China Premier Li Keqiang presided over a State Council executive meeting on February 14, 2016 in which it was decided that China would commence a new pilot program (the “Pilot Program”) in ten cities and provinces along with five new districts to provide more flexible rules to boost service trade. On February 22, 2016, the State Council issued the Official Reply of the State Council on Approving the Commencement of Service Trade Pilot Program (Guohan [2016] No. 40) (国务院关于同意开展服务贸易创新发展试点的批复) which disclosed more details about this Pilot Program.

The ten cities and provinces are Tianjin, Shanghai, Hainan Province, Shenzhen, Hangzhou, Wuhan, Guangzhou, Chengdu, Suzhou and Weihai. The five new areas are Harbin New District (Harbin, Heilongjiang Province), Jiangbei New District (Nanjing, Jiangsu Province), Liangjiang New District (Chongqing), Gui’an New District (Guiyang and Anshun, Guizhou Province) and Xixian New District (Xi’an and Xianyang, Shanxi Province). The term of the Pilot Program is two years.

The main purposes of this Pilot Program are to further open the domestic service trade market to foreign companies and encourage domestic service suppliers to boost service exportation. The State Council also confirmed the following guidelines to facilitate the Pilot Program:

1. Further open up the domestic service market with respect to financing, education, culture, medical treatment, child care and the elderly care, architectural design, accounting and auditing, and trade logistics. Support domestic service providers to approach the global service market with respect to tourism, research, development and design, accounting, assets appraisal, credit rating, legal consulting and trade logistics.

2. Explore new development patterns of the service market. Create online trade platforms based on new technologies related to big data, internet of things, mobile internet and cloud computing. Undertake offshore outsourcing services and enhance cross-border service delivery.

3. Simplify customs clearance procedures by adopting new supervision rules in connection with cross-border e-commerce and supply chain management. Make it more convenient for foreign professionals to work within the territory of China.

4. Contribute fiscal funds and encourage social funds to invest in the service trade. Set up specific service trade investment funds to support the service companies. Encourage financial institutions to provide financing opportunities to service companies by developing more financial products and services.

In order to support the guidelines mentioned above, the State Council further approved the issuance of relevant regulations or policies in the pilot areas in terms of the following matters:

1. Tax reduction. The service companies with advanced technologies which are identified by relevant authorities will be granted a tax level decreasing from 25% to 15%. Currently, the State Council has not published any specific requirements or thresholds for such service companies with advanced technologies;

2. Settlement and financing. The State Council will support the service companies and banks to use Renminbi as settlement currency to avoid exchange risks. The financial institutions will also be encouraged to develop their service to service providers, such as financing export credit insurance, overseas mergers and acquisitions, and financial leasing; and

3. Financial subsidies. Financial subsidies will be granted to the service providers who import service with respect to research and development, design, energy conservation and environment protection; all of which are urgently needed in the domestic market.

According to the data disclosed by the PRC Ministry of Commerce, the total service export-import volume was 71.3 billion US dollars in 2015, which amounted to 18% of the total export-import volume. Even though there was a significant increase in the 2015 service volume compared to 2014, it still needs to grow. Since global economic growth is slowing down and appears to cool even further, this Pilot Program is a valuable attempt for the Chinese government to further open up the domestic service market, readjust the industrial structure and improve its international competitiveness.