IMPROVING EMPLOYEES RIGHTS IN CHINA

The year 2008 was formally the year of the rat; but in practice it was THE year of the workers. January 2008 marked the beginning of a new year but more importantly – the end of a long era of workers abuse. Prior to the enacting of China’s 2008 Labor Law, China was known for its cheap labor that supported the substantially low manufacturing costs. Many enterprises and individuals became extremely wealthy and powerful on the back of the Chinese manufacturing workers and it was neither a myth nor a rare phenomenon to find hardworking people that earn less than a hundred dollars a month. The 2008 Labor Law brought far-reaching changes to the labor regime in China and started building the laborer’s power and employees’ awareness to fundamental employment rights. An immediate side effect of this revolutionary law was the sharp increase in manufacturing costs which pushed away simple, labor intensive industries or branches from China to other parts of the world.

Seven years have passed and it is now time for another upgrade. The Central Committee of the Communist Party of China and the State Council have recently released the Opinions on Building Harmonious Employment Relations (the “Opinions”). This opinion further protects the rights of the Chinese employees and inflicts penalties on those employers who ignore such rights. More specifically, the Opinions include measures aimed at 1) protecting employees’ basic rights and interests, such as their rights to receive timely salary payment and compensation for overtime work, to have labor rewards, to enjoy rest time, holidays, labor safety, social insurance and professional training 2) perfecting the coordination mechanism in order to increase and harmonize organizational leadership and labor relationship 3) reinforcing the construction of democratic management in enterprises, and 4) improving the conflict resolution mechanism for labor related disputes.

The employment reality in China has changes in this decade and is getting more and more pro-employees oriented; Employers in China – especially foreign invested enterprises (FIE) – must learn and excel the changing rights and benefits of their Chinese employees in order to better keep their legal obligations, plan their short and long-term costs and expenses, and better structure their FIE as a fully complying entity.

 

IMPROVING MEDICAL ASSISTANCE SYSTEMS

The central government of China is responsible for the well being of its people. As such, the government not only ensures basic living conditions, food and shelter for the people, but also medical coverage and support. A main concern is the accessibility and affordability of medical treatments for the indigent population. To address this concern and in order to regulate and stabilize the medical system, the Ministry of Civil Affairs and Other government bureaus issued the Opinions on Further Improving the Medical Assistance Systems and Comprehensively Implementing the Medical Assistance for Severe and Major Diseases (the “Opinions”). The Opinions focus on the establishment of a comprehensive social aid system that will guarantee the basic health rights of the poverty-stricken population. The mission of the Opinions is to completely integrate the urban and rural medical assistance systems by the end of the year 2015 and have a unified system that will efficiently and effectively comply with relevant social assistance and health care policies.

The targeted population include people who are supported by minimum living allowances and those who are extremely poor; The criteria for public medical support under the Opinions consider the family’s financial situation, the individual’s own expense, the local financing situation, etc.. Those entitled for medical support under the Opinions will receive more than 70% subsidies for their medical expenses paid on top of the reimbursed medical fees paid through basic health insurance, major disease insurance for urban and rural residents and other supplementary health insurance and commercial insurance.

The Opinions define the classification and segmentation of the medical aid; set ceilings for the medical expenses of major disease; optimize the work mechanism and create a “One-stop-shop” settlement mechanism while interconnecting information management platforms and making transparent medical assistance and basic health insurance, major disease insurance for urban and rural residents, emergency disease assistance and commercial insurance.

The government’s intent to regulate and improve the Chinese medical system is well reflected in the business community, with healthcare products and services being the most sought-for investment targets. We witness a huge wave of interest in healthcare related technologies, especially telemedicine; this opens a window for cooperation between Chinese entities and foreign healthcare related technology companies.

REVISED ADVERTISING LAW

With the development of the commercial advertising industry in China, and the wide use of Internet in any aspect of the daily life, media and advertising have changed dramatically, to the extent that the existing Advertising Law could no longer address the needs of the advertising industry. Last month the Chinese government passed the revised Advertising Law of the People’s Republic of China (the “Law”) which will come into force on September 1st, 2015. The changes introduced include:

1) Clearly defining the criterion of false advertisements and the associated penalties. These elements were vogue and unclear in the previous advertising law, and are now better defines to protect the legal interests and rights of consumers.

