In 2021, the People’s Republic of China (PRC) was the number two global Foreign Direct Investment (FDI) destination, behind the United States. As the world’s second-largest economy, with a large consumer base and integrated supply chains, China’s economic recovery following COVID-19 reassured investors and contributed to high FDI and portfolio investments. The PRC implemented major legislation in 2021, including the Data Security Law in September and the Personal Information Protection Law in November.
China remains a relatively restrictive investment environment for foreign investors due to restrictions in key sectors and regulatory uncertainties. Obstacles include ownership caps and requirements to form joint venture (JV) partnerships with local firms, industrial policies to develop indigenous capacity or technological self-sufficiency, and pressures to transfer technology as a prerequisite to gaining market access. New data and financial rules announced in 2021 also created significant uncertainty surrounding the financial regulatory environment. The PRC’s pandemic-related visa and travel restrictions significantly affected foreign businesses operations, increasing labor and input costs. An assertive Chinese Communist Party (CCP) and emphasis on national companies and self-reliance has heightened foreign investors’ concerns about the pace of economic reforms.
Key developments in 2021 included:
The Rules for Security Reviews on Foreign Investments came into effect January 18, expanding PRC vetting of foreign investment that may affect national security.
The National People’s Congress (NPC) adopted the Anti-Foreign Sanctions Law on June 10.
The Cyberspace Administration of China (CAC) issued draft revisions to its Cybersecurity Review Measures to broaden PRC approval authority over PRC companies’ overseas listings on July 10.
China formally applied to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) on September 16.
On November 1, the Personal Information Protection Law (PIPL) went into effect and China formally applied to join the Digital Economy Partnership Agreement (DEPA).
On December 23, President Biden signed the Uyghur Forced Labor Prevention Act. The law prohibits importing goods into the United States that are mined, produced, or manufactured wholly or in part with forced labor in the PRC, especially from Xinjiang.
On December 27, the National Reform and Development Commission (NDRC) and the Ministry of Commerce (MOFCOM) updated its foreign FDI investment “negative lists.”
While PRC pronouncements of greater market access and fair treatment of foreign investment are welcome, details and effective implementation are needed to ensure equitable treatment.
1. Openness To, and Restrictions Upon, Foreign Investment
FDI has played an essential role in China’s economic development. Though the PRC remains a relatively restrictive environment for foreign investors, PRC government officials tout openness to FDI, promising market access expansion and non-discriminatory, “national treatment” for foreign enterprises through improvements to the business environment. They also have made efforts to strengthen China’s regulatory framework to enhance market-based competition.
MOFCOM reported FDI flows grew by about 15 percent year-on-year, reaching USD 173 billion, however, foreign businesses continue to express concerns over China’s pandemic restrictions. In 2021, U.S. businesses’ concerns with China’s COVID-19 restrictive travel restrictions were at the top of the agenda, along with concerns over PRC’s excessive cyber security and data-related requirements, preferential treatment for domestic companies – including state-owned enterprises – under various industrial policies, preference for domestic technologies and products in the procurement process, an opaque regulatory system, and inconsistent application of laws protecting intellectual property rights (IPR). U.S.-China geopolitical tensions were also cited as a significant concern. See the following:
China’s International Investment Promotion Agency (CIPA), under MOFCOM, oversees attracting foreign investment and promoting China’s overseas investment. Duties include implementing overseas investment policy; guiding domestic sub-national and international investment promotion agencies; promoting investment in industrial parks at the national, subnational, and cross-border level; organizing trainings in China and abroad for overseas investment projects; and, engaging international and multilateral economic organizations, foreign investment promotion agencies, chambers of commerce, and business associations. The agency has offices worldwide, including CIPA Europe in Hungary, CIPA Germany, and a representative office in the Hague to promote investment in the Benelux area. CIPA maintains an “Invest in China” website which lists laws, regulations, and rules relevant to foreign investors. The China Association of Enterprises with Foreign Investments (CAEFI) is a non-profit organization overseen by MOFCOM. The association and corresponding provincial institutions have hotlines to receive foreign investor complaints.
Entry into China’s market is regulated by the country’s “negative lists,” which identify the sectors in which foreign investment is restricted or prohibited, and a catalogue for encouraged foreign investment, which identifies the sectors and locations (often less developed regions) in which the government encourages investment.
In restricted industries, foreign investors face equity caps or JV requirements to ensure control by a PRC national and enterprise. Due to these requirements, foreign investors that wish to participate in China’s market must enter partnerships, which sometimes require transfer of technology. However, even in “open” sectors, a variety of factors, including ability to access local government officials and preferences, enhanced ability to impact local rules and standards, perceptions of better understanding of the PRC market, and access to procurement opportunities, led many foreign companies to rely on the JV structure to operate in the PRC market.
Below are a few examples of industries where investment restrictions apply:
Preschool to higher education institutes require a PRC partner with a dominant role.
Establishment of clinical trials for new drugs require a PRC partner who holds the IPR tied to data drawn from the clinical research.
Examples of foreign investment sectors requiring PRC majority stake include:
The 2021 negative lists made minor modifications to some industries, reducing the number of restrictions and prohibitions from 33 to 31 in the nationwide negative list, and from 30 to 27 in China’s pilot FTZs. Notable changes included openings in the automotive and satellite television broadcasting manufacturing sectors. Sectors that remain closed to foreign investment include rare earths, film production and distribution, and tobacco products. However, the government continues to constrain foreign investors in a myriad of ways beyond caps on ownerships. For instance, in the pharmaceutical sector, while JV requirements were eliminated in the 1990s, foreign companies must partner with local PRC institutions for clinical trials. Other requirements that place undue burden on foreign investors include but are not limited to: applying higher standards for quality-related testing, prohibitions on foreign parties in JVs conducting certain business activities, challenges in obtaining licenses and permits, mandatory intellectual property sharing related to certain biological material, and other implicit and explicit downstream regulatory approval barriers.
The negative list regulating pilot FTZ zones will lift all barriers to foreign investment in all manufacturing sectors, widen foreign investor access to some service sectors, and allow foreign investment into the radio and TV-based market research sector. For the market research sector, caveats include a 33 percent foreign investor ownership cap and PRC citizenship requirements for legal representatives. While U.S. businesses welcomed market openings, foreign investors remained underwhelmed by the PRC’s lack of ambition and refusal to provide more significant liberalization. Foreign investors noted the automotive sector openings were inconsequential since the more lucrative electric vehicle (EV) sector was opened to foreign investors in 2018, whereas the conventional auto sector is saturated. Foreign investors cited this was in line with the government announcing liberalization mainly in industries that domestic PRC companies already dominate.
In addition to the PRC’s system for managing foreign investments, MOFCOM and NDRC also maintain a system for managing which segments of the economy are open to non-state-owned investors. The most recent Market Access Negative List was issued on December 10, 2020.
The Measures for Security Reviews on Foreign Investments came into effect January 18, 2021, revising the PRC’s framework for vetting foreign investments that could affect national security. The NDRC and the Ministry of Commerce will administer the new measures which establish a mechanism for reviewing investment activities across a range of sectors perceived to implicate PRC national security, including agriculture, energy and resources, cultural products, and more.
China is not a member of the Organization for Economic Co-Operation and Development (OECD), but the OECD Council established a country program of dialogue and co-operation with China in October 1995. The OECD completed its most recent investment policy review for China in 2022.
China’s 2001 accession to the World Trade Organization (WTO) boosted its economic growth and advanced its legal and governmental reforms. The WTO completed its most recent trade policy review for China in 2021, highlighting FDI grew at a slower pace than in previous periods but remains a major driver of global growth and a key market for multinational companies.
Created in 2018, the State Administration for Market Regulation (SAMR) is responsible for business registration processes. Under SAMR’s registration system, parties are required to report when they (1) establish a Foreign Invested Enterprise (FIE); (2) establish a representative office in China; (3) acquire stocks, shares, assets or other similar equity of a domestic China-based company; (4) re-invest and establish subsidiaries in China; and (5) invest in new projects. Foreign companies still report challenges setting up a business relative to their PRC competitors. Many companies offer consulting, legal, and accounting services for establishing operations in China. Investors should review their options carefully with an experienced advisor before investing.
Since 2001, China has pursued a “going-out” investment policy. At first, the PRC encouraged SOEs to invest overseas, but in recent years, China’s overseas investments have diversified with both state and private enterprises investing in nearly all industries and economic sectors. China remains a major global investor and in 2021, total outbound direct investment (ODI) increased for the first time in four years to reach $153.7 billion, a 12 percent increase year-on-year, according to the 2020 Statistical Bulletin of China’s Outward Foreign Direct Investment.
China’s government created “encouraged,” “restricted,” and “prohibited” outbound investment categories to suppress significant capital outflow pressure in 2016 and to guide PRC investors to more “strategic sectors.” The Sensitive Industrial-Specified Catalogue of 2018 further restricted outbound investment in sectors like property, cinemas, sports teams, and non-entity investment platforms and encouraged outbound investment in sectors that supported PRC national objectives by acquiring advanced manufacturing and high-tech assets. PRC firms involved in sectors cited as priorities in the Strategic Emerging Industries, New Infrastructure Initiative, and MIC 2025 often receive preferential government financing and subsidies for outbound investment.
In 2006, the PRC established the Qualified (QDII) program to channel domestic funds into offshore assets through financial institutions. While the quota tied to this program has fluctuated over the years based on capital flight concerns, in 2021 the State Administration of Foreign Exchange (SAFE) approved new quotas for 17 institutions under the program to allow a potential $147.3 billion in outbound investment.
In 2013, the PRC government established a pilot program allowing global asset management companies more opportunities to raise RMB-denominated funds from high net-worth PRC-based individuals and institutional investors to invest overseas. These programs include the Qualified Domestic Limited Partnership (QDLP) pilot program and the Shenzhen-specific Qualified Domestic Investment Entity (QDIE) program. In 2021, the China Securities Regulatory Commission (CSRC) and SAFE expanded the pilot areas to at least seven jurisdictions and quotas for the QDLP to $10 billion, respectively. In April, the Shenzhen Financial Regulatory Bureau amended the Administrative Measures of Shenzhen for Implementation of the Pilot Program for Overseas Investment by Qualified Domestic Investors(“Shenzhen QDIE Measures”) to include investments in the securities market that aligns it with the QLDP program.
3. Legal Regime
One of China’s WTO accession commitments was to establish an official journal dedicated to the publication of laws, regulations, and other measures pertaining to or affecting trade in goods, services, trade related aspects of IPR (TRIPS), and the control of foreign exchange. Despite mandatory 30-day public comment periods, PRC ministries continue to post only some draft administrative regulations and departmental rules online, often with a public comment period of less than 30 days. As part of the Phase One Agreement, China committed to providing at least 45 days for public comment on all proposed laws, regulations, and other measures implementing the Phase One Agreement. While China has made some progress, U.S. businesses operating in China consistently cite arbitrary legal enforcement and the lack of regulatory transparency among the top challenges of doing business in China.
In China’s state-dominated economic system, the relationships between the CCP, the PRC government, PRC business (state- and private-owned), and other PRC stakeholders are blurred. Foreign-invested enterprises (FIEs) perceive that China prioritizes political goals, industrial policies, and a desire to protect social stability at the expense of foreign investors, fairness, and the rule of law. The World BankGlobal Indicators of Regulatory Governancegave China a composite score of 1.75 out 5 points, attributing China’s relatively low score to stakeholders not having easily accessible and updated laws and regulations; the lack of impact assessments conducted prior to issuing new laws; and other concerns about transparency.
For accounting standards, PRC companies use the Chinese Accounting Standards for Business Enterprises (ASBE) for all financial reporting within mainland China. Companies listed overseas or in Hong Kong may choose to use ASBE, the International Financial Reporting Standards, or Hong Kong Financial Reporting Standards.
While the government of China made many policy announcements in 2021 that will provide impetus to ESG reporting, stock exchanges on mainland China (not including Hong Kong) have not made ESG reporting mandatory. For instance, currently eighteen PRC companies are signatories to the UN Principles for Responsible Investment. While the PRC government did announce its green finance taxonomy known as China’s “Catalogue of Green Bond Supported Projects”, experts cited the taxonomy lacks mandatory reporting and verification. On November 4, the People’s Bank of China and the European Commission also jointly launched a sustainable finance taxonomy to create comparable standards on green finance products. Mainland ESG efforts were also primarily focused on environmental and social impact-related, and less so on governance-related reporting. China’s goal to peak carbon emissions before 2030 and reach carbon neutrality by 2060 will drive reporting on decarbonization plans and targets and could increase alignment with international standards such as those outlined in the Task Force on Climate-Related Financial Disclosures (TCFD) recommendations. The PRC government also incorporated non-mandatory ESG-like principles into overseas development initiatives such as its signature Belt and Road Initiative (BRI) via its Guiding Opinions on Promoting Green Belt and Road Construction. For instance, the PRC adopted the Green Investment Principles (GIP) for greening investment for BRI projects; under this initiative members – including major PRC policy banks funding BRI projects – are expected to provide their first TCFD disclosure by 2023. Obstacles contacts cited include a shortage of quality data and ESG professionals, such as third-party auditors which are required to support evidence based ESG reporting.
In December, MEE issued new disclosure rules requiring five types of domestic entities to disclose environmental information on an annual basis, effective February 8, 2022. The rules will apply only to listed companies and bond issuers that were subject to environmental penalties the previous year and other MEE-identified entities, including those that discharged high levels of pollutants. Entities must disclose information on environmental management, pollution generation, carbon emissions, and contingency planning for environmental emergencies. These same companies and bond issuers must also disclose climate change and environmental protection information related to investment and financing transactions.
On June 28, the CSRC issued final amendments requiring listed companies disclose environmental penalties and encouraging carbon emissions disclosures. It also issued guidelines on the format and content of annual reports and half-year reports of listed companies, requiring them to set up a separate “Section 5 Environmental and Social Responsibility” to encourage carbon emission reduction related disclosure. In May, the Ministry of Ecology and Environment (MEE) issued a plan for strengthening environmental disclosure requirements by 2025. Most contacts assessed investors are the key drivers of increased ESG disclosures.
As part of its WTO accession agreement, China agreed to notify the WTO Committee on Technical Barriers to Trade (TBT) of all draft technical regulations. However, China continues to issue draft technical regulations without proper notification to the TBT Committee.
The PRC is also a member of the Regional Comprehensive Economic Partnership (RCEP), which entered into force on January 1, 2022. Although RCEP has some elements of a regional economic bloc, many of its regulatory provisions (for example on data flow) are weakened by national security exemptions.
On September 16, China submitted a written application to join the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) to New Zealand (the depositary of the agreement). The PRC would face challenges in addressing obligations related to SOEs, labor rights, digital trade, and increased transparency.
China’s legal system borrows heavily from continental European legal systems, but with “Chinese characteristics.” The rules governing commercial activities are found in various laws, regulations, departmental rules, and Supreme People’s Court (SPC) judicial interpretations, among other sources. While China does not have specialized commercial courts, it has created specialized courts and tribunals for the hearing of intellectual property disputes (IP), including in Beijing, Guangzhou, Shanghai, and Hainan. The PRC’s constitution and laws are clear that PRC courts cannot exercise power independent of the Party. Further, in practice, influential businesses, local governments, and regulators routinely influence courts. Outside of the IP space, U.S. companies often hesitate in challenging administrative decisions or bringing commercial disputes before local courts due to perceptions of futility or fear of government retaliation.
The PRC’s new foreign investment law, the FIL, came into force on January 1, 2020, replacing the previous foreign investment framework. The FIL provides a five-year transition period for foreign enterprises established under previous foreign investment laws, after which all foreign enterprises will be subject to the same domestic laws as PRC companies, such as the Company Law. The FIL standardized the regulatory regimes for foreign investment by including the negative list management system, a foreign investment information reporting system, and a foreign investment security review system all under one document. The FIL also seeks to address foreign investors complaints by explicitly banning forced technology transfers, promising better IPR, and the establishment of a complaint mechanism for investors to report administrative abuses. However, foreign investors remain concerned that the FIL and its implementing regulations provide PRC ministries and local officials significant regulatory discretion, including the ability to retaliate against foreign companies.
The December 2020 revised investment screening mechanism under the Measures on Security Reviews on Foreign Investments (briefly discussed above) came into effect January 18 without any period for public comment or prior consultation with the business community. Foreign investors complained China’s new rules on investment screening were expansive in scope, lacked an investment threshold to trigger a review, and included green field investments – unlike most other countries. Moreover, new guidance on Neutralizing Extra-Territorial Application of Unjustified Foreign Legislation Measures, a measure often compared to“blocking statutes” from other markets, added to foreign investors’ concerns over the legal challenges they would face in trying to abide by both their host-country’s regulations and China’s. Foreign investors complained that market access in China was increasingly undermined by national security-related legislation. While not comprehensive, a list of official PRC laws and regulations is here.
On June 10, the Standing Committee of the NPC adopted the Law of the People’s Republic of China on Countering Foreign Sanctions (“Anti-Foreign Sanctions Law” or AFSL). The AFSL gives the government explicit authority to impose countermeasures related to visas, deportation, and asset freezing against individuals or organizations that broadly endanger China’s “sovereignty, security, or development interests.” The law also calls for Chinese citizens and organizations harmed by foreign “sanctions” to pursue damages via PRC civil courts.
On October 13, MOF issued a circular prohibiting discrimination against foreign-invested enterprises (FIEs) in government procurement for products “produced in China.” The circular required that suppliers not be restricted based on ownership, organization, equity structure, investor country, or product brand, to ensure fair competition between domestic and foreign companies. The circular also required the abolition of regulations and practices violating the circular by the end of November, including the establishment of alternative databases and qualification databases. This circular may have been intended to address the issuance of Document No. 551 in May by MOF and the Ministry of Industry and Information Technology (MIIT) (without publishing on official websites), titled “Auditing guidelines for government procurement of imported products,” outlining local content requirements for hundreds of items, many of which are medical devices, including X-ray machines and magnetic resonance imaging equipment. It is unclear whether Document 551 will be rescinded or revised based on this circular. Additionally, the circular applies only to FIEs and does not provide fair treatment for imported products from companies overseas. While the circular does state FIEs should be afforded equal treatment, the circular does not address concerns about localization pressures created by Document 551. Further, the circular provides no guidance on what constitutes a “domestic product” and does not address treatment of products manufactured in China that incorporate content from other jurisdictions, key concerns for a wide range of U.S. firms.
In November 2021, the PRC government announced transformation of the Anti-Monopoly Bureau of the SAMR, renaming it the National Anti-Monopoly Bureau, adding three new departments, and doubled staffing. The National Anti-Monopoly Bureau enforces China’s Anti-Monopoly Law (AML) and oversees competition issues at the central and provincial levels. The bureau reviews mergers and acquisitions, and investigates cartel and other anticompetitive agreements, abuse of a dominant market positions, including those related to IP, and abuse of administrative powers by government agencies. The bureau also oversees the Fair Competition Review System (FCRS), which requires government agencies to conduct a review prior to issuing new and revising administrative regulations, rules, and guidelines to ensure such measures do not inhibit competition. SAMR issues implementation guidelines to fill in gaps in the AML, address new trends in China’s market, and help foster transparency in enforcement. Generally, SAMR has sought public comment on proposed measures, although comment periods are sometimes less than 30 days.
In October 2021, SAMR issued draft amendments to the AML for public comment. Revisions to the AML are expected to be finalized in 2022 and likely will include changes such as stepped-up fines for AML violations and specification of the factors to consider in determining whether an undertaking in the internet sector has abused a dominant market position. In February 2021, SAMR published (after public comment) the “Antitrust Guidelines for the Platform Economy.” The Guidelines address monopolistic behaviors of online platforms operating in China.
Foreign companies have long expressed concern that the government uses AML enforcement in support of China’s industrial policies, such as promoting national champions, particularly for companies operating in strategic sectors. The AML explicitly protects the lawful operations of government authorized monopolies in industries that affect the national economy or national security. U.S. companies expressed concerns that in SAMR’s consultations with other PRC agencies when reviewing M&A transactions, those agencies raise concerns not related to competition concerns to block, delay, or force transacting parties to comply with preconditions – including technology transfer – to receive approval.
China’s law prohibits nationalization of FIEs, except under vaguely specified “special circumstances” where there is a national security or public interest need. PRC law requires fair compensation for an expropriated foreign investment but does not detail the method used to assess the value of the investment. The Department of State is not aware of any cases since 1979 in which China has expropriated a U.S. investment, although the Department has notified Congress through the annual 527 Investment Dispute Report of several cases of concern.
The PRC introduced bankruptcy laws in 2007, under the Enterprise Bankruptcy Law(EBL), which applies to all companies incorporated under PRC laws and subject to PRC regulations. In May 2020, the PRC released the Civil Code, contract and property rights rules. Despite the NPC listing amendments to the EBL as a top work priority for 2021, the NPC has not released the amendments to the public. Court-appointed administrators – law firms and accounting firms that help verify claims, organize creditors’ meetings, list, and sell assets online – look to handle more cases and process them faster. As of 2021 official statements cited 5,060 institutional administrators and 703 individual administrators.
On August 18, the Law Enforcement Inspection Team of the Standing Committee of the NPC was submitted its report on the enforcement of enterprise bankruptcy to the 30th meeting of the Standing Committee of the Thirteenth NPC for deliberation. While the report is unavailable publicly, the Supreme People’s Court (SPC) website issued a press release noting the report found that from 2007 to 2020, courts at all levels nationwide accepted 59,604 bankruptcy cases, and concluded 48,045 bankruptcy cases (in 2020 there were 24,438 liquidation and bankruptcy cases). Of the total liquidation and bankruptcy cases recorded in that same period, 90 percent involved private enterprises. The announcement also cited the allocation of additional resources, including future establishment of at least 14 bankruptcy tribunals and 100 Liquidation & Bankruptcy Divisions and specialized collegial panels to handle bankruptcy cases. As of August 2021, bankruptcy cases are handled by 417 bankruptcy judges, 28 high people’s courts, and 284 intermediate people’s courts.
In 2021 the government added a new court in Haikou. National data is unavailable for 2021, but local courts have released some information that suggest a nearly 10 percent increase in liquidation and bankruptcy cases in Jiangxi province and about a 66 percent increase in Guangzhou, the capital city of Guangdong province. While PRC authorities are taking steps to address corporate debt and are gradually allowing some companies to fail, companies generally avoid pursing bankruptcy because of the potential for local government interference and fear of losing control over the outcome. According to the SPC, 2.899 million enterprises closed business in 2020, of which only 0.1 percent or 3,908 closed because of bankruptcy.
In August 2020, Shenzhen released the Personal Bankruptcy Regulations of Shenzhen Special Economic Zone, to take effect on March 1, 2021. This is the PRC’s first regulation on personal bankruptcy. On July 19, the Shenzhen Intermediate People’s Court of Guangdong Province, China served a ruling on Liang Wenjin approving his personal bankruptcy reorganization plan. This was the first personal bankruptcy case closed by Shenzhen Court since the implementation of the Personal Bankruptcy Regulations of Shenzhen Special Economic Zone and is the first personal bankruptcy reorganization case in China.
The Personal Bankruptcy Regulations is China’s first set of rules on personal bankruptcy, which formally establishes the personal bankruptcy system in China for the first time. At present, the Personal Bankruptcy Regulations is only applicable in Shenzhen. Numerous other localities have also begun experimenting with legal remedies for personal insolvency, in part to deter debtors from taking extreme measures to address debt.
4. Industrial Policies
To attract foreign investment, different provinces and municipalities offer preferential packages like a temporary reduction in taxes and/or import/export duties, reduced costs for land use, research and development subsidies, and funding for initial startups. Often, these packages stipulate that foreign investors must meet certain benchmarks for exports, local content, technology transfer, or other requirements. However, many economic sectors that China deems sensitive due to broadly defined national or economic security concerns remain closed to foreign investment.
As part of efforts to attract green investment, China and the EU issued a green investment taxonomy on the sidelines of the 26th U.N. Climate Change Conference of the Parties (COP26) on November 4. The International Platform on Sustainable Finance (IPSF) Taxonomy Working Group issued the Common Ground Taxonomy- Climate Change Mitigation (CGT) to accelerate cross-border sustainability-focused investments and scale up the mobilization of green capital internationally. The CGT listed 80 economic activities across six industries as sustainable, including: (1) agriculture, forestry and fishing; manufacturing; (2) electricity, gas, steam and air conditioning supply; (3) construction; (4) water supply, and sewage, waste management and remediation activities; as well as (6) transportation and storage. The taxonomy includes criteria for calculating a project’s contribution to mitigating climate change. This taxonomy was the result of consultations held between the EU and China over the two years to conduct analyses between China’s “Catalogue of Green Bond Supported Projects” and the “EU Taxonomy Climate Delegated Act.” Green finance contacts reported the CGT would likely promote the issuance of cross-border green investment products and lower or avoid the cost of double certification. Environmental NGO contacts, however, noted the CGT was focused on climate change mitigation, without taking into consideration the principle of “do no significant harm.” The CGT is not legally binding for either the EU or China and is not formally endorsed by other members of the IPSF. Please see climate issues section for additional information on government incentives towards attracting green investment.
In 2013, the State Council announced the Shanghai pilot FTZ to provide open and high-standard trade and investment services to foreign companies. China gradually scaled up its FTZ pilot program to a total of 20 FTZs and one Free Trade Port (FTP), which are in all or parts of Fujian, Guangdong, Guangxi, Hainan (FTZ and FTP), Hebei, Heilongjiang, Henan, Hubei, Jiangsu, Liaoning, Shaanxi, Shandong, Sichuan, Yunnan, and Zhejiang provinces; Beijing, Chongqing, Shanghai, and Tianjin municipalities. The goal of China’s FTZs/FTP is to provide a trial ground for trade and investment liberalization measures and to introduce service sector reforms, especially in financial services, that China expects to eventually introduce in other parts of the domestic economy. The FTZs promise foreign investors “national treatment” investment in industries and sectors not listed on China’s negative lists.
Special Economic Zones (SEZs) in China include: Shantou, Shenzhen, Zhuhai, (Guangdong Province); Xiamen (Fujian Province) Hainan Province; Shanghai Pudong New Area; and Tianjin Binhai New Area.
In 2021, the PRC formulated the first negative list in the field of cross-border trade in services, effective in Hainan Free Trade Port. Separately, the PRC government has shortened the negative list for foreign investment in Pilot Free Trade Zones. In 2021, the seventh revision to the free trade zone negative list reduced close off sectors from 30 items to 27 items. Please see above section on negative lists for more details.
5. Protection of Property Rights
The government of China owns all urban land and only the state can issue long-term land leases to individuals and companies, including foreigners, subject to many restrictions. China’s property law stipulates that residential property rights renew automatically, while commercial and industrial grants renew if it does not conflict with other public interest claims. Several foreign investors have reported revocation of land use rights so that PRC developers could pursue government-designated building projects. Investors often complain about insufficient compensation in these cases. In rural China, the registration system suffers from unclear ownership lines and disputed border claims, often at the expense of local farmers whom village leaders exclude in favor of “handshake deals” with commercial interests. China’s Securities Law defines debtor and guarantor rights, including rights to mortgage certain types of property and other tangible assets, including long-term leases. PRC law does not prohibit foreigners from buying non-performing debt, but it must be acquired through state-owned asset management firms, and it is difficult to liquidate.
The PRC remained on the USTR Special 301 Report Priority Watch List in 2022 and was subject to continued Section 306 monitoring. Multiple PRC-based physical and online markets were included in the 2021 USTR Review of Notorious Markets for Counterfeiting and Piracy. Of note, in 2021, the PRC government took steps toward addressing long-standing U.S. concerns on a wide range of IP issues, from patents to trademarks to copyrights and trade secrets. The reforms addressed the granting and protection of IP rights as well as their enforcement, and included changes made in support of the Phase One Trade Agreement. In September 2021, the CCP Central Committee and State Council jointly issued the “Outline for Building a Strong Intellectual Property Nation (2021-2035).” The Outline was China’s second long-term plan to promote IP development since the 2008 National IP Strategy Outline, and provided a high-level framework and specific goals for reforms of China’s entire IP ecosystem, including mechanisms to incentivize the creation and utilization of IP, as well as the systems and mechanisms for protecting and enforcing it. The State Council in October issued the “National 14th Five-year Plan IP Protection and Utilization Plan” which provided a list of IP-related tasks to achieve during 2021-2025. The Plan called for expedited revisions to the Patent Law, Trademark Law, Copyright Law, Anti-Monopoly Law, Science and Technology Advancement Law, and e-Commerce law, and to strengthen legislation in areas such as geographical indicators and trade secrets. In 2021, China’s IP progress also included the implementation of a judicial interpretation related to punitive damages on IP infringements, the gradual elimination of subsidies linked to patent applications, and administrative measures addressing trademark and patent protection and enforcement, as well as enforcement of copyright and trade secrets.
