China
Changes to China’s ‘Indigenous Innovation’ Policy: Don’t Get Too Excited
Stanley Lubman, a long-time specialist on Chinese law, teaches at the University of California, Berkeley, School of Law and is the author of “Bird in a Cage: Legal Reform in China After Mao,” (Stanford University Press, 1999). China has announced a significant retreat from a policy initiated in a 2006 report on “indigenous innovation” that established “guidelines” intended to reduce dependence on foreign technology. Subsequent government actions at first seemed to threaten to exclude foreign companies from selling intellectual property developed outside of China to government agencies, to the alarm of foreign governments and technology companies. But while government policy on procurement has receded from the original position and “indigenous innovation” has been “delinked” from government procurement requirements, implementation of this shift is problematic because acceptance and commitment by sub-central (provincial and municipal) governments are needed to make it meaningful. Given the evolution of policy in China, that implementation deserves to be watched closely. Indigenous innovation was first clearly linked to government procurement in 2009. The policy was to be carried out via a national catalogue of industrial products that were targeted as most desirable to develop in order to raise the nation’s technological level. It required that to qualify as “indigenous innovation,” a product had to be produced by an enterprise that owned the intellectual property in China, had a trademark owned by a Chinese company, was registered in China and embodied a high degree of innovation. Foreign sellers objected vigorously, in part out of fears that foreign-invested enterprises (FIEs) would be excluded. In January 2010, the Ministry of Science and Technology issued a notice that modified the policy. It provided that to be eligible for accreditation, applicants must be manufacturing enterprises that are legal persons in China (including registered foreign-invested enterprises) and their products must comply with national laws, regulations and ”technology” policies. In addition, applicants must own the IP rights, and have the exclusive right to use the trademark for the product in China. The notice also stated that the product must be “advanced” according to criteria expressed only very generally, and must be “reliable” in quality. The policy was modified in April 2010 replacing the demand that applicants own IP rights with a requirement that they merely have a license to use the IP. Then, in January 2011, President Hu Jintao, during a visit to Washington, promised to “delink” indigenous innovation from government procurement. Mr. Hu appeared to have made good on his pledge last month when the Ministry of Finance announced that it would revoke three laws linking procurement with “indigenous innovation.” In a recent report on China’s innovation policy for the East-West Center ( pdf ), economist Dieter Ernst wrote that the modifications to the policy were undertaken “possibly in response” to foreign complaints and reflected “greater pragmatism in the implementation of China’s innovation policies.” Although this is a welcome reversal, it does not by its terms extend to sub-central agencies. Whether provincial and municipal governments will fall into line by allowing foreign competition rather than favoring local companies remains to be seen. The European Union Chamber of Commerce in China recently issued a report on European business experience in competing for public contracts in China ( pdf ) stating that “ although [the delinking of indigenous innovation from national procurement] was a “major positive development, the international business community remains concerned that discriminatory policies might continue to be enforced locally in spite of national commitments to the contrary.” While it appears that a national catalogue will not be issued after all, a considerable number of provincial and municipal level governments have already released their own indigenous innovation product catalogues. A survey by the US-China Business Council found 61 such sub-central catalogs had been issued by November of last year. The council identified an additional 13 this past February. Although it says it hasn’t reviewed all of the catalogues, the council found that the local lists it had studied “appeared to discriminate against foreign invested enterprises products by including only a handful of FIE products.” The Shanghai catalogue, for example, listed only two indigenous innovation products from FIEs out of a total of 523. Of 42 products listed in the Beijing catalogue, only one came from an FIE. On Nanjing’s list, there were none. Similarly, the EU Chamber report refers to a “fragmentation of the Chinese government procurement market” because “sub-central authorities develop their own procedures, procurement catalogues and unwritten procedures.” Another discouraging note on “fragmentation” comes from Ken Wasch, president of the Software and Information Industry association, who noted in testimony before the U.S. China Economic and Security Review Commission in May ( pdf ) that the Ministry of Science and Technology and the Ministry of Finance claim that “they lack jurisdiction over local catalogues.” In April, The Wall Street Journal reported complaints from U.S. companies that local governments had not seemed to have adjusted their policies to conform to national policy. Foreign impatience can be expected to grow if, as seems likely, the “delinking” of sub-central government procurement from indigenous innovation is slow. As this column has reported in a variety of contexts and as any foreign business with experience in China must know, local government failures to implement national policy are common. It is useful to recall that although China is theoretically a unitary state, in practice national laws and policies are often poorly and tardily implemented. Doing away with provincial catalogues will not prevent provincial governments from keeping the procurement process opaque and from using the lack of transparency to favor local firms. Indigenous innovation is not the only issue that confronts foreign companies as they deal with China’s drive to develop advanced technology domestically rather than importing it. Related emphases are seen in the setting of technical standards “favoring domestic industries at the expense of internationally accepted foreign standards and technologies,” as the U.S. International Trade Commission has shown in a recent report ( pdf ). As China pursues the upgrading of its economy, there will be more debate over policies on technology development. The very tentativeness with which indigenous innovation has been pursued may be a hopeful sign that continued dialogue may bring about adjustments of measures that are deemed protectionist.
