2022 INVESTMENT POLICY AND REGULATORY REVIEW China © 2022 The World Bank Group 1818 H Street NW Washington, DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org All rights reserved. This volume is a product of the staff of the World Bank Group. The World Bank Group refers to the member institutions of the World Bank Group: The World Bank (International Bank for Reconstruction and Development); International Finance Corporation (IFC); and Multilateral Investment Guarantee Agency (MIGA), which are separate and distinct legal entities each organized under its respective Articles of Agreement. We encourage use for educational and non-commercial purposes. The findings, interpretations, and conclusions expressed in this volume do not necessarily reflect the views of the Directors or Executive Directors of the respective institutions of the World Bank Group or the governments they represent. The World Bank Group does not guarantee the accuracy of the data included in this work. 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Photo Credits: Shutterstock.com TABLE OF CONTENTS ACKNOWLEDGEMENTS 2 GLOSSARY 3 1. INTRODUCTION 5 2. OVERVIEW OF INVESTMENT POLICY FRAMEWORK 7 A. Domestic Legal Instruments Regulating Foreign Investment 7 B. International Legal Instruments Regulating Foreign Investment 8 C. Key Institutions for Investment Promotion 11 D. Foreign Investment Promotion Strategy 12 3. INVESTMENT ENTRY AND ESTABLISHMENT 16 4. INVESTMENT PROTECTION 24 5. INVESTMENT INCENTIVES 27 6. INVESTMENT LINKAGES 29 7. OUTWARD FOREIGN DIRECT INVESTMENT 30 8. RESPONSIBLE INVESTMENT 31 9. CITY SPECIFIC REVIEW - SHANGHAI 32 10. FDI IN THE DIGITAL ECONOMY 34 ENDNOTES 46 LIST OF REFERENCE MATERIALS 48 2022 INVESTMENT POLICY AND REGULATORY REVIEW – CHINA |1 ACKNOWLEDGEMENTS The report was prepared by a core team led by Legal research for the preparation of this report Priyanka Kher comprising Peter Kusek and was carried out by the international law firm Maximilian Philip Eltgen. The report benefited Kilpatrick Townsend, in collaboration with a from valuable inputs and support from Martin country-based law firms. Raiser, Marcin Piatkowski, Wenting Wei, Philippe De Meneval and Xavier Forneris. The team would The team would like to thank Aichin Jones for like to thank Asya Akhlaque, Zafer Mustafaoglu providing design, layout, and production services. and Ivan Nimac for their guidance. The report was prepared under the Analyzing Barriers to Investment Competitiveness Project, supported with funding from the Prosperity Fund of the United Kingdom. | 2 2022 INVESTMENT POLICY AND REGULATORY REVIEW – CHINA GLOSSARY ASEAN Association of Southeast Asian Nations CEPA China-Hong Kong Closer Economic Partnership Agreement CIPA China Investment Promotion Agency CJV Cooperative Joint Venture CIT Corporate Income Tax DFCUOI Department of Foreign Capital Utilization and Overseas Investment DFIA Department of Foreign Investment Administration DTAA Double Taxation Avoidance Agreements EJV Equity Joint Venture FIL Foreign Investment Law FDI Foreign Direct Investment FIE Foreign-Invested Enterprise FEMA Foreign Exchange Management Act FET Fair and Equitable Treatment GATS General Agreement on Trade in Services ICSID International Centre for Settlement of Investment Disputes IIA International Investment Agreement IPR Intellectual Property Rights IPRR Investment Policy and Regulatory Review ISDS Investor-State Dispute Settlement MFN Most-Favored Nation RMB Renminbi (currency) SAFE State Foreign Exchange Administration SAIC State Administration for Industry and Commerce SAMR State Administration for Market Regulation SCM Agreement on Subsidies and Countervailing Measures 2022 INVESTMENT POLICY AND REGULATORY REVIEW – CHINA |3 SEZ Special Economic Zone SHFTZ China (Shanghai) Pilot Free Trade Zone SOE State-Owned Enterprises SOP Standard Operating Procedure TIP Treaty with Investment Provisions TRIMs Agreement on Trade-Related Investment Measures TRIPS Agreement on Trade-Related Aspects of Intellectual Property Rights UNCTAD United Nations Conference on Trade and Development WFOE Wholly Foreign-Owned Enterprises WTO World Trade Organization Y Yuan (currency) | 4 2022 INVESTMENT POLICY AND REGULATORY REVIEW – CHINA 1. INTRODUCTION This Investment Policy and Regulatory Review the supervision of the World Bank Group. (IPRR) presents information on the legal and The research was primarily based on a review of regulatory frameworks governing foreign direct currently applicable policies, laws and regulations. investment (FDI) in China. Since legal and In some cases, consultations with regulators were regulatory frameworks are constantly evolving, a conducted to collect up to date information. cut-off date was set for the research. This country review therefore covers information available as of The research was guided by a standardized December 31, 2021, unless otherwise indicated in questionnaire, covering a limited set of the review. IPRRs are available for the following topics, including foreign investment entry, middle-income countries (MICs): Brazil, China, establishment, protection and select dimensions India, Indonesia, Malaysia, Mexico, Nigeria, of FDI in the digital economy. The questionnaire Thailand, Turkey, and Vietnam. focused on de jure frameworks as generally applicable to a foreign investor, not located in any The research for preparing this IPRR was specialized or preferential regime (such as special undertaken by the international law firm economic zones). It primarily focused on national, Kilpatrick Townsend & Stockton LLP, in economy-wide (rather than sector-specific) laws collaboration with a local law firm, under and regulations. For the purpose of the research, it Figure 1. Overview of Topics Covered in IPRR ■ Key institutions for investment policy/rule making, implemention and FDI promotion ■ Key legal instruments ■ FDI Restrictions ■ Transparency/consultation in laws and ■ IPRs ■ Intermediate Liability Main Policy & regulations ■ Data Governance Legal Instruments ■ Content Access and Institutions ■ E-commerce ■ Prohibited and Restricted FDI in Digital Investment Entry Sectors ■ Equity ceiling Economy and ■ Minimum investment Sectors Establishment requiremeent ■ FDI approval IPRR ■ R&D, local sourcing, Questionnaire employment, quantitative, geographic, export ■ Schemes to Increase Other Areas Local Sourcing and (Linkages, OFDI, Investment Build Capacity of Local Responsible Protection Suppliers Investment) ■ Restrictions on OFDI ■ Expropriation ■ Transfer of currency Investment ■ Dispute Settlement Incentives ■ Fair administrative conduct ■ Source of Tax and financial incentives ■ Accessibility of tax and financial incentives 2022 INVESTMENT POLICY AND REGULATORY REVIEW – CHINA |5 was assumed that the foreign investor is a private This IPRR is organized as follows: multinational company with no equity interest or management control by the government of its home n Section 2 provides an overview of the country (that is, not state-owned enterprise). country’s investment policy framework, including the legal instruments regulating There are aspects that this IPRR does not foreign investment, key institutions involved in cover. It is not a comprehensive review of investment promotion, as well as the country’s the entire legal and regulatory framework foreign investment promotion strategy; it affecting investment. Information presented is also delineates the country’s international not exhaustive, but illustrative of the main topics investment legal framework, including the and issues covered (for example, it does not country’s commitments under the World Trade exhaustively list all available tax and financial Organization (WTO) and select international incentives in the country). It does not present investment agreements (IIAs); recommendations on reform areas. Notably, it does not capture de facto implementation of laws n Sections 3-6 cover the country’s policies and and regulations in the country. Indeed, there are domestic legal framework concerning different persistent de facto restrictions highlighted by dimensions of the lifecycle of an investment: other reports (for example the EU Chamber of entry and establishment (Section 3), protection Commerce’s Business Survey 2022). Given these (4), incentives (5) and linkages (6); limitations, information presented in this IPRR n Sections 7 and 8 explore emerging investment should be interpreted and used while keeping in policy and regulatory areas — Section view the overall country context and realities. 7 considers outward FDI and Section 8 Further, it contains information in summary form responsible investment; and is therefore intended for general guidance only. It is not intended to be a substitute for detailed n Section 9 focuses on city-specific investment legal research. policy and regulatory measures in the largest commercial center; and n Section 10 covers FDI in the digital economy. | 6 2022 INVESTMENT POLICY AND REGULATORY REVIEW – CHINA 2. OVERVIEW OF INVESTMENT POLICY FRAMEWORK A. Domestic Legal Instruments (effective 22 June 2009) (“M&A Regulation”, Regulating Foreign Investment which is commonly known as “Circular 10” in China) has not been amended, some requirements China has a new foreign direct investment law thereunder are no longer implemented in practice. that governs foreign investment in the country. For example, except for an acquisition of a domestic In addition to this recent law both sector specific company by its offshore affiliates, acquisition of laws and international agreements also regulate FDI a domestic company by foreign investors are not in China (alongside the general legal framework subject to local commerce bureau’s approval. that applies to all businesses). The FIL applies to “foreign investment” in the country, which refers to investment activities FDI Law and Regulation directly or indirectly conducted by a foreign On March 15, 2019, the People’s Republic of natural person, enterprise, or other organization China (China or PRC) passed a new Foreign (referred to as a foreign investor) in China. This Investment Law (FIL). The implementing includes establishing a foreign-invested enterprise regulations of the FIL were issued on December (FIE); the acquisition of shares, equities or property 31, 2019. The FIL sets forth the general principles shares; the initiation of a new project; or any other applicable to foreign investment covering, among means stipulated by laws, administrative regulations others, investment promotion, equal treatment or provisions of the State Council. with domestic investors, as well as protection of investment, income, and intellectual property. On Foreign investment in certain industries is January 1, 2020, the FIL and the implementing expressly encouraged, prohibited, or restricted regulations entered into force and repealed the pursuant to the current Special Administrative following three primary pieces of legislation that Measures for Access of Foreign Investment served as the core of China’s foreign investment (2021 Edition) effective as of January 1, laws: 2022 (Negative List) and the Catalogue for Encouraged Industries for Foreign Investment n Law on Sino-Foreign Equity Joint Ventures (2020 Edition) effective as of January 27, 2021 (EJV Law) (effective as of July 8, 1979 and last (Encouraged Catalogue). The FIL states that when amendment effective October 1, 2016). international treaties or agreements to which China is a party contain provisions more preferential to the n Law on Sino-Foreign Cooperative Joint Ventures admission of foreign investors, those provisions will (CJV Law) (effective as of April 13, 1988 and take precedence over the existing FDI regulations. last amendment effective October 1, 2016), and n Law on Wholly Foreign-owned Enterprises Sector Specific Laws (WFOE Law) (effective as of April 12, 1986 and Foreign investors are subject to sector-specific last amendment effective October 1, 2016). laws and regulations, depending on the sector The central government and sector authorities have in which the investment is contemplated. For been amending various implementing regulations example, the FIL specifically states that foreign and sector specific regulations based on the investment in banking, securities, insurance and previous EJV, CJV and WFOE Laws. Although other financial industries and in the securities or the Provisions on the Merger and Acquisition foreign exchange markets are subject to sector of Domestic Enterprises by Foreign Investors specific regulations. 2022 INVESTMENT POLICY AND REGULATORY REVIEW – CHINA |7 Public Access to Foreign Investment B. International Legal Instruments Laws and Policies Regulating Foreign Investment The FIL mandates timely announcement China has undertaken legally binding and publication of normative documents and international investment commitments through judgments relating to foreign investment in a variety of international investment agreements accordance with Chinese laws. The term “timely” (IIA) — signed at the bilateral, plurilateral is not defined. Normative documents, which are not and multilateral level. These commitments formally recognized as a source of law, are specific mainly cover entry and establishment conditions, directives, notices or circulars that are formulated protection, as well as the legality of specific types and issued by various administrative authorities in of incentives (see Table 1.). It is important for order to provide detailed implementing rules or an China to reflect these commitments in its domestic explanation of legal principles and administrative legal framework to ensure consistency as well as to regulations. Further, the PRC Legislative Law monitor their compliance. (effective as of March 15, 2015) requires all laws, administrative regulations and issued departmental Having become a member of the World Trade rules to be timely published on the relevant Organization (WTO) on 11th December 2001, government websites and in nationally or locally China has commitments under several WTO circulated newspapers. For example, both enacted Agreements. Under the General Agreement on laws and administrative regulations are publicly Trade in Services (GATS), China grants rights accessible at the PRC government’s website. New to services suppliers from other WTO member or amended laws, administrative regulations and countries. This includes services supplied through departmental rules are to be posted once they are commercial presence (defined as establishment of passed or amended. Certain specific rules and a territorial presence), in other words through FDI. regulations are also publicly accessible at the These rights are granted through commitments relevant ministerial or sectoral regulators’ websites. undertaken in “schedules”. The “schedules” list For example, the rules and regulations issued sectors being opened, the extent of market access by the Ministry of Commerce (MOFCOM) are being given in those sectors (for example, whether published and publicly available here. The Standing there are any restrictions on foreign ownership), Committee of the National People’s Congress of and any limitations on national treatment (whether China also maintains a national database of laws and some rights granted to local companies will not be regulations which database can be accessed through granted to foreign companies). China has made https://flk.npc.gov.cn/. commitments on market access and national treatment in 9 out of 12 services sectors in the Consultation with Stakeholders WTO Classification1: (i) Business services, (ii) Communication services, (iii) Construction and The FIL mandates that the government solicit related engineering services, (iv) Distribution comments and suggestions in an appropriate way services, (v) Environmental services, (vi) from foreign-invested enterprises (FIE) when Educational services, (vii) Financial services, formulating laws, regulations and rules relating (viii) Tourism and travel related services, and to foreign investment. However, neither the FIL (ix) Transport services. In these 9 sectors, China nor its implementing regulations specify a statutory has made partial market access commitments comment period for such consultations. The PRC for specific services in 35 sub-sectors, as well Legislative Law, the Regulations on Procedures as national treatment commitments in specific for the Formulation of Administrative Regulations services in 30 sub-sectors (23 full, 7 partial). (last amendment effective May 1, 2018), and the “Partial” means that although commitments have Regulations on Procedures for the Formulation been made, there are still limitations/reservations, of Rules (last amendment effective May 1, 2018), which may differ in their restrictiveness. For mandate public consultation for the passage of example, they may be more restrictive by limiting laws, regulations and rules in general. The comment the equity contribution of the foreign investor, or period is generally not less than 30 days. | 8 2022 INVESTMENT POLICY AND REGULATORY REVIEW – CHINA Table 1. China’s International Investment Framework Agreement(s) as Basis of Commitments Type of Agreement Investment Policy Dimensions Covered WTO GATS Agreements Multilateral Entry and Establishment WTO TRIMs Agreement Multilateral Entry and Establishment, Incentives WTO SCM Agreement Multilateral Incentives WTO TRIPS Agreement Multilateral Protection Treaties with Investment Provisions (24 Plurilateral or Bilateral May cover Entry and Establishment, signed, 20 in force) Protection, Incentives Bilateral Investment Treaties (124 signed, 107 Bilateral May cover Entry and Establishment in force) Protection, Incentives International Centre for Settlement of Multilateral Protection Investment Disputes (ICSID) Convention Convention on the Recognition and Multilateral Protection (Dispute settlement) Enforcement of Foreign Arbitral Awards (New York Convention) IMF “Articles of Agreement” (Art. VIII Multilateral Protection Acceptance) Double Taxation Avoidance Agreements (103 Bilateral Taxation treaties in force) Source: World Bank Analysis less restrictive by merely requiring foreign service of any of its WTO commitments, China may be sued suppliers to become a member of a union chamber. under the WTO dispute settlement mechanism. In addition, under GATS every member is obligated to unconditionally extend to service suppliers of all China has further entered into obligations other WTO members Most-Favored Nation (MFN) through international investment agreements Treatment. However, China has made reservations (IIAs) — it has signed 124 Bilateral Investment in that regard, allowing it to discriminate between Treaties (BITs) of which 107 are in force, and 24 different service providers of maritime transport Treaties with Investment Provisions (TIPs) of services based on bilateral agreements. which 20 are in force. The latter category comprises treaties that include obligations commonly Under the WTO Agreement on Trade Related found in BITs (for example, a preferential trade Investment Measures (TRIMS), China has agreement with an investment chapter). Table committed to not apply certain investment 2. provides an overview of select IIAs: China’s measures that restrict or distort trade (local second-latest IIA (China — Mauritius Free Trade content requirements, trade balancing Agreement, 2019, not yet in force), its IIA with the requirements, foreign exchange restrictions and largest home country measured by that country’s export restrictions). These measures are prohibited share in China’s total FDI stock (China-Hong both when the obligation for the foreign investors Kong Closer Economic Partnership Agreement is mandatory, and when it is tied to obtaining (CEPA) Investment Agreement, 2017), as well as an advantage (that is, an incentive). Incentives an IIA with expansive regional coverage (Regional are further regulated by the WTO Agreement on Comprehensive Economic Partnership Agreement/ Subsidies and Countervailing Measures (SCM), RCEP, 2020). Notably, RCEP — signed in 2020 by which among others prohibits certain types of 15 countries — covers a population of 2.3 billion export subsidies. Under the WTO Agreement on people, 26.3 trillion USD of GDP and 2690 billion Trade-Related Aspects of Intellectual Property USD in FDI stocks, making it the biggest trade Rights (TRIPS), foreign investors’ intellectual bloc in history. The agreement entered into force property rights are protected. In case of a violation for China on 1 January 2022. 