Legal Focus Group Quarterly Update - Q2 2014

Published on 2014-06-11

In recent months there have been three significant legal developments in China, which could have profound implications for the domestic economy and society.

In recent months there have been three significant legal developments in China, which could have profound implications for the domestic economy and society.

On 19 February 2014, China’s State Council issued a decision (the “Decision”) to amend certain articles of the implementing regulations for China’s three foreign-invested enterprises (i.e. Sino-foreign equity joint venture enterprise, Sino-foreign cooperative joint venture enterprise and wholly foreign-owned enterprise, collectively as “FIEs”), which aims to relax certain capital-related requirements for establishing and registering these “FIEs” in China. The Decision followed the adoption by the Standing Committee of the 12th PRC National People’s Congress on Amendments to the PRC Company Law (the “Amendments”), and both rules (the Decision and the Amendments) became effective on 1 March 2014. Furthermore, China’s State Administration for Industry and Commerce has now announced changes to the annual filing requirements for all companies (including FIEs) registering in China. As a result of the changes, it is expected that foreign investors may see more flexibility and efficiency in investing in private sectors in China.

On 1 March 2014, the Provisional Regulations on Labor Dispatch (the “Regulations”) by the Ministry of Human Resource & Social Security came into force. The Regulations clarify some important issues regarding the use of dispatched workers. For example, labor dispatch is only permitted to be used in positions that are temporary, auxiliary or substitute in nature. In addition, there should be no discrimination against dispatched workers in respect of salaries and benefits (in short, equal pay for equal work). Moreover, a company is permitted to use dispatch labor for only 10% of its labor force, which includes the total of directly-hired employees and dispatched employees. Still, the foregoing 10% cap does not apply to representative offices of foreign companies or foreign financial institutions. As for companies that had been using dispatch labor before 1 March 2014, there would be a two-year grace period for this 10% cap.

On 8 April 2014, the China (Shanghai) Pilot Free Trade Zone Arbitration Rules (the “New Rules”) were unveiled to the public. This is the first set of arbitration rules for the China (Shanghai) Pilot Free Trade Zone (the “FTZ”), which took effect on 1 May 2014. Compared with the arbitration rules of other arbitration institutions in China, such as China International Economic & Trade Arbitration Commission, Shanghai International Arbitration Centre and Shanghai Arbitration Commission, the New Rules have some unique/ key features, including:

  • Broader provisions for interim measures, such as pre-arbitration interim relief;
  • Provisions for appointment of an emergency arbitrator and giving the emergency arbitration tribunal the power to issue injunctions;
  • Provisions for mediation to be conducted by independent mediators, as an alternative to the tribunal and encouraging related parties to resolve their disputes through mediation; and
  • More expanded selection of arbitrators, i.e. the disputing parties will be allowed to either choose arbitrators from a list provided by the arbitration commission or hire their own. Presently, as for other local arbitration institutions outside the FTZ, the selection of arbitrators is limited to their panel of arbitrators.

There have also been various recent changes in other legal areas. The Legal Focus Group will continue to host events & seminars on these developments in China, and provide a forum for members of the British Chamber of Commerce Shanghai to discuss new legislation, relevant changes in law, and other significant regulatory developments.

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