DOING BUSINESS IN CHINA

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Hiways Law Firm- International Practice

Legislation Express

China Announces Tariff Hikes on US Products

On May 13th, 2019, China announces that it will increase tariffs on US$60 billion worth of U.S. goods from June 1st, 2019, in response to the tariff increases imposed by the U.S. on May 10th. On that day, the U.S. increases tariffs on US$200 billion worth of Chinese goods from 10 percent to 25 percent.

The tariffs will apply to products originally released in Announcement 6, which amends the tariffs announced last September. Products affected include beef, lamb, pork, vegetables, juice, cooking oil, tea, coffee, refrigerators, and furniture, among many others. Specific changes are provided in 4 different lists. Tariffs on various products will be increased from 10 percent to 25, 10 percent to 20, 5 percent to 10 and 0 to 5 percent. Alongside tariff increases, the State Council Customs Tariff Committee has also launched a tariff exemption system for certain eligible products.

Everything starts from last July, U.S. President Donald Trump followed through on months of threats to impose sweeping tariffs on China for its alleged unfair trade practices. In the long run, trade war costs jobs. It depresses economic growth for all countries involved. It also triggers inflation when tariffs increase the prices of imports.

New Legal Interpretation to Strengthen Protection of Shareholders’ Rights

The Supreme People’s Court issued the “Supreme People’s Court’s Provisions on Several Issues Concerning the Application of the Company Law of the People’s Republic of China (V)” (“New Legal Interpretation”) on April 28th and made provisions on the legal application in shareholders’ rights and interests disputes. The interpretation takes effect on April 29th, 2019.

The interpretation has six provisions. It mainly focuses on stipulating performance of the statutory procedures cannot be exempted from liability for related party transactions, invalidation, and cancellation of agreements of related party transactions, termination and compensation of directors, the time limit for company to distribute profits, the major disputes settlement mechanism of shareholders of limited liability companies. In addition, the legal interpretation focuses on protecting the shareholders’ rights from the profit distribution request right, and clarify that the company should complete the profit distribution within one year from the date of the distribution resolution so that the shareholders’ profit distribution request can be implemented.

“Protecting investor rights is one of the most important legislative purposes of China’s company law.” The person in charge of the Supreme Court said. It is more effective to formulate judicial interpretations within the framework of the existing legal system to improve the protection of small and medium-sized investors’ rights and interests. Maintaining the stability of social relations and the order of production, and enhancing the predictability of market transactions are of great significance to creating a business environment of rule of law, internationalization, and convenience.

China Proposes Recommendations on WTO Reform

China submitted some Recommendations about WTO Reform to the WTO on May 13th, 2019. The WTO is failing to keep pace with changes in international trade, leading to increasing doubts regarding its effectiveness and authority. With Donald Trump threatening to leave the organization, the issue of WTO reform has returned to the spotlight.

China proposed that the WTO reform should focus on the following four main areas: the first is to address the key and urgent issues critical to the survival of the WTO; the second is to increase the relevance of the WTO in the global economic governance; the third is to enhance the efficiency of the WTO; the final is to improve the inclusiveness of multilateral trade mechanism. China has also put forward detailed recommendations.

Through these recommendations, China aims to urge the WTO to close loopholes and correct practices by some member states that damage global trade, warning of a “profound crisis” facing the institution’s existence. Moreover, China hopes the WTO should reform to better serve member interests, amid a widening trade dispute that has triggered billions in retaliatory tariffs and rocked global markets.

China Encourage Local Governments to Introduce Parental Leave

On May 9th, 2019, the State Council of China issued the guideline to improve care services for infants under three years old. It is said that policies on maternal leave should be implemented, with new parents returning to work under full support from their employers. Meanwhile, it called for more support and instructions on home-based childcare services. Paid maternity leave should be provided to new mothers. Local governments are encouraged to offer childcare leave and maternity leave so that parents can spend more time to take care of their new babies.

