China -  Chinese law firm

Vol.2, No.08

CHINA LAW DIGEST NEWSLETTER

Vol. 2, No.9 - December 16, 2003

TOPICS THIS ISSUE:

    Finance:
  • Provisions on the Administration of Automobile Financial Company
  • Implementing Provisions on the Administration of Automobile Financing Company
  • Provisions on the Administration of Offshore Financial Institutions Investing & Shareholding Chinese Funded Financial Institutions
    Customs Duties:
  • Regulations on Import & Export Customs Duties of People's Republic of China
    Entertainment:
  • Interim Provisions Concerning the Permission For Entering the Business of Production, Distribution and Projection of Films
  • Interim Provisions on Foreign Invested Cinema
    Law Firm:
  • Rules on Joint Operation of Domestic Law Firms and Law Firms From Hong Kong SAR and Macao SAR

 


LEHMAN, LEE & XU China Law Teleseminars


Provisions on the Administration of Automobile Financial Company

Issue Date: Oct. 3, 2003
Issuing Authority: China Banking Regulatory Commission
Effective Date: As of the issue date.

Summary:

The Rules aim to regulate the business activities of non-banking financial companies engaging in automobile financing business. Automobile financial companies (AFC) refer to non-banking financial companies that provide loans to automobile purchasers and vendors within China territories. China Banking Regulatory Commission (CBRC) is the regulatory authority of AFCs. Without approval from CBRC, no companies and individuals shall engage in automobile financing business of any kind; neither shall any company use any wording such as "automobile financing" or "automobile credit loan" in its company name.

Previously, only Chinese banks can engage in automobile financing business. With the surging of private automobiles in China, many automobile companies are eager to participate in such a promising business. Now the door is opened but with very high criteria. The minimum registered capital of an AFC shall be RMB 500 million (about US$60 million). CBRC maintains a close supervision on AFCs by setting up a series of administration policies such as risk asset ratio control, financial statement report system, external auditing report system, on-spot inspection and interrogation.

Investors of AFC shall satisfy requirements as follows:

1. It shall be a corporate legal entity incorporated onshore or offshore. If the investor is a non-financial institute, its total assets of the previous year shall be no less than RMB 4 billion or an equivalent value in convertible currencies; and its annual business revenue of the previous year shall be no less than RMB 2 billion or equivalent value in convertible currencies. If the investor is a non-banking financial institution, its registered capital shall be no less than RMB 300 million.

2. It shall have sound business performance and remain profitable for the last three consecutive years;

3. It shall comply with the laws of the countries where it is incorporated and maintain a clean record;

4. The main investors shall be automobile enterprises or non-financial institutions. Main investors refer to those investors who make most capital contribution and hold no less than 30% of the total shares;

5. One enterprise cannot invest in more than one AFC; and

6. Other conditions that may be required by CBRC.

Implementing Provisions on the Administration of Automobile Financing Company

Issue Date: Nov. 12, 2003
Issuing Authority: China Banking Regulatory Commission
Effective Date: As of the issue date.

Summary:

The Implementing Provisions provide detailed procedures on establishing AFC, qualification requirements of senior management personnel of AFC, risk control and supervision management.

Under the Provision and the Implementing Provisions, the establishment of AFC needs to go through two stages: the preparation stage and the business commencement stage. It takes 6 months for CBRC to make a decision on whether an approval shall be granted to an application for the preparation stage. And it takes 3 months for CBRC to grant an approval on an application for the business commencement stage.

Senior management personnel of AFC refer to all personnel that has decision making rights and be important to risk control management, including director, supervisor, general manager, deputy general manager, chief financial officer, internal auditor and other officers with similar duties. All such senior personnel need to be approved by CBRC.

The Implementing Rules also specify strict scrutiny on risk control and management of AFC, such as core assets of an AFC shall be no less than 50% of registered capital. The guarantee balance shall not exceed 200% of registered capital. The current assets and current liability ratio shall not exceed 100%.

Provisions on the Administration of Offshore Financial Institutions Investing & Shareholding Chinese Funded Financial Institutions

Issue Date: Dec. 8, 2003
Issuing Authority: China Banking Regulatory Commission
Effective Date: Dec. 31, 2003.

Summary:

The Provisions specify the requirements and procedures for offshore financial institutions merger and acquisition of shares from Chinese financial institutions. Offshore financial institutions refer to international financial institutions and foreign financial institutions. International financial institutions refer to mostly financial institutions among governments for development purposes, such as World Bank. Foreign financial institutions refer to financial holding company, commercial bank, securities company, insurance company, fund established in foreign countries. Chinese financial institutions refer to Chinese funded commercial bank, city cooperative and rural cooperative, trust investment company, enterprise group finance company and financial leasing company.

Offshore financial institutions shall have no less than US$10 billion worth of assets in order to be able to acquire shares from Chinese funded commercial banks; and shall have no less than US$ 1 billion worth of assets in order to be able to acquire shares from city cooperative and rural cooperative and other non-banking financial institutions.

In additional to the above mentioned assets requirements, offshore financial institutions also need to satisfy the following conditions: 1) the long-term creditability shall be rated by an international rating institute as good for recent two years; 2) being profitable for most recent fiscal years; 3) the asset sufficient ratio shall be no less than 8% for a commercial bank, and no less than 10% for non-banking financial institutes; 4) to have complete internal control system; and 5) to have sound financial supervision system in the domicile country and the domicile country maintains good economic status.

