11 November 2020

China regulatory and legal round-up | September 2020

Foreign Investment and General Corporate 

1. Shanghai Regulations on Foreign Investment

On September 25, 2020, the 25th meeting of the 15th Shanghai People’s Congress voted unanimously to adopt the Shanghai Regulations on Foreign Investment (the Shanghai Regulations), coming into effect from November 1, 2020. The Shanghai Regulations demonstrates Shanghai’s commitment to further encourage and promote foreign investment.  

The Shanghai Regulations outline specific rules for ensuring fair treatment of domestic and foreign-funded enterprises, encouraging foreign investment, and providing further detail on the negative list and services for major projects. The Shanghai Regulations have six chapters and 51 sections which, in summary, include:

  • Measures to expand the opening up of areas including the Pilot Free Trade Zone, the Lingang New Area, the Yangtze River Delta Eco-Green Integration Development Demonstration Zone, and the Hongqiao Business District;
  • Establishment of a unified foreign investment promotion service platform, which aims to strengthen cooperation and communications with overseas cities and regions;
  • Full implementation of the “foreign investment national treatment and negative list” management system. The Shanghai Regulations provide for the equal application and protection of foreign investment with respect to injecting and withdrawing of capital, intellectual property rights, trade secrets, participating in government procurement, policy commitments, and participating in franchising activities. The Shanghai Regulations also clarify the handling process of the complaints by foreign investors; and
  • In case of cross-department or cross-regional affairs, the municipal or regional commerce authorities shall take the lead in coordinating, and actively delivering feedback to foreign investors and foreign-invested enterprises

Shanghai’s next step will be to set up a municipal-level foreign investment-related consultation and coordination mechanism.

2. Hainan Free Trade Port Encouraged Industries Catalogue (2020 Version)

On September 1, 2020, the National Development and Reform Commission (NDRC) published the draft Hainan Free Trade Port Encouraged Industries Catalogue (2020 Version) (seeking publics comments) (the Hainan Catalogue), aiming to implement the requirements of the Overall Plan for the Construction of Hainan Free Trade Port and accelerate the construction of Hainan Free Trade Port.

The Hainan Catalog consists of two parts:

  • the encouraged industries specified in the existing national industry catalogs, including the Industrial Structure Adjustment Guidance Catalog and the Catalogue of Industries Encouraging Foreign Investment; and
  • the newly added industries encouraging foreign investment in the Hainan Free Trade Port.

The newly added industries encouraging foreign investment cover a total of 14 sectors and 128 sub-sectors, including agriculture, forestry, animal husbandry, and fishery; manufacturing; construction; wholesale and retail; transportation, storage and post; accommodation and catering; information transmission, software and information technology services; finance; leasing and business service; scientific research and technical service; water conservancy, environment and public facilities management; education; health and social work; and culture, sports and entertainment industry.

Of note in particular are the following two industries:

  • the finance sector, which covers the financial information service businesses, and the construction of a two-way open service system for cross-border investment and financing; and
  • information transmission, software and information technology services, which include 5G and 6G technology development and commercial applications, as well as Beidou satellite navigation system applications.

3. Guidelines for Handling Complaints at the National Complaints Center for Foreign-invested Enterprises

In order to ensure the smooth implementation of the Measures for the Handling of Complaints from Foreign-invested Enterprises, which came into effect from October 1, 2020, on September 30, the Ministry of Commerce (MOFCOM) issued the Guidelines for Handling of Complaint at the National Complaints Center for Foreign-invested Enterprises (the Handling Guidelines) and the National Directory of Complaint Work Institutions for Foreign-invested Enterprises.

The Handling Guidelines clarify the scope of accepting complaints, conditions of acceptance, and the coordinated handling methods and procedures work of the National Complaint Center for Foreign-invested Enterprises, increasing the transparency of complaint handling. The Handling Guidelines specify 31 provincial-level complaint agencies nationwide and their contact information.  This will help to form a responsible, efficient and convenient complaint handling system across the country, and make it more convenient for foreign-invested enterprises to report problems to a local complaint agency and better protect the legitimate rights and interests of foreign-invested enterprises.

