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GC Agenda China: March 2018
Practical Law UK Articles w-014-0012 (Approx. 8 pages)
GC Agenda China: March 2018
by Brad Herrold, Consultant and Practical Law China
| Law stated as at 29 Mar 2018 |
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.
NPC approves State Council institutional reform plan
On 17 March 2018, the State Council Institutional Reform Plan (国务院机构改革方案) was approved at the 1st session of the 13th National People's Congress (NPC). The State Council reform plan forms part of the Plan to Deepen Reform of Party and State Institutions (深化党和国家机构改革方案) subsequently released by the Communist Party of China (CPC) on 21 March 2018.
After the reform, the State Council will consist of 26 ministries and commissions in addition to the General Office of the State Council. The reform plan is intended to enable the government to more efficiently address China's current challenges (including poverty, environmental pollution and financial risk) and create a unified market supervision system.
The changes include (among others):
- Establishing the State Market Regulatory Administration (SMRA) to replace the State Administration for Industry and Commerce (SAIC), the General Administration of Quality Supervision, Inspection and Quarantine (GAQSIQ) and the China Food and Drug Administration.
- Reorganising the State Intellectual Property Office (SIPO) under the new SMRA to integrate the current IPR duties of the SAIC (trade mark management), GAQSIQ (administration of marks of origin) and SIPO.
- Merging the banking and insurance regulators (that is, the China Banking Regulatory Commission (CBRC) and China Insurance Regulatory Commission) into the new China Banking and Insurance Regulatory Commission and transferring some financial sector regulatory authority (for example, drafting important industry-related regulations) to the People's Bank of China.
Among the most significant changes, the SMRA also will assume the anti-monopoly enforcement duties currently performed by the SAIC (non-price-related monopoly agreements and abuses of market dominance), the National Development and Reform Commission (price-related monopoly agreements and abuses of market dominance) and the Ministry of Commerce (MOFCOM) (concentrations of business operators). The merger of the three authorities' powers is expected to streamline the competition law enforcement in China and encourage the development of consistent practices. (For an overview of the Chinese competition law, see Practice note, Chinese competition law: overview.)
Market reaction
Adrian Emch, Partner, Hogan Lovells, Beijing
"The current three-headed antitrust enforcement regime was the result of a compromise between competing factions vying for enforcement powers at the time the AML was enacted in 2007. This has resulted in some inconsistent rules, as well as uncertainty for authorities and market players. Their merger into a single enforcement authority is a good development, although we will need to see how the plan is implemented in practice. The SMRA will be a very powerful yet somewhat technocratic body. Hopefully, this means politics will not play a huge role in its enforcement activities."
Action items
GC for any operating company in China will want to review the reform plan to identify any changes to the company's regulator(s). Counsel also may wish to work with government relations colleagues to develop or maintain relations with senior officials at any new regulators and to identify any significant policy changes.
SPC issues new judicial interpretation on arbitral awards
On 23 February 2018, the Supreme People's Court (SPC) issued the Provisions on Certain Issues on the Enforcement of Arbitral Awards by People's Courts (最高人民法院关于人民法院办理仲裁裁决执行案件若干问题的规定), which took effect 1 March 2018.
The provisions follow the recent issuance of two other judicial interpretations that clarify the trial and reporting procedures in cases involving the judicial review of arbitration. Together, the three interpretations significantly revise the rules on the enforcement of arbitral awards by the people’s courts.
Among other changes, the provisions:
- Enable an intermediate people's court to delegate jurisdiction over matters related to the enforcement of arbitral awards (other than handling applications to refuse to enforce arbitral awards) to a primary level people's court under certain conditions subject to the approval of a competent higher people's court.
- Permit non-parties (案外人) to file applications for refusal to enforce arbitral awards under certain circumstances, despite provisions in the Arbitration Law and the Civil Procedure Law permit only parties to file these actions.
- Clarify the scenarios and procedures where a people's court can refuse to enforce or set aside arbitral awards, and impose a deadline (that is, 15 days from the date of service of an enforcement notice) for filing applications for refusal to enforce arbitral awards.
For information on two related judicial interpretations released recently, see Legal update, SPC issues new interpretations on arbitral judicial review cases. For information on enforcing arbitral awards generally, see Practice note, Enforcing arbitration awards in China.
Market reaction
Timothy W. Blakely, Partner, Morrison & Foerster, Hong Kong
"The new provisions – especially on the heels of the other two recent judicial interpretations – demonstrate a continuing commitment to improve China's judicial framework supporting arbitration. The provisions not only give further guidance to Chinese courts about exercising jurisdiction and resolving challenges to awards, but also contain drafting lessons for practitioners (e.g., use of service of process provisions) and lessons for conducting arbitration proceedings. For instance, the provisions make it more difficult for a party to resist enforcement by citing procedural errors if that party did not object to the errors during the underlying arbitration. This should encourage parties to be increasingly diligent in raising objections during arbitration proceedings, affording tribunals a chance to timely address perceived shortcomings and improving the arbitral process."
MOFCOM and SAIC integrate FIE record-filing and registration procedures
On 28 February 2018, MOFCOM and the SAIC jointly issued the Notice on Implementing "Single Window, Single Form" Acceptance for Commerce Record-filing and Industry and Commerce Registration of Foreign-invested Enterprises (关于实行外商投资企业商务备案与工商登记“单一窗口、单一表格”受理有关工作的通知).
