Monthly Highlights on China Regulations and Business Environment
China to Speed Up Development of Advanced Manufacturing Clusters
The Chinese government held a State Council executive meeting on 5 May 2023. At the meeting, the adoption of guidelines on expediting the development of advanced manufacturing clusters was considered and discussed.
The development of advanced manufacturing clusters is central to the transformation and comprehensive upgrading of traditional industries. In addition, it also plays an integral role in the cultivation and growth of new industries. Localities will be offered guidance on how to give full play to their respective competitive advantages, expertise, and specialisms.
Appropriate steps should be taken to promote technological innovation and its implementation, propel China’s transition into a low-carbon economy, increase the number of high-quality enterprises, and accelerate the upgrading of the country’s industrial infrastructure.
Further, the meeting addressed the vast potential of the new energy vehicle market in rural localities, and the need to accelerate the construction of charging facilities. The necessity to clear outstanding bottlenecks that restrict the development of the industry was also emphasised. The infrastructural upgrade in respect of charging amenities will help boost consumption in rural areas and support the development of rural tourism, adding new momentum to rural revitalisation
China Issues New Rules on Online Advertising
China’s State Administration for Market Regulation promulgated the Measures for the Administration of Internet Advertising (“Measures”), which came into force on 1 May 2023. The Measures superseded and rescinded the former Interim Measures for the Administration of Internet Advertising.
The Measures comprise a mixture of both new regulations and enhancements of current applicable rules. Reflecting the present landscape of online advertising, the Measures seek to provide increased transparency and user protection. Further, the modernised regulatory regime provides for the formalisation of new online advertising practices by bringing them under legal purview.
Outlined below are several key updates as set out in the Measures:
- No disguised online advertising for medical or health-related products
The Measures introduce a new rule in respect of disguised online advertising. This practice involves advertising under the pretence of providing educational information on health and wellness. It is now prohibited in advertisements for medical treatments, pharmaceuticals, medical equipment, food products with purported health benefits, and formula-based, medicinal products on the internet.
- Live streaming deemed online advertising
Pursuant to the Measures, the promotion of products and services on live streaming platforms is deemed online advertising. The new rule seeks to address the immense popularity and explosive proliferation of live streaming marketing in recent years. Depending on the nature of their roles, the live streaming account holder and the operator of the live streaming platform may now be deemed an advertising agent or publisher.
In addition, live streamers recommending products under their own name may now be subject to the provisions under China’s Advertising Law.
- Enhanced consent requirements
According to the Measures, advertisers must obtain consumers’ explicit consent before displaying advertisements on smart devices, such as navigation systems, vehicles, e-readers, and smart home appliances. The same applies to inserting advertisements or promotional links into emails or instant messaging.
Hong Kong Introduces Tougher Penalties for Breaching Occupational Health and Safety Regulations
The Occupational Safety and Occupational Health Legislation (Miscellaneous Amendments) Ordinance 2023 (“Ordinance”) has come into effect in Hong Kong.
According to the Ordinance, employers who violate Hong Kong’s occupational health and safety regulations will now face more substantial penalties and imprisonment for a maximum of two years.
The Ordinance endeavours to increase the prohibitive effect of penalties by raising the upper limit of fines for specific offences under the Factories and Industrial Undertakings Ordinance (“FIUO”) (Cap. 59) and the Occupational Safety and Health Ordinance (“OSHO”) (Cap. 509).
An offending employer who violates the general duty under Section 6A of the FIUO and Section 6 OSHO may now be liable to a fine of HKD 3 million on summary conviction, and HKD 10 million on indictment.
In the event of an intentional, wilful breach committed without a reasonable excuse, employers can now face a fine of HKD 3 million and six months’ imprisonment on summary conviction. In the case of conviction on indictment, the penalty is HKD 10 million and two years’ imprisonment.
