2019 begins China’s era of compliance

China will introduce a raft of evolutionary legislation in the Year of the Pig, even as regulatory reach from overseas closes in on business within the nation, writes Luo Weiteng

With the Belt and Road Initiative in full swing, the US and China are locked in an escalating trade battle, Chinese telecoms giants ZTE and Huawei are under greater scrutiny in the US, and the importance of compliance has been given unprecedented attention and recognition in the past year.

“What happened to Huawei and ZTE in 2018 taught all the companies a sobering and lively compliance lesson,” says You Yong, former general manager of the legal affairs division at China Minmetals Corporation in Beijing. “Therefore, 2019 is to be the year of compliance.”

This era of compliance is just around the corner. Some 54% of state-owned enterprises (SOEs) and 35% of privately owned companies have general compliance policies in place, according to findings from the China Compliance Blueprint for 2017-2018, jointly compiled by the China Institute of Corporate Legal Affairs, the Company Rights Protection Centre of China Council for the Promotion of International Trade (CCPIT) and Shanghai-based law firm Fangda Partners.

However, no more than 20% are equipped with both tailor-made third-party compliance management and compliance due diligence policies, the blueprint reports.

In a positive milestone for the development of corporate compliance regulatory rules, the Compliance Management System Guidelines, approved and announced by China’s General Administration of Quality Supervision, Inspection and Quarantine and Standardization Administration, took effect on 1 August last year.

“With combined efforts, what can be said for sure is corporate compliance management activities will be brought to a new height,” says You. “Those do-nothing companies will certainly have greater risks to face.”

Prominent on the regulatory radar this year are e-commerce law, patent law, rules on science and technology innovation, and foreign investment law. Chinese companies and legal counsel are already anticipating how the changes and implementation will impact their bottom lines.