17 February 2020

US Newsletter - February 2020

1. The Foreign Investment Law of the People’s Republic of China and its implementing regulations came into effect on January 1, 2020.

The Foreign Investment Law of the People’s Republic of China (“FIL”), which was adopted by the National People’s Congress of China on March 15, 2019, came into effect on January 1, 2020.  Upon taking effect, the FIL repealed the Law on Sino-Foreign Equity Joint Ventures, the Law on Sino-Foreign Contractual Joint Ventures, and the Law on Wholly Foreign Owned Enterprises, and became the fundamental law of China in the foreign investment area.

The Implementing Regulations for the Foreign Investment Law (“Implementing Regulations”), which was promulgated by the State Council on December 31, 2019, also came into effect on January 1, 2020.  The Implementing Regulations set forth more details on the general provisions and principles set out in the FIL (for more details, please refer to our previous article “Implementing Regulation for Foreign Investment Law heralding a New Era of Foreign Investment Regime in China”). 

In addition to the FIL and the Implementing Regulations, several other foreign investment related regulations and notices issued by various authorities at the end of 2019, also took effect on January 1, 2020, including:

These supporting regulations will facilitate the transition into the new foreign investment regime created by the FIL. Given the complexity of the existing foreign investment regime and ancillary rules created in the past 40 years, the transition will not be easy.  It is expected that additional regulations and guidance will be promulgated so that various government authorities can implement the FIL and improve the new foreign investment legal regime.

2. Further opening of the financial industry to foreign investors

The China Banking and Insurance Regulatory Commission and China Securities Regulatory Commission have issued several circulars and notices that officially remove the foreign ownership restrictions on insurance companies (effective January 1, 2020), futures companies (effective January 1, 2020), security investment fund management companies (effective April 1, 2020), and securities companies (effective December 1, 2020).  The measures aim to implement the requirements set forth in an opinion issued by the State Council in November 2019 that the 51% foreign ownership restriction for securities companies, securities investment fund management companies, futures companies, and life insurance companies will be lifted within 2020.

The State Administration of Foreign Exchange has issued a circular, effective February 1, 2020, concerning improvements to foreign exchange risk management of overseas institutional investors in the interbank bond market for the purposes of promoting opening the foreign exchange market, and further facilitating foreign exchange risk controls for overseas institutional investors in the interbank bond market.

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3. Further opening of oil and gas exploration and production to foreign investors

The Ministry of Natural Resources announced [http://gi.mnr.gov.cn/202001/t20200109_2497042.html and http://www.mnr.gov.cn/dt/ywbb/202001/t20200110_2497251.html] that effective May 1, 2020, China will fully open its market for oil and gas exploration and production to private and foreign companies.  Under the new policy, domestic and foreign companies registered in China with net assets of more than RMB300 million yuan (about USD 43 million) will be eligible to obtain oil and gas mining rights.

4. Measures to support foreign invested enterprises involved in fighting the Novel Coronavirus Pneumonia epidemic

On February 14, 2020, MOFCOM issued the Notice on Proactively Reacting to the New Coronavirus Pneumonia Epidemic and Strengthening Services to Foreign Invested Enterprises (“FIEs”) and Foreign Investment Promotion.  MOFCOM requested that local authorities help FIEs resume regular production and operation, specifically FIEs producing medical protective goods including masks, goggles, and protective suits.  Further, the local authorities should assist FIEs in solving problems and respond to FIEs’ issues regarding production and operation.  MOFCOM also requested that the local authorities aim to minimize the impact of the Novel Coronavirus Pneumonia Epidemic (“Epidemic”) on foreign investment projects by closely monitoring foreign investment projects that are still under negotiation or construction, helping to facilitate negotiations, improving government services, and ensuring a supply of land, electricity, water, and talent. 

