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Competition & Antitrust
The Anti-monopoly Bureau of the State Administration for Market Regulation recently published the Guidelines on Leniency for Horizontal Monopoly Agreements. The guidelines propose a relatively reliable leniency system under the Anti-monopoly Law, which is of great significance for improving the effectiveness of antitrust enforcement, while providing a valuable source of guidance for Chinese market players to follow.
China's antitrust agency's greatest competition concerns in the automobile sector relate to vertical restraints. Possibly underscoring this concern, the newly published Antitrust Guidelines on the Automobile Industry placed its main focus on clarifying issues arising therefrom. To help companies in the automobile industry better make their own assessments on antitrust compliance in China, this article explains the antitrust rules relating to vertical restraints provided in the guidelines and analyses their implications.
Alongside increased administrative action, Chinese companies increasingly bring private antitrust actions against rival companies, particularly in the technology sphere. These suits are often accompanied by an administrative complaint that can lead to investigations and penalties. This article clarifies China's hybrid antitrust system in order to better understand the antitrust risks facing foreign enterprises in China.
China's merger review practice has not been negatively affected by the COVID-19 outbreak. According to public statistics, in the first quarter of 2020 the State Administration for Market Regulation (SAMR) completed 111 filing reviews, with a slight year-on-year growth of 0.9%. The current economic downturn raises the question of whether the SAMR will relax its antitrust scrutiny to encourage M&A activity. However, recent merger review practice in China suggests that this has not been the case in the semiconductor sector.
The year 2019 marked the 11th anniversary of the implementation of the Anti-monopoly Law and was also the first full calendar year since the State Administration for Market Regulation (SAMR) became China's single centralised antitrust enforcement agency. Evidently. the SAMR has become more stringent and detail oriented with respect to the analysis of relevant markets and the competition impact of mergers.
The State Administration for Market Regulation (SAMR) recently published the Draft Amendment to the Anti-monopoly Law (AML) for public comment. The draft amendment demonstrates the SAMR's strong stance on monopoly behaviour and is based on 12 years of antitrust enforcement. It conveys to the public that the Chinese authorities will strengthen enforcement relating to monopoly conduct. This article provides a summary of the draft amendment's main changes and the practical implications thereof.
The State Administration for Market Regulation recently released a revised draft of the Anti-monopoly Law (AML) for public comment. In general, the revised draft follows the current AML's basic framework; however, it significantly enhances the legal liability of AML violators. This article highlights key changes proposed by the revised draft and discusses why these changes matter for business entities from a practical point of view.
China's antitrust enforcement agencies were reorganised in 2018. As such, new legislation and enforcement actions in 2019 attracted significant attention from practitioners and in-house counsel, with a view to gaining an insight into the new agency's enforcement trends and priorities (if any). This article underlines the most significant developments in legislation, public enforcement and private litigation in 2019.
The topic of whether antitrust civil disputes are arbitrable has been hotly debated in China in recent years. There are few case law precedents in this regard and local courts have taken different positions regarding this issue. That said, the Supreme People's Court made its stance clear in a recent decision which found that an arbitration clause could not exclude the jurisdiction of Chinese courts in antitrust civil disputes.
A violation of the notification or standstill obligation is commonly called 'gun jumping' and can have significant legal consequences. This article examines Canon's acquisition of Toshiba Medical and the legal consequences of gun jumping in China, as well as the risks of implementing a transaction 'by steps' to circumvent the standstill rules. Recent strengthened enforcement measures are also briefly examined.
The State Administration for Market Supervision recently promulgated the Interim Provisions for Prohibiting Monopoly Agreements. Although the draft provisions introduced a safe harbour clause for non-IP-related monopoly agreements, this has been removed from the final version. As debate continues as to whether to introduce a safe harbour clause to Chinese legislation, this article examines the history of the safe harbour rule and the potential reasons why it would not apply to all monopoly agreements.
The Ministry of Commerce of China recently announced the establishment of an Unreliable Entity List (UEL) targeting foreign entities and individuals that (among other things) fail to comply with the principles of the market economy or threaten China's national security. It is anticipated that the UEL will rely heavily on the Anti-monopoly Law, especially in relation to foreign entities with a noticeable market presence in China.
The Shanghai Market Regulation Bureau (SMRB) recently issued a penalty decision addressed to Eastman (China) Investment Management Co, Ltd, a Chinese subsidiary of US Chemical firm Eastman Chemical Company. Since this is the first antitrust enforcement decision to be issued by the SMRB since its establishment, it has drawn significant attention from commentators who have attempted to identify the bureau's enforcement approach.
Although still fairly new, the State Administration for Market Regulation (SAMR) diligently investigated and penalised monopolistic behaviour in 2018, publishing a dozen cases alongside its local enforcement agencies which attracted media attention. Notably, livelihood-related industries (including the pharmaceutical industry) and trade associations appeared to come under the SAMR's spotlight.
The National People's Congress recently passed and published revisions to the Anti-unfair Competition Law. The revisions focus primarily on trade secret infringement, as trade secrets are regarded as one of the core competitive advantages in today's business world. The main amendments include widening the definition of 'infringer', increasing penalties for infringement and alleviating the burden of proof for plaintiffs.
The refusal of the Chinese antitrust authority to green light the Qualcomm/NXP merger garnered significant attention and shone a spotlight on China's merger review practice, particularly with regard to the chip industry. This article provides an overview of Chinese merger control by examining the major chip industry mergers that the former Ministry of Commerce and the current State Administration for Market Regulation have approved with remedies to date.
In 2018 the newly formed State Administration for Market Regulation (SAMR) maintained a rigorous and prudent attitude towards merger control review. There was a significant increase in the number of cases concluded and the efficiency with which they were done so. As regards the cases which were conditionally approved, the SAMR imposed various tailored conditions. In addition, the SAMR investigated more non-filing cases and imposed more penalties on non-filers compared with 2017.
China reached a number of Anti-monopoly Law enforcement and development milestones in 2018. For example, the newly established State Administration for Market Regulation completed the consolidation of the country's former government antitrust agencies and amended a number of Anti-monopoly Law regulations. Although this institutional reform took a significant amount of time, public enforcement remained active. In addition, there were a number of private antitrust enforcement developments.
The newly established State Administration for Market Regulation recently embarked on its first major overhaul of procedural rules by publishing the draft Interim Provisions on Administrative Penalty Procedures in Market Regulation and the related interim measures for public comment. Unsurprisingly, market observers and practitioners promptly examined the draft documents in an attempt to deduce any changes to the intended-to-be-repealed State Administration for Industry and Commerce rules.
The Shenzhen Intermediate People's Court recently issued its judgment in the private antitrust litigation brought by domestic software company Shenzhen Micro Source Code Software Development Co Ltd (SMSCSD) against tech giant Tencent. SMSCSD had alleged that Tencent possessed a dominant position in the China mainland market for mobile instant messaging and social platform services and had abused this dominance by blocking its WeChat Official Accounts and engaging in discriminatory practices.
China's rise to prominence as an antitrust regime of major importance for companies engaging in global M&A activity has granted it considerable leverage to influence the landscape of the industries in which its domestic companies participate. However, recent events have raised the prospects for greater activism by the national regulators in determining whether a merger or acquisition should go ahead and, if so, on what conditions.
The State Administration for Market Regulation recently fined two Shenzhen tally companies a total of Rmb3,163,108 for entering into a horizontal monopoly agreement. This is one of the first cases to be announced by the newly established antitrust law enforcement agency and may therefore indicate its attitude towards certain industries and behaviours. In particular, the way in which the competitors in this case were identified could raise new compliance challenges for companies doing business in China.
The finalised three-pronged plan for consolidating China's antitrust agencies under the State Administration for Market Regulation was recently released. This initiative has been anticipated and speculated on since the central government's release of its structural reform plan in March 2018. According to the government's plan, the three-pronged plan should have been released in June 2018, but this was substantially delayed due to differences of opinion regarding the reform.
The Ministry of Commerce recently promulgated the Measures for the Review of Concentrations of Business Operators (revised draft) for consultation. However, the revised draft still lacks provisions on the shifting alliances concept. The relevant Anti-monopoly Law enforcement agencies should consider this concept in future, as acknowledging it at the legislative level will finally place China's antitrust system among those of the world's most advanced anti-monopoly jurisdictions.
The Anti-monopoly Law enforcement agencies are increasingly investigating and finding fault with collective boycotts among competitors. As the presumption of illegality for collective boycotts requires a high level of compliance, businesses should be aware that although an independent decision not to deal with distributors or suppliers may not raise Anti-monopoly Law concerns, an agreement with competitors not to do so could raise such concerns.
