Your Step-by-Step Guide to Set Up a Company in Shenzhen
Table of contents
- Market Access
- Organizational form
- Company name
- Business Scope
- Working capital or registered capital
- Corporate certificates
- Management personnel
- Business License
- Bank accounts
- Tax Bureau
- Tax registration
- Social Security
- Industry specific licenses
- Work permits
The year 2020 marks the 40th anniversary of the establishment of Shenzhen Special Economic Zone. The city’s GDP has grown from $196 million RMB to $2.6 trillion RMB in 40 years, a nearly 14,000-fold increase, and it has been hailed as China’s version of Silicon Valley.
On 8 December 2020, the Shenzhen government held a Global Promotion Investment Conference, which attracted about 300 local and international enterprises, including the world’s top 500 enterprises such as Qualcomm, Nvidia and Microsoft, China’s top 500 enterprises, and foreign consulates in China.
According to the official statistics, from January to October 2020, the actual size of foreign investment in Shenzhen was US$ 7.055 billion, with a cumulative US$ 120.5 billion of total amount, higher than the national average. As of the end of October 2020, Shenzhen has approved 96,000 foreign direct investment projects in the calendar year.
For foreign companies and individuals considering where to set up your business in China, Shenzhen might offer a great deal of attractiveness as a gateway to the Chinese market:
- Shenzhen borders Hong Kong and is a transport hub in the Belt and Road Initiative and Asia-Pacific. Shenzhen is within an arm’s reach of the most developed market in the world – Hong Kong. Within a one-hour drive from Shenzhen, you can procure any main parts or accessories for any industry.
- Shenzhen is a leading hub in electronic information, internet, biology,and new energy industries. It has given birth to many high-tech companies such as Huawei, ZTE, Tencent, BYD, and DJI.
- More than 90% of Shenzhen’s population are of working age. The average age of citizens is around 33 years old.
- Shenzhen is the city with the deepest level of “market economy”in China, there are more than 3.2 million commercial entities. Both the total number and density of commercial entities rank first in the country.
The Shenzhen government is one of China’s most efficient governments, overturning the common perception that setting up a company in China takes months to complete. In this article, we provide you with a checklist for starting a business here.
A Checklist for Starting a Business in Shenzhen
- Assess the market access feasibility
Regardless of the business idea in mind, the first step before considering doing business in China is to check whether such business activity is allowed for foreign investment by the Chinese government.
China has adopted a “Negative List” system to guide FDI flows into the open sectors following its economic agenda. The Negative List points out the industries and sectors that are not allowed. If your industry is not on the Negative List, your project can go through a record-filing procedure without being asked for pre-approval.
Furthermore, you will also need to check the Market Access Negative List, which applies to all domestic and foreign companies in China. This List serves as a guideline to the license requirements for those regulated industries.
- Choose a district and find a physical office
Shenzhen is administered by the provincial government and is a sub-provincial class city with independent planning status. There are 11 administrative districts: Futian, Luohu, Yantian, Nanshan, Bao’an, Longgang, Longhua, Pingshan, Guangming, Dapeng New District, and Shenshan Special Cooperation Zone. Furthermore, the city is home to the Shenzhen Qianhai Shekou Free Trade Zone, which benefits companies that fall under a list of encouraged industries.
Key factors to consider when choosing a district are proximity to key customers, key suppliers, access to talents, operation costs, access to applicable incentives, etc.
The Commerce Bureau of Shenzhen Municipality publishes and updates reference data on some major operating costs such as water, electricity, office space, and salary standards. Further information on the website: http://invest.commerce.sz.gov.cn/INVEST/LEAP/NSSWEN/html/investServices.html?type=0204
There is also a webpage where you can navigate an administrative division map of Shenzhen: http://invest.commerce.sz.gov.cn/INVEST/LEAP/NSSWEN/html/overviewCity.html
- Decide on your business structure and organizational form
Since the Foreign Investment Law and its Implementation Regulations came into force on the 1st of January 2020, the three laws and their implementing rules (collectively Three FIE Laws) governing the establishment of Sino-foreign equity joint ventures, Sino-foreign co-operative joint ventures, and wholly foreign-owned enterprises and their operations in China have been repealed simultaneously.
Generally, you will be choosing from a list of 3 options in terms of the organization form of your business:
- Choose a business name
Most company registration processes start with getting your company name approved. While you can register an English name for the company, only the Chinese name is legally binding, and it follows a specific structure. Whatever your trade (brand) name is, the Chinese name should also include the type of business and the registered location, followed by the organization form at the end.
- Define your business scope
Business scope is a list of business activities that your China company can conduct in China. Generally, you can only issue Chinese tax invoices in the name of those activities already approved in the business scope. It is essential to make your business scope as precise as possible to avoid any wrong classification of the company’s industry. The registration authority (Administration of Market Regulation, or AMR) often plays a strong emphasis on following the standard expression of the business scope according to the “Classification of Industries of National Economy”.
