China Laws and Regulations Update in February 2020

1.Foreigner Permanent Residence Regulations of the People’s Republic of China (Draft Version)

Published by the Ministry of Justice

Publication date: 27 February 2020

Draft Version clearly states that the foreign permanent resident’s identity card is the identity document of foreign permanent residents in China. Foreign permanent residents with this document can do and none of relevant organizations and their staff can prevent them from doing certain activities. Draft Version sets out the eligibility for foreigners applying for permanent residence in China. For instance, foreigners who have made globally recognized achievements in economics, science and technology, education, culture, health, sports and other areas can apply for permanent residence application directly. Foreigners who have made significant contribution to China’s economic and social development and obtained recommendation of relevant government authority or the provincial, autonomous region or municipality government may apply for permanent residence. Foreigners who are needed for the national economic and social development such as urgently needed talents introduced into state key industries and areas and recommended by relevant regulatory authority may apply for permanent residence application. Draft Version provides that the foreigner wanting to obtain permanent residence in China should file a permanent residence application to the exit and entry administration affiliated with the public security department of the place where the applicant lives. The applicant should ensure information contained in the application form is true, submit photos of their passport or other international travel document or of specific standards and other documents, attend an interview and give their human identification information such as fingerprint. Foreign permanent residents cannot stay in China for less than three months every year. According to Draft Version, foreign permanent residents can use the entry and exit passages only for Chinese citizens, buy commercial houses in China by relevant rules for personal use or to live in, pay and use public housing funds by public housing fund management rules. Foreigners with permanent residence in the specific age group or their accompanying children who have not reached adulthood can receive compulsory education in China and only need to pay mandatory fees. (Source: Website of the Ministry of Justice)

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What Should I Do with My Contract in the Cononavirus Epidemic?

