2022/2023

The information contained herein is based on input and analysis from January 2022 to August 2022.

The information is provided for informational purposes only, and should not be construed as business or legal advice
on any specific facts or circumstances. No users of this position paper should act or refrain from acting on the basis of
any content included, without seeking appropriate professional advice.

The European Union Chamber of Commerce in China does not assume any legal liability or responsibility for the
accuracy and completeness of the information provided in the position paper.

©2022 by the European Union Chamber of Commerce in China, all rights reserved. This position paper may not be
reproduced either in part or in full without prior written consent of the European Union Chamber of Commerce in China.

Cover image ©Harry Zhang, European Union Chamber of Commerce in China, all rights reserved.
The European Business in China Position Paper 2022/2023 represents the views of the
European Union Chamber of Commerce in China. Our working groups, fora and more
than 1,800 member companies have together compiled the latest assessments, concerns
and recommendations of European businesses operating in China.

We hope that this position paper will promote constructive dialogue between Europe
and China, at both the political and business levels. We look forward to continued
improvement in business cooperation, to the benefit of both Europe and China.

8 This icon
represents the number of years the working group has been making this recommendation.

This icon
indicates that the Key Recommendation is related to achieving carbon neutrality.
 Table of Contents

Message from the President..............................................................................................1

About the European Chamber............................................................................................3

Executive Summary..............................................................................................................4

Section One: Executive Position Paper ...........................................................9

Section Two: Horizontal Issues.......................................................................32

Compliance and Business Ethics....................................................................................35
Environment........................................................................................................................ 42
Finance and Taxation.........................................................................................................54
Human Resources..............................................................................................................65
Intellectual Property Rights...............................................................................................74
Inter-chamber Small and Medium-sized Enterprise ...................................................82
Investment .......................................................................................................................... 94
Legal and Competition.....................................................................................................103
Research and Development ..........................................................................................116
Standards and Conformity Assessment......................................................................126
Quality and Safety Services.....................................................................................139

Section Three: Goods.....................................................................................148

Agriculture, Food and Beverage....................................................................................152
Daiy...............................................................................................................................165
Food for Special Medical Purpose and Paediatric Nutrition..............................171
Automotive.........................................................................................................................180
Auto Components.............................................................................................................192
Cosmetics.......................................................................................................................... 198
Energy.................................................................................................................................208
Carbon Market............................................................................................................222
Fashion and Leather .......................................................................................................231
Healthcare Equipment.....................................................................................................242
 Table of Contents

Maritime Manufacturing and Industrial Services.......................................................255

Petrochemicals, Chemicals and Refining...................................................................265

Pharmaceutical................................................................................................................. 279
Rail.......................................................................................................................................294

Section Four: Services................................................................................... 303

Aviation and Aerospace..................................................................................................307

Construction.......................................................................................................................316

Heating..........................................................................................................................326

Information and Communication Technology.............................................................335

Cybersecurity..............................................................................................................347

Logistics..............................................................................................................................357

International Liner Shipping.....................................................................................368

Section Five: Financial Services...................................................................374

Banking and Securities....................................................................................................377

Non-banking Financial Institutions............................................................................... 390

Insurance............................................................................................................................401

Section Six: Forums.......................................................................................407

Corporate Social Responsibility....................................................................................408

Government Affairs.......................................................................................................... 409

Manufacturing................................................................................................................... 410

Marketing and Communications...................................................................................411

Small and Medium-sized Enterprise............................................................................412

Sports..................................................................................................................................413

Section Seven: Appendix.............................................................................. 414

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

Message from the President

Although Europe and China already sit at opposite ends of a shared continent, it seems they are drifting further
and further apart. The rest of the world has largely resumed pre-pandemic levels of ‘normality’, but China
remains reluctant to open its doors.

Europe misses the deep level of engagement it had with China in areas such as arts and culture, sport and
tourism; and being far removed from discussions on global matters, as well as unable to showcase its potential
to foreign investors, is an immeasurable loss for China. The country’s ‘splendid isolation’ not only makes
travelling in and out tedious, but also by inhibiting people-to-people exchanges—with China’s voice now almost
exclusively virtual—it inevitably leads to less understanding of this great nation.