Typically, the effects of parental leave are improvements in prenatal and postnatal care, including a decrease in infant mortality. The effects of parental leave on the labor market include an increase in employment, changes in wages, and fluctuations in the rate of employees returning to work. Leave legislation can also impact fertility rates. China’s population is rapidly aging. By 2050, the number of people aged 60 or above in China will hit 487 million, accounting for more than a third of the total population.

Faced with a shrinking labor force and declining birth rates, in 2016 the Chinese government officially abolished the one-child policy, allowing couples to have two children. But some officials might have been over-optimistic. China saw a surge in new births in 2016, but birth rates fell the following years mainly due to that in many workplaces that maternity leave invariably puts the working mothers in unfavorable positions in the competition for limited promotions.

China Promulgates APP Information Protection Regulation Draft

The Office of the Central Cyberspace Affairs Commission of China has been publicly seeking advice on its new draft of APP Information Protection since May 5th. This regulation mainly targeted on the criteria where an App will be recognized as “illegally collecting users’ information”.

The to-be-executed regulation listed 7 circumstances of typical illegal collection of information, including non-disclosure of collection patterns, non-reminding of information collection function, collection of irrelevant and unnecessary information of users, providing collected information to other parties without consent, non-acting of deleting or modifying personal information, and infringing the legal rights of the underage. The regulation also specifies certain violations like the non-existence of user privacy policy, etc. The regulation also clarifies that APPs must provide a user account, including the information, deleting function.

Chinese citizen has been suffering from information leaking since the beginning of the internet’s brutal growth. The government has determined to regulate this situation since 2017 and was fined and suspended over a million websites and thousands of APPs that violate the privacy collection rules. Now, China may finally have this long-expected regulation of criteria for APP user information collection in a few months.

Chinese Court Adjusted Economic Level-Jurisdiction Standard

The Supreme Court of China has announced on April 30th that for the purpose of reasonably distributing the burden among all courts, it has adjusted the economic level jurisdiction standard for Medium Court and the High Court, as well as for the maritime cases and foreign-related cases.

According to this Notice that came into effect on May 1st, the general economic upper limit of the disputed value of cases governed by Medium Court has been increased from 500 million to 5 billion RMB. The High Court will have the jurisdiction of the cases with a disputed value above 5 billion RMB, or with significant influence in the jurisdiction area. Maritime cases, foreign-related cases, and intellectual property cases will be heard in reference to this Notice.

Upon this notice, Medium Court will be loaded and overloaded with more cases that should have been governed by the High Court, which will be a big challenge for the existing Medium Court system because currently some complaints already exist in respect to the heavy workload of Primary Court and Medium Court leading many cases being delayed for too long. An expansion in the judge’s number in Medium Court is expected in the future.

SPFTZ Gives More Free to Financial Leasing Service Entity

On February, 2019, the Free Trade Zone Administration of Shanghai Pilot Free Trade Zone(”SPFTZ”)issued a number of measures to further promote the integration of industry and finance in the financial leasing industry, and signed contracts with 10 key enterprises to continuously expand the space for financial leasing services to the real economy.

The 10 contracted projects will include high-end equipment of upstream and downstream industries such as aircraft materials, energy security supply, integrated circuits, energy conservation and environmental protection, and smart city brain, which further demonstrates the financial leasing service entity economy. Promote the effects of industrial transformation and upgrading.

These projects will launch more than 100 aircraft, 100 ships and 10 billion yuan of high-end equipment in Shanghai in the next three years. The annual growth rate of the assets of the project subsidiaries is over 20%. The financial leasing industry in the SPFTZ was originated from ship and aircraft lease business. In addition to aircraft, aircraft engines, ships, and traditional construction machinery and equipment business, SPFTZ has actively introduced financial leasing services in emerging areas, and its asset scale is at the national leading level in recent years

It is reported that as of the end of 2018, a total of 1,874 financial leasing companies have been established in the Bonded Area of the SPFTZ, and the scale of leased assets has reached 1,06,083 million yuan, making it one of the important gathering places for the development of China’s financial leasing industry. SPFTZ proposed that in the future, the application process for key enterprise projects should be set up to 50% of the entire process of conducting business, and the “one-stop” service brand should be launched.

