Aug 26, 2019

Shanghai Explores Further Measures Opening Up to Foreign Investment in Various Sectors

Earlier this month, the Several Measures for a New Round of Expansion and Opening Up for Service Industry Sectors (“Measures”)[1] were published by Shanghai’s municipal party committee and municipal people’s government. As the Measures are broadly formulated and other authorities’ views are not clear to date, gauging their significance and impact must await detailed regulations or implementing rules. Nonetheless, they herald breakthrough changes in policies and potentially regulations regarding commercial areas such as genetics, certain telecoms value-added services, and exhibitions, travel and entertainment.

Broaching foreign investment in the development and application of technology related to human stem cells, genetic diagnosis and genetic therapy:

  • Although the phrasing of the Measures does not assure this sector will be opened or provide details concerning how and to what extent it would be opened (e.g., subject to shareholding restrictions), even the official statement that Shanghai will “endeavor” to open the sector may represent an unprecedented move. Note that this past May, the State Council promulgated regulations on human genetic resources, which on the one hand established a framework involving mandatory and strictly prescribed local partnerships for foreign parties engaging in scientific research but on the other hand barely touched on commercial matters.[2] Shanghai may only have in mind issuing local measures in connection with the State Council regulations, but it may rather be considering going beyond those regulations and providing for foreign investment in the commercial side of this area, which has otherwise not been allowed.

Broaching foreign investment in “cross-border digital trade” value-added services:

  • The Measures only state that eligible foreign enterprises, within designated zones of Shanghai, may be allowed to provide value-added “cross-border digital trade” services, but do not elaborate or even define this industry sector. However, an action plan published just weeks ago by a host of Shanghai authorities (“Action Plan”)[3] mentions the following sectors to be developed under the conceptual category of “digital trade”: cloud services, under which are mentioned Infrastructure as a Service (IaaS), Platform as a Service (PaaS), Software as a Service (SaaS) and Unified Communications-as-a-Service (UCaaS); the industrial application of digital content and digital services; and cross-border e-commerce. In some circumstances and depending on the business model, some of the cloud services may involve Internet Data Center (IDC) or Internet Resources Collaborative (IRC) services.

Exploring more foreign investment in exhibition, travel and entertainment sectors:

  • The Measures indicate that, on a trial basis, foreign show organizers may independently hold exhibitions in China (as opposed to using their China subsidiaries or working with local partners under the existing regulatory regime) in the National Exhibition and Convention Center (Shanghai), Shanghai New International Expo Centre and other designated exhibition halls.
  • According to the Measures, wholly foreign-owned travel agencies incorporated in Shanghai may be allowed to operate outbound tourist businesses (other than to Taiwan) for residents of Mainland China. This would go beyond the 2017 State Council decision that allowed Sino-foreign equity travel agencies registered within pilot free trade zones to offer such services,[4] previously off limits to any direct foreign investment (except for certain investors under CEPA[5]).
  • Also to be explored, according to the Measures, is allowing wholly foreign-owned performance brokerage institutions established in Shanghai to offer their services nationwide.[6]

Exploring relaxed market entry regulations for audio-visual products:

  • Shanghai will also explore opening up the production of audio-visual products to Sino-foreign cooperative ventures in designated industrial zones,[7] with the qualifications that the operation of such projects will be led by the domestic party and that the contents of audio-visual products will be determined by the domestic party.

The Measures, though quite general in language and not definitive in effect, signal China’s continued progress towards placing foreign investors on par with domestic businesses. In fact, the Measures explicitly reaffirm that foreign-invested enterprises are entitled to national treatment in accordance with PRC laws and that the approval and permit requirements for them will be consistent with those for the domestic enterprises. Although there are pending matters to be resolved, coordination to be carried out among various government authorities and of course implementation rules and regulations to be promulgated, it may be realistically hoped that the various exploratory measures underway in China will coalesce into a welcome and cohesive transformation of the country’s foreign investment landscape.

[1] 《上海市新一轮服务业扩大开放若干措施》, issued by the Shanghai Municipal Party Committee and Shanghai Municipal People’s Government on 13 August 2019.

[2] The Administrative Regulations of the People's Republic of China on Human Genetic Resources (《中华人民共和国人类遗传资源管理条例》), issued by the State Council on 28 May 2019 and effective as of 1 July 2019.

[3] Shanghai Digital Trade Development Action Plan (2019-2021), published by the following authorities on and effective as of 24 July 2019: Shanghai Municipal Commission of Commerce, Shanghai Municipal Development & Reform Commission, Shanghai Municipal Administration of Culture and Tourism, Shanghai Administration of Market Regulation, Shanghai Municipal Finance Bureau, Shanghai Municipal Press and Publication Bureau, Shanghai Communication Administration, Shanghai Film Bureau and Shanghai Municipal Commission of Economy and Informatization.

[4] Decision of the State Council on Temporarily Adjusting Certain Provisions of Relevant Administrative Regulations, Documents of the State Council and Departmental Rules Approved by the State Council within Pilot Free Trade Zones (国务院关于在自由贸易试验区暂时调整有关行政法规、国务院文件和经国务院批准的部门规章规定的决定), issued by the State Council on 25 December 2017 and effective as of the same date.

[5] See the qualified “service provider” regime of the agreements commonly known as “CEPA”, e.g., the Mainland and Hong Kong Closer Economic Partnership Arrangement Agreement on Trade in Services (《〈内地与香港关于建立更紧密经贸关系的安排〉服务贸易协议》), effective as of 1 June 2016; the Mainland and Macau Closer Economic Partnership Arrangement Agreement on Trade in Services (《〈内地与澳门关于建立更紧密经贸关系的安排〉服务贸易协议》), effective as of 1 June 2016.

[6] The operation of performance brokerage institutions has been fully open to foreign investment under the Special Administrative Measures on Foreign Investment Access (Negative List) (2019 Edition) (《外商投资准入特别管理措施(负面清单)(2019年版)》), jointly issued by the NDRC and MOFCOM on 30 June 2019 and effective as of 30 July 2019.

[7] Specifically, China Music Industry Park of Shanghai, Zhangjiang National Digital Publishing Base, Jinshan National Demonstration Park of Green and Creative Printing and the tariff-protected areas of Shanghai FTZ.

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