Speech: Investing in Chinas ports & shipping industry (2007)

This speech was made at SeaTrans 2007.

The Contents
I. Summary of the Legal Structure of the Foreign Investment in Ports
II. Summary of the Legal Structure of the Foreign Investment in Shipping Industry
III. Detailed Regulations of Each Field of Shipping Industry

I.  Summary of the Legal Structure of the Foreign Investment in Ports
A. correlative laws
1. Catalogue for the Guidance of Foreign Investment
(Oct 31,2007)

Construction and management of public dock facilities of ports and storage facilities relating to transportation services are encouraged; there is no additional stipulation about the investment formality, investment period.

2. Several Opinions about Deepening Reformation, Enlarging Opening and Enhancing Development of China’s Traffic
( Jul, 25,1992)
a. Encourage CJV to construct and manage public dock and berth;
b. Allow JV to manage port handling service;
c. Allow EJV to rent dock and manage loading and discharging service.
d. Allow the foreign investor construct special dock and sea-route owned by cargo owners
e. While the foreign investor developing and managing vast ground, they can construct and manage special dock and port area in the invested domain.

3. Port law of PRC (June 28, 2003)
The state encourages investors at home and abroad to make investment on construction and operation of ports and protect the legitimate rights and interests of investors. This Law is applicable to the undertakings of port planning, construction, maintenance, operation, management and the relevant activities.

4. Administration of Ports Management
( Apr 15, 2004 )

Foreign investors financing port or terminal projects within the territory of the People's Republic of China should abide by the articles such as the ones for market access and so on.

5. Administration of Ports construction
(Apr 24, 2007)
The projects of new-building or rebuilding or enlarging port construction, including the project affiliated to other projects of ports construction, should abide by the articles

6. Administration of dangerous goods within the territory of the ports ( Aug 29, 2003 )
The operation, such as loading, discharging, lightering, storing and container stuffing & unstaffing ect. , should abide by the articles of the regulation.
The construction and operation of the ports which used for the dangerous goods should be accordance with the requirements of the regulation.

7. Provisional Regulations Concerning Preferential Treatment for Port and Terminal Development Projects Financed by Chinese and Foreign Joint Ventures
( Sep, 30, 1985)
In jointly financing port or terminal projects within the territory of the People's Republic of China through the establishment of joint ventures with Chinese partners, foreign corporations, enterprises or individuals involved (hereinafter referred to as foreign partners) shall, besides abiding by the laws and statutes of regulations pertaining thereto, be entitled to preferential treatment in accordance with the provisions of these Regulations, in view of the fact that such projects are usually capital intensive and time consuming in nature and the rate of return is low.

8. Provision of Administration of Foreign Investment in International Maritime Transport
(Feb 25,2004)
With the approval of the Ministry of Communications and the Ministry of Commerce， a foreign investor may invest in and operate international maritime transportation ：
（1） engage in international maritime container freight station and container yard services；
（2） engage in international maritime cargo warehousing services；

9. the Regulations of the People's  Republic of China on International Maritime Transportation
(Dec,12.2001)
Upon the approval of the Ministry of Transportation, foreign businessmen may establish EJV or CJV to operate goods storage of international ocean shipping, container station and stacking of international ocean shipping; and may establish WFOE to operate goods storage of international ocean shipping.

10. The Implementing Rules of the Regulations of the People's Republic of china on International Maritime Transportation (Jan,20.2003)
Generally goes with the Regulations of the People's Republic of China on International Maritime Transportation

B. Investment Mode:
Recently there are three leading modes of investing in ports.
• The foreign invest in ports directly, holding the shares and managing the ports;
• Renting docks and berths;
• Purchasing stocks and bonds of port enterprise.

C. Investment Area:
i.   Provide dock, anchorage and other facilitates;
ii.  Provide waiting room and get on and off board facilities service;
iii. Provide loading and unloading, storage, lighterage, container yard and package service;
iv.  Provide push and pull service for ship entering and exit port;
v.   Provide tally service such as counting and check the surface conditions of goods during the process of goods delivery and receiving ；
vi.  Provide electricity, fuel, daily supplies and other daily service;
vii. Rent and maintaining service for dock facilities and machineries.