GOC Welcomes New Energy Buses

On May 8th, the Government of China(“GOC”), including the Ministry of Finance, Ministry of Industry and Information Technology, Ministry of Transport, and Development and Reform Commission, issued the policy on the promotion of the new energy buses.

The Policy would be effected on May 8 and the transaction period would be from May 8th to August 7th. The Policy could be divided into the following five parts:

  • Improve the technical level and guarantee product supply;
  • Improve fiscal and taxation policies and promote product consumption;
  • Increase support and optimize the use environment;
  • Strengthen multi-party linkage to ensure policy landing;
  • Strengthen fund supervision and improve capital efficiency.

According to the Policy, the new energy buses will be pre-allocated some funds in advance after the sales are completed. After meeting the mileage requirements, they can apply for liquidation according to the procedures. In the case of the general cancellation of local purchase subsidies, the localities can continue to subsidize the purchase of the new energy buses.

The Policy stresses that all localities and relevant departments must publicize the use of disbursement of the fund; they must establish the public platform for public supervision; strengthen audit checks; increase penalties for fraudulent companies, and blame the units and individuals who neglect their duties and engage in malpractices.

Major Administrative Decision-making Procedure Simplified

On May 8th, the State Council released provisional regulations, which will be implemented on September 1st, on procedures for significant administrative decisions to improve the scientific, democratic, and law-based decision-making mechanism in terms of quality and efficiency. What is “Significant administrative decisions”? That include public policies and measures related to public services, market regulation, social management, and environmental and culture protection according to the notice, and decisions refer to important public policies and measures regarding public services, market supervision and more, significant plans regarding the development of economy and society and major public policies and measures regarding development and protection of essential natural and cultural resources.

It will simplify and clarify procedures for altering such administrative decisions and the system of accountability for serious mistakes or delays in the decision-making process. It will also stress exercising the leadership of the Communist Party of China at every point in the process.

Tianjin Enhances Financial Opening-up Policy

On May 6th, the local government, the Tianjin Municipality, just scrapped the foreign ownership caps for Tianjin-based Chinese banks and financial asset management companies, according to a statement. It is a key step of Chinese policy direction to open up the financial sector and provide a level playing field in terms of ownership requirements for overseas and domestic capital.

The central government has set the tone for financial opening-up, and the government will implement this process with detailed regulations and moves. But this takes some time and the implementation speed might differ in different regions. Despite the successes of the Chinese economy, in recent years, it has shown vulnerabilities and entered a critical stage for its continued development and reform.

China has promised that full foreign ownership of securities firms, mutual fund managers and life insurers will be permitted in a couple of years, but there’s no framework for that to take effect. Also, there are plenty of hidden barriers to entry, including the challenge of cracking a market dominated by government-controlled rivals that have longstanding relationships with local firms.

Shanghai to Implement Stage 6 Emission Standard

China’s Stage 6 Emission Standard applying to light-duty vehicles will officially come into effect in Shanghai from July 1st, 2019, according to an announcement released by the Shanghai municipal government. On December 23rd, 2016, the Ministry of Environmental Protection of China released the final rule of the Stage 6 Limits for Emissions from Light-Duty Vehicles, namely, the Stage 6 standard or Stage 6. This standard applies to light-duty vehicles primarily powered by gasoline or diesel.

Apart from Shanghai, there were several provinces and cities, Hangzhou, Hainan, Tianjin, and other provinces and cities, the local governments have announced they plan to formally implement the Stage 6 prior to the official required time. Different from the previous standard phases, which closely follow the European emission standards, Stage 6 combines best practices from both European and U.S. regulatory requirements while takes China’s actual situation as the foothold.

