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published on 11 May 2022 | reading time approx. 3 minutes
After China had been able to control the incidence of infection in the country relatively well for more than 2 years by consistently pursuing its zero-covid policy, this approach, which focuses on early detection, contact tracing, isolation and treatment, is now reaching its limits with the Omicron variant. Shanghai, in particular, with its approximately 26 million inhabitants, is currently experiencing a wave of new infections that is crippling the entire city, where the uncompromising measures such as lockdown, centralized isolation, etc. are proving to be largely unsuitable. The effects of this are felt not only by the city's residents but also by countless businesses. Here, zero-covid policy means heavily hindered production, disrupted supply chains, loss of staff and other obstacles to business operations.
As it is currently still difficult to foresee an improvement in the situation, the Shanghai municipal government is trying to support the economy with various emergency measures. The local offices of the Ministry of Finance and the State Administration of Taxation will publish implementing regulations and interpretations to specify the measures issued by the city government. Necessary official applications and procedures are to be replaced by online procedures due to the restricted freedom of movement. In principle, missed official deadlines should not have a negative impact on the companies concerned. The following measures have already been released:
These measures, which are limited until 31 December 2022, initially aim to provide targeted support and incentives for technology companies whose products and services are helpful in combating the pandemic. In addition to medicines and medical products, this also includes services from the field of "digital healthcare", such as big data, AI or cloud-based solutions. Small and medium-sized enterprises (SMEs) can apply for government support for research and development projects for epidemic prevention and control. The maximum amount of so-called "science and technology innovation vouchers" for SMEs will be raised to RMB 500,000. The vouchers can be applied for by (qualified) innovative enterprises to purchase services from professional institutions to reduce research and development costs. In addition, SMEs focusing on technology will be able to apply a super deduction of 200% of actual research and development (R&D) costs incurred, in line with national measures from 1 January 2022. Other financial and tax incentives include corporate tax exemption for recognized high-tech enterprises and technologically advanced service enterprises, VAT exemption for technology development, and VAT and corporate tax exemption for technology transfers.
In many cases, companies are unable to meet their contractual and legal obligations due to the numerous restrictions, which can have a detrimental effect on their credit rating. Therefore, the Shanghai municipal government has adopted measures for affected debtors to repair the resulting negative credit rating. These include, among other things, accelerated and simplified online procedures, especially for systemically important industries.
The local departments of the Financial Supervisory Commission, the National Bank of China, the Banking and Insurance Authority and the Capital Market Regulatory Commission, as well as numerous local industrial administrations, have issued a total of 17 financial support measures in 5 areas. SMEs in particular are to benefit from the measures aimed at facilitating financing. For example, interest rates are to be reduced for particularly hard-hit companies, repayment periods and modalities for loans are to be adjusted and, in general, access to new loans is to be noticeably facilitated for affected SMEs. The main measures can be summarized as follows: 1. Increased support through funding guarantees
2. Interest subsidies for economically severely affected enterprises
3. Promotion through inclusive financing
4. Fee reductions by financial institutions and risk hedging by insurance companies
5. Support to accelerate the recovery of depressed sectors
Furthermore, micro and small enterprises as well as sole traders who rent their production and office space from government entities can be exempted from rent for up to three months in 2022. Businesses located in an administrative area classified as a high-risk area or whose business is seriously affected by pandemic response measures can be exempted from rent for a further three months, i.e. a total of six months in 2022. Large office and commercial buildings, shopping malls and other landlords are encouraged to offer appropriate rent discounts and exemptions to their tenants on an individual basis. The relevant implementing regulations for state-owned enterprises on rent reduction and waiver were published on 1 April 2022. Other national measures include subsidizing at least 50% of the cost of mandatory, regular PRC testing for employees of retail and catering establishments, with the City of Shanghai providing full reimbursement of testing costs. Financial support for the above-mentioned enterprises is also provided for the implementation of general pandemic prevention, response and control measures. In addition, taxpayers engaged in the catering, retail, tourism and transport industries are granted tax exemption, tax reduction and deferral of certain social security contributions. In addition, the comprehensive national tax relief to reduce the economic impact of the Corona pandemic applies to Shanghai.
Together with the China Export-Import Bank, the Shanghai Local Trade Commission has published a notice on supporting foreign trade enterprises during the ongoing pandemic. According to this notice, loans and other financial support services in particular are also intended to help enterprises (especially SMEs) cope with the pandemic-related restrictions and hurdles. To this end, the Export-Import Bank provides foreign trade and import enterprises with a total of 30 and 20 billion RMB specific credit line, respectively. There is also the possibility for certain enterprises to extend loan periods and apply for emergency loans.
A 10-point package of measures for export credit insurance is intended to further stabilize foreign trade. The focus here is on increasing the amount of credit to be granted, extending credit periods and providing increased support for particularly affected SMEs. In addition, the Chinese Ministry of Commerce (MOFCOM) announced at a press conference on 15 April 2022 the establishment of a special working group to specifically address the current problems of foreign-invested enterprises (in particular, resumption of regular operations, application for work permits and residence permits or logistics issues). Further measures to support the economy also exist at the national level and at the level of the Shanghai city districts. An overview of the relevant measures in Chinese can be found here.
Joschka Barde
Associate Partner
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