CHINA LEGAL GUIDE - ChinaGoAbroad€¦ · market-based reforms, including the reform of the registered capital system for Chinese companies, the partial relaxation of interest rates,

CHINA INVESTMENT GUIDE 2014 SUPPLEMENT

LEGAL GUIDESUPPLEMENT TO THE 2013 FIFTH EDITION

June 2014

China’s President Xi Jinping and Prime Minister Li Keqiang formally took their positions in March 2013. Since then, there have been a number of significant changes, and more are expected.

Under the leadership of President Xi and Prime Minister Li, China has promoted various market-based reforms, including the reform of the registered capital system for Chinese companies, the partial relaxation of interest rates, and the establishment of the Shanghai Free Trade Zone.

For 2014, the Chinese government has indicated that one of its priorities is to advance a new round of opening up to embrace the international market. The goal is to increase China’s international competitiveness. On the domestic front, China has also promised to boost domestic consumption and push forward with rural reform (including granting farmers more property rights). China’s leaders are aware that structural and policy changes are needed to address global and domestic challenges.

Outlined below are the key foreign-investment changes introduced since the 2013 fifth edition of the China investment guide.

We wish you all the best for the planning and implementation of your China investment strategy. Quality legal advice in relation to each specific investment is essential.

Herbert Smith Freehills LLP

June 2014

HERBERT SMITH FREEHILLS02 CHINA INVESTMENT GUIDE2014 SUPPLEMENT

CONTENTS

INVESTMENTCentral and Western China foreign investment catalogue . . . . . . . . . . . . 04CEPA X . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 04Simplified MOFCOM approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 04NDRC project approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 04Registered capital reform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 05Annual inspections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 06Shanghai Free Trade Zone. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 06

CHINA M&ASimple mergers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 08Name and shaming . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 09

INTELLECTUAL PROPERTYNew Trademark Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

EMPLOYEESWages & salaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11Labour dispatch . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11Foreign nationals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12Secondments & taxable establishments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

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HERBERT SMITH FREEHILLS 03CHINA INVESTMENT GUIDE2014 SUPPLEMENT

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FOREIGN EXCHANGECross-border security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14Foreign debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14Profit repatriation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

REAL ESTATEIndustrial land - Land usage term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

ENVIRONMENTAL PROTECTIONAmended Environmental Protection Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

DISPUTE RESOLUTIONThe judiciary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17CIETAC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17


INVESTMENT

CENTRAL AND WESTERN CHINA FOREIGN INVESTMENT CATALOGUEA revised Central and Western China foreign investment catalogue setting out additional encouraged activities and sectors for projects in Central and Western China was effective from mid-2013.

For example, medical and elderly-nursing services, automobile manufacturing, internet broadband services, television programme production, film making and animation creation have been added into the revised catalogue for certain provinces.

CEPA XThe 2013 supplement to the Mainland and Hong Kong Closer Economic Partnership Arrangement further liberalised trade in services for 12 main sectors, including banking and securities.

For example, the supplement allows Hong Kong-funded financial institutions to hold 51% in a joint venture securities company in each of Shanghai, Guangdong Province and Shenzhen. By way of contrast, foreign investors in non-CEPA joint venture securities companies are limited to a 49% equity interest.

SIMPLIFIED MOFCOM APPROVALSMOFCOM has launched a trial program to shorten the timing of approvals for foreign investment projects. The trial program covers both the establishment and changes of all FIEs (except FIEs engaged in direct sales) that are subject to the approval of MOFCOM at the central level.

Also under the trial program, applications for foreign investment projects subject to the approval of MOFCOM at the central level are to be directly accepted by MOFCOM’s branches at provincial-level and then forwarded to the central level for review.

MOFCOM has further expressed an intention to simplify the list of required application documents for establishment; however, it’s unclear as yet what difference this will make in practice.

