New Initiatives to Boost Pudong


July 15, 2021

The Central Committee of the Chinese Communist Party (CCP) and the State Council released today certain Mandates on Supportive Measures to Promote [Shanghai’s] Pudong New Area to become a Model Area for Modernization Development (the Pudong Initiatives) which was dated April 23, 2021 but was just published by the state news press on July 15.

The Pudong Initiatives set out a number of ambitions to make Pudong a hub connecting China mainland and the world, to make Shanghai an international innovation center, international financial center, trade center and shipping center, and to make Pudong/Shanghai a place embracing international rules and systems.

HIGHLIGHTS

One key highlight of the Pudong Initiatives, in addition to the routine China tax incentives offered to business sectors liked by the authorities, is a bold grant of legislation powers to Pudong/Shanghai.

The Pudong Initiatives also reiterated that (a) the reforms should be continued to improve the system by tackling the system related issues, and (b) an open economy embracing internationally recognized rules should first be tested in Pudong.

SOME SPECIFICS

(i) Legislation Powers granted to Shanghai Municipality
Shanghai People’s Congress and its standing committee are authorized

  • – to make regulations applicable in Pudong only, which may have provisions different from the existing national laws, as long as such deviations are considered necessary to serve the general purposes of the Pudong Initiatives; and
  • – to make legislations covering matters which are not covered by existing national laws.

(ii) measures to encourage innovation, key technology related R&D and further deregulation of the financial sector
(iii) identifies IC, life science, biopharmaceuticals, AI, civil aviation, auto- driving, algorithm as key development focus
(iv) measures to enhance punitive damages for IP infringements
(v) measures to ensure government supports

MEASURES

1 Tax Incentives

  • – For certain business establishments (including IC, biopharmaceuticals, AI and civil aviation, companies having production and/or R&D functions in Pudong will be eligible for enjoying 15% corporate income tax rate, for 5 years starting from its formation;
  • – R&D establishments certified by Pudong will be eligible for import duty free treatment for its imported equipment, and will be eligible for certain VAT refund for its locally sourced equipment;
  • – import of clinical research use medicine will be eligible for import duty exemption;
  • – VC companies will be eligible for corporate income reduction;
  • – preferential tax policies will be made available to activities involving China
    purpose outbound investment and offshore activities;
  • – preferential VAT policies will be made available to Pudong companies providing services to foreign companies outside China; and
  • – special tax treatment will be considered in connection with “free trade account(s)”.

2 IP Protection

The Pudong Initiatives call for

  • – formation of a sophisticated IP protection system and enhancement of punitive damages for infringement activities; and
  • – enforcement of the Anti-unfair Competition Law and protection of trade secret.

3 Free Trade

  • – Certain privileges within the free trade zone will be made available to some
    bonded areas within Pudong.
  • – Vessels registered at Shanghai’s Yangshan port and owned by international companies, will be permitted to ship domestic cargo as long as Yangshan port is designated as the hub.
  • – Air space in Pudong airport area will be further deregulated.
  • – Loosen the investment restrictions over the industries of telecommunication and medical services

4 Pharmaceutical and Medical Service

In connection with the pharmaceutical and medical service sectors, the Pudong
Initiatives specifically provide

  • – import of clinical research use medicine will be eligible for import duty exemption;
  • – R&D of IVD reagents will be permitted on a conditional basis;
  • – Biopharmaceutical companies having production and/or R&D functions in Pudong will be eligible for enjoying 15% corporate income tax rate, for 5 years starting from its formation; and
  • – government supports will be made available in connection with import permitting, Customs clearance efficiency and distribution channels of imported consumables used for R&D functions.

5 Financial Sector

It is clearly mentioned that Pudong will be used as a pilot to test “[limited] convertible
of capital account funds”. As a part of this particular initiative,

  • – banks in Pudong will have certain autonomy to make cross border payments easier;
  • – (convertible) RMB futures may be traded at China Foreign Exchange Trade System;
  • – establishment of certain offshore financial center functions covering offshore RMB trading activities;
  • – qualified foreign institutional investors will be allowed to use RMB to participate in share offering at the [STAR Market] of Shanghai Stock Exchange, and will be provided certain access to China’s bond market;
  • – promote the secondary market for private equity and venture capitals;
  • – foreign debt registration will be simplified; and
  • – aim to make Shanghai an international re-insurance center.

http://fujae.com/wp-content/uploads/2021/07/newsletter.pudong-initiatives.overview.public.jul192021.pdf

***
This communication is provided as a service to FuJae Partners’ clients and contacts. It is intended for informational purposes only. It is not intended to create an attorney-client relationship or to constitute any form of advertisement.
Please contact Richard Yao, richard.yao@fujae.com, or visit our website, www.fujae.com, to view other contents.


Back