10 June 2020

China regulatory and legal round-up | June 10, 2020

General

From 22 May through to 26 May, the 13th National People’s Congress (NPC), China's national legislature, held its third session in Beijing.  Highlights from the session are set out below.

1. Premier Li Keqiang delivered a government work report on behalf of the State Council to the third session of the 13th NPC

 On 22 May, Premier Li Keqiang delivered a government work report on behalf of the State Council at the opening meeting of the third session of the 13th NPC.  Highlights from the report are outlined below:

 Main targets for 2020

  • While China does not set a specific economic growth target for 2020, it will work towards achieving the development goals of eradicating poverty and building a moderately prosperous society in all respects;

  • China will prioritize stabilizing employment and ensuring people's livelihoods, aiming to create more than 9 million new urban jobs;

  • China has set its consumer inflation target at around 3.5% for 2020;

  • China will seek to eliminate poverty among all rural residents living below the current poverty line and in all poor counties; 

  • China's deficit-to-GDP ratio this year is projected to be more than 3.6%, which is 0.8 percentage points higher than that of last year. The deficit increase is projected at 1 trillion yuan (about $141.6 billion) over last year; 

  • China will pursue a prudent monetary policy in a more flexible and appropriate way;

  • China will work to improve the consumption willingness and capabilities of domestic residents and support the recovery and development of consumer service sectors;

  • China aims to reduce the corporate burden by more than 2.5 trillion yuan (about $353 billion) throughout the year;

  • China will continue to facilitate the development of the private sector and ensure that private businesses have equal access to production factors and policy support; 

  • China will review regulations and abolish those unfairly differentiating between enterprises according to ownership forms;

  • Deadlines will be set for government bodies to make overdue payments owed to private and small and medium-sized businesses;

  • China will increase financial support to businesses to keep their operations stable. Large commercial banks are required to increase inclusive finance lending to micro and small businesses by more than 40%; and

  • China will fully advance Internet Plus initiatives across the board and create new competitive strengths in the digital economy.

Opening-up

  • China will significantly shorten its negative list for foreign investment;

  • China has stressed the joint implementation of the China-US phase-one economic and trade agreement;

  • China will focus on high-quality joint building of the Belt and Road initiative, and carry out mutually beneficial cooperation;

  • China will safeguard its multilateral trading regime and actively participate in reform of the World Trade Organization;

  • China will further stabilize foreign trade and actively leverage the role of foreign capital; and

  • China will establish new pilot free trade zones (FTZs) and integrated bonded areas in the country's central and western regions.

People's livelihoods

  • China will increase the basic pension for retirees and the minimum basic age pension for rural and non-working urban residents. Pension payments will be made on time and in full to nearly 300 million people;

  • China will implement city-specific policies to promote the steady and healthy development of the real estate market;

  • China will bolster its efforts in restoring hog production 

  • Severe penalties will be imposed for the illegal hunting and trading of wild animals;

  • China will prioritise curbing pollution in a legal, scientific and targeted way; and 

  • Through its own efforts, China will work towards ensuring the food supply for 1.4 billion Chinese people. To bolster agricultural production, China will increase the area of high-standard cropland by 80 million mu (5.33 million hectares).

Taiwan, Hong Kong and Macao

  • China will oppose and deter separatist activities seeking "Taiwan independence". China will improve institutional arrangements, policies and measures to encourage cross-Strait exchanges and cooperation, deepen cross-Strait integrated development and protect the wellbeing of Taiwanese compatriots; and 
  • The Chinese central government will support the country's Hong Kong and Macao special administrative regions in developing their economies and improving living standards.

COVID-19 prevention and control

  • China is ready to work with other countries to strengthen international cooperation on pandemic control;

  • China plans to issue 1 trillion yuan (about $141 billion) of government bonds to assist with controlling COVID-19;

  • China will implement a package of policies to support the development of Hubei province (the province worst affected by the epidemic). The policies will facilitate employment, wellbeing and the full recovery of economic and social activities in Hubei;

  • China's economy posted negative growth in the first quarter of this year, but it was "a price worth paying" to contain COVID-19;

  • China will spare no efforts in its prevention and control of COVID-19, and advancing its economic and social development agenda; and

  • China will redouble its efforts to minimize the losses resulting from COVID-19 and fulfil the targets for economic and social development this year.