NDRC PROJECT APPROVALS From 17 June 2014, the NDRC requires that foreign-investment projects be subject to either verification and approval or record-filing. The result is that many projects will now be only subject to record-filing.

Projects subject to verification and approval include those set out below (the verification and approval authority is stated in brackets):

“encouraged” projects with a total investment of US$300 million or more that require the Chinese side to have a controlling interest (including a relative controlling interest) (central-level NDRC)

“restricted” projects with a total investment of US$50 million or more (central-level NDRC, except for real estate projects, which are subject to verification and approval at the provincial-level)

real estate projects and other “restricted” projects with a total investment of less than US$50 million (provincial-level government)


“encouraged” projects with a total investment of less than US$300 million that require the Chinese side to have a controlling interest (including a relative controlling interest) (local-level government)

Projects that are not subject to verification and approval are only required to have certain information filed for record. Although not subject to “approval”, the record-filing of a foreign-invested project may still be rejected if it does not satisfy certain conditions.

REGISTERED CAPITAL REFORMChina’s Company Law was amended late 2013, with the amendments being effective as of 1 March 2014. The amendments simplified the capital system applicable to domestically-invested enterprises in China, but did not automatically apply to FIEs.

The following Company Law amendments have since been extended to FIEs:

Removing minimum amounts of registered capital

FIEs are no longer subject to minimum registered capital amounts. However, in practice, MOFCOM and its local branches are likely to continue requiring an FIE’s total investment to be commensurate with its planned business. Moreover, the fixed ratios between total investment and registered capital continue to apply. The effect of these continuing requirements is that FIEs are likely to need a certain amount of registered capital before being approved for establishment.

In addition, companies operating business in certain sectors and companies limited by shares are still subject to minimum capital thresholds.

Removing mandatory timetable of capital contributions

Investors in FIEs are required to pay up registered capital in accordance with the articles of association of the FIE and, if relevant, the joint venture contract. The previous requirements to pay up registered capital within certain timeframes have been repealed.

Investors that are planning to establish one or more FIEs in China will directly benefit. Companies established more than two years ago, however, should already have fully paid up registered capital.

FIEs that were approved for establishment prior to 1 March 2014 (and do not yet have a fully-paid up registered capital), will require amendments to their articles of association before they can take advantage of the new flexibility.

Removing cap on non-currency capital contribution

Investors may now contribute more than 70% of an FIE’s registered capital in kind. Such contributions, however, will remain subject to approval.

Removing mandatory requirement for capital verification

Capital verification has been largely removed from the Company Law; however, it has only been retained in more situations in the FIE regulations. Specifically, capital verification is still needed for:

–– wholly foreign-owned enterprises operating in certain sectors, such as banks

–– Foreign-invested companies limited by shares that are established by share offer


Local practice on capital verification requirements may differ between different regions. Moreover, differences may exist between the practices of MOFCOM and the SAIC.

ANNUAL INSPECTIONSFIEs are no longer subject to annual inspections by the SAIC or its local branches. Instead, the SAIC has introduced an annual reporting and disclosure system. A separate joint annual report is also required by the relevant local branches of MOFCOM, Ministry of Finance, State Administration of Taxation, SAFE, and National Bureau of Statistics.

SAIC annual inspections for the previous year were previously required between 1 March and 30 June each year. Implementation of the annual reporting and disclosure system, however, was delayed for 2013. The Shanghai branch of SAIC, for instance, indicated informally that its system may not be fully operational before the second half of 2014. A trial system was put into place for the Shanghai Free Trade Zone from 1 March 2014.

The SAIC reporting and disclosure system will require all enterprises (including FIEs) to upload certain information to the online SAIC registration portal. The information required mainly includes the amount of capital contributed by shareholders and information about the company’s assets. (A complete list of required information has, as yet, only been issued in draft form.) The company must ensure the authenticity and accuracy of the information.

Once uploaded to the SAIC’s portal, certain of the information that has been uploaded will be available for inspection by the public.