The implementation of this emission standard reflects the Shanghai government’s efforts in environmental protection, and it also gives a higher sense of social responsibility to companies doing business in Shanghai. In daily operations, companies should not only comply with laws and regulations but also contribute to the city in environmental protection.

Case Highlights

First National AI Generated Content Copyright Case Pronounced

AI(Artificial Intelligence) concept, 3D rendering, abstract image visual

Recently, the Beijing Internet Court publicly declared that in the case Beijing Feilin Law Firm (“the law firm”) v. Beijing Baidu Netcom Technology Co., Ltd. (“Baidu”), the judge found that the content of the article generated by the computer software intelligence did not constitute a work, but at the same time it pointed out that the content could not be used freely. Baidu’s adverse use is an infringement and should compensate the law firm.

The core of the dispute, in this case, is whether the content generated by computer software intelligence should be considered as work. In this regard, the Beijing Internet Court held that, according to the current law, written works should be completed by natural persons. With the development of science and technology, such as “work” generated by computer software intelligence is approaching natural people in terms of content, form, and even expression.

However, according to the level of technology and industry development, the current legal rights protection system can fully protect the intelligence and economic input of software. It is not appropriate to break through the basic norms of civil law subjects. Therefore, the court found that completion by a natural person should still be a necessary condition for the definition of work in the field of copyright law. Even though computer software intelligently generated content does not constitute work, it does not mean that the public can use it freely. The court pointed out that such content costs the work of software developers and software users, and has a value of communication. Certain protection should be given to it.

This case is the first time that the Chinese People’s Court responded to the copyright protection of computer software intelligence generated content, and made a useful exploration of copyright protection in the context of artificial intelligence and big data application.

First National Case of Securities Group Dispute Pronounced

Recently, the Shanghai Financial Court publicly pronounced a judgment that Founder Technology Group Co., Ltd. (“Founder Technology”) has made a false statement in its annual reports and should bear civil liability. The plaintiff and other investors have been awarded more than 180,000 Yuan.

The Founder Technology case is the largest securities group dispute case accepted since the establishment of the Shanghai Financial Court. In May 2017, the China Securities Regulatory Commission determined that Founder Technology did not disclose material related party transactions in the 2004- 2015 annual reports. In this series of cases, thousands of investors demanded Founder Technology bear civil liability. After the trial, the Shanghai Financial Court made a first-instance judgment and found that Founder Technology had to bear civil liability for securities false statements. The implementation date of the false statement was March 19th, 2005, and the disclosure date was November 20th, 2015. The base date was January 5th, 2016. Investors who buy stocks from the date of implementation to the date of disclosure and suffered losses can obtain compensation. Some investors’ losses are subject to risk factors in the securities market. Therefore, it should be deducted. Finally, part of the claim for four plaintiffs was supported.

Strengthening the legal protection of small and medium investors is an important aspect of business environment assessment. Shanghai Financial Court will promote the active resolution of securities group disputes through the leading role of model cases. Through a judgment in a model case, standards of a case can be established, and many similar cases shall be resolved.

Shandong Airlines Requests Compensation from Boeing

Boeing has come under intense scrutiny after its best-selling 737 Max jet was involved in two deadly crashes in five months. It causes its 737 Max 8 that killed 346 people, Boeing is facing massive scrutiny over one of its newest and most critical aircraft models. The airliner remains grounded around the world, and Congress, the FBI and the Trump administration have called for an inquiry into the FAA’s certification process.

In China, according to Shandong Airlines’s statement on May 23rd, 2019, it has officially requested compensation from the Boeing Company for economic losses due to the grounding of its 737 Max aircraft and delayed delivery of future planes. Meanwhile, Air China has asked for compensation. Other airlines with grounded Maxes are also beginning to notify Boeing about compensation claims.

It is reported that compensation for delivery delays is also a risk to Boeing. This already has reached $1bn and stands to climb by billions more, depending on how long new deliveries are delayed. The airline halted the operation of seven aircraft, including five delivered last year and two delivered in the first quarter of this year. China was the first to halt the commercial operations of all Boeing 737 Max 8 airplanes after a deadly Ethiopian Airlines plane crash on March 10. It was the second crash of the new aircraft after one operated by Indonesia’s Lion Air crashed in October last year, triggering global scrutiny and bans on operating Boeing 737 Max aircraft.

