Issues in Shanghai's Regional HQs Legislation

By Winston Zhao and Lucy Li, Jones Day, Shanghai

Becoming a WTO member is not only about reducing tariffs and import quotas _ it is also about China becoming more competitive in the global market. And competition is indeed what is driving many local governments within China to try and distinguish their cities and attract foreign investment. Shanghai in particular has been positioning itself not just within China but also regionally as a business centre and hub for multinationals' regional headquarters. Indeed, with theEncouraging the Establishment of Regional Headquarters by Foreign Multinational Corporations Tentative Provisions (鼓励外国跨国公司设立地区总部的暂行规定)issued by the Shanghai municipal government on July 20 2002 (the Tentative Provisions), the groundwork has been laid for multinationals to establish their regional headquarters in Shanghai in the form of either a management company or a holding company, both with seemingly the same business scope.

But now that just over a year has elapsed since the promulgation of these measures and with the Shanghai government having approved the first companies under the Tentative Provisions, the practical benefits and pitfalls of the new regulations are clearer.