Doing Business in China: Need-to-Know from JD Supra

From online privacy, to revised labor laws, to health care considerations, and more … here’s a roundup of recent legal advisories covering a broad range of issues on doing business in the People’s Republic of China.

For your reference:

Privacy in China: New Rule to Protect Personal Information (Dechert LLP):

“The Standing Committee of the National People’s Congress of the People’s Republic of China adopted a Decision Relating to Strengthening the Protection of Information on the Internet (the Decision) on December 28, 2012. The text is brief and general, covers only electronic personal information, and took effect immediately. Since the rapid development of e-commerce and other online activities in China during recent years, the protection of personal information is a widely discussed topic and examples of breaches of confidential personal data are numerous. The Decision appears to be a double-edged sword that provides a clear legal framework to protect personal digital information but also increases the opportunity for the government to control the activities of Chinese netizens.” Read on>>

China’s Legislature Weighs in on Online Data Privacy; Other Recent Privacy Developments in China (Morrison & Foerster LLP):

“On December 28, 2012, the Standing Committee of the National People’s Congress (“NPC”), China’s legislature, weighed in on the subject of data privacy with its promulgation of the Decision on Reinforcing the Protection of Network Information 《全国人民代表大会常务委员会关于加强网络信息保护的决定》, the ‘Decision’). For the most part, the Decision merely affirms legal obligations already put in place by prior legislation. The most significant aspect of the Decision in regard to data privacy is the fact it was issued by the NPC, as China’s legislature, signaling the importance being placed on data privacy at the highest level of China’s law making system.” Read on>>

Amendments to the Labor Contract Law on Labor Dispatch Services Take Effect July 1, 2013 (Davis Wright Tremaine LLP):

“On Dec. 28, 2012, China’s Standing Committee of the National People’s Congress promulgated the Amendments to China’s Labor Contract Law (the ‘Amendments’). The Amendments will take effect July 1, 2013. Pursuant to the Amendments, it is likely that the use of labor dispatch services will be a less attractive means of maintaining a more flexible workforce.” Read on>>

Revisions to Labour Contract Law Address Employee Dispatch Issues, Company Employment Models (McDermott Will & Emery):

“The People’s Republic of China recently released revisions to its Labour Contract Law that will affect agencies that dispatch employees, dispatched employees’ rights and companies that hire dispatched employees. The revisions are scheduled to take effect 1 July 2013… The changes are significant and will substantially affect agencies that dispatch employees, dispatched employees’ rights and companies that hire dispatched employees.” Read on>>

Employers Beware – Newly Issued Judicial Interpretation Resolves Ambiguity Under The Criminal Law For Failure To Pay Wages (Sheppard Mullin Richter & Hampton LLP):

“Employers in China who intentionally default on making payment to their workers beware. It is no coincidence that China’s People’s Supreme Court issued a Judicial Interpretation on January 22, 2013, made effective on January 23, 2013, which further clarified the 2011 amendment to the criminal law making the intentional failure to pay wages a crime. With the coming of Chinese New Year and Spring Festival holidays, the Judicial Interpretation is particularly targeted at employers who default on making wage payments to migrant workers who are often victims.” Read on>>

China 20/20 Legal Regulatory Developments – February 2013 (Orrick, Herrington & Sutcliffe LLP):

“On December 28, 2012, the Standing Committee of the National People’s Congress released the Decision on Amending the Labor Contract Law of the People’s Republic of China (the “Amendments”), which will be implemented from July 1, 2013. The Amendments primarily modify the labor dispatch regime… After issuance and implementation of the Amendments, labor dispatch service providers and Receiving Units should revise the labor contracts and labor dispatch agreements entered into before issuance of the Amendments accordingly if they do not comply with the stipulations in the Amendments relating to ‘equal pay for equal work’.” Read on>>

New People’s Republic of China (PRC) Regulations for Centralized Procurement of Medical Consumables Contain Significant Penalties for Commercial Bribery (Reed Smith):

“On December 17 2012, China’s Ministry of Health, in conjunction with five other government agencies, issued the Trial Regulations on Centralized Procurement of High-Value Consumable Medical Supplies. These regulations, which took effect immediately upon issuance, set forth procedures for the centralized purchasing of medical devices ranging from cardiac catheters to intraocular lenses, to dental fillings and intracranial implants. This is the latest development in China’s ongoing efforts to refine the process of bidding for and purchasing medical products.” Read on>>

Supreme Court Issues Judicial Interpretation to Define Foreign-Related Civil Relationships (Sheppard Mullin Richter & Hampton LLP):

