l  Latest Hot spot

Regulation on the Implementation of the Foreign Investment Law of the People's Republic of China was announced

l  New Law Express

1.Administrative Measures for the Establishment of Operational Institutions by Overseas Arbitration Institutions in the Lin-gang Special Area of the Shanghai Pilot FTZ was announced

2.Amendments to the Regulation of the People's Republic of China on the Administration of Foreign-Funded Insurance Companies

3.Amendments to the Regulation of the People's Republic of China on the Administration of Foreign-Funded Banks

l  Our Firm’s Trend

Ms. He Lijuan of Shanghai Veritas Law Corporation was invited to attend Malaysia Investment Promotion Conference

【Latest Hot spot】

Regulation on the Implementation of the Foreign Investment Law of the People's Republic of China was announced

On November 1, Ministry of justice of the People's Republic of China (“Ministry of justice”) has officially released Regulation on the Implementation of the Foreign Investment Law of the People's Republic of China (“Draft for comments”), drafted by Ministry of justice in cooperation with the Ministry of Commerce of the People's Republic of China (“Ministry of Commerce”) and the National Development and Reform Commission (“NDRC”), in order to seek opinion on the Draft for comments from the public.

The Draft for comments has made several refinements and supplements to the Foreign Investment Law of the People's Republic of China (the “Foreign Investment Law”). The Draft for comments further prohibits using administrative means to force foreign investors and enterprises to transfer technology, and further stipulates that administrative authorities and their staff must strictly keep confidential the trade secrets of foreign enterprises they happen to know during the course of performing their duties. Therefore, the Draft for comments provides the rules of punitive damages for the infringements of intellectual property rights, and establishes the system of efficient coordination and protection. The Draft for comments also aims to build a mechanism of diversified dispute resolution and rights protection. The 'five-year transition period' is also provided to ensure the implementation of the Foreign Investment Law. The Draft for comments preliminarily establishes the equal treatment to the foreign and domestic enterprises in the aspects of operation, governmental approval and filing, and also stipulates the negative list reviewing system of the engagement of foreigners in return investment of Chinese individuals or enterprises. As a result, the relevant foreign venture capital enterprises, VIE structure enterprises and many intermediaries have paid special attention to the implementation of the Draft for comments. 

For instance, Article 35 stipulates that if a wholly-owned enterprise established overseas by a Chinese individual, legal person or other organization conducts inbound investment, it may not be subject to the restrictions on the Special Administrative Measures for Access stipulated in the Negative List of Foreign Investment Access (the “Negative List”) after being examined and verified by the relevant competent department of the State Council and then submitted to the State Council for approval. If two requirements of 'wholly owned control' and 'approval by the State Council' are satisfied, Chinese individual, legal persons (excluding foreign-invested enterprises) or other organizations that establish overseas enterprises and invest back in China may not be restricted by the Negative List.

Reshaping the foreign investment administrative system is considered to be one of the highlights of the Draft for comments. Based on Article 7 of the Foreign Investment Law, the Draft for comments re-clarifies the responsibilities of the Ministry of Commerce, NDRC and other departments in the era of the new Foreign Investment Law: administrative filing and approval procedures of projects would be charged by the NDRC; enterprise establishment registration would be charged by the State Administration for Market Regulation and its local bureaus (“Administration for Market Regulation”). The Ministry of Commerce will no longer undertake duties of administrative approval on projects or enterprise establishment registration, and will exercise the regulatory function and become the supervisor of the foreign-funded enterprises’ behavior. The abolishment of the filing system means that foreign-funded enterprises, like domestic enterprises, apply for registration directly to the Administration for Market Regulation, which truly realizes national treatment on the registration procedures.

The Foreign Investment Law and its regulations for implementation (“laws”) focus on investment promotion and investment protection. The laws ensure the unification of relevant systems and rules governing both domestic and foreign enterprises, and promote more foreign enterprises to operate in China in a more equal, open, transparent and smoother way, and finally enable foreign enterprises to strive for development by means of fair competition under an equally business and legal environment.

【New Law Express】

Administrative Measures for the Establishment of Operational Institutions by Overseas Arbitration Institutions in the Lin-gang Special Area of the Shanghai Pilot FTZ was announced

On November 8, Shanghai Municipal Bureau of Justice officially issued the Administrative Measures for the Establishment of Operational Institutions by Overseas Arbitration Institutions in the Lin-gang Special Area of the Shanghai Pilot FTZ (the 'Administrative Measures') at the Shanghai International Arbitration Summit Forum, the parallel forum of the 2nd China International Import Expo.

Pursuant to the Administrative Measures, from January 1 of 2020, the non-profit arbitration institutions that satisfy certain requirements and were duly established in foreign countries, Hong Kong Special Administrative Region, Macao Special Administrative Region and Taiwan as well as the institutions carrying out arbitration business established by international organizations that Chinese governments joined can apply to the Shanghai Municipal Bureau of Justice for registration and establishment of operational institutions in the Lin-gang Special Area of the Shanghai Pilot FTZ to conduct the relevant foreign arbitration business.

An overseas arbitration institution applying for the establishment of an operational institution in the Lin-gang Special Area shall meet three major requirements: (i) it is duly established and has been in operation for more than five years; (ii) it has actually engaged in arbitration business with high international reputation; (iii) the individual in charge of the business institution has not been subject to criminal penalty due to the commission of intentional crimes.

Shanghai Municipal Bureau of Justice is supposed to release the information of the establishment, change and cancellation of operational institutions in official websites or through other channels. The operational institutions may carry out foreign-related arbitration over international civil and commercial disputes in the areas of commerce, maritime, investment, etc. Shanghai Municipal Bureau of justice encourages and supports operational institutions to commutate and cooperate with domestic arbitration institutions in Shanghai.

