Logistics is Asia's fastest-growing sector and, with China's entry into WTO and fast growing economy, China’s logistics industry faces a development opportunity, as well as an austere challenge.
Simple and timely access to a viable air transportation network is essential to any transportation and logistics system. However, regulatory restrictions, poor infrastructure (particularly in inland provinces), uncertain lead-times of various modes of transport, limited integrated distribution, slow payment systems and customs clearance are proving to be formidable hurdles so that the benefits of air shipping have yet to be fully realised.
However, the Chinese Government is seeking to address these problems. In June 2002 the Ministry of Foreign Trade and Economic Cooperation ("MOFTEC") issued the Notice on Issues Relating to the launch of Pilot Projects for the establishment of Foreign Invested Enterprises ("the Notice"). The Notice brings forward China’s WTO commitment to open up its logistics sector from 2004 to 2003. The Notice distinguishes between ‘International logistics business’ and ‘Third-party logistics business’. A foreign invested International logistics business is permitted to engage in import and export business and related services, including the import and export of goods for one’s own account or as agent; entrustment as an agent of import and export business for export processing enterprises; and provision of international freight forwarding services for imported and exported goods by sea, land and air. A foreign invested Third-party logistics business is able to engage in transport, warehousing, loading and unloading, processing, packaging, delivery and relevant information processing and consulting services of ordinary goods by road; domestic freight forwarding of goods; and using computer networks for the management and operation of a logistics business. Foreign investment in a logistics enterprise is limited to 50% and the minimum registered capital requirement is US$5 million.
The initial pilot areas covered by the Notice are limited to Beijing, Shanghai, Tianjin and Chongqing municipalities, the provinces of Zhejiang, Jiangsu, and Guangdong and the special economic zone of Shenzhen.
In conjunction with the pre-existing regulatory framework covering freight forwarding and aviation (including the Regulations on the Administration of Foreign Invested Freight Forwarding Enterprises, of January, 2002 and The Regulations on Foreign Investment in Civil Aviation of August 2002), the Notice may provide significant assistance to some foreign investors developing their businesses in the logistics sector. However, further reforms will be needed to promote this sector.
Multiple government bodies divide responsibility for different sectors of the logistics industry between the State Domestic Trade Bureau, the Ministry of Communications, the Ministry of Railroads, the State Economic and Trade Commission, the State Development Planning Commission, the Ministry of Foreign Trade and Economic Cooperation, and the Civil Aviation Administration. Overlapping jurisdictions and regulations, the absence of a secure legal framework combined with a lack of coordination among some agencies have created difficulties for foreign companies. Shrewed investors should seek professional legal advice before committing to joint ventures and WFOEs. BLG have 15 years of experience in advising clients on investments in China. In addition to having an office in Hong Kong, the firm has an office in Shanghai and are therefore in a good position to assist clients who are interested in investing in aviation projects in China.
The content of this article does not constitute legal advice and should not be relied on in that way. Specific advice should be sought about your specific circumstances.
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