2022 INVESTMENT POLICY AND REGULATORY REVIEW – CHINA |9 Table 2. Comparison of China’s Select IIAs Largest Home Country Latest IIA (date of signing): Expansive Regional IIA (% of total FDI stock): China – Mauritius FTA (2019) Coverage IIA (highest China – Hong Kong Closer (not yet in force) (RCEP is the number of members): Economic Partnership latest, but is already included RCEP (2020) (in force) Agreement Investment as IIA with expansive regional Agreement (2017) (in force) coverage) Scope of Application Covers Pre-establishment Yes No Yes Exclusions from Scope Sectors or investments Taxation (except Government procurement, covered by the CEPA expropriation), subsidies subsidies or grants, services Agreement on Trade in and grants as well as supplied in the exercise of Services government procurement in governmental authority relation to national treatment and most-favored nation treatment Standards of Treatment National Treatment (NT) Pre- and post- Post-establishment Pre- and post-establishment establishment Most-Favored-Nation Pre- and post- Post-establishment Pre- and post-establishment Treatment (MFN) establishment Fair and Equitable Yes Yes Yes Treatment (FET) Full Protection & Security Yes Yes Yes Expropriation Direct and indirect Direct and indirect Direct and indirect expropriation, payment of expropriation, payment of expropriation, payment of compensation compensation compensation Rights to Transfer Funds Yes Yes Yes Prohibition of TRIMS+ (Prohibiting TRIMS+ (Prohibiting a larger TRIMS+ (Prohibiting a larger Performance a larger number of number of performance number of performance Requirements performance requirements requirements than TRIMS) requirements than TRIMS) than TRIMS) Dispute Resolution State-State Dispute No Yes Yes Settlement Investor-State Dispute No Yes No Settlement (arbitration) Source: World Bank Analysis based on IIAs obtained from United Nations Conference on Trade and Development (UNCTAD) Investment Policy Hub Some of China’s reviewed IIAs contain and activities in which countries may maintain commitments to liberalize. Both RCEP and the existing or adopt new or more restrictive measures. CEPA Investment Agreement with Hong Kong They further include a “ratchet mechanism”, which include such commitments, providing national ensures that any future regulatory or legal change treatment and most-favored nation treatment in that makes it easier for investors from one party to the pre-establishment phase. The agreements access the other party’s market will automatically make reservations by featuring a schedule that be locked-in under the Agreement and cannot be lists measures that do not comply with the made more restrictive thereafter. Both agreements commitments, and a schedule which lists sectors prohibit the use of performance requirements. The | 10 2022 INVESTMENT POLICY AND REGULATORY REVIEW – CHINA provisions go beyond TRIMS in scope and include Facilitation for Development, stating the objective a higher number of performance requirements that to conclude text negotiations by the end of 2022. are prohibited (a so-called TRIMS+ standard). China is a member of treaties covering Table 2 shows that generally the main investment arbitration. It is a member of the protection guarantees are provided in the Convention on the Recognition and Enforcement reviewed agreements. The China-Hong Kong of Foreign Arbitral Awards of 1958 (New CEPA Investment Agreement does not provide for York Convention) and the ICSID Convention, international arbitration, either between investors facilitating the enforcement of arbitral awards, and and the state (ISDS) or between states. Instead, has to date been the respondent in nine publicly claims are referred to domestic remedies or to a known investor-State arbitrations. One of these Committee on Investment that is set up under the disputes has been decided in favor of the State, one agreement. RCEP does not provide for ISDS – the settled, one discontinued, and six remain pending. parties are to enter into discussions on ISDS no Five of the disputes were filed in 2019 or later. later than two years after the date of entry into force of the agreement, and conclude them within three Acceptance of Art. VIII of the IMF Articles years of the commencement of the discussions. Agreement requires China to maintain current RCEP also includes a provision for establishing account convertibility, enabling investors to focal points or other entities within member states, transfer certain payments related to their for early resolution of investor complaints and investments. China is also party to 103 Double grievances against government agencies. Taxation Avoidance Agreements (DTAAs) that are in force, influencing its ability to tax foreign China has also reached an “agreement in investors and investments. principle” with the European Union on a Comprehensive Agreement on Investment (CAI) C. Key Institutions for on 30 December 2020. The agreement focuses on investment liberalization, and does not include Investment Promotion investment protection standards beyond a transfer The FIL mandates the government at all levels, of funds provision as well as national treatment including its relevant competent departments, and most-favored nation treatment. It also does not to optimize and provide foreign investment provide for ISDS. The parties agree to continue services and facilities to foreign investors, without negotiations with a view to negotiate an agreement specifying the services to be provided. The FIL also on investment protection and investment dispute empowers the local governments in the country to settlement within two years of the signature of the formulate policies and measures for the promotion and CAI. Instead, the agreement features a specific facilitation of foreign investment within their statutory section on sustainable development which includes jurisdictions. The FIL implementing regulations commitments on labor and environmental protection, provide that the appropriate departments shall develop as well as provisions aimed at improving the level and publish foreign investment guidelines to serve playing field between private and public companies. and facilitate the investment of foreign investors and FIEs. The foreign investment guideline shall include, China is participating in WTO negotiations but not limited to, an introduction to the investment on an agreement on investment facilitation environment, a guide to handling affairs related for development. The aim of the agreement is to foreign investment, information on investment to improve the investment and business climate, projects, and relevant data, and be updated in a timely by improving transparency, efficiency, and manner. The Regulation on Optimizing the Business effectiveness of investment-related administrative Operation Environment, effective on 1 January procedures. This agreement will not cover market 2020, also provides general guidance to facilitate the access, investor protection and ISDS. In December business operation, for example, further streamlining 2021, China together with 111 other WTO members the administration and delegating power and co-sponsored a Joint Statement on Investment establishing a “one-stop” and “full services” national online government service platform. 2022 INVESTMENT POLICY AND REGULATORY REVIEW – CHINA | 11 National Level Institutions foreign organizations to host investment promotion events such as trade fairs, investment presentations The MOFCOM and the National Development and exhibitions. Local governments, management and Reform Commission (NDRC) are the two committees of industrial park zones, development most important national agencies for foreign zones and free trade zones may also set up foreign investment promotion in the country. More investment promotion bodies or charge an existing specifically, an internal department within the body with foreign investment promotion functions, MOFCOM called the Department of Foreign such as the investment promotion bureaus. Investment Administration (DFIA) and a public institution directly under the MOFCOM The national MOFCOM oversees and directs supervision called the China Investment Promotion its local counterparts. The CIPA also cooperates Agency (CIPA), are both tasked with promoting with local investment promotion agencies. One foreign investment at the national level. The of CIPA’s functions is to guide the work of local DFIA is also charged with the regulatory function investment promotion agencies and carry out of reviewing and approving foreign investment investment promotion activities in cooperation proposals. The CIPA on the other hand is responsible with local governments and other departments, for promoting both inbound FDI and outbound FDI institutions and enterprises. (OFDI), and focuses on coordinating with foreign counterparts, and implementing and organizing D. Foreign Investment Promotion foreign investment promotion strategies, plans and activities such as trade fairs and exhibitions Strategy to promote FDI and OFDI at the international, The MOFCOM and the NDRC jointly publish regional, national and local levels. For a detailed and periodically update the Encouraged overview of DFIA’s functions, see Box 1. Catalogue setting out the industries in which foreign investment is encouraged and the Further, an internal department of the NDRC called Negative List that itemizes the prohibited and the Department of Foreign Capital Utilization and restricted categories. Industries not specifically Overseas Investment (DFCUOI) is charged with listed within the Encouraged Catalogue and the consolidating analysis of the utilization of foreign Negative List are considered “permitted” by capital, promotion, strategy, planning, and setting default without any foreign shareholding caps or goals and policies on the utilization of foreign other restrictions. The Negative List may specify investment. The MOFCOM, in conjunction with that foreign investment take certain forms or other relevant ministries, has also established the that the foreign shareholder’s proportion of the National Center for Complaints of Foreign-Invested investment in the enterprise be limited to a certain Enterprises to handle complaints and settlements equity threshold. for problems raised by FIEs or their investors more promptly and to coordinate and improve relevant The Encouraged Catalogue and the Negative List policies and measures. are updated regularly to reflect China’s policy on foreign investment. The most current version of the Sub-National Investment Encouraged Catalogue was updated in 2020, and Promotion Agencies the most current version of the Negative List was updated in December 2021 (which came into effect The national MOFCOM has its local counterparts since January 1, 2022). The Negative List and the at provincial, municipality, city and district levels Encouraged Catalogue once were included in one charged with foreign investment promotion Catalogue for the Guidance of Foreign Investment functions at the local level. Certain provincial Industries before 2018. The Catalogue was first governments also have established foreign issued in 1995, amended in 1997, 2002, 2004, 2007, investment promotion agencies as counterparts 2011, 2015 and 2017. In 2018, the Negative List of the CIPA for coordinating with industry was issued as a standalone document, replacing associations, other governmental departments and the “restricted” and “prohibited” industries in the | 12 2022 INVESTMENT POLICY AND REGULATORY REVIEW – CHINA Box 1. DFIA’s and DFCUOI’s Functions The DFIA’s main functions are: n Formulating foreign investment policies and reform proposals and organizing the implementation thereof ; n Studying foreign investment and reporting the trends and making suggestions thereof; n Examining and approving the establishment of FIEs and subsequent change thereof, contracts and articles of association of major foreign-invested projects and material amendments as prescribed by laws; n Supervising and inspecting the implementation of laws, regulations, rules, regulations, contracts and articles of association by FIEs and coordinating solving problems; n Guiding the promotion of investment and the examination and approval of FIEs, and regulating the solicitation of foreign investment; n Guiding the relevant work of state-level economic and technological development zones, Suzhou Industrial Park and border economic cooperation zones; and n Formulating and organizing the implementation of plans and policies for promoting the development of service outsourcing in concert with relevant parties, and promoting the construction of service outsourcing platforms. The DFCUOI’s main functions are: n Making suggestions on the strategies, plans and relevant policies for the utilization of foreign capital and overseas investment; n Examining and approving major projects pursuant to its powers and duties; n Undertaking the work related to the overall management of foreign debts, taking a lead in formulating plans on loans granted by international financial organizations, loans granted by foreign governments, and international commercial loans denominated in domestic and foreign currencies (including the issuance of overseas bonds); n Taking a lead in formulating the guidance for foreign investment industries, the catalogue of encouraged industries for foreign investment in the central and western regions and the negative list for foreign investment; n Guiding and coordinating the international cooperation of major projects in the fields of infrastructure interconnection, capacity and equipment manufacturing and energy resources, and n Undertaking the overall planning and coordination of relevant work for “going global”. Catalogue. In 2019, the Encouraged Catalogue favorable policies in China, including eligibility was issued as a standalone document repealing the for incentives and preferential treatment (such as prior Catalogue. tariff exemptions, preferential land access and use, lowered corporate income tax) specified in the The current version of the Encouraged relevant laws and administrative regulations. The Catalogue issued in 2020 contains a total encouraged industries are listed in Box 2. of 1,235 business activities, increased by 127 activities compared to the 2019 edition, MOFCOM’s DFIA and NDRC’s DFCUOI are reflecting a significant emphasis on advanced primarily responsible for proposing reforms to the manufacturing and modern service industries. country’s foreign investment regime and policies. It also includes the central and western regions where foreign investment is encouraged. FDI On February 25, 2021, the MOFCOM issued in the encouraged industries is treated with the Circular on Centering on Building a New 2022 INVESTMENT POLICY AND REGULATORY REVIEW – CHINA | 13 Development Pattern and Effectively Stabilizing industries and emerging industries in the Encouraged Foreign Investment. This Circular provides Catalogue. It also contemplates formulation of the guidance to all trade authorities in the country 14th Five-Year Plan for Development by Utilizing to fully implement the FIL and its implementing Foreign Investment in order to provide guidance to regulations, including pre-entry national treatment all trade authorities to further expand opening-up and the negative list regime for foreign investors. and to actively take advantage of foreign investment. It also calls for leveraging the use of preferential tax and land policies to attract foreign investment On October 12, 2021, the MOFCOM issued in advanced manufacturing, high-tech technologies, the 14th Five-Year (2021-2025) Plan for the energy-saving and environmental protection Utilization of Foreign Investment setting out the Box 2. Encouraged Industries listed in the Catalogue for Encouraged Industries for Foreign Investment (2020 Edition) n Agriculture, Forestry, Animal Husbandry and Fishery n Mining Industry n Manufacturing Industries n Agricultural and Sideline Food Processing n Food Manufacturing n Manufacturing of Alcohol Beverage and Refined Tea n Textile Industry n Textile, Garment and Apparel Sectors n Leathers, Furs, Feathers and Related Products and Shoemaking n Wood Processing and Wood, Bamboo, Rattan, Palm Fiber and Straw Products n Manufacturing of Culture, Education, Industrial Arts, Sports and Entertainment Products n Petroleum Processing, Coking and Nuclear Fuel Processing n Manufacturing of Chemical Raw Materials and Chemical Products n Pharmaceutical Industry n Chemical Fiber n Rubber and Plastic Products n Nonmetallic Mineral Products n Nonferrous Metal Smelting and Calendaring Industries n Metal Products n General Equipment n Special-Purpose Equipment n Automobile Manufacturing n Manufacturing of Railways, Ships, Aircrafts and Other Transportation Equipment n Electrical Machinery and Equipment Manufacturing n Manufacturing of Computers, Communication and Other Electronic Equipment n Manufacturing of Instruments and Meters n Comprehensive Utilization of Waste Resources n Production and Supply of Electric Power, Heating Power, Fuel Gas and Water n Transportation, Warehousing and Postal Service Industries n Wholesale and Retail Industries n IT, Software and Technology Services n Leasing and Commercial Service Industries n Scientific Research and Technical Services n Water Conservancy, Environmental, and Public Facility Management Industries n Education n Health and Social Services n Cultural, Sports and Entertainment Industries | 14 2022 INVESTMENT POLICY AND REGULATORY REVIEW – CHINA guiding principles, development goals, and key medical services, education, culture industry, tasks in the utilization of foreign investment integrated circuits, digital economy, research and by China during the Five-Year Plan period of development, biomedicine, high-end equipment, 2021-2025. The Plan aims to facilitate investment and modern logistics), easing the regulatory and business operation by foreign investors, further burden on the entry of FIEs, and improving liberalize the foreign investment environment to intellectual property protections and granting equal attract high-quality foreign investors by reducing opportunities to foreign investors in government the Negative List in strategic areas (such as telecom, procurement and project bidding. 2022 INVESTMENT POLICY AND REGULATORY REVIEW – CHINA | 15 3. INVESTMENT ENTRY AND ESTABLISHMENT Market Entry and Sectoral Limitations removed. The 2021 Negative List also clarifies that FIEs shall comply with the relevant provisions of Foreign investment is expressly prohibited in the FDI Negative List 2021 when investing within certain sectors or business activities (Prohibited the territory of China. Although FIEs are actually Sectors) and restricted in certain others regarded as domestic companies, they still fall (Restricted Sectors) pursuant to the Special under the FDI Negative List. It also clarifies that Administrative Measures for Access of Foreign domestic enterprises in areas prohibited by the FDI Investment (2021 edition of Negative List), Negative List 2021 that issue shares overseas and jointly promulgated by the MOFCOM and NDRC. are listed and traded overseas shall be reviewed This Negative List became effective on January 1, and approved by the relevant competent Chinese 2022, and repealed the 2020 edition of the Negative authorities. List. The Negative List sets out in a centralized manner special administrative measures applicable Other noteworthy changes since 2019 to liberalize to FDI in restricted sectors, such as limits on FDI in the country include the following: foreign equity and the requirements on senior insurance and financial services sectors have management, and the transition periods for some been fully liberalized permitting 100% foreign sectors to abolish restrictions. Compared to the equity; automotive sector restrictions have 2020 Negative List of prohibited and restricted been progressively lifted since 2018 to now sectors, the 2021 Negative List has decreased the permit 100% foreign equity in manufacturing number of restricted and prohibited activities from of special purpose, commercial and passenger 33 to 31. It also expressly empowers the MOFCOM vehicles; foreign equity cap has been eliminated and the NDRC to interpret the list in concert with in construction or operation of pipe networks for related departments. Since the Negative List is not water and waste management in cities of more a law, amending it does not require the approval of than 500,000 people; joint venture requirement the PRC national legislative authority, the National in mining has been eliminated; and foreign equity People’s Congress (and its standing committee). caps in construction and operation of railway trunk line networks, rail passenger transportation, and The Negative List approach adopted since design, construction, and maintenance of ships 2018 has progressively reduced and phased and certain types of aircraft (such as trunk aircraft, out the restrictions and prohibitions on regional aircraft, certain helicopters, and drones) foreign investment each year, scaling down have also been eliminated. the conditions from 63 sectors in 2018 down to 31 sectors in 2021. The 2021 Negative List For industries not included in the Negative List, introduces several noteworthy changes over the the general position is that foreign investors 2020 edition. The foreign shareholding cap of are accorded equal treatment as afforded to 50% in the manufacturing of passenger cars and domestic investors and FDI is permitted without the restriction on the same foreign investor’s restrictions (unless the relevant industry or sub- establishment of two or less joint ventures in the sector is restricted or closed to both foreign and country for the production of similar complete Chinese investors). FDI in regulated sectors (such vehicle products have been lifted. In the field of as telecommunications, energy, and banking) may radio and television equipment manufacturing, require the sectoral regulators’ approval, including the restrictions on foreign investment in satellite for transfer of shares, change in shareholders and/ television broadcasting ground receiving facilities or activities relating to mergers and acquisitions, and the production of key components have been even if 100% FDI is encouraged and permitted in such sector. | 16 2022 INVESTMENT POLICY AND REGULATORY REVIEW – CHINA Prohibited and Restricted Sectors except in restricted industries in the Negative List that require a Sino-foreign joint venture or impose Table 3 lists the Prohibited and Restricted Sectors foreign shareholding caps. A foreign investor may based on the 2021 Negative List. A foreign investor not bypass these restrictions through mergers and may establish a wholly foreign owned enterprise, acquisitions. Table 3. List of Major Prohibited and Restricted Sectors Prohibited Sectors Scope Agriculture n Research, development, breeding and planting of China’s rare and unique precious quality varieties and production of relevant breeding materials (including quality genes of planting, animal husbandry and aquaculture) n Selection of genetically modified varieties and production of genetically modified seeds (fingerlings) in respect of crops, breeding stock and poultry, and aquatic fingerlings Fishery Fishing aquatic products in sea areas under Chinese jurisdiction and in inland waters Mining Exploring, mining and mineral processing of rare