It should be noted that even though your business scope is approved during the company registration process, you are required to observe any industry licensing requirements before you officially operate the business. Relevant descriptions may be included in the business scope at the time of establishment with AMR, but certain business activities must first be approved by the relevant industry departments. For example, although “selling food” can be included in the business scope freely, but before engaging in the business activities of selling food, approval documents such as “Food business License” must be obtained.
- Project the working capital you need
Since 2014, China has implemented the “Registered Capital Subscription Registration System”. Shareholders of the company may independently agree on the amount of capital contribution, the method and timing of capital injection, which shall be defined in the Articles of Association of the company. Although the minimum registered capital requirement was cancelled, shareholders should still consider capital contribution plan carefully.
AMR typically evaluates whether the registered capital subscribed is enough to cover the working capital needed to start the business and maintain it for the next 13 months. Suppose the shareholders appear to use a small capital to run a business that is obviously beyond the capital capacity. In that case, it may raise doubts whether the shareholders are transferring the investment risk to the creditor by maliciously taking advantage of the company’s independent personality and the limited liability of shareholders. In this regard, your business model’s financial analysis and cash flow planning are instrumental in determining how much working capital you need until your China company becomes self-sustainable. As a result, the amount of working capital you work out in the financial planning is an excellent reference to the amount of registered capital you should subscribe.
In case you consider making a capital contribution in-kind such as intellectual property, land use rights, and other non-cash properties, they must be evaluated and verified by a licensed PRC appraiser and transferred legally.
- Prepare notarized and certified corporate certificates of the parent company
Among the set of application documents required to register a company in China, notarized and certified corporate certificates of the parent company are usually a time-consuming item to prepare. The FIE investor must provide documents to prove that the investor, be it a natural person or a corporate person, legitimately exists. If the investor is a natural foreign person, some districts of Shenzhen might require the presence of the investor and to verify his/her identify when the application documents are presented physically to the local AMR office. If the investor is a corporate person, the corporate certificates must be notarized by a public notary, certified by the Chinese Consulate/Embassy, and translated by a certified translation company before they can be recognized in China. The process of notarization and certification may vary depending on the country or region. From a registration perspective, many investors use a Hong Kong Company to invest in mainland China to save time since the certificates of a Hong Kong company are bilingual in Chinese and English, and they only need to be verified by a China-Appointed Attesting Officer.
- Identify your management personnel
Article 31 of the Foreign Investment Law stipulates that the organizational form, organizational structure, and activity criteria of foreign-invested enterprises shall be governed by the Company Law, the Partnership Law of the People’s Republic of China, and other laws. Therefore, the organizational structure of foreign-invested limited liability companies and joint-stock limited companies should be established and registered in accordance with the relevant provisions of the Company Law. The applicable requirements of the Legal Representative, Directors, Supervisors, and other senior management positions are as follows:
Despite that there are no residence or citizenship requirements for the Legal Representative, a person must not assume the position of a legal representative if he/she falls under any of the following categories:
- the person has no or only limited capacity for civil acts;
- the person is currently subject to criminal punishment or criminal enforcement measures;
- the person is currently the subject of an arrest warrant issued by a public security or state security organ;
- the person was subject to criminal punishment due to an offence involving corruption and bribery, violation of property or disruption to the order of the socialist market economy and it is less than five (5) years since the expiry of the term of enforcement; the party was subject to criminal punishment due to another type of offence and it is less than three (3) years since the expiry of the term of enforcement; or the party was deprived of its political rights because of an offence and it is less than five (5) years since the expiry of the term of enforcement;
- the person held the position of legal representative, director or manager of an enterprise which has undergone bankruptcy and liquidation as the result of unsound management and the party was held personally liable for the bankruptcy of the enterprise and it is less than three (3) years since the conclusion of the bankruptcy and liquidation proceedings;
- the person held the position of legal representative of an enterprise whose business license was revoked due to a violation of the law and the party was held personally liable for the unlawful actions of the enterprise and it is less than three (3) years since the business license was revoked;
- the person has a relatively large amount of personal debt which it failed to pay when due; or
- other circumstances stipulated in laws and the State Council regulations where a party must assume the position of a legal representative.
- Filing with Administration of Market Regulation and obtain the business license & company chops
In Shenzhen, the company registration application can be initiated online at the government’s e-service platform. As a first step, you must first pre-register the company name. If the name is available to register, you will be directed to an online form that you are required to complete. After submitting the online information, you can then make an appointment with the local Administration of Market Supervision to submit the originals of the application materials, which generally include all the signed forms, original notarized and certified corporate certificates of the foreign investor, the China company’s Articles of Association, the appointment letters of Legal Representative, Director(s), Supervisor(s). If the documents are in good order, the business license can be issued and printed on the spot. After you obtain the business license, you can then go to the Public Security Bureau to carve company chops. A complete set of mandatory company seals include the company’s official seal, finance seal, invoice seal, and the personal seal for the Legal Representative.
