.Chapter Two Market Access

2003 witnessed the fastest development of trade in goods in Shanghai accompanied by an unprecedented large trade volume and a record high growth rate. The yearly volume of trade in goods totaled US$ 112.36 billion, up by 54.7% over the same period in 2002, with imports amounting to US$ 63.9 billion, up by 57.4%, and exports US$ 48.46 billion, up by 51.2%. The goods imported and exported through Shanghai Port recorded US$ 201.2 billion, up by 41.2% over the same period in 2002, with imports making up US$ 88.9 billion, up by 46.5% and exports US$ 112.31 billion, up by 37.3%.

In compliance with the nation-wide scheme of the Central Government, in 2003, the Shanghai Municipal Government strictly implemented China¡¯s commitments specified in the WTO Accession Protocol by making efforts to further promote liberalization in such areas as trading right, quota and licensing, and tariffs and non-tariff measures.

1. Trading Rights

In August 2003, the Ministry of Commerce of the People¡¯s Republic of China promulgated the Notice on the Adjustments for Import and Export Qualification Standards and Verification Procedures (Doc No. [2003] 254), which stipulates an overall adjustment, effective from September 1, 2003, of the qualification criteria and requirements for domestic enterprises applying for foreign trading rights. According to the document, trading companies with their registered capital no less than RMB 1 million may apply for the right to operate in foreign trade-related distribution, while the manufacturing enterprises with their registered capital no less than RMB 1 million may apply for the import and export right. Meanwhile, the Ministry of Commerce empowered the local authorities in charge of foreign economic relations and trade to have the qualifications of the related enterprises verified and re-registered and to grant the qualified enterprises the Certificate of Qualifications for the Importing and Exporting Enterprise.

Taking advantage of the right granted by the Central Government to the Pudong New Area to pioneer in the reform of the availability of trading rights, in July 2001 and March 2002, Shanghai twice lowered the qualification standards required for Pudong-based domestic businesses applying for foreign trading rights. In July 2002, Shanghai began to provide the domestic businesses with the on-line service for processing applications for foreign trading rights, which not only greatly increased the government¡¯s efficiency but also brought convenience to the applicants. In 2003, this mechanism was extended to Puxi (the areas on the west side of the Huangpu River), where the application put forward by the manufacturing enterprises for trading rights shall be subject to the systems of eligibility verification and registration, an approach requiring lower qualification standards. In addition, domestic enterprises located in Waigaoqiao Free Trade Zone were granted foreign trading rights. As the result of those pilot measures, between July and December, foreign trading rights were granted to 93 enterprises, among which 85 trading enterprises obtained the right to operate in foreign trade-related distribution and 8 manufacturing enterprises, the right to handle import and export.

2. Quota and License Regime

In 2003, Shanghai further liberalized its quota and license regime, which has become more transparent accordingly: (1) Most commodities are free from import license control. At present only 22 commodities are still subject to the import licensing regime, 8 of which are subject to import quota. (2) The old regime of import quota has gradually given way to tariff quota, voluntary registration, general import license or zero restriction. (3) The number of commodities subject to import handled by designated trading companies has been decreased, while the number of enterprises approved to handle import has been growing. (4) The allocation of import quota has been made more transparent, fair and non-discriminatory because the catalogs for the commodities subject to quota and the information on the total volume/value of the quota and/or increases in the said volume/value are made available in due time, and quota will gradually be made available against tenders or payment. (5) Import policies have become more transparent and consistent with WTO rules. (6) Granting licenses on the web facilitates the real-time checking and monitoring of the issuance of licenses, customs clearance, and use of quota, thus achieving technology-based trade regulation and dynamic control over quota allocation and use.

3. Textile Quota

In 2003, Shanghai adjusted the allocation of textile quota. Annual export volume of US$ 5 million was taken as the minimum requirement for an enterprise applying for the quota that fell in the increased part beyond the total quota volume/value. Certain volume/value of the increased quota was earmarked for supporting those small and medium-size enterprises yet with high potentialities and, meanwhile, the required annual export volume was lowered so that some small and medium-size enterprises would be encouraged to break through quota restrictions and increase their export volume. Quota originally allocated to those enterprises that were recently, however, exhibiting increasingly poorer export performance were reduced or withheld; while more quota were given as incentives to those with remarkable export growth. Quota reduction was also made against those enterprises reporting poor fill rate of quota. To this end, a mechanism to regulate the use of textile quota was set up to avoid possible waste in this regard.

4. Export Subsidies

In accordance with the WTO rules and China¡¯s commitments made in the Protocol, the Chinese Government will gradually eliminate direct export subsidies. In 2003, Shanghai ceased granting such subsidies to exporting enterprises.

