China Law Update February 2007

Transcription

1 China Law Update February 2007

2 table of contents In this issue of China Law Update, we summarize three important new laws that were enacted in late 2006 and took effect on January 1, Together, the first two govern China s refined and crude oil markets. They were passed as part of the government s prior commitments to the World Trade Organization. The Provisions on Foreign Journalists Reporting in China During the Beijing Olympic Games and Its Preparation Period loosen restrictions on journalists working in China until after the 2008 Olympics have ended. We also report briefly on the drafts of four important laws that might be enacted as soon as the spring of And finally, we provide an update to our report last fall (China Law Update, November 2006) on the number of qualified foreign institutional investors that have been approved in accordance with the Measures on Administration of Qualified Foreign Institutional Investors Investing in Domestic Securities. 3 Business Measures on Administration of the Refined Oil Market Measures on Administration of the Crude Oil Market 6 Media Provisions on Foreign Journalists Reporting in China During the Beijing Olympic Games and Its Preparation Period 7 Drafts of Forthcoming Laws Enterprise Income Tax Law Labor Contract Law Property Rights Law Revised Anti-Unfair Competition Law 8 Updates Measures on Administration of Qualified Foreign Institutional Investors Investing in Domestic Securities 9 Faegre & Benson s Greater China Practice 10 Lawyer Contacts for the Greater China Practice W W W. F A E G R E. C O M F e b r u a r y

3 Measures on Administration of the Refined Oil Market Issuing Body: Ministry of Commerce Issuing Date: December 4, 2006 Effective Date: January 1, 2007 Measures on Administration of the Crude Oil Market Issuing Body: Ministry of Commerce Issuing Date: December 4, 2006 Effective Date: January 1, 2007 In response to its World Trade Organization commitment to open domestic markets, as of December 11, 2006, China will permit foreign companies to be involved in the refined and crude oil businesses. On December 4, 2006, the Ministry of Commerce ( MOFCOM ) issued the revised Measures on Administration of the Refined Oil Market (the Refined Oil Measures ) and the new Measures on Administration of the Crude Oil Market (the Crude Oil Measures ), which allow foreign companies to set up wholly owned oil distribution subsidiaries in China, including gas stations, oil storage facilities, and wholesale operations. According to these two measures, after January 1, 2007, all oil distribution and storage companies, both existing and new, should apply for new certificates of qualification from MOFCOM. Existing wholesale and storage companies that have obtained the required approvals from provincial governments will have an 18-month transition period to meet the thresholds provided in the Refined Oil Measures and the Crude Oil Measures, while companies that operate gas stations have only six months. In general, the Refined Oil Measures and the Crude Oil Measures establish identical thresholds for both Chinese and foreign petroleum companies that want to expand their oil storage and gas station operations throughout China. One exception is that foreign-invested oil distribution or storage companies must first apply to MOFCOM for approval of establishment of a foreign invested enterprise and then for qualification as an oil operation; Chinese-owned companies, however, are subject only to qualification. Additionally, according to the Refined Oil Measures, foreign parties may not control companies that invest in, control, or operate 30 or more gas stations in W W W. F A E G R E. C O M F e b r u a r y

4 China which sell different kinds of refined oil from various suppliers. If all stations sell the same kind of refined oil provided by the same supplier, there appear to be no limits on the number of gas stations one foreign party can own. Foreign parties wishing to engage in the oil business in China must fulfill two main requirements. First, they must be locally incorporated in China (they must have China legal person status). And second, they must meet designated thresholds on minimum registered capital. The following is a list of important requirements and thresholds. Refined Oil Wholesale Companies: 1. Must have long-term and stable oil supply channels (large oil refineries, qualified oil importers, or other enterprises that have more than a one-year supply agreement with large oil distributors or large oil importers); 2. Must be a Chinese legal person with registered capital of no less than 30 million RMB (about US $ 3.85 million); 3. Refined oil storage volume of no less than 10,000 cubic meters; and 4. Must have the necessary facilities and logistics, including pipes, special railway, trucks or ports. Refined Oil Retailing (Gas Station Companies): 1. Must comply with local gas station planning and technical requirements; 2. Must have long-term and stable refined oil supply channel, including more than a three-year oil supply agreement with qualified refined oil distributors; and 3. Competent technical staff and gas station buildings that comply with all regulations and codes. Note that although the measures do not require retail gas station companies to have China legal person status, it is not clear whether foreign investors can directly set up gas stations in China without first establishing a Foreign-Invested Enterprise and obtaining an oil operation license. Refined Oil Storage Companies: 1. Must have storage facilities capable of holding at least 10,000 cubic meters; 2. All storage facilities must comply with relevant laws and codes, and must have passed relevant inspections by authorities; 3. Must have China legal person status with registered capital of no less than 10 million RMB (about US$1.28 million); and 4. Must have all necessary facilities, equipment and logistics, including pipes, special railways, special trucks, or ports. Crude Oil Sales Companies: W W W. F A E G R E. C O M F e b r u a r y

