On 7 May 2025, China’s financial authorities, led by the People’s Bank of China (PBOC), announced a sweeping 10-point monetary policy package designed to bolster market confidence and support economic stability. Unveiled at a joint press conference with the National Financial Regulatory Administration (NFRA) and the China Securities Regulatory Commission (CSRC), the measures respond to global economic uncertainties, including heightened US tariffs and domestic restructuring challenges. For British businesses, this package signals both opportunities and complexities as China seeks to maintain its position as a global economic powerhouse while fostering a more resilient domestic market.

The package, described by PBOC Governor Pan Gongsheng as a “coordinated” effort, includes a range of tools aimed at injecting liquidity, lowering borrowing costs, and supporting innovation-driven growth. Key among these is a 10-basis-point cut in the 7-day reverse repo rate, from 1.5% to 1.4%, and a 25-basis-point reduction in interest rates for structural monetary policy tools. Additionally, the PBOC has lowered the reserve requirement ratio (RRR) for banks, freeing up capital for lending, particularly to small and medium-sized enterprises (SMEs) and technology-driven firms. These steps, as reported by CGTN, are intended to stabilise market expectations and shore up economic momentum amidst external pressures.

China’s economic context underscores the urgency of these measures. The country has faced significant headwinds from a second trade war with the United States, with US tariffs impacting exporters and global trade dynamics. Bloomberg notes that Beijing’s response includes not only monetary stimulus but also efforts to mobilise medium- and long-term capital to support domestic industries. The package also introduces new financing tools for tech enterprises, reflecting China’s ambition to lead in sectors like artificial intelligence and green energy. For UK firms, particularly those in technology or manufacturing, these initiatives could open doors to partnerships or market entry, provided they navigate the accompanying regulatory landscape.

A notable aspect of the package is its focus on supporting SMEs, which are critical to China’s economic fabric. Enhanced financing mechanisms, including targeted loans and bond issuance support, aim to bolster these businesses, many of which have been hit hard by global market volatility. The CSRC has also outlined plans to deepen capital market reforms, encouraging listings by high-tech firms and improving market access for institutional investors. According to Reuters, these reforms are partly a tactical response to US trade pressures, aiming to reduce reliance on external markets. For British SMEs, this could mean increased opportunities to collaborate with Chinese counterparts, particularly in consumer goods and services, where demand remains strong.

However, the package is not without its challenges. While the monetary easing is designed to stimulate growth, it also raises concerns about potential inflationary pressures and asset bubbles, particularly in China’s property sector, which has been a focal point of economic strain. The South China Morning Post highlights that the government is simultaneously rolling out measures to stabilise the job market and boost domestic consumption, indicating a multi-pronged approach to economic recovery. For UK businesses, this dual focus on stimulus and stability suggests a market that is both dynamic and unpredictable, requiring careful strategic planning.

The international backdrop adds further complexity. The package comes at a time when China is pushing for greater internationalisation of the yuan, capitalising on volatility in the US Treasury market. A survey by Renmin University’s International Monetary Institute indicates growing enterprise interest in using the yuan for international settlements, a trend that could reshape trade dynamics. For British firms, this shift may necessitate adjustments in payment and financing strategies, particularly for those engaged in cross-border trade. The CBBC advises UK companies to leverage local expertise to navigate these changes effectively.

The package also aligns with China’s broader geopolitical and economic strategy. Reports from Yahoo Finance suggest that China has agreed to suspend certain non-tariff barriers to US imports, hinting at a potential de-escalation of trade tensions. This development, coupled with the monetary measures, reflects Beijing’s intent to balance domestic priorities with global engagement. For UK businesses, this creates a window of opportunity to engage with a market that is actively seeking to diversify its economic partnerships, particularly in sectors like education, healthcare, and green technology, where British expertise is well-regarded.

For British companies, the implications of the 10-point package are significant. The emphasis on technology and innovation opens avenues for UK tech firms to explore collaborations, though increased regulatory scrutiny in high-tech sectors, as seen in the 2025 Negative List for Market Access, necessitates robust compliance measures. The healthcare sector, buoyed by China’s focus on domestic consumption, presents opportunities for British pharmaceutical and medical device companies to tap into a growing market. Similarly, the easing of financing for SMEs could facilitate joint ventures or supply chain partnerships, particularly for UK firms in consumer goods, where China’s middle class continues to drive demand.

The UK-China economic relationship provides a strong foundation for capitalising on these opportunities. The CBBC underscores the potential for British SMEs to benefit from China’s expanding consumer market, though success hinges on understanding local regulations and building strategic partnerships. The monetary package, by enhancing liquidity and market access, could amplify these opportunities, but firms must remain vigilant about competitive pressures and policy shifts.

Critics of the package argue that while it addresses immediate market concerns, it may not fully resolve deeper structural issues, such as China’s reliance on debt-driven growth or vulnerabilities in its property sector. Bloomberg notes that monetary policy alone cannot address all economic imbalances, particularly in a global environment marked by trade disruptions. For UK businesses, this underscores the need for a long-term perspective, balancing short-term gains from market openings with caution about macroeconomic risks.

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China has unveiled its 2025 Negative List for Market Access, marking another stride in its ongoing efforts to open its economy to both domestic and foreign investors. Published by the National Development and Reform Commission (NDRC) and the Ministry of Commerce (MOFCOM) on 25 December 2024, the updated list reduces the number of restricted sectors and refines regulations to foster a more unified national market. While this development signals Beijing’s commitment to liberalisation, it also introduces new oversight for emerging industries, reflecting a cautious approach to balancing economic growth with regulatory control. For British businesses eyeing opportunities in China, understanding the nuances of this list is crucial for navigating the evolving market landscape.

The Negative List for Market Access, first introduced in 2018, serves as a cornerstone of China’s market reform strategy. Unlike the Foreign Investment Negative List, which specifically governs foreign investors, the Market Access Negative List applies to all entities—domestic and foreign—operating within China. It delineates sectors where investment is either prohibited or restricted, with the latter requiring special approvals or compliance with specific conditions. The 2025 iteration, effective from 1 February 2025, reduces the total number of restricted and prohibited items from 123 to 115, a modest but significant step towards easing market entry barriers. This reduction follows a trend of gradual liberalisation, with the 2021 list having cut entries from 131 to 123.

A key feature of the 2025 list is the removal of several longstanding restrictions. Notably, the requirement for domestic equity holding in certain manufacturing sectors has been lifted, allowing greater flexibility for foreign investors. Restrictions on investment in traditional Chinese medicine production and the operation of performance venues have also been relaxed, opening avenues for cultural and health-related enterprises. These changes align with China’s broader economic goals, including boosting domestic consumption and supporting small and medium-sized enterprises (SMEs), as outlined in the NDRC’s accompanying statement. For British firms, particularly those in healthcare or cultural industries, these adjustments could unlock new opportunities to engage with China’s vast consumer base.