Amendments to the Regulation of the People's Republic of China on the Administration of Foreign-Funded Insurance Companies

In order to further expand the opening policy in the financial industry, the Central Committee of the Communist Party of China and the Sate Council made a series of decisions and arrangements to relax the restrictions on the proportion of foreign shares in banking, securities and insurance industries, and relax the restrictions on the establishment of foreign-funded financial institutions, and expand the business scope of foreign-funded financial institutions in China. The amendment to the Regulation of the People's Republic of China on the Administration of Foreign-Funded Insurance Companies (the “Amendment”) provides a strong legal support for the further expansion of the opening policy in the insurance industry.

The most important Amendment is to revoke the two requirements of 'operating insurance business for more than 30 years' and 'having established representative offices in China for more than 2 years'. In addition, foreign insurance groups are allowed to establish foreign insurance companies in China. Foreign financial institutions are allowed to invest in foreign-funded insurance companies.

Amendments to the Regulation of the People's Republic of China on the Administration of Foreign-Funded Banks

The Regulation of the People's Republic of China on the Administration of Foreign-Funded Banks (the “Regulation”) was promulgated to meet the needs of opening policy and economic development, strengthen and improve the supervision and administration of foreign-funded banks, and promote the steady operation of the banking industry.

This amendment to the Regulation involves four aspects: (i) foreign banks can establish branches of foreign banks, wholly foreign-owned banks, and Sino-foreign joint venture banks in China. (ii) Relax the restriction on the business scope of foreign-funded banks, and add business scope of 'issue, cash and sell government bonds as agents' and 'collect and make payments as agents'. In addition, the approval process that prerequisites to starting RMB business for foreign banks will be revoked. The minimum amount of the fixed deposits will be changed from 1 million RMB to 500,000 RMB. (iii) Relax the requirements for the qualification of Chinese shareholders of Sino-foreign joint venture banks. The amendment also lessens the restrictions on the establishment of foreign banks’ organs in China. (iv) Relax the requirement of the proportion of interest bearing assets of branches of foreign banks, and changed the previous proportion of '30% of working capital' to 'holding a certain proportion'.

【Our Firm’s Trend】

Ms. He Lijuan of Shanghai Veritas Law Corporation was invited to attend Malaysia Investment Promotion Conference

On the afternoon of November 11, Ms. He Lijuan, the managing partner of Shanghai Veritas Law Corporation, was invited to participate in the 'Malaysia Johor State Economic and Trade Cooperation forum' sponsored by the Commerce Bureau of Huishan District, Wuxi City. The meeting aims to encourage Wuxi’s enterprises to invest in Malaysia's manufacturing and related services industry and strengthen the bilaterally friendly relations between China and Malaysia and deepen the bilateral economic and trade cooperation. First of all, Mr. Steven Choong Shian Yoon, the member of Parliament of Malaysia , delivered the speech. Later, Mr. Anthony Wong, director of investment at Malaysian Investment Development Authority at Shanghai Office, introduced that in the past 18 years, the investment from China injected in Malaysia’s manufacturing projects has topped the list. In order to attract more investment, Malaysia has implemented many preferential policies, including equity structure, income remittance and employment of foreign employees. Among them, participants in the national industry 4.0 policy can enjoy preferential treatment such as emerging industry status, investment tax relief, reinvestment incentive, import tax exemption, etc.

Ms. He Lijuan delivered a speech on the theme of 'Legal Protection for Overseas Investment of Domestic Enterprises,” which mainly introduced the legal application and risks of domestic enterprises' overseas investment. Ms. He mentioned that the Measures for the Administration of Overseas Investment implemented in 2014 simplified the process of administrative examination and approval, and established a new administrative mode of 'Mainly for filing, supplemented by approval '. In 2015, the State Administration of Foreign Exchange abolished the administrative examination and approval procedures of foreign exchange registration under the subject of overseas direct investment. Currently, such procedures have been applied to the bank directly. In addition, Ms. He put forward the following legal suggestions for the enterprise's overseas investment: (i) Fully understand the laws of the host country, mainly to have a broad understanding of the security of investment. (ii) Conduct detailed due diligence. The focus of the due diligence varies according to the particular situation of the target company or potential project. Generally speaking, environmental protection, patent, tax, labor and other aspects will always implicate greater risks that should be attached special attention. (iii) Contemplate and design transaction structures and financing methods. (iv) Be familiar with the international intellectual property laws, and flexibly address overseas intellectual property infringement.

After Ms. He’s presentation, Mr. Joe Chong Chai Choo, the President of ASQ Consulting Group, introduced the requirements and registration procedures for the establishment of a private limited company in Malaysia. Finally, Ms. Zheng Wanxia, the assistant of sales director of AME Development BHD of Tengyu Group, introduced the Industrial Park (“I-Park”) located in Iskandar Special Economic Zone, Malaysia. After the end of all the presentations, Ms. He Lijuan communicated in-depth with leaders of Huishan district of Wuxi, Bureau of Commerce and representatives of all companies about policy trends and legal risks of overseas investment and established contact.

With continuous development of international transaction and communication, we are committed to providing comprehensive legal services for domestic enterprises to “go out” and foreign enterprises to 'come in'.

About Veritas

Shanghai Veritas Law Corporation is a comprehensive law corporation in China that provides perfect and comprehensive legal services to clients. With our professional skills and in-depth understanding of business, we provide a complete set of value-added legal service solutions for clients in and abroad to help them achieve business goals.

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This article is only for the purpose of sharing information. Nothing in this article constitutes any legal opinions or suggestions of Shanghai Veritas. If you want more information, please check our website 'www.shveritas.com' or our Wechat Public Number 'Shanghai Veritas Law Corporation'.