The top priority of China's television industry has been to communicate the policies of the Communist Party, and to educate and inform audiences under a tight censorship regime. Entertainment is a fairly new objective and one that is slightly incongruous to the other aims of the central government. The Chinese media are State-dominated. But in the past year, possibly under legal upheaval brought about by the WTO, the State Administration for Radio Film & Television (SARFT) has lifted some of its restrictions on film and television production. This move has exposed 1.2 billion viewers or 20 percent of the world's TV audience to the possibility of more deregulation in programming content. However, Chinese TV programming is subject to a number of obstacles, not least, an effective censorship system, entrenched conservatism, lack of funding, and intellectual property concerns. This month, China Corporate Compliance will explore some of these challenges facing the industry.

According to 2002 estimates, nearly 95 percent of the population had access to a TV and actual ownership of a TV set was around 350 million. Reportedly, viewers watched an average of 2.5 hours of television a day, with the time varying among different age groups and locations.

China has an estimated total of 3,240 broadcasting stations countrywide; around 3,000 of them are local city stations and 31 are provincial. However, China Central Television ("CCTV") largely dominates Chinese television programming with 13 nationwide channels and 209 broadcasting stations. All local stations are required to air CCTV's daily 7pm news broadcast, which, according to an internal CCTV survey is regularly watched by a national audience of 500 million people. The only other station allowed to broadcast nationally is Shanghai's Dragon TV.

The use of a satellite receiver is restricted in China except for three-star and luxury hotels, approved foreign housing compounds and remote areas that cannot receive broadcasts from their local station. Since 2001, SARFT has approved limited landing rights for around 31 foreign satellite TV channels, most of which air only in Guangdong province. In July the government ordered a crackdown on illegal satellite usage, which is a widespread problem especially in Guangdong and Shanghai.

Currently, the cable industry is aiming to register 30 million digital TV subscribers by 2005. At present, there are only about 201,000 subscribers due to a severe shortage of attractive programming content. The non-digital cable audience, however, had around 100 million viewers by early 2003. An official at SARFT reported that the current established cable network is able to transmit 40 to 50 channels, whereas digital TV can allow for up to 100 times the current level. However, because the subscription fees are higher for digital TV, there are fewer subscribers.

To foreign investors, the Waigaoqiao Bonded Zone (the "WBZ") in Pudong, Shanghai, is perhaps the best known of the 15 bonded zones in China. Bonded zones were first established in China in the 1990s at a period when the country was heavily geared towards the export market. Consequently, the functions of bonded zones have traditionally been international trade, warehousing and export processing trade. Foreign investors were attracted to zones such as the WBZ by preferential tax policies and various exemptions from customs duty and VAT. Bonded zones are technically considered to be outside the PRC for customs purposes, allowing for deferral of payments of customs duty and import VAT until goods are shipped into "China Proper".

Foreign investors have had a strong incentive for setting up wholly foreign owned operations in the WBZ since the establishment of such trading and distribution companies in the WBZ allowed them to engage in international trade and certain trading activities in China Proper. While technically such companies should have only traded within the zones or carried on international trade, in practice authorities facilitated them to trade outside the zones with entities in China Proper.

The Shanghai government (with support at central level) has responded to these and other issues with the creation of a new Shanghai Waigaoqiao Bonded Logistics Zone (the "New Zone") as part of a wider policy to promote Shanghai as an international logistics and maritime center. To this end the policy stresses the need to properly integrate the WBZ with neighboring ports. This should overcome another shortcoming of the WBZ; although situated close to a port, international shipping and logistics companies have previously encountered bureaucratic and administrative obstructions to fully utilizing the WBZ due to the port and the zone being subject to different authorities.