However, the liberalisation is tempered by new regulatory measures targeting emerging sectors. The 2025 list introduces stricter oversight for industries such as drones, internet services, and artificial intelligence (AI). Investments in these areas now require additional approvals, reflecting Beijing’s intent to safeguard national security and maintain control over rapidly evolving technologies. This move comes amidst global concerns about data privacy and technological sovereignty, with China’s Ministry of Industry and Information Technology (MIIT) emphasising the need for “secure and controllable” digital infrastructure. For UK tech companies, this heightened scrutiny may pose challenges, necessitating robust compliance strategies to navigate the regulatory landscape.

Beyond the list itself, the NDRC and MOFCOM have launched a nationwide campaign to dismantle hidden market access barriers. This initiative aims to address local protectionism and inconsistent regulations that have long frustrated businesses operating across China’s diverse provinces. The campaign, set to run through 2025, will focus on streamlining administrative processes and ensuring that national policies are uniformly implemented. According to a report by Bloomberg, this push for a unified market is part of China’s response to external pressures, including the recent US-China trade war, which has underscored the need for a resilient domestic economy. For British businesses, a more consistent regulatory environment could reduce operational uncertainties, particularly for those establishing supply chains or distribution networks across multiple regions.

The timing of the 2025 Negative List’s release is noteworthy, coinciding with a period of economic recalibration for China. The country has faced challenges from US tariffs and global market volatility, prompting Beijing to bolster domestic growth through monetary stimulus and market reforms. The People’s Bank of China recently cut its policy rate and lowered reserve requirements to support an economy strained by external trade pressures. Against this backdrop, the Negative List serves as both an economic signal and a practical tool, reassuring investors of China’s commitment to openness while addressing internal structural issues.

For British companies, the implications of the 2025 Negative List are multifaceted. Sectors such as education, where restrictions on foreign-invested institutions have been eased, present opportunities for UK universities and training providers to expand their footprint in China. Similarly, the relaxation of rules in the healthcare sector, particularly around traditional Chinese medicine, could attract British pharmaceutical firms interested in collaborative research or market entry. However, the increased scrutiny of tech-related investments underscores the importance of due diligence. Partnering with local firms or leveraging the expertise of the CBBC can help mitigate risks and ensure compliance with China’s complex regulatory framework.

The broader context of UK-China economic relations also shapes the significance of the Negative List. Despite geopolitical tensions, trade between the two nations remains robust, with UK exports to China reaching £28.5 billion in 2024, according to the UK Department for Business and Trade. The CBBC has highlighted China’s consumer market and growing middle class as key drivers for British SMEs, particularly in consumer goods and services. The 2025 Negative List, by reducing barriers in these sectors, aligns with these opportunities, though firms must remain vigilant about local competition and evolving regulations.

Critics argue that while the Negative List represents progress, it falls short of transformative reform. Some sectors, such as telecommunications and financial services, remain heavily restricted, limiting foreign participation. The introduction of new controls in high-tech industries has also raised concerns about regulatory unpredictability, particularly for firms reliant on innovation-driven growth. China’s balancing act between liberalisation and control reflects its broader strategy of fostering economic self-reliance while engaging with global markets. For UK businesses, this duality necessitates a strategic approach, balancing optimism about new opportunities with caution about regulatory hurdles.

China’s 2025 Negative List for Market Access is a step towards greater economic openness, offering British businesses new avenues for investment while introducing challenges in emerging sectors. By reducing restricted sectors and tackling local barriers, Beijing is laying the groundwork for a more integrated national market. For UK firms, success in this evolving landscape will depend on thorough market research, strategic partnerships, and a keen understanding of China’s regulatory priorities. As China navigates global economic headwinds, the Negative List underscores its determination to remain a key player in international trade, inviting British businesses to engage with its dynamic market while adapting to its unique challenges.

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This article offers an overview of the essential information you need to know to open a bank account in China as a foreigner, including the general requirements, types of accounts and bank options.

Different types of bank accounts in China

It’s crucial to understand the different types of bank accounts available when opening a bank account in China, as each type has unique features and benefits. Like in many countries, the common types of accounts banks in China provide include:

• Savings accounts: Provided by most banks for both individual and corporate clients. They can be used for daily expenses and receiving salaries, with the primary purpose of saving funds.
• Current accounts: Ideal for individuals and businesses handling frequent expenses and payments. Current accounts generally offer little to no interest, as their primary function is facilitating transactions.
• Fixed or time deposit accounts: These allow you to earn a higher interest rate than savings accounts when holding your funds for a fixed term.
• Foreign currency accounts: Suitable for individuals and businesses in international trade, travel, or investment with frequent transactions in foreign currencies other than RMB.

Most major banks in China also offer business banking products and services, including corporate accounts, merchant accounts and payroll accounts. It is important to note that the specific features and benefits of an account can vary significantly between banks, and certain types of accounts may not be available at some banks.

Offshore accounts

If you are a foreign company incorporated and registered outside China, Hong Kong, Taiwan or Macau, you can choose from the following account options for non-resident business entities:

• Free trade non-resident (FTN): Made for overseas companies and only offered in the Hainan and Shanghai free trade zones. This account allows holders to enjoy convenient investment options and great currency exchange tools.
• Non-resident account (NRA): Can be opened with any Chinese bank, available in both Renminbi (RMB) and foreign currencies, preventing foreign exchange risk exposure. NRAs are not available for individuals but only for overseas corporations, primarily used for capital investment from overseas corporations in China.
• Offshore accounts (OSA): A rare form of a Chinese bank account used for conducting operations in foreign currencies, not RMB. The funds can only be sourced from and used for businesses outside China. You can only open an OSA at China’s Merchants Bank, China Bank of Communication, Pudong Development Bank, or Ping An Bank (formerly Shenzhen Development Bank).

What documents are required to open a bank account in China?

When opening a bank account anywhere in the world, you must provide the necessary documents to proceed. To open an account with most Chinese banks, you will have to provide the following required documents:

• Completed application form with your personal details
• Valid passport and visa details
• Proof of address
• Chinese phone number
• Valid work permit, business license or documents supporting employment or student status

In some cases, you may also be required to meet the bank representative in person to open a bank account in China.

Important: Different banks may require additional documents or details. We recommend checking with your chosen bank for accuracy.

How to open a bank account in China

The account opening process may vary slightly depending on each bank’s specific requirements or the type of account. Opening corporate accounts with banks in China also involves a more complex process than opening personal accounts, and banks may take longer to approve them.

