Per Linden, CEO Scandic Sourcing, Shanghai September 2016
Looking back to summarize 2016 we've seen many new rules and regulations in China. Here we make a short summary about some of the more important changes for those of you doing business in or with China. Overall the trend is heading to a much stricter regulatory environment and especially for foreign companies. Also, the tightening of capital outflow have had a big impact on many businesses this year.
New Foreign Investment Law
The new foreign investment law in China was effective on the first of October 2016. With the new law there are no major changes in the structure of the system for management of foreign invested companies (FIE). However, the governance and control of the foreign entities has increased. The registration of a new entity is now submitted online and information about the actual controlling person of the company is now mandatory. This due diligence process can get complicated for some company structures as there is not always an actual controlling individual.
Restrictions on getting money out of china
To prevent the large outflow of foreign currency China has during 2016 continued to make it hard for companies and individuals to get money out of the country. Many companies have had problems with business transactions out of China as well as exchanging local currency to USD. How you structure contracts and keeping documentation is now even more important.
New work permit System for foreigners
A new "talent-based" working permit system has been implemented in China. Foreign workers are now rated based on their talent with the grades A, B and C. You qualify based on your profession, salary, education, language skills, experience etc. A workers are the highly skilled foreign workers while holders of the C permit are less qualified workers. With a new work permit card you get an identification number and can use the card to buy train tickets etc. instead of using your passport. The new work permit system is a part of China's strategy in attracting highly skilled foreigners and minimize the number of unqualified foreign workers. When hiring foreign staff in China it's important to make sure that it can be proven that the individuals experience is relevant for the job.
Chinese land rights
There has been a growing concern amongst owners of homes and commercial buildings about what happens at the end of the lease of the land on which their buildings are standing. All land in China is owned by the government and developers and real estate owners are leasing land on 20 to 70 years contracts. Recently Chinese officials said that a group of homeowners in Wenzhou city won´t have to pay a fee to extend the rights of the land under their residences. Even though there's no nationwide policy about this yet, it's still a reassuring sign for those owning factories or other buildings on Chinese land. Most land leases of foreign companies are running on 50 year terms and still has 20-30 years left.
End of the One Child Policy
After 37 years with the one child policy, it has now been a year with the new two child policy in China. This is a huge change in the Chinese society. Obviously there will be some effects on the demographic, especially in long term. A new baby boom will have an impact on consumption. The social aspect is not to be underestimated, considering the generation of children who has grown up being a single child with all the attention from the family but having no siblings.
The Chinese government will on January first 2017 announce the first new laws for the year. We expect that the pace of changes in the regulatory environment will not slow down during 2017. Happy New Year from Shanghai!