Further to the Master Plan for Construction of Hainan Free Trade Port being rolled out by the Central Committee of the Communist Party of China and the State Council of China on 1 June 2020, the Standing Committee of the National People’s Congress passed the Hainan Free Trade Port Law of the People's Republic of China (中华人民共和国海南自由贸易港法) ("Hainan FTP Law") on 10 June 2021, marking a significant move to upgrade the construction of Hainan free trade port from policy support to legislative guarantee.
The Hainan FTP Law has eight chapters and 57 articles, covering a wide range of high-level opening-up measures, including preferential tax policies of zero tariffs, low tax rates, a simplified tax regime, measures to promote the liberalisation and facilitation of trade, investment and cross-border flow of funds, convenience of entry and exit of personnel and transportation, secure and orderly flow of data, and environmental protection. The Hainan FTP Law also offers Hainan Island greater autonomy to formulate local regulations on the construction of the free trade port in light of specific circumstances and actual needs. In addition to the negative list for foreign investment access in the Hainan FTP which came into effect from 1 February 2021 and is shorter compared to the negative lists for foreign investment applicable nationwide and in other free-trade zones, it is expected that the negative list for cross-border service trade appliable in the Hainan FTP will be released by the end of 2021.
The Hainan FTP Law will provide a fundamental legal framework to build a free trade port in an orderly manner in Hainan. It will not only help foster the business environment based on the rule of law; it will also provide new investment opportunities to investors, enable them to benefit from the preferential tax policies, and boost the confidence of market players.
On 10 June 2021, China promogulated the Anti-Foreign Sanctions Law ("AFSL"), which came into effect on the same day. Together with earlier-enacted Rules on Counteracting Unjustified Extra-territorial Application of Foreign Legislation and Other Measures ("Blocking Rules") (see our previous write-up here) as well as the Regulations on the Unreliable Entity List and various other rules and regulations, China has recently implemented a number of legal and regulatory measures to push back against foreign discriminatory restrictive measures.
According to the AFSL, the State Council of China has the right to formulate the Counter Sanction List to include individuals or organisations that directly or indirectly participated in the formulation, decision-making, or implementation of the discriminatory restrictive measures in such Counter Sanction List. Counter measures may also be taken against the individuals and organisations affiliated with the targeted individuals and organisations on the Counter Sanction List as decided by the State Council of China.
The counter measures will mainly include the following measures, which will have a material adverse effect on the business operations and other activities of the targeted individuals or organisations within China:
- Refusal to issue visas, denial of entry, visa cancellation, and/or deportation;
- Sealing, seizing, or freezing of movable property, immovable property, and all other types of property within the territory of China;
- Prohibition or restriction on organisations and individuals within China's territory to carry out relevant transactions, cooperation, and other activities with them; and
- Other necessary measures.
With the promulgation of the AFSL, there will be a potential conflict of laws between western countries and Chinese legal regimes. Such potential conflict will increase uncertainty for companies doing business in China. Companies should therefore monitor the ongoing China-US conflicts and developments closely and consider a potential action plan as and when it becomes necessary.
On 10 June 2021, the Standing Committee of the National People’s Congress of the People's Republic of China officially passed the Data Security Law (数据安全法, "Data Security Law") which will come into effect on 1 September 2021. The Data Security Law comprises 55 Articles spread across seven Chapters, dealing with important issues such as Data Security and Development, Data Security Systems, Data Protection Obligations, and Security and Openness of Governmental Data.
Although the provisions of the Data Security Law are broad and expansive, it does address some issues which will have a substantial impact on data operators both within and outside of China. For example, Article 2 gives the Data Security Law extraterritorial powers, providing that legal liability would be pursued against data processing activities that take place outside China, if such activities would harm China's national security or public interests, or the lawful rights of its citizens and organisations; Article 33 delegates the data intermediaries as the frontline gatekeeper and requires them to request the data providers to explain the source of their data, verify the identity of the parties involved in the data trading, and maintain records of the review and transaction process.
The Data Security Law is just a prelude to the Chinese government's tightening of regulations on data security and protection. The recent investigation on DiDi, the largest ride-hailing company in China, by the Cyberspace Administration of China due to Didi's illegal collection of user data, clearly shows the Chinese government's determination and efforts to safeguard data security.
In June 2020, the Beijing No. 4 Intermediate People's Court ("Court") granted a landmark civil ruling which dismissed the application to set aside an arbitral award issued by the China International Economic and Trade Arbitration Commission (CIETAC). The Court held that in the situation of an undisclosed agency, the arbitration agreement in a contract that is signed by the agent shall bind the undisclosed principal to the contract. It is one of the few cases where a Chinese court has extended the effect of the arbitration agreement to a party who does not sign the underlying contract. It shows that the doctrine of privity of contract can be "overridden" in special circumstances, e.g. undisclosed agency.
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