5. Tariff Concession

Since China¡¯s WTO accession, the Chinese Government has honored its tariff commitments by lowering the tariff level year by year. China¡¯s general tariff level dropped from 15.3%, the figure before its WTO accession, to 12% in 2002, the current level being 11%. The average tariff level for industrial products was adjusted from 14.7% before the accession to 11.6% in 2002, and 10.3% in 2003.

¢ò Impact of Market Access to Trade in Goods on Related Sectors in Shanghai

1. Automotive Sector

According to its WTO accession commitments, China cut its import tariffs for cars to 38.2% in 2003, while the total volume/value of import quota for motor vehicles and related key parts rose to US$ 9.125 billion. Based on the current situation, the Ministry of Commerce improved the regime of import quota for motor vehicles. As a result, quota allocation has been made more transparent and less discriminatory. At the same time, the administration of import quota licensing in the automotive sector has also been enhanced.

The domestic automobile market witnessed consecutive growth of over 50% from 2002 through 2003. With six top world car producers relocating their operations in China, the technical performance of domestically made motor vehicles is now approaching or even level with world standards. Furthermore, as the domestic demand for cars mainly focuses on the medium and low grades, and their price/performance ratio is quite close to international standards, domestic makes can now well compete with imports. In a word, inspired by the sound sustainable development of the national economy, the entire automotive sector has achieved remarkable progress.

As the No. 1 backbone industry in Shanghai, the auto manufacturing sector takes full advantage of the increasingly stronger domestic demand and takes an active part in competition by speeding up the development of new makes, expanding market share, lowering cost, and improving efficiency. Shanghai Automotive Industry Corporation (Group) (SAIC), the flagship enterprise in local auto manufacturing, exhibited an appreciable performance in 2003 with a sharp increase in its production, sales volume and profits. In 2003, SAIC put out 574,000 cars, with a growth rate of 47% over the same period in 2002, thus keeping the leading position in the domestic market, and recorded a gross output value of RMB 119.45 billion, up by 57% as compared to the same period in 2002.

In compliance with the Scheme on Establishing Industry Injury Early-warning Mechanism Within the Automotive Sector made by the Investigation Bureau of Industry Injury of the former State Economic and Trade Commission, SAIC integrated itself into this system, and appointed special personnel, including liaison officers and experts knowledgeable about the entire car and auto parts, to coordinate with China Auto Association in injury-preventing and monitoring. It also kept timely reporting those data needed by the system with a view to safeguarding its legal rights and interests.

With the introduction of the Regulations on Motor Vehicle Financing, the scheme for auto loans has gained substantive support. China Banking Regulatory Commission (CBRC) has accepted the application put forward by Shanghai General Motors Finance Co. Ltd.

2. Petrochemical Industry

In accordance with China¡¯s WTO commitments, the tariff rates of bulk chemical products were further decreased in 2003: carbinol, sodium hydrate and chloroethylene down from 7% to 5.5%, dyestuff from 10.8% to 9.6% and ethylene from 3.8% to 2%.

As the tariff reduction in 2003 was relatively moderate, Shanghai¡¯s petrochemical industry was little affected. In 2003, spurred on by the recovery of world economy and sustainable growth of domestic economy, the industry not only remedied the negative effects its production and operation had suffered from SARS during the second quarter of the year, but also witnessed an inspiring momentum in the demands for such primary products as carbinol, coke, acetic acid, PVC, vehicle tires and acrylic acid. In 2003, the gross output value of Shanghai¡¯s petrochemical industry hit RMB 105.618 billion, up by 15.4% when compared to the same period in 2002. The growth rates of the subsectors are as follows: rubber products 17.1%, organic chemicals 16.7%, basic chemical materials 18.2%, special chemicals 16.1%, petroleum processing and coke making 15.3%, and synthetic materials 17.2%. Chemical pesticides and fertilizers, however, dropped by 14.5% and 19.1% respectively owing to the rigid challenges the relevant subsectors encountered in 2003.

The drastic rise in demand for petrochemical products may be attributed to the following factors. First, the recovery of world economy and the economic boom that is under way in the US and EU combined to rekindle the international economic situation and increase demand as well. Second, fueled by the war in Iraq and the oil crisis in Nigeria, worldwide rocketing prices for crude oil boosted the international pricing of such stuffs as petrochemicals and energy, thereby stimulating the dramatic demand for raw materials in the world market. Third, while the sustained momentum of domestic economy successfully offset the aftermath of SARS in the second quarter of 2003, domestic demand was further inspired, along with an active market for chemical materials. Fourth, the prosperity of the major users, such industries as automobiles and construction, spurred the bullish market of chemical materials. Finally, the enterprises in this industry have developed their capability to conduct fair trade by applying appropriate WTO rules. For example, in both 2002 and 2003, some enterprises in Shanghai launched separate anti-dumping complaints against Malaysia and the Republic of Korea for their acrylic acid exports and against Taiwan and the Republic of Korea for their PVC exports. However, owing to the surging prices of basic consumer goods and agricultural products, some chemical products made from agricultural products will have to sustain enormous pressure, while, however, the subsidiary products used for agricultural production will enjoy direct benefits.