PBC Warned 5 Companies for Declining Cash Payment

On April 23rd, the People’s Bank of China (“the PBC”, the central bank of China) announced its newest administrative warnings against 5 companies that are found to decline to accept RMB cash payment. The PBC stressed again that no company may decline to receive an RMB cash payment using oral communications, notices, contract terms, announcements, and other ways.

Electronic payment in China, leading by Wechat Payment and Alipay, has become the first and majority choice of payment for Chinese people nowadays. It is efficient and convenient for both payers and payees as all electronic data are traceable and easily manageable. However, it is still illegal to decline the payment in paper cash and coins in China, as the PBC stressed again in its notice in July of 2018. The PBC explained its policy for encouraging of “safe and legal electronic payment method”, but also required payees to “not decline cash by any method, including using notices, contract terms, announcements, and other ways”.

SAMR Fined Non-reported Merger

The State Administration for Market Regulation (“SAMR”) fined two companies, Praxair (China) Investment Co. Ltd. (Praxair China) and Nanjing Oil Refining Company Co., Ltd. (Nanjing Oil), for not reporting their jointly-set venture according to the antitrust law of China on April 28th.

Praxair China and its actual controller Praxair Inc. are one of the biggest global industrial gas supplying company, with a total sales revenue being over 70 billion RMB around the world. Nanjing Oil is a chemical company that has a history of over 50 years. The jointly-set venture, named Nanjing Praxair Nanjing Oil Industrial Gas Co., Ltd., was set up in 2013 and is owned directly by Praxair China and Nanjing Oil.

SAMR started its investigation on July 27th,2018. In its final decision, SAMR claimed the joint venture triggered the disclosure standard set by Article 3 of PRC Antitrust Law and shall be voluntarily reported by both holding companies. SAMR then fined 300 thousand Yuan to both companies for not acting in this voluntary reporting.

However, the SAMR determines that the joint venture will “not affect or restrain competition” in this industry. Therefore, SAMR will not forbid or reverse this merger for this time.

This notice shows SAMR’s typical administrative measures against suspected trust issues, which reminds International companies that are willing to merge in China to always pay special attention to if the action will reach the reporting threshold in the PRC Antitrust Law.

SAMR Published 10 Cases on AML Enforcement

On May 9th, the national market supervision system on anti-monopoly law (“AML”) enforcement conference was held in Haikou city, Hainan province. At the meeting, the top ten typical cases of AML enforcement by the State Administration for Market Regulation in 2018 were issued which includes:

  • Monopoly case of glacial acetic acid active pharmaceutical ingredients (“API”);
  • Vertical monopoly agreement of natural gas in Hadashi area;
  • Tianjin Portshore Yard enterprise monopoly agreement;
  • Pulmin API monopoly case;
  • Walt Disney Company’s acquisition of 21st Century Fox Co., Ltd.;
  • United Technologies Corporation’s acquisition of Rockwell Collins Equity Case;
  • Merger of Essilor and Luxottica;
  • Public Security Department of Inner Mongolia Autonomous Region abused administrative power to exclude the restriction of competition;
  • Public Transportation Bureau of Beijing abused administrative power to exclude competition;
  • Ji’nan Urban and Rural Construction Committee abused administrative power to exclude competition.

The reasons to choose the 10 cases are various. For example, the first case is the largest ticket in the field of APIs since the implementation of the Anti-Monopoly Law, and it has a strong impact on the monopolistic behavior of the API;the fifth acquisition case shows the different attitude of China compared to the U.S and EU. It was the biggest acquisition case since the establishment of Disney. China approved the case with no limitations while the latter two approved the case with additional requirements. The case draws a lot of attention worldwide and shows the different standards of Chinese law enforcement.