If an enterprise does not disclose the required information within the statutory time frame, it will be recorded by the SAIC as “abnormal”. The “abnormal” record may be cancelled if the enterprise performs the disclosure obligation within three years. If the enterprise fails to disclose during the three-year period, then it will be permanently recorded as “abnormal” and will in turn be blacklisted as a “seriously non-compliant enterprise”. The blacklist will also be available for inspection by the public.

SHANGHAI FREE TRADE ZONEThe Shanghai FTZ was established on 29 September 2013 for purposes of, among other things, to open China’s financial system to innovations, ease restrictions on foreign and private investment, and loosen foreign exchange controls. Successful reforms in the Shanghai FTZ will be considered for rolling out in other parts of China.

The following benefits are available to investors in the Shanghai FTZ:

Negative list – The current Foreign Investment Catalogue (see section 4 of the 2013 China investment guide“Open and Prohibited Sectors”) has been replaced with a negative list that simply states areas in which foreign investment is not permitted. Foreign investment within the Shanghai FTZ is allowed in any area that is not specified in the negative list. Currently, the negative list includes 190 items. The Shanghai government expects to reduce the negative list to around 130 items.*

Simplified approval process – Permitted investment no longer needs to be approved by MOFCOM or its local branch.

*The negative list was reduced to 139 items on 1 July 2014.


Accordingly, an FIE may be established in the Shanghai FTZ within a matter of days. Out of the FTZ, where both approval and registration is required, the establishment of an FIE can take months.

The establishment of foreign-invested banks and certain other FIEs in the financial sector will generally remain subject to approval.

Fewer foreign-investment restrictions promised – The State Council has promised liberalization in the FTZ for financial services, shipping services,

commerce and trade services, professional services, cultural services and social services. The stated goal is to ensure equal entry for both domestic and foreign investors. This may, in the future, also involve the elimination of business scope restrictions for most FIEs.

Service industries opened – Foreign investment in some areas that are “restricted” in the Foreign Investment Catalogue is now allowed in the FTZ. For some investments, foreign investors are allowed a higher percentage of equity ownership. Examples include:

INVESTMENT RESTRICTIONS IN THE FTZ RESTRICTIONS OUTSIDE THE FTZ

International shipping enterprises

No cap on foreign ownership, but WFOEs not permitted

Up to 49% foreign ownership

International shipping management enterprises

WFOEs permitted Limited to JVs

Human resource JVs Up to 70% foreign ownership

Up to 49% foreign ownership

Entertainment places WFOEs permitted Limited to JVs

Financial sector innovation – The FTZ provides a trial zone for reform of the financial system. For example, private Chinese capital is allowed to establish Sino-foreign joint venture banks with foreign financial institutions.

Foreign exchange liberalisation – For purposes of loosening controls of Chinese currency, the PBOC Shanghai Office in February 2014 issued a notice prescribing rules for lending oversees RMB loans by companies registered in the FTZ.

Customs and tax – Customs procedures have been further simplified, with a view to facilitating the import and export of goods and to promote trading in the FTZ. In addition, preferential import duties and

better income taxes treatment has been adopted. Additional tax concessions have also been promised.

Operating outside the FTZ – The State Council has indicated that enterprises established in the FTZ may, in principle, conduct business and reinvest outside the FTZ.

The central government has received, and put on hold, applications to establish up to 20 other free trade zones throughout China.


CHINA M&A

SIMPLE MERGERSChina now recognizes a range of mergers as “simple cases” requiring a less thorough merger-control review. The simple-case review is for mergers that, while meeting the reporting thresholds, clearly do not harm competition.

Simple cases are defined as:

For concentrations involving parties active in the same relevant market (i.e., in a horizontal relationship): the total market share of all parties to the concentration is less than 15% in the same relevant market.

For concentrations involving parties in a vertical relationship: the market share of the parties to the concentration in each of the upstream and downstream markets is less than 25%.

