China Regulatory Brief: Financial Reform in the Shanghai FTZ, Upcoming 13th Five-Year Plan

October 26, 2015 Posted by China Briefing Reading Time: 4 minutes

Shanghai FTZ Allows RMB Convertibility under the Capital Account

On October 23, Lu Lei, Director of the People’s Bank of China Research Bureau, announced that the Shanghai Free Trade Zone (FTZ) would launch a new round of financial reform including a trial program of RMB convertibility under the capital account. The program aims at deepening and opening up the financial services sector and is expected to be expanded nationwide in the coming years. The full convertibility of the RMB capital account, which allows RMB to be exchanged for foreign currency without any limits on the amount, will grant greater flexibility to Chinese investment overseas. China has been making effort towards capital account liberalization during recent years and is now looking to achieve its goal of full RMB convertibility under the capital account.

China Launches 13 percent VAT Rate on Vegetable Washing Machine

On October 15, the State Administration of Taxation released new value-added tax (VAT) rates applicable to the vegetable washing machine and animal body decomposition machine (SAT Announcement [2015] No.72), which will take effect on December 1, 2015. The tax bureau explicitly clarified that vegetable washing machines and animal body decomposition machines should be classified as agricultural machinery and are subject to a 13 percent VAT rate.

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Tianjin Lowers Maternity Insurance paid by Employers

The Tianjin Municipal Human Resources and Social Security (HRSS) Bureau has recently released a circular to reduce the percentage of maternity insurance contributed by companies for their employees in Tianjin city. Starting October 1, 2015, the maternity insurance paid by employers is reduced from 0.8 percent to 0.5 percent of the employee’s monthly basic salary. In China, both the employer and employee need to contribute to the employee’s social insurance, but at different percentages. Generally, there are five distinct categories of the social security system that employers should be aware of: 1) Pension, 2) Medical Insurance, 3) Unemployment Insurance, 4) Maternity Insurance, and 5) Occupational Injury Insurance.

China’s 13th Five-Year Plan (2016-2020) Underway

As the fifth plenum of the 18^th Central Committee drafting the 13^th Five Year Plan is underway, government sources have made public some of the key outlines for the plan.

It aims to transform economic development, moving away from an economy that relies solely on exports and investment, to one driven by consumption, as well as from one that relies on manufacturing to more agricultural production. They plan for this plan to be fueled by innovative advancements in science and technology, and significant advancement in farming technology.

The government aims to build a ‘middle class society’ by 2020, improving people’s living standards, especially that of the 70 million rural poor. This will be realized by improvement of infrastructure, providing people in less developed areas access to basic public services. Plans also exist to deal with issues that the people feel most strongly about, including income, employment, education, food safety, social security and health care.

They wish to promote advancements in information technology and computer technology in order to boost service industries and promote innovative business models. Plans are also laid out for development in ecological and environmental protection, following complaints about pollution and environmental degradation.

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