3 April, 2017
The National Development and Reform Commission (“NDRC”) and the Ministry of Commerce (“MOC”) issued the Catalogue of Priority Industries for Foreign Investment in the Central and Western Region (Revised in 2017) (“CW Catalogue”), to take effect on March 20, 2017.
The State Administration of Foreign Exchange (“SAFE”) issued and implemented the Circular on the Relevant Issues Concerning the Foreign Exchange Risk Management of Foreign Institutional Investors in the Interbank Bond Market, which benefits the further opening up of the foreign exchange (“FX”) market and the bond market to international investors and FX risk management for foreign institutional investors in the interbank bond market.
The Standing Committee of the National People’s Congress (“NPCSC”) issued the Anti-Unfair Competition Law of the People's Republic of China (Revised Draft), for public opinion.
1. Implementation of the Catalogue of Priority Industries for Foreign Investment in the Central and Western Region (Revised in 2017)
It is the fourth time that the NDRC and the MOC have revised the Catalogue of Priority Industries for Foreign Investment in the Central and Western Region, the latest version of which was issued on February 17, 2017 and implemented on March 20, 2017.
1.1 Background
The Catalogue for the Guidance of Foreign Investment Industries and the CW Catalogue provide a basis and guidance for adopting the relevant policies for approving foreign investment projects and foreign invested enterprises in China. For foreign investment projects, which do not belong to the encouraged category of the Catalogue for the Guidance of Foreign Investment Industries, but do explore the potential in the Central and Western regions of China, these projects will be included in the CW catalogue and will enjoy the preferential treatment for the encouraged foreign investment projects. Different from the Catalogue for the Guidance of Foreign Investment Industries, which is applicable nationwide, the CW Catalogue only applies to the 22 provinces, autonomous regions and municipalities in the Central and Western region, which all have their own individual catalogues.
After its promulgation on June 16, 2000, the CW Catalogue was revised in 2004, 2008 and 2013. In 2016, the NDRC and the MOC along with other departments revised the CW Catalogue and published it for public opinion on September 14, 2016.
For the active use of foreign capital, on January 12, 2017, the State Council issued the Circular on Several Measures concerning the Expansion of Opening-up and the Active Use of Foreign Capital, which put forward 20 measures for three different aspects, include further open-up to foreign investors, further improvement of the fair competition environment and further attract foreign investment. These measures include the support of the central, western and northeast regions to accept the transfer of foreign investment industries, the revision of the CW Catalogue, and the expansion of the encouraged foreign investment industries scope for central and western and northeast regions. For the implementation of the above measures, the latest version of the CW Catalogue was issued on February 17, 2017.
1.2 Legal Review
The latest CW catalogue includes 639 provisions; 139 additional provisions compared to the CW Catalogue (2013 revised). 173 provisions were newly added; 34 provisions were deleted; and 84 provisions were revised1. Compared with the CW Catalogue (2013 revised), the latest CW Catalogue mainly contains the following features:
a. Supporting the development of high applicable technology industries: e.g. research related to and the manufacture of intelligent robots were added to the catalogues of the Inner Mongolia Autonomous Region, Liaoning Province, Heilongjiang Province, Anhui Province, Jiangxi Province, Hunan Province, Chongqing Municipality and Sichuan Province.
b. Encouraging the fast development of the service industry: e.g. the creation and production of comics and animations (cooperation only for broadcast and television comics and animations) and related products (except for the publication and production of radio and video products and electronic publications) were added to the catalogues of the Inner Mongolia Autonomous Region, Henan Province, Hubei Province, Hunan Province, Guangxi Autonomous Region, Hainan Province, Chongqing Municipality and Shanxi Province.
c. Improving infrastructure and industry supports: e.g. gas station and charging facility construction and operation were added to the catalogues of Shanxi Province, Inner Mongolia Autonomous Region, Guangxi Autonomous Region, Yunnan Province and Shanxi Province; and storage facility construction and trade services related to logistics services were added to the catalogues of Shanxi Province, Hubei Province, Hunan Province, Guangxi Autonomous Region, Chongqing Municipality and Yunnan Province.
The latest CW catalogue is different from the draft published for public opinion in 2016 (the “2016 Draft”) in several aspects. It is worth noting that the 2016 Draft added search, development and application of cloud computing, big data, mobile internet and other new information technology to the catalogues of Guangxi Autonomous Region, Chongqing Municipality, Guizhou Province, Yunnan Province and Hainan Province, which is not reflected in the latest CW catalogue. Since June 30, 2016, the Ministry of Industry and Information Technology (“MIIT”) began to allow service providers from Hong Kong and Macau to establish joint ventures in mainland China and provide internet data centre services (IDC); and required that the service providers from Hong Kong and Macau shall not hold more than 50% of the shares of the joint venture. The 2016 Draft added search, development and application of cloud computing, big data, mobile internet and other new information technology and there was no shareholding, which brings light to the foreign service providers, other than those from Hong Kong and Macau, to provide internet data centre services in mainland China. Since the latest CW catalogue does not include such an amendment, it indicates that China still adopts a cautious attitude towards opening up internet data centre services to foreign investors.