For concentrations involving parties that are neither active in the same market nor in a vertical relationship: the market share of each of the parties to the concentration is less than 25%.

For offshore joint ventures: the parties establishing a joint venture are outside China and the joint venture has no economic activities in China.

For acquisitions of the equity or the assets of an offshore target: the offshore target has no economic activities in China.

For reduction of the number of controlling shareholders: in joint ventures that are jointly controlled by two or more parties, one or more shareholders exit with the result being that the joint venture is controlled by either one remaining shareholder or is still jointly controlled by the remaining shareholders.

The rules, however, specify a number of circumstances in which a concentration will not be treated as a simple case (even if it comes within the above definition of a simple case). These circumstances are:

A joint venture controlled by two or more parties becomes controlled by one of the parties through the concentration and the joint venture competes with the controlling party in the same relevant market.

The relevant market for the concentration is difficult to define.

The concentration may have a negative impact on market entry or innovation.

The concentration may have a negative impact on consumers or other relevant operators.

The concentration may have a negative impact on the development of the national economy.

Other circumstances that MOFCOM considers may have a negative impact on competition in the market.


Moreover, MOFCOM may revoke the simple-case status in any of the following circumstances:

When the applicant conceals important information or provides false and misleading information.

When a third party alleges that the concentration has the effect of excluding or restricting competition and provides relevant evidence.

When MOFCOM finds material changes in the circumstances of the concentration or competition in the relevant market.

MOFCOM introduced a simplified merger-control review process for simple cases in April 2014. Highlights of the simplified process include:

Written pre-consultation is available for helping to determine whether a particular merger is a simple case

Simplified list of filing materials

Filing of confidential and non-confidential filing versions

10-day public notification period

Third-party opinions allowed on whether a merger is “simple”

Anti-monopoly Bureau may cancel “simple” status and require a full filing; applicant has a right to be heard

NAMING AND SHAMINGMOFCOM has indicated that, from 1 May 2014, it will “name and shame” companies that do not file for merger-control review when required.


INTELLECTUAL PROPERTY

NEW TRADEMARK LAWChina’s revised Trademark Law, which took effect on 1 May 2014, provides better protection for trademarks in China.

Highlights of the revised law include:

A sound-mark may now be registered as a trademark. Previously, only visual marks could be registered as trademarks in China.

Well-known trademarks get better protection. If the use of an unregistered well-known trademark in an enterprise’s name misleads the public and constitutes unfair completion, then the enterprise will be subject to penalties under the PRC Anti-Unfair Competition Law. (The same rule applies for the protection of registered trademarks.)

The rules have tightened against malicious trademark squatting. In particular, a trademark squatter cannot register another’s trademark if he/she/it has become aware of the trademark through contracts, business dealings or other relationships. Trademark agents are also prohibited from acting if they become aware that a registration would be an act of malicious trademark squatting.

Trademark infringers will be subject to greater penalties, and trademark owners will get better protection:

–– Penalties – an illegal operation with a turnover of more than RMB50,000 may be subject to penalties equivalent to 5 times such turnover; an illegal operation with no turnover or with turnover of less than RMB50,000 may be subject to penalties of up to RMB250,000; heavier penalties are required if the infringer has infringed multiple times in the last five years, or if there are other serious circumstances

–– Civil compensation – the amount of compensation may be determined with reference to the actual loss suffered by the trademark owner, the benefits obtained from infringement by the infringer, or the trademark licence fee. If it is difficult to determine these amounts, then the court may grant compensation of up to RMB3,000,000 (which is six times the previous limit of RMB500,000). A court may order an infringer to provide their account books and related materials for the purpose of determining damages

–– Punitive damages – punitive damages may be imposed in serious cases of malicious infringement

Under the revised implementing rules, licence agreements may be filed with the trademark bureau at any time during the term of the licence. Previously, licences were required to be filed within three months of signing.