(By Wang Haichuan)Facing the coronavirus epidemic, some people are going on the extra 10-days’ holiday, while others are worrying about their contracts. For example, the Government of Shanghai requires local enterprises not resume their work before 24:00 of February 9th. Such requirement may result in a delay or failure of contract performance. This brings about a few questions. Who should be responsible for the contract breach? Can the contract be extended or terminated? What about allocation of damages arising from the contract termination.
I.The epidemic is a force majeure event
People usually think of such events as force majeure. Is the coronavirus epidemic a force majeure event? Chinese courts used to consider similar events as force majeure. The SARS epidemic in 2003 is very similar to the coronavirus epidemic this time. The Supreme Court issued the notice regarding contract disputes arising from SARS (“SARS cases”) in 2003. Accordingly, contract disputes arising from the SARS epidemic or government acts to prevent and control the SARS epidemic should be resolved according to force majeure related provisions. Actually, there are contract disputes decided by Chinese courts as caused by force majeure events.
According to the Contract Law of the People’s Republic of China, if a contract cannot be fulfilled due to a force majeure event, the liabilities may be exempted in whole or in part depending on the impact of the force majeure event. The “exemption of liabilities” means no longer needing to pay damages and be responsible for the breach of the contract, but does not mean exempting the obligation to perform the contract. For example, in case of delayed performance of a contract, the defaulting party shall pay the non-defaulting party 0.5% of the contract price as penalty for each day of delay. When the performance is delayed due to force majeure, the delaying party is entitled to refuse to pay the penalty pursuant to force majeure related provisions. After the disappearance of a force majeure event, the other party is entitled to require the delaying party to continue to perform the contract.
You may feel less worried after reading the above paragraph because anyhow you are not liable for the contract breach. However, force majeure related provisions do not apply in all cases where a force majeure event occurs. For example, the effect of the epidemic on a sales contract may be different from that on a tourism contract. For instance, a tourism contract for a trip to Wuhan is completely unable to be performed, while a computer sales contract between two Shanghai-based companies are not be affected at all. Therefore, the impact of force majeure events on the performance of contracts should be determined on a case-by-case basis by taking actual circumstances into consideration. In some SARS related cases, courts found that the SARS epidemic and restrictions imposed by the government due to the SARS epidemic only affected part of the business of the defaulting party in a way that was not serious enough to “directly” or “basically” cause the contract to be unable to be performed and therefore the force majeure event could not be a legal reason for the contract termination[L.S.2.M.K.Z.No.14 Tenancy Contract Case of Second Trial between Dalian Pengcheng Holiday Damu Co., Ltd. and Dalian Zhengdian Watches Co., Ltd.]. In summary, after the occurrence of force majeure events, factors such as the duration of the epidemic, the contents of the contract, the term of the contract and government orders should be taken into consideration to determine whether relevant force majeure provisions can be applied.
II. What should we do after a force majeure event occurs?
The exemption of liabilities in the event of force majeure doesn’t mean that the contractual parties can wait and do nothing until the disappearance of the force majeure event. The parties should do the following things about their contract after the occurrence of a force majeure event.
1. To take active and appropriate measures to reduce the extent of the damage and the adverse effect on the performance of the contract. The party failing to take prompt action is liable for additional losses arising from such failure.
2. To obtain proof of the occurrence of the force majeure event. In some contracts the affected party may be required to provide the other party with proof of the force majeure event within a certain period of time. Therefore, the affected party should be active collecting proof of the force majeure event from government agencies or other third parties.
3. To deal with other contract related issues as soon as possible, especially modification or termination of the contract. In case of modification of the contract, the parties will continue to perform the contract some time later or at a reduced contract price. In the SARS epidemic some tenants had to stop doing business and asked for cuts in rent. Courts supported their claims in equitable fashion[(2004) H.2.Z.M.2.(M) Z.Z.No.354 House Lease Contract Case between Shanghai Pipe Entertainment Co., Ltd. and Shanghai New Huangpu (Group) Co., Ltd.]. In case of termination of the contract, neither party is liable for the termination if the purpose of the contract cannot be met because of the force majeure event.
4. Any party that wants to terminate the contract needs to collect evidence of losses arising from the contract performance. After the termination, the fulfilled part of the contract should be paid for, with the rest part of the contract price not needing to be paid. The cost of preparations made for the performance of the contract made are part of losses of the parties to the contract. Courts usually award damages in an equitable fashion. In some cases, each party pay 50% damages[cf. Government’s Abstract Administrative Act Resulting in Non-Performance of a Contract Can Be Considered as a Force Majeure Event, by Li Hu, People’s Judicature, 20th issue 2009, pp.83-86; and the written judgement for the (2016) SPC.M.Z.No.220 contract case of second trial between Bai Junying and the Government of Tumd Zuoqi].
5. To send a written notice to the other party to the contract. Issuing such written notice will give you the following advantages. First, giving a clarification of measures taken to mitigate the adverse effect of the force majeure event could reduce the risk of being held liable (for further losses). Second, there are different approaches to addressing issues arising from an force majeure event (such as change or termination of the contract). Sending a written notice can give you an advantage of making a good choice for yourself. A notice usually contains:
(1) details of the force majeure event and its effect;
(2) measures taken or to be taken by you to reduce losses after its occurrence;
(3) your proposed plan to deal with other contract related issues arising therefrom (such as change or termination);
(4) your losses arising from performance of the contract and loss distribution plan (if the contract is terminated)
6. To actively negotiate with the other party and prepare for possible action. The two parties must reach a mutual agreement for the change of contract. If the parties fail to reach an agreement, an action may be brought to change the contract. When a force majeure event occurs, the possibility of contract disputes is higher. Therefore, on one hand, the parties involved should discuss and negotiate with each other actively to resolve the problems; on the other hand, they must prepare for possible litigation.
III. Suggestions
We suggest the parties affected by the epidemic of the coronavirus:
1.evaluate the impact of the epidemic on the contract performance to see whether force majeure related provisions are applicable;
2. take reasonable measures to reduce losses after the occurrence of the force majeure event;
3. obtain proof of the occurrence of force majeure event;
4. decide how to deal with issues related to the contract (change or termination);
5. collecting evidence of losses arising from the performance of the contract;
6. sending a written notice to the other party as soon as possible to fix related facts and express your opinions;
7. discuss with each other actively and prepare for possible litigation.

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China Laws and Regulations Update in November 2019

1.Interpretation of Several Issues Connected with Application of Laws to Hearing Cases of Smuggling and Illegally Doing Business in and Using Dopes

Promulgated by the Supreme People’s Court

Document number: L.I. [2019] No.16

Promulgation date: 18 November 2019

Implementation date: 1 January 2020                            

The Interpretation states that government officials and personnel of organizations that exercise their powers to administer anti-doping rules will be convicted of crimes of position abuse and dereliction if they abuse or fail to fulfill duties of their position with powers to administer anti-doping rules, causing serious doping offenses and serious damage to the nation’s reputation or very bad social influence. (Source: Website of the Supreme People’s Court)

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China Laws and Regulations Update in October 2019

1.Encryption Law of the People’s Republic of China

Promulgated by the Standing Committee of the National People’s Congress

Promulgation date: 26 October 2019

Implementation date: 1 January 2020                            

The Encryption Law states that main rules on commercial encryption including standard, inspection and certification, market access, use requirement, import and export, e-administration and e-certification service and in-process and post regulation rules on commercial encryption. (Source: Website of the National People’s Congress)

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China Laws and Regulations Update in September 2019

