China: China's Plan Of Deepening Reform: Six Impacts Corporations Should Be Ready For

Last Updated: 21 May 2018
Article by Lisa Li

The Communist Party of China (CPC) has officially announced its decision on deepening reform of the Party and state institutions early March 2018. To avoid legal complications or issues, there are several changes corporations need to know about.

This move will streamline the departments and systems, which will further improve the efficiency and procedures of each function. Due to the large-scale of transition, corporations may face some delays in terms of application and need to consult with their internal legal teams on the right actions to adapt to this change.

To recap, there are currently seven types of organisations under the new State Council.

  1. Departments constituting the State Council
  2. Organisations directly under the State Council
  3. Special organisations directly under the State Council
  4. Administrative offices under the State Council
  5. Public institutions directly under the State Council
  6. Administrations and bureaus under the departments constituting the State Council
  7. Deliberation and coordination agencies under the State Council

Six changes in China's plan on deepening reform that will affect companies

State Administration of Market Supervision (SAMS) of China

The new SAMS will be taking over the responsibilities of the State Administration for Industry & Commerce (SAIC), Food and Drug Administration of PRC (FDA), State Administration of Quality Supervision, Inspection and Quarantine (SAQSIQ) and Antitrust Committee Office of State Council.

As a result, this new ministry will be taking charge of:

  • price supervision, inspection and antitrust law enforcement initially under National Development and Reform Commission (NDRC).
  • operators concentration antitrust law enforcement initially under Ministry of Commerce (MOFCOM).

How will this affect companies?

First of all, all companies, representative offices, branches registration authority will change to SAMS. Hence, new business registration will be likely to face an adjusted application process.

Since SAMS will be replacing FDA, the new ministry will also undertake the competent authority and oversees food/special (mainly refers to infant formula and health food) food industry, drug industry, medical device industry, cosmetics industry.

In terms of issuing the industrial production or special equipment related permit, companies will now need to go to SAMS instead of SAQSIQ for application and approval.

Lastly, SAMS will also replace NDRC and MOFCOM in enforcing and monitoring price supervision and inspection, antitrust and operator concentration in the local market.

Ministry of Ecological Environment (MEE) of China

This new ministry shall overtakes the responsibilities and obligations of Ministry of Environmental Protection (MEP). MEE will be heavily invested in policies and efforts to protect all aspects of China's environment, from its forests, lakes and rivers, to its grasslands and fields.

How will this affect companies?

Companies will now need to go to MEE for environment protection review and sewage discharge permission. In addition, the new ministry plans to set up a nationwide inspection system, which will conduct regular checks on polluting companies and factories through the help from local authorities and central government.

Companies will need to comply with MEE's regulations and requirements especially with the regular checks. This means the legal or compliance team of companies will need to dig deeper to prepare in advance to avoid any difficult circumstances.

Ministry of Culture and Tourism (MCT) of China

This new ministry will replace and overtake the responsibilities of Ministry of Culture (MOC) and National Tourism Administration (NTA). According to Xinhua news report, this move is "aimed at coordinating the development of cultural and tourism industries, enhancing the country's soft power and cultural influence, and promoting cultural exchanges internationally."

How will this affect companies?

Companies in tourism or related industry will need to go to MCT instead of MOC such as the licencing authority for tour guides, travel agents. In addition to that, companies that need to apply for license in performing brokerage institutions and performing place management institution will need to resort to the new ministry as well.

Ministry of Emergency Management (MEM) of China

Replacing the State Administration of Work Safety (SAWS), MEM is in charge of prevent and disarm the serious and major risks and improve disaster relief. In other words, the new ministry will oversee emergency management plans, as well as organizing rescue and relief for disasters and workplace accidents.

How will this affect companies?

Companies involved in dangerous chemical manufacturing or trading, safety assessment institutions and safety production inspection institutions will come under MEM. Hence, these companies must know the regulations and procedures well to obtain approval from MEM before starting any operations in China.

China Banking and Insurance Regulatory and Management Committee (CBIRMC)

This new ministry shall replace and undertake the combined roles of China Banking Regulatory Commission (CBRC) and China Insurance Regulatory Commission (CIRC). Under the new entity, CPC hopes to resolve the issue of financial regulatory loopholes and unclear responsibilities.

How will this affect companies?

Insurance companies, assets management companies, agent companies as well as all branches, and foreign insurance company's representative office will need to resort to CBIRMC for license application. This goes the same for banks, trust companies, non-banking financial institutions and foreign banks' representative office as well.

Foreign financial institutions and banks must follow the rules and regulations to start or continue operating in the country with adequate knowledge and experience. 

State Administration of Taxation in China

State and local tax authority will merge at the provincial level and below provincial, which are under the governance of State Administration of Taxation and double governed by province (district, city) government. This means the new authority undertakes the obligations of all tax collection and management within the jurisdiction.

How will this affect companies?

Under the merger, companies will only need to use one path to go through the formalities of all tax declarations and other tax related matters. This will bring the benefits of time and cost savings to companies.

How can TMF Group help?

TMF Group can help you better understand this reform and minimise the impacts from the reform at such a huge scale.

TMF China always keeps close eyes on policy changes, which may affect our current/ potential clients, in order to provide better services. We will continue to follow-up this reform at the local level and help our clients to smoothly deal with the related matters.

If your company needs help navigating this change, talk to us.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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