EMPLOYEES

WAGES & SALARIESMinimum wages currently in force in Beijing, Shanghai and Guangzhou are:

Beijing: Rmb1,560 per month for full-time employees (excluding social insurance premiums) or Rmb16.90 per hour for part-time employees (including social insurance premiums).

Shanghai: Rmb1,820 per month for full-time employees (excluding social insurance premiums) or Rmb17 per hour for part-time employees (excluding social insurance premiums).

Guangzhou: Rmb1,550 per month for full-time urban employees (including social insurance premiums) or Rmb15 per hour for part-time urban employees (including social insurance premiums).

LABOUR DISPATCHLabour dispatch practices involve a business outsourcing workers from third-party dispatch agencies rather than directly employing the workers. The dispatch agency remains the formal employer of the dispatched workers, but the business controls their workplace activities.

From 1 July 2013, all labour dispatch companies have been required to hold a labour dispatch permit.

The use of dispatched workers by enterprises has also become more regulated. For example:

After an initial grace period of two years counting from 1 March 2014 dispatched workers must not comprise more than 10 per cent of a company’s total workforce. (This ratio does not apply to the China representative offices of foreign companies.)

Labour dispatch workers are only permitted for “auxiliary”, “temporary” and “substitute” positions. An employee consultation process is required for a position to be designated as “auxiliary”.

Employers now cannot discriminate against dispatched workers with respect to employment benefits. (“Equal pay for equal work” was already required by China’s Labour Contract Law.)

Arrangements that are in substance labour dispatch arrangements (whether or not they are labelled as such) will be subject to the new regulations. This means, for example, that the new regulations apply to arrangements in which a company outsources certain business functions (rather than individual workers) and the business functions are then performed by employees of the contractors working in the company’s premises or are directly managed by the company.

Companies not complying with the new regulations may be ordered to comply within a fixed period or be subject to fines of between RMB5,000 and RMB10,000 per infringing dispatched worker.


FOREIGN NATIONALSChina tightened immigration control on foreigners in 2013. Under the amendments to China’s Exit and Entry Administration Law, effective 1 July 2013, and related implementing rules:

The Public Security Bureau (PSB) has authority to compel foreigners to provide their finger-prints and “other biometric data” when applying for residence permits. Additional regulations may also be issued regarding obtaining biometric data from persons entering and exiting China.

The minimum validity period for work-based residence permits is now reduced from 1 year to 90 days, with the maximum period remaining unchanged at 5 years. That is, any foreigner intending to do business in China for a cumulative 90 days or above in any calendar year may need to apply for a work permit and a work-based residence permit (instead of relying on a business visa).

Foreign nationals may apply for and be granted permanent residency if they have made “outstanding contributions” to China’s economic and social development, or if they meet “other criteria” established by the Ministry of Public Security.

A new “Talent Introduction” visa (an “R” visa) is introduced for “high-level foreign talent and urgently-needed and in-shortage special talent”.

Upon employing foreigners, or recruiting foreign students, employers must report to the PSB. Citizens and organisations in China are also obligated to report any illegal entry, residence or employment to the PSB.

The New Law specifies a number of penalties for illegally working in China, including:

–– Fines of between RMB5,000 and RMB20,000 for foreigners working without valid employment documentation. Detention of 5 to 15 days may also be imposed in serious circumstances.

–– Fines of between RMB5,000 and RMB50,000 for individuals that recommend foreigners for illegal employment.

–– Fines of between RMB5,000 and RMB10,000 for entities that recommend foreigners for illegal employment. Illegal earnings may also be confiscated.

–– Fines of RMB10,000 on employers for each foreigner illegally employed, the total of which is capped at RMB 100,000. Illegal earnings may also be confiscated.

–– The PSB may subject foreign nationals to on-the-spot interrogation and further interrogation for up to 48 hours. If the suspicion of illegally working or residing cannot be cleared following interrogation, the PSB may detain the suspects for investigation for up to 30 days, or 60 days for complex cases.