1.3 Next Step
To support the central, western and northeast regions to accept the transfer of foreign investment industries, the State Council issued the Circular on Several Measures concerning the Expansion of Opening-up and the Active Use of Foreign Capital, which adopts a preferential enterprise tax policy for qualified foreign invested enterprises of encouraged category in the western region. Foreign invested enterprises, which transfer to the central, western and northeast regions, will enjoy preferential policies on capital and land, and the State’s support on industry transfer and processing trade. After the implementation of the latest CW catalogue, the relevant ministries and departments of the State Council will draw up and issue relevant detailed rules and regulations as required by the State Council to attract foreign invested enterprises to transfer to the central, western and northeast regions.
2. SAFE supports foreign institutional investors to participate in the domestic FX market
On February 24, 2017, SAFE issued and implemented the Circular of the State Administration of Foreign Exchange on Relevant Issues concerning the Foreign Exchange Risk Management of Foreign Institutional Investors in the Interbank Bond Market (“the Circular”). The Circular further regulates the matters related to the FX derivative services provided by domestic financial institutions for foreign institutional investors participating in the interbank bond market ("FIIs").
2.1 Background
On February 17, 2016, the People’s Bank of China (“PBOC”) issued and implemented the Circular on Further Improving the Investments by Foreign Institutional Investors in the Interbank Bond Market (“No. 3 Circular”), which allows the FIIs, who meet certain requirements, to invest in the interbank bond market through authorizing a capable settlement agent in the interbank bond market (“Settlement Agent”) and to conduct bond trading per PBOC’s permission. The No. 3 Circular not only enlarges the scope of eligible FIIs, but also replaces the pre-approval requirement for market access with post-filing.
On May 27, 2016, the Shanghai Headquarters of the PBOC issued and implemented the Implementing Rules of Record-filing Administration of Investments of Foreign Institutional Investors in the Interbank Bond Market, which specifies the Record-filing details for FIIs to invest in the interbank bond market, according to the No. 3 Circular. On the same date, SAFE issued the Circular of the State Administration of Foreign Exchange on Foreign Exchange Questions Relating to Investments of Foreign Institutional Investors in the Interbank Bond Market ("No. 12 Circular"). Regarding the FIIs’ FX registration administration, the No. 12 Circular specifies the following: (1) FIIs shall apply for FX registration via Settlement Agents and open a special FX account; (2) individual FII is not subject to any investment quota as well as approval from SAFE; (3) funds in the special FX account of a FII shall not be used for any purpose other than investment in the interbank bond market and the ratio of domestic and foreign currency for inward and outward remittance shall be roughly the same, with a permitted fluctuation of no more than 10%.
2.2 Legal Review
The Circular firstly defines that the eligible FIIs consist of the following three categories of institutional investors, thereby satisfying the requirements in the No. 3 Circular: (1) financial institutions such as commercial banks, insurance companies, securities companies, fund management companies and other asset management institutions lawfully registered and incorporated outside the People's Republic of China; (2) investment products lawfully launched by such financial institutions; and (3) other long- and medium-term institutional investors recognized by the PBOC, such as pension funds, charity funds and endowment funds. As such, QFII, RQFII, foreign central banks (including international financial organizations and sovereign wealth funds) are not FIIs for the purpose of the Circular.
Secondly, the Circular stipulates that the Settlement Agents shall follow the principle of actual transaction needs when handling the FX derivatives business for FIIs. The FX derivatives transactions of FIIs shall be only used for hedging the FX risk exposure incurred due to the remittance of overseas capital for investment in the interbank bond market. The FX derivatives exposure shall have a reasonable correlation with the FX risk exposure under the bond investment as the basis of transactions. Where the changes of investment in the interbank bond market leads to changes in FX risk exposure, FIIs shall accordingly adjust the exposure of FX derivatives held by them within five working days, to comply with the principle of actual transaction needs.
The Circular also stipulates the types of FX derivatives that the FIIs may choose of their own will, which includes forwards, FX swaps, currency swaps and options to hedge the FX risk exposures for investment in the interbank bond market. The Settlement Agents may flexibly provide transaction mechanisms such as reverse position closing and gross or balance settlement for the FX derivatives services of FIIs. All relevant transactions shall be subject to the Implementing Rules for the Administrative Measures for the Foreign Exchange Settlement and Sale Business of Banks (Hui Fa [2014] No.53).
