By Audrey Luo / Jim Wang
In the context of “making new ground in pursuing opening-up on all fronts” set forth by the 19th National Congress of the Communist Party of China, as the leader of the new round of opening-up, the People’s Government of Guangdong Province issued Certain Policies and Measures of Guangdong Province on Further Expanding Opening-up and Actively Attracting Foreign Investment (hereinafter referred to as “Guangdong Ten Principals”) on December 1st, 2017.
Guangdong Ten Principals which are formulated to carry out relevant provisions under the Notification of the State Council on Measures of Expanding Opening-up and Actively Attracting Foreign Investment (Guofa [2017] No.5) and the Notification of Measures on Promoting Foreign Direct Investment by the State Council ( Guofa [2017] No.39) sets out the guiding principles in ten aspects including expanding foreign investment access, increasing financial incentives for foreign investment, strengthening land supply, supporting R&D and innovation, enhancing financial support, improving facilitation for investment and trading, etc. Guangdong Ten Principals will apply to the whole territory of Guangdong Province (including these Pilot Free Trade Zones).
Expansion of Foreign Investment Market Access
Manufacture Sector
Guangdong Ten Principals expect to loosen the restrictions on foreign equity percentage in special use vehicles and new energy vehicles industry. Currently foreign investment in manufacturing of automobile whole vehicles or special use vehicles still falls into restricted category with foreign equity share not exceeding 50%.
Service Sector
Guangdong Ten Principals expect to remove the limit of foreign equity percentage in vessel design, regional and utility aircraft maintenance, human resource service agency, international maritime transportation, railway passenger transportation and gas station construction and operation, and to break through the Chinese investor controlling requirement currently applied to the aforesaid areas.
Guangdong Ten Principals will allow foreign investment to operate internet surfing premises as well as call centers. As to call centers, there is currently no limit on foreign equity percentage for enterprises whose registration address and service facilities locate in Shanghai Pilot Free Trade Zone and which are established by Hong Kong and Macao service providers. However, foreign investors are currently prohibited from operating internet surfing premises.
Guangdong Ten Principals expect to ease the restrictions on business scope of wholly foreign-owned performance brokers. Hong Kong and Macao investors are currently allowed to establish wholly owned performance brokers in Guangdong Province. It is expected that wholly foreign-owned performance brokers will be able to expand their business scope in the future.
Financial Sector
Guangdong Ten Principals expect to ease the limits on foreign equity percentage and business scope of foreign-funded banks, securities companies, securities investment fund management companies, futures companies and life insurance companies. There currently are certain restrictions on foreign equity percentage and business scope of foreign-funded financial institutions in China.
Service Industries in Guangdong Pilot Free Trade Zone under CEPA
Guangdong Ten Principals expect to promote and expand the business scope of Mainland China law firms operated in association with Hong Kong/Macao law firms which is currently limited to civil and commercial litigation and non-litigation cases.
Guangdong Ten Principals stipulates to support Hong Kong and Macao professionals in engineering and construction industry to directly practice in Guangdong Pilot Free Trade Zones. Pursuant to Guangdong Ten Principals, the Hong Kong invested development and construction projects in Guangdong Pilot Free Trade Zones will follow project construction and management model adopted in Hong Kong.
Pursuant to Guangdong Ten Principals, air routes to/from Hong Kong and Macao, currently regarded and managed as international routes, will be considered as special domestic routes from management perspective. Such change will further simplify approval procedures for relevant air-routes.
Enhancement of Financial Incentives for Foreign Investment
New Projects and Capital Increment Projects
New projects or capital increment projects in certain amounts will be rewarded by Guangdong provincial fiscal department in an amount not less than 2% of its actual foreign investment amount in the relevant year and up to RMB100 million.
Headquarters or Regional Headquarters of Foreign-invested Multinational Companies
The headquarter or regional headquarter of foreign-invested multinational companies will be rewarded by Guangdong provincial fiscal department for its first fiscal contribution of over RMB100 million in one fiscal year and such reward will be in an amount equivalent to 30% of its relevant fiscal contribution and up to RMB100 million.
Case-by-Case Mechanism
On a case-by-case basis, Guangdong will provide special support to new or capital increment projects in manufacturing industries by Fortune Global 500 Companies or world-wide industry leading enterprises with actual foreign investment exceeding US$100 million as well as newly-established manufacturing projects in relation to IAB (new generation of information technology, artificial intelligent equipment and biological medicine) and NEM (new energy and material) with actual foreign investment exceeding US$30 million.
Strengthening with Land Supply
Land Use Planning and Reservation
The land use planning and reservation for (a) manufacturing projects with an actual foreign investment exceeding RMB1 billion and (b) self-built office property self-built by headquarters or regional headquarters of Fortune Global 500 Companies and world-wide industry leading enterprises (collectively, “Key Foreign Invested Headquarters”) will be jointly arranged by relevant authorities at both provincial and municipal levels.
Separate Registration and Assignment of Property Rights
The property rights of high-standard factories invested and built by foreign investors and self-built properties of Key Foreign Invested Headquarters will be allowed to be separately registered and assigned on a building or storey basis, and the accumulative coverage for such separately registered and assigned properties self-built by Key Foreign Invested Headquarters shall not exceed 40% of the total construction area.