The State Council recently submitted a proposal to the National People's Congress concerning the council's institutional reform programme. The proposal has shed light on the plans to consolidate the antitrust enforcement powers of the three antitrust agencies under the State Administration for Market Supervision. Although the merger is significant in terms of institutional reorganisation, it will not fundamentally change Anti-monopoly Law enforcement activities in China.
In 2017 the National Development and Reform Commission actively carried out legislative work and formulated and promulgated industrial guidelines and enforcement procedures. In addition, it remained active in its antitrust enforcement by not only penalising a variety of enterprises for anti-competitive conduct, but also targeting administrative agencies that had abused their administrative power in order to restrict or eliminate competition.
The National Development and Reform Commission recently released price conduct guidelines for business operators active in the drugs prone to shortages and active pharmaceutical ingredient (API) markets. The guidelines strengthen the API market's price supervision mechanism, clearly regulate market pricing behaviour with regard to drugs prone to shortages and APIs and provide practical guidance for relevant pharmaceutical companies with regard to their pricing behaviour.
The National People's Congress Standing Committee recently passed the long-awaited amendments to the Anti-unfair Competition Law, which will take effect in January 2018. This is the first time that the law has been amended and it will have a significant impact on business practice in China. In particular, the amended law includes a new section addressing internet-related unfair competition and offers practical and clear guidance for business operators on how to compete legally and fairly online.
At the recent China Competition Policy Forum, a Price Supervision and Anti-monopoly Bureau official commented on the potential enactment by the National Development and Reform Commission (NDRC) of regulations on standard-essential patent licensing practices. The NDRC's proposal aims to ensure greater consistency with the Anti-monopoly Law and develop a consistent approach to the enforcement of IP rights-related anti-competitive conduct.
Following the recent final judgment of the Yunnan Province Higher People's Court, the curtain has – for now – fallen on the Yunnan Ying Ding v SINOPEC refusal to deal case. This case is unique for several reasons. Among other things, it is reportedly the first antitrust dispute to involve the Chinese petroleum industry. In addition, it is the first case in which the plaintiff's claims have concerned refusal to purchase.
The National Development and Reform Commission recently penalised two Chinese pharmaceutical undertakings for alleged collective abuse in the isoniazid active pharmaceutical ingredient market. This was the first time that the Chinese enforcement authorities applied the rules of the Anti-monopoly Law to a case concerning collective abuse.
The Ministry of Commerce (MOFCOM) recently released an exposure draft of the amendments to its Provisions on the Antitrust Review of Concentrations for public comment. The amendments aim to improve the functionality, comprehensiveness and quality of the provisions by incorporating MOFCOM's experience and its existing best practices. In general, this move to amend the provisions is praiseworthy. However, several issues will need to be resolved through the public consultation process.
The healthcare industry has gradually become a key focal point of Anti-monopoly Law enforcement in China. Between the implementation of the law in 2008 and the end of July 2017, the National Development and Reform Commission and the State Administration for Industry and Commerce concluded a number of anti-monopoly penalty cases and accumulated significant industry experience. As such, healthcare enterprises are likely to face increasing anti-monopoly compliance challenges in future.
The National Development and Reform Commission recently published its Guidelines on Trade Association Pricing Activities. The guidelines clarify trade associations' different pricing activities and categorise them according to their associated level of legal risk. As the guidelines advise associations on how to carry out their activities, they will have a direct impact on legal risk assessments and the day-to-day business of trade associations and their members.
In a recent Zhejiang Provincial Price Bureau case, 17 paper manufacturers were fined a total of Rmb7.78 million for reaching and implementing a horizontal monopoly agreement. Further, the price bureau ordered the Fuyang Paper Manufacturers Association, which had played a leading role in organising and facilitating the conspiracy, to be deregistered. This is the first time that a Chinese antitrust authority has invoked Article 46(3) of the Anti-Monopoly Law to deregister a trade association.
The evidential rules that apply to litigation in certain jurisdictions, especially those regarding the allocation of the burden of proof, have a significant impact on the ultimate result of a case. Private antitrust litigation is often highly complex and thus puts the plaintiff at a disadvantage. However, since special evidential rules were introduced in 2012, the success rate of plaintiffs in private antitrust litigation has started to increase.
After a nearly five-year investigation, the State Administration for Industry and Commerce (SAIC) recently concluded its Tetra Pak case. In a landmark decision, the SAIC imposed its largest ever antitrust penalty on the Swiss packaging giant for its abuse of a dominant position in China and ordered it to cease its illegal conduct. The SAIC's innovative approach to assessing unspecified monopolistic behaviour is a milestone in antitrust law enforcement and its decision will serve as a valuable precedent.
China intensifies pharmaceutical antitrust enforcement: NDRC rules in first-ever concerted practice caseChina | 13 October 2016
Enforcement in the pharmaceutical industry has been relatively weak since the Anti-monopoly Law's implementation in 2008. However, the National Development and Reform Commission (NDRC) recently issued a decision in the first Chinese case to involve a cartel established by way of concerted conduct. The case indicates that the authorities are increasing their enforcement efforts in the industry and demonstrates how the NDRC has improved its handling of complicated cases.
The State Council recently published its Opinions on Establishing a Fair Competition Review System in the Development of the Market Regime, signalling the formal establishment of China's fair competition review system. The system is a major initiative to ensure fair play among participants in the Chinese market, and the opinions represent a key step towards implementing the council's measures to streamline administration and delegate more power to lower-level governments.
Private antitrust litigation is becoming more popular and now acts as an important supplement to public antitrust enforcement actions in China. In 2012 the Supreme Court issued feasible rules for private antitrust litigation, including specific regulations governing the allocation of the burden of proof in certain circumstances. Four years on, it is pertinent to explore the issues regarding the allocation of the burden of proof in private antitrust litigation.
In 2015 the National Development and Reform Commission imposed penalties on eight international roll-on/roll-off shipping companies for entering into and implementing monopolistic agreements. However, under the leniency programme the first company to report collusion voluntarily and provide important evidence was exempted from any penalty, and the second and third companies to do so received reduced penalties.
In a noteworthy recent case, bioenergy manufacturer Yunnan Yingding claimed that Sinopec (a major state-owned oil company) and the Yunnan branch of Sinopec's trading company abused their dominant market position by refusing – for no justifiable reason – to incorporate the biodiesel produced by Yingding into Sinopec's distribution system. The case raises significant issues regarding application of the Anti-monopoly Law.
The Hubei Administration for Industry and Commerce has fined 12 insurers for concluding an illegal co-insurance agreement. The antitrust agency found their co-insurance agreement for construction project personal accident insurance to violate the Anti-monopoly Law prohibition against monopolistic agreements. The insurers were fined Rmb4.69 million in total.
Standard-essential patents raise numerous issues in Chinese antitrust practice, including with regard to the application boundaries of the Anti-monopoly Law, the balance between public and private rights and the future direction of enforcement and judicial practice. Legal intervention regarding the conduct of a standard-essential patent owner must be undertaken carefully and should not deviate from the realities of the relevant markets.
The Ministry of Commerce (MOFCOM) has conditionally approved NXP Semiconductors NV's proposed acquisition of Freescale Semiconductor Inc. This marked the first conditional clearance granted by MOFCOM in the past three years, based on the condition that the parties adopt the structural remedy of divesting business that may have negative effects on competition in the relevant market.
The Guangdong Provincial Administration for Industry and Commerce has fined a local animation and gaming association Rmb100,000 for monopolistic conduct. The trade association had signed an agreement with its 52 members which prohibited them from attending exhibitions that were not approved by the association. This marks the first boycott case penalised by the Chinese competition enforcement agencies.
In September 2015 the Ministry of Commerce (MOFCOM) issued four penalty decisions on parties that failed to fulfil their merger notification obligations under the Anti-monopoly Law, marking the second time that it has announced penalties on non-filers. Publishing four penalty decisions in one day sends a strong message to companies attempting to avoid merger notification that MOFCOM is closely monitoring merger controls.
The Ministry of Commerce (MOFCOM) has conditionally approved Nokia's acquisition of Alcatel-Lucent. This marked the second time that Nokia has been the subject of a MOFCOM merger review relating to mobile communications standard-essential patents. The latest case reflected a more rigorous and mature approach to competition analysis in the context of standard-essential patent transfers.
The Anhui Administration for Industry and Commerce recently published a case in which the party was fined for failing to cooperate with its investigation. The penalty decision reflects how much antitrust agencies value the investigation procedure and implies that authorities are strengthening enforcement efforts. To avoid serious consequences, relevant undertakings should familiarise themselves with the antitrust laws and regulations.
The Ministry of Commerce (MOFCOM) recently cleared Nokia Oyi's acquisition of Alcatel-Lucent with four behavioural remedies focusing on maintaining fair licensing of standard-essential patents. This case illustrates MOFCOM's new approach to evaluating the competitive effects of M&A deals involving the transfer of standard-essential patents.