earth and radioactive minerals and tungsten Manufacturing n Smelting/processing of radioactive minerals; production of nuclear fuels n Application of processing techniques of traditional Chinese medicine decoction pieces and manufacturing of Chinese patent medicine products with a secret formula Wholesale and Retail Trading Tobacco leaves, cigarettes, re-dried tobacco leaves, and other tobacco products Transport Construction and operation of airport towers Postal Services Postal service companies and the business of delivery mail domestically Internet Internet news services, online publishing services, online audio-visual program services, internet culture operation (excluding music), and internet public-oriented information releasing services (excluding services permitted under China’s WTO accession commitments) Consultation and Investigation Services Social surveys Legal Services n Engagement in Chinese legal affairs (except for the provision of information relating to the impacts of China’s legal environment) n Becoming the partner of a domestic law office Scientific Research and n Development and application of technologies of human stem cell and gene Technical Services diagnosis and treatment n Humanistic and social science research institutions n Geodetic surveying, hydrographic surveying and charting, surveying and mapping via aerial photography, ground mobile surveying, surveying and mapping of administrative area borders, compiling of certain maps and regional investigations in terms of geological mapping, mineral geology, geophysics, geochemistry, hydrogeology, environmental geology, geological disasters and remote sensing geology Education Compulsory education institutions and religious education institutions Press and Publishing n News agencies (including but not limited to press agencies) n Editing, publishing and production of books, newspapers, periodicals, audio- visual products and electronic publications 2022 INVESTMENT POLICY AND REGULATORY REVIEW – CHINA | 17 Radio and TV Broadcasting n All levels of broadcasting stations, television stations, radio and television channel and frequency, radio and television transmission networks and engagement in video on demand business and provision of services of installation of ground receiving facilities for satellite television broadcasting n Radio and television program production and operation Entertainment Film production companies, distribution companies, cinema companies and the introduction of films Cultural n Enterprises selling cultural relics by auction, cultural relics stores and state- owned cultural relic museums n Cultural and artistic performance groups Wildlife Development of wildlife resources originating in China and under national protection Restricted Sectors Restrictions on Foreign Equity Agriculture - Seed Industry n Selection and cultivation of new varieties of and production of seeds of wheat — up to 66% n Selection and cultivation of new varieties of and production of seeds of corn — up to 49% Manufacturing Printing of publications — up to 49% Nuclear Power Generation Construction and operation of nuclear power plant — up to 49% Water Transportation Domestic water transportation companies — up to 49% Air Transportation for passengers and Public air transportation — up to 49% and investment by a single foreign investor with freight its related party enterprises not to exceed 25% Airport and Air Traffic Control Construction and operation of civil airports — up to 49% Telecommunications n Value-added telecom (excluding e-commerce platforms, domestic multi-party communications, store-and-forward and call centers) — up to 50% n Basic telecom (e.g., public network infrastructures, public data transmission, basic voice services) — up to 49% Market Surveys n Only permitted via joint ventures n Broadcasting and TV listening and rating survey - up to 49% Health and Social Work Medical institutions — only permitted via joint ventures — up to 70% (70% cap does not apply to Hong Kong, Macau or Taiwan investors who set up WFOE hospitals in China) Education Pre-school institutions, senior high schools, institutions of higher education — only permitted via joint venture dominated by Chinese parties Film Distribution and Projection Construction and operation of cinema — up to 49% while not in the Negative List, the restriction is pursuant to sector- specific regulation Source: Analysis by Kilpatrick Townsend LLP based on country’s laws and regulations. Note: The table is based on a review of 32 specific sectors identified for the purpose of this research. The list of sectors is therefore not exhaustive2. In August 2020, to counter the severe economic A few key points of the Circular include: fallout from the COVID-19 pandemic, the State Council of the People’s Republic of China released n The China Export & Credit Insurance Corporation the Circular on Further Stabilizing Foreign Trade will provide insurance coverage against the risks and Foreign Investment, in which the Chinese of canceled orders before shipments. government announced 15 policies aiming to n Support to eligible regions to copy and expand the stabilize foreign trade, foreign investment and financing model featuring “credit plus guarantee international supply chains during the pandemic. | 18 2022 INVESTMENT POLICY AND REGULATORY REVIEW – CHINA insurance” and step up credit support to foreign civil engineering or installation of lines, pipes trade firms. and equipment; n Extended financial support to major FIEs, which n Contracting for or accepting commissions for the are now eligible for the People’s Bank of China’s operation and management of FIEs. 1.5 trillion-yuan low-cost re-lending loan program and rediscount quota. While foreign investors can outsource services to, or enter into licenses with qualified Chinese n Key foreign investment projects over USD enterprises, foreign enterprises cannot conduct 100 million will be treated in the same way as production or operation activities in China without a domestic investment project. Meanwhile, the completing relevant registrations and obtaining Chinese government will also increase its support approvals as necessary. for foreign investment projects in terms of the sea use, land use, utility usage and environment Forms of Establishment protection issues. Foreign investors are forbidden to engage in n Foreign investors will be encouraged to invest investment activities as individual businesses, in high-tech industries as well as healthcare investors of sole proprietorship enterprises or enterprises. Facilitate the application process members of farmers’ professional cooperatives. for high-tech enterprise certification. Lower the The business forms, structures, and rules of threshold for foreign R&D centers to be eligible activities of FIEs are governed by PRC Company for preferential policies, such as preferential Law, the PRC Partnership Law and other laws. import tax treatment. Foreign investors can establish foreign funded joint stock companies and invest in listed companies. n In order to facilitate foreign trade flows and Foreign investors can also establish foreign business travel to China, China will continue invested partnership and limited partnership to work with foreign countries to establish enterprises in sectors other than those restricted “fast pass” to facilitate the international travel under the Negative List. Further, the FIL permits of foreign businessmen, logistics personnel, foreign investors to establish an LLC entity in production personnel and technicians to China accordance with the PRC Company Law. Prior to the FIL, foreign investors were limited to the Restrictions on Non-Equity Contract entity types prescribed under the old EJV, CJV Based Investments and WFOE Laws, which are now repealed. The Foreign investors may be subject to specific same requirements under the PRC law regarding restrictions on non-equity contract based formation or incorporation of a market entity investments on certain sectors. For example, equally apply to domestic and foreign investors. pursuant to the Administrative Measures for the The FIL also provides a 5-year grace period to Registration of Enterprises of Foreign Countries FIEs established in accordance with the old EJV, (Regions) Engaging in Production and Operation CJV and WFOE Laws to reorganize their corporate Activities within the Territory of China (last structures. According to the FIL implementation amendment effective October 23, 2020), without the regulations, from 1 January 2021 onwards, for those approval of the sectoral regulator, foreign enterprises FIEs which have not adjusted their forms pursuant may not conduct any production and operation to the PRC Company Law and the PRC Partnership activities within the territory of China. Moreover, Law and completed the amendment registration, foreign enterprises must complete registration the local registration authority (i.e., Administration formalities for performing the following non-equity for Market Regulation (AMR)) shall not process modes of production and operation activities, or their applications for the change of other matters alternatively set up a FIE for these activities: and the said non-compliance shall be made public. n Engineering contracting, including for The new Administrative Regulation of the PRC construction and decoration of buildings and on the Registration of Market Entities, effective 2022 INVESTMENT POLICY AND REGULATORY REVIEW – CHINA | 19 as of March 1, 2022, regulates the registration and Approval of Permanent Representative Offices and administration of all market entities (e.g., of Foreign Air Transport Enterprises (effective companies, partnerships, sole proprietorships, September 1, 2018). individual owned businesses, and branches of foreign companies) that were previously regulated Minimum Investment Requirements by a number of separate regulations, which are now repealed. The new Administrative Regulation While there is no general minimum investment aims to foster a fair, effective, standard market or registered capital threshold for FDI, certain regulation system to boost the growth of all kinds of industry specific regulations may impose a market players. It sets forth unified rules for market requirement on FIEs. For example, under the entities on the applicable registration process (i.e., Interim Measures for Administration of Chinese- formation registration, modification registration and foreign Joint Venture and Cooperative Medical deregistration) and specifies requirements for new Institutions (effective July 1, 2000 and last businesses in getting approval and filing, as well as amended in 2015), there is a minimum RMB 20 the process of making changes in registration and million investment requirement for a Chinese- business scope. foreign joint venture or cooperative medical institution to be established. Similarly, under the Although the PRC Company Law contains Provisions on the Administration of Foreign- provisions that cover the establishment of branch Invested Telecommunications Enterprises (last offices of foreign enterprises in China, it was amendment effective February 6, 2016), if an FIE intended for foreign banks and foreign insurance is engaged in basic telecom business nationwide or companies for market entry into China in the beyond a single province, autonomous region or early 2000s. At present, they can establish a company municipality directly under the central government, to operate banking and insurance business in China. it must have registered capital of not less than RMB Specific regulations may apply to foreign enterprises 1 billion. If it is engaged in the value-added telecom when establishing branch offices in China: for businesses, it must have registered capital not less example, foreign insurance companies are permitted than RMB 10 million. to establish branch offices in accordance with the Regulation on the Administration of Foreign- Under the Provisions on the Establishment of Invested Insurance Companies (last amendment Investment Companies by Foreign Investors effective September 30, 2019) and foreign banks (revised in 2015), a foreign investor who intends are permitted to establish branches in accordance to establish a wholly owned investment company with the Regulation on the Administration of must meet the following conditions: Foreign-Invested Banks (last amendment effective n It has sound credit and the necessary economic September 30, 2019). strength to establish an investment company, Certain foreign enterprises and organizations, has not less than US$400 million worth of assets such as non-governmental organizations (NGOs), during the year before the application, and it has news agencies, etc. may set up representative established at least one FIE in PRC with US$10 offices in China, subject to the Regulations on million or more paid-in registered capital; or the Administration of Registration of Resident n It has sound credit and has the necessary economic offices of Foreign Enterprises and specific strength to establish an investment company, and additional regulations. For example, foreign non- it has established 10 or more FIEs in PRC, with governmental organizations are permitted to set up US$30 million or more paid-in registered capital. representative offices in accordance with the Law on the Administration of Activities of Overseas Non- Governmental Organizations within the Territory Quantitative Limits of China (last amendment effective November 5, There are generally no mandatory quantitative 2017). Foreign aviation companies are permitted limits on the number of foreign service providers to set up representative offices in accordance with or enterprises that can operate in a given sector. the Administrative Measures for the Examination | 20 2022 INVESTMENT POLICY AND REGULATORY REVIEW – CHINA Restrictions on Expatriate Appointments for FDI in fields outside the Negative List, other than filing pertinent records and applications with There are some sector-specific limitations on the regulators. Under the new reporting-based the appointment of foreigners to the board or system implemented pursuant to the FIL, foreign to key managerial positions of local companies. investors or FIEs are required to report investment For example, the 2021 Negative List mandates information to MOFCOM or its local branches by that legal representatives of general aviation submitting reports through the official Enterprise companies and public air transportation companies Online Registration System and the National must be Chinese citizens. Similarly, the Negative Enterprise Credit Information Publicity System, List prohibits a foreign citizen from entering into each administered by the State Administration partnership with a domestic law office, and requires for Market Regulation (SAMR). In particular, that principals or major administration heads the Measures for Reporting Foreign Investment in charge of pre-school institutions, senior high Information (effective as of January 1, 2020), schools and institutions of higher learning must detail the rules for foreign investors and FIEs to be of Chinese nationality (residing in China), and report the relevant investment information (such Chinese members of the council, board of directors as initial investment reports, changes, and annual or joint management committee must account reports) post incorporation through the consolidated for half at least). Further, the Regulations on the online system, which shares the information with Management of the Employment of Foreigners in MOFCOM and other government agencies to China (revised in 2017) require employers to hire avoid duplicative reporting. The reporting as such foreigners for openings with special needs that is not a precondition for foreign investors or FIEs cannot be filled by domestic candidates at the time. to process business registration or other business The process and specific timelines to obtain matters. Rather, this reporting system attempts to expatriate work permits are stated in the Service further simplify procedures, decentralize powers, Guide on Licensing for Foreigners to Work in enhance supervision, and optimize government China (effective March 29, 2017). The Guide requires services to facilitate foreign investment. Violation a decision be made within 20 working days after of the reporting requirements, such as submitting acceptance of application for work permits for a period false information, may subject investors to hefty of more than 90 days, with an extension of 10 working fines of up to penalties of RMB 100,000 to 500,000 days allowed for special cases. For work permits for depending on the circumstance. a period of less than 90 days and an invitation letter Although the general trend is to reduce the business to foreign experts, a decision must be made within 5 activities for which approval(s) are required, working days after acceptance of application. depending on the industry/sector and the investment scale, approval from the NDRC (national or local) Local Sourcing and R&D Requirements and/or industry/sector specific regulators may still be required depending on the foreign investment There is no overarching legal requirement that project (Box 3). For example, a foreign-invested subjects foreign investors to local sourcing securities company requires pre-approval from requirements or local R&D investments in order the China Securities Regulatory Commission. The to establish business in China. Catalogue of Business Registration Matters Subject to Prior Approval issued by SAMR (November Foreign Investment Approval 2017) sets out details of those foreign investments China’s FDI regime has been undergoing reforms that require industry-specific pre-approval. to switch from an approval-based system to a Certain investments may trigger the scrutiny of the record-filing system, and from January 1, 2020 Chinese anti-monopoly regulator if the investment onwards to a reporting-based system. Under the thresholds exceed specific amounts. An investment approval-based system, regulatory approvals were may also trigger a national security review by the required for all inbound FDI, whereas under the MOFCOM and its local counterparts if it invokes record-filing system, no approvals were required national interest issues (Box 4.). 2022 INVESTMENT POLICY AND REGULATORY REVIEW – CHINA | 21 Box 3. NDRC Approval for Foreign Investment in Fixed Assets According to the Administrative Measures on Approval and Record-Filing of Enterprise Investment Projects (effective as of February 1, 2017), investments in fixed assets in China require approval from or record filing with the NDRC or its local counterparts based on the sectors and the size of the investment. The Circular of the State Council on Promulgating the Catalogue of Investment Projects Subject to the Approval of Governments issued on December 12, 2016 (Investment Projects Approval Catalogue) sets out all the projects which require approvals from the NDRC or its local counterparts. The projects outside the list only require record-filing with the local NDRC. In particular, for foreign investment in fixed-assets projects which fall within the restricted sectors set out in the Negative List, an approval from the national NDRC is required if foreign investment is equal to or more than USD 300 million; and an approval from provincial counterparts of NDRC is required if foreign investment is less than USD 300 million. Other than the foregoing, the Investment Projects Approval Catalogue equally applies to foreign and domestic investment in fixed-assets projects. The validity duration of investment approvals/filings will depend on each approving authority’s requirements. For example, approval from or filings with the NDRC for a fixed assets investment project is granted on a project by project basis and is valid through the project construction and operation. If substantial amendments are to be made to the approved/filed projects, then re-application is required. The validity term of an industry/sector approval varies from sector to sector but usually annual review/filing by the approving authority is required. For example, the Administrative Measures for Telecommunication Business Operation Licence (Revised 2016) provides that the basic telecommunication business operation licence is valid for 5 or 10 year based on the types of telecommunication business; value- added telecommunication business licence is valid for 5 years; and a renewal application is required before expiry. A change of operating entity which holds the telecommunication licence due to a merge or divestment or change of shareholder, or a change of business scope must be reported to the relevant telecommunication authority for approval within 30 days of company resolution with respect the aforesaid changes; whereas a change of company name, legal representative or registered capital must be reported to the relevant telecommunication authority to obtain a revised telecommunication licence within 30 days of completion of aforesaid change with the AMR. The process of obtaining relevant approvals is set out in the legal instruments that impose the approval requirements, such as the Administrative Measures for Approval and Record-Filing of Foreign Investment Projects and the Administrative Measures for Telecommunications Business Operation License. Whether or not FDI falls under the Negative List, no approval from the MOFCOM or its local counterparts is required, except for a related-party merger or acquisition (i.e., a domestic company, enterprise or individual is required to obtain approval from MOFCOM to acquire its affiliated domestic company by an offshore SPV established or controlled by it). The relevant laws and regulations stipulate a review period within which the regulatory authority should decide to approve or disapprove the application. For example, the Administrative Measures for Approval and Record-filing of Foreign Investment Projects provides