Inbound investment flows from the European Union (EU) are declining:1 the bulk is contributed by a handful of
large companies, and prevalent access barriers deter potential newcomers to the market.2 The present mix of
multinational companies and ‘hidden champions’3 is stable, but there is increasing discrepancy between market
potential and the actual market share of European companies. And while those already established in China are
not looking to leave, they are increasingly weighing up the possibility of shifting planned or future investments to
other markets that are perceived to provide greater reliability and predictability.4

At the same time, Chinese investment into Europe has long been on a downward trajectory and is now falling
well short of its potential.5 Yet the importance of the European market to Chinese investors is indisputable, as
demonstrated most recently by Chinese energy storage giant CATL announcing it will invest euro (EUR) 7.34
billion to build a new battery plant in Hungary, its second in Europe.6

Trade could represent the means of strengthening ties between the two sides, but currently it is lopsided. The
European market’s importance as a destination for Chinese exports is around double that of the Chinese market
for Europeans.7 This asymmetry looks likely to remain, as Chinese official customs data show that in the first
seven months of 2022, China’s exports to the EU increased almost 20 per cent, whereas EU exports to China
declined 7.5 per cent year-on-year.8 In addition, while recent Chinese foreign trade data showed a renewed
momentum in overall Chinese exports, 9 imports are still subdued and expected to remain so due to weak
domestic demand and supply chain disruptions.10

1　Garcia Herrero, Alicia, Dieu Nguyen, Trinh & Xu, Jianwei, Natixis Asia M&A Monitor: Inbound Declined and Reshuffled, with Covid-19 and Geopolitics Boosting
Bids to Southeast Asia, Natixis, 18 th August 2022, viewed 24 th August 2022, <https://www.research.natixis.com/Site/en/economics/latest-publications/publication/
I7Dl9AWcu6cVogD9F2tquw%3D%3D>
2 Between 2006 and 2015, the concentration of European foreign direct investment (FDI) in China was more or less evenly distributed between the top 10 investors and the
rest. However, in the last four years, the top 10 investors contributed more than 70 per cent of European FDI in China. Kratz, Agatha, Barkin, Noah & Dudley, Lauren, The
Chosen Few: A Fresh Look at European FDI in China, Rhodium Group, 14th September 2022, viewed 14th September 2022, <https://rhg.com/research/the-chosen-few/>
3　A hidden champion is a company that occupies a leading position in its global market without a high level of public awareness.
4　European Business in China Business Confidence Survey 2022, European Union Chamber of Commerce in China, p. 12, 20th June 2022, viewed 23rd August 2022, <https://
www.europeanchamber.com.cn/en/publications-business-confidence-survey>
5　In 2021, completed Chinese FDI in Europe increased 33 per cent to EUR 10.6 billion (bn), from EUR 7.9bn the previous year. 2020 and 2021 were the lowest and second
lowest years respectively for Chinese investment in Europe since 2013. Kratz, Agatha, Zenglein, Max J., Sebastian, Gregor & Witzke, Mark, Chinese FDI in Europe – 2021
Update, Rhodium Group & Mercator Institute for China Studies, p. 3, April 2022, viewed 23rd August 2022, <https://rhg.com/wp-content/uploads/2022/04/MERICS-Rhodium-
Group-COFDI-Update-2022-2.pdf>
6　CATL announces its second European battery plant in Hungary, Contemporary Amperex Technology Co Limited (CATL), 12th August 2022, viewed 23rd August 2022, <https://
www.catl.com/en/news/983.html>
7　In 2021, EU imports from China reached their highest annual value of EUR 472bn, with China being the largest partner for EU imports of goods. Meanwhile, EU exports to
China totalled EUR 223bn. China-EU - international trade in goods statistics, Eurostat, February 2022, viewed 23rd August 2022, <https://ec.europa.eu/eurostat/statistics-
explained/index.php?title=China-EU_-_international_trade_in_goods_statistics>
8　Imports and Exports by Country (Region) of Origin/Destination, General Administration of Customs, 18th August 2022, viewed 8th September 2022, <http://english.customs.
gov.cn/Statics/87f10777-75bf-47fa-a98d-a2abdc2424a8.html>
9　China Exports YoY, Trading Economics, July 2022, viewed 30th August 2022, <https://tradingeconomics.com/china/exports-yoy>
10 Between Shocks and Stimulus, China Economic Update, World Bank, p. 36, June 2022, viewed 23 rd August 2022, <https://documents1.worldbank.org/curated/
en/099640106102210762/pdf/P17579708f26d5018098840f1ad978bb54b.pdf>