1.Arrangements Between Courts of Mainland China and Hong Kong Special Administrative Region for Mutual Support in Preservation Under Arbitration Procedures

Promulgated by the Supreme People’s Court

Document number: L.I.(2019) No.14

Promulgation date: 26 September 2019

Implementation date: 1 October 2019                            

According to the Arrangements, arbitration procedures for preservation in Hong Kong and mainland China should be seen as similar, people to whom arbitration procedures of Hong Kong apply are allowed to file preservation applications to the people’s court of mainland China and people to whom arbitration procedures of mainland China apply may seek mandamus and other provisional remedies from the court of Hong Kong SAR. The Arrangements consists of thirteen clauses covering the preservation scope, evaluation of arbitration procedures of Hong Kong, preservation application procedures, processing of preservation applications, etc. (Source: Website of the People’s Court Daily)

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China Laws and Regulations Update in August 2019

1.Land Administration Law of the People’s Republic of China

Promulgated by the National People’s Congress

Document Number: No.32 President Order

Promulgation date: 26 August 2019

Implementation date: 1 January 2019

The amendments to the Land Law lifts the legal restriction on collective commercial construction land into the market. Collective rural construction land can be transferred, leased or given in other way to and directly used by organizations or individuals other than a collective rural economic organization after being permitted by the plan, legally registered and approved more than two thirds of members of the collective economic organization. The users can subtransfer the land in their possession by transfer, swap and pledge. (Source: Website of the National People’s Congress)

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China Laws and Regulations Update in July 2019

1.Circular Notice on Issuing the Overall Plan for the Lingang New Area of the China (Shanghai) Pilot Free Trade Zone

Promulgated by the State Council

Document Number: G.F.(2019) No.15

Promulgation date: 27 July 2019

To follow the principles of the Notice, there will be a well-designed set of rules to facilitate free trade and investment in the new area, including allowing well-known overseas arbitration and dispute resolution organizations to do arbitration activities as businesses; creating the Yangshan Special Comprehensive Bonded Area to cancel unnecessary trade regulation, permit and process requirements on the basis of full implementation of comprehensive bonded area policies; studying and using free trade accounts that combine RMB and foreign currency payment functions on experimental basis, exploring free capital flow into and out of and free capital exchange in the new area; treating international transport by ships manufactured in the country and registered in “Yangshan Port, China” as exports entitled to tax rebate; implementing globally competitive tax rules and policies, reducing enterprise income tax and other tax rates applying to eligible businesses doing manufacturing and research activities in most important parts of key areas such as integrated circuits, artificial intelligence, bio-medicine and civil aviation in the new area to 15% within five years after the business establishment date. (Source: Website of the State Council)

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China Laws and Regulations Update in June 2019

1.Rules on Human Genetic Resources

Promulgated by the State Council

Document Number: No.717 SC Order

Promulgation date: 10 June 2019

Implementation date: 1 July 2019

The Rules provides that foreign parties cannot collect or store China’s human genetic resources or transfer them to a foreign country; foreign parties that want to use China’s human genetic resources to do scientific research have to enter into cooperation with Chinese scientific research institutions, universities and colleges, medical institutions and businesses; to transfer China’s human genetic resources to a foreign country, permission of the administrative department of science and technology of the state council is required; to transfer human genetic resources or information to or make them available in a foreign country, the recordation process shall be completed and relevant information shall be filed; in a case that may affect the public health, national security and public interests of our country, passing the security investigation organized by the administrative department of science and technology of the state council is required. (Source: Website of the State Council)

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China Laws and Regulations Update in May 2019

1.Governmental Investment Rules

Promulgated by the State Council

Document number: G.L.No.712

Promulgation date: 5 May 2019

Implementation date: 1 July 2019

The Rules clarifies the definition, scope, decision making process, annual investment plan, implementation, supervision and management and legal liability connected with government investments. According to the Rules, government investment funds should be used in non-profit services, public infrastructure, agriculture and rural areas, ecological and environmental protection, significant technological advancement, social administration, national security and other public areas, mainly in non-business projects. All investors should be treated equally when allocating government investment funds. Discriminatory conditions are forbidden. (Source: Website of the State Council)

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China Laws and Regulations Update in April 2019

1.The Trademark Law of the People’s Republic of China

Co-promulgated by the Standing Committee of the National People’s Congress

Promulgation date: 23 April 2019

Implementation date: 1 November 2019

The main contents of this amendment are: 1. new regulations on bad faith registration: refusal of trademark registration applications for a purpose other than use of the trademark and including “trademark registration applications for a purpose other than use of the trademark” as a valid reason for claiming trademark opposition or invalidity; 2. giving more serious punishment for infringement of proprietary rights in the trademark by increasing the multiple used to calculate the amount of damages for a malicious infringement of proprietary rights in the trademark from larger than one but smaller than three to larger than one but smaller than five and increasing the upper limit on legal damages from RMB three million to RMB five million. (Source: Website of the National People’s Congress)

