 eight-digit tariff items).

  2. The number of categories of general commodities under import quota licensing control has been reduced from 13 to three, namely refined oil products, natural rubber and vehicle tyre.

  3. Products under import licensing control have been reduced from eight categories to four, namely CD-ROM manufacturing equipment, classified chemicals, poisonous chemicals and ozone-depleting substances.

It is also announced that quota licensing control over the following products has been lifted starting 1 January 2002: polyester fibre, acrylic fibre, polyester chip, tobacco and tobacco products, cellulose diacetate tow, colour TV and kinescope thereof, radio, answering machine and mechanisms thereof, audio-video tape duplicating machine, refrigerator and compressor thereof, air-conditioner and compressor thereof, open-end spinning machine, liquor, and colour photosensitive material. Also, import licensing control over motor vehicle and key parts thereof and vehicle tyre has been removed.

New Management Model Experimented at Export Processing Zones

After about two years since the State Council approved the first export processing zone, the General Administration of Customs (GAC) has recently published its opinions on the transfer of materials for deep processing between processing trade enterprises within and outside export processing zones (EPZs). The opinions outline four supervision models to be implemented on a pilot basis in Kunshan EPZ in Jiangsu and Songjiang EPZ in Shanghai. If the trial proves to be successful, the models will be introduced in all the EPZs across the country.

The four supervision models for the transfer of materials for deep processing are:

  1. Transfer between processing trade enterprises in different EPZs - this model is already in place whereby transfer between factories in different EPZs is allowed and the necessary hardware and software for customs supervision have been developed. For example, the customs offices in different EPZs are linked up by computers, and the same is true between the customs offices and enterprises within the EPZs.

  2. Transfer between processing trade enterprises in EPZs and bonded zones - since both EPZs and bonded zones are under customs supervision and the supervision model applied to their processing trade enterprises is basically the same, the model for supervising transfers between EPZs can be applied to transfers between EPZs and bonded zones.

  3. Transfer between enterprises in EPZs and processing trade enterprises outside EPZs that are linked up with customs computer network - under this model, the enterprise in the EPZ applies to customs for verification and cancellation of the transfer of materials for deep processing outside the zone, while the enterprise outside the EPZ presents the Registration Handbook issued by customs and completes the import declaration procedure with the EPZ customs.

  4. Transfer between enterprises in EPZs and those outside EPZs through customs-designated "public bonded warehouses".

New Management Measures for Famous Brands

The State General Administration for Quality Supervision and Inspection and Quarantine (AQSIQ) has recently announced the "Measures for the Management of Chinese Famous Brand Products".

The new measures specify the eight prerequisites of a famous brand:

  1. Conformity with state law and industrial policy.
  2. In terms of quality, the product should command a leading position in the domestic market and reach an advanced level by international standards. In terms of market share, export earnings and reputation, the product should be among the best of its kind on the domestic market.
  3. In terms of annual sales, profits tax paid, profit per unit cost and contribution to total assets ratio, the product should be among the best in the industry.
  4. The production enterprise should be equipped with advanced production technology and equipment and is a leader in terms of technological innovation and product development.
  5. The product should be manufactured in compliance with a domestic standard that is comparable to international standards or the advanced standards in foreign countries.
  6. The enterprise should possess sound measuring, inspection and testing systems.
  7. The enterprise should possess a sound and effective quality assurance system.
  8. The enterprise should offer excellent after-sale service with a high level of customer satisfaction.

The evaluation of famous Chinese brands is an annual exercise conducted on enterprises free of charge.

FIEs in Bonded Zones May Establish Outside Offices

In January 2002, the State Administration for Industry and Commerce (SAIC) announced new rules concerning the registration of foreign-invested enterprises (FIEs) in bonded zones. FIEs established in bonded zones may now set up offices outside the zones. However, restrictions will be applied to these offices in the areas of preferential tax treatment, opening of foreign exchange accounts, and flow of capital. Details of the new rules are as follows:

  1. FIEs in bonded zones may set up offices outside the zones to carry out liaison work relating to their business activities.
  2. FIEs in bonded zones applying to establish, alter or register offices outside the zones should follow the conditions and procedures applicable to FIEs in setting up offices.
  3. The registration authorities would strictly monitor the activities of such offices.
  4. Offices of FIEs set up outside bonded zones are not entitled to the preferential tax treatment offered in the zones.
  5. These out-of-zone offices are not allowed to open foreign currency accounts.
  6. Other than such liaison offices, FIEs in bonded zones are not allowed to set up any other kind of business branches.