Stanley Lubman, a long-time specialist on Chinese law, teaches at the University of California, Berkeley, School of Law and is the author of “Bird in a Cage: Legal Reform in China After Mao,” (Stanford University Press, 1999). China has announced a significant retreat from a policy initiated in a 2006 report on “indigenous innovation” that established “guidelines” intended to reduce dependence on foreign technology. Subsequent government actions at first seemed to threaten to exclude foreign companies from selling intellectual property developed outside of China to government agencies, to the alarm of foreign governments and technology companies. But while government policy on procurement has receded from the original position and “indigenous innovation” has been “delinked” from government procurement requirements, implementation of this shift is problematic because acceptance and commitment by sub-central (provincial and municipal) governments are needed to make it meaningful. Given the evolution of policy in China, that implementation deserves to be watched closely. Indigenous innovation was first clearly linked to government procurement in 2009. The policy was to be carried out via a national catalogue of industrial products that were targeted as most desirable to develop in order to raise the nation’s technological level. It required that to qualify as “indigenous innovation,” a product had to be produced by an enterprise that owned the intellectual property in China, had a trademark owned by a Chinese company, was registered in China and embodied a high degree of innovation. Foreign sellers objected vigorously, in part out of fears that foreign-invested enterprises (FIEs) would be excluded. In January 2010, the Ministry of Science and Technology issued a notice that modified the policy. It provided that to be eligible for accreditation, applicants must be manufacturing enterprises that are legal persons in China (including registered foreign-invested enterprises) and their products must comply with national laws, regulations and ”technology” policies. In addition, applicants must own the IP rights, and have the exclusive right to use the trademark for the product in China. The notice also stated that the product must be “advanced” according to criteria expressed only very generally, and must be “reliable” in quality. The policy was modified in April 2010 replacing the demand that applicants own IP rights with a requirement that they merely have a license to use the IP. Then, in January 2011, President Hu Jintao, during a visit to Washington, promised to “delink” indigenous innovation from government procurement. Mr. Hu appeared to have made good on his pledge last month when the Ministry of Finance announced that it would revoke three laws linking procurement with “indigenous innovation.” In a recent report on China’s innovation policy for the East-West Center ( pdf ), economist Dieter Ernst wrote that the modifications to the policy were undertaken “possibly in response” to foreign complaints and reflected “greater pragmatism in the implementation of China’s innovation policies.” Although this is a welcome reversal, it does not by its terms extend to sub-central agencies. Whether provincial and municipal governments will fall into line by allowing foreign competition rather than favoring local companies remains to be seen. The European Union Chamber of Commerce in China recently issued a report on European business experience in competing for public contracts in China ( pdf ) stating that “ although [the delinking of indigenous innovation from national procurement] was a “major positive development, the international business community remains concerned that discriminatory policies might continue to be enforced locally in spite of national commitments to the contrary.” While it appears that a national catalogue will not be issued after all, a considerable number of provincial and municipal level governments have already released their own indigenous innovation product catalogues. A survey by the US-China Business Council found 61 such sub-central catalogs had been issued by November of last year. The council identified an additional 13 this past February. Although it says it hasn’t reviewed all of the catalogues, the council found that the local lists it had studied “appeared to discriminate against foreign invested enterprises products by including only a handful of FIE products.” The Shanghai catalogue, for example, listed only two indigenous innovation products from FIEs out of a total of 523. Of 42 products listed in the Beijing catalogue, only one came from an FIE. On Nanjing’s list, there were none. Similarly, the EU Chamber report refers to a “fragmentation of the Chinese government procurement market” because “sub-central authorities develop their own procedures, procurement catalogues and unwritten procedures.” Another discouraging note on “fragmentation” comes from Ken Wasch, president of the Software and Information Industry association, who noted in testimony before the U.S. China Economic and Security Review Commission in May ( pdf ) that the Ministry of Science and Technology and the Ministry of Finance claim that “they lack jurisdiction over local catalogues.” In April, The Wall Street Journal reported complaints from U.S. companies that local governments had not seemed to have adjusted their policies to conform to national policy. Foreign impatience can be expected to grow if, as seems likely, the “delinking” of sub-central government procurement from indigenous innovation is slow. As this column has reported in a variety of contexts and as any foreign business with experience in China must know, local government failures to implement national policy are common. It is useful to recall that although China is theoretically a unitary state, in practice national laws and policies are often poorly and tardily implemented. Doing away with provincial catalogues will not prevent provincial governments from keeping the procurement process opaque and from using the lack of transparency to favor local firms. Indigenous innovation is not the only issue that confronts foreign companies as they deal with China’s drive to develop advanced technology domestically rather than importing it. Related emphases are seen in the setting of technical standards “favoring domestic industries at the expense of internationally accepted foreign standards and technologies,” as the U.S. International Trade Commission has shown in a recent report ( pdf ). As China pursues the upgrading of its economy, there will be more debate over policies on technology development. The very tentativeness with which indigenous innovation has been pursued may be a hopeful sign that continued dialogue may bring about adjustments of measures that are deemed protectionist.
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Changes to China’s ‘Indigenous Innovation’ Policy: Don’t Get Too Excited
China
Exploring the Revamped China Certified Emission Reduction (CCER) Program: Potential Benefits for International Businesses
Companies in China must navigate compliance, trading, and reporting within the CCER framework, impacting operations and strategic objectives. The program focuses on afforestation, solar, wind power, and mangrove creation, offering opportunities for innovation and revenue streams while ensuring transparency and accuracy. The Ministry of Ecology and Environment oversees the program.
As companies navigate the complexities of compliance, trading, and reporting within the CCER framework, they must also contend with the broader implications for their operations, finances, and strategic objectives.
This article explores the multifaceted impact of the CCER program on companies operating in China, examining both the opportunities for innovation and growth, as well as the potential risks and compliance considerations.
Initially, the CCER will focus on four sectors: afforestation, solar thermal power, offshore wind power, and mangrove vegetation creation. Companies operating within these sectors can register their accredited carbon reduction credits in the CCER system for trading purposes. These sectors were chosen due to their reliance on carbon credit sales for profitability. For instance, offshore wind power generation, as more costly than onshore alternatives, stands to benefit from additional revenue streams facilitated by CCER transactions.
Currently, primary buyers are expected to be high-emission enterprises seeking to offset their excess emissions and companies aiming to demonstrate corporate social responsibility by contributing to environmental conservation. Eventually, the program aims to allow individuals to purchase credits to offset their carbon footprints. Unlike the mandatory national ETS, the revamped CCER scheme permits any enterprise to buy carbon credits, thereby expanding the market scope.
The Ministry of Ecology and Environment (MEE) oversees the CCER program, having assumed responsibility for climate change initiatives from the National Development and Reform Commission (NDRC) in 2018. Verification agencies and project operators are mandated to ensure transparency and accuracy in disclosing project details and carbon reduction practices.
On the second day after the launch on January 23, the first transaction in China’s voluntary carbon market saw the China National Offshore Oil Corporation (CNOOC), the country’s largest offshore oil and gas producer, purchase 250,000 tons of carbon credits to offset its emissions.
This article is republished from China Briefing. Read the rest of the original article.
China Briefing is written and produced by Dezan Shira & Associates. The practice assists foreign investors into China and has done 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 china@dezshira.com.
China
China Implements New Policies to Boost Foreign Investment in Science and Technology Companies
China’s Ministry of Commerce announced new policy measures on April 19, 2023, to encourage foreign investment in the technology sector. The measures include facilitating bond issuance, improving the investment environment, and simplifying procedures for foreign institutions to access the Chinese market.