3. Metallurgical Industry

In compliance with China¡¯s WTO commitments, in 2003, the average import tariff rates of iron and steel and their finished products (including steel columns, rails and pipes only) were further lowered from 5.6%, the rate of 2002, to 5.27%. Meanwhile, the control on import of iron and steel products was further liberalized. According to China¡¯s commitments, the import of iron and steel products shall be reserved for ¡°designated traders¡±, but the restrictions shall be phased out, within three years of China¡¯s WTO membership. In the wake of China¡¯s entry to the WTO, 293 enterprises were approved by the Chinese Government to have trading rights to import iron and steel products. Those enterprises were scattered in 31 provinces, municipalities and autonomous areas on China¡¯s mainland. In 2003, the number of those enterprises increased to 335, up by 14%. In October 2003, the Ministry of Commerce further announced that it was to accept new applications for the right to import iron and steel products. The number of the designated-trading enterprises, therefore, can be expected to further increase in 2004.

The substantial increase in steel imports since 2001 has constituted a severe injury to China¡¯s iron and steel industry. Consequently, in May 2002, the Chinese Government, in accordance with WTO Safeguard Measures Agreement and China¡¯s related laws and regulations, launched an industry injury investigation on selected iron and steel imports. On November 19, 2002, it introduced a 3-year-long tariff quota measure on five lines of iron and steel products: hot-rolled ordinary sheet, cold-rolled ordinary sheet, painted plate, non oriented silicon steel and cold-rolled stainless sheet.

On March 23, 2002, responding to the complaints filed by Shanghai Baoshan Steel Group Corporation (Baosteel), Anshan Iron and Steel Group Corporation(AISC) and Wuhan Iron and Steel Group Corporation, the Chinese Government, in compliance with WTO Anti-Dumping Agreement and China¡¯s related laws, launched anti-dumping investigations on cold-rolled coils made in the Republic of Korea, Russia, Kazakhstan, Ukraine and Taiwan. The re-organized Ministry of Commerce gave initial and final decisions respectively in May and September 2003, establishing the dumping of cold-rolled coils produced in the above countries and regions and material injuries caused to domestic industries. Considering the special conditions of this case, the said Ministry, with the approval of the Tariff Commission of the State Council, has decided to withhold the implementation of anti-dumping measures on the investigated products for the time being. The timing for the implementation will be announced subject to the development of the situation.

While imports remained rising in 2003, the domestic demand kept going up and constituted the primary factor leading the iron and steel industry ahead. In 2003, the development of national economy maintained the rapid momentum that emerged in 2002. In particular, with the rise in the outputs of those industries using iron and steel products, such as construction, automobile, ship-building, household electrical appliances, machinery, the demand for steel and iron products has kept climbing steadily. Meanwhile, the unremitting price rise of the raw materials, such as pig iron, waste steel and energy, resulted in the ceaseless rebound and rise of steel price.

In 2003, the steel production of Shanghai recorded 17,215,700 tons, increasing by 0.51% over the same period of the previous year. The total foreign exchange generated by exports reached US$ 791 million in 2003, up by 46.24%.

In 2003, Baosteel, the major iron and steel producer in Shanghai, made further efforts to boost the construction of facilities producing superior steel products, promote the adjustment of product structure, and enhance the strategic cooperative partnership with the down-stream industries by establishing appropriate marketing systems.

4. Electromechanical Industry

China¡¯s electromechanical industry is an area of relatively high market-access and outward-orientation, where trade restrictions are confined to a limited number of products only. According to the Schedule of Import Restrictions on Electromechanical Products and the Timing for their Phasing-out attached to the Provisions on the Control over the Importation of Electromechanical Products jointly promulgated at the end of 2001 by the former Ministry of Foreign Trade and Economic Cooperation, General Administration of Customs and State Quality Supervision, Inspection and Quarantine Bureau, in 2003, the import restrictions against such electromechanical products were eliminated: diesel engines for motor vehicles, gasoline engines not designed for vehicles, airplanes and ships, and ¡Ü1000 ml reciprocating engines for vehicles. The import tariff rates on electromechanical products (excluding automobiles) were brought down from 13.7% in 2002 to less than 12% in 2003.

In 2003, the gross output value of the electromechanical industry in Shanghai hit RMB 146.737 billion, increasing by 34.8% when compared to the same period in 2002. The growth rates of selected products are as follows: structural metallic manufactures 35.4%, farm machinery 11.4%, business machines 36.4%, machines for general uses 38.4%, special equipment for petrochemical and other industries 35%, special equipment for metallurgical and mining industries 44.8%, industrial meters and instruments 13.77%, and electrical machinery and equipment 29%. In 2003, on the strength of the low cost and excellent quality of its products, Shanghai electromechanical industry was able to further expand its market shares in North America, Europe and Southeast Asia, and steadily launch into the markets in East Europe, Latin America and Middle Asia.