4. PBOC, CSRC and SAFE Jointly Issued Announcement on Issues Related to Foreign Investors in China’s Bond Market (Seeking Public Comments)

On September 2, 2020, the Peoples’ Bank of China (PBOC), the China Securities Regulatory Commission (CSRC), and the State Administration of Foreign Exchange (SAFE) jointly issued the Announcement on Issues Related to Foreign Investors in China’s Bond Market (Seeking Public Comments) (the Announcement). The Announcement aims to further strengthen the integrity and coordination of the opening up of China’s bond market, and to facilitate the allocation of RMB bond assets by foreign institutional investors.

The Announcement has 16 articles and includes:

  • Requirements for foreign institutions to enter China’s bond market: The Announcement clarifies the scope of overseas institutions to include not only the sovereign institutions, but also commercial institution such as commercial banks, insurance companies, securities companies, fund management companies, futures companies, trust companies, and asset management institutions. The way for foreign institutions to enter the market remains unchanged, i.e. sovereign institutions submit applications to the PBOC, and commercial institutions submit applications to the Shanghai Headquarters of the PBOC;
  • Investment methods and investment scope: The Announcement stipulates that foreign institutions that enter the inter-bank bond market through direct market entry channels and bond connect channels do not need to apply repeatedly, and can invest in the exchange bond market directly or through the interconnection system. The investment types and investment scope of overseas institutions remain unchanged.  Foreign institutions may conduct bond transactions, and bond lending, bond forwards, forward interest rate agreements, and interest rate swaps based on hedging requirements.
  • Custodial settlement arrangement: The Announcement clarifies that overseas institutions investing in the inter-bank bond market can take asset custody directly or through qualified domestic custodian banks entrusted by the overseas custodian banks. The domestic custodian bank should strictly separate properties under custody from its own properties and perform the independent custodial duties.
  • Data submission and transaction report database requirements: The Announcement clarifies the data reporting requirements of various financial infrastructure and custodian banks involving bond market registration, trading, custody and settlement.

Customs and foreign exchange

5. The First Extension List of U.S. Products to Be Excluded from the Additional Tariffs of the Customs Tariff Commission of the State Council

On September 11, 2019, the Customs Tariff Commission of the State Council (CTC) issued the Announcement of the Customs Tariff Commission of the State Council on the First Set of Lists of U.S. Products to Be Excluded from the First Group of U.S. Products Subject to Additional Tariffs (CTC Announcement No. 6 [2019]). Within the one-year period from September 17, 2019 to September 16, 2020, the products on the list will not be subject to additional tariffs which was imposed by China as countermeasures against the U.S. Section 301 measures.  The first group of products on the list (which was divided into two lists during implementation) include agriculture and animal husbandry, petrochemicals, active pharmaceutical ingredients, medical devices and others.

On September 14, 2020, the CTC issued the Announcement of the Customs Tariff Commission of the State Council on the First Extension List of U.S. Products to Be Excluded from the Additional Tariffs (CTC Announcement [2020] No.8). For all products listed in the annex, the exclusion period specified in CTC Announcement [2019] No.6 will be extended by one year from September 17, 2020 to September 16, 2021. The products on the list will continue to be excluded from additional tariffs imposed by China as countermeasures against the U.S. Section 301 measures.

If an enterprise imports the products in the above list, it may benefit from the exclusion policy by directly declaring the commodity codes in the annex. It is not required to separately apply for the exclusion serial number in accordance with the Announcement of the Customs Tariff Commission of the State Council on Implementing the Exclusion of Market-Oriented Procurement of U.S. Products Subject to Additional Tariffs (CTC Announcement No. 2 [2020]).