Mainland Funds to Enter HK Bourse

According to informed sources, China may allow mainland residents to invest in Hong Kong's stock market starting mid-February. The issue has been one of the proposals under discussion between the mainland and the SAR aimed at rescuing Hong Kong's economy. The move will certainly help boost Hong Kong's stock market and economy as a whole.

While the sources point out that some progress has been made on the proposal to give Hong Kong greater access to mainland funds, details are being ironed out and expected to be ready by mid-February. In the light of China's WTO accession, the mainland and Hong Kong authorities have been working together to strengthen cooperation in the financial sector. To this end, SAR officials presented a number of proposals to the central government in May 2001. These proposals included allowing mainland residents to use their foreign currency to buy H-shares in Hong Kong and invest in Hong Kong firms listed in the mainland bourse by means of issuing CDRs (Chinese depository receipts).

Enterprise Credit Standing Made Public

China will soon introduce a system to make information on the credit standing of both domestic and foreign enterprises publicly available. According to Wang Zhongfu, director of State Administration for Industry and Commerce (SAIC), the disclosure system will consist of two parts. The first part covers enterprises which have committed serious illegal acts and whose activities are under certain restrictions within a specified period. Their information will be publicised on the Internet to alert other business operators. The second part covers enterprises with an outstanding record of corporate behaviour and their information will be publicised on the Internet in recognition of their good credit standing.

In order to build this information system, efforts will be made to speed up the "informatisation" process and promote e-government and e-business. SAIC is committed to fully implementing electronic data transmission in a bid to achieve "e-supervision" and expedite information feedback and interchange. Meanwhile, the systems for filing records, handling enquiries and publicising credit standing information electronically will be improved. Steps will also be taken to phase in online licence application, examination and approval, annual reviews and enquiries.

Taiwan Relaxes Control on Mainland Imports

As both China and Taiwan have formally acceded to the WTO, Taiwan has to comply with WTO principles and treat mainland imports the same way as it treats imports from other parts of the world. Taiwan's existing practice of imposing certain conditions on mainland imports should be terminated. However, if such restrictions were removed overnight, domestic industries would be seriously harmed in Taiwan. In this connection, a special task force has been jointly set up by Taiwan's Executive Yuan and other relevant organs to work out future directions of cross-strait economic and trade policy.

On 16 January, Taiwan's Executive Yuan adopted the "Proposed Implementation Schedule for the Adjustment of Cross-Strait Economic Policy Upon WTO Accession". The key resolutions include:

  • Direct cross-strait trade to be permitted;
  • Phased-in relaxation of restrictions on mainland imports;
  • Examination and approval mechanism for mainland imports to be adjusted;
  • Safeguard mechanism against mainland imports to be strengthened.

In accordance with the resolutions, Taiwan's Board of Foreign Trade is scheduled to announce on 15 February the first list of 2,126 items (consisting of 901 agricultural and 1,225 industrial products) that can be directly imported from the Chinese mainland to Taiwan. The proposed list of mainland items to be permitted direct import is published at the Board of Foreign Trade's website (http://www.trade.gov.tw).

New Rules for Civilian Goods Imports

In accordance with the basic requirements of WTO's Agreement on Technical Barriers to Trade (TBT Agreement), China's State General Administration for Quality Supervision and Inspection and Quarantine (AQSIQ) has recently promulgated the "Measures for the Administration of Entry Inspection of Civilian Goods under Import Licensing Control". Under the new measures, all the required approval documents for civilian goods subject to import licensing will be examined by the entry-exit inspection and quarantine department upon entering the country. At the same time, a certain proportion of the goods will be random-checked.

In the past, a number of government departments were involved in implementing import licensing control. The division of work resulted in the absence of a unified mechanism to check if the imports subject to licensing control were accompanied by the necessary approval documents. With the new rules, inspection and verification work at ports of entry will be standardised and procedures simplified, thus raising efficiency.

AQSIQ has also promulgated the following new rules: Measures for the Administration of Entry-Exit Inspection and Quarantine of Grain and Feedstuffs, Measures for the Administration of Inspection and Quarantine of Aquatic Animals Intended for Consumption in Hong Kong and Macau, Regulations on the Administration of Mandatory Product Certification, and Measures for the Administration of Adopting International Standards.