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TMT Perspectives Insight & Commentary on Business, Legal and Policy Developments Affecting the Telecom, Media, and Technology Sectors

China’s Third Plenum: Reforms Affecting TMT

Posted in Legal Developments, Technology

On November 15, 2013, the Chinese Government released “A Decision on Major Issues Concerning Comprehensive and Deepening Reform” (Decision), a reform manifesto drafted at the Third Plenum of the 18th Party Congress held during November 9-12. Each Congress holds a series of Plenums and the Third Plenum of a new Congress historically has been associated with significant economic reforms when it coincides with the start of a new, ten-year presidential term. The Decision sets the agenda for the 10-year term of President Xi Jinping.

So, we reviewed the Decision to see what the agenda for change says about technology, media and telecommunications business in China. We see a couple of important developments that could mean significant opportunities for TMT-related companies, among others.

Unleashing the Backlog of Initial Public Offerings

The Third Major Issue discussed at the Plenum was how to accelerate the improvement of the modern market system. On this issue, we find Decision Point 12 which deals with improvements to the financial sector. One of its goals is to improve the multi-level capital market system and promote reform of the stock issue registration system.

Some have speculated that it would take some time before the Decision would begin to be implemented. However, we saw action on this item this week.

The Government announced that it would lift the freeze on initial public offerings (IPOs) that has been in effect for over a year. It is estimated that there is a pipeline of as many as 700 IPOs waiting for approval. Undoubtedly, many of these are in the TMT area. In our next post on the results of the Third Plenum, we plan to discuss the new IPOs and how one invests in them, what information does one rely upon and what liquidity can we expect in the post-IPO market for the shares. These are questions for which we hope to find some answers.

The Shanghai Free Trade Zone

The Seventh Major Issue discussed at the Plenum was how to build an open economic system in a situation of economic globalization. On this issue, we find Decision Point 24, liberalization of investment access, including the Shanghai Free Trade test area.

Government representatives who have discussed the Shanghai Free Trade zone have noted that there are many legal requirements that apply to doing business in China. These include labor laws, permitting requirements, import/export rules, taxes and fees, among others. Within a free trade zone, the Government can provide immediate relief from many of these requirements and thereby expedite investment and trade within the global economy.

Perhaps more importantly for China, the free trade zone provides “new ways to accumulate new experience.” That may be one of the reasons that the free trade zone is referred to as “test area.” Business methods and associated legal regimes utilized elsewhere in the global economy can be tested and experimented with in the Shanghai Free Trade zone. Ideas and methods that prove successful could then be expanded more broadly. In a future post, we hope to discuss some of the opportunities presented by the Shanghai Free Trade zone.