On 25 March 2015 the Political Bureau of the Communist Party of China’s Central Committee approved the official launch of new experimental free trade zones in Guangdong, Tianjin and Fujian, as well as the expansion of the China (Shanghai) Pilot Free Trade Zone (Shanghai FTZ) (中国(上海)自由贸易试验区), to reinvigorate China’s sagging foreign trade and investment numbers, to encourage the development of the service industry, and to help modernize China’s manufacturing sector. A 28 December 2014 decision by the National People's Congress (NPC) Standing Committee (全国人民代表大会常务委员会（全国人大常委会）) established the geographical parameters of the new zones, expanded the Shanghai FTZ, and permitted the State Council (中华人民共和国国务院) to adjust various examination and approval items within the zones for a three year period beginning 1 March 2015.

The new zones are:

The Shanghai FTZ has been expanded to include Lujiazui financial district, which is expected to further open the service industry and liberalize the financial sector, as well as Jinqiao development zone and Zhangjiang hi-tech park.

The decision has set aside China’s traditional examination and approval requirements in favour of a one-stop record filing platform that will employ the national treatment / negative list approach to market entry currently in force in the Shanghai FTZ (see Practice note, China (Shanghai) Pilot Free Trade Zone: overview: Negative list approach). The 2015 negative list was released on 20 April 2015 and will be effective from 8 May 2015. Unlike its predecessors, the new list will apply to all of the free trade zones.

Most of the changes in the 2015 negative list mirror the changes in the 2015 Foreign Investment Catalogue, including:

Some restrictions and prohibitions that appear in the 2015 Foreign Investment Catalogue have been removed from the 2015 Negative List. It is likely that the lifting of restrictions on investment in the affected sectors signals further opening-up if the trial in the FTZs is successful. Key industry sectors in this category include:

For a sector-by-sector review and summary of the changes in the new negative list, see Legal update, China publishes 2015 Negative List for FTZs.

Though the Shanghai FTZ has enjoyed only limited success in opening new sectors to and otherwise attracting foreign investment since its establishment on 1 October 2013, it has developed certain liberalized procedures which may be utilized by the new zones. Specifically, the new zones are expected to adopt the financial reform policies (for example, permitting capital account foreign exchange conversion and the opening of free trade accounts, eliminating interest rate controls, and further loosening the cross-border flow of RMB) and the "enter first, declare later" policy for customs clearance pioneered by the Shanghai FTZ.

A record high in both the Hong Kong Stock Exchange's (HKEx) and Shanghai-Hong Kong Stock Connect's (Stock Connect) market turnover this month reflects rising interest in Stock Connect. "It's a great innovation and important for the longevity of the Hong Kong market", says capital markets partner Jamie Barr of Hogan Lovells Hong Kong. "However, it's still only just out of the blocks and there is a way to go before it delivers what its architects had planned".

Stock Connect launched in November 2014 as a controllable and expandable channel for mutual stock market access between mainland China and Hong Kong (see Article, GC Agenda China: October 2014: Shanghai-Hong Kong Stock Connect Program).

There are two parts to Stock Connect:

Trading under Stock Connect is subject to daily and aggregate quotas (for details of these, see Article, GC Agenda China: October 2014: Stock Connect: Key facts). The quotas are calculated on a netting basis at the end of each trading day.

Although the quotas for Southbound Trading lag significantly behind Northbound Trading, Chinese investors set a record high this month, for the first time using the entire daily quota for Southbound Trading. The change in trading volumes on Stock Connect has been attributed to the recent bull markets in Shanghai and Hong Kong and the following changes in law and policy:

Despite these recent liberalisations, Stock Connect will still require further refinements to make the trading scheme more convenient, efficient and attractive, particularly with a new link between the Shenzhen Stock Exchange and HKEx expected during the second half of this year, and further changes are expected in the coming months.

On 18 March 2015, the State Administration of Taxation issued the Notice on Enterprise Income Tax Issues on Payments by Enterprises to Overseas Related Parties (Circular 16), which introduces measures that may result in the denial of income tax deductions for certain royalties and service fees paid by Chinese- registered entities to their overseas affiliates. Transfer pricing has attracted ever greater scrutiny in recent years, and the rules and policies have increasingly pushed the burden onto taxpayers to properly document and support their intra-group payments and related deductions. Circular 16, which is effective retroactively, requires China’s tax bureaus to deny deductions for fees paid to an overseas affiliate that lacks sufficient substantive operations or for services that do not directly or indirectly benefit the Chinese company. For example, deductions are not available where:

Circular 16 also targets royalty payments to an overseas affiliate who is the legal owner of the licensed intellectual property but whose relative contribution to the creation of value in the intellectual property does not justify the amount of the royalty, in accordance with an arm’s length principle. Jon Eichelberger, Senior Tax Partner of Baker & McKenzie in Beijing comments, "With Bulletin 16, China has gone ahead of the curve on a core issue of international taxation today, one that is being addressed by the OECD’s Base Erosion and Profit Sharing project, but for taxpayers the ambiguities in the new rules, particularly about the treatment of royalties, have created a great deal of uncertainty for both future and past intercompany arrangements".

