Looking back at 2022, the economic slowdown in China caused by the Covid-19 pandemic and a string of unexpected regulatory moves from policymakers contributed to the more challenging business environment and impacted overall market optimism.
Some of the most important regulatory changes in 2022 were headed by the shortening of the Negative Lists, which enable market access to foreign companies.
The Negative List for Foreign Investment Access and the Negative List for Foreign Investment in Pilot Free Trade Zones enumerate the industries where foreign investment will either be prohibited or restricted. The National Negative List and the FTZ Negative List were shortened to 31 and 27 items, respectively. Both lists widened the opening of the automobile manufacturing and the radio and TV device manufacturing sectors.
The shortening of the lists was followed by the Tariff Adjustment Plan, which determined import and export tariffs of selected goods.
In 2022, China imposed interim import tax rates on 954 commodities, previously subject to the default most favored nation (MFN) tariffs – that are higher. Among the items included were anti-cancer drugs and medical products, aquatic products and sports equipment, high-efficiency auto parts, materials for environmental restoration, and manufacturing components and raw materials.
The Chinese government issued the Measures for the Safety of Food as well for import or export, which directly affect the food industry and cover requirements on food exports to China, including overseas facilities registration, record filing by importers and exporters, quarantine and inspection, and product labelling, among others.
In the past three years, the Chinese authorities have clamped down on antitrust violations, banned private tuition groups, reined in property developers' debt binge, and imposed data processing rules, as well as a supervision system for cross-border data flow.
The most important pieces of legislation have been the Anti-Monopoly Law, which imposes rules to prohibit unfair competition online and abuses of market dominance, the Data Security Law (DSL) and Personal Information Protection Law (PIPL).
The current legal framework for data regulation needs further clarifications regarding data classification, data transactions, cybersecurity, and data security review process, among others. For foreign investors, data accessibility issues may continue until regulations and rules are finalized. Nevertheless, China has begun cracking down on personal data violations and abuses.
Authorities have also strengthened the supervision of advertising in key areas and focused on regulating activities, such as misleading consumers by low-quality products, failing to review the market access qualifications of sold products, and failing to urge merchants to recall defective consumer goods.
The data legislation was updated in 2022, with the release of the Cybersecurity Review Measures, the Administrative Regulations on Algorithm Recommendations, and the Cyber Protection Regulations for Minors.
One of the most significant regulatory developments in China’s data field is the adoption of the Cybersecurity Review Measures. These new measures require internet platform operators to conduct a cybersecurity review if they carry out data processing activities affecting China’s national security or if they process personal data of more than one million individuals and seek IPOs at foreign stock markets.
If triggered, the cybersecurity review process will involve self-assessment by the concerned company plus preliminary and special review by the regulators. Failure to comply will expose businesses to severe legal consequences, ranging from confiscation of illegal gains, administrative fines up to RMB 10 million, revocation of business license or permits, and even criminal liabilities in the worst occasion.
Foreign companies should be extremely vigilant on these previously mentioned areas, especially on the cross-border transfer of data.
In 2022, factors such as the Covid-19 city-wide lock downs and the conflict in Ukraine diminished economic momentum and opportunities for business. It’s clear that the government’s regulatory campaign has shifted away from the ‘growth above all’ mentality seen in previous years.
The Covid zero policy in China, supply chain interruptions and stricter regulations have forced foreign companies to reconsider their further investments in the country. Many are looking to move or diversify their production lines to friendlier shores, such as Vietnam.
Though companies remain interested in the vast Chinese market, and most plan to keep a presence in the country, many are reconsidering the logistics.
Foreign investment in China’s tech companies has gotten more complicated. For international corporations, accessing corporate data from China can become difficult in the near term. Foreign companies running platforms or apps in China must be more vigilant when collecting and using personal information amid a tighter regulatory environment.
Economists estimate that the worst of China’s regulatory crackdown is over as Beijing shifts its focus to supporting growth. This does not mean the end of regulation but signals fewer major changes ahead, according to analysts.
To learn more about our services in China, contact our Head of Business Advisory - Ms. Kristina Koehler-Coluccia at kristina@woodburnglobal.com.
DISCLAIMER: All information in this article is verified to the best of our ability and is assumed to be correct at time of release; however, Woodburn Accountants & Advisors does not accept responsibility for any losses arising from reliance on the information provided within. The information provided is for general guidance and does not replace specialized advice.