for a review period of 20 business days with an extension period of 10 business days. Other Restrictions The Regulation establishes a framework for restrictions or penalties on foreign entities that are The Chinese government has recently passed considered to endanger the national sovereignty, different laws and regulations that may restrict security, or development interests of China or FDI on a case-by-case basis: that seriously harm the legitimate rights and n Unreliable Entity List: On 19 September 2020, interests of Chinese enterprises, organizations, the Regulation on the Unreliable Entity List or individuals. Among others, restrictions and entered into force, following an announcement penalties may include prohibitions to trade with by the Ministry of Commerce in May 2019. Chinese entities or to invest in China. | 22 2022 INVESTMENT POLICY AND REGULATORY REVIEW – CHINA n Anti-Foreign Sanctions Law: On June 10, 2021, a foreign country’s “discriminatory measures the National People’s Congress passed the Anti- against Chinese citizens” or “interference with Foreign Sanctions Law with immediate effect. China’s internal affairs” are eligible to be placed The Law introduces a legal framework to respond on a blacklist, or “counter-list”. This includes to foreign sanctions with counter-sanctions. individuals or organizations that are directly or According to the Law, individuals or organizations indirectly involved in the formulation, decision, involved in the making or implementation of or implementation of such measures. Box 4. National Security Review On December 19, 2020, the NDRC and MOFCOM jointly issued the updated Measures for Security Review of Foreign Investment (effective as of January 18, 2020) in an effort to provide a clearer legal regime for China’s national security review. According to these Measures, foreign investment affecting national security is subject to security review. Specifically, it provides that foreign investment in any of the following sectors shall be proactively declared to the authority: n Investment in sectors with a bearing on national defense and security, such as the arms industry and sectors that supply the arms industry, and investments in locations in the periphery of military facilities or arms industry facilities; and n Investment in important agricultural products, important energy sources, important resources, manufacture of major equipment, important infrastructure facilities, important transportation services, important cultural products and services, important information technology and Internet products and services, important financial services, key technologies and other important sectors, to the extent that the foregoing have a bearing on national security and that “actual control” of the investee enterprise is acquired. Acquiring “actual control” of the investee enterprise shall include any of the following circumstances: n Where the foreign investor holds 50% or more of the equity of the investee enterprise; n Where the foreign investor holds less than 50% of the equity of the investee enterprise, but its voting rights have a significant impact on the resolutions of the board of directors, the shareholders’ meeting or the general meeting; or n Where there are any other circumstances that enable the foreign investor to exert a significant impact on the business decision-making, personnel, finance, technology, etc. of the investee enterprise. So far, no implementing regulations or details have been issued as to what would fall within the above sectors. Generally speaking, the foreign investment security review office led by the NDRC and MOFCOM has authority to decide what foreign investment should be subject to national security review. These Measures for security review apply to foreign investment in the entire territory of China, including the Pilot Free Trade Zones and it also extends the review scope to include both direct and indirect foreign investment in China, including mergers and acquisitions and greenfield investment. This is in contrast to the 2011 Circular of the General Office of State Council on the Establishment of Security Review for the Merger and Acquisition of Domestic Enterprises by Foreign Investors that first introduced China’s national security review. 2022 INVESTMENT POLICY AND REGULATORY REVIEW – CHINA | 23 4. INVESTMENT PROTECTION Protection Against Expropriation Restrictions on Inflow and Outflow of Funds The FIL, in Article 20, protects foreign investors against expropriation, subject to the Pursuant to the FIL, a foreign investor may public interest exception. It states that under freely transfer inward and outward capital special circumstances, the State may expropriate (net of applicable taxes and subject to other for public interest in accordance with the law standard compliances). This includes capital subject to timely and reasonable compensation contributions, profits, capital gains, income provided to the investor. The FIL also expressly from asset disposal, IPR royalties, lawfully requires the State to protect the intellectual obtained compensation or indemnity, income property rights (IPRs) of foreign investors and from liquidation and other similar proceeds in FIEs. Further, it prohibits administrative agencies renminbi (RMB) or a foreign currency. In practice, to force transfer of technology by administrative regulations for current account transactions have means. Instead, it mandates the State to encourage become flexible but government approval is still technical cooperation based on voluntary required for certain capital account transactions principles and business rules, and the conditions (generally, items of a non-trade, non-recurring for such cooperation are to be determined by equal nature, such as investment in China, real estate negotiation between the parties to the investment purchases, repayment of principal of foreign in accordance with the principles of fairness. currency loans and contributions to registered The FIL implementing regulations further clarify capital). The general trend is to reduce government that for any expropriations conducted by the approval and permit capital account transactions State for public interest, legal procedures must to be processed by the designated banks. Box 5. be followed in a non-discriminatory manner and lists restrictions on specific types of payments/ timely compensation must be made based on the transactions. investment’s market value. Dissatisfied investors may apply for administrative reconsideration or Currency can be converted at the market rate file an administrative lawsuit. of exchange instead of an artificially fixed rate. FIEs also have access to the interbank market for Similarly, the Constitution of the PRC provides the purchase and sale of foreign exchange through for the protection of private property and the designated banks. permits the State, for reasons of public interest, to expropriate or requisition private property Dispute Settlement for its use, subject to compensation. The PRC Civil Code explicitly states that for the public A foreign investor in China can generally access interests, movable and immovable property may dispute settlement through domestic courts, or be expropriated with compensation. The PRC domestic or international arbitration. China’s Property Law also establishes a framework of bilateral investment treaties mostly do not include property rights protection, including protection mandatory recourse to domestic courts before for moveable property and real estate (immovable referring the dispute to international arbitration. property), permitting expropriation for public In most cases, investors have the option to choose interest, subject to paying reasonable compensation. between the domestic court and international These protections apply equally to both domestic arbitration under the treaties. Foreign investors enterprises and foreign investors. may seek administrative review and administrative | 24 2022 INVESTMENT POLICY AND REGULATORY REVIEW – CHINA Box 5. Restrictions on Specific Types of Payments/Transactions Inflow of initial equity investment — There are no restrictions on the amounts of inflow of initial equity investment. However, there are various regulations on the permitted use of funds in the capital account. For example, the Circular of the State Administration on Reforming and Regulating Policies on the Administration over Foreign Exchange Settlement under Capital Accounts (effective as of June 9, 2016), stipulates that the foreign exchange funds under the capital account of a company in China or RMB converted therefrom cannot be directly or indirectly used for the following purposes: n Payment beyond the business scope of such company or the payment prohibited by national laws and regulations; n Investment in securities or other investment and financing except for the principal safeguarded bank wealth management products unless otherwise provided by laws and regulations; n Granting loans to non-affiliates (unless permitted by the scope of business); and n Construction or purchase of real estate not for self-use, except for real estate enterprises. On October 23, 2019, the State Administration of Foreign Exchange of China (SAFE) issued the Circular on Further Promoting the Facilitation of Cross-border Trade and Investment (Hui Fa [2019] No.28) (Circular 28), which aims to further liberalize and streamline foreign exchange control over cross-border investment and trade. Before Circular 28, only foreign-controlled enterprises with the explicit term “investment” in their business scope, e.g., a China investment holding company (CHC), were allowed to utilize their registered capital for further equity investment in China. Now, any foreign-controlled enterprise is allowed to utilize and convert the capital received from foreign investors for making equity investment in China, provided that certain conditions are fulfilled. In addition, under Circular 28, domestic companies in pilot areas are no longer required to provide supporting documents to banks for verification before using the funds received under capital account items on a case-by-case basis. Circular 28 has also simplified the use of funds under certain foreign direct investment related accounts. Inflow of foreign loan — Any foreign loan is required to be registered with the local counterpart of the SAFE within 15 business days of signing of the loan agreement. If the term of such foreign loan is more than 1 year, it should also be registered with the NDRC or its provincial counterpart (as the case may be) before drawdown or issuance of bonds. Before 2017, pursuant to the Interim Measures on the Management of Foreign Debts, the difference between total investment amount and the registered capital amount was the maximum amount of foreign debt an FIE was permitted to incur, and foreign loan exceeding this difference was to be approved by SAFE. On 12 January 2017, the People’s Bank of China (PBOC) issued the Notice on Relevant Matters Regarding Full Bore Macro Prudential Management of Cross Border Financing (“Notice No. 9”) which introduced a new regime to determine the amount of foreign debt a PRC incorporated entity may borrow based on its net asset value/capital and outstanding borrowings, in each case on a risk weighted basis. This new regime will equally apply to the FIEs and domestic companies. Under the Notice No. 9, FIEs were given a one-year transitional period during which the FIEs have option to choose the previous or new regime and after that one year, foreign-invested financial institutions would be subject to new regime and the authorities would examine and decide which regime would apply for other FIEs. Thus far, no further regulations have been issued and FIEs (except for foreign-invested financial institutions) still have the option to choose between the new regime and the previous regime. The specific requirements on the registration process of foreign debt are set out in the Administrative Measures of Registration of Foreign Debt (effective May 13, 2013). In addition, the NDRC will set an annual national quota to regulate the overall amount of foreign debt and distribute a portion of quota to certain provinces which are authorized to independently process the foreign debt registration. Therefore, in addition to the restriction on the maximum amount of foreign debt set out by the SAFE and PBOC, a foreign loan with a more than 1 year tenure may also be subject to the overall foreign debt quota set by the NDRC. 2022 INVESTMENT POLICY AND REGULATORY REVIEW – CHINA | 25 Outflow of funds — China has introduced a form of current account convertibility under which FIEs may purchase foreign exchange for current account expenditures without the necessity of obtaining government approval. The country permits the conversion of RMB into foreign exchange for remittances of after-tax profits or dividends to foreign investors in FIEs. Foreign exchange remittances and receipts must go through authorized banks designated to handle foreign exchange transactions. Instead of government approval for foreign exchange remittances and receipts, the designated banks examine the documentation for the underlying transaction to ensure that the proposed payment or receipt qualifies as a current account item and other relevant requirements are met. The SAFE issues guidelines on the process of foreign exchange businesses in relation to capital account items and current account items and the most recent version was issued in 2020, i.e., Guideline on Foreign Exchange Businesses of Current Account Items (2020 Edition) and Guideline on Foreign Exchange Businesses of Capital Account Items (2020 Edition). litigation in accordance with the Law of the PRC a FIE compliant center which will be temporarily on Administrative Review (last amendment set up within CIPA. On September 30, 2020, the effective January 1, 2018) and the Administrative MOFCOM issued Guidelines for National Foreign Procedure Law of the PRC (last amendment Invested Enterprise Complaint Center which set effective July 1, 2017). out the procedures of handling complaints by FIEs. It remains to be seen if and how this new The FIL mandates the State to establish a mechanism will help resolve the issues between complaint mechanism for FIEs, provide timely the foreign investors and the government. solution to the problems reported by FIEs or their investors, and coordinate and improve In 2020 during the COVID-19 pandemic, as relevant policy measures. On 25 August 2020, the requested by Chinese companies, the PRC MOFCOM issued the Measures of Foreign Invested government issued thousands of force majeure Enterprise Complaint Mechanism (effective as of certificates to businesses operating within October 1, 2020) which provides that the MOFCOM its jurisdiction across numerous industries and the departments of State Council will establish (particularly, manufacturing, construction, an intra-departments’ meeting mechanism for wholesale and retail) to counter the disruption FIE complaints and the office will be within the caused by the pandemic. Foreign Investment Administration, will establish | 26 2022 INVESTMENT POLICY AND REGULATORY REVIEW – CHINA 5. INVESTMENT INCENTIVES 10. China’s investment incentives regime applies railways, highways, and electric power may be equally to both domestic and foreign investors. eligible for a 6 year tax holiday, with CIT exempted Until January 1, 2008, domestic enterprises and for first 3 years and 50% reduction for the next 3 FIEs were afforded different tax treatment at the years. Similarly, zone specific investments may national and local level. The two different tax be eligible for tax incentives and preferential regimes were harmonized with the passage of treatment based on the region of investment. Other the PRC Enterprise Income Tax Law effective tax incentives may also be available for enterprises on January 1, 2008, pursuant to which domestic using State specified raw materials as resources for and foreign enterprises are subject to a unified the production of non-restricted and non-prohibited corporate income tax (CIT) and benefits regime. items or investing in plants and machinery for State The existing regulations provide “tax deferral” specified environmental protection, and energy and on reinvestment into China under which the 10% water conservation purposes. High-tech enterprises withholding tax can be deferred if the dividends may also be eligible for lower CIT rate and certain from China subsidiaries are used for other R&D expense rebates. investments in China. In addition to the national-level incentives, Investments in industries under the “encouraged state, provincial and local governments offer category” of the Encouraged Catalogue (2020) incentives to foreign investors on an ad hoc, enjoy preferential tax treatment. The Detailed case-by-case basis to attract foreign investment. Rules for the Implementation of Corporate Income They usually take into consideration factors such Tax Law and various tax circulars issued by the as the scale of the investment, the number of jobs State Administration for Taxation set out the CIT it creates, the tax revenue it will generate for the incentives and eligibility criteria available to local government, and other benefits it may bring investors at the central level. to the area. For example, under the Shenzhen Administrative Measures for the Accreditation For example, according to the Circular of the of High-tech Firms issued by the Shenzhen General Administration of Customs on the government, firms wishing to be certified as high- Implementation of the Catalogue of Encouraged tech firms are required to meet Shenzhen-specific Industries for Foreign Investment (2020 edition, criteria to claim incentives. These include, among effective as of January 27, 2021) and the Notice others, sectoral requirements (for example, modern of the State Council on Adjustment of Tax Policy agricultural, bioengineering and new energy), on Imported Equipment, customs duties may annual R&D input percentage minima, minimum be exempted for import of self-used equipment percentage of annual revenue attributable to high and the technology, accessories and spare parts technology, sound corporate governance practices, imported with the aforementioned equipment and good quality control measures, etc. The new in accordance with the contract within the total FIL states that local governments at county level or investment amount for a foreign investment above may only formulate policies on promotion project which fall within the encouraged category, and facilitation of foreign investment within their unless otherwise stipulated. statutory authorities, and in accordance with the Most tax incentives are in the form of tax laws. There is no uniform national policy providing holidays based on favored industry, technology financial incentives such as cash grants to FIEs. or economic zone, not on the identity of foreign However, local governments may publish their or domestic entities. For example, specified basic own policies providing such grants. Under the new infrastructure projects in harbor, wharf, airport, FIL, local government may only do so within their statutory authorities, in accordance with the laws. 2022 INVESTMENT POLICY AND REGULATORY REVIEW – CHINA | 27 There is no readily accessible centralized portal Accreditation of High-tech Enterprises (last that serves as a repository of central, provincial amendment effective January 1, 2016) set out or local tax and financial incentives available to the guidelines and requirements for applying for investors in the country. accreditation of high-tech companies which will entitle the company to receive the tax/financial Eligibility Criteria and Approval Process incentives. The tax and financial incentives offered at the In addition, the local governments will usually national level to foreign investors are generally issue local guidelines. On 18 February 2016, contingent upon the satisfaction of the relevant the PRC State Administration of Taxation issued eligibility criteria set out in the specific circulars the Notice of State Administration of Taxation and announcements of the applicable incentives. Concerning Implementation of the Administrative The Administrative Measures of Handling Matters Measures for Accreditation of High-tech Relating to Enterprise Income Tax Preferential Enterprises to emphasize that the tax bureaus Treatment Policies (last amendment effective April at all level should streamline the tax preferential 25, 2018) set out the general principles for approval treatment application process for those high-tech process. These incentives do not automatically enterprises. However, it is not uncommon for local apply. Rather, enterprises that qualify for the governments to offer tax and financial incentives preferential corporate tax rate may self-assess and to FIEs on a case-by-case basis, and subject to self-declare to make use of the incentive, and the negotiation with the FIEs. tax department may verify an enterprise’s eligibility after the fact. The Administrative Measures for | 28 2022 INVESTMENT POLICY AND REGULATORY REVIEW – CHINA 6. 