Shanghai Electric (Group) Corporation (SEC), one of the flagship enterprises in Shanghai, is now making headway in developing four backbone divisions: power equipment, urban railway transportation facilities, environmental protection equipment and integrated electromechanical equipment. In 2003, the first train built by SEC was put into use by Shanghai¡¯s urban railway system. Inspired by the success, SEC has now formed a host of groups specializing in the manufacture of trains, traction systems, car doors and shielding doors on the platforms, air-conditioning, power supply systems, environmental control systems, escalators and elevators, automatic ticketing and checking systems, signal systems and other facilities for the construction related to the urban railway system.

5. Electronics and Information Industry

The efforts Shanghai made in 2003 to honor China¡¯s WTO commitments in the area of electronics and information industry can be mainly reflected by the following facts and figures:

(1). As a result of China¡¯s tariff concessions and thorough elimination of import restrictions (in the form of import licensing, quota and import tendering) on electronics and information products, the tariff rate for refrigeration facilities fell from 26.5% to 23%, microcomputers from 9% to zero, computer displays from 7.5% to zero, network exchange equipment from 7.5% to zero, and mobile phones from 6% to zero.

(2). As a result of China¡¯s phasing-out of restrictions on foreign investment, large multinational companies in the line of electronics and information products have been adjusting their investment and operational strategies and seeking for whole or majority ownership. Under the new investment environment, quite a few multinational companies have ceased to introduce or transfer high technology intensive products and high value-added technology or products to their former joint venture projects in China. For instance, Shanghai Suoguang Visual (SSV) ceased to introduce new technologies; Sony Corporation has transferred its project for manufacturing new digital products to its wholly-owned factory located in Wuxi.

In 2003, the gross output value of the electronics and information products industry in Shanghai registered RMB 199.934 billion, up by 49.1% over the same period in 2002. The growth rates of specific subsectors are as follows: telecommunication equipment 13.1%, radio and TV equipment 66.5%, electronic computers 170%, electronic devices 30%, electronic components 25.2%, home-use electronic apparatus 51.6%, other electronic equipment 360%, the maintenance service for electronic devices and telecommunication equipment -5%.

6. Pharmaceutical Industry

According to China¡¯s WTO commitments, the import tariff on medicine from 2000 through 2003 fell from 9.3% to 7%; the tariff of the bulk medicine imports from 14% to 6%; in 2001, the restrictions on the import of large medical equipment was removed; the medicine wholesale and retail services were liberalized on January 1, 2003: restrictions of majority foreign ownership were lifted unless in the case of medicine distribution centers with an area of over 20,000 square meters or a chain of over 30 pharmacies. The medicine market remained stable in 2003 due to its relative high accessibility, comparatively small fall of annual tariff and high price level of imported medicines.

In 2003, the gross output value of the pharmaceutical industry in Shanghai hit RMB 16.619 billion, increasing by 19.6% as compared with the same period in 2002. The growth rates of the subsectors are as follows: chemical preparations 21.9%, Chinese medicinal materials and Chinese patent medicine processing 25%, biological products 22.1%, chemicals-based pharmaceuticals 9.2%, and animal medicine -20.5%.

Shanghai medicine industry exerts itself to reform the distribution system with a view to adapting to the liberalization of medicine trading rights. Shanghai Medicine Group, the leading medicine enterprise in Shanghai, aims at setting up a new distribution system featuring the principle of ¡°Balanced liberalization subject to macroeconomic control and scientific and cost-effective management¡±, realizing the diversification of property rights and the integration of wholesale and retail, and accelerating the process in modernizing the organization and operation of the marketing system for medicines, so as to set the pace in the nationwide medicine trade.

III Market Access to Services in Shanghai During 2003

1. Financial Services

The QFII scheme has been proceeding smoothly in Shanghai: five overseas banks have been qualified for trusteeship; Citibank has purchased 4.6% of the total shares of Shanghai Pudong Development Bank. By September 2003, various overseas financial institutions based in Shanghai numbered 253, including 60 foreign banks and 75 representative offices of foreign banks, accounting for 73% of the total assets of foreign banks in China; 3 joint venture stock companies, 3 joint venture fund management companies, 49 representative agencies of foreign stock institutions (60% of the total number in China); 16 wholly foreign owned or joint venture insurance companies, and 47 representative agencies of foreign insurance companies.

In 2003, the first China-based foreign insurance assessment office opened in Shanghai, while the first foreign insurance brokerage company was to open in Shanghai as well. In addition, Shanghai Angel Car Rental Company, Sino-Euro (Hua Ou) International Securities and Changjiang-BNP Paribas Securities came into operation one after another.

