Foreign Investment Bulletin Apr-May 2017（I）

The Ministry of Transport (“MOT”) and other two state ministries jointly promulgated the Sixth Supplementary Regulation on the Regulation of Foreign Investment in the Civil Aviation Industry, to further open up the civil aviation industry to Hong Kong and Macau service providers.
Five departments including the Ministry of Commerce (“MOC”) issued opinions to further promote the Comprehensive Pilot Program and the Trial of the New Open Economic System in 12 areas.
China Insurance Regulatory Commission (“CIRC”) solicits public comments regarding the amendment of Detailed Rules for Implementation of Regulations of the PRC on the Administration of Foreign-invested Insurance Companies and four other regulations. CIRC will cancel the notarization requirement for application materials.
The State Internet Information Office (“SIIO”) amended the Provisions for the Administration of Internet News Information Services. However, involvement in internet news information services by foreign enterprises is still restricted.
The People’s Bank of China (“PBOC”) formally announced that the opening of Bond Connect will initially be limited to “Northbound trading”. Both the Mainland and Hong Kong infrastructure institutions issued a joint announcement, specifying the custody and settlement requirements for the Bond Connect.
The Ministry of Commerce (“MOC”) solicits public comments regarding the Administrative Measures for the Record-filing of the Incorporation and Changes of Foreign-invested Enterprises. Foreign investors taking over domestic enterprises may be subject to record-filing system.
1. Further Opening Up of the Civil Aviation Industry to the Hong Kong and Macau Service Providers
On April 1, 2017, the MOT, the MOC and the National Development and Reform Commission (“NDRC”) jointly promulgated the Sixth Supplementary Regulation on the Regulation of Foreign Investment in the Civil Aviation Industry (the “Sixth Supplementary Regulation”). This regulation will further open up the civil aviation industry to Hong Kong and Macau service providers and will be effective from May 1, 2017.
1.1 Background
On May 31, 2016, the State Council issued the Decision on the Temporary Adjustments Regarding Relevant Regulatory Approval and Special Permit Management Measures for Hong Kong and Macau Service Providers, further opening up the Mainland’s service industry to Hong Kong and Macau. This Decision temporarily adjusted the special management measures for permitting Hong Kong and Macau service providers, allowing them to participate in the air freight support services that were regulated under the Regulations on Foreign Investment in Civil Aviation Industry. In addition, this Decision required the Civil Aviation Administration of China (“CAAC”) to formulate concrete management plans and solutions.
On July 1, 2016, the State Council issued Decisions on Temporary Adjustments of Relevant Administrative Regulations, the State Council Documents and State Council Approved Regulatory Decisions in the Free Trade Zone, temporarily suspending the implementation of its content. This Decision exclusively allowed Foreign-invested Enterprises (“FIEs”) to invest and establish air transport sales corporations; allowed exclusively FIEs to invest and establish projects regarding air freight warehousing, ground services, inflight meals, and parking lots; relaxed the restriction that requires shares of foreign-invested general aircraft maintenance to be controlled by the Chinese party; canceled the requirement that foreign-invested aviation maintenance projects have to undertake business from the international maintenance market; and required the CAAC to draft the relevant management solutions.
1.2 Legal Review
The Sixth Supplementary Regulation made temporary adjustments in two respects, aiming to encourage Hong Kong and Macau service providers to develop the civil aviation industry in Mainland China.
This Sixth Supplementary Regulation allows Hong Kong and Macau service providers to invest in aircraft maintenance, inflight meals, air freight storage, parking lots and ground services projects through sole proprietorship (excluding projects relating to security); cancelled the Economic Needs Test that was required for corporations to obtain their charter under the joint venture Computer Reservation System (“CRS”) that was set up by Hong Kong and Macau service providers.
Within the pilot Free Trade Zones, the Sixth Supplementary Regulation exclusively allowed FIEs to invest and establish civil aviation sales agency; exclusively allowed FIEs to invest and establish air freight warehousing, ground services, inflight meals and parking lot projects; relaxed the restriction that requires shares of foreign-invested general aircraft maintenance to be controlled by the Chinese party; and canceled the requirement that foreign-invested airplane maintenance projects have to undertake business from the international maintenance market.
1.3 Next Steps
In January 2017, the State Council relaxed the restrictions on permitting foreign enterprises to invest in the service and manufacturing industries. We need to continue to monitor the issues of whether this Sixth Supplementary Regulation was applied only to Hong Kong and Macau service providers, and whether the implementation of such Regulation will also be opened up to other foreign investors.
2. Five departments including the Ministry of Commerce issued a joint announcement on promoting the comprehensive pilot programs for a new system of open-economy.
On April 7, 2017, the MOC, the NDRC, the PBOC, the General Customs Administration of China (“GACC”), and the General Administration of Quality Supervision (“AQSIQ”) jointly issued Several Opinions on Further Promoting the Comprehensive Pilot Program and Trial of the New Open Economic System (“Opinions”), requiring relevant departments to support this pilot program in building a new system of open-economy in 12 areas.