D. Detailed leading Fields of Ports
1. Dock
Investment Form:
• Jointly invest or cooperate in building and running major public docks. Up to now, no solely foreign-funded dock has been established in Shanghai and there is one such dock approved this year in Qingdao;
• Jointly invest, cooperate in building and running docks owned by cargo owners or independently engage in such business.

Investment Term Limit
• The business term limit (including construction period) of a solely foreign-funded public docks shall not exceed 50 years;
• Solely foreign-funded docks owned by cargo owners are allowed to be constructed with a business term limit not exceeding that of the foreign-funded enterprise or that of land use.

2. CY (Container Yard) , CFS (Container freight station) and warehouse
Investment Form:
setting up a foreign-invested enterprise to engage in the business relating to storage and warehousing of international shipments;

setting up a EJV or a CJV to engage in international maritime container freight station and container yard services

Investment Conditions:
If one engages in the business relating to storage and warehousing of international shipments, the following conditions shall be met:
(1) having a fixed place of business;
(2) having the warehouse facilities compatible to the scope of business;
(3) having at least two senior executives with no less than three years' experience in the relevant business; and
(4) other conditions provided for in the laws and regulations.

If one engages in international maritime container freight station and container yard services, the following conditions shall be met:
(1) having a fixed place of business;
(2)  having the vehicles, handling facilities, container yards and container checking equipment or facilities compatible to the scope of business;
(3) having at least two senior executives with no less than three years' experience in the relevant business; and
(4) other conditions provided in the laws and regulations.

III. Summary of the Legal Structure of the Foreign Investment in Shipping Industry
• Protocol on the Accession of the P.R China to the WTO Annex 9
(Nov, 11, 2001)
Investment Area :
a.    Maritime Transport Services and its Auxiliary Service
b.    Internal Waterways Transport
c.    Storage and warehousing Service
d.    Freight forwarding agency Service

Investment Mode:
Foreigner holding proportion is restrained in some of the above area.
Have time limitation for investors in some area.

2. State Catalogue for the Guidance of Foreign Investment Industries
(Oct 31,2007)
Generally goes with the WTO

3. the Regulations of the People's Republic of china on International Maritime Transportation (Dec,12.2001)

Investment Area:
a. the business operations of international ocean shipping
b. the auxiliary business operations related to international ocean shipping

4. the Implementing Rules of the Regulations of the  People's Republic of china on International Maritime Transportation (Jan,20.2003)
Generally goes with the Regulations of the People’s Republic of china on International Maritime Transportation

5. Provision of Administration of Foreign Investment in International Maritime Transport
(Feb 25,2004)

With the approval of the Ministry of Communications and the Ministry of Commerce, a foreign investor may invest in and operate international maritime transportation in the following forms:
(1) to establish an EJV or a CJV to engage in international shipping services, international shipping agency services, international ship management services, loading and unloading of international shipments and international maritime container freight station and container yard services;
(2) to establish an EJV, a CJV or a WFOE to engage in international maritime cargo warehousing services;
(3) to establish an EJV, a CJV or a WFOE to offer routine services for the vessels owned or operated by the investor.

6. Closer Economic Partnership Arrangement Annex 4 on June 29, 2003
Special Treatment towards investors from Hong Kong and Macau

IV.  Detailed Regulations of Each Field
A. international shipping business
• Protocol on the Accession of the People’s Republic of China to the World Trade Organization Annex 9 (Nov,11.2001)
•  the Regulations of the People's  Republic of china on International Maritime Transportation (Dec,12.2001)
• The Implementing Rules of the Regulations of the People's Republic of china on International Maritime Transportation (Jan,20.2003)