In 2003, the total added value of Shanghai financial sector amounted to RMB 62.908 billion, up by 7.6% as compared with the same period in 2002, accounting for 10.08 % of Shanghai¡¯s GDP; its absolute added value ranked first in the whole nation. 2003 also witnessed the steady expansion of financial factor markets in function and scale. By the end of the year, the total savings in both RMB and foreign currencies held by domestic and overseas financial institutions in Shanghai registered RMB 1,700 billion, and the various loans balance at RMB 1,300 billion, up by 23.8% and 24.4% respectively as compared with the same period in 2002. The inter-bank transactions totaled RMB 17,200 billion, up by 44%; the total turnover in foreign exchange market amounted to US$151.1 billion, up by 54%; the total turnover of the securities realized in Shanghai Stock Exchange Market totaled RMB 8,300 billion, increasing by 71.1% and making up 87.2% of the total domestic market shares; the total turnover realized in Shanghai Futures Market recorded RMB 6,100 billion, increasing by 269% and making up 56% of the total domestic market share; the gold market turnover hit RMB 24.55 billion; Shanghai insurance revenues exhibited RMB 28.99 billion, up by 22%, ranking first in the whole nation in terms of both market penetration and market density.

In 2003, China accelerated its financial legalization process. The Law on Stock Investment Fund was approved by the Standing Committee of the 10th NPC and will come into effect on June 1, 2004. The work on the amendment to the Securities Law started and is expected to be accomplished within 2004. The Law of the PRC on Banking Regulation and Supervision, the Law on the People¡¯s Bank of China (amendment) and the Commercial Bank Law (amendment) were reviewed and approved by the sixth session of the Standing Committee of the 10th NPC and will come into force on February 1, 2004. The progress made in China¡¯s financial legislation will further purify the legal environment of Shanghai¡¯s financial development, solidify the legal basis of financial innovation, enhance the accountability management of financial institutions, promote resource integration and speed up financial innovation.

2. Travel Industry

In 2003, Shanghai made further efforts to regulate its tourist market by strengthening the management in this field with a view to promoting the development of its travel industry. On August 1, 2003, the Regulation for Shanghai Travel Industry (Draft) was officially submitted to the Standing Committee of the Municipal People¡¯s Congress for approval, which was a milestone in the legislation for tourism in Shanghai. As the Regulation includes provisions for liberalization of the tourist market and enhancement of regional cooperation, the acceleration of the internationalization of tourism in Shanghai has been made possible.

The liberalization of the tourist market in Shanghai was sped up in 2003. At the end of the year, star hotels in Shanghai numbered 338 with 53,621 rooms or suites in total. In 2003, Shanghai boasted of 36 hotels with foreign investment (foreign-invested hotel for short, not including the hotels entirely managed by overseas or international groups under prestigious brands), 17 international hotel groups that are managing or have contracted for managing the hotels in Shanghai (of which 10 are among the 15 worldwide tops), and 30 international brands in use. Besides, 37 hotels are managed under international brands or franchises (including those contracted and under construction). No substantive restrictions are imposed on the establishment of sole foreign-invested hotels. The person-time of overseas tourists visiting Shanghai from January to December 2003 totaled 2,447,000.

3. Retail and Wholesale Trades

Throughout 2003, the size of commercially utilized foreign investment in Shanghai witnessed a further expansion: currently there are 17 joint-venture retail enterprises including 6 newcomers in 2003, namely Homeworld ( a joint venture between OBI and Haier) and Quelle from Germany, Dia Food and Decatlon from France, E-Mart from the R.O.K. and WalMart from the U.S.A., among which Quelle and E-Mart have been transformed into the nationwide pilot enterprises. In the same year, Shanghai contracted 955 projects for retail, wholesale and catering enterprises involving foreign direct investment totaling US$431 million, up 120% and 59.6% respectively in terms of the number of projects and the volume of foreign funding over the same period previous year.

In order to meet the requirement of market competition, the retail and wholesale enterprises in Shanghai with domestic investment underwent great adjustment in both structure and scale. In April 2003, Yibai, Hualian, Youyi and Wuzi were reorganized into a new group, Bailian, with gross sales and total assets at RMB 79.8 billion and 33.5 billion respectively, thus being strong enough to compete with international commercial groups.

As a result of the reorganization or restructuring taking place during 2003 in more than 20 existing trade associations, the revamped guilds in retail and wholesale sectors are now playing a more active part in assisting government bodies in the regulation of commodity safety and market access, thereby enhancing self-discipline in their relevant sectors. The Chain Market Guild sponsored the hearings for the establishment of giant supermarkets that are either domestically or foreign funded, such as WalMart, Carrefour, Tabacco, etc., hence exerting positive influences on the planning, location, and healthy development of these supermarkets.