Foreigners who are involved in unsettled civil cases or who are sentenced to criminal punishment may be prohibited from exiting China. Under the new law, this includes foreign nationals who have control of a company that is in arrears with the payment of employee remuneration.

Before flying to China for any reason, foreign national directors and officers would do well to seek assurance that the company is not in arrears on employee remuneration.


SECONDMENTS & TAXABLE ESTABLISHMENTSA non-resident enterprise may be subject to enterprise income tax in China for income derived by its taxable establishment in China. In mid-2013, China specified that employee secondments may give rise to a taxable establishment.

In particular, a taxable establishment will be created in China if a non-resident enterprise seconds personnel to work in China, and: (i) assumes part or all of the liability and risk for the work performed by seconded personnel; and (ii) is responsible for reviewing the performance of such seconded personnel.

The SAT will consider various statutory factors in determining whether a taxable establishment exists. The factors include whether the China-based entity pays management fees, service fees or any other payment of a similar nature to the non-resident enterprise, and whether the seconded employee fully pays individual income tax in China. A taxable establishment will not be created where the secondment is for the purpose of exercising shareholder rights and protecting the shareholder’s interests in the China-based entity.

Whether a non-resident enterprise ends up paying enterprise income tax in China remains subject to China’s double-tax treaties.


FOREIGN EXCHANGE

China has continued to reform the regulatory regime for foreign exchange during the past year. The main areas concerned include those set out below:

CROSS-BORDER SECURITYSAFE administration of cross-border security has been greatly simplified. From 1 June 2014, all quota administration and SAFE pre-approvals have been removed, with a requirement for subsequent registration administration being applicable to most items.

SAFE approval on the enforcement of security in relation to non-bank institutions has also been removed.

Cross-border security contracts are effective upon signing, and not (as previously) upon approval and registration.

Most restrictions over the parties have been removed. For example, the former net asset and profitability restrictions for a domestic debtor have been removed. Also, individuals are now permitted to provide security in favor of an offshore entity.

FOREIGN DEBTForeign debt registration procedures have been simplified, and certain approval requirements have been removed.

Non-bank borrowers must still register foreign debt with SAFE; however, SAFE approval is no longer required to open an account, settle foreign currency or repay a loan. Banks are responsible for compliance.

One helpful clarification is that, when a mid-term or long-term loan is rolled over, the new debt will not count toward an FIE’s foreign debt quota (see Section 19 “Debt Funding” of the 2013 China investment guide). However, the new debt will count if it increases existing debt levels or if the proceeds are converted into RMB.

PROFIT REPATRIATION The approval procedure for profit repatriation has been simplified.


REAL ESTATE

INDUSTRIAL LAND – LAND USAGE TERMLand administration bureaux at municipality and county level have been expressly permitted to shorten land grant terms.

In Shanghai, the term of land usage for industrial land use rights for new projects generally will be reduced from 50 years to 20 years. Terms of existing grants of industrial land use rights are expected to remain unchanged.


ENVIRONMENTAL PROTECTION

AMENDED ENVIRONMENTAL PROTECTION LAWThe Environmental Protection Law was amended in April 2014. The amendments will be effective 1 January 2015. Key changes include:

Cumulative daily fines – A polluting company may be fined with cumulative daily fines if corrections are not made in accordance with governmental orders. Currently, the majority of fines for environmental non-compliance are on a one-off basis and the amount of a single fine is usually insufficient to act as a deterrent against causing environmental damage.

Increased Personal Liabilities – The revised law expands the circumstances in which individuals can be detained due to environmental non-compliance. Specifically, “management personnel directly in charge” and “directly responsible personnel” of a company may face up to 15-days administrative detention if, among other things:

i. the company fails to conduct an environmental impact assessment on a project and refuses to cease construction of the project after it has been ordered to do so; or

ii. fails to obtain discharge permits and refuses to cease discharging pollutants after it has been ordered to do so.

