China regulatory and legal round-up | August 31, 2020

Foreign Investment and General Corporate

1. Draft Catalog of Industries Encouraging Foreign Investment (2020)

On July 31, 2020, the National Development and Reform Commission (NDRC) and Ministry of Commerce of the People's Republic of China (MOFCOM) published the exposure draft of the 2020 edition of the Catalog of Industries Encouraging Foreign Investment (the Proposed 2020 Catalog) for public comment.

Compared to the 2019 edition, the Proposed 2020 Catalog encourages further foreign direct investment in the following three areas:

the high-quality manufacturing industry: the Proposed 2020 Catalog includes additional or expanded items such as the manufacturing of certain raw materials, parts, and end products;
the productive services industry: the Proposed 2020 Catalog includes additional or expanded items such as research and design development, business services, modern logistics, and information services; and
the central and western regions: the Proposed 2020 Catalog expands the list of advantageous industries for foreign investment in central and western regions in order to lure investment into these areas.

2. Notice on Further Optimizing Business Start-up Services

On August 4, 2020, the NDRC, State Administration for Market Regulation (SAMR), Ministry of Public Security, Ministry of Human Resources and Social Security, Ministry of Housing and Urban-Rural Development and State Taxation Administration jointly published the Notice on Further Optimizing Business Start-up Services (《关于进一步优化企业开办服务的通知》) (the Notice).

The Notice provides that all provinces (autonomous regions, municipalities) and the Xinjiang Production and Construction Corps will open a single-net-communication platform for enterprise establishment by the end of 2020. This online platform will encompass the entire process for establishing an enterprise (through the use of a one-form system), and will consist of a number of integrated services (such as employee insurance registration, invoice applications and applications for official seal engraving).

In addition, the Notice provides that the country will reduce the time it takes to set up an enterprise to less than four business days by the end of 2020.

3. Notice of the Ministry of Commerce on Issuing the Overall Plan for Comprehensively Deepening the Pilot Program for the Innovation and Development of Trade in Services

On August 12, 2020, MOFCOM published the Notice of the Ministry of Commerce on Issuing the Overall Plan for Comprehensively Deepening the Pilot Program for the Innovation and Development of Trade in Services (《商务部关于印发全面深化服务贸易创新发展试点总体方案的通知》) (the Overall Plan).

The Overall Plan aims to deepen reforms to the services trade and the pilot program will be implemented in 28 provinces and cities. The Overall Plan sets out the following:

the tasks associated with pilot program (including the pilot administration of security assessments for cross-border data transfer and mechanisms for data security management);
the specific measures for trial implementation; and
the division of responsibilities across the pilot program.

4. Measures for Handling of Complaints from Foreign-invested Enterprises Newly Revised

On August 25, 2020, MOFCOM released the newly revised Measures for the Handling of Complaints from Foreign-invested Enterprises (the Measures), which will take effect from October 1, 2020.

The newly revised Measures comprise of 5 chapters and 33 articles, all of which further specify the relevant requirements under the Foreign Investment Law and the Implementation Regulation of the Foreign Investment Law. The Measures modify the relevant working system for the handling of the complaints from foreign-invested enterprises.

For example, the Measures establish an inter-ministerial joint conference system for coordinating and facilitating the handling of complaints from foreign-invested enterprises (Article 5) and a national working center for handling foreign investment complaints (Article 6).

At the local level, the local governments at or above the county level are required to designate the departments or institutions which will be responsible for handling complaints within the administrative agencies of their region (Article 7).

5. Catalog of Technologies Prohibited or Restricted from Export Newly Revised

On August 28, 2020, MOFCOM and the Ministry of Science and Technology released the newly revised Catalogue of Technologies Prohibited or Restricted from Export by China.

This revision removes four of the technology items that had been prohibited from export and removes five of the technology items that had been restricted from export. The revision also adds 23 new export-restricted technology items and modifies the control points and specifications of 21 technology items.

Any transfer of technology from China to abroad (whether through trade, investment or other means) must strictly comply with the Administrative Regulations on Technology Import or Export (the Regulations). Under the Regulations, companies that are planning to export any of the catalogued restricted technologies must first apply to MOFCOM's provincial counterpart for a technology export permit. Companies are not allowed to conduct substantive negotiations regarding the export, and cannot sign technology export contracts, without first obtaining a technology export permit.

