GC Agenda China: February 2018 | Practical Law

GC Agenda China: February 2018 | Practical Law

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.

GC Agenda China: February 2018

Practical Law UK Articles w-013-3822 (Approx. 7 pages)

GC Agenda China: February 2018

by Brad Herrold, Consultant and Practical Law China
Law stated as at 27 Feb 2018China
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.

MOFCOM and six other agencies issue new outbound reporting rules

On 18 January 2018, the Ministry of Commerce (MOFCOM) and six other administrative agencies jointly issued the Interim Measures for the Reporting of Outbound Investments Subject to Approval or Record-filing (对外投资备案(核准)报告暂行办法), with immediate effect.
The measures aim to facilitate transparency and inter-agency co-operation relating to outbound investment. Under the measures, administrative agencies will continue to have administrative authority for outbound investment projects within their scope of regulation, and each agency's rules governing relevant outbound investments will remain in effect. (For the regulatory regimes governing Chinese outbound investment, see Practice note, China outbound investment: approvals and process.)
Under the measures, administrative agencies are required to evaluate outbound investments based on the relevant guidelines and restrictions, and to apply the principle of the "ultimate destination enterprise", that is, the entity that will actually engage in project construction or operations in the target destination. Shell firms that are established by domestic investors to invest in ultimate destination enterprises will not be considered.
The measures compel outbound investors to comply with periodic reporting obligations (as determined separately by each administrative agency), as well as emergency reporting obligations in the event of a major adverse event or sudden security incident. In turn, each administrative agency is required to share this information through a new online platform administered by MOFCOM.
The measures also impose new post-closing supervision requirements on the various administrative agencies, including spot checks, as well as special inspections, where an outbound investment involves:
  • At least USD300 million by the Chinese side.
  • A sensitive country or region or a sensitive industry.
  • A major operating loss, a major security incident or mass incident, or a serious violation of law.
  • Other important circumstances.

Market reaction

Calvin Chiu, Counsel, Dentons, Beijing

"The measures are another integral piece of establishing a full-calibre outbound investment regime. Continuing reporting obligations and inter-agency co-operation are the two main themes of the measures, and they are consistent with the recent emphasis on an interim and ex-post monitoring approach. Periodic reporting and post-closing monitoring will help the authorities trace the whole life cycle of an outbound investment project, while sharing information amongst the various government agencies will help to ensure transparency. All of which points toward the ultimate goal: outbound investment should be real and of benefit to China, or investors will risk being penalised or even blacklisted."

Action items

Counsel for clients involved in outbound investment projects will want to be aware of the new reporting requirements, work with government relations colleagues to flesh out the specific procedures with each relevant regulator, and become familiar with MOFCOM's new online platform once it becomes operational.

TC 260 issues national standard on personal information security

On 29 December 2017, the National Information Security Standardization Technical Committee (TC 260), which is jointly administered by the Cyberspace Administration of China and the Standardization Administration of China, issued the Information Security Technology – Personal Information Security Specifications (信息安全技术 个人信息安全规范), which will take effect 1 May 2018.
The standard marks another step in China's efforts to develop a comprehensive data protection regime, with significant implications for cross-border interoperability.
Key aspects of the standard include:
  • Clarifying the rights of personal data subjects and requiring a higher level of protection for "personal sensitive information" than for ordinary "personal information".
  • Requiring data controllers to obtain "explicit consent", that is, written consent or other affirmative action by a personal data subject, such as electronically clicking to consent, before collecting and using personal sensitive information.
  • Requiring network operators to notify regulators and affected individuals of security incidents involving an actual or potential leak, damage or loss of personal information.
  • Obligating data controllers to carry out security assessments of third-party data processors, and to adhere to a set of general principles when processing personal information.
The standard is recommended, as opposed to mandatory, but government agencies often refer to recommended standards when evaluating compliance with broadly phrased laws and regulations.
The standard also contains a model privacy policy that incorporates the principles and obligations found in the standard and provides useful guidance for compliance purposes.
For more information on personal data protection in China, see Practice note, Data privacy in China.