Land Use through Leasing
Foreign invested enterprise will be able to apply for project planning and construction, etc. based on land leasing contract entered into with the relevant land administration department. During the leasing term, the above-ground buildings, structures and ancillary facilities are allowed to be sub-leased and mortgaged.
Utilize Existing Industrial Properties
Foreign invested manufacturing enterprises are allowed to provide productive services or operate public working space such as makerspace and innovation workshops on premises originally planned for industrial purpose without changing the original purpose and land use right type in five years. Relevant procedures for changing property purpose and land use right type will not be required until expiry of such five-year term.
Encourage Joint Establishment of Public Service Project
As to public service projects relating to medical treatment, education, culture, aged caring, sports, etc. jointly invested by foreign investors and governments for which are permitted to obtain land use right by administrative allotment, the relevant land use right will be allowed to be invested as capital contribution or equity consideration.
Support R&D and Innovation
Support Establishment of Foreign Invested R&D Institutions
Guangdong provincial fiscal department will grant subsidy in an amount up to RMB10 million to a foreign invested R&D institution accredited as provincial new type R&D institutions. Fortune 500 Global Companies and world-wide industry leading enterprises will be provided special support on a case-by-case basis for their newly established f R&D institutions in form of independent legal entity in Guangdong.
Optimize Environment for Foreign Invested R&D Institutions
Technical development goods imported by accredited foreign invested R&D centers will be exempt from import tariff, value-added tax and consumption tax. The accredited foreign invested R&D centers will be entitled to fully refund of value-added tax for their purchase of domestically produced equipment.
Boost Industrialization of R&D Achievements
It is expected to engage governments to procure products of foreign invested enterprises that are included into the provincial innovative product list. The foreign invested medicine marketing authorization holders are encouraged to produce and settle new medicines falling into first-class national medicines under a large category in Guangdong Province and an express channel will be opened for such holders for purpose of such medicines being including in the provincial medical insurance medicine index in Guangdong in parallel with price negotiation and centralized procurement support.
Enhancement of Financial Support
Boost Financing in RMB and Foreign Currency
Guangdong Ten Principals expect to explore the Non-resident Account+ (the “NRA”) pilot system in Guangdong Pilot Free Trade Zones based on offshore entities’ onshore NRA. Furthermore, foreign invested enterprises in Guangdong Pilot Free Trade Zones will be allowed to conduct cross-border two-way financing in both RMB and foreign currency on a full-caliber basis within the external debt limit equivalent to two times of their net assets.
Support Bond Financing
Foreign invested enterprises are expected to engage to issue bonds inside and outside Guangdong Pilot Free Trade Zones and offshore proceeds from bond issue will be allowed to inversely flow back to China for capital use.
Support Establishment Cross-border RMB Capital Pool
Guangdong Ten Principals expect to support transnational enterprise groups to establish two-way cross-border RMB capital pool in Guangdong Pilot Free Trade Zones, so that onshore and offshore members of such groups will be able to cross-border exchange and aggregate RMB within the groups.
Pilot Program of Operational Leasing in Foreign Currency
Pursuant to Guangdong Ten Principals, foreign invested financial leasing companies engaging in airplane and vessel leasing business in Guangdong Pilot Fee Trade Zones will be eligible to pilot program under which they are permitted to charge and settle in foreign currency.
Collateral Financing of Patent, Trademark and Copyright
Patent pledge financing model in form of “loan+ guarantee insurance/security+ fiscal risk compensation” is expected to be promoted throughout Guangdong Province.
Improvement of Facilitation for Investment and Trading
New Administration System
Pursuant to Guangdong Ten Principals, a new administration system for foreign investment consisting pre-access national treatments in parallel with black-list will be implemented throughout Guangdong Province.
Authority Delegation
The filing authority in respect of establishing foreign invested enterprises and information change will be delegated to commercial departments at county levels. Meanwhile, the Guangdong provincial government expects to delegate the relevant departments of municipal governments to oversee and grant 18 provincial administrative licenses for establishment and information change of foreign invested enterprises engaging in medical treatment, travel agency, petroleum station business, etc. and gradually delete the same to the management committees of state development zones in future.
Optimize Tax Policies
Deferred taxation policy will apply to competent profits of foreign investors from onshore entities which are reinvested into foreign investment projects falling into encouraged category and such profits will be exempt from withholding income tax.
Explore Administrative Approval Agency System
Guangdong will proactively explore feasibility of administrative approval agency system under which designated agencies will handle all related administrative approval procedures throughout major foreign invested projects.
Other Measures
Pursuant to Guangdong Ten Principals, Guangdong will also (a) enhance its support to talents in many aspects including housing, education, medical treatment and aged caring, (b) enhance its protection of intellectual property rights by adopting new mechanisms and systems, (c) optimize tax structure for foreign invested projects in state development zones with reference to existing tax policies in Shenzhen Qianhai and Zhuhai Henqin and (d) improve foreign investment protection.
Timetable
Guangdong Ten Principals require all relevant provincial departments to formulate relevant implementation rules within one month and all cities to promulgate relevant policies and measures within three months. Meanwhile, the implementation of these policies and measures shall be reported to the People’s Government of Guangdong Province at the end of each December going forward.
