Foreign Investment and General Corporate

1. General Office of the State Council releases the Implementation Opinions on Promoting Innovative Development of Foreign Trade

On October 25, 2020, the General Office of the State Council of the People’s Republic of China (the “General Office”) released the Implementation Opinions on Promoting Innovative Development of Foreign Trade  (《关于推进对外贸易创新发展的实施意见》) (the “Implementation Opinions”).

The Implementation Opinions will play a guiding role in the innovation and development of the foreign trade and foreign investment markets in China and include guidance on:

  • optimizing the layout of the international and domestic regional markets;

  • enhancing the competitiveness and coordinated development of operating entities;

  • promoting technological transformation and upgrades;

  • optimizing the commodity and import structure;

  • strengthening and expanding upon existing trade models;

  • promoting the creation of innovative national foreign trade transformation bases, trade promotion platforms and international marketing systems; and

  • cultivating new momentum in foreign trade.

2. Regional Comprehensive Economic Partnership

On November 15, 2020, following 8-years of negotiations between member states, the Regional Comprehensive Economic Partnership(《区域全面经济伙伴关系协定》) (the “RCEP”)was signed in Hanoi, Vietnam. There are 15 member states under the RCEP, including ASEAN member states (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam), Australia, China, Japan, Korean and New Zealand.

The RCEP, which is a comprehensive regional free trade agreement, contains 20 chapters in total. These chapters cover topics such as goods trade, services trade, investment, intellectual property, economic and technical cooperation and government procurement. Of particular note is Chapter 12, which promotes the application and cooperation of e-commerce in the region.

The RCEP requires all member states to formulate or maintain laws and regulations relating to online consumer protection (to be applied equally to domestic and foreign enterprises) and to publish relevant information on these laws and regulations. In addition, the RCEP is expected to strengthen paperless trade and encourage the use of electronic authentication and electronic signatures across the region.

3. Measures for the Security Review of Foreign Investment

On December 19, 2020, with the approval of the State Council, the National Development and Reform Commission (“NDRC”) and the Ministry of Commerce (“MOFCOM”) released the Measures for the Security Review of Foreign Investment (《外商投资安全审查办法》) (“Security Review Measures”).  The Security Review Measures will come into effect on January 18, 2021.

The key points contained in the Security Review Measures are as follows:

  1. Authorities in charge of security review: the State will establish a working mechanism (“Working Mechanism”), which will be responsible for organizing, coordinating and guiding the security review of foreign investments. The office of the Working Mechanism is to be set up under the NDRC and will be led by the NDRC and the MOFCOM.
  2. Types of transactions under the security review: foreign investments that affect, or that may affect, national security will be subject to security review under the Security Review Measures. A “foreign investment” will include the following types of transactions:
    1. where foreign investors invest (whether solely or jointly) with other investors in new projects or in establishing enterprises in China;
    2. where foreign investors acquire equity or assets of domestic enterprises by way of merger and acquisition; or
    3. where foreign investors make investments in China in any other form.
  3. Subjects of security review: the types of foreign investments which will be subject to security review, include:
    1. investments in military or associated industries (including investments in areas surrounding military industry facilities) and investments in other fields relating to security or national defense; and
    2. investments in “important” sectors which will result in the investor obtaining the actual controlling stake in the investee enterprise. “Important” investment sectors may include agricultural products, energy and resources, equipment manufacturing, infrastructure, transport services, cultural products and services, information technology and Internet products and services, financial services, key technologies and other important fields relating to national security.
  4. Initiation and Review Procedure of Security Review: parties of the relevant “foreign investments” will be required to make a declaration to the office of the Working Mechanism prior to pursuing the relevant investment. The office of the Working Mechanism may also compel the parties of such “foreign investments” to make a declaration. Following such declaration, the security review procedure will be as follows:
    1. the office of the Working Mechanism will have 15 working days to decide whether the investment falls within the scope of security review;
    2. if the office of the Working Mechanism determines that the investment falls within the scope of security review, the office will have 30 working days for general review procedures;
    3. the office of the Working Mechanism will also have 60 working days for any special review procedures, which are to be undertaken in relation to any foreign investment that fails the general review (this time frame can be extended as necessary).
  5. Results of Security Review: subject to the security review, the office of the Working Mechanism may decide that:
    1. the foreign investment has passed the security review;
    2. the foreign investment will be prohibited; or
    3. the foreign investment has passed the security review with additional conditions (provided that the relevant parties accept the additional conditions in writing).