The main activities permitted within the zone are warehousing and logistics, though some types of limited trading activity and other support services are also included. The Shanghai government encourages multinational companies to use the New Zone as a regional procurement and distribution center, supplying goods to overseas markets, regional markets and the PRC. The New Zone may serve as a hub for international transportation and international sourcing (i.e. the sorting and simple processing of goods sourced domestically and abroad for sale to domestic and overseas destinations), as well as entrepot trade. In terms of trade, domestic companies registered in the New Zone are granted import and export rights. They may also provide support services such as transportation.

As well as implementing the existing policies available to traditional bonded zones, the New Zone will offer other advantages including the following.

Perhaps one of the major attractions of the New Zone is the right for the exporters to applyfor a VAT refund immediately upon goods being exported to the New Zone from China Proper. This is likely to be a strong incentive for foreign investors. In the past, particularly in relation to processing trade arrangements, in order to obtain the VAT refund or other incentives, some companies in the PRC have exported goods to overseas destinations such as Hong Kong or Japan, and then re-imported them the next day. This would add to logistics costs as such companies usually used airfreight, and would also add to turnaround time. Now, however, the export tax refund will be available as soon as goods are exported into the New Zone. When re-importing goods from the New Zone, import duty and VAT are paid as if importing such goods from overseas.

In addition to the export refund eligibility, another advantage of the New Zone is that free trade within the zone, or between the zone and overseas is not subject to turnover tax or customs duty, or import and export licensing requirements.

The New Zone has set aside areas for use by shipping companies as container yards for transshipment. Previously, due to policy restrictions, investors were deterred from carrying out transshipment activities in the WBZ. The restrictions do not apply to the New Zone.

The New Zone also streamlines customs formalities and quarantine requirements. Details are set out in the Opinions.

Another benefit of the New Zone is that after-delivery clearance will be possible (subject to customs verification) and will apply to imported goods, and to goods transferred among bonded zones, export processing zones and the New Zone. After-delivery clearance is a customs practice whereby companies are allowed to carry out their import customs declaration on a batch basis after deliveries have been made. In the past, it was available to certain bonded warehouse operators for repair services and to some Waigaoqiao bonded zone companies, particularly foreign-invested distribution companies. After-delivery clearance is usually carried out on a monthly basis and allows for quick preliminary processing by customs and then goods can be transferred to destinations in China Proper without first having to fully clear customs. A bond must be posted to customs that is equivalent to potential customs duty and VAT liabilities.

Clearly the New Zone should benefit shipping and logistics companies, who will be able to use it as a hub for container consolidation and re-distribution. Such entities will be required to establish a new company within the New Zone, presumably subject to approval from the Waigaoqiao authorities. Manufacturing and other companies will have an option to use the New Zone as a regional procurement / distribution center, or center for export and re-import arrangements.

When the Central Committee of the Communist Party of China drafted its 10th Five-Year Plan (2001¡V2005) for national economic and social development, it included the well-meaning goal "to encourage common families to buy automobiles." It is estimated that China now has 10 million vehicles, and in 2003 motor vehicle production reached 4.2 million units, making the country the fourth largest auto manufacturer in the world. In the capital Beijing, there are an estimated 2 million privately owned vehicles and the number is expected to increase to 3.8 million by 2008. Add to the mix another 9 million bicycles and you have a rush hour that lasts 11 hours a day in certain areas of Beijing.

So in which direction is Chinas auto industry headed? The State Development and Reform Commission recently issued a new Automotive Policy (see article: China's New Automotive Policy), which sets out the aspirations of the country's central planners. This month, China Corporate Compliance explores the recent developments in the Chinese auto industry, and in this article, we look at some of the trials and tribulations of car owners in China.

China's economic development is without question progressing at breakneck speed. Unfortunately, China's focus on GDP growth has resulted in the pollution and consumption of natural resources at an exponential rate, with emissions of carbon dioxide (CO2) second only to the United States.