2. The Standing Committee of the NPC submitted its Work Report to the third session of the 13th NPC

 On 15 May, the Standing Committee of the NPC submitted its Work Report (Report) to the third session of the 13th NPC for deliberation.  According to the Report, in 2019, the Standing Committee placed equal emphasis on making new laws, revising existing ones, abolishing those that were unnecessary, and interpreting laws that needed clarification.  It has deliberated 48 drafts of laws and decisions, and adopted 34 of them, including five new laws, 17 revisions of existing laws as well as 12 decisions on legal and major issues.  It heard and deliberated 39 work reports, inspected the enforcement of six laws, conducted three special inquiries and seven research projects, and passed one resolution. It also approved five bilateral treaties.

The Report sets out the legislation plan for 2020. Laws in the legislation plan include:

  • laws for the promotion of high-quality development, including Futures Law, Law of Hainan Free Trade Port and amendment to the Patent Law;
  • laws for improving social wellbeing and security system, including the Law on Prevention and Control of Infectious Diseases;
  • laws in connection with national security and social governance, including the Biosecurity Law, Law on Production of Personal Information and Law of Data Safety;
  • laws in connection with the offshore implementation of PRC laws, including Export Control Law, amendment to the Anti-Money Laundering Law, Banking Law, Law on Commercial Banks and Insurance Law; and
  • laws in connection with the system, including the Law on Election and National Flag Law. 
  • The Report also sets out the 2020 work plan on law implementation supervision.  29 supervision projects will be put in place.  Among other things, the Standing Committee will review and supervise the implementation of the Anti-unfair Competition Law.

3. The Supreme People’s Court submitted its Work Report to the third session of the 13th NPC

On 25 May 25 2020, the Supreme People’s Court (SPC) submitted its annual Work Report (Report) to the NPC.

According to the Report, in 2019, the SPC accepted 38,498 cases and concluded 34,481 cases, increasing by 10.7% and 8.2% year-on-year respectively. The SPC formulated 20 judicial interpretations, issued 33 guiding cases, which included the judicial interpretations of Company Law and Bankruptcy Law and the Minutes of the National Court Work Conference for Civil and Commercial Trials, and strengthened supervision and guidance on the trial work of courts across the country. Even during the COVID-19 lockdown period, the SPC issued 57 guiding cases and closed 2,736 epidemic-related cases.

Local courts at all levels accepted 31.567 million cases, concluded and executed 29.022 million cases, and closed cases with a target of RMB 6.6 trillion in total, increasing by 12.7%, 15.3%, and 20.3% year-on-year respectively. Courts at all levels concluded 4.537 million commercial trials at first instance, 17,000 foreign-related civil and commercial trials at first instance, and 269,000 cases about environmental resources. 

Notably, courts nationwide concluded 418,000 intellectual property cases relating to patents, trademarks and copyrights. The World Intellectual Property Organisation published judicial cases on intellectual property rights in China. China has become the country that hears the most intellectual property cases, especially patent cases, and one of the countries with the shortest trial cycle in such cases. 

According to the Report, Chinese courts will employ various means to provide judicial guarantees for epidemic responses and restoration of economic and social order. Also, efforts will be made to strengthen judicial protection of people’s livelihoods. The Courts will comprehensively review current civil judicial interpretations and implement new ones that correspond with the Civil Code.

4. The Supreme People’s Procuratorate submitted its work report to the third session of the 13th NPC

On 25 May 2020, the Supreme People’s Procuratorate (SPP) delivered its annual work report (Report) to the NPC.

According to the Report, in 2019, the procuratorial organs nationwide handled 3,142,292 cases – an increase by 9.7% year-on-year. Among them, 935,432 cases were arrest reviews, 1,413,742 cases were prosecution reviews, 258,520 cases were criminal, civil and administrative appeals, 126,912 cases involved public interest litigation, and 411,686 cases related to the supervision of illegal litigation activities. Also, the SPP supported the operation of enterprises by safeguarding company’s rights and treating foreign companies and Chinese companies equally.