Customs and foreign exchange

6. Financial opening and innovative measures are proposed to support the construction of Guangdong-Hong Kong-Macao Greater Bay Area

On July 31, 2020, the Guangdong Financial Supervisory Authority, Guangzhou Branch of the People's Bank of China (PBC), Guangdong Office of China Bank and Insurance Regulatory Commission (CBIRC), Guangdong Office of China Securities Regulatory Commission (CSRC), PBC Shenzhen Central Sub-branch, CBIRC Shenzhen Office and CSRC Shenzhen Office, issued the Implementation Plan for the Implementation of the Opinions on Providing Financial Support for the Development of the Guangdong-Hong Kong-Macao Bay Area (《关于贯彻落实金融支持粤港澳大湾区建设意见的实施方案》) (the Implementation Plan).

The Implementation Plan was released in order to refine and implement the Opinions on Providing Financial Support for the Development of the Guangdong-Hong Kong-Macao Bay Area (《关于金融支持粤港澳大湾区建设的意见》) Yinfa [2020] No.95 (the Opinions), which was issued by PBC, CBIRC, CSRC and State Administration of Foreign Exchange (SAFE) on April 24, 2020.

The Implementation Plan focuses on the following five aspects of the Opinions and proposes 80 specific implementation measures, including:

19 measures designed to facilitate cross-border trade, investment and financing in the Guangdong-Hong Kong-Macao Bay Area, and to enhance the convenience of exchanging and circulating RMB and foreign currencies across borders;
20 measures designed to expand the opening-up of the financial industry and to promote financial cooperation between the Mainland, Hong Kong and Macao;
20 measures designed to promote the diversification of financing channels across Guangdong, Hong Kong and Macao and to promote the interconnection of financial markets and financial infrastructure across these areas;
11 measures designed to enhance the innovation of financial services in the Guangdong-Hong Kong-Macao Bay Area; and
10 measures to effectively prevent cross-border financial risks.

The Opinions and the Implementation Plan will operate to create more room for innovation by the financial institutions in the Bay Area in the future, and will also provide domestic and foreign investors with more convenient and improved channels of investment.

7. China Customs Carries out 2020 Random Inspection on Imported and Exported Commodities Other Than Statutory Inspection Commodities

On August 21, 2020, the General Administration of Customs (GAC) released the Announcement on Launching the Random Inspection of Import and Export Commodities Other Than Statutory Inspection Commodities in 2020 (the Inspection Announcement)

The Inspection Announcement details the GAC decision to conduct random inspections of some imported and exported commodities (other than statutory inspection commodities) from the date the Inspection Announcement was issued.

The commodities made subject to random inspection include:

imports such as microcomputers, motor vehicle reflectors, children's wear and stationery; and
exports such as children's bicycles and stuffed toys.

In accordance with the Law of the PRC on Import and Export Commodity Inspection and its implementing regulations, the Chinese customs will conduct random inspections of these commodities (which are outside of those already subject to statutory inspection). This will lead to an obvious increase in random inspection rates.

8. China Customs Adjusts Regulatory Requirements for Certain Import and Export Goods

On August 28, 2020, the GAC released the Announcement on Adjusting Regulatory Requirements for Some Imported and Exported Goods (the Adjustment Announcement)

The Adjustment Announcement details the GAC decision to cancel and simplify the Regulatory Requirements for Some Imported and Exported Goods and to adjust those requirements from the issue date, in a bid to ease the burden on enterprises.

The adjustments include the following:

when going through the formalities for customs declarations, a company that is importing cosmetics shall state that it has obtained an approval document on hygiene licensing for imported cosmetics (approved by the relevant competent department of the State), and the company will be exempted from submitting the approval document voucher;
the regulatory requirements compelling consignees or their agents to submit a certificate of origin for imported aquatic products at import ports have been cancelled.

China Customs Expands Pilot Scope of Export Supervision over Enterprises via Cross-border E-commerce Enterprises

According to the GAC Announcement No.75 of 2020, the GAC launched the pilot program on the regulation of cross-border e-commerce (B2B) export on July 1, 2020. The pilot program was initially launched at ten customs offices, including Tianjin and Nanjing. Since its launch, the new export supervision pilot has effectively reduced logistics costs and labor costs for export enterprises and has shortened the time for customs clearance.

On August 13, 2020, the GAC released the Announcement on Expanding the Pilot Scope of Export Regulation of Cross-border E-commerce Enterprises to Enterprises, which details plans to expand the scope of the pilot program to 12 new customs offices. These offices include Shanghai Customs, Qingdao Customs and Wuhan Customs.