5 1. Must have long-term and stable crude oil supply channels (large crude oil producers and qualified crude oil importers transporting a minimum of 500,000 tons per year, or other enterprises having a supply agreement longer than one year in length with the above types of enterprises); 2. China legal person status with registered capital of no less than 100 million RMB (about US$12.8 million); 3. Long-term and stable crude oil sales channels; and 4. Storage volume of no less than 200,000 cubic meters. Crude Oil Storage Companies: 1. Must have China legal person status with registered capital of no less than 50 million RMB (about US$6.42 million); 2. Storage volume of at least 500,000 cubic meters with facilities having passed all relevant inspections by authorities; and 3. Necessary logistics, including pipes, special railways or ports. The usual procedures for foreign-invested oil sales and storage companies are as follows: 1. Apply to provincial Committees of Foreign Trade and Economic Cooperation for preliminary approval of establishment of the company. 2. The provincial committee submits the application and its opinions to MOFCOM, which issues an approval letter and certificate to the applicant. 3. Apply to the appropriate branch of the State Administration of Industry and Commerce for a business license. 4. Applicant passes relevant examinations and obtains certificates from local authorities regarding construction, environmental regulations, security, and quality supervision. 5. Obtain a Permit for Handling of Hazardous Chemicals from the appropriate branch of the State Administration of Work Safety. 6. For companies engaged in the oil wholesale business, apply for qualification to engage in oil sales and obtain a certificate of approval from MOFCOM (preliminary approval from provincial Committees of Foreign Trade and Economic Cooperation is required); retailers (gas station companies) must obtain approval from Committees of Foreign Trade and Economic Cooperation (preliminary approval from municipal government is required). Due to the complex nature of the examination and certification process, it may take more than a year for foreign investors to start an oil distribution or storage business in China. Subject to the Refined Oil Measures, oil wholesale companies are prohibited from selling oil to retail companies that have not obtained the required oil sale qualifications. Retailing companies are likewise prohibited from buying oil from distributors that do not have the appropriate qualifications. W W W. F A E G R E. C O M F e b r u a r y

6 Provisions on Foreign Journalists Reporting in China During the Beijing Olympic Games and Its Preparation Period Issuing Bodies: The State Council Issuing Date: November 1, 2006 Effective Date: January 1, 2007 Expiration Date: October 17, 2008 In preparation for the Olympic games that are to be held in Beijing in the summer of 2008, China has granted unprecedented freedom to foreign journalists traveling and reporting in China from January 1, 2007, until about two months after the Olympics end (a total of about 22 months). The Provisions on Foreign Journalists Reporting in China During the Beijing Olympic Games and Its Preparation Period (the Olympic Press Provisions ) were actually published on December 1, 2006, and were carefully explained by a spokesman for the Ministry of Foreign Affairs. Under the Olympic Press Provisions, foreign journalists are no longer required to apply for permission to do reporting outside the city in which they are based unless they are going to Xinjiang or Tibet. In addition, local government officials will no longer receive visiting foreign journalists and accompany them when they are conducting interviews. (Previous regulations required foreign journalists to get approval to travel from provincial offices of foreign affairs, and to be accompanied by local foreign affairs officials when doing interviews.) The Olympic Press Provisions also allow foreign journalists to employ Chinese citizens, through authorized human resource companies, to assist them with reporting. (Under previous rules, Chinese citizens were only allowed to work for foreign journalists as administrative personnel or translators.) In addition, it is now much easier for foreign journalists to get clearance for relevant facilities. During the 22-month exemption period, the only required precondition for foreign journalists is that they obtain prior consent from proposed interviewees before conducting interviews. On December 27, 2006, the State Council issued additional provisions concerning journalists from Taiwan. Effective January 1, 2007, Taiwanese journalists are subject to the same requirements as the above provisions applying to foreigners. The Olympic Press Provisions are generally regarded as a major advance in China s opening to foreign media. These provisions, however, are scheduled to expire a couple of months after the end of the Beijing Olympics, though there is hope that they will be extended or even made permanent. W W W. F A E G R E. C O M F e b r u a r y