This burden on the environment does more than impact air and water quality. It translates into substantial costs to the economy, both in terms of physical assets and human productivity. China's State Environmental Protection Administration ("SEPA") calculated that acid rain alone, a product of China's coal-fuelled power plants, costs US$13 billion annually to the country's agriculture, buildings, and public health. Overall, it is estimated that pollution costs China US$71-168 billion per year, or 5 to 12 percent of China's GDP. China intends to maintain its recent levels of economic growth well into the twenty-first century; however, given its current inefficiency, pollution will only continue to worsen over time. Acknowledging this pending crisis, the Chinese government has taken a renewed interest in emissions control.

In recent years, China's real estate boom has been fuelled partly by speculation but more by ordinary homeowners wanting to secure a roof over their heads. In China today, there are significant numbers of "white collar" workers and prosperous self-employed who are becoming homeowners for the first time. This trend is markedly different from the previous generation who relied on the state to provide housing from "the cradle to the grave". The surge in residential property sales has provided a new impetus for consumer spending and opportunities for bank lending.

China Corporate Compliance spoke to one new homeowner about purchasing a home in Guangzhou.

What are the most popular types of residential properties in Guangzhou?

Residential buildings featuring new and modern designs are very popular, and any property with a view of the Zhujiang River is highly sought after. The size of a unit ranges from 80-100 square meters and prices range from RMB6,000-8,000 per square meter.

Local residents prefer to live in the older Guangzhou districts such as Dongshan, Yuexiu and Liwan, where many good primary and secondary schools are located. Tianhe district is also popular among white-collar workers, university students and expatriates because it is convenient to all the amenities.

What do you look for in a developer?

It's better to choose a top developer. They will normally provide better quality and should be financially sound. I don't want to fall victim to a failed construction project due to insufficient funds or some other reason. In recent years, the government has introduced regulations to protect homebuyers and require developers to conduct pre-sales only after the building is almost completed. Compared to foreign-invested developers, local developers provide greater choice to buyers by offering decorated or non-decorated units. The non-decorated units () are generally cheaper by around RMB400-500 per square meter.

Where can potential buyers obtain apartment listings?

Developers usually advertise new developments in different newspapers or on the metro or other forms of public transport. The Guangzhou Daily has a section on real estate information most days of the week. For re-sales, you have to go through a property agent or obtain information from newspaper adverts. The standard rate of commission for property agents is 6 percent of the property price. Payment of the commission is shared equally between the buyer and seller, and sometimes the amount is negotiable.

Is it popular to buy residential property for investment purposes?

People from Hong Kong like buying property in Guangzhou for re-sale or for leasing, whereas local people buy to occupy. This is because both new and secondary housing is plentiful in Guangzhou and it's very difficult to make a profit on one's investment. The supply is currently outstripping demand.

Where can buyers apply for financing?

There are five banks in Guangzhou that offer home mortgage plans; the China Construction Bank, Industrial and Commercial Bank of China, Bank of China, Agricultural Bank of China, and Bank of Communications. However, developers usually designate which bank will handle the home loan applications for their new developments. So buyers of new developments do not really have a choice of mortgage providers. In addition, buyers can only submit their mortgage application to a specific branch of the authorized bank, and not just any branch, which is quite inconvenient.

What is the maximum home loan amount and what are the repayment terms?

The maximum home loan is around 70-80 percent of the property price, and in most cases, banks will grant 70 percent. The maximum repayment period is 30 years and the minimum is one year. Normally, the repayment period and loan amount will depend on the monthly income of the applicant. The applicant's monthly salary should be at least 3 times the amount of the monthly loan repayment. Generally, the buyer has to pay the developer 30 percent of the property price as a down payment within 10 days of the transaction date. If the buyer has sufficient funds, he can choose to pay the sum in one single payment, which is not uncommon in Guangzhou. The developer usually offers a 3 percent discount on the property price to cash buyers. If the buyer does not have sufficient money to pay the down payment, he can consider using the housing fund.

What is a housing fund and how does it help?