Message from the President 1

Widespread regulatory barriers—both visible and invisible—continue to constrain the ambitions of European
companies operating in the Chinese market. Puzzling COVID-related quarantine and even disinfection rules
for imported parcels and goods act as an additional dampener. Challenges will only intensify as firms face
increasing scrutiny from EU stakeholders, governments, non-governmental organisations and media over a
range of issues. One major topic that came under the spotlight recently was Russia’s invasion of Ukraine, which
subsequently raised questions over whether China could take similar actions against Taiwan and what the
impact might be on companies’ global operations.11

A diversification debate is also intensifying. With China staying largely closed, European companies see the
need to make their global supply chains more resilient. This presents opportunities to other emerging markets
that are ready to welcome new investment and jobs,12 and has seen companies evaluate reshoring, nearshoring
or ‘friend-shoring’13 as possible solutions. Meanwhile, China’s push both for increased ‘self-reliance’14 and ‘buy
China'15 are only easing the country into deeper isolation at a time when its economy would benefit from getting
back on the path towards opening up.

The European Chamber needs China to fulfil its huge economic potential. To that end, we put forward 967
constructive recommendations in this position paper based on the expertise of our member companies in our
35 working groups and sub-working groups. The extensive number of issues raised demonstrates European
companies’ commitment to staying and improving the business environment. However, they also serve as a
reminder that action is needed from Chinese decisionmakers to alleviate the ‘promise fatigue’ still being suffered
by European investors.

Jörg Wuttke
President
European Union Chamber of Commerce in China

11 Sevastopulo, Demetri & Edgecliffe-Johnson, Andrew, Executives seek briefings on Taiwan war risk, Financial Times, 12th July 2022, viewed 25th August 2022, <https://www.
ft.com/content/8c753573-b2d7-42a9-810f-25ab37eb0099?utm_source=substack&utm_medium=email>
12 Garcia Herrero, Alicia, Dieu Nguyen, Trinh & Xu, Jianwei, Natixis Asia M&A Monitor: Inbound Declined and Reshuffled, with Covid-19 and Geopolitics Boosting
Bids to Southeast Asia, Natixis, 18th August 2022, viewed 24 th August 2022, <https://www.research.natixis.com/Site/en/economics/latest-publications/publication/
I7Dl9AWcu6cVogD9F2tquw%3D%3D>
13 These are all terms related to the reshaping of supply chains to fix weaknesses and increase economic resilience. Reshoring is the act of bringing manufacturing from
a remote location to the company’s home country; nearshoring is the act of bringing manufacturing nearer to the point of use; friend-shoring is the act of relocating
manufacturing to a country that is considered a trusted partner to the company’s home country.
14 Wu, Wendy, Wang, Orange & Cai, Jane, ‘Two sessions’ 2022: self-reliance highlighted as China’s top economic priority amid turbulent geopolitical times, SCMP, 6th March
2022, viewed 25th August 2022, <https://www.scmp.com/economy/china-economy/article/3169405/self-reliance-chinas-top-economic-priority-turbulent>
15 Zipser, Daniel, Seong, Jeongming & Woetzel, Jonathan, Five consumer trends shaping the next decade of growth in China, McKinsey, 11th November 2021, viewed 25th
August 2022, <https://www.mckinsey.com/cn/our-insights/our-insights/five-consumer-trends-shaping-the-next-decade-of-growth-in-china>

2 Message from the President

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

ABOUT THE EUROPEAN UNION CHAMBER OF COMMERCE IN CHINA

The European Union Chamber of Commerce in China (European Chamber) was

fo u n d e d i n founded in 2000 by 51 member companies that shared a goal of establishing a

2000 common voice for the various business sectors of the EU and European businesses
operating in China. It is a member-driven, non-profit, fee-based organisation with
a core structure of 34 working groups and fora representing European business in
b y 5 1 mem b e r
compa n ies China.