“The People’s Supreme Court issued a Judicial Interpretation on December 28, 2012, made effective on January 7, 2013, regarding the application of the Law of the People’s Republic of China on Application of Laws to Foreign-Related Civil Relationships (the ‘Law’). The Law determines the rules of the application of foreign laws under different scenarios as well as when Chinese law, as opposed to foreign law, applies to specific disputes. The Judicial Interpretation’s twenty-one articles offer rather straightforward clarifications regarding the major questions raised by the implementation of the Law on Application of Laws since its promulgation in April, 2011.” Read on>>

China Life Sciences Health Industry Client Briefing – January 2013 (Reed Smith):

“On January 5, Li Keqiang, the Vice Premier and Deputy Secretary of the State Council, chaired a meeting of the State Council Medical Reform Leading Group. During this meeting, Li reported that reforms are necessary to address the disparity in healthcare development between rural and urban areas. To address this gap, reforms will begin by improving basic health security, strengthening grass roots’ capabilities, and focusing on rural areas and the central and western areas of China.” Read on>>

China Amended Good Supply Practices for Pharmaceuticals – January 2013 (Ropes & Gray LLP):

“The Chinese Ministry of Health published the long-awaited amendment of Good Supply Practices for Pharmaceuticals (the ‘Amended GSP’) on January 22, 2013, to be effective as of June 1, 2013. After three rounds of solicitation for public comments since 2009, the Amended GSP has been significantly expanded from 88 Articles to 187 Articles, divided into four chapters (including the general provisions, the wholesale quality management, the retail quality management and miscellaneous). Unlike the current GSP, which only applies to drug distributors, the Amended GSP will also apply to drug manufacturers selling pharmaceuticals and other activities concerning storage and transportation during the course of drug distribution.” Read on>>

Is China Getting Serious or Redirecting Responsibility? New guidance on Chinese Anti-Bribery Enforcement (Sheppard Mullin Richter & Hampton LLP):

“For years, a significant number of Foreign Corrupt Practices Act enforcement actions have focused on or involved the People’s Republic of China (PRC), Chinese subsidiaries, or Chinese officials. It is hard to avoid the conclusion that the PRC is fertile ground for corruption: many of its major industries are dominated by state-owned or -controlled companies. A tradition of gift-giving and hospitality may blur the distinction between friendly gesture and kickback. And the sheer volume of business transacted in the country makes policing illicit exchanges for business advantages a tall order for any enforcement agency.” Read on>>

U.S. Trade Officials Meet with Chinese Counterparts and Report on China’s WTO Compliance (King & Spalding):

“On December 18, 2012, USTR Ambassador Ron Kirk and U.S. Commerce Department Acting Secretary Rebecca Blank commenced a two-day meeting with Chinese Vice Premier Wang Qishan held in Washington, DC. This meeting between U.S. and Chinese officials was the twenty-third such encounter under the rubric of the Joint Committee on Commerce and Trade (‘JCCT’). The USTR also issued a report on China’s WTO compliance the same month. The JCCT’s broad range of topics related to access for U.S. imports and investments in China.” Read on>>

Between Mortar and Pestle: SEC Pressure Grinds Auditors Against PRC State Interests (Sheppard Mullin Richter & Hampton LLP):

“Comity among US and Chinese regulators may top this New Year’s wish list for United States-listed companies in China. After a failed six-month pursuit of a diplomatic solution, the SEC revived its federal court petition to force the PRC accounting member firm of Deloitte Touche Tohmatsu CPA, Ltd to produce audit working papers supporting its China-based audit of Longtop Financial Technologies. If unresolved, the continued conflict between the mortar of Chinese privacy laws and the pestle of US regulatory pressure raises the possibility of fewer accounting firms that are willing or able to perform public company audits in China.” Read on>>

Change of Leadership in China – What Does It Mean For Doing Business In China? (Fisher & Phillips LLP):

“On November 8, 2012, two days after the presidential election in the U.S., the 18th National Congress in China selected its own new group of leaders… Change to the leadership of the [Chinese Communist Party (CCP)] does not come often and does not occur widely… In November 2012, the CCP completed a sweeping transfer of power, to be helmed by the new General Secretary, Xi Jinping and the new Prime Minister, Li Keqiang. While this transfer is not technically official until the annual session in March 2013 of China’s parliament, for all intents and purposes, this new leadership is in place.” Read on>>

OTC Derivatives Framework Released By Chinese Regulators (Shipkevich PLLC):