Investment Area:
(a) Liner shipping (including passenger transportation)
Bulk, tramp and other international shipping (including passenger transportation)
(b) Investment Form:
EJV or CJV
Foreign investment shall not exceed 49 per cent of the total registered capital of the joint venture
(c) Investment Conditions:
i.  Shall have the vessels suitable for the management of International maritime transport, among which shall be under the national flag of the People's Republic of China;
ii.  Have Bill of Lading, tickets or multimodal transport documents;
iii. Senior managers with qualified certificate by Ministry of
Communication
iv. Other conditions required by Laws and Regulations
* Note: The chairman of directors and general manager of the Joint Venture should be appointed by the Chinese Party.

B. international shipping agency services
Protocol on the Accession of the People’s Republic of China to the World Trade Organization Annex 9 (Nov,11.2001)

Only in forms of joint ventures, with foreign equity share no more than 49 percent.

the Regulations of the People's  Republic of china on International Maritime Transportation (Dec,12.2001)

Applicants for international shipping agency service shall meet the following requirements:
(1) having at the senior managerial level at least 2 staff members with not less than three years’ experience in the international shipping service; and
(2) having fixed place of business with appropriate business facilities.

C.  ship management service
• the Regulations of the People's  Republic of China on International Maritime Transportation (Dec,12.2001)
• the Implementing Rules of the Regulations of the People's Republic of china on International Maritime Transportation (Jan,20.2003)
• Provision of Administration of Foreign Investment in International Maritime Transport (Feb 25,2004)

Investment Form:
EJV or CJV
Foreign investment shall not exceed 49 per cent of the total registered capital of the joint venture

Investment Conditions:
1) At least 2 of the senior managerial personnel having no less than 3 years experience of international ship management business;
2) Having the personnel holding the post certificates of shipmaster and chief engineer in accordance with the relevant types of the managed ships and the shipping areas;
3) Having the equipment and facilities accommodated to the international ship management business.

D. Shipping Companies
the Implementing Rules of the Regulations of the People's Republic of china on International Maritime Transportation (Jan,20.2003)
Shipping Companies shall issue special-purpose invoices to the payers when they collect freight and other related charges for themselves
the Regulations of the People's  Republic of China on International Maritime Transportation (Dec,12.2001)
Provision of Administration of Foreign Investment in International Maritime Transport (Feb 25,2004)

• Foreign investors may establish EJV, CJV or WFOE to provide the daily services such as contracting goods for shipping, acting as an agent to issue or endorse bills of lading, settling freight charges, signing service contracts, etc. for the ships they own or operate
Administration of the Examination and Approval of Wholly Foreign-owned Shipping Companies Tentative Procedures (Jan,28.2000)

The establishment, by foreign shipping merchants, of wholly foreign-funded shipping companies in China shall subject to the examination and approval in strict accordance with the marine shipping agreements entered into between the Chinese Government and the governments of the countries where the foreign shipping merchants are located as well as the relevant legal documents.

Investment Conditions:
An applicant for the establishment of a wholly owned shipping company must meet the following conditions:
1. have at least 15 years experience in shipping;
2. have maintained a resident representative office approved by the Ministry of Communications in the port city where it proposes to establish its wholly owned shipping company for at least three years;
3. its scheduled vessels berth in the port city where it proposes to establish its wholly owned shipping company at least once per month (if it operates a shipping route through such cooperative forms as joint dispatch of vessels, mutual exchange of cargo space, joint operation, etc. and, upon approval, has obtained the right to operate a shipping route, it shall be deemed to satisfy this condition);
Foreign Shipping Companies which ship by unscheduled vessels must have a stable cargo source in China; and
4. it has not violated Chinese laws, administrative regulations or rules during the course of its business activities in China for a consecutive period of two years.
NOTE: At least 85% of the staff and workers of a wholly owned shipping company shall be Chinese employees.