The housing fund is a mandatory, non-tax deductible contribution required by the State. Both employer and employee must contribute to the fund each month. For an employee in Guangzhou, the housing fund contribution rate is 8-20 percent of his/her monthly salary and there is no ceiling amount. An employee may draw balances from his housing fund account for use in the following areas:

(i) buying, building and renovating properties as an owner-occupier;

(ii) repayment of interest on a housing loan; and

(iii) renting an apartment for one's own occupation.

In certain circumstances an employee may close his housing fund account and cash the balance, for example, if he/she is unemployed for more than a year and over a certain age, emigrates overseas or moves to another province, etc.

An employee can also apply for a housing loan from the Housing Fund Management Center at a preferential interest rate (3-3.375 percent) to pay for their mortgage. The interest rate is around 1-1.2 percent lower than that offered by the banks. To be eligible to apply, the employee should have a stable income, be able to repay and have contributed to the housing fund for more than 6 months at the time of the loan application. The maximum amount that can be provided to an individual is RMB250,000. For a couple or a family, the maximum amount is RMB500,000.

What are the documents required for a housing loan application?

The applicant must submit the following documents to the bank providing the mortgage for onward submission to the Housing Fund Management Center:

(i) resident identification card;

(ii) property sale and purchase agreement and receipts of down payment;

(iii) proof of income;

(iv) savings account book for repayment of the mortgage loan;

(v) proof of Housing Fund contributions; and

(vi) any other documents or information required by the bank.

What happens if an employee loses his job and can¡¦t continue to pay the mortgage loan?

The government does not provide subsidies for monthly loan repayments. However, the unemployed person can apply to the bank for an extension on the mortgage repayment period. If the person still cannot make the loan repayments, he may need to sell his property or the bank may repossess his property for auction.

China has promulgated a relatively large number of, often overlapping, laws, regulations and rules for the control of advertising activities. Violations can give rise to administrative, civil and even criminal liability. How does the advertiser minimize these risks? This article provides foreign companies who advertise in China with a brief overview of the kinds of liability that can result from different types of advertising violations.

A remarkable feature of Chinese advertising law is the extent to which advertising agencies and advertisement publishers can be held liable for noncompliant advertising. Both agencies and media are required to check supporting documents submitted by advertisers to ensure the contents of the advertisements they create or publish are accurate, otherwise they may incur administrative, civil and criminal liability in many of the same situations in which advertisers themselves can incur such liability.

The State Administration for Industry and Commerce ("SAIC") and the local administrations for industry and commerce ("AICs") have the primary responsibility for monitoring and regulating advertising activities, regardless of the media used.

In addition to the SAIC and the AICs, the authorities in charge of the various types of media oversee advertising in the media under their supervision. The State Administration of Radio, Film and Television ("SARFT") is responsible for regulating radio and television and is involved in the supervision of radio and TV advertising. The General Administration of Press and Publishing ("GAPP") regulates press and publishing activities and oversees advertising in newspapers and other publications. The Ministry of Information Industry ("MII") oversees telecommunications and the IT industry, and shares responsibility with the GAPP for oversight of online publishing activities.

Under China's Advertising Law of the People's Republic of China (the "Advertising Law"), Regulations on the Administration of Advertising ("Advertising Regulations") and Detailed Rules for Implementation of the Regulations on the Administration of Advertising (the "Implementing Regulations"), the AICs are authorized to impose various types of penalties for violations of China's advertising rules. Penalties range from fines, cease and desist orders, and public corrections and rectifications, to cessation of advertising operations and confiscation of illegal income.

The maximum fine that may be imposed by AICs under the Advertising Law is five times the amount of relevant "advertising expenses" (see table: Fines under the Advertising Law). When the fine is imposed on the advertiser (as opposed to the advertising agency or the media company), the "advertising expenses" refer to the total payments such as the advertisement design, production, agency and media costs, which the advertiser has directly incurred.^* Fines of up to RMB100,000 may be imposed if the advertiser provides false supporting documents or forges or alters a written decision made upon examination of an advertisement (see table: Fines under the Advertising Law).

