China Law Update : China Business Law Lawyers & Attorneys : Sheppard Mullin Law Firm : Direct Investment, Dispute Resolution, Intellectual Property, Antitrust, Venture Capital

By Becky Koblitz

We often hear about how China’s merger review “diverges” from other jurisdictions, most recently in reaction to conditional approvals of the Seagate/Samsung and Western Digital/Hitachi mergers. But China's MOFCOM is merely doing its homework. Similar to “fusion” cuisine, MOFCOM practices “fusion” merger control as it blends two aspects: its mandate under the Anti-Monopoly Law (“AML”), and the antitrust theories of other jurisdictions.

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By Jiamu Sun

On March 14, 2012, the fifth session of the National People’s Congress adopted the latest revision to China’s Criminal Procedure Law (“Revised Law”). The Revised Law is the second amendment to the Criminal Procedure Law following its enactment in 1979 and its first amendment in 1996. Altogether, one hundred and eleven revisions have been made, concerning topics including, among others, evidence, compulsory measures, defense, investigation, trial procedure, and execution. The Revised Law will come into force on January 1, 2013. The Supreme Procuratorate of the People’s Republic of China has embarked upon revising corresponding judicial interpretations, including the Criminal Procedure Rules of The People’s Procuratorate and the Basic Norms of Enforcement Work by The People’s Procuratorate.

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The China International Economic and Trade Arbitration Commission (“CIETAC”) recently adopted revised arbitration rules (“Revised Rules”), to be effective on May 1, 2012. The Revised Rules replace the rules that became effective in 2005 (“2005 Rules”).

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By Yan Zhang

In late 2011, China’s National Development and Reform Commission (“NDRC”) and Ministry of Commence (“MOFCOM”) jointly announced the new Foreign Investment Guidance Catalogue (2011 Amendment) (“New Catalogue”). For years, China’s Foreign Investment Guidance Catalogue (“Catalogue”) has been among the most essential regulations and industrial policies in guiding foreign investment. The New Catalogue became effective on January 30, 2012, replacing its predecessor which became effective in December 2007.

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By Jiamu Sun

On March 14, 2012, the fifth session of the National People’s Congress adopted the latest revision to China’s Criminal Procedure Law (“Revised Law”). The Revised Law is the second amendment to the Criminal Procedure Law following its enactment in 1979 and its first amendment in 1996. One hundred and ten articles have been revised concerning topics including, among others, evidence, compulsory measures, defense, investigation, trial procedure, and execution. The Revised Law will come into force on January 1, 2013.

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The Ministry of Commerce, Ministry of Finance, General Taxation Administration Bureau, State Administration for Industry and Commerce, National Bureau of Statistics and State Administration of Foreign Exchange (“SAFE”) have recently released the “Notice on Implementing the Joint Annual Inspection of Foreign-Invested Enterprises in 2012” (“Notice”). Pursuant to the Notice, the time period for the joint annual inspection of foreign-invested enterprises (“FIEs”) for 2011 is from March 1 to June 30 2012, and all FIEs established and registered in China on and before December 31, 2011 shall be subject to the annual inspection within the specified time.

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On February 23, 2012, the People’s Bank of China, Ministry of Finance, MOFCOM, State Administration of Taxation, General Administration of Customs and China Banking Regulatory Commission jointly issued the Notice on the Administration of Company Settling Export Trade in Renminbi (YinFa [2012] No. 23). According to this notice, company will be subject to “key supervision and administration” if in the last two years it (1) has committed tax evasion or export refund fraud, or issued or accepted fake VAT invoice; (2) has been subject to the investigations of tax bureau and public security bureau for tax evasion, export refund fraud, issuance or accepting fake VAT invoice; (3) has committed serious Customs violation e.g. smuggling; (4) has committed serious violations of financial regulations; (5) has committed serious violation of state foreign trade laws and regulations (6) has committed serious violation of other laws.

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The “Big Four”, which dominate the Chinese market, are facing regulatory changes that could mean that only accountants with Chinese qualifications can be partners in their China-based audit practices.

At the time of China’s accession to the World Trade Organization in 2001, the Big Four successfully lobbied to have an exception to China’s requirement that only Chinese certified accountants could own Chinese accounting firms. As a result, the Big Four were allowed to maintain their foreign ownership in their existing joint ventures. However, the exception only applied to the Big Four’s existing joint ventures, which have 20 year terms. As a result, the joint venture agreements signed by KPMG, Deloitte & Touche, and Ernst & Young will expire later this year, with PricewaterhouseCoopers’ to expire in 2017.

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In a June 2011 report issued by the People’s Bank of China (and as prepared by the China Academy of Social Sciences) the PRC government found 18,000 Party and government officials fled the country since 1990 with over US$120 billion in government funds missing. The leadership has had significant challenges in stamping out corruption at multiple levels. Foreign companies should be aware of these efforts in dealings with officials and management of state-owned enterprises.

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