During the epidemic prevention and control period, from February 2020 to April 2020, the SPP arrested 3,751 people, prosecuted 2,521 defendants for crimes relating to epidemic prevention and brought 2,829 public interest cases.

With respect to work arrangements, procuratorate agencies will continue to fulfil their duties to meet people’s expectations for a better life. The SPP will punish IP-related crimes, and establish a market environment with legal protections and restrictions. After the Civil Code is passed by the NPC, procuratorate agencies will launch training programs for smooth implementation to safeguard all civil entities’ legitimate interests. Procuratorate agencies will proactively handle public interest cases in various areas, including work safety, public health, women and children protection and cyberbullying. Strict penalties will be imposed for sexual assault in respect of minors.

5. The NPC adopted the Civil Code of China

On 28 May 2020, the NPC adopted the Civil Code of the People’s Republic of China (《中华人民共和国民法典》) (Civil Code), which will take effect on 1 January 2021. The Civil Code has 1,260 articles, and in addition general and supplementary provisions, it has six parts relating to property rights, contracts, personality rights, marriage and family, inheritance and tort liabilities.

The legislative process started in June 2016, after the decision to draft the Civil Code was announced at a plenary session of the CPC Central Committee in October 2014. The general provisions of the Civil Law were adopted in 2017. From August 2018, the six individual draft parts were reviewed in different NPC Standing Committee sessions. In December 2019, a complete draft Civil Code was unveiled.

Upon taking effect, the Civil Code will repeal numerous existing laws, including the General Provisions of Civil Law, the General Principles of Civil Law, Guarantee Law, Contract Law, Property Rights Law, Tort Liability Law, Marriage Law and Succession Law.

Read more here.

民法典担保物权制度的修订及其影响

6. China released the Decision on Establishing and Improving the Legal System and Enforcement Mechanisms for Hong Kong to Safeguard National Security

On 28 May 2020, the NPC released the Decision on Establishing and Improving the Legal System and Enforcement Mechanisms for the Hong Kong Special Administrative Region (HKSAR) to Safeguard National Security (Decision) (《全国人民代表大会关于建立健全香港特别行政区维护国家安全的法律制度和执行机制的决定》) 

The decision authorises the NPC Standing Committee to formulate laws for establishing and improving the legal system and enforcement mechanisms for the HKSAR to safeguard national security, so as to prevent, restrain from, and punish acts and activities endangering national security and the interference in Hong Kong affairs by any foreign or external forces. The NPC Standing Committee has decided to list the aforementioned laws into the No.3 Appendix of the Basic Law of the HKSAR, and the laws will be published and implemented in the HKSAR.

The decision also states that the HKSAR should finish lawmaking to safeguard national security.

7. China releases master plan for Hainan Free Trade Port (HNFTP)

On 1 June 2020, China released the long-awaited Hainan Free Trade Port Construction Master Plan (《海南自由贸易港建设总体方案》) (Master Plan). 

The Vice Director of the National Development and Reform Committee, Mr Nianxiu Lin, stated that the Master Plan may be summarised as “6+1+4”. 

“6” means liberalisation and facilitation in six areas, including trade, investment, cross-border capital flows, access to talent, logistics, and safe and orderly flow of data. 

“1” means establishing one modern industrial system.  Among other things, the HNFTP will focus on development of the tourism industry, modern service industries and high-tech industries, laying a solid foundation for the real economy to strengthen industrial competitiveness.  With respect to the tourism industry, the HNFTP will promote the integration of tourism with culture and sports, healthcare and medical services, aged care and health preservation.  With respect to modern service industries, the HNFTP will gather innovative factors from across the globe, attract multinational corporations to set up regional headquarters, forge an international shopping hub, and build a marine service system with international competitiveness.  With respect to high-tech industries, internet of things, AI, blockchain and digital trade will be the focal points.  Deep-sea and deep-space industries will be enhanced and advanced manufacturing industries will be expanded.  The global tropical agricultural centre and global transmit base for introducing plant and animal germplasm resources will be built.