2.1 Background
In May 2015, the Central Committee of the Communist Party of China, and the State Council jointly issued Several Opinions on Building a New Open-Economy System, promoting a new phase of high standards for opening-up reforms. To implement the essence of this document fully, the MOC and the NDRC established 12 pilot areas, including Jinan City, Nanchang City, Tangshan City, Zhangzhou City, Dongguan City, Fangcheng Port City, and Pudong New District, Liangjiang New Area, Xixian New District, Dalian Jinpu New District, Wuhan Metropolitan Area and Suzhou Industrial Park, for a two-year pilot program for constructing a new system of open-economy in these areas from May 2016 (“Pilot Program”).
2.2 Legal Review
The Opinions set forth 13 requirements, aimed at strengthening the overall plans for the top-level design and ground-level implementation, thereby promoting the effectiveness of the Pilot Programs.
The Opinions support these pilot areas to further explore and expand the convenience of trading and investment, promoting “pipe service” reforms, laying a strong foundation and accumulating experiences for the construction of a new system of open economy. The main measures that have been taken include: innovating the management model of verification in processing trade; creating the rapid custom clearance channel for ports and custom special supervision areas; building the experimental reform zone for inspection and quarantine (national inspection zone); accelerating the building and sharing of information system in the pilot zones; perfecting the investment record-filing method for Hong Kong and Macau providers; supporting foreign invested banks in establishing domestic branches; supporting private enterprises and foreign-invested financial institutions in jointly establishing Sino-foreign joint venture banks; allowing qualified foreign enterprises to issue RMB denominated bonds domestically and to initiate cross-border RMB two-way cash pool businesses with multinational corporations; supporting the border tourism experimental zones and cross-border tourism cooperation zones; and cultivating new spots for border tourisms.
2.3 Next Steps
Compared to the Pilot Free Trade Zone which was ratified by the State Council and implemented by the provincial governments, several regulatory approvals might involve temporary adjustments of the law and regulations. The pilot areas are set by the MOC, the NDRC and other state departments, and executed by the municipal and district-level governments. Any innovative measure that renders assistance shall be subject to the existing legal framework. Working in conjunction with each other, these two intend to provide replicable experiences in building a new system of open economy.
3. CIRC solicits public comments regarding Rules on the Administration of Foreign-invested Insurance Companies. CIRC may cancel the notarization requirement for application materials.
On April 24, 2017, CIRC solicits comments from the public regarding the Amendment of Detailed Rules for Implementation of Regulations of the PRC on the Administration of Foreign-invested Insurance Companies and other four regulations (“Draft for Comment”). This comment solicitation ends on June 1, 2017.
3.1 Background
On April 27, 2015, the General Office of the State Council issued the Notice on Clearing and Regulating the State Council’s Relevant Administrative Approval’s Agency, which plainly states that the approval authority cannot require applicants to entrust agencies to provide any service or require applicants to provide any document from the relevant agency, except those clearly stipulated in law, administrative regulations, decisions by the State Council and relevant regulations in accordance to the Administrative License Law.
To implement the State Council mandates concerning the clearing and regulating agency services approved by the administrative agencies, the CIRC decided to amend provisions in four regulations including Detailed Rules for the Implementation of the Regulations of the PRC on the Administration of Foreign-invested Insurance Companies.
3.2 Legal Review
The Draft for Comment involves four regulations, which are (1) the Detailed Rules for the Implementation of the Regulations of the PRC, (2) Rules on Administration of Representative Offices of Foreign Insurance Institutions, (3) Administrative Measures for Subordinates Term Debts of Insurance Companies and (4) the Administration of the Office Qualifications for the Directors, Supervisors and Senior Executives of Insurance Companies. There are four main aspects to these amendments:
First, it has lifted the requirement that foreign-invested insurance companies’ application materials have to be notarized in the legally established notarization office in its resident country or region.
Second, it has lifted the requirement that foreign insurance institutions’ domestic branches’ Business Permit Certificates, Certificate of Incorporation and Registration Certificates’ photocopies have to be notarized in the legally established notarization offices in its resident country or region.
Third, it has lifted the requirement that when raising subordinate debt, insurance companies have to submit a legal opinion; its last three years of financial statements and solvency reports; and most recent quarterly-end financial statements and solvency reports.
Fourth, it has lifted the requirement that the insurance companies’ reports regarding its directors, supervisors and executive managers’ qualifications submitted in Chinese (originally written in foreign language) have to be notarized by a Chinese notarization office.
3.3 Next Steps
In recent years, administratively approved agency services have played an important role in promoting governmental compliance with the law and providing technical support for corporations and the public. However, there are also several problems related to abundant and time-consuming procedures, arbitrary charges and a strong tendency to monopolize the market, reducing the effectiveness of the administrative approval system’s reforms to a certain extent. Therefore, these problems have increased the burdens on corporations and the public, and disrupted the market order. The amendments that CIRC made with regards to four regulations such as the Detailed Rules for Implementation of Regulations of the PRC on Administration of Foreign-invested Insurance Companies are the concrete actions taken to implement the State Council’s mandate regarding clearing and regulating administrative approval for agency services. These amendments will facilitate the simplification of administrative approval procedures in the insurance industries, improving the efficiency of the administrative approval process, reducing the burden on corporations and further promoting the healthy development of the insurance industry.
to be continued