Market reaction

Paul McKenzie, Partner, Morrison & Foerster, Beijing and Shanghai

"Issuance of this new personal data standard is a major milestone and is already informing enforcement in China. It is cast as a recommended rather than a mandatory standard, but in fact it is likely to be very influential in the interpretation by regulatory authorities of the data privacy provisions of China's 2016 Cybersecurity Law and other legislation, given the broad drafting of legislation. TC 260 therefore will have a significant influence on the scope of companies' legal obligations and liabilities associated with the collection and use of personal data in China. International companies can take comfort from the fact that TC 260 has considered GDPR and other international standards and the requirements of the standard may not be dramatically different from other international best practices, but it requires careful study."

Action items

GC for any company that gathers, stores, processes or transfers personal information will want to closely study the standard, including the model privacy policy, and work with business and technology colleagues to incorporate the requirements into the company's global data privacy policies and ensure compliance in China and cross-border interoperability.

NDRC releases outbound sensitive industries catalogue and standard forms

On 31 January 2018, the National Development and Reform Commission (NDRC) issued the Notice on the Release of the Catalogue of Sensitive Industries for Outbound Investment (2018 edition) (关于发布境外投资敏感行业目录(2018年版)的通知), followed on 9 February by a set of standard forms for use during the establishment, amendment and post-approval supervision of an overseas investment project.
The catalogue and standard forms follow the previous issuance of the outbound investment measures in December 2017 and the inter-ministry guiding opinions on outbound investment in August 2017 (see Legal updates, NDRC issues new outbound investment rules and China issues further guidance on outbound investment).
The measures, catalogue and forms will be implemented from 1 March 2018. Taken together, they will provide China's regulators with increased visibility into overseas markets and the ability to adjust the rules to reflect changes in these markets going forward.
Under the current rules, sensitive industries include telecommunications infrastructure, cross-border water resources development, large scale land development, power mains, power grids and news media.
The catalogue revises the scope of sensitive industries to include:
  • Development, production and maintenance of weaponry.
  • Development and utilisation of cross-border water resources.
  • News media.
  • Industries that are restricted under the guiding opinions, such as real estate and hospitality, film studios and entertainment, and sports clubs.
The forms include standard template documents for use in applying for approval or record-filing, amendment and extension of outbound investment projects, as well as in meeting the reporting obligations of an overseas investment.
For an overview of the regulatory framework for Chinese outbound investment, see Practice note, China outbound investment: approvals and process.

Market reaction

Calvin Chiu, Counsel, Dentons, Beijing

"The catalogue follows the general tenor of China's outbound investment policy since November 2016. It is worth noting that investment in real estate, hotels, cinemas, entertainment projects, sports clubs and setting-up private equity funds or investment platforms without investment projects will be subject to approval by the NDRC. The forms are extremely important as they list almost every meticulous detail to be included in an outbound investment approval or record filing procedure."

Action items

Counsel advising on outbound investment projects will want to be aware of the sensitive industry catalogue and carefully review the template documents to ensure the client's application and reporting documents are prepared in conformity to the NDRC's requirements.