Data Protection

9. CAC and MOE Jointly Launched the Special Rectification Campaign of Online Course Platforms involving Minors

On August 7, 2020, the Office of the Central Cyberspace Affairs Commission (CAC) and the Ministry of Education (MOE) launched a two-month special campaign aiming to:

rectify the outstanding problems of online learning platforms in respect of their social responsibilities towards minors;
safeguard the legitimate rights and interests of minors; and
facilitate the orderly development of online learning platforms.

On the same day, the CAC also investigated and penalized several websites and platforms that were alleged to have violated the laws and regulations regarding minors, including the Baidu App, NetEase App and Tencent Website. Find these here: http://www.cac.gov.cn/2020-08/06/c_1598277656513147.htm

Judging from the information recently released by the CAC, various regulatory authorities will continue to step up their rectification efforts, and will intensify the enforcement of laws and the imposition of punishments for websites and platforms which contain adverse information and malicious pop-ups. These efforts are being made in order to stop online platforms from seriously disrupting the normal learning of teenagers, and to prevent the platforms from damaging the legal rights and physical and mental wellbeing of minors.

Online learning platform operators in China are advised to:

remain aware of relevant law enforcement developments;
conduct self-assessments to identify any violations;
promptly remove contents that are irrelevant to learning services (such as gaming, entertainment, and matchmaking content); and
actively cooperate with authorities in pursuit of their relevant regulatory efforts.

10. Tianjin Published the Draft Interim Measures for Data Transaction Management for Public Comment

On July 30, 2020，Tianjin Cyberspace Administration of China (Tianjin CAC) published the Interim Measures for Data Transaction Management in Tianjin (Draft for Comment) (Interim Measures).

The Interim Measures elaborate on various aspects of public data transactions, such as definitions, opening mechanisms, open platforms, data development, data utilization and supervision. The Interim Measures also provide guidance for individuals and organizations on obtaining public data resources.

In addition, the Interim Measures:

stipulate qualification requirements for data trading parties, types of tradable data, and security measures related to data trading; and
prohibit trading of any data related to national security, public security and individual privacy.

To be prepared for future data transactions, companies are advised to:

take active measures to protect any data related to national security, public safety and individual privacy;
attach importance to data asset management; and
enhance their cooperation and communication with relevant entities and authorities.

11. First Instance Judgments by Beijing Internet Court Found that Douyin and WeChat Read Apps Infringed User Personal Information

On July 30, 2020, the Internet Court of Beijing issued two first instance judgments, with findings that the Douyin and WeChat Read Apps had infringed upon the personal information rights and privacy rights of two separate users. More information here: http://legal.people.com.cn/n1/2020/0730/c42510-31804366.html

These cases represent just two examples of the Courts protecting citizens' lawful interests in personal information in the Internet era since the recent promulgation of the Civil Code. The findings demonstrate the enhanced protection of personal information from the judicial perspective. ByteDance (the owner of Douyin) has responded that it will appeal the decision. Tencent (the owner of WeChat Read) has confirmed that it respects the decision and has adjusted the related WeChat Read functions accordingly.

Relevant enterprises in China are advised to:

review their compliance with respect to the processing of personal information throughout their business operations; and
address personal information protection and compliance in their business models and product design.

12. The Ministry of Justice to Strengthen Commercial Information Protection in Administrative Licensing and Require Desensitization Before Data Sharing

On August 14, 2020, the Ministry of Justice (MOJ) issued the Guiding Opinions on Strengthening the Protection of Trade Secrets and Confidential Business Information in Administrative Licensing (Draft for Comments) (the Guiding Opinions).

The Guiding Opinions aim to further strengthen the protection of trade secrets and confidential business information in administrative licensing, and to safeguard the legitimate rights and interests of market entities.

In order to strictly prevent assessment agencies from disclosing any trade secrets and confidential business information made available to them, the Guiding Opinions stipulate that when such material is submitted by applicants, the administrative licensing authorities shall enter confidentiality agreements with third-party assessment agencies. These agreements will specify the scope, duration, and obligations of confidentiality, as well as any liability for breach.

Furthermore, the administrative licensing authorities shall minimize their access to trade secrets and confidential business information to such access as is necessary for their administrative operations. In principle, these authorization controls shall also specify the persons who have been granted access to the relevant trade secrets and confidential business information.