2) Advertisements of health food are strictly regulated under the new Advertising Law and there are several new contents which cannot be promoted through health-food advertisements. In addition, all advertisements of health-food shall be marked with a slogan that emphasizes that “this products cannot replace medicine”.

3) Spokespersons who advertise products must use the products and services before they recommend these products in the advertisements.

4)  Mass media must not advertise products or services under the forms of news report, and advertisements must be marked clearly with “advertisement” marks in order to differentiate between advertisements and other non-advertising information.

5)  All provisions of the revised law apply to advertising through the Internet as well; advertising should not influence the normal use of Internet users; pop-ups must have clear ‘close’ marks to allow one-click closing of an ad.

NEW FOOD SAFETY LAW

Food safety has always been a serious topic in China, especially in the past few years due to several food scandals that led to the death of infants and injury of many others. . Recently, the National People’s Congress passed the new Food Safety Law of the People’s Republic of China (the “Food Safety Law”), which will come into force on October 1st , 2015.

The new Food Safety Law contains 154 provisions compared to 104 provisions in the existing law. The revised Law presents stricter management process for each step of the supply chain – production, sales and promotions of food and beverage services. The Law strengthens the liability of producers and business operators and improves the food traceability system. In the meanwhile, it also establishes a stringent penalty system that includes criminal responsibility of producers and business operators who commit food-safety related crimes. As to online food trading through e-commerce platforms, the revised Food Safety Law clarifies that operators of platforms are responsible for 1) registering the real names of the business operators that use the internet platforms to promote their food products, and 2) examining the licenses of food producers and business operators if such licenses are required by law. If platform operators fail to perform the obligations prescribed by the new Law, they shall bear joint and several liabilities for consumers’ injuries and damages.

IMPLEMENT PILOT REFORM TO PRE-NAME REGISTRATION PROCEDURE IN SHENZHEN

When investors commence the long way of registering their investment in China and setting up their foreign invested enterprises, the first milestone would be the pre-name registration, during which the investor applies for the registration of the chosen name for the company. The name of a Chinese enterprise is comprised of the following particles: name (city in which the entity is registered) description of the industry Limited. The current process requires manual filing of the application materials and on-line follow-up. Only after the name has been pre-approved can the investor proceed to the actual registration of his investment. As part of the administrative reform and the related efforts to streamline registration procedures in China, SAIC has recently released the Official Reply on Delegating the Market and Quality Supervision Commission of Shenzhen Municipality to Implement a Pilot Reform of Company Name Registration (the “Reply”).

The major changes introduced by this document is the establishment of a self-filing system that will allow the investor to choose between two paths – either conduct self-filing for the chosen name, or simply apply for the registration of the name together with the main application for the establishment of the entity. Alongside the establishment of the self-filing system, the Shenzhen authorities will create a database for names and a clear guideline as to which name format is considered a permitted name and what name is prohibited. The registration authority has the right to force company to correct its inappropriate name and for those companies who refuse to correct, the authority can directly delete the companies’ names in the database and publicity display their abnormal operation on the enterprise credit information publicity system.

FTZ NEWS

The Shanghai Free Trade Zone was launched a year and a half ago as a pilot program. Based on this period’s experience, China decided to expend this concept to three other regions – Guangdong, Tianjin and Fujian. Last month the State Council has issued the overall plans for the Guangdong, Tianjin and Fujian free trade zones (FTZs) and the plan for further promoting the reform and opening up of the Shanghai FTZ. According to the plan, Guangdong FTZ will focus on promoting the economic development and trade between the mainland, Hong Kong and Macao. Tianjin FTZ will strengthen the development of Tianjin-Beijing-Hebei provinces and the Fujian FTZ will focus on developing the trade between China and Taiwan. The Shanghai FTZ will continue to develop the free convertibility of the RMB currency.