Despite these reforms, IP rights remain subject to Chinese government policy objectives, which appear to have intensified in 2021. For U.S. companies in China, infringement remained both rampant and a low-risk “business strategy” for bad-faith actors. Further, enforcement and regulatory authorities continue to signal to U.S. rights holders that application of China’s IP system remains subject to the discretion of the PRC government and its policy goals. High-level remarks by PRC leader Xi Jinping and senior leaders signaled China’s commitment to cracking down on IP infringement in the years ahead. However, they also reflected China’s vision of the IP system as an important tool for limiting foreign ownership and control of critical technology and ensuring national security. While on paper China’s IP protection and enforcement mechanisms have inched closer to near parity with other foreign markets, in practice, fair, transparent, and non-discriminatory treatment will very likely continue to be denied to U.S. rights holders whose IP ownership and exploitation impede PRC economic development and national security goals.
For detailed information on China’s environment for IPR protection and enforcement, please see the following reports:
China’s leadership has stated that it seeks to build a modern, highly developed, and multi-tiered capital market. Since their founding over three decades ago, the Shanghai and Shenzhen Exchanges, combined, are ranked the third largest stock market in the world with over USD 12.2 trillion in assets. China’s bond market has similarly expanded significantly to become the second largest worldwide, totaling approximately USD 18.6 trillion. In 2021, China took steps to open certain financial sectors such as mutual funds, securities, and asset management, but multinational companies still report barriers to entering the PRC insurance markets. As an example, in September, Black Rock was the first firm given approval to sell mutual funds to PRC nationals as the first wholly foreign owned mutual fund. Direct investment by private equity and venture capital firms increased but also faced setbacks due to China’s capital controls, which obfuscate the repatriation of returns. Though the PRC is taking steps to liberalize its capital markets, PRC companies that seek overseas investment have historically tended to list in the United States or Hong Kong; PRC and U.S. regulations on exchanges and geopolitics may begin to impact this trend. As of 2021, 24 sovereign entities and private sector firms, including the Asian Development Bank, Hungary, and BMW, have since issued RMB 106.5 billion yuan, roughly USD 16.7 billion, in 72 “Panda Bonds,” Chinese renminbi (RMB)-denominated debt issued by foreign entities in China. China’s private sector can also access credit via bank loans, bond issuance, trust products, and wealth management products. However, most bank credit flows to state-owned firms, largely due to distortions in China’s banking sector that have incentivized lending to state-affiliated entities over their private sector counterparts. China has been an IMF Article VIII member since 1996 and generally refrains from restrictions on payments and transfers for current international transactions. However, the government has used administrative and preferential policies to encourage credit allocation towards national priorities, such as infrastructure investments and industrial policy.
The PRC’s monetary policy is run by the PBOC, the PRC’s central bank. The PBOC has traditionally deployed various policy tools, such as open market operations, reserve requirement ratios, benchmark rates and medium-term lending facilities, to control credit growth. The PBOC had previously also set quotas on how much banks could lend but ended the practice in 1998. As part of its efforts to shift towards a more market-based system, the PBOC announced in 2019 that it will reform its one-year loan prime rate (LPR), which would serve as an anchor reference for other loans. The one-year LPR is based on the interest rate that 18 banks offer to their best customers and serves as the benchmark for rates provided for other loans. In 2020, the PBOC requested financial institutions to shift towards use of the one-year LPR for their outstanding floating-rate loan contracts from March to August. Despite these measures to move towards more market-based lending, the PRC’s financial regulators still influence the volume and destination of PRC bank loans through “window guidance” – unofficial directives delivered verbally – as well as through mandated lending targets for key economic groups, such as small and medium sized enterprises. In 2020, the China Banking and Insurance Regulatory Commission (CBIRC) also began issuing laws to regulate online lending by banks including internet companies such as Ant Financial and Tencent, which had previously not been subject to banking regulations. In 2021, PBOC and CBIRC issued circulars emphasizing the need to emphasize and encourage financial stability among real estate developers.
The CBIRC oversees the PRC’s 4,607 lending institutions, about USD 54 trillion in total assets. China’s “Big Five” – Agricultural Bank of China, Bank of China, Bank of Communications, China Construction Bank, and Industrial and Commercial Bank of China – dominate the sector and are largely stable, but has experienced regional banking stress, especially among smaller lenders. Reflecting the level of weakness among these banks, in September 2021, the PBOC announced in “China Financial Stability Report 2020” that 422 or 9.6 percent of the 4,400 banking financial institutions received a “fail” rating (high risk) following an industry-wide review in in the second quarter of 2021. The assessment deemed 393 firms, all small and medium sized rural financial institutions, “extremely risky.” The official rate of non-performing loans among China’s banks is relatively low: 1.7 percent as of the end of 2021. However, analysts believed the actual figure may be significantly higher. Bank loans continue to provide most credit options (reportedly around 63.6 percent in 2021) for Chinese companies, although other sources of capital, such as corporate bonds, equity financing, and private equity are quickly expanding in scope, reach, and sophistication in China.
As part of a broad campaign to reduce debt and financial risk, Chinese regulators have implemented measures to rein in the rapid growth of China’s “shadow banking” sector, which includes wealth management and trust products. These measures have achieved positive results. In December 2020, CBIRC published the first “Shadow Banking Report,” and claimed that the size of China’s shadow banking had shrunk sharply since 2017 when China started tightening the sector. By the end of 2019, the size of China’s shadow banking by broad measurement dropped to 84.8 trillion yuan from the peak of 100.4 trillion yuan in early 2017. PBOC estimated in January 2021 that the outstanding balance of China’s shadow banking was around RMB 32 trillion yuan at the end of 2020. Alternatively, Moody’s estimated that China’s shadow banking by broad measurement dropped to RMB 57.8 trillion yuan in the first half of 2021 and shadow banking to GDP ratio dropped to 52.9 percent from 58.3 percent at the end of 2020. Foreign owned banks can now establish wholly owned banks and branches in China, however, onerous licensing requirements and an industry dominated by local players, have limited foreign banks market penetration. Foreigners are eligible to open a bank account in China but are required to present a passport and/or Chinese government issued identification.
China officially has only one sovereign wealth fund (SWF), the China Investment Corporation (CIC), which was launched in 2007 to help diversify China’s foreign exchange reserves. Overall, information and updates on CIC and other funds that function like SWFs was difficult to procure. CIC is ranked the second largest SWF by total assets by Sovereign Wealth Fund Institute (SWFI). With USD 200 billion in initial registered capital, CIC manages over USD 1.2 trillion in assets as of 2021 and invests on a 10-year time horizon. In 2021, CIC reported that during the 2020 period it increased its information technology-related holdings while cutting holdings of overseas equities and bonds. CIC has two overseas branches, CIC International (Hong Kong) Co., Ltd. and CIC Representative Office in New York. CIC has since evolved into three subsidiaries:
CIC International was established in September 2011 with a mandate to invest in and manage overseas assets. It conducts public market equity and bond investments, hedge fund, real estate, private equity, and minority investments as a financial investor.
CIC Capital was incorporated in January 2015 with a mandate to specialize in making direct investments to enhance CIC’s investments in long-term assets.
Central Huijin makes equity investments in China’s state-owned financial institutions.
China also operates other funds that function in part like sovereign wealth funds, including: China’s National Social Security Fund, with an estimated USD 450 billion in assets in 2021; the China-Africa Development Fund (solely funded by the China Development Bank), with an estimated USD 10 billion in assets (2020); the SAFE Investment Company, with an estimated USD 417.8 billion in assets; and China’s state-owned Silk Road Fund, established in December 2014 with USD 40 billion in assets to foster investment in BRI countries. China’s state-run funds do not report the percentage of assets invested domestically. However, China’s state-run funds follow the voluntary code of good practices known as the Santiago Principles and participate in the IMF-hosted International Working Group on SWFs. While CIC affirms they do not have formal government guidance to invest funds consistent with industrial policies or designated projects, CIC is expected to pursue government objectives.
7. State-Owned Enterprises
China has approximately 150,000 wholly-owned SOEs, of which 50,000 are owned by the central government, and the remainder by local or provincial governments. SOEs account for 30 to 40 percent of total gross domestic product (GDP) and about 20 percent of China’s total employment. Non-financial SOE assets totaled roughly USD 30 trillion. SOEs can be found in all sectors of the economy, from tourism to heavy industries. State funds are spread throughout the economy and the state may also be the majority or controlling shareholder in an ostensibly private enterprise. China’s leading SOEs benefit from preferential government policies aimed at developing bigger and stronger “national champions.” SOEs enjoy preferential access to essential economic inputs (land, hydrocarbons, finance, telecoms, and electricity) and exercise considerable power in markets like steel and minerals. SOEs also have long enjoyed preferential access to credit and the ability to issue publicly traded equity and debt. A comprehensive, published list of all PRC SOEs does not exist.
PRC officials have indicated China intends to utilize OECD guidelines to improve the SOEs independence and professionalism, including relying on Boards of Directors that are free from political influence. However, analysts believe minor reforms will be ineffective if SOE administration and government policy remain intertwined, and PRC officials make minimal progress in primarily changing the regulation and business conduct of SOEs. SOEs continue to hold dominant shares in their respective industries, regardless of whether they are strategic, which may further restrain private investment in the economy. Among central SOEs managed by the State-owned Assets Supervision and Administration Commission (SASAC), senior management positions are mainly filled by senior party members who report directly to the CCP, and double as the company’s party secretary. SOE executives often outrank regulators in the CCP rank structure, which minimizes the effectiveness of regulators in implementing reforms. While SOEs typically pursue commercial objectives, the lack of management independence and the controlling ownership interest of the state make SOEs de facto arms of the government, subject to government direction and interference. SOEs are rarely the defendant in legal disputes, and when they are, they almost always prevail. U.S. companies often complain about the lack of transparency and objectivity in commercial disputes with SOEs.
Since 2013, the PRC government has periodically announced reforms to SOEs that included selling SOE shares to outside investors or a mixed ownership model, in which private companies invest in SOEs and outside managers are hired. The government has tried these approaches to improve SOE management structures, emphasize the use of financial benchmarks, and gradually infuse private capital into some sectors traditionally monopolized by SOEs like energy, finance, and telecommunications. For instance, during an August 25 press conference, State-owned Assets Supervision and Administration Commission (SASAC) officials announced that in the second half of the year central SOE reform would focus on the advanced manufacturing and technology innovation sectors. As part of these efforts, they claimed SASAC would ensure mergers and acquisitions removed redundancies, stabilize industrial supply chains, withdraw from non-competitive businesses, and streamline management structures. In practice, however, reforms have been gradual, as the PRC government has struggled to implement its SOE reform vision and often preferred to utilize a SOE consolidation approach. Recently, Xi and other senior leaders have increasingly focused reform efforts on strengthening the role of the state as an investor or owner of capital, instead of the old SOE model in which the state was more directly involved in managing operations.
SASAC issued a circular on November 20, 2020, directing tighter control over central SOEs overseas properties held by individuals on behalf of SOEs. The circular aims to prevent leakage of SOE assets held by individuals and SOE overseas variable interest entities (VIEs). According to the circular, properties held by individuals should be approved by central SOEs and filed with SASAC.
In Northeast China, privatization efforts at provincial and municipal SEOs remains low, as private capital makes cautious decisions in making investment to local debt-ridden and inefficient SOEs. On the other hand, local SOEs prefer to pursue mergers and acquisitions with central SOEs to avoid being accused of losing state assets. There is no available information on whether foreign investors could participate in privatization programs.
Since 2012, China has undergone a large-scale anti-corruption campaign, with investigations reaching into all sectors of the government, military, and economy. CCP General Secretary Xi labeled endemic corruption an “existential threat” to the very survival of the Party. In 2018, the CCP restructured its Central Commission for Discipline Inspection (CCDI) to become a state organ, calling the new body the National Supervisory Commission-Central Commission for Discipline Inspection (NSC-CCDI). The NSC-CCDI wields the power to investigate any public official. From 2012 to 2021, the NSC-CCDI claimed it investigated roughly four million cases. In the first three quarters of 2021, the NSC-CCDI investigated 470,000 cases and disciplined 414,000 individuals, of whom 22 were at or above the provincial or ministerial level. Since 2014, the PRC’s overseas fugitive-hunting campaign, called “Operation Skynet,” has led to the capture of more than 9,500 fugitives suspected of corruption who were living in other countries, including over 2,200 CCP members and government employees. In most cases, the PRC did not notify host countries of these operations. In 2021, the government reported apprehending 1,273 alleged fugitives and recovering approximately USD 2.64 billion through this program.
In March 2021, the CCP Amendment 11 to the Criminal Law, which increased the maximum punishment for acts of corruption committed by private entities to life imprisonment, from the previous maximum of 15-year imprisonment, took effect. In June 2020 the CCP passed a law on Administrative Discipline for Public Officials, continuing efforts to strengthen supervision over individuals working in the public sector. The law enumerates targeted illicit activities such as bribery and misuse of public funds or assets for personal gain. Anecdotal information suggests anti-corruption measures are applied inconsistently and discretionarily. For example, to fight commercial corruption in the medical sector, the health authorities issued “blacklists” of firms and agents involved in commercial bribery, including several foreign companies. While central government leadership has welcomed increased public participation in reporting suspected corruption at lower levels, direct criticism of central leadership or policies remains off-limits and is seen as an existential threat to China’s political and social stability. China ratified the United Nations Convention against Corruption in 2005 and participates in the Asia-Pacific Economic Cooperation (APEC) and OECD anti-corruption initiatives. China has not signed the OECDConventionon Combating Bribery, although PRC officials have expressed interest in participating in the OECD Working Group on Bribery as an observer. Corruption Investigations are led by government entities, and civil society has a limited scope in investigating corruption beyond reporting suspected corruption to central authorities.
Liaoning set up a provincial watchdog, known as the “Liaoning Business Environment Development Department” to inspect government disciplines and provide a mechanism for the public to report corruption and misbehaviors through a “government service platform.” In 2021, Liaoning reported handling 8,091 cases and recovering approximately USD 290 million in ill-gotten gains by government agencies and SOEs through this program.
The following government organization receives public reports of corruption:
Anti-Corruption Reporting Center of the CCP Central Commission for Discipline Inspection and the Ministry of Supervision, Telephone Number: +86 10 12388.
10. Political and Security Environment
Foreign companies operating in China face a growing risk of political violence, most recently due to U.S.-China political tensions. PRC authorities have broad authority to prohibit travelers from leaving China and have imposed “exit bans” to compel U.S. citizens to resolve business disputes, force settlement of court orders, or facilitate PRC investigations. U.S. citizens, including children, not directly involved in legal proceedings or wrongdoing have also been subject to lengthy exit bans to compel family members or colleagues to cooperate with Chinese courts or investigations. Exit bans are often issued without notification to the foreign citizen or without clear legal recourse to appeal the exit ban decision. A 2020 independent report presented evidence that since 2018, more than 570,000 Uyghurs were implicated in forced labor picking cotton. There was also reporting that Xinjiang’s polysilicon and solar panel industries are connected to forced labor. In 2021, PRC citizens, with the encouragement of the PRC government, boycotted companies that put out statements on social media affirming they do not use Xinjiang cotton in their supply chain. Some landlords forced companies to close retail outlets during this boycott due to fears of being associated with boycotted companies. The ongoing PRC crackdown on virtually all opposition voices in Hong Kong and continued attempts by PRC organs to intimidate Hong Kong’s judges threatens the judicial independence of Hong Kong’s courts – a fundamental pillar for Hong Kong’s status as an international hub for investment into and out of China. Apart from Hong Kong, the PRC government has also previously encouraged protests or boycotts of products from countries like the United States, the Republic of Korea (ROK), Japan, Norway, Canada, and the Philippines, in retaliation for unrelated policy decisions such as the boycott campaigns against Korean retailer Lotte in 2016 and 2017 in response to the ROK government’s decision to deploy the Terminal High Altitude Area Defense (THAAD); and the PRC’s retaliation against Canadian companies and citizens for Canada’s arrest of Huawei’s Chief Financial Officer Meng Wanzhou.
11. Labor Policies and Practices
For U.S. companies operating in China, finding, developing, and retaining domestic talent at the management and skilled technical staff levels remain challenging for foreign firms, especially as labor costs, including salaries and inputs continue to rise. COVID-19 control and related travel measures have also made it difficult to recruit or retain foreign staff. Foreign companies also complain of difficulty navigating China’s labor and social insurance laws, including local implementation guidelines. Compounding the complexity, due to ineffective enforcement of labor laws and high mandatory social insurance contributions, many PRC domestic employers and employees will not sign formal employment contracts, putting foreign firms at a disadvantage. The All-China Federation of Trade Unions (ACFTU) is the only union recognized under PRC law. Establishing independent trade unions is illegal. The law allows for “collective bargaining,” but in practice, focuses solely on collective wage negotiations. The Trade Union Law gives the ACFTU, a CCP organ chaired by a Politburo member, control over all union organizations and activities, including enterprise-level unions. ACFTU enterprise unions require employers to pay mandatory fees, often through the local tax bureau, equaling a negotiated minimum of 0.5 percent to a standard two percent of total payroll. While labor laws do not protect the right to strike, “spontaneous” protests and work stoppages occur. Official forums for mediation, arbitration, and other mechanisms of alternative dispute resolution often are ineffective in resolving labor disputes. Even when an arbitration award or legal judgment is obtained, getting local authorities to enforce judgments is problematic.
The PRC has not ratified the International Labor Organization (ILO) conventions on freedom of association, collective bargaining, or forced labor, but it has ratified conventions prohibiting child labor and employment discrimination. Uyghurs and members of other minority groups are subjected to forced labor in Xinjiang and throughout China via PRC government-facilitated labor transfer programs.
In 2021, the U.S government updated its business advisory on risks for businesses and individuals with exposure to entities engaged in forced labor and other human rights abuses linked to Xinjiang. This update highlights the extent of the PRC’s state-sponsored forced labor and surveillance taking place amid its ongoing genocide and crimes against humanity in Xinjiang. The Advisory stresses that businesses and individuals that do not exit supply chains, ventures, and/or investments connected to Xinjiang could run a high risk of violating U.S. law. In fiscal year 2021, CBP issued four Withhold Release Orders (WROs) against PRC goods produced with forced labor. The Commerce Department added PRC commercial and government entities to its Entity List for their complicity in human rights abuses and the Department of Treasury sanctioned Wang Junzheng, the Secretary of the Party Committee of the Xinjiang Production and Construction Corps (XPCC) and Chen Mingguo, Director of the Xinjiang Public Security Bureau (XPSB) to hold human rights abusers accountable in Xinjiang. In June 2021, the U.S. Department of Labor added polysilicon for China to an update of the List of Goods Produced by Child Labor or Forced Labor. The Department of Labor has listed 18 goods as produced by forced labor in China. Some PRC firms continued to employ North Korean workers in violation of UN Security Council sanctions. Pursuant to UN Security Council resolution (UNSCR) 2397, all DPRK nationals earning income, subject to limited exceptions, were required to have been repatriated to the DPRK by 22 December 2019.
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical source*
USG or international statistical source
USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
Host Country Gross Domestic Product (GDP) ($M USD)
Direct Investment from/in Counterpart Economy Data
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment
Outward Direct Investment
China, P.R., Hong Kong
China, P.C., Hong Kong
British Virgin Islands
British Virgin Islands
“0” reflects amounts rounded to +/- USD 500,000.
Table 4: Sources of Portfolio Investment
Data not available.
Hong Kong became a Special Administrative Region (SAR) of the People’s Republic of China (PRC) on July 1, 1997, with its status defined in the Sino-British Joint Declaration and the Basic Law. Under the concept of “one country, two systems,” the People’s Republic of China (PRC) government promised that Hong Kong would be vested with executive, legislative, and independent judicial power, and that its social and economic systems would remain unchanged for 50 years after reversion. The PRC’s imposition of the National Security Law (NSL) on June 30, 2020 undermined Hong Kong’s autonomy and introduced heightened uncertainty for foreign and local firms operating in Hong Kong.
As a result, the U.S. Government has taken measures under Executive Order 13936 on Hong Kong Normalization to eliminate or suspend aspects of Hong Kong’s differential treatment, including issuing a suspension of licenses under the Arms Export Control Act, giving notice of termination of an agreement that provided for reciprocal tax exemption on income from the international operation of ships, establishing new marking rules requiring goods made in Hong Kong to be labeled “Made in China,” and imposing sanctions against several former and current Hong Kong and PRC government officials. On March 31, 2022, the Secretary of State again certified Hong Kong does not warrant treatment under U.S. law in the same manner as U.S. laws were applied to Hong Kong before July 1, 1997.
Since the imposition of the NSL in Hong Kong by Beijing, U.S. citizens traveling or residing in Hong Kong may be subject to increased levels of surveillance, as well as arbitrary enforcement of laws and detention for purposes other than maintaining law and order. The PRC’s 14th Five-Year Plan through 2025, which includes long-range objectives for 2035, lays out a plan for Hong Kong to become more closely integrated into the overall development of the Mainland and encourages deeper co-operation between the Mainland and Hong Kong. On March 5, 2022, PRC Premier Li Keqiang asserted that Beijing intends to exercise “overall jurisdiction over the two SARs,” referring to Hong Kong and Macau.
On July 16, 2021, the Department of State, along with the Department of the Treasury, the Department of Commerce, and the Department of Homeland Security, issued an advisory to U.S. businesses regarding potential risks to their operations and activities in Hong Kong. These include risks for businesses following the imposition of the NSL; data privacy risks; risks regarding transparency and access to critical business information; and risks for businesses with exposure to sanctioned Hong Kong or PRC entities or individuals. The imposition of the NSL by Beijing, significant curtailments in protected freedoms, and the reduction of the high degree of autonomy Hong Kong enjoyed in the past has raised concerns among a number of international firms operating in Hong Kong.
Hong Kong is the United States’ twelfth-largest export market, thirteenth largest for total agricultural products, and sixth largest for high-value consumer food and beverage products. Hong Kong’s economy, with advanced institutions and regulatory systems, is bolstered by competitive sectors including financial and professional, trading, logistics, and tourism, although tourism has suffered devastating drops since 2020 due to COVID-19. The Hong Kong Government’s (HKG) adherence to a “Zero COVID” policy for most of the past two years has also imposed high economic costs on residents and businesses, and drastically reduced the number of visitors to the territory. Since Beijing’s 2020 imposition of the NSL on Hong Kong and the city’s implementation of COVID-19 travel restrictions, some international firms in Hong Kong have relocated entirely, while others have shifted key staff or operations elsewhere.
Hong Kong provides for no distinction in law or practice between investments by foreign-controlled companies and those controlled by local interests. Foreign firms and individuals can incorporate their operations in Hong Kong, register branches of foreign operations, and set up representative offices without encountering discrimination or undue regulation. There are no restrictions on the ownership of such operations. Company directors are not required to be residents of or in Hong Kong. Reporting requirements are straightforward and are not onerous. On economic issues, Hong Kong generally pursues a free market philosophy with minimal government intervention. The HKG generally welcomes foreign investment, neither offering special incentives nor imposing disincentives for foreign investors.
While Hong Kong’s legal system had been traditionally viewed as a bastion of judicial independence, authorities have placed considerable pressure on the judiciary over the previous year. Rule of law risks that were formerly limited to mainland China are now increasingly a concern in Hong Kong. In March 2020, two sitting UK judges resigned from the Hong Kong Court of Final Appeal, with the UK government citing a systematic erosion of liberty and democracy that made it untenable for those judges to sit on Hong Kong’s highest court.
The service sector accounted for more than 90 percent of Hong Kong’s nearly USD 367 billion gross domestic product (GDP) in 2021. Hong Kong hosts a large number of regional headquarters and regional offices, though Hong Kong’s deteriorating political environment and COVID-related travel restrictions have led some firms to depart. The number of U.S. firms with regional bases in Hong Kong fell over the previous decade. Approximately 1,260 U.S. companies are based in Hong Kong, according to Hong Kong’s 2021 census data, with more than half regional in scope. Finance and related services companies, such as banks, law firms, and accountancies, dominate the pack. Seventy of the world’s 100 largest banks have operations in Hong Kong.
1. Openness To, and Restrictions Upon, Foreign Investment
Hong Kong is the world’s third-largest recipient of foreign direct investment (FDI), according to the United Nations Conference on Trade and Development’s (UNCTAD) World Investment Report 2021, with a significant amount bound for mainland China. The HKG’s InvestHK department encourages inward investment, offering free advice and services to support companies from the planning stage through to the launch and expansion of their business. U.S. and other foreign firms can participate in government financed and subsidized research and development programs on a national treatment basis. Hong Kong does not discriminate against foreign investors by prohibiting, limiting, or conditioning foreign investment in a sector of the economy.
Capital gains are not taxed, nor are there withholding taxes on dividends and royalties. Profits can be freely converted and remitted. Foreign-owned and Hong Kong-owned company profits are taxed at the same rate – 16.5 percent. The tax rate on the first USD 255,000 profit for all companies is currently 8.25 percent. No preferential or discriminatory export and import policies affect foreign investors. Domestic industries receive no direct subsidies. Foreign investments face no disincentives, such as quotas, bonds, deposits, or other similar regulations.
According to HKG statistics, 3,940 overseas companies had regional operations registered in Hong Kong as of June 1, 2021. The United States has the largest number with 664. Hong Kong is working to attract more start-ups as it develops its technology sector, and about 28 percent of start-ups in Hong Kong come from overseas. Hong Kong’s Business Facilitation Advisory Committee is a platform for the HKG to consult the private sector on regulatory proposals and implementation of new or proposed regulations. Foreign investors can invest in any business and own up to 100 percent of equity. Like domestic private entities, foreign investors have the right to engage in all forms of remunerative activity.
The HKG owns virtually all land in Hong Kong, which the HKG administers by granting long-term leases without transferring title. Foreign residents claim that a fifteen percent Buyer’s Stamp Duty on all non-permanent-resident and corporate buyers discriminates against them. The main exceptions to the HKG’s open foreign investment policy are:
Broadcasting – Voting control of free-to-air television stations by non-residents is limited to 49 percent. There are also residency requirements for the directors of broadcasting companies.
Legal Services – Foreign-qualified lawyers may only practice the law of their home jurisdiction, provided the firm they are working for is licensed in Hong Kong to work in those jurisdictions. Foreign law firms may become “local” firms after satisfying certain residency and other requirements. Localized firms may thereafter hire local attorneys and must maintain at least a 1:1 ratio of local attorneys to registered-foreign lawyers, without exception. Foreign law firms can also form associations with local law firms.
Hong Kong last conducted the Trade Policy Review in 2018 through the World Trade Organization (WTO). https://www.wto.org/english/tratop_e/tpr_e/g380_e.pdf
The Efficiency Office under the Innovation and Technology Bureau is responsible for business facilitation initiatives aimed at improving the business regulatory environment of Hong Kong. The e-Registry (https://www.eregistry.gov.hk/icris-ext/apps/por01a/index) is a convenient and integrated online platform provided by the Companies Registry and the Inland Revenue Department for applying for company incorporation and business registration. Applicants, for incorporation of local companies or for registration of non-Hong Kong companies, must first register for a free user account, presenting an original identification document or a certified true copy of the identification document. The Companies Registry normally issues the Business Registration Certificate and the Certificate of Incorporation on the same day for applications for company incorporation. For applications for registration of a non-Hong Kong company, it issues the Business Registration Certificate and the Certificate of Registration two weeks after submission.
Hong Kong’s Companies Registry permits public inspection of company information such as the full identification number of company directors and secretaries and their residential addresses. This information is currently available on a paid basis. Starting October 24, 2022, the HKG will restrict public access to this information, citing a need to balance privacy protections and transparency. Those approved by the HKG as “specified persons” will continue to have unrestricted access to the Companies Registries. The ability to apply for status as a “specified person” is largely limited to those working in finance, law, and compliance. Government transparency advocates assert the changes will limit the free flow of information and facilitate fraud, corruption, and other business malfeasance.
As a free market economy, Hong Kong does not promote or incentivize outward investment, nor does it restrict domestic investors from investing abroad. Mainland China and the British Virgin Islands were the top two destinations for Hong Kong’s outward investments in 2020 (based on most recent data available).
3. Legal Regime
Hong Kong’s regulations and policies typically strive to avoid distortions or impediments to the efficient mobilization and allocation of capital and to encourage competition. Bureaucratic procedures and “red tape” are usually transparent and held to a minimum. To make or amend any legislation, including investment laws, the HKG conducts a three-month public consultation on the issue concerned, which then informs the drafting of the bill. Lawmakers then discuss draft bills and vote. Hong Kong’s regulatory and accounting systems are transparent and consistent with international norms. Rule of law risks that were formerly limited to mainland China are now increasingly a concern in Hong Kong.
Gazette is the official publication of the HKG. This website https://www.gld.gov.hk/egazette/english/whatsnew/whatsnew.html is the centralized online location where laws, regulations, draft bills, notices, and tenders are published.
