GC Agenda China is Practical Law’s monthly review for GC covering China. It summarises key horizon issues for GC and gives practical, specific and actionable suggestions for handling those issues.
Practical Law’s China service launched in 2014 with standard documents, how-to practice guides and detailed practice notes for lawyers working with Chinese companies or assets. For more information about Practical Law China, visit http://global. practicallaw.com/country/ china. Practical Law is an affiliated company of Asian Legal Business magazine.
2015 ANNUAL REPORTING SEASON FOR FIES On 13 July, MOFCOM, the SAT and CNBS issued the Notice on the Launch of the 2015 Foreign Invested Enterprise Annual Investment Operation Information Joint Reporting Work (关于开展2015年外商投资企业 年度投资经营信息联合报告工作的通知) (2015 Joint Reporting Notice). Under the notice, all FIEs must provide the following information concerning their 2014 operations by 15 October 2015:
• The FIE’s name, organisation code, business registration number, operating term, enterprise type (that is, its categorisation as encouraged, permitted or restricted under the Catalogue for Guiding Investment in Industry 2015), business scope and corporate form.
• The FIE’s actual controller and any allocated but unremitted dividends.
• The FIE’s foreign shareholder loans, investments in China and abroad, turnover, gross profit, net profit and tax payments (including employee withholdings).
• The FIE’s R&D activities and any official recognition as a high-tech or technically advanced service enterprise.
• The FIE’s employees, including foreign employees and new hires.
(Article 1, 2015 Joint Reporting Notice)
FIEs in Shenzhen and the China (Shanghai) Pilot Free Trade Zone have been required to provide this information since April 2014. The reporting regime replaces a system in which FIEs were subject to an annual inspection. The changes are part of a full-scale reform of China’s corporate law launched in 2013.
The information will be publicly searchable on the National Annual Investment Information Disclosure Platform for Foreign Invested Enterprises at http:// gongshi.lhnb.gov.cn/ (Article 2, 2015 Joint reporting notice).
The annual reporting system will make it easier for practitioners in China to find corporate information. Ren Qing, a Beijing partner at Zhong Lun Law Firm, described the new regime as “Another step to reduce the burden on entities and government departments and another welcome change.”
Action items
GC for companies with an FIE in China should collect their information now and should ensure it is uploaded to the government’s online database at http://lhnb.gov. cn/ before 15 October 2015.
DRAFT NETWORK SECURITY LAW CIRCULATED
On 6 July 2015 the Standing Committee of the National People’s Congress circulated the Network Security Law (draft) for public comment. The goals of the draft law are to ensure Chinese cyber-sovereignty and national security and to protect the private data of Chinese citizens and organisations.
New standards could prejudice foreign companies Several provisions of the draft law could affect market access by foreign IT companies, including:
• A requirement to develop a set of network security standards unique to China (Article 13).
• A ban on the sale of key network security equipment and specialised network security products that do not comply with national and industrial standards (Article 19).
• A graduated system that obliges network operators to take progressively more extensive steps to preserve network security (Article 17).
• A prohibition on storing or transmitting network data (including user data) for key information infrastructure outside China without special permission. These include government networks as well as networks owned or managed by network service providers with a large number of users (Article 56).
The draft law “sets the stage for accelerated efforts by the Chinese government to implement onerous cybersecurity standards for various types of IT products and services,” said Paul McKenzie, a partner in Morrison & Foerster’s Beijing office. “Banking standards announced last year were not implemented due to concerns voiced by banks and IT companies. We can expect renewed standard setting efforts affecting a broad range of sectors in the near future, some of which foreign IT companies may find difficult or unpalatable to comply with.” The draft law also addresses China’s fragmented data privacy regime. The data protection provisions of the draft law have received more support from practitioners, constituting in McKenzie’s view “a welcome effort by China’s legislature to unify and standardise requirements governing the collection, processing and use of personal data”.
Action items
GC for IT companies may wish to co-ordinate with industry associations and chambers of commerce to monitor and help drive the development of network security standards in China. All GC should ensure their internal data privacy protection rules and procedures conform to the draft law and any industry specific rules.
Also on GC Agenda China’s online version this month:
• China publishes Internet finance guidelines
• China passes National Security Law
• SPC issues provisions on recognition and enforcement of Taiwanese arbitral awards
• MIIT opens e-commerce to 100% foreign ownership nationwide
• SAIC implements policy of issuing business licences before pre-approvals
This article has been abridged from the original. To read Practical Law China’s full coverage including the additional stories, view the online version at http://global. practicallaw.com/8-617-6027