- Opening the RMB basic account and the capital account
An FIE usually needs, at minimum, two types of bank accounts: the Capital Account and the RMB Basic Account. Before the Capital Account can be set up, an FIE needs to go through Foreign Direct Investment Registration with the State Administration of Foreign Exchange (SAFE). However, the FIE does not need to contact SAFE directly for such registration. Since 2015, SAFE has already delegated its registration authority to the banks. That said, when an FIE applies for a Capital Account with an authorized bank, the bank will collect relevant information from the FIE and submit it to SAFE to get its approval.
In addition to the Capital Account, an FIE is also required to open an RMB Basic Account to pay salaries, taxes, and contribute social security premium to their employees. Since only the RMB Basic Account can handle cash withdrawal, it is generally opened in a bank branch near the office of the FIE to facilitate the daily business. Depending on your business needs, you may also wish to open a Foreign Exchange General Account to facilitate foreign currency transactions.
- Legal Representative and Financial Controller‘s real name authentication with the Tax Bureau
In Shenzhen, for the newly set up FIE, the Legal Representative, the Finance Person-in-charge, Tax operator/handler must all go through an identity verification process with the tax bureau called “Real Name Authentication Registration”. While local personnel can do the Real-Name Authentication Registration online, foreign personnel must appear in person at the tax bureau. The tax officer will register their identity document, contact number, and facial information.
- Company Tax Registration at the Tax Bureau
In principle, an FIE must go through tax registration within 30 days after receiving its business license. After the tax registration, regardless of whether there is tax payable, the FIE must file tax returns within each tax period (monthly or quarterly).
- Social Security and Housing Fund Registration
You must also observe the deadline to register with the local social security agency and the housing provident fund management center. Typically, it is expected that a newly set up company registers the social security and housing provident fund contribution within 30 days from the date of its establishment.
- Apply for the industry licenses required before you start operating
If the FIE’s business scope involves activities that require other industry department’s approval, you should continue to go through the approval procedures with the relevant industry department before you conduct the activities. For example, import/export permit, food-operating license etc.
- Apply for work permits and residence permits for foreign expatriates or employees working in China
If you intend to employ foreign nationals working in China, you must apply for both the work permits and resident permits for these foreign individuals. With the nationwide implementation of the “Permit System for Foreigners Working in China” in 2017, the standards and procedures have been unified across the country. However, before you make an offer to any candidate, make sure the candidate meets these basic requirements:
- The company is established following the law with no severe breach of law and credibility records;
- The positions taken up by foreigners should be those with special needs,and there is a temporary shortage of suitable candidates in China;
- The wages and salaries of the candidates shall not be lower than the local minimum wage standards.
- At least 18 years old and in good health;
- Has no criminal record;
- Possesses the professional skills or appropriate knowledge level necessary for the work.
In 2017, China established classification criteria for foreigners working in China, which adopts a comprehensive application of i) a score points system, ii) a guidance catalog of foreigners working in China and, iii) a labor market quota management system. Under this mechanism, foreigners are classified into three types, Type A (High-level Talents), Type B (Professional Talents), and Type C (Common Applicants). As there is no simple definition for Type A, Type B, and Type C, it’s recommended to talk to an experienced China visa agent. Upon reviewing the candidate’s qualification, the agent should be able to tell you the type of applicant as well as the success rate.
- Annual and ongoing requirements
After carefully planning and implementing the steps above, you are now ready to start your business in Shenzhen. Our last piece of advice is to pay attention to the ongoing compliance requirements, such as accounting requirements, tax filing deadlines, annual audits, and annual reporting to government agencies.
Indeed, most start-up businesses need to focus on business and commercial development rather than government filings. The most straightforward solution is to find a reliable firm to which you can outsource the financial function. In looking for a service provider, besides comparing the scope of services and their fees, you might want to find out:
- Whether the accounting team engaged consists of qualified and licensed CPA professionals;
- Whether the accountant assigned to your case can communicate in English directly;
- Whether the senior management or the Engaging Partner of the firm is reachable to deal with any high-level issues occasionally;
- Professional and work ethics of the firm.
As a Hong Kong-based CPA firm with our wholly-owned subsidiaries in Shenzhen, Guangzhou, and Shanghai, CW has accumulated years of experience serving foreign companies operating in Greater China.
If you wish to know more about setting up a business in Shenzhen, please do not hesitate to contact our Phenix Zheng at email@example.com.
Written by China Consultancy Team, CW CPA
The recent outbreak of COVID-19 has severely disrupted our daily lives and business operations. As of 19 July 2020, the total confirmed cases in Hong Kong has reached over 1,800. To minimize transmission of imported cases, a mandatory 14-day quarantine for persons entering Hong Kong was implemented on 8 February 2020. Under the travel restrictions, multinational companies requiring routine travelling have been forced to suspend business trips, changing their work patterns.
Recently, the Government of Hong Kong SAR announced that Hong Kong enterprises with manufacturing operations in the Mainland can apply for exemption from the compulsory quarantine arrangement. Under the amended section 4(1)(b) of Cap. 599C, the Chief Secretary for Administration has exempted the following category of persons from the compulsory quarantine arrangement with effect from 4 May 2020 –
(a) either the owner of a Hong Kong enterprise with a valid business registration certificate issued under the Business Registration Ordinance (Cap. 310) and with manufacturing operations in the Mainland, and up to one personnel employed and so authorized by the enterprise; or
(b) up to two personnel employed and so authorized by such an enterprise as described in (a).