Currently, corporate staff are only be subject to administrative fines for corporate non-compliance.

Public Interest Litigation – The amendments set out the qualifications required for a non-profit enterprise to engage in public-interest litigation for environmental causes. To qualify an environmental non-profit organization must:

i. be registered with the Chinese government at city-level or higher;

ii. have been specialized in environmental causes for more than five consecutive years; and

iii. have no record of violation of law.

Transparency and Information Disclosure – Companies listed by the government as “key polluters” are required to publicly disclose certain information, including the names of major pollutants, discharge methods, discharge density and quantity, and the operation status of environmental protection facilities.

The government, on the other hand, must disclose the full texts of environmental impact assessment reports for construction projects (except if this would require the government to disclose state or commercial secrets). The government is also required to collect and disclose information of companies that violate environmental laws and regulations.


DISPUTE RESOLUTION

THE JUDICIARYIn November 2010, the Supreme People’s Court (SPC) declared that it would publish batches of “Guiding Precedents” for courts to “make reference to when dealing with similar cases”. As at 12 June 2014, the SPC has published six batches of such “Guiding Precedents”, which include decisions rendered by various courts in 26 cases.

While these “Guiding Precedents” provide greater guidance for lower-level courts faced with similar issues, they stop short of being binding precedents.

Additionally, since 1 January 2014, judgments rendered by all levels of courts in China are required to be published on a designated website maintained by the SPC. Publication is not required if doing so would disclose state secrets or trade secrets.

CIETACThe split between CIETAC and its former Shanghai and Shenzhen branches continues to generate uncertainty.

In April 2013, the CIETAC Shanghai sub-commission announced it would be called the “Shanghai International Economic and Trade Arbitration Commission” or the “Shanghai International Arbitration Center”

(SHIAC). SHIAC asserted that it would accept cases if the parties had agreed to refer disputes to CIETAC Shanghai commission/branch/sub-commission. However, there is considerable doubt about whether such a designation would be a valid reference to arbitration administered by SHIAC.

There have subsequently been several conflicting decisions by various local courts on the enforceability of arbitration agreements and awards involving SCIA and SHIAC.

On 4 September 2013, the SPC issued a Notice that requires any lower court hearing a case concerning the former CIETAC Shanghai and South China (Shenzhen) sub-commissions to report to the SPC before making a decision.

Uncertainty remains as to what effect will ultimately be given to arbitration agreements and arbitral awards involving the CIETAC Shanghai sub-commission, CIETAC South China sub-commission, SCIA, or SHIAC.

In the meantime, it remains preferable for agreements to state that disputes be submitted to arbitration administered by CIETAC Beijing, with Beijing as the seat of arbitration (Shanghai or Shenzhen can still be chosen as the venue for the arbitral hearing).

Herbert Smith Freehills LLP is licensed to operate as a foreign law firm in China by the Ministry of Justice. Under Ministry of Justice regulations, foreign law firms in China are permitted, amongst other things, to provide consultancy services on non-Chinese law and on international conventions and practices, and to provide information on the impact of the Chinese legal environment. Under the same regulations, foreign law firms in China are not permitted to conduct Chinese legal affairs, including rendering legal opinions upon Chinese law. The contents of this guide do not constitute an opinion upon Chinese law. If you require such an opinion you should obtain it from a Chinese law firm (we would be happy to assist in arranging this).

The content of this Guide, current as of June 2014, is for general information only. It does not constitute legal advice and should not be relied upon as such. Specific advice should be sought about your specific circumstances.

Herbert Smith Freehills LLP and its subsidiaries and Herbert Smith Freehills, an Australian Partnership, are separate member firms of the international legal practice known as Herbert Smith Freehills. © Herbert Smith Freehills 2014


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CHINA LEGAL GUIDE - ChinaGoAbroad€¦ · market-based reforms, including the reform of the registered capital system for Chinese companies, the partial relaxation of interest rates,