For the pandemic-battered tourism and cultural industry, help is at hand in the form of policies
After being hit by the COVID-19 pandemic, companies in China’s cultural and tourism industries are striving for recovery with help from multiple sources, including favourable government policies, investment opportunities, IP value and innovative new operations. Lawyers point out the potential legal issues to consider and gives advice on avoiding them in order to ensure a full and sustainable recovery.
Compared to other industries, the country’s cultural and tourism industries have seen a relatively greater impact from the COVID-19 pandemic. The most obvious area has been the reduced revenue and increased maintenance and operating costs of venues and projects, whether they are currently operating or under construction. Additionally, the pandemic has ensured these companies are less likely to employ people or pay taxes. Yuan Xiaodong, partner of Grandway Law Firm Shanghai Office, says that although the impact will reduce as the pandemic comes under control, it is still going to last for a while.
A VARIETY OF POLICIES
Governments at different levels are issuing policies that will help cultural and tourism companies get back on their feet. “Various policies have been issued, including but not limited to tax deduction, fee deduction, financial support, social security support, labor support and temporary tourism service quality deposit refund, in order to fully support these companies,”says Xu Chao, partner at Ronley & Tenwen.
In addition to these measures to “staunch the bleeding”, Xu also sees that governments are actively ensuring the accelerated development of the economy, thereby making certain members of the public still have the wherewithal to spend on culture and tourism.
However Yuan feels that although the policies can benefit various projects, the approaches of the different governments are not consistent. These projects, especially the large ones, usually mean investment agreements between the government and the parties of construction and operation. Therefore, government support like land transferring fees, reduction or exemption of land rent, adjustment of overall project development schedule, deferment of construction period of projects already started, special fund support and exemptions for other investors if necessary, matches closer to the needs of projects and is relatively more effective. Currently, the governments’ support at this level varies,” he notes.
Therefore, companies should not only pay close attention to government policies, but more importantly, actively communicate with local governments their specific situation and actual needs of their projects.
SUITABLE FINANCING STRUCTURES NEEDED
Despite the pandemic’s hit to the broader economy, cultural and tourism companies in many places still have access to a range of financing opportunities. According to the news agency Xinhua, in June a total of 65 financing cooperation projects were signed in Jiangsu Province, with a total credit amount of 39.134 billion yuan ($5.5 billion). Also in June, the Hunan Provincial Tourism Department signed strategic cooperation agreements with multiple local financial institutions, with a total credit amount of more than 241 billion yuan, according to the China Daily.
However, having sources of funds is only half the battle won when it comes to project financing. It is also important to establish a suitable financing structure while grabbing these financing opportunities.
“The investment and financing structure of a project is usually determined before the government signs an investment agreement, which is also a basic requirement of the government for the investment ability of the social capital side of such a project,” says Yuan. He points out three factors that should be taken into account when it comes to establishing financing structures:
1. The needs of the government
The government may have certain requirements on the proportion of foreign capital and state capital in the investment structure because of the need of project participation and control. This also applies when it comes to investments by local government and local state-owned enterprises.
2. Continuous operation of project
Culture and tourism complex projects usually require long-term operations, hence the importance of the stability of investment structure and operation management. Therefore, the first choice always goes to long-term investment funds, whereas investment funds with certain performance commitments, performance bets and other short-term investments should be treated with great cautious.
3. Needs of future financing methods
In large complex projects, it is important to develop by stages and rely on the project itself to form assets and operating income to provide funds and financing support for future construction.
On one hand, if the project seeks financing from financial institutions, the investor's credit, background and support in the investment structure are important reference indicators for financial institutions to provide financing.
But, if the project enters its operation phase and seeks financing through asset securitization, financing from both home and abroad, investment structures, management capability and operational stability are important factors, in addition to compliance on the level of policies and regulations.
IP AS A DRIVING FORCE
In addition to the support brought by financing, IP can also play a very positive role in the post-epidemic recovery of cultural and tourism companies.
“IP can attract a high degree of attention and customer viscosity. Making good use of popular IP is critical to attracting customers, driving consumption, upgrading local industries, and driving industrial linkage,” says Xu.
For IP licensors, Xu suggests stressing on the diversity when it comes to authorizing. “Avoid exclusive authorization under the premise that the minimum guarantee cannot be guaranteed. If exclusive authorization has been made, multi-dimensional control is required through the authorization area, the authorization period or the authorization category.” Xu explains.
For IP purchasers, Xu believes that for projects that have already signed a minimum guarantee, the purchaser should try its best to negotiate with the IP licensor to adjust the minimum guarantee or adjust the authorization rate to maintain a sustainable operation for the project.
“Of course, new IP types supported by new technological means, such as 5G, cloud computing, big data and Internet of Things, can also be obtained from IP licensors. Revenues can be expanded, and income channels can be broadened if moving the offline presentation of IP to online platforms,” Xu further says.
When it comes to the introduction of foreign brands and IP, Yuan believes that the biggest risk lies in the understanding of IP authorization. He explains: “Many foreign big IP's own brand composition may be more complex, and the brand authorization system is different. It takes many years' experience and knowledge accumulation in related field to fully understand the system and rules. Also, as it involves cross-border brand authorization, different laws and regulations on IP both at home and abroad also need to be understood.”
Yuan also gives his advice on this issue. “For both the government party introducing the IP and the social capital party that invests and operates, I think it is important to fully understand the IP system and authorization path before agreeing upon relevant matters, so that they can avoid IP authorization becoming an obstacle to cooperation,” he says.
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