On Dec. 26, 2018, the Standing Committee of the National People’s Congress of China released the second draft of the Foreign Investment Law (2018 Draft) (the first draft was released by the Ministry of Commerce in 2015 (2015 Draft)), and announced collection of public comments through Feb. 24, 2019. The 2018 Draft expands the development of China’s market, protects the legitimate rights and interests of foreign investment, commits to considering the views of foreign investors regarding related laws and regulations, and replaces the three existing laws that regulate Sino-foreign equity joint ventures, wholly foreign-owned enterprises, and Sino-foreign cooperative enterprises. Highlights of the 2018 Draft: • The 2018 Draft is significantly different from the 2015 Draft, particularly in level of detail and tolerance on violation of access permission: (1) The 2018 Draft has 39 articles (general regulations), far fewer than the 170 articles of the 2015 Draft (regulations with detailed specifications). For example, the 2015 Draft defines as a “foreign investment” the scenario in which controlling or holding rights in a © 2019 Greenberg Traurig, LLP www.gtlaw.com | 2 domestic enterprise are made via contract or trust (such as a variable interest entity, or VIE), while the 2018 Draft leaves more leeway for foreign investors to use an investment vehicle, and does not define such use of investment tools as “foreign investment”; (2) The 2018 Draft is more forgiving than the 2015 draft of foreign investors’ violations of provisions on access permission. The 2018 Draft only requires the cessation of investment activities, restoration of prior status, and confiscation of illegal gains (if any), while the 2015 Draft imposes a fine. • The 2018 Draft provides a five-year grace period for the three types of regulated enterprises to modify their organizational form and structure after replacing the three existing laws. • To better protect the intellectual property rights of foreign investors, the 2018 Draft forbids the mandatory transfer of technology via administrative means. • All levels of local government in China and their relevant departments must strictly keep their lawfully binding promises on foreign investment policy and all lawfully entered agreements with the foreign investors and/or foreign-funded enterprises. Any damage suffered by the foreign investors and/or foreign-funded enterprises due to the change of such policy or agreement for the sake of country or public interest shall be justly compensated. • The 2018 Draft provides foreign investors pre-established national treatment and various means for fundraising in China (such as public offering of shares and corporate bonds), and promises equal treatment to foreign investors as domestic investors. CBIRC Seeks Comments on Proposed Revisions to the Implementing Rules of the Administrative Regulations on Foreign-invested Banks 银保监会就修改外资银行管理条例实施细则征询意见 On Nov. 28, 2018, following the decision on amending the Administrative Regulations of the People's Republic of China on Foreign-invested Banks (Regulation), the China Banking and Insurance Regulatory Commission (CBIRC) further issued the Decision on Amending the Implementing Rules of the Administrative Regulations of the People's Republic of China on Foreign-invested Banks (Draft for Comment) (Draft), the supporting measures of the Regulation, for public consultation by Dec. 27, 2018. The Draft, in line with the Regulation, sets forth that a foreign bank may hold a wholly-owned subsidiary or joint venture bank, and a branch in China at the same time, and further stipulates requirements including that the branch can only conduct wholesale business (i.e., business with entities), and the subsidiary/JV and the branch shall have distinguished functions, structure, management, and business and risk segregation mechanisms to ensure the independent operation of the subsidiary/JV and the branch. In addition, any transaction between the subsidiary/JV and the branch shall be subject to the business principles, and the terms of such transaction shall not be more favorable than that offered to other third parties. The Regulation has lowered the minimum limit of each deposit of a PRC citizen in a foreign bank from RMB 1 million to 500,000, and the Draft further stipulates that a foreign bank shall inform clients of whether the foreign bank deposit is insured when offering deposit business. Other amendments include reporting requirements on foreign banks, procedures for operation of RMB business and regular supervision and review systems. © 2019 Greenberg Traurig, LLP www.gtlaw.com | 3 Health Care Public Comment Request for Vaccine Management Law 疫苗管理法草案向社会征求意见 On Nov. 11, 2018, the State Administration for Market Regulation promulgated the first draft Vaccine Administration Law of the People’s Republic of China (Vaccine Administration Law), aiming to strengthen the regulation on the development, manufacture, distribution, application, adverse reaction monitoring, safeguard, and supervision of vaccine products. The comment period for the first draft closed Nov. 25. Seeking public comment, the second draft of the Vaccine Administration Law was published on the PRC National People’s Congress website Jan. 4, 2019. Highlights of the Vaccine Administration Law: • Establishes the Marketing Authorization Holder System (MAH System) for vaccines. The new rule clarifies that vaccine marketing authorization holders (MAHs) will be permitted to produce vaccines. To ensure the safety of vaccine production, the MAH System will also include the following: (i) a prohibition on commissioned manufacturing to a third party to produce vaccines; (ii) MAHs of vaccines must establish and perform necessary improvements to their vaccine quality control system and report to competent authorities any change in