(SEE APPENDIX FOR TRANSLATION OF THE 12 POLICIES)

SHANGHAI AS A NEW INNOVATION HUB

China has been a hub of entrepreneurship for many years now. From the Zhongguancun technology hub in Beijing with Baidu and Sina, to Alibaba in Hangzhou, to Tencent and Huawei in Shenzhen, innovation and entrepreneurship is a large part of China’s ongoing economic growth and reform.

Now China is ready to take its next steps as a greater global hub of entrepreneurship by opening up Shanghai, which is set to be the first testing ground for new entrepreneurial residence and immigration policies, according to new regulations unveiled last week by China’s Ministry of Public Security.  Starting with the removal of external and internal labor market restrictions to encourage entrepreneurship in the technology and service industries in Shanghai, China’s government is taking the next steps in its market-oriented economic policies, opening its economy further, and attracting foreign talent to start businesses.

The Shanghai municipal government’s originally reported announcement on June 3rd included measures for building facilities for startups, a technology research university, science laboratories, and other measures to attract worldwide talent. The policies then escalated quickly in a State Council meeting, calling for a loosening of residency and educational degree requirements as barriers to entry in China’s entrepreneurship market. A fanfare website was also set up in support of “Shanghai as a technology and innovation center with global impact” (建设具有全球影响力的上海科技创新中心).

Then on June 9th, the central Ministry of Public Security officially endorsed the policy, set for implementation on July 1st.

According to a Ministry of Public Security official, “advancing the construction of Shanghai as a technology and innovation center is a major initiative of China’s forging of new heights in the technology sector that have global impact under “the New Reality[*]”, referring to comprehensively deepening reform, advancing development strategies that are driving innovation, and enhancing the significance of the country’s core competitive ability.”

HOUSEHOLD REGISTRATION RESTRICTIONS WILL BE LOOSENED; NON-CHINESE WILL SOON OBTAIN “GREEN CARDS”, WORK PERMISSION IN STARTUPS, AND QUICKLY OBTAIN PERMANENT RESIDENCE IN SHANGHAI

A major thrust of the initiative is a change in labor market policies. Premier Li Keqiang specifically announced on June 4th that China would eliminate “hukou” residency and degree requirements that have restricted the freedom of movement of labor in China in the past.

Note: Hukou residency is based on the town or region of one’s birth in China, and is often a requirement for employment at firms in major cities. It has traditionally taken many years to obtain residency in a major cities like Shanghai and Beijing.

The policies are intended to encourage business startups, hire the best talent available, increase China’s competitiveness, and relieve pressures in the employment market. The measures originally announced by the Shanghai government on June 5th included:

• a reduction from 7 years to between 2-5 years to wait for a “hukou” residency in Shanghai.
• a reduction in green card application wait times to less than 90 days for foreigners.
• an entrepreneurship enabling policy that will let university researchers start companies while studying and let students work part-time in startups.

The central Ministry of Public Security in Beijing then took the plunge, introducing centrally sanctioned residence and visa changes in Shanghai in an announcement entitled “A Reading on the Relevant Entry and Exit Policy Measures for the Carrying Out of Support for Shanghai as a Technology and Innovation Center“.

According to the subsequent Ministry of Public Security announcement:

In total 12 projects have been cleared for implementation to increase the attractiveness of China to top-level foreign talent, to improve the level of incubator support for young startups, to spur on the mobility of China’s domestic talent, to upgrade the level of specialized immigration services and others. This will offer a fast and convenient immigration environment for the construction of Shanghai as a technology and innovation center, as well as the finest residency treatment of foreign talent and the most efficient immigration (entry/exit) service.

The 12 projects include visa changes that will allow foreign entrepreneurs to obtain permanent residence or working status in Shanghai within a few years, as well as visa-upon entry measures for those that have investments in China or who have already obtained work permission.

(SEE APPENDIX FOR TRANSLATION OF THE 12 POLICIES)

POLICIES WILL GRADUALLY EXPAND TO 2ND AND 3RD TIER CITIES TO ENCOURAGE “RETURN TO VILLAGE ENTREPRENEURSHIP”

The initiative will be expanded countrywide eventually and will be especially friendly to 2nd and 3rd tier cities in China that still have excess capacity. This may suggest even more lenient policies in smaller inland cities in the future. According to People’s Daily, “The aforementioned policies will gradually expand to establish conditions for implementation on a countrywide scope in different regions after they have gone through a period of practice and maturity [in Shanghai].” For example, the State Council is encouraging labor flows to the countryside in a policy announcement on June 10th that encourages migrants and students to return to their villages.