Upon successful application, the exempted person may travel to and stay in the city where the Mainland factory of the enterprise’s manufacturing operations is located, for supporting the operation and business of the factory. When returning to Hong Kong, the person is exempted from the 14-day quarantine, but will be subjected to medical surveillance arranged by the Department of Health during his/her stay in Hong Kong, and will be required to wear masks and check body temperature daily, as well as to report to the Department of Health on any discomfort.
The above arrangement would allow flexibility for Hong Kong companies to send personnel to designated Chinese cities and support their manufacturing operations. The personnel are not subject to mandatory quarantine in Hong Kong when they return from their business trip. However, they may still be subject to local quarantine requirements in mainland China when they travel outbound from Hong Kong.
What CW can do for you:
CW can assist our clients with the application of the above-mentioned exemption including
- analyzing the application criteria, and
- preparing and submitting the application.
Written by Toby Wong, China Consultancy Team, CW CPA
Six months after the human-to-human transmission of the COVID-19 virus was confirmed, economic recovery has begun in countries in the Asia Pacific region. As of today, most of the economies in this region have emerged from confinement and commercial activities have been gradually resumed. Thanks to their previous experience with SARS, these countries appear to have managed to control health crisis in a short period of time. Just a few weeks ago, the first online edition of the Canton Fair was held, meanwhile several countries are exploring the possibility of opening “travel bubbles” to allow the traffic of businessmen and tourists.
In the case of Mexico and other countries of the American continent, the peaks of the epidemic are barely being reached, so it will take at least another three months to significantly reduce the number of infections. Therefore, it is very likely that for the rest of 2020, travel restrictions will continue to be
imposed, and it is practically impossible to make trips abroad to participate in specialized events and business meetings.
Despite the fact that technology has played a key role during confinement, many aspects of business cannot be carried out through a computer. Facing this new reality, commercial representatives have become an important ally in an international business strategy.
WHAT DO COMMERCIAL REPRESENTATIVES DO?
As the name indicates, a commercial representative represents a company, public entity or an individual who hires him/her, to carry out tasks of marketing and promotion of products or services. One of the major requirements for being a commercial representative is that in addition to having interest in the country that the company locates, he/her must have necessary skills for efficient communication at the local level, that is, a broad knowledge of the language and business culture.
Job duties carried out by a commercial representative include direct contact with the company’s clients or suppliers, contact with potential clients, representation in negotiations, presentations at specialized events, participation in trade fairs, and identification of business opportunities.
WHAT ARE THE ADVANTAGES OF HAVING A COMMERCIAL REPRESENTATIVE?
In addition to the significant reduction in travelling cost, a commercial representative can carry out sales activities, promotion of the brand, identification of potential clients, participation in specialized fairs, informal and formal meetings, and mapping of trends in our sector. This allows the
company to save time and resources, which should otherwise be taken from other areas of the company.
Cities like Hong Kong offer an ideal business environment to establish a Commercial Representation. On one hand, it is possible to establish a company without having a physical presence in the city, in addition to the fact that the tax system allows us to carry out purchase and sale operations through our company with a minimum of taxes. On the other hand, Hong Kong has a privileged location in Asia, from here you can travel to the entire continent, and is the center of a large number of international corporate and specialized trade fairs, allowing a significant reach of clients.
WHAT ARE THE MAIN ASPECTS TO CONSIDER WHEN RECRUITING A COMMERCIAL REPRESENTATIVE?
In addition to his/her knowledge and experience at a local level, it is important that the Representative knows the services and products in detail, so that he can offer the best solution to our clients.
On the other hand, it is very important to sign a collaboration agreement specifying the needs of our business, the economic terms of representation, confidentiality and the intellectual property clause, to ensure that our project and clients are in good hands.
As of today, no country has an exact date of returning to “normalcy”. In fact, various analyses indicate that the world will continue to face the waves of COVID-19 during the rest of 2020 and 2021. Now more than ever, it is necessary to rethink our internationalization strategies, identifying actions that represent lower costs and better results. Therefore, a commercial representative / commercial representation can offer a short- and medium-term solution for our internationalization projects.
IF YOU WOULD LIKE TO KNOW MORE ABOUT COMMERCIAL REPRESENTATION SERVICES IN ASIA, DO NOT HESITATE TO CONTACT US.
Written by Susana Muñoz Enríquez, Managing Director in GBA LatAm Trade and Investment Advisors
Among 108 global cities, Shenzhen was ranked 11th in the Global Financial Centers Index (GFCI) 27 Report published by the Z/Yen from the United Kingdom and the China Development Institute from Shenzhen.
The index evaluates thoroughly and ranks the world’s major financial centers in terms of business environment, human resources, infrastructure, development level and reputation.