Soon after the launch of the plan, the state council released a new negative list that covers all four free trade zones. The Negative List is a catalogue that sorts foreign invested projects by industries. Foreign investment projects not listed in the Negative List enjoy preferential treatment along the establishment process, during which the onerous approval requirements applicable to foreign invested enterprises are waived and instead, a mere record filing action is conducted by the FTZ management committee. This departure from the rigorous approval-based system increases the efficiency of foreign direct investment management and makes incorporating at the FTZ a lighter and more straightforward process. Among the major changes introduced by this Negative List are the removal from the list of the real estate and constructions industries, and the addition of a stipulation regarding ‘all industries’ saying that foreigners shall not engage in business activities in the capacity of industrial and commercial sole proprietors.

Alongside the expansion of the FTZ concept to other regions in China, China continues to develop special rules and regulations related to these Zones. Recent promulgation include: 1) the recent Measures of the National Security Review of Foreign Investment in Free Trade Zones (the “National Security Measures”) issued by the State Council; 2) the Administrative Measures for the Record-filing of Foreign Investment in Free Trade Zones (for Trial Implementation) (the “Record Filing Measures”) issued by MOFCOM; and 3) the Circular on Launching the Foreign Currency-related Service Functions of the Free Trade Accounts (the “Foreign Currency Circular”), issued by the Shanghai headquarters of the People’s Bank of China are good examples:

The National Security Measures focus on methods to review foreign investments through National Security considerations. Areas of focus are the Military industry, agriculture and IT products, transportation, major capital equipment and other areas that have major impact on national securities. Foreign investments in such industries will be strictly scrutinized and the FTZ authorities will suspend the registration process of such investments until the foreign investor submits an application for security review and go through various relevant formalities.

The Record Filing Measures regulate foreign investments that are not governed by the Negative List. According to these measures, after completing the pre-name registration, the investor will file an application through an on-line platform, pursuant to which the investment committee will review the application and decide whether this investment is suitable for a record-filing process. If the answer is positive, the investor will complete the record-filing in three days.

The Foreign Currency Circular lists the information that financial institutions are required to submit when handling relevant settlement services for cross-border direct investment in foreign currency capitals for enterprises through free trade accounts

All in all, China continues to develop and expand its economic, trade, currency and administrative reforms through various FTZs spread over the mainland. Such FTZs support the sound development of the empire that throughout four decades of hard-work and exploitation of all available resources has reached the top.

DEVELOPMENT OF E-COMMERCE

China is the largest e-commerce market, with more than 700 million internet users, leading e-commerce giants and a growing middleclass with rising purchasing power; accordingly, the Chinese legislators are acting to intensify e-commerce and lead China to maintain its status as THE e-commerce empire. This month China’s legislators released several Opinions related to e-commerce, including the opinion on the Vigorous Development of E-Commerce to Speed up the Cultivation of New Economic Drivers (the “Opinion”) issues by the State Council, and the “Internet and Circulation” Action Plan (the “Action Plan“) issued by MOFCOM. According to the promulgations, China plans to reach e-commerce trade volume of RMB 22 trillion and online retail sales volume of RMB 5.5 trillion by the end of 2016, and to further enlarge and develop the e-commerce market through 2020. The promulgations put emphasis on the development of e-commerce in rural and small to medium size cities in China and addresses concerns to ensure safety, efficiency, and fair competition. The Plan also encourages the development of cross-border e-commerce, the creation of proprietary brands and the construction of overseas warehouses to support the cross-border activities. The Opinion presents several new policies to support the e-commerce development, including several tax reductions, facilitating market access, improving financial services, encouraging entrepreneurship, relaxing the restrictions on foreign shareholdings, encouraging direct cross boarder investments etc.

Accordingly, we have been facing a big wave of interest by Chinese investors in Israeli e-commerce technology; if your company is developing unique technologies that can support the above plan, let us know.

REFORM OF COUNTY LEVEL PUBLIC HOSPITALS

Good news for Chinese rural residents; bad news for medical device exporters and drugs companies. The State Council has issued an Opinion on the full Implementation of the Comprehensive Reform of County-level Public Hospitals (the “Opinion”). According to the opinion, the Chinese public hospital system will shift from the current medical costs compensation system that links the medical staff’s compensation to the sales of drugs, to a management, operating and service system that will evaluate staff’s performances and will not base the compensation on drug selling profits. In addition, the government prohibits county-level public hospitals from taking loans to purchase large-scale medical facilities, and encourages the use of locally manufactured medical devices.