China 20/20: Legal & Regulatory Developments - July 2012

by Orrick, Herrington & Sutcliffe LLP

China to Amend the Internet Information Service Measures

On June 7, 2012, the State Internet Information Office and the Ministry of Industry and Information Technology jointly published the draft amendment to the Measures for the Administration of Internet Information Services. The public is permitted to submit comments on the draft until July 6, 2012. According to the draft amendment, service providers must obtain a license from the relevant Internet information content administration department in order to engage in online forum, blog, micro-blog or information searching services. Internet users who release information to the public through fora, blogs, micro-blogs or other platforms must use their real identities for registration. Information published by users and Internet information service providers must be kept by the Internet information service provider for 6 months and log information shall be kept for 12 months. Internet access services and information service providers must keep personal information of Internet users and the log information confidential and are prohibited from selling, distorting, deliberately disclosing or illegally using such information.

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

Interpretation of Laws Applicable to Disputes Involving Sale and Purchase Contracts

On May 10, 2012, the Supreme People’s Court issued the Interpretation on Laws Applicable to the Trial of Cases Involving Disputes over Sale and Purchase Contracts, which took effect on July 1, 2012. Under the interpretation, if the parties to a transaction fail to enter into a written agreement and one party asserts that a contract was formed based on a delivery or acceptance order, settlement order or a receipt, the People’s Courts are instructed to rule in accordance with the transaction method, transaction custom or other available evidence. If the parties have signed a pre-contract in the form of a subscription order, letter of intent or memorandum of understanding promising to conclude a sale and purchase contract within a specific time period and one party fails to perform, the other party may file a claim in the People’s Courts for damages and an order to terminate the pre-contract. The Interpretation also clarifies the rules applicable to the trial of disputes involving delivery, transfer of title, risk of loss during transport and other trade terms.

The full Chinese text of the interpretation is available here.

MOFCOM Conditionally Approves Google’s Purchase of Motorola Mobility

On May 19, 2012, the Ministry of Commerce (“MOFCOM”) issued the Announcement of Anti-Monopoly Review Decision Approving the Concentration of Business Operators for the Acquisition of Motorola Mobility by Google with Additional Restrictive Conditions, which takes effect immediately. This is the thirteenth conditional approval since China’s Anti-Monopoly Law came into force in 2008 and is the third time MOFCOM has imposed remedies on a transaction that has been unconditionally cleared by antitrust authorities in both the US and EU. MOFCOM and Google reportedly had several rounds of discussions about remedies and the transaction was eventually cleared on the following conditions: (1) Google must keep the Android platform free and open for five years from the date of MOFCOM’s decision; (2) Google must treat OEMs who agree not to divide or derivate the Android platform in a non-discriminatory manner for five years from the date of MOFCOM’s decision; (3) Google must uphold Motorola Mobility's FRAND commitments for licensing patents; and (4) Google must appoint an independent monitoring trustee to supervise its performance of these conditions and must report to MOFCOM and the trustee every six months for the next five years.

The full Chinese text of the announcement is available here.

MOFCOM Revises the Declaration Form for Anti-Monopoly Review on Concentration of Business Operators

On June 6, 2012, MOFCOM issued a revised “Declaration Form for Anti-Monopoly Review on Concentration of Business Operators”, which must be used from July 7, 2012. This will supersede the “Declaration Form for Concentration of Business Operators” issued in 2009. Compared with the 2009 form, the new form requires applicants to provide MOFCOM with extra documents when lodging an anti-monopoly review application, typically including (1) a research, analysis or report provided by the director, supervisor and senior management personnel of the trading parties and their ultimate controller assessing and analyzing the affect of the concentration on market share, competition conditions, existing or potential competitors, rationality for concentration etc. ; (2) a research, analysis or report provided by a third party; and (3) the executed concentration agreement (a memorandum, framework agreement or a draft agreement may be accepted if an applicant has sufficient proof showing that the executed agreement cannot be submitted at the time of declaration). The new form also clarifies who should be regarded as a “business operator participating in a concentration” under various merger and acquisition scenarios.

The full Chinese text of the form is available here.

SAFE Simplifies Foreign Exchange Control on Overseas Investment

On June 11, 2012, the State Administration of Foreign Exchange (“SAFE”) issued the Notice on Relevant Foreign Exchange Control Issues Concerning Encouraging and Guiding the Healthy Development of Private Investment, which took effect on July 1, 2012. The notice simplifies the process for remission of funds from an offshore company to its domestic parent company. MOFCOM requires domestic companies to provide details of the registered capital/equity investment and total investment (being the total amount of equity plus loans or other non-equity investments) of companies to be established overseas. Under the notice, SAFE permits domestic enterprises to directly remit back the balance between total investment and registered capital from overseas, without going through any registration procedure for capital reduction or withdrawal. Only an amendment registration procedure is required. The notice also permits domestic enterprises to use their domestic foreign exchange loans for overseas lending. In addition, the notice permits domestic individuals to act as a joint guarantor in guarantees for overseas debt.

The full Chinese text of the notice is available here.

China to Make QFII License Applications Easier 

On June 20, 2012, the China Securities Regulatory Commission published a draft revision to the Notice on Relevant Issues Concerning the Implementation of the Measures for Administration of Securities Investment in China by Qualified Foreign Institutional Investors (“QFII”). The public is permitted to submit comments on the draft until July 5, 2012. The draft revision lowers the threshold for QFII license application in relation to length of business operation and level of securities assets. Under the current practice, to apply for a QFII license, a qualified fund management institution or insurance company applicant must have been operational for more than 5 years, and a qualified securities company applicant must have been operational for more than 30 years. The time requirement has been reduced to 2 years and 5 years respectively under the draft revision, while the minimum securities assets requirement has been lowered to US$ 500 million from US$ 5 billion for fund management institution and insurance company applicants, and lowered to US$ 5 billion from US$ 10 billion for securities company applicants. For commercial bank applicants, the requirement on “top 100 world-wide ranking of total assets” has been removed. Instead, commercial bank applicants must have operated for more than 10 years and have first-class capital of no less than US$ 300 million and securities assets of no less than US$ 5 billion. In addition, the draft permits QFIIs to invest in stock index futures and bonds traded in inter-bank bond market in China. The shareholding ratio cap of A shares of a single PRC listed company by a QFII has been increased from 20% to 30%.

The full Chinese text of the draft revision 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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