4. The State Internet Information Office (“SIIO”) amended the Regulations for the Administration of Internet News Information Services. Foreign enterprises are still restricted from involvement in internet news information services.
To implement Cybersecurity Law of the PRC, on May 2, 2017, the State Internet Information Office amended the Regulations for the Administration of Internet News Information Services (“New Regulation”) and on May 22, 2017, announced the new Detailed Rules for the Implementation of Internet News Information Services. However, foreign enterprises are still restricted from involvement in internet news information services. This New Regulation and its Detailed Rules for Implementation will be in effect from June 1, 2017.
4.1 Background
To regulate internet information services, the State Council issued the Regulation on Internet Information Services of the PRC on September 25, 2000. This Regulation requires those service providers in the business of news internet information to obtain approval from the relevant regulatory authorities prior to obtaining its Business Permit or complying the Record-filing Procedures.
To regulate domestic internet news information services, the Ministry of Information announced the Regulation on Internet Information Service of the PRC (“Original Regulation”) on September 25, 2005. According to the Original Regulation, “no organization is allowed to establish Sino-foreign joint ventures, Sino-foreign joint ventures and foreign operators of Internet news information services unit. Internet news information service providers and foreign joint ventures, Sino-foreign joint ventures and foreign-owned businesses involved in Internet news information services cooperation, should be reported to the Office of National Internet Information Security Assessments”.
To ensure cybersecurity and other interests, the Standing Committee of the National People’s Congress promulgated the first comprehensive statute, the Cybersecurity Law of the PRC, on November 7, 2016. This Cybersecurity Law will be in effect from June 1, 2017.
In addition, for the implementation of Cybersecurity Law and other relevant regulations, the National Internet Information Office amended primarily on licensing for internet news information services, management systems, the duties of internet news information service providers. The New Regulation mainly amended the following:
First, it has expanded the definition of “news information”. This new regulation removed the restriction under the original Regulation that limits the content of “news information” to “political types of news information”. In accordance to this regulation, “news information” includes reports and comments related to political, economic, military, diplomatic and other social public affairs, and also includes reports and comments regarding social emergencies.
Second, it has expanded the regulatory scope. The service provision requires that internet news information services licenses to be obtained by any entity providing internet news information to the public which includes (but not limited to) websites, Apps, forums, Blogs, Microblogs (twitters), and Wechat Official Accounts, instant message, and live video streaming.
Third, it classified different licenses for various internet news information services. This New Regulation divides internet news information services into different categories, namely editorial publishing services, reprinting services, and communication platform services. Editorial publishing services refer to the collecting, editing, producing and publishing process for news information. Reprinting services refer to selecting, editing and publishing news information services that have already been published by other news providers; communication platform services refer to the services that provide a platform for users to transmit news information.
This New Regulation on Internet Information Service of the PRC and its Detailed Rules and Cybersecurity Law will go into effect on the same day.
4.2 Legal Review
This New Regulation and its Detailed Rules on Implementation adopted provisions in the Original Regulation regarding foreign enterprises’ involvement in internet news services and affect those foreign enterprises in the internet news information service in the following ways:
Firstly, no organization can establish a Sino-foreign joint venture, Sino-foreign contractual joint venture, or foreign-invested internet news information service company. When the business entity applies for a license to provide internet news information services, it should disclose whether its share structure includes any foreign-invested components. In addition to the share structure diagram that traces back to the natural person, institutional organization and wholly state-owned company, the applicant also has to submit explanations regarding the actual controlling person and letter of commitment affirming no foreign enterprise involvement.
Secondly, since the New Regulation has expanded the definition of “news information” and expanded the regulatory scope of internet news information services, this has led to Sino-foreign joint ventures, or Sino-foreign contractual joint ventures and wholly foreign invested enterprises to be more cautious when dealing with internet news information service companies involving internet news information services.
Finally, when Sino-foreign joint ventures, contractual joint ventures or wholly foreign invested enterprises cooperate with internet news information service providers involves news information service businesses, they should report it to State Internet Information Office to have a safety assessment and submit all materials related to the joint venture enterprises or cooperative businesses. If such cooperation might cause internet news information service providers to no longer satisfy the licensing requirements, then it shall fail the safety assessment.