2.3 Next Step
The Opening-up of the Bond market is an important step for RMB internationalization. For the time being, attracting foreign institutional investors to open accounts in China is the major form of opening-up the Bond market. Based on the relevant improvements made by the PBOC in 2016, the supporting measures proposed by the Circular allowing the FIIs to hedge the FX risk exposure by using the FX derivatives will not only better satisfy the investment need from the FIIs, but also enable domestic Settlement Agents to provide one-stop services in bond investments and FX transactions.
However, under the Circular, FIIs can only participate in the FX settlement and sale market, as a customer following the actual transaction needs principle, rather than a liquidity provider. It is worth noting how the transaction scope and model in the near future will be affected by the policies regarding the FII’s participation in the interbank bond market.
3. The Revised Draft of the Anti-Unfair Competition Law is published again for public opinion
On February 28, 2017, the NPSCS issued the Anti-Unfair Competition Law of the People's Republic of China (Revised Draft) (“Revised Draft”), for public opinion.
3.1 Background
The purpose of the promulgation of the Anti-Unfair Competition Law is to encourage and protect fair competition and restrain unfair competition behaviors, to protect the legal rights and interests of the business operators and the consumers. This law has not been amended since its implementation on December 1, 1993.
However, throughout the years, the Anti-Unfair Competition Law has become outdated, considering the current economic and legal development in China. Due to the promulgation of the Anti-Monopoly Law of the People’s Republic of China, the revision of the Trademark Law of the People’s Republic of China and the Advertisement Law of the People’s Republic of China, there are many overlaps between the above laws and the Anti-Unfair Competition Law. Therefore the State Administrative of Industry and Commerce along with other departments of the State Council revised the Anti-Unfair Competition Law. In February 2016, the Legislative Affairs Office of the State Council released the Anti-Unfair Competition Law (Revised Draft Submitted for Review) for public comments (“Draft for Review”). The Draft for Review has attracted extensive attention because it proposed to substantially revise the Anti-Unfair Competition Law.. The NPCRC issued the Revised Draft recently to seek further public opinion.
3.2 Legal Review
The Revised Draft also proposes to revise the Anti-Unfair Competition Law quite substantially.
The Anti-Unfair Competition Law has listed 11 types of unfair-competition behavior while the Revised Draft proposes eight types, among which one was newly added, four were revised, two remained the same and four were deleted. The details are as follows:
The Revised Draft, based on the Draft for Review, further includes four types of unfair-competition behavior related to using technical methods to influence consumers’ choice and disturb the daily business operation of other business operators on the internet. These four types of unfair-competition behaviors are (1) inserting hyperlinks in the internet products or services legally provided by other business operators to compel target jump, without consent or authorization from the relevant business operators; (2) misleading, deceiving or forcing the customers to amend, close or uninstall internet products or services legally provided by other business operators; (3) disturbing or corrupting the daily operation of the internet products or services legally provided by other business operators; and (4) adopting incompatible measures to the internet products or services legally provided by other business operators maliciously.
It is worth noting that the Revised Draft does not include the provisions regarding the unfair trading behaviors of business operators with comparative advantageous position but without market dominant role proposed in the Draft for Review. These provisions have attracted a great deal of controversy and many people have suggested deleting or minimizing the restrictions on the unfair trading behaviors of business operators with a comparative advantageous position. For detailed comments, please find our article ‘The Anti-Unfair Competition Law (Revised Draft Submitted for Review) Draws Extensive Public Attention’ in the Foreign Investment Bulletin (March 2016).
The Revised Draft has revised four types of unfair-competition behavior as follows:
a. Adopting Unfair Measures to Carry out Market Trade
The Revised Draft takes in the provisions in the Interpretation of the Supreme People's Court on Several Issues about the Application of Law in the Trial of Civil Cases Involving Unfair Competition and the Draft for Review and deleted the provision regarding counterfeit registered trademarks overlapping with the Trademark Law of the People’s Republic of China. There are four types of unfair measures to carry out market trade: (i) without consent, use the names, packages or decorations unique to well-known commodities, or use the names, packages or decorations similar to well-known commodities, to cause confusion and make the consumers mistake the relevant commodities for well-known commodities; (2) without consent, use the names, short names or characters of other enterprises; use the names, pen names or stage names of other persons; or use the names or short names for social organizations to make the consumers mistake the relevant commodities for commodities of these persons or enterprises; (iii) without consent, use the main part of domain names, website names, webpages, or names or signs of channels, shows or columns of other parties to make the consumers mistake the relevant commodities for commodities of these parties; and (iv) use the registered trademarks or unregistered well-known trademarks of other parties as characters of the enterprise names to mislead the public.
b. Commercial Bribery Behavior
The Revised Draft has made minor amendments on the provisions of commercial bribery and added third parties which may influence trade (i.e. the organizations and individuals which may influence trade by using their office power) as objects for commercial bribery; and added a provision that the commercial bribery behavior of an employee of a business operator shall be deemed as the behavior of these business operators.