4. Legal Services

With fast opening of Chinese lawyering to the outside world in 2003, the representative offices of foreign law firms and their representatives are permitted to undertake the following activities excluding China¡¯s legal affairs: A. to provide their clients with the advice or information on relevant international treaties and practices as well as the legal matters of the countries and regions where their lawyers are certified; B. at the request of their clients or Chinese law firms, to handle legal matters in those countries or regions where their lawyers are certified; C. on behalf of their non-local clients, to entrust Chinese law firms with the legal affairs to be handled in China; D. to handle legal matters under long-term agency arrangements with Chinese law firms by entering into contracts; and E. to provide information regarding China¡¯s legal environment.

In view of the particularity of China¡¯s system governing justice and law practitioners, currently there are still many policy restrictions on legal services to be provided in China by overseas law firms, the main purposes of which are to prohibit the representative offices of foreign law firms and their representatives from A. handling local legal matters; B. employing Chinese law practitioners, C. establishing law firms to be jointly funded or co-operated by Chinese and overseas practitioners; and D. sharing office premises with domestic law firms.

In the case of legal service market access, special provisions are set forth in ¡°The Mainland-Hong Kong Closer Economic Partnership Arrangement (CEPA)¡±: A. 2 months each year is the minimum residency requirement for all the Hong Kong representatives working for the Mainland-based representative offices of Hong Kong law firms. B. Mainland law firms are allowed to employ Hong Kong law practitioners. C. The 15 Hong Kong lawyers who have already acquired Mainland lawyers¡¯ qualifications are allowed to intern and practice in the Mainland, handling non-litigation legal affairs. D. Hong Kong permanent residents with Chinese citizenship are allowed to sit for the uniform law examinations administered in the Mainland with a view to acquiring the professional qualifications or handling non-litigation legal matters in the law firms run in the Mainland. E. Hong Kong law firms (offices) that have set up representative offices in the Mainland are allowed to operate in association with Mainland law firms, except in the form of partnership. Hong Kong lawyers working under such arrangements are not allowed to handle matters governed by Mainland law.

In 2003, with the approval of the Ministry of Justice, 115 foreign law firms and 41 Hong Kong law firms set up their offices in the Mainland. Over half of the world top 50 law firms, both in terms of size and income, entered into China¡¯s legal service market. Among the 73 non-local law firms in Shanghai, 62 are from 13 foreign countries and 11 from Hong Kong.

5. Advertising

In 2003, the threshold for advertising market access was further lowered in Shanghai. First, the registered capital for a comprehensive advertising agency was lowered from RMB 1 million to 500,000; and second, the advertising agencies to be set up are no longer required to specially employ personnel with certificates for advertising examination and advertising practice.

Starting from December 11, 2003, advertising agencies with majority foreign ownership will be allowed and the specific proportion shall be jointly defined by The State Administration of Industry & Commerce and the Ministry of Commerce.

Furthermore, according to the relevant agreements between the Central Government and the government of Hong Kong special administrative region, from January 1, 2004, the advertising market in China¡¯s Mainland will be open to Hong Kong ahead of schedule, allowing Hong Kong entrepreneurs to set up wholly-owned advertising agencies in the Mainland.

6. Education

As one of the main forms of consumption abroad, the education for international students in Shanghai mounted on a higher tier in 2003. Altogether 22 colleges and universities in Shanghai admitted 13,310 international students, 8,983 on a long-term basis and 4,098 short-term, which exceeds the 10,000 mark for the first time and reaches a record annual growth rate of 43.2%. In addition, more than 11,000 boys and girls from abroad were at secondary and primary schools in Shanghai. The students are from 145 countries and regions, majoring in more than 140 specialties.

The number of foreign teaching professionals moving into Shanghai as natural persons is also on the rise. According to statistics, during the ten years from 1990 to 2000, 3,712 person-times of long-term foreign educational specialists and teachers were reported to work in the educational sector. And in 2000 alone, more than 850 long-term specialists and teachers and 1200 short-term specialists were recruited in Shanghai. With their assistance, 16 new academic disciplines were developed and 56 key disciplines strengthened. Throughout the academic year of 2002-2003, 1,827 overseas specialists and teachers were recruited by not only colleges and universities but also bilingual primary and secondary schools, high schools, educational institutions run by individuals or non-governmental organizations, Sino-foreign joint schools and international schools. The regime on the recruitment of overseas educational workers has been adapted to the changing environment. The Ministry of Education is to introduce The Measures Governing the Management of Overseas Teachers in order to further regulate the management of and services extended to overseas teachers, and to honor our nation¡¯s commitments made upon its WTO accession to liberalize the educational sector in China.

7. Telecommunication Services

As an agency exercising surveillance over the local telecommunication sector, the Shanghai Communication Administration strictly adheres to the rules and policies of the Central Government regarding the fulfillment of China¡¯s WTO commitments. In 2003, the said agency received applications from 4 overseas businesses for setting up joint ventures in the telecommunication sector, one of which has passed preliminary examination while the other three withdrew their proposals because of unconformity with the prerequisites.