4.3 Next Steps
The Detailed Rules for the Implementation of Internet News Information Services has not specified how to assess whether the cooperation of Sino-foreign joint ventures, contractual joint ventures or wholly foreign invested enterprises with internet news information service providers is related to internet news information service business and cause the internet news information service providers to no longer satisfy the requisite requirements. This provides State Internet Information Office substantial discretion in making safety assessments. Thus, we need to monitor further announcements and information about the implementation of Detailed Rules on the safety assessments.
5. The POBC and Hong Kong Monetary Authority officially announced the opening of “Bond Connect”, which will be initially limited to Northbound trading only.
On May 16, 2017, PBOC and Hong Kong Monetary Authority jointly issued an Announcement on the Collaboration in Establishing Mutual Bond Market Access between Hong Kong and Mainland China, agreed to open this mutual connection and cooperation between the Mainland and Hong Kong bond markets (“Bond Connect”). On May 19, the Shanghai Clearinghouse and the Hong Kong Central Moneymarkets Unit (“CMU”) issued a joint announcement regarding the custody and settlement services for the Bond Connect. On May 31, the Central Bank announced the Interim Measures on Mainland and Hong Kong Bond Market Mutual Connect and Collaboration (“Draft for Comment”), soliciting public comments regarding the requirements for foreign investors to participate in the Bond Connect’s custody and settlement services.1
5.1 Background
To prepare and facilitate the implementation of the “Bond Connect” in both Hong Kong and Mainland is one of the policy objectives that was specified in the two sessions (NPC & CPPCC) and the State Council’s Advice regarding “Works on the Implementation of the Government’s Work’s Report on the Prioritized Divisions”. This Joint Announcement is the first document on how the relevant authority should promote and implement this policy objective.
The Mainland China’s bond market is divided into the Inter-bank Bond Market and Market-in-the-Field Bond Market. The former market is an over-the-counter (“OTC”) market, which encompasses more than 80% of the bond trading volume. The latter market is mainly for retail and has a relatively small trading volume, constituting less than 10% of the overall trading volume. The opening-up policy in the Mainland China’s Inter-bank Bond Market has been in place since 2015. The PBOC’S No. 3 Announcement [2016] (“No.3 Bulletin”) that was issued and implemented in 2016, expands the scope of foreign institutional investors that satisfied the relevant requirements to include: 1) financial institutions that were registered and established overseas such as commercial companies, insurance companies, securities companies and fund management companies and other asset management institutions; 2) the investment products that were issued by the above-mentioned financial institutions (in full compliance with law and regulations) to its clients; 3) pension funds, charity funds, and donation funds that other long-term institutional investors were approved by the PBOC. Until now, those foreign investors who could invest in the Mainland China’s Inter-bank Bond Market were limited to those medium- to long-term institutional investors or central-bank like institutions for asset-management purposes specified by the No.3 Bulletin.
5.2 Legal Review
First, the Joint Announcement specified that the Bond Connect will initially be limited to “northbound trading” only. This means that foreign investors will invest in the Mainland China’s Inter-bank Bond Market via the infrastructure institutional arrangements for mutual access between Hong Kong and Mainland China regarding trading, custody and settlement. As for “Southbound trading”, which refers to domestic investors seeking to invest in Hong Kong’s bond market via the infrastructure arrangement between the two places, it will be implemented later on.
Second, the Joint Announcement specified, that “Northbound trading” will comply with the current Mainland Inter-bank Bond Market opening-up policy framework, hence investors and trading tools will be in compliance with those specified by the PBOC. In addition, the “Northbound trading” has no limit as to the investment quota. This implies that, those foreign investors who could invest directly in the Mainland China’s Inter-bank Bond Market will still be those specified by the No.3 Bulletin such as central-bank like institutions for asset-management purposes or medium- to long- term institutional investors. “Northbound trading” will facilitate the existing framework that allows foreign investors to invest in the domestic Inter-bank Bond Market. In addition to setting up a domestic bank account to trade, it also provides foreign investors channels via infrastructure building institutions, multiple custody methods, and added more channels for the investments in the domestic Inter-bank Bond Market.
The Joint Announcement issued by the Shanghai Clearing House and CMU, specified that “the multiple-layered custody method employed by the Northbound trading will be regarded as the primary registered custody institution by the Shanghai Clearing House. CMU will be the secondary custody institution;
All products registered under the Shanghai Clearing House’s custody are investment subject matters under Bond Connect. Shanghai Clearing House, CMU and foreign investors via the Bond Connect seeking to invest in Mainland Inter-bank Bond Market will perform the information reporting obligations required by the relevant regulatory authorities.