Customs and Foreign Exchange

4. Pilot program of the integrated cross-border fund pool of RMB and foreign currencies launched in Shenzhen and in the Shanghai Lin-Gang Special Area

On October 11, 2020, the General Office of the CPC Central Committee and the General Office of the State Council issued the Plan on Building Shenzhen Into Socialist Demonstration Area (2020-2025) (《深圳建设中国特色社会主义先行示范区综合改革试点实施方案20202025年)) (the “Shenzhen Plan”). The Shenzhen Plan sets out a detailed plan for comprehensive pilot reforms to be implemented in Shenzhen with an aim to increasing innovation and competitiveness within the city.  One such pilot program relates to the launch of an integrated cross-border fund pool of RMB and foreign currencies in Shenzhen.

Subsequently, on November 5, 2020, the Shanghai Municipal People's Government issued a notice on the Implementing Plan of the Shanghai Municipality for Comprehensively Deepening the Pilot Program for Innovative Development of Trade in Services (上海市全面深化服务贸易创新发展试点实施方案), (the “Shanghai Plan”. The Shanghai Plan sets out 22 pilot tasks (covering eight aspects, and 80 measures) regarding the opening-up and development of trade-in services. In terms of comprehensively improving and promoting the facilitation of capital flow, the Shanghai Plan proposes to explore the establishment of an integrated account system for RMB and foreign currencies in the Lin-Gang Special Area of China (Shanghai) Pilot Free Trade Zone. The purpose of this integrated system is to support qualified multinational enterprise groups to:

  • establish integrated cross-border capital pools of RMB and foreign currencies; and

  • centralize the collection and allocation of RMB and foreign currency funds between domestic and overseas members.

On November 6, 2020, at the Regular Policy Briefing held by the Information Office of the State Council, Liu Guoqiang, Vice President of the People’s Bank Of China, suggested that, in terms of facilitating cross-border capital flows, the People’s Bank Of China and the Foreign Exchange Bureau are further improving the pilot program of integrated cross-border capital pools of RMB and foreign currencies. This program will be piloted in Guangdong-Hong Kong-Macao Greater Bay Area once prepared.

The cross-border capital pool is a fund management tool commonly used by multinational enterprise groups. Through the collection and allocation of the funds of enterprises within the group, the utilization and operation efficiency of funds is improved and the dependence on bank loans and other external financing is reduced, thereby reducing the overall financing cost of the group. By establishing a main account of integrated cross-border capital pool, and integrating the transfer and collection of RMB and foreign currencies, multinational enterprise groups can implement a more convenient cross-border capital management system which will meet the needs of the cross-border transfer of RMB and foreign currency funds.

5. China will ban all imports of solid waste from 2021

On November 24, 2020, the Ministry of Ecology and Environment (“MEE”), the MOFCOM, the NDRC, and the General Administration of Customs (“GAC”) issued the Announcement on Matters Relating to the Comprehensive Ban on the Import of Solid Wastes (the “Solid Waste Announcement”). The Solid Waste Announcement clarifies that from January 1, 2021, China will completely ban all imports of solid waste. The dumping, stacking and disposal of waste products from overseas on Chinese territory will also be banned.

China began to import solid waste as a source of raw materials in the 1980s, and was, at one point, the world’s largest importer of solid waste. By way of example, in 2019, China’s solid waste imports amounted to 13.478 million tons.

Pursuant to the Solid Waste Announcement, the MEE will no longer approve and issue import licenses for solid waste that can be used as raw materials for restricted imports.