The general account application process typically follows a standard procedure:

• Choose a bank: Consider factors such as bank reputation, digital banking capabilities and ease of opening the account. You can choose from the major banks in China, subsidiaries of international banks or traditional banking alternatives.
• Select an account type: Choose the type of bank account that suits your purpose.
• Prepare the required documents: This typically includes your passport, a valid visa or residence permit, proof of address and a work contract. Some banks may provide a document checklist in advance.
• Visit a branch: Generally, foreigners must open an account in person for identity verification. Some banks may require you to make an appointment in advance to ensure that you visit a branch accustomed to dealing with foreigners.
• Complete application forms: Fill out the necessary paperwork, which could be in Chinese. Some banks provide English forms or assistance for non-Chinese speakers. Ensure that you provide accurate and complete information.
• Set up banking tools: You will receive a bank card and instructions for setting up online banking, mobile banking apps, and other banking services. You may also have to make initial deposits.
• Verify and activate account: Some banks may require additional steps to verify and activate your account, especially for online and mobile banking services.

The “Big-Four” Banks in China

China is home to some of the world’s largest banks, mainly because they are government-owned and due to the centralised nature of the country’s financial system. There are currently 4,561 banking institutions and 184 registered commercial banks in China, including branches and subsidiaries of international banks such as Standard Chartered and Citibank. In 2022, the Chinese banking industry held a value exceeding USD 23 trillion according to Statista.

To help you narrow down your bank options, let’s look at the “big four” Chinese banks.

Bank of China (BOC)

The Bank of China is a major state-owned commercial bank, providing various financial services to individuals and enterprises. The Bank of China also has branches in multiple countries, regions, and major cities, including Hong Kong, the US, and the UK.

Key services offered by the Bank of China:

• Current all-in-one account: A current deposit account for personal use, allowing users to hold deposits in RMB and other foreign currencies, including USD, EUR, JPY, SGD and HKD.
• Personal foreign exchange savings account: Includes current savings, term deposit and call deposit accounts that can hold multiple foreign currencies.
• Corporate demand deposit account: A business account for holding deposits in RMB and other foreign currencies without a savings term.

Industrial and Commercial Bank of China (ICBC)

The Industrial and Commercial Bank of China (ICBC) is currently the largest bank in China and the world, with a total assets value of USD 6.12 trillion in 2023. ICBC has a substantial network of branches and subsidiaries in China and worldwide, renowned for its digital transformation and financial inclusion measures.

Key services offered by the Industrial and Commercial Bank of China:

• Current deposit account: An all-in-one current account allowing clients to deposit and withdraw cash in RMB and other foreign currencies.
• Corporate current deposit account: A current deposit account for corporate clients to save and manage cash in RMB.
• WeChat banking: Provides the flexibility to contact the help desk, access accounts and get financial information through WeChat.

Agricultural Bank of China (ABC)

The Agricultural Bank of China (ABC) is another central Chinese bank with branches across China and a few overseas, including the US, Australia, and Canada. It provides various financial products and services, including RMB Demand Deposit Accounts and the Farmer’s Benefit Credit Card. ABC is commended for supporting China’s agricultural sector and rural development.

Key services offered by the Agricultural Bank of China:

• RMB demand deposit account: A personal banking account for depositing, transferring and withdrawing funds in RMB.
• Personal fund collection: A service designed to centralise fund management across various accounts.
• Corporate demand deposit account: An RMB deposit account for enterprises to receive, pay and settle funds.

China Construction Bank (CCB)

China Construction Bank (CCB) is another large state-owned commercial bank, recognised for its efforts in fintech and sustainable development. CCB has almost 15,000 branches across mainland China and many more worldwide, including Europe, Australia, and Hong Kong.

Due to its expertise in asset management, CCB is a good option for companies in the manufacturing and construction business.

Key services offered by China Construction Bank:

• All-in-one account: A multi-currency current deposit account offering a seven-day call deposit with higher yields, requiring a minimum balance.
• RMB deposit accounts: Clients can choose between demand deposit and term deposit accounts to deposit funds in RMB.
• Corporate notification deposit account: Designed for enterprises with a minimum deposit of RMB 500,000, offering higher interest rates than demand deposits and more flexible withdrawals than term deposits.

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From 8-10 December, Chinese leaders convened their annual Central Economic Work Conference (CEWC). The read-out of the conference stresses the urgent need to address ‘three pressures’: shrinking demand, supply shocks, and a weakening economic outlook.

The Chinese government’s answers to these issues are not really surprising. Stable macro-economic policy – i.e. prudent monetary and conservative fiscal policy – remains the paramount guiding principle for 2022. At the micro-level, supply-side reform and tax incentives are still the government’s weapon of choice. Other familiar policies, such as reform and opening-up, scientific and technological development, the fight against regional inequalities and the maintenance of stable employment and social service provision are all listed among the seven major priorities.

Some new targets involve pronatalist measures to increase the population and the promotion of social housing. Other important goals, such as the prevention of financial risk and China’s much-discussed peak coal and net zero targets, are mentioned but not prioritised. Xi Jinping’s new Common Prosperity policy is described as a long-term challenge with the promotion of the so-called ‘tertiary redistribution’ as the only near-term goal.

Overall, this CEWC indicates that Chinese policies in 2022 might look very much like those in 2021, as Chinese leaders grapple with the challenges of a more affluent, more educated but increasingly older population.

Background

The Chinese economy ended 2021 on a rather sombre note. After 2020’s pandemic-defying 2.3% growth – the only increase of any major economy – last year witnessed several hiccups, with more storms already gathering. Although the country will probably surpass its self-set goal of 6% GDP growth, the Chinese government is facing mounting headwinds.

First, surging factory production outpaced energy production, leading to power cuts and shutdowns. At its height, 20 out of China’s 31 mainland provinces had to impose power rationing. Even though the problem was mostly transitory, rising energy prices and input costs left a chilling effect on businesses. In September, China’s industrial production grew only 3.1%, the lowest increase since the beginning of the pandemic.

Second, the slowdown isn’t just confined to the manufacturing sector. Retail, too, slowed down markedly in the second half of 2021, with November recording its lowest growth (3.9%) outside of the pandemic. Although consumer price inflation, which also picked up last month, might explain some of the lower spending, it’s probably China’s strict zero-Covid policy that remains the main reason for lower sales. During Golden Week in October – a bellwether for Chinese consumer sentiment – tourism revenue dropped 4.7% year-on-year and was at less than 60% of the 2019 level.

Although consumer price inflation, which also picked up last month, might explain some of the lower spending, it’s probably China’s strict zero-Covid policy that remains the main reason for lower sales.

