Foreign Investment and General Corporate
1. Negative List for Market Access (2020 Edition)
On December 10, 2020, upon the approval of the CPC Central Committee and the State Council, the National Development and Reform Commission (“NDRC”) and the Ministry of Commerce (“MOFCOM”) jointly released the Negative List for Market Access (2020 Edition) （《市场准入负面清单（2020年版）》）(“Negative List”) (see here for the full text in Chinese). The Negative List came into immediate effect upon the date of release.
The Negative List outlines sectors, fields and businesses in which investment is prohibited or restricted. In so doing, the Negative List standardizes the market-entry rules for all investors, regardless of the origin of the investor (be it domestic or foreign). The Negative List has been shortened to 123 items in 2020, down from 131 items in the previous year.
2. Catalogue of Encouraged Industries for Foreign Investment (2020 Edition)
On December 27, 2020, the NDRC and MOFCOM jointly released the Catalogue of Encouraged Industries for Foreign Investment (2020 Edition)（《鼓励外商投资产业目录（2020年版）》）(“Catalogue”) (see here for the full text in Chinese). The Catalogue came into effect from January 27, 2021.
The Catalogue includes 1,235 items, of which 127 are new and 88 are revised. The newly-added items target foreign direct investment in high-end manufacturing and production-orientated service industries, including:
- the production of ventilators, ECMO and medical monitors;
- the production of laser projection equipment;
- the research and development of 5G technologies, integrated circuit packages and testing equipment;
- blockchain technology; and
- the design of sewage treatment and facilities.
The Catalogue also adds items to attract foreign investment into China’s middle and western regions, with different targets in each province of these regions (as per local conditions). For example, in provinces such as Heilongjiang and Yunnan, the Catalogue encourages foreign investment into the processing of agricultural products and tourism development. At the same time, the Catalogue encourages investment in medical equipment and protective supplies in provinces such as Henan and Shaanxi.
3. First Batch of the Judicial Interpretations to the Civil Code released
On December 30 and 31 of 2020, China’s Supreme People’s Court (“SPC”) released the first batch of judicial interpretations of the PRC Civil Code (see here for the full text in Chinese), two days before the Civil Code came into force.
The Civil Code is a wide-ranging legislative package that provides legal protection of private rights, including property, contracts, personality, inheritance, marriage and family. This first batch of judicial interpretations was released with an aim to ensure a seamless transition to the Civil Code from January 1, 2021. The interpretations mainly relate to:
- the timing and application of the Civil Code;
- the application of the guarantee system under the Civil Code;
- the application of the Property Law Part of the Civil Code;
- the application of the Marriage and Family Part of the Civil Code;
- the application of the Civil Code with respect to construction project contract disputes; and
- the application of the Civil Code with respect to labor dispute cases.
Customs and Foreign Exchange
4. SAFE plans to expand the scale and scope of the QDLP pilot program
On November 29, 2020, an official of the State Administration of Foreign Exchange (“SAFE”) revealed that the Qualified Domestic Limited Partnership (“QDLP”)/Qualified Domestic Investment Enterprise (“QDIE”) pilot programs in Shanghai, Beijing and Shenzhen will be expanded in the near future (see here for the full text in Chinese).
In the meantime, the QDLP pilot program will be expanded into new areas. For example, the pilot program is proposed to be implemented in the Hainan Free Trade Port and Chongqing Municipality, so as to better support the construction of the Hainan Free Trade Port and the development of the Chengdu-Chongqing economic circle.
Early in December 2020, SAFE approved an increase of USD5 billion for the QDLP pilot program quota in Shanghai (increasing the quota to USD10 billion). This increase is intended to support the development of the QDLP and of the foreign asset management industry in Shanghai.
On December 25, 2020, a wholly-owned subsidiary established by Amundi officially landed in Beijing with an approved quota of USD300 million. This is the second institution to land in Beijing with a wholly foreign-owned enterprise as the private equity fund manager following the launch of the QDLP pilot program in Beijing.
The purpose of the QDLP pilot program is to allow foreign investment institutions to set up QDLP managers in China, thereby allowing foreign investors to raise capital directly from Chinese investors. QDLP managers can launch investment funds in China, which raise RMB funds from domestic qualified investors, and invest the funds raised in overseas markets.
The expansion of the scale and scope of the QDLP pilot program may go towards further facilitating the business of foreign investment institutions in China. Under the expanded program, foreign investment institutions may have more opportunities to:
- recommend their overseas fund products to domestic qualified investors;
- further familiarize themselves with the Chinese market and understand the Chinese investors; and
- accumulate experiences and resources for their participation in the Chinese capital market and for the development of local business in China.
5. China issued the 2021 Tariff Adjustment Plan
On December 21, 2020, the Customs Tariff Commission of the State Council issued the 2021 Tariff Adjustment Plan (see here for the full text in Chinse) (“TA Plan”), which came into force from January 1, 2021.
