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GC Agenda China: June 2020
Practical Law UK Articles w-026-2804 (Approx. 6 pages)
GC Agenda China: June 2020
by Brad Herrold, Consultant and Practical Law China
| Law stated as at 30 Jun 2020 • China |
A look back at the most recent legal developments for general counsel (GC) and their advisers working on China-related matters. GC Agenda China identifies and analyses the key issues that affect businesses, provides insight from leading legal practitioners and professionals, and gives specific and actionable guidance in response to these issues.
China enacts first Civil Code
On 28 May 2020, the National People's Congress enacted the Civil Code of China, with effect from 1 January 2021.
The Civil Code is a comprehensive amalgamation of laws that regulate property and personal rights, with 1,260 articles divided into a general provisions section and six other sections that govern specific rights in relation to property, contracts, personality, marriage and family, inheritance and torts, respectively.
A primary legislative goal of the Communist Party of China for decades, the new code mainly consolidates and updates existing civil laws enacted and revised in piecemeal fashion over the last 40 years but it also codifies newer legal principles with provisions related to privacy rights, the protection of personal information and personality rights, including rights to life, body and health, rights in names and titles, portrait rights and rights to reputation and honour.
The drafting of the final version of the Civil Code took several years. The General Provisions of the Civil Code 2017 essentially forms Part 1 of the Civil Code. For information on the general provisions, see Legal update, China enacts general provisions of civil code.
The property section addresses immovable and moveable property across three broad categories, ownership, usufruct (that is, the right to possess, use or benefit from another's property) and security interests (that is, mortgages, pledges and liens) and will replace the Property Law 2007 and the Security Law 1995.
The section on contracts updates the Contract Law 1999, with new provisions governing electronic contracts, among others. The first of three subparts contain general principles on contract formation, variation, performance, breach and so on. The second subpart provides more detailed rules on 19 specific types of contracts, including new inclusions for security contracts, factoring contracts and partnership contracts. The third subpart addresses two types of quasi-contracts, management of affairs (准合同) and unjust enrichment.
The sections on marriage and family and on inheritance will replace the Marriage Law 2001, the Adoption Law 1998 and the Inheritance Law 1985.
The torts section replaces the Tort Liability Law 2009 and addresses the infringement of other people's civil rights (other than contract rights) that results in civil liability, including fault based liability, that is, liability for intentional and negligent acts, and strict liability, or liability arising as a function of law.
Market reaction
Paul McKenzie, Partner, Morrison & Foerster, Beijing and Shanghai
"Promulgation of the Civil Code is a major milestone in Chinese legislative history, coming at the end of efforts over many decades to put in place a comprehensive codification of Chinese laws governing civil relationships. Implementation of the Civil Code should enhance consistency in the application of law to contractual, property and other civil disputes, which should in turn support the development of China's private sector."
COVID-19: SPC issues more guidance on handling civil disputes related to pandemic
On 15 May 2020, the SPC issued the Guiding Opinions on Several Issues Concerning the Proper Trial of Civil Cases Involving Novel Coronavirus Pneumonia Epidemic Cases (II).
On 8 June 2020, the SPC issued the Guiding Opinions on Several Issues Concerning the Proper Trial of Civil Cases Involving Novel Coronavirus Pneumonia Epidemic Cases (III).
The new opinions follow initial guidance issued in April 2020. For information on the first set of opinions see, Legal update, COVID-19: SPC issues guidance on handling civil disputes related to pandemic.
The second set of opinions guide China's people's courts in applying various legal principles to address some of the practical difficulties encountered as a result of the 2019 novel coronavirus disease (COVID-19) pandemic. Grouped into three main categories of cases (those involving various types of contracts and commercial leases, medical insurance and other financial contracts and corporate bankruptcy), they aim to address four key aspects of the fallout from the pandemic:
- Alleviating the corporate debt crisis through bankruptcy reorganisation and reconciliation.
- Ensuring the stability of industrial supply chains.
- Protecting the people's livelihood.
- Promoting economic and social development.
For more information on the second set of opinions, see Legal update, COVID-19: SPC issues second guidance on handling civil disputes related to pandemic.
The third set of opinions also guide China's lower people's courts in adjudicating civil claims related to the pandemic. They mainly address the following issues:
- Disputes involving foreign elements, commercial maritime and other transportation contract issues and ship building.
- Delays in filing or responding to a lawsuit or completing various procedures or submitting certification documents.
- The proper identification of applicable law, including extraterritorial law, under Chinese laws governing conflicts of law, as well as the impact of related treaties, conventions and other binding arrangements to which China is a party.
For more information on the third set of opinions, see Legal update, COVID-19: SPC issues third guidance on handling civil disputes related to pandemic.
Market reaction
Tim Blakely, Partner, Morrison & Foerster, Hong Kong
"The second and third opinions provide additional guidance on key dispute-related issues arising from the pandemic, again encouraging continued performance and accommodation where possible. Equally important, the new guidance outlines procedural rules for foreign-related litigation in Chinese courts, addressing collection of evidence from foreign jurisdictions, litigation time periods, and choice and application of foreign law. These opinions will prove valuable for parties facing disputes arising from the pandemic, particularly where the affected contracts involve cross-border elements and evidence."
