In this newsletter we shall review several major revisions and news from this past 2017:
- FOREIGN INVESTMENT CATALOGUE
- NEW REGULATION OF OUTBOUND INVESTMENT
- CHINA COURT ENFORCED A US COURT JUDGMENT FOR THE FIRST TIME
- CFDA APPROVAL OF MEDICAL DEVICES
- SIMPLIFYING THE TRADEMARK REGISTRATION PROCEDURE
CATALOGUE FOR THE GUIDANCE OF FOREIGN INVESTMENT INDUSTRIES (2017 VERSION) OFFICIALLY ISSUED
The National Development and Reform Commission (“NDRC”) and the Ministry of Commerce (“MOFCOM”) have jointly issued the Catalogue for the Guidance of Foreign Investment Industries (Revised in 2017) (the “Catalogue“), which came into force as of July 28, 2017. This Catalogue replaces the Catalogue of 2015.
Compared to the 2015 version, the Catalogue deleted 30 restrictions or prohibitions on foreign investment and emphasized or revised four major aspects. The first being the ongoing expansion of the opening-up of China to foreign investments. In the service sector for example, restrictions for foreign investment of highway passenger transport, credit investigation and rating service, accounting auditing and others areas have been removed. In the manufacturing industry, restrictions for foreign investment of railway transportation equipment, automotive electronics, batteries of new energy automobiles and other domains have been cancelled. In the mining industry, no restrictions will be imposed on foreign investment of unconventional oil and gas, precious metals and other fields.
The second aspect is the application of a negative list method to foreign investments – similar the negative list introduced in the Shanghai Free Trade Zone several years ago, and applying it on the entire mainland. Areas that appear on the negative list are regulated and require various levels of approval. while those areas not on the list are not subject to restrictive measures, and foreign investment in such areas are permitted in principle.
The third news is the removal of the restrictive measures related to consistency between domestic and foreign investment. From now on, foreign investment will be administered in an equal manner to that of domestic investment.
The fourth aspect is the emphasis on maintaining the policies on encouraged investment. Further emphasis will be given inter alia to foreign investment in the advanced manufacturing, high technologies, energy conservation and environmental protection, modern service industry.
NEW REGULATION OF OUTBOUND INVESTMENT
On November 3, 2017, the NDRC issued the Administrative Measures for Outbound Investment of Enterprises (Draft for Comment) (the “Draft for Comment“) for public consultation by December 3, 2017.
The Draft for Comment expressly states that outbound investment activities as mentioned herein mainly include, but are not limited, to the following:
- The acquisition of the ownership, right to use or other equities, of land abroad;
- The acquisition of an exclusive right (or other interests) to exploit overseas natural resources;
- The acquisition of the ownership, business management right or other interest, of overseas infrastructure;
- The acquisition of the ownership, business management right or other interest, of overseas enterprises or assets;
- The new establishment, renovation or expansion of overseas fixed assets;
- The incorporation of a new enterprise or the additional investment in an existing enterprise;
- The new establishment of, or participation in, overseas equity investment funds; and
- The control of overseas enterprises or assets by means of an agreement, trust or else.
For the purpose of these Measures, ‘enterprises’ include both financial and non-financial enterprises.
The Draft for Comment states that prior to making an outbound investment, the investment subjects shall undergo an examination and approval or record-filing formalities for outbound investment projects. Projects subject to approval administration are sensitive projects implemented by investment subjects either directly or through overseas enterprises under their control, including those involving sensitive industries, such as research, development, manufacturing and repair of weaponry, the cross-border exploitation and utilization of water resources and news media. Sensitive countries includes countries and regions that have not yet formed diplomatic relations with China, countries and regions where there are wars or civil disorder, and countries and regions in which investment made by enterprises shall be limited under international treaties and agreements signed or entered into by China.
The Draft for Comment also states that non-sensitive projects shall be subject to record-filing administration. In particular, for a project invested by an enterprise under the administration of the Central Government, or a project invested by a local enterprise for which the amount of investment made by Chinese investors amounts to USD 300 million or above, the enterprise shall file the project with the NDRC.
Compared to the current regulation, the Draft for Comment cancelled the Project Information Report which should be submitted to the NDRC with respect to outbound M&A projects of USD 300 million or above. This revisions will reduce the time and cost for the Chinese party and will enhance the competitiveness power of a Chinese party in large outbound bidding projects. According to the Draft for Comment, the approval once obtained, shall be valid for 2 years, while in the current regulation, such 2 years term apply only to construction project whereas project in other areas enjoy only a 1 year approval validity term.
CHINA COURT ENFORCED A US COURT JUDGEMENT FOR THE FIRST TIME
Recently, the Wuhan Intermediate People’s Court recognized and executed a judgment made by the High Court of Los Angeles County, California. This is the first time that a Chinese court approves a commercial court judgment of the U.S. courts system based on the principle of reciprocity.
The applicants of this case are Chinese-Americans. In July 2014, the Los Angeles County High Court of California, in the form of default judgment, ruled on the dispute related to share transfer, and decided that the defendants should jointly and severally repay a loan of 12.5 million U.S. dollars, and bear the corresponding interest and litigation costs. Due to the fact that the defendants had real estates in Wuhan, the plaintiff then submitted an application to Wuhan Intermediate Court for recognition and enforcement of the L.A. court judgment.