China Enhances Administration of Social Insurance Funds
China’s Ministry of Labour and Social Security promulgated the Measures for the Administration of Social Insurance Fund Supervision and Tip-Offs (“Measures”), which came into effect on 1 May 2023. The Measures seek to enhance the monitoring mechanism so as to better supervise the administration of social insurance funds.
With tighter enforcement measures, the government is intensifying its efforts in tackling misappropriation of social insurance payments. The Measures specifically target companies that embezzle social insurance payments by forging supporting documents, knowingly and wilfully missing premium contributions in violation of the law, and falsifying eligibility for social insurance.
The Measures are an addition to the Measures for Administrative Supervision of Social Insurance Funds introduced in 2022. According to the latter measures, appointing another party solely for the purpose of paying social insurance premiums and falsifying occupational injury reports are strictly prohibited.
Employers are, therefore, urged to ensure that their current practices in respect of social insurance payments are fully compliant.
Greater Bay Area Business Confidence Index Soars
Standard Chartered and the Hong Kong Trade Development Council (“HKTDC”) has recently unveiled the Greater Bay Area (“GBA”) Business Confidence Index for the first quarter of 2023.
The GBA’s performance has skyrocketed to 51.3 points from 11.8 points, exceeding 50 points for the first time since the last quarter of 2021. Similarly, the expectations index has jumped to 61.5, hitting a record high since its inception. The jump reflects a bounce-back in business confidence after normal travel resumed between Hong Kong and the mainland.
In addition, the sub-indices that measure performance in business activity across all industries and the entire GBA have surged. In particular, Financial Services and Innovation and Technology delivered a stellar performance, with 59.8 points and 54.3 points respectively. Also showing robust growth, Professional Services, Manufacturing and Trading, and Financial Services recorded the largest leaps in the expectations index. While all cities in the GBA saw a rebound in activity, Dongguan, Guangzhou, and Shenzhen saw the steepest growth.
Nearly two-thirds of the companies interviewed said that the axing of pandemic measures would have a beneficial impact on their businesses for the remainder of 2023. More than 50 per cent of respondents said that they had revised upwards their business targets since the resumption of cross-boundary travel. Approximately 60 per cent of interviewees forecast business to return to or surpass pre-pandemic levels in respect of workforce, capacity utilisation, order, and sales.
Director of Research at the HKTDC observed: “The two sub-indices for Hong Kong hit the highest level since the GBA Business Confidence Index was launched in the second quarter of 2020, reflecting that local companies are turning optimistic for the city’s outlook…The recent string of encouraging macro data explained the positive sentiments, confirming that China’s economy has turned the corner post-COVID.”
Further Amendments to Hong Kong’s Proposed Preferential Tax Regime for Family Offices
Hong Kong’s Legislative Council has recently reviewed a report prepared by the Bills Committee on the Inland Revenue (Amendment) (Tax Concessions for Family-owned Investment Holding Vehicles Bill 2022. The report puts forward additional suggested revisions to the Bill introduced by the Inland Revenue Department.
Below are the further proposed modifications to the Bill:
- Management and control requirement
The requirement that the central management and control of the family investment holding vehicle (“FIHV) and the single-family office must be exercised in Hong Kong has been amended to ’normally managed and controlled’. In practical terms, this means that, even in cases where the individuals making the key strategic decisions are overseas, so long as an adequate number of professionals have been hired to oversee the investment operations, this requirement will be met.
- Beneficial interest requirement
According to the suggested amendments, up to a quarter of the FIHV and the single-family office can be owned by a charitable entity that enjoys tax exemption under section 88 of the Inland Revenue Ordinance. 75 per cent or more of the beneficial interest must, however, be held by one or two members of the family.
- Permissible transactions
Qualifying transactions subject to the concessionary regime are those that arise from the disposal of financial assets under Schedule 16C of the Inland Revenue Ordinance. The definition of such assets has expanded to include real estate investment trusts and virtual assets exchanged traded funds.
- Incidental transactions
The definition of ‘incidental transactions’ has been clarified. Such transactions include interest income accruing from the holding of assets under Schedule 16C by the FIHV.
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