Haworth & Lexon Law Newsletter (22)

Haworth & Lexon Law Newsletter
No.6, 2003 (Total:No.22) July20th, 2003
Edited by Haworth & Lexon

“Haworth & Lexon Law Newsletter” is issued every month, mainly introducing the legal change in the fields of Corporate, Securities, Foreign investment, Intellectual property rights, International trade etc. with necessary comment. All the comments do not mean the legal opinion of our firm and the firm does not have any legal liability for such comment. Should you have any interest in any topics or any questions please feel free to contact the firm. You will be expected to have satisfactory response from the professional attorney of our firm.


★ The promulgation of Closer Economic Partnership Agreement (followed in detail)
★ The State Council promulgated Interim Regulations on state assets in the enterprises,
which has been carried into effect since May 5th, 2003. Interim Regulations on state assets in the enterprises define the fundamental frame of the system of management, the basic institution of the supervising and the duties of the contributors who are in charge of the supervisory organization on state assets. Meanwhile, it also provides the autonomy in the management, which means anyone else cannot intervene in the manufacture event. The regulations also define the arrangement on the principals of the enterprises, important event and the management of the state assets.
★ The State Council promulgated Regulations on the real estate.
It will be actualized in Sept 1, 2003. The regulations specify the proprietor and the general meeting of the proprietors, prior realty management, the realty management services, the utilize and maintenance of the realty management, especially on the fields of the duties of the general meeting of the proprietors and the their rights.
★ The Ministry of the state land resources issued Provisions of agreement on the transferring the right to use of the state land. Since August 8th, 2003
it will redound to norm the conducts which are concerning on the agreement on the transferring the right to use of the state land.
★ The Supreme People's Court issued Provisions of disputes on the hearing the futures.
It has been carried on since July 1, 2003. The provisions specify many practical problems, such as on the fields of the jurisdiction, the subject, the duty of the invalid contract, the overdraft trading, the trimming in force, business traction, the guaranty on the contract implement, act of tort, burden of proof, preservation and execution.
On June 20th, 2003, China Securities Regulatory Commission issued new-amended No4 Memorandum on the standard of verify shares of stocks, it provides several new requests on account materials in the applying documents which issued openly by the securities company.
★ The Supreme People's Court issued Explanation on applicable The Trade Union law of the People's Republic of China during the civil adjudication.
It has carried on since July 9th, 2003. The judicial interpretation define the legal right of explain the trade union, the union members' labor contracts and the related questions on the expense.