The European Chamber has more than 1,800 member companies in seven chapters
operating in nine cities: Beijing, Nanjing, Shanghai, Shenyang, South China
(Guangzhou and Shenzhen), Southwest China (Chengdu and Chongqing) and Tianjin.

34 Each chapter is managed at the local level by local boards reporting directly to the
Executive Committee.
working
g r o u ps a n d
fo r a The European Chamber is recognised by the European Commission and the Chinese
authorities as the official voice of European business in China. It is also recognised
as a foreign chamber of commerce by the Ministry of Civil Affairs. The European
Chamber is part of the growing network of European Business Organisations (EBOs),
which connects European business associations and chambers of commerce from 42
mo r e tha n
non-EU countries and regions around the world.

1,800 Mission Statement

mem b e r
compa n ies
As a member-based organisation, the European Chamber seeks to:
1 Ensure greater market access and a level playing field for European companies
operating in China;
2 Improve market conditions for all businesses in China;
3 Facilitate networking and communication among members and stakeholders;
ope r ati n g i n 4 Provide specific, relevant information to its members on how to do business in

9 5
China; and
Update its members on economic trends and legislation in China.
cities

Principles

1 We are an independent, non-profit organisation governed by our members.

2 We work for the benefit of European business as a whole.
3 We operate as a single, networked organisation across Mainland China.
4 We maintain close, constructive relations with the Chinese and European
authorities, while retaining our independence.
5 We seek the broadest possible representation of European business in China
within our membership: small, medium and large enterprises from all business
sectors and European Member States, which operate throughout China.
6 We operate in accordance with Chinese laws and regulations.
7 We treat all of our members, business partners and employees with fairness and
integrity.

About the European Chamber 3

 Executive Summary
Executive Summary

Ideology trumps the economy

Over the last year, there has been a significant shift in focus at the headquarters (HQs) of European
companies when evaluating China. Where discussions once centred primarily on investment opportunities,
they are now focussed on building supply chain resilience, the challenges of doing business, managing
the risk of reputational damage and the importance of global compliance. How did China, the architect of
the greatest economic growth story in history, lose its allure as an investment destination so quickly?

After China embarked on its programme of reform and opening up in the late 1970s,1 its economy came
to be guided predominantly by pragmatic principles, as state planners sought to ensure stability. Immense
economic returns followed, and reforms facilitated significant inflows of foreign direct investment (FDI),
with international companies recognising the country’s enormous market potential and its increasingly
stable business environment.2 However, China is now having to confront mounting internal and external
challenges that seem to have drawn the government’s attention away from its reform agenda.

One of the most immediate internal challenges the country faces is justifying its stringent COVID policy
at the expense of economic growth and stability. Mass lockdowns and strict quarantines saw China’s
economy slump in 2022. China’s National Bureau of Statistics reported 0.4 per cent year-on-year
growth for the second quarter, the lowest since the first quarter of 2020 when China closed down almost
completely and its economy contracted for the first time in nearly three decades.3 In July 2022, the
unemployment rate reached 19.9 per cent among 16- to 24-year-olds;4 and the Purchasing Managers
Index (PMI) employment index was 48.6 per cent for manufacturing and 46.7 per cent for services,
down 0.1 and 0.2 percentage points respectively from the previous month.5 Other significant internal
challenges include China’s debt crisis, which has been exacerbated by the COVID-19 pandemic as
lending accelerated to help businesses recover;6 the unravelling of the real estate sector, with property
sales forecast to drop by around 30 per cent in 2022;7 demographic headwinds;8 and stalling consumption
growth.9 On top of this, local government finances are being drained as they remain under pressure to
continue with the continuous mass testing of their citizens in the pursuit of ‘zero COVID’.10