6. China no longer implements export commodity inspection for some medical equipment for epidemic prevention and control

On December 3, 2020, the GAC issued the Announcement on No Export Commodity Inspection for Some Medical Equipment (the “Export Inspection Announcement”), which provides that from December 3, 2020, eight types of medical equipment will no longer be subject to export commodity inspection (including infrared thermometers, medical surgical caps, medical goggles, medical gloves, medical shoe covers, patient monitors, medical disinfection towels and medical disinfectants).

Previously, on April 10, 2020, the GAC issued Announcement No.53 of 2020, which mandated export commodity inspections for 11 types of medical equipment (including the eight types of medical equipment referred to in the Export Inspection Announcement). This requirement was introduced to better guarantee the quality of exported medical equipment for epidemic prevention and control. Following the Export Inspection Announcement, medical masks, medical protective clothing and breathing machines will continue to be inspected for export commodities.

Data Protection

7. Apps publicly warned for infringement of users’ rights and interests

On October 27, 2020, the official website of the Ministry of Industry and Information Technology issued a list of 131 apps that have infringed users’ rights. This list was the fifth batch of apps stated to infringe users’ rights in 2020.  

On November 13, 2020, the Special Management Task Force on App’s Illegal Collection and Use of Personal Information issued a notice stating that 35 apps have problems with the collection and use of personal information and recommending that these problems be rectified.

The apps involved in the two notifications include Weibo, Bestore, Shanghai Disneyland, Maimai, and Uxin Used Cars. Most of the reported apps share issues of “illegal collection of personal information”, “illegal use of personal information”, “forced, frequent and excessive requests for permission” and “forcing users to accept targeted push notifications”.

The illegal collection and use of personal information by third-party SDKs (software development kits) is currently the focus of regulatory activities in China. We recommend that enterprises in China pay continuous attention to enforcement activities related to special app governance, comply with the law in terms of the collection and use of personal information, and protect the rights and interests of their users’ personal information.

8. SAMR issues the Antitrust Guidelines in the Field of Platform Economy (Draft for Comments)

On November 10, 2020, the State Administration for Market Regulation (“SAMR”) published the Antitrust Guidelines in the Field of Platform Economy (Draft for Comments) (the “Draft Antitrust Guidelines”) for public comment.

The Draft Antitrust Guidelines provide guidance on the development of antitrust regulations in the online platform economy. The Draft Antitrust Guidelines focus in depth on the antitrust issues in the platform economy, including by defining the relevant market of multilateral platforms, MFN clauses, collusion by algorithm, discrimination by algorithm, VIE structure, and others.

We recommend that Internet Service Providers in China continue to follow up on the development of the Draft Antitrust Guidelines, and pay close attention to the possible antitrust issues involved in their enterprises. 

9.  TC260 issues Information Security Technology—Guide for Data Security of Online Car-Booking Services (Draft for Comments)

On November 10, 2020, the National Information Security Standardization Technical Committee (“TC260”) issued the national standard Information security technology—Guide for data security of Online Car-booking Services (the “Draft Guide”) for public comment.

The Draft Guide contemplates the types, scope, methods and conditions for the collection, storage, use, sharing, public disclosure and deletion of personal data by the operators of online car-booking services, as well as the management requirements for data security.  The Draft Guide also seeks to regulate the display of personal information, recording of trips, and other privacy-related issues that are of common concern to users during the operation of online car-booking services.

We recommend that online car-booking enterprises in China follow the development of the Draft Guide and pay attention to the protection of users’ personal data within their enterprise.

10. SAMR issues eleven National Standards concerning Cybersecurity

On November 19, 2020, the SAMR and the Standardization Administration of China issued an announcement to officially promulgate 11 national standards administered by the TC260. Among these standards are the Information Security Technology -Security Impact Assessment Guide of Personal Information (the “Security Impact Guide”) and the Information Security Technology - General Security Requirements of Network Products and Services (the “Security Requirements”).

