China Commercial Regulatory Summary

April – June 2020

A quarterly summary of the key Chinese policies affecting UK business

This product aims to inform new and expanding UK businesses selling to or located in China about the commercial regulatory issues most likely to affect them. We are providing factual information rather than analysis. All feedback welcome.

Summary:

In Q2, the Chinese government resumed regular policy work as the spread of Covid-19 was brought under control. The annual “Two Sessions” meeting was held, followed by the issuance of a shortened Foreign Investment Negative List (FINL), new business environment measures and more reforms on Intellectual Property. At a sector level, we saw further market openings in education and financial services. The British Chamber of Commerce in China also launched its 2020 Position Paper which assesses the key challenges faced by British firms in China.

CROSS-CUTTING POLICIES:

On 29 May, China’s Premier Li Keqiang delivered the annual Work Report during the opening of the National People’s Congress Two Sessions (两会 – LiangHui). Alongside the Work Report, the National Development and Reform Commission (NDRC) published the 2020 Draft Plan for National Economic and Social Development. The two Reports give an overview of the government’s performance against its objectives in 2019, and highlight key tasks for 2020. Trade and investment feature prominently throughout; China pledged to issue new FINLs, a Cross-border Trade in Services Negative List, revise the Government Procurement Law, issue new guidelines on Fair Competition and release a new Masterplan on Hainan Free Trade Port. Read the full report here (CN/EN).

On 24 June, China officially launched the 2020 Foreign Investment Negative Lists, reducing both the Free Trade Zone and Nationwide lists by 7 items (to 30 and 33 items respectively). In the new nationwide FINL, foreign ownership caps in securities, fund management, futures and life insurance companies have been removed. Further, foreign investors will be allowed to: 1) hold majority shares in commercial vehicle manufacturing companies; 2) invest in nuclear fuel and the processing and melting of radioactive minerals and 3) invest in air traffic control. Limits on foreign ownership in the water supply and drainage network industry (in cities where the population is over 500,000) have been removed. And specific to Free Trade Zones (FTZs), wholly foreign-owned institutions for vocational education will now be permitted. For the first time, China has also added a waiver mechanism which states that “with the State Council’s approval, certain investment could be exempted from restrictions in the FINLs”. Both the nationwide and FTZ FINLs will take effect from 23 July. Read the national FINL here (CN), the FTZ FINL here (CN), and the news coverage here (EN).

On 1 June, China released a Hainan Free Trade Port Development Plan, pledging to issue a Hainan-specific FINL and a Special Market Access Relaxation List for Hainan. Read the Plan here (CN) and the news coverage here (EN).

On 21 July, the State Council issued the ‘Implementing Measures on Further Improving the Business Environment’. Building on China’s landmark ‘Optimising Business Environment Regulation’ which sets a framework for improving business environment, the new measures outline next steps and assign responsibilities. Key measures include: 1) calls to unify all required licences for each sector (or sub-sector) and promoting cross-region recognition of licences; 2) explore removing the licences required for operating medical clinics; 3) expediting the approval of innovative medical devices; 4) expanding access to government data in the healthcare industry; 5) shortening trademark registration times to within 4 months; and 6) setting up mechanisms to evaluate policies and deal with company complaints. Read the measures here (CN) and a summary here (EN).

On 18 June, MOFCOM published new ‘Draft Regulations on Foreign Strategic Investments in Listed Companies’. The revision lowered asset requirements and reduced the lock-up period for foreign shareholders, making it easier for foreigner investors to invest in Chinese listed companies. Read the draft here (CN) and the news coverage here (EN).

On 20 April, China National Intellectual Property Administration (CNIPA) published ‘Guidelines on Strengthening IP Protection’. The Guidelines contain 133 items, including the instruction to establish a resolution system for drug patent dispute cases and the publication of new judicial guidelines on fighting against online infringement and counterfeiting. Read the Guidelines here (CN) and commentary here (EN).

On 30 April China’s legislature (National People’s Congress) published draft amendments to its Copyright Law after 8 years of redrafting. This draft incorporates provisions around protection for audio-visual works and shifting the burden of proof away from rights owners on to infringers. Read the draft here (CN) and key changes here (EN).

On 30 June, China’s legislature National People’s Congress (NPC) approved the National Security Law (NSL) for Hong Kong. Businesses in Hong Kong are working through what this broadly drafted legislation means for their operations, both in Hong Kong and internationally. Read the Law here (CN) and a commentary here (EN).