Finally, China’s vast real estate sector — accounting for about 29% of China’s GDP — has come under visible pressure. Several property developers, including the highly indebted Evergrande, failed to make bond payments and entered technical defaults. More worryingly, house prices have begun to drop in many Chinese cities. In November 2021, average prices for new residential properties dropped 0.33% month-on-month, the third straight month experiencing a decline.

Comparison of CEWC priorities in 2021 and 2022

Stability trumps everything

Confronted with these challenges, this year’s CEWC focused on basic economics rather than long-term strategies. For example, last year’s top priority – scientific and strategic development – is now only the fourth most important item on 2022’s priority list. Other long-term issues, like the reform of China’s agricultural sector and the reduction of carbon emissions, are mentioned as secondary goals but are not referred to as primary concerns anymore. Instead, stable macroeconomic policies and supply-side oriented microeconomic reforms are at the top of the government’s agenda.

Even though most of the items on the 2022 list are hardly new, there are three policy areas that merit closer attention in the coming year.

• Housing: Now subsumed under the general objective of a smooth circulation of the national economy, affordable urban housing will remain a primary concern in the coming year. The CEWC mentions two sub-goals for this issue: 1) the development of a rental housing market; and 2) construction of affordable housing. Recent policy proposals have mainly focused on price controls but more long-term strategies – such as rent-to-buy schemes or a Singapore-style public housing programme – are needed. 2022 will probably see new reform proposals in this direction.
• Pronatalism: The sudden ban on online tutoring and the abolition of China’s birth control policy have underscored how serious Beijing is about reversing China’s demographic decline. It also indicates that the latest census numbers, published earlier this year, might not show the whole story. But increasing birth rates is tricky especially as Chinese women have become more confident and vocal about gender discrimination in the workplace and beyond. Expect more action – whether effective or not – in the coming year.
• Common Prosperity: Common Prosperity has been one of the buzzwords of 2021. But its exact meaning remains contested. So far, pressure on private businesses to share more of their wealth and stiff penalties for tax evaders have been the most visible expression of this new policy. The CEWR points to a similar direction by stressing the importance of so-called tertiary distribution. China’s traditional workfare approach (i.e., job creation rather than welfare), combined with more investment in education, remains the dominant approach for now. However, the planned national basic endowment might offer some new clues about a more comprehensive reform in the future.

As for foreign trade and investment, the CEWR reinforces Beijing’s commitment to openness and support for foreign investment. This is undoubtedly good news. But whether this will be enough to reassure foreign businesses and investors having to deal with China’s increasingly complex domestic regulatory framework and ad-hoc policymaking, is something we can only hope for.

The CBBC view

The key message from this year’s CEWR is that China is in the midst of transition. Beijing recognises that the economy is facing daunting challenges that require new ideas and policy approaches. But Chinese leaders have yet to reach a consensus on how these should look, and – in their absence – resort to the traditional playbook of stable macroeconomic policy and supply-side oriented tools. Tellingly, last year’s hint at ‘demand side’ reforms has vanished from this year’s conference read-out.

Despite the insistence on stability – especially ahead of next year’s 20th National Party Congress – 2022 will probably be seen as a chance for more regulatory action and policy experimentation. Not all measures will be constructive, and foreign businesses are well advised to expect further disruptions and ad-hoc changes.

Nonetheless, Chinese leaders have proven once again that they are capable of reform. Businesses should pay particular attention to regional pilot projects. This applies particularly to Zhejiang province, which serves as China’s first Common Prosperity pilot zone. Regional development plans, such as the Greater Bay Area, the Yangtze River Delta, the Chengdu-Chongqing region, as well the Jing-Jin-Ji capital region will probably lead the way in policy approaches.

In the coming year, CBBC will continue to keep a close eye on China’s evolving policy landscape and keep Members informed of new regulatory developments at both the national and regional level.

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As China endeavours to shift from a low-end mass manufacturer to a high-end producer, the government has doubled down on encouraging targeted investments in R&D and technological innovation. The ongoing technology confrontation with the US is another factor at play, impacting a wide range of segments from access to chips and other key input technologies and products. This has resulted in increased government support for the technology sector as a strategic one and for which government support has increased.

This article summarises the major tax incentives to encourage technology innovation currently available in China and how they can help UK businesses.

High and new technology enterprises (HNTEs)

HNTE treatment, which reduces a qualified taxpayer’s applicable corporate income tax (CIT) rate from the standard 25% to 15%, is one of the core tax incentives encouraging innovation in China.

In addition to the lower CIT rate, starting from 1 January 2018 for qualified HTNEs, losses that occur five years prior to the year in which they become qualified and have not been made up can be carried forward to subsequent years to be made up. The maximum carry-forward period has also been increased to 10 years (usually only five years).

To qualify for HNTE status, a company must meet a range of criteria, including owning the intellectual property rights for the core technology of its main product or service, and having more than 10% of its total staff engaging in R&D.

Starting in 2021, certain companies in Beijing can qualify for HTNE status with lower qualifications or via simplified procedures. To be eligible, a company must be a production and research enterprise engaging in integrated circuits, artificial intelligence, biopharmaceuticals, or key materials, with a reported annual revenue of over RMB 20 million; be registered in Beijing and be in operation for over a year; and spend at least 50% of total R&D expenses within China.

Qualified companies are required to provide far fewer materials than usual to apply for HNTE status, which can be submitted online. The National HNTE Leading Team Office will approve the application soon after the it has undergone expert assessment and review by the HNTE accreditation authority. The public comment procedure is also exempted, meaning overall turnaround time is much shorter.

Technology-based small and medium-sized enterprises (TSMEs)

TSMEs fall under the scope of SMEs that conduct technology-based activities and have scientific and technological personnel who are involved in R&D activities and obtain IP for creating high-tech products or services.

Unlike HNTEs, TSME status has special requirements on an enterprise’s number of total employees (no more than 500), annual sales revenue, and total assets (no more than RMB 200 million). On the other hand, while becoming an HNTE requires that the core technology of a company’s key products or services is specially encouraged by the state and the ratio of income from high-tech related operations against total income is not lower than 60% in the current period, TSMEs have no such requirements. In general, it is easier to apply for TSME status for smaller businesses.

Advanced technology service enterprises (ATSEs)

ATSE status is another core innovation tax policy to encourage the provision of information technology outsourcing (ITO), business process outsourcing (BPO), or knowledge process outsourcing (KPO) services to overseas entities. To be qualified as an ATSE, an enterprise must fulfil a range of requirements, including more than 50% of its staff holding a college degree or above.

Originally launched in the Suzhou Industrial Park in 2016, the ATSE incentive was rolled out nationwide in 2017, reducing the corporate income tax rate for a qualified ATSE from the standard 25% to 15%, similar to HNTEs.

