China
Chinese chains on competition
It is very easy to claim that China works to suppress economic competition — one only need point to the state sector.
A stronger claim is that China’s suppression of competition remains intense compared to market economies, with effects starting at home but also extending overseas. And that the outlook for more open competition is poor.
This should ring true at least initially, since the Chinese Communist Party (CCP) loathes any sort of political competition even down to the level of individual dissidents and small social groups. Extending beyond politics is the desire to control information — the CCP casts itself as the only legitimate information source for all decision making, including economic.
The setting for economic competition is therefore discouraging. In general, what matters most for large economies is not exports or foreign investment, but fundamental policies at home pertaining to capital, innovation, labour and land. An assessment of these policies in China reveals intense repression.
Despite talk of reform, the mobility of Chinese workers remains restricted for reasons of ‘social stability’, with the effect of reducing competition and productivity in the labour market.
The state also controls most land, a powerful tool to tilt the playing field. Preferred recipients can receive free land while unwanted firms are blocked from land purchases entirely. These are potentially serious export subsidies and barriers to entry respectively. Land is tied to warping competition for the sake of ‘innovation’. It is the government that decides which sectors are highly valued at any time, leaving firms in many other sectors starving for land and capital. This practice long pre-dates the now somewhat infamous ‘Made in China 2025’ policy.
Capital allocation is also anti-competitive. The banking system sees only a few private players, being otherwise dominated by the state. The rise of non-bank financials has been driven primarily by moving assets off state bank books. On the borrower side, state-owned enterprises (SOEs) have privileged access to loans and creditors cannot force them into bankruptcy. Others can be credit-starved.
Nor is the future bright. While October’s 19th Party Congress provides an opportunity for change, labour market reform is likely to maintain its painfully slow pace. There is again talk of sharper land ownership rights for private entities, but we have heard this before.
Stilted corporate competition was tipped at the 2013 CCP plenary meetings, a time wrongly hailed by some as heralding reform. What was actually promised was more private cooperation with the state sector — the exact opposite of what is needed. Since then, the state sector has seen a series of mergers, which is termed ‘reform’ but turns oligopolies into monopolies.
Suppression of economic competition goes hand in hand with suppression of political and information competition to give the Party control over Chinese society. There is a further goal: the giant enterprises created by free land, free capital and enforced consolidation in the home market are to become global champions. Of course, other countries are expected to offer a fair and open competitive environment.
The inconsistency belies President Xi’s support of globalisation. With China now the world’s premier manufacturer, Beijing advocates open trade in most manufactured goods. But service imports are inhibited both indirectly through capital and land subsidies and directly through assured market share for state-owned banks, insurers, telecom firms, media, professional services and so on, which are never allowed to fail.
The hypocrisy extends beyond services and trade. Foreign companies are limited to peripheral investments in energy, petrochemicals, shipping and other ‘sensitive’ industries.
Chinese officials still bemoan the unfairness of the United States rejecting China National Off-Shore Oil’s (CNOOC) 2005 bid for Unocal, though an American attempt to buy CNOOC remains inconceivable.
It is not just isolated cases. While China is deliberating whether to create new SOE monopolies, the anti-monopoly law is employed with increasing frequency. It is not being used against SOEs — they are largely exempt. Instead, the biggest targets are what Beijing sees as ‘dangerously competitive’ multinationals.
There is a counter-argument: there’s far more economic competition in China than 40 years ago. Of course this is true, and important. But the same cannot be said in comparison to China 10 or even 15 years ago. Pro-competitive reforms disappeared under Hu Jintao and show no signs of reappearing under Xi Jinping.
The extent of and trend in China’s repression of competition…
Author: Derek Scissors, AEI
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China
New Publication: A Guide for Foreign Investors on Navigating China’s New Company Law
The sixth revision of China’s Company Law is the most extensive amendment in history, impacting foreign invested enterprises with stricter rules on capital injection and corporate governance. Most FIEs must align with the New Company Law by July 1, 2024, with a deadline of December 31, 2024 for adjustments. Contact Dezan Shira & Associates for assistance.
The sixth revision of China’s Company Law represents the most extensive amendment in its history. From stricter capital injection rules to enhanced corporate governance, the changes introduced in the New Company Law have far-reaching implications for businesses, including foreign invested enterprises (FIEs) operating in or entering the China market.
Since January 1, 2020, the Company Law has governed both wholly foreign-owned enterprises (WFOEs) and joint ventures (JVs), following the enactment of the Foreign Investment Law (FIL). Most FIEs must align with the provisions of the New Company Law from July 1, 2024, while those established before January 1, 2020 have bit more time for adjustments due to the five-year grace period provided by the FIL. The final deadline for their alignment is December 31, 2024.