In order to differentiate commercial bribery and profit discounts between business operators, the defining methods of using concepts and examples adopted by the Draft for Review to clarify the concept of commercial bribery and list out typical commercial bribery behaviors, has been deleted from the Revised Draft.
c. Infringement of Business Secrets
The Revised Draft, based on the provisions of the infringement of business secrets, further clarifies the concept of the acts which shall be viewed as an infringement of business secrets, and of the person bearing the relevant confidentiality obligation, which includes employees and former employees of the right holder of the commercial secrets, third parties who know or ought to know that the commercial secrets are from illegal sources, officials from the State bodies, and other professionals, such as lawyers and registered accountants.
It is worth noting that the Draft for Review adopted the reverse burden of proof for business secret cases, i.e. if the right holders of the business secrets are able to prove that the information used by other parties is substantially the same as their business secrets and these parties are able to obtain the relevant business secrets, the other parties shall bear the burden of proof to provide evidence that they obtained the relevant information from legal sources, which is not adopted in the Revised Draft.
d. Premium Sales Behaviors
The Draft for Review deleted premium sales behaviors to promote low-quality goods with high price from the prohibited premium sales behaviors which are included in the currently-effective Anti-Unfair Competition Law; added behaviors which may affect the cashing of awards due to unclear information regarding the types of the awards, cashing conditions, awarded amounts or prizes of premium sales; and adjusted the maximum amount of lottery premium sales from 5,000 to 20,000.
The Draft for Review classified the premium sales into two categories: lottery premium sales and gift premium sales, and defined these two categories, which is not adopted by the Revised Draft.
The Revised Draft keeps provisions on discrediting competitors’ commercial good standing and reputation, and tying.
The Revised Draft deleted four types of unfair-competition behaviors which overlap with the relevant provisions of the Anti-monopoly Law of the People’s Republic of China, the Pricing Law of the People’s Republic of China and the Bidding and Bid Law of the People’s Republic of China, which are restrictive competition measures adopted by public utility enterprises, sales of goods at a price below their cost, administrative monopoly behaviors and collusive behaviors during the tendering and bidding process. It is worth noting that the Revised Draft keeps the provision related to tying behaviors, which was deleted in the Draft for Review.
Regarding supervision and inspection, the Revised Draft improves the relevant provisions on the powers and duties of supervision and inspection by an enforcement agency; grants the power to the enforcement agency to adopt compulsory administrative measures such as seal-up and seizure and includes the duties of the concerned parties to cooperate during inspection.
Regarding legal duties, in order to strengthen the punishment of illegal behavior, the Revised Draft increases both the penalty amount and the methods of punishment. The Revised Draft has increased the upper limit of the penalty amount from 200,000 to 3,000,000. Considering the fact that the business operators may be unable to pay for both the civil compensation and penalty, the Revised Draft prioritizes the payment of civil compensation by the business operators. For business operators using registered trademarks or unregistered well-known trademarks of other parties as characters of the enterprise names to mislead the public, the Revised Draft states that the supervision and inspection bodies shall order these business operators to apply for registration of a change of company name within one month; if they fail to apply within the time limit, the business operators are subject to a fine by the supervision and inspection bodies. Additionally, its name will be deleted by the original enterprise registration body and from the enterprise credit information publicity system and be replaced by its unified social credit code and then placed on a list of abnormal business operations. In the case of a serious digression, the business licenses of the relevant business operators shall be revoked.
3.3 Next Step
Compared with the currently effective Anti-unfair Competition Law, the Revised Draft has improved greatly. But compared with the changes made in the Draft for Review, the Revised Draft is rather conservative. It is rather disappointing that the Revised Draft does not include the provisions regarding the concept of commercial bribery and typical commercial bribery behaviors, the adoption of the reverse burden of proof for business secret cases and definitions of different types of premium sales. The Revised Draft is open for public opinion until March 25, 2017. How the Anti-Unfair Competition Law will be revised and how it will be implemented are worth our attention.
1. http://www.gov.cn/zhengce/2017-02/17/content_5168815.htm
For further information, please contact:
Catherine Miao, Partner, Jun He
miaoqh@junhe.com