The Ministry of Commerce (MOFCOM) recently published four administrative decisions imposing penalties on undertakings which failed to observe the Anti-monopoly Law notification obligation. Third-party complaints are still the main trigger for MOFCOM investigations, which should remind companies of the importance of visible antitrust compliance during M&A activities.
IP rights holders' refusal to license patents or copyrights to other undertakings under China's antitrust regime remains a perplexing issue, as it lies at the crossroads of IP law and antitrust law. The high-profile antitrust case of Huawei v IDC is seen as the model in dealing with IP antitrust matters; however, there are caveats in applying this decision to similar cases.
The National Development and Reform Commission recently imposed a $56.49 million fine on German automobile manufacturer Mercedes-Benz, along with a combined $1.27 million fine on its dealers. The fine came as a result of Mercedes-Benz concluding and implementing resale price maintenance agreements to fix the minimum prices of E and S Class cars, as well as certain auto parts.
The State Administration for Industry and Commerce recently published China's first anti-monopoly regulation specifically aimed at the abuse of IP rights. The regulation intends to balance the lawful rights and interests of rights holders and other interested parties, while also further promoting innovation and market competition.
The National Development and Reform Commission of China (NDRC) recently announced the long-awaited penalty decision against Qualcomm with respect to its abuse of standard-essential patents in the wireless telecommunications industry. The NDRC imposed a penalty of Rmb6.088 billion (about $1 billion) on Qualcomm for its abuse of dominance in China, in addition to an order to cease illegal conduct.
The Ministry of Commerce has stepped up its antitrust enforcement from its usual merger reviews with a new round of anti-monopoly crackdowns, publishing for the first time a series of penalty decisions regarding concentrations of undertakings. In particular, the first public announcement of a penalty against a non-filer will significantly deter any parties that attempt to avoid filing requirements for a notifiable merger.
Public and private enforcement of competition law should be complementary mechanisms. However, until recently the trend in China skewed more in favour of public antitrust enforcement, which has progressed at a much more rapid pace than the private enforcement system. Since 2012 China has made a significant leap forward in the development of private Anti-monopoly Law enforcement.
The automotive industry has undergone a new round of antitrust crackdowns, with fines amounting to nearly Rmb280 million recently being imposed on FAW-Volkswagen Sales Co, Ltd, Chrysler (China) Automotive Sales Co, Ltd and their relevant dealers for price-fixing conduct. This marks the first time that both horizontal and vertical monopolies have been found in the same case.
The National Development and Reform Commission (NDRC) recently imposed combined fines of Rmb110 million ($17.89 million) on 23 insurers and a local trade association for price fixing in relation to car insurance. This marks the first time since the 2008 implementation of the Anti-monopoly Law that the NDRC has published its decisions in full, signalling a move towards greater transparency in its enforcement regime.
Considering the exclusionary nature of IP rights, rights holders may engage in abusive practices in the name of exercising such rights. Although the Anti-monopoly Law is still in its infancy, the IP-related regulations issued by enforcement agencies are developing rapidly and significant IP rights-related competition litigation has also arisen – most notably, the recent case of Huawei v IDC.
China's three antitrust law enforcers held a joint press conference in defence of the recent antitrust investigations into multinationals, including Microsoft and Japanese auto parts and bearing manufacturers. Issues surrounding the investigations came to light after US and EU trade groups claimed that China's antitrust investigators were unfairly targeting foreign businesses.
Six years after the implementation of the Anti-monopoly Law, the National Development and Reform Commission – the agency responsible for supervising price monopoly – continues to strengthen its law enforcement efforts with an antitrust crackdown that has swept across a number of industries and companies, leading to record fines. The latest case targeted the automobile and auto parts industries.
Since early 2014 China's antitrust enforcement measures have attracted increasing attention, both domestically and abroad. Apart from businesspeople, antitrust scholars and lawyers, even the general public have become familiar with antitrust terminology. Recent actions taken by the antitrust investigative authorities illustrate two prominent enforcement trends, with significant implications for companies.
The State Administration for Industry and Commerce (SAIC) recently concluded a public consultation on the latest draft of regulations designed to implement the Anti-monopoly Law with respect to IP rights. The rules outline the SAIC's enforcement policies and criteria for acceptable evidence in its assessment of suspected anti-competitive conduct involving IP rights.
In a surprising move, the Ministry of Commerce (MOFCOM) has prohibited the proposed alliance of the world's three largest shipping liner operators. The decision is a milestone in MOFCOM's merger review regime and serves as a reminder for companies considering large-scale mergers and acquisitions with a global dimension to take MOFCOM merger control into account in their strategic planning.
The Ministry of Commerce recently released the amended Guiding Opinions on Notification of Concentration of Undertakings. The new guiding opinions significantly expand on the previous version and clarify four important areas of merger control filing that have given rise to much debate: the definition of 'control', the calculation of turnover, the status of joint ventures in identifying concentrations and pre-notification consultations.
The Ministry of Commerce has announced that it will now publicise its administrative penalty decisions against undertakings which do not submit a notification before implementation of their concentration. This new approach does not intensify the penalties imposed on violators, but it does threaten their reputations. Companies should thus take the new regulatory regime seriously when planning and implementing a merger.
The recent establishment of the simple notification procedure for concentrations has been welcomed for its obvious merits and the convenience that it provides. However, the uncertainty and risks of the procedure are equally significant. Filing parties and practitioners should be careful in deciding whether to file the transaction through the simple procedure in order to avoid these risks.
Following in the steps of the antitrust watchdogs of Germany, Japan, Taiwan and the United States, the Chinese Ministry of Commerce (MOFCOM) has conditionally cleared Merck's acquisition of AZ Electronics. Although MOFCOM's clearance notice looks relatively concise in comparison with the other notices issued in 2014 to date, several observations in this case are worthy of attention.
The China Insurance Regulatory Commission (CIRC) has issued the Administrative Measures for the Merger and Acquisition of Insurance Companies, which recently entered into force. The CIRC devised the measures in a bid to promote and regularise mergers and acquisitions with a view to protecting consumers' interests, promoting competitiveness and enriching insurers' risk management tool kits.
China has made another far-reaching step towards deregulating its telecommunications market with a recently issued notice announcing the liberalisation of pricing for telecoms services. The liberalisation is intended to curb abusive market practices and increase competition. However, it remains to be seen whether this will be the case, as market entry has not yet been fully liberalised.
The Ministry of Commerce (MOFCOM) recently granted conditional clearance to the proposed $3.1 billion acquisition of AZ Electronic Materials SA by Merck KGaA in accordance with the Anti-monopoly Law. This marks the first time that MOFCOM has specifically identified the adjacent relationship between the relevant markets and also the first time that tying and cross-subsidisation have been considered in a merger review.
The Ministry of Commerce has finally published the Guiding Opinions on Notification of Simple Cases of Concentration of Undertakings, which signal the formal implementation of the simplified merger review procedure. The guiding opinions clarify certain practical issues and are expected to reduce paperwork burdens. However, having 'simple case' status notably does not guarantee Phase I clearance.
The Ministry of Commerce (MOFCOM) recently published long-awaited rules on merger control cases subject to summary procedure. The interim provisions mainly set out the eligibility criteria for concentrations to be considered under the simplified review procedure. Although the provisions do not address key procedural issues, MOFCOM is expected to release supporting procedural rules in the near future.
The much-publicised conviction of several major baby formula brands for price fixing was notable in that the antitrust agency disclosed relatively detailed information on the case, including penalty amounts and the reasons for penalty reductions and exemptions. The agency's application of the leniency programme under the Anti-monopoly Law is particularly enlightening and may serve as guidance for future cases.
The Shanghai People's High Court recently handed down judgment in the first private antitrust action involving vertical agreements under the minimum resale price maintenance clause of the Anti-monopoly Law. The judgment has helped to mitigate the perceived lack of transparency over how government bodies deal with vertical monopoly agreements, and has clarified the court's attitudes towards vertical monopolies.
The Ministry of Commerce has cleared the proposed acquisition of Swedish dialysis equipment manufacturer Gambro AB by US rival healthcare company Baxter in accordance with the Anti-monopoly Law. The approval is subject to two conditions: the divestment of Baxter's continuous renal replacement therapy business; and the termination of an outsourcing production agreement with Niplo Corporation in China.
On the fifth anniversary of the Anti-monopoly Law's entry into force, the State Administration for Industry and Commerce (SAIC) announced the opening of the antitrust case publishing platform. For the first time since the implementation of the law, all 12 of the SAIC's penalty decisions have been published. The decisions illustrate the SAIC's considerable initial success in antitrust enforcement.
The National Development and Reform Commission has launched an investigation of Shanghai jewellers and the Shanghai Gold and Jewellery Industry Association for alleged price manipulation of gold jewellery. Thirteen members of the association are under investigation, including the world's biggest jewellery retailer. Several jewellers have already submitted reports to the antitrust agency admitting wrongdoing.