Closer Economic Partnership Agreement

  On June 29th, 2003 the representatives of mainland and Hong Kong Special Administrative Region reached an agreement: Closer Economic Partnership Agreement, in short is CEPA. It will go out into effect since January 1, 2004. CEPA will widen the mainland market for Hong Kong products and it tends Hong Kong to become the focus for the international investors.
  At first, exporting and importing, the Mainland agrees to apply zero import tariff from 1 January 2004 for exports from Hong Kong meeting the rules of origin rules of origin requirement in some 270 Mainland product codes. The extent of reduction is from 35.0% to 3.0%, which including Pharmaceutical Products, Chemical Products, Textiles and Clothing, Cosmetics, Steel Products, Metal Products and Mechanical Spare Parts. In addition, from 1 January 2006, all the products whose tax decided according to the WTO agreement, when matching the rule of original state in the CEPA, the native manufacturers can share the preferential zero tariff through applying.
  The huge reduction of tariff can strive for larger market in mainland and it is sure to evoke the competition in the relevant industries between the mainland and the Hong Kong.
  The 273 product codes should identify by the party of Hong Kong government whether it does produces in Hong Kong at first, then to exam the list of the products and to identify the standard of the original state. The specific standard will be issued in January 1, 2004. Although it hasn't been formulated at present, it's certain that the ruling should match the WTO original state agreement.
  Meanwhile the mainland will not carry on the tariff quota on the import products that are originally from Hong Kong. According to the ruling, it will attract foreign investors in Hong Kong, especially the high value increment or high intellectual products or the small-type products, which according to the WTO agreement high tariff needed. Hong Kong will turn to be the steps for the foreign investors to enter into the mainland market and it will bring more opportunities for the Hong Kong enterprises, which are seek for cooperating with the foreign investment.
  The second, servicing trading, according to the list of specific reducing agreement, on the most of the servicing trading fields, the only form for foreigners to enter into the Chinese market is the joint venture. From 2006 to 2008, the enterprise with exclusive-foreign capital established by the foreign company is permitted, stand on the brokerage agency, wholesale enterprise, retail enterprise, more restrictive marketing prices and the minimum registered capital, and the quota restriction on the portion of industries.
  The CEPA provides for liberalization in market access in 17 sectors. Hong Kong companies are permitted to establish in the Mainland wholly-owned enterprises: Management Consulting Services (except from law, account, audit and authentication). Convention and Exhibition Services, Advertising Services, Accounting Services, Construction and Real Estate, Forwarding Agency Services, Wholesale Service, Retailing (including car selling and the specific permitted management), Distribution Services, Storage and Warehousing Services, Transport Services, Tourism Services
  These fields mentioned below widen the restrictive of the producers:
  The investment proportion in the Sino-foreign joint venture building items, which is undertaken by the Hong Kong builder invested in mainland. If a Hong Kong sole-investor enterprise has the qualification in the mainland, it can participate into the tenders all over the China. Meanwhile, Hong Kong enterprises can buy the architectural enterprise in mainland.
  Medical and Dental Services: Qualified Hong Kong doctors can provide short-term medical services in the Mainland for a maximum of 3 years, Hong Kong permanent residents who have satisfied certain professional qualification examination and will be granted a "medical practitioner's qualification certificate" upon passing the examination.
  Reducing the entering term for Hong Kong enterprises to establish foreign finance enterprise, wholesale business enterprise, and retail enterprise in mainland (including average sale number and the lowest registered capital), cancel the regional restriction on the brokerage agency and the wholesale and also permit the Chinese enterprises, which are formed by the Hong Kong perpetual residents to establish retail private industry and commence the business.
  Hong Kong Companies who take up storage and warehousing Services will enjoy national treatment in respect of minimum registered capital requirement.
  Geographical restrictions will be lifted for joint venture travel agencies formed by Hong Kong travel agencies in the Mainland.
  Chinese language motion pictures produced by Hong Kong companies exempted from the quota and Motion pictures co-produced with the Mainland will be treated as Mainland movies for distribution in the Mainland.
  Permitting Hong Kong permanent residents of Chinese nationality to sit the legal qualifying examination in the Mainland and, once qualified, are permitted to engage in non-litigation legal work in Mainland's law firms. Hong Kong practitioners are permitted to work for Mainland's law firms. And Hong Kong law firms which have representative offices in the Mainland can run business jointly with Mainland law firms.
  Hong Kong banks and finance companies will be subject to a relaxed asset requirement, and the existing requirement for a Hong Kong bank or finance company to set up a representative office is removed. Mainland branches of Hong Kong banks also enjoy a reduced minimum prior business.
  Permitting Hong Kong Exchanges and Clearing Limited to set up a representative office in Beijing. Hong Kong professionals can apply to practice in the Mainland.
  Permitting Hong Kong insurance companies who reach certain standard enter into the insurance market in mainland and the maximum limit of capital participation in a Mainland insurance company is raised.
  These regulations mentioned above have relatively huge adjustment, comparing with the agreement when China joined the WTO. They also provide more beneficial conditions for Hong Kong to develop in mainland at any region. The opportunity is sure to attract the attention by the world. In order to clarify the only preferential subject is "Hong Kong" and also prevent from any other countries' capital take advantage of Hong Kong as the springboard to enter into the mainland to assault the servicing business. CEPA made a restrict definition:
  (1) The company established according to the Hong Kong Special Administrative Region Company Regulation and the other regulation concerning on the enrollment expect for the oversea companies and their agencies which are registered in Hong Kong.
  (2) A company must have substantive business operations in the HKSAR as assessed on the basis of the following criteria:
  a. The company must be incorporated under the laws of the HKSAR. It simulated the characteristics of the business in mainland is uniform with the one in Hong Kong.
  b. During the substantive operation, the company must pay profits tax.
  c. Applying enterprises should register and have operated substantively for more than 3 years (including 3 years). The length of the companies such as construction and relevant business banking, insurance, their substantive business operations should be 5 years (including 5 years).
  d. The enterprise should own or rent a business operation agency, take up the substantive business operations, the locality should be match with the scope and the range of the business.
  e. The proportion of the company's staff force employed in Hong Kong should more than 50% (including 50%).
  This provision on the Hong Kong companies explicit the principal of the only for Hong Kong and preclude establishing the oversea companies in Hong Kong, but it hasn't prevent gaining profit from the other region outside Hong Kong. But this definition only limit on the unrestricted regulation on the register and form, place of business, the scope of enterprise and employment, the transfer of shares, the nationality of the holding shareholder. In another way, the Hong Kong companies by the means of transferring share under the control of the foreign investors. Then, they can have all the favors that are supply for the Hong Kong companies, meanwhile, it will cause the relevant business in mainland to face the international completion in advance 2 to 4 years comparing with the practice into the agreement of WTO.
  (3) Construct the frame of trade and investment facilitation, which clarify 7 areas on which take up the convenient financial investment. The 7 areas including Customs Clearance, Facilitation, Quarantine and Inspection of Commodities, Quality Assurance and Food Safety, Cooperation of Small and Medium-Sized Enterprises, Cooperation in Chinese Medicine and Medical Products, Electronic Commerce, Trade and Investment Promotion, Transparency in Laws and Regulations. The specific implementing regulations on 7 areas haven't publicized, but this frame clarity the construction of the directi0on of the Sino-Hong Kong finance and the specific ruling can also stimulate under the promotion of Sino-Hong Kong as soon as possible.