The Security Impact Guide sets out the basic principles and implementation procedures for personal information security impact assessments. The Security Impact Guide provides guidelines on compliance procedures for enterprises which are collecting and processing personal information. The introduction of the Security Impact Guide demonstrates the increased emphasis on the importance of safety impact assessments in the field of compliance.

In addition, the Security Requirements set out the general and enhanced security requirements that must be met by network products and services sold or provided within the territory of China.

It is recommended that enterprises involved in the relevant business in China follow the development of the above standards and, in particular, pay attention to compliance issues relating to the protection of personal information and the provision of network products and services.

11.  Court decides on the “First Facial Recognition Case” in China

On November 20, 2020, the Hangzhou Fuyang District People’s Court handed down its decision on the first court case regarding facial recognition technology in China, finding that the Hangzhou Wildlife World zoo’s use of facial recognition technology without visitor’s consent was illegal and unnecessary.

Following the upgrade of its admission systems to facial recognition (from fingerprint technology), the Hangzhou Wildlife World zoo required the collection of facial recognition information for park entry. Guo Bing, a holder of the zoo’s annual VIP card, refused to provide the zoo with his facial recognition information. Guo Bing offered instead to have his fingerprint scanned and, when this offer was rejected, asked to cancel his annual VIP card with a full refund. The zoo refused this cancellation request, and Guo Bing then sued the zoo for breach of contract and infringement of privacy.

The Court ruled in Guo Bing’s favor, determining that the change in the park’s admission policies from fingerprint to facial recognition was a breach of contract. The Court ordered that the zoo compensate Guo for the loss of contractual benefits and transportation expenses, and delete any facial information, including photos submitted by Guo when he applied for an annual fingerprint card.  

We recommend that enterprises in China pay attention to compliance in the collection and use of personal information and follow the principles of “legality, legitimacy and necessity” when collecting personal information. Enterprises should also obtain consent from the subjects concerned before collecting any personal information. 

IP

12. Fourth Update to PRC Patent Law

On October 17, 2020, the 13th NPC Standing Committee (“NPCSC”) passed the Resolution to Adopt the Amendment to the Patent Law (the “Resolution”). The amendment to the Patent Law will take effect on June 1, 2021.

The key revisions to the Patent Law include:

  • Damages (Resolution art. 23 paras. 1-3):
    • quintuple punitive damages are available if an infringement is “willful” and “the circumstances are serious”; and
    • statutory damages are increased from between 10,000 to 1 million RMB to between 30,000 and 5 million RMB;
  • A “patent linkage” regime is established to prevent a generic drug from getting marketing approval before the patent in its branded equivalent expires or is declared not infringed or invalid (Resolution art. 27);
  • Design patents (Resolution arts. 9 and 27):
    • the term of a design patent is extended from 10 years to 15 years; and
    • design patents are available to protect partial designs;
  • Reference to PRC Anti-Monopoly Law is added to restrict unfair use of patent rights (Resolution art. 5); and
  • Patent term compensation is available due to any “unreasonable delay” not caused by the applicant if an invention patent is granted four years after the initial filing and three years after the substantive review began (Resolution art. 12 para. 3).

13.  Sky Air-Ship v. Hanze: What Happens when the Patent Claims Involved in Litigation Are Invalidated?

Brief of the Case

In its recent judgment in Shenyang Sky Air-Ship Digital Printing Equipment Co., Ltd. (“Sky Air-Ship”) v. Qingdao Hanze Electrical Co., Ltd. (“Hanze”), the Supreme People’s Court (“SPC”) clarified the procedure in a patent infringement lawsuit after the patent at issue was invalidated while the motion to amend the claims was granted by the China National Intellectual Property Administration (“CNIPA”).  

Sky Air-Ship filed a complaint accusing Hanze of infringing its Chinese Patent titled “A Synchronous Single-Sided Digital Printing Machine and Winding Method” (the “Patent”). Hanze challenged the validity of the Patent to the CNIPA. Sky Air-Ship then moved to amend Claims 1-9 of the Patent. The CNIPA upheld the validity of the amended Claims 1-9 while it invalidated the rest of the patent claims.

