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President Xi Commits to Tackling IP and Supporting Cross-border E-Commerce

There was never any doubt that the 1st China International Import Expo would be a huge event, with Shanghai sparing no effort and expense to prepare the city - including the closing of schools and government offices during the first two days. But what was highly anticipated, was the keynote speech of Chinese president Xi Jinping.

In his speech, President Xi committed to grow import of goods to USD 30 trillion over the next 15 years, and import of services to USD 10 trillion. But more important than the numbers were his commitments to tackle the challenges that foreign companies face to protect their intellectual property rights in China; the promise to further open certain sectors of the Chinese economy to foreign investment; reducing tariffs and “institutional costs” of imports; and perhaps most surprisingly, stepping up cross-border-commerce.

IP Protection

Despite great efforts over the past decades, counterfeit remains a huge challenge in China for domestic and international companies alike. The general consensus is that the problem is not the legal framework – which is extensive and modeled on international standards; but rather, the difficulty of enforcing IP rights in such a vast country where governments and courts have a lot of other challenges to deal with as well.

President Xi’s message, not only to the world but also and especially to his own bureaucracy, is that IP is important and IP protection must continue to improve. In particular, he announced a “punitive compensation system to significantly raise the cost for offenders”. This means the emphasis may be not only be on improved enforcement, but also changes to the law which could have an even greater impact long-term.

Facilitating Imports and Cross-border E-Commerce

President Xi also promised to “take further steps to lower tariffs, facilitate customs clearance, reduce institutional costs in import, and step up cross-border e-commerce and other new forms and models of business”. The commitment with the most direct significance may be the one on cross-border e-commerce.

The cross-border e-commerce (CBEC) model, under which foreign companies can directly sell to Chinese consumers and can thereby avoid certain taxes, standards and licensing restrictions (e.g. the obligation of animal testing for cosmetics), has been under pressure. Regulations have been issued to reduce the scope of goods that can be sold in China through CBEC, and subject such goods to customs clearance and quarantine requirements as well as additional taxation. Some of these requirements were then suspended, the latest till 31 December 2018, but if fully implemented could mean a considerable blow to the CBEC model. President Xi’s comment suggest however that the Chinese government may not let it come to that.

Foreign Investment

China continues to restrict market access to foreign investment in certain industries, which are listed in the “negative list”. President Xi pointed to some recent liberalizations including the acceleration of opening in certain sectors including telecommunications, education, medical service and culture. More importantly, he announced that foreign equity caps will be raised in the education and medical service sectors, two sectors that are expected to enjoy exponential growth over the coming years.

The official translation of President Xi’s speech is available at http://www.xinhuanet.com/english/2018-11/05/c_137583815.htm.