All public comments received by the HKG are published at the websites of relevant policy bureaus. The Office of the Ombudsman, established in 1989 by the Ombudsman Ordinance, is Hong Kong’s independent watchdog of public governance.
Public finances are regulated by clear laws and regulations. The Basic Law prescribes that authorities strive to achieve a fiscal balance and avoid deficits. There is a clear commitment by the HKG to publish fiscal information under the Audit Ordinance and the Public Finance Ordinance, which prescribe deadlines for the publication of annual accounts and require the submission of annual spending estimates to the Legislative Council (LegCo), Hong Kong’s legislature. There are few contingent liabilities of the HKG, with details of these items published about seven months after the release of the fiscal budget. In addition, LegCo members have a responsibility to enhance budgetary transparency by urging government officials to explain the government’s rationale for the allocation of resources. All LegCo meetings are open to the public, so the government’s responses are available to the general public. However, the HKG maintains a special fund for “national security expenditures” that is not subject to public scrutiny. In February 2021, the HKG’s annual budget allocated HKD 8 billion (approximately USD 1 billion) to this fund, and the HKG refused to provide information on how this money would be spent.
On June 18, 2021, a subsidiary legislation was gazetted to implement the changes authorized under the Companies Ordinance. The new changes will gradually restrict the public from accessing certain information about executives in the Company Registry (CR) over three phases. Phase one starts on August 23, 2021 and allows new companies to have the option to withhold the usual residential addresses (URA) of directors and the full identification numbers (IDN) of directors and company secretaries from public inspection in hardcopy. Phase two starts on October 24, 2022 and will automatically swap out the URA and IDN of directors and company secretaries in the online CR with correspondence addresses and partial IDNs for public inspection. Phase three starts December 27, 2023 and allows all registered companies to retroactively apply to the CR to replace the URA and IDN of directors and company secretaries with their correspondence addresses and partial IDNs in hardcopy. “Specified persons” could apply to the CR for access to the protected information of directors and other persons.
Hong Kong’s Securities and Futures Commission issued a revised guideline in June 2021 requiring asset managers to disclose more information regarding their methodology for environment, sustainability, governance (ESG) funds, including the ESG focus, ESG investment strategy, expected proportion of ESG investment, any reference benchmark, and related risks. It also requires an ESG fund to conduct periodic assessment, at least annually, to assess how the fund has attained its ESG focus. To enhance transparency of ESG funds in Hong Kong, a central database of all SFC-authorized ESG funds is accessible through the SFC’s website.
Hong Kong is an independent member of the WTO and Asia-Pacific Economic Co-operation (APEC). It notifies all draft technical regulations to the WTO Committee on Technical Barriers to Trade and was the first WTO member to ratify the Trade Facilitation Agreement (TFA). Hong Kong has achieved a 100 percent rate of implementation commitments.
While Hong Kong is not a member of the Organization of Economic Cooperation and Development (OECD), it is a participant of the OECD’s Trade Committee and the Committee on Financial Markets. The HKG is in the process of implementing the OECD’s new minimum global corporate tax initiative, Base Erosion and Profit Shifting (BEPS 2.0).
Hong Kong’s common law system is based on the United Kingdom’s, and judges are appointed by the Chief Executive on the recommendation of the Judicial Officers Recommendation Commission. Regulations or enforcement actions are appealable, and they are adjudicated in the court system. In March 2020 two sitting UK judges resigned from the Hong Kong Court of Final Appeal, with the UK government citing a systematic erosion of liberty and democracy that made it untenable for those judges to sit on Hong Kong’s leading court.
Hong Kong’s commercial law covers a wide range of issues related to doing business. Most of Hong Kong’s contract law is found in the reported decisions of the courts in Hong Kong and other common law jurisdictions.
The imposition of the NSL and pressure from mainland China authorities raised serious concerns about the state of Hong Kong’s judicial independence. The NSL authorizes the mainland China judicial system, which lacks judicial independence and has a 99 percent conviction rate, to take over any national security-related case at the request of the HKG or the Office of Safeguarding National Security. Under the NSL, the Chief Executive is required to establish a list of judges to handle all cases concerning national security-related offenses. Legal scholars argued that this unprecedented involvement of the Chief Executive weakens Hong Kong’s judicial independence.
Media outlets controlled by the PRC central government in both Hong Kong and mainland China repeatedly accused Hong Kong judges of bias following the acquittals of protesters accused of rioting and other crimes. Some Hong Kong and PRC central government officials questioned the existence of the “separation of powers” in Hong Kong, including some statements that judicial independence is not enshrined in Hong Kong law and that judges should follow “guidance” from the government.
Hong Kong’s extensive body of commercial and company law generally follows that of the United Kingdom, including the common law and rules of equity. Most statutory law is made locally. The local court system provides for effective enforcement of contracts, dispute settlement, and protection of rights. Foreign and domestic companies register under the same rules and are subject to the same set of business regulations.
The Hong Kong Code on Takeovers and Mergers (1981) sets out general principles for acceptable standards of commercial behavior. The Companies Ordinance (Chapter 622) applies to Hong Kong-incorporated companies and contains the statutory provisions governing compulsory acquisitions. For companies incorporated in jurisdictions other than Hong Kong, relevant local company laws apply. The Companies Ordinance requires companies to retain accurate and up to date information about significant controllers.
The Securities and Futures Ordinance (Chapter 571) contains provisions requiring shareholders to disclose interests in securities in listed companies and provides listed companies with the power to investigate ownership of interests in its shares. It regulates the disclosure of inside information by listed companies and restricts insider dealing and other market misconduct.
The independent Competition Commission (CC) investigates anti-competitive conduct that prevents, restricts, or distorts competition in Hong Kong. In November 2021, the CC filed a case in the Competition Tribunal against three undertakings for participating in cartel conduct regarding the sale of inserters in Hong Kong.
The U.S. Consulate General is not aware of any expropriations in the recent past. Expropriation of private property in Hong Kong may occur if it is clearly in the public interest and only for well-defined purposes such as implementation of public works projects. Expropriations are to be conducted through negotiations, and in a non-discriminatory manner in accordance with established principles of international law. Investors in and lenders to expropriated entities are to receive prompt, adequate, and effective compensation. If agreement cannot be reached on the amount payable, either party can refer the claim to the Land Tribunal.
Hong Kong’s Bankruptcy Ordinance provides the legal framework to enable: i) a creditor to file a bankruptcy petition with the court against an individual, firm, or partner of a firm who owes him/her money; and ii) a debtor who is unable to repay his/her debts to file a bankruptcy petition against himself/herself with the court. Bankruptcy offenses are subject to criminal liability.
The Companies (Winding Up and Miscellaneous Provisions) Ordinance aims to improve and modernize the corporate winding-up regime by increasing creditor protection and further enhancing the integrity of the winding-up process.
The Commercial Credit Reference Agency collates information about the indebtedness and credit history of SMEs and makes such information available to members of the Hong Kong Association of Banks and the Hong Kong Association of Deposit Taking Companies. Hong Kong’s average duration of bankruptcy proceedings is just under ten months.
4. Industrial Policies
The HKG does not have a practice of issuing guarantees or jointly financing foreign direct investment projects. Hong Kong imposes no export performance or local content requirements as a condition for establishing, maintaining, or expanding a foreign investment. There are no requirements currently that Hong Kong residents own shares, that foreign equity is reduced over time, or that technology is transferred on certain terms.
However, the PRC’s 14th Five-Year Plan through 2025 with long-range objectives to 2035 does lay out a plan for Hong Kong to become an international innovation and technology hub, to become better integrated into the overall development of the Mainland, and to encourage deeper co-operation between the Mainland and Hong Kong related to innovation and technology. Closer alignment between the Hong Kong and mainland authorities on policies related to investment, innovation, and technology is expected.
The HKG offers an effective tax rate of around three to four percent to attract aircraft leasing companies to develop business in Hong Kong. To attract more maritime businesses to establish a presence in Hong Kong, the HKG also offers tax exemption or a reduced profit tax rate of 8.25 percent to eligible ship leasing and maritime insurance companies. The HKG allows a deduction on interest paid to overseas associated corporations and provides an 8.25 percent concessionary tax rate derived by a qualifying corporate treasury center.
Hong Kong-registered companies with a significant proportion of their research, design, development, production, management, or general business activities located in Hong Kong are eligible to apply to the Innovation and Technology Fund (ITF), which provides financial support for research and development (R&D) activities in Hong Kong. Hong Kong Science & Technology Parks (Science Park) and Cyberport are HKG-owned enterprises providing subsidized rent and financial support through incubation programs to early-stage startups.
The HKG offers additional tax deductions for domestic expenditure on R&D incurred by firms. Firms enjoy a 300 percent tax deduction for the first HKD 2 million (USD 255,000) qualifying R&D expenditure and a 200 percent deduction for the remainder. Since 2017, the Financial Secretary has announced over HKD 130 billion (USD 16.7 billion) in funding to support innovation and technology development in Hong Kong. These funds are largely directed at supporting and adding programs through the ITF, the Science Park, and Cyberport.
In September 2021, the Securities and Futures (Amendment) Bill 2021 and Limited Partnership Fund and Business Registration Legislation (Amendment) Bill 2021 were passed to facilitate the re-domicile of foreign investment funds to Hong Kong for registration as Open-ended Fund Companies (OFCs) or Limited Partnership Funds (LPFs). To strengthen Hong Kong’s position as an asset management center, the HKG announced in March 2022 a proposal to provide tax concessions for the eligible family investment management entities managed by single‑family offices. Subject to certain conditions, the entities would be exempted from Hong Kong profits tax for its profits derived from certain qualifying transactions and incidental transactions.
In May2021, the HKG launched the Green and Sustainable Finance Grant Scheme to subsidize eligible bond issuers and loan borrowers to cover their expenses on bond issuance and external review services.
Hong Kong, a free port without foreign trade zones, has modern and efficient infrastructure making it a regional trade, finance, and services center. Rapid growth has placed severe demands on that infrastructure, necessitating plans for major new investments in transportation and shipping facilities, including a planned expansion of container terminal facilities, additional roadway and railway networks, major residential/commercial developments, community facilities, and environmental protection projects. Construction on a third runway at Hong Kong International Airport was completed in September 2021.
Hong Kong and mainland China have a Free Trade Agreement Transshipment Facilitation Scheme that enables mainland-bound consignments passing through Hong Kong to enjoy tariff reductions in the Mainland. The arrangement covers goods traded between mainland China and its trading partners, including ASEAN members, Australia, Bangladesh, Chile, Costa Rica, Georgia, Iceland, India, Japan, Mongolia, Mauritius, New Zealand, Pakistan, Peru, South Korea, Sri Lanka, Switzerland, and Taiwan.
The HKG launched in December 2018 phase one of the Trade Single Window (TSW) to provide a one-stop electronic platform for submitting ten types of trade documents, promoting cross-border customs cooperation, and expediting trade declaration and customs clearance. Phase two is expected to be implemented in 2023. The latest version of the Closer Economic Partnership Arrangement (CEPA), has established principles of trade facilitation, including simplifying customs procedures, enhancing transparency, and strengthening cooperation.
The HKG does not mandate local employment or performance requirements. It does not follow a forced localization policy making foreign investors use domestic content in goods or technology.
Foreign nationals normally need a visa to live or work in Hong Kong. Short-term visitors are permitted to conduct business negotiations and sign contracts while on a visitor’s visa or entry permit. Companies employing people from overseas must show that a prospective employee has special skills, knowledge, or experience not readily available in Hong Kong.
Hong Kong generally allows free and uncensored flow of information, though the imposition of the NSL and subsequent Hong Kong legislation created certain limits on free expression, especially that which may be viewed as critical of the HKG or the mainland government. Thus, while Hong Kong authorities did not generally disrupt open access to the internet, there were numerous reports that the Hong Kong police, exercising powers granted by the NSL, required internet providers to block access to certain websites.
The freedom and privacy of communication is enshrined in Basic Law Article 30. The HKG has no requirements for foreign IT providers to turn over source code and does not interfere with data center operations. However, the NSL introduced a heightened risk of Mainland and Hong Kong authorities using expanded legal authorities to collect data from businesses and individuals in Hong Kong for actions that may violate “national security.” For more information, please refer to the Hong Kong business advisory released jointly by the Department of State, together with the Department of the Treasury, the Department of Commerce, and the Department of Homeland Security on July 16, 2021.
The NSL grants Hong Kong police broad authorities to conduct wiretaps or electronic surveillance without warrants in national security-related cases. The NSL also empowers police to conduct searches, including of electronic devices, for evidence in national security cases. Police can also require Internet Service Providers (ISPs) to provide or delete information relevant to these cases. In January 2021, the organizer of an online platform alleged that local Internet providers have made the site inaccessible for users in Hong Kong following requests from the Hong Kong government. One ISP subsequently confirmed that it blocked a website “in compliance with the requirement issued under the National Security Law.” In July 2021, Hong Kong police sent a letter to an Israel-based web hosting company demanding that the company remove a website and claiming that the website contained messages “likely to constitute offenses endangering national security.” In March 2022, Hong Kong police sent a letter to a UK-based human rights organization ordering the organization to remove its website within 72 hours or face potential fines and/or imprisonment under the NSL.
Hong Kong does not currently restrict transfer of personal data outside the SAR, but Section 33 the Personal Data (Privacy) Ordinance would prohibit such transfers unless the personal data owner consents or other specified conditions are met. The Privacy Commissioner is authorized to bring Section 33 into effect at any time, but it has been dormant since 1995. The PRC’s Personal Information Protection Law (PIPL) does not apply to data for Hong Kong-based operations, and companies that wish to transfer mainland data that falls under the PIPL to Hong Kong would be required to undergo a PRC cybersecurity review.
In October 2021, the HKG amended the Personal Data (Privacy) Ordinance to introduce new provisions to combat doxxing acts and empower the Privacy Commissioner for Personal Data (PCPD) to carry out criminal investigations and institute prosecution towards doxxing-related offenses, including potentially against online platforms and service providers. The PCPD made its first arrest in December 2021 under this new legislation in which a suspect was arrested and accused of disclosing the victim’s personal details on an online platform.
In December 2020, Hong Kong’s Securities and Futures Commission (SFC) required licensed corporations in Hong Kong to seek the SFC’s approval before using the following for storing regulatory records: 1) premises controlled exclusively by an external data storage provider(s) located inside or outside Hong Kong, such as cloud service providers like Google Cloud, Microsoft Azure, or Amazon AWS; or 2) server(s) for data storage at data centers located inside or outside Hong Kong.
5. Protection of Property Rights
The Basic Law ensures protection of leaseholders’ rights in long-term leases that are the basis of the SAR’s real property system. The Basic Law also protects the lawful traditional rights and interests of the indigenous inhabitants of the New Territories. The real estate sector, one of Hong Kong’s pillar industries, is equipped with a sound banking mortgage system.
Land transactions in Hong Kong operate on a deeds registration system governed by the Land Registration Ordinance. The Land Titles Ordinance provides greater certainty on land title and simplifies the conveyancing process.
Hong Kong generally provides strong intellectual property rights (IPR) protection and enforcement. Hong Kong has effective IPR enforcement capacity, and a judicial system that supports enforcement efforts with a public outreach program that discourages IPR-infringing activities. Despite the robustness of Hong Kong’s IP system, challenges remain, particularly in connection with copyright infringement and effective enforcement against the heavy, bi-directional flow of counterfeit goods.
Hong Kong’s commercial and company laws provide for effective enforcement of contracts and protection of corporate rights. H The Intellectual Property Department, which includes the Trademarks and Patents Registries, is the focal point for the development of Hong Kong’s IP regime. The Customs and Excise Department (CED) is the sole enforcement agency for intellectual property rights (IPR). The Paris Convention for the Protection of Industrial Property, the Bern Convention for the Protection of Literary and Artistic Works, and the Universal Copyright Convention are applicable to Hong Kong. Hong Kong also continues to participate in the World Intellectual Property Organization as part of mainland China’s delegation. The HKG has seconded an officer from CED to INTERPOL in Lyon, France to further collaborate on IPR enforcement.
The HKG devotes substantial resources to IPR enforcement. CED works with foreign customs agencies and the World Customs Organization to share best practices and to identify, disrupt, and dismantle criminal organizations engaging in IP theft that operate in multiple countries. The government has conducted public education efforts to encourage respect for IPR. Pirated and counterfeit products remain available on a small scale at the retail level throughout Hong Kong.
Other IPR challenges include end-use piracy of software and textbooks, internet peer-to-peer downloading, illegal streaming, and the illicit importation and transshipment of pirated and counterfeit goods from mainland China and other places in Asia. Hong Kong authorities have taken steps to address these challenges by strengthening collaboration with mainland Chinese authorities, prosecuting end-use software piracy, and monitoring suspect shipments at points of entry. It has also established a task force to monitor and crack down on internet-based peer-to-peer piracy.
The Drug Office of Hong Kong imposes a drug registration requirement that requires applicants for new drug registrations to make a non-infringement patent declaration. The Copyright Ordinance protects any original copyrighted work created or published anywhere in the world and criminalizes unauthorized copying and distribution of protected works. The Ordinance also provides rental rights for sound recordings, computer programs, films, and comic books, and includes enhanced penalty provisions and other legal tools to facilitate enforcement. The law defines possession of an infringing copy of computer programs, movies, TV dramas, and musical recordings (including visual and sound recordings) for use in business as an offense but provides no criminal liability for other categories of works. In June 2020, Hong Kong passed legislation to implement the Marrakesh Treaty.
In November 2021, HKG launched a three-month public consultation on the proposal to update the Copyright Ordinance. The proposal is based on the 2014 Copyright (Amendment) Bill, which was shelved in 2016 amid opposition by pan-democratic Legislative Council (LegCo) members. The proposal covered five key areas to modernize the copyright regime, such as giving copyright owners a “technology-neutral exclusive communication right” and providing new copyrights exemptions for three purposes, including “parody, satire, caricature and pastiche; commenting on current events; and quotation of copyright works”. The three-month consultation ended in February 2022. The HKG released a summary of the public consultation process on April 19, 2022 stating that they will proceed with submitting the 2014 Copyright (Amendment) Bill, with minimal changes, to LegCo with the first half of 2022.
The Patent Ordinance allows for issuing a patent in Hong Kong based on patents issued by the United Kingdom and mainland China known as a “re-registration” system. Patents issued in Hong Kong have no effect in mainland China and vice versa. Patents issued in Hong Kong are capable of being tested for validity, rectified, amended, revoked, and enforced in Hong Kong courts. Hong Kong’s Original Grant Patent (OGP) system, which enables applicants to file patent applications directly in Hong Kong without having to go through the re-registration process, came into operation in December 2019. The OGP system co-exists with the re-registration system for the granting of patents, allowing applicants flexibility while applying for patent protections in Hong Kong. In June 2021, Hong Kong granted its first‑ever standard patent by original grant. As of end‑May 2021, the IPD received a total of 426 OGP applications, with 67 percent from non‑local Hong Kong residents.
The Registered Design Ordinance is modeled on the EU design registration system. To be registered, a design must be new, and the system requires no substantive examination. The initial period of five years protection is extendable for four periods of five years each, up to 25 years.
Hong Kong’s trademark law allows for registration of trademarks relating to services. All trademark registrations originally filed in Hong Kong are valid for seven years and renewable for fourteen-year periods. Owners of trademarks registered elsewhere must apply in Hong Kong and satisfy all requirements of Hong Kong law. When evidence of use is required, such use must have occurred in Hong Kong. In June 2020, Hong Kong amended its Trade Marks Ordinance to provide a basis for the application of the Protocol Relating to the Madrid Agreement Concerning the International Registration of Marks (Madrid Protocol). The HKG is expected to implement the Madrid Protocol in 2023 at the earliest.
Hong Kong has no specific ordinance to cover trade secrets; however, the government has a duty under its Trade Descriptions Ordinance to protect information from being disclosed to other parties. The Trade Descriptions Ordinance prohibits false trade descriptions, forged trademarks, and misstatements regarding goods and services supplied during trade.
There are no impediments to the free flow of financial resources. Non-interventionist economic policies, complete freedom of capital movement, and a well-understood regulatory and legal environment make Hong Kong a regional and international financial center. It has one of the most active foreign exchange markets in Asia.
Assets and wealth managed in Hong Kong amounted to USD 4.5 trillion in 2020 (the latest figure available), with almost two-thirds of that coming from overseas investors. To enhance the competitiveness of Hong Kong’s fund industry, OFCs as well as onshore and offshore funds are offered a profits tax exemption.
The Hong Kong Monetary Authority’s (HKMA) Infrastructure Financing Facilitation Office (IFFO) provides a platform for pooling the efforts of investors, banks, and the financial sector to offer comprehensive financial services for infrastructure projects in emerging markets. IFFO is an advisory partner of the World Bank Group’s Global Infrastructure Facility.
Under the Insurance Companies Ordinance, insurance companies are authorized by the Insurance Authority to transact business in Hong Kong. As of January 2022, there were 163 authorized insurance companies in Hong Kong; 67 of them were foreign or mainland Chinese companies.
The Hong Kong Stock Exchange’s total market capitalization dropped by eleven percent to USD 5.4 trillion in 2021, with 2,572 listed firms at year-end. Hong Kong Exchanges and Clearing Limited, a listed company, operates the stock and futures exchanges. The Securities and Futures Commission (SFC), an independent statutory body outside the civil service, has licensing and supervisory powers to ensure the integrity of markets and protection of investors.
No discriminatory legal constraints exist for foreign securities firms establishing operations in Hong Kong via branching, acquisition, or subsidiaries. Rules governing operations are the same for all firms. No laws or regulations specifically authorize private firms to adopt articles of incorporation or association that limit or prohibit foreign investment, participation, or control.
In 2021, 1,368 mainland companies were listed in Hong Kong, including a total of 296 “H” share listings on the stock exchange, with total market capitalization of around USD 4.3 trillion, or 79 percent of the market total. The Shanghai-Hong Kong and Shenzhen-Hong Kong Stock Connects allow individual investors to cross trade Hong Kong and mainland stocks.
Cross-boundary Wealth Management Connect launched in September 2021 in the Guangdong-Hong Kong-Macao Greater Bay Area (GBA), which aims to integrate Hong Kong, Macau, and nine cities in the Mainland’s Guangdong Province together. The GBA, which still lacks major details, faces many challenges that are likely to stall its success, including coordinating three disparate legal systems, three different currencies, and removing barriers to the movement of capital and people. The Wealth Connect scheme will enable residents in GBA to carry out cross-boundary investment in wealth management products distributed by banks in the area.
Under the Mainland-Hong Kong Mutual Recognition of Funds scheme, eligible mainland and Hong Kong mutual funds were allowed to be distributed in each other’s market. Hong Kong also has mutual recognition of funds programs with Switzerland, Thailand, Ireland, France, the United Kingdom, and Luxembourg.
Hong Kong has developed its debt market with the Exchange Fund bills and notes program. Outstanding Hong Kong Dollar debt stood at USD 155 billion by the end of 2021. The Bond Connect, a mutual market access scheme, allows investors from mainland China and overseas to trade in each other’s respective bond markets through a financial infrastructure linkage in Hong Kong. As of December 2021, northbound trading under Bond Connect has attracted 78 out of the top 100 global asset management companies, and 3,233 international investors from 35 jurisdictions. Southbound trading under Bond Connect was launched in September 2021 to enable mainland institutional investors to invest in offshore bonds through the Hong Kong bond market.
In September 2021, the SFC revised its anti-money laundering (AML) and counter-financing of terrorism guidelines. The updated guidelines require financial institutions to apply additional due diligence and risk mitigation measures for cross-border correspondent relationships in the securities sector, such as determining through publicly available information whether the respondent institution has been subject to targeted financial sanctions or regulatory actions and obtaining senior management’s approval before establishing cross-border correspondent relationships. The guidelines also prohibit financial institutions from establishing or continuing a cross-border correspondent relationship with a shell financial institution.
In February 2021, the HKG announced it would issue green bonds regularly and expand the scale of the Government Green Bond Program to USD 22.5 billion within the next five years. In November 2021, the HKG issued USD 3 billion worth of U.S.- and euro- denominated green bonds and its inaugural offering of renminbi-denominated bonds. In February 2022, the HKG also announced that it would issue about USD 800 million worth of retail green bonds for the first time, with proceeds from the sale used for sustainable projects in the city.
The HKG requires workers and employers to contribute to retirement funds under the Mandatory Provident Fund (MPF) scheme. Contributions are expected to channel roughly USD five billion annually into various investment vehicles. By December of 2021, the net asset values of MPF funds amounted to USD 152 billion.
A new listing regime for special purpose acquisition companies (SPACs) took effect on January 1, 2022 to provide an alternative to the traditional initial public offering (IPO) route. Under the city’s listing regime, a SPAC is required to raise IPO funds of a minimum of USD 130 million, and the trading of SPAC securities is restricted to professional and institutional investors only. Aquila Acquisition Corp, a SPAC backed by the asset management arm of mainland Chinese brokerage CMB International, made its trading debut on March 18, 2022. As of March 2022, the Hong Kong Stock Exchange has accepted a total of eleven SPAC applications.
Hong Kong has a three-tier system of deposit-taking institutions: licensed banks (159), restricted license banks (15), and deposit-taking companies (12). HSBC is Hong Kong’s largest banking group. With its majority-owned subsidiary Hang Seng Bank, HSBC controls more than 52.9 percent of total assets of banks in Hong Kong, followed by the Bank of China (Hong Kong), with 14.9 percent of total assets throughout 190 branches. In total, the five largest banks in Hong Kong had more than USD 2 trillion in total assets at the end of 2020. Full implementation of the Basel III capital, liquidity, and disclosure requirements was completed in 2019.
Hong Kong is a burgeoning cryptocurrency and digital asset hub in Asia. Cryptocurrency exchanges remain minimally regulated, despite a largescale crackdown in the Mainland. HKMA has announced plans to increase oversight of the market in an effort to combat scams and reduce volatility. In January 2022, HKMA announced plans for new crypto regulations, including guidelines for payment with stablecoins, investor protection policies, and digital asset authorities for licensed financial institutions.
Credit in Hong Kong is allocated on market terms and is available to foreign investors on a non-discriminatory basis. The private sector has access to the full spectrum of credit instruments as provided by Hong Kong’s banking and financial system. Legal, regulatory, and accounting systems are transparent and consistent with international norms. The HKMA, the de facto central bank, is responsible for maintaining the stability of the banking system and managing the Exchange Fund that backs Hong Kong’s currency. Real Time Gross Settlement helps minimize risks in the payment system and brings Hong Kong in line with international standards.
Banks in Hong Kong have in recent years strengthened anti-money laundering and counterterrorist financing controls, including the adoption of more stringent customer due diligence (CDD) process for existing and new customers. The HKMA stressed that “CDD measures adopted by banks must be proportionate to the risk level and banks are not required to implement overly stringent CDD processes.”
In May 2021, the HKG concluded a three-month consultation on legislative proposals to enhance Hong Kong’s anti-money laundering and counter-terrorist financing regime through the introduction of a licensing requirement for virtual asset services providers and a registration system for dealers in precious metals and stones. The government has yet to introduce a bill into the Legislative Council, as of end February 2022.
The NSL granted police the authority to freeze assets related to national security-related crimes. In June 2021 Hong Kong authorities froze the assets of flagship pro-democracy newspaper Apple Daily, which was subsequently forced to close. The HKMA advised banks in Hong Kong to report any transactions suspected of violating the NSL, following the same procedures as for money laundering. Hong Kong authorities reportedly asked financial institutions to freeze the bank accounts of media companies, former lawmakers, civil society groups, and other political targets who appear to be under investigation for their pro-democracy activities. Banks are also advised to disclose related property of clients who are found in breach of the NSL, according to the October 2021 guideline developed by the Hong Kong Association of Banks.
The HKMA welcomes the establishment of virtual banks, which are subject to the same set of supervisory principles and requirements applicable to conventional banks. The HKMA granted eight virtual banking licenses by the end of February 2022.
The HKMA’s Fintech Facilitation Office (FFO) aims to promote Hong Kong as a fintech hub in Asia. FFO has launched the faster payment system to enable bank customers to make cross-bank/e-wallet payments easily and created a blockchain-based trade finance platform to reduce errors and risks of fraud. The HKMA has signed nine fintech co-operation agreements with the regulatory authorities of Brazil, France, Poland, Singapore, Switzerland, Thailand, the United Arab Emirates, and the United Kingdom.
The Future Fund, Hong Kong’s wealth fund, was established in 2016 with an endowment of USD 28.2 billion. The fund seeks higher returns through long-term investments and adopts a “passive” role as a portfolio investor. About half of the Future Fund has been deployed in alternative assets, mainly global private equity and overseas real estate, over a three-year period. The rest is placed with the Exchange Fund’s Investment Portfolio, which follows the Santiago Principles, for an initial ten-year period. In February 2020, the HKG announced that it will deploy 10 percent of the Future Fund to establish a new portfolio, which is called the Hong Kong Growth Portfolio (HKGP), focusing on domestic investments to lift the city’s competitiveness in financial services, commerce, aviation, logistics and innovation. Announced in February 2022, the HKG will inject HK$10 billion (USD 1.3 billion) to the HKGP, of which half will be used to set up the Strategic Tech Fund, and the other half will be used to set up a GBA Investment Fund.