manufacturing technique, location, and critical equipment; and (iii) if the manufacturing technique or quality control is obviously below the standards of other vaccines of the same kind and cannot satisfy the requirements within the time limit prescribed by the regulator, the MAHs of vaccines must proactively apply for cancellation of the marketing authorization. • Establishes digital whole-process tracing system for vaccines. At the government level, the department of drug supervision and management shall, in concert with the health administrative department, formulate uniform vaccine traceability standards and norms, set up a national electronic traceability collaboration platform to chart the whole process, including the manufacture, distribution, and application of vaccines. At the company level, vaccine MAHs shall establish a vaccine information traceability system, which shall be linked with the national vaccine information traceability and collaboration platform. In this way, the whole-course traceability and verifiability of the production, storage, transportation, and use of vaccines in the minimum packaging unit can be gradually realized. Public Comments Sought on Revision of Drug Administration Law 药品管理法修正案向社会征求意见 Seeking public comment, on Nov. 1, 2018, the Drug Administration Law of the People's Republic of China (Amended Draft) was posted to the website of the PRC National People's Congress. The Amended Draft focuses on implementing the MAH System and promoting examination and approval reform. Highlights of the Amended Draft: • Replaces the GMP and GSP certifications with the MAH System. The Amended Draft formally abolishes the certification of Good Manufacturing Practice (GMP certification) and simultaneously promotes the MAH System, a mechanism for separating and managing drug marketing and production licenses. Pursuant to Article 33 of the Amended Draft, MAHs can manufacture and supply drugs by themselves, or outsource to third parties. As the GMP certification is being abolished, the Good Supply © 2019 Greenberg Traurig, LLP www.gtlaw.com | 4 Practice certification (GSP Certification) is also cancelled by the Amended Draft. Additionally, if any noncompliant behaviors relating to drug price, commercial bribery, false advertising, etc. occur during the drug supply process, MAHs are liable as the parties in charge. • Clarifies the filing management system and compliance requirements for clinical drug trial institutions. According to Article 30 of the Amended Draft, the management of clinical drug trial institutions is changed from a licensing to a recording mechanism. Further, according to Article 89 of the Amended Draft, penalties for noncompliant behavior of drug trial institutions, whether clinical or non-clinical, are increased. For those institutions failing to implement necessary regulations, they shall be prohibited from market participation entry for five years, and responsible principals shall be punished. In cases of gross violation, such principals may be permanently banned from the Chinese medical industry. • Establishes the drug recall system. Pursuant to Article 81 of the Amended Draft, if there is any quality problem or other hidden danger in marketed drugs, in addition to reporting to the competent authorities, MAHs shall immediately suspend production and sales; notify the relevant manufacturers, distributors, and medical institutions of cessation of the production, distribution, and use of such drugs; recall the drugs that have been marketed for sale; and disclose the recall information in a timely manner. Quick Channel Established for Expedited Approval of Foreign New Drugs 《临床急需境外新药审评审批工作程序》出台 On Oct. 23, 2018, the Working Procedures for the Evaluation, Examination and Approval of Foreign New Drugs Urgently Needed in Clinical Treatment (Working Procedures) was issued by the National Medical Products Administration and National Health Commission, a detailed procedure to enforce the previously issued (on July 6, 2018) Technical Guiding Principles for Acceptance of Overseas Clinical Trial Data for Domestic Medicine Registration. The Working Procedures provide a special pass for the evaluation, examination, and approval for foreign new drugs urgently needed in clinical treatment, and any new drugs introduced into the U.S., EU, or Japanese markets in the past decade but not launched in the Chinese market can be fast-tracked if qualified under any of the following three standards: (1) the drug can be used to treat a rare disease; (2) the drug can be used to prevent and treat a life-threatening disease where an effective treatment or prevention method is not available; (3) the drug can be used to prevent and treat a life-threatening disease, with apparent clinical advantages. The Working Procedures also point out that if the applied drugs are already circulated in the markets of Japan, Hong Kong, Macao, or Taiwan with sufficient clinical use, then the applicant may initially not provide research materials on racial differences for the application research report. The National Medical Products Administration and National Health Commission will follow a four-step procedure to select from the aforementioned drugs: (1) conduct a preliminary screening; (2) invite the experts for discussion and selection; (3) publish the selected drugs and collect public comments; (4) produce an official and final release of the list of drugs selected. Accordingly, on Nov. 1, 2018, the Center for Drug Evaluation of China Food and Drug Administration (previously referred to as CFDA, now the National Medical Products Administration) published the first list of 48 foreign new drugs which are in urgent clinical need in China, of which eight had been approved for market circulation and 40 were published as part of the final and official release of the first list.