On April 19, 2023, China’s Ministry of Commerce (MOFCOM) along with nine other departments announced a new set of policy measures (hereinafter, “new measures”) aimed at encouraging foreign investment in its technology sector.
Among the new measures, China intends to facilitate the issuance of RMB bonds by eligible overseas institutions and encourage both domestic and foreign-invested tech companies to raise funds through bond issuance.
In this article, we offer an overview of the new measures and their broader significance in fostering international investment and driving innovation-driven growth, underscoring China’s efforts to instill confidence among foreign investors.
The new measures contain a total of sixteen points aimed at facilitating foreign investment in China’s technology sector and improving the overall investment environment.
Divided into four main chapters, the new measures address key aspects including:
Firstly, China aims to expedite the approval process for QFII and RQFII, ensuring efficient access to the Chinese market. Moreover, the government promises to simplify procedures, facilitating operational activities and fund management for foreign institutions.
This article is republished from China Briefing. Read the rest of the original article.
China Briefing is written and produced by Dezan Shira & Associates. The practice assists foreign investors into China and has done 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 china@dezshira.com.
China
Q1 2024 Brief on Transfer Pricing in Asia
Indonesia’s Ministry of Finance released Regulation No. 172 of 2023 on transfer pricing, consolidating various guidelines. The Directorate General of Taxes focuses on compliance, expanded arm’s length principle, and substance checks. Singapore’s Budget 2024 addresses economic challenges, operational costs, and sustainability, implementing global tax reforms like the Income Inclusion Rule and Domestic Top-up Tax.
Indonesia’s Ministry of Finance (MoF) has released Regulation No. 172 of 2023 (“PMK-172”), which prevails as a unified transfer pricing guideline. PMK-172 consolidates various transfer pricing matters that were previously covered under separate regulations, including the application of the arm’s length principle, transfer pricing documentation requirements, transfer pricing adjustments, Mutual Agreement Procedure (“MAP”), and Advance Pricing Agreements (“APA”).
The Indonesian Directorate General of Taxes (DGT) has continued to focus on compliance with the ex-ante principle, the expanded scope of transactions subject to the arm’s length principle, and the reinforcement of substance checks as part of the preliminary stage, indicating the DGT’s expectation of meticulous and well-supported transfer pricing analyses conducted by taxpayers.
In conclusion, PMK-172 reflects the Indonesian government’s commitment to addressing some of the most controversial transfer pricing issues and promoting clarity and certainty. While it brings new opportunities, it also presents challenges. Taxpayers are strongly advised to evaluate the implications of these new guidelines on their businesses in Indonesia to navigate this transformative regulatory landscape successfully.
In a significant move to bolster economic resilience and sustainability, Singapore’s Deputy Prime Minister and Minister for Finance, Mr. Lawrence Wong, unveiled the ambitious Singapore Budget 2024 on February 16, 2024. Amidst global economic fluctuations and a pressing climate crisis, the Budget strategically addresses the dual challenges of rising operational costs and the imperative for sustainable development, marking a pivotal step towards fortifying Singapore’s position as a competitive and green economy.
In anticipation of global tax reforms, Singapore’s proactive steps to implement the Income Inclusion Rule (IIR) and Domestic Top-up Tax (DTT) under the BEPS 2.0 framework demonstrate a forward-looking approach to ensure tax compliance and fairness. These measures reaffirm Singapore’s commitment to international tax standards while safeguarding its economic interests.
Transfer pricing highlights from the Singapore Budget 2024 include:
This article is republished from China Briefing. Read the rest of the original article.
China Briefing is written and produced by Dezan Shira & Associates. The practice assists foreign investors into China and has done 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 china@dezshira.com.
- Exploring the Revamped China Certified Emission Reduction (CCER) Program: Potential Benefits for International Businesses
- China Implements New Policies to Boost Foreign Investment in Science and Technology Companies
- Q1 2024 Brief on Transfer Pricing in Asia
- New Report from Dezan Shira & Associates: China Takes the Lead in Emerging Asia Manufacturing Index 2024
- Is journalist Vicky Xu preparing to return to China?
- Guide for Foreign Residents: Obtaining a Certificate of No Criminal Record in China