A number of gold shops in Shanghai are undergoing close inspection by the National Development and Reform Commission (NDRC) in relation to retail price manipulation of gold through the Shanghai Gold Jewellery Industry Association. The accelerated pace of the NDRC's investigations, despite its limited personnel resources, has impressed those following the developments in China's growing antitrust enforcement regime.
Despite China's adoption of its first anti-monopoly law in 2008, state agencies conducted no major enforcement activities until recently. In 2012 the authorities finally commenced investigations of price cartels in the liquid crystal display industry, which has led to investigations of pharmaceutical and food packaging companies. Corporations in various industries are now waiting to see which sectors will be the target of future investigations.
A National Development and Reform Commission price-fixing investigation of infant milk formula producers has garnered much attention recently. Although it is too soon to tell whether this will form an integral part of a comprehensive strategy to reform the domestic market, the lack of transparency and persuasive evidence to prove the alleged antitrust violations will only spur more calls for state intervention.
The National Development and Reform Commission (NDRC), China's price monopoly regulator, is conducting an antitrust probe against several major baby formula brands. The companies are accused of limiting the lowest prices offered to their distributors and retailers, which potentially eliminated market competition. The NDRC is expected to issue new record-high penalties in the case.
The Ministry of Commerce (MOFCOM) recently published two sets of draft merger control rules – one governing the imposition of restrictive conditions and the other outlining a procedure for dealing with simple cases. These positive steps demonstrate MOFCOM's continued efforts to accelerate the rule-making process and improve the efficiency and transparency of the merger control review procedure.
The Ministry of Commerce (MOFCOM) recently announced its conditional approval of Marubeni Corporation's acquisition of Gavilon Holdings. Given Marubeni's advantage in China's soybean import market and Gavilon's influence in the North American soybean market, MOFCOM initially held that the proposed deal could lead to Marubeni's enhanced control over China's soybean import market and thus restrict competition.
The Ministry of Commerce (MOFCOM) recently gave the green light to the Glencore/Xstrata deal, which will be the largest merger in mining history. The approval has been awaited for more than a year. MOFCOM issued the approval with certain restrictive conditions on the deal, following the practice of merger review agencies in other relevant jurisdictions.
The simmering war between two large Chinese internet companies has culminated in Qihoo 360 losing the first-ever antitrust litigation involving instant messaging services. The court held that Tencent did not commit an abuse of dominance as defined in the Anti-monopoly Law. The case shows that henceforth, Chinese courts will challenge monopoly behaviours with more muscle.
Less than two months after a breakthrough cartel case resulting in record fines, the Chinese price monopoly watchdog has levied another harsh punishment against two luxury Chinese liquor producers. This case reaffirms that companies operating in China should prudently review their distribution policies in particular and antitrust compliance in general in order to avoid antitrust risks.
At the end of 2011 the Hunan Province Administration for Industry and Commerce (AIC) received multiple reports concerning monopoly agreements and the elimination of competition on a new auto insurance market operated by the New Auto Centre. Following an investigation, the AIC has imposed a penalty of Rmb1.7 million on some of the involved parties.
The National Development and Reform Commission (NDRC), one of the main anti-monopoly regulatory authorities in China, recently imposed its highest-ever fines on six liquid crystal display panel manufacturers found guilty of price collusion under the Price Law. The case provides particular insight on when and how the NDRC exercises its discretion to apply either the Price Law or the Anti-monopoly Law to investigations.
WFOE shopping: how do Beijing, Shanghai and Shenzhen compare for establishing an insurance WFOE in China?China | 15 September 2020
Foreign insurers cannot directly sell insurance products in China unless they have successfully established a joint venture or wholly foreign-owned enterprise (WFOE) insurer in mainland China. In light of Shenzhen's recent pilots and reforms, it is now the most favourable destination for foreign insurers seeking to establish a WFOE in mainland China.
Despite the tortuous path ahead for the US election campaigns and the trials and tribulations of 2020, the US-China Phase One Trade Deal remains in place. As China begins to further open its financial market, foreign insurance institutions (FIIs) may be wondering whether non-US FIIs have any chance of benefiting from China's treatment of US insurers. If only US insurers benefit, would that be a Global Agreement on Trade in Services (GATS) violation or would it be GATS compliant?
The rapid spread of the COVID-19 pandemic has affected business operations worldwide. For many companies, business interruption (BI) as a result of the pandemic is one of the greatest operational risks of 2020. Although many companies are insured against BI, their coverage may not extend as far as they believe. For example, compensation under a BI policy is often based on the condition that damage to property has occurred. This article sheds some light on this rule.
It is no secret that China's insurance industry presents good upside growth opportunities and China's insurtech market continues to grow rapidly. Foreign insurers are currently underrepresented in this market, even as former market barriers to entry continue to fall. This market presents great potential for foreign insurers, and Western insurers in particular have centuries of experience to share with their Chinese counterparts.
In early 2020, the Luckin Coffee scandal drew attention from the insurance, legal and security industries and turned the spotlight on directors' and officers' (D&O) liability insurance policies in China. With the developing pace of the security and insurance markets, the refreshed focus on D&O insurance gives Chinese underwriters plenty to contemplate.
In terms of premium revenue, China is the second largest insurance market in the world. However, regulators and insurers are often frustrated due to a lack of insurance innovation. In response to such frustration, litigation property preservation liability insurance has emerged and become a typical insurance solution to satisfy market demand and address unique Chinese insurance requirements in order to align them with the country's judicial system.
Insurance subrogation is an important legal mechanism which enables insurers to reduce their losses after insurance indemnities are paid. However, opinions differ as to the application of reinsurers' right of subrogation. This article answers questions which frequently arise in this regard from a Chinese perspective.
For foreign investors with an eye on the Chinese insurance market, obtaining an insurance intermediary licence is a good idea. However, compared with insurance brokerage licences, insurance agency licences are difficult for foreign investors to obtain. Therefore, foreign investors that wish to acquire control over a Chinese insurer should consider either setting up a new foreign-invested insurer or acquiring an existing foreign-invested insurer.
During the past five years, the Chinese courts and arbitration institutions have handled major disputes relating to reinsurance contracts. These cases prompted legislation in the reinsurance sector and drew attention to the need for more careful wording in reinsurance contracts. This article provides an overview of several essential provisions in reinsurance contracts under Chinese law.
The China Banking and Insurance Regulatory Commission was recently formally unveiled in Beijing, marking the official launch of the new regulatory authority. This merger of the former China Banking Regulatory Commission and China Insurance Regulatory Commission is the biggest reform of China's financial regulatory system in more than 15 years and marks the start of the 'one committee, one bank, two commissions' regulation framework.
The China Banking and Insurance Regulatory Commission plans to abolish two of the requirements that foreign insurance brokerage companies must meet in order to conduct business in China (ie, 30 years of business operation history and $200 million worth of total assets). If this reform takes place, domestic and foreign investors are expected to have equal status when entering the Chinese insurance brokerage market.
Ping An Insurance (Group), a relative newcomer to the insurance industry, now ranks among the world's largest and most valuable insurers. Notably, its use of technology to embrace new business models that supplement its core insurance offerings is indicative of a wider global trend of providing customers with digital, added-value services. However, in China, this evolution towards added-value ecosystem-related services and the potential advantages on offer is marked by a different set of market considerations.
Despite a range of stakeholders having vested interests in developing the private health insurance market, it has remained underdeveloped and is generally considered by Chinese insurers to be unprofitable compared with life insurance lines. Insurers have also found it hard to stimulate uptake by a consumer base that is relatively unfamiliar with the added value of such products. As such, the Chinese health insurance market is not as mature, innovative or profitable as it could be.
The China Insurance Regulatory Committee recently promulgated the new Measures for the Administration of Equity in Insurance Companies, which state that if the shareholding proportion of an insurer's foreign shareholders accounts for more than 25% of its registered capital, the relevant provisions of the measures must be applied by reference. This express inclusion of foreign-invested insurers represents a substantial shift away from current practice.
Since the end of 2017, the China Insurance Regulatory Committee has taken numerous regulatory measures to address disorder in the insurance market, some of which have brought certain domestic life insurers to task. The measures are notable, as they underline a renewed emphasis on controlling financial risks, which is of utmost concern for the government.
Following the resumption of bilateral trade treaty talks between China and the United States, a 100-day plan was mooted which promised to improve trade ties going forward. One area of focus in this regard has been the foreign ownership limits that apply to inbound investment in Chinese financial services groups, including those pertaining to the country's insurance industry. This policy shift has given rise to expectations that further foreign investment in the insurance industry will increase significantly.
