BEIJING - China will begin 2006 with a
flurry of new regulations, including measures to
ease foreign investment in the country's equity
markets and new import-tax policies intended to
promote domestic innovation. Also, measures to
regulate international trade in staple products
will be continued.
Foreign stock
investment rules further relaxed Five
Chinese ministries - the Ministry of Commerce, the
China Securities Regulatory Commission, the State
Taxation Administration, the State Administration
for Industry and Commerce and the State Foreign
Exchange Administration -
jointly promulgated a set of
Measures on the Management of Strategic Investment
of Foreign Investors in Listed Companies on
December 31.
The new regulations, which
will take effect on January 30, are intended to
facilitate long-term foreign strategic investment
in China's domestic A-share market, and in turn
give a significant boost to the market that
remained bearish for more than four years and lost
nearly 50% of its value.
In fact, foreign
strategic investors had already invested in a
number of Shanghai- and
Shenzhen-listed A-share companies through mergers
and acquisitions and other channels before
implementation of the new regulations. In terms of
equity proportions, they have more than a 10%
stake in some 60 A-share companies. In 28 of
these, the interest of foreign strategic investors
is more than 25%.
By sector, the listed
companies attracting foreign strategic investment
are mainly in the textile, machinery, real-estate,
petrochemical, metals, logistics, finance and
service sectors. They mostly boast good asset
quality and unique advantages, such as a
land-resource monopoly in the real-estate
industry; a resource-supply monopoly in the
logistics industry; a sales-network and
client-resource monopoly in the banking sector;
low labor costs in the textile industry; and few
policy limits.
The equity structure of
these companies is typically scattered, with the
holdings of the largest shareholder not exceeding
40% in more than 60% of the companies, and not
exceeding 30% in some one-third of the companies.
The new regulation sets only a lower
limit, instead of upper limit, on letting in
foreign strategic investors in the A-share
companies. This will create a wide channel for
massive foreign mergers and acquisitions of
Chinese listed companies after the split-share
structure reform of the listed companies is
completed, and all their shares are negotiable on
the secondary market.
Before the new
regulations, foreign strategic investment in
Chinese listed companies has been limited to
non-tradable shares in the A-share companies, and
may not be cashed on the floor-based market.
Import tax policies to promote
innovation China will develop import-tax
policies aimed at promoting technological
innovation and encouraging enterprises to become
independent innovation entities during the
country's 11th Five-Year Program period (2006-10),
Vice Minister of Finance Zhu Zhigang said in an
interview with the China Financial and Economic
News recently. These tax policies will echo the
extreme importance paid by the central government
to enhancing the country's independent innovation
capacity, the vice minister said.
Zhu said
the policies will mainly cover three aspects:
1. Supporting development of the equipment
manufacturing industry. To be specific,
preferential taxation treatment will be given in
importing key parts and raw materials necessary in
developing and manufacturing key equipment. Tax
policies on imported equipment will be adjusted
following the principles of stopping tax
exemptions for the import of complete machines and
using the related original preferential treatment
policy for equipment independently developed and
made by domestic enterprises.
2) Giving
preference to enterprises undertaking key state
technological projects and key equipment research
and development projects.
3) Further
revising the preferential tax policies for the
import of goods used in scientific research and
technological development.
Import/export of staples to be
regulated China will continue to take
tariff measures in the 11th Five-Year Program
period to regulate the import and export of staple
products, Zhu said.
These measures boast
the advantages of easier implementation and
instant effect in regulating the scale and
structure of import and export flows, stabilizing
the prices of the commodities on the domestic
market, and ensuring domestic market supplies,
said the vice minister. China has already
implemented such tariff measures to regulate
import and export in 2005, and they have yielded
satisfying results.
Zhu said that in the
11th Five-Year Program period, such tariff
measures will focus on controlling the export of
high-energy-consuming, high-pollution and
resource-based products, encouraging the import of
resource products and staple strategic goods
under-supplied on the domestic market, and
encouraging Chinese enterprises to explore foreign
resources and international markets.