10. INVESTMENT LINKAGES For the purpose of this section research was of Enterprise Income Tax on the Proceeds from focused on the availability of incentive schemes Technology Transfers (last amended on December to increase local sourcing, technology transfer 29, 2017), a “qualified technology transfer” must and measures to improve information exchange satisfy the following requirements: between foreign investors and domestic suppliers. Although not specifically intended n The party to the technology transfer that enjoys for FIEs (and equally applicable to domestic the preferential treatment must be a resident enterprises), certain tax benefits are available enterprise as prescribed in the Enterprise for qualified technology transfer. For example, Income Tax Law; pursuant to Article 90 of the Regulation on the n The technology transfer must fall within the Implementation of the Enterprise Income Tax scope stipulated by the Ministry of Finance and Law, income of resident enterprises (including the State Administration of Taxation; FIEs) from qualified technology transfer gets preferential treatment. The first RMB5 million in n A domestic technology transfer must be one tax year is exempted from enterprise income recognized by a department of science and tax and any portion exceeding RMB5 million is technology at or above the provincial level; taxed at half the applicable rate in one tax year. Similarly, under the Circular on Comprehensively n A technology transfer to a foreign country must Promoting the Pilot Program of the Collection be recognized by a commerce department at or of Value-added Tax in Lieu of Business Tax (last above the provincial level; amended April 1, 2019), technology transfer is n Any other requirement stipulated by the also exempted from value-added taxes. Under the competent department of taxation under the Circular of the State Administration of Taxation on State Council. Issues Concerning the Reduction and Exemption 2022 INVESTMENT POLICY AND REGULATORY REVIEW – CHINA | 29 7. 10. OUTWARD FOREIGN DIRECT INVESTMENT For this section, research was focused on The Catalog of Sensitive Sectors for Outbound whether there are any legal instruments Investment (effective as of March 2018) sets out specifically covering outward investment and if the following sensitive sectors where OFDI is there are, whether they impose any restrictions restricted (OFDI Sensitive Sectors): on outward investment. In China, both state- owned enterprises (SOEs) and private sector n Research, development, manufacturing and enterprises can undertake investments overseas maintenance of weaponry; in accordance with the OFDI regulations. China’s n Exploitation and utilization of water resources OFDI regulatory regime is complex and in a state across borders; of flux. The Circular on Forwarding the Guidance Opinion of the National Development and Reform n News media; and Commission, the Ministry of Commerce, the People’s Bank of China and the Ministry of n The following sectors: Foreign Affairs on Further Guiding, and Regulating n Real estate industry Overseas Investment Direction, published in August 2017, codifies a set of principles for the n Hospitality industry Chinese government to follow when regulating OFDI. It also classifies overseas investments into n Cinemas three categories, namely “encouraged”, “restricted” n Entertainment industry and “prohibited.” n Sports clubs The main authorities that administer OFDI are: (i) the NDRC, (ii) the MOFCOM, (iii) the n Equity investment funds or investment State Administration of Foreign Exchange, and platforms that are established overseas (iv) the State-owned Assets Supervision and without specific industrial projects. Administration Commission, if SOE investments are involved. OFDI by Chinese investors made directly or through offshore enterprises under their The Administrative Measures for the Outbound control in the OFDI Sensitive Sectors require Investment of Enterprises (effective as of NDRC’s approval. Such approval is also required October 2014) and the Interim Measures if the OFDI would jeopardize national sovereignty/ for the Reporting of Outbound Investments security or public interest or if it involves the Subject to Record-filing or Approval (effective export of prohibited products or technologies, etc. as of January 2018) regulate OFDI activities in general and set out requirements for approval/ OFDI in other sectors is subject to filings record-filing for such investments. The Code under the record-filing procedure. Investors of Conduct for the Operation of Overseas are required to provide a number of documents Investments by Private Enterprises (effective as of and information to various authorities that have a December 2017) regulates private sector OFDI. A certain degree of discretion in deciding whether to PRC-incorporated company is required to obtain accept a filing or not. approvals from, or record-filing with, MOFCOM or its provincial counterparts and the NDRC or its The OFDI regulations have been relaxed over provincial counterparts before making outbound time as a whole, but in recent years the PRC investment. government has reasserted more control over OFDI to curb capital outflow for investments | 30 2022 INVESTMENT POLICY AND REGULATORY REVIEW – CHINA that do not directly contribute to China’s In November 2020, however, China signed the investment competitiveness and development Regional Comprehensive Economic Partnership goals (for example, OFDI in cinema studios and (RCEP) to further promote and enhance trade football clubs). Since China announced its “Going and OFDI in Asia. The Chinese government has Out” strategy in 2001, the OFDI regulations have also expedited the approval process for OFDI to been incrementally streamlined and liberalized by promote OFDI to counter the negative impact of measures such as simplifying approval procedure COVID-19 on domestic economy. and documentation requirements, increasing currency thresholds for seeking approval, and On January 9, 2021, MOFCOM released delegating authority from national regulators to the Measures for Blocking Unjustified their provincial counterparts, etc. In 2014, the Extraterritorial Application of Foreign Laws general framework for OFDI was changed from an and Measures, with immediate effect. These approval-based system to a record-filing system, blocking Measures provide the government with a similar to the Negative List approach for FDI. In legal framework to counter laws and regulations 2016, however, the PRC government announced from other countries deemed to affect the interests its intention to strengthen the OFDI regulations of China and their broad scope and purpose leave in response to certain OFDI investments in real the authorities with wide discretion in determining estate, cinema, entertainment and sports clubs what may constitute a potential threat to national and so forth that drew the Chinese public’s security. Under these Measures, Chinese citizens, attention and were perceived as relatively risky. legal entities, and organizations are required to The subsequently-issued regulations, including report to the competent authority in China within the Administrative Measures for the Outbound 30 days where any such Chinese entity is restricted Investment of Enterprises (published in December or prohibited from engaging in normal economic, 2017) and the Interim Measures for the Reporting trade, and related activities between China and of Outbound Investments Subject to Record-filing other countries. The competent authority has the or Approval (issued in January 2018), represent power to issue a “prohibition order” to allowing this trend of tightening the regulations and the reporter not to recognize, implement, or reasserting control over the OFDI. comply with the said foreign norms, as well as to file a lawsuit in China claiming for compensation for losses. 8. RESPONSIBLE INVESTMENT For this section, research was focused on whether these other laws are the Environmental Protection there are any measures within the country’s Law (last amendment effective January 1, 2015) investment legislation that are specifically and the Product Quality Law (last amendment targeted to ensure responsible investment. effective December 29, 2018). These laws and There are responsible investment measures in regulations apply to all domestic and foreign other laws and regulations of the country, but invested companies in China, so there are no China’s foreign investment law and policy do measures specific to foreign investment. not include an explicit reference. Examples of 2022 INVESTMENT POLICY AND REGULATORY REVIEW – CHINA | 31 9. CITY SPECIFIC REVIEW—SHANGHAI 10. Shanghai has consistently been at the forefront n On February 14, 2020, China’s main financial of the implementation of China’s reform and authorities and the Shanghai government opening-up policy over the past four decades. unveiled a guideline (Yin Fa [2020] No. 46) As the economic hub of China, Shanghai leads the with 30 measures to speed up establishing Yangtze River Economic Belt and serves as China’s Shanghai as an international financial center. center in multiple sectors such as finance, trade, The guideline aims to introduce new financial transportation, technology and innovation. It is policies in the Lingang New Area of Shanghai’s also the location of the China (Shanghai) Pilot Free Pilot Free Trade Zone, accelerate the openness Trade Zone (SHFTZ), the first pilot free trade zone of Shanghai’s financial sector, and boost the in China, established in 2013. integrated development of the Yangtze River Delta. The key local regulatory measures for promoting foreign investment in Shanghai (excluding n On November 24, 2020, the Regulations SHFTZ) are: on Encouraging the Establishment and Development of Foreign-funded Research n The Opinions on Further Opening up and and Development Centers were issued by the Accelerating the Establishment of a New System Shanghai government. The Regulations are for an Open Economy (issued by the Shanghai valid for 5 years, from December 1, 2020 until government in April 2017) (also known as the November 30, 2025. During this period, eligible “33 new measures”). foreign-funded R&D centers will benefit from n The Action Plan of Shanghai for Implementing policy support measures, including customs Major National Measures for Further Openness clearance facilitation for cross-border R&D, and Accelerating the Establishment of a New cross-border financial services facilitation, talent System for an Open Economy (issued by the acquisition and development, funding support, Shanghai government in July 2018) (also known tax cuts, participation in government projects, as the “100 new measures”). This 2018 action facilitation of environmental assessment and plan offers 100 initiatives of preferential and hazardous waste management, facilitation on favorable policies for foreign investment in land use for R&D purposes, and protection of Shanghai, covering aspects of banking, security, intelligent property rights. insurance, financial markets, foreign exchange, n On September 25, 2020, the Shanghai Municipal service industry, manufacturing of automobiles, People’s Congress adopted the Shanghai aircrafts and ships, intellectual property rights Regulations on Foreign Investment (effective as protection, trade environment for goods and of November 1, 2020). These Regulations will service imports. apply to all foreign investment projects (existing n The Several Opinions of the Shanghai Municipal or potential) located within Shanghai, including People’s Government on further promoting the China (Shanghai) Pilot Free Trade Zone foreign investment in Shanghai (effective as and New Lingang Area and emphasize equal of September 16, 2019), which provide details treatment of foreign and domestic investors regarding policies established by the FIL for during the entire investment cycle. They also the municipality of Shanghai and cover market stipulate that no additional market access access, investment promotion and investor restrictions shall be set up for foreign investments protection. beyond those specified in the Negative List. The Regulations provide for specific preferential treatment for foreign investment in the following encouraged industries: | 32 2022 INVESTMENT POLICY AND REGULATORY REVIEW – CHINA n Preferential treatment such as tax and land formulate Pudong New Area Regulations which use may be available to foreign investors may contain adaptation of laws, administrative who invest in encouraged industry under the regulations and departmental rules. The Encouraged Catalogue. regulation promulgated thereby shall be filed with the Standing Committee of National n Multinational companies with regional People’s Congress and the State Council. With headquarters stationed in Shanghai will be the special local legislation, Pudong New Area offered incentives by the local authorities in may continue to be pioneer in China’s reform the form of funding support and conveniences and opening up. in personnel entry and exit, talent hiring, capital settlement, trading and logistics, and Policies and regulations published at the customs clearance. national level take precedence over policies and regulations published at the subnational n Foreign investors setting up investment level. Traditionally, local governments (including companies in the Municipality will gain full Shanghai) may publish their own policies and support and convenience for their equity regulations to compete for foreign investment. transaction and capital inflow and outflow. In the past, not all such measures were in strict n Foreign-funded R&D centers will gain compliance with the law. To address this issue, the greater access to services provided by local new FIL explicitly states that local governments at authorities to facilitate their participation county level or above may only formulate policies in government research programs, on promotion and facilitation of foreign investment industrialization of R&D achievements, within their statutory authorities, in accordance international and domestic prosecution of with the laws. The new FIL also explicitly states patents, and import of R&D supplies and that governments at all levels and their relevant other aspects. departments may not impair the legitimate rights and interests of nor impose any additional obligation n On June 10, 2021, the Standing Committee of on a FIE, set any condition for market access and the National People’s Congress promulgated the withdrawal, or intervene in any normal production Decision on Authorizing Shanghai Municipal and operation activity of a FIE, unless supported by People’s Congress and Its Standing Committee relevant laws and regulations. to Formulate Regulations concerning the Pudong New Area (Decision) whereby Shanghai The local policies and regulations in Shanghai Municipal People’s Congress and its standing do not generally impose additional policy and committee is authorized to, on the basis of regulatory barriers for foreign investment. As complying with the constitutional provisions and elaborated above, legally, any specific policy and basic rules of laws and administrative regulations, regulatory barriers at the city level that contravene national laws and regulations will be invalid. 2022 INVESTMENT POLICY AND REGULATORY REVIEW – CHINA | 33 10. FDI IN THE DIGITAL ECONOMY This section examines China’s legal and sections review a number of legal and regulatory regulatory framework impacting investment dimensions that may affect both foreign and in digital activities and infrastructure. The first domestic investments in the digital economy: sub-section assesses FDI-specific restrictions that intellectual property rights, data privacy, data apply to 19 different digital economic sectors localization, intermediary liability, content or activities (see Table 4). The following sub- access, and e-commerce. Table 4. FDI Equity Restrictions in China’s Digital Economy Sectors Digital Activity/Sector FDI Equity Restrictions, if any “100%” Means No Caps on Foreign Equity 3D Printing 100% AI and Machine Learning 100% Big Data & Analytics 100% Blockchain 100% Cryptocurrency No cryptocurrency is allowed in China. On 24 September 2021, the PBOC issued the Notice of Further Regulating and Managing the Speculating Risks of Cryptocurrency Transactions and re-emphasized prohibition on cryptocurrency businesses. Drones 100% E-Commerce 100% Fintech 100% (fintech services) Gig Worker Platforms 100% Healthtech 100% (healthtech services) Insurtech 100% (but insurance sector FDI capped at 70%) IoT Devices (similar to Drones) 100% Logisticstech 100% Robotics 100% Social Network Platforms Social networking platforms fall within the scope of internet public-oriented information releasing services in which foreign investment is prohibited Cloud Computing Infrastructure (e.g. Up to 50% (as this falls under value added telecom) Datacenters) Telecom Services* n Value-added telecom (excluding e-commerce platforms, domestic multi- *see definition on next page. party communications, store-and-forward and call centers) - up to 50% (except in pilot free trade zones in China) n App stores (fall under value-added telecom) – up to 50% (except in pilot free trade zones in China) n Basic telecom - up to 49% Telecom equipment to enable digital 100% infrastructure and digital connectivity Traveltech 100% (traveltech services) Source: Analysis by Kilpatrick Townsend and Stockton based on country’s laws and regulations. | 34 2022 INVESTMENT POLICY AND REGULATORY REVIEW – CHINA FDI-Specific Restrictions Recent Policies in Digital Economy Sectors China permits foreign direct investment in many of the key digital economy areas identified In China several measures have been taken in the Table above, but maintains wide- that influence the development of the digital reaching restrictions for telecom services. For economy. Both the Internet of Things and 3D the purpose of determining the applicable foreign printing have been included in the Catalogue for equity restrictions, telecom services are generally the Guidance of Foreign Investment Industries, categorized into two categories: (i) “value added encouraging foreign investment in such sectors. telecom” services, which are information services The PRC Cybersecurity Law came into effect on provided via public communication network or June 1, 2017 and applies to all domestic and foreign internet (e.g., ISPs/broadband services, VPN, invested companies alike. The Cybersecurity e-commerce platforms, app stores, online payment Law sets out requirements and restrictions on the platforms, domestic multiparty services for collection of Big Data and cross-border transfer teleconferencing, video, store and forward such of personal data. The Chinese government has as voicemail and email services, call centers, live been recently tightening the regulations of data streaming platforms, information search engines, protection and issued the Data Security Law information sharing community platforms, and (effective September 1, 2021) and the Personal instant messaging), and (ii) “basic telecom” Information Protection Law (effective November services, which are the provision of public network 1, 2021) both of which have significant impact on infrastructure, public data transmission, and basic data protection in China. voice communication services. Other than equity ceilings, China has no specific Intellectual Property Rights restrictions to FDI in the digital economy. There Digital products (such as e-books, digital is no separate screening process for digital FDI, platforms, downloadable music, digital and there is no specific requirement as to a greater content, software, and databases, to name a screening test for the digital-related business. few) are afforded protection under the PRC There are no minimum investment requirements Copyright Law (last amended on June 1, 2021). or other discriminatory restrictions or quotas or The Copyright Law provides for protection on a local sourcing requirements specifically for FDI range of original works of authorship in the form in the digital economy sectors. Nor are there any of literary works (including computer programs), requirements specifically imposed on foreign musical works, artistic works, photographs, films investors in the digital economy sectors to invest or sound recordings and broadcasts. A copyright in local R&D, meet any export quotas, or to owner is granted a bundle of exclusive rights to transfer technology to local business partners. No reproduce, display, distribute, rent, and perform special restrictions are placed on the appointment the copyrighted works. The Copyright Law also of expatriates on the board of directors or key recognizes authors’ and performers’ moral rights managerial positions in the digital economy. covering the right of paternity and the right of Rather, the rules applicable to FDI in the traditional integrity. Although the Copyright Law does not sectors described in sections above equally apply expressly mention creations made on the Internet to FDI in the digital economy. Several of the or in the digital environment, the copyright rules digital economy sectors noted above are listed in applied for conventional works in physical media the Encouraged Catalogue and therefore foreign also apply for digital works. investment in such sectors may be eligible for fiscal and non-fiscal incentives. The doctrine of fair use is embodied in Article 24 of the PRC Copyright Law. It provides for several exceptions as defenses to copyright infringement, including the following: 2022 INVESTMENT POLICY AND REGULATORY REVIEW – CHINA | 35 n Use of a published work of another for purposes n Copying, drawing, photographing, or video- of personal study, research or appreciation; recording of a work of art put up or displayed in public places; n Appropriate quotation from a published work of another in one’s own work for the purpose of n Translation of a published work of a Chinese introducing or commenting a certain work, or citizen, legal person  or unincorporated illustrating a point; organization from the standard spoken and written Chinese language into minority n Unavoidable reproduction or quotation from nationality languages for publication and a published work in newspapers, periodicals, distribution in the country; radio stations, television stations or other media for the purpose of reporting news; n Provision of published works to dyslexics in a barrier-free way through which they can n Publication or broadcasting by newspapers, perceive; and periodicals, radio stations, television stations or other media of current event articles on n Other circumstances as provided by laws and issues of politics, economy and