China's shift towards a knowledge-based digital economy is fuelling growth in the insurance sector, which aligns with the government's plan to double the rate of insurance penetration by 2020. By this date, insurance premium income is expected to have reached Rmb4.5 trillion. If this aim is achieved, China will have usurped the United States to become the world's largest insurance market, which bodes well for overseas insurers looking to participate in the domestic market.
A new wave of 'insurtech' companies (ie, insurers engaging with online distribution models and tech companies foraying into insurance) are recognising the gains to be made by entering into this emerging market. However, these developments by no means spell the end of the larger, more traditional Chinese insurers, which are adapting their longer-term business development strategies in response.
Recent ransomware attacks across the globe have once again brought to the fore the all-encompassing enterprise risk management challenge that cyber-risks present to corporations. The raft of operational consequences of such an attack present an ever-burgeoning opportunity for insurers to expand further into this potentially lucrative new line of business. This is particularly pertinent in China, where there has been a shift towards increasing digitisation and automation in various high-tech industries.
The regulations concerning investment limits and the required qualifications for shareholders that want to invest in Chinese insurers continue to be a focal point for potential investors. The China Insurance Regulatory Commission recently published the Administrative Measures for Equities of Insurance Companies (Draft for Comments), which make fundamental changes to the existing regulatory framework.
At present, the recently adopted China Risk-Oriented Solvency System (C-ROSS) is the only regime which regulates mainland insurers' capital adequacy. By appropriating the most useful features of existing global regimes, C-ROSS has formulated a risk-based supervision regime that is on a par with global standards, yet remains tailored to the specifics of the Chinese insurance market.
When declarations of death are sought for insured persons, two issues arise: whether the declaration relates to accidental death; and whether it falls within the insurance period. The popular viewpoint is that a declaration of death is regarded as resulting from an accident, in which case the insurer must provide compensation. While the declaration may be dated after the period of cover under the insurance contract, this does not absolve the insurer of responsibility to compensate the claimant.
At the first meeting between Chinese President Xi Jinping and US President Donald Trump, the two leaders set the tone for future cooperation on a wide range of issues, not least market access between the two countries. According to Chinese and US officials, better access for US financial sector investments into China was mooted for inclusion as part of a 100-day plan to improve trade ties. This could have notable implications for the Chinese insurance industry.
The China Insurance Regulatory Commission (CIRC) recently penalised two insurers for illegal practices with regard to the use of insurance funds. The penalties came just a few days after the CIRC chair stated that the regulator will continue to put significant pressure on companies and maintain close control over disorderly expansion and radical investment in order to eliminate potential risks. Companies that refuse to rectify their actions will be subject to the CIRC's strictest penalties.
China's surety bond market underwent significant development in 2016 and surety bonds have become one of the most important methods for securing a financial guarantee. However, due to a lack of clear Supreme Court guidance on the matter, the laws that apply to surety bonds issued by insurers in China are still the subject of much debate. One key issue is whether the Guarantee Law's accessory principle applies to surety bonds issued by insurers in China.
Article 21 of the Insurance Law sets out the duty of an insured party to notify its insurer of an accident in a timely manner. However, the vagueness of the article has led to issues regarding its interpretation, including the definition of 'timely manner' and whether insurers are still liable in the event that an insured party fails to issue a timely notification.
Foreign insurance policies have attracted many mainland China residents, but they are not without risks. The China Insurance Regulatory Commission – which prohibits insurers from conducting illegal insurance activities and organisations or individuals from conducting illegal intermediary insurance activities without its approval – recently issued significant supervisory measures in relation to the potential risks and effects of such policies.
The China Insurance Regulatory Commission recently issued an alert to notify mainland Chinese residents of the risks arising from the purchase of insurance policies in Hong Kong. This marks the third time this year that the authorities have publicly taken a negative attitude towards the purchase of foreign insurance policies.
Credit insurance has become increasingly popular in China over the past few years. However, credit insurance differs from warranties under Chinese law and questions have been raised as to its scope and function. In peer-to-peer and other transactions, it is often used to protect creditors' benefits. Creditors should be aware of certain legal points relating to credit insurance before taking out a policy.
Numerous financing products have become available to high-net-worth individuals in order to meet their wealth management needs. One of the most popular of these is the insurance trust, which creatively combines features of a trust and life insurance. Insurance trusts can preserve assets and control risks – the fundamental function of insurance – while also allowing the assets to be managed according to clients' instructions.
The Hubei Administration for Industry and Commerce has fined 12 insurers for concluding an illegal co-insurance agreement. The antitrust agency found their co-insurance agreement for construction project personal accident insurance to violate the Anti-monopoly Law prohibition against monopolistic agreements. The insurers were fined Rmb4.69 million in total.
The Legislative Affairs Office of the State Council recently published the draft Decision on Revising the Insurance Law for public comment. The proposed amendments aim to deregulate certain aspects of the industry, promote innovation and energise the insurance market, and will provide more comprehensive regulatory mechanisms and more severe penalties for wrongdoing.
Overseas use of foreign exchange insurance funds is governed by the China Insurance Regulatory Commission (CIRC). The CIRC's latest regulations include the Interim Measures for the Administration of Overseas Investment with Insurance Funds, as well as detailed implementation rules. These have significantly expanded the scope and range of products for investment in foreign markets.
The Supreme People's Court Interpretations on the Application of the Civil Procedure Law introduced many changes to Chinese civil procedure. One major change relates to the issue of jurisdiction. Aside from the general provisions on jurisdiction, special provisions have been introduced regarding jurisdiction in insurance contract disputes.
Although equity incentive plans have previously come close to becoming a reality at several Chinese insurers, none has reached fruition. However, the China Insurance Regulatory Commission has gradually eased its restrictions on such plans, encouraging more insurers to implement them and optimise their corporate governance structures and occupational spectrums.
Chinese retailers are increasingly promoting extended warranty services. Some foreign insurers have also sought to take advantage of their experience in overseas markets in developing extended warranty services in China. Despite the growing popularity of such services, they raise significant regulatory concerns – particularly with regard to their similarity to insurance products.
The Supreme People's Court recently promulgated its third interpretation of the Insurance Law in order to solicit advice from the public. The draft interpretation addresses in detail several common issues in judicial practice with respect to life insurance contracts. It will also be helpful in the resolution of disputes in this regard, and in protecting parties' legitimate rights and interests.
The National Development and Reform Commission (NDRC) recently imposed combined fines of Rmb110 million ($17.89 million) on 23 insurers and a local trade association for price fixing. The NDRC found that the insurers, organised by the Zhejiang Insurance Industry Association, had concluded and executed horizontal monopoly agreements to fix car insurance premiums and handling fees.
Reinstatement value insurance has been increasingly applied in the Chinese insurance market, even though the Insurance Law does not specifically define 'reinstatement value' or specify how to apply reinstatement value insurance. Although there are benefits in applying reinstatement value insurance to equipment and other fixed assets, insurers should nonetheless be cautious when doing so.
The China Insurance Regulatory Commission (CIRC) has issued the Administrative Measures for the Merger and Acquisition of Insurance Companies, which recently entered into force. The CIRC devised the measures in a bid to promote and regularise mergers and acquisitions with a view to protecting consumers' interests, promoting competitiveness and expanding insurers' risk management tool kits.
The China Insurance Regulatory Commission has issued the Draft Notice on Strengthening and Improving Regulation of Proportional Use of Insurance Funds for comment. The notice regulates the use of insurance funds by way of proportional limits on broad categories, rather than on specific products, and should facilitate a more prosperous insurance fund market.
In insurance contract disputes, insurers are often faced with a dilemma when applying to the court for property preservation, having to choose between maintaining a strong overall financial position and pursuing the smaller amount at issue. To solve this problem, a credit guarantee system for insurance litigation has been introduced in Guangdong Province, which will be worth promoting nationwide in the near future.
Chinese insurers often face the question of whether to submit subrogation cases to arbitration or litigation. Several issues should be taken into account when answering this question, including the judiciary's relative inexperience in handling insurance disputes, the divergent opinions on the treatment of arbitration clauses in subrogation cases and the obstacles encountered in court reviews of arbitral awards.
Following the recent opening of the Shanghai Pilot Free Trade Zone, the China Insurance Regulatory Commission announced measures to support the free trade zone in several areas. With these measures, the insurance industry has ushered in unprecedented development opportunities. Although it is too soon to judge the success of the free trade zone, financial breakthroughs are keenly anticipated, particularly in the insurance sector.
The China Insurance Regulatory Commission (CIRC) recently published a notice on its website regarding the establishment of the Chinese Insurance Entities Access Examination Committee. The CIRC set up the committee to improve the insurance market's entry and exit mechanisms, and to enhance the quality and transparency of the examination process. The CIRC has also stipulated the working rules of the committee.