5.3 Next Steps
The Bond Connect will be limited to “Northbound trading” and operates within the established opening-up framework of the Mainland Inter-bank Bond Market. We need to continue to monitor the issue of when “Southbound trading” will be implemented and be used as a channel that enables domestic institutions to invest in overseas bond markets. Additionally, we need to monitor the expansion of the scope of investors that allows more diversified portfolio investors to trade bonds in the over-the-market market, via establishing a special trading account in appointed banks in the Mainland and/or Hong Kong.
6. The MOC solicits public comments regarding the Administrative Measures for the Record-filing of the Incorporation and Changes of FIEs. Foreign investors taking over domestic enterprises may subject to Record-filing administration.
The MOC drafted Administrative Measures for the Record-filing of the Incorporation and Changes of FIEs (Draft for Comment) (“Record-filing Draft”), and has started the public comment solicitation process from May 27 2017.2 This Record-filing Draft will include foreign investors taking over domestic enterprises within the scope of the record-filing administration.
6.1 Background
According to the Interim Provisions on the Takeover of Domestic Enterprises by Foreign Investors, foreign investors taking over domestic enterprises will obtain permissions from the approval authorities. Domestic companies, corporations and natural persons that use a legally established or controlled companies’ name overseas to take over its related domestic companies (“acquisition of an affiliate”), should apply for approval from the Ministry of Commerce. If foreign investors employ a sizable medium- to long-term strategic takeover investment to listed companies (“strategic investment”), they shall comply with the procedural requirements issued by the Securities Regulatory Institutions of the State Council, in accordance with the Administrative Measures for Strategic Investment by Foreign Investors in Listed Companies.
Since October 1, 2016, the establishment and amendment of foreign-invested corporations will be governed by the record-filing management system instead of the prior approval system, except for those special management measures for state-regulated implementation. But for foreign enterprises’ M&A establishing and amending corporations, they will not employ this Record-filing Administration, and will still have to obtain approval from relevant institutions in accordance with the Provisions on Mergers and Acquisitions of Domestic Enterprises by Foreign Investor, and Administrative Measures for Strategic Investment by Foreign Investors in Listed Companies. The Record-filing Draft will include the foreign investors taking over domestic enterprises within the scope of record-filing administration.
6.2 Legal Review
The Record-filing Draft made several amendments to the Interim Provisions on the Takeover of Domestic Enterprises by Foreign Investors. One of the key amendments is to expand the scope of record-filing administration to include non-FIEs transforming to FIEs, such as by means of M&A or strategic investments. These enterprises should comply with the record-filing procedures. For those foreign investors investing in non-foreign invested listed companies, or those foreign-invested listed companies introducing new foreign investors as shareholders, they should comply with the record-filing procedures 30 days before or after the registration at the securities registration institution.
Basic information changes of FIEs established by M&A as well as foreign investors strategically investing in listed companies have to undertake the record-filing procedure.
When complying with the record-filing procedures for the establishment and amendment of FIEs, the Record-filing Draft added another provision requiring the submission of the FIEs and its foreign investors’ shareholder structure diagram illustrating the actual controlling person. For those involving foreign investors or using shares in overseas companies as a payment method, the Record-filing Measure also requires domestic corporations to submit the Overseas Investment Corporation’s Certificate.
6.3 Next Steps
The Record-filing Draft has not specified whether acquisition of an affiliate will be included within the scope of acceptable record-filing administration. Acquisition of an affiliate is another special form of foreign investors taking over domestic enterprises, which needs approval from the MOC. In practice, this approval has proven difficult to obtain. We need to continue to monitor this issue of whether the acquisition of an affiliate will be included in the scope of record-filing administration after the formal issuance and implementation of the Record-filing Measure.
- For more details regarding the Draft for Comment, please see Client Briefing – PBOC Solicits Comments for Interim Measures for Administration of Bond Connect, by XIE Qing (Natasha), Wang Hui, LU Bing, JUNHE LAW REVIEW June 14, 2017. The Interim Measures for Administration of Bond Connect was formally released by PBOC on June 21, 2017.
- http://tfs.mofcom.gov.cn/article/as/201705/20170502582832.shtml