Investment Form:
Contractual joint venture (CJV);
Equity joint venture (EJV);
WOFE

E.  NVOCC (non-vessel-operating common carrier)
Regulations of the People’s Republic of China on International Ocean Shipping and its Implementing Rules
Those operating the non-vessel shipping business shall make the registration of bill of lading with the Ministry of Transportation, and shall pay the security deposit.

Investment Form:
Contractual  joint venture;
Equity joint venture;
WOFE
• Note: a foreign NVOCC has acquired the qualification for the non-vessel-operating services in accordance with foreign laws and has obtained a legal financial liability guaranty can apply to engage in the non-vessel-operating services.

F.  Freight forwarding Agency Services
Catalogue for the Guidance of Foreign Investment
(Oct 31,2007)
Administration of Foreign Investment in International Freight Forwarding Agency Services    　 (Dec 1, 2005)

Investment Area :
i. Booking cabins, to consign for shipment, storage, package,
ii. Goods loading and uploading supervisor, loading, stripping, transit of container and related short distance transport service;
iii. Clearance of goods at the Customer, appliance for check, insurance.
iv. Mend and make related tickets, invoice, delivery the freight fee, account balance, delivery miscellaneous fees or expenses;
v.   Freight forward agent for international exhibits, private things and frontier transit.
vi. International multimode transport;
vii. International Express Delivery;
viii. Consultation and other international freight forward business

b.  Investment Form:
Contractual joint venture;
Equity joint venture;
WOFE

c.  Investment Conditions:
i. Among the Chinese parties, there should at least be an International Freight Forwarding Agency with more than 1 year’s experience in this area, or an enterprise with an import and export certificate above 1 year, or a transport or storage enterprise with more than 1 year’s experience in its business.
ii. Among the foreign investors, there should at least be an International Freight Forwarding Agency with more than 3 years’ experience in this area, and the foreign investor satisfied this condition should be the majority shareholder among all the foreign investors.
iii. The Chinese parties and the foreign investors do not breach any industry regulations.
iv. Shall have a minimum registered capital of USD 1 million.
v. At least 5 employees with more than 3 years’ experience in International Freight Forwarding Agency field;
vi. Fixed business office;
vii. Necessary communication, transport, loading and uploading, package facilitates.

* Note:
For the International Express Delivery business, the main shareholder shall have the qualification with international express delivery business;
For those enterprise dealing with International Multimode Transport, shall have below conditions in addition:
1. have deal with the business more than 3 years;
2. have the agency net both abroad and at home;
3. the international transport agency bill of loading has already registered in the Ministry of Commerce.

Closer Economic Partnership Arrangement Annex 4
(June 29, 2003)
Hong Kong and Macau investors can establish WOFE operating in International Freight Forwards Agency business from 2004, with a minimum registered capital as same as domestic Freight Forwards Agencies as follows:
a.  Maritime International freight forwards: RMB 5 million;
b. Aviation international freight forwards: RMB 3 million;
c.  Land international freight forwards or International express delivery: RMB 2 million.

G.  Internal Waterways Transport
Protocol on the Accession of the People’s Republic of China to the World Trade Organization Annex 9 (Nov, 11, 2001)
Foreign investors are only allowed to take international transport business in the port opened to foreign vessels, that is to say, foreign vessels can not take the business of internal waterways transport between domestic ports.

Catalogue for the Guidance of Foreign Investment (Oct 31, 2007)
Water Transportation Companies are listed in restricted items. Foreign investment shall not exceed 49 per cent of the total registered capital of the joint venture.

Regulations of the People’s Republic of China for the Administration of Water Transport        (Dec 3, 1997)
Before permission is obtained from the Ministry of Communications of the People's Republic of China, foreign-capital enterprises, Chinese-foreign equity joint ventures and Chinese-foreign contractual joint ventures shall not engage in the operation and management of water transport in the coastal waters, rivers, lakes and other navigable waters in the People's Republic of China.

Implementing Rules of Regulations of the People’s Republic of China for the Administration of Water Transport
(Mar 6, 1998)
Generally goes with the Regulations of the People’s Republic of China for the Administration of Water Transport