Issue 34

Shanghai Weekly Bulletin

No. 1, March 2024

Shanghai Weekly Bulletin is an information service presented by the Foreign Affairs Office of Shanghai Municipal People’s Government in collaboration with Wolters Kluwer to foreign-funded enterprises, foreign-related institutions as well as people from overseas living in Shanghai. Covering major national and Shanghai foreign-related news, event information, policy Q&A and interpretations in the past week, it keeps you up-to-date with the latest foreign-related policies and developments in Shanghai.

Catalogue

1.    Laws and Regulations

[National]

・Development Plan of Shanghai Eastern Hub International Business Cooperation Zone Issued

・SPP Launches a Campaign for "Procuratorial Protection of Enterprises"

[Shanghai]

・Shanghai Issues Document to Deepen Reform of Business Entity Registration Management

・Shanghai Issues Document to Increase Support for the High-quality Development of AEOs

・Shanghai Issues Document to Promote Clustered Development of SMEs in Specialty Industries

・Shanghai Issues Action Plan for the Development of Law-based Business Environment

2.    One Week in Shanghai

[Latest News]

・Shanghai Grants Certificates to the First Batch of Global Partners of Foreign Investment Promotion

・First Chinese Representative Office of a Middle East Patent Agency Opens in Pudong

[Competitive Event]

・2024 Shanghai Sailing Open to Be Held Soon

[Forum & Exhibition]

・Exhibitions to Be Held in Pudong in March

[Culture & Art]

・"Top of the Pyramid: Ancient Egyptian Civilization Exhibition" to Open in July

[Corporate Activities]

・Several Foreign Financial Institutions Open Business in Shanghai

3.    Q&A

・Officials from Shanghai Municipal People’s Government answered reporters' questions at a press conference held by the State Council Information Office to explain the Overall Plan for the Development of Shanghai Eastern Hub International Business Cooperation Zone - We note that the Overall Plan proposes to create a highly convenient international business exchange carrier, connect domestic and international markets and make better use of both domestic and international resources. May I ask what technical conditions and advantages Shanghai has in developing a business cooperation zone?

4.    Expert Perspective

・Several Issues to Be Watched and Addressed by Foreign Businesses under New Company Law

Laws and Regulations

[National]

1. Development Plan of Shanghai Eastern Hub International Business Cooperation Zone Issued

[Keyword: Shanghai Eastern Hub International Business Cooperation Zone]

The General Plan for the Development of Shanghai Eastern Hub International Business Cooperation Zone was released on February 28, 2024. Covering 17 measures in five aspects, the document clarifies that the Zone aims to serve as a new platform to facilitate international business cooperation, a new carrier to pool factors of service resources, and a new hub to boost the integrated development of the Yangtze River Delta region.

Source: GAC

http://www.customs.gov.cn/customs/302249/zfxxgk/zfxxgkml34/5699259/index.html

2. SPP Launches a Campaign for "Procuratorial Protection of Enterprises"

[Keyword: Procuratorial Protection of Enterprises]

The Supreme People's Procuratorate (SPP) recently issued the Work Plan for Launching a Campaign for "Procuratorial Protection of Enterprises", deciding to carry out the special action from February to December 2024. According to the plan, the action includes 14 key work measures, which include, among others, severely punishing crimes that undermine fair competition, and tightening the supervision and governance of companies’ actual controllers and senior executives for breach of trust and harming corporate interests.

Source: SPP

https://www.spp.gov.cn/xwfbh/wsfbt/202402/t20240225_644630.shtml

[Shanghai]

1. Shanghai Issues Document to Deepen Reform of Business Entity Registration Management

[Keywords: Business Entity; Reform of Registration Management]

Shanghai Municipal Administration for Market Regulation recently issued the Several Measures of Shanghai Municipal Administration for Market Regulation to Deepen the Reform of Business Entity Registration Management and Improve Business Environment. The policy document proposes a total of 21 measures in five aspects, including strengthening digital empowerment and improving the full life cycle registration management system; focusing on national strategies and exploring pilot registration facilitation measures; strengthening institutional innovation and continuing to reduce institutional transaction costs for enterprises.