According to the CEPA and its annexes, from October 1, 2003, service providers from Hong Kong are permitted to enter into joint ventures in the Mainland for supplying five value-added services in the telecommunication: internet data center service, storage and re-transmission service, central paging service, the service for internet connection and information service.

Box 2.1 China¡¯s Commitments to Liberalize the Trade in Goods (2003)

Areas WTO Rules and China¡¯s Commitments
Trading Rights China shall progressively liberalize the availability and scope of the right to trade, so that, within three years after accession, all enterprises in China shall have the right to trade in all goods throughout the customs territory of China; and the foreign enterprises that presently have limited right to export and import shall progressively enjoy the full right to trade.
Quota and Licensing In compliance with the WTO provisions, China shall proceed according to the schedule annexed to the Protocol on China¡¯s WTO Accession to eliminate all the non-tariff measures now applied to more than 400 products by January 1, 2005, not introduce, re-introduce or apply non-tariff measures that cannot be justified under the provisions of the WTO Agreement; abide by and implement the WTO Agreement on Import Licensing Procedures, phase out the Import Quota and Licensing Procedures, and progressively adjust and reduce the Export Quota and Licensing Procedures.
Subsidies and Countervailing Measures China shall eliminate all subsidy programs falling within the scope of the WTO Agreement on Subsidies and Countervailing Measures, and give timely notifications to other WTO members regarding any subsidy permitted by the Agreement.
Tariffs China shall further its tariff concession program.

Box 2.2 China¡¯s Commitments to Liberalize the Financial Sector (2003)

Foreign Banking: According to relevant WTO agreements, China shall progressively lift restrictions on foreign banks: to lift, upon accession to the WTO, the restrictions on the territories and clients involved in foreign banks¡¯ foreign currency business, and progressively eliminate the restriction on their Renminbi business; to liberalize the banking in Shenzhen, Shanghai, Dalian and Tianjin within one year after WTO accession, and in Guangzhou, Qingdao, Nanjing, and Wuhan within two years. The China Banking Regulatory Commission recently has agreed to extend the liberalization to include Jinan, Fuzhou, Chengdu and Chongqing from December 1, 2003 and, at the same time, allows foreign banks to deal in Renminbi business for Chinese enterprises. Within three years, China shall open Kunming, Zhuhai, Beijing and Xiamen; within five years, totally eliminate territory restrictions while allowing foreign banks to provide services to all Chinese clients and set up intercity business points by undergoing the same approval procedures as Chinese banks do. Also within five years, China shall eliminate all existing non-discretionary measures on the ownership, operation and forms of establishment of foreign banks, including the restrictions on the establishment of their branches and granting of licenses; allow foreign non-banking or non-financial institutions to provide credit for the purchase of automobiles.
Securities: Within three years after the WTO accession, that is, by the end of 2004 at the latest, the maximum proportion of foreign capital may be allowed to account for 49% in the case of a joint fund-management firm, and 1/3 in the case of a joint securities firm, which, in addition, is allowed to underwrite stocks A, B, and H, to underwrite and transact bonds and to promote funds.
Insurance: Before the end of 2004, the market for life assurance and insurance of other natures shall be completely liberalized, with all the restrictions against foreign insurance firms on territories and business eliminated. Meanwhile, pursuant to the CEPA, the Mainland shall further open its service sectors including insurance to Hong Kong starting from January 1, 2004.

Box 2.3 China¡¯s Commitments to Liberalize Tourist Market (2003)

In 2003, following its WTO commitments, China shall liberalize trade in services in the mode of commercial existence: the operation of wholly foreign-invested hotels (including apartment buildings) and restaurants, and the formation of joint venture travel agencies with majority foreign ownership, shall be permitted before the end of 2003 and January 1, 2003 respectively.

Box 2.4 China¡¯s Commitments to Liberalize Brokerage, Wholesale and Retail (2003)

Within two years after its WTO accession, China shall, in brokerage and wholesale services, allow foreign service providers to enjoy majority ownership of an enterprise and eliminate the restrictions on the number and territory of cooperative businesses. In the case of retail service, China shall permit within two years majority foreign ownership of an enterprise, and liberalize the retail market in all its provincial capitals, plus Chongqing and Ningbo.

