China 20/20: Legal and Regulatory Developments - August 2012

China Adopts New “Immigration Law” 

On June 30, 2012, Standing Committee of the National People’s Congress adopted the Exit and Entry Administration Law of the People’s Republic of China (“the Law”), which will take effect on July 1, 2013 and supersede the Law of the PRC on the Entry and Exit Administration of Foreigners and the Law of the PRC on the Exit and Entry Administration of Chinese Citizens. The Law provides new visa policies for foreigners who wish to enter and stay in China, which include: (1) introducing a new type of visa for the importation of talents; (2) requiring Chinese domestic entities or individuals to comply with the requirements of overseas PRC embassy/consulate/other institution commissioned by the Ministry of Foreign Affairs when issuing invitation letter to a foreigner and be responsible for the authenticity of the letter; and (3) clarifying the staying and residence period of foreigners in China. In addition, the Law requires the Ministry of Human Resources and Social Security and the State Administration of Foreign Expert Affairs to formulate a catalogue guiding the employment of foreigners in China in consultation with the relevant departments under the State Council, and requires the Ministry of Education to take lead to launch a work-study program for foreign students in China and set forth regulations on job scope and time limits of the work-study program. Penalties imposed on foreigners who illegally enter, stay and work in China and employers who illegally hire foreign employees in China have been enhanced.

The full Chinese text of the Law is available here.

SPC Issues Draft Interpretations on the Trial of Cases Involving Labor Disputes

On June 27, 2012, the Supreme People’s Court (“SPC”) issued a draft version (for comments) of the Interpretation on Several Issues Concerning the Application of Laws in the Trial of Cases Involving Labor Disputes (IV). The public was allowed to submit comments on the draft until July 28, 2012. Under the interpretation, an employer’s request for an employee to perform the non-competition obligation will be denied by courts if (1) the relevant non-competition clauses under the labor contract or confidentiality agreement are silent on economic compensation to the employee upon dissolution or termination of the labor contract; or (2) the employer delays in paying compensation to the employee for more than 1 month after the dissolution or termination of the labor contract, unless the employee is willing to continue performing the obligations. If a contract is silent on non-competition compensation, and if an employee has performed the non-competition obligations, the court will support his/her claim for an employer to pay compensation based on his/her average salary of the past 12 months before the termination of the labor contract. In addition, the interpretation supports an employee to request severance compensation based on illegal termination by the employer, if an employer unilaterally terminates the labor relationship without soliciting opinions from labor union (if there is one), or based on the principle of “elimination of the least competent” without there being a permitted cause for termination by the employer under the Labor Contract Law. The interpretation also clarifies that the formation of employment relationship between a foreigner, a stateless person, or a Taiwan, Hong Kong or Macau resident with a domestic employer will be judged based on an Employment Permit, instead of a signed labor contract.

The full Chinese text of the draft interpretation is available here.

China to Amend the Labor Contract Law

On July 6, 2012, Standing Committee of the National People’s Congress published draft amendments to the PRC Labor Contract Law. The public is allowed to submit comments on the draft until August 5, 2012. The amendments focus on the labor dispatch related articles of the Labor Contract Law and proposes to strengthen the administration of labor dispatch companies and protect the rights and interests of dispatched workers. According to the draft amendments, to engage in labor dispatch service, an entity must obtain an approval from the labor administration departments. A qualified labor dispatch company must have a registered capital of not less than RMB 1 million Yuan and a labor dispatch management system conforming to laws and regulations, as well as be complying with other conditions as prescribed by laws and administrative regulations. The amendments emphasize that workers can only be dispatched to temporary (no more than 6 months), auxiliary or substitute positions. The amendments do not address whether there will be a transition period or how this is intended to work for employees who are dispatched on longer term contracts to representative offices of foreign companies in China (who are permitted only to hire Chinese employees through dispatchment). The labor dispatch companies must warrant that the dispatched workers will enjoy the equal pay for equal work as the workers of a receiving unit in both the labor contract and the labor dispatching agreement. The amendment also increases fine to be imposed on labor dispatch companies that violate laws and regulations.

The full Chinese text of the draft amendment is available here.