Data Protection

6. MPS Further Clarifies the Regulatory Focus on the Multi-Level Protection Scheme for Cybersecurity and Security Protection of Critical Information Infrastructure

The recently released Guiding Opinions on Implementing the Graded System for Cybersecurity Protection and Security Protection of Critical Information Infrastructure (the Guiding Opinions) issued by the Ministry of Public Security (MPS) have further clarified the guiding framework, basic principles, objectives and priorities of the Multi-Level Protection Scheme for Cybersecurity (MLPS) and the security protection of critical information infrastructure. With respect to MLPS, the Guiding Opinions stipulate that network operators should further develop network MLPS grading and filing, regularly carry out MLPS level evaluation, strengthen supply chain security management and implement encryption security protection requirements. With respect to the security protection for critical information infrastructure, the Guiding Opinions stipulate that the protection department should identify the critical information infrastructure and clarify the functional division of the critical information infrastructure security protection. Relevant enterprises in China are advised to fulfill their obligations in strict accordance with the requirements of the Guiding Opinions, including but not limited to carrying out MLPS evaluation and filing as required. The enterprises are also advised to conduct internal identification and evaluation of whether they may constitute critical information infrastructure in accordance with relevant laws and regulations, and, if yes, they may be required to fulfill additional obligations under the Cybersecurity Law.

7. MIIT Issues Provisions on Short Message and Voice Call Service for Public Comments

On August 31, 2020, Ministry of Industry and Information Technology (MIIT) issued the Administrative Provisions on Short Message and Voice Call Service (Draft for Comment) (the Draft Provisions).

The Draft Provisions include a chapter regarding Commercial SMS and Commercial Call Management. According to the Draft Provisions, no organization or individual may send short commercial messages or make commercial calls without user’s consent or request, or if a user expressly refuses to receive them. If a user does not give any explicit consent, it will be deemed as a refusal. If a user explicitly refuses to receive messages relevant organizations should cease sending messages and making phone calls. Service providers will also require agreement from the user and must retain a record of the user’s consent for at least five months. Operators of basic telecommunications services shall establish mechanisms such as early warning and monitoring, and adopt measures such as contractual agreements and technical methods to prevent commercial short messages sent or calls made without consent or request of users. Meanwhile, MIIT initiates a unified national “Do Not Call” Platform to guide relevant organizations or individuals to make commercial calls in accordance with users’ preferences.  

8. TC260 Issues Draft Information Security Technology – Cyber-data Process Security Specification for Public Comment

On August 28, 2020, National Information Security Standardization Technical Committee (TC260) issued Information Security Technology – Cyber-data Process Security Specification (Draft for Comment) (the Specification). The Specification applies to network operators and aims to regulate data processing activities, improve data security management and personal information protection levels, contemplate the supervision and administration of network operators’ data processing activities by regulatory authorities, and facilitate relevant evaluations carried out by third-party evaluation agencies.

The major content of the Specification includes: general requirements for data processing such as data identification, classification, risk prevention and control, audit traceability, and others; specific requirements for data processing such as data collection, transmission and storage, processing, disclosure, directed push notification and information synthesis, personal information access/correction/deletion, user account deactivation, processing methods of personal information and forwardable information.  

Relevant enterprises in China are advised to implement real-time compliance supervision on data processing activities such as data collection, storage and transmission, processing, disclosure, and others, to ensure that their internal cyber-data processing activities comply with relevant regulations and security requirements.

9. MCT States Online Travel Websites Shall Not Take Advantage of Existing Consumers by Big Data Technologies

On August 20, 2020,the Ministry of Culture and Tourism(MCT)issued the Interim Provisions for the Administration of Online Tourism Operating Services (the Interim Provisions), which will come into force on October 1, 2020.  The Interim Provisions outline the operating requirements for online tourism operators, the supervision mechanism to be used by regulatory authorities, and the legal responsibilities of relevant operators.  The Interim Provisions stipulate that online tourism operators shall, pursuant to relevant laws and regulations, establish a tourist safety protection system including but not limited to information content security, cybersecurity and data security.  

With respect to data protection, the Interim Provisions stipulate that online tourism operators and relevant enterprises in China shall protect tourists’ personal information and shall not abuse big data analysis or other technical means to infringe the legitimate rights and interest of tourists, such as imposing unfair trading conditions based on tourists’ consumption records and travelling preferences.  When collecting tourist information, the online tourism operators shall expressly declare and obtain prior consent from tourists regarding the purpose, method and scope of collection of their personal information, and will not misuse or take advantage of tourists’ data through the use of big data technologie

10. TC260 Issues Three Guidelines for Apps Including the Guide to Common Problems and Solutions of Personal Information Protection in Mobile Internet Applications (Apps)

On September 20, 2020, the Secretariat of National Information Security Standardization Technical Committee (TC260) issued the Guidelines to Common Problems and Solutions of Personal Information Protection in Mobile Internet Applications (Apps), the Cybersecurity Standard Practice Guidelines - Guidelines to the Use of Mobile Internet Applications (Apps) System Permission Application, and also the Security Guidelines for Third Party Software Development Kits (SDKs) in Mobile Internet Applications (Apps) for public comments (the Draft Guidelines).

