The Shanghai Lawyer
Vol. 1 , No. 06 - June 4, 2002
Shanghai is one of the most dynamic and fastest growing mega-cities in the world. It is quickly establishing itself as the leading financial and economic center of the Far East, on par with the likes of Paris and New York. The Shanghai Lawyer is a bi-weekly publication providing up-to-date newsworthy articles and legal information to professional and business persons around the world. We hope you enjoy the newsletter and welcome your comments and feedback.
Did you know?
Shanghai is home to the tallest building in China, and the world's third tallest. The 88-Fl. Jinmao Tower, located in Pudong district is 420 m tall. The bottom half of the building is used for commercial office space while the top half houses the Grand Hyatt hotel. |
Foreign Investors can Acquire SOEs
Foreign investors are allowed to acquire state-owned enterprises (SOEs) according to government officials. The government has drafted a policy that is to be released soon, allowing multinational companies to acquire state-owned enterprises. said an industry analyst. Some of the companies that will be available are in the top 500 domestic companies.
There are many advantages, said Ge Weimin, researcher with the economic research institute of the Shanghai Academy of Social Sciences. The government can get an immediate influx of cash and the foreign investors can inject new blood into the company such as advanced management skills. The acquisition will increase taxation revenues for the government, Ge added.
Approval allowing foreign investors to acquire domestic companies is necessary to bring China's merger and acquisition market up to international standards. It is not just the acquisition of assets, but also the introduction of advanced managerial know-how that is important for China's businesses. It is not necessarily money that domestic companies need, but the technology and management as it is difficult for domestic firms to compete in the international markets using their existing managerial style and structure. The new policy can help state-owned enterprises sharpen their competitive edge.
(Source: Shanghai Daily)
Lawyers Urged to Fit into Bigger Suits
Lawyers were encouraged yesterday to enhance their role in the political, economic and social arenas in China. "With the development in politics, the economy, culture and the legal system, the role of lawyers in society should be given full play," said Minister of Justice Zhang Fusen at a national conference of lawyers that closed yesterday.
Lawyer Gao Zongze was re-elected president of the All-China Lawyers Association at the conference. Zhang urged the nation's lawyers to actively provide legal advice in major decision-making processes. In addition, lawyers should explore new service possibilities against the backdrop of China's entry into the World Trade Organization (WTO). He added that the legislative and judicial sectors are also open for more active participation by lawyers, but stressed they still need to pay attention to providing legal assistance to those in difficulty.
Statistics from the Ministry of Justice indicate China has more than 120,000 lawyers, working in more than 10,000 law firms. Following China's entry into the WTO, more overseas law firms are expected to join the 144 representative offices that have already been established on the Chinese mainland. The profession of lawyers, now one of the most lucrative and prestigious in China, has caught on with the Chinese in recent years. According to Zhang, among the 360,000 candidates for the national judicial examination held in March, most have their eyes on becoming lawyers. He also hoped the profession's administrative rules will be inked in three years' time and a rule-violation recording system will be set up for lawyers and law firms.
(Source: China Daily)
Shanghai Essentials
The Shanghai municipal government has stated it will introduce new measures to lure more overseas professionals to work in the city in June 2002. The measures included easing conditions for overseas professionals setting up companies in Shanghai. Under the new measures, overseas professionals who have worked in Shanghai for more than six months will be entitled to a ``green card''. This would grant cardholders the right to live in Shanghai for an indefinite period of time. (Source: HK-iMAIL.com) |
Shanghai Gold Exchange to Open in June 2002
China's much-pondered gold exchange is expected to open next month in Shanghai after a government decision removing the last big obstacle to its operation. "The government has verbally agreed not to apply a 17 percent value-added tax to our dealers," said Wang Zhe, head of the Shanghai Gold Exchange. "I can promise that the exchange will open before the end of June, though much work has still to be done to make sure everything runs smoothly," said Wang.
The timetable for the exchange has changed several times since simulated trading -the buying and selling of "virtual" bullion to test procedures and equipment -started at the end of 2001. The industry originally hoped the exchange would open in January.
Whether to levy a value-added tax on dealers has been a crucial point. Such a tax is applied to the estimated market value added to a product or material at each stage of manufacture and distribution and is ultimately passed on to consumers. A 17percent value-added tax has resulted in thin trading on China's first silver exchange, which opened in Shanghai at the end of 2000. "The silver exchange has proved to be a failure. The government does not want gold to follow suit because gold is much more important to a country's financial security," said Liu Shanen, who is the deputy director of the Beijing Gold Economic Development Research Center.