Since China and the United States have not yet concluded or joined any international treaty of mutual recognition and enforcement of civil and commercial court judgments, the Chinese courts have not yet accepted civil and commercial court judgments of U.S. courts. The Wuhan Intermediate People’s Court reviewed the application and a case that have previously been recognized and enforced by a US court*, and decided that there is a reciprocity relationship for recognition and enforcement of the judgment between China and the United States. Therefore, the Wuhan Intermediate People’s Court recognized and executed the L.A. court judgment. The Wuhan judge believed that this recognition and enforcement of the judgment of the High Court of Los Angeles County would provide a strong foundation for future recognition and enforcement of Chinese court judgments by U.S. courts.
* Hubei Gezhouba Sanlian Indus., Co. v. Robinson Heli-copter Co. judged by Hubei Higher People’s Court and recognized and enforced by the Federal District Court of Central California.
SIMPLIFYING THE TRADEMARK REGISTRATION PROCEDURE
On November 17, 2017, the State Administration for Industry and Commerce (“SAIC”) issued the Opinions on Deepening the Reform of Trademark Registration Facilitation to Practically Improve the Trademark Registration Efficiency (the “Opinions“).
The Opinions state that certain objectives will be achieved by the end of the year 2018, including shortening the time for issuing a notice for the acceptance of an application for trademark registration from 2 months to 1 month, compressing the period of trademark registration reviews from 8 months to 6 months, and reducing the period of trademark transfer reviews from 6 months to 4 months. The Opinions issued 20 concrete requirements, including “promoting amendments to laws in order to consolidate the basis for the reform”. In addition, the applications submitted at local trademark acceptance windows will be sped up, while the previous cumbersome mode of examining and granting approvals in a centralized manner will be replaced by the system of “applications to be examined immediately once accepted”. Local trademark acceptance windows will be empowered with the authority to launch online applications and self-service terminals for online applications by individuals, while arranging staff to guide the applicants to submit the application online.
AMENDMENT TO THE INTERIM ADMINISTRATIVE MEASURES FOR THE RECORD-FILING OF THE INCORPORATION AND CHANGE OF FOREIGN-INVESTED ENTERPRISES
On July 30, 2017, MOFCOM issued the Decision on Revising the Interim Administrative Measures for the Record-filing of the Incorporation and Change of Foreign-invested Enterprises (“Decision”).
In the Interim Administrative Measures for the Record-filing of the Incorporation and Change of Foreign-invested Enterprises issued in October, 2016, it was said that the incorporation and change of an enterprise bought by a foreign company is not subject to record-filing. That means that a foreign company that planned to acquire a domestic company had to apply to the relevant authority for approval. The new Decision eased this requirement and now, a non-foreign-invested enterprise that is transferred into a foreign-invested enterprise by means of acquisition, consolidation by merger or otherwise, shall be subject to record-filing, shall complete the record-filing formalities for incorporation and submit the application online.
The Decision also streamlines the requirements with respect to the strength of a foreign investor. In the old regulation, only a strong foreign investor, that could pass a strict approval process, could be eligible to become a shareholder of a domestic listed company. Nowadays, based on the new Decision, foreign investor that makes a strategic investment in a non-foreign-invested listed company is only subject to record-filing process rather than to a strict approval process.
The Decision adds a list of materials which shall be submitted online during the record-filing process, such as cap table of the final actual controllers of a foreign-invested enterprise. If a foreign investor pays with equities of an offshore company, a Certificate of Outbound Investment by an Enterprise shall be provided by the domestic enterprise that receives the equities of the offshore company.
CFDA COLLECTS PUBLIC COMMENTS ON REVISED REGULATIONS ON SUPERVISION AND ADMINISTRATION OF MEDICAL DEVICES
The General Office of the China Food and Drug Administration (“CFDA”) recently released the Amendments to the Regulations on Supervision and Administration of Medical Devices (Draft for Comment) (the “Draft for Comment”) for public opinions by November 12, 2017. The major amendments are as follows:
- Improving the license holder system for launching medical devices on the market, while specifying that parties that make the registration or record-filing should bear responsibilities for adverse events and must perform re-evaluations and recalling of defective products.
- Facilitating the examination and approval formalities. For example, clarifying that where an applicant applies for CFDA approval for an innovative medical device that has not yet been commercialized in the domestic or foreign markets, the materials proving that the medical device has been sold overseas (materials that are normally required for a CFDA approval) are not required under the circumstances.
- Regulatory requirements for medical devices that are in the market are strengthen, and the regulation of used medical devices are enhanced. Where the registrant or record-filing applicant of medical devices finds that an approved medical device does not meet the compulsory standards or the related product’s technical requirements registered or filed, or has other defects, it shall immediately stop the production of such device and recall products that have already been sold.
- Reforming the clinical trial management system, with additional requirements regarding the acceptance of data generated from clinical tests abroad and the extended use of medical devices in clinical trials.
- Reinforcing the construction of regulation teams. The government establishes a professional inspector system for medical devices. The food and drug supervision and administration departments of the governments at or above the county level shall set up specialized agencies and special personnel to undertake the inspection of medical devices.