China 20/20 - Legal & Regulatory Developments - March 2012

by Orrick, Herrington & Sutcliffe LLP

2012 Annual Inspection for Foreign Invested Enterprises Kicks Off

On February 29, 2012, the Ministry of Commerce, State Administration for Industry and Commerce ("SAIC"), Ministry of Finance, State Administration of Taxation, State Administration of Foreign Exchange and the National Bureau of Statistics jointly issued the Notice on Carrying out the 2012 Joint Annual Inspection for Foreign Invested Enterprises ("FIEs").  The annual inspection, which will be conducted during the period from 1 March, 2012 to 30 June, 2012, is a routine requirement for FIEs established in China.  The purpose of the annual inspection is to ensure FIEs have been conducting business in compliance with all applicable laws, rules and regulations.  FIEs are required to complete an annual inspection report formulated by SAIC and submit requested documents for review.  Upon completion of the inspection, SAIC or its local counterpart will affix a seal of annual inspection on the business license of the FIE.  Penalties will be imposed on FIEs who fail to go through the annual inspection process, submit false information or who do not operated in compliance with applicable laws rules or regulations or operate illegally.

The full Chinese text of the notice is available here.

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China Amends the Measures for Disclosure of Franchise Information

On February 23, 2012, the Ministry of Commerce issued the amended Measures for Administration of Disclosure of Commercial Franchise Information, which will take effect on April 1, 2012 and supersede the Measures for Administration of Disclosure of Commercial Franchise Information issued in 2007.  The amended measures clarify that those shareholders who are natural persons are affiliate parties of a franchisor, and that their relevant information shall be disclosed to franchisees if they are the providers of products or services or the owners of business resources.  In addition, franchisors are obliged to disclose the business status of existing franchisees, including their actual investment, average sales volume, cost, gross and net profit etc.  According to the amended measures, if a franchisee knows business secrets of a franchisor as a result of their contractual relationship, the franchisee is required to keep such business secrets confidential after the expiry of the franchise contract, even if no specific agreement has been made to this effect.

The full Chinese text of the notice is available here.

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China Clarifies Import Duty Treatment for Foreign Invested Projects

On January 29, 2012, the General Administration of Customs issued the Announcement on Relevant Issues Concerning the Implementation of the 2011 Foreign Investment Industrial Guidance Catalogue.  According to the announcement, from January 30, 2012, the importation of own-use equipment within the total investment of foreign invested projects (including capital-increasing projects) under the encouraged category of the 2011 catalogue will be exempted from customs duties but will be subject to import value added tax.  This policy also applies to technologies, accessories and parts imported together with such equipment based on contracts.  However, the afore-mentioned tax treatment does not apply to equipment listed in the Catalogue of Imported Goods Not Exempted from Taxes for Foreign Invested Projects and the Catalogue of Major Technical Equipment and Products Not Exempted from Imported Duties.  Foreign invested projects which fall into the encouraged category according to the 2007 Foreign Investment Industrial Guidance Catalogue and which obtained approval before January 30, 2012, will continue to enjoy import duty exemption treatment until January 30, 2013. 

The full Chinese text of the notice is available here.

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CIRC Delegates Approval Authority on Foreign Invested Insurance Companies

On February 6, 2012, the China Insurance Regulatory Commission ("CIRC") issued the Notice on Relevant Issues Concerning Adjusting Some Administrative Licensing Items for Foreign Invested Insurance Companies, which came into effect immediately.  Under the notice, the CIRC has delegated responsibility for carrying out the examination and approval of the following matters to its local counterparts : (1) change of office address by branches of foreign invested insurance companies; (2) application for preparation to establish sub-branches of branches of foreign invested insurance companies; (3) application for commencement of business by sub-branches of branches of foreign invested insurance companies; and (4) qualifications of senior management personnel in sub-branches of branches of foreign invested insurance companies.

The full Chinese text of the notice is available here.

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CIETAC Adopts New Arbitration Rules

On February 3, 2012, the China Council for the Promotion of International Trade / China Chamber of International Commerce adopted the 2012 Arbitration Rules of the China International Economic and Trade Arbitration Commission ("CIETAC"), which will take effect on May 1, 2012.  The new rules grant parties to an arbitration proceeding the right to apply for arbitration consolidation, interim measures or suspension of arbitration proceedings.  CIETAC may decide to consolidate two or more arbitration cases pending under its rules into one single case at the request of a party and with the agreement of all other parties.  In addition, if CIETAC deems necessary or appropriate, it may grant interim measures in the form of a procedural order or an interlocutory award and require the party asking for the interim measures to provide security.  The new rules also widen the threshold for the application of summary procedure to cases where the amount in dispute does not exceed RMB 2,000,000 yuan.

The full Chinese text of the notice is available here.

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China Regulates the Import and Broadcasting of Foreign Film and Television Dramas

On February 9, 2012, the State Administration of Radio Film and Television ("SARFT") issued the Notice on Further Strengthening and Improving the Administration of Importation and Broadcasting of Foreign Films and Television Dramas, which came into effect immediately and superseded the notice of the same title issued in 1995, and the Notice on Administration of Replay Foreign Television Dramas by Local Television Stations issued in 1999.  According to the notice, SARFT accepts applications for the importation of foreign film and dramas twice a year in January and July.  SARFT encourages the importation of high-definition movies or TV shows of less than 50 episodes, but prohibits those with vulgar or violent scenes.  Under the notice, TV stations are required to carefully review the approval document when playing foreign movies or television series and such programs may not be broadcast during golden hours (from 19:00 to 22:00).  The notice also stipulates that the time for broadcasting foreign film or TV shows by a channel may not exceed 25% of the time allocated to TV shows that day. 

The full Chinese text of the notice is available here.

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SAFE Notice on Foreign Exchange Control over Equity Incentive Plans

On February 15, 2012, the State Administration of Foreign Exchange ("SAFE") issued the Notice on Relevant Issues Concerning Foreign Exchange Control on Participation in Equity Incentive Plans of Overseas Listed Companies by Domestic Individuals (Notice), which took effect immediately and superseded the Operating Rules for Foreign Exchange Control on Participation in Employee Ownership Plans and Stock Option Schemes of Overseas Listed Companies by Domestic Individuals issued in 2007, and the Notice on Delegating the Approval Authority on Initial Foreign Exchange Purchase and Payment Quotas and Opening of Foreign Currency Accounts Relating to Participation in Employee Stock Ownership Plans of Overseas Listed Companies by Domestic Individuals issued in 2008.  Under the Notice, companies listed in Hong Kong, Macao, Taiwan or foreign countries may grant their own stocks to directors, supervisors, senior management personnel or other employees of their domestically registered branches (including representative offices), parent companies, subsidiaries, partnerships or other institutions that directly or indirectly control or are controlled by the listed companies as part of an equity incentive plan.  Individuals who participate in such equity incentive plan shall, through the domestic companies they serve, entrust a domestic agent and an overseas trustee to handle related matters.  The domestic agent shall be responsible for foreign exchange registration and quota application, account opening, fund transfer and foreign exchange settlement while the overseas trustee shall be liable for the exercise of options, purchase and sale of related stocks or equity, and fund transfers etc.   We will provide a detailed analysis of the Notice in our sister publication, Asia in Focus.  If you do not already receive Asia in Focus but wish to subscribe, please click here.          

The full Chinese text of the Notice is available here.  


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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