Speech: Invest in Chinas logistics and shipping industry - key legal issues

I. Summary of the Legal Structure of the Foreign Investment Logistics

1.       Protocal on the Accession of the People’s Republic of China to the World Trade Organization Annex 9

 (Nov, 11, 2001)

Area to be opened: a. Maritime Transport Services and its Auxiliary Service

b. Internal Waterways Transport

c. Air Transport Services

d. Rail Transport Services

e. Road Transport Services

f. Storage and warehousing services

g. Freight forwarding agency services

   Investment Mode: foreigner holding proportion is restrained in most of above area; can not be the holding investor in some area.

                  Have time limitation for investors in some area.

2.       State Catalogue for the Guidance of Foreign Investment Industries (Mar 11, 2002)

Generally goes with the WTO.

3.       Circular on the Relevant Issues concerning the Experimental Establishment of Logistics Enterprises with Foreign Investment (June 20, 2002)

a.       Investment Area: Jiangshu Province, Zhejiang Province, Guangdong Province,

Beijing, Tianjin, Chongqing, Shanghai, Shengzhen

b.       Investment Mode: Joint Venture

4.  Comments on Promotion the Development of China’s Modern Logistic by National Development and Reform Commission, Ministry of Commerce and other 7 National Administrations (Aug 5, 2004)

5.       Detailed Regulations for Each Logistic Area

a)         Maritime Transport Services and its Auxiliary Service:

Provisions of Administration of Foreign Investment in International Maritime Transport

(Feb 25, 2004)

b)        Air Transport Services:

Administration of Foreign Investment in Civil Aviation (Jun 21, 2002)

c)        Road Transport Services

Administration of Foreign Investment in Road Transport Services (Nov 20, 2001)

Supplement of Administration of Foreign Investment in Road Transport Services

(Dec 31, 2003)

d)        Freight Forwarding Agency Services

Administration of Foreign Investment in International Freight Forwarding Agency Services

(Dec 19, 2001)

6.       Closer Economic Partnership Arrangement Annex 4 on June 29, 2003

Special Treatment towards investors from Hong Kong and Macau

7.       Speeches by Government Officers as a reference

a.  Comments on the Promotion of Chinese Modern Logistics (Aug 5, 2004)

Issued on Aug 5, 2004 by 9 governments such State Development and Reform Commission, Ministry of Commerce and other commissions.

    b.  Deepening Reformation and Enhancing Promotion of China’s Modern Logistics

by Mr. Zhang Zhigang, vice Minister of Commerce Minstry

Issued in the Development and International Cooperative of Chinese Modern Logistics Seminar in Nov 4, 2004

II. Detailed Regulations of Each Field

A. Maritime Transport Services and its Auxiliary Service

Protocal on the Accession of the People’s Republic of China to the World Trade Organization Annex 9 (Nov, 11, 2001)

Chinese government has promised that China would open the area of Maritime Transport Services and its Auxiliary Service.

The International Transport here includes freight and passengers, less cabotage transport services; Auxiliary Service includes maritime cargo-handling services, customs clearance services for maritime transport, container station and depot services, Maritime agency services.

 Provision of Administration of Foreign Investment in International Maritime Transport

(Feb 25, 2004)

   Foreign Investment in Chinese international maritime transport service should compaly with this Provision, Regulations of Maritime and the Procedure of Maritime Regulation..

a.       Investment Area:

1.       International maritime transport of freight and passengers, 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.       International maritime cargo warehousing services

3.       Routine services for the vessels

b.       Investment Form

1.  International maritime transport of freight and passengers, international shipping agency services, international ship management services, loading and unloading of international shipments, and international maritime container freight station and container yard services:

    Can establish sino-foreign equity joint venture or sino-foreign contractual joint venture with a maximum foreign investment of 49 percent of the total registered capital of the joint venture

2.       International maritime cargo warehousing services

Can establish wholly foreign-owned enterprises or JV.

3.       Routine services for the vessels

Can establish wholly foreign-owned enterprises or JV.

c. Investment Conditions

1. International maritime transport

i. shall have the vessels suitable for the management of International maritime transport, among which shall be Chinese vessels;

ii. have Bill of Lading, tickets or inter-model invoice;

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.

2. International Shipping Agency Service

i. shall have at least 2 people with more than 3 years’ experience in international maritime transport within the senior managers of the enterprises;

  Senior manager means the Chinese citizen with a professional title above or at middle level works in international maritime enterprise or international maritime auxiliary enterprise with the position of or above the department manager;

ii. shall have a fixed premises and necessary business facilities, including the abilities of electron data exchange with the Government department such as Port Bureau or Customer;

iii. other conditions required by Laws and Regulations.

d. Governing Department and the Establishment Procedure

1. Governing Department:

National Ministry of Communication, Ministry of Commerce

2. Establishment Procedure:

     Application to the Ministry of Communication for the Establishment

                             ↓

      Application for the Establishment to the Ministry of Commerce rely on

        the approval document issued by the Ministry of Communication

↓

Business Registration in Administration of Industry and Commerce for

 the Business License rely on the approval document issued by

the Ministry of Communication and Ministry of Commerce

↓

Application for Approval Certificate for International maritime transport

       and International Shipping Agency Service /

International Shipping Agency Service

      e. Business Term : no more than 20 years.

Closer Economic Partnership Arrangement Annex 4 (June 29, 2003)

Hongkong and Macau investors can establish WOFE operating in International Ship Management,

International maritime cargo storage and international maritime container freight station and container yard services; WOFE shipping company.