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Regulations on Import & Export Customs Duties of People's Republic of China

Issue Date: Oct. 29, 2003
Issuing Authority: State Council
Effective Date: January 1, 2004

Summary:

The new Tariff Regulations replaced the previous one issued in 1992 and provide more detailed specifications on the application of tariffs, how to define taxable value of import/export products and levy of tariffs.

Under the new Tariffs Regulations, the Tariff Committee under the State Council is responsible for interpreting and making adjustment to tariffs, tariff codes and rates; making decision on the goods that will be imposed on temporary tariffs; making decision on the levy of anti-dumping duty, countervailing duty, safeguard duty, retaliation duty and other tariff methods.

How to define the taxable value of import/export products is an important issue in the levy of tariffs. The new Regulations provide that the taxable value shall be decided by the contract price plus freight, insurance charges and other relevant expenses. Contract price shall meet the following requirements:

1. There are no restrictions on how the buyers may deal with the imported goods excluding restrictions imposed by laws and regulations, restrictions on resell regions and other restrictions that has no major influence on the goods price;

2. The contract price is not led to uncertainty by any tie-ins or other arrangements;

3. Sellers cannot generate revenue directly or indirectly from buyers for the resell, dispose or usage of import goods, or any revenue generated can be adjusted in accordance with the Regulations; and

4. Sellers and buyers do not have special relationship or any such relationship does not have influence on the contract price.

The Regulations make it clear that any of the following costs shall be consider part of contract price: 1) Any commission or brokerage charge in addition to the commission for the purchase of goods which are burdened by buyers; 2) Costs of container which are considered a part of the import goods and burdened by buyers; 3) Costs of packing and packaging burdened by buyers; 4) Costs of parts, tooling, mould or consumption materials that can be apportioned and expenses of overseas development and design; 5) Licensing fee which is a condition for goods import and must be paid by buyers; and 6) any revenue generated by the sellers directly or indirectly from the resell, dispose or usage of goods after importation.

Interim Provisions Concerning the Permission For Entering the Business of Production, Distribution and Projection of Films

Issue Date: Oct. 29, 2003
Issuing Authority: State Administration of Radio Broadcasting, Film and Television ("SARFT")
Effective Date: December 1, 2003

Summary:

These Provisions shall apply to the permission administration for the production, distribution and projection of films by state-owned and non-state-owned enterprises within China as well as the production and projection of films by foreign companies.

State-owned and non-state-owned entities (excluding foreign investment) are encouraged to establish film production companies independently or in cooperation with the existing state-owned film production entities. Foreign investors are permitted to invest in film production companies by setting up equity joint ventures ("EJV") or contractual joint ventures ("CJV") with the existing state-owned film production entities. An EJV/CJV film production company shall meet the following requirements: 1) no less than RMB 5 million registered capital; and 2) foreign investment in the registered capital shall be no more than 49%.

State-owned entities or non-state-owned entities are encouraged to establish film technology companies independently or by way of holding shares, and to invest in reforming basic and technical facilities for film production and projection. Foreign companies are permitted to invest in the same businesses by holding shares or holding controlling shares in certain approved provinces or cities.

Foreign investment is not allowed to engage in the distribution of films.

Interim Provisions on Foreign Invested Cinema

Issue Date: Nov. 25, 2003
Issuing Authority: SARFT
Effective Date: January 1, 2004

Summary:

The new Interim Provisions supersede the former Provisions issued in year 2000. Some core issues remain the same, such as foreign investors are not allowed to set up wholly foreign-owned cinema, and not allowed to engaging in distribution of films. The new Interim Provisions lower the requirements on the establishment. The registered capital of foreign invested cinema is reduced from RMB 10 million to RMB 6 million (US$ 722,000).

In pilot cities of Beijing, Shanghai, Guangzhou, Chengdu, Xian, Wuhan and Nanjing, foreign investors may hold up to 75% of registered capital; while in other places, foreign investors can still hold no more than 49% of registered capital. Starting from January 1, 2004, investors from HK and Macao are allowed to hold up to 75% of registered capital anywhere in China.

Rules on Joint Operation of Domestic Law Firms and Law Firms From Hong Kong SAR and Macao SAR

Issue Date: Nov. 27, 2003
Issuing Authority: Ministry of Justice
Effective Date: January 1, 2004

Summary:

The Rules was issued to further implement the Arrangement on Forming Closer Business Relationship Between Hong Kong SAR (HK) and Macao SAR (Macao) with respect to the legal side.

Joint operation means a HK/Macao law firm with representative office in the mainland establish joint operation with a domestic firm through agreements and provide legal services in both HK/Macao and mainland. In such joint operation, no partnership or legal person entity shall be established accordingly. Each joint operation party remains independent and undertakes several liabilities respectively.

In order to form such join operation with a domestic law firm, a HK/Macao law firm shall: 1) legally established and has conduct substantial business in HK/Macao for 3 years; 2) all partners or the independent practitioner must be HK/Macao registered lawyers; 3) provide legal services primarily in HK/Macao; 4) all partners and independent practitioner and the law firm shall pay income tax/profession tax in HK/Macao; 5) has been approved to open a representative office in HK; and 6) has not been disciplined by the lawyer supervision authority in the previous two years.

In order to form a join operation with a HK/Macao law firm, a domestic firm needs to: 1) has been established for 3 years; 2) with no less than 20 full-time lawyers and 3) has not been disciplined by the lawyer supervision authority in the previous two years.

 


Lehman, Lee & Xu

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The China Law Digest News is intended to be used for news purposes only. It should not be taken as comprehensive legal advice, and Lehman, Lee & Xu will not be held responsible for any such reliance on its contents.

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