1　 China’s accession to the World Trade Organization (WTO) in 2001 saw it abolish, revise or introduce more than 2,300 national laws and nearly 200,000 local regulations,
which led to further market opening: China and the World Trade Organization, State Council Information Office of the People’s Republic of China, June 2018, viewed 25th
July 2022, <http://english.www.gov.cn/archive/white_paper/2018/06/28/content_281476201898696.htm>; and China’s Economic Rise: History, Trends, Challenges, and
Implications for the United States, Congressional Research Service, 25th June 2019, viewed 25th July 2022, <https://sgp.fas.org/crs/row/RL33534.pdf>
2　 Schuman, Michael, China’s ‘Very Dangerous Trajectory’, The Atlantic, 21st June 2022, viewed 21st July 2022, <https://www.theatlantic.com/international/archive/2022/06/
china-xi-jinping-power-zero-covid/661228/>
3　 Sorkin, Andrew Ross, Giang, Vivian, Gandel, Stephen, Hirsh, Lauren, Livni, Ephrat & Gross, Jenny, China’s Shuddering Economic Engine, The New York Times, 15th July
2022, viewed 16th August 2022, <https://www.nytimes.com/2022/07/15/business/dealbook/chinas-shuddering-economic-engine.html>
4　 Cheng, Evelyn, China’s consumer and factory data miss expectations in July, CNBC, 14th August 2022, viewed 16th August 2022, <https://www.cnbc.com/2022/08/15/
chinas-consumer-and-factory-data-miss-expectations-in-july.html>
5　 Purchasing Managers Index for July 2022, National Bureau of Statistics of China, 2nd August 2022, viewed 16th August 2022, <http://www.stats.gov.cn/english/
PressRelease/202208/t20220802_1886994.html>
6　 Lee, Yen Nee, These charts show the dramatic increase in China’s debt, CNBC, 13th July 2021, viewed 2nd August 2022, <https://www.cnbc.com/2021/06/29/china-
economy-charts-show-how-much-debt-has-grown.html>
7　 Cheng, Evelyn, China’s property sales are set to plunge 30% - worse than in 2008, S&P says, CNBC, 27th July 2022, viewed 2nd August 2022, <https://www.cnbc.
com/2022/07/27/chinas-property-sales-set-for-a-worse-plunge-than-in-2008-sp-says.html>
8　 Woo, Ryan & Yao, Kevin, China demographic crisis looms as population growth slips to slowest ever, Reuters, 11th May 2021, viewed 9th August 2022, <https://www.
reuters.com/world/china/china-2020-census-shows-slowest-population-growth-since-1-child-policy-2021-05-11/>
9　 Wang, Orange, & Ip, Cyril, China’s consumption growth surprises analysts, and outlook for exports and property market remains uncertain, SCMP, 15th November 2021,
viewed 9th August 2022, <https://www.scmp.com/economy/china-economy/article/3156130/chinas-consumption-growth-surprises-analysts-and-outlook>
10　 Li, Lyric & Shepherd, Christian, Costly, scandal-ridden mass testing is China’s latest ‘zero covid’ bet, The Washington Post, 13th June 2022, viewed 16th August 2022,
<https://www.washingtonpost.com/world/2022/06/13/china-covid-testing-companies/>

4 Executive Summary
 European Business in China Position Paper
欧盟企业在中国建议书 2022 /2023

The main external challenges facing the country include rising geopolitical tensions, stemming primarily
from the trade war with the United States (US), and a growing number of calls from several countries
for China to address alleged human rights abuses, with changes in consumer demand and increasing

Executive Summary
global regulations having played their part in this regard. Companies operating in China are facing more
public pressure to demonstrate a greater degree of transparency in their operations to avoid reputational
damage in their home markets. Due to new and emerging legislation,11 they must now demonstrate that
their supply chains, both up- and downstream, are free of forced labour in order to uphold corporate
pledges and maintain their licence to operate, as well as to remain globally compliant.