As mainland China’s first-tier cities, Beijing, Shanghai, Shenzhen and Guangzhou have entered the top 20 in the world. Shenzhen came first among mainland Chinese cities in the Greater Bay Area and has played its special role. Shenzhen is expected to be a marketplace for innovation capital, with its advantages concentrated in the capital market, innovation investment and the service provision for the “Belt and Road”.
In additional, the GFCI questionnaire revealed that, Shenzhen was the 6th most mentioned city in terms of prospects over the next two to three years and was considered the 6th most competitive location for fostering a FinTech industry.
Written by Toby Wong, China Consultancy Team, CW CPA
In an unprecedented fashion, Shenzhen is currently striving to become a world-class new-type smart-city benchmark by increasing digitalization in social governance. In 2019, Shenzhen was ranked first among Chinese cities in terms of smart city development, according to the Information Research Center of the Chinese Academy of Social Sciences. It superseded the others, such as Hangzhou, Shanghai, Beijing and Guangzhou, with flying colours, having earned a comprehensive score of 77.4 points and been awarded a prize for taking the lead in smart city construction. How did Shenzhen achieve such a result?
The Shenzhen government has invested substantial resources to upgrade its smart city and digital government construction. In order to achieve this goal, Shenzhen is learning from other world-class cities to form a sound data management and security system, rapidly expanding the use of applications of big data, artificial intelligence, 5G and blockchain, and opening a new space in the digital world by promoting the integration of technologies, data and businesses across regions, systems, departments and industries.
With great determination and ambition, Shenzhen has been ready to face the challenges and opportunities of the digital era. Shenzhen plans to develop a new type of smart city operation and management system that is comprised of one city center, 11 district centers and numerous industrial centers. The Shenzhen Municipal People’s Government has also implemented a one-stop system that automatically reviews the applicants’ information of service items and approves their applications.
Regarding the livelihood, the information on personal documents, such as identity documents, driver’s licenses, social insurance, library and bank cards, will be integrated into one single account, through which residents can enjoy different types of services via fingerprint, facial recognition, identity card number or phone number. All such services will be consolidated on an official app.
Written by Toby Wong, China Consultancy Team, CW CPA
To alleviate the impact of the COVID-19, the Chinese government has introduced a series of supporting policies at both central and local level. In the following, we have summarized some of the key relief measures.
Measures at Central Level
Policies Related to Foreign Investment
Tariff on self-use equipment imported for foreign investment projects encouraged by the Catalogue of Industries Encouraging Foreign Investment will continue to be waived within the investment quota. For projects beyond the investment quota, project companies can make applications with the provincial development and reform commission to enjoy tariff exemptions.
Postponement in Principal and Interest Repayment for Loans to SMEs and Micro Enterprises
SMEs and micro businesses affected by the epidemic can make applications with banks to defer repayment of principal and interest expenses payable from 25 January to 30 June 2020. Overdue loan repayments in the period will not be subject to penalties. Before the end of June, enterprises can also apply for deferred payment of the housing fund.
Extension of Tax Filing Deadline
According to the latest Circular issued by China’s State Administration of Taxation, the tax declaration deadline in May is postponed to 22 May 2020, nationwide. Taxpayers who still have difficulties in meeting the new deadline due to the severe impact of the epidemic can apply to the relevant tax authorities for further extensions.
Supporting the “Difficult Industries”
Transportation, catering, accommodation, tourism industries are categorized as “difficult industries”. For losses incurred by enterprises in difficult industries seriously affected by the epidemic in 2020, the maximum carryover period may be extended from five years to eight years.
Measures at Local Level (Selected cities in Guangdong Province)
Local governments mainly formulate policies from the following two aspects:
- Reducing labor cost, social insurance premium and housing fund, e.g. SMEs are exempted from pension, unemployment and industrial injury insurance expenses borne by enterprises from February to June 2020.
- Launching preferential tax policies, e.g. the VAT rate of small-scale taxpayers will be reduced from 3% to 1%; Measures for tax deduction and exemption will be provided for manufacturers of key materials for epidemic prevention and control.
- Enterprises producing epidemic prevention materials are encouraged to expand investment in technological transformation. The enterprises can receive a maximum subsidy of 20 million yuan for not exceeding 50% of the investment in equipment.
- The housing provident fund contribution rate is reduced, in which the minimum deposit rate is reduced from 5% to 3%; the housing provident fund payment is also postponed. The period of enjoyment cannot exceed 12 months.
- Require all banking institutions to ensure that the credit balance and the number of households of small and micro businesses and individuals in the first half of 2020 are not lower than that of the same period in 2019.
- For catering, accommodation, tourism, trade, transportation and other industries that are greatly affected by the epidemic, banks are encouraged to reduce the original loan interest rate by more than 10%.
- Policy-based financing guarantee companies at the municipal and district levels will cancel the counter-guarantee requirements, and the guarantee rate of the affected enterprises will be lowered by 1% point compared with the same period last year.
- In 2020, the Bank of Guangzhou and the Rural Commercial Bank of Guangzhou plan to increase loans to micro, small and medium-sized enterprises by 57 billion yuan and cut the interest rate for new loans to micro, small and medium-sized enterprises across the board, by no less than 10% compared with the same period last year.