7. State-Owned Enterprises
Hong Kong has several major HKG-owned enterprises classified as “statutory bodies.” Hong Kong is party to the Government Procurement Agreement (GPA) within the WTO framework. Annex 3 of the GPA lists as statutory bodies the Housing Authority, the Hospital Authority, the Airport Authority, the Mass Transit Railway Corporation Limited, and the Kowloon-Canton Railway Corporation, which procure in accordance with the agreement.
The HKG provides more than half the population with subsidized housing, along with most hospital and education services from childhood through the university level. The government also owns major business enterprises, including the stock exchange, railway, and airport.
Conflicts occasionally arise between the government’s roles as owner and policymaker. Industry observers have recommended that the government establish a separate entity to coordinate its ownership of government-held enterprises and initiate a transparent process of nomination to the boards of government-affiliated entities. Other recommendations from the private sector include establishing a clear separation between industrial policy and the government’s ownership function and minimizing exemptions of government-affiliated enterprises from general laws.
The Competition Law exempts all but six of the statutory bodies from the law’s purview. While the government’s private sector ownership interests do not materially impede competition in Hong Kong’s most important economic sectors, industry representatives have encouraged the government to adhere more closely to the Guidelines on Corporate Governance of State-owned Enterprises of the Organization for Economic Cooperation and Development (OECD).
All major utilities in Hong Kong, except water, are owned and operated by private enterprises, usually under an agreement framework by which the HKG regulates each utility’s management.
8. Responsible Business Conduct
The Hong Kong Stock Exchange adopts a higher standard of disclosure – ‘comply or explain’ – about its environmental key performance indicators for listed companies. Results of a consultation process to review its ESG reporting guidelines indicate strong support for enhancing the ESG reporting framework. It has implemented proposals from the consultation process since July 2020. Hong Kong is not a signatory of the Montreux Document on Private Military and Security Companies. Under the Security Bureau, the Security and Guarding Services Industry Authority is responsible for formulating issuing criteria and conditions for security company licenses and security personnel permits and determining applications for security company licenses.
In October 2021, the HKG announced its Climate Action Plan 2050, outlining strategies and targets for combating climate change and achieving carbon neutrality by 2050. Major decarbonization strategies cover four key areas, including net-zero electricity generation by ceasing the use of coal for daily electricity generation and increasing the share of renewable energy in the fuel mix for electricity generation to 15 percent, energy savings and green buildings, green transport, and waste reduction. The HKG will devote about USD 31 billion to take forward various measures on climate change mitigation and adaptation in the next 15 to 20 years.
The HKG has prioritized becoming a regional green finance hub and has introduced a number of initiatives over the last year to promote green finance, including mandating climate-related disclosures aligned with the Task Force on Climate-related Financial Disclosures recommendations by 2025, conducting the first climate stress test for the banking sector, and expanding the HKG’s Green Bond Program. Additionally, the HKG has announced it is exploring options to develop Hong Kong as a regional carbon trading hub.
The government offers several financial incentives to promote the adoption of electric vehicles (EVs) and to enhance EV charging infrastructure to attain zero vehicular emissions before 2050. The HKG extended the first registration tax concession period for EVs to March 31, 2024 and continues to allow enterprises to claim full profits tax deduction for their capital expenditure on the procurements of EVs in the first year. Gross floor area concessions were also granted to encourage developers to install more EV charging-enabled infrastructure in residential and commercial buildings.
In December 2020, a USD 25.6 million Green Tech Fund (GTF) began accepting applications. The GTF provides funding support to R&D projects which can help Hong Kong decarbonize and enhance environmental protection. Announced in February 2022, the HKG will inject an additional of USD 25.6 million to the GTF. A total of fourteen projects have been approved since the GTF was launched, and most of them are initiated by universities in Hong Kong.
Mainland China ratified the United Nations Convention Against Corruption in January 2006, and it was extended to Hong Kong in February 2006. The Independent Commission Against Corruption (ICAC) is responsible for combating corruption and has helped Hong Kong develop a track record for combating corruption. U.S. firms have not identified corruption as an obstacle to FDI. A bribe to a foreign official is a criminal act, as is the giving or accepting of bribes, for both private individuals and government employees. Offenses are punishable by imprisonment and large fines.
The Hong Kong Ethics Development Center (HKEDC), established by the ICAC, promotes business and professional ethics to sustain a level-playing field in Hong Kong. The International Good Practice Guidance – Defining and Developing an Effective Code of Conduct for Organizations of the Professional Accountants in Business Committee published by the International Federation of Accountants (IFAC) and is in use with the permission of IFAC.
Simon Peh, Commissioner
Independent Commission Against Corruption
303 Java Road, North Point, Hong Kong
10. Political and Security Environment
Beijing’s imposition of the National Security Law (NSL) on June 30, 2020 has introduced heightened uncertainties for companies operating in Hong Kong. As a result, U.S. citizens traveling through or residing in Hong Kong may be subject to increased levels of surveillance, as well as arbitrary enforcement of laws and detention for purposes other than maintaining law and order.
As of March 2022, police have carried out at least 160 arrests of opposition politicians and activists for alleged “national security” offenses, including one U.S. citizen, in an effort to suppress pro-democracy views and political activity in the city. Police have also reportedly issued arrest warrants under the NSL for at least thirty individuals residing abroad, including U.S. citizens. Since June 2019, police have arrested over 10,000 people on various charges in connection with largely peaceful protests against government policies.
Please see the July 16, 2021 business advisory issued by the Department of State, along with the Department of the Treasury, the Department of Commerce, and the Department of Homeland Security, for a facts-based analysis of the risks for companies operating in Hong Kong.
As a result of Hong Kong’s decreased autonomy from China, the Department of Commerce removed many of the Department of Commerce’s License Exceptions. U.S. Customs and Borders Protection (CBP) requires goods produced in Hong Kong to be marked to show China, rather than Hong Kong, as their country of origin. This requirement took effect November 9, 2020. It does not affect country of origin determinations for purposes of assessing ordinary duties or temporary or additional duties. Hong Kong has requested World Trade Organization dispute consultations to examine the issue. As of March 2022, the Department of Treasury has sanctioned 42 Hong Kong and PRC officials for their role in undermining Hong Kong’s high-degree of autonomy as guaranteed by the Sino-British Joint Declaration.
The PRC government does not recognize dual nationality. In January 2021, the HKG moved to enforce existing provisions of the Nationality Law of the People’s Republic of China in place since 1997, effectively ending its longstanding recognition of dual citizenship in Hong Kong. The action ended consular access to two detained U.S. citizens as of March 2021 and potentially removed our ability to provide fulsome consular assistance to about half of the estimated 85,000 U.S. citizens then residing in Hong Kong. U.S.-PRC, U.S.-Hong Kong and U.S. citizens of Chinese heritage may be subject to additional scrutiny and harassment, and the mainland government may prevent the U.S. Embassy or U.S. consulate from providing consular services.
Hong Kong financial regulators have conducted outreach to stress the importance of robust anti-money laundering (AML) controls and highlight potential criminal sanctions implications for failure to fulfill legal obligations under local AML laws. However, Hong Kong has a low number of prosecutions and convictions compared to the number of cases investigated.
Under the President’s Executive Order on Hong Kong Normalization, the United States notified the Hong Kong authorities in August 2020 of its suspension of the Agreement between the Government of the United States of America and the Government of Hong Kong for the Surrender of Fugitive Offenders and termination of the Agreement between the Government of the United States of America and the Government of Hong Kong for the Transfer of Sentenced Persons. The United States also gave notice of its termination of the Agreement Concerning Tax Exemptions from the Income Derived from the International Operation of Ships. In response, the HKG notified the United States of its purported suspension of the Agreement Between the Government of the United States of America and the Government of Hong Kong on Mutual Legal Assistance in Criminal Matters.
11. Labor Policies and Practices
Hong Kong’s unemployment rate stood at 3.9 percent in the fourth quarter of 2021. The labor participation rate for men was 65 percent, while that for women was 54 percent. In 2021, skilled personnel working as administrators, managers, professionals, and associate professionals accounted for about 40 percent of the total working population. At the end of 2021, there were about 321,900 foreign domestic helpers, overwhelmingly women, working in Hong Kong. In 2021, about 13,800 foreign professionals, including 1,129 from the United States, came to work in the city under the city’s General Employment Policy, a five percent year-on-year decrease. The Employees Retraining Board provides skills re-training for local employees. To address a shortage of highly skilled technical and financial professionals, the HKG seeks to attract qualified foreign and mainland Chinese workers.
The Employment Ordinance (EO) and the Employees’ Compensation Ordinance prohibit the termination of employment in certain circumstances: 1) Any pregnant employee who has at least four weeks’ service and who has served notice of her pregnancy; 2) Any employee who is on paid statutory sick leave and; 3) Any employee who gives evidence or information in connection with the enforcement of the EO or relating to any accident at work, cooperates in any investigation of his employer, is involved in trade union activity, or serves jury duty may not be dismissed because of those circumstances. Breach of these prohibitions is a criminal offense.
According to the EO, someone employed under a continuous contract for not less than 24 months is eligible for severance payment if: 1) dismissed by reason of redundancy; 2) under a fixed term employment contract that expires without being renewed due to redundancy; or 3) laid off.
Unemployment benefits are income- and asset-tested on an individual basis if living alone; if living with other family members, the total income and assets of all family members are taken into consideration for eligibility. Recipients must be between the ages of 15-59, capable of work, and actively seeking full-time employment.
Parties in a labor dispute can consult the free and voluntary conciliation service offered by the Labor Department (LD). A conciliation officer appointed by the LD will help parties reach a contractually binding settlement. If there is no settlement, parties can start proceedings with the Labor Tribunal (LT), which can then be raised to the Court of First Instance, and finally the Court of Appeal for leave to appeal. The Court of Appeal can grant leave only if the case concerns a question of law of general public importance.
Local law provides for the rights of association and of workers to establish and join organizations of their own choosing, but the HKG took repeated actions that contrary to the principle of union independence. As of 2020, Hong Kong’s 1,355 registered employee unions had 907,839 members, a participation rate of about 25.6 percent. In 2021, however, threats and pressure from HKG and mainland officials, as well as from mainland-supported media outlets, led many unions and their confederations to disband. This included the Hong Kong Professional Teachers’ Union, Hong Kong’s largest union, as well as the Hong Kong Confederation of Trade Unions, which included more than 80 unions from a variety of trades and had more than 100,000 members.
Hong Kong’s labor legislation is in line with its international law obligations. Hong Kong has implemented 41 conventions of the International Labor Organization in full, and 18 others with modifications. Workers who allege discrimination against unions have the right to a hearing by the Labor Relations Tribunal. Legislation protects the right to strike. Collective bargaining is not protected by Hong Kong law; there is no obligation to engage in it; and it is not widely used. For more information on labor regulations in Hong Kong, please visit the following website: http://www.labour.gov.hk/eng/legislat/contentA.htm (Chapter 57 “Employment Ordinance”).
The LT has the power to make an order for reinstatement or re-engagement without securing the employer’s approval if it deems an employee has been unreasonably and unlawfully dismissed. If the employer does not reinstate or re-engage the employee as required by the order, the employer must pay to the employee a sum amounting to three times the employee’s average monthly wages up to USD 9,300. The employer commits an offense if he/she willfully and without reasonable excuse fails to pay the additional sum.
Recent changes to benefits and minimum wage are detailed as follows; as of January 2019, male employees are entitled to five days’ paternity leave (increased from three days). Effective May 2019, the statutory minimum hourly wage rate increased from USD 4.4 to USD 4.8. As of December 2020, the statutory maternity leave increased to fourteen weeks from ten weeks.
In November 2021, about 300 couriers working for a food delivery company engaged in a two-day strike, demanding increases in pay and work conditions. The strike ended after the company pledged to increase workers’ pay and make changes to the way it treated workers.
In February 2022, the HKG amended the EO to address issues arising from the city’s COVID measures. The amendment stipulates that employees’ absence from work for the purpose of complying with the government’s COVID restrictions under the Prevention & Control of Disease Ordinance will be deemed as sickness days under the Employment Ordinance. Laying off an employee for complying with government’s COVID restriction would be an unreasonable dismissal. In addition, the amendment allows an employer to dismiss an employee for non-compliance with the vaccination requirement or failure to produce proof of having been vaccinated, by any of the COVID vaccines recognized by HKG, after the employer requests proof after a specified period of time.
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical source*
USG or international statistical source
USG or International Source of Data: BEA; IMF; Eurostat; UNCTAD, Other
Host Country Gross Domestic Product (GDP) ($M USD)
* Source for Host Country Data: Hong Kong Census and Statistics Department
Table 3: Sources and Destination of FDI
Direct Investment from/in Counterpart Economy Data (2020, latest available data)
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment
Outward Direct Investment
British Virgin Islands
China, P.R.: Mainland
China, P.R.: Mainland
British Virgin Islands
“0” reflects amounts rounded to +/- USD 500,000.
14. Contact for More Information
Eveline Tseng, Consul, Economic Affairs
U.S. Consulate General Hong Kong and Macau
26 Garden Road, Central
The Government of India continued to actively court foreign investment. In the wake of COVID-19, India enacted ambitious structural economic reforms that should help attract private and foreign direct investment (FDI). In February 2021, the Finance Minister announced plans to raise $2.4 billion though an ambitious privatization program that would dramatically reduce the government’s role in the economy. In March 2021, parliament further liberalized India’s insurance sector, increasing FDI limits to 74 percent from 49 percent, though still requiring a majority of the Board of Directors and management personnel to be Indian nationals.
Parliament passed the Taxation Laws (Amendment) Bill on August 6, 2021, repealing a law adopted by the Congress-led government of Manmohan Singh in 2012 that taxed companies retroactively. The Finance Minister also said the Indian government will refund disputed amounts from outstanding cases under the old law. While Prime Minister Modi’s government had pledged never to impose retroactive taxes, prior outstanding claims and litigation led to huge penalties for Cairn Energy and telecom operator Vodafone. Both Indian and U.S. business have long advocated for the formal repeal of the 2012 legislation to improve certainty over taxation policy and liabilities.
India continued to increase and enhance implementation of the roughly $2 trillion in proposed infrastructure projects catalogued, for the first time, in the 2019-2024 National Infrastructure Pipeline. The government’s FY 2021-22 budget included a 35 percent increase in spending on infrastructure projects. In November 2021, Prime Minister Modi launched the “Gati Shakti” (“Speed Power”) initiative to overcome India’s siloed approach to infrastructure planning, which Indian officials argue has historically resulted in inefficacies, wasteful expenditures, and stalled projects. India’s infrastructure gaps are blamed for higher operational costs, especially for manufacturing, that hinder investment.
Despite this progress, India remains a challenging place to do business. New protectionist measures, including strict enforcement and potential expansion of data localization measures, increased tariffs, sanitary and phytosanitary measures not based on science, and Indian-specific standards not aligned with international standards effectively closed off producers from global supply chains and restricted the expansion in bilateral trade and investment.
The U.S. government continued to urge the Government of India to foster an attractive and reliable investment climate by reducing barriers to investment and minimizing bureaucratic hurdles for businesses.
1. Openness To, and Restrictions Upon, Foreign Investment
Changes in India’s foreign investment rules are notified in two different ways: (1) Press Notes issued by the Department for Promotion of Industry and Internal Trade (DPIIT) for most sectors, and (2) legislative action for insurance, pension funds, and state-owned enterprises in the coal sector. FDI proposals in sensitive sectors will, however, require the additional approval of the Home Ministry.
The DPIIT, under the Ministry of Commerce and Industry, is the lead investment agency, responsible for the formulation of FDI policy and the facilitation of FDI inflows. It compiles all policies related to India’s FDI regime into a single document that is updated every year. This updated policy compilation can be accessed at: http://dipp.nic.in/foreign-direct–investment/foreign–direct–investment-policy. The DPIIT disseminates information about India’s investment climate and, through the Foreign Investment Implementation Authority (FIIA), plays an active role in resolving foreign investors’ project implementation problems. The DPIIT oftentimes consults with lead ministries and stakeholders. However, there have been specific incidences where some relevant stakeholders reported being left out of consultations.
In most sectors, foreign and domestic private entities can establish and own businesses and engage in remunerative activities. However, there are sectors of the economy where the government continues to retain equity limits for foreign capital as well as management and control restrictions. For example, India caps FDI in the Insurance Sector at 74 percent and mandates that insurance companies retain “Indian management and control.” Similarly, India allows up to 100 percent FDI in domestic airlines but has yet to clarify governing substantial ownership and effective control (SOEC) rules. A list of investment caps is accessible in the DPIIT’s consolidated FDI circular at: https://dpiit.gov.in/foreign-direct-investment/foreign-direct-investment-policy.
The Indian Government has continued to liberalize FDI policies across sectors. Notable changes during 2021 included:
Increasing the FDI cap for the insurance sector to 74 percent from 49 percent, albeit while retaining an “Indian management and control” requirement.
Increased the FDI cap for the pensions sector to 74 percent from 49 percent. The rider of “Indian management and control” is applicable in the pension sector.
Eliminated the FDI cap in the telecom sector. 100 percent FDI allowed for insurance intermediaries.
Eliminated the FDI cap for insurance intermediaries and state-run oil companies.
Increased the FDI cap for defense manufacturing units to 74 percent from 49 percent and up to 100 percent if the investment is approved under the Government Route review process.
Since the abolition of the Foreign Investment Promotion Board (FIPB) in 2017, FDI screening has been progressively liberalized and decentralized. All FDI into India must complete either an “Automatic Route” or “Government Route” review process. FDI in most sectors fall under the Automatic Route, which simply requires a foreign investor to notify India’s central bank, the Reserve Bank of India (RBI), and comply with relevant domestic laws and regulations for that sector. In contrast, investments in specified sensitive sectors – such as defense – require review under the Government Route to obtain the prior approval of the ministry with jurisdiction over the relevant sector along with the concurrence of the DPIIT.
In 2020, India issued Press Note 3 requiring all proposed FDI by nonresident entities located in (or having “beneficial owners” in) countries that share a land border with India to obtain prior approval via the Government Route. This screening requirement applies regardless of the size of the proposed investment or relevant sector. The rule primarily impacted the People’s Republic of China, whose companies had more FDI in India, but other neighboring countries affected include Pakistan, Bangladesh, Nepal, Myanmar, and Bhutan.
The DPIIT is responsible for formulation and implementation of promotional and developmental measures for growth of the industrial sector. The DPIIT also is responsible for the overall industrial policy and facilitating and increasing FDI flows to the country.
However, InvestIndia is the government’s lead investment promotion and facilitation agency and is managed in partnership with the DPIIT, state governments, and business chambers. Invest India works with investors through their investment lifecycle to provide support with market entry strategies, deep dive industry analysis, partner search, and policy advocacy as required. Businesses can register online through the Ministry of Corporate Affairs (MCA) website: http://www.mca.gov.in/.
To fast-track the regulatory approval process, particularly for major projects, the government created the digital multi-modal Pro-Active Governance and Timely Implementation (PRAGATI) initiative in 2015. The Prime Minister personally monitors the PRAGATI process, to ensure government entities meet project deadlines. As of September 2021, the Prime Minister had chaired 38 PRAGATI meetings with 297 projects, worth around $200 billion, approved and cleared. In 2014, the government also formed an inter-ministerial committee, led by the DPIIT, to track investment proposals requiring inter-ministerial approvals. Business and government sources report this committee meets informally on an ad hoc basis as they receive reports from companies and business chambers seeking assistance with stalled projects.
According to data from the Ministry of Commerce’s India Brand Equity Foundation (IBEF), outbound investment from India has both increased and changed which countries and sectors it targets. During the last ten years, Overseas Investment Destination (OID) shifted away from resource-rich countries, such as Australia, UAE, and Sudan, toward countries providing higher tax benefits, such as Mauritius, Singapore, the British Virgin Islands, and the Netherlands. Indian firms invest overseas primarily through mergers and acquisitions (M&A) to get direct access to newer and more extensive markets and better technologies and increasingly achieve a global reach. According to RBI data, outward investment from India in 2021 totaled around $29 billion compared with around $30 billion the previous year. The RBI’s recorded total of outward investment includes equity capital, loans, and issuance of guarantees.
3. Legal Regime
Policies pertaining to foreign investments are framed by the DPIIT, and implementation is undertaken by lead federal ministries and sub-national counterparts. Some government policies are written in a way that can be discriminatory to foreign investors or favor domestic industry. For example, India bars foreign investors from engaging in multi-brand retail, which also limits foreign e-Commerce investors to a “market-place model.” On most occasions major rules are framed after thorough discussions by government authorities and require the approval of the cabinet and, in some cases, the Parliament as well. However, in some instances the rules have been enacted without any consultative process.
The Indian Accounting Standards were issued under the supervision and control of the Accounting Standards Board, a committee under the Institute of Chartered Accountants of India (ICAI), and has government, academic, and professional representatives. The Indian Accounting Standards are named and numbered in the same way as the corresponding International Financial Reporting Standards. The National Advisory Committee on Accounting Standards recommends these standards to the MCA, which all listed companies must then adopt. These can be accessed at: https://www.mca.gov.in/content/mca/global/en/acts-rules/ebooks/accounting-standards.html
India is a member of the South Asia Association for Regional Cooperation (SAARC), an eight- member regional block in South Asia. India’s regulatory systems are aligned with SAARC’s economic agreements, visa regimes, and investment rules. Dispute resolution in India has been through tribunals, which are quasi-judicial bodies. India has been a member of the WTO since 1995, and generally notifies all draft technical regulations to the WTO Committee on Technical Barriers to Trade; however, at times there are delays in publishing the notifications. The Governments of India and the United States cooperate in areas such as standards, trade facilitation, competition, and antidumping practices.
India adopted its legal system from English law and the basic principles of the Common Law as applied in the UK are largely prevalent in India. However, foreign companies need to adjust for Indian law when negotiating and drafting contracts in India to ensure adequate protection in case of breach of contract. The Indian judiciary provides for an integrated system of courts to administer both central and state laws. The judicial system includes the Supreme Court as the highest national court, as well as a High Court in each state or a group of states which covers a hierarchy of subordinate courts. Article 141 of the Constitution of India provides that a decision declared by the Supreme Court shall be binding on all courts within the territory of India. Apart from courts, tribunals are also vested with judicial or quasi-judicial powers by special statutes to decide controversies or disputes relating to specified areas.
Courts have maintained that the independence of the judiciary is a basic feature of the Constitution, which provides the judiciary institutional independence from the executive and legislative branches.
The government has a policy framework on FDI, which is updated every year and formally notified as the Consolidated FDI Policy (https://dpiit.gov.in/foreign-direct-investment/foreign-direct-investment-policy). The DPIIT issues policy pronouncements on FDI through the Consolidated FDI Policy Circular, Press Notes, and press releases that are also notified by the Ministry of Finance as amendments to the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 under the Foreign Exchange Management Act (FEMA), 1999. These notifications take effect from the date of issuance of the Press Notes/Press Releases, unless specified otherwise therein. In case of any conflict, the relevant Notification under the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 will prevail. The payment of inward remittance and reporting requirements are stipulated under the Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) Regulations, 2019 issued by the RBI.
The government has introduced “Make in India” and “Self-Reliant India” programs that include investment policies designed to promote domestic manufacturing and attract foreign investment. The “Digital India” program aims to open new avenues for the growth of the information technology sector. The “Start-up India” program creates incentives to enable start-ups to become commercially viable and grow. The “Smart Cities” program creates new avenues for industrial technological investment opportunities in select urban areas.
The central government has successfully established independent and effective regulators in telecommunications, banking, securities, insurance, and pensions. India’s antitrust body, the Competition Commission of India (CCI) reviews cases against cartelization and abuse of dominance and is a well-regarded regulator. The CCI’s investigations wing is required to seek the approval of the local chief metropolitan magistrate for any search and seizure operations. The CCI conducts capacity-building programs for government officials and businesses.
Tax experts confirm that India does not have domestic expropriation laws in place. The Indian Parliament on August 6, 2021, repealed a 2012 law that authorized retroactive taxation. In first proposing the repeal on August 5, Finance Minister Nirmala Sitharaman committed the government to refund the disputed amounts from outstanding cases under the old law. The Indian government has been divesting from state owned enterprises (SOEs) since 1991. In February 2021, the Finance Minister detailed an ambitious program to privatize roughly $24 billion in state owned enterprises as part of the FY 2021-22 (March 31-April 1) budget.
India made resolving contract disputes and insolvency easier with the enactment of the Insolvency and Bankruptcy Code (IBC) in 2016. The World Bank noted that the IBC introduced the option of insolvency resolution for commercial entities as an alternative to liquidation or other mechanisms of debt enforcement, reshaping the way insolvent companies can restore their financial well-being or are liquidated. The IBC created effective tools for creditors to successfully negotiate and receive payments. As a result, the overall recovery rate for creditors jumped from 26.5 to 71.6 cents on the dollar, and the time required for resolving insolvency also was reduced from 4.3 years to 1.6 years. India is now, by far, one of the best performers in South Asia in resolving insolvency and does better than the average for OECD high-income economies in terms of the recovery rate, time taken, and cost of proceedings.
India enacted the Arbitration and Conciliation Act in 1996, based on the United Nations Commission on International Trade Law (UNCITRAL) model to align its adjudication of commercial contract dispute resolution mechanisms with global standards. The government established the International Center for Alternative Dispute Resolution (ICADR) as an autonomous organization under the Ministry of Law and Justice to promote the settlement of domestic and international disputes through alternate dispute resolution. The World Bank has also funded ICADR to conduct training for mediators in commercial dispute settlement.
Judgments of foreign courts have been enforced under multilateral conventions, including the Geneva Convention. India is a signatory to the convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention). However, Indian firms are known to file lawsuits in domestic courts to delay paying an arbitral award. Several cases are currently pending, the oldest of which dates to 1983. In 2021, Amazon received an interim award against Future Retail from the Singapore International Arbitration Centre. However, Future Retail has refused to accept the findings and initiated litigation in Indian courts. India is not a member state to the International Centre for the Settlement of Investment Disputes (ICSID).
The Permanent Court of Arbitration (PCA) at The Hague and the Indian Law Ministry agreed in 2007 to establish a regional PCA office in New Delhi, although this remains pending. The office would provide an arbitration forum to match the facilities offered at The Hague but at a lower cost.
In November 2009, the Department of Revenue’s Central Board of Direct Taxes established eight dispute resolution panels across the country to settle the transfer-pricing tax disputes of domestic and foreign companies. In 2016 the government approved amendments that would allow Commercial Courts, Commercial Divisions, and Commercial Appellate Divisions of the High Courts Act to establish specialized commercial divisions within domestic courts to settle long-pending commercial disputes.
Since formal dispute resolution is expensive and time consuming, many businesses choose methods, including ADR, for resolving disputes. The most used ADRs are arbitration and mediation. India has enacted the Arbitration and Conciliation Act based on the UNCITRAL Model Law. In cases that involve constitutional or criminal law, traditional litigation remains necessary.
The introduction and implementation of the IBC in 2016 overhauled of the previous framework for insolvency with much-needed reforms. The IBC created a uniform and comprehensive creditor-driven insolvency resolution process that encompasses all companies, partnerships, and individuals (other than financial firms). According to the World Bank, the time required for resolving insolvency was reduced significantly from 4.3 years to 1.6 years after implementation of the IBC. The law, however, does not provide for U.S. style Chapter 11 bankruptcy provisions.
In August 2016, the Indian Parliament passed amendments to the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, and the Debt Recovery Tribunals Act. These amendments targeted helping banks and financial institutions recover loans more effectively, encouraging the establishment of more asset reconstruction companies (ARCs), and revamping debt recovery tribunals. The Finance Minister announced in her February 2021 budget speech to Parliament plans to establish the National Asset Reconstruction Company Limited (NARCL), or “bad bank” to resolve large cases of corporate stress. In October 2021, the RBI approved the license to set up the NARCL.
On May 10, 2021, the Securities and Exchange Board of India (SEBI) issued a circular to introduce new environment, social, and governance (ESG) reporting requirements for the top 1,000 listed companies by market capitalization. According to this circular, new disclosure will be made in the format of the Business Responsibility and Sustainability Report (BRSR), which is a notable departure from SEBI’s existing Business Responsibility Report and a significant step toward bringing sustainability reporting up to existing financial reporting standards. BRSR reporting will be voluntary for FY 2021-22 and mandatory from FY 2022-23 for the top 1,000 listed companies by market capitalization. This is to provide companies subject to these requirements with sufficient time to adapt to the new requirements.