Given the complexity of the problems and discrepancies in the Insurance Law following its amendment in 2009, the judgment criteria for several significant issues vary from court to court. The Supreme People's Court has therefore enacted its second interpretation of the law, which aims to lay down definite and feasible rules concerning the law's application.
The environment is an important issue for the Chinese government, while surveys and social media show increasing public concern over environmental pollution. Against this backdrop, the Ministry of Environmental Protection and the China Insurance Regulatory Commission have issued new guidelines establishing the pilot enterprises that are subject to compulsory environmental pollution insurance.
At the end of 2011 the Hunan Province Administration for Industry and Commerce (AIC) received multiple reports concerning monopoly agreements and the elimination of competition on a new auto insurance market operated by the New Auto Centre. Following an investigation, the AIC has imposed a penalty of Rmb1.7 million on some of the involved parties.
The China Insurance Regulatory Commission and the Supreme Court have jointly issued a notice to establish a collaboration system linking insurance litigation to mediation in some areas. Considering the limited judicial resources in many insurance disputes, the court has chosen insurance litigation as the first sector in which to begin actively encouraging alternative dispute resolution over court proceedings.
Tech, Data, Telecoms & Media
Draft Guidelines on the Construction of a Data Security Standards System in the Telecoms and Internet IndustriesChina | 15 January 2021
In 2020 the Ministry of Industry and Information Technology issued the Guidelines on the Construction of a Data Security Standards System in the Telecoms and Internet Industries for public comment. According to the draft guidelines, the data security standards system for telecoms and internet industries comprises four categories: basic and general standards, critical technology standards, security management standards and critical field standards.
In August 2020 the National Information Security Standardisation Technical Committee issued the Information Security Technology – Method for Evaluating the Security Protection Capabilities of Critical Information Infrastructure (Draft for Comment) for public comment. According to the draft method, the evaluation of the security protection capabilities of critical information infrastructure will focus on capability domain level, graded protection and cryptography.
In August 2020 the National Information Security Standardisation Technical Committee released the Information Security Technology – Method of Boundary Identification for Critical Information Infrastructure (Draft for Comment) for public opinion. The draft provides six factors that should be considered when identifying the boundaries of critical information infrastructure: critical business, network facilities, information systems, critical business information, critical business information flows and basic operation environments.
The Standardisation Administration and four other government departments recently issued the Guide to the Building of a National Standard Framework for New Generation Artificial Intelligence. The guide requires that the top-level design of AI standardisation should be clarified by 2021 when more than 20 key standards in key general technologies, technologies in key fields and ethics have been preliminarily researched.
In August 2020 the Ministry of Industry and Information Technology and five other government agencies issued the Circular on Organising and Implementing the Recommendation of National Green Data Centres. According to the circular, all regions will recommend a batch of well-managed and representative data centres featuring high-energy efficiency and advanced technology in major application fields in accordance with the Evaluation Indicator System for Green Data Centres.
The consultation period for the Information Security Technology – Security Requirements for the Supply Chain of Information Technology Products (Draft for Comment) recently ended. The requirements, as a recommended national standard, will apply to the security management activities of the IT product supply chain for government information systems and critical information infrastructure. They will also provide a reference for the supply chain security management activities of other information systems.
The Secretariat of National Information Security Standardisation Technical Committee recently released the Practical Guide to Cybersecurity Standards – Self-Assessment Guidelines for Apps to Collect and Use Personal Information to guide app operators to carry out self-assessments. The guidelines provide 28 self-assessment items.
In order to effectively strengthen the protection of users' personal information, the Ministry of Industry and Information Technology issued the Notice on Carrying out the Special Campaign to Promote Governance on Apps that Infringe Upon Users' Rights and Interests, requiring that a national app testing platform management system be launched before the end of August 2020. The testing platform management system is expected to complete testing for 400,000 mainstream apps before 10 December 2020.
The Supreme People's Court and the National Development and Reform Commission recently issued the Opinions on Providing Judicial Services and Supports to Accelerate the Improvement of the Socialist Market Economy System in the New Era. Among other things, the opinions emphasise that the state should strengthen the protection of data rights and personal information security.
The Ministry of Industry and Information Technology (MIIT) recently instructed third-party testing agencies to examine certain mobile apps and issued the Second and Third Batches of Apps that Infringe Upon Users' Rights and Interests, requiring operators of said apps to make rectifications. Numerous apps did not complete their rectifications before the designated timelines. As a result, the MIIT may impose fines.
China Central Television's 3.15 programme recently exposed that third-party software development kit plug-ins for mobile phones were collecting and using users' personal information. In response, the Ministry of Industry and Information Technology immediately asked the relevant entities to investigate the enterprises involved in accordance with the law.
The Justice Bureau of Shenzhen Municipality recently issued the Data Regulations of Shenzhen Special Economic Zone for public opinion. The draft regulations define the concept of 'data rights' for the first time and set out the ownership of personal and public data. According to the draft regulations, no organisation or individual may infringe on natural persons' data rights in accordance with the law.
The General Office of the State Council recently issued the 2020 Legislative Plan, which includes several laws applicable to the cybersecurity sector, such as the Regulations on Network Protection of Minors and the Regulations on the Security Protection of Critical Information Infrastructure.
The Anhui Province government recently issued the Regulations on the Development and Application of Big Data in Anhui Province for public opinion. The draft regulations encourage enterprises, universities, scientific research institutions and other organisations and individuals to engage in the research and development of Big Data technology and give full play to the economic value and social benefits of data resources.
The Central Committee of the Communist Party of China and the State Council have jointly issued the Master Plan for the Construction of the Hainan Free Trade Port. According to the plan, the aim is for the port to be completed and operational as a globally influential duty-free trading centre by 2050. Among other things, the port is expected to open up value-added telecoms services and gradually remove restrictions on the percentage of enterprises' shareholdings which can be held by foreign investors.
In May 2020 the National People's Congress passed the Civil Code, which will take effect on 1 January 2021. The Civil Code includes special provisions on the protection of privacy and personal information and provides that personal information pertaining to natural persons should be protected as a fundamental civil right. The processing of personal information should adhere to the principles of lawfulness, legitimacy and necessity, and excessive and unreasonable processing is prohibited.
While the new Civil Code largely restates the existing Chinese laws on privacy and personal information protection, it applies these laws more broadly and makes it easier for individuals to take civil action in relation to breaches. As such, privacy and personal information protection laws are likely to be enforced more often and more broadly in China from 2021 onwards. Companies that process personal information in China should ensure that their existing privacy practices comply with the new Civil Code.
The App Special Governance Panel recently issued the 2019 Special Governance Report on Apps for Illegal Collection and Use of Personal Information, summarising governance efforts from January 2019. According to the report, illegal collection and use activities by apps will be cracked down on and enterprises' capacity to protect personal information will be greatly improved. Further, knowledge of personal information protection by apps should be extensively available.
According to the Notice of the People's Bank of China on Issuing Financial Industry Standards on Strengthening the Security Management of Mobile Financial Client Application Software, the National Internet Finance Association of China has organised a real-name filing for mobile financial apps. There are 73 apps in the first batch to be filed with the association.
The Ministry of Industry and Information Technology (MIIT) recently established third-party testing institutions to monitor mobile apps and ordered app operators found to have infringed users' rights and interests to rectify this problem. The MIIT subsequently found that 16 app operators had failed to meet the rectification requirements and ordered them to comply with its request.
In the first quarter of 2020, the Network Security Department of the national public security organs reportedly developed its functions, strengthened the protection of citizens' personal information and investigated and dealt with 386 illegal apps for collecting citizens' personal information in accordance with the law. This article provides a brief summary of the department's activities.
To further regulate the dissemination of information online and protect the public interest, the Cyberspace Administration of China (CAC) recently launched a nationwide clean up the Internet campaign lasting for eight months from May 2020. According to the CAC, the campaign comprehensively covers various online communication channels and platforms and aims to remove illegal and harmful information from the Internet.
SAMR and NISSTC require Grade 2 cybersecurity protection or higher for targets of classified protectionChina | 03 July 2020
The State Administration for Market Regulation and the National Information Security Standardisation Technical Committee recently released the Information Security Technology Classification Guide for the Classified Protection of Cybersecurity to provide methods and procedures for the classification and protection of information systems and other protection targets which do not involve state secrets (collectively known as 'targets of classified protection').
Special governance of illegal collection of personal information by COVID-19-prevention and control appsChina | 29 May 2020
The Tianjin Cyberspace Administration recently issued a circular which requires the operators of apps (including mini-programs and website tools) for the prevention and control of COVID-19 to fulfil personal information obligations in accordance with the law, provide relevant information on personal information protection online and carry out security-based self-assessments and rectification processes, where required.
The Network Security Administration of the Ministry of Industry and Information Technology (MIIT) recently interviewed the party responsible for the Sina Weblog App regarding a data breach caused by malicious use of the user query interface. Sina Weblog replied that it has upgraded its interface security strategy and will perform its data protection obligations according to MIIT's instructions.