SECTORS:

FINANCE

On 14 May, the People’s Bank of China (PBOC), China Banking and Insurance Regulatory Commission (CBIRC), China Securities Regulatory Commission (CSRC) and State Administration of Foreign Exchange (SAFE) jointly released ‘Opinions on Providing Financial Support for the Development of Guangdong-Hong Kong-Macao Greater Bay Area’. The Opinions include 26 measures in five areas: 1) facilitating cross-border trade and investment; 2) expanding financial opening; 3) enhancing the integration of financial markets and financial infrastructure; 4) encouraging financial innovation; and 5) controlling financial risks. Read detailed measures here (CN) and the news coverage here (EN).

On 7 May, PBOC and SAFE jointly issued ‘Regulations on Overseas Institutional Investments into Chinese Domestic Securities and Futures’. Qualified Foreign Institutional Investor (QFII) and RMB Qualified Foreign Institutional Investor (RQFII) investment quotas will be removed. Requirements on the remittance and repatriation of funds, as well as currency exchanges by foreign institutional investors will also be relaxed. Read the announcement here (CN) and here (EN).

On 27 May , the State Financial Council Stability and Development Committee (FSDC) pledged to release 11 financial reform measures. This will include further opening up of the credit rating sector and promoting the development of the panda bond market. Read the measures here (CN) and the news coverage here (EN).

TECHNOLOGY On 27 April, the Cyberspace Administration of China (CAC), the Ministry of Industry and Information Technology (MIIT) and a further 10 authorities published the ‘Cybersecurity Review Measures’, an important set of rules that lay out security review procedures for the procurement of technology-related products and services by so-called “critical information infrastructure” (CII) operators. The Measures came into force on 1 June 2020. Read the Measures here (CN) and the news here (EN).

On 5 May, MIIT released a ‘Notice of a Pilot Plan to Open Up Value-Added Telecommunications Services (VATS) in Free Trade Zones’. While the service scope of those providing internet access services will be limited to the free trade zone, other types of VATS services can be provided nationwide. Read the Notice here (CN).

On 9 April, the State Council released ‘Opinions on Optimising the Market-based Allocation Mechanism of Production Factors’, which designated data as a new factor of production, alongside land, labour, capital and technology (EN/CN). On 11 May, the State Council published ‘Opinions on Accelerating the Socialist Market Economy in the New Era’, which promotes the development of data sharing, standards and digital government, while protecting personal information (EN/CN). Various data-related measures have also been released at the city and provincial level, including in Shenzhen (CN), Tianjin (CN), Zhejiang (CN) and Hainan (CN).

HEALTHCARE AND PHARMACEUTICALS

In March and April, China’s Ministry of Commerce (MOFCOM), General Administration of Customs (GACC) and National Medical Products Administration (NMPA) issued the ‘Notice on Regulating the Export of Medical Supplies’ (‘Notice 5’) and the ‘Notice on Further Regulating the Export of Epidemic Prevention Materials’ (‘Notice 12’) to standardize the export of PPE and medical supplies. According to these rules, before exporting, medical exporters should either register their products with the NMPA (if they meet Chinese standards) or with the China Chamber of Commerce for Import & Export of Medicines and Health Products (CCCMHPIE). Read Notice 5 here (CN), the news coverage here (EN); and Notice 12 here (CN), the news coverage here (EN).

AUTO

On 22 June, China’s Ministry of Industry and Information Technology (MIIT) released the Decision to Amend “Passenger Vehicle Corporate Average Fuel Consumption (CAFC) and New Energy Vehicle (NEV) Dual-Credit Scheme” This will amend China’s existing Dual Credit Policy introduced in 2018, and will come into force on 1 January, 2021. Notable aspects of the Decision include the setting out of NEV and CAFC credit targets from 2021-23, the introduction of a new “low-fuel consumption” vehicle category, and allows greater flexibility of credit transfers between “affiliated” companies. Read the Decision here (CN) and the news coverage here (EN).

ENERGY

On 10 April, the National Energy Administration (NEA) published a new ‘draft Energy Law’. Compared with the 2007 draft, this revised version emphasises the development of clean energy and the role of market forces in the energy sector. Once implemented, this law will be China’s primary basic energy law, providing a governance structure for the whole sector. Read the draft law here (CN) and the news coverage here (EN).

CHEMICALS

On April 29, the Ministry of Ecology and Environment (MEE) issued the ‘Measures on the Environmental Management of New Chemical Substances’, also known as ‘MEE Order No. 12’, which will become effective on 1 Jan 2021. Replacing the previous measures which came into force in 2010, the Measures address the notification, registration and management of new chemical substances. They reduce some registration burdens for chemicals with low production/import volumes, while maintaining high requirements for hazardous chemicals. Read the Measures here (CN) and the news coverage here (EN).

