China Boosts Support for Processing-trade Enterprises to Promote Research and Development (“R&D”) Activities
China’s Ministry of Commerce, along with nine other authorities, have recently published the Guidelines for Advancing the Development of Processing Trade (“Guidelines”). The document outlines provisions in 12 key areas. The aim is to bolster R&D, accelerate technological development, enhance manufacturing capabilities, and increase product value.
The Guidelines urge processing-trade enterprises to fully leverage preferential policies, including the pre-tax additional deduction policy for R&D expenses. Processing trade refers to the commercial practice of importing raw materials, components, packing materials, etc. from overseas in bond. These imported materials are then processed or assembled by mainland enterprises before being re-exported as finished products.
Other measures contained in the Guidelines include the following:
– Stimulating the growth of the bonded repair and maintenance sector in comprehensive bonded zones and free-trade pilot zones;
– Continuously updating the catalogue of repair and maintenance products for comprehensive bonded zones;
– Prioritising the inclusion of items, such as aircraft engine nacelles, marine diesel engines, and other relevant products;
– Fully implementing the policy to temporarily waive withholding tax for overseas investors who directly invest their profits.
China Issues Updates to Import and Export Tariffs and Policies
China’s Ministry of Finance has recently released a series of revisions to its import and export tariffs and related policies.
– Announcement of the Customs Tariff Commission of the State Council on Adjusting Tariffs for 2024
Provisional import tariff rates on 1,010 items, lower than those in most-favoured nations, have been in effect since 1 January 2024. Notably, import tariffs on essential resources, equipment, and components that are deemed to be in short supply in the domestic market, such as lithium chloride, low arsenic fluorite, and gas diffusion for fuel cells, have been reduced. In addition, import tariffs no longer apply to specific life-saving medicines used for treating cancer and rare illnesses. Moreover, import taxes on food items designated for medical purposes and related goods have been lowered.
These recent adjustments in tariffs will promote the convergence of domestic and international markets. They are expected to enhance the reliable provision of products key to national security. Further, they will provide support for the nation’s transition towards high-quality development in the industrial sphere.
– Announcement on Piloting Import Tax Policies and Measures in Eligible Free Trade Zones (“FTZs”) and Free Trade Ports (“FTPs”)
The Ministry of Finance, General Administration of Customs, State Taxation Administration, and two other authorities jointly issued the document. It took effect on 27 December 2023.
The Announcement provides clarification on tax policies for temporary outbound repair, temporary inbound repair, and temporary entry of goods. Tariffs are waived for aircraft, ships, and their components operated by separate legal entities registered at the Hainan FTP that undergo repairs elsewhere temporarily and are subsequently shipped back into the port. Taxpayers who have paid a deposit equivalent to their tax liabilities or provided alternative forms of guarantee may qualify for a temporary exemption from tariffs, import VAT, and consumption tax on goods entering the Hainan FTP as well as FTZs in Shanghai, Guangdong, Tianjin, Fujian, and Beijing from overseas.
China Publishes Action Plan to Optimise Business Environment in the Guangdong–Hong Kong–Macao Greater Bay Area (“GBA”)
At the end of December 2023, China’s National Development and Reform Commission issued the “Three-year Action Plan for the Development of International First-class Business Environment in the GBA” (“Plan”). It contains 24 measures encompassing seven aspects.
The Plan highlights the GBA’s distinctiveness as one of the most open and economically vibrant regions in China. In 2022, the GBA boasted a GDP of over RMB 13 trillion, contributing to 11% of the nation’s total GDP. In addition, the Plan calls for the establishment of a business environment that aligns with globally accepted standards through three years of concerted efforts. The Action Plan envisages a comprehensive improvement of systems and mechanisms to facilitate consultation, collaboration, and resource-sharing. The aim is to create a world-class business environment that is market-oriented, legally sound, and internationally competitive.
Some of the proposed measures include the following:
– Lowering barriers for market entry into the Guangdong–Macao In-Depth Cooperation Zone in Hengqin;
– Implementing special measures to ease market access to Shenzhen;
– Supporting the pilot programme to facilitate market entry into the Nansha District in Guangzhou;
– Enhancing the mechanism for business entities to provide feedback on market entry challenges;
– Easing restrictions on investors from Hong Kong and Macao, such as requirements relating to qualifications, shareholding, industry access, etc.
