On 4 April 2015, the Standing Committee of the National People's Congress (NPC) reviewed the second draft of the Law of the People's Republic of China on the Administration of Foreign Non-governmental Organizations (published on 4 May 2015 for public comment). Currently, there is no national-level rule to establish and regulate a legal presence for a foreign-based NGO in China (other than a foundation). The government is using the draft law to try to standardise and increase transparency in this area. The draft law would codify China's differentiated treatment of NGOs that engage in activities welcomed by the government, such as non-religious charities and NGOs that are concerned with issues perceived as a threat to the government, such as civil rights. The draft law also curtails foreign funding for domestic NGOs. The reaction in the foreign community has included petitions by foreign businesses and professional groups and demarches from foreign embassies.

Several issues have been cited as problematic. Under the draft law, a foreign NGO is defined as a not-for-profit, social NGO organised outside China. This broad definition includes traditional NGOs, but also captures trade associations, chambers of commerce and certain educational exchange programmes. The draft law prohibits a foreign NGO from engaging in political and religious activities and other activities deemed harmful to China's national security or social order (including soliciting members). In addition, the draft law places administration of foreign NGOs under the Ministry of Public Security. The Ministry of Civil Affairs is China's traditional regulator for not-for-profit organisations. The draft law requires a foreign NGO to operate in China through a single Representative office (外国企业常驻代表机构), or under a temporary activities permit. The draft law also expressly prohibits foreign NGOs from funding or otherwise assisting the operations of domestic NGOs in China.

To establish a representative office, a foreign NGO must:

Like other representative offices, the representative office of a foreign NGO is not an independent legal person with limited liability, and it can hire a maximum of four representatives, or foreign employees, including the chief representative.

A foreign NGO that has not established a representative office can apply for permission to carry out activities in China for up to a year. This is provided the foreign NGO obtains the consent of a professional supervisory unit and carries out its work in partnership with a governmental or quasi-governmental institution recognised by China's public security apparatus (referred to as a Chinese partner unit).

The draft law is particularly careful to ensure that:

The draft law also gives the local public security bureaux broad powers to:

On 12 June 2015, the National Development and Reform Commission (NDRC) (中华人民共和国国家发展和改革委员会（国家发改委)) promulgated the Rules on the Administration of Investment Projects Requiring Government Verification or Record-Filing (Draft to Solicit Comments). If enacted, the draft rules will apply to the administration of project approvals for certain offshore investment projects and for onshore fixed asset investment projects, except where the investing entity is state-owned or controlled. Fixed assets refers in this context to any component of an investment project that involves land use rights (土地使用权) and/or construction.

As projects partner Hui Sun of Zhong Lun in Beijing notes, "The draft rules show that the recent wave of reform signalled by the draft Foreign Investment Law of the People's Republic of China is becoming deeper and is maturing". The draft rules follow a pronounced legislative trend in recent years to extend national treatment to foreign investment. That is, they apply uniformly to fixed asset investment projects with domestic or foreign investment. The rules also contain certain concepts and elements commonly found in recent foreign investment legislation, including:

For more information on the draft law, see Practice note, Chinese foreign direct investment law: overview: Reforms to foreign investment framework.

If enacted, the draft rules will implement a two-level system for project approval based on a negative list approach, under which approval for all fixed asset investment projects will involve a relatively simple record filing procedure, except for projects listed in the Catalogue of Investment Projects Requiring Government Verification (Catalogue), that is, the negative list. The investment projects included in the Catalogue will be subject to a more document intensive and time consuming verification procedure. The Catalogue will include projects that affect national or environmental security, critical national production capacity, strategic resources and vital public interests.

The key document for projects requiring verification will remain the project application report (PAR), which must be submitted together with approval documents from the relevant departments responsible for (urban or rural) planning, land (or ocean) resources and environmental protection (for major projects). The application must be submitted for preliminary approval to the relevant branch of the development and reform commission (DRC) and then be reviewed at the next higher level DRC (or for large projects, the State Council (中华人民共和国国务院)), which will issue final verification. If the DRC requires expert advice, it can authorise a qualified consultant to review the project. The DRC must also solicit input from the industry regulator, if any, and from the public in certain cases. Applicants may be required to amend the project or the PAR in accordance with the opinions of the qualified consultant, regulator or the public. Written approval (or rejection) must generally be issued within 20 business days, but this period may be extended up to 60 business days, and construction must generally being within two years after issuance of the verification document.

The draft rules set out the criteria for evaluating a verification application. For example, a foreign-invested financing project must also conform to the Catalogue for Guiding Foreign Investment in Industry, relevant laws, regulations and industrial policies, and the NDRC's view of the project's potential effect on national security, the public interest and the use of resources. The draft rules codify a common practice by allowing an applicant to carry out other approvals, such as the examination and approval procedure, on a parallel track instead of one after another.

The procedure for record filing is more simple. The application must describe the situation of the investor, the location, scale and content of the project, the estimated total investment and intended sources of funding, and an analysis of the relevant industrial policy applicable to the project. Unless the project is prohibited or by law must be verified or approved, the relevant DRC must carry out the record filing within five business days and all information must be maintained online.

On 19 June 2015, the Ministry of Industry and Information Technology (MIIT) (工业和信息化部) issued the Notice of the Ministry of Industry and Information Technology on Liberalising Foreign Equity Ratio Limitation on Online Data Processing and Transaction Processing Services (Operating E-commerce) 2015 (工业和信息化部关于在放开在线数据处理与交易处理业务（经营类电子商务）外资股权比例限制的通告) (MIIT Notice 196). In Notice 196, the MIIT announced that it was extending the liberalised e-commerce policy in force within the China (Shanghai) Pilot Free Trade Zone (Shanghai FTZ) (中国(上海)自由贸易试验区) (that is, removing the foreign shareholding cap for e-commerce platform services) nationwide. For more information on the special regime for telecommunications (including e-commerce) inside the Shanghai FTZ, see Article, E-commerce in China: E-commerce and the Shanghai FTZ.