CONSUMER GOODS

On 29 June, NMPA released the Cosmetics Supervision and Administration Regulation. It is expected that when supporting implementation guidelines are published later this year, alternatives to mandatory animal testing will be outlined. Animal testing requirements have effectively shut out British cruelty-free brands. Read the regulation here (CN) and news here (EN).

CREATIVE

On 11 June, the National Copyright Administration (CAC) released the ‘Notice on Regulating Copyright Order of Photographic Works’, confirming photographs are protected by the Copyright Law. According to the Notice, anyone publishing a photograph that has been copyrighted, including on the Internet, shall obtain permission from the copyright owner. Read the Notice here (CN) and here (EN).

On 18 June, the National Press and Publication Administration (NPPA) issued the ‘Notice on Further

Strengthening the Management of Online Literature Publishing’, requiring government at all levels to evaluate the “social impact” of online literature publishing agencies. Those “causing negative social impact” will be subject to penalties. Read the announcement here (CN).

EDUCATION AND SKILLS

On 18 June, the Ministry of Education (MOE) issued new ‘Guidance on Further Opening up the Education Sector’, pledging to continue to support overseas education and facilitate international cooperation to land more international educational resources in China in the Post-Covid-19 period. Read the guidance here (CN) and a summary here (EN).

POLICY DEEPDIVE

China fully opens up vocational training to Wholly Foreign Owned Enterprises (WFOEs) in Free Trade Zones (FTZs)

On 24 June, China published the new Foreign Investment Negative List for Free Trade Zones1 (FTZ FINL), which represented a breakthrough for the education sector. Foreign firms are now allowed to establish wholly foreign owned colleges in FTZs, and the technical and vocational education and training (TVET) sector has been opened up to WFOEs in FTZs. It is estimated that the size of China’s TVET market will reach RMB 1162 billion (approx. GBP 128 billion) in 2020.

Unlike the system in the UK, China’s TVET sector includes both an academic track (attracting mostly high school graduates) and a non- academic track (targeting employees / workers who wish to improve their skills). In recent years, China has been gradually opening the TVET sector to greater foreign participation in order to address the domestic shortfall of skilled workers. T he non-academic track was opened in FTZs in 2018; the academic track was first opened in Hainan in July 2019 and then expanded to all FTZs this year.

The opening of this academic track has significant market potential, and is expected to unlock a market value of RMB 176.1 billion (approx. GBP 19.4 billion) in 2020. Ministry of Education (MOE) data suggests that in 2019 more than 6 million students entered academic vocational education institutions. . UK education institutions could potentially benefit from this opening in the following ways: 1) They will be able to establish TVET colleges in China, and recruit / teach in China. Compared with those pursuing higher education, Chinese TVET students are less likely to study overseas. With the new opening, they can now have the choice of studying in a UK TVET college in China.

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2) UK TVET colleges in FTZs could be a first step in demonstrating how the UK TVET system adds value to the Chinese TVET market. This in turn, may trigger more opening up in the education sector, e.g. permitting foreign TVETs outside of FTZs; or on mutual qualification recognition and college recognition.

For more information please contact WANG Xiaojing, Head of Early Years Education and English Language Training at the British Embassy in Beijing: [email protected].

1 China has set up 18 Free Trade Zones, respectively in Shanghai, Guangdong, Tianjin, Fujian, Liaoning, Zhejiang, Henan, Hubei, Chongqing, Xichuan, Shanxi, Hainan, Shandong, Jiangsu, Guangxi, Hebei, Yunnan and Heilongjiang.

VIEW FROM THE BUSINESS COMMUNITY:

The British Chamber of Commerce in China published its 2020 Position Paper. The paper describes the past year in two halves: Prior to Covid-19, British companies were “cautiously optimistic”, but Covid-19 has now created “considerable uncertainty” for them. This year the paper proposes five overarching policy recommendations: 1) strengthening the implementation of market reforms at all levels; 2) addressing longstanding and continuing concerns around cybersecurity and IT restrictions; 3) promoting greater liberalisation of capital account; 4) reducing the direct presence of state-owned enterprises in the market; and 5) keeping conversations on bilateral trade frequent and open.

China-Britain Business Council launched a new FOCUS platform, providing up-to-date information on the Chinese business landscape. It has a number of sections including: news, manufacturing, infrastructure, consumer, technology, services, healthcare, education and environment.

Contact the China Trade Policy team if you would like to be added to or removed from the distribution list or if you would like to discuss the above in more detail. Please feel free to forward this newsletter, previous editions here. You can also access Overseas Business Risk, Intellectual Property, China Economy and Financial Policy Focus reports online.