In the effort to fight the Epidemic, national government authorities (such as MOFCOM, the National Development and Reform Commission, the Ministry of Finance, the Central Bank, the State Taxation Administration) and local government authorities (provinces, municipalities, and cities) have released measures to support enterprises during the Epidemic.  These measures vary from province to province and city to city, but focus on the following: exemption or reduction of certain government fees or charges, exemption or reduction of rentals for certain small and medium-sized enterprises, provision of subsidies to small and medium-sized enterprises for technology research and development, increase of fiscal support and credit, reduction of enterprises’ financing costs, and implementation of flexible human resources polices.  Some municipalities, such as Shanghai, have announced that supporting measures will apply to FIEs on an equal basis.  For a collection of the supporting policies prepared by KWM team, please refer to here.

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5. China and the United States signed the phase-one Economic and Trade Agreement

On January 15, 2020, China and the United States signed the phase-one Economic and Trade Agreement (“Agreement”) in Washington. The Agreement covers issues that range from freeing compulsory transfer of technology, expanding bilateral trade in such sectors as agricultural products and manufactured goods, opening up financial services markets and also, enhancing the protection of intellectual property rights. 

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6. China Cuts Tariffs on Certain U.S.-Origin Goods

On February 6, 2020, the Ministry of Finance of China (“MOF”) announced tariff cuts for certain U.S.-origin goods.  The additional tariff was reduced from 10% to 5% for goods within 270 tariff-items listed in Part 1 and 646 tariff-items listed in Part 2 of Annex 1 to the Announcement of the Customs Tariff Commission of the State Council on Imposing Tariffs on Certain U.S.-Origin Goods (Third Batch) (Customs Tax Commission Announcement [2019] No. 4) (“2019 Announcement”).  In addition, the tariff was reduced from 5% to 2.5% for 64 tariff-items listed in Part 3 and 737 tariff-items listed in Part 4 of Annex 1 to the 2019 Announcement.  Tariff reductions are effective February 14, 2020.

A Customs Tariff Commission of the State Council (“CTC”) official noted during a press conference that the tariff reductions are reciprocal measures to similar tariff cuts announced by the U.S. government on January 16, 2020 which reduced the tariffs levied on $120B of Chinese goods since last September from 15% to 7.5%, effective February 14, 2020.  According to the CTC official, additional adjustments depend on future developments of the U.S.-China economic and trade situations.

7. Amendment to the Patent Examination Guide aims to strengthen intellectual property protection in new fields such as AI

The National Intellectual Property Administration released a circular regarding an amendment to the Patent Examination Guide that came into force on February 1, 2020. The Amendment aims to strengthen the protection of intellectual property rights and clarify the rules for patent application examination in new industries and new fields such as artificial intelligence.

8. The Cryptography Law of the PRC came into force on January 1, 2020

The Cryptography Law of the People’s Republic of China, which was promulgated by the Standing Committee of the National People’s Congress on October 26, 2019, came into force on January 1, 2020.  The Cryptography Law is a comprehensive law regarding cryptography application and administration in China.  Among other things, the Cryptography Law emphasizes that foreign companies engaging in research and development, production, and sales of commercial cryptography products and offering cryptography related services will be treated equally.  It also prohibits forced transfer of commercial technologies. The relevant authorities such as the State Cryptography Administration, SAMR, MOFCOM, and the General Administration of Customs have also enacted ancillary regulations and rules regarding the administration of commercial cryptography products.

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9. TC260 published draft national standards, soliciting public comments

On January 20, 2020, TC260 published a new draft of the Standards on Collection of Personal Information by Mobile Network Applications, soliciting public comments by March 20, 2020.  TC260 previously issued the first version and the second version of the draft on August 5, 2019 and October 24, 2019 respectively.  The Standard sets forth basic requirements that govern the collection of personally identifiable information (“PII”) by mobile applications.  The Standard also identifies 30 categories of mobile applications and provides detailed guidelines regarding the minimum scope of PII that each category can collect and the minimum scope of authorization that each category must receive from users.

TC260 published a draft Guideline for Personal Information Notice and Consent on January 22, 2020, soliciting public comments by March 20, 2020.  The Guideline explains how to inform the user and what would constitute consent in connection with the collection, use, and sharing of PII. It also identifies situations where consent might not be needed. 

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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 but is based on our research and our experience in advising clients in the relevant businesses. Readers should seek specific legal advice from KWM legal professionals before acting regarding the information contained in this client alert.

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