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High-Tech in Shanghai: Zhangjiang Courts Investors
by Ling Zhu, Annie (Ran)
Yan and Ron (Rongwei) Cai
[July 2001]
On July 5, 2001, the Shanghai City government approved the Shanghai
Municipality, Promoting the Development of Zhangjiang High-Tech
Park Several Provisions (the Provisions), which became effective
as of the same date and superseded older provisions of a similar
name from 2000. Apart from the usual preferential policies, the
Provisions, together with the rules issued under the old provisions
that are still in effect (collectively, the Regulations), set forth
a number of measures designed to improve the investment and regulatory
environment of the Zhangjiang High-Tech Park (hereafter the Park),
and encourage and facilitate investment in the Park by both domestic
and foreign investors.
TARGETED INDUSTRIES
The Park is designed specifically to attract investment in areas
listed in China's State High and New Technology Products Catalogue,
the biomedical industry, the information industry, and other industries
and areas provided by the Shanghai government.
ADMINISTRATIVE FRAMEWORK
Under the Regulations, a park management office under the authority
of Shanghai Municipality will administer the Park. The park management
office is responsible for making policies, managing and providing
services for the Park, and participating in the examination and
approval of investment projects, as well as basic construction projects
within the Park. The park management office, the Administration
for Industry and Commerce branch established within the Park (the
AIC Branch), and the Shanghai Foreign Investment Commission branch
office established within the Park (the SFIC Branch) together have
jurisdiction, plenary or partial, over the approval, if applicable,
and registration of domestic and foreign investment enterprises
(FIEs)established within the Park.
A STREAMLINED BUSINESS FORMATION PROCESS
Like Beijing's Zhongguancun Science and Technology Park Regulations
which became effective January 1, 2001 (the Zhongguancun Regulations),
the Zhangjiang Regulations distinguish between companies that require
approval prior to obtaining a business licence and those that do
not require such prior approval, and provide more streamlined and
investor-friendly business formation procedures for both types.
Where prior approval is not required, as is the case with most domestic
companies, a business may simply register with the AIC Branch, and
as long as the applicant satisfies all the conditions for forming
such a company the AIC Branch is required to complete the registration
within three working days. Where prior approval is required, as
is true of all FIEs, the applicant only needs to submit its application
materials to the AIC Branch. If the investment amount is less than
US$30 million and in an industry that is not designated as a restricted
industry for foreign investment, the AIC Branch is obligated to
copy the materials to, and work in conjunction with, the SFIC Branch
to complete the examination and approval process within five working
days. If the investment is in a restricted industry or in an amount
in excess of US$30 million, the AIC Branch will coordinate with
all other relevant government agencies outside the Park to complete
the approval and registration of the FIE within 15 to 20 working
days.
LIFTING RESTRICTIONS ONBUSINESS SCOPE
As with the Zhongguancun Regulations, a fairly drastic step taken
by the Zhangjiang Regulations is elimination of the requirement
for a business in the science and technology area established within
the Park to define its scope of business, as is generally required
by the PRC, Company Law. Thus, a prospective business in the Park
no longer needs to carefully craft the scope of its planned business
activities. In other words, the company will be free to engage in
any business activity not prohibited by the law, and the AIC or
SFIC authorities no longer will have the authority to monitor the
company's business activities in regard to its defined business
scope. Nor will these authorities be able to penalize the company
for any inadvertent breach of its business scope.
ADDITIONAL FORMS OF CAPITAL
The Regulations now allow investment in the form of intellectual
property of up to 35% of the registered capital of a company (an
even higher percentage is allowed if agreed to between the investing
parties). Investors with management and technological skills may
also contribute such skills as capital contributions of up to 20%
of the registered capital of the company.
LOWER REGISTERED CAPITAL AND A MORE FLEXIBLE CONTRIBUTION
SCHEDULE
The Regulations have lowered the minimum amount of registered capital
for a company to be established within the Park from Rmb30 million
to Rmb10 million, and provide that the company needs to contribute
at least 10% of its registered capital upon its formation (instead
of 15% within three months after an FIE's formation as required
by the relevant national regulation).
MORE TRANSPARENT ADMINISTRATION
Under the Regulations, the Park administration authorities are
required to make known in writing to the parties affected what their
legal obligations are, and to receive complaints regarding the conduct
of the Park administration authorities. Before conducting any legally
required inspection or examination, the Park administration authorities
have to notify the parties that are inspected or examined. The Park
administration authorities are also subject to clear restraints
on their authority to charge fees from companies within the Park.
CONCLUSION
As with the Zhongguancun Regulations, the Zhangjiang Regulations
have broken some new ground in their efforts to provide simplified
company formation procedures and requirements and to facilitate
capital investment. But some of the provisions rest on untested
legal ground where the Regulations may clash with some national
law provisions. Investors are therefore advised to seek legal advice
to maximize their benefit from investment in Zhangjiang.
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