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.

Official Chinese Holiday Schedule

The following are official Chinese government holidays in 2013

New Year
January 1-3 (three days in total)
January 5 (Saturday) and January 6 (Sunday) are official working days

Spring Festival
February 9-15 (seven days in total)
February 16 (Saturday) and February 17 (Sunday) are official working days

Tomb Sweeping Day
April 4-6 (three days in total)
April 7 (Sunday) is an official working day

Labor Day
April 29 – May 1 (three days in total)
April 27 (Saturday) and April 28 (Sunday) are official working days

Dragon Boat Festival
June 10-12 (three days in total)
June 8 (Saturday) and June 9 (Sunday) are official working days

Mid-Autumn Festival
September 19–21 (three days in total)
September 22 (Sunday) is an official working day

National Holiday
October 1-7 (seven days in total)
September 29 (Sunday) and October 12 (Saturday) are official working days

Singles Day 11/11 - E-Commerce Boom

November 11 (11/11) is not that significant in the rest of the world, but in China it is an online retailer's best dream come true. Singles Day, so named because the date is made up of four "1"s, broke world records for online retail this year. Dubbed as the anti-Valentine's Day, on November 11, Chinese consumers generated $3 Billion of revenue at eCommerce websites like Tmall and Taobao. This number may not be significant, until you compare it to the previous record held by last year's Cyber Monday, which generated $1.25 Billion in revenues. Singles Day more than doubled that number.

Ok, so why do we care? This is a trend that shows the changing mentality of the Chinese consumer. In the past, Chinese people were a nation of savers. They only spend when necessary and focused their efforts in saving their earnings. Trends show a change from a savings driven culture to a consumption driven one. With 1.3 billion consumers, China will soon catch up to the U.S. on consumption and U.S. companies should take note of this giant opportunity.

Huawei and ZTE...a Threat to the U.S.?

Last week, in a draft report, the Intelligence Committee of the House of Representatives urged American companies to avoid doing business with Huawei and ZTE, two of China's largest telecommunications companies. Huawei, the world's second largest telecom company after Ericsson, and ZTE, its smaller rival in China, were found to be national security threats. The report goes on to urge U.S. regulators to block all mergers and acquisitions by the two companies in the U.S. For the reason stated for these actions was that the 2 companies could not proof that they were not influenced by the Chinese Communist Party. However, being the largest telecom companies in China, Huawei and ZTE would not be able to be completely free from Chinese government influence...that is just how business in China operates. If U.S. regulators truly blocked all Huawei and ZTE investments into the U.S., it would be losing out on a lot of job creating foreign investments (Huawei is investing $2 Billion into the UK). Many people believe that this action was just another political positioning before the November elections, but, no matter what the reason, it definitely sends a bad message to the Chinese investors.

BMD New Office in China

I am happy to announce that my law firm has taken another major step in assisting businesses in their transactions between the U.S. and China (inbound and outbound). With our offices in Ohio, Florida and China, and affiliate offices in the Midwest, Alabama, Washington D.C., and Singapore, we help connect businesses in cities like Akron, Beijing, Cleveland, Columbus, Detroit, Jacksonville, Shanghai and Toledo. We can now provide our clients and partners on-the-ground support in all their business ventures (whether its Cleveland, Detroit, Jacksonville or Shanghai). Like any business, having people in China, provides us with local support, 24-hour service, immediate access to changes in the business climate and government regulations, and face-to-face interactions with our clients and partners. We have worked hard to get to this step and look forward to the future. I just wanted to thank everyone for their support.