“4” means improving systems in the following four areas: tax and tariffs, social governance, rule of law and risk control. With regard to tax and tariffs, the HNFTP will gradually adopt a tax and tariff system that is suitable for free trade ports based on the principles of zero tariffs, low tax rates, simple tax systems, strong rule of law and implementation in phases.  The Master Plan introduces a 15% enterprise income tax (EIT) rate (compared to the regular EIT rate of 25%) for enterprises established within the HNFTP carrying on substantial operations in encouraged industries, and exemptions from EIT up to 2025 on taxable income generated via new foreign investment in tourism, modern services, and high and new technological enterprises. Further, from an individual income tax perspective, for eligible individuals who work in the port, their individual income tax burden will be capped at 15%. Some goods imported into the port will be exempted from import duty, value-added tax and consumption tax.

The implementation of the Master Plan can be divided into two phases.  The first phase will focus on liberalisation and facilitation of trade and investment, and is expected to be completed in 2025. Efforts will be made to promote such opening up in an orderly manner and enhance the free and efficient flow of various production factors.  An island-wide special customs supervision regime will be also be launched.  The second phase will focus on further optimising such opening up policies and relevant institutional arrangements, and is expected to be completed in 2035.

Foreign Exchange & Customs


8. The State Administration of Foreign Exchange optimises foreign exchange policies for new trade forms

On 20 May 2020, the State Administration of Foreign Exchange (SAFE) released the Circular of the State Administration of Foreign Exchange on Supporting the Development of New Business Forms of Trade (《国家外汇管理局关于支持贸易新业态发展的通知》) (Circular).

The Circular includes the following:

  • expanding the settlement channels of new trade forms: eligible banks may conduct foreign exchange business based on electronic transaction information;

  • facilitating fund settlement for the export business of cross-border e-commerce enterprises: cross-border e-commerce enterprises may settle overseas warehousing, logistics, tax and other expenses with the export receipts on a netting basis;

  • optimising cross-border advancement of relevant taxes and fees by cross-border e-commerce enterprises: enterprises may make cross-border advance payments in respect of warehousing, logistics, taxes, etc. on customer accounts;

  • satisfying individual needs for foreign trade settlement: individuals may proceed with foreign exchange settlement for cross-border e-commerce and market procurement trade through their foreign exchange accounts;

  • improving capital settlement of market procurement trade: for entities that have been filed with the market procurement trade platform, banks may, based on platform information, proceed with foreign exchange collection and settlement for the business that such entities entrust third parties to declare to customs;

  • supporting foreign trade integrated service enterprises to collect export foreign exchange receipts on customer accounts: foreign trade integrated service enterprises which satisfy the technical criteria may process the formalities of export foreign exchange receipts for their customers through a bank which possesses the ability to examine the electronic trading information;

  • enabling enterprises to conduct foreign exchange transactions remotely: enterprises may be directly connected with SAFE system, and more foreign exchange businesses may be handled online;

  • optimising the declaration of foreign-related receipts and payments for small-amount transactions: enterprises may declare, on a consolidated basis, small-amount receipts and payments in their own name to satisfy the declaration needs for export tax refunds and financing; and

  • following the development of new trade forms and responding to new demands of market players in the foreign exchange business according to the principles of "serving the real economy, facilitating the opening up, keeping the transaction traces and controlling risks".

9. The Chinese government encourages enterprises in comprehensive bonded zones to carry out maintenance business

On 14 May 2020, the Ministry of Commerce, the Ministry of Ecological Environment and the General Administration of Customs issued Announcement No.16 of 2020 to support enterprises in the comprehensive bonded zones to carry out maintenance services (《关于支持综合保税区内企业开展维修业务的公告》). Enterprises in the comprehensive bonded zones can carry out maintenance services for 55 types of products, including those relating to aerospace, ships, rail transportation, construction machinery, numerical control machine tools, communication equipment and precision electronics. The announcement states that enterprises can carry out global maintenance business from outside the country or outside the special customs supervision area within the country, enabling enterprises to utilise both domestic and international resources and expand both domestic and international markets.

10. China announces the phytosanitary requirements for the import of fresh blueberries, barley, alfalfa hay blocks and grains, amygdalus mandelis shell grains and steppe hay from the US

On 13 May 2020, the General Administration of Customs of China announced the phytosanitary requirements for the import of fresh blueberries, barley, alfalfa hay blocks and grains, amygdalus mandelis shell grains and steppe hay from the US, allowing such goods that meet the relevant requirements to be exported to China.