4. Industrial Policies
The regulatory environment in terms of foreign investment has been eased to make it investor friendly. The measures taken by the government opened new sectors for foreign direct investment, increased the investment limit of existing sectors, and simplified other conditions of the FDI policy. The government also adopted production linked incentives to promote manufacturing in pharmaceuticals, automobiles, textiles, electronics, and other sectors. Details can be accessed at- https://www.investindia.gov.in/production-linked-incentives-schemes-india
The government established several foreign trade zone initiatives to encourage export-oriented production. These include Special Economic Zones (SEZs), Export Processing Zones (EPZs), Software Technology Parks (STPs), and Export Oriented Units (EOUs). According to the Ministry of Commerce and Industry, as of February 2022, 425 SEZ’s have been approved and 376 SEZs were operational with 5,604 operating units. The SEZs are treated as foreign territory, and businesses operating within the zones are not subject to customs regulations, FDI equity caps, or industrial licensing requirements and enjoy tax holidays and other tax breaks. Since 2018, the Indian government also announced guidelines for the establishment of the National Industrial and Manufacturing Zones (NIMZs), envisaged as integrated industrial townships to be managed by a special purpose vehicle and led by a government official. So far, three NIMZs have received “final approval” and 13 more have received “in-principal approval.” In addition, eight investment regions along the Delhi-Mumbai Industrial Corridor (DIMC) have also been established as NIMZs. EPZs are industrial parks with incentives for foreign investors in export-oriented businesses. STPs are special zones with similar incentives for software exports. EOUs are industrial companies, established anywhere in India, that export their entire production and are granted duty-free import of intermediate goods; income tax holidays; exemption from excise tax on capital goods, components, and raw materials; and a waiver on sales taxes. These initiatives are governed by separate rules and granted different benefits, details of which can be found at: http://www.sezindia.nic.in,
The Indian government does issue guarantees to investments but only for strategic industries.
The government has an ambitious target of installing 500 gigawatts of renewable energy (RE) by 2030 and has introduced several schemes and policies supporting clean energy deployment. State governments used to provide feed-in tariffs during the initial stages of RE development. However, with the RE sector becoming competitive, the scheme was discontinued in 2016. Most projects now are awarded through a Tariff Based Competitive Bidding Process. The Ministry of New & Renewable Energy (MNRE) provides ‘Must Run’ status to RE projects. MNRE offers Production Linked Incentives (PLI) under the National Program on High Efficiency Solar PV Modules. The PLI scheme was initially offered for just under $617 million and was oversubscribed. Under the FY 2022-23 budget, it was expanded by another $2.6 billion. The Ministry of Heavy Industry (MHI) launched the National Electric Mobility Mission to provide a roadmap for the faster adoption of electric vehicles. Can be accessed at https://policy.asiapacificenergy.org/sites/default/files/National%20Electric%20Mobility%20Mission%20Plan%202020.pdf . MHI also launched a PLI scheme National Program on Advance Chemistry Cell (ACC) Battery Storage to promote battery manufacturing. The Department of Science & Technology leads Carbon Capture Utilization & Storage (CCUS) efforts to enable near-zero CO2 emissions from power plants and carbon-intensive industries with the program limited to R&D and pilots. The Bureau of Energy Efficiency (BEE) leads the National Mission on Enhanced Energy Efficiency and manages several programs promoting Energy Efficiency across sectors, including buildings, E-Mobility, fuel efficiency for heavy duty vehicles and passenger cars, demand side management, standards, and labelling and certification. The National Hydrogen Mission was launched in August 2021, with the aim to meeting Climate targets and making India a green hydrogen hub. Carbon Capture Utilization & Storage (CCUS) efforts to enable near-zero CO2 emissions from power plants and carbon-intensive industries with the program limited to R&D and pilots. The Bureau of Energy Efficiency (BEE) leads the National Mission on Enhanced Energy Efficiency and manages several programs promoting Energy Efficiency across sectors, including buildings, E-Mobility, fuel efficiency for heavy duty vehicles and passenger cars, demand side management, standards, and labelling and certification. The National Hydrogen Mission was launched in August 2021, with the aim to meeting Climate targets and making India a green hydrogen hub.
Preferential Market Access (PMA) for government procurement has created substantial challenges for foreign firms operating in India. The government and SOEs give a 20 percent price preference to vendors utilizing more than 50 percent local content. However, PMA for government procurement limits access to the most cost effective and advanced ICT products available. In December 2014, PMA guidelines were revised and reflect the following updates:
Current guidelines emphasize that the promotion of domestic manufacturing is the objective of PMA, while the original premise focused on the linkages between equipment procurement and national security.
Current guidelines on PMA implementation are limited to hardware procurement only. Former guidelines were applicable to both products and services.
Current guidelines widen the pool of eligible PMA bidders, to include authorized distributors, sole selling agents, authorized dealers, or authorized supply houses of the domestic manufacturers of electronic products, in addition to OEMs, provided they comply with the following terms:
The bidder shall furnish the authorization certificate by the domestic manufacturer for selling domestically manufactured electronic products.
The bidder shall furnish the affidavit of self-certification issued by the domestic manufacturer to the procuring agency declaring that the electronic product is domestically manufactured in terms of the domestic value addition prescribed.
It shall be the responsibility of the bidder to furnish other requisite documents required to be issued by the domestic manufacturer to the procuring agency as per the policy.
The current guidelines establish a ceiling on fees linked with the compliance procedure. There would be a complaint fee of roughly $3,000, or one percent of the value of the domestically manufactured electronic product being procured, subject to a maximum of about $7,500, whichever is higher.In January 2017, the Ministry of Electronics & Information Technology (MeitY) issued a draft notification under the PMA policy, stating a preference for domestically manufactured servers in government procurement. A current list of PMA guidelines, notified products, and tendering templates can be found on MeitY’s website: http://meity.gov.in/esdm/pma
In April 2018, the RBI, announced, without prior stakeholder consultation, that all payment system providers must store their Indian transaction data only in India. The RBI mandate went into effect on October 15, 2018, despite repeated requests by industry and U.S. officials for a delay to allow for more consultations. In July 2019, the RBI, again without prior stakeholder consultation, retroactively expanded the scope of its 2018 data localization requirement to include banks, creating potential liabilities going back to late 2018. The RBI policy overwhelmingly and disproportionately has affected U.S. banks and investors, who depend on the free flow of data to both achieve economies of scale and to protect customers by providing global real-time monitoring and analysis of fraud trends and cybersecurity. In 2021, the RBI banned American Express, Diners Club, and Mastercard from issuing new cards for non-compliance with the data localization rule. In November 2021, the RBI deemed Diners Club compliant and permitted them to resume issuing new cards, but the ban on Mastercard and American Express continues.
In addition to the RBI data localization directive for payments companies and banks, the government formally introduced its draft Personal Data Protection Bill (PDPB) in December 2019 which has remained pending in Parliament. The PDPB would require “explicit consent” as a condition for the cross-border transfer of sensitive personal data, requiring users to fill out separate forms for each company that held their data. Additionally, Section 33 of the bill would require a copy of all “sensitive personal data” and “critical personal data” to be stored in India, potentially creating redundant local data storage. The localization of all “sensitive personal data” being processed in India could directly impact IT exports. In the current draft no clear criteria for the classification of “critical personal data” has been included. The PDPB also would grant wide authority for a newly created Data Protection Authority to define terms, develop regulations, or otherwise provide specifics on key aspects of the bill after it becomes a law. The implementation of a New Information Technology Rule through Intermediary Guidelines and a Digital Media Ethics Code added further uncertainty to how existing rules will interact with the PDPB and how non-personal data will be handled.
5. Protection of Property Rights
In India, a registered sales deed does not confer title of land ownership and is merely a record of the sales transaction that only confers presumptive ownership and can still be disputed. Instead, the title is established through a chain of historical transfer documents that originate from the land’s original established owner. Accordingly, before purchasing land, buyers should examine all the documents that establish title from the original owner. Many owners, particularly in urban areas, do not have access to the necessary chain of documents. This increases uncertainty and risks in land transactions.
Several cities, including Delhi, Kolkata, Mumbai, and Chennai, have grown according to a master plan registered with the central government’s Ministry of Urban Development. Property rights are generally well-enforced in such places, and district magistrates – normally senior local government officials – notify land and property registrations. Banks and financial institutions provide mortgages and liens against such registered property.
In other urban areas, and in areas where illegal settlements have been established, titling often remains unclear. The government launched the National Land Records Modernization Program (NLRMP) in 2008 to clarify land records and provide landholders with legal titles. The program requires the government to survey an area of approximately 2.16 million square miles, including over 430 million rural households, 55 million urban households, and 430 million land records. Initially scheduled for completion in 2016, the program is now scheduled to conclude in 2021.
Although land title falls under the jurisdiction of state governments, both the Indian Parliament and state legislatures can make laws governing “acquisition and requisitioning of property.” Land acquisition in India is governed by the Land Acquisition Act (2013), which entered into force in 2014, and continues to be a complicated process due to the lack of an effective legal framework. Land sales require adequate compensation, resettlement of displaced citizens, and 70 percent approval from landowners. The displacement of poorer citizens is politically challenging for local governments.
Foreign and domestic private entities are permitted to establish and own businesses in trading companies, subsidiaries, joint ventures, branch offices, project offices, and liaison offices, subject to certain sector-specific restrictions. The government does not permit FDI in real estate, other than company property used to conduct business and for the development of most types of new commercial and residential properties. Foreign Institutional Investors (FIIs) can invest in initial public offerings (IPOs) of companies engaged in real estate. They can also participate in pre-IPO placements undertaken by real estate companies without regard to FDI restrictions.
Businesses that intend to build facilities on land they own are also required to take the following steps: 1) register the land and seek land use permission if the industry is located outside an industrially zoned area; 2) obtain environmental site approval; 3) seek authorization for electricity and financing; and 4) obtain appropriate approvals for construction plans from the respective state and municipal authorities. Promoters must also obtain industry-specific environmental approvals in compliance with the Water and Air Pollution Control Acts. Petrochemical complexes, petroleum refineries, thermal power plants, bulk drug makers, and manufacturers of fertilizers, dyes, and paper, among others, must also obtain clearance from the Ministry of Environment and Forests.
The Real Estate Act, 2016 aims to protect the rights and interests of consumers and promote uniformity and standardization of business practices and transactions in the real estate sector. Details are available at: http://mohua.gov.in/cms/TheRealEstateAct2016.php
The Foreign Exchange Management Regulations and the Foreign Exchange Management Act set forth the rules that allow foreign entities to own immoveable property in India and convert foreign currencies for the purposes of investing in India. These regulations can be found at: https://www.rbi.org.in/scripts/Fema.aspx. Foreign investors operating under the Automatic Route are allowed the same rights as an Indian citizen for the purchase of immovable property in India in connection with an approved business activity.
Traditional land use rights, including communal rights to forests, pastures, and agricultural land, are protected according to various laws, depending on the land category and community residing on it. Relevant legislation includes the Scheduled Tribes and Other Traditional Forest Dwellers (Recognition of Forest Rights) Act 2006, the Tribal Rights Act, and the Tribal Land Act.
India remained on the Priority Watch List in the USTR Office’s 2022 Special 301 Report due to concerns over weak intellectual property (IP) protection and enforcement. The 2022 Review of Notorious Markets for Counterfeiting and Piracy includes physical and online marketplaces located in or connected to India.
In the field of copyright, procedural hurdles, cumbersome policies, and ineffective enforcement continue to remain concerns. In February 2019, the Cinematograph (Amendment) Bill, 2019, which would criminalize illicit camcording of films, was tabled in the Parliament and remains pending. In June 2021, the Ministry of Information and Broadcasting sought public comments on the Draft Cinematograph (Amendment) Bill, 2021. While the draft Bill proposes to enhance the penalties against piracy envisaged in the earlier 2019 bill, it also creates new concerns for the right holders by exempting all exceptions to copyright infringement covered by Section 52 of the India Copyright Act. The expansive granting of licenses under Chapter VI of the Indian Copyright Act and overly broad exceptions for certain uses have raised concerns regarding the strength of copyright protection and complicated the market for music licensing. In April 2021, India abolished the Intellectual Property Appellate Board (IPAB) and transferred its duties to the High Courts and Commercial Courts, creating uncertainties throughout the IP landscape, including raising concerns regarding the efficient adjudication of contentious IP matters. In addition, the abolishment left open how certain IP royalties will be set, collected, and distributed across the country.
In August 2021, the DPIIT issued a notice requesting stakeholder comments on the recommendation of the July 2021 Department Related Parliamentary Standing Committee on Commerce (DRPSCC) Report to amend Section 31D of the Indian Copyright Act to extend statutory licensing to “internet or digital broadcasters.” The recommendation broadens the scope of statutory licensing to encompass not only radio and television broadcasting, but also online transmissions, despite a High Court ruling earlier in 2019 that held that statutory broadcast licensing does not include online transmissions. If implemented to permit statutory licensing for interactive transmissions, the DRPSCC Report’s recommendation would not only have severe implications for rights holders who make their content available online, but also raise serious concerns about India’s compliance with relevant international obligations.
In the field of patents, the potential threat of compulsory licenses and patent revocations, and the narrow patentability criteria under the Indian Patents Act, burden companies across industry sectors. Patent applications continue to face expensive and time consuming pre- and post-grant oppositions and excessive reporting requirements. In October 2020, India issued a revised “Statement of Working of Patents” (Form 27), required annually by patentees. While some stakeholders have welcomed the revised version of Form 27, concerns remain as to whether the requirement and its associated penalties suppress innovation, and whether Indian authorities will treat as confidential the sensitive business information that parties are required to disclose on the form.
India has made some progress on certain administrative decisions in past years, upholding patent rights, and developing specific tools and remedies to support the rights of a patent holder. Nonetheless, concerns remain over revocations and other challenges to patents, especially patents for agriculture, biotechnology, and pharmaceutical products. In addition to India’s application of its compulsory licensing law, the Indian Supreme Court in 2013 interpreted Section 3(d) of India’s Patent Law, as creating a “second tier of qualifying standards for patenting chemical substances and pharmaceuticals.”
India currently lacks an effective system for protecting against unfair commercial use, as well as unauthorized disclosure, of undisclosed tests or other data generated to obtain marketing approval for pharmaceutical and agricultural products. Investors have raised concerns with respect to allegedly infringing pharmaceuticals being marketed without advance notice or adequate time or opportunity for parties to achieve early resolution of potential IP disputes.
U.S. and Indian companies have advocated for eliminating gaps in India’s trade secrets regime, such as through the adoption of legislation that would specifically address the protection of trade secrets. While India’s National Intellectual Property Rights Policy called in 2016 for trade secrets to serve as an “important area of study for future policy development,” this work has not yet been prioritized.
India issued a revised Manual of Patent Office Practice and Procedure in November 2019 that requires patent examiners to look to the World Intellectual Property Organization’s Centralized Access to Search and Examination (CASE) system and Digital Access Service (DAS) to find prior art and other information filed by patent applicants in other jurisdictions.
Other recent developments include India’s steps toward reducing delays and examination backlogs for patent and trademark applications. In addition, India actively promotes IP awareness and commercialization throughout India through the Cell for IPR Promotion and Management (CIPAM), a professional body under the aegis of the DPIIT, and through the Innovation Cell of the Ministry of Education. Following the IPAB’s abolition in July 2021, the Delhi High Court created an Intellectual Property Division (IPD) to deal with all matters related to Intellectual Property Rights (IPR), including those previously covered by the IPAB.
In July 2021, DRPSCC issued a report on “Review of the Intellectual Property Rights Regime in India” that is largely based on a premise that stronger protection and enforcement of IP would lead to better economic and social development in the country. The report makes many positive recommendations and emphasizes that India’s IP regime should comply with “International agreements, rules and norms” and be compatible with other nations and foreign entities. Some of the DRPSCC’s recommendations are problematic and raise serious concern from the perspective of U.S. innovators and creators, such as those relating to statutory licensing for “internet or digital broadcasters” under copyright law, and compulsory licensing under patent law.
Resources for Intellectual Property Rights Holders:
Indian stocks experienced significant losses at the start of 2021, stemming from the effects of the COVID-19 pandemic on the economy. By midyear, markets began to recover, with India’s stock benchmarks reaching record highs and becoming among the top performers globally. Indian companies raised a combined $15.57 billion through 121 IPOs in 2021, the highest amount ever raised in a single calendar year compared with the previous high of $8.4 billion in 2017.
Foreign investment inflows drove markets higher through February 2021. However, these investments began exiting the market when faced with the potential for faster-than-expected withdrawal of monetary stimulus and the Delta variant of COVID-19. Domestic institutional investors compensated outflows of foreign investment through significant investment in Indian stocks. Foreign investors’ net investment in 2021 was about $7 billion, significantly lower than the $14.5 billion in 2020 and $19 billion in 2019. Domestic investors put about $12.5 billion in 2021 into Indian domestic equity markets. Indian investors opened 27.4 million new stock trading accounts in 2021, up from 10.5 million accounts opened in 2020.
The SEBI is considered one of the most progressive and well-run of India’s regulatory bodies. The SEBI regulates India’s securities markets, including enforcement activities and is India’s direct counterpart to the U.S. Securities and Exchange Commission (SEC). The Board oversees seven exchanges: BSE Ltd. (formerly the Bombay Stock Exchange), the National Stock Exchange (NSE), the Metropolitan Stock Exchange, the Calcutta Stock Exchange, the Multi Commodity Exchange (MCX), the National Commodity & Derivatives Exchange Limited, and the Indian Commodity Exchange.
Foreign venture capital investors (FVCIs) must register with the SEBI to invest in Indian firms. They can also set up domestic asset management companies to manage funds. All such investments are allowed under the automatic route, subject to SEBI and RBI regulations, as well as FDI policy. FVCIs can invest in many sectors, including software, information technology, pharmaceuticals and drugs, biotechnology, nanotechnology, biofuels, agriculture, and infrastructure.
Companies incorporated outside India can raise capital in India’s capital markets through the issuance of Indian Depository Receipts (IDRs) based on SEBI guidelines. Standard Chartered Bank, a British bank was the only foreign entity to list in India but delisted in June 2020. Experts attribute the lack of interest in IDRs to initial entry barriers, lack of clarity on conversion of the IDRs holdings into overseas shares, lack of tax clarity, and the regulator’s failure to popularize the product.
External commercial borrowing (ECB), or direct lending to Indian entities by foreign institutions, is allowed if it conforms to parameters such as minimum maturity; permitted and non-permitted end-uses; maximum all-in-cost ceiling as prescribed by the RBI; funds are used for outward FDI or for domestic investment in industry, infrastructure, hotels, hospitals, software, self-help groups or microfinance activities, or to buy shares in the disinvestment of public sector entities. The rules are published by the RBI: https://rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=11510
According to RBI data, ECB by corporations and non-banking financial companies reached $38.8 billion in 2021. Companies have been increasingly tapping overseas markets for funds to take advantage of low interest rates in global markets. On December 8, 2021, the RBI announced a switch in calculation of interest rates for ECB and trade credits from the London Interbank Offered Rate (LIBOR) to alternative reference rates (ARRs).
The RBI has taken several steps in the past few years to bring the activities of the offshore Indian rupee (INR) market in Non-Deliverable Forwards (NDF) onshore, with the goal of deepening domestic markets, enhancing downstream benefits, and obviating the need for an NDF market. FPIs with access to currency futures or the exchange-traded currency options market can hedge onshore currency risks in India and may directly trade in corporate bonds.
The RBI allowed banks to freely offer foreign exchange quotes to non-resident Indians. The RBI has stated that trading on INR derivatives would be allowed and settled in foreign currencies in International Financial Services Centers (IFSCs). In June 2020, the RBI allowed foreign branches of Indian banks and branches located in IFSCs to participate in the NDF. With the INR trading volume in the offshore market higher than the onshore market, the RBI felt the need to limit the impact of the NDF market and curb volatility in the movement of the INR. In August 2021, the RBI released a working paper discussing the influence of offshore markets on onshore markets.
The International Financial Services Centre at Gujarat International Financial Tech-City (GIFT City) is being developed to compete with global financial hubs. In January 2016, BSE Ltd. was the first exchange to start operations there. The NSE, domestic banks, and foreign banks have also started IFSC banking units in GIFT city. As part of its FY 2021-22 budget proposal, the government recommended establishing an international arbitration center in GIFT City to help facilitate faster resolution of commercial disputes, akin to the operation of the Singapore International Arbitration Centre (SIAC) or London Commercial Arbitration Centre (LCAC).
The public sector remains predominant in the banking sector, with public sector banks (PSBs) accounting for about 66 percent of total banking sector assets. However, the share of public banks in total loans and advances has fallen sharply in the last five years (from 70.84 percent in FY 2015-16 to 58.68 percent in FY 2021-22), primarily driven by stressed balance sheets and non-performing loans. In recent years, several new licenses were granted to private financial entities, including two new universal bank licenses and 10 small finance bank licenses. The government announced plans in 2021 to privatize two PSBs. This followed Indian authorities consolidating 10 public sector banks into four in 2019, which reduced the total number of PSBs from 18 to 12. However, the government has yet to introduce the necessary legislation needed to privatize PSBs. Although most large PSBs are listed on exchanges, the government’s stakes in these banks often exceeds the 51 percent legal minimum. Aside from the large number of state-owned banks, directed lending and mandatory holdings of government paper are key facets of the banking sector. The RBI requires commercial banks and foreign banks with more than 20 branches to allocate 40 percent of their loans to priority sectors which include agriculture, small and medium enterprises, export-oriented companies, and social infrastructure. Additionally, all banks are required to invest 18 percent of their net demand and time liabilities in government securities.
PSBs continue to face two significant hurdles: capital constraints and poor asset quality. As of September 2021, gross non-performing loans represented 6.9 percent of total loans in the banking system, with the PSBs having a larger share of 8.8 percent of their loan portfolio. The government announced its intention to set up the NARCL and India Debt Resolution Company Limited (IDRCL) to take over legacy stressed assets from bank balance sheets. With the IBC in place, banks are making progress in non-performing asset recognition and resolution.
To address asset quality challenges faced by public sector banks, the government has injected $32 billion into public sector banks in recent years. The capitalization largely aimed to address the capital inadequacy of public sector banks and marginally provide for growth capital. Bank mergers and capital raising from the market, improved public sector banks’ total capital adequacy ratio (CAR) from 13.5 percent in September 2020 to 16.6 percent in September 2021.
Women’s lack of sufficient access to finance remained a major impediment to women’s entrepreneurship and participation in the workforce. According to experts, women are more likely than men to lack financial awareness, confidence to approach a financial institution, or possess adequate collateral, often leaving them vulnerable to poor terms of finance. Despite legal protections against discrimination, some banks reportedly remained unwelcoming toward women as customers. International Finance Corporation (IFC) analysts have described Indian women-led Micro, Small, and Medium Enterprises (MSME) as a large but untapped market that has a total finance requirement of $29 billion (72 percent for working capital). However, 70 percent of this demand remained unmet, creating a shortfall of $20 billion.
The government-affiliated think tank NITI-Aayog provides information on networking, mentorship, and financing to more than 25,000 members via its Women Entrepreneurship Platform (WEP), launched in March 2018. The government’s financial inclusion scheme Pradhan Mantri Jan Dhan Yojana (PMJDY) provides universal access to banking facilities with at least one basic banking account for every adult, financial literacy, access to credit, insurance, and pension. As of March 2, 2022, 249 million women comprised 55 percent of the program’s 448 million beneficiaries. In 2015, the government started the Micro Units Development and Refinance Agency Ltd. (MUDRA), which supports the development of micro-enterprises. The initiative encourages women’s participation and offers collateral-free loans of around $15,000 to non-corporate, non-farm small and micro enterprises. As of October 29, 2021, 215 million loans have been extended to women borrowers.
In FY 2016, the Indian government established the National Infrastructure Investment Fund (NIIF), India’s first sovereign wealth fund, to promote investments in the infrastructure sector. The government agreed to contribute $3 billion to the fund, with an additional $3 billion raised from the private sector primarily from foreign sovereign wealth funds, multilateral agencies, endowment funds, pension funds, insurers, and foreign central banks. Currently, the NIIF manages over $4.3 billion in assets through its funds: Master Fund, Fund of Funds, and Strategic Opportunities Fund. The NIIF Master Fund is focused on investing in core infrastructure sectors including transportation, energy, and urban infrastructure.
7. State-Owned Enterprises
The government owns or controls interests in key sectors with significant economic impact, including infrastructure, oil, gas, mining, and manufacturing. The Department of Public Enterprises (http://dpe.gov.in) controls and formulates all the policies pertaining to SOEs, and is headed by a minister to whom the senior management reports. The Comptroller and Auditor General audits the SOEs. The government has taken several steps to improve the performance of SOEs, also called Central Public Sector Enterprises (CPSEs), including improvements to corporate governance. This was necessary as the government planned to disinvest its stake from these entities.
According to the Public Enterprise Survey 2019-20, as of March 2020 there were 366 CPSEs, of which 256 are operational with a total turnover of $328 billion. The report revealed that 96 CPSEs were incurring losses and 14 units are under liquidation.
Foreign investment is allowed in CPSEs in all sectors. The Master List of CPSEs can be accessed at http://www.bsepsu.com/list-cpse.asp. While the CPSEs face the same tax burden as the private sector, they receive streamlined licensing that private sector enterprises do not on issues such as procurement of land.
The government has not generally privatized its assets but instead adopted a gradual disinvestment policy that dilutes government stakes in SOEs without sacrificing control. However as announced in the FY 2021-22 budget, the government has recommitted to the process of privatization of loss-making SOEs with an ambitious disinvestment target of $24 billion. In addition to completing the privatization of national carrier Air India in early 2022, the government has prioritized privatizing the Bharat Petroleum Corporation Limited and reducing its shares in the state-owned Life Insurance Corporation (LIC). Details about the privatization program can be accessed at the Ministry of Finance site for Disinvestment (https://dipam.gov.in/).
FIIs can participate in these disinvestment programs. Earlier limits for foreign investors were 24 percent of the paid-up capital of the Indian company and 10 percent for non-resident Indians and persons of Indian origin. The limit is 20 percent of the paid-up capital in the case of public sector banks. There is no bidding process. The shares of the SOEs being disinvested are sold in the open market.
8. Responsible Business Conduct
Among Indian companies there is a general awareness of standards for responsible business conduct. The MCA administers the Companies Act of 2013 and is responsible for regulating the corporate sector in accordance with the law. The MCA is also responsible for protecting the interests of consumers by ensuring competitive markets. The Companies Act of 2013 also established the framework for India’s corporate social responsibility (CSR) laws, mandating that companies spend an average of two percent of their average net profit of the preceding three fiscal years. While the CSR obligations are mandated by law, non-government organizations (NGOs) in India also track CSR activities and provide recommendations in some cases for effective use of CSR funds. According to the MCA website, in FY 2020-21, 8,633 companies spent $2.72 billion on more than 25,000 CSR projects across India.
The MCA released the National Guidelines on Responsible Business Conduct, 2018 (NGRBC) on March 13, 2019, to improve the 2011 National Voluntary Guidelines on Social, Environmental & Economic Responsibilities of Business. The NGRBC aligned with the United Nations Guiding Principles on Business & Human Rights (UNGPs).
India does not adhere to the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Afflicted and High-Risk Areas. There are provisions to promote responsible business conduct throughout the supply chain.
India is neither a member of Extractive Industries Transparency Initiative (EITI), nor a member of the Voluntary Principles on Security and Human Rights.
National Mission for Sustaining the Himalayan Eco-system
National Mission for a Green India
National Mission for Sustainable Agriculture
National Mission on Strategic Knowledge for Climate Change
In addition, India has the Biological Diversity Act 2002 that focuses on the conservation of biological resources, managing its sustainable use, and enabling the fair and equitable sharing of benefits arising out of the use and knowledge of biological resources with the local communities. The Act has a three-tier structure to regulate access to biological resources:
The National Biodiversity Authority (NBA)
The State Biodiversity Boards (SBBs)
The Biodiversity Management Committees (BMCs) (at local level)
India does not yet have a system of ecosystem services, but the government is currently discussing within its interagency and with outside stakeholders the value of developing a strategy for ecosystem services.
During the CoP 26 in Glasgow, Prime Minister Modi announced that India planned to reach net-zero carbon emissions by 2070. The government is now developing a strategy and a detailed plan to achieve that goal.
The government has regulatory systems in place that include pollution standards, biodiversity off-sets through compensatory forestation, and a forest policy and wildlife management plans with numerous national parks and wildlife sanctuaries that protect forests and biodiversity. At CoP 26 Prime Minister Modi called for making LIFE – Lifestyle for Environment – a global movement that advances sustainable lifestyles as a part of addressing the climate crisis.