Source: Shanghai Municipal Administration for Market Regulation

https://scjgj.sh.gov.cn/152/20240223/2c984ad68dc5feea018dd582630b7a01.html

2. Shanghai Issues Document to Increase Support for the High-quality Development of AEOs

[Keyword: AEOs]

Shanghai Municipal Commission of Commerce and Shanghai Municipal Development and Reform Commission recently issued the Several Measures of Shanghai on Further Increasing Support for the High-quality Development of Authorized Economic Operators (AEOs). The policy document proposes 25 tasks to create a market-oriented, law-based, and world-class port business environment to help develop Shanghai into an international trade center.

Source: Shanghai Municipal Commission of Commerce

https://sww.sh.gov.cn/zwgkgfqtzcwj/20240226/ffc5815293204feba33b86e119a9488e.html

3. Shanghai Issues Document to Promote Clustered Development of SMEs in Specialty Industries

[Keywords: SMEs; Clustered Development]

Shanghai Municipal Commission of Economy and Informatization recently issued the Measures on Promoting Clustered Development of Small and Medium-sized Enterprises (SMEs) in Industries with Local Features. With 21 articles in six chapters, the document specifies the identification standards, identification procedures, support for business cultivation, and dynamic management. It aims to boost the specialized and intensive development of specialty SME industrial clusters and promote the high-quality development of SMEs. The document took effect on February 22, 2024 and will remain valid until February 21, 2029.

Source: Shanghai Municipal Commission of Economy and Informatization

https://www.sheitc.sh.gov.cn/sjxwxgwj/20240223/17cb17bde7a44a7980aef46943991fde.html

4. Shanghai Issues Action Plan for the Development of Law-based Business Environment

[Keywords: Law-based; Business Environment]

Shanghai High People's Court recently issued the Special Action Plan for Shanghai Courts to Promote the Development of Law-based Business Environment (Version 7.0). The document proposes 25 measures in five aspects, including refining and improving the regulatory framework, optimizing the trial & execution work mechanism, leveraging digital reform empowerment, pushing for openness and transparency of judicial procedures, and strengthening coordination and cooperation between government and courts.

Source: Shanghai High People's Court

One Week in Shanghai

[Latest News]

1. Shanghai Grants Certificates to the First Batch of Global Partners of Foreign Investment Promotion

[Keyword: Foreign Investment]

At the 38th Certificating Ceremony for MNC’s Regional Headquarters, Foreign-invested R&D Centers, and Global Partners of Foreign Investment Promotion and the Signing Ceremony for Projects with Foreign Investment held on February 27, Shanghai Municipal People’s Government granted certificates to 34 newly identified regional headquarters of multinational companies, 17 foreign-funded R&D centers, and 10 global partners of foreign investment promotion, and witnessed the signing of 63 projects with foreign investment.

Source: Shanghai Release

2. First Chinese Representative Office of a Middle East Patent Agency Opens in Pudong

[Keywords: Middle East; Foreign Patent Agency]

China National Intellectual Property Administration recently approved Abu-Ghazaleh Intellectual Property, the largest intellectual property service organization in the Middle East, to set up a representative office in Pudong. This is also the first representative office of a Middle East patent agency in China.

Source: Pudong Release

[Competitive Event]

1. 2024 Shanghai Sailing Open to Be Held Soon

[Keyword: Shanghai Sailing Open]

Shanghai Sailing Open will be held from March 26 to March 31, 2024. The competition venue is Dishui Lake, and the opening ceremony will take place at the Hongkou Binjiang section of the Huangpu River.

Source: Shanghai Release

[Forum & Exhibition]

1. Exhibitions to Be Held in Pudong in March

[Keyword: Exhibition]

In addition to the 32nd East China Fair, more than 20 exhibitions are set to take place in March at the Shanghai World Expo Exhibition and Convention Center and the Shanghai New International Expo Center, covering fields such as home appliance, semiconductor, and technologies for new energy vehicles.

Source: Pudong Release

[Culture & Art]

1. "Top of the Pyramid: Ancient Egyptian Civilization Exhibition" to Open in July

[Keyword: Ancient Egypt]

"Top of the Pyramid: Ancient Egyptian Civilization Exhibition", the world's largest and Asia's highest-level foreign exhibition of ancient Egyptian relics in history, will be held at the People's Square Building of the Shanghai Museum from July 19, 2024 to August 17, 2025. The exhibition includes 787 cultural relics from different periods of ancient Egyptian civilization, and more than 95% of the relics have never been to Asia before.