Fines imposed by AICs pursuant to the Advertising Regulations and the Implementing Rules are generally limited to RMB10,000, though fines of up to RMB30,000 may be imposed when an advertiser uses advertising to deceive and defraud a user or consumer.

Additionally, AICs are authorized to impose fines of between RMB10,000 and RMB200,000 pursuant to the Law of the People's Republic of China Against Unfair Competition (the "Unfair Competition Law") when businesses create misleadingly false publicity. The amount of the fine will vary depending on how serious the offense.

Since China's accession to the World Trade Organization ("WTO"), foreign banks have been waiting patiently for the opportunity to participate more actively in China¡¦s banking industry. China's WTO commitments provided new possibilities for business development but rather than opening the floodgates, China has welcomed a steady influx of foreign banks.

As of the end of October 2003, 191 business establishments had been set up in China by 62 foreign-funded banks from 19 countries and regions. Of these, 84 had obtained the authority to engage in Renminbi business. Though the stated objective of the China Banking Regulatory Commission (the "CBRC") is eventually to bring these institutions under the same regulatory regime as domestic banks, at present foreign-funded banks occupy a special position and are subject to specific foreign investment rules.

Under Chinese law, foreign investors can invest in five types of foreign investment vehicle: (i) the wholly foreign-owned bank, (ii) the joint venture bank, (iii) the branch of a foreign bank, (iv) the wholly foreign-owned finance company and (v) the joint venture finance company (collectively "foreign-funded financial institutions" or "FFIs"). The main distinction between the banks and bank branches on one hand and the finance companies on the other hand is that the deposit-taking power of finance companies is severely restricted. Finance companies may take deposits of no less than RMB 1 million or the equivalent in a freely convertible currency for periods of no less than three months, whereas banks and bank branches have a general power to take deposits from the public. Also, banks and bank branches can provide letter of credit services, engage in foreign currency exchange, engage in bank card business and provide safe deposit box services, whereas finance companies cannot.

On December 27, 2003, China promulgated the Law of the People's Republic of China on the Regulation of the Banking Sector and amended the Law of the People's Republic of China on Commercial Banks and the Law of the People's Republic of China on the People's Bank of China. As discussed in Overhauling China's Banking System: The Regulatory Issues, the main purposes of this new legislation are to provide the legal basis for regulation by the CBRC and to move closer to Basel principles of prudential regulation. While the new legislation is important to FFIs because it establishes and sets out the powers and role of the regulator—the CBRC (see Overhauling China's Banking System: The Regulatory Issues), for FFIs the shift towards prudential regulation had begun earlier.

When joining the WTO, China promised that licensing criteria in the financial services sector would be solely prudential and there would be no economic needs test or quantitative limits on licenses. When securing this commitment, China's trading partners were not necessarily interested in increasing prudential regulation—they were more interested in getting rid of any economic needs tests or quotas for licenses. Nevertheless, China issued legislation almost immediately after WTO accession that moved closer to the prudential banking supervision principles advocated by the Basel Committee on Banking Supervision in its 1997 Core Principles for Effective Banking Supervision (the "Core Principles"): the Regulations of the People's Republic of China for the Administration of Foreign-Funded Financial Institutions (the "FFI Regulations") issued on December 20, 2001 and the Detailed Implementing Rules for the Foreign-Funded Financial Institutions (the "FFI Implementing Rules") issued on January 25, 2002.

Under the FFI Regulations, applicants to establish an FFI must meet "prudential conditions" specified by the regulator (at that time the People's Bank of China, now the CBRC). A key goal of the Core Principles is to ensure that regulatory authorities have the power to impose prudential requirements administratively. The Basel Committee considered this a necessary precondition for any effective banking supervision system. The FFI Regulations also introduce the requirement that the regulatory authority in the applicant's country must approve the application to establish an FFI in China. This follows Principle 3 of the Core Principles.

