China: Foreign Investment in Logistics Sector

China: Foreign Investment in Logistics Sector

The Ministry of Commerce issued the Notice on Further Improving the Work of Attracting Foreign Investment into the Logistics Sector on 20 April 2006.

The Notice, which became effective on 31 March 2006, is the first major liberalisation in the PRC logistics sector since the 2002 Notice on Relevant Issues in the Work of Launching Pilot Projects for the Establishment of Logistics Enterprises with Foreign Investment (“Pilot Notice”). In the event of a discrepancy between the provisions of the Notice and the Pilot Notice, the Notice shall prevail.

Trial projects
The Pilot Notice allowed the establishment of joint ventures in the logistics sector (“logistics joint ventures”) on a trial basis. Logistics joint ventures were permitted to take the form of cooperative or equity joint ventures. Such logistics joint ventures were in the past limited to eight locations in China: the cities of Beijing, Tianjin, Shanghai and Chongqing, the coastal provinces of Zhejiang, Jiangsu and Guangdong and the Shenzhen Special Economic Zone. Under the Pilot Notice, pilot logistics joint ventures were required to have a minimum registered capital of US$5 million and the foreign equity share was not permitted to exceed 50 percent if the venture engages in international logistics.

The Notice recognises the positive impact of the pilot projects on the development of China's international trade and logistics sector and announces a further opening of the sector to foreign investment.

The Notice defines a “logistics enterprise with foreign investment” as a foreign investment enterprise that has the provision of logistics and related services to other enterprises as its core business. The term includes foreign-invested road transport enterprises, water transport enterprises, air transport enterprises, freight forwarding agencies, commercial enterprises, third party logistics enterprises and other foreign investment enterprises that engage in logistics or logistics-related business.

Removal of restrictions
The Notice permits logistics enterprises with foreign investment to be established in the form of equity joint ventures, cooperative joint ventures as well as wholly foreign-owned enterprises. Such enterprises may now be established throughout China without any regional restrictions and shall no longer be subject to the minimum registered capital requirement under the Pilot Notice. However, a logistics enterprise with foreign investment shall comply with the minimum registered capital requirements and other requirements specified in the various regulations governing foreign investment the business or businesses that it wishes to engage in. These regulations include the Measures for the Administration of Foreign Investment in the Commercial Sector, the Measures for the Administration of International Freight Forwarding Agencies with Foreign Investment and the Regulations for the Administration of Foreign Investment in the Road Transport Sector. Unless these regulations specifically reserve the approval authority for the Ministry of Commerce, the establishment of a logistics enterprise with foreign investment may be approved by the provincial level commerce departments subject to the standard approval authorisation levels.

Scope of business
Logistics enterprises with foreign investment may engage in international logistics and third party logistics. They may also engage in one or more types of logistics business specified in the regulations referred to in the previous paragraph as well as in the Regulations for the Administration of Foreign Investment in the International Maritime Transport Sector, the Regulations on Foreign investment in Civil Aviation and the Provisional Measures for the Examination, Approval and Administration of Foreign Investment in Freight Transport by Rail. An applicant wishing to engage in more than one type of logistics business is required to comply with the highest qualification requirements for the types of logistics business it wishes to engage in.

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