Under the TA Plan, the main changes are as follows:
- increased import tariffs on some commodities (such as tires, air-jet looms, and glass capillaries), in order to support the accelerated development of domestic basic industries and increase the autonomy of the equipment manufacturing industry;
- reduced tariffs on urgently-required high-tech equipment and parts, domestic resources that are in short supply, and some high-quality raw materials (e.g. aviation parts, certain anticancer drugs and raw materials for the treatment of rare diseases); and
- further-reduced tariffs on information technology products (in accordance with the Information Technology Product Tax Reduction Agreement).
6. The “Nine Don’ts” provisions in Community Group Purchases are issued
On December 22, 2020, the State Administration for Market Regulation (“SAMR”) and the MOFCOM jointly held an administrative guidance meeting (see here for the full text in Chinese) to regulate the order of community group purchases, with the participation of the companies behind six online platforms: Alibaba, Tencent, JD, Meituan, Pinduoduo, and Didi.
In the meeting, the companies were asked to strictly comply with the “Nine Don’ts” provisions. Amongst other things, the provisions:
- prohibit the abuse of independent pricing power (e.g. through low-price dumping or price collusion);
- prohibit the abuse of dominant market positions (e.g. through monopoly agreements with respect to fixing prices or dividing the market);
- prohibit false propaganda and commercial defamation;
- prohibit taking advantage of consumers via big data adoption or adopting technical means to harm the order of competition;
- prohibit the illegal collection and use of consumer personal information; and
- prohibit the sale of counterfeit and shoddy goods.
A responsible officer of the market supervision authority confirmed that, in turn, the State will:
- strengthen the supervision of unfair competition in community group-purchase;
- regulate the order of the community group-purchase market;
- maintain a fair and competitive market environment; and
- effectively protect and improve people’s livelihood.
Considering the current trend of increasingly strict regulation of online platforms, we recommend that Internet enterprises in China pay close attention to regulatory antitrust and competition developments, avoid policy risks and participate in competition both legally and compliantly.
7. The SPC amends the Provisions on the Cause of Action of Civil Cases and introduces Personal Information Protection as a cause of action
On December 30, 2020, the SPC released the amended Provisions on the Cause of Action of Civil Cases (“Provisions”) (see here for the full text in Chinese). The amended Provisions revise the civil causes of action in accordance with the Civil Code. For example, with the development of Internet technology, the problem of personal information abuse has become increasingly severe and, in order to strengthen the protection of personal information, the cause of action for “personal information protection disputes” has been introduced in accordance with Article 1034 of the Civil Code.
We recommend that enterprises in China pay close attention to the security of users’ personal information and comply with personal information protection regulations.
8. The Internet Insurance Business meets new Regulations
On December 14, 2020, the Measures for the Supervision of the Internet Insurance Business (“Measures”) (see here for the full text in Chinese) were officially released. The Measures concern the 100 billion RMB insurance market and consist of five chapters and 83 articles, all of which came into effect on February 1, 2021.
The Measures prioritize risk prevention, heighten the management responsibilities of licensed institutions, and set forth relevant requirements for network security and customer information protection. The Measures lay the foundation for regulating business operations, preventing risks, and setting bottom lines of compliance. The Measures also encourage the integration of insurance with new technologies such as the Internet, big data and blockchain, thereby supporting Internet insurance to serve the real economy and people’s livelihood at a higher level.
We recommend that insurance companies in China pay attention to the relevant provisions in the Measures and operate prudently in the process of conducting Internet insurance businesses in order to avoid breaching any regulatory obligations.
9. Four Departments jointly issue the Guidance on Accelerating the Construction of a National Integrated Big Data Center Collaborative Innovation System
On December 23, 2020, the NDRC, the Cyberspace Administration of China, the Ministry of Industry and Information Technology, and the National Energy Administration jointly issued the Guidance on Accelerating the Construction of a National Integrated Big Data Center Collaborative Innovation System (see here for the full text in Chinese) (“Acceleration Guidance”).
The Acceleration Guidance sets forth plans with respect to:
- accelerating the construction of a collaborative innovation system for nationally integrated big data centers;
- strengthening the top-level coordination and the circulation of elements of data centers and data resources;
- accelerating the cultivation of new business models;
- leading high-quality development of China’s digital economy; and
- facilitating the modernization of the national governance system and capacity.
Under the Acceleration Guidance, nationwide data centers will form an integrated, structured, and environmentally-intensive infrastructure pattern by 2025.
We recommend that enterprises in China pay attention to the process of establishing the collaborative innovation system for national integrated big data centers and, in particular, attach great importance to their legal compliance with respect to data collection and usage.
10. China’s SPC amends eighteen IP-Related Judicial Interpretations
On December 29, 2020, the SPC issued the decision to amend 18 intellectual property related judicial interpretations (“Decision”). This Decision was made to ensure that the interpretations are in accordance with the Civil Code. (see here for the full text in Chinese). Both the Decision and the Civil Code came into effect on January 1, 2021.