In addition, ATSEs are subject to zero VAT for the provision of certain offshore services, which means they can be exempted where a simple tax computation method is applicable, or they can use the tax exemption, credit, and refund method where a VAT general tax computation method is applicable.

Summary

Beyond the major innovation tax policies introduced above, there are other preferential policies designed to encourage the development of the tech sector, such as the tax incentives for the integrated circuit and software sector and faster refund of VAT incremental credit balance for advanced manufacturing taxpayers.

Businesses in China may find documentation requirements and application procedures tough going if they are not familiar with the established tax system and eligibility criteria for accessing supportive measures. It is recommended that potentially qualified enterprises carefully study the application requirements for each incentive and choose one or more best suited to their own situation. For example, ATSE status is more suitable for an enterprise that doesn’t own the local IP rights of the key technologies of its core products or services, since HNTE status has local IP requirements.

A version of this article was first published by China Briefing, which is produced by Dezan Shira & Associates. The firm assists foreign investors throughout Asia from offices across the world. Readers may write to info@dezshira.com for more support.

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A series of expatriate allowances and tax exemptions that had long been aimed at attracting foreign talent to China will no longer be valid starting 1 January 2022. This will directly impact the taxable income of foreigners working in the region. According to the new policy, preferential financial treatment for housing, children’s education expenses and language training, among others, will be discontinued.

What is no longer considered a tax exemption?

In the past, most foreign professionals working in China could receive about 30% of their entire earnings as benefits, meaning that they did not need to pay IIT on that part of their income.

Starting in 2022, a foreigner working in China will no longer have access to the IIT exemption for housing allowances provided by employers. Instead, if a foreigner has an address in China or is not resident but stays in the country for no less than 183 days within a tax year (“PRC tax resident”), like other Chinese individuals, they can deduct housing rental as a special extra deductible item (“SEDI”) from their overall income. The deductible amount is RMB 1,500, RMB 1,100 or RMB 800 per month, depending on the level and the population of the city of residence.

Similarly, allowances for children’s education won’t be considered a tax exemption. Instead, if a foreigner is a resident of China, education costs of RMB 1,000 per month can be deducted as a SEDI when children are receiving pre-school education or full-time degree education in China.

Language training allowances will also no longer be treated as exemptions. However, if a foreigner participates in continuing education programs, the costs can be deducted as SEDI up to RMB 400 per month or RMB 3,600 per year in which the educational qualification certificate is obtained.

However, foreigners working in China may still access IIT exemptions for meal and laundry allowances, home leave allowances (usually two round trips between China and the individual’s home country per year) and relocation allowances. All these costs must be in “reasonable” amounts and backed up by the appropriate fapiao (official receipts).

How will the new system work?

Since foreign taxpayers cannot simultaneously enjoy both itemised deductions and the tax-exempt expatriate allowance, this means that foreign tax residents in China will likely only be eligible to claim itemised deductions (similar to Chinese nationals). An example of this type of deduction is medical treatment expenses incurred if the costs minus the compensation from the insurances exceed RMB 15,000 within one tax year.

In addition, a foreigner working in China is no longer able to enjoy the preferential IIT policy for their annual bonus, which used to be taxed separately from their other income. Instead, the annual bonus will be included in overall income.

Although the new IIT policy increases the number of tax-deductible items compared with the past, since the amounts are small and some are not relevant to foreigners, the costs that can be deducted from taxable income will be reduced. This will significantly increase the tax burden of expatriates and impact their net incomes.

How should companies respond to these changes?

Many foreign companies are paying close attention to the changes to the IIT law since it will substantially affect the process of hiring and retaining foreign employees in China. There are a few actions companies can take before the changes become effective in January 2022, such as communicating with foreign employees in advance to manage their expectations of net income.

Companies can also adjust their remuneration structure to reduce the overall tax burden, if necessary, as well as revisit their compensation policy and make corresponding adjustments according to changes in regulations. No matter whether foreign employees are hired locally or abroad, under Chinese law, when any remuneration structure needs to be changed, a written employment contract or amendment agreement must be concluded between the employee and the employer. These actions can be taken in advance since there are just a few months of the year left and companies will have little to no time to adjust their employees benefit policies before the IIT changes are implemented.

It should be noted that the Chinese authorities will generally announce policies or provide guidelines in relation to major pending policy alterations fairly close to their implementation. To date, further guidance from the Chinese State Administration of Taxation has not yet been provided but could be expected around Q4 of 2021.

The Chinese authorities will generally grant the public the availability to comment on major policy changes and as such, it is encouraged that companies employing foreign individuals contact their local tax officer to comment on these matters.

The post How will changes to China’s Individual Income Tax Law affect foreigners? appeared first on Focus - China Britain Business Council.

Who or what is Didi?

Didi, officially known as Didi Chuxing Technology co., is an online vehicle-for-hire-service. Its services include taxi-hailing, private car-hailing (including different levels of vehicles, up to premium luxury cars), bike-sharing, and van hire for freight and logistics. In China, the app — which can also be accessed via mini-programmes in the WeChat and Alipay apps — is available in Chinese and English.

Didi was founded in 2012 by Will Cheng, who remains on board as CEO. Softbank’s Vision Fund is the largest shareholder, with 21.5% ownership, followed by Uber, which retains a 12.8% stake following Didi’s acquisition of Uber’s China arm in 2016.

Is Didi popular in China?

Didi has an estimated 90% share of the ride-hailing market in China, operating in around 400 cities. According to its IPO prospectus, it has 377 million annual active users as of 2021, and 156 million average monthly active users from January to March 2021. Outside of China, Didi operates in 15 countries, including Brazil, Mexico, and Russia.

What is the background to Didi’s IPO?

Didi filed early stage IPO paperwork with the US Securities and Exchange Commission on 10 June. The filing highlighted the company’s recovery from the coronavirus pandemic, reporting a net income of RMB 196 million (£21.9 million) in Q1 2021, up from a loss of RMB 4 million (£447.7 million) the previous year.

The company completed its IPO in New York on 30 June 2021, raising $4.4 billion (£3.19 billion) at $14.14 a share (1% up from the offer price of $14), giving it a valuation of around $70 billion. By contrast, Uber’s share price dropped more than 7% on the first day of trading.

Why has Didi come under investigation?

The Cyberspace Administration of China (CAC) opened an investigation into Didi on 2 July, citing national security and cybersecurity laws to “guard against risks to national data security” and “protect the public interest.” The move was not completely out of the blue — regulators had already cautioned Didi to delay its IPO earlier in the year.