7 Drafts of Forthcoming Laws Labor Contract Law Enterprise Income Tax Law Property Rights Law Anti-Unfair Competition Law Drafts of three important laws were submitted for deliberation at the December 2006 meeting of the Standing Committee of the National People s Congress: the Labor Contract Law, the Property Rights Law, and the Enterprise Income Tax Law. At least two of these laws the property and income tax laws are considered likely candidates for approval at the March 2007 General Meeting of the National People s Congress. According to reports on the December meeting, the Standing Committee deliberated for the second time on the revised draft of the Labor Contract Law. Meanwhile, the Property Rights Law had an unprecedented seventh hearing at the top legislative body. The Standing Committee finally approved the draft Property Rights Law, which is scheduled for discussion at the National People s Congress General Meeting in March It is considered quite likely to be passed by the General Meeting at that time. For foreign investors, the most important draft legislation is the unified Enterprise Income Tax Law, which had missed two previous scheduled reviews in August and October Although the draft itself has not been published, some information has been released. It has been reported that the unified enterprise income tax for both Chinese- and foreign-funded enterprises will be 25 percent. Only a handful of preferential tax policies are expected to remain, for certain industries (such as the energy-saving industry, agriculture, high technology and environmental protection); other preferences would be cancelled within three years after publication of the law. There will be a five-year transition period for foreign-invested enterprises and other low-tax-rate businesses, meaning the current 15 percent income tax rate and other preferences will be cancelled five years after the law s effective date. It has also been reported that this draft will likewise be submitted to the General Meeting in March, with it being published afterwards, and becoming effective on January 1, Other reports indicate that the State Administration of Industry and Commerce has completed amendments to the 1993 Anti-Unfair Competition Law. These amendments are expected to be submitted to the Standing Committee after review by the State Council. W W W. F A E G R E. C O M F e b r u a r y

8 Updates Measures on Administration of Qualified Foreign Institutional Investors Investing in Domestic Securities In the November 2006 China Law Update, we summarized the Measures on Administration of Qualified Foreign Institutional Investors Investing in Domestic Securities, which took effect on September 1, As of February 15, 2007, a total of 52 foreign institutions have been approved by the China Securities Regulatory Commission as qualified foreign institutional investors (QFIIs) for investing in the domestic stock market. In addition, 48 of those QFIIs have received approval of their foreign currency investment quota from the State Administration of Foreign Exchange. Although the goal of these measures is to attract more foreign investment, the remaining quota of US $ 55 million does not allow for many newcomers. W W W. F A E G R E. C O M F e b r u a r y

9 Faegre & Benson s Greater China Practice Faegre & Benson LLP has extensive experience advising U.S., European and Asian clients on entering the China business environment, as well as on investment, trade and commercial matters throughout the Greater China region. From our offices in Shanghai and Minneapolis, lawyers in our China practice regularly provide international structuring, documentation and negotiation assistance for transactions both inbound to and outbound from Mainland China, Taiwan and Hong Kong. The core of our team includes highly experienced legal professionals who have studied and practiced in both the U.S. and in China. In addition, we collaborate with an extensive informal network of local law firms, which possess expertise vital in an often ambiguous regulatory environment, where local custom and practice can vary. Lawyers in our China practice represent clients ranging from privately held emerging companies to Fortune 50 multinationals in connection with their cross-border business dealings involving China. Our experience includes work in the industrial manufacturing, consumer products, telecommunications, hospitality, financial services, software, automotive, engineering, chemical products, pharmaceuticals, infrastructure, restaurant, and construction industries. W W W. F A E G R E. C O M F e b r u a r y

10 Lawyer Contacts for the Greater China Practice George D. Martin Phone: George leads the firm s Greater China practice, and is a partner in the firm s Minneapolis office. He has extensive experience in both China and Central Europe, advising U.S. and European multinational companies on investment and operational matters including international joint ventures, mergers and acquisitions, and franchising; establishment of wholly foreign owned enterprises, including assembly and processing facilities in free trade zones; licensing and technology transfer arrangements, including trade secret protection; commercial contracting for overseas operations; investment restructuring and review; Foreign Corrupt Practices Act compliance; and government relations, negotiations, and approvals. Peter A. Neumann Phone: pneumann@faegre.com Peter is a partner in the Shanghai office, has been resident in China since 1993 and is fluent in spoken and written Mandarin Chinese. Peter practices principally in broad-based foreign direct investment, mergers and acquisitions, private equity, technology and commercial matters. He has represented a wide range of publicly-held and privately-held companies based in the U.S., Europe, U.K. and Asia in such industries as electronics, industrial manufacturing, fine chemicals, software, telecommunications and Internet. Peter s experience includes advising and assisting companies on acquisitions, greenfield investments, financing, restructuring, sourcing, sales and distribution, site acquisitions, customs and foreign exchange controls and regulatory compliance. Yiqiang (Lee) Li Phone: yli@faegre.com Lee is a partner in the corporate practice in Shanghai office and provides a full range of legal services in connection with foreign investment and commercial matters in China. He is also licensed to practice law in the United States. Lee s practice is focused on the telecommunications, automotive, manufacturing, architectural, hospitality, insurance and finance industries, as well as restructuring and bankruptcy matters. W W W. F A E G R E. C O M F e b r u a r y