China: China Adopted New Provisions on the Administration of Foreign Investment in International Maritime Transportation

Article by Peter Müller and Werner Meier

On March 2, 2004, the Provisions on Administration of Foreign Investment in International Maritime Transportation (hereinafter referred to as "the Provisions") were promulgated by Decree No. 1 of the Ministry of Commerce and the Ministry of Communication of the People’s Republic of China. It is effective as of June 1, 2004.

The Regulations of the People’s Republic of China on International Maritime Transportation (hereinafter referred to as "the Regulations"), which were adopted by the State Council and came into force as of January 1, 2002 is the first administrative regulation on administration of international maritime transportation in China.

Chapter 4 of the Regulations on International Maritime Transportation describes the special provisions on foreign-fund international maritime transportation. It states that foreign merchants may, according to the relevant laws, regulations and other relevant provisions of the State, invest to operate businesses of international maritime transportation in China upon the approval of the department in charge of transportation under the State Council. This is in accordance with the Chinese WTO Commitments , but a stipulation of the procedure for examination and approval is still lacking.

The Ministry of Communications of China adopted the Implementation Rules for the Regulations of the People’s Republic of China on International Maritime Transaction (hereinafter referred to as "the Implementation Rules") in January 2003. It only stipulates the Ministry of Communications’ administrative responsibility for examination and approval, but does not regulate the administrative department in charge of the foreign investment’s responsibility of the examination and approval.

Therefore, after negotiations, the Ministry of Communications and the Ministry of Commerce promulgated the Provisions. The Provisions, besides the Regulations and the Implementation Rules, constitute an integrated management system of foreign investment in international maritime transportation in China.

These Provisions are applicable to the investment in and operation of international maritime transportation business and auxiliary businesses relating thereto by foreign investors within the territory of China.

The Provisions state that within the approval of the Ministry of Communications and the Ministry of Commerce, a foreign investor may invest in and operate international maritime transportation in the following ways:

• By establishing a Chinese-foreign equity joint venture or a Chinese-foreign contractual joint venture to engage in international shipping services, international shipping agency services, international ship management services, loading and unloading of international shipments and international maritime container freight station and container yard services;

• By establishing a Chinese-foreign equity joint venture, a Chinese-foreign contractual joint venture or a wholly foreign-owned enterprise to engage in international maritime cargo warehousing services;

• By establishing a Chinese-foreign equity joint venture, a Chinese-foreign contractual joint venture or a wholly foreign-owned enterprise to offer routine services for the vessels owned or operated by the investor.

The Provisions also indicate that the Ministry of Communications and the Ministry of Commerce as well as their authori ed agencies are responsible for the approval and administration of the establishment of foreign-funded enterprises engaged in international maritime transportation within the territory of China.

The Provisions explain in detail the procedure of the establishment of a foreign-funded international shipping enterprise, a foreign-funded international shipping agency enterprise and a foreign-funded international ship management enterprise.

The Provisions say that a foreign company engaged in shipping may establish a Chinese-foreign equity joint venture, Chinese-foreign contractual joint venture or wholly foreign-owned enterprise to offer such routine services as canvassing of cargos, issuance of bills of lading, settlement of freight and signing of service contracts for the vessels owned or operated by investors. The application procedures to establish such an enterprise shall be governed by the relevant provisions on the approval of establishments of wholly foreign-owned shipping companies jointly issued by the Ministry of Communications and the Ministry of Commerce.

An applicant making an application to the Ministry of Commerce or its authori ed agencies shall submit the following documents:

• Letter of application;

• Feasibility study report;

• Contract of the joint venture and the company’s articles of association (in case of a wholly foreignowned company, the articles of association suffice);

• Registration certificate and credit-standing certificate of investors;

• Identity certification of the board of directors’ chairperson and the general manager of the enterprise to be established; �� Other documents required by laws or administrative regulations.

The Provisions are applicable to the establishment of enterprises engaged in international maritime transportation and auxiliary services relating thereto in other provinces, autonomous regions or municipalities under direct control of the Central Government as well as to investors from the Hong Kong Special Administrative Region, Macao Special Administrative Region or Taiwan region.

Furthermore, article 20 of the Provisions expressly points out that, in accordance with the relevant provisions on the Mainland and Hong Kong Closer Economic Partnership Arrangement, the Mainland and Macao Closer Economic Partner ship Arrangement and their Annexes, from January 1st, 2004, service suppliers from Hong Kong or Macao may establish a wholly Hong Kong or Macao-owned enterprise in Chinese mainland to engage in international ship management services, international maritime cargo warehousing, international maritime container freight station and container yard services, and non-vessel-operating services; they may also establish a wholly Hong Kong or Macao-owned shipping company in Chinese mainland to offer such routine services as canvassing of cargoes, issuance of bills of lading, settlement of freight and signing of service contracts for their owned or operated vessels.

The Provisions set out the criteria for the establishment of various businesses related to international maritime transportation. Generally, establishment applications should be made to the Ministry of Communication. Once the approval from the Ministry of Transportation is obtained, investors may proceed with the process by filing the application documents to the Ministry of Commerce for getting the appropriate approval of foreign investment. The fact that the approval and application procedures involve two administrative departments reveals this Provisions’ serious and unshakable legal status.

Article 5 stipulates in detail the conditions for establishing a foreign-funded international shipping enterprise. In case of establishing a Chinese-foreign equity joint venture or a Chinese-foreign contractual joint venture, the proportion of investment made by foreign investors shall not exceed 49% and the Chinese party shall appoint the chairperson of the board of directors and the general manager after consultation between the both sides, which are not regulated in the previous regulations.

The conditions needed to establish a foreign-funded international shipping agency enterprise are still very strict. For example, the enterprise shall have at least two senior executives with no less than three years experience in international maritime transportation business operations. The term "senior executives" refers to Chinese citi ens having secondary or higher technical or academic titles and serve as department managers or even higher positions in enterprises engaged in international maritime transportation business or auxiliary business related thereto. In addition, in case of establishing a Chinese-foreign equity joint venture or a Chinese-foreign contractual joint venture, the proportion of investment made by foreign investors shall not exceed 49%.

The Provisions identify the content of the Mainland and Hong Kong Closer Economic Partnership Arrangement, the Mainland and Macao Closer Economic Partnership Arrangement and their Annexes (CEPA) regarding the maritime service, which the State Council has approved to be effective as of January 1st, 2004.

In a word, these new Provisions stipulate not only the approval procedure, but also the scope of the approval and approval conditions. As a part and a significant supplement of the management system of foreign investment in international maritime transportation in China, they play a very important role.

This publication is intended to provide accurate information in regard to the subject matter covered. Readers entering into transaction on the basis of such information should seek additional, in-depth services of a competent professional advisor. Wenger vieli belser, the author, consultant or general editor of this publication expressly disclaim all and any liability and responsibility to any person, whether a future client or mere reader of this publication or not, in respect of anything and of the consequences of anything, done or omitted to be done by any such person in reliance, whether wholly or partially, upon the whole or any part of the contents of this publication.