ACLA issues rules on lawyer business promotion

On 2 February 2018, the All-China Lawyers Association (ACLA) issued the Rules on the Business Promotion Activities of Lawyers (Trial) (律师业务推广行为规则(试行)), with immediate effect.
The rules aim to standardise the business promotion activities of lawyers and law firms.
The term "lawyer business promotion" refers to various activities by lawyers and law firms including publishing advertisements, using social media, distributing business cards and other promotional materials, and attending or sponsoring seminars.
In-house and government-employed lawyers, as well as lawyers who lack current qualifications or who have been disciplined or censured within one year, may not promote their services.
The rules specify separate requirements on individual lawyers and law firms in relation to content that must be included, and content that may be included, in their promotions. The rules also prohibit certain content, including for example:
  • False, misleading or exaggerated claims.
  • Claims of connections with judicial or administrative agencies.
  • Claims that disparage, or compare with, other lawyers or law firms.
  • Commitments to achieve specific case results.
Though lawyers and law firms may promote their fields of expertise, they may not claim to be experts in these fields based on their own judgement.
The rules also prohibit promotional activities in certain places and by certain means, such as disseminating business promotion information in public places near administrative legal agencies and engaging in non-targeted business promotions.
Lawyers and law firms that violate the rules are subject to inspection and disciplinary action by the local lawyers' association to which they belong in accordance with the Rules of the All-China Lawyers Association on Disciplinary Actions (中华全国律师协会会员违规行为处分规则).

Market reaction

Thomas Man, Professor from Practice, Peking University School of Transnational Law

"With the phenomenal growth of China's legal services market in recent decades, lawyers' advertising activities have increased in methods and frequency. Like other sectors generally, legal services advertisements suffer from many problems ranging from misleading statements to outright falsehoods. The rules represent a heightened effort by the lawyers' self-regulatory organisation to tackle these wide-ranging issues without significantly crimping a lawyer's ability to self-promote. The rules help clarify many areas of ambiguity, and if strictly enforced will likely bring uniformity and enhanced compliance."

Action items

Lawyers and law firms engaging in promotional activities should become familiar with the rules generally, and will want to pay particular attention to the types of content that must be included, that may be included, and that are prohibited, as well as the rules on claims of expertise in specific fields.

NDRC circulates draft of smart car strategy

On 5 January 2018, the NDRC circulated for public comment the draft Smart Car Innovation and Development Strategy (智能汽车创新发展战略).
A smart car refers to a partial or complete automatic driving function achieved through advanced sensors, controllers and other devices and the use of new technologies such as information and communications technologies, the internet, big data, cloud computing and artificial intelligence.
According to the draft, the smart car strategy can address China's expanding traffic, energy consumption and pollution problems and simultaneously intensify its structural reforms and development strategies.
The draft includes specific strategic benchmarks. By 2020, smart cars will account for 50% of all new cars in China and the basic framework for implementing the strategy will be in place. By 2025, China will develop and implement a new generation automotive wireless communications network based on 5G-V2X technology and complete industry regulation. By 2035, China will become a global leader in the smart car sector.
To achieve these goals, the strategy calls for the development of:
  • An autonomous and controllable smart car technology innovation system.
  • An integrated international smart car industry cluster and a system of smart car technical standards and regulations.
  • An advanced and complete smart car communications network.
  • Smart car product supervision and information security systems.
According to the draft, officials from the State Council will establish a national leading group with the guidance of a board of directors and an expert committee to lead and help implement the strategy. Industry participants, including domestic and foreign enterprises and individuals, will be eligible for tax and other incentives to promote the development and commercialisation of related core technologies.
The comment period for the draft expired 20 January 2018.

Market reaction

Mark Schaub, International Partner, King & Wood Mallesons, Shanghai

"The draft sets out both China's wider plans for driverless cars as well as the NDRC's commitment to implementation. As a main authority regulating the direction of China's economy, the commitment to building the hard infrastructure such as smart cities and telecom networks is very important. However, what may be even more crucial is the clear principle espoused by the NDRC that China's regulations will be adjusted to allow for driverless cars. A widely held fear has been that China's regulators may not be sufficiently flexible or responsive to match technological advances and that regulations would lag technology or even infrastructure. Although the pronouncement is not a guarantee that laws and regulations will be swiftly enacted it does show a clear intention and an awareness of the issue."

Action items

GC for participants in the smart car industry will want to closely review the draft and work with government relations personnel to identify specific business opportunities and incentives and to participate in or otherwise influence the State Council's leading group and its expert committee.