B. Internal Waterways Transport

Protocal 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 (Mar 11, 2002)

Water Transportation Companies are listed in the restricted items.

C. Airline Transport

Protocal on the Accession of the People’s Republic of China to the World Trade Organization Annex 9 (Nov, 11, 2001)

  Only promised to open the area of aircraft repair and computer reservation system.

  Catalogue for the Guidance of Foreign Investment (Mar 11, 2002)

  Air transport, the construction and the operation of civil airport are both listed in the encouraged foreign investment industries, and should be JVs with the Chinese party as its holding party of the companies.

 Administration of Foreign Investment in Civil Aviation (Jun 21, 2002)

  Can invest in public air transport, the construction and the operation of civil airport, general aviation enterprises, and the related program of aviation transportation.

  The investment areas are widened in this Administration compared with Protocal and Catalogue for the Guidance of Foreign Investment.

D. Rail and Road Transport Service

Protocal on the Accession of the People’s Republic of China to the World Trade Organization Annex 9 (Nov, 11, 2001)

  Can invest in freight transportation by rail, freight transportation by road in trucks or cars.

  Only allow the investment mode of JV, and foreign investment should be no more than 49%.

  a. For rail transportation, three years after China’s enter of WTO, foreign investors can be the holding party of the JV; Six years after China’s enter of WTO, WOFE can be established.

  b. For road transportation, one year after China’s enter of WTO, foreign investor can be the holding party of the JV; three years after China’s enter of WTO, WOFE can be established.

 Catalogue for the Guidance of Foreign Investment (Mar 11, 2002)

 Actually goes with the WTO.

  a. For rail transportation, in Dec 11 2004, foreign investors can be the holding party of the JV; Dec 11 2007, WOFE can be established.

  b. For road transportation, in Dec 11 2002, foreign investor can be the holding party of the JV; in Dec 11 2004 WOFE can be established.

E. Freight forwarding Agency Services

Protocal on the Accession of the People’s Republic of China to the World Trade Organization Annex 9 (Nov, 11, 2001)

  Only promised that

a.       upon accession, foreign freight forwarding agencies which have at least three consecutive years experience are permitted to set up freight forwarding agency joint ventures in China, with foreign investment not to exceed 50 percent;

b.       with in one year after Can’s accession, foreign majority ownership will be permitted

c.       with in four years after China’s accession, WOFE will be permitted.

Catalogue for the Guidance of Foreign Investment (Mar 11, 2002)

  Listed in the Restrict Items of the Catalogue with a note that foreign ownership can not be more than 50% (express delivery can not be more than 49%); before 2002, foreign majority ownership will be permitted; WOFE will be permitted before Dec 11, 2005.

Administration of Foreign Investment in International Freight Forwarding Agency Services (Dec 19, 2001)

  a. Investment Area:

By the authorization of goods receiver or a consignor, to deal with the international transport and the related business on the consignor’s name or its own name.

    In detail:

    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 chek，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

c.       Investment Form

Contractual joint venture;

Equity joint venture;

WOFE.

d. 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.

d. Governing Department and the Establishment Procedure

1. Governing Department:

Ministry of Commerce

2. Establishment Procedure:

       Application for the Establishment to the Ministry of Commerce

↓

Business Registration in Administration of Industry and Commerce for  the Business License rely on the Approval Certificate for the Establishment of Foreign Enterprises and

the Approval Certificate for International Freight Forwards Agency

issued by the Ministry of Commerce

↓

Application for Approval Certificate for International maritime transport

       and International Shipping Agency Service /

International Shipping Agency Service

d. Business Term: not more than 20 years.

Closer Economic Partnership Arrangement Annex 4 (June 29, 2003)

Hongkong 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 fright forwards or International express delivery: RMB 2 million.

IV. Government Comments (both official and unoffical)

Comments on the Promotion of Chinese Modern Logistics (Aug 5, 2004)

Issued on Aug 5, 2004 by 9 governments such State Development and Reform Commission, Ministry of Commerce and other commissions.

The approval procedure before the Business Registration in Administration of Industry and Commerce will be cancelled; cancel the administrative approval for domestic rail freight forwards, waterway freight forwards, multimode transport fright forwards.

Deepening Reformation and Enhancing Promotion of China’s Modern Logistics

(Nov 4, 2004)

by Mr. Zhang Zhigang, vice Minister of Commerce Minstry

Issued in the Development and International Cooperative of Chinese Modern Logistics Seminar in Nov 4, 2004

The speech reveals that the government will reduce and cancel the administrative approval in Logistics area, simplify Customs procedures, and the government encourages famous foreign logistics enterprises to invest in China.

V. Foreign Investment in Ports

Protocal on the Accession of the People’s Republic of China to the World Trade Organization Annex 9 (Nov, 11, 2001)

  Not listed in Protocal.

Catalogue for the Guidance of Foreign Investment (Mar 11, 2002)

  Construction and management of public dock facilities of ports are listed in the encouraged items; there is no additional stipulation about the investment formality, investment period.

   There is no detailed law and regulation stipulate that whether wholly owned foreign port can be established, some regulation has once stipulate that foreign investors can only invest in private dock owned by cargo owners. However, in some province wholly owned foreign invested public dock.

  Law of Ports (Jun 28, 2003)

  Administration of Ports Management (Apr 15, 2004)

*Note: above is the newly promulgated law and regulations in this area, and foreign investment in ports area should comply with these articles.

  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.

(This speach was delivered on December 9, 2004 on China Containers 2004)