June 2020 / China

The Central Committee of the Communist Party of China and the State Council on June 1st released a master plan for the Hainan island free trade port (“FTP”), which aims to build the whole Hainan province into a globally-influential high-level free trade port by the middle of the century. A FTP system focusing on trade and investment liberalization and facilitation will be "basically established" in Hainan by 2025 and become "more mature" by 2035. Precisely Hainan shall: ➢ open up to capital projects in a phased manner to facilitate foreign capital flows in the Hainan FTP; ➢ further facilitate cross-border trade in goods and services with new type of international trade settlements and lighten the current inbound and outbound payments procedure as required by SAFE; ➢ vigorously develop tourism, modernize the service industries and the new and high technology industries. Tax beneficial policies shall be adopted, including: 1. Zero-Tariff a. A good list shall be published and when entering in Hainan FTP, not listed goods - in principle - shall be exempted from import duties (tariff, import VAT, consumption tax); b. Zero-tariff shall apply on production equipment imported by enterprises for their own use; c. Zero-tariff shall apply on raw materials and auxiliary materials imported into Hainan for production and processing purposes (or in service trade) in order to be exported overseas; d. People in Hainan can enjoy duty-free when they purchase import commodities within Hainan; e. Extend the quota for duty-free shopping to CNY 100,000 per person/per year and expand the categories of duty-free goods. The contents of the lists above mentioned shall be dynamically adjusted by relevant departments according to the actual needs and regulatory conditions of Hainan. 2. Lower Tax Rate, effective from the date of publication a. Enterprises registered in Hainan and engaged in encouraged sectors – not specified yet - shall enjoy a lower corporate income tax rate of 15%; b. Foreign invested enterprises operating in tourism, modern services and/or high-tech technology, shall be exempted from corporate income tax until 2025; c. The individual income tax rate for high-end talents or talents in short supply working in the port, shall have a rate of 15% maximum; Detailed management measures for the above-mentioned preferential policies shall be formulated by the Hainan’s main authorities of commerce and taxation. By developing Hainan FTP, China aims to emulate the success of Hong Kong and Singapore, both of which are renowned world trading and financial centers. However, while it is important to learn experiences from these two cities, Hainan will also have its own unique designs that suit its own conditions rather than imitating every policy from these two cities.

The Ministry of Finance and the State Taxation Administration recently released the Announcement about Extending the Deadline for Preferential Tax & Fee Policies to Maintain Medical Supplies. According to the announcement, some preferential policies will continue to be implemented until December 31, 2020. These preferential policies include that refund of value-added tax credits and loss carryover period will be extended to eight years , corporate donations can be fully deducted before tax, as well as some administrative fees and government funds will not be charged on a provisional basis.

The People's Bank of China recently issued the Circular about Pilot Launch of Large-sum Cash Management. The pilot program will last two years and will be implemented in Hebei before expanding to Zhejiang and Shenzhen. The pilot program will begin in Hebei from July 2020 and expand to Zhejiang and Shenzhen from October 2020. The circular said large-sum cash threshold should be set at a reasonable level, so that a large majority of cash transactions in the everyday life are below the cash threshold; appropriate measures should be taken to enhance large-sum cash management. The circular explained that large-sum cash management would not have any significant impact on citizens' everyday economic activities, and customers would not face any cash withdraw restrictions as long as they make appropriate registrations.

Eight authorities including the People's Bank of China and China Banking and Insurance Regulatory Commission recently released the Guidelines about Further Strengthening Financial Services for SMEs and Micro Enterprises. The document proposed 30 policy measures from such aspects as implementing loan support policies to facilitate resumption of work and production and enhancing commercial banks' financial service capacity for SMEs and micro firms. According to the document, large banks with national branch networks should play the leading role and offer an interest rate discount of at least 50 basis points; five large state-owned banks should increase loans to small and micro firms by at least 40% from a year ago, while development and policy banks should grant 350 billion yuan in special credit loans; insurance companies are encouraged to develop guaranteed insurance products against the risk of loan defaults. The document also set objectives to improve external policy environment for the banking industry and strengthen the role of the capital market in providing financing channels.

The Civil Code of the People's Republic of China was adopted on May 28, 2020 at the third session of the 13th National People's Congress. Chinese President Xi Jinping issued a decree to authorize Xinhua News Agency to make public the full text of the law on June 1, 2020. The Civil Code has 1,260 articles on seven parts of general provisions, property rights, contracts, personality rights, marriage and family, inheritance and tort liabilities, and supplementary provisions. The Civil Code will be implemented from January 1, 2021, when the marriage law, inheritance law, general provisions of civil law, adoption law, guarantee law, contract law, property rights law, and tort liability law will be revoked. The Civil Code is the first law to carry the title "code" since New China was founded in 1949, and it's a landmark law in the country's legislation history.

Premier Li Keqiang chaired a State Council executive meeting on June 17, 2020. The meeting decided that China will encourage its financial institutions to make interest concessions as appropriate to businesses to help keep economic fundamentals stable and ensure that all fee-cutting measures are fully executed to ease corporate burdens. The meeting urged stronger efforts to bring down the lending and corporate bond rates, make concessional-rate loans, defer loan repayments for micro, small and medium enterprises, and support the issuance of no-collateral loans to small and micro companies, and reduce fee-charging from banks. These efforts combined are expected to bring benefits amounting to 1.5 trillion yuan to companies of all types this year.

The National Development and Reform Commission and the Ministry of Commerce released on June 23, 2020 the Special Administrative Measures (Negative List) for the Access of Foreign Investment (2020) and the Special Administrative Measures (Negative List) for the Access of Foreign Investment in Pilot Free Trade Zones. The two documents will be implemented from July 23, 2020. The revisions have continued to curtail the negative lists for foreign investment. There are now only 33 items on the national negative list for foreign investment, and 30 items on the negative list for foreign investment at free trade zones. Among the significant changes, China will scrap foreign shareholding limits in securities companies, fund houses, futures companies and life insurance firms; China will ease market access restrictions in manufacturing and agricultural sectors, and scrap a ban on foreign investment into companies that smelt and process radioactive resources and produce nuclear fuel. Besides, opening-up policies will continue to be implemented at free trade zones.