- The qualified enterprises, including the “Made In Dongguan” brand exhibition and sales center outside the province, shall be given subsidies of up to 1 million yuan.
- Provide employment subsidies to enterprises that directly recruit employees who are employed in Dongguan for the first time, expand social insurance subsidies for small and micro enterprises to college graduates within two years after graduation, and provide one-time employment subsidies to enterprises that recruit employees who register unemployment for more than half a year.
- 30 million yuan arranged for the development of local mask production equipment enterprises, providing subsidies for enterprises to produce and sell mask machine.
- Set up 10 million yuan of special funds, giving no more than 12% of the subsidies to insurance products related to resuming work and production of the enterprise products.
Following the implementation of various measures, we believe that China’s domestic market and its competitive advantages in attracting foreign investment will remain unchanged. The central and local governments are expected to roll out further stimulus measures for various industries. Companies should keep a close eye on these developments, evaluate their operations in China, and make prompt applications if they are eligible to benefit from these incentives and supporting measures.
Written by Delilah Li, China Consultancy Team, CW CPA
During this difficult period of Covid-19, the aviation market is trying to find the best way to work around the situation to avoid a further chaos.
“Thousands of health professionals are heroically battling the virus, putting their own lives at risk. Governments and industry are working together to understand and address the challenge, support victims and their families and communities, search for treatments and a vaccine.” (Michael Walsh CEO of Aer Mobi & PBEC Pacific Basin Economic Council, Hong Kong).
A lot of aviation companies all around the world reduced their schedule for many reasons, one of them is the lockdown and another due to the government traffic limitations. Some places such as Hong Kong, the Government authorities allow only their own citizens to enter in HKSAR or people who has the resident permit.
The governments of all countries are the main support to give assistance and stimulus for the companies avoiding their collapse. The sectors which are more affected are airliners, their suppliers and airports. For instance, the US has provided the largest amount of aid, offering $58B to airlines and cargo carriers while the Hong Kong Government has pledged to acquire 500,000 airline tickets from local carriers to help with liquidity efforts on top of airport subsidies.
China green shoots – Recovering from Covid-19
There are promising signs of a recovery in China, as the government has opened up a majority of major tourist attractions and there has been increased hotel occupancy and city transport use. Although air ticket sales have rebounded slightly as essential travel has returned, sales since then have plateaued, suggesting lasting caution from consumers and preference for local travel.
On 8 April, the Wuhan Tianhe International Airport reopened to a reduced schedule of domestic flights, as Chinese carriers gradually resumed flying to the then-epicenter of the outbreak. In total, it mounted more than 30 flights on the first day of operations. The airline company China Eastern Airlines reported that the first flight operated was a domestic flight to Sanya in Hainan province carrying a total of 46 passengers, the compatriot China Southern saw its first flight take off bound for Chengdu carrying 81 passengers. Air China’s first flight of the city was also bound for Chengdu.
The majority of the countries needs medical supplies to support the health professionals, patients and the population. And now with the resumption of the flights, China can resume the exportation of these supplies. Wuhan is one of the cities which has a large manufacture of medical supplies.
How will Sustainability efforts for a low carbon aviation industry by 2050 be adversely affected by Covid-19?
- Economic stimulus, there is an argument to be made that it should focus on advancing the energy transition—but there is no reason it must. Jobs will be a far more important driver than emissions, and it is easy to see investments to create jobs being sharply at odds with a low-carbon transition.
- Government intervention, it may offer a lifeline to industry without strings, or they might steer industry in a specific direction, or they might step back and let the market sort out who should survive and who doesn’t.
- Money talks, oil and gas companies are often profitable, and those profits can fund the energy transition—either directly, as in the case where they make investments in technologies that are essential (like carbon capture and storage) or when they invest in adjacent energy sectors like solar, wind, or battery charging; or indirectly, when they pay dividends to shareholders who can then pump that money into low-carbon energy sources.
- Sustainable Aviation Fuels transition, Covid-19 a definite body blow for SAF – Sustainable Aviation Fuels transition efforts. Airlines are already deferring committed batch orders in 2020 and the price gap between SAF v Jet A1 fuel cost per USG is going to be a lot harder to justify to stakeholders in the short term when saving jobs and the survival of the airline is at stake. However, in talking to Neste it is clear that they feel large airline groups and certain governments will and must play a major role. Mandating the transition and offering stimulus to those who commit can mean the SAF market set-back is only temporary. In fact, it allows for the industry in the meantime to ramp up infrastructure to accommodate the transition faster and further reduce the gap in cost.
- Business Aviation can play a role, it can actually be a catalyst for further uptake and adoption of SAF and used as part of the experiment to further its cause as a sustainably aware sector – whilst in parallel continuing its advocacy and lobbying efforts to remain an essential economic driver especially in the recovery phrase of a post Covid-19 world where safety, security and health will be priorities for returning senior executives requiring to fly again globally.