The specific security and privacy issues that led to the investigation have not been made public, although it is related to the collection and use of personal data. Didi collects data such as user location and ride duration, which is all stored on data servers in China.

While the review is ongoing, the platform is not allowed to register new users. On 4 July, Didi was ordered to remove its app from app stores and other platforms, although existing users were able to continue using the app. 

In a response on Monday, 5 July, Didi said, “The Company will strive to rectify any problems, improve its risk prevention awareness and technological capabilities, protect users’ privacy and data security, and continue to provide secure and convenient services to its users.”

The CAC also announced a similar investigation of two truck rental apps, Yunmanman and Huochebang, operated by Full Truck Alliance and Kanzhun Ltd.’s Boss Zhipin, the largest online recruitment platform in China. Both companies went public in the US earlier in 2021.

How much has Didi’s stock price dropped?

In the statement mentioned above, Didi said that it expects the app takedown to have “an adverse impact on its revenue in China.” When Wall Street reopened for trading after the Independence Day holiday on Tuesday, 6 July, shares were down more than 20% at $12, wiping billions off its market value.

Although existing users can continue to hail cars and taxis via the Didi app, anecdotal evidence from the days following the app takedown suggest longer wait times for people using the app, presumably as some drivers move to competitors such as Caocao Zhuanche and Yidao Yongche. Competing platforms such as Meituan Chuxing and Gaode Map (which aggregate services from different ride-hailing platforms) were offering deep discounts in the first week of July.

What happens next?

The cybersecurity review of Didi is likely to last at least 30 days. Since the review was announced, the State Council stated that it will tighten controls on illegal securities activities and strengthen the protection of sensitive data related to overseas listings. This may lead to long wait times for companies planning IPOs.

The post What’s happening to Didi in China? appeared first on Focus - China Britain Business Council.

In early April Chinese tech juggernaut Alibaba was dealt a regulatory double whammy. On 10 April, China’s market regulator, the State Administration of Market Regulation (SAMR), fined the company a record-breaking RMB 18.2 billion (£2 billion) for ‘serious anti-trust violations.’ The fine was equivalent to 4% of Alibaba’s revenue in 2019.

Two days later, the People’s Bank of China (PBOC) – China’s central bank – also ordered Ant Group to separate its lending business from its mobile payment platform Alipay. The PBOC further asked the company to apply for a credit reporting certificate. The resulting restructuring will probably reduce Ant to a payment services platform, depriving it of its lucrative digital finance business which last year contributed nearly two-thirds of its revenue.

The Western media has portrayed Alibaba’s woes mostly as a dramatic clash of egos at the top of Chinese politics and business. Both the Financial Times and The Wall Street Journal have published pieces attributing the recent crackdown to the conflict between Alibaba founder Jack Ma’s pugnacious personality and Chinese leader Xi Jinping’s focus on loyalty.

Yet while personal animosities might have played a role in recent developments, they provide an incomplete explanation for the regulatory activism that has been underway for some time regarding China’s major tech companies. More dangerously, this narrative of warring egos suggests that political connections, and not regulatory compliance, remain the most important factor in deciding a company’s fortunes in China.

A more accurate picture instead points towards the importance of an evolving regulatory environment in which an increasingly modern legal framework, a more efficient bureaucracy and political concerns over the health of the Chinese economy, are all contributing to a far more active policing of China’s major tech companies.

Background

The dramatic halt to Ant Group’s IPO last year and the prolonged disappearance of Alibaba’s founder Jack Ma from public life has put the Chinese tech giant firmly into the global spotlight. It is therefore hardly surprising that the recent regulatory moves against Alibaba and Ant have been seen as part of a large-scale clampdown on Ma’s business empire, and more specifically, as politically motivated retribution against an outspoken critic of the current state of Chinese business regulations.

This perception has been further fuelled by Jack Ma’s defiant speech at last year’s Bund Finance Summit, in which he called China’s bank regulators ‘a club of old men’, and Xi Jinping’s praise for Zhang Jian, a patriotic entrepreneur of the late Qing era.

A closer look at these events suggests that pressure for government action has been a long time in the making. As Caixin, a business weekly, reported earlier this year, Chinese anti-trust regulators have in recent times grown increasingly wary of the dominance of the country’s tech giants – and not just Alibaba.

Click here to read the original analysis in full.

The post Alibaba, Jack Ma, and the latest on China’s anti-trust crackdown appeared first on Focus - China Britain Business Council.

The banking system in China has experienced a profound transformation over the years. Most recently it has been the focus of a campaign aimed at modernising its traditionally closed system and preventing illegal practices.

Its many peculiarities affect the daily operations of foreign-invested companies when dealing with payments and especially when processing or receiving international remittances. Newly established companies that are not familiar with the system may encounter several challenges, whether that’ s the seemingly straightforward act of opening a bank account, or choosing the right account for their specific needs.

China’s banking structure

The financial industry in China is supervised by the People’s Bank of China (PBoC) which is China’s central bank. It is also in charge of formulating and implementing monetary policies and monitoring lending and foreign exchange transactions between banks as well as the national payment and settlement system.

The pillars of the banking system consist of the biggest national banks, including the Industrial and Commercial Bank of China (ICBC), China Construction Bank (CCB), Bank of China (BoC), Bank of Communications (BoCom) and Agricultural Bank of China (ABC), which together form a developed financial network in China with extensive geographical reach and assets. There are also several other banks specifically targeting rural areas as well as branches of foreign banks, although with limitations in their business scope and the services they are able to offer.

The State Administration of Foreign Exchange (SAFE) also plays an important role in the management of the Chinese banking system. In brief, its major responsibilities are to regulate and supervise foreign exchanges and monitor cross-border capital flows.

Therefore, through its policies and regulations, the SAFE greatly influences the daily operations of foreign-invested companies in China as well as Chinese companies involved in international business.

Types of bank accounts

A company may open different types of bank accounts suitable for different needs and purposes. For the time being, foreign companies are typically required to open at least two bank accounts, namely a capital account and a CNY basic account, which have the following characteristics:

Capital accounts: These have the purpose of receiving capital injections from shareholders. Their usage should strictly follow SAFE [Hui Zong Fa 2020-89] regulations. For example, a limit of US$200,000 of the injected funds in the capital account may be transferred to the company’s CNY account each month. The funds need to be completely used up before transferring additional capital into the CNY account.

For a newly established company, it may be difficult to obtain a bank loan unless the shareholder has a privileged relationship with the bank and is able to offer a guarantee to cover the financial risk.

Alternatively, it is possible to make direct payments to suppliers without limitations by providing supporting documents such as contracts and official invoices for every payment made from the account. Capital accounts can be in any currency in accordance with the company’s Articles of Association and business license.