The Draft Guidelines are intended to provide guidance for dealing with ten most common problems concerning personal information protection in Apps at present, to regulate the application for permission to use personal data to the extent necessary for the functions of the Apps, and to avoid security and privacy issues associated with the use of third-party SDKs.  Enterprises in China are advised to refer to the above three documents to screen and deal with potential App-related compliance issues, and pay attention to the ongoing development of the Draft Guidelines to further regulate the use of SDKs.

11. Personal Information Protection Task Force on Apps Exposes 81 Apps Having Problems with the Collection and Use of Personal Information

Personal Information Protection Task Force on Apps (the Task Force), a joint force by the Cyberspace Administration of China, the MIIT, the Ministry of Public Security, and the State Administration for Market Regulation, has issued an announcement to expose 81 Apps that have problems with the collection and use of personal information. The Task Force is requesting them to take immediate corrective measures and provide a commentary on the situation.  The 81 exposed Apps mainly cover the fields of learning and education, online games, online finance, and photography & beauty.  Many of them fail to publicly disclose the purpose and type of information collected and used by the embedded SDK in their privacy policies.  It is reported that the Task Force will focus on making sure the offending Apps are rectified which are: Apps related to epidemic prevention and control and resumption of daily operations; Apps that collect and use children’s personal information; Apps that use facial recognition technology; Apps suspected of using “monitor microphones” and “monitoring text input”, and others, and will strengthen penalties for breaches.  It is suggested that App operators in China consider the above cases and revise their privacy policies accordingly, notify users in detail about the purpose and type of information collected and used, especially when it is collected and used by SDKs, and obtain sufficient user consent before using personal information.

12. PBOC Issues the Implementation Measures for Protecting Financial Consumers' Rights and Interests

On September 15, 2020, the PBOC officially issued the Implementation Measures for Protecting Financial Consumers' Rights and Interests (the Measures), which will take effect from November 1, 2020.  The Measures articulate detailed provisions on financial institutions, consumer financial information protection, financial consumer dispute resolution, supervision and management mechanisms, and relevant legal liabilities.  The Measures contain special chapters on financial information protection, optimize provisions on financial consumers’ right to information security, and clarify the legal responsibilities of banks and payment institutions, which will significantly increase the penalties of those who infringe the rights and interests of financial consumers.  It is suggested that enterprises in the financial industry in China, especially banks and payment processing institutions, strictly comply with the relevant requirements of the Measures to strengthen consumer financial information protection.

IP

13. The Supreme People’s Court and the Supreme People’s Procuratorate issued Judicial Interpretations on Several Issues Concerning Specific Application of Laws in Handling Criminal Cases of Infringement of Intellectual Property Rights

On September 13, 2020, the Supreme People’s Court and the Supreme People’s Procuratorate issued the Judicial Interpretations on Several Issues Concerning Specific Application of Laws in Handling Criminal Cases of Infringement of Intellectual Property Rights (the Judicial Interpretations), which came into force on September 14, 2020.  The Judicial Interpretations represent an important measure taken to implement the country’s decisions and arrangement to strengthen the protection against intellectual property crimes, and to actively respond to social concerns.  The Judicial Interpretations are of great significance in improving the legal system for intellectual property protection, unifying the applicable standards of law, regulating the handling of criminal cases of infringement of intellectual property rights, and creating a better business environment.

The Judicial Interpretations include detailed explanations on the application of Article 213 (Crimes of counterfeiting registered trademarks), Article 217 (Crimes of copyright infringement) and Article 219 (Crimes of infringement of trade secrets) of the Criminal Law, and provide specific and clear standards for corporate compliance.  It is suggested that enterprises in China refer to the above Judicial Interpretations and ensure corporate compliance with respect to intellectual property protection.

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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.

Disclaimer

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.

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