Finally coming to the ongoing sustainability efforts in aviation. Cost control has always been a driving factor sometimes over quality in the business aviation sector as margins are always thin and competition fierce. So it begs the question of whether Covid-19 has adversely affected the low carbon industry target of 2050, especially when being the main polluters alongside airliners, the sector has little or no cash to spare on more expensive alternative aviation fuels touted by the fuel giants without owners and users buying in.
*This article was based on a research by Michael Walsh CEO of Aer Mobi & PBEC Pacific Basin Economic Council, Hong Kong.
2020 is destined to be remembered as a turbulent period in the human history. The outbreak of COVID-19, which is declared by WHO as a global pandemic, is impacting the world’s social and economic environment profoundly. As the first country hit by the epidemic, China is taking aggressive measures slowing down the spread of the coronavirus.
China nowadays is responsible for 17% of the world’s economy and drives 30% of the world’s GDP growth, taking a much higher stake compared to during the SARS epidemic period in 2003. Since mid-February when the outbreak in China reached its peak, the Chinese government has already started making plans to restart the economy by a series of economic and financial policies.
First and foremost, to save the small businesses from running out of cash, China’s central bank has injected RMB 1.2 trillion ($174 billion) into the market and reduced the interest rate for commercial lenders to 2.5%. The State Council also ordered large state-owned banks to increase lending to small businesses by at least 30 percent in the first half of 2020. At the same time, the central government encouraged local governments to draft up support policies to help small businesses pay less, including phased tax cuts, postponed payments, deduction and waiver of social insurance fees, as well as discounts in utilities fees.
Under the waves of economic stimulus, businesses in China are racing to find silver linings in the looming presence of economic slowdown. Supermarkets, traditional food markets, restaurants, gyms, and those used to rely on physical space are adapting to new business models for online sales. Many restaurants recently received takeout orders that have accounted for 90% of the business. Hema (盒马), a fresh food retailer, has seen a surge of online orders during the epidemic and has recruited more than 1,500 employees from over 30 suspended catering companies. The logistics industry, although largely impacted by the travel ban, is still busy arranging daily deliveries to the local communities. Some health clubs and gyms are aiming at online marketing to enhance customer relationship by streaming teaching videos. Online education, internet medical treatment and online office solutions are also developing rapidly.
In the space of just a few weeks, business owners have, of necessity, begun to transform their businesses in a digital way. Some may struggle, and hopefully most will make it through. Take a moment to remember how JD.COM became one of the biggest online retailers in China. During SARS outbreak in 2003, Mr. Richard Liu, the founder of JD.COM, suffered RMB 8 million in less than a month. When the company had only 3 months’ of cashflow available to burn, he closed his brick-and-mortar shop and launched a retail shop online, which evolved to JD.COM today.
All of that said, there are also sound reasons to be concerned about how small companies can survive the COVID-19 outbreak when China’s economic landscape is much different from that during SARS. Just before the COVID-19 made its entry on the stage, the country’s economy was already slowing with multiple consumer sectors suffering weak demand, rising labor costs, growing debt and rapid aging. During the coronavirus outbreak, the closure of businesses has inevitably caused many companies to suffer huge sunk costs such as rent, salaries, inventories, etc. Even when the outbreak is over, the public needs time to overcome the fear of activities that require social interaction. Businesses have legitimate reasons to be uncertain about sustaining profitability.
Regardless, one thing is clear – the coronavirus is staying with us for a while. Businessmen may be restricted from traveling to close deals by shaking hands. But they are not restricted from looking for new business opportunities through innovation and change. China will continue to roll out policies to stimulate the economy along with the measures to contain the outbreak. It is advisable to study these policies carefully, as the government policy is usually a good compass pointing to the direction of the country’s next economic focus. Funds and incentives are available in the development of strategic sectors. When the outbreak is over, China will accelerate the recovery by rewarding those who stick around.
Written by Delilah Li, China Consultancy Team, CW CPA
The ongoing coronavirus COVID-19 outbreak has caused disruptions to businesses in different sectors, not only in China but also across the globe. Ever since China’s annual Spring Festival holiday, the country has united to fight together against the spread of this epidemic through various methods, such as by extending the holidays and requiring people to stay at home. Recent statistics have indicated that the number of new infections is declining, and major cities in China have issued guidelines for companies that wish to resume work as soon as possible. This article provides a few suggestions on how businesses shall cope with the impacts of the Coronavirus COVID-19 Outbreak.
Wage payment calculation during the epidemic control period
China has stringent employment laws and regulations to protect the legal rights and benefits for the Chinese employees. Employment relationship management during the epidemic outbreak period is a real-life test to examine how strong your HR compliance management is. A lot of companies have asked their Chinese employees to work from home after the Spring Festival holiday. As we approach the end of February, please make sure that your payroll calculation is in line with the central and local government rules, especially for employees that have worked during the extension of Sprint Festival holiday ( 31 January – 2 February), delayed work resumption period (3 February – 9 February) and after 10 February.