Under the Circular of the Ministry of Information Industry on the Readjustment of the Classification Catalogue of Telecommunication Services, which was issued by the MIIT and made effective 1 April 2003, online data processing and transaction processing services are defined as "online data processing and transaction/affair processing services provided to users through communication networks, using various kinds of data and affair/transaction processing application platforms". These include:

The services provided by various well-known e-commerce operators, such as Taobao.com, yhd.com, and JD.com, would all fall within this definition. Other types of e-commerce, for example taxi hailing apps such as Uber, would not fall within the scope of Notice 196. For more information on e-commerce in China generally, see Article, E-commerce in China. For more information on the MIIT's attitude to taxi hailing apps in particular, see Legal update, MIIT investigates local government restrictions on taxi hailing apps.

On 23 April 2015, the Trademark Review and Adjudication Board (TRAB)(商标评审委员会) published summaries of 20 model cases (Model Cases) to provide guidance to trade mark owners and practitioners and to demonstrate the TRAB's role in ensuring that trade mark rights are fairly granted and fully protected in China. The TRAB is responsible for handling appeals against the total or partial rejection of trade mark applications by China's Trademark Office (TMO) (中华人民共和国商标局) and appeals against TMO decisions to allow an opposition against a trade mark application. The TRAB also handles applications to invalidate trade marks in China and appeals against TMO decisions in non-use cancellation cases.

According to intellectual property partner Chris Smith of Baker & McKenzie in Hong Kong, the Model Cases "are of great importance to anyone considering the registration or enforcement of a trade mark in China, as they shed light on the TRAB's thinking on a wide range of practical and controversial issues, including how to tackle trade mark piracy”. The Model Cases also include several opposition appeals that were filed before the most recent version of the Trademark Law of the People's Republic of China (Revised Trademark Law) took effect on 1 May 2014. The Revised Trademark Law generally prohibits parties from filing an opposition to appeal to the TRAB. However, the TRAB still examines opposition appeals if the TMO allows the opposition and the party filing the appeal is the opposed mark's owner.

The practical issues addressed by the Model Cases include:

The controversial issues taken up by the Model Cases include:

On 27 May 2015, the State Administration of Taxation (SAT) issued the Announcement on the Collection and Administration of Enterprise Income Tax on Internal Transfers of Assets (Equity) (Bulletin 40). Bulletin 40 clarifies the Notice on Issues Concerning Enterprise Income Tax Treatment to Encourage Enterprise Restructurings (Notice 109), which was jointly issued by the SAT and the Ministry of Finance to encourage corporate restructuring by exempting certain internal transfers of equity and assets from enterprise income tax (EIT).

Gain or loss from a restructuring transaction is generally recognised at the time the transaction takes place. However, under Notice 109, an internal transfer (that is, a transfer of assets or equity between certain affiliates), does not attract EIT. Bulletin 40 identifies four specific types of transactions that qualify for the EIT-free treatment:

While Bulletin 40 expands the ability of China-registered affiliates to carry out tax-free restructurings, a number of gaps remain. For example, there are currently no corporate rules governing the administration of internal transfers (other than for state owned companies). Further, as Amy Ling, Special Counsel in Baker & McKenzie's China tax practice points out, "Multinational companies continue to look for further expansion of the enterprise restructuring rules to permit tax-free intragroup restructurings. One prime example is the limited ability to obtain tax-free treatment of cross border restructuring transactions". For more information on the tax treatment of cross-border restructurings in China, see Legal update, China updates tax regime for sale of offshore holding companies.

Previous editions of GC Agenda China have discussed the Shanghai-Hong Kong Stock Connect programme, which aims to create a channel for mutual stock market access between mainland China and Hong Kong (see GC Agenda China: October 2014: Shanghai-Hong Kong Stock Connect Program and GC Agenda China: April 2015: Shanghai-Hong Kong Stock Connect sees recent flurry of trading activity). On 22 May 2015, the China Securities Regulatory Commission (CSRC)(中国证券监督管理委员会) and Hong Kong's Securities and Futures Commission (SFR) took another step in developing mutual stock market access by signing the Memorandum of Regulatory Cooperation on the Mutual Recognition of Funds by the Mainland and Hong Kong. The memorandum was originally announced as part of a broad policy goal in 2013, and allows retail offerings in one jurisdiction of qualified general equity and bond funds, unlisted index funds and other standard investment products created in the other jurisdiction, subject to certain conditions, including an initial daily investment quota of RMB300 billion (each way). As a result, Hong Kong based asset managers will have access to China's large but fractured retail fund market and China's growing fund management market will have access to an international client base. Interested parties expect the memorandum to encourage the development and sale of more sophisticated retail products in future.

The CSRC and the SFR have issued rules to implement the memorandum. These rules offer streamlined and largely reciprocal processes for obtaining fund recognition and authorisation to make an offering. For example, a fund (and the offerings of such fund) is required to meet the regulatory requirements of the host jurisdiction, but it (and its offerings) generally will qualify if it satisfies the applicable rules in its home jurisdiction. Funds are also subject to certain standard disclosure obligations in regard to information that could significantly impact investors. Qualified funds must have at least RMB200 million assets under management, and sales in the host jurisdiction are capped at 50% of the fund's total value. At least 50% of the fund must therefore be sold to investors in the home jurisdiction.