While there is no sustainable public procurement law in India, the General Financial Rules (GFR) 2017 contain provisions that allow purchasing authorities to include environmental criteria when making procurements. Ministry of Finance procurement manuals also emphasize this ability. Various public sector entities and some government departments have started considering environmental and energy efficiency criteria in their procurement decisions. In addition, the government constituted a taskforce on sustainable public procurement in 2018 with the mandate to:
Review international best practices in Sustainable Public Procurement (SPP)
Identify the current status of SPP in India across Government organizations
Prepare a draft Sustainable Procurement Action Plan
Recommend an initial set of product/service categories (along with their specifications) where SPP can be implemented
However, the government has not yet developed a sustainable procurement action plan or policy mandating sustainable public procurement.
India is a signatory to the United Nation’s Conventions Against Corruption and is a member of the G20 Working Group against corruption. India, with a score of 40, ranked 86 among 180 countries in Transparency International’s 2020 Corruption Perception Index.
Corruption is addressed by the following laws: The Companies Act, 2013; the Prevention of Money Laundering Act, 2002; the Prevention of Corruption Act, 1988; the Code of Criminal Procedures, 1973; the Indian Contract Act, 1872; and the Indian Penal Code of 1860. Anti- corruption laws amended since 2004 have granted additional powers to vigilance departments in government ministries at the central and state levels and elevated the Central Vigilance Commission (CVC) to be a statutory body. In addition, the Comptroller and Auditor General is charged with performing audits on public-private-partnership contracts in the infrastructure sector based on allegations of revenue loss to the exchequer.
Other statutes approved by parliament to tackle corruption include:
The Benami Transactions (Prohibition) Amendment Act of 2016
The Real Estate (Regulation and Development) Act, 2016, enacted in 2017
The Whistleblower Protection Act, 2011 was passed in 2014 but has yet to be operationalized
The Companies Act, 2013 established rules related to corruption in the private sector by mandating mechanisms for the protection of whistleblowers, industry codes of conduct, and the appointment of independent directors to company boards. However, the government has not established any monitoring mechanism, and it is unclear the extent to which these protections have been instituted. No legislation focuses particularly on the protection of NGOs working on corruption issues, though the Whistleblowers Protection Act, 2011 may afford some protection once implemented.
In 2013, Parliament enacted the Lokpal and Lokayuktas Act, which created a national anti- corruption ombudsman and required states to create state-level ombudsmen within one year of the law’s passage. A national ombudsman was appointed in March 2019.
India is a signatory to the United Nations Conventions against Corruption and is a member of the G20 Working Group against Corruption. India is not a party to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.
The Indian chapter of Transparency International was closed in 2019.
Economic Growth Unit Chief
U.S. Embassy New Delhi
Shantipath, Chanakyapuri New Delhi
+91 11 2419 8000 firstname.lastname@example.org
Mr. Suresh Patel
Central Vigilance Commissioner
Satarkta Bhavan , Block-A
GPO Complex, INA New Delhi – 110 023
Ph: +91-11- 24651020 www.cvc.gov.in
10. Political and Security Environment
India is a multiparty, federal, parliamentary democracy with a bicameral legislature. The president, elected by an electoral college composed of the state assemblies and parliament, is the head of state, and the prime minister is the head of government. National parliamentary elections are held every five years. Under the constitution, the country’s 28 states and eight union territories have a high degree of autonomy and have primary responsibility for law and order. Electors chose President Ram Nath Kovind in 2017 to serve a five-year term. Following the May 2019 national elections, Prime Minister Modi’s Bharatiya Janata Party (BJP) led National Democratic Alliance (NDA) received a larger majority in the lower house of Parliament, or Lok Sabha, than it had won in the 2014 elections and returned Modi for a second term as prime minister. Observers considered the parliamentary elections, which included more than 600 million voters, to be free and fair, although there were reports of isolated instances of violence.
11. Labor Policies and Practices
Although there are more than 20 million unionized workers in India, unions still represent less than five percent of the total work force. Most of these unions are linked to political parties. Unions are typically strong in state-owned enterprises. A majority of the unionized work force can be found in the railroads, port and dock, banking, and insurance sectors. According to provisional figures from the Ministry of Labor and Employment (MOLE), over 672,000 workdays were lost to strikes and lockouts during 2021. Nonetheless, the International Labor Organization and International Monetary Fund both estimate India’s informal economy accounts for over 80 percent of overall employment. Labor unrest occurs throughout India, though the reasons and affected sectors vary widely. Most reported labor problems are the result of workplace disagreements over pay, working conditions, and union representation.
To reduce the number and complexity of India’s previous 29 national labor statutes, address statutory contradictions, improve compliance, and improve labor rights protections by shifting businesses and workers into the formal economy, the parliament consolidated and reformed India’s national labor laws, beginning with passage of the Code on Wages in 2019. During 2020, the parliament passed the Industrial Relations Code; the Occupational Safety, Health and Working Conditions Code; and the Code on Social Security. These laws’ reforms expanded minimum wage and social security coverage to informal sector workers in agriculture and the growing gig economy, raised the threshold for small and medium sized enterprise exemptions from 100 to 300 employees to foster growth of medium sized enterprises and move workers into the formal economy, expanded the authorized use of contract labor, and gave employers greater hiring and firing flexibility. Details of the laws can be accessed at https://labour.gov.in/labour-law-reforms. The new labor laws require adoption by India’s states for full implementation, which remains ongoing.
The Maternity Benefits Act, 1961, as amended in 2017, mandates 26 weeks of paid maternity leave for women. The Act also mandates for all industrial establishments employing 50 or more workers to have a creche for babies to enable nursing mothers to feed the child up to four times in a day.
The Child Labor Act, 1986 establishes a minimum age of 14 years for work and 18 years as the minimum age for hazardous work. The Bonded Labor Act, 1976 prohibits the use of bonded/forced labor.
There are no reliable unemployment statistics for India due to the informal nature of most employment. During the COVID-19 pandemic experts claimed the unemployment rate spiraled as people in the informal sector lost their jobs. The Centre for Monitoring Indian Economy (CMIE) reported that the average unemployment in October-December period of 2021 was around 7.54 percent.
14. Contact for More Information
Economic Growth Unit Chief
U.S. Embassy New Delhi
+91 11 2419 8000 email@example.com
Singapore maintains an open, heavily trade-dependent economy that plays a critical role in the global supply chain. The government utilized unprecedented levels of public spending to support the economy during the COVID-19 pandemic. Singapore supports predominantly open investment policies and a robust free market economy while actively managing and sustaining Singapore’s economic development. U.S. companies regularly cite transparency, business-friendly laws, tax structure, customs facilitation, intellectual property protection, and well-developed infrastructure as attractive investment climate features. Singapore actively enforces its robust anti-corruption laws and typically ranks as the least corrupt country in Asia. In addition, Transparency International’s 2020 Corruption Perception Index placed Singapore as the fourth-least corrupt nation globally. The U.S.-Singapore Free Trade Agreement (USSFTA), which entered into force in 2004, expanded U.S. market access in goods, services, investment, and government procurement, enhanced intellectual property protection, and provided for cooperation in promoting labor rights and environmental protections.
Singapore has a diversified economy that attracts substantial foreign investment in manufacturing (petrochemical, electronics, pharmaceuticals, machinery, and equipment) and services (financial, trade, and business). The government actively promotes the country as a research and development (R&D) and innovation center for businesses by offering tax incentives, research grants, and partnership opportunities with domestic research agencies. U.S. direct investment (FDI) in Singapore in 2020 totaled $270 billion, primarily in non-bank holding companies, manufacturing, finance, and insurance. Singapore received more than double the U.S. FDI invested in any other Asian nation. The investment outlook was positive due to Singapore’s proximity to Southeast Asia’s developing economies. Singapore remains a regional hub for thousands of multinational companies and continues to maintain its reputation as a world leader in dispute resolution, financing, and project facilitation for regional infrastructure development.
Singapore is poised to attract future foreign investments in digital innovation, pharmaceutical manufacturing, sustainable development, and cybersecurity. The Government of Singapore (hereafter, “the government”) is investing heavily in automation, artificial intelligence, integrated systems, as well as sustainability, and seeks to establish itself as a regional hub for these technologies. Singapore is also a well-established hub for medical research and device manufacturing.
Singapore relies heavily on foreign workers who make up 34 percent of the workforce. The COVID-19 pandemic was initially concentrated in dormitories for low-wage foreign workers in the construction and marine industries, which resulted in strict quarantine measures that brought the construction sector to a near standstill. The government tightened foreign labor policies in 2020 to encourage firms to improve productivity and employ more Singaporean workers, and lowered most companies’ quotas for mid- and low-skilled foreign workers. During the COVID-19 pandemic, the government introduced more programs to partially subsidize wages and the cost to firms of recruiting, hiring, and training local workers
Singapore plans to reach net-zero by or around mid-century but faces alternative energy diversification challenges in setting 2050 net-zero carbon emission targets. Singapore launched its national climate strategy – the Singapore Green Plan 2030 – in February 2021, and focuses on increased sustainability, carbon emissions reductions, fostering job and investment opportunities, and increasing climate resilience and food security.
1. Openness To, and Restrictions Upon, Foreign Investment
Singapore maintains a heavily trade-dependent economy characterized by an open investment regime, with some licensing restrictions in the financial services, professional services, and media sectors. The government was committed to maintaining a free market, but also actively plans Singapore’s economic development, including through a network of state wholly owned and majority-owned enterprises (SOEs). As of April, the top three Singapore-listed SOEs (DBS, Singtel, CapitaLand Investment Limited) accounted for 15.6 percent of the Singapore Exchange (SGX) capitalization. Some observers have criticized the dominant role of SOEs in the domestic economy, arguing that they have displaced or suppressed private sector entrepreneurship and investment.
Singapore’s legal framework and public policies are generally favorable toward foreign investors. Foreign investors are not required to enter joint ventures or cede management control to local interests, and local and foreign investors are subject to the same basic laws. Apart from regulatory requirements in some sectors (see also: Limits on National Treatment and Other Restrictions), eligibility for various incentive schemes depends on investment proposals meeting the criteria set by relevant government agencies. Singapore places no restrictions on reinvestment or repatriation of earnings or capital. The judicial system, which includes international arbitration and mediation centers and a commercial court, upholds the sanctity of contracts, and decisions are generally considered to be transparent and effectively enforced.
The Economic Development Board (EDB) is the lead promotion agency that facilitates foreign investment into Singapore (https://www.edb.gov.sg). EDB undertakes investment promotion and industry development and works with foreign and local businesses by providing information and facilitating introductions and access to government incentives for local and international investments. The government maintains close engagement with investors through EDB, which provides feedback to other government agencies to ensure that infrastructure and public services remain efficient and cost competitive. EDB maintains 18 international offices, including in Chicago, Houston, New York, San Francisco, and Washington D.C.
Exceptions to Singapore’s general openness to foreign investment exist in sectors considered critical to national security, including telecommunications, broadcasting, domestic news media, financial services, legal and accounting services, ports, airports, and property ownership. Under Singaporean law, articles of incorporation may include shareholding limits that restrict ownership in such entities by foreign persons.
Since 2000, the Singapore telecommunications market has been fully liberalized. This move has allowed foreign and domestic companies seeking to provide facilities-based (e.g., fixed line or mobile networks) or services-based (e.g., local and international calls and data services over leased networks) telecommunications services to apply for licenses to operate and deploy telecommunication systems and services. Singapore Telecommunications (Singtel) – majority owned by Temasek, a state-owned investment company with the Ministry of Finance as its sole shareholder – faces competition in all market segments. However, its main competitors, M1 and StarHub, are also SOEs. In April 2019, Australian company TPG Telecom began providing telecommunications services. Approximately 30 mobile virtual network operator services (MVNOs) have also entered the market. The four Singapore telecommunications companies compete primarily on MVNO partnerships and voice and data plans.
As of April, Singapore had 76 facilities-based operators offering telecommunications services. Since 2007, Singtel has been exempted from dominant licensee obligations for the residential and commercial portions of the retail international telephone services. Singtel is also exempted from dominant licensee obligations for wholesale international telephone services, international managed data, international intellectual property transit, leased satellite bandwidth (including VSAT, DVB-IP, satellite TV Downlink, and Satellite IPLC), terrestrial international private leased circuit, and backhaul services. The Infocomm Media Development Authority (IMDA) granted Singtel’s exemption after assessing the market for these services had effective competition. IMDA operates as both the regulatory agency and the investment promotion agency for the country’s telecommunications sector. IMDA conducts public consultations on major policy reviews and provides decisions on policy changes to relevant companies.
To facilitate the 5th generation mobile network (5G) technology and service trials, IMDA waived frequency fees for companies interested in conducting 5G trials for equipment testing, research, and assessment of commercial potential. In April 2020, IMDA granted rights to build nationwide 5G networks to Singtel and a joint venture between StarHub and M1. In December 2021, IMDA also extended license and granted rights for TPG Telecom to build 5G networks. IMDA announced a goal of full 5G coverage by the end of 2025. These three companies, along with TPG Telecom, are also now permitted to launch smaller, specialized 5G networks to support specialized applications, such as manufacturing and port operations. Singapore’s government did not hold a traditional spectrum auction, instead charging a moderate, flat fee to operate the networks and evaluating proposals from the MVNOs based on their ability to provide effective coverage, meet regulatory requirements, invest significant financial resources, and address cybersecurity and network resilience concerns. The announcement emphasized the importance of the winning MVNOs using multiple vendors, to ensure security and resilience. Singapore has committed to being one of the first countries to make 5G services broadly available, and its tightly managed 5G-rollout process continues apace, despite COVID-19. The government views this as a necessity for a country that prides itself on innovation, even as these private firms worry that the commercial potential does not yet justify the extensive upfront investment necessary to develop new networks.
The local free-to-air broadcasting, cable, and newspaper sectors are effectively closed to foreign firms. Section 44 of the Broadcasting Act restricts foreign equity ownership of companies broadcasting in Singapore to 49 percent or less, although the act does allow for exceptions. Individuals cannot hold shares that would make up more than 5 percent of the total votes in a broadcasting company without the government’s prior approval. The Newspaper and Printing Presses Act restricts equity ownership (local or foreign) of newspaper companies to less than 5 percent per shareholder and requires that directors be Singaporean citizens. Newspaper companies must issue two classes of shares, ordinary and management, with the latter available only to Singaporean citizens or corporations approved by the government. Holders of management shares have an effective veto over selected board decisions.
Singapore regulates content across all major media outlets through IMDA. The government controls the distribution, importation, and sale of media sources and has curtailed or banned the circulation of some foreign publications. Singapore’s leaders have also brought defamation suits against foreign publishers and local government critics, which have resulted in the foreign publishers issuing apologies and paying damages. Several dozen publications remain prohibited under the Undesirable Publications Act, which restricts the import, sale, and circulation of publications that the government considers contrary to public interest. Examples include pornographic magazines, publications by banned religious groups, and publications containing extremist religious views. Following a routine review in 2015, IMDA’s predecessor, the Media Development Authority, lifted a ban on 240 publications, ranging from decades-old anti-colonial and communist material to adult interest content.
Singaporeans generally face few restrictions on the internet, which is readily accessible. The government, however, subjected all internet content to similar rules and standards as traditional media, as defined by the IMDA’s Internet Code of Practice. Internet service providers are required to ensure that content complies with the code. The IMDA licenses the internet service providers through which local users are required to route their internet connections. However, the IMDA has blocked various websites containing objectionable material, such as pornography and racist and religious-hatred sites. Online news websites that report regularly on Singapore and have a significant reach are individually licensed, which requires adherence to requirements to remove prohibited content within 24 hours of notification from IMDA. Some view this regulation as a way to censor online critics of the government, and in September 2021 IMDA suspended the license of alternative news website The Online Citizen with immediate effect for allegedly failing to declare its sources of funding.
In April 2019, the government introduced legislation in parliament to counter “deliberate online falsehoods.” The legislation, called the Protection from Online Falsehoods and Manipulation Act (POFMA) entered into force on October 2, 2019, requires online platforms to publish correction notifications or remove online information that government ministers classify as factually false or misleading, and which they deem likely to threaten national security, diminish public confidence in the government, incite feelings of ill will between people, or influence an election. Non-compliance is punishable by fines and/or imprisonment and the government can use stricter measures such as disabling access to end-users in Singapore and forcing online platforms to disallow persons in question from using its services in Singapore. Opposition politicians, bloggers, alternative news websites, and as of recent posts about COVID-19 have been the target of the majority of POFMA cases thus far and many of them used U.S. social media platforms. Besides those individuals, U.S. social media companies were issued most POFMA correction orders and complied with them. U.S. media and social media sites continue to operate in Singapore, but a few major players have ceased running political ads after the government announced that it would impose penalties on sites or individuals that spread “misinformation,” as determined by the government. On January 31, 2020, the Singaporean government temporary lifted the exemption of social media platforms, search engines and Internet intermediaries from complying with POFMA, with the goal of combatting false information on the evolving COVID-19 situation.
In September, the Ministry of Home Affairs introduced the Foreign Interference (Countermeasures) Act (FICA) to strengthen the country’s ability to “prevent, detect, and disrupt foreign interference” in domestic politics conducted through hostile information campaigns and the use of local proxies. The bill was passed in October 2021 and expanded the government’s powers and tools to control “foreign influence,” but has yet to take effect. Under FICA, the minister for home affairs could compel internet and social media service providers to disclose information, remove online content, block user accounts, and take “countermeasures” against “politically significant persons” who are or are suspected of working on behalf of or receiving funding from “foreign political organizations” and “foreign principals.” While the government provided assurances that “legitimate business activities” would not be targeted by the legislation, opposition parties, foreign businesses, and civil society groups expressed concerns about the law’s expansion of executive powers and potential impacts on the rights to freedom of expression, association, participation in public affairs, and privacy.
Mediacorp TV is the only free-to-air TV broadcaster and is 100 percent owned by the government via Temasek Holdings (Temasek). Mediacorp reported that its free-to-air channels are viewed weekly by 80 percent of residents. Local pay-TV providers are StarHub and Singtel, which are both partially owned by Temasek or its subsidiaries. Local free-to-air radio broadcasters are Mediacorp Radio Singapore (owned by Temasek Holdings), SPH Radio (owned by SPH Media Limited), and So Drama! Entertainment (owned by the Ministry of Defense). BBC World Services is the only foreign free-to-air radio broadcaster in Singapore.
To rectify the high degree of content fragmentation in the Singaporean pay-TV market and shift the focus of competition from an exclusivity-centric strategy to other aspects such as service differentiation and competitive packaging, the IMDA implemented cross-carriage measures in 2011, requiring pay-TV companies designated by IMDA to be Receiving Qualified Licensees (RQL) – currently Singtel and StarHub – to cross-carry content subject to exclusive carriage provisions. Correspondingly, Supplying Qualified Licensees (SQLs) with an exclusive contract for a channel are required to carry that content on other RQL pay-TV companies. In February 2019, the IMDA proposed to continue the current cross-carriage measures. The Motion Picture Association (MPA) has expressed concern this measure restricts copyright exclusivity. Content providers consider the measures an unnecessary interference in a competitive market that denies content holders the ability to negotiate freely in the marketplace, and an interference with their ability to manage and protect their intellectual property. More common content is now available across the different pay-TV platforms, and the operators are beginning to differentiate themselves by originating their own content, offering subscribed content online via personal and tablet computers, and delivering content via fiber networks.
Streaming services have entered the market, which MPA has found leads to a significant reduction in intellectual property infringements. StarHub and Singtel have both partnered with multiple content providers, including U.S. companies, to provide streaming content in Singapore and around the region.
The Monetary Authority of Singapore (MAS) regulates all banking activities as provided for under the Banking Act. Singapore maintains legal distinctions between foreign and local banks and the type of license (i.e., full service, wholesale, and offshore banks) held by foreign commercial banks. As of April, 30 foreign full-service licensees and 97 wholesale banks operated in Singapore. An additional 21 merchant banks were licensed to conduct corporate finance, investment banking, and other fee-based activities. Offshore and wholesale banks are not allowed to operate Singapore dollar retail banking activities. Only full banks and “Qualifying Full Banks” (QFBs) can operate Singapore dollar retail banking activities but are subject to restrictions on their number of places of business, ATMs, and ATM networks. Additional QFB licenses may be granted to a subset of full banks, which provide greater branching privileges and greater access to the retail market than other full banks. As of April, there were 10 banks operating QFB licenses. China Construction Bank received the most recent QFB award in December 2020.
Following a series of public consultations conducted by MAS over a three-year period, the Banking Act 2020 came into operation on February 14, 2020. The amendments include, among other things, the removal of the Domestic Banking Unit (DBU) and Asian Currency Unit (ACU) divide, consolidation of the regulatory framework of merchant banks, expansion of the grounds for revoking bank licenses and strengthening oversight of banks’ outsourcing arrangements. Newly granted digital banking licenses under foreign ownership apply only to wholesale transactions.
The government initiated a banking liberalization program in 1999 to ease restrictions on foreign banks and has supplemented this with phased-in provisions under the USSFTA, including removal of a 40 percent ceiling on foreign ownership of local banks and a 20 percent aggregate foreign shareholding limit on finance companies. The minister in charge of MAS must approve the merger or takeover of a local bank or financial holding company, as well as the acquisition of voting shares in such institutions above specific thresholds of 5, 12, or 20 percent of shareholdings.
Although Singapore’s government has lifted the formal ceilings on foreign ownership of local banks and finance companies, the approval for controllers of local banks ensures that this control rests with individuals or groups whose interests are aligned with the long-term interests of the Singapore economy and Singapore’s national interests. Of the 30 full-service licenses granted to foreign banks, three have gone to U.S. banks (Bank of America, Citibank, JP Morgan Chase Bank). U.S. financial institutions enjoy phased-in benefits under the USSFTA. Since 2006, only one U.S.-licensed full-service banks has obtained QFB status (Citibank). U.S. and foreign full-service banks with QFB status can freely relocate existing branches and share ATMs among themselves. They can also provide electronic funds transfer and point-of-sale debit services and accept services related to Singapore’s compulsory pension fund. In 2007, Singapore lifted the quota on new licenses for U.S. wholesale banks.
Locally and non-locally incorporated subsidiaries of U.S. full-service banks with QFB status can apply for access to local ATM networks. However, no U.S. bank has come to a commercial agreement to gain such access. Despite liberalization, U.S. and other foreign banks in the domestic retail-banking sector still face barriers. Under the enhanced QFB program launched in 2012, MAS requires QFBs it deems systemically significant to incorporate locally. If those locally incorporated entities are deemed “significantly rooted” in Singapore, with a majority of Singaporean or permanent resident members, Singapore may grant approval for an additional 25 places of business, of which up to ten may be branches. Local retail banks do not face similar constraints on customer service locations or access to the local ATM network. As noted above, U.S. banks are not subject to quotas on service locations under the terms of the USSFTA.
Credit card holders from U.S. banks incorporated in Singapore cannot access their accounts through the local ATM networks. They are also unable to access their accounts for cash withdrawals, transfers, or bill payments at ATMs operated by banks other than those operated by their own bank or at foreign banks’ shared ATM network. Nevertheless, full-service foreign banks have made significant inroads in other retail banking areas, with substantial market share in products like credit cards and personal and housing loans.
In January 2019, MAS announced the passage of the Payment Services Bill after soliciting public feedback. The bill requires more payment services such as digital payment tokens, dealing in virtual currency, and merchant acquisition, to be licensed and regulated by MAS. In order to reduce the risk of misuse for illicit purposes, the new law also limits the amount of funds that can be held in or transferred out of a personal payment account (e.g., mobile wallets) in a year. Regulations are tailored to the type of activity performed and addresses issues related to terrorism financing, money laundering, and cyber risks. In December 2020, MAS granted four digital bank licenses: two to Sea Limited and a Grab/Singtel consortium for full retail banking and two to Ant Group and the Greenland consortium (a China-based conglomerate).
Singapore has no trading restrictions on foreign-owned stockbrokers. There is no cap on the aggregate investment by foreigners regarding the paid-up capital of dealers that are members of the SGX. Direct registration of foreign mutual funds is allowed provided MAS approves the prospectus and the fund. The USSFTA relaxed conditions foreign asset managers must meet in order to offer products under the government-managed compulsory pension fund (Central Provident Fund Investment Scheme).
The Legal Services Regulatory Authority (LSRA) under the Ministry of Law oversees the regulation, licensing, and compliance of all law practice entities and the registration of foreign lawyers in Singapore. Foreign law firms with a licensed Foreign Law Practice (FLP) may offer the full range of legal services in foreign law and international law, but cannot practice Singapore law except in the context of international commercial arbitration. U.S. and foreign attorneys are allowed to represent parties in arbitration without the need for a Singaporean attorney to be present. To offer Singapore law, FLPs require either a Qualifying Foreign Law Practice (QFLP) license, a Joint Law Venture (JLV) with a Singapore Law Practice (SLP), or a Formal Law Alliance (FLA) with a SLP. The vast majority of Singapore’s 130 foreign law firms operate FLPs, while QFLPs and JLVs each number in the single digits.
The QFLP licenses allow foreign law firms to practice in permitted areas of Singapore law, which excludes constitutional and administrative law, conveyancing, criminal law, family law, succession law, and trust law. As of December 2020, there are nine QFLPs in Singapore, including five U.S. firms. In January 2019, the Ministry of Law announced the deferral to 2020 of the decision to renew the licenses of five QFLPs, which were set to expire in 2019, so the government can better assess their contribution to Singapore along with the other four firms whose licenses were also extended to 2020. Decisions on the renewal considers the firms’ quantitative and qualitative performance, such as the value of work that the Singapore office will generate, the extent to which the Singapore office will function as the firm’s headquarter for the region, the firm’s contributions to Singapore, and the firm’s proposal for the new license period.
A JLV is a collaboration between a FLP and SLP, which may be constituted as a partnership or company. The director of legal services in the LSRA will consider all the relevant circumstances including the proposed structure and its overall suitability to achieve the objectives for which JLVs are permitted to be established. There is no clear indication on the percentage of shares that each JLV partner may hold in the JLV.
Law degrees from designated U.S., British, Australian, and New Zealand universities are recognized for purposes of admission to practice law in Singapore. Under the USSFTA, Singapore recognizes law degrees from Harvard University, Columbia University, New York University, and the University of Michigan. Singapore will admit to the Singapore Bar law school graduates of those designated universities who are Singapore citizens or permanent residents, and ranked among the top 70 percent of their graduating class or have obtained lower-second class honors (under the British system).
Engineering and architectural firms can be 100 percent foreign owned. Engineers and architects are required to register with the Professional Engineers Board and the Board of Architects, respectively, to practice in Singapore. All applicants (both local and foreign) must have at least four years of practical experience in engineering, of which two are acquired in Singapore. Alternatively, students can attend two years of practical training in architectural works and pass written and/or oral examinations set by the respective board.
Many major international accounting firms operate in Singapore. Registration as a public accountant under the Accountants Act is required to provide public accountancy services (i.e., the audit and reporting on financial statements and other acts that are required by any written law to be done by a public accountant) in Singapore, although registration as a public accountant is not required to provide other accountancy services, such as bookkeeping, accounting, taxation, and corporate advisory work. All accounting entities that provide public accountancy services must be approved under the Accountants Act and their supply of public accountancy services in Singapore must be under the control and management of partners or directors who are public accountants ordinarily resident in Singapore. In addition, if the accounting entity firm has two partners or directors, at least one of them must be a public accountant. If the business entity has more than two accounting partners or directors, two-thirds of the partners or directors must be public accountants.
Singapore further liberalized its gas market with the amendment of the Gas Act and implementation of a Gas Network Code in 2008, which were designed to give gas retailers and importers direct access to the onshore gas pipeline infrastructure. However, key parts of the local gas market, such as town gas retailing and gas transportation through pipelines remain controlled by incumbent Singaporean firms. Singapore has sought to grow its supply of liquefied natural gas (LNG), and BG Singapore Gas Marketing Pte Ltd (acquired by Royal Dutch Shell in February 2016) was appointed in 2008 as the first aggregator with an exclusive franchise to import LNG to be sold in its re-gasified form in Singapore. In October 2017, Shell Eastern Trading Pte Ltd and Pavilion Gase Pte Ltd were awarded import licenses to market up to 1 million tons per annum or for three years, whichever occurs first. This also marked the conclusion of the first exclusive franchise awarded to BG Singapore Gas Marketing Pte Ltd.
Beginning in November 2018 and concluding in May 2019, Singapore launched an open electricity market (OEM). Previously, Singapore Power was the only electricity retailer. As of October 2019, 40 percent of resident consumers had switched to a new electricity retailer and were saving between 20 and 30 percent on their monthly bills. During the second half of 2020, the government significantly reduced tariffs for household consumption and encouraged consumer OEM adoption. To participate in OEM, licensed retailers must satisfy additional credit, technical, and financial requirements set by Energy Market Authority in order to sell electricity to households and small businesses. There are two types of electricity retailers: Market Participant Retailers (MPRs) and Non-Market Participant Retailers (NMPRs). MPRs have to be registered with the Energy Market Company (EMC) to purchase electricity from the National Electricity Market of Singapore (NEMS) to sell to contestable consumers. NMPRs need not register with EMC to participate in the NEMS since they will purchase electricity indirectly from the NEMS through the Market Support Services Licensee (MSSL). As of April 2020, there were 12 retailers in the market, including foreign and local entities. In 2021, a number of the electricity retailers withdrew from selling electricity due to high natural gas prices globally, resulting in unfavorable market conditions.