“In a message from The Securities Association of China, (SAC), Chinese regulators released the first management method for the newly launched national OTC equity transfer system for non-listed small and medium-sized enterprises. China Daily reports that the China Securities Regulatory Commission (CSRC) creation of the Chinese OTC derivatives regulations will enable trading for securities firms, providing business – including recommending qualified enterprises, to list on the OTC market, acting trading equities for investors, and offer market-maker services under the new regulation.” Read on>>

Chinese FDA Imposes Mandatory Electronic Barcoding on Imported Drugs (Ropes & Gray LLP):

“The State Food and Drug Administration (‘SFDA’) issued a Notice on Relevant Issues Concerning Imposing Electronic Barcoding on Imported Drugs (‘Notice’) on January 29, 2013 with immediate effect. Pursuant to the Notice, manufacturers of imported narcotics, psychotropic drugs, blood products, vaccines, injectables made by Traditional Chinese Medicines, and drugs listed on the national or provincial Essential Drug Lists must affix electronic barcodes to the external packages of the imported drugs at the offshore manufacturing facilities indicated on the respective import drug licenses.” Read on>>

Door to PRC Domestic Funds Market Nudged Open? (Dechert LLP):

While Hong Kong’s retail market remains dominated by European Undertakings for Collective Investment in Transferrable Securities (UCITS) … both local and international fund managers have shown interest of late in adding a Hong Kong-domiciled collective investment scheme to their stable of funds authorised by the local Securities and Futures Commission (SFC). The reasons are two fold: part pragmatic – having a locally domiciled fund targeted at the local or regional market reduces the number of regulators having supervision over the product … one has to deal with, and part speculative – when the attractive domestic funds market on Mainland China one day opens its doors to foreign funds, funds that are constituted and authorised in Hong Kong should be first in line. That speculation paid off this past week when a senior executive director of the SFC announced that the SFC and the China Securities Regulatory Commission (CSRC) are working on measures to allow the mutual recognition of funds from both sides of the border.” Read on>>

Foreign Exchange Rules Related to Qualified Foreign Institutional Investors (QFIIs) Released as Expected in China (Dechert LLP):

“The QFII program, as a principal means for foreign investors to invest directly in China’s securities market, has undergone significant changes in the past year. Most recently, the State Administration of Foreign Exchange of the PRC released the revised foreign exchange rules related to QFIIs 1 on December 7, 2012, which became effective on the same date… [T]he revised QFII foreign exchange rules include three major changes: (i) allowing QFIIs to open RMB special deposit accounts for the purpose of trading futures (Futures Trading Accounts), (ii) allowing QFIIs that launch China Open-ended Funds to inject funds into the QFIIs’ accounts or repatriate the same outside China on a weekly basis, and (iii) abolishing the limit on the total investment quotas for three types of QFIIs.” Read on>>

China Life Sciences Health Industry Client Briefing – December 2012 (Reed Smith):

“A reform of China’s drug review system is necessary in order to hasten pharmaceutical innovation, industry experts advised during a forum held in Beijing in early December. A report recently released by the Research and Development Pharmaceutical Association Committee, an organization that represents 37 leading pharmaceutical companies in China, indicates that access to innovative drugs in China generally lags four to eight years behind that in other countries. This is based, in part, on the protracted review process in China, as well as the limited capacity of the reviewing body.” Read on>>

China Trade Marks – Inclusion of Retail and Wholesale services relating to medicines and pharmaceuticals (K&L Gates LLP):

“The China Trade Marks Office (CTMO) recently announced that from 1 January 2013 it is accepting applications to register trade marks in relation to retail or wholesale services for pharmaceutical, veterinary and sanitary preparations and medical supplies only in class 35. Prior to this, the CTMO had always rejected trade mark applications for retail and wholesale services. Brand owners generally had to rely on registering trade marks under vague descriptions such as “Intermediary business services relating to the commercialization of…”, to try to obtain trade mark coverage for their retail or wholesale business in China.” Read on>>

China’s Supreme Court Ruling in Haifu v. Shiheng Changes the Landscape for Value Adjustment Mechanisms in Onshore Private Equity Transactions (Morrison & Foerster LLP):

“The Supreme People’s Court of China (the ‘Supreme Court’) rendered its final judgment on November 7, 2012, in the Haifu Investment Co., Ltd. v. Gansu Shiheng Nonferrous Resources Recycle Company Limited. Despite the Supreme Court’s lack of appreciation of the role of private equity in China, the decision brings much-needed guidance to the structuring of value adjustment mechanisms commonly used in onshore private equity transactions in China.” Read on>>

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