In this publication, we guide foreign investors through the implications of the New Company Law for existing and new FIEs and relevant stakeholders. We begin with an overview of the revision’s background and objectives, followed by a summary of key changes. Our in-depth analysis, from a foreign stakeholder perspective, illuminates the practical implications. Lastly, we explore tax impacts alongside the revisions, demonstrating how the New Company Law may shape future business transactions and arrangements.
If you or your company require assistance with Company Law adjustments in China, please do not hesitate to contact Dezan Shira & Associates. For more information, feel free to reach us via email at china@dezshira.com.
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
Lingang New Area in Shanghai Opens First Cross-Border Data Service Center to Streamline Data Export Process
The Lingang New Area in Shanghai has launched China’s first Cross-Border Data Service Center to facilitate data export for companies in Shanghai. The center will help with applications, data catalogs, and management, aiming to provide legal and safe cross-border data transfer mechanisms.
The Lingang New Area in Shanghai’s Pilot Free Trade Zone has launched a new cross-border data service center to provide administrative and consulting services to companies in Shanghai that need to export data out of China. The service center will help facilitate data export by accepting applications from companies for data export projects and is tasked with formulating and implementing data catalogs to facilitate data export in the area. The Shanghai cross-border data service center will provide services to companies across the whole city.
The Lingang New Area in the Shanghai Pilot Free Trade Zone has launched China’s first Cross-Border Data Service Center (the “service center”). The service center, which is jointly operated by the Cybersecurity Administration of China (CAC) and the local government, aims to further facilitate legal, safe, and convenient cross-border data transfer (CBDT) mechanisms for companies.
The service center will not only serve companies in the Lingang New Area but is also open to companies across Shanghai, and will act as an administrative service center specializing in CBDT.
In January 2024, the local government showcased a set of trial measures for the “classified and hierarchical” management of CBDT in the Lingang New Area. The measures, which have not yet been released to the public, seek to facilitate CBDT from the area by dividing data for cross-border transfer into three different risk categories: core, important, and general data.
The local government also pledged to release two data catalogs: a “general data” catalog, which will include types of data that can be transferred freely out of the Lingang New Area, and an “important data” catalog, which will be subject to restrictions. According to Zong Liang, an evaluation expert at the service center, the first draft of the general data catalog has been completed and is being submitted to the relevant superior departments for review.
In March 2024, the CAC released the final version of a set of regulations significantly facilitating CBDT for companies in the country. The new regulations increase the limits on the volume of PI that a company can handle before it is required to undergo additional compliance procedures, provide exemptions from the compliance procedures, and clarify the handling of important data.
Also in March, China released a new set of technical standards stipulating the rules for classifying three different types of data – core, important, and general data. Importantly, the standards provide guidelines for regulators and companies to identify what is considered “important” data. This means they will act as a reference for companies and regulators when assessing the types of data that can be exported, including FTZs such as the Lingang New Area.
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
A Concise Guide to the Verification Letter of Invitation Requirement in the China Visa Process
The application procedures for business visas to China have been simplified, with most foreigners now able to apply for an M/F visa using only an invitation letter from a Chinese company. Some countries are eligible for visa-free entry. However, a Verification Letter of Invitation may still be needed in certain cases. Consult the local Chinese embassy for confirmation.
In light of recent developments, the application procedures for business visas to China have undergone substantial simplification. Most foreigners can now apply for an M/F visa using only the invitation letter issued by a Chinese company. Additionally, citizens of certain countries are eligible to enter China without a visa and stay for up to 144 hours or even 15 days.
However, it’s important to note that some applicants may still need to apply for a “Verification Letter of Invitation (邀请核实单)” when applying for an M/F visa to China. In this article, we will introduce what a Verification Letter of Invitation is, who needs to apply for it, and the potential risks.
It’s important to note that in most cases, the invitation letter provided by the inviting unit (whether a public entity or a company) is sufficient for M/F visa applications. The Verification Letter for Invitation is only required when the Chinese embassies or consulates in certain countries specifically ask for the document.
Meanwhile, it is also essential to note that obtaining a Verification Letter for Invitation does not guarantee visa approval. The final decision on granting a visa rests with the Chinese embassy abroad, based on the specific circumstances of the applicant.
Based on current information, foreign applicants in Sri Lanka and most Middle East countries – such as Turkey, Iran, Afghanistan, Syria, Pakistan, and so on – need to submit a Verification Letter for Invitation when they apply for a visa to China.
That said, a Verification Letter for Invitation might not be required in a few Middle East countries, such as Saudi Arabia. Therefore, we suggest that foreign applicants consult with their the local Chinese embassy or consulate to confirm in advance.
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.
- New Publication: A Guide for Foreign Investors on Navigating China’s New Company Law
- Lingang New Area in Shanghai Opens First Cross-Border Data Service Center to Streamline Data Export Process
- A Concise Guide to the Verification Letter of Invitation Requirement in the China Visa Process
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