religion, which administrative regulations. have been published by other newspapers or periodicals, or broadcast by other radio Trade secrets are protected under the PRC Anti- stations or television stations, except where the unfair Competition Law (effective as of April 23, copyright owner  declares that such publication 2019) and the Certain Provisions of Prohibition or broadcasting is not permitted; on Infringement of Trade Secrets (last amendment on December 3, 1988), pursuant to n Publication or broadcasting by newspapers, which a business shall not commit the following periodicals, radio stations, television stations acts of infringing upon trade secrets: or other media of a speech delivered at a public gathering, except where the author declares n Acquiring a trade secret from the right holder that such publication or broadcasting is not by theft, bribery, fraud, coercion, electronic permitted; intrusion, or any other illicit means; Translation, n adaptation, compilation, n Disclosing, using, or allowing another person to broadcasting, or reproduction in a small use a trade secret acquired from the right holder quantity of copies, of a published work by by any means as specified in the preceding teachers or scientific researchers for use in subparagraph; classroom teaching or scientific research, n Disclosing, using, or allowing another person provided that such a work shall not be published to use a trade secret in its possession, in or distributed; violation of its confidentiality obligation or the n Use of a published work by a State organ to a requirements of the right holder for keeping the reasonable scope for the purpose of fulfilling its trade secret confidential; official duties; n Abetting a person, or tempting, or aiding a person n Reproduction of a work in its collections by into or in acquiring, disclosing, using, or allowing a library, archive, memorial hall, museum, art another person to use the trade secret of the right gallery, cultural center or similar institution holder in violation of his or her nondisclosure for the purpose of display, or preservation of a obligation or the requirements of the right holder copy of the work; for keeping the trade secret confidential. n Free performance of a published work for non- A trade secret is defined to include technical, profit purposes, for which the public does not operational or other commercial information pay any fees and no remuneration is made to unknown to the public and is of commercial value the performers; for which the right holder has taken corresponding confidentiality measures. | 36 2022 INVESTMENT POLICY AND REGULATORY REVIEW – CHINA Intellectual property (IP) owners may prison terms. Under Chinese law, an IP seek administrative, judicial, and criminal infringement may constitute a crime based on remedies against infringers. The administrative whether the infringement is “serious” subject enforcement authorities have the power to confiscate to certain criteria such as when the infringer’s infringing goods, seize and destroy equipment illegal income from the infringement has used for producing infringing goods, levy fines exceeded certain amounts. For instance, on infringers, and conduct raid actions. However, for trademark counterfeiting the base level administrative authorities do not have the power to income is RMB 50,000. For regular “serious award compensation to IP owners. Administrative circumstances,” the penalty is up to three years enforcement can also be used to secure evidence in prison. However, punishment can now be for judicial enforcement. Judicial enforcement can up to five years’ imprisonment for knowingly include civil proceedings and criminal sanction. selling pirated goods with significant illegal The remedies sought in civil proceedings include income (Art. 218 of the Criminal Law) and injunctions, damages, delivery-up or destruction for the crime of “commercial espionage” (Art. of infringing goods, recall order and declaration 219.1 of the Criminal Law). For “especially of infringement. According to Article 1182 of serious circumstances,” the maximum prison the PRC Civil Code, where the infringement on term is increased from seven years to 10 personal rights and interests results in property years. In addition, the Amendment narrows loss, the compensation shall be made according the possibility for granting probation (only to the loss suffered by the infringed party or the applicable for detention or sentencing of three gains obtained by the tortfeasor from the tort; if years or less) so serious infringers will be the loss suffered by the infringed party or the gains unable to avoid jail. obtained by the tortfeasor are indeterminable and the infringed party and tortfeasor fail to reach n Counterfeiting extended to service marks – an agreement on the amount of compensation, The Amendment adds service marks to the scope either of them may file a lawsuit with the people’s of protection. Previously only trademarks relating court and the court shall determine the amount to goods could be prosecuted under Chinese of compensation based on the actual situation. criminal law. The administrative enforcement authorities n Revisions to copyright-related crimes – may transfer IP infringement cases to the Public The Amendment replaced the language “film, Security Bureaus (PSB) for criminal investigation. television and video works” with the broader An IP owner may also report infringement to the term “audiovisual works” to align with the PSB. To be considered a crime, the illegal profits Chinese Copyright Law, which was revised or illegal operational revenue must exceed certain in November 2020. In addition, “intentionally thresholds. The PSB has sole discretion to decide avoiding or destroying the technical measures whether to accept a criminal case. If the PSB for copyright protection taken by the right accepts the case and there is sufficient evidence, holder without the permission” now can be then the PSB will pass the case to the prosecution subject to prosecution under the crime of agency who will then assess whether the case may copyright piracy. proceed to trial. n Revisions to trade secret-related crimes — The 11th Amendment to the PRC Criminal Law The Amendment also revises the criminal (effective as of March 1, 2021) makes significant threshold for trade secret–related crimes from changes to the rules for crimes associated with “causing significant losses to the right holder IP, including strengthening punishment for IP of trade secrets” to “if the circumstances are crime and an expansion of coverage: serious.” With the revision, the penalty is based n Maximum prison term increased – The on the severity of the circumstances rather than Amendment removes the two existing lenient just the amount of the monetary loss. This is penalties (detention up to six months and public to be further defined by subsequent legislation. surveillance) for all IP crimes and increases This is a significant change that paves the way 2022 INVESTMENT POLICY AND REGULATORY REVIEW – CHINA | 37 to eventually switching the crime of trade n It is necessary for the conclusion or performance secret infringement from consequence-based to of a contract which the individual is a party to, behavior-based, which has long been urged by or it is necessary for the implementation of the industry. human resource management in accordance with the employment policies developed in n New “commercial espionage” crime — accordance with the law and the collective The Amendment introduces the offense of employment contracts signed in accordance “commercial espionage”, according to which with the law; anyone in China stealing trade secrets for foreign agencies, organizations, or individuals n It is necessary for the performance of lawful can be prosecuted under criminal law with no duties or obligations; requirement of “serious circumstances”. While it remains to be seen how this will be applied n It is necessary to respond to public health in practice, all Chinese or foreign companies or incidents, or to protect the lives, health and individuals in China that exchange information property of natural persons in an emergency; abroad may need to adopt a higher compliance n Personal Information is processed within a standard and implement stricter export control reasonable scope for the purpose of carrying measures to minimize the relevant risks. out news reporting or public opinion oversight While China’s IP protection laws are generally in the interest of the public; at par with international standards, the n Personal Information that had been disclosed by enforcement of IP rights and online piracy in the individual or is otherwise already lawfully the country remains a challenge for foreign disclosed is processed within a reasonable investors. scope in accordance with the PIPL; or Data Privacy n Any other situations provided for by laws or administrative regulations. China’s data protection regime mainly comprises of the following laws: In addition, the PIPL requires a standalone/written consent from the data subject under the following n The PRC Cybersecurity Law (effective as of circumstances: June 1, 2017) applicable to network data; n When one personal information processor n The PRC Data Security Law (effective as of (“PIP)” transfers the individual’s personal September 1, 2021) applicable to all data; and information processed by it to another PIP or n The PRC Personal Information Protection Law outside China; (effective as of November 1, 2021) applicable n When a PIP publicizes the individual’s personal to personal data only (PIPL). information processed by it; According to the PRC Cybersecurity Law, data n When the individual’s image or identification subjects’ consent is required for the collection, information collected by the data collection use and transfer of personal data. The data equipment installed in the public area is to be processor should make available to the public the used for purposes other than public security purposes, methods and scope of data collection purposes; and and processing. n Processing of sensitive personal information of The PIPL extends the legal basis for data data subject. processing to include the following: There is no uniform regulation setting a n The individual has provided his/her consent; minimum or maximum period for data retention, but a data retention period is set out | 38 2022 INVESTMENT POLICY AND REGULATORY REVIEW – CHINA in various laws and regulations. For example, any of the following circumstances, with the data the PRC Cybersecurity Law provides that network subject being entitled to request for deletion if the operators shall retain the network log for at least personal information processor does not comply: 6 months. The PIPL only provides that unless otherwise stipulated under applicable laws or n The processing purpose has been or is unable regulations, the retention period for personal to be achieved, or personal information is no information must be the shortest time necessary more necessary for achieving the processing for achieving the purpose of processing. The purpose; PRC E-commerce Law provides that the retention n The personal information processor has no period for goods and services information or longer provided the products or service, or the transaction information should not be less than retention period has expired; 3 years after completion of transaction. The Regulations on the Administration of Credit n The data subject withdraws the consent; Investigation Industry (effective as of March 15, 2013) and the Administrative Measures of Credit n The personal information processor processes Investigation Business (effective as of January the personal information in violation of the 1, 2022) provide that the retention period for an laws, administrative regulations, or agreements; individual’s negative information is no more than n Other circumstances as stipulated by the law 5 years. and the administrative regulations. The PIPL obligates personal information The PRC Cybersecurity Law obligates the processors to perform personal information network operators to provide technical support impact assessments in advance under any of the and assistance to the activities of public security following circumstances: bureau and national security bureau in relation n Processing of sensitive personal information; to national security protection and crime investigation in accordance with the laws. The n Using personal information for automated general understanding is that the government or law decision- making; enforcement can access personal data controlled by private entities for the public interests, national n Entrusting others to process personal security and crime investigation. information, or transfer personal information to others, or making personal information Violations of the PIPL may be subject to an available to the public; order for rectification, a warning, confiscation of illegal gains, suspension, or cessation of n Transferring personal information out of China; service by the application that is illegally n Any other personal information processing processing personal information, and financial activities which have significant impact on the penalties against the PIP (up to RMB 1 million) individual’s rights. if it refuses to rectify its breach. Where the breach is particularly egregious, the PIP may Assessment reports and records of processing be subject to financial penalties (up to RMB 50 shall be maintained for at least 3 years. million or 5% of the PIP’s turnover in the previous year), an order for suspension of the relevant Pursuant to the PRC Cybersecurity Law, a business, or the cessation of the relevant business data subject is entitled to request the network for an overhaul, revocation of operating permits operator to delete his/her personal information or business licenses of the PIP. A data protection if the network operator collects or uses his/her officer or other directly liable individuals may personal information in violation of the laws, be subject to financial penalties of up to RMB 1 administrative regulations, or agreements. million and be prohibited from holding office as The PIPL also mandates the personal information directors, supervisors, senior managers or DPOs processor to delete the personal information under for a period of time. 2022 INVESTMENT POLICY AND REGULATORY REVIEW – CHINA | 39 The Data Security Law effective from controlling computer information systems, and in September 1, 2021, prohibits organizations such cases if the circumstances are serious, shall within the territory of China from providing be subject to criminal liability. any foreign judicial body and law enforcement body with any data stored within the territory Data Localization of China without the approval of the competent Chinese authority. Any violation of the foregoing Pursuant to the PRC Cybersecurity Law, requirement shall be warned by the relevant “critical information infrastructure” operators competent department, and subject to a fine of (CIIOs) must store personal information and up to RMB 1 million concurrently. In addition, important data gathered and produced during the person-in-charge who is subject to direct operations within China. “Critical information liabilities and other personnel subject to direct infrastructure” is broadly defined to include liabilities may be subject to a fine of up to RMB public communications and information services, 100,000; where serious consequences are caused, energy, transport, water conservancy, finance, a fine of up to RMB 5 million may be imposed; public services, e-government affairs and other the relevant competent authority may suspend or important industries and fields. It further includes revoke relevant business license; and the person- other key information infrastructure that may in-charge who is subject to direct liabilities and result in serious damage to national security, other personnel directly liable shall be subject to a national economy, people’s livelihood, or public fine of up to RMB 500,000. interests if it is destroyed, impaired, or subject to data leakage. Where it is necessary to provide The PRC Criminal Law does provide for some such information and data to overseas parties due criminal offences in relation to data collection to business requirements, a security assessment and processing. For example, according to must be conducted by the local provincial-level Article 285 of the PRC Criminal Law, whoever, in cyberspace department in accordance with laws violation of state regulations, invades the computer and regulations. This applies to both domestic information system in the fields of state affairs, enterprises and foreign investors. national defense construction or sophisticated science and technology shall be sentenced to According to the PIPL, cross-border transfer of fixed-term imprisonment of not more than three personal information out of China must fulfil at years or criminal detention. Any person who, in least one of the following conditions: violation of the state regulations, invades computer n Passing a safety assessment by the national information systems other than the prescribed cyberspace authority; systems in the preceding paragraph, and obtains the data restored in, handled or transmitted by that n Obtaining personal information protection computer information system, or conducts illegal accreditation from a professional agency control of that computer information system, if appointed by the national cyberspace authority; the circumstances are serious, shall be sentenced to a fixed-term imprisonment of not more than n Entering into a contract with the overseas three years or criminal detention, and a fine shall recipient in a standard form formulated by the be imposed concurrently or exclusively. If the national cyberspace authority; or circumstances are especially serious, the person n Any other conditions provided for under laws shall be sentenced to a fixed-term imprisonment and regulations, or those set by the national of more than three years but not more than seven cyberspace authority. years with a fine imposed concurrently. Any person who provides procedure or instrument dedicated to Moreover, CIIOs and personal information invade or illegally control a computer information processors (PIPs) that are processing personal system, or provides procedure or instrument information above a certain threshold as for others with clear knowledge that others will determined by the Cyberspace Administration commit criminal acts of invading or illegally of China (CAC) (“Designated PIPs”) are subject | 40 2022 INVESTMENT POLICY AND REGULATORY REVIEW – CHINA to additional requirements. They must store to exercise the rights provided in the PIPL with personal information collected or generated in the foreign recipient, and such other matters. the PRC within the territory of the PRC and pass a security assessment administered by the CAC Intermediary Liability if it is necessary for such entities to transfer personal information out of the territory of the Liability of online intermediaries is mainly PRC. Personal information is defined as all kinds addressed in the following legal instruments, of information related to identified or identifiable which mostly also include a safe harbor natural persons that are electronically or otherwise provision: recorded, but excluding information which has n The PRC Civil Code (effective as of January been anonymized. Notably, the above provisions 1, 2021), which provides for network services result in an extension of the data localization providers’ responsibilities and liabilities in the obligations to all the data processors (not just event of infringement of network users’ rights. critical information infrastructure operators). Where the network service provider knows or Sectoral regulators are still developing should know that a network user infringes upon regulations on data localization applicable the civil rights and interests of others by using to their respective industries. So far only its network service, and fails to take necessary recommended standards and guidelines have measures, it shall be jointly and severally liable been issued. For example, according to the with the network user. If the network service Personal Financial Information Protection provider has taken the necessary measures when Technical Specification issued on 13 February it knows or should know such infringement, its 2020, a financial institution shall store personal liability may be exempted. information collected during its provision of n The Provisions on the Governance of Network financial products or services in China within the Information Contents (effective as of March territory of China, and it shall satisfy the following 1, 2020), which stipulate responsibilities of requirements before transferring the personal network information content services platforms. information to entities outside China including its parent company, subsidiaries, or branches: n The Regulation on the Protection of the Right to Communicate Works to the Public over n Passing the cross-border data transfer assessment Information Networks (last amendment on conducted by the Cyber Administration of March 1, 2013) also contains provisions relating China (CAC); to network services providers’ responsibilities n Entering into an agreement with the overseas and liabilities in the event of IP infringement. recipients as well as ensuring and supervising Where a the network service provider is fully their compliance with the PRC data regulations; aware or should have known that linked works, the overseas recipients’ compliance with the performance or audio-visual products constitute PRC data regulations; infringement, it shall bear joint liability for infringement. Where it objects and cuts off the n Conducting personal information protection links to any infringing work, performance or assessment in advance and records of