In 2013, the Chinese authorities enacted and amended a series of laws, regulations and rules, covering several areas of China’s legal system. This special edition briefly highlights the laws and regulations on foreign direct investment, company registration, labor, immigration and intellectual property. For more information and analysis, please refer to our monthly legal flash.
The legislative authorities were active in labor issues last year. On December 28, 2012, the Standing Committee of the National People’s Congress (“NPC ”) amended the Employment Contract Law of the People’s Republic of China (“PRC”) (“Amendment”), effective July 1, 2013. The Amendment establishes a more intensive and definite legal regime on labor dispatch (1) establishing that all labor dispatch agencies are subject to license administration and cannot carry out the labor dispatch business without a license; (2) setting the minimum registered capital for labor dispatch agencies at RMB 2 million, forcing unqualified agencies to comply with this requirement or exit the market; (3) interpreting further the three types of dispatched workers (temporary, ancillary and substitute) to reduce the law’s ambiguity and limit the use of labor dispatching; (4) stating that either the labor dispatch agency or the company receiving labor dispatching will be fined if they fail to comply with the Amendment. Endorsing the national amendment, the Jiangsu Provincial People’s Congress issued Jiangsu Provincial Rules of Employment Contract on January 15, 2013, which took effect on May 1, 2013. On June 20, 2013, the Ministry of Human Resource and Social Security (“MHRSS”) issued the Implementation Measures on Labor Dispatch Licensing to implement the Amendment’s relevant provisions. After soliciting public comments on the draft Several Provisions on Labor Dispatch enacted on August 7, 2013, the MHRSS formally issued the Interim Provisions on Labor Dispatch (“Provisions”) on January 24, 2014, which is effective March 1, 2014, and recognized as the first comprehensive rule standardizing labor dispatch activities in China. In addition to reiterating the three types of labor dispatch positions, the Provisions establish the maximum ratio for dispatched employees at 10%, increase the obligations and liabilities for companies receiving labor dispatch, and provide a two-year transition period for companies to bring their employment structure in line with the Employment Contract Law and the Provisions.
The legislative authorities also issued a series of regulations to improve China’s legal environment relating to personal data protection. On December 28, 2012, the NPC issued the Decision on Strengthening the Protection of Online Information (“Decision”), establishing the general rules on data protection for business entities handling electronic personal data. Pursuant to the Decision, the Ministry of Industry and Information Technology issued the Provisions on Protecting the Personal Information of Telecommunications and Internet Users (“Provisions”) on July 16, 2013, effective September 1, 2013. The Provisions, for the first time, define “personal data” as “information that can be used separately or with other information,” and specify the obligations and consequences of non - compliance for telecommunication service providers (“TSPs”) and intern et service providers (“ISPs”) to collect, use and protect the user’s personal data when providing services.
The new Exit and Entry Administration Law of the People's Republic of China was enacted on June 30, 2012, and came into force on July 1, 2013. It introduced stricter rules on the employment of foreigners, such as qualifications, reporting obligation and non-compliance liabilities, forcing employers to practice better compliance when hiring foreigners. On July 12, 2013, the State Council enacted the Administrative Provisions for the Entry and Exit of Foreigners (“Provisions”), significantly changing the visa regime by creating new visa types and dividing study visas, reunion visas and journalist visas into two levels, based on the duration of stay. The Provisions also shorten the processing time for obtaining work permits.
State Administration of Foreign Exchange (“SAFE”) issued two important circulars in 2013: Administrative Measures on Foreign Debt Registration (“Measures”) and Guidelines for Foreign Exchange Administration of Trade in Services (“Guidelines”). The Measures simplify the procedures for registering foreign debt and eliminate several approval requirements stipulated in previous SAFE regulations. The Guidelines officially declare there are no SAFE restrictions on international payments made under service trade. Under the Guidelines and the implementing rules, financial institutions must implement different review policies, depending on whether payments made under service trade exceed USD 50,000.
After soliciting public opinion in several rounds, the governor officially enacted the Decision on Amending the Trademark Law of the People’s Republic of China (“Decision”) on August 30, 2013, which comes into force on May 1, 2014. The Decision, for the first time, (i) allows sounds to be registered as trademarks; (ii) allows a multi-class application to be made for one trademark; (iii) improves the trademark opposition system; (iv) sets deadlines for trademark and trial procedures; (v) clarifies how damages are calculated and substantially increases the penalties for trademark infringement; and (vi) interprets further the identification of well-known trademarks.
On August 22, 2013, the State Council approved a plan to create a 28.78 square kilometer pilot free trade zone (“FTZ”) in Shanghai and then published the General Plan on the China (Shanghai) Pilot Free Trade Zone (“Plan”) on September 28, 2013, outlining the main reforms that will take place in the FTZ. The Plan significantly deregulates the approving requirements for foreign direct investments within the FTZ and relaxes prohibitions and restrictions on foreign investments in several industries. Under the Plan, foreign-invested companies, including wholly foreign-owned enterprises, equity joint ventures and cooperative joint ventures in the FTZ will not require pre-approval for matters such as incorporation, term extensions, major changes and dissolution; they will only need to register with corresponding authorities. This ensures foreign investors more certainty and efficiency. The Plan also promises reform in key areas such as foreign exchange control and tax favorable treatment. After the FTZ was launched on September 29, 2013, the China Banking Regulatory Commission, the Ministry of Transport, the China Securities Regulatory Commission, the Ministry of Culture, the China Insurance Regulatory Commission, the State Administration for Industry and Commerce (“SAIC”) and Shanghai People’s Government (the “Shanghai Government”) issued a series of circulars supporting the implementation of new policies specified under the Plan.
On December 28, 2013, the Standing Committee of the People’s Congress issued the Amendment to the Company Law of the People’s Republic of China (“Amendment”), which comes into effect March 1, 2014. The Amendment marks the first significant step to reform the registered capital registration systems initiated by the State Council in October 2013. The Amendment focuses on the capital contribution regime, under which investors are no longer required to register paid-in capital with the registration authority and are entitled to freely agree the amount of registered capital, method of capital contribution, and the capital contribution schedule in the company’s articles of association.