Issue 46

Shanghai Weekly Bulletin

No.4, May 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.

Laws and Regulations

【National】

1. China Issues New Rules on Foreign Contracted Projects  

【Keyword: Foreign Contracted Projects】

The Ministry of Commerce (MOFCOM) recently released the Administrative Measures for the Filing and Approval of Foreign Contracted Projects, to be effective on July 1, 2024. According to the document, foreign contracted projects refer to foreign construction projects contracted by enterprises registered within the territory of China, including project consulting, survey, design, supervision, construction, procurement and installation, operation and maintenance.

Source: MOFCOM

2. China Issues Document to Regulate Development of Online Auction

【Keyword: Online Auction】

The State Administration for Market Regulation (SAMR), along with other two Chinese government departments, recently released the Guidelines on Promoting the Regulated and Sound Development of Online Auction. Consisting of ten articles, the document stresses the need to strengthen market access management, institutional supply, model innovation, platform technology innovation, corporate service enhancement, and other aspects related to online auction. 

Source: SAMR

【Shanghai】 

1. Shanghai Unveils Measures to Boost Debut Economy

【Keyword: Debut Economy】

Shanghai Municipal Commission of Commerce, along with other six government departments in the city, recently issued the Several Measures on Further Promoting the High-quality Development of Debut Economy in Shanghai. The document outlines seven measures, including hosting "First in Shanghai" global product debut season, supporting brands in opening their first Chinese stores, encouraging brands to debut their new products, host inaugural shows and organize their first exhibitions, building a professional service ecosystem for the debut economy, streamlining the procedures for approving and documenting new product launches, facilitating customs clearance of imported debut products, and encouraging local districts to a certain amount of introduce support measures. The document took effect on May 17, 2024, and will remain valid until April 30, 2029.

Source: International Services Shanghai

2. Shanghai Customs Vows to Promote Cross-border Trade Facilitation in 2024 with the Release of 36 New Measures 

【Keywords: Cross-border Trade; Facilitation】

Shanghai Customs recently issued 36 measures to promote cross-border trade facilitation in 2024. The measures include further facilitating business processing and increasing customs clearance efficiency, providing more considerate enterprise services to enhance the sense of gain for market entities, promoting more targeted industrial empowerment to strengthen trade support, further diversifying forms of business and accelerating integrated trade development, and others. 

Source: International Services Shanghai

One Week in Shanghai

【Latest News】

1. Shanghai International Commercial Mediation Center Opens

【Keyword: International Trade; Mediation】

The Shanghai International Commercial Mediation Center (SHICMC) opened on May 20, 2024. The new mediation rules of the center took effect on the same day. The roster released by the center indicates that there are a total of 161 mediators from 11 countries and regions.

Source: International Services Shanghai

2. Shanghai Inks Pacts with New York and Hawaii at 14th China-U.S. Tourism Leadership Summit 

【Keyword: China-U.S. Tourism】

The 14th China-U.S. Tourism Leadership Summit opened on May 22 in Xi'an, Shaanxi. During the meeting, Shanghai Municipal Administration of Culture and Tourism and New York City Tourism + Conventions signed a memorandum of cooperation, SMG International and New York City Tourism + Conventions inked a media resource sharing agreement, and Shanghai Spring International Travel Service (Group) Co., Ltd. and Hawaii Tourism Authority signed a memorandum of understanding.

Source: Shanghai Tourism

【Forum & Exhibition】

1. 2024 Shanghai International Carbon Neutrality Expo to Open on June 5

【Keyword: Carbon Neutrality Expo】

The 2024 Shanghai International Carbon Neutrality Expo in Technologies, Products, and Achievements will be held on June 5-8 at the Shanghai New International Expo Center. With the theme "Pathway Towards Carbon Neutrality", the expo is structured around three key components, i.e. themed exhibition, a series of lectures, and trade paring activities. The event will bring together more than 600 companies from 14 countries and regions. with an estimated number of over 80,000 attendees.

Source: International Services Shanghai

2. 7th China International Import Expo Accepts Visitor Registration from May 20

【Keyword: China International Import Expo】

The 7th China International Import Expo will be held on November 5-10, 2024. Organizers have begun accepting Chinese and foreign visitor registrations since May 20. New visitors can make registrations at the official website www.ciie.org, its mobile app or mini app. Visitors who have registered in previous years can make simple registration via the email link. 

Source:China International Import Expo

【Culture & Art】

1. Exhibition of the Civilization of Ancient Egypt to Open in July 

【Keywords: Pyramid; Ancient Egypt】

As the fourth exhibition of Shanghai Museum's "A Dialogue with the World" cultural relics and art exhibition series, "On Top of the Pyramid: the Civilization of Ancient Egypt Exhibition" will kick off at the People's Square Campus of the Shanghai Museum on July 18 and be open to the public the next day. The exhibition will be the world’s largest exhibition of ancient Egyptian cultural relics and the highest level of its kind in Asia. It will also be the first cooperation between the Egyptian government and a Chinese museum to reveal the civilization of ancient Egypt and its latest archaeological discoveries. The exhibition will remain open until August 17, 2025.