The first-instance court granted Hanze’s motion to dismiss the lawsuit on the ground that the claims asserted were invalidated. Sky Air-Ship appealed to the SPC.

In the second instance, the SPC found that the patentee-plaintiff was entitled to amend its complaint based on the amended claims upheld by the CNIPA. Dismissal is allowed if the patentee refuses to amend the complaint after the court explains the consequences to the plaintiff. The SPC ruled that the first-instance court erred in rejecting Sky Air-Ship’s motion to amend the complaint and in dismissing the case.

Takeaways

A defendant in a patent infringement case often initiates a CNIPA proceeding challenging the validity of the patent at issue. Where the CNIPA allows the patentee to amend the challenged patent claims, a procedure exists in the parallel lawsuit for the patentee to modify the complaint and amend the claims involved accordingly. The procedure is initiated either by the patentee’s motion to amend the complaint or by the court. A motion to dismiss due to invalidity of the claims involved may only be granted where the patentee refuses to amend the complaint after the sitting judge explains the consequences.

Labor

14. State Regulation guiding Employment Sharing

On September 30, 2020, the General Office of the Ministry of Human Resources and Social Security issued the Notice on Proper Guidance and Services for Employment Sharing (“Notice”).

Pursuant to the Notice, an enterprise may arrange for its employees to work at another entity which is short of workforce, provided that the enterprise has obtained consent from such employees (in an arrangement known as “employment sharing”). The lending entity and the employees shall also agree on amendments to the employment contract, including the new workplace, position, working hours, rest and leave arrangement, employment remuneration, working conditions, etc.

In addition, the Notice:

  • prohibits enterprises from assigning dispatched employees to work for other enterprises in the name of employment sharing;

  • provides that enterprises under employment sharing arrangements may agree on their respective rights and obligations by entering into a cooperation agreement. The cooperation agreement may include amendments to the shared employees’ workplace, job description, rest arrangement, employment remuneration, circumstances of return, and liabilities arising from work-related injuries; and

  • provides that, upon expiry of the term of employment sharing, the employee shall return to work for the lending entity, and the lending entity shall make a corresponding working arrangement for him/her in a timely manner.

Employment sharing arrangements were welcomed by enterprises during the COVID-19 pandemic and, following local regulations on employment sharing, the Notice further regulates the rights and obligations of different parties under employment sharing arrangements.

When entering into any employment sharing arrangements, enterprises need to pay close attention to provisions of the Notice, and the rights and obligations of the different parties, in order to reduce any legal risk arising therefrom.

15. Social Insurance Premiums to be collected by Tax Authorities  from November 2020

On October 30, 2020, the Beijing Municipal Bureau of Human Resources and Social Security and three other departments jointly issued the Announcement on the Collection of Enterprises’ Social Insurance Premiums by Tax Authorities (“SIP Announcement”).

According to the SIP Announcement, from November 2020, basic pension insurance premiums, medical insurance premiums (including maternity insurance premiums), work-related injury insurance premiums (including work-related injury insurance premiums contributed per construction project), and unemployment insurance premiums shall be uniformly collected by tax authorities in certain areas.

The SIP Announcement also provides that social insurance authorities remain responsible for verifying social insurance premiums that should be paid, but that the amount of the premiums payable should be passed to tax authorities for collection, (i.e. social insurance premiums will be “verified by social insurance authorities, collected by tax authorities”).

In addition to the Beijing SIP Announcement, other localities (such as Shanghai, Shenzhen, Chengdu and Shandong) have also issued analogous announcements.

Transferring the responsibilities of collection of social insurance premiums to tax authorities is a major change in the method of collection of social insurance premiums. Due to the increasingly strict social insurance collection policies and tax compliance requirements, it is recommended that enterprises audit their employees’ social insurance payment status. In particular, companies should correct any inconsistencies between the employment contract subject, employment management subject, salary payment subject and social insurance payment subject, in response to the new regulatory requirements.