People’s Bank of China Clarifies the Operation Details of RMB Settlement for Foreign Direct Investment 

On June 14, 2012, the People’s Bank of China issued the Notice on Clarifying the Operation Details of Renminbi Settlement for Foreign Direct Investment. The notice reiterates that foreign invested enterprises must use their Renminbi funds for approved purposes, and may not invest their Yuan capital in negotiable securities, financial derivatives, assets management products, non-own use properties or to make entrusted loans, and that foreign invested enterprises without an investment business scope shall not reinvest within the territory of China. Under the notice, overseas investors are prohibited from using their Renminbi funds as upfront fees for land tenders, auctions or listing and purchasing of properties. Foreign invested real estate companies are prohibited from borrowing offshore Renminbi funds. The notice also requires overseas investors, foreign invested enterprises and Chinese shareholders to clear and verify their Renminbi bank accounts within three months of the issuance of the notice to make sure that only one bank account for capital fund, M&A fund or share transfer fund has been opened under a single approval document.

The full Chinese text of the notice is available here.

Mainland and Hong Kong Sign CEPA Supplementary Provisions IX

On June 29, 2012, the Supplementary Provisions IX to the Mainland and Hong Kong Closer Economic Partnership Arrangement (“CEPA”) was signed in Hong Kong. Under the supplementary provisions, the Mainland commits, from January 1, 2013, to further relax the market access conditions in 21 service trade sectors involving legal, accounting, construction, medical service, computer and related services, technical testing and analysis services, placement and supply services of personnel, printing, convention and exhibition, other business services, telecommunications, audiovisual, distribution, environment, banking, securities, social services, tourism, cultural, rail transport and individually owned stores. Liberalization measures will also be introduced in a new sector, namely, education services. In the legal service area, a Hong Kong law firm that has established a representative office in the Mainland will be allowed to operate in association with one to three Mainland law firms. In the telecommunications sector, the Mainland will permit Hong Kong service providers (i) to provide cross-boundary database services in Qianhai and Hengqin on a pilot basis, (ii) to establish joint venture enterprises (the proportion of Hong Kong service suppliers' shareholding shall not exceed 50%) in the Mainland to provide database services (only limited to the internet data center service business, store and forwarding business and information service business), and (iii) to establish wholly foreign owned enterprise or joint ventures in Dongguan and Zhuhai of Guangdong Province on a pilot basis to engage in offshore call center services. In addition, Hong Kong service providers may establish business-based training institutions in the Mainland on a wholly-owned, joint venture or cooperation basis. The supplementary provisions permit qualified Hong Kong securities companies (with maximum shareholding of 49%) to set up equity joint venture securities investment advisory companies, and also support qualified Hong Kong financial institutions to establish joint venture securities companies, fund management companies and futures companies in the Mainland.

The full Chinese text of the supplementary provisions is available here.

SAFE Spreads the New Foreign Exchange Control System for Trading of Goods Nationwide 

On June 27, 2012, the State Administration of Foreign Exchange issued (i) the Guidelines for Foreign Exchange Control on Trading of Goods, (ii) the Detailed Implementing Rules of the Guidelines for Foreign Exchange Control on Trading of Goods, (iii) the Operational Procedures of the Guidelines for Foreign Exchange Control on Trading of Goods (bank and enterprise version) and (iv) the Provisions for Information Declaration Administration on Receipt and Payment of Foreign Exchange from the Trading of Goods with the stated intention of implementing nationwide reform in the foreign exchange control system for trading of goods. This set of regulations will come into effect on August 1, 2012. Under the system, trading enterprises are required to register with the relevant foreign exchange administration after obtaining foreign trading rights. A list of registered enterprises will be circulated to financial institutions and a financial institution may not handle trading related foreign exchange receipt and payment for enterprises not covered in the list. Foreign exchange administrations will conduct regular or irregular inspections on the import/export data and foreign exchange receipt/payment figures of trading enterprises in a certain period and conduct on-site supervision and examination on enterprises with “unusual or suspicious” circumstances. Based on an enterprise’s compliance with the relevant foreign exchange provisions and the results of the foreign exchange administrations’ inspection or on-site examination, trading enterprises will be classified as an ‘A,’ ‘B’ or ‘C’ enterprise. ‘A’ grade enterprises may benefit from simplified foreign exchange control procedures. The system was under a trial use in seven places since December 1, 2011.

The full Chinese text of the notice is available here.