I. Laws and Regulations to Watch For in 2009
§ Foreign Investment Directory for the Middle and Western Regions (effective January 1, 2009)
- Incentives and preferential treatment with respect to taxes, interest on loans, and reduced rent on industrial use purpose land will be individually determined by each autonomous region, province and municipality.
- Foreign investment is encouraged in areas of environmental protection, agriculture, infrastructure and upgrades in industrial technology.
§ Greater Tax Rebates on Exports (effective January 1, 2009)
- Higher rebates on 533 high-tech products and machines.
§ Supplementary Provisions to the Measures for the Administration of Foreign Investment in the Commercial Sector (IV) (effective February 5, 2009)
- The purpose of these measures are to encourage “service providers” (as defined by CEPA) from Hong Kong and Macau to establish commercial enterprises in mainland China by way of allowing formation of WOFEs if such service provider (i) has established over 30 shops in mainland China, and (ii) deals in goods commodities such as medicine, fertilizers, pesticides, sugar, cotton, etc., - which are sold under different brands from different suppliers.
§ Measures for the Administration of Overseas Investment (effective May 1, 2009)
- Applying to both greenfield and M&A investments, these measures support outbound Chinese investments and include an overall simplification of approval procedures. The greatest impact will be in cases of small investments (i.e., under US$ 10 million) where approval power will vest in provincial level MOFCOM offices, and approvals can be expected within three (3) business days of filing.
§ Food Safety Law and its Implementation Rules (effective June 1, 2009)
- The highlights of this new law which will supersede the existing China Food Sanitation Law include (i) an improved monitoring and supervision system which will include the departments of Heath, Quality Supervision and Industry and Commerce and Agriculture, (ii) introduction of provincial level safety commissions, (iii) national level food safety standards, (iv) cancellation of exemptions from inspections, (v) articulation of food recall procedures (vi) harsh penalties for offenders with the possibility of criminal sanctions for severe cases.
§ Patent Law Amendment (effective October 1, 2009)
Some Highlights of the law include:
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Required Identification of Genetic Information – The amendments in the Patent Law along with the amendments in the Genetic Resource Law aim to protect the source of genetic material (namely China’s resources) by requiring patent applications to identify the heredity or source of genetic resources (i.e., animal, microbial, or plant). Protection of genetic information will only be granted provided the inventor reveals the source of genetic information to the Intellectual Property Bureau, and an explanation will have to be given in cases where the source or heredity cannot be identified.
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Compulsory Licenses for Patented Pharmaceuticals – Such licenses will be granted by the State Council, to manufacturers of medicines for export, which are already protected by Chinese patents, in cases where there is a strong public interest such as (i) where countries have entered into relevant treaties with China, or (ii) where the designated country of export is unable to produce such pharmaceuticals. This rule may undermine innovation and inventiveness.
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Increased Penalties – A patent holder may now claim for reasonable expenses incurred for stopping an infringement, and the maximum statutory damages for infringements have been increased to RMB 1 million.
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Implementation of an Absolute Novelty/Inventiveness Standard – Prior disclosure of any kind anywhere in the world (e.g. public use) may be cited as prior art against the (a) inventiveness or novelty of a utility patent application, or (b) novelty of a design patent. Design patents are also required to be substantially different from prior designs and from designs which are combinations of existing patents.
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Use of Patented Pharmaceuticals/Medical Equipment in Clinical Trials – Importation, production, and use of patented pharmaceuticals and medical equipment will be exempted from patent infringement if such uses are for administrative approval purposes.
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First Filing Requirement Replaced with National Security Review – The often circumvented first filing requirement is now replaced with the requirement that if one ever desires to secure a patent in China, before filing a patent in any country, a national security review must first be conducted by the State Intellectual Property Office of China (which may take 2 to 4 months), the details of which will be set forth in the expected Implementing Regulations of the Patent Law.
Highlights from 2008
I. Favoring Real Estate Investors
§ Since 2006, the Chinese government took regulatory action to cool down foreign investment in the overheated property market in China. However, its approach to foreign investment in the real estate sector shifted radically by the end of 2008 in response to the financial crisis. Some highlights include:
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Uniform Real Estate Tax - Starting January 1, 2009 uniform real estate tax is applicable to foreign and domestic real estate investors under the Provisional Regulations on Real Estate Tax of the PRC.
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Beijing Relaxes Rules for Foreign Purchasers for One Year – In the 2009 calendar year, foreigners may purchase property in Beijing without having to meet the one year residency requirement and the use purpose of the property will not be limited to self-use.
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Shanghai Allows for Foreign Currency Deposit Accounts for Land Payments - Foreign investors without any existing PRC establishments may open foreign currency deposit accounts for the purpose of paying land security deposits, allowing them to actively participate in land bidding.
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Filings Reviewed by Provincial Authorities – Under MOFCOM’s Notice 23, from June 18, 2008, review of filings on foreign investment projects have been delegated to its provincial level authorities, which indicates that the approval process should speed up.
II. Favouring Domestic Growth
§ Policy has shifted from favouring export oriented businesses to focusing on quality investments geared toward domestic led growth. This shift can be attributed to directives of the 11th 5 year plan on the Utilization of Foreign Investment.
§ Incentives under the 11th 5 year plan: as provided for in the 2007 Catalogue of Foreign Investment and the 2008 Catalogue of Foreign Investment in the Central and Western Regions
- Greatly expanded list of encouraged industries.
- Tax incentives for investment in Central and Western regions.
§ Prohibitions under the 11th 5 year plan:
- Solely export oriented projects.
- Projects listed in the 2005 Catalogue of Industrial Restructuring: such as those which waste electricity or raw materials; or those which pollute excessively or depend on outdated technology.
- Projects which focus on low value added consumer goods (toys, clothing, etc.), with low investment, use of low technology, and high employment of unskilled labour.
III. Favoring Establishment of Multinational Regional Headquarters in Shanghai
The Provisions of Shanghai Municipality on Encouraging the Establishment of Regional Headquarters by Multinational Corporations (effective on July 7, 2008)
Circular on the Implementation of Regulations on the Establishment of Multinational Headquarters in Shanghai, No. 28, Hufufa (effective November 15, 2008)
§ Major incentives include:
- Rental incentives of between RMB 500,000 – RMB 1,000,000 on leases with an area of more than 1,000 square meters and a minimum of a 3 year term.
- One time grant of (i) RMB 5 million for Management Companies whose annual turnover exceeds RMB 50 million; or (ii) RMB 10 million for Holding Companies whose annual turnover exceeds RMB 100 million.
- Other incentives include, (a) lower threshold of accumulated paid in capital, (b) broader permitted scope of business services, (c) relaxed rules on visas, work permits, and foreign employment certificates, and (d) simplified foreign currency conversions, and customs clearance and quarantines procedures for qualified bonded logistics and distribution centers.