Foreign and local entities may readily establish, operate, and dispose of their own enterprises in Singapore subject to certain requirements. A foreigner who wants to incorporate a company in Singapore is required to appoint a local resident director; foreigners may continue to reside outside of Singapore. Foreigners who wish to incorporate a company and be present in Singapore to manage its operations are strongly advised to seek approval from the Ministry of Manpower (MOM) before incorporation. Except for representative offices (where foreign firms maintain a local representative but do not conduct commercial transactions in Singapore) there are no restrictions on carrying out remunerative activities. As of October 2017, foreign companies may seek to transfer their place of registration and be registered as companies limited by shares in Singapore under Part XA (Transfer of Registration) of the Companies Act (https://sso.agc.gov.sg/Act/CoA1967). Such transferred foreign companies are subject to the same requirements as locally incorporated companies.
All businesses in Singapore must be registered with the Accounting and Corporate Regulatory Authority (ACRA). Foreign investors can operate their businesses in one of the following forms: sole proprietorship, partnership, limited partnership, limited liability partnership, incorporated company, foreign company branch or representative office. Stricter disclosure requirements were passed in March 2017 requiring foreign company branches registered in Singapore to maintain public registers of their members. All companies incorporated in Singapore, foreign companies, and limited liability partnerships registered in Singapore are also required to maintain beneficial ownership in the form of a register of controllers (generally individuals or legal entities with more than 25 percent interest or control of the companies and foreign companies) aimed at preventing money laundering.
While there is currently no cross-sectional screening process for foreign investments, investors are required to seek approval from specific sector regulators for investments in certain firms. These sectors include energy, telecommunications, broadcasting, the domestic news media, financial services, legal services, public accounting services, ports and airports, and property ownership. Under Singapore law, Articles of Incorporation may include shareholding limits that restrict ownership in corporations by foreign persons.
Singapore does not maintain a formalized investment screening mechanism for inbound foreign investment. There are no reports of U.S. investors being especially disadvantaged or singled out relative to other foreign investors.
The OECD and UN Industrial Development Organization (UNIDO) released a joint report in February 2019 on the ASEAN-OECD Investment Program. The program aims to foster dialogue and experience sharing between OECD countries and Southeast Asian economies on issues relating to the business and investment climate. The program is implemented through regional policy dialogue, country investment policy reviews, and training seminars. (http://www.oecd.org/investment/countryreviews.htm)
The OECD released a Transfer Pricing Country Profile for Singapore in February. The profiles focus on countries’ domestic legislation regarding key transfer pricing principles, including the arm’s length principle, transfer pricing methods, comparability analysis, intangible property, intra-group services, cost contribution agreements, transfer pricing documentation, administrative approaches to avoiding and resolving disputes, safe harbors, and other implementation measures. (https://www.oecd.org/tax/transfer-pricing/transfer-pricing-country-profile-singapore.pdf)
As of June 2021, the UN Conference on Trade and Development (UNCTAD) World Investment Report assessed how Singapore fared during the global COVID-19 pandemic and subsequent recovery. (https://unctad.org/system/files/official-document/wir2021_en.pdf)
Singapore’s online business registration process is clear and efficient and allows foreign companies to register branches. All businesses must be registered with ACRA through Bizfile, its online registration and information retrieval portal (https://www.bizfile.gov.sg/), including any individual, firm or corporation that carries out business for a foreign company. Applications are typically processed immediately after the application fee is paid, but could take between 14 to 60 days, if the application is referred to another agency for approval or review. The process of establishing a foreign-owned limited liability company in Singapore is among the fastest in the world.
ACRA (www.acra.gov.sg) provides a single window for business registration. Additional regulatory approvals (e.g., licensing or visa requirements) are obtained via individual applications to the respective ministries or statutory boards. Further information and business support on registering a branch of a foreign company is available through the EDB (https://www.edb.gov.sg/en/how-we-help/setting-up.html) and GuideMeSingapore, a corporate services firm Hawskford (https://www.guidemesingapore.com/).
Foreign companies may lease or buy privately or publicly held land in Singapore, though there are some restrictions on foreign property ownership. Foreign companies are free to open and maintain bank accounts in foreign currency. There is no minimum paid-in capital requirement, but at least one subscriber share must be issued for valid consideration at incorporation.
Business facilitation processes provide for fair and equal treatment of women and minorities, and there are no mechanisms that provide special assistance to women and minorities.
Singapore places no restrictions on domestic investors investing abroad. The government promotes outward investment through Enterprise Singapore, a statutory board under the Ministry of Trade and Industry. It provides market information, business contacts, and financial assistance and grants for internationalizing companies. While it has a global reach and runs overseas centers in major cities across the world, a large share of its overseas centers are located in major trading and investment partners and regional markets like China, India, the United States, and ASEAN.
3. Legal Regime
In May 2021, DBS Bank (DBS), SGX, Standard Chartered and Temasek started a joint venture to establish a global exchange and marketplace for high-quality carbon credits, called Climate Impact X (CIX).
In March, SGX and OCBC established a low-carbon index to analyze the top 50 free-float market capitalization companies based on fossil fuel engagement in an effort to improve sustainable financing. This index plans to exclude companies with high involvement in the fossil fuel sector.
The government establishes clear rules that foster competition. The USSFTA enhances transparency by requiring regulatory authorities to consult with interested parties before issuing regulations, and to provide advance notice and comment periods for proposed rules, as well as to publish all regulations. Singapore’s legal, regulatory, and accounting systems are transparent and consistent with international norms.
Rule-making authority is vested in the parliament to pass laws that determine the regulatory scope, purpose, rights, and powers of the regulator and the legal framework for the industry. Regulatory authority is vested in government ministries or in statutory boards, which are organizations that have been given autonomy to perform an operational function by legal statutes passed as acts of parliament, and report to a specific ministry. Local laws give regulatory bodies wide discretion to modify regulations and impose new conditions, but in practice agencies use this positively to adapt incentives or other services on a case-by-case basis to meet the needs of foreign as well as domestic companies. Acts of parliament also confer certain powers on a minister or other similar persons or authorities to make rules or regulations in order to put the act into practice; these rules are known as subsidiary legislation. National-level regulations are the most relevant for foreign businesses. Singapore has no local or state regulatory layers.
Before a ministry instructs the Attorney-General’s Chambers (AGC) to draft a new bill or make an amendment to a bill, the ministry has to seek in-principle approval from the cabinet for the proposed bill. The AGC legislation division advises and helps vet or draft bills in conjunction with policymakers from relevant ministries. Public and private consultations are often requested for proposed draft legislative amendments. Thereafter, the cabinet’s approval is required before the bill can be introduced in parliament. All bills passed by parliament (with some exceptions) must be forwarded to the Presidential Council for Minority Rights for scrutiny, and thereafter presented to the president for assent. Only after the president has assented to the bill does it become law.
While ministries or regulatory agencies do conduct internal impact assessments of proposed regulations, there are no criteria used for determining which proposed regulations are subjected to an impact assessment, and there are no specific regulatory impact assessment guidelines. There is no independent agency tasked with reviewing and monitoring regulatory impact assessments and distributing findings to the public. The Ministry of Finance publishes a biennial Singapore Public Sector Outcomes Review (http://www.mof.gov.sg/Resources/Singapore-Public-Sector-Outcomes-Review-SPOR), focusing on broad outcomes and indicators rather than policy evaluation. Results of scientific studies or quantitative analysis conducted in review of policies and regulations are not made publicly available.
Industry self-regulation occurs in several areas, including advertising and corporate governance. Advertising Standards Authority of Singapore (ASAS) (https://asas.org.sg/), an advisory council under the Consumers Association of Singapore, administers the Singapore Code of Advertising Practice, which focuses on ensuring that advertisements are legal, decent, and truthful. Listed companies are required under the SGX Listing Rules to describe in their annual reports their corporate governance practices with specific reference to the principles and provisions of the Code. Listed companies must comply with the principles of the code, and, if their practices vary from any provisions of the code, they must note the reason for the variation and explain how the practices they have adopted are consistent with the intent of the relevant principle. The SGX plays the role of a self-regulatory organization (SRO) in listings, market surveillance, and member supervision to uphold the integrity of the market and ensure participants’ adherence to trading and clearing rules. There have been no reports of discriminatory practices aimed at foreign investors.
Singapore’s legal and accounting procedures are transparent and consistent with international norms and rank similar to the United States in international comparisons according to the World Justice Project (http://worldjusticeproject.org/rule-of-law-index). The prescribed accounting standards for Singapore-incorporated companies applying to be listed in the public market are known as Singapore Financial Reporting Standards (SFRS(I)), which are identical to those of the International Accounting Standards Board (IASB). Non-listed Singapore-incorporated companies can voluntarily apply for SFRS(I). Otherwise, they are required to comply with Singapore Financial Reporting Standards (SFRS), which are also aligned with those of IASB. For the use of foreign accounting standards, the companies are required to seek approval of the Accounting and Corporate Regulatory Authority (ACRA).
For foreign companies with primary listings on the Singapore Exchange, the SGX Listing Rules allow the use of alternative standards such as International Financial Reporting Standards (IFRS) or the U.S. Generally Accepted Accounting Principles (U.S. GAAP). Accounts prepared in accordance with IFRS or U.S. GAAP need not be reconciled to SFRS(1). Companies with secondary listings on the Singapore Exchange need only reconcile their accounts to SFRS(I), IFRS, or U.S. GAAP.
Notices of proposed legislation to be considered by parliament are published, including the text of the laws, the dates of the readings, and whether or not the laws eventually pass. The government has established a centralized Internet portal (www.reach.gov.sg) to solicit feedback on selected draft legislation and regulations, a process that is being used with increasing frequency. There is no stipulated consultative period. Results of consultations are usually consolidated and published on relevant websites. As noted in the “Openness to Foreign Investment” section, some U.S. companies, in particular in the telecommunications and media sectors, are concerned about the government’s lack of transparency in its regulatory and rule-making process. However, many U.S. firms report they have opportunities to weigh in on pending legislation that affects their industries. These mechanisms also apply to investment laws and regulations.
The Parliament of Singapore website (https://www.parliament.gov.sg/parliamentary-business/bills-introduced) publishes a database of all bills introduced, read, and passed in parliament in chronological order as of 2006. The contents are the actual draft texts of the proposed legislation/legislative amendments. All statutes are also publicly available in the Singapore Statutes Online website (https://sso.agc.gov.sg). However, there is no centralized online location where key regulatory actions are published. Regulatory actions are published separately on websites of Statutory Boards.
Enforcement of regulatory offences is governed by both acts of parliament and subsidiary legislation. Enforcement powers of government statutory bodies are typically enshrined in the act of parliament constituting that statutory body. There is accountability to parliament for enforcement action through question time, where members of parliament may raise questions with the ministers on their respective ministries’ responsibilities.
Singapore’s judicial system and courts serve as the oversight mechanism in respect of executive action (such as the enforcement of regulatory offences) and dispense justice based on law. The Supreme Court, which is made up of the Court of Appeal and the High Court, hears both civil and criminal matters. The chief justice heads the judiciary. The president appoints the chief justice, the judges of appeal and the judges of the High Court if she, acting at her discretion, concurs with the advice of the prime minister.
No systemic regulatory reforms or enforcement reforms relevant to foreign investors were announced in 2021. The Monetary Authority of Singapore focuses enforcement efforts on timely disclosure of corporate information, business conduct of financial advisors, compliance with anti-money laundering/combatting the financing of terrorism requirements, deterring stock market abuse, and insider trading. In March 2019, MAS published its inaugural Enforcement Report detailing enforcement measures and publishes recent enforcement actions on its website (https://www.mas.gov.sg/regulation/enforcement/enforcement-actions).
Singapore was the 2018 chair of ASEAN. ASEAN is working towards the 2025 ASEAN Economic Community (AEC) Blueprint aimed at achieving a single market and production base, with a free flow of goods, services, and investment within the region. While ASEAN is working towards regulatory harmonization, there are no regional regulatory systems in place; instead, ASEAN agreements and regulations are enacted through each ASEAN Member State’s domestic regulatory system.
The WTO’s 2016 trade policy review notes that Singapore’s guiding principle for standardization is to align national standards with international standards, and Singapore is an elected member of the International Organization of Standardization (ISO) and International Electrotechnical Commission (IEC) Councils. Singapore encourages the direct use of international standards whenever possible. Singapore standards (SS) are developed when there is no appropriate international standard equivalent, or when there is a need to customize standards to meet domestic requirements. At the end of 2015, Singapore had a stock of 553 SS, about 40 percent of which were references to international standards. Enterprise Singapore, the Singapore Food Agency, and the Ministry of Trade and Industry are the three national enquiry points under the TBT Agreement. There are no known reports of omissions in reporting to TBT.
A non-exhaustive list of major international norms and standards referenced or incorporated into the country’s regulatory systems include Base Erosion and Profit Shifting (BEPS) project, Common Reporting Standards (CRS), Basel III, EU Dual-Use Export Control Regulation, Exchange of Information on Request, 27 International Labor Organization (ILO) conventions on labor rights and governance, UN conventions, and WTO agreements.
Singapore’s legal system has its roots in English common law and practice and is enforced by courts of law. The current judicial process is procedurally competent, fair, and reliable. In the 2021 Rule of Law Index by World Justice Project, it is ranked 17th in the world overall, third on order and security, fourth on regulatory enforcement, third in absence of corruption, eighth on civil justice, seventh on criminal justice, 32nd on constraints on government powers, 34th on open government, and 38th on fundamental rights. The judicial system remains independent of the executive branch and the executive does not interfere in judiciary matters.
Singapore strives to promote an efficient, business-friendly regulatory environment. Tax, labor, banking and finance, industrial health and safety, arbitration, wage, and training rules and regulations are formulated and reviewed with the interests of both foreign investors and local enterprises in mind. Starting in 2005, a Rules Review Panel, comprising senior civil servants, began overseeing a review of all rules and regulations; this process will be repeated every five years. A Pro-Enterprise Panel of high-level public sector and private sector representatives examines feedback from businesses on regulatory issues and provides recommendations to the government. (https://www.mti.gov.sg/PEP/About)
The Cybersecurity Act, which entered into force in August 2018, establishes a comprehensive regulatory framework for cybersecurity. The act provides the Commissioner of Cyber Security with powers toinvestigate, prevent, and assess the potential impact of cyber security incidents and threats in Singapore. These can include requiring persons and organizations to provide requested information, requiring the owner of a computer system to take any action to assist with cyber investigations, directing organizations to remediate cyber incidents, authorizing officers to enter premises, installing software, and taking possession of computer systems to prevent serious cyber-attacks in the event of severe threat. The act also establishes a framework for the designation and regulation of critical information infrastructure (CII). Requirements for CII owners include a mandatory incident reporting regime, regular audits and risk assessments, and participation in national cyber security stress tests. In addition, the act will establish a regulatory regime for cyber security service providers and required licensing for penetration testing and managed security operations center (SOC) monitoring services. U.S. business chambers have expressed concern about the effects of licensing and regularly burdens on compliance costs, insufficient checks and balances on the investigatory powers of the authorities, and the absence of a multidirectional cyber threat sharing framework that includes protections from liability. Under the law, additional measures, such as the Cybersecurity Labelling Scheme (October 2021), continue to be introduced. Authorities stress that, “in view of the need to strike a good balance between industry development and cybersecurity needs, the licensing framework will take a light-touch approach.”
The Competition and Consumer Commission of Singapore (CCCS) is a statutory board under the Ministry of Trade and Industry and is tasked with administering and enforcing the Competition Act. The act contains provisions on anti-competitive agreements, decisions, and practices; abuse of dominance; enforcement and appeals process; and mergers and acquisitions. The Competition Act was enacted in 2004 in accordance with U.S-Singapore USSFTA commitments, which contains specific conduct guarantees to ensure that Singapore’s government linked companies (GLC) will operate on a commercial and non-discriminatory basis towards U.S. firms. GLCs with substantial revenues or assets are also subject to enhanced transparency requirements under the FTA. A 2018 addition to the act gives the CCCS additional administrative power to protect consumers against unfair trade practices.
Singapore has not expropriated foreign-owned property and has no laws that force foreign investors to transfer ownership to local interests. Singapore has signed investment promotion and protection agreements with a wide range of countries. These agreements mutually protect nationals or companies of either country against certain non-commercial risks, such as expropriation and nationalization and remain in effect unless otherwise terminated. The USSFTA contains strong investor protection provisions relating to expropriation of private property and the need to follow due process; provisions are in place for an owner to receive compensation based on fair market value. No disputes are pending.
Singapore has bankruptcy laws allowing both debtors and creditors to file a bankruptcy claim. While Singapore performed well in recovery rate and time of recovery following bankruptcies, the country did not score well on cost of proceedings or insolvency frameworks. In particular, the insolvency framework does not require approval by the creditors for sale of substantial assets of the debtor or approval by the creditors for selection or appointment of the insolvency representative.
Singapore has made several reforms to enhance corporate rescue and restructuring processes, including features from Chapter 11 of the U.S. Bankruptcy Code. Amendments to the Companies Act, which came into force in May 2017, include additional disclosure requirements by debtors, rescue financing provisions, provisions to facilitate the approval of pre-packaged restructurings, increased debtor protections, and cram-down provisions that will allow a scheme to be approved by the court even if a class of creditors oppose the scheme, provided the dissenting class of creditors are not unfairly prejudiced by the scheme.
The Insolvency, Restructuring and Dissolution Act passed in 2018 and entered into force in July 2020. It updates the insolvency legislation and introduces a significant number of new provisions, particularly with respect to corporate insolvency. It mandates licensing, qualifications, standards, and disciplinary measures for insolvency practitioners. It also includes standalone voidable transaction provisions for corporate insolvency and, a new wrongful trading provision. The act allows “out of court” commencement of judicial management, permits judicial managers to assign the proceeds of certain insolvency related claims, restricts the operation of contractual “ipso facto clauses” upon the commencement of certain restructuring and insolvency procedures, and modifies the operation of the scheme of arrangement cross class “cram down” power. Authorities continue to seek public consultations of subsidiary legislation to be drafted under the act.
Two MAS-recognized consumer credit bureaus operate in Singapore: the Credit Bureau (Singapore) Pte Ltd and Experian Credit Bureau Singapore Pte Ltd. U.S. industry advocates enhancements to Singapore’s credit bureau system, in particular, adoption of an open admission system for all lenders, including non-banks. Bankruptcy is not criminalized in Singapore. https://www.acra.gov.sg/CA_2017/
4. Industrial Policies
In 2021, the government announced a plan to deploy 60,000 Electric Vehicle (EV) charging points by 2030. The government anticipates 20,000 EVs will be located within private premises, while the remaining 40,000 will be in public parking areas. As part of this initiative, the government started the Vehicle Common Charger Grant to provide up to approximately $2,750 per charger for installations in non-commercial private developments that are accessible to the public.
The Energy Market Authority (EMA) released the “Charting the Energy Transition to 2050” report in March, which set out three decarbonization scenarios for Singapore’s power sector. The government planned to utilize public-private partnerships to develop low carbon hydrogen, geothermal, solar, and nuclear technologies in addition to electricity imports to reach net-zero carbon emissions by or around 2050.
The EDB is the lead investment promotion agency facilitating foreign investment into Singapore https://www.edb.gov.sg. The EDB undertakes investment promotion and industry development, and works with international businesses, both foreign and local, by providing information, connection to partners, and access to government incentives for their investments. The Agency for Science, Technology, and Research (A*STAR) is Singapore’s lead public sector agency focused on economic-oriented research to advance scientific discovery and innovative technology https://www.a-star.edu.sg. The National Research Foundation (NRF) provides competitive grants for applied research through an integrated grant management system https://researchgrant.gov.sg/pages/index.aspx. Various government agencies (including Intellectual Property Office of Singapore, NRF, and EDB) provide venture capital co-funding for startups and commercialization of intellectual property.
Singapore has nine free-trade zones (FTZs) in five geographical areas operated by three FTZ authorities. The FTZs may be used for storage and repackaging of import and export cargo, and goods transiting Singapore for subsequent re-export. Manufacturing is not carried out within the zones. Foreign and local firms have equal access to the FTZ facilities.
Performance requirements are applied uniformly and systematically to both domestic and foreign investors. Singapore has no forced localization policy requiring domestic content in goods or technology. The government does not require investors to purchase from local sources or specify a percentage of output for export. There are no rules forcing the transfer of technology. There are no requirements for foreign information technology providers to turn over source code and/or provide access to encryption. The industry regulator is the IMDA.
In May 2020, Singapore tightened requirements for hiring foreign workers, including raising minimum salary thresholds and additional enforcement of penalties for employers not giving “fair consideration” to local applicants before hiring foreign workers. Personal data matters are independently overseen by the Personal Data Protection Commission, which administers and enforces the Personal Data Protection Act (PDPA) of 2012. The PDPA governs the collection, use, and disclosure of personal data by the private sector and covers both electronic and non-electronic data. Singapore continues to review the PDPA to ensure that it keeps pace with the evolving needs of businesses and individuals in a digital economy such as introducing an enhanced framework for the collection, use, and disclosure of personal data and a mandatory data breach notification regime.
Singapore does not have a data localization policy. Singapore participates in various regional and international frameworks that promote interoperability and harmonization of rules to facilitate cross-border data flows. The ASEAN Framework on Digital Data Governance (FDFG) is one example. Under FDFG, Singapore will focus on developing model contractual clauses and certification for cross border data flows within the ASEAN region. Another is Singapore’s participation in the APEC Cross-Border Privacy Rules (CBPR) and Privacy Recognition for Processors systems, to facilitate data transfers for certified organizations across APEC economies.
5. Protection of Property Rights
Property rights and interests are enforced in Singapore. Residents have access to mortgages and liens, with reliable recording of properties.
Foreigners are not allowed to purchase public housing in Singapore, and prior approval from the Singapore Land Authority is required to purchase landed residential property and residential land for development. Foreigners can purchase non-landed, private sector housing (e.g., condominiums or any unit within a building) without the need to obtain prior approval. However, they are not allowed to acquire all the apartments or units in a development without prior approval. These restrictions also apply to foreign companies.
There are no restrictions on foreign ownership of industrial and commercial real estate. Since July 2018, foreigners who purchase homes in Singapore are required to pay an additional effective 20 percent tax on top of standard buyer’s taxes. However, U.S. citizens are accorded national treatment under the FTA, meaning only second and subsequent purchases of residential property will be subject to 12 and 15 percent additional duties, equivalent to Singaporean citizens.
The availability of covered bond legislation under MAS Notice 648 has provided an incentive for Singapore financial institutions to issue covered bonds. Under Notice 648, only a bank incorporated in Singapore may issue covered bonds. The three main Singapore banks: DBS, OCBC, and UOB, all have in place covered bond programs, with the issues offered to private investors. In 2020, MAS increased the asset encumbrance limit of a locally incorporated bank’s total assets from four percent to 10 percent. The banking industry has made suggestions to allow the use of covered bonds in repossession transactions with the central bank. http://www.mas.gov.sg/regulations/notices/notice-648
Singapore maintains one of the strongest intellectual property rights regimes in Asia. The chief executive of Singapore’s Intellectual Property Office was elected director general of the World Intellectual Property Organization (WIPO) in April 2020. Singapore is the global hub for patent filing activity and innovation.
Effective January 1, 2020, all patent applications must be fully examined by the Intellectual Property Office of Singapore to ensure that any foreign-granted patents fully satisfy Singapore’s patentability criteria. The Registered Designs (Amendment) Act broadens the scope of registered designs to include virtual designs and color as a design feature and will stipulate the default owner of designs to be the designer of a commissioned design, rather than the commissioning party.
The USSFTA ensures that government agencies will not grant regulatory approvals to patent- infringing products, but Singapore does allow parallel imports. Under the Patents Act, with regards to pharmaceutical products, the patent owner has the right to bring an action to stop an importer of “grey market goods” from importing the patent owner’s patented product, provided that the product has not previously been sold or distributed in Singapore, the importation results in a breach of contract between the proprietor of the patent and any person licensed by the proprietor of the patent to distribute the product outside Singapore and the importer has knowledge of such.
The USSFTA ensures protection of test data and trade secrets submitted to the government for regulatory approval purposes. Disclosure of such information is prohibited. Such data may not be used for approval of the same or similar products without the consent of the party who submitted the data for a period of five years from the date of approval of the pharmaceutical product and 10 years from the date of approval of an agricultural chemical. Singapore has no specific legislation concerning protection of trade secrets. Instead, it protects investors’ commercially valuable proprietary information under common law by the Law of Confidence as well as legislation such as the Penal Code (e.g., theft) and the Computer Misuse Act (e.g., unauthorized access to a computer system to download information). U.S. industry has expressed concern that this provision is inadequate.
As a WTO member, Singapore is party to the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). It is a signatory to other international intellectual property rights agreements, including the Paris Convention, the Berne Convention, the Patent Cooperation Treaty, the Madrid Protocol, and the Budapest Treaty. The WIPO Secretariat opened a regional office in Singapore in 2005. (http://www.wipo.int/about-wipo/en/offices/singapore/) Amendments to the Trademark Act, which were passed in January 2007, fulfilled Singapore’s obligations in WIPO’s revised Singapore Treaty on the Law of Trademarks.
Singapore ranked 11th out of 55 in the world in the 2022 U.S. Chamber of Commerce’s International Intellectual Property (IP) Index. The index noted that Singapore’s key strengths include an advanced national IP framework and efforts to accelerate research, patent examination, and grants. The index also lauded Singapore as a global leader in patent protection and online copyright enforcement. Despite a decrease in estimated software piracy from 35 percent in 2009 to 27 percent in 2021, the index noted that piracy levels remain high for a developed, high-income economy. Lack of transparency and data on customs seizures of IP-infringing goods is also noted as a key area of weakness.
Singapore does not publicly report the statistics on seizures of counterfeit goods and does not rate highly on enforcement of physical counterfeit goods, online sales of counterfeit goods, or digital online piracy, according to the 2018 U.S. Chamber of Commerce’s International IP Index. Singapore is not listed in USTR’s 2021 Special 301 Report, but Shopee, a Singapore-headquartered e-commerce company, is named in USTR’s 2021 Review of Notorious Markets. On the trade of counterfeit and pirated goods, stakeholders also continue to report dissatisfaction with enforcement in Singapore, including concerns about the lack of coordination between Singapore’s Customs authorities and the Singapore Police Force’s IPR Branch. For additional information about national laws and points of contact at local IP offices, see WIPO’s country profiles at http://www.wipo.int/directory/en/.
6. Financial Sector
The government takes a favorable stance towards foreign portfolio investment and fixed asset investments. While it welcomes capital market investments, the government has introduced macro-prudential policies aimed at reducing foreign speculative inflows in the real estate sector since 2009. The government promotes Singapore’s position as an asset and wealth management center, and assets under management grew 17 percent in 2020 to $3.3 trillion (4.7 trillion Singapore dollars (SGD)), according to MAS’s Singapore Asset Management Survey 2020.
The government facilitates the free flow of financial resources into product and factor markets, and the SGX is Singapore’s stock market. An effective regulatory system exists to encourage and facilitate portfolio investment. Credit is allocated on market terms and foreign investors can access credit, U.S. dollars, Singapore dollars (SGD), and other foreign currencies on the local market. The private sector has access to a variety of credit instruments through banks operating in Singapore. The government respects IMF Article VIII by refraining from restrictions on payments and transfers for current international transactions.
Singapore’s banking system is sound and well regulated by MAS, and the country serves as a financial hub for the region. Banks have a very high domestic penetration rate, and according to World Bank Financial Inclusion indicators, over 97 percent of persons held a financial account in 2017 (latest year available). Local Singapore banks saw net profits rise some 40 percent in 2021. Banks are statutorily prohibited from engaging in non-financial business. Banks can hold 10 percent or less in non-financial companies as an “equity portfolio investment.” The non-performing loans ratio (NPL ratio) of Singapore’s banking system was 3 percent in the third quarter of 2021.
Foreign banks require licenses to operate in the country. The tiered license system for Merchant, Offshore, Wholesale, Full Banks, and Qualifying Full Banks (QFBs) subject banks to further prudential safeguards in return for offering a greater range of services. U.S. financial institutions enjoy phased-in benefits under the USSFTA. Since 2006, U.S.-licensed full-service banks that are also QFBs have been able to operate at an unlimited number of locations (branches or off-premises ATMs) versus 25 for non-U.S. full service foreign banks with QFB status.