The tax news does not mean clear sailing for the gold exchange, because the government will limit it initially to spot trading. "The market won't be a hit unless it offers a futures business," Liu said. The opening of the exchange signals the beginning of the deregulation of China's gold market. Currently, the People's Bank of China, the central bank, controls distribution of the metal, which it buys in refined form from mines. Some is kept for China's reserves, and the rest is sold to processors for industrial or decorative use. The gold exchange's first members will be 108mining companies, processors and commercial banks. About half will trade at its headquarters in the China Foreign Currency Exchange Center on the Bund, and half will take part electronically from elsewhere in the country. The central bank says the gold market will eventually be liberalized to allow individuals to buy and sell bullion as an investment.
(Source: Shanghai Daily)
Vivendi Agrees to Buy Half of Shanghai Water Supplier
Vivendi Environment SA, the world's largest water company, will buy half of a Shanghai water treatment plant from the city government for 266 million euros ($246 million) and help to operate it for 50 years.
Vivendi signed an agreement with Pudong Water Works Co. to purchase 50 percent of Shanghai Municipal Water Works Pudong Co., which supplies water to 1.7 million users in a 319 square- kilometer (128 square-mile) area in the city's Pudong district. ``Our cooperation with the Chinese government is not just on the technical basis,'' Vivendi Chairman Henri Proglio said at the signing in Shanghai. ``We also want to deliver higher-quality water to people.'' China is seeking foreign investors to help manage utilities such as water works and sewage treatment plants. Shanghai's municipal government is tapping overseas investors for a third of the 36 billion yuan ($4.4 billion) it needs.
The project will be Vivendi's third water-treatment investment in China since 1997. The company already purifies and distributes water in Chengdu in central China and in the northern city of Tianjin. Vivendi beat rivals Thames Water Plc and Suez SA for the Pudong project, Proglio said. Thames Water officials declined to comment.
Under the agreement, Vivendi will be required to return its 50 percent stake in Shanghai Municipal Water to the government in 2052, said Chi Jianguo, chairman of the city's water works department. On the Paris Stock Exchange, Vivendi shares fell 0.6 percent to 36.35 euros in recent trading. The stock has fallen by more than a fifth in the past 12 months, compared with a 4 percent decline by its rival, Suez.
(Source : Bloomberg)
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Shanghai is Becoming "the" Place for Entrepreneurs
The city has emerged in the past ten years as the gateway to the most vibrant large economy in the world. This is why we consider it the most promising place for an entrepreneur. But investors better mind the potholes. American entrepreneur Cortney Smith arrived in Shanghai in 1996 to establish a bungee-jumping business. Chinese thrill-seekers latched on to it, and Bungee International now operates (or has sold the rights to operate) 16 Chinese sites for bungee-jumping and other extreme sports. He expects to add ten more sites this year, and revenue is predicted to total $1.6 million in 2002, up 33% from last year.
Smith believes that he chose a good place to set up shop. "People can feel a buzz in Shanghai," he says. "It's part of the sixth sense of entrepreneurs." But sometimes there's too much adrenalin. Like bungee-jumping, business in Shanghai can be exciting, but it certainly isn't for the faint of heart. This is not the first time that Shanghai is emerging as a top business center. A century and a half ago, the opening of China to international trade transformed the city into a capital of capital. Today Shanghai's economy is growing even faster than China as a whole, and foreign investment continues to pour in. In the past ten years, the city absorbed $48 billion of foreign capital, nearly matching the amount nearby Taiwan has taken in the past five decades ($50 billion) and making it a top destination for foreign investment in China.
And foreigners alone aren't the only ones who are rejuvenating Shanghai. Three of the five richest business families on FORBES GLOBAL's 2001 China Rich List have their headquarters in Shanghai, including members of the Liu clan, which came out on top. Shanghai's position at the mouth of the Yangtze River enables entrepreneurs to reach a market of 100 million, 13.2 milion in the city itself, and provides them with a central vantage point from which to penetrate the rest of China.
Even though Shanghai is in the vanguard of the economy, it can't isolate itself from the rest of China. The nation ranks 25 out of 27 countries covered in our survey of tax misery this year. China stands far behind Hong Kong and Singapore in surveys of competitiveness; it's hampered by a murky legal system and inadequate protection of intellectual property. Yet Shanghai is fast supplanting Hong Kong as the gateway to China. Despite Hong Kong's adherence to British common law and its superb infrastructure, it is losing its preeminence for investors and entrepreneurs wanting to do business in China.