Source: Shanghai Release

[Corporate Activities]

1. Several Foreign Financial Institutions Open Business in Shanghai

[Keywords: AllianceBernstein; Amundi; Kaide]

Three foreign financial institutions, including AllianceBernstein Fund Management Co., Ltd., Amundi Fintech (Shanghai) Co., Ltd., and KKR Investment Management (Shanghai) Co., Ltd., held a collective opening ceremony in Shanghai on February 26, 2024. The opening of the three financial institutions can be considered a fruitful result of Shanghai's high-standard opening-up in the financial sector, reflecting the city’s high-quality economic development. It has also proven that foreign institutions’ confidence in the Chinese market remains unchanged.

Source: Shanghai Financial Regulatory Bureau

Q&A

Q1: Officials from Shanghai Municipal People’s Government answered reporters' questions at a press conference held by the State Council Information Office to explain the Overall Plan for the Development of Shanghai Eastern Hub International Business Cooperation Zone – We note that the Overall Plan proposes to create a highly convenient international business exchange carrier, connect domestic and international markets and make better use of both domestic and international resources. May I ask what technical conditions and advantages Shanghai has in developing a business cooperation zone?

A1: As the forefront of China's reform and opening up and an international metropolis with deep global connections, Shanghai has three advantages to implement this system well - favorable geographic conditions, institutional innovation, and strong support from market demand.

Firstly, Shanghai is an international transport hub and it's able to gather resource elements. As we all know, the business cooperation zone is located close to Pudong International Airport and Shanghai East Railway Station. Pudong International Airport is China's gateway hub for international travel, with an annual passenger throughput of more than 70 million, including roughly 50% of international passengers. The T3 terminal of Pudong International Airport will be put into service in 2028, and passengers throughput is estimated to reach 130 million a year. Shanghai East Railway Station is set to open to traffic in 2027, and it's designed to accommodate 60 million passengers a year, becoming a core hub serving the Yangtze River Delta region and an important functional node of the coastal corridor. Therefore, the two transport hubs will bring about the concentration and exchange of various resource elements, and will also be able to support the business cooperation zone to gather and distribute global resources.

Secondly, multiple regional opening-up policies are superimposed to create conditions for institutional innovation. The business cooperation zone is located in Pudong New Area, which is also the location of China's first free trade pilot zone. In 2019, with the support of the central government, we established the Lin-gang Special Area. At present, Pudong is advancing the construction of a leading area for socialist modernization and has achieved a large amount of institutional innovation achievements in an open economy. The business cooperation zone carries the functions of a comprehensive bonded area, a customs supervision area and a restricted port area, and has the advantages of facilitating the integration and innovation of management systems. Furthermore, we will give full play to the legislative authority of the Shanghai Municipal People's Congress in Pudong New Area, which can provide sound legal support for our institutional opening and reform and innovation. The business cooperation zone will also give full play to the advantages of policy integration and legal protection to create a new carrier for opening up with outstanding functions and high convenience.

Thirdly, the open economy has spurred strong demand for international business activities. Shanghai currently has a total of 75,000 foreign-funded enterprises, 58,000 foreign trade entities, 956 foreign enterprise headquarters, and 561 foreign-funded R&D centers. Shanghai's trade value exceeds 3% of the world's total. The number of foreigners entering and exiting through Shanghai ports is also the largest in China. The Yangtze River Delta is also one of China's most economically open and vibrant regions. Foreign trade and foreign-invested enterprises have a huge demand for cross-border exchange like business negotiations, conferences and exhibitions, and international training. In addition, Shanghai hosts the China International Import Expo every year. The role of the Import Expo in international procurement, investment promotion, cultural exchanges, and open cooperation is becoming increasingly prominent. Shanghai has also created 60 "6 Days + 365 days" year-round exhibition & trading platforms. We believe that the business cooperation zone will meet these international exchange needs and create a platform carrier that connects the Yangtze River Delta, serves the country, and radiates around the world.

Source: State Council Information Office

http://www.scio.gov.cn/live/2024/33404/tw/

Expert Perspective

Several Issues to Be Watched and Addressed by Foreign Businesses under New Company Law

By: He Kan, Chen Leyi, Gao Fangjiao, Liu Zijing, Yang Yanhua (Junhe Law Firm)

[Continuing from the Last Issue]

Q2: How should foreign companies cope with the new company law during the transition period (until December 31, 2024)?