Implementation Guidelines Issued for Cross-boundary Transfers of Personal Data between Hong Kong and Mainland China in the GBA
On 13 December 2023, the Cyberspace Administration of China (“CAC”) and Hong Kong’s Bureau of Innovation, Technology and Industry jointly promulgated the Implementation Guidelines (“Guidelines”) on the Standard Contract for Cross-boundary Flow of Personal Information Within the GBA (“Standard Contract”). Alongside the Guidelines, a template for the Standard Contract to be adopted by personal data processors was also provided.
The Standard Contract is a facilitation measure under the Memorandum of Understanding (“MOU”) signed on 29 June 2023. The aim of the MOU between the mainland and Hong Kong authorities is to promote cross-boundary data flows within the GBA. It seeks to streamline the procedures for securely and efficiently transferring personal information from mainland GBA cities to Hong Kong.
Entities based in the mainland GBA cities and Hong Kong transferring personal data in either direction must file a Standard Contract with the Guangdong branch of the CAC and the Office of the Government Chief Information Officer in Hong Kong. The Standard Contract route is, however, not applicable to Macao, nor to transfers of data of a sensitive nature. Additionally, subsequent onward transfers of personal data to an entity outside the GBA are forbidden.
On a related note, although an impact assessment need not necessarily be filed, one should be conducted, nonetheless. It should be carried out within three months prior to the conclusion of the Standard Contract.
The Guidelines do not provide any explicit guidance on the permissibility of transfers by a mainland-based entity outside the GBA to a Hong Kong-based entity via a data processor in the GBA.
Hong Kong Exports Expected to Grow by 4-6% in 2024
Hong Kong’s export sector is poised for a notable growth of 4% to 6% in 2024. This projection stands in stark contrast to the 11% decline in the city’s export levels of last year. Notwithstanding the factors that are likely to continue exerting downward pressure on the city’s export growth, the electronics sector, which makes up 70% of all exports, is forecast to enjoy exponential growth in 2024.
The bright outlook is primarily driven by the substantial surge in demand for electric components. In turn, this heightened demand is largely attributed to the increasing popularity of AI-enabled devices and other finished goods.
In reference to the anticipated upturn in Hong Kong’s export performance, the Director of Research at the Hong Kong Trade Development Council (“HKTDC”) shared her observations. She stated that Hong Kong’s export economy, with its emphasis on electronics, is exceptionally well-positioned to capitalise on the forthcoming resurgence in the demand for high-tech components. In addition, the increased demand for exports is set to strengthen the overall local economy. She added that Hong Kong’s extensive network for exporters would be well-prepared and sufficiently equipped to capitalise on the anticipated global economic recovery in 2025.
According to research conducted by the HKTDC, businesses operating in the electronic, timepieces, and machinery sectors are keen to ramp up their marketing promotion and business matching efforts in 2024. On the other hand, the focus of players in jewellery and apparel sectors is on increasing sales through e-commerce platforms.
Hong Kong Signs Memorandum of Understanding with Saudi Arabia to Promote Investment
In December 2023, Invest Hong Kong and the Ministry of Investment of Saudi Arabia signed a Memorandum of Understanding (“MOU”) to enhance cooperation in the exchange and support of investment promotion. Invest Hong Kong is the Hong Kong Special Administrative Region (“SAR”) Government’s department overseeing foreign direct investment.
The MOU seeks to bolster collaboration in investment promotion between Hong Kong and Saudi Arabia. It serves to reinforce economic ties between the two regions by facilitating the promotion of direct investment. A range of initiatives will be introduced, such as meetings, conferences, visits, and the exchange of information and expertise.
In addition, Hong Kong has initiated formal negotiations with Saudi Arabia for an Investment Promotion and Protection Agreement (“IPPA”). The IPPA aims to safeguard, enhance, and facilitate investments, thereby increasing investor confidence and bilateral investment flows.
In February 2023, the SAR Government led a top-level delegation to Saudi Arabia and the United Arab Emirates (“UAE”). During the visit, government officials showcased Hong Kong’s distinctive strengths to their counterparts in the Middle East and to the local business communities. The visit culminated in the signing of 13 MOUs or letters of intent between Hong Kong and various enterprises and institutions in Saudi Arabia and the UAE. These agreements establish a robust framework for the long-term growth of Hong Kong businesses in the Middle East. Concurrently, they will provide a compelling incentive for businesses and capital from the region to invest in Hong Kong.
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