On 2 April 2015 the Legislative Affairs Office of the State Council issued the Draft Service Invention Rules (Draft for Comment) (Service Invention Rules), which represent the fourth consultation draft on China’s statutory compensation requirements for employee service inventions. The Patent Law of the People’s Republic of China 2008 (Patent Law), including a draft revision of the Patent Law circulated 1 April, requires payment of "reasonable" compensation to employees who create service inventions for which their employer is granted a patent (including a design or utility model patent). The reasonableness of the compensation is determined by the employer’s application of and remuneration from the invention. For further detail of the current state of employee IP protections in China, see Practice note, Protecting employee intellectual property in China.

The implementing regulations for the Patent Law provide default compensation, including a one-off bonus, plus a percentage of the profits, royalties or sales price, in the absence of an agreement or established company policy. The Service Invention Rules would increase the statutory compensation that must be paid to an employee for a patented service invention to 5% of the profits or 0.5% of the revenue, and require that compensation in the amount of 3% of the profits or 0.3% of the revenue be paid to an employee for an unpatented service invention that is protected as a trade secret. These default rules only apply where the employer has no agreement with the employee and no established compensation scheme, though any such agreement or policy is potentially invalid to the extent it eliminates, limits or imposes unreasonable conditions on the employee. These concepts have been included consistently in recent drafts of the Service Inventions Rules. According to Scott Palmer of Sheppard Mullin, this "appears to suggest that company policies and agreements with R&D staff will be respected as a matter of course on rewards and remuneration issues if the inventors are properly informed, are given an opportunity to comment, and the policies and procedures adopted are otherwise consistent with the Contract Law and Labour Contract Law".

On 4 December 2014 the Ministry of Commerce (MOFCOM) (中华人民共和国商务部) issued the Provisions of the Ministry of Commerce on Imposing Additional Restrictive Conditions on the Concentration of Business Operators (for Trial Implementation) 2014 (Revised Rules), which took effect 5 January 2015 and superseded similar regulations from 2010. The Revised Rules address the "restrictive conditions", or remedies, available where a proposed business concentration is likely to produce an anti-competitive effect, and in the view of Scott Yu, Co-head of Zhong Lun’s Competition Law Practice, "offer a clearer roadmap for the entire merger remedy process, and particularly a more sophisticated divestment mechanism".

The Revised Rules expand the available remedies to include structural remedies (such as divestment), as well as behavioural remedies, and permit hybrid solutions which combine aspects of both behavioural and structural remedies. They also permit MOFCOM to modify or remove restrictive conditions as warranted by the actual circumstances of a concentration and, under specified circumstances involving a divestment, to require business operators to find an "upfront buyer" and conclude a sale and purchase agreement before completing a concentration.

The Revised Rules inject new and potentially troublesome timing elements into the review procedure. MOFCOM must determine that a proposed concentration will actually generate an anti-competitive effect, or be likely to do so, "in a timely manner". By contrast, business operators must propose a final remedial plan within a fixed period, i.e. 20 days before the expiration of the in-depth review process (which could mean 100 days after the review process begins, or 160 days, if the "extended" in-depth period is included). Finally, the Revised Rules impose a so-called "crown jewel" mechanism to protect the value of a proposed concentration, where MOFCOM may require the business operators to suggest an alternative remedy where there is a risk that the proposed remedy cannot be implemented.

On 26 March 2015 the Ministry of Land and Resources (MLR) circulated a draft of the Implementing Rules of the Interim Regulations on the Registration of Immovable Assets 2015 for public comment. The Draft Implementing Rules, together with the Interim Regulations on Real Estate Registration 2014, which took effect 1 March 2015, will lead to the establishment of a nationwide real property registration system in China.

The current registration system is administered by a number of government authorities largely based on different local rules. For example, the land use rights and building ownership of a property may be jointly or separately administered depending on the locality. In cities where the registration is separately administered, searches must be conducted on separate registries at the relevant government authorities (for example, at the MLR for land use rights and at Ministry of Housing and Urban-Rural Development for building ownership).

The new system, which is currently being led by a single regulator, i.e. the MLR, involves a unified registration system which was launched in Xuzhou, Luzhou, Qingdao and other cities in March, with other cities including Nanjing, Ningbo and Zhengzhou to follow. The new system is expected to be fully implemented nationwide by 2020. Any rights holder or other "interested party" will be permitted to conduct a property search, and registration information will be shared among government agencies, including the tax and public security authorities. The move is seen as a possible precursor to a real estate tax and as a tool in the government’s anti-corruption campaign, but it remains to be seen whether it will significantly aid court enforcement actions. In the view of Rico Chan, a real estate partner at Baker & McKenzie in Hong Kong, "this unified registration of various types of immovable property rights should help to reduce transaction risks, but some systemic risks (such as the possibility of an intervening court attachment order in the middle of a transaction) remain."