Know how to apply interim policies to ease the cash flow burden
Healthy cash flow is vital to the survival of any business. The Central Government is committed to helping businesses in all sectors to resume work and production by providing financial relief such as loan interest discounts and tax benefits as well as encouraging local government to roll out further policies for reducing the financial burden of small-and-micro businesses. Pay attention to the provincial and district policies which may apply to your company, such as reducing rent and recruitment costs, extending tax filing and social insurance contribution deadlines, providing allowances for online employee training, adopting flexible hour working schedule, etc.
Is your company required to file an application before resuming work?
Affected by the outbreak, most provinces have announced a delay to work resumption until 10 February. After that date, a filing system with the local government has been implemented before companies resume work in many cities. This filing system requires most companies to assume responsibility for preventing and controlling the spread of coronavirus among employees and to cope with the on-site inspection by government personnel. While you are eager to see your employees back to work, please do not forget to check the local requirements for preparing for the resumption of work.
Fulfilling regulatory obligations while avoiding travel
As the outbreak is still ongoing, city lockdown and travel restrictions are currently in effect. Consequently, it is difficult to fulfill your regulatory obligations by filing applications physically. You may try to make telephone inquiries to the relevant local authorities on whether the online application of submission by mail/courier is possible. In most cases, it’s best to postpone your travel plans or engage a local agent to run the errands. If you need to send important documents to China, it is worth noting that the ongoing outbreak will cause some delay in cross-border customs clearance.
Risk management strategy
The WHO has declared the current outbreak as a “Public Health Emergency of International Concern”. Certainly, you should respond rapidly to protect the health and safety of the local workforce. But make sure that the management team is not too distracted by monitoring and mitigating the medical risk. Your risk management strategy should also address the business aspects, such as supply chain, sales and marketing, customer relationships, operations, and HR procedures, how to stay strong with minimal economic impact for now, and how to drive the business back on track after the outbreak is under controlled.
Transforming your organization digitally
Every threat comes with an opportunity. The coronavirus outbreak has caused many businesses to re-consider digital transformation in how they operate. As a result, online communication tools such as Skype, Zoom, Microsoft Teams, become a daily necessity. Employers are forced to use online software to monitor the whereabouts of the employees and their working schedules. How long the outbreak will last is still unknown. What’s certain is that many companies will continue to reap the benefits of integrating digital tools into their organizational management. Efficiency can be achieved by encouraging employees to work from home. Colleagues develop habits of participating in online discussions actively. Administrative overhead costs and paperwork can be reduced significantly.
Written by Edwin Yin and Toby Wong, China Consultancy Team, CW CPA
Has your team in mainland China returned to the office after the coronavirus outbreak? Please do not hurry in opening the physical premises immediately if your team has not resumed duty yet.
Enterprises should pay special attention to the local administrative rules regarding the work resumption. Please make sure that your enterprise has followed the policy measures closely and completed the necessary paperwork required by local authorities to apply for resumption of work with a disease control team at the street or district level in advance.
We have summarized some of the general requirements as follows.
1. Prevention and control mechanism are in place
Enterprises should formulate and improve epidemic prevention and control measures and emergency plans. Accountability system and the responsibilities of each person-in-charge at all levels shall be defined. An epidemic prevention and management system shall be established.
2. Staff monitoring is in place
Enterprises must do a good job of employee monitoring and registration. Each employee who resumes duties shall have his/her health conditions and travel history within the past 14 days reported to the enterprise. For those employees who are from or have been to seriously affected areas, a record should be set up and health management measures shall be taken. They may report duty if they do not have symptoms after 14 days of observation. Those who are still stranded in seriously affected areas should be asked to postpone their return to the office.
3. Facilities and materials are in place
Enterprises must prepare necessary epidemic prevention materials, such as infrared thermometers, disinfectants and surgical masks, and set up quarantine areas. Enterprises whose conditions do not allow such set up should specify the quarantine observation sites and register with the local bureau according to the unified arrangements of the located city and the district.
4. Internal management is in place
Enterprises should do a good job of ventilation, disinfection and sanitation management of the workplace and the staff quarters. In principle, enterprises should adopt “closed-off” management and a flexible work system. It is strictly forbidden that unrelated personnel enter the workplace of the enterprise. Body temperature of all entering personnel should be detected. Enterprises should encourage the implementation of shift work, online work platforms, videoconferencing and decentralized dining in order to reduce the staff movements and the risk of mass gathering.
5. Publicity and education are in place.
Enterprises should formulate staff training plans for epidemic prevention and control. Propagandas should be set up in prominent locations of the workplace for the mass education of epidemic prevention and control, improving the knowledge of the personnel. Publicity and education should be properly done through multiple channels.
Prior to the resumption of work, the company should take measures to ensure the health and safety of all the employees. Epidemic prevention facilities and materials, such as quarantine areas, surgical masks and disinfectants, should be prepared.
CW is glad to assist your company to prepare for resumption of work. Once you decide to resume the physical premises for work, please let us know and do not worry about the administrative work involved. Please plan ahead accordingly.
Written by Edwin Yin and Toby Wong, China Consultancy Team, CW CPA