CONCLUSION

These new policies are likely linked with China’s central government efforts to delegate authority down from the central government  to the business environment by reducing red-tape and regulatory bottlenecks, in an attempt to spur growth in an economy of slowed manufacturing and exports. These policies would help relieve the job market and the population stresses of megapolises on its eastern seaboard, where it intends to build service economies like Shanghai and attempt to improve the status of interior cities, where manufacturing and infrastructure still has room for growth. Given Chinese cultural values that emphasize proximity of family and care for elders, many young Chinese entrepreneurs may find this to be a good opportunity to remain filial while pursuing new ambitions, while its elites can find new avenues in the service economies of major cities.

A major theme of the Xi Jinping administration has been adjustment to a slower rate of economic growth. This may be the beginning of a new era for China’s and Asia’s entrepreneurs. Technology has been one of China’s major economic initiatives, but these policies are on another level entirely. Perhaps this is what Premier Li Keqiang has meant in his use of the slogan “Popular Entrepreneurship and Mass Innovation” as one of two “twin engines” of economic growth.

*The “new reality” refers to China’s national power and prospects for continued amid a world that “…is undergoing a period of great development, great change, and great adjustment” coined at the 4th Plenum of the 17th CCP Central Committee in September 2009. (Source: Jamestown Foundation, China Brief)

APPENDIX A – 12 POLICY CHANGES FROM MINISTRY OF PUBLIC SECURITY

1. Foreign residents in Shanghai can obtain permanent residence after having worked there for 4 years. They only need to have a stable livelihood and a company recommendation.
2. Foreigners hired by a company on a specified list of innovative companies can get a 5 year work residence permit, and after 3 years of working apply for permanent residence.
3. Foreigners hired by a company on a specified list of innovative companies can receive a talent-based work visa upon arrival in Shanghai.
4. Foreign exchange students from top-universities in China looking for practice or to be entrepreneurs in Shanghai can apply for a 2 year private business residence permit.
5. Foreigners coming to Shanghai with work permission proof can get a 1 year work visa and work residence upon arrival. Foreigners planning to come to Shanghai to invest or start a business can get a private matter visa and residence upon proof of investment plan or source of income.
6. Foreigners who have already applied twice for a work residence, and that have not committed any crimes or rule violations, can receive a 5 year work residence upon the third application.
7. Non-Shanghai Chinese household registrant holders (hukou) with a residence permit can apply for every kind of entry and exit credential in China (except to HK, Macau, or Taiwan)
8. Shanghai’s Ministry of Public Security can now formulate policies to encourage Hong Kong and Macau residents to live and dwell in Shanghai with their dependents.
9. Foreign residents with permanent residence permission or continuous work residence permission can have personal assurance and employment contracts, and can issue private matter residence permits for accompanying foreign personnel.
10. Visa free entry in Shanghai for certain nationals will be expanded from 72 hours to 144 hours and will expand from port of entry at airports to include port of entry by sea.
11. Visa free entry for cruise/exploration ships will be encouraged based on Shanghai city’s application to the State Council for these measures.
12. The Ministry of Public Security and Shanghai’s city government will begin a cooperation, particularly with the Zhangjiang Hi-Tech Park in Pudong.

APPENDIX B – “RETURN TO VILLAGE ENTREPRENEURSHIP” MEASURES FROM STATE COUNCIL MEETING:

• Simplify business creation and location registration renewals process, advancing the “one address, many licenses” principle, collective registration and other reforms;

• Implement migrant worker and other personnel going to their village to start business in orienting themselves with tax reductions and pervasive fee reduction measures, towards entrepreneurship guaranteeing credit financing according with stipulations that provide discount subsidies;

• Explore the issuance of SME bonds for entrepreneurship returning to villages in more concentrated areas, encouraging banks to increase credit support and services;

• Rely on existing development zones, agriculture and industry zone to develop entrepreneurship returning to villages and incubator zones. Encourage electronics commercial trade platforms as channels to sink in and put in motion Internet entrepreneurship;

• Strengthen entrepreneurship training, to help operations for entrepreneurs returning home and to expand the market through social security for migrant workers, housing, training, medical support, and other public service systems, utilizing government purchasing services and other mechanisms.

Written by Matt Johnson