Shanghai has had to make up the ground that was lost in the early decades of communism. Successful entrepreneurs fled, and locals were taught to be ashamed of the city's capitalist past. After 1949, people were usually not allowed to move to Shanghai from other parts of China, and most of the profits from city businesses were sent to the government in Beijing. Things began to improve a decade ago. In the 1980s, southern China was the area that benefited from economic reforms. Then China began to unshackle Shanghai. It wouldn't have happened as fast without help from top politicians in Beijing--the former mayors of Shanghai, Jiang Zemin and Zhu Rongji (today China's president and premier).
Since 1990, Shanghai has been transformed. Blocks of prewar dwellings have been leveled and replaced with modern business towers and residential buildings; lavish spending has created a good road network. Foreigners and overseas Chinese have played a role in the renewal. Chinese families that fled communism have returned, joined by Taiwanese fleeing high costs at home and multinationals looking for cheap labor. Financial incentives have turned the city into the country's hub for foreign banks.
Successful locals as well as top foreign executives once again dwell in elite neighborhoods, now made up of stand-alone homes that carry price tags in excess of $1 million. Major city streets are lined with restaurants and bars crowded with Chinese and foreigners alike. As prosperity has spread through central China, Shanghai has become a magnet for shops and is home to three of the country's five biggest retailers.
Multinationals that are expanding in Shanghai include Microsoft, which, despite rampant software piracy in China, operates a global support center there; it's tucked away behind a shopping district in the middle of the city. Technical questions from customers around the world arrive over the internet to the 400-person office. The staff figures out what the problems are and sends back replies (mostly prewritten).
The challenges for entrepreneurs are many. Despite the buzz, Shanghai is still dominated by the public sector, and the government is a majority owner of its biggest local companies. About half of its gross domestic product in 2000 came from the government, compared with 40% for the country as a whole. State-owned banks rule the financial roost in Shanghai, too. And it's sometimes hard for people from other parts of China to move there. "Shanghai before 1949 was a place where people came from all over China and the world to start businesses, and that helped make it great," says Pamela Yatsko, author of a book on the city. "It needs to be a melting pot again, as New York is today."
There are financial and administrative hurdles, too. For foreigners, it can cost hundreds of thousands of dollars to open a wholly owned business. Businesspeople complain about the difficulty in obtaining trading licenses and the high fees paid to government-sanctioned hiring agencies and middlemen. And although Shanghai is the city in China that is the most friendly to foreigners, it isn't like Hong Kong or Singapore, where non-Chinese speakers can just show up and get things done. Traffic signs are in English, but most of the successful foreigners in the city speak Mandarin Chinese fluently. Many also have Chinese spouses to help them circumvent restrictions faced by foreigners.
Younger Shanghainese who left to look for better jobs abroad are returning home in increasing numbers to start businesses. Jun Wu, 30, a former engineer with Sendit in Stockholm and with Microsoft, returned to Shanghai in 1999 to help form Intrinsic Technology, a wireless telecommunications software company that had revenue of $3 million last year. Investors today include Fidelity Investments and Taiwan's Acer. "Shanghai will definitely emerge as a technology center in Asia," says Wu. "There are already more entrepreneurs, but we lack a world-class [high-tech] company for now. As soon as that happens, things will be seen differently."
Encouraged by the prospect of financial reform, financial consultants have been arriving in large numbers. Stephen Harner, 52, formerly a vice president at Citibank in Japan and Taiwan and a former chief representative for Deutsche Bank in Shanghai, left the German company in 1999 to focus on his own financial industry and investment advisory firm. It wasn't easy getting started. The initial capital requirement was $350,000, and it seemed that the office could be located only in Pudong. It took him a few months to find a cheaper location while adhering to the regulations that stipulate where foreign-owned consultancies could be established. Harner, a fluent speaker of Mandarin, resides in Shanghai but does business through his Jiangsu entity.
Shanghai is on the right track. Two forces will help entrepreneurs. If China's economy slows down, this may force the city to improve the investment climate by reducing red tape. China's being a member of the WTO is likely to improve the way private domestic companies are treated. "The reforms have been working so far in starting to move people out of the state companies and toward private ones [in Shanghai]," says Wong Siu-lun, head of the Center of Asia Studies at Hong Kong University. What's needed, he says, is for the government to reduce institutional barriers, such as access to capital. "The potential is there [for private companies to play a much bigger role]," Wong says. If this happens, Shanghai will become even more important for China and the world.
(Source: Forbes Magazine)
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