Hiways Insights

A Guide of U.S.-China Trade War

Do you know the definition of the Trade War? A trade war occurs when one country (Country A) raises tariffs (a tax or duty) on another country’s (Country B) imports in retaliation for Country B raising tariffs on Country A’s imports.

The relation between China and the United States is arguably the most important bilateral relationship in the world today. The U.S. and China are respectively the largest and the second-largest economies in the world. If China and the U.S. work together as partners towards a common goal, many things are possible. However, there exist significant friction and potential conflict in their economic relations. The large and persistent U.S.-China bilateral trade deficit is one of the problems.

It is reported that US President Donald Trump has complained about China’s trading practices since before he took office in 2016. Trump had declared in his campaign to fix China’s “longtime abuse of the broken international system and unfair practices”. The US launched an investigation into Chinese trade policies in 2017. It imposed tariffs on billions of dollars of Chinese products in the last two years, and Beijing retaliated in kind.

After months of hostilities, both countries agreed to halt new trade tariffs on December 2018 to allow for talks. Optimism had grown over the prospect of a deal, but that faded, and now the US has more than doubled tariffs on $200bn worth of Chinese products. After the U.S. went ahead and increased the tariff rate on $200 billion worth of Chinese products to 25% from 10% on May 10th. China has said it will raise tariffs on $60bn (£46bn) of US goods from June 1st, 2019, extending a bilateral trade war. There are no real winners in this US-initiated trade war. Countries facing new tariffs, including the United States, experience declines in real exports and GDP.

A study published in March concluded that the tariff revenue being collected by the U.S. is “insufficient to compensate the losses being born by the consumers.” Those costs will rise further if additional Chinese products become subject to an import tariff. Among the products that could be swept into the mix would be mobile phones and laptops, video game consoles, an array of children’s toys and flat-panel TVs. Therefore, 15 / 16 it’s time for this nail-biter to end.

The Abuse of “7 Days No Reason to Return” in Online Shopping

Online Shopping is becoming more and more popular in this era. The convenience it offers and the variety of products and services that can be seen online make most people want to try it out. Goods from Taobao are cheap primarily because of the low cost of labor in China, low cost of materials, low cost of doing online business in Taobao, and high competition among sellers. As there are a lot of sellers for a single search of products, you can easily compare prices for the same or similar items.

Another convenience of online shopping is that if you are not satisfied with the purchased goods, you can return or exchange the goods within the specified time limit. Article 25 of Chapter III of the Law of the People’s Republic of China on the Protection of Consumer Rights and Interests stipulates that online shopping consumers have the right to return within seven days from the date of receipt of the goods, without explanation.

Lately, the news of a woman returning goods after buying clothes for tourism on Taobao has aroused heated discussion among netizens. It is reported that during May 1st, a woman bought 18 clothes traveled to Tibet. After the trip, she asked for all the returns. Although Taobao shopkeeper is very dissatisfied, because some products meet Taobao 7 days no reason to return, so Taobao agreed to the woman return requirements. On May 11, Taobao official formally responded to the incident, saying that the case will not affect Taobaos current seven-day no-reason return policy.

Taobao told the media that of the 18 clothes have been returned, 9 have been tried on and photographed during the tour. According to the platform rules and the preliminary negotiation between buyers and sellers, the clothes that have been tried out will not be refunded. The rest clothes that have not been tried on and do not affect the seller’s second sale will enter the return process.

In addition, Taobao has launched a super security plan for all Taobao businesses, which will aggregate the rights and interests of the platform to protect the legitimate rights and interests of businesses through rules, products, tools, and services. 16 / 16 Overall, the buyer requested a return under the “7 days no reason to return” rule, there is no legal liability, but a loss of integrity. For such malicious purchases that utilize platform rules, the platform could solve the problem by publishing a good faith list and publish customers who are not honest. On this basis, the scope of trials for seven days without reason to return is appropriately corrected, and the buyers who lose the points of integrity will be sanctioned.

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