China legislation guide
By David Yu and Sam Feng
Llinks Law Offices
Tel: +86 21 3135 8666 Fax: +86 21 3135 8600 Website: www.llinkslaw.com
China has seen certain social issues and new demands from the market while maintaining steady economic growth throughout recent years. As a result, quite a few laws and regulations of different fields and industries were adjusted to meet these demands.
Industries: the Legislative Affairs Office of the State Council issued the latest Catalogue of Industries for Guiding Foreign Investment (Draft for Public Comments) (2011 Revised) on April 1 2011. It focuses on promoting and encouraging foreign investors to enter into environmental protection industries as well as high-tech industries. With the deletion of automobile manufacturing from the encouraged industry list, foreign investment in venture capital, IP and occupational skill trainings are encouraged. Moreover, carbonate drinks manufacturing, healthcare services, financial leasing, and wholesale and retail in certain segments are now less restricted. However, foreign investment in domestic mail courier services appears to be prohibited, while the construction and operation of villas, which used to be restricted, is now entirely prohibited.
Equity contribution: a draft of the Administrative Measures Concerning Equity Contribution of Foreign-invested Enterprises was released by the Ministry of Commerce (Mofcom) on May 4 2011. The measures aim to affirm that a foreign investor can make its capital contribution with shares in other companies in order to lower restructuring costs for enterprises and improve the investment environment. As FIEs are not fully regulated by the PRC Company Law, other rules still play an important role in some aspects such as approval of establishment, operation permits, foreign currencies, and debt-equity ratio.
Foreign invested holding companies: Mofcom is collecting opinion and advice on the Regulations on Investment Companies Established by Foreign Investors (Draft). These Regulations tend to expand the legal form of a foreign-invested investment company, allowing it to take the form of a ‘company limited by shares’. An investment company is also allowed to engage in the manufacturing business.
National security review: the General Office of the State Council issued the Circular on the Establishment of a National Security Review Mechanism for Mergers and Acquisitions of Domestic Enterprises by Foreign Investors (Circular) on February 3 2011. Effective the 31st day after the announcement date, the Circular imposes a national security review procedure on M&As involving foreign acquirers and domestic targets. These cover industries that have national security implications such as military, energy and resources, agriculture, infrastructure, transportation, key technologies and major equipment manufacturing. The Circular aims to protect fundamental and vital industries. Detailed interpretation and measures of implementation are to be promulgated in the future.
Foreign exchange administration: the State Administration of Foreign Exchange (SAFE) issued the Operative Directives for Circular of the State Administration of Foreign Exchange Concerning the Financing and Round-tripped Investment by Domestic Residents through Offshore Special Purpose Vehicles (SAFE Circular 19) on May 20 2011. Effective July 1 2011, SAFE Circular 19 further clarifies issues under the previous SAFE Circular 75. It updates the original approval process regarding round-trip investments of PRC residents, making application procedures more efficient and facilitating PRC individuals’ offshore investments and financing.
Antitrust: Mofcom issued the Interim Rules on Assessing the Impact on Competition Caused by Concentration of Business Operators and the Interim Measures on Investigating and Handling the Failure Regarding the Filing of the Concentration of Business Operators, and is seeking public opinion on revisions regarding concentration of business operators. The impact of concentration on public interest and economic orders are to be assessed according to the new rules. Factors such as the condition of enterprises involved in business concentration are also to be taken into account. The term ‘concentration of business’ itself will be redefined. Mofcom has commenced an improved regulation over antitrust issues by setting deadlines for submission of information by business-concentrated enterprises during an investigation process.
Company Law: The Supreme Court issued Provisions of several Issues Concerning the Application of the Company Law of PRC (Interpretation), effective February 16 2011. The Interpretation confirms the party responsible for debts incurred during the incorporation of companies and touches upon several issues concerning the rights and obligations of shareholders. These include the performance and maintenance by shareholders of their capital contribution obligations, and the verification, judicial remedy and civil liability for non-duly-performed obligations of capital contribution.
Social Insurance Law: The Social Insurance Law of the People’s Republic of China, effective July 1 2011, is regarded as the most influential law promulgated in the first half of 2011. It unifies the nationwide social insurance system by covering the following: basic pensions; basic medical; occupational injury; unemployment and maternity. It also imposes liabilities on employers for non-compliance and provides new means to collect social insurance premiums.
Cross-border RMB: On June 3 2011, the People’s Bank of China issued the Circular on Clarifying Relevant Issues Regarding Cross-border RMB Related Business (Circular 145). It provides updated procedures and systems for banks in their practice of cross-border RMB settlement business. It also strengthens supervision on cross-border RMB settlements, and provides the RMB settlement of FDI in China.