Relevant enterprises in China are advised to enter into confidentiality agreements with competent authorities and to formulate confidentiality rules based on their own managerial needs with respect to trade secrets. This should be done in a timely manner and in line with the Guiding Opinions, so as to strengthen the protection of the enterprises' trade secrets and confidential business information in instances of subsequent administrative licensing.

13. SCA Issued the Regulations for the Administration of Commercial Encryption (Draft Amendments for Comments)

On August 20, 2020, the State Encryption Administration (the SCA) issued the Notice on the Regulations for the Administration of Commercial Encryption (Draft Amendments for Comments) (the Draft Amendments).

The Draft Amendments will eventually improve upon the Regulations for the Administration of Commercial Encryption, which was promulgated and implemented in 1999. The Draft stipulates the State's administrative measures and requirements regarding commercial encryption (including with respect to inspections, certifications and import and export). The Draft is intended to address the recently-emerging issues of encryption and to provide normative supplements to the Cryptography Law regarding commercial encryption exercises.

Relevant enterprises in China are advised to pay close attention to the legislative developments in cryptography, and in particular to the requirements regarding certification, security assessment and security review in the use of commercial encryption. Enterprises should also seek to actively cooperate with the relevant authorities and to quickly respond to the developments in the commercial encryption industry.

IP

14. China's Supreme People's Court Issued Guiding Opinion on Judicial Precedents

On July 27, 2020, the Supreme People's Court (SPC) issued the Guiding Opinion on Unifying the Application of Law by Strengthening the Search for Similar Cases (pilot version) (Chinese only) (the Guiding Unification Opinion). The trial implementation took effect from July 31, 2020.

The SPC has implemented a series of rules and opinions to promote consistency of the application of law in China. For instance, back in 2017, the SPC issued the Opinion on Putting a Judicial Responsibility System in Place and Improving Mechanisms for Trial Oversight and Management, which required courts in China to take similar cases into account before making a decision. In 2019, the SPC released the Implementing Measures on Establishing a Mechanism to Resolve the Inconsistency in Application of Law. The Guiding Unification Opinion is the latest move in the SPC's efforts to improve judicial credibility and combine trial work.

Under the Guiding Unification Opinion, courts in China shall be required to perform searches of similar cases (in terms of the facts, disputed legal issues and applicable laws) using databases such as the China Judgments Online. The courts will be required to perform these searches in the following circumstances:

where the case is to be submitted to the professional (presiding) judges' committee or to the trial committee for discussion;
where there is a lack of clear applicable rules, or where a unified governing rule has not yet been formed;
where the president of the court or the head of the division so demands, based on the supervision and administration authority; or
other circumstances where a search of similar cases is considered necessary.

15. The China National Intellectual Property Administration Released Guidelines for Patent Dispute Mediation, Anti-counterfeit Administrative Enforcement and Patent Administrative Proceedings

On July 17, 2020, the China National Intellectual Property Administration (CNIPA) released a new batch of guidelines related to patent dispute resolution, including:

(together, the PDR Guidelines).

The official press release regarding these new PDR Guidelines notes that they compile and complement the existing rules and guidelines issued by the CNIPA, including:

the Guideline for Administrative Review of Patent Administrative Enforcement (pilot version) issued on September 25, 2017;

the Guideline for Judicial Review of Patent Administrative Enforcement (pilot version), which were both issued on November 13, 2017; and
the Guideline for Patent Infringement Determination (pilot version), the Evidence Rules for Patent Administrative Enforcement (pilot version), and the Guideline for Patent Disputes Mediation (pilot version) which were all issued on March 4, 2016.

16. Special Provisions on Reference of Suspected IP Criminal Cases by Administrative Law-enforcement Organs

On August 7, 2020, the State Council amended certain provisions of the Provisions on Transferring Suspected Criminal Cases by Administrative Law Enforcement Organs (the Provisions).

The amendments to the Provisions aim to:

further improve the legal system regarding the protection of intellectual property; and
strengthen the law enforcement and the civil and criminal judicial protection of intellectual property rights (IPR).

The amendments to the Provisions further specify the standards and procedures for administrative law enforcement organs with respect to the transfer of suspected IPR criminal cases to criminal law enforcement organs. This further strengthens the convergence of the relevant administrative law and criminal law enforcement systems (at least in respect of IPR protection).

Tax

17. The promulgation of the Deed Tax Law and the City Construction and Maintenance Tax Law in China

On August 11, 2020, the Standing Committee of the National People's Congress published the Deed Tax Law of the People's Republic of China (Deed Tax Law) and the City Construction and Maintenance Tax Law of the People's Republic of China (City Construction Tax Law), both of which shall enter into force as of September 1, 2021.