The amendments outlined in the Decision are as follows:
- The SPC Judicial Interpretation on the Application of Law in Patent Infringement Cases: changes to some terminologies to align with the Civil Code;
- The SPC Rules of the Application of Law in Patent Cases:
- addition of new causes of action, including “non-infringement declaration” and “malicious infringement”;
- inclusion of rights in “geographic indications” and “names” etc. as “legitimate rights” under Art. 23 Para. 3 of the Patent Law; and
- changes to the statute of limitations for a patent infringement case (to 3 years);
- The SPC Judicial Interpretation on the Application of Law in Disputes over Technology Contracts:
- changes to some terminologies to align with the Civil Code;
- adoption of interpretations on the rules of formation, validity and termination of a technology contract; and
- liabilities for breach of contract in accordance with the Civil Code.
11. The 13th National People’s Congress Standing Committee Adopts the Criminal Law Amendment (XI)
On December 26, 2020, the 13th National People’s Congress Standing Committee (“NPCSC”) concluded its 24th session and adopted the Criminal Law Amendment (XI) (“Amendment”) (see here for the full text in Chinese). The Amendment will come into effect on March 1, 2021.
The Amendment includes the following changes to Chapter 1, Section 7 of the Criminal Law:
- Providing for criminal penalties for trade secret misappropriation to implement the US-China Phase 1 Trade Agreement: criminal penalties encompass trade secret misappropriation through theft, fraud, bribery, coercion, electronic intrusion and other improper means.
- Enhanced penalties for intellectual property crimes: all intellectual property crimes (with the exception of patent counterfeiting) require jail time. The sentence lengths for all crimes are also increased. For instance, the minimum sentences for some crimes are increased from 3 years to 5 years, while the sentences for some other crimes are increased from 3-7 years to 3-10 years.
- Criminal penalties for economic espionage: the Amendment provides that “where secrets are stolen, spied upon, sold, or illegally provided to foreign entities, organizations, or individuals, a sentence of up to 5 years imprisonment is given, and/or a fine; and where the circumstances are serious, the sentence is to be 5 years or more imprisonment and a concurrent fine.”
12. The China National Intellectual Property Administration amends the Patent Examination Guidelines
On December 11, 2020, the China National Intellectual Property Administration (“CNIPA”) announced the decision to amend the Patent Examination Guidelines (see here for the full text of the decision in Chinese) (“Amended Guidelines”).
The subject matters primarily addressed in the Amended Guidelines are pharmaceuticals, biotechnology and chemical compounds. For example:
- Supplementary experimental data: the Amended Guidelines allow for the examination of supplementary experimental data after the filing date and provide illustrative examples of instances where such data is allowed;
- Drafting of claims for chemical compounds: the Amended Guidelines remove the requirement of chemical property or use limitations where only one property or use of the chemical compound is disclosed in the specification;
- Inventiveness and novelty of chemical compounds: the Amended Guidelines rewrite the sections addressing the novelty and inventiveness of chemical compounds;
- Monoclonal antibodies: the Amended Guidelines allow claims for monoclonal antibodies to be defined by structural features;
- Inventiveness in biotechnology: the Amended Guidelines introduce a new “three-step” determination of the inventiveness of an invention in the field of biotechnology. The three steps involve:
- the determination of the distinguishing features between the invention and the closest prior art;
- the determination of the technical problem solved; and
- the determination of whether the existing technology as a whole gives technical enlightenment.
13. China’s SPC emphasized the Construction of Harmonious Labor Relations in Shenzhen
On November 9, 2020, the SPC issued the Opinions on Supporting and Guaranteeing Shenzhen’s Construction of a Pilot Demonstration Zone for Socialism with Chinese Characteristics (“Opinions”) (see here for the full text in Chinese), of which Article 5 states that the construction of harmonious labor relations will be guaranteed.
In order to meet the needs of the development of new technologies, new industries, and new forms and models of business operation, the Opinions will:
- accelerate the improvement of judicial policies and adjudicative rules, such as:
- the requirements for labor relations under the special working hours management system;
- the basis for determining overtime work; and
- salary calculation standards;
- strengthen judicial protection of cross-border employment, including by accurately determining the validity of labor contracts signed between mainland employers and employees who are residents of Hong Kong SAR, Macao SAR, or the Taiwan Region but who do not possess employment permits; and
- promote the improvement of the labor dispute resolution system, etc.
We recommend that companies pay attention to the development and innovation of labor laws, regulations and trial practices. In addition, companies should review their own labor compliance problems, and make corresponding adjustments to the daily management of human resources.
Should you need any additional information, or if you would like to discuss how recent updates in Chinese law may affect your business, please feel free to contact us.
This client alert is not intended to be legal advice. Readers should seek specific legal advice from KWM legal professionals before acting on the information contained in this alert.