processing audio-visual product in accordance with these shall be maintained for at least 3 years; Regulations upon receipt of a notice from the right owner, it shall not assume liability for n Obtaining an explicit consent from data subject; compensation. and n The PRC E-Commerce Law, which stipulates n Special duty of information: the individual shall responsibilities and liabilities of e-commerce be notified of the foreign recipient’s name or platform operator. It provides that if an personal name, contact, processing purpose and e-commerce platform operator knows or methods, and personal information categories, should know that an operator within the as well as ways or procedures for individuals platform has infringed upon IPRs, it shall take 2022 INVESTMENT POLICY AND REGULATORY REVIEW – CHINA | 41 necessary measures such as deleting, blocking, Services of Mobile Internet Application Programs disconnecting, terminating transactions and (effective 28 June 2016), app providers must services, and if it fails to take necessary ensure that new app users register with their real measures, it shall be jointly and severally liable names by verifying users’ mobile phone numbers with the infringer. and/or other identity information. Chinese law provides for a notice and Online intermediaries are also subject to takedown regime by private individuals, but monitoring requirements. Provisions on the does not specify the period of time between Governance of Network Information Contents takedown obligation and receiving notice. (effective as of March 1, 2020) provide for A network platform operator is delegated as a intermediaries’ monitoring responsibilities as gatekeeper and is obligated to take action against follows: the infringement or illegal activities. A court order is not necessary. For example, according n A network information content platform to Article 15 of the Regulation on the Protection shall set up the mechanism of governance of of the Right to Communicate Works to the Public network information content, develop the over Information Networks, the network service detailed rules for governance of the network provider, after receiving notification from the information content on the platform, and owner, shall immediately delete or disconnect the improve the systems for user registration, link to the work, performance, or audio-visual account management, information release and recording suspected of infringing on another examination, posts and comments examination, person’s right, and meanwhile shall transfer the page management, real-time inspection, and notification to the service object of the work, emergency disposal. performance, or audio-visual recording. If the n A network information content platform shall network address of the service object is not not disseminate the information provided in clear and the notification cannot be transferred, Article 6 of these Provisions, and shall prevent the network service provider shall publicize the and resist the dissemination of the information content of the notification through the information provided in Article 7 of these Provisions. The network. platform shall strengthen the management of Chinese law provides for user identity information content, and if the information requirements for online intermediaries. The specified in Articles 6 and 7 of these Provisions Provisions on the Administration of Account is discovered, the platform shall, according to Names of Internet Users (effective as of March 1, law, immediately take measures to dispose of 2015) stipulate that internet information service it, preserve relevant records and report to the providers shall, under the principle of “registration relevant competent authorities. of legal names of users in background programs Article 6 of the provisions refers to illegal and use of legal names as screen names of a information containing the following: user’s free will in foreground programs,” require internet information service users to register 1. Violating the fundamental principles set accounts after validation of their true identity forth in the Constitution; information. Moreover, according to Article 21 of the PRC Counterterrorism Law (effective as of 2. Jeopardizing national security, divulging January 1, 2016), telecommunications, internet, state secrets, subverting the state power, or finance, accommodation, long-distance passenger undermining the national unity; transport, motor vehicle lease and other business 3. Damaging the reputation or interests of the operators and service providers shall check clients’ state; identities. They shall not provide services to any client whose identity is not clear or who refuses 4. Distorting, defaming, desecrating, or to accept an identity check. According to Article denying the deeds and spirit of heroes 7 of the Administrative Provisions on Information and martyrs, and insulting, defaming, | 42 2022 INVESTMENT POLICY AND REGULATORY REVIEW – CHINA or otherwise infringing upon the name, or induce minors to indulge in unhealthy portrait, reputation, or honor of a hero or a habits; and martyr; 9. Other contents that adversely affect network 5. Advocating terrorism or extremism, ecology. or instigating any terrorist or extremist activity; Moreover, the PRC Counterterrorism Law obligates telecommunications business operators 6. Inciting ethnic hatred or discrimination to and internet service providers to put into practice undermine ethnic solidarity; network security and information content supervision rules, and technical measures for 7. Detrimental to state religious policies, security protection, so as to avoid the dissemination propagating heretical or superstitious ideas; of information with any terrorist or extremist 8. Spreading rumors to disturb economic and content. If they discover any information with social order; terrorist or extremist content, they must cease the transmission immediately, preserve relevant 9. Disseminating obscenity, pornography, records, and report to public security authorities force, brutality and terror or crime-abetting; or the relevant departments. 10. Humiliating or defaming others or Various laws and regulation provide for infringing upon their reputation, privacy penalties to be imposed on intermediaries for and other legitimate rights and interests; non-compliance with the notice and takedown and requirements. For example, the PRC Cybersecurity Law states that where a network operator fails to 11. Other contents prohibited by laws and stop the transmission of or delete the information administrative regulations. of which the release or transmission is prohibited by any law or administrative regulation, or to take Article 7 refers to undesirable information any other measures, and preserve relevant records, containing the following: the competent department shall order it to rectify, 1. Using exaggerated titles that are seriously give a warning, and confiscate its illegal income. If inconsistent with the contents; the operator refuses to rectify or the circumstances are serious, the competent department may impose 2. Hyping gossips, scandals, bad deeds, and a fine of not less than RMB 100,000 yuan but not so forth; more than RMB 500,000 yuan, and may order it to suspend relevant business operation, cease 3. Making improper comments on natural business operation for rectification, or close down disasters, major accidents or other disasters; the website, or may revoke the relevant business 4. Containing sexual innuendo, sexual permit or business license, and impose a fine of provocations, and other information that up to RMB 100,000 yuan on directly responsible easily leads to sexual fantasy; person in charge and other directly liable persons. 5. Showing bloodiness, horror, cruelty, and Similarly, the PRC E-commerce Law states that other scenes that causes physical and an e-commerce platform operator who fails to mental discomfort; adopt the requisite measures pursuant to the law against a business operator using the platform who 6. Inciting discrimination among communities has committed IP infringement shall be ordered or regions; by the relevant IP administrative authorities to make correction within a stipulated period, and if 7. Promoting indecency, vulgarity, and kitsch; correction is not made within the stipulated period, 8. Contents that may induce minors to imitate a fine of up to RMB 500,000 shall be imposed; and unsafe behaviors, violate social morality, in serious cases, a fine ranging of up to RMB 2 million shall be imposed. 2022 INVESTMENT POLICY AND REGULATORY REVIEW – CHINA | 43 Content Access n Administrative Measures of Security Protection of Computer Information Network Various PRC laws prohibit online content that Linked to Internet (effective 8 January may damage the public interest or national 2011): These measures prohibit internet interest, including: service providers from producing, reproducing, n Administrative Measures of Internet consulting or transmitting content which Information Services (8 January 2011): Pursuant incites defiance or violation of the Constitution, to Art. 15, internet information service providers laws or administrative regulations, incites shall not produce, copy, publish or distribute subversion of State power and the overturning information having the following content: of the socialist system, incites national division and harms national unification, incites hatred n Against the fundamental principles set forth and discrimination among nationalities and in the Constitution; destroys national unity, fabricates or distorts the truth, spreads rumors or disrupts social n Detrimental to State security, State secrecy, order, spreads feudal superstition, involves State power and national unification; obscenities, pornography, gambling, violence, murder, horrific acts or instigates criminal n Detrimental to State honor and interests; acts, openly humiliates another party, slanders n Instigating ethnic hatred or discrimination another party through a fabrication of the truth, and detrimental to national unity; or damages the reputation of a State organ. n Detrimental to State religious policy, n Provisions for the Administration of Internet propagating heretical or superstitious ideas; News Information Services (amended in 2017) require that a permit for internet news n Disseminating rumors, disrupting social information services must be obtained for order and stability; provision of Internet news information services through Internet websites, apps, forums, n Disseminating obscenity, pornography, blogs, microblogs, public accounts, instant force, brutality and terror or crime-abetting; communication tools, Internet broadcast and n Humiliating or slandering others, trespassing other forms to the public. An internet news the lawful rights and interests of others; information service provider must also set up a chief editor to assume the overall responsibility n Other content forbidden by laws and for the content of internet news information. The regulations chief editor must have relevant work experience, meet relevant conditions, and be registered These Measures require both domestic and with the Cyberspace Administration of China foreign businesses to obtain an internet content (CAC) or the cyberspace administration of the provider permit for operating a website or province, autonomous region or municipality provision of Internet information service. When directly under the central government. an Internet information service provider finds that inappropriate information as set out in Article 15 In 2015, the PRC Criminal Law was amended to is being transmitted on its website or platform, it extend liability to cloud service providers failing shall terminate the transmission immediately and to prevent the illegal use of the Internet upon keep record and report to relevant authorities. becoming aware of the illegal use or activity. A violation of the Measures by anyone who produces, duplicates, publishes or disseminates E-Commerce inappropriate information listed above shall be subject to penalties, including monetary fines, E-commerce in China is regulated by the imprisonment and business license suspension. following laws and implementing regulations mainly based on consumer protection principles: | 44 2022 INVESTMENT POLICY AND REGULATORY REVIEW – CHINA n The PRC E-Commerce Law (effective as of or crimes, effectively deal with online security January 1, 2019) events, and safeguard e-commerce transaction security. They must also establish IPR protection n The PRC Measures for the Supervision and rules, strengthen cooperation with IPR holders Administration of Online Transactions (effective and legally protect the IPRs on their platforms by as of May 1, 2021) taking prompt measures to delete, block or disable n The Interim Measures for the Administration of links to infringing content, goods or services on Internet Advertising (effective as of September their platforms upon notice from IP owners. If 1, 2016) an operator knows or should know of any IPR infringement on its platform, the operator must The PRC E-Commerce Law defines take necessary measures to delete, block or disable “e-commerce operators” as entities that engage the link, or terminate the transaction and service. in the operational activities of selling goods Otherwise, the operator will be subject to joint and or providing service through the internet several liability with the infringer. and other information networks, including e-commerce platform operators, merchants on The key legislation on electronic signatures in platform, and e-commerce operators selling China is the PRC Electronic Signature Law, goods or providing service via their self-built first published in 2004 and last amended in websites or other web service. E-commerce 2019, pursuant to which e-signatures have the operators are required to obtain certain licenses same legal validity as handwritten signatures and market entity registration prior to commencing or stamps if they meet certain conditions. operations. E-commerce platforms need to obtain Certain products are prohibited from being the value-added telecommunication license. Those sold online and can only be obtained through e-commerce merchants dealing on the e-commerce physical sales. Such prohibitions are stipulated in platform need to obtain a normal business license sector/good specific regulations: and depending on the goods to be sold, they may be required to obtain other specific licenses. n According to the PRC Administrative Measures of Tobacco Monopoly Licences (effective 20 All goods and services sold by e-commerce July 2016), a cigarette retailer should have a operators must be in compliance with the physical business premise and is only allowed requirements for safeguarding consumer to sell cigarettes in such business premise stated interests and for environmental protection. in its cigarette retail licence, which means online E-commerce operators must disclose accurate sale of cigarettes is not allowed. product/service information and avoid engaging in misleading and deceptive practices, and provide n According to the PRC Interim Provisions on e-commerce data information to relevant competent Approval of Internet Drug Trading Services, authority according to laws and administrative internet drug trading services providers can regulations. E-commerce platform operators are only sell OTC drugs to individuals and are not also required to submit the identity information allowed to sell drugs to other enterprises or of the merchants on their platform to market medical institutions. regulation authorities for enforcement purposes, and preserve the information on goods, services, n The PRC Drug Administration Law (last and transactions for no less than three years from amendment 1 December 2019) allows the date of completion of the transaction. marketing authorization holders and licensed drug distributors to sell drugs online, except E-commerce platform operators are obligated for vaccines, blood products, narcotic drugs, to manage the sellers on platforms by psychotropic drugs, toxic drugs for medical use, strengthening the review of information about radioactive drugs, pharmaceutical precursor and qualifications of the seller and implement chemicals and other drugs under special state technical measures to ensure network security administration. and stable operation, prevent online illegal acts 2022 INVESTMENT POLICY AND REGULATORY REVIEW – CHINA | 45 ENDNOTES 1 The WTO services sectoral classification list Services are categorized into 12 sectors: (W/120) is a comprehensive list of services sectors and sub-sectors covered under the GATS. It was 1. Business services compiled by the WTO in July 1991 and its purpose 2. Communication services was to facilitate the Uruguay Round negotiations, ensuring cross-country comparability and 3. Construction and related engineering services consistency of the commitments undertaken. The 160 sub-sectors are defined as aggregate 4. Distribution services of the more detailed categories contained in 5. Educational services the United Nations provisional Central Product Classification (CPC). The list can be accessed 6. Environmental services under the following link: http://www.wto.org/ english/tratop_e/serv_e/mtn_gns_w_120_e.doc. 7. Financial services 8. Health related and social services 9. Tourism and travel related services 10. Recreational, cultural and sporting services 11. Transport services 12. Other services not included elsewhere | 46 2022 INVESTMENT POLICY AND REGULATORY REVIEW2022 INVESTMENT POLICY AND REGULATORY REVIEW – CHINA 46 – CHINA | 2 For the purpose of this research, 32 sectors have been identified. This is not an exhaustive list of all sectors of the economy. Primary: Services: 1. Agriculture, Hunting, Forestry, and Fishing 18. Electricity, Gas, and Water 2. Mining, Quarrying, and Petroleum 19. Alternative Energy Manufacturing: 20. Construction 3. Agroprocessing, Food Products, and Beverages 21. Wholesale and Retail Trade 4. Textiles, Apparel, and Leather 22. Hotels and Restaurants 5. Chemicals and Chemical Products 23. Other Travel and Tourism-related Services 6. Rubber 24. Logistics, Transport, and Storage 7. Plastic Products 25. Telecommunications 8. Pharmaceuticals, Biotechnology, and Medical 26. Computer and Software Services Devices 27. Financial Services including Insurance 9. Metals and metal products 28. Real Estate 10. Non-metal mineral products 29. Business Services 11. Wood and wood products (other than Furniture) 30. Professional, Scientific and Technical 12. Furniture Services (Engineering, Architecture, and so 13. Paper and paper products forth) 14. Printing and publishing 31. Health Services 15. Automobiles, Other Motor Vehicles, and 32. Media and Entertainment Transport Equipment 16. Information Technology and Telecommunications Equipment 17. Machinery and Electrical and Electronic Equipment and Components 2022 INVESTMENT POLICY AND REGULATORY REVIEW – CHINA | 47 LIST OF REFERENCE MATERIALS Primary Sources 投资管理办法, the full text in Chinese can be found at http://www.mofcom.gov.cn/article/ 1. National FDI Policy swfg/swfgbl/gz/201304/20130400104418. shtml. The MOFCOM issued a revised draft n Special Administrative Measures for Access for public consultation on 18 June 2020 and of Foreign Investment (“Negative List”) the comment period ended on 19 July 2021, (2021 Edition) (effective 1 January 2022) 外 and a full text of the revised draft can be 商投资准入特别管理措施（负面清单） found at http://www.mofcom.gov.cn/article/ (2021年版）, the full text in Chinese can b/g/202007/20200702979804.shtml be found at https://www.ndrc.gov.cn/xxgk/ zcfb/fzggwl/202112/t20211227_1310020. n Administrative Measures for the Outbound html?code=&state=123 Investment of Enterprises (effective 1 March 2018) 企业境外投资管理办法, the full text n The Catalogue for the Encouraged Industries in Chinese can be found at http://www.gov. for Foreign Investment (2020 Edition) cn/gongbao/content/2018/content_5280579. (effective 27 January 2021) 鼓励外商 htm 投资产业目录(2020年版), the full text in Chinese can be found at https://www. n Interim Measures for the Reporting of ndrc.gov.cn/xxgk/zcfb/fzggwl/202012/ Outbound Investments Subject to Record- P020201228567029819518.pdf filing or Approval (effective 18 January 2018) 对外投资备案（核准）报告暂行 2. Investment Law and Related Regulations (or 办法, the full text in Chinese can be found similar instruments) at http://www.mofcom.gov.cn/article/ Laws b/g/201804/20180402735967.shtml n Foreign Investment Law of the People’s n Catalog of Sensitive Sectors for Outbound Republic of China (effective 1 January Investment (2018 Edition) (effective 1 2020) 中华人民共和国外商投资法, the full March 2018) 境外投资敏感行业目录. text in Chinese can be found at http://www. （2018年版）, the full text in Chinese can npc.gov.cn/zgrdw/npc/xinwen/2019-03/15/ be found at https://www.ndrc.gov.cn/fggz/ content_2083532.htm lywzjw/zcfg/201802/t20180211_1047052. html?code=&state=123 Administrative Regulations n Implementing Regulations of the Foreign n Code of Conduct for the Operation of Investment Law of People’s Republic of Overseas Investments by Private Enterprises China (effective 1 January 2020) 中华 (effective 6 December 2017) 民营企业 人民共和国外商投资法实施条例, the 境外投资经营行为规范, the full text full text in Chinese can be found at http:// in Chinese can be found at https://www. www.gov.cn/zhengce/content/2019-12/31/ ndrc.gov.cn/fggz/lywzjw/zcfg/201712/ content_5465449.htm W020190909440821812575.pdf Departmental Rules and Regulations n Announcement of the State Administration of Taxation on Issues Concerning Expanding the n Measures for the Administration of Strategic Applicable Scope of the Policy of Temporary Investment in Listed Companies by Foreign Exemption of Withholding Tax on the Direct Investors (last amendment effective 28 Investment Made by Overseas Investors with October 2015) 外国投资者对上市公司战略 | 48 2022 INVESTMENT POLICY AND REGULATORY REVIEW – CHINA Distributed Profits (effective 1 January 2018) n Circular of the General Office of State 国家税务总局关于扩大境外投资者以分配 Council on the Establishment of Security 利润直接投资暂不征收预提所得税政策 Review for the Merger and Acquisition of 适用范围有关问题的公告, the full text in Domestic Enterprises by Foreign Investors Chinese can be found at http://www.chinatax. (effective 3 March 2011) 国务院办公厅关 gov.cn/n810341/n810755/c3906659/content. 