Foreigners and overseas Chinese travelling or working in China have long been aware of the two-tier pricing structure and the restrictions imposed on foreign investment companies operating in the domestic market. Over the past few years there have been changes ? for example, train ticket prices for foreigners and locals have been brought in line and limited yuan business opened to a few foreign banks.
As part of China's ongoing efforts to enter the World Trade Organisation, Shenzhen introduced national treatment measures at the beginning of this year to experiment further with the levelling of the playing field for foreign and domestic enterprises.
The main thrust of the new measures brought in by the Shenzhen government is the further opening of the domestic market to certain foreign investment enterprises' and the standardisation of charges such as management fees on property, medical fees and electricity charges for foreigners at the same level as those for locals.
Priority sectors
Couched in vague terms, the notice specifies that newly established foreign investment enterprises manufacturing products not restricted by quotas or licenses can decide by themselves on the ratio of products sold in China to those exported. In addition, foreign enterprises deemed to be 'technologically advanced' or those investing in agricultural projects for non-staple foods can sell all of their produce on the domestic market. Approval from the Shenzhen Municipal Foreign Investment Office and Administration for Industry and Commerce is a pre-requisite.
So what does all this mean? A government spokesman clarified that computers and bio-technology were the key areas where Shenzhen was aiming to attract foreign investment. Most of the companies approved so far this year to sell a high percentage of their products on the domestic market are computer companies. Food manufacturing, textiles, power, chemicals, pharmaceuticals and building materials are also encouraged.
Although the domestic market is by no means free for all, Mr Valiant Cheung, manager of KPMG Peat Marwick in Shenzhen called these initial measures "a welcoming move and far more realistic". He pointed out that the normal 70 per cent export requirement for foreign manufacturers had been difficult to comply with, necessitating some flexibility.
Negotiations needed
But approval is not necessarily easy. The Science and Technology Bureau has stringent criteria for approving 'technologically advanced enterprises' based on the product, technology and process as a spokesman explained: "We negotiate with foreign enterprises over the ratio of goods to be sold domestically based on the technological level of the enterprise." Thus, foreign enterprises wishing to sell 100 per cent of their goods in China should have top-notch technology and good negotiating techniques.
In theory, no negotiation should be required over the fees and charges selected for convergence with the local standards. As Shenzhen is nestled close to high-priced Hong Kong, the fees paid by foreign companies in Shenzhen have not seemed too outrageous. A surprising number of overseas staff stationed in Shenzhen actually commute every day from Hong Kong. In Shenzhen Development Centre Building, one of the smarter office complexes in Shenzhen housing such foreign companies as ING Bank, Heineken, Sears and ABN Amro, the standardisation of local and foreign management fees has no significance. "We, have been paying the same rate as locals for the three years since we moved in here," says Mr Frank Lam, General Manager of ING Bank Shenzhen Branch. "China is becoming more market-driven."
Everybody pays the same for quality service. As for management fees on residential property, Lam comments: "We had problems getting receipts from tax-evading landlords so we have put all our overseas staff in hotels."
However, there are plenty who have opted for local accommodation. Mrs Li, a Hong Kong expatriate, had been paying HK$3 per square metre a month as management fee compared with her neighbours' rate of Yn2.5. "This is a great thing," she says. "Although there isn't much difference in terms of money, I feel different. Now that national treatment has been implemented, I feel happy and more united with the local people."
Foreign residents will also benefit significantly from the dismantling of the barrier at Shenzhen's scenic spots. Chinese Folk Village, for example, has until now charged more than double for non-locals: Yn111 for foreigners compared with the domestic price of Yn49.
If the State Planning Commission's latest dictum is implemented efficiently, the difference in prices will be erased at tourist sites throughout China by the end of this year. In theory, foreigners whether residents or not will be treated equally at the gates of the Terracotta Warriors, the Forbidden City and other attractions. Prices will be adjusted appropriately to avoid big dips in revenue at the sites.
Gradual implementation
Inevitably the situation will not change so quickly. Shenzhen government's national treatment measures are for 'gradual implementation'. Since January 1 when the notice was implemented, there has been no sign of changes to the medical fees charged to foreign residents in Shenzhen. "We haven't yet received orders from the Public Health Bureau," explains a hospital official. "National treatment is an aim."
Although the initial measures are a harbinger for further change, there is no timetable for further national treatment in Shenzhen or the rest of the country. Only two other special economic zones, Zhuhai and Xiamen, are following in Shenzhen's footsteps with similar measures.
In the Shenzhen Government's Working Report for 1996, it outlined its aims for gradual implementation of national treatment for foreign enterprises: breakthroughs for the entry of foreign companies in wholesale, retail and exhibition business, the finance and insurance industry as well as experiments in the establishment of joint venture travel agencies, freight agencies and relaxation of controls of overseas intermediary service institutions in Shenzhen SEZ. Changes in these areas are bound to excite more interest among foreign investors.