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China Laws and Regulations Update in March 2019

1.The Foreign Investment Law of the People’s Republic of China

Co-promulgated by the National People’s Congress

Promulgation date: 15 March 2019

Implementation date: 1 January 2020

This law will replace the Sino-Foreign Joint Venture Law, Foreign Funded Enterprise Law and Sino-Foreign Business Cooperation Law to be the legal basis for foreign investment in China. According to this law, organizational forms and structures of foreign funded businesses and their course of action should be governed by the Company Law, the Partnership Law and relevant laws, provided that foreign funded businesses set up before the implementation of this law may continue existing in their original organizational form. Foreign investment means direct or indirect investment made in China by natural people, businesses or other organizations in foreign countries, including establishment of a new business, merger and acquisition, creation of a new project and other forms of investment; Capital contributions, profits, capital gains, earnings relating to assets disposal, royalties from licensed use of intellectual property rights, legal redress or compensation, earnings relating to liquidation, etc. can be transferred in RMB into China or transferred in foreign currency out of China. The Chinese government protects intellectual property rights of foreign investors and foreign funded businesses and legal interests of people owning or relating to these intellectual property rights. The Chinese government implements the pre-establishment national treatment and negative list system for foreign investments and follows the principle of treating foreign and domestic investors equally when supervising and administering foreign investments. Foreign investments that will or may affect the national security will be inspected. (Source: Website of the National People’s Congress)

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China Laws and Regulations Update in February 2019

1. Announcement on Publishing the Regulations on Overseas Inspection of Medicine and Medical Instruments

Promulgated by the State Administration for Market Regulation

Document number: No.101 in 2018 by the State Administration for Market Regulation

Promulgation date: 26 December 2018

Effective date: 26 December 2018

The Announcement states that overseas inspections are conducted for medicine and medical instruments that have been marketed or are proposed to be marketed and that overseas inspections do not only include inspections in places where production is being performed but mean inspections in places where research, development or production is being performed. Matters to be investigated are decided by considering risks in registration, supervision, examination, inspection, reporting, adverse effect, etc. of medicine and medical instruments as required for risk control. (Source: Website of the State Administration for Market Regulation)

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China Laws and Regulations Update in December 2018

1.Patent Agent Regulations

Promulgated by the State Council

Document number: No.706 State Council Order

Promulgation date: November 19th, 2018

Effective date: March 1st, 2019

The Regulations sets forth patent agent responsibilities for their signature, stating that patent agents should be responsible for patent cases they have signed to handle. In addition, it contains details of patent agent aid services and encourages patent agencies to provide aid services for small businesses and low-income people, advising on patent applications and their legal rights. (Source: Website of the State Council)

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China Laws and Regulations Update in August 2018

1.Decision to Amend the Provisional Rules on Filings of Establishment and Change of Foreign Funded Enterprises

Promulgated by the Ministry of Commerce

File number: No.19 MOC Order in 2018

Promulgation date: 29 June 2018

Effective date: 30 June 2018

The Provisional Rules states that in order to establish a foreign funded enterprise or change a domestic enterprise into a foreign funded enterprise by merger, acquisition, absorption, combination, etc. by filing as required by the Provisional Rules, filings of establishment of the foreign-funded enterprise shall be submitted online during the establishment and change recordation processes of the administration of industry and commerce and the market supervision and regulation department and the recordation authority shall begin the recordation process upon and inform the investor of receipt of the filings transferred by the administration of industry and commerce and the market supervision and regulation department. If the foreign-funded enterprise or its investor delays in submitting or has a material omission in its filings, the commerce department should give an order to correct it within a limited period of time. A fine of less than RMB 30,000 should be payable for a failure to correct it as required or a serious misconduct. (Source: Website of the Ministry of Commerce)

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China Laws and Regulations Update in July 2018

1.Circular on Promoting Economic Growth by Actively and Effectively Using Foreign Funds

Promulgated by the State Council

File number: No.19 issued by SC in 2018

Promulgation date: 15 June 2018

Effective date: 28 April 2018

The Circular states that the foreign funds “regulatory system” reform will continue. Provincial governments are responsible for approving and administering the incorporation and change of any foreign-funded company with a total investment of less than USD 1 billion in items on the negative list for admittance of foreign investment funds. Local governments are encouraged to attempt an intensive reform of the administrative permit system. Foreign-funded companies outside the negative list can complete the recordation and the AIC registration formalities through “one-stop” service. (Source: Website of the State Council)

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