Source: International Services Shanghai

【Corporate Activities】

1. Shanghai Opens 489 First Stores in Four Months 

【Keyword: Debut Economy】

The debut economy in Shanghai has experienced a rapid upswing in high-quality growth since the beginning of the year. Within the first four months alone, the city welcomed 489 first stores, including three global or Asian premieres, and 55 first stores in China or on the Chinese Mainland, setting new records in both quantity and quality. Among them, high-capacity first stores account for 11.9 percent.

Source：Shanghai Municipal Commission of Commerce

2. ABB Acquires Siemens' Switch and Socket Business in China

【Keyword: ABB】

ABB Group announced that it has signed an agreement to acquire Siemens' switch and socket business in China. The acquisition will expand ABB's market coverage in the field of smart buildings and allow it to provide customers with more diversified product portfolio.

Source: Pudong Release

【Training】

1. First Training Session for Listing of Enterprises in 2024 to Be Held Soon

【Keyword: Restructuring and Listing】

To provide targeted services for enterprises to go public and help high-quality enterprises to get access to major capital markets such as the STAR Market, the Shanghai Investment Promotion Service Center will hold the "Light of the Pujiang" training session (the 43rd session) on SMEs restructuring and listing on June 12-14. Registration will end at 12:00, June 3.

Source: Invest Shanghai

Q&A

Q1: Head of the Department of Foreign Investment and Economic Cooperation of the Ministry of Commerce explains the Administrative Measures for the Filing and Approval of Foreign Contracted Projects - What are the main features of the regulation?

A: The first is to simplify the procedures and handle them online. The regulation stipulates that enterprises shall register their corporate information through the foreign contracted project management system, handle project registration and approval, and report the subsequent development of the project. Enterprises can submit relevant documents online, and print filing receipts and project approval receipts online. The second is to clarify the time limit and provide convenience. The regulation stipulates that for general project registration, enterprises should fill in the registration form online before negotiating external bids or signing contracts. After the commerce department accepts the enterprise registration form, the enterprise can print the registration receipt within three working days. Enterprises are responsible for the authenticity, accuracy and completeness of the registered information. The third is to introduce classified management to prevent risks. The regulation stipulates that enterprises should submit a filing form when registering general projects. Enterprises should submit a project application form when applying for a specific project, and submit the opinions of the embassy (consulate), project safety risk assessment report, project security plan, and emergency plan. For projects with a contract value of more than US$1 billion, the Ministry of Commerce will conduct consultations with relevant units to assess project risks. The fourth is to punish violations and regulate order. The regulation stipulates that for failure to handle general project filings, specific project approvals, and failure to report project information as required, the commerce department may impose warnings, public criticism, and fines on the enterprise or its principal person in charge, etc. Commerce departments encourage and support industry organizations to strengthen industry coordination and self-discipline, and maintain market order and fair competition.

Source: Website of the Chinese Government  

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]

Q14: Optimize the Company Exit System - Capital Reduction (II)

Simple Capital Reduction

A considerable number of foreign-funded companies have not made full payment of their registered capital within five years of establishment. Many companies may reduce capital for the purpose of eliminating unpaid capital contribution obligations. In this case, only the company's registered capital will be reduced, and the company will not pay consideration to shareholders. That is, it does not essentially reduce the company's property used to assume liabilities. It is different from a substantive capital reduction, which could reduce the company's net assets and weaken its solvency.

The current Company Law does not make a clear distinction between formal capital reduction and substantive capital reduction. Article 225 of the New Company Law has addressed the issue. Under the clause, a company can reduce its capital to make up for losses. In this case, it only requires a shareholder meeting to make a resolution and make a public announcement. Creditor notifications are not required. However, in the case of reducing capital to make up for losses, the company must not pay dividend to shareholders, nor may it exempt shareholders from their obligation to make capital contributions or share payments. In the preliminary draft of the "Company Law (Revised Draft)", this is also called the "simple capital reduction system".

The precondition for the application of Article 225 is that capital reduction is introduced to "make up for losses". If a company has sound operation and is not losing money, and it plans to reduce capital just because the shareholders do not want to pay the remaining capital before the end of the capital contribution period stipulated in the original articles of association. This is essentially a formality. To reduce capital, can the simple capital reduction procedures still apply? Or does it still need to notify creditors? The New Company Law does not make clear provisions on this issue. Logically speaking, a simple capital reduction should be applicable, because at this time the company is more solvent than a loss-making company, and the negative impact on creditors is smaller than that of a loss-making company.

However, it is particularly important to note that in practice, market regulatory authorities are relatively cautious when handling a company's capital reduction application, and often require the company to submit an explanation of the rationality and necessity of the capital reduction. The New Company Law clarifies the legal consequences of unlawful capital reductions. Article 226 stipulates that if the registered capital is reduced in violation of the Law, shareholders shall return the funds received, and the shareholder's capital contribution shall be restored to its original level; if losses are caused to the company, the shareholders and the responsible directors, supervisors and senior management shall be liable for compensation. For the sake of prudence, before supporting rules and guidelines for "formal capital reduction" are promulgated, if a company reduces capital solely for the purpose of eliminating capital contribution obligations, it is still recommended to notify creditors in accordance with the general capital reduction rules to avoid liability for capital reduction in breach of contract. In practice, market regulatory authorities often require companies and their shareholders to issue commitment letters. The commitments may exceed the legal scope and should be carefully evaluated before issuance.