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

by Orrick, Herrington & Sutcliffe LLP

MOFCOM Improves the Filing Administration of Foreign Invested Venture Capital Enterprises

On May 7, 2012, the Ministry of Commerce ("MOFCOM") issued the Notice on Improving the Filing Administration of Foreign Invested Venture Capital Enterprises ("FIVCs"). Under the notice, MOFCOM requires provincial level commerce authorities to forward the details of FIVCs approved by them to MOFCOM by May 31 of each year for recording. MOFCOM will publish and update on its website a list of FIVCs that have completed the filing procedure (the "FIVCs List"). FIVCs that are not included in the FIVCs List will be prohibited to carry out domestic investment activities in China and local commerce authorities shall not handle any formalities for their changes. In addition, the notice requires that local commerce authorities, based on the information included in the FIVCs List, complete filing procedures by the listed FIVCs for their investments in encouraged and permitted industries, and issue foreign investment enterprise certificates to the investee companies within 5 working days after acceptance of related filing documents from the FIVCs.

The full Chinese text of the notice is available here.

Supplementary Provisions to the Measures Governing Foreign Invested Commercial Enterprises

On April 10, 2012, MOFCOM issued the Supplementary Provisions V to the Measures for Administration of Foreign Investment in the Commercial Sectors, which took effect immediately. The supplementary provisions permit one same Hong Kong or Macao service provider which has aggregately opened more than 30 stores in the Mainland and traded different types and brands of grains provided by various suppliers to operate as a wholly foreign-owned enterprise within Guangdong province, on a trial basis. The capital contribution ratio of other overseas investors which have aggregately opened more than 30 stores in the Mainland and traded different types and brands of grains provided by various suppliers is still limited to 49%.

The full Chinese text of the provisions is available here.

Provisions on the Trial of Monopolization Related Civil Dispute Cases

On May 3, 2012, the Supreme People’s Court issued the Provisions on Several Issues Concerning Application of Laws in the Trial of Civil Dispute Cases Arising from Monopolistic Activities, which will take effect on June 1, 2012. The provisions are China’s first ever judicial interpretations on anti-monopoly related trials. According to the provisions, individuals, legal persons or other organizations may file lawsuits directly with the relevant intermediate people’s courts if they suffer losses due to monopolistic acts or are involved in disputes over violation of the PRC Anti-Monopoly Law by contracts or article of associations of industry associations. The defendant shall bear the burden of proof in cases alleging entry into monopolistic agreements while the plaintiff shall bear the burden of proof in cases involving abusing of market dominant position. The parties may also apply to entrust professional institutions or experts to provide market research or economic analysis report on specific issues. If a contract or the articles of association of an industry association are recognized as containing content violating mandatory provisions of PRC Anti-Monopoly Law or other laws or regulations, it shall be ruled as invalid. If a defendant is recognized as conducting monopolistic acts and has caused losses to the plaintiff, the court may order it to stop the infringement and compensate damages.

The full Chinese text of the provisions is available here.

Localization Plan for International Accounting Firms in China

On May 2, 2012, the Ministry of Finance, State Administration for Industry and Commerce, MOFCOM, State Administration of Foreign Exchange and the China Securities Regulatory Commission jointly issued the Plan for Localizing Conversion of Sino-Foreign Cooperative Accounting Firms, which took effect on May 10, 2012. The plan applies to the well-known big four international accounting firms in China: Ernst & Young, KPMG, Deloitte and PricewaterhouseCoopers. Under the plan, the "big four", upon expiration of their current business licenses, are required to convert their form of organization from "Sino-foreign Cooperation" to "Special General Partnership". Generally, qualified partners of the re-organized accounting firms must hold either a Certified Public Accountant, Certified Public Valuer, Certified Tax Agents or Certified Cost Engineer license issued in China. During a transition period (until December 31, 2017), Hong Kong, Macao, Taiwan residents or foreigners who do not have the required licenses but are otherwise qualified may take the post of partner, but their number must be lower than 40% initially, and must be lower than 20% by the end of the transition period, after which the specific conditions for such qualified foreigners to take the post of partner will be subject to mutual governmental agreements. The plan also stipulates that only Chinese citizens are qualified to hold the position of Chief Partner of the re-organized accounting firms. Current foreign Chief Partners of the "big four" may continue their term for another 3 years.

The full Chinese text of the plan is available here.

NDRC Governing the Issuance of RMB Bonds in Hong Kong by Domestic Non-financial Institutions

On May 2, 2012, the National Development and Reform Commission ("NDRC") issued the Notice on Relevant Matters Concerning the Issuance of Renminbi Bonds in the Hong Kong Special Administrative Region by Domestic Non-financial Institutions, which took effect immediately. The notice requires domestically registered non-financial institutions with a legal person status to apply with NDRC for approval before issuing RMB bonds in Hong Kong. Upon acceptance of the application, NDRC will decide whether or not to grant approval within 60 working days. The approval document, if granted, will be valid for a year and the issuer must complete its bond issuance within the period of validity. Capital raised from the bond issuance must be used for approved purposes. Within 10 working days after completion of the bond issuance, the issuer must report to NDRC the result of issuance in writing. The NDRC also requires non-financial institutions to make a filing, if they provide guarantee to their overseas branches for the issuance of RMB bonds in Hong Kong.

The full Chinese text of the notice is available here.

Special Protection for Female Employees

On April 28, 2012, the State Council issued the Special Provisions for Labor Protection of Female Employees, which took effect immediately and superseded the Provisions for Labor Protection of Female Employees issued in 1988. The new provisions have enlarged the scope of prohibited labor activities for female employees during pregnancy, periods and lactation, and have increased the maternity leave from 90 days to 98 days. Childbirth allowance and medical treatment for childbirth and miscarriages are covered by the maternity insurance fund or by the employer if the employer has not provided maternity insurance. Employers who violate relevant provisions will be ordered to make rectifications and subject to a fine ranging from RMB 1000 for each infringed female employee to RMB 300,000 for certain serious violations. For severe violations, the employer may also be forced to cease relevant operations or even to shut down.

The full Chinese text of the provisions is available here.

China to Improve its Special Working Hour System

On May 8, 2012, the Ministry of Human Resources and Social Security ("MOHRSS") issued draft Provisions for Administration of Special Working Hour System. The public was permitted to submit comments on the draft until June 8, 2012. The draft provisions, if enforced, will supersede the Measures for Approval of the Implementation of Irregular Working Hour System and Comprehensively-calculated Working Hour System by Enterprises issued in 1994. Under the draft provisions, the annual salary of an employee under the irregular working hour system may not be lower than the local average annual salary of the previous year; the daily longest working hours of an employee under the comprehensively-calculated working hour system may not exceed 11 hours. Overtime of employees under the comprehensively-calculated working hour system is capped based on the calculation circle of their working hours. The draft clarifies the scope of applicability of irregular working hour system. The draft also clarifies that to adopt a special working hour system, enterprises under administration and supervision of the State-owned Assets Supervision and Administration Commission of the State Council, state-owned commercial banks and insurance companies, and enterprises in railway, civil aviation and tobacco sectors shall submit their applications to MOHRSS, and other enterprises shall apply with local labor authorities for approval and filing.

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

Written by:

Orrick, Herrington & Sutcliffe LLP

Orrick, Herrington & Sutcliffe LLP on:

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