CNY basic accounts: These accounts are the main CNY accounts for the company, used to collect payments from Chinese clients and pay Chinese suppliers, rent, taxes, salaries etc. These accounts can also directly receive and process international payments following the relevant SAFE regulations.

In certain Free Trade Zones in Shanghai, such as the Lingang New Area, foreign-invested companies are no longer required to open a capital account if they open a basic bank account that uses CNY as its currency.

Other Accounts: Usually, companies engaged in international trading may find it useful to open a ‘general account’ to receive and make international payments in a foreign currency. This account can also be in CNY, in addition to the CNY basic account.

Moreover, a company can open a foreign exchange settlement account in different currencies to receive funds from overseas clients and temporarily keep them in this account to control the currency exchange risk and avoid the losses incurred by an adverse currency exchange at a particular time. One limitation is that the funds in the foreign settlement account cannot be transferred freely to make payments to other Chinese companies; that can only be done via a CNY basic or general account.

There are also other types of bank account that can be opened for a specific purpose, such as for tax or social contribution deductions.

All the bank accounts described above are used for common business operations, yet they cannot be used for financing purposes, for which companies are required to open a dedicated inter-company loan account or a bank loan account. Inter-company loan accounts are opened on the basis of a loan agreement between a Chinese company and a foreign-related party and are subject to SAFE regulations. The borrowed amount cannot exceed the foreign loan quota, which is equal to the difference between total investment and registered capital, or is proportionally calculated if the registered capital has not been fully paid up.

The usage of a loan account is similar to a capital account, requiring the submission of supporting documents for each payment.

For bank loans, there are no specific limitations besides the commercial terms negotiated and stated in the loan contract. However, for a newly established company, it may be difficult to obtain a bank loan unless the shareholder has a privileged relationship with the bank and is able to offer a guarantee to cover the financial risk.

Lastly, foreign companies are allowed to open bank accounts in China to settle payments in advance, such as by using a pre-expense account, or they can open a non-resident account (NRA) in a free trade zone without the needing to have a legal entity registered in China.

Requirements for opening a bank account

To open a bank account, companies need to submit several documents to the bank, typically including the business license and the original passport of the legal representative along with other documentation depending on the specific bank’s internal requirements. Although there may be different practices and procedures from bank to bank, in general, the requirements are becoming stricter in a common push to prevent fraud, money laundering and any other illegal activity. In particular, for newly established companies looking to open a bank account, the bank may:

• Require an onsite inspection of the company’s premises. This means that companies need to have an identifiable physical office with a company sign or logo.
• Ask to see the business’s lease contract, rent invoice and latest utility bills as proof of real business substance.
• Check the number of companies under the company legal representative’s name.
• Investigate the direct shareholder(s), the ultimate beneficiary and any politically exposed person (PEP).
• Request the original ID or passport of the company’s legal representative and, in most cases, their physical presence at the bank.
• Request a Chinese telephone number to reach the legal representative.
• Apply a minimum amount for deposits into the bank account.

In many cases, it may be impossible to open a bank account if the legal representative does not reside in China, cannot provide a Chinese telephone number or proof of substance for the business.

Moreover, since June 2020, the People’s Bank of China and the SAFE have been conducting special inspections targeting abnormal accounts in the banking system, which may have a series of impacts on the activities of foreign-invested enterprises and their daily banking operations. For example, banks may freeze accounts if legal representatives fail to answer phone calls from the banks or if accounts have not been used for over six months.

Accounts can also be blocked if companies fail or forget to update their information in a timely manner following a change in management, or if the bank discovers any other indication of company abnormality.

This article was written by Hawksford who have extensive experience in opening different types of bank accounts for clients, and dealing with financial institutions to find the most suitable solutions for our clients’ needs. Read more on their China Guides

The post How do you open a corporate bank account in China? appeared first on Focus - China Britain Business Council.

China recently issued the draft Personal Information Protection Law (the “PI Law”), which, if adopted, will be the first comprehensive high-level legislation on personal information protections in China. It details the rules for collection, storage, processing, and disposal of personal information, clarifies a number of controversial issues such as security assessment for data exportation, and sets out comprehensive requirements in relation to establishing internal policies for data management. The PI Law therefore forms a solid base for further legislation on personal information protection matters.

The PI Law influences all business sectors. In particular, it will likely significantly affect the data practice of international financial institutions which already have business operations in China or are expanding their business operations into China.

Extraterritorial jurisdiction

Different from the Cyber Security Law, effective in 2017 which regulates constructions, operations, maintenance, and utilisations of networks in PRC territory, the PI Law has explicit exterritorial effect. International financial institutions which do not have a presence in China would still be subject to the PI Law in terms of collections and utilisation of personal information of people residing in China.

According to Article 3 of the PI Law, the PI Law regulates the collection, storage, utilisation, processing, transmission, provision or disclosure (collectively “handling”) outside of China of personal information about people residing in the territory of China if either of the following conditions are met: (i) the purpose of the handling is to provide goods and services to people in the territory of China; (ii) the purpose of the handling is to analyse or evaluate behaviours of people within the territory of China; and (iii) any other situation provided for by laws and regulations. China has a huge financial service market, which attracts those international financial institutions to invest in.

International financial institutions which do not have a presence in China would still be subject to the PI Law in terms of collections and utilisation of personal information of people residing in China

Meanwhile, the financial services sector has not been fully opened to foreign investment. As a result, many foreign financial institutions select to stay offshore whilst studying the China market or servicing Chinese customers by sending staff to travel to China or otherwise remotely. During the course of such remote business operations, foreign financial institutions inevitably collect and analyse personal information generated in China, which include customer identities, financial information, family structures, contact information, etc.

If the PI Law is finally adopted, the handling of personal information by these foreign financial institutions will be subject to the PI Law. Consequently, foreign financial institutions will be required to follow the data protection requirements under the PI Law.  A violation to the data protection requirements under the PI Law may result in the foreign financial institution being included in a blacklist and in a ban on cross-border transfers of personal information to it.

It may be a big challenge, especially for those financial institutions which have already developed and implemented robust data protection policies in practice, to follow the PI Law when handling the personal information.  The PI Law increases the administrative cost by imposing a “local presence” requirement on those foreign financial institutions that collect or use personal information concerning people residing in China.

The requirement is that, according to Article 52 of the PI Law, a foreign financial institution must establish a dedicated department or appoint a representative in China to take charge of data protection matters.  The data protection department and the data protection person must be filed with the government. The PI Law does not set out the criteria for such department or person. However, with respect to data protection persons working for foreign securities and fund business, the China Securities and Regulatory Commission (CSRC) may require that they maintain professional securities qualifications. This will increase administrative burdens on foreign financial institutions.