These two laws essentially maintain the current taxation framework, assuring the steady transition and the enforceability of the legislation. The laws make several major changes to the system under the existing provisional regulations, which may impact taxpayers in particular. For example, under the Deed Tax Law, it will be possible for taxpayers to apply for refund of the deed tax already paid before the relevant building transfer has been registered if the transfer contract is legally invalid or cancelled.

As to the City Construction Tax Law, it stipulates that:

the value-added tax (VAT) refund can be deducted from the tax basis of the city construction tax; and
no city construction tax should be levied on the VAT or on consumption tax paid by overseas enterprises in respect of the provision of services or the sale of intangible assets within China.

For the time being, China's tax legislation progress has been fast-tracked, and 2020 is set to be a crucial year in which principles of statutory taxation will certainly be advanced. These promising upcoming developments to China's tax legislation are worth observing as they progress over the course of the year.

18. Further details released on preferential tax policies for Hainan free trade port

On June 23, 2020 the State Taxation Administration released Cai Shui [2020] No. 31 , which sets out preferential enterprise income tax (EIT) policies for the Hainan Free Trade Port (Hainan FTP).

On July 31, 2020. the Hainan Taxation Bureau of State Taxation Administration further released the Announcement on Issues Related to Preferential Policies of Enterprise Income Tax in Hainan Free Trade Port (Announcement [2020] No. 4) (the EIT Announcement), which retrospectively took effect from January 1, 2020 and runs to December 31, 2024.

The EIT Announcement clarifies certain issues pertaining to the implementation of the EIT incentive measures which were previously unveiled in Cai Shui [2020] No. 31. In particular, the EIT Announcement clarifies the following:

the establishment of non-resident enterprises in the Hainan FTP should also be eligible to the 15% EIT rate, provided that the prescribed requirements are satisfied;
the 15% EIT rate can be enjoyed at the time of prepayment declarations and, for this purpose, documents should be retained for any future examination regarding the substantive operation and the primary business of the taxpayer;
the scope of exemption of EIT on income from "new overseas direct investment" in the tourism, modern service and high-tech industries is clarified; and
taxpayers who fail to enjoy the EIT benefits in time before the release of the relevant regulations may enjoy the same benefits at the time of subsequent monthly (quarterly) prepayment declarations or at the time of the 2020 year-end settlement.

More and more concrete details of the tax regime in the Hainan FTP continue to be published, fleshing out the innovative regime. To leverage relevant tax policies, enterprises will need to assess the challenges that may arise in relation to the fulfillment of any prescribed requirements, such as the potential costs of managing the economic substance requirements.

Labor

On July 10, 2020, the Ministry of Human Resources and Social Security and the SPC jointly issued the First Batch of Typical Labor Dispute Cases, involving 15 example cases in total.

The 15 example cases relate to many issues that have been in dispute in practice for a long time, such as issues relating to:

the performance of employment contracts which have been impacted by COVID-19;
payments of double salary;
termination of non-compete agreements; and
employer's rights of unilateral position adjustment.

We have summarized below eight rules which we have derived from these typical cases and which may serve as an important reference for future judicial practice in labor dispute cases:

an employer shall not suspend the performance of employment contracts by invoking COVID-19 as a force majeure event;
during the delayed resumption of work following the COVID-19 outbreak, and after fulfilling negotiation procedures, an employer is entitled to arrange for employees to take annual leave, and it is not mandatory to reach an agreement with the employees;
under systems of "shared employment", de-facto employment relationships may arise if the borrowing entity continues to use the employee after the employment relationship between the lending entity and the employee has ended;

participating in off-job professional technical training constitutes an employee's fulfilment of its employment obligations, and his or her salary during such period is not professional technical training fees;
concealment, fraud, or falsification of any basic information directly related to, and necessary for, an employment contract (such as knowledge and skills, education background, degree, professional qualification and work experience) shall render such employment contract invalid;
if an employer fails to pay non-compete compensation to an employee for three months during the non-compete period, the employee's failure to perform his or her non-compete obligations shall be regarded as a proposal to terminate the non-compete agreement, and the employee will not be liable for any breaches of the non-compete agreement;
agreements between an employer and an employee regarding flexible working hours are invalid without the approval of the human resource and social security department; and
an employer is entitled to adjust an employee's position and work place, provided that such adjustment is reasonable.

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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.