PRC Legal Update: Key takeaways from China’s Two sessions 2021

PRC Legal Update: Key takeaways from China’s Two sessions 2021

Every year in March, China's two main legislative bodies, the National People's Congress ("NPC") and the Chinese People's Political Consultative Conference ("CPPCC"), convene for the "Two Sessions" to lay out preparations for the country's strategies and goals for the coming year. This year, the CPPCC began on March 4, 2021, and the NPC began on March 5, 2021, respectively. This report discusses the two main legislations, as well as the more current fiscal and international expenditure initiatives proposed in this year's Two Sessions. Last but not least, this article includes an update on China's COVID-19 answer initiatives.

I.          Project “Digital China”

Top leaders have stated their plan to follow the “New China” project, which aims to create a digital government, culture, and economy. The National Development and Reform Commission is developing two main pieces of legislation as part of the initiative: the Personal Information Protection Law and the Data Security Law, all of which draw on the basis established by the current Cybersecurity Law.

i.         The Personal Information Protection Act (“PIPL”)

On October 21, 2020, a first draft of the PIPL was written. It will become China's first detailed regulation on personal privacy and data security after it is enforced. The NPC has consistently claimed that securing the sensitive details of its people is one of the country's highest priorities. The PIPL aims to fight hacks and personal data misuses/leaks, which have become extremely common in China due to the huge number of internet users and exponential growth of big data industries and knowledge incorporation. It establishes general standards of justice, openness, data integrity, intent limitations for data collection, and accountability.

Aspects

The PIPL defines “personal details” as any registered information about known or identifiable natural persons, including nationality, gender, biometric information, religion, fitness, and financial information. Unlike the Cyber Security Law, which has restricted extraterritoriality, the PIPL refers to the collection of personal details of natural persons in China, regardless of nationality. In reality, its wording seems to imply that it is large enough to include the activities of an overseas data processor in China, even though such processor may not have a physical presence in China.

Personal knowledge processing

The word "production" applies to the compilation, storage, usage, dissemination, provision, and publishing of personal information.

There are six legal bases for collecting personal details in China under the draft PIPL:

1. Where the data subject has provided his or her consent to the processing;
2. Where the processing is mandated by a contract between the processor and the data subject;
3. Where processing is necessary to carry out a legal/contractual obligation;
4. Where processing is needed as a consequence of a public health event or an impending or urgent situation;
5. Where the production is essential for the public good; or
6. Where relevant laws or legislation include sorting.

Violations of the PIPL, such as processing sensitive details without depending on one of the above legal bases, can result in a variety of fines, including an administrative request for rectification, confiscation of the illegal profits, and a fine. A company's activities in China may even be halted and/or its business permit revoked. Such infractions will be recorded in the government's credit archives, which are open to the media.

ii.         Computer Protection Law (“DSL”)

In comparison to the PIPL, the draft DSL is more concerned with protecting China's national security and data sovereignty. It refers to all data activities conducted throughout the region. The DSL's overall goal is to develop a robust data protection mechanism guided by the government.

The framework would contain the following components:

A tiered data classification scheme that will matrix the data's I value to the country's social and economic development; and (ii) degree of harm levied on national security, public welfare, and citizens' legitimate interests if the data is lost, hacked, or unlawfully exploited.

Requirement for "relevant details" processors to designate a data protection officer and a management agency to carry out data security responsibilities such as security risk evaluation, publishing, knowledge control, and setting in place an early warning system. The Computer Protection Legislation only gives a hazy description of “important data,” and the DSL offers little more clarity. This theoretically broadens the DSL's range of applications. These data processors must also send their evaluation notes to the appropriate monitoring department on a regular basis.

In the case of a computer protection breach, the appropriate agency must notify the impacted users and the applicable supervision department as quickly as possible.

The draft DSL, like the PIPL, imposes substantial fines on companies and related employees that refuse to comply with the regulations. Violations will result in a corrective order, warnings, confiscation of illicit wages, and a fee, among other things.

II.         Monetary and fiscal policies

The Chinese government has stated unequivocally that this year's fiscal policies would concentrate on assisting micro- and small-sized enterprises, a group that has been severely impacted by Covid-19.

Premier Li Keqiang proposed plans in the Chinese government's new five-year plan to raise the amount of loans provided by major commercial banks to small and micro-sized businesses by more than 30 percent, as well as to enable these smaller enterprises to postpone principal and interest repayments on loans. In reality, China is directing its financial sector to reduce the cost of financing for companies and individuals in general in order to aid the country's economic recovery from the effects of Covid-19.

Plans to halve the corporate income tax (“CIT”) liabilities of small and low-profit companies for the portion of taxable income not reaching RMB 1 million were unveiled in the annual Government Work Study, which was also delivered by Premier Li during the Two Sessions. Small and low-profit companies are those that are not on the government's "prohibited" or "limited" negative list, have an annual taxable revenue of less than RMB 3 million, less than 300 jobs, and assets worth less than RMB 50 million.

III.        Policy on foreign investment and commerce

China has also placed its sights on future growth in international acquisitions and trades, promising to reduce the negative list of foreign investment, ease regulatory processes for foreign invested enterprises, and update laws to make the treatment of domestic and foreign invested enterprises more fair. During the Two Sessions, a bill was introduced that called for the abolition of the differentiation between foreign-invested banks, Sino-foreign joint venture banks, and foreign banks. This represent the government's deep desire to promote foreign investment growth while also stabilizing established foreign investment. Over the last three years, China's negative list of foreign investment has more than doubled, from 93 to 40 products. Further declines are anticipated, with an emphasis on the industrial, agriculture, and service sectors.

In terms of exchange, China is similarly keen to broaden its horizons. Not only will it continue to promote the development of the Belt and Road Initiative, but it will also sign and ratify the Regional Comprehensive Economic Partnership Agreement with a number of Southeast Asian nations, the China-EU Comprehensive Agreement on Investment, and continue its free trade negotiations with Japan, Korea, and, of course, the United States.

IV.       Covid-19 indices

To include a brief report on China's Covid-19 efforts, the country would most likely not ease border controls until 2022 in order to monitor Covid-19 and also because the success of its vaccination plans is still modest. The government has consistently highlighted the significance of stopping imported cases from triggering local outbreaks. The government has also told all Chinese people, whether they live in China or elsewhere, that they can obtain free vaccines as part of the “Spring Seedling Action” scheme.

Final thoughts

We predict that China's Covid-19 situation will stay under control as long as the government retains strict Covid-19 steps. The Chinese government is specifically aiming to accelerate the introduction of both the PIPL and the DSL in order to provide a more favorable climate for the development of the digital economy. This is significant since China expects to see an increase in emerging industries such as cryptocurrency, big data, and cloud computing in the coming future, which would contribute a larger portion of the country's GDP. In order to maintain its economic development during the Covid-19 era, the country has also devised plans to help smaller businesses and attract foreign investment into the territory. Investors and companies alike should be on the lookout for possible growth prospects created by these new laws and policies.