于建立外国投资者并购境内企业安全审 html 查制度的通知, the full text in Chinese can be found at http://www.gov.cn/zwgk/2011- Provisions n on Investment Companies 02/12/content_1802467.htm Established by Foreign Investors (Revised in 2015) 关于外商投资举办投资性公司的规 n Provisional Measures for National Security 定 Review of Foreign Investment in Pilot Free Trade Zones (effective 8 May 2015)自由贸易 n Measures for Security Review of Foreign 试验区外商投资国家安全审查试行办法 , Investment (effective 18 January 2021) 外商 the full text in Chinese can be found at http:// 投资安全审查办法, the full text in Chinese www.gov.cn/zhengce/content/2015-04/20/ can be found at http://www.gov.cn/zhengce/ content_9629.htm zhengceku/2020-12/19/5571291/files/0a70a 863a14c4b8e9a1e9e6adcf49576.pdf n Circular on Removing Restriction on Foreign Equity Ratios in Online Data Processing and n Administrative Measures for Approval and Transaction Processing Business (Operating Record-filing of Foreign Investment Projects E­commerce) (effective 17 June 2014) 外商投资项目核 准和备案管理办法, the full text in Chinese 3. Companies Act can be found at http://www.gov.cn/foot/ site1/20140521/a41f7268496414e6a27f01. n Company Law of the People’s Republic of pdf China (revised in 2018) 中华人民共和国公 司法(2018修正), the full text in Chinese can n Measures of Foreign Invested Enterprise be found at https://flk.npc.gov.cn/detail2.html Compliant Mechanism (effective 1 ?ZmY4MDgwODE2ZjEzNWY0NjAxNmYx October 2020) 外商投资企业投诉工作 Y2M5OGFkODExMzQ%3D 办法, the full text in Chinese can be found at http://www.mofcom.gov.cn/article/ 4. Constitution b/f/202008/20200802996409.shtml n Constitution of the People’s Republic n Guidelines for National Foreign Invested of China (revised in 2018) 中华人民共 Enterprise Compliant Center 和国宪法(2018修正) , the full text in Chinese can be found at http://www.gov.cn/ n Outbound Investment Administrative guoqing/2018-03/22/content_5276318.htm Measures (last amendment 6 October 2014) 境外投资管理办法, the full text in Chinese 5. Foreign Exchange Related Laws and can be found at http://www.mofcom.gov.cn/ Regulations article/b/c/201409/20140900723361.shtml Administrative Rules n Interim Measures for the Reporting of n Regulation of the People’s Republic of Outbound Investments Subject to Record- China on Foreign Exchange Administration filing or Approval (effective 18 January (2008 Revision) 中华人民共和国外汇管 2018) 对外投资备案（核准） 报告暂行 理条例(2008修订) , the full text in Chinese 办法, the full text in Chinese can be found can be found at http://www.safe.gov.cn/ at http://www.mofcom.gov.cn/article/ safe/2008/0806/5321.html b/g/201804/20180402735967.shtml 2022 INVESTMENT POLICY AND REGULATORY REVIEW – CHINA | 49 Departmental Rules and Regulations safe/2013/0502/5640.html n The Interim Measures on the Management n Guideline on Foreign Exchange Businesses of Foreign Debts (effective 1 March 2003) of Current Account Items (2020 Edition) 经 外债管理暂行办法, the full text in Chinese 常项目外汇业务指引（2020年版）, the can be found at http://www.safe.gov.cn/ full text in Chinese can be found at http:// safe/2003/0108/5614.html www.safe.gov.cn/safe/2020/0831/17002. n Notice of the State Administration of html Foreign Exchange on Reforming the Mode n Guideline on Foreign Exchange Businesses of of Management of Settlement of Foreign Capital Account Items (2020 Edition) 资本项 Exchange Capital of Foreign-Funded 目外汇业务指引（2020年版）, the full text Enterprises (revised in 2019) 国家外汇管 in Chinese can be found at http://www.safe. 理局关于改革外商投资企业外汇资本金 gov.cn/safe/2021/0122/18098.html. 结汇管理方式的通知 (2019年被修订), the full text in Chinese can be found at http:// 6. Sectoral Law/Regulations www.safe.gov.cn/safe/2015/0408/5549.html Laws n Notice of the State Administration of n The Interim Measures on the Management Foreign Exchange on Further Improving and of Foreign Debts (effective 1 March 2003) Adjusting Foreign Exchange Administration 外债管理暂行办法, the full text in Chinese Policies for Direct Investment (revised in can be found at http://www.safe.gov.cn/ 2019) 国家外汇管理局关于进一步改进 safe/2003/0108/5614.html 和调整直接投资外汇管理政策的通知 (2019年被修订) , the full text in Chinese n Notice of the State Administration of can be found at http://www.safe.gov.cn/ Foreign Exchange on Reforming the Mode safe/2012/1121/5542.html of Management of Settlement of Foreign Exchange Capital of Foreign-Funded n Circular of the State Administration on Enterprises (revised in 2019) 国家外汇管理 Reforming and Regulating Policies on the 局关于改革外商投资企业外汇资本金结汇 Administration over Foreign Exchange 管理方式的通知 (2019年被修订), the full Settlement under Capital Accounts (effective text in Chinese can be found at http://www. 9 June 2016) 国家外汇管理局关于改革和 safe.gov.cn/safe/2015/0408/5549.html 规范资本项目结汇管理政策的通知, the full text in Chinese can be found at http:// n Notice of the State Administration of Foreign www.safe.gov.cn/safe/2016/0615/6836.html Exchange on Further Improving and Adjusting Foreign Exchange Administration Policies n Notice of the People’s Bank of China on for Direct Investment (revised in 2019) 国家 Relevant Matters Regarding Full Bore 外汇管理局关于进一步改进和调整直接投 Macro Prudential Management of Cross 资外汇管理政策的通知(2019年被修订) , Border Financing (effective 12 January the full text in Chinese can be found at http:// 2017) 中国人民银行关于全口径跨境融 www.safe.gov.cn/safe/2012/1121/5542.html 资宏观审慎管理有关事宜的通知, the full text in Chinese can be found at http://www. n Circular of the State Administration on pbc.gov.cn/zhengwugongkai/ 4081330/ Reforming and Regulating Policies on the 4081344/4081395/4081686/4085731/ Administration over Foreign Exchange 2017012210515624976.pdf Settlement under Capital Accounts (effective 9 June 2016) 国家外汇管理局关于改革和 Measures of Registration of n Administrative 规范资本项目结汇管理政策的通知, the Foreign Debt (effective 13 May 2013) 外 full text in Chinese can be found at http:// 债登记管理办法, the full text in Chinese www.safe.gov.cn/safe/2016/0615/6836.html can be found at http://www.safe.gov.cn/ | 50 2022 INVESTMENT POLICY AND REGULATORY REVIEW – CHINA n Notice of the People’s Bank of China on DE3NzdkMDdjNTAxNzdiZWE1MjQxMT Relevant Matters Regarding Full Bore QwZDY%3D Macro Prudential Management of Cross Border Financing (effective 12 January n Regulation on the Administration of Foreign- 2017) 中国人民银行关于全口径跨境融 Funded Banks (last amendment effective 30 资宏观审慎管理有关事宜的通知, the full September 2019) 中华人民共和国外资银 text in Chinese can be found at http://www. 行管理条例, the full text in Chinese can be pbc.gov.cn/zhengwugongkai/ 4081330/ found at https://flk.npc.gov.cn/detail2.html? 4081344/4081395/4081686/4085731/ ZmY4MDgwODE3NzdkMGM5NDAxNzdi 2017012210515624976.pdf ZWFjNmQ1YTNmMjE%3D n Administrative Measures of Registration of n Regulation on News Coverage by Resident Foreign Debt (effective 13 May 2013) 外 Offices of Foreign News Agencies and 债登记管理办法, the full text in Chinese Foreign Correspondents 中华人民共和国外 can be found at http://www.safe.gov.cn/ 国常驻新闻机构和外国记者采访条例, the safe/2013/0502/5640.html full text in Chinese can be found at https:// flk.npc.gov.cn/detail2.html?ZmY4MDgwO n Guideline on Foreign Exchange Businesses DE2ZjNlOTc4NDAxNmY0MjRjMDUyYjA of Current Account Items (2020 Edition) 经 0OTg%3D 常项目外汇业务指引（2020年版）, the full text in Chinese can be found at http:// n Provisions on the Administration of Foreign- www.safe.gov.cn/safe/2020/0831/17002. funded Telecommunications Enterprises (last html amendment effective 6 February 2016) 外 商投资电信企业管理规定, the full text in n Guideline on Foreign Exchange Businesses Chinese can be found at https://flk.npc.gov. of Capital Account Items (2020 Edition) 资 cn/detail2.html?ZmY4MDgwODE2ZjNlOT 本项目外汇业务指引（2020年版）, the c4NDAxNmY0MWY0YWM1MzAyMDA full text in Chinese can be found at http:// %3D www.safe.gov.cn/safe/2021/0122/18098. html. n Regulation on the Implementation of the Enterprise Income Tax Law (last amendment Administrative Regulations 23 April 2019) 企业所得税法实施条例, the n Regulations on Procedures for the Formulation full text in Chinese can be found at https:// of Rules (revised in 2017) 规章制定程序 flk.npc.gov.cn/detail2.html?ZmY4MDgwO 条例(2017修订), the full text in Chinese DE2ZjNlOTc4NDAxNmY0MjA5OTY4Nz can be found at http://www.gov.cn/zhengce/ AzMGE%3D content/2018-01/16/content_5257080.htm n Regulation on the Protection of the Right n Regulations on Procedures for the to Communicate Works to the Public over Formulation of Administrative Regulations Information Networks (last amendment 1 (last amendment effective 1 May 2018) 行政 March 2013) 信息网络传播权保护条例, the 法规制定程序条例, the full text in Chinese full text in Chinese can be found at https://flk. can be found at http://www.gov.cn/zhengce/ npc.gov.cn/detail2.html?ZmY4MDgwODE2 content/2018-01/16/content_5257039.htm ZjNjYmIzYzAxNmY0MTM5OTJiMjFkYjk %3D n Regulation on the Administration of Foreign-Funded Insurance Companies (last Departmental Rules and Regulations amendment effective 30 September 2019)中 n Administrative Measures for the Examination 华人民共和国外资保险公司管理条例, the and Approval of Permanent Representative full text in Chinese can be found at https:// Offices of Foreign Air Transport Enterprises flk.npc.gov.cn/detail2.html?ZmY4MDgwO (effective 1 September 2018) 外国航空运 2022 INVESTMENT POLICY AND REGULATORY REVIEW – CHINA | 51 输企业常驻代表机构审批管理办法, the full text in Chinese can be found at http:// full text in Chinese can be found at https:// www.mofcom.gov.cn/article/swfg/swfgbl/ xxgk.mot.gov.cn/2020/jigou/fgs/202006/ gz/201304/20130400104311.shtml and t20200623_3307962.html http://www.gov.cn/gongbao/content/2007/ content_494439.htm (2006 amendments) n ServiceGuide on Licensing for Foreigners and http://www.mofcom.gov.cn/article/zcfb/ to Work in China (Interim) 外国人来华工 zcwg/201601/20160101229810.shtml (2015 作许可服务指南（暂行）, the full text in amendments) Chinese can be found at https://fuwu.most. gov.cn/lhgzweb/attached/file/20170418/201 n Tentative Measures for Administration 70418182639_469.pdf of Chinese-foreign Joint Venture and Cooperative Medical Institutions (last n Implementation Opinions of the Ministry amendment 1 January 2009)中外合资、合 of Finance on Promoting the Sound 作医疗机构管理暂行办法, the full text in Development of Public-Private Partnership Chinese can be found at http://www.gov.cn/ 财政部关于推进政府和社会资本合作 gongbao/content/2000/content_60528.htm, 规范发展的实施意见, the full text in http://www.gov.cn/ziliao/flfg/2008-01/22/ Chinese can be found at http://www.gov.cn/ content_864997.htm (the first supplementary xinwen/2019-03/10/content_5372559.htm provisions); http://www.gov.cn/flfg/2009- n Catalog of Investment Projects Subject to 01/14/content_1205285.htm(the second Government Confirmation (2016)政 supplementary provisions) 府核准的投资项目目录(2016年本), the n Tentative Measures for the Administration of full text in Chinese can be found at http:// Wholly-Owned Hospitals Established Taiwan www.gov.cn/zhengce/content/2016-12/20/ Service Providers (effective 1 January 2011) content_5150587.htm 台湾服务提供者在大陆设立独资医院管 n Circular of the National Development 理暂行办法, the full text in Chinese can and Reform Commission on Effectively be found at http://www.gov.cn/zwgk/2010- Implementing Foreign Capital-related Work 12/29/content_1775272.htm in the Catalogue of Investment Projects n Regulations on the Management of the Subject to Governmental Approval (2016 Employment of Foreigners in China (Revised Version) (issued on 14 January 2017) 国 in 2017) 外国人在中国就业管理规定(2017 家发展改革委关于做好贯彻落实《政 修正) , the full text in Chinese can be found 府核准的投资项目目录（2016年本） at http://www.mohrss.gov.cn/SYrlzyhshbzb/ 》有关外资工作的通知, the full text in zcfg/flfg/gz/201704/t20170413_269433.html Chinese can be found at http://www.gov.cn/ xinwen/2017-01/17/content_5160704.htm n Circular of the State Administration of Taxation on Issues Concerning the Reduction n Provisions of the Ministry of Commerce and Exemption of Enterprise Income Tax on M&A of a Domestic Enterprise by on the Proceeds from Technology Transfers Foreign Investors商务部关于外国投资 (last amendment 29 December 2017) 国家 者并购境内企业的规定(2009修改), the 税务总局关于技术转让所得减免企业所得 full text in Chinese can be found at http:// 税有关问题的通知, the full text in Chinese www.mofcom.gov.cn/article/swfg/swfgbl/ can be found at http://www.chinatax.gov. gz/201304/20130400103923.shtml cn/chinatax/n362/c24813/content.html n Provisions of the Ministry of Commerce and http://www.chinatax.gov.cn/n810341/ on the Establishment of Investment n810755/c3022106/content.html Companies by Foreign Investors (2015 Circular n on Enterprise Income Tax Amendment) 商务部关于外商投资举 Policy Issues Relating to Transferring the 办投资性公司的规定(2015修正), the Technologies of Resident Enterprises (issued on 31 December 2010) 财政部、国家税务 （地区）企业在中国境内从事生产经营 总局关于居民企业技术转让有关企业所得 活动登记管理办法, the full text in Chinese 税政策问题的通知, the full text in Chinese can be found at http://gkml.samr.gov.cn/nsjg/ can be found at http://www.chinatax.gov.cn/ fgs/202011/t20201103_322861.html chinatax/n362/c111824/content.html n Tentative Measures for Administration n Circular on Comprehensively Promoting the of Chinese-foreign Joint Venture and Pilot Program of the Collection of Value- Cooperative Medical Institutions (effective 1 added Tax in Lieu of Business Tax (last July 2000) 中外合资、合作医疗机构管理 amendment 1 April 2019)财政部、国家 暂行办法, the full text in Chinese can be found 税务总局关于全面推开营业税改征增值 at http://www.nhc.gov.cn/fzs/s3576/201808/ 税试点的通知, the full text in Chinese can d931da856a2a47a3bc8b29ecf511c73f.shtml be found at http://www.chinatax.gov.cn/ chinatax/n359/c2842951/content.html, http:// n Administrative Measures on Approval and www.chinatax.gov.cn/chinatax/n810341/ Record-filing of Enterprise Investment n810825/c101434/c6078038/content.html, Projects (issued on 8 April 2017) 企业投资 and http://www.chinatax.gov.cn/n810341/ 项目核准和备案管理办法, the full text in n810755/c4160283/content.html Chinese can be found at http://www.gov.cn/ gongbao/content/2017/content_5225868.htm n Circular of the General Administration of Customs on the Implementation of The n Administrative Measures for the Catalogue of Encouraged Industries Accreditation of High-tech Enterprises (last for Foreign Investment (2020 Edition) amendment effective 1 January 2016) 高 (effective 27 January 2021),关于执行《 新技术企业认定管理办法, the full text in 鼓励外商投资产业目录（ 2020 年版）》 Chinese can be found at http://www.gov.cn/ 有关问题的公告, the full text in Chinese gongbao/content/2016/content_5076985.htm can be found at http://www.customs.gov.cn/ n Administrative Measures of Handling customs/302249/302266/302267/3534493/ Matters Relating to Enterprise Income index.html Tax Preferential Treatment Policies (last n Notice of the State Council on Adjustment of amendment effective 25 April 2018) 企业所 Tax Policy on Imported Equipment (effective 得税优惠政策事项办理办法, the full text in 1 January 1998) 国务院关于调整进口设备 Chinese can be found at http://www.chinatax. 税收政策的通知, the full text in Chinese gov.cn/n810341/n810755/c3429104/content. can be found at http://www.chinatax.gov.cn/ html chinatax/n377/c895/content.html Administrative n Measures of Internet n Administrative Measures for the Examination Information Services (8 January 2011) 互 and Approval of Permanent Representative 联网信息服务管理办法, the full text in Offices of Foreign Air Transport Enterprises Chinese can be found at https://gkml.samr. (effective 1 September 2018) 外国航空运输 gov.cn/nsjg/bgt/202106/t20210615_330774. 企业常驻代表机构审批管理办法, the full html text in Chinese can be found at http://www. Administrative n Measures of Security gov.cn/zhengce/zhengceku/2018-12/31/ Protection of Computer Information Network content_5444331.htm Linked to Internet (effective 8 January 2011) n Administrative Measures for the Registration 计算机信息网络国际联网安全保护管理 of Enterprises of Foreign Countries (Regions) 办法, the full text in Chinese can be found Engaging in Production and Operation at http://www.gov.cn/zhengce/2020-12/26/ Activities within the Territory of China (last content_5574873.htm amendment effective 23 October 2020) 外国 2022 INVESTMENT POLICY AND REGULATORY REVIEW – CHINA | 53 Administrative n Measures of Tobacco n Provisions on the Governance of Network Monopoly Licences ( effective 20 July 2016) Information Contents (effective 1 March 烟草专卖许可证管理办法, the full text in 2020) 网络信息内容生态治理规定, the full Chinese can be found at http://www.gov.cn/ text in Chinese can be found at http://www. gongbao/content/2016/content_5106194.htm gov.cn/zhengce/zhengceku/2020-11/25/ content_5564110.htm Administrative n Measures for Telecommunication Business Operation n Provisions on the Administration of Account Licence (last amendment 1 September 2017) Names of Internet Users (effective 1 March 电信业务经营许可管理办法, the full text in 2015) 互联网用户账号名称管理规定, Chinese can be found at http://www.gov.cn/ the full text in Chinese can be found at gongbao/content/2017/content_5240090.htm http://www.gov.cn/xinwen/2015-02/04/ content_2814511.htm n Notice of the State Council on Clearing and Regulating the Tax Preferential Treatments Measures n for the Supervision and (issued on 9 December 2014) 国务院关 Administration of Online Transactions 于清理规范税收等优惠政策的通知, the (effective 1 May 2021) 网络交易监督管理办 full text in Chinese can be found at http:// 法, the full text in Chinese can be found at http:// www.gov.cn/zhengce/content/2014-12/09/ www.gov.cn/zhengce/zhengceku/2021-03/16/ content_9295.htm content_5593226.htm n Enterprise Income Tax Preferential Items n Interim Measures for the Administration of Management Catalogue (2017 Edition) Internet Advertising (effective 1 September (issued on 25 April 2018)企业所得税优惠 2016) 互联网广告管理暂行办法, the 事项管理目录（2017年版）, the full text in full text in Chinese can be found at http:// Chinese can be found at http://www.chinatax. w w w. g o v. c n / g o n g b a o / c o n t e n t / 2 0 1 6 / gov.cn/n810341/n810755/c3429104/content. content_5120707.htm html n Interim Provisions on Approval of Internet n Notice of State Administration of Taxation Drug Trading Services (effective 25 October Concerning Implementation of the 2005) 互联网药品交易服务审批暂行规定, Administrative Measures for Accreditation of the full text in Chinese can be found at http:// High-tech Enterprises (issued on 18 February www.gov.cn/govweb/fwxx/bw/spypjgj/ 2016) 国家税务总局关于贯彻落实《高 content_505677.htm 新技术企业认定管理办法》的通知, the full text in Chinese can be found at http:// Local Laws, Rules and Regulations www.chinatax.gov.cn/n810341/n810755/ n Shenzhen Administrative Measures for the c2017934/content.html Accreditation of High-tech Firms (issued on n Notice of Further Regulating and Managing 7 May 2009) 深圳市高新技术企业认定管 the Speculating Risks of Cryptocurrency 理办法, the full text in Chinese can be found Transactions(issued on 24 September 2021) at http://www.sz.gov.cn/szzt2010/zdlyzl/ 关于进一步防范和处置虚拟货币交易 kjcy/yhzc/content/post_1328162.html 炒作风险的通知, the full text in Chinese Others can be found at http://www.gov.cn/zhengce/ zhengceku/2021-10/08/content_5641404.htm n The Decision of the First Session of the 10th National People’s Congress on the n Certain Provisions of Prohibition on Institutional Reform Plan of the State Infringement of Trade Secrets (last Council (issued on 10 March 2003)第十届全 amendment 3 December 1988) 关于禁止侵 国人民代表大会第一次会议通过国务院机 犯商业秘密行为的若干规定_ 构改革方案的决定, the full text in Chinese | 54 2022 INVESTMENT POLICY AND REGULATORY REVIEW – CHINA can be found at http://www.gov.cn/gongbao/ n Agreement on Trade-Related Investment content/2003/content_62008.htm Measures (TRIMs) n The Provisions on the Main Functions, n Agreement on Subsidies and Countervailing Internal Bodies and Staffing of the Ministry Measures (SCM) n Convention on the of Commerce (No.77 [2008] of the General Recognition and Enforcement of Foreign Office of the State Council) 国务院办公厅 Arbitral Awards (New York Convention) 关于印发商务部主要职责内设机构和人员 n International Centre for Settlement of 编制规定的通知 Investment Disputes (ICSID) Convention) n Opinions of Shanghai Municipal Government n Articles of Agreement of the International on Further Opening up and Accelerating the Establishment of a New System for an Open Monetary Fund Economy (issued on 26 April 2017) 上海 n China – Hong Kong Closer Economic 市人民政府关于进一步扩大开放加快构 Partnership Agreement Investment 建开放型经济新体制的若干意见, the full Agreement, 2017 text in Chinese can be found at https://www. shanghai.gov.cn/nw41430/20200823/0001- n China – Mauritius FTA, 2019 41430_52162.html Regional n Comprehensive Economic The n Action Plan of Shanghai for Partnership, RCEP Implementing Major National Measures for Further Openness and Accelerating the Secondary Sources Establishment of a New System for an Open Economy (issued in 11 July 2018) 上海市贯 8. Country Reports/Articles of Domestic and 彻落实国家进一步扩大开放重大举措加快 International Law Firms 建立开放型经济新体制行动方案 n Doing Business in China 2020 guide published n Decision on Authorizing Shanghai Municipal by Baker & McKenzie LLP available at People’s Congress and Its Standing https://www.bakermckenzie.com/-/media/ Committee to Formulate Regulations files/insight/publications/2020/07/doing- concerning the Pudong New Area (issued on business-in-china-2020.pdf 10 June 2021) 关于授权上海市人民代表大 会及其常务委员会制定浦东新区法规的 n MLEX (www.mlex.com) 决定, the full text in Chinese can be found PaRR (https://app.parr-global.com) at http://www.npc.gov.cn/npc/c30834/2021 06/9566bd58b477461483314c22ce449015. 9. Databases shtml UNCTAD n Investment Policy Hub 7. International Legal Instruments (https:// investmentpolicy.unctad.org/ internationalinvestment-agreements) n General Agreement on Trade in Services (GATS) n I-TIP Services database (https://i-tip.wto. org/services/default.aspx) n Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) 2022 INVESTMENT POLICY AND REGULATORY REVIEW – CHINA | 55 This Investment Policy and Regulatory Review presents information on the legal and regulatory frameworks governing foreign direct investment. Since legal and regulatory frameworks are constantly evolving, a cut-off date was set for the research. This country review therefore covers information available as of December 31, 2021, unless otherwise indicated in the review. IPRRs are available for the following middle-income countries: Brazil, China, India, Indonesia, Malaysia, Mexico, Nigeria, Thailand, Turkey, and Vietnam.