The National Information Security Standardisation Technical Committee recently released the Network Security Standard Practice Guidelines – Guidelines for Personal Information Security Protection by Apps for public consultation. Based on the statistics released by certain assessment tools and the typical issues which have come to light due to the COVID-19 pandemic, the guidelines summarise 10 activities which app operators should avoid.
In order to protect personal information during the prevention and control phases of the COVID-19 pandemic, the Office of the Central Cyberspace Affairs Commission issued the Circular on Ensuring Effective Personal Information Protection and Utilisation of Big Data to Support Joint Efforts for Epidemic Prevention and Control. This article examines the circular's main requirements.
Institutions without financial qualifications not authorised to collect sensitive personal financial informationChina | 17 April 2020
The National Financial Standardisation Technical Commission recently issued the Personal Financial Information Protection Technical Specification to regulate the secure management of personal financial information. Based on the damaging effects of unauthorised access to or the modification of such information, institutions without the corresponding financial qualification are not authorised to collect certain types of personal financial information.
The Ministry of Industry and Information Technology recently released the Guidelines on Classification and Grading of Industrial Data (On Trial) to guide industry and IT administrations, industrial enterprises and industrial internet platform enterprises in carrying out the classification and grading of industrial data. According to the guidelines, 'industrial data' refers to data generated and applied throughout the lifecycle of products and services in the industrial sector.
The State Administration for Market Regulation and the Standardisation Administration recently released a national standard circular to announce that the Information Security Technology – Personal Information Security Specification (Specification 2020) and seven additional national standards have been issued and will take effect on 1 October 2020. Specification 2020 was revised based on the Information Security Technology – Personal Information Security Specification which came into effect in 2018.
The novel coronavirus pneumonia has been classified as a Class B infectious disease under the Law on the Prevention and Treatment of Infectious Diseases and preventive and control measures for Class A infectious diseases have been taken. To cooperate with the state epidemic control measures and protect employees' health, employers must provide outbreak-related information on their employees, resulting in some special legal issues regarding personal information protection.
The Beijing Communications Administration recently organised a two-month examination of the network and data security of apps to target the illegal, compulsory and excessive collection of user information. The examination selected 50 apps with a certain influence and number of users, covering social media, online rental and automotive services, online education, finance, online medical care, basic telecoms enterprises and six other areas.
The Cyberspace Administration of China recently published the Administration Measures for Releasing Cybersecurity Threat Information (Draft for Comments) to solicit public opinions. According to the draft measures, the publication of cybersecurity threat information must be reported to regulators in a number of specific circumstances.
The Ministry of Education recently published the Administrative Measures for the Filing of Educational Apps. The administrative measures require providers of educational apps and institutional users of educational apps to go through filing procedures and indicate that the ministry is tightening controls on educational apps in China.
The Administrative Provisions on Online Audiovisual Information Services, which were jointly issued by the Cyberspace Administration of China and two other departments in November 2019, recently came into effect. The provisions set out requirements for the creation, distribution and transmission of audio videos based on new technologies and applications such as deep learning and virtual reality.
The Shanghai Cyberspace Administration recently released the 2019 Network Security Incident Contingency Plan. According to the contingency plan, network security incidents in Shanghai are classified as Grade I, Grade II, Grade III and Grade IV. If a network security incident occurs, the relevant entity must report it to the competent authority verbally within half an hour and in writing within one hour.
The Standing Committee of the National People's Congress recently approved the Cryptography Law. Under the law, cryptography is divided into core cryptography, ordinary cryptography and commercial cryptography. If a commercial cryptography product concerns state security, the national economy, people's livelihoods or social public interests, it will be included in the catalogue of critical network equipment and dedicated cybersecurity products under the law.
The App Governance Panel recently published a new draft of the Information Security Technology – Basic Specification for Collecting Personal Information in Mobile Internet Applications. Among other things, the new draft sets out requirements for apps that contain third-party codes or plug-ins which can collect personal data and revises the list of 'necessary' personal data for a variety of apps.
The App Governance Panel recently released a revised version of the Personal Information Security Specification for public consultation following the previous draft versions published in June and January 2019. The revised draft includes amendments regarding unsubscribing from online services and the obligations of data controllers and processors in that regard.
The People's Bank of China recently issued the Trial Measures for the Protection of Personal Financial Information/Data (Preliminary Draft) to relevant commercial banks in order to solicit their opinions. It has been reported that under the trial measures, banks and other financial institutions will be unable to obtain personal financial information from third parties that are illegally engaged in personal credit investigation activities.
Guiding Opinions on Promoting the Development of the Network Security Industry published for public commentChina | 01 November 2019
The Ministry of Industry and Information Technology recently published the Guiding Opinions on Promoting the Development of the Network Security Industry for public comment. According to the opinions, the ministry aims to have a number of cybersecurity enterprises generating an annual revenue of over Rmb2 billion by 2025. As such, the opinions provide a list of recommendations to that end.
The Ministry of Education and seven other authorities recently published the Opinions on Guiding and Regulating the Orderly and Healthy Development of Educational Apps. The aim is that all educational mobile apps will be registered by the end of 2019. To this end, providers of such apps must file details of their apps with provincial education administrations and adhere to data protection rules.
The Cyberspace Administration of China recently published the draft Regulations on Network Eco-governance for public consultation. The regulations apply to the actions of network information content producers, network information content service platforms and network information content service users, which are prohibited from producing illegal or harmful information.
The draft Civil Code was recently submitted to the Standing Committee of the 13th National People's Congress for a third reading. Compared with the first and second drafts, the third draft expands the scope of the definition of 'personal information' to cover email addresses and location information.
The final version of the Provisions on the Cyber Protection of Personal Information of Children recently came into effect. According to the provisions, network operators must formulate separate rules and user agreements to protect children's personal information and designate a dedicated person to oversee the protection of such information.
The Ministry of Industry and Information Technology and nine other authorities recently published the Guiding Opinions on Strengthening Industrial Internet Safety in the context of establishing China's industrial internet security guarantee system. According to the opinions, the industrial internet security guarantee system should be established by the end of 2020 and be a sound and reliable mechanism by 2025.
Cyberspace administration passes review on precondition for purchase contracts for network products and servicesChina | 02 August 2019
The Cyberspace Administration of China recently released the Cybersecurity Review Measures (Draft for Comment). According to the draft, where an operator of critical information infrastructure purchases a network product or service, it must make an ex ante assessment of the potential security risks that could emerge once the product or service is put into operation and produce a security report accordingly.
The Cyberspace Administration of China recently issued the Administrative Measures for Data Security (Draft for Comment), which include rules on the collection, storage, transfer, processing and use of data in China via websites, as well as data protection and management. Among other things, the draft measures encourage network operators that collect personal information through websites, apps and other products to formulate specific rules regarding the collection and use of such information.
The Cyberspace Administration of China recently held a public consultation on the Provisions on the Cyber Protection of Personal Information of Children (Draft for Comment). The draft provisions set out a number of recommendations for network operators, including formulating special rules to protect children's personal information and user agreements and employing a personal information protection specialist or designating personnel to oversee the protection of children's personal information.
Cyberspace administration releases new rules on security assessment of cross-border transfers of personal informationChina | 12 July 2019
The Cyberspace Administration of China recently released the Measures on Security Assessment of Cross-Border Transfer of Personal Information (Draft for Comment). According to the draft, network operators must apply to the provincial-level cyberspace administration for a security assessment before conducting cross-border transfers. Further, network operators must record all cross-border transfers and retain the records for at least five years.
The Security Protection Bureau of the Ministry of Public Security, the Beijing Cyber Industry Association and Research Institute Number 3 of the Ministry of Public Security recently issued the Guidelines for the Protection of Personal Information Security on the Internet, which set out a series of measures and processes for the protection of personal information. Although the guidelines appear to be non-binding, they are likely to be treated as a statute-like norm.
Following the Chinese Central TV Station's (CCTV's) broadcast of the 3.15 programme in 2019, the Ministry of Industry and Information Technology decided to crack down on telephone harassment and strengthen the protection of personal information in the telecoms and internet sectors. The CCTV will broadcast 3.15 on 15 March each year in order to reveal company activities which infringe consumer rights and interests.
The Shanghai Consumer Council recently released the results of its assessment of 39 apps, which aimed to evaluate the level of access that they had to users' personal information. The assessment revealed that 25 apps had been over collecting users' personal information and that only 14 apps had actual service-related reasons justifying their collection of sensitive personal information.
The Shenzhen Municipality Justice Bureau recently issued draft regulations on the administration of public security video and image systems for public comment. The draft regulations aim to protect public privacy and strengthen internet information security and information sharing by prohibiting the installation of video and image recording systems in certain locations which concern public privacy. Individuals and entities which fail to comply with the regulations will be subject to fines.