Engaged processing

Generally speaking, the PI Law permits the outsourced processing of personal information. Consequently, financial institutions can outsource to third party service providers both IT or business functions concerning personal information.

The PI Law distinguishes ‘outsource of personal information processing’ from ‘transfer of personal information due to business disposal or otherwise’; and imposes less burden on outsourcing arrangement.  According to Article 22 of the PI Law, a personal information controller is allowed to engage a third party service provider to process personal information in its possession provided that (i) the personal information controller enters into an agreement with the service provider to define the purpose of and method for the processing, the nature and categories of personal information to be processed, as well as the required security measures to protect personal information; (ii) the personal information controller supervises the personal information processing activities; (iii) the service provider only processes personal information within the scope of consents which relevant data subjects grant; and (iv) the service provider returns to the personal information controller or otherwise destroys personal information upon the completion of the processing.

A personal information controller is not required to seek data subjects’ separate consents to the outsourced processing; nor is it required to disclose the identity of the service provider. Consequently, a personal information controller can decide whether to enter into an outsourcing arrangement involving process of personal information after its collection of personal information.

At the early stage when international financial institutions enter into the Chinese market, they tend to outsource their administrative functions, IT functions, and certain ancillary business functions (eg, with respect to mutual fund business, the TA and FA functions) to manage costs and retain flexibility.  Such outsourcing arrangements will more or less involve processing of personal information. The PI Law does not impose any requirement to seek individuals’ separate consents or to disclose service providers’ identities, and thus facilitates outsourcing arrangements.

Nevertheless, in order to control the data breach risks arising from outsourcing arrangements, it would be important to enter into service agreements with service providers pursuant to legal requirements under the PI Law and to include all necessary clauses, such as the scope and restriction of the outsourced services, auditing right, confidentiality, destruction of information, prohibition on further subcontracting, etc. A well drafted service agreement will help mitigate data breaching risks arising from outsourcing arrangements and be a good defence when authorities perform regular inspections on outsourcing activities involving personal information.

Data exportation

The PI Law releases the concern that all data exports require security assessment organised by the government. As a result, foreign financial institutions would have a greater flexibility to integrate on their global platform the data generated from their business operations in China.

Restrictions on data exportation have long been a controversial topic in China. The Cyber Security Law sets out the principle that personal information and important data which critical information infrastructure (CII) operators collect or generate in China must be kept in China and that, if they are necessarily to be exported outside of China, a security assessment procedure according to relevant regulations would be required.  In order words, the Cyber Security Law only restricts the export of personal information and important data which CII operators generate or collect in China.

However, the Cyberspace Administration of China (CAC) – the country’s key regulator on cyber security matters, issued a draft Administrative Measure for Export of Personal Information and Important Data in 2017, which was later replaced by the draft Administrative Measure for Data Security and the draft Administrative Measure for Security Review of Export of Personal Information, both of which were released in 2019.  All these draft measures expanded the scope of personal information exports where security assessment is required.

Under these draft measures, all exports of personal information require security assessment, regardless of whether they are collected or generated by CII operators or of the materiality of the personal information.  These measures also require government approvals for the security assessment before exports can be implemented. Such a wide scope of application of the security assessment requirement triggers concerns that the security assessments will incur a significant administrative cost and that the delay in government approvals for the security assessments will delay the exporting process.

The PI Law relieves the concerns by narrowing down the scope of applications of the security assessment requirement. According to Articles 38 and 40 of the PI Law, an export of personal information by a CII operator or an export of personal information reaching a volume threshold to be stipulated by the CAC must undergo a security assessment procedure organised by the CAC.

With respect to all other circumstances relating to export of personal information, the exporter may select to undergo, or not to undergo, the security assessment procedure at its own discretion. If a security assessment is not selected, the exporter will be responsible for entering into an agreement with the offshore personal information receiver to ensure that the receiver meet the personal information protection standard imposed by the PI Law. In this regard, the data transfer agreement will be critically important to ensure the compliant because the exporter is responsible for the behaviours of the data receiver.

The PI Law helps clarify the requirements on data exports and relieve the concerns of multinational corporations, including, in particular, international financial institutions. International financial institutions usually desire to have extensive data integration, i.e., to process, analyse, and store information about customers and staff on a global platform which enables them to apply their operational strategies, investment models, and risk control tools consistently.  The reduction in the scope of application of the security assessment requirement offers international financial institutions greater flexibility to export and integrate data globally.

Note that the PI Law does not exclude the possibility that relevant industrial regulators may impose other conditions on data export.  For example, CSRC restricts the export of client identity data and transactional data. These restrictions will still apply despite the PI Law.

Compelled disclosure to foreign government agencies

The PI Law prohibits the disclosure to foreign government agencies of personal information collected in China. This prohibition may confront international financial institutions with the dilemma that, whilst they may be compelled to disclose personal information to foreign government agencies, they are prohibited from the disclosure by the China government.

According to Article 41 of the PI Law, unless otherwise provided for under international conventions or bilateral treaties to which China is a party, the disclosure of personal information to foreign government agencies for judicial assistance or administrative enforcement is required to be approved by the China government.

This requirement is consistent with that under the PRC Securities Law effective in March 2020, where disclosure to foreign law enforcement agencies of files and materials relating to securities business is prohibited unless such disclosure is made via a cooperative mechanism established between China and the foreign government in question (eg, the MOU between CSRC and US SEC) or otherwise approved by CSRC or other government agencies in China.  These requirements mean that the China government would have full control over the information to be disclosed to foreign government agencies.

However, the prohibition on disclosure contradicts some foreign authorities’ positions.  For example, the US congress passed the CLOUD Act in 2018, with which the US government has the power to compel companies to disclose personal information or other data in the possession of not only those companies but also their subsidiaries overseas, even if the local laws where these subsidiaries are located prohibit them from doing so. Consequently, when the US government orders a US financial institution to disclose certain personal information in the possession of its subsidiary in China and the China government disapproves such disclosure, the financial institution will (i) violate the US law, if it selects not to disclose such personal information as the US government orders; or (ii) violate the China law, if it selects to follow the order of the US government.

It may be too early to assess the practical impact of this prohibition on international financial institutions, or to suggest a resolution.  However, a well-developed information firewall between a foreign financial institution and its subsidiaries in China, as well as a well-designed managerial policy, may help segregate data generated in China from those under direct or indirect control of the foreign financial institution and thus reduce the practicability to compel the disclosure of data in the possession of such a Chinese subsidiary.

Contact the author Xun Yang from LLinks Law Offices on xun.yang@llinkslaw.com for more information on PI law

The post What does the new draft Personal Information Protection Law mean? appeared first on Focus - China Britain Business Council.