The notice is addressed to all provincial-level departments in charge under MOFCOM and the SAIC, including those within China's pilot free trade zones, and follows recent efforts to improve the attractiveness of China's foreign investment environment in part by increasing administrative efficiency.
The notice requires all departments in charge to combine MOFCOM's record-filing procedure with the SAIC's registration procedure for foreign-invested enterprises (FIEs), to provide foreign investors a one-stop forum for filing and registering FIEs, and to increase information sharing among MOFCOM, the SAIC and other administrative agencies.
The new system will be implemented in three stages:
- A preparatory stage from March to June 2018, when all provincial commerce bureaux and AICs will strengthen the construction (or re-development) of the information sharing system.
- A full implementation stage through the end of June 2018, when these departments will combine the FIE record-filing and business registration procedures and provide the one-stop service window (or online portal).
- A summary and assessment stage from July through December 2018, when the departments will identify flaws in and improve the system.
The notice also includes a standard form for recording the information collected on each FIE and sharing this information with other agencies through an online platform.
Market reaction
Paul McKenzie, Partner, Morrison & Foerster, Beijing and Shanghai
"This reform is welcome news for foreign investors. By integrating MOFCOM and SAIC procedures, it will streamline compliance work by foreign-invested enterprises and may also expedite closing formalities in relation to China related M&A transactions. But it also enhances information-sharing among agencies and may facilitate heightened enforcement by the two agencies."
Action items
GC for any operating company in China, or any company considering the China market, should work with government relations colleagues to understand the revised FIE record-filing and registration procedures in the relevant jurisdiction in China. Counsel also will want to become familiar with the contents and format of the new standardised form to better advise business colleagues on the new approach.
CBRC revises administrative licensing rules on foreign-invested banks
On 13 February 2018, the CBRC issued a revised version of the Measures on Implementing the Administrative Licensing Matters of Foreign-invested Banks (外资银行行政许可事项实施办法), with immediate effect.
The revised measures are aimed at promoting foreign investment in China's burgeoning financial sector and, ultimately, improving the competitiveness of China's state-owned banks. They follow a series of related developments in 2017 intended to further open market access to foreign investment in the financial sector (see Legal updates, State Council circulates measures on attracting foreign investment, China further opens market to foreign-invested banks and China to further open financial markets).
Specifically, the revised measures:
- Clarify the procedures and documentary requirements for foreign-invested banks to invest in purely domestic-invested banks.
- Ensure that the licensing conditions and procedures for foreign-invested banks to establish sub-branches, appoint senior management personnel, issue bonds and replenish capital are consistent with the licensing conditions and procedures for domestic-invested banks.
- Simplify administrative procures by replacing pre-approval requirements with reporting requirements in relation to the provision by a foreign-invested bank of overseas wealth management services, overseas financial management custodial services and securities investment custodial services, as well as the withdrawal of interest-bearing assets of a sub-branch of a foreign bank that has been closed.
The CBRC is expected to revise other rules to facilitate this new approach to foreign investment in the banking sector.
Market reaction
Shirley Wang, Partner, Zhong Lun Law Firm, Beijing
"The revised measures aim to further accelerate the opening of China's financial markets. They mainly focus on simplifying the approval process, unifying market access standards and streamlining the required procedures, as well as clarifying the application materials for foreign-invested banks intending to set up subsidiaries or invest in domestic-invested banks. No doubt, the new banking regulator will continue to support the active participation of foreign-invested banks in the China's banking and financial industry in the future."
State Council releases 2018 legislative plan
On 14 March 2018, the Legislative Affairs Office of State Council released the Notice on Printing and Distributing the State Council's 2018 Legislative Work Plan (国务院办公厅关于印发国务院2018年立法工作计划的通知).
The key goals of the 2018 legislative plan include further developing a modern economic system and government under the rule of law, protecting the environment, and modernising China's national defence.
The overriding theme is to improve the lives and livelihoods of the Chinese people by promoting the leadership of the CPC on legislation under the guidance of "Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era", implementing the "five-sphere integrated plan" (五位一体) and the "four-pronged comprehensive strategy" (四个全面), and improving the quality of drafting and the efficiency of enforcing legislation.
The 2018 legislative plan is comprised of three sections. The first lists the major legislative items on the agenda for this year. The second emphasises the importance of adhering to president Xi's thought during the legislative process. The final section calls on State Council departments to implement the plan.
The major legislative projects include (among others):
- Revised drafts of the Patent Law, the Copyright Law, the Law on the Administration of Tax Collection and the Implementing Regulations on Private Education Promotion.
- A draft foreign investment law.
- New regulations on government investment, non-depository lending institutions, illegal fundraising, human resources, social organisations and consumer protection.
The 2018 legislative plan also includes various legislative initiatives on environmental protection, modernising China's armed forces and safeguarding national security, and limiting government power and improving government service.
Market reaction
Thomas Man, Professor from Practice, Peking University School of Transnational Law
"The new legislative plan covers a broad range of issues, but it appears to be intended mainly to ensure the stability and legitimacy of Xi Jinping's government. Unlike recent legislative plans, the new plan lists all legislative projects in a single section without indicating their relative priority. In fact, several of the projects, including many of those cited above, were included in prior plans but not completed."