The State Administration for Market Regulation recently issued a notification which aims to encourage local market regulatory departments to crack down on false and unlawful online advertising and create a positive market environment for online ads. According to the notification, local market regulatory authorities will investigate and severely penalise unlawful online ads which concern, among other things, politically sensitive, vulgar or socially influential issues.
A Guangdong province public security bureau recently fined an individual for using virtual private network (VPN) software to evade Chinese internet censorship in accordance with the Interim Provisions of the People's Republic of China governing the International Interconnection of Computer-Based Information Networks. Although the provisions were enacted in 1996, this is reportedly the first time that an individual has been punished for using VPN software to evade internet censorship.
The Cyberspace Administration of China, the Ministry of Industry and Information Technology, the Ministry of Public Security and the State Administration for Market Regulation recently announced that they had launched a campaign to stop apps from unlawfully collecting and processing personal data. The announcement sets out the obligations of various parties with regard to the collection and processing of personal data, including app operators, associations, authorities and public security organs.
The National Information Security Standardisation Technical Committee recently published the draft Information Security Technology – Personal Information Security Specifications for public comment. Among other amendments, the draft has revised the exceptions regarding authorisation and consent by personal information subjects, introduced rules concerning the merger of personal information and promoted the importance of data protection officers and departments.
The Cybersecurity Bureau of the Ministry of Industry and Information Technology recently released its checking results for seven inspected telecom enterprises and required them to rectify the loopholes and vulnerabilities of their networks or systems as notified. The inspected telecom enterprises were found to have had a number of major issues, including medium and high-risk loopholes in their business systems and equipment (including their official websites).
Ministry of Public Security releases Guideline for Internet Personal Information Security ProtectionChina | 25 January 2019
The Ministry of Public Security recently released the Guideline for Internet Personal Information Security Protection (Draft for Comment) to solicit public opinions. The guideline requires that personal information holders implement a series of security protection measures. Among others, these include a management mechanism, which involves building firewalls to protect enterprises from criminal risks, and technical measures to ensure that network operations are secure for internet inspection purposes.
The Cyberspace Administration of China recently issued the Administrative Regulations on the Provision of Financial Information Services. Under the regulations, parties must obtain the corresponding permits before they can provide various financial information services. Further, service providers must establish service specifications regarding information content auditing, data retention, information security and personal information and IP protection.
The National Health Commission recently released the Circular regarding Issuing National Health Medical Big Data Standards, Safety and Service Management Measures (For Trial Implementation). The circular provides guidelines regarding the standards and security of Big Data in the healthcare industry, as well as service management measures. As the circular is considered to mark the Cybersecurity Law's implementation in the healthcare industry, most of its security measures are derived from the law.
In one of the Guangdong province's top 10 internet cases of 2017, the court found that Apple IDs constitute personal information which may affect other parties' personal and property safety. As such, the two defendants concerned were convicted of infringing citizens' personal data rights after more than 1,200 pieces of personal information were found on their computers. This decision is believed to have had a demonstrable effect on the handling of similar cases.
The Ministry of Public Security recently released the Provisions on the Supervision and Inspection of Internet Security by Public Security Organs. According to the provisions, public security organs must supervise and inspect internet service providers and network entity users that provide a range of internet-related services. They also list certain powers that public security organs may use when supervising and inspecting internet security on-site.
Pilot work commences on critical information infrastructure security examination assessment guidelinesChina | 07 December 2018
The National Information Security Standardisation Technical Committee recently held a meeting to commence the pilot work on the Information Security Technology – Guidelines for Critical Information Infrastructure (CII) Security Examination Assessment (For Approval). The pilot work will focus on the reasonability and practicability of the guidelines. Twelve CII operators from the telecoms, internet, transportation, energy, finance, e-government and public services industries have been selected as pilot units.
Blockchain technology is becoming increasingly prominent in Chinese judicial proceedings. However, the government's growing concerns about certain aspects of blockchain have triggered a number of regulatory responses. For example, the Cyberspace Administration of China recently released draft provisions, which are intended to govern all entities that provide blockchain-based information services in China and are the first step towards regulating this technology at the government level.
The Hangzhou Internet Court recently confirmed, for the first time, the effectiveness of evidence recorded via blockchain. Shortly after, the Supreme People's Court cemented the lower court's view by implementing the Provisions on the Trial of Cases by the Internet Courts. This is the first time that blockchain technology has been officially accepted in a judicial interpretation as a valid technical means for preserving and presenting evidence.
The Shanghai Communications Administration (SHCA) recently criticised four telecoms and internet companies for failing to improve their network security monitoring and forecasting systems and report important matters to the SHCA. The SHCA ordered the companies to rectify these failings and emphasised that telecoms and internet companies have a number of obligations in order to ensure the security and stability of Shanghai's public networks.
China's ambitious agenda in the Internet of Things (IoT) industry encourages companies to develop and adopt their own technological standards. This standardisation is necessary to integrate the varying equipment, software and service applications of a digital IoT ecosystem into multiple technologies across the value chain. Despite the expectation of free licensing schemes for service level technology, such integration necessarily draws on a multitude of patents, including standard-essential patents.
The Ministry of Industry and Information Technology recently released its Notification on the Network Security Inspection of the Telecom and Internet Industry in 2018. According to the notification, the inspection will cover the networks and systems established and operated by, among other players, internet enterprises and domain name registration administration and service organisations licensed by telecoms regulators.
Government launches nationwide security inspection and correction campaign for Big Data applicationsChina | 07 August 2018
The Ministry of Public Security recently launched a nationwide security inspection and correction campaign regarding Big Data applications in China. This campaign is one of a series of network security inspection projects which target key information systems, critical information infrastructure and Big Data. The Big Data campaign focuses on the level of supervision, security and protection afforded in the collection, storage, application, transfer and destruction of such data.
The National Information Security Standardisation Technical Committee recently released the Information Security Technology – Guide to the Personal Information Security Impact Assessment (Draft for Comment). The guide provides direction on the personal information specification and stipulates the basic concepts, framework, methods and procedures regarding personal information security impact assessments.
The State Internet Information Office recently released the Digital China Construction and Development Report (2017), laying a foundation for further enhancing China's network security protection capabilities. The report urges China to, among other things, establish a 'correct' view of cybersecurity, strengthen the top-level design of its network security and improve its network security laws and regulations.
The EU General Data Protection Regulation (GDPR) recently came into force, with impact on a global scale. On the same day, the secretariat of the National Information Security Standardisation Technical Committee published the Network Security Practice Guidelines: EU GDPR Key Issues, setting out some key areas of the GDPR which Chinese companies should account for in their practices.
The Ministry of Industry and Information Technology (MIIT) recently issued its Notice on the Formal Commercialisation of Mobile Communications Resale Services, under which private enterprises, state-owned enterprises and foreign-invested enterprises may apply to undertake mobile communications resale services. Applicants must apply to the MIIT or their regional communications administration for the corresponding telecoms business licence and submit contracts signed by the major telecoms companies.
The People's Bank of China (PBC) recently released its Circular on Further Intensifying the Management of Credit Information Security. According to the circular, the PBC will intensify its management of credit information security by, among other things, practically raising awareness around the management of such information and strengthening information subjects' responsibilities in this regard. It will also optimise operational and control procedures for credit-related businesses.
The Ministry of Industry and Information Technology (MIIT) recently released its Notice to Further Clear and Regulate the Internet Access Service Market. According to the notice, the campaign to clear and regulate the internet access service market has been extended to March 31 2019 in order to solidify the accomplishments achieved and investigate the issues found thus far pursuant to the notice of the same name issued by the MIIT in January 2017.
The General Office of the State Council recently issued the Measures for the Management of Scientific Data, which aim to improve and standardise the management of scientific data, safeguard scientific data security and encourage transparency and the sharing of scientific data. This is the first time that China has released measures which regulate scientific data at the national level. However, compared with some European countries and the United States, China still has far to go in this regard.
Following a media report that certain mobile phone application software was infringing user privacy, the Ministry of Industry and Information Technology organised talks with three internet companies. The ministry pointed out that the companies had collected and used users' personal information without fully disclosing the purpose of its use. The companies must now conduct rectifications to fully protect users' rights to be informed.
White Collar Crime
Authorities ramp up enforcement of foreign companies' non-compliance with national anti-bribery lawsChina | 07 October 2019
The prosecution of commercial bribery has once again become a key issue following the amendment of the Anti-unfair Competition Act. With the restructuring of the act's anti-bribery provision – which dovetailed with the national anti-corruption movement – the government appears to be cracking down on unlawful commercial activities by both domestic and foreign companies. To guide companies in this regard, this article provides an intuitive roadmap to the Chinese anti-bribery regulatory scheme.