China to Launch Registration-Based IPO in 2016

On Sunday, the country's top legislature authorized the roll out of the new IPO registration mechanism to complete the amendment of the Securities Law. In a statement by the China Securities Regulatory Commission, officials said the legislative approval of launching the registration-based IPO system marked significant development to the Chinese capital market and implements an important measure to allow the market force to determine the allocation of resources. It is not merely about delegating the IPO approval power to the stock exchanges but a major transformation of the regulator's role, the registration-based IPO system will emphasize the information disclosure rather than corporate prospect and profitability. The regulator said that it will no longer endorse the value of prospective companies under the new system but it will still control the pace and pricing of IPOs to maintain market stability.

Cutting Red Tape

China took steps to further streamline the permitting process by separating business licenses from administrative permits. The pilot reform, which allows some companies to get their businesses running without obtaining administrative permits, will be practiced in the Pudong New Area of Shanghai. In some areas where the market mechanism is effective and self-discipline is well in place, administrative permits will be canceled. For the sector of processing trade, administrative permits will be replaced by registration, and companies can start their business activity as soon as they submitted relevant documents to authorities. In some other areas where administrative permits cannot be canceled for the time being, the process will become easier and companies can have their permits immediately after submitting materials. 

New IPO Scheme May be in the Works for China

The legal procedure for registration-based initial public offerings is expected to be completed as early as the end of this month, a substantial step to wrap up the biggest reform of China's stock market. An executive meeting of the State Council, presided over by Premier Li Keqiang on Wednesday, discussed a draft amendment to the country's Securities Law that proposed changing the current approval-based IPO mechanism to a registration-based one at the Shanghai Stock Exchange and Shenzhen Stock Exchange. The new policy would realize within two years of the draft's approval by the Standing Committee of the National People's Congress.

China Strengthening Enforcement of Anti-Counterfeiting

China is strengthening its enforcement of its anti-counterfeiting laws. In recent actions, China is going after online retailers (such as taobao.com) and requiring them to take a more proactive stance towards preventing the sales of counterfeit products through their platforms. On November 7, 2015, China issued the “Opinions on strengthening the management of infringement and counterfeiting in the field of Internet", which clarifies the online sales of counterfeit goods and internet piracy as regulatory focus, clears responsibilities of the e-commerce enterprises, network service providers and up-downstream related enterprises, including guiding and supervising the e-commerce platform to strengthen the qualification examination of network operators, Urging internet service providers to implement the "Notice-Delete" obligation and implementing the real-name registration system for delivery enterprises of distribution, warehousing, postal, courier and so on. This is a small, but clear step towards a China more focused on IP protection.

Shanghai Currency Free Trade Zone Opening

The Shanghai pilot currency free trade zone officially launched on September 29th, granting 25 Chinese and overseas companies licenses to register in the free trade zone on its first day. The state council issued a list of 18 service sub-sectors in 6 broader sectors that should enjoy a faster pace of deregulation in the future, and will serve as a policy framework for the free trade zone. The initial list for faster deregulation sub-sectors include banking, healthcare insurance, financing and leasing, overseas shipping, shipping management company, telecom value-added services, games sales and services, legal services, credit information agency, travel agency, recruitment agency, investment management, engineering design, construction services, entertainment agency, entertainment facilities, education training, professional skills training, and medical services.

Since its first opening, companies have been flocking to open an office in the free trade zone. Many believe the slots for companies will be limited and an investment in establishing a company in the free trade zone would be a good investment for the future. 

In addition to companies, all the major banks have established offices in the free trade zone to handle the predicted increase of currency settlements in the zone (due to the fact that currency exchange will be unregulated in the zone). The government has also been encouraging private banking entities to establish locations in the zone.

Free Currency Trade Zone in Shanghai

Premier Li Keqiang pushed through a bid to open a landmark plan for a free-trade zone in Shanghai. The trail will be launched in Shanghai's Pudong New Area (Waigaoqiao port, Yangshan Deep-Water Port and Pudong International Airport) as early as the end of this year. The "free" in Free Trade Zone means:

Free to export and import: No tariff barrier or non- tariff barrier; All the cargos conforming to international practice can enter the free trade zone without limitation.

Free to invest: No restraint of trade or operation because of the countries.

Free to exchange: Free to exchange currency; Free to inflow and outflow; Free to transfer; Free to operate; No national treatment or non- national treatment.

China's "New" 20% Capital Gains Tax on Property Sales

To curb the rapidly rising real estate market, the new Chinese leaders recently announced that they will be enforcing the 20% capital gains tax on the sale of real estate. This means that for any property that is sold, there is a 20% tax on the profit from the sale. This tax is not new, but has not been enforced in past years. An individual's primary residence and those properties held for 5 years or more are currently exempt from this tax.

The goal is to curb speculation in the Chinese real estate market and avoid a housing bubble like the U.S., however, there have been a number of side effects from this measure:

1.  The measure has increased the sales volume of real estate in China. Those people who were previously on the fence about selling or buying have rushed to sell/buy their house before this new measure becomes effective.

2.  The measure will increase the price of used housing in China, because sellers will inevitably pass the tax onto buyers. However, the measure will help real estate developers, because new houses are not subject to such tax and new construction will become more competitive in the market.

3.  The measure has caused an unprecedented number of couples to file for divorce. Since each individual/family will have their primary residence exempt from the tax, couples are divorcing and putting one house under each person's name to "shield" 2 houses from the tax. However, there is a number of people that are advantage of this "fake" divorce tactics to really divorce their spouses. Many unsuspecting spouses were tricked into signing the divorce papers to later find that their spouse considered the divorce real.

Many are skeptical that this measure will last, but for now just buy a brand new house.