PBOC and SAFE remove QFII and RQFII investment quotas
On 7 May 2020, the People's Bank of China (PBOC) and State Administration of Foreign Exchange (SAFE) jointly released the Regulations on the Administration of Domestic Securities and Futures Investment Funds by Foreign Institutional Investors, with effect from 6 June 2020.
The regulations implement a State Council decision announced in September 2019 to cancel the investment quota restrictions on two inbound investment schemes, the Qualified Foreign Institutional Investor (QFII) programme and the Renminbi Qualified Foreign Institutional Investor (RQFII) programme, and simplify administrative requirements for foreign institutional investors to conduct currency exchanges and inward remittances and outward repatriations of investment funds.
QFII and RQFII investors no longer need to apply to SAFE for an investment quota. Instead, they must register with SAFE as a foreign institutional investor through a domestic custodian bank on the strength of a completed registration form and the QFII's or RQFII's qualification licence. The regulations permit investors to appoint multiple custodians, though they must name one as the main reporting custodian. Once the SAFE registration is complete, the QFII or RQFII may open designated domestic depositary accounts, including one RMB depository account for each designated foreign currency account, to receive inward remittances. The regulations permit foreign institutional investors to choose the currency and timing of inward remittances.
The regulations also significantly simplify the procedure for outward repatriations of investment income. QFII and RQFII investors may now issue a written instruction, plus a commitment letter undertaking to pay the relevant taxes, to their custodian bank, instead of preparing a special audit report and obtaining a tax clearance certificate.
The QFII and RQFII programmes lost their attractiveness, and thus the need for the quotas, since foreign investment in the mainland's financial markets was permitted through Shanghai-Hong Kong Stock Connect in 2014 and Shenzhen-Hong Kong Stock Connect and Bond Connect in 2016. Investors are now hoping to see the QFII and RQFII investment scope expanded to include for example private investment funds, financial futures, commodities futures and options, initial public offerings and secondary stock offerings.
Market reaction
Michael Wong, Partner, Dechert LLP, Hong Kong
"The removal of the QFII and RQFII quotas and the simplified registration process with SAFE should be a welcomed development amongst global fund managers who have previously relied upon the quota of a single licence holder in the management of multiple fund accounts. In order to make the QFII and RQFII regimes attractive again, the new regime should significantly expand its investment scope, particularly allowing access to investments and financial products that are not otherwise available through the more cost efficient Stock and Bond Connect programmes."
Action items
GC for qualified fund managers will want to be aware that the applicable investment quotas have been cancelled and, where appropriate, assist in completing the registration procedure, opening domestic RMB and foreign currency depositary accounts and carrying out related currency exchanges and remittances.
PBOC and other agencies issue guidance on further integrating Greater Bay Area
On 14 May 2020, the PBOC, the China Banking and Insurance Regulatory Commission, the China Securities Regulatory Commission and SAFE jointly issued the Opinions on Financial Support for the Construction of the Guangdong-Hong Kong-Macao Greater Bay Area.
The opinions aim to promote the further development and financial integration of the Greater Bay Area, which consists of Hong Kong, Macao, Guangzhou, Shenzhen, Zhuhai and six other cities in the Pearl River Delta, into an internationally competitive, world class cluster of cities.
The opinions are comprised of four general principles and 26 specific measures aimed at achieving five broad policy goals:
- Facilitating cross-border trade and investment and improving convenience in currency exchange and cross-border capital flows.
- Further opening the banking, insurance and securities sectors.
- Expediting the integration of Greater Bay Area financial markets and infrastructure.
- Increasing technology innovation in financial services.
- Reducing cross-border financial risk.
The specific measures include supporting the cross-border lending operations of banks, establishing mechanisms to facilitate the cross-border purchase of wealth management products, gradually permitting Hong Kong and Macao renminbi settlement banks to participate in the mainland interbank lending market, perfecting existing financial market connection arrangements such as Shenzhen-Hong Kong Connect, developing pilot programmes for using foreign exchange on the Guangzhou carbon emissions trading platform and establishing and improving other green finance co-operative mechanisms, and supporting research on the application of new technologies such as blockchain, big data and artificial intelligence in the finance industry.
The opinions also call for permitting Hong Kong and Macao institutional investors to invest in private equity investment funds and venture capital funds in Guangdong through the pilot Qualified Foreign Limited Partnership programme, developing pilot programmes to support overseas investment by mainland private equity investment funds through Qualified Domestic Limited Partnerships and Qualified Domestic Investment Enterprises and encouraging Hong Kong and Macao insurance firms to become qualified foreign institutional investors and renminbi qualified foreign institutional investors.
Market reaction
Thomas Man, Professor from Practice and Associate Dean, Peking University School of Transnational Law (Shenzhen)
"The opinions promote the central government's strategic goal of creating a world class megacity in south China by integrating the physical infrastructure and regulatory environment of the various cities, while exploiting their comparative advantages as a financial centre, logistics centre, export manufacturer, technology hub and so on. Challenges remain, however, as the financial practices and rules in Hong Kong and Macao differ significantly from the mainland. At the very least, the commitments in the opinions should deepen the financial connections between the mainland and Hong Kong and Macao."