According to the Foreign Investment Law, foreign-invested enterprises (FIEs) established in accordance with the Foreign-Funded Enterprise Law before the promulgation of this law shall adjust their organizational form, organizational structure and operational rules in accordance with the Company Law and other regulations before December 31, 2024. If FIEs fail to meet the above requirements, the market supervision department will not handle their applications for other registration matters and will issue public notices regarding such non-compliance. In practice, some FIEs had completed corresponding adjustments in accordance with the new Company Law before December 29, 2023, that is, before the new law was promulgated; however, there are still some FIEs (especially Sino-foreign joint ventures) that have failed to complete the aforementioned adjustments in the first four years of the five-year transition period, and still maintained its organizational form, organizational structure and operational rules established in accordance with the Foreign Investment Law.

For the first category of FIEs, given that they have completed relevant adjustments in accordance with the Foreign Investment Law, like other limited liability companies, they should complete the adjustment and update of their articles of association and joint venture contract after the new Company Law takes effect on July 1, 2024. For this type of FIEs, if they are established in the form of a wholly-owned company, the adjustments made under the new Company Law are more straightforward and manageable; but for foreign-funded joint ventures, the adjustments will trigger a new round of review, negotiation and revision of the joint venture contract/shareholders agreement or articles of association, and the process is expected to be more complicated. The new Company Law has not specified any transition period for the process, and the transition arrangements will be clarified by relevant implementation rules to be released by the State Council.

Key points for the adjustment include but not limited to:

(1)  Adjusting the time limit for capital contributions to be completed within five years from the establishment of FIEs;

(2)  Modifying the composition of the board of directors and supervisor(s). For instance, the board of directors may establish an audit committee, and under certain circumstances, the FIE may not be required to have a supervisor(s); and

(3)  Changing the number of supervisors: A company should have one supervisor if it does not have the board of supervisors (There is no circumstance where there are two supervisors);

(4)  Introducing the new role of an employee director: If a company has more than 300 employees and does not have a board of supervisors with at least three supervisors and staff representatives, the board of directors should have staff representation, and the scope of powers and voting proportions of shareholders and the board of directors shall be adjusted accordingly.

For the second category of FIEs, the situation is more complex. In addition to being subject to the relevant implementation rules subsequently issued by the State Council, they also face the urgent need to complete the direct transition from complying with the Foreign-funded Enterprise Law to abiding by the new Company Law before December 31, 2024. For FIEs that are established in the form of joint ventures, the adjustment has not been initiated or made substantial progress in the past four years, so it is foreseeable that it will be a challenging job. Compared with the first category of FIEs, the articles of association and joint venture contracts of the second category of FIEs still comply with the relevant provisions of the Foreign-funded Enterprise Law, and the update work will be more comprehensive and complicated. In addition to the above key points, special attention should also be paid to:

(1)  Adjusting the organizational structure: Adjust the company's organization of the highest authority to the shareholders (meeting), adjust the composition and powers of the shareholders (meeting), directors (board) and supervisors (board);

(2)  Re-formulating the approval powers and rules of procedure of shareholders' meetings and boards of directors: For example, the Foreign-funded Enterprise Law stipulates that major matters that require unanimous approval of the board of directors, such as amending the company's articles of association, increasing or reducing registered capital, company merger, division, dissolution or change of company form, can be adjusted to be approved by shareholders with more than 2/3 of the voting rights at the shareholders’ meeting; and

(3)  Re-formulating processes and rules related to company dissolution and liquidation.

The transition period for the second category of FIEs under the Foreign Investment Law will be concluded in less than one year. During this process, such FIEs not only need to understand the requirements of the new Company Law and complete adjustments to relevant legal documents, but also need to report to the company headquarters and negotiate with joint venture partners. At the same time, there is pressure for internal reporting and coordination. In one word, "the time is tight and tasks are heavy". In order not to be in a passive position in subsequent negotiations due to time constraints, it is recommended that FIEs (especially joint ventures) start the process of updating relevant legal documents as soon as possible to meet the legal requirements.

[To Be Continued]