Apart from licensing, other ongoing regulatory requirements in the FFI were based on the Core Principles. The 8 percent capital adequacy ratio is based on the Basel Committee's 1988 Capital Accord, which is required to be applied for internationally active banks by Principle 6 of the Core Principles. The 25 percent cap on lending to a single borrower and its affiliates is based on Principle 9.1 The FFI Implementing Rules' provisions prohibiting preferential lending to related parties is based on Principle 10.

When joining the WTO, China promised to lift restrictions on business in the local currency—Renminbi—in stages over a number of years. On October 24, 2003, the CBRC issued Announcement No. 2 to meet China's commitment for further liberalization within the second year after accession. Announcement No. 2 provides that beginning from December 1, 2003, FFIs in Jinan, Fuzhou, Chengdu and Chongqing may apply to engage in Renminbi business. FFIs that have already been authorized to engage in Renminbi business may expand their Renminbi business area to include the said four cities. Also, FFIs may, upon approval from the CBRC, begin providing Renminbi services to Chinese enterprises in areas that have already been opened up to Renminbi business. On February 4, 2004, China granted approval for the Shanghai Branch offices of HSBC, Mizhuo Corporate Bank, Ltd., Citibank and the Bank of East Asia to provide Renminbi services to Chinese enterprises.

Although the liberalization on Renminbi services is encouraging, foreign banks still face significant market access restrictions on banking services not least the prohibition on providing Renminbi services to Chinese individuals, which is not expected to be permitted until 2006.

One of the components of China's plan to reform the Chinese banking system is to permit a certain amount of foreign investment in Chinese financial institutions. The Chinese authorities believe that the introduction of foreign capital will have a positive impact on capital conditions in Chinese banks and will help raise management standards. While China has approved such investment previously on a case-by-case basis, China has now decided to formalize the rules and procedures governing such investment. The CBRC, accordingly, issued the Measures for the Administration of Investment and Acquisition of Equity in Wholly Chinese-Owned Financial Institutions by Foreign Financial Institutions (the "Equity Acquisition Measures") on December 8, 2003. They came into force on December 31, 2003.

The Equity Acquisition Measures permit international financial institutions (such as the World Bank and other intergovernmental development banks) and foreign financial institutions to acquire equity in wholly Chinese-owned financial institutions. "Foreign financial institutions" are defined to mean financial holding companies, commercial banks, securities companies, insurance companies and funds registered and established in foreign countries as well as other foreign financial institutions recognized by the CBRC.

Permitted targets are wholly Chinese-owned commercial banks, municipal credit unions, rural credit unions, trust and investment companies, enterprise group financial companies, financial leasing companies and other wholly Chinese-owned financial institutions the establishment of which has been approved by the CBRC.

A single investor may not acquire equity of more than 20 percent in a Chinese financial institution.

If foreign investors together acquire 25 percent or more of an unlisted financial institution's total equity, the financial institution will be treated as a foreign-funded financial institution, presumably with the corresponding tax benefits and restrictions on types of permitted business. However, if foreign investors acquire more than 25 percent of the total equity in a listed financial institution, the financial institution will continue to be treated as a wholly Chineseowned financial institution.

In order to qualify to invest, the foreign investor's total assets at the end of the preceding year must, in principle, have been at least:

The investor must have shown profits in the preceding two accounting years. The capital adequacy ratio of a commercial bank must be at least 8 percent. The total capital of a nonbank financial institution must not be less than 10 percent of its total risk-weighted assets. The investor must also have received a good long-term credit rating for the previous two years from an international rating agency recognized by the CBRC.

The recent measures heralding greater market access must be viewed as part of a long- term strategy for foreign banks in the Chinese market. The increase in foreign ownership limits and the expansion in the scope of permitted business activities are attempts by China to fulfill its WTO obligations and for the CBRC to introduce a more attractive operating environment for foreign banks. The banking regulator is aware that foreign banks will bring much needed financial expertise to the industry, which can help to improve the performance of China's domestic banks and providing adequate funding for China's growing economic needs.