Box 2.5 China¡¯s Commitments to Liberalize Legal Services (2003)

China¡¯s efforts to honor its commitments made in legal services during 2002 and 2003 focus on:
1. The further liberalization of the restrictions on market access:
Within one year after its WTO accession, China eliminated the following three restrictions: a) the restriction on the total number of offices to be set up in China by foreign law firms; b) the restriction on the cities in which the said offices may be located, and C) the restriction on the maximum number of offices that a single foreign law firm may have in China (in fact, one office only). Besides, China has liberalized the requirement for the professional qualifications of overseas law practitioners working in the said office.
2. The improvement in national treatment:
The above-said offices have been allowed to continue their profit-making activities and to enter into contract for agency arrangements with Chinese law firms. However, China may currently retain those restrictions on the matters such as the establishment of law firms to be jointly funded or co-operated by Chinese and overseas practitioners, recruitment of Chinese law practitioners by overseas law firms, provision of legal services for matters governed by China¡¯s law, and any other practices that might conflict with China¡¯s existing judicial system.

Box 2.6 China¡¯s Commitments to Liberalize the Advertising Market (2003)

China allows overseas service providers to set up advertising agencies in China, which, however, shall be in the form of joint ventures only and hold no more than 49% in foreign capital. Within two years after China¡¯s accession, majority foreign interest in an advertising agency and, within four years, the establishment of wholly foreign-invested advertising agency shall be permitted.

Box 2.7 Shanghai¡¯s Liberalization of Trading Rights
Starting from July 16, 2001, Shanghai embarked on a program in Pudong New Area to reform the foreign trading rights. Under the program, the applications for the right to operate in the foreign trade-related distribution filed by any enterprises registered in the area (not including foreign-invested enterprises) shall be subject to a ¡°Verification-Approval¡± System, while those for the right to handle import and export put forward by manufacturers and scientific research institutes shall be subject to a ¡°Registration¡± System. Since March 2002, however, the requirements for foreign trading rights have been further liberalized in Pudong. More specifically, the requirement for the minimum registration period of one year has been removed, the registered capital required for trading enterprises (not including foreign-invested enterprises) applying for the right to operate in foreign trade-related distribution has been reduced from RMB 3 million to 1 million, and the registered capital required for manufacturing enterprises and research institutes applying for the right to handle import and export reduced from RMB 3 million to 500,000. Meanwhile, the approval procedures have been further streamlined and the time for the procedures shortened due to the e-administration, through which applications may be submitted online. After submitting the required documents, the qualified enterprise may obtain The Certificate of Import and Export Enterprise of the People¡¯s Republic of China within five working days. The liberalization of foreign trading rights has had tremendous effects. According to statistics, the domestic trading enterprises of all types in Shanghai had increased from 1443 in 2001 to 6867 by the end of October 2003, among which private trading enterprises rose from 233 to 4627, accounting for 67.38% of all the trading firms in Shanghai.

Case 2.1 The First Sino-Foreign Travel Agency Set Up in Shanghai

According to China¡¯s commitments, Shanghai has further liberalized its tourist market, allowing Sino-foreign business travel agencies to be set up. On September 3, 2003, the Jinjiang Group International, the biggest travel group in China, signed the Letter of Intent for cooperation with Business Travel International BV (BTI), a prestigious business worldwide travel corporation. The two parties have become partners in strategic cooperation by establishing the first Sino-foreign travel agency in Shanghai, Shanghai Jinjiang International-BTI Business Travel Co., Ltd., which officially started its business on January 1, 2004.

Case 2.2 A Successful Example of Educational Cooperation: China Europe International Business School (CEIBS).
In October 2003, the Chinese Government pointed out in its China's EU Policy Paper that ¡°work should be done to make a success of the China Europe International Business School (CEIBS) and bring forth more top professionals.¡± It is the first time that the Chinese government has ever put emphasis on the cooperation in a specific educational program in such a formal diplomatic document. It shows its strong determination to promote cooperation and exchange with the EU in the educational sector, which will undoubtedly facilitate CEIBS¡¯s efforts in view of becoming a world leading business school in the near future.
With its EMBA program, according to the ranking by the Financial Times, the Shanghai-based CEIBS has again entered the World Top 50 list.

Case 2.3 The First Sino-foreign Telecommunication Enterprise: Shanghai Symphony Telecom Co. Ltd.

December 2000, one year before China¡¯s WTO accession, Shanghai Symphony Telecom Co. Ltd., announced its establishment. This is the first Sino-foreign telecommunication operating enterprise with a total investment of USD25 million contributed by Shanghai Telecom Corporation (60% share holding), AT&T Corporation of the U.S. (25% share holding) and Shanghai Information Investment Co. Ltd. (15% share holding).

The company¡¯s value-added services had been decided through negotiations before China¡¯s WTO accession and were approved by the China¡¯s Central Government. Therefore, though some services are beyond China¡¯s related commitments made on WTO accession, the company is allowed to continue the services without being restricted. This has reflected the pragmatism and integrity of the Chinese government.

On the other hand, however, any new application the said company may possibly wish to put forward for launching a new product or extending its business to a new territory shall be subject to normal approval procedures of the Telecommunication Administration. The Chinese government will constantly act in strict conformity with the principle of MFN treatment under the WTO Agreement.