Under the OECD Common Reporting Standards (CRS), which has been in effect since January 2017, Singapore-based financial institutions – depository institutions such as banks, specified insurance companies, investment entities, and custodial institutions – are required to: 1) establish the tax residency status of all their account holders; 2) collect and retain CRS information for all non-Singapore tax residents in the case of new accounts; and 3) report to tax authorities the financial account information of account holders who are tax residents of jurisdictions with which Singapore has a Competent Authority Agreement to exchange the information.
U.S. financial regulations do not restrict foreign banks’ ability to hold accounts for U.S. citizens. U.S. citizens are encouraged to alert the nearest U.S. Embassy of any practices they encounter with regard to the provision of financial services.
Fintech investments in Singapore rose from $2.48 million in 2020 to $3.94 billion in 2021. To strengthen Singapore’s position as a global Fintech hub, MAS has created a dedicated Fintech Office as a one-stop virtual entity for all Fintech-related matters to enable experimentation and promote an open-API (Application Programming Interfaces) in the financial industry. Investment in payments start-ups accounted for about 40 percent of all funds. Singapore has more than 50 innovation labs established by global financial institutions and technology companies.
MAS also aims to be a regional leader in blockchain technologies and has worked to position Singapore as a financial technology center. MAS and the Association of Banks in Singapore are prototyping the use of distributed ledger technology for inter-bank clearing and settlement of payments and securities. Following a five-year collaborative project to understand the technology, a test network launched to facilitate collaboration in the cross-border blockchain ecosystem. Technical specifications for the functionalities and connectivity interfaces of the prototype network are publicly available. (https://www.mas.gov.sg/schemes-and-initiatives/Project-Ubin).
Alternative financial services include retail and corporate non-bank lending via finance companies, cooperative societies, and pawnshops; and burgeoning financial technology-based services across a wide range of sectors including: crowdfunding, initial coin offerings, and payment services and remittance. In January 2020, the Payment Services Bill went into effect, which will require all cryptocurrency service providers to be licensed with the intent to provide more user protection. Smaller payment firms will receive a different classification from larger institutions and will be less heavily regulated. Key infrastructure supporting Singapore’s financial market include interbank (MEP), Foreign exchange (CLS, CAPS), retail (SGDCCS, USDCCS, CTS, IBG, ATM, FAST, NETS, EFTPOS), securities (MEPS+-SGS, CDP, SGX-DC) and derivatives settlements (SGX-DC, APS) (https://www.mas.gov.sg/regulation/payments/payment-systems).
The government has three key investment entities: GIC Private Limited (GIC) is the sovereign wealth fund in Singapore that manages the government’s substantial foreign investments, fiscal, and foreign reserves, with the stated objective to achieve long-term returns and preserve the international purchasing power of the reserves. Temasek is a holding company wholly owned by the Ministry of Finance with investments in Singapore and abroad. MAS, as the central bank of Singapore, manages the Official Foreign Reserves, and a significant proportion of its portfolio is invested in liquid financial market instruments.
GIC does not publish the size of the funds under management, but some industry observers estimate its managed assets may exceed $600 billion. GIC does not invest domestically, but manages Singapore’s international investments, which are generally passive (non-controlling) investments in publicly traded entities. The United States is its top investment destination, accounting for 34 percent of GIC’s portfolio as of March 2021, while Asia (excluding Japan) accounts for 26 percent, the Eurozone 9 percent, Japan 8 percent, and UK 5 percent. Investments in the United States are diversified and include industrial and commercial properties, student housing, power transmission companies, and financial, retail and business services. GIC is a member of the International Forum of Sovereign Wealth Funds. Although not required by law, GIC has published an annual report since 2008.
Temasek began as a holding company for Singapore’s state-owned enterprises, now GLCs, but has since branched out to other asset classes and often holds significant stake in companies. As of March 2021, Temasek’s portfolio value reached $267 billion, and its asset exposure to Singapore is 24 percent; 40 percent in the rest of Asia, and 20 percent in Americas. According to the Temasek Charter, Temasek delivers sustainable value over the long term for its stakeholders. Temasek has published a Temasek Review annually since 2004. The statements only provide consolidated financial statements, which aggregate all of Temasek and its subsidiaries into a single financial report. A major international audit firm audits Temasek Group’s annual statutory financial statements. GIC and Temasek uphold the Santiago Principles for sovereign investments.
Other investing entities of government funds include EDB Investments Pte Ltd, Singapore’s Housing Development Board, and other government statutory boards with funding decisions driven by goals emanating from the central government.
7. State-Owned Enterprises
Singapore has an extensive network of full and partial state-owned enterprises (SOEs) held under the umbrella of Temasek Holdings, a holding company with the Ministry of Finance as its sole shareholder. Singapore SOEs play a substantial role in the domestic economy, especially in strategically important sectors including telecommunications, media, healthcare, public transportation, defense, port, gas, electricity grid, and airport operations. In addition, the SOEs are also present in many other sectors of the economy, including banking, subway, airline, consumer/lifestyle, commodities trading, oil and gas engineering, postal services, infrastructure, and real estate.
The government emphasizes that government-linked entities operate on an equal basis with both local and foreign businesses without exception. There is no published list of SOEs.
Temasek’s annual report notes that its portfolio companies are guided and managed by their respective boards and management, and Temasek does not direct their business decisions or operations. However, as a substantial shareholder, corporate governance within government linked companies typically are guided or influenced by policies developed by Temasek. There are differences in corporate governance disclosures and practices across the GLCs, and GLC boards are allowed to determine their own governance practices, with Temasek advisors occasionally meeting with the companies to make recommendations. GLC board seats are not specifically allocated to government officials, although it “leverages on its networks to suggest qualified individuals for consideration by the respective boards,” and leaders formerly from the armed forces or civil service are often represented on boards and fill senior management positions. Temasek exercises its shareholder rights to influence the strategic directions of its companies but does not get involved in the day-to-day business and commercial decisions of its firms and subsidiaries.
GLCs operate on a commercial basis and compete on an equal basis with private businesses, both local and foreign. Singapore officials highlight that the government does not interfere with the operations of GLCs or grant them special privileges, preferential treatment, or hidden subsidies, asserting that GLCs are subject to the same regulatory regime and discipline of the market as private sector companies. However, observers have been critical of cases where GLCs have entered into new lines of business or where government agencies have “corporatized” certain government functions, in both circumstances entering into competition with already existing private businesses. Some private sector companies have said they encountered unfair business practices and opaque bidding processes that appeared to favor incumbent, government-linked firms. In addition, they note that the GLC’s institutional relationships with the government give them natural advantages in terms of access to cheaper funding and opportunities to shape the economic policy agenda in ways that benefit their companies.
The USSFTA contains specific conduct guarantees to ensure that GLCs will operate on a commercial and non-discriminatory basis towards U.S. firms. GLCs with substantial revenues or assets are also subject to enhanced transparency requirements under the USSFTA. In accordance with its USSFTA commitments, Singapore enacted the Competition Act in 2004 and established the Competition Commission of Singapore in January 2005. The Competition Act contains provisions on anti-competitive agreements, decisions, and practices, abuse of dominance, enforcement and appeals process, and mergers and acquisitions.
The government has privatized GLCs in multiple sectors and has not publicly announced further privatization plans, but is likely to retain controlling stakes in strategically important sectors, including telecommunications, media, public transportation, defense, port, gas, electricity grid, and airport operations. The Energy Market Authority is extending the liberalization of the retail market from commercial and industrial consumers with an average monthly electricity consumption of at least 2,000 kWh to households and smaller businesses. The Electricity Act and the Code of Conduct for Retail Electricity Licensees govern licensing and standards for electricity retail companies.
8. Responsible Business Conduct
The awareness and implementation of corporate social responsibility (CSR) in Singapore has been increasing since the formation of the Global Compact Network Singapore (GCNS) under the UN Global Compact network, with the goals of encouraging companies to adopt sustainability principles related to human and labor rights, environmental conservation, and anti-corruption. GCNS facilitates exchanges, conducts research, and provides training in Singapore to build capacity in areas including sustainability reporting, supply chain management, ISO 26000, and measuring and reporting carbon emissions.
A 2019 World Wildlife Fund (WWF) survey showed a lack of transparency by Singapore companies in disclosing palm oil sources. However, there is growing awareness and the Southeast Asia Alliance for Sustainable Palm Oil has received additional pledges in by companies to adhere to standards for palm oil sourcing set by the Roundtable for Sustainable Palm Oil (RSPO). A group of food and beverage, retail, and hospitality companies announced in January 2019 what the WWF calls “the most impactful business response to-date on plastics.” The pact, initiated by WWF and supported by the National Environment Agency, is a commitment to significantly reduce plastic production and usage by 2030.
In June 2016, the SGX introduced mandatory, comply-or-explain, sustainability reporting requirements for all listed companies, including material environmental, social and governance practices, from the financial year ending December 31, 2017 onwards. The Singapore Environmental Council operates a green labeling scheme, which endorses environmentally friendly products, numbering over 3,000 from 2729 countries. The Association of Banks in Singapore has issued voluntary guidelines to banks in Singapore last updated in July 2018 encouraging them to adopt sustainable lending practices, including the integration of environmental, social and governance (ESG) principles into their lending and business practices. Singapore-based banks are listed in a 2018 Market Forces report as major lenders in regional coal financing.
Singapore has not developed a National Action Plan on business and human rights, but promotes responsible business practices, and encourages foreign and local enterprises to follow generally accepted CSR principles. The government does not explicitly factor responsible business conduct (RBC) policies into its procurement decisions.
The host government effectively and fairly enforces domestic laws with regard to human rights, labor rights, consumer protection, environmental protections, and other laws/regulations intended to protect individuals from adverse business impacts. The private sector’s impact on migrant workers and their rights, and domestic migrant workers in particular (due to the latter’s exemption from the Employment Act which stipulates the rights of workers), remains an area of advocacy by civil society groups. The government has taken incremental steps to improve the channels of redress and enforcement of migrant workers’ rights; however, key concerns about legislative protections remain unaddressed for domestic migrant workers. The government generally encourages businesses to comply with international standards. However, there are no specific mentions of the host government encouraging adherence to the OECD Due Diligence Guidance, or supply chain due diligence measures.
The Companies Act principally governs companies in Singapore. Key areas of corporate governance covered under the act include separation of ownership from management, fiduciary duties of directors, shareholder remedies, and capital maintenance rules. Limited liability partnerships are governed by the Limited Liability Partnerships Act. Certain provisions in other statutes such as the Securities and Futures Act are also relevant to listed companies. Listed companies are required under the Singapore Exchange Listing Rules to describe in their annual reports their corporate governance practices with specific reference to the principles and provisions of the Code of Corporate Governance (“Code”). Listed companies must comply with the principles of the Code and if their practices vary from any provision in the Code, they must explain the variation and demonstrate the variation is consistent with the relevant principle. The revised Code of Corporate Governance will impact Annual Reports covering financial years from January 1, 2019 onward. The revised code encourages board renewal, strengthens director independence, increases transparency of remuneration practices, enhances board diversity, and encourages communication with all stakeholders. MAS also established an independent Corporate Governance Advisory Committee (CGAC) to advocated good corporate governance practices in February 2019. The CGAC monitors companies’ implementation of the code and advises regulators on corporate governance issues.
There are independent NGOs promoting and monitoring RBC. Those monitoring or advocating around RBC are generally able to do their work freely within most areas. However, labor unions are tightly controlled and legal rights to strike are granted with restrictions under the Trade Disputes Act.
Singapore has no oil, gas, or mineral resources and is not a member of the Extractive Industries Transparency Initiative. A small sector in Singapore processes rare minerals and complies with responsible supply chains and conflict mineral principles. Under the Anti-Money Laundering and Countering Financing of Terrorism framework, it is a requirement for corporate service providers to develop and implement internal policies, procedures, and controls to comply with Financial Action Task Force recommendations on combating of money laundering and terrorism financing.
Singapore plans to reach net-zero by or around mid-century but faces alternative energy diversification challenges in setting 2050 net-zero carbon emission targets. Singapore’s national climate strategy focuses on increased sustainability, carbon emissions reductions, fostering job and investment opportunities, and increasing climate resilience and food security https://www.greenplan.gov.sg/. According to the National Climate Change Secretariat, the government plans to spend approximately $750 million from 2019 to 2023 to support Singaporean companies become more energy efficient and improve competitiveness. A link to national mitigation strategies can be found here. https://www.nccs.gov.sg/faqs/mitigation-action/
The Energy Conservation Act requires large industry and transportation sector companies that consume more than 15 gigawatt-hours (or 54 terajoules) of energy per year to appoint an energy manager, monitor and report energy usage, submit plans for energy efficiency improvements to appropriate agencies, conduct energy assessments periodically to identify improvement opportunities, implement structured energy management systems, and ensure new or retrofitted energy intensive facilities are designed to be energy efficient.
Singapore actively enforces its strong anti-corruption laws, and corruption is not cited as a concern for foreign investors. Transparency International’s 2021 Corruption Perception Index ranks Singapore fourth of 180 countries globally, the highest-ranking Asian country. The Prevention of Corruption Act (PCA), and the Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act provide the legal basis for government action by the Corrupt Practices Investigation Bureau (CPIB), which is the only agency authorized under the PCA to investigate corruption offences and other related offences. These laws cover acts of corruption within Singapore as well as those committed by Singaporeans abroad. The anti-corruption laws extend to family members of officials, and to political parties. The CPIB is effective and non-discriminatory. Singapore is generally perceived to be one of the least corrupt countries in the world, and corruption is not identified as an obstacle to FDI in Singapore. Recent corporate fraud scandals, particularly in the commodity trading sector, have been publicly, swiftly, and firmly reprimanded by the government. Singapore is a signatory to the UN Anticorruption Convention, but not the OECD Anti-Bribery Convention.
Contact at government agency or agencies are responsible for combating corruption:
Singapore’s political environment is stable and there is no recent history of incidents involving politically motivated damage to foreign investments in Singapore. The ruling People’s Action Party (PAP) has dominated Singapore’s parliamentary government since 1959 and currently controls 83 of the 92 regularly contested parliamentary seats. Singaporean opposition Workers’ Party, which currently holds nine regularly contested parliamentary seats, does not usually espouse views that are radically different from mainstream public opinion. The opposition Progress Singapore Party, which is represented in parliament since 2020 after winning two additional parliamentary seats reserved to the best performing losing candidates, advocates for more protectionist policies.
11. Labor Policies and Practices
In December 2021, Singapore’s labor market totaled 3.64 million workers; this includes about 1.24 million foreigners, of whom about 84 percent are basic skilled or semi-skilled workers. The overall unemployment rate was 2.3 percent as of January. Local labor laws allow for relatively free hiring and firing practices. Either party can terminate employment by giving the other party the required notice. The Ministry of Manpower (MOM) must approve employment of foreigners. In 2020, females had an employment rate of 73.2 percent compared to males of 87.9 percent. Females accounted for 46.3 percent of the resident labor force as of June 2020. The Council for Board Diversity reported that as of December 2021, women’s representation on boards of the largest 100 companies listed on the Singapore Exchange increased over the previous year to 18.9 percent. Representation of women also increased on statutory boards to 29.7 percent but declined slightly on registered NGOs and charities to 28.4 percent. Singapore’s adjusted gender pay gap was 6 percent as of the most recent data in 2018 but occupational segregation continued.
Since 2011, the government has introduced policy measures to support productivity increases coupled with reduced dependence on foreign labor. In Budget 2019, MOM announced a decrease in the foreign worker quota ceiling from 40 percent to 38 percent on January 1, 2020 and to 35 percent on January 1. The quota reduction does not apply to those on Employment Passes (EPs) which are high skilled workers making above $39,750 per year. In Budget 2020, the foreign worker quota was cut further for mid-skilled (“S Pass”) workers in construction, marine shipyards, and the process sectors from 20 to 18 percent by January 1, 2021. The quota will be further reduced to 15 percent on January 1, 2023. Singapore’s labor force increased marginally with the partial reopening of borders after easing of COVID-19 restrictions but is expected to face significant demographic headwinds from an aging population and low birth rates, alongside restrictions on foreign workers. Singapore’s local workforce growth is slowing, heading for stagnation over the next 10 years.
To address concerns over an aging and shrinking workforce, MOM has expanded its training and grant programs. The government included a number of individual and company subsidies for existing and new programs in the latest budget, as well as an unprecedented number of supplementary budgets during the initial COVID-19 outbreak in 2020. An example of an existing program is SkillsFuture, a government initiative managed by SkillsFuture Singapore (SSG), a statutory board under the Ministry of Education, designed to provide all Singaporeans with enhanced opportunities and skills-capacity building. SSG also administers the Singapore Workforce Skills Qualifications, a national credential system that trains, develops, assesses, and certifies skills and competencies for the workforce.
All foreigners must have a valid work pass before they can start work in Singapore, with EPs (for professionals, managers, and executives), S Pass (for mid-level skilled staff), and Work Permits (for semi-skilled workers), among the most widely issued. Workers need to have a job with minimum fixed monthly salary and acceptable qualifications to be eligible for the EP and S Pass. MOM has increased minimum salaries multiple times, restricting the ability of some companies to hire foreign workers, including spouses of employment pass holders. From September 2023, it will be raised to $3,500 for new EP applicants ($3,850 for those in the financial services sector) and $2,100 for new S Pass applicants ($2,450 for those in the financial services sector). The government further regulates the inflow of foreign workers through the Foreign Worker Levy (FWL) and the Dependency Ratio Ceiling (DRC). The DRC is the maximum permitted ratio of foreign workers to the total workforce that a company can hire and serves as a quota on the hiring of foreign workers. The DRC varies across sectors. It was announced in Budget 2022 that the DRC will be reduced from 87.5 percent to 83.3 percent from January 2024. Employers of S Pass and Work Permit holders are required to pay a monthly FWL to the government. The FWL varies according to the skills, qualifications, and experience of their employees. The FWL is set on a sector-by-sector basis and is subject to annual revisions. FWLs have been progressively increased for most sectors since 2012.
MOM requires employers to consider Singaporeans before hiring skilled professional foreigners. The Fair Consideration Framework (FCF), implemented in August 2014, affects employers who apply for EPs, the work pass for foreign professionals working in professional, manager, and executive (PME) posts. Companies have noted inconsistent and increasingly burdensome documentation requirements and excessive qualification criteria to approve EP applications. Under the rules, firms making new EP applications must first advertise the job vacancy in a new jobs bank administered by Workforce Singapore (WSG),http://www.mycareersfuture.gov.sg for at least 28 days. The jobs bank is free for use by companies and job seekers and the job advertisement must be open to all, including Singaporeans. Employers are encouraged to keep records of their interview process as proof that they have done due diligence in trying to look for a Singaporean worker. If an EP is still needed, the employer will have to make a statutory declaration that a job advertisement on http://www.mycareersfuture.gov.sg had been made.
Consistent with Singapore’s WTO obligations, intra-corporate transfers (ICT) are allowed for managers, executives, and specialists who had worked for at least one year in the firm before being posted to Singapore. ICT would still be required to meet all EP criteria, but the requirement for an advertisement on http://www.mycareersfuture.gov.sg would be waived. In April 2016, MOM outlined measures to refine the work pass applications process, looking not only at the qualifications of individuals, but at company-related factors. Companies found not to have a “healthy Singaporean core, lacking a demonstrated commitment to developing a Singaporean core, and not found to be “relevant” to Singapore’s economy and society, will be labeled “triple weak” and put on a watch list. Companies unable to demonstrate progress may have work pass privileges suspended after a period of scrutiny. Since 2016, MOM has placed approximately 1,200 companies on its FCF Watchlist. The Tripartite Alliance for Fair and Progressive Employment Practices have worked with 260 companies to be successfully removed from the watchlist.
The Employment Act covers all employees under a contract of service, and under the act, employees who have served the company for at least two years are eligible for retrenchment benefits, and the amount of compensation depends on the contract of service or what is agreed collectively. Employers have to abide by notice periods in the employment contract before termination and stipulated minimum periods in the Employment Act in the absence of a notice period previously agreed upon, or provide salary in lieu of notice. Dismissal on grounds of wrongful conduct by the employee is differentiated from retrenchments in the labor laws and is exempted from the above requirements. Employers must notify MOM of retrenchments within five working days after they notify the affected employees to enable the relevant agencies to help affected employees find alternative employment and/or identify relevant training to enhance employability. Singapore does not provide unemployment benefits, but provides training and job matching services to retrenched workers. Labor laws are not waived in order to attract or retain investment in Singapore. There are no additional or different labor law provisions in free trade zones.
Collective bargaining is a normal part of labor-management relations in all sectors. Almost all unions are affiliated with the National Trades Union Congress (NTUC), the sole national federation of trade unions in Singapore, which has a close relationship with the PAP ruling party and the government. The current NTUC secretary-general is also a former minister in the Prime Minister’s Office. As of June, the NTUC had more than 1 million members. Given that nearly all unions are NTUC affiliates, the NTUC has almost exclusive authority to exercise collective bargaining power on behalf of employees. Union members may not reject collective agreements negotiated between their union representatives and an employer. Although transfers and layoffs are excluded from the scope of collective bargaining, employers consult with unions on both problems, and the Taskforce for Responsible Retrenchment and Employment Facilitation issues guidelines calling for early notification to unions of layoffs. Data on coverage of collective bargaining agreements is not publicly available. The Industrial Relations Act (IRA) regulates collective bargaining. The Industrial Arbitration Courts must certify any collective bargaining agreement before it is deemed in effect and can deny certification on public interest grounds. Additionally, the IRA restricts the scope of issues over which workers may bargain, excluding bargaining on hiring, transfer, promotion, dismissal, or reinstatement of workers.
Most labor disagreements are resolved through conciliation and mediation by MOM. Since April 2017, the Tripartite Alliance for Dispute Management (TADM) under MOM provides advisory and mediation services, including mediation for salary and employment disputes. Where the conciliation process is not successful, the disputing parties may submit their dispute to the IAC for arbitration. Depending on the nature of the dispute, the court may be constituted either by the president of the IAC and a member of the Employer and Employee Panels, or by the president alone. The Employment Claims Tribunals (ECT) was established under the Employment Claims Act (2016). To bring a claim before the ECT, parties must first register their claims at the TADM for mediation. Mediation at TADM is compulsory. Only disputes which remain unresolved after mediation at TADM may be referred to the ECT.
The ECT hears statutory salary-related claims, contractual salary-related claims, dismissal claims from employees, and claims for salary in lieu of notice of termination by all employers. There is a limit of $21,200 on claims for cases with TADM mediation, and $14,100 for all other claims. In March 2019, MOM announced that 85 percent of salary claims had been resolved by TADM between April 2017 and December 2018. Salary-related disputes that are not resolved by mediation are covered by the Employment Claims Tribunals under the State Courts. Industrial disputes may also submit their case be referred to the tripartite Industrial Arbitration Court (IAC). The IAC composed has two panels: an employee panel and a management panel. For a majority of dispute hearings, a court is constituted comprising the president of the IAC and a member each from the employee and employer panels’ representatives and chaired by a judge. In some situations, the law provides for compulsory arbitration. The court must certify collective agreements before they go into effect. The court may refuse certification at its discretion on the ground of public interest.
The legal framework in Singapore provides for some restrictions in the registration of trade unions, labor union autonomy and administration, the right to strike, who may serve as union officers or employees, and collective bargaining. Under the Trade Union Act (TUA), every trade union must register with the Registrar of Trade Unions, which has broad discretion to grant, deny, or cancel union registration. The TUA limits the objectives for which unions can spend their funds, including for contributions to a political party or for political purposes, and allows the registrar to inspect accounts and funds “at any reasonable time.” Legal rights to strike are granted with restrictions under TUA. The law requires the majority of affected unionized workers to vote in favor of a strike by secret ballot, as opposed to the majority of those participating in the vote. Strikes cannot be conducted for any reason apart from a dispute in the trade or industry in which the strikers are employed, and it is illegal to conduct a strike if it is “designed or calculated to coerce the government either directly or by inflicting hardship on the community.” Workers in “essential services” are required to give 14 days’ notice to an employer before conducting a strike. Although workers, other than those employed in the three essential services of water, gas, and electricity, may strike, no workers did so since 1986 with the exception of a strike by bus drivers in 2012, but NTUC threatened to strike over concerns in a retrenchment process in July 2020. The law also restricts the right of uniformed personnel and government employees to organize, although the president may grant exemptions. Foreigners and those with criminal convictions generally may not hold union office or become employees of unions, but the ministry may grant exemptions.
The Employment Act, which prohibits all forms of forced or compulsory labor and the Prevention of Human Trafficking Act (PHTA), strengthens labor trafficking victim protection, and governs labor protections. Other acts protecting the rights of workers include the Workplace Safety and Health Act and Employment of Foreign Manpower Act. Labor laws set the standard legal workweek at 44 hours, with one rest day each week, and establish a framework for workplaces to comply with occupational safety and health standards, with regular inspections designed to enforce the standards. MOM effectively enforces laws and regulations establishing working conditions and comprehensive occupational safety and health (OSH) laws and implements enforcement procedures and promoted educational and training programs to reduce the frequency of job-related accidents. Changes to the Employment Act took effect on April 1, 2019, including for extension of core provisions to managers and executives, increasing the monthly salary cap, transferring adjudication of wrongful dismissal claims from MOM to the ECT, and increasing flexibility in compensating employees working during public holidays (for more detail see https://www.mom.gov.sg/employment-practices/employment-act. All workers, except for public servants, domestic workers and seafarers are covered by the Employment Act, and additional time-based provisions for more vulnerable employees.
Singapore has no across the board minimum wage law, although there are some exceptions in certain low-skill industries. Generally, the government follows a policy of allowing free market forces to determine wage levels. In specific sectors where wages have stagnated and market practices such as outsourcing reduce incentive to upskill workers and limit their bargaining power, the government has implemented Progressive Wage Models to uplift wages. These are currently implemented in the cleaning, security, elevator maintenance, and landscape sectors and have been raised progressively. The National Wage Council (NWC), a tripartite body comprising representatives from the government, employers, and unions, recommends non-binding wage adjustments on an annual basis. The NWC recommendations apply to all employees in both domestic and foreign firms, and across the private and public sectors. While the NWC wage guidelines are not mandatory, they are published under the Employment Act and form the basis of wage negotiations between unions and management. The NWC recommendations apply to all employees in both domestic and foreign law firms, and across the public and private sectors. The level of implementation is generally higher among unionized companies compared to non-unionized companies.
MOM and the Ministry of Home Affairs are responsible for combating labor trafficking and improving working conditions for workers, and generally enforce anti-trafficking legislation, although some workers in low-wage and unskilled sectors are vulnerable to labor exploitation and abuse. PHTA sets out harsh penalties (including up to nine strokes of the cane and 15 years’ imprisonment) for those found guilty of trafficking, including forced labor, or abetting such activities. The government developed a mechanism for referral of potential trafficking-in-persons activities, to the interagency taskforce, co-chaired by the Ministry of Home Affairs and the Ministry of Manpower. Some observers note that the country’s employer sponsorship system made legal migrant workers vulnerable to forced labor, because their abilities to change employers without the consent of the current employer are limited. MOM effectively enforces laws and regulations pertaining to child labor. Penalties for employers that violated child labor laws were subject to fines and/or imprisonment, depending on the violation. Government officials assert that child labor is not a significant issue. The incidence of children in formal employment is low, and almost no abuses are reported.
The USSFTA includes a chapter on labor protections. The labor chapter contains a statement of shared commitment by each party that the principles and rights set forth in Article 17.7 of the ILO Declaration on Fundamental Principles and Rights at Work and its follow-up are recognized and protected by domestic law, and each party shall strive to ensure it does not derogate protections afforded in domestic labor law as an encouragement for trade or investment purposes. The chapter includes the establishment of a labor cooperation mechanism, which promotes the exchange of information on ways to improve labor law and practice, and the advancement of effective implementation.
See the U.S. State Department Human Rights Report as well as the U.S. State Department’s Trafficking in Persons Report.
Under the 1966 Investment Guarantee Agreement with Singapore, the Overseas Private Investment Corporation (OPIC) (Now the Development Finance Corporation) offers insurance to U.S. investors in Singapore against currency inconvertibility, expropriation, and losses arising from war. Singapore became a member of the Multilateral Investment Guarantee Agency (MIGA) in 1998. In March 2019, Singapore and the United States signed an MOU aimed at strengthening collaboration between the infrastructure agency of Singapore, Infrastructure Asia, and OPIC. Under the agreement, both countries will work together on information sharing, deal facilitation, and capacity building initiatives in sectors of mutual interest such as energy, natural resource management, water, waste, transportation, and urban development. The aim is to enhance Singapore-based and U.S. companies’ access to project opportunities, while building on Singapore’s role as an infrastructure hub in Asia.
Singapore’s domestic public infrastructure projects are funded primarily via Singapore government reserves or capital markets, reducing the scope for direct project financing subsidies by foreign governments.
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical source*
USG or international statistical source
USG or International Source of Data: BEA; IMF; Eurostat; UNCTAD, Other
Host Country Gross Domestic Product (GDP) ($M USD)