IP

11. The 2020 Annual Conference on Foreign-related IP Disputes Guidance is held in Beijing

On 29 May, the National Intellectual Property Administration (CNIPA) held the 2020 Annual Conference on Foreign-related IP Disputes Guidance in Beijing.  The CNIPA, the National Centre on Guiding Overseas IP Disputes Resolution and the IP Service Centre of the China Council for the Promotion of International Trade, delivered reports on the relevant works in connection with foreign-related IP disputes.  Representatives from local intellectual property administrations exchanged their experiences in dealing with foreign-related IP disputes. 

Data Protection

12. Ministry of Education, Industrial departments and associations formulating measures for the record filing of applications

On 26 May 2020, according to an announcement released by the Division of Science and Technology of the Ministry of Education, education application providers will file a record for both ICP and the graded protection for cybersecurity of information systems by 30 June 2020. Also, several industrial departments are formulating measures for the record filing of applications following the relevant requirements of the Cybersecurity Law of China. On 19 May 2020, the National Internet Finance Association of China (NIFAC) announced the list of the first batch of financial application record filing involving 73 mobile financial applications from 33 entities. Promoting the financial application record filing sector is one of the key tasks of the NIFAC this year, and the NIFAC is expected to promote the initiative in batches nationwide. The application record filing system may become a normal requirement by regulation in the future, and industrial organisations and competent authorities may directly regulate the applications. We suggest that investors in related fields pay attention to the dynamics of the related industries, actively participate in related record filing and respond accordingly.

13. The first WeChat case of unfair competition in data equity determined

On 2 June 2020, the Hangzhou Internet Court (Court) released its decision in the case of Tencent Computer Company and Tencent Technology Corporation (Plaintiffs) against an Internet company in Zhejiang and a technology company in Hangzhou (Defendants) in relation to unfair competition. The Court ordered the Defendants to cease engaging in unfair competition practices, compensate the Plaintiffs for their economic loss and reasonable expenses of CNY2.6 million and eliminate the adverse effects. The Court held that the Defendants’ act of collecting WeChat user data without authorisation through the alleged infringing software and storing such data on the servers under their control not only endangered the data security of WeChat users but also materially impaired the competitive rights and interests of the Plaintiffs with respect to existing data resources, which violated the Anti-unfair Competition Law of China. Investors in China should be aware of the rights and interests attached to data in their daily operations, which is of great significance to realise the commercialisation of data assets.

Labour

14. “Shared employment” does not change the employment relationship between a lending employer and its employees

After the issuance of Guidance I on Issues Relating to Proper Adjudication of Civil Cases Involving COVID-19 by the Supreme People’s Court on 16 April 2020, the high people’s court/arbitration commission and human resource and social security departments of Beijing, Shanghai and Guangdong all issued relevant opinions/responses to clarify unclear issues in relation to employment cases relating to COVID-19.  All three opinions/responses of Beijing, Shanghai and Guangdong elaborate on the issue of “shared employment” during COVID-19. 

The opinion of Shanghai makes it clear that for non-profit purposes, a lending employer may enter into a secondment agreement with the borrowing entity and the employee, which stipulates that the employee provide services for the borrowing entity during the outbreak and there is no return to work for the lending employer after the outbreak.  This should not be deemed as establishing dual employment between the lending employer, the borrowing entity and the employee.  During the secondment period, the employee and the lending employer still have a single employment relationship. 

Responses issued by the Guangdong authority provide that during the outbreak, the practice that employers with surplus employees lend employees to employers lacking employees does not change the employment relationship between the lending employer and its employees, but relevant clauses in the employment contract can be amended through negotiation. 

Responses issued by the Beijing authority further clarify that the lending employer and the borrowing entity may agree on compensation methods, social insurance premiums, and work-related injury insurance benefits during the secondment period, but agreements that exclude the lending employer from having responsibility as an employer are invalid.

These three opinions/responses also provide guidance on various other issues, including entering into electronic employment contracts, salary payment standards for employees during treatment or medical observation periods, and the handling of the expiration of employment contracts during isolation.



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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