In the past, China would have confronted these challenges with the same kind of pragmatism that
accelerated so much of its development over the decades; however, the sheer scale of them, combined
with the pressure to provide sustainable economic growth, has made the current situation more
precarious. While China believes that its system of governance will prevail over what it perceives to be
a relative decline of US-led liberal democracies, it first needs to ensure that it can weather the current
geopolitical storm. To do so, Beijing has turned more inward to increase its level of self-reliance, as
described in its 14th Five-year Plan,12 and is trying to ensure that the principles it espouses are accepted
by and embedded within its population. China’s move away from the rest of the world—embodied by the
restrictions imposed under its COVID-19 policy—indicates that, at the moment, ideology is trumping the
economy.13

If China persists with such an approach, the business environment will continue to become more
challenging. For example, COVID-related restrictions have already had a crippling effect on the attraction
and retention of foreign and Chinese talent. The ever-changing visa and work permit procedures, and
extreme limitations on travel in and out of China, have provided additional impetus to the exodus of
foreign nationals from the European Union (EU), as well as from countries such as Japan, Korea and the
US, that was already underway.

China operations are also becoming increasingly isolated because staff, both foreign and Chinese,
are unable to travel freely to European HQs for regular business exchanges, networking, training and
experience/expertise sharing. Senior decision-makers from HQs are also being deprived of first-hand
China experience, which is resulting in less understanding of—and therefore less desire to engage with—
China. European HQs will only become more averse to committing to investing in a country they have a
diminishing understanding of, particularly when they perceive political, economic and reputational risks
to be increasing. To justify their investments, European companies therefore need China to demonstrate
more transparency and predictability, as the challenge of aligning China operations with both global
corporate pledges and legislation increases. Meanwhile, as the rest of the world operates largely under
pre-pandemic levels of openness, a vacuum is being created for other emerging markets with more
predictable and reliable business environments to step in and aggressively pursue foreign investment that
may have previously been China-bound.

That is not to say that European companies no longer attach great importance to the China market. The

11　 Both the US’ Uyghur Forced Labor Prevention Act and the European Union’s (EU’s) forthcoming Corporate Sustainability Reporting Directive pose a compliance challenge
for European businesses operating in China, or their partners, due to the inability to carry out independent third-party audits of supply chains in Xinjiang to prove that
their goods and services are free of forced labour. Implementation of the Uyghur Forced Labor Prevention Act, US Department of State, 21st June 2022, viewed 13th July
2022, <https://www.state.gov/implementation-of-the-uyghur-forced-labor-prevention-act/>; New rules on corporate sustainability reporting: provisional political agreement
between the Council and the European Parliament, European Council, Council of the European Union, 21st June 2022, viewed 13th July 2022, <https://www.consilium.
europa.eu/en/press/press-releases/2022/06/21/new-rules-on-sustainability-disclosure-provisional-agreement-between-council-and-european-parliament/>
12　 Outline of the People’s Republic of China 14th Five-Year Plan for National Economic and Social Development and Long-Range Objectives for 2035, Center for Security
and Emerging Technology, 12th May 2021, viewed 28th July 2022, <https://cset.georgetown.edu/wp-content/uploads/t0284_14th_Five_Year_Plan_EN.pdf>
13　 Schuman, Michael, China’s ‘Very Dangerous Trajectory’, The Atlantic, 21st June 2022, viewed 21st July 2022, <https://www.theatlantic.com/international/archive/2022/06/
china-xi-jinping-power-zero-covid/661228/>

Executive Summary 5
 country still has significant growth potential, and its manufacturing base and world-class industrial clusters
are hard, if not impossible, to replicate elsewhere. However, the extent of European firms’ engagement
can no longer be taken for granted. Although statistics published by China’s Ministry of Commerce show
Executive Summary

that FDI into China grew in 2020, investment from the EU dropped 11.8 per cent from the previous year,
and its proportion of overall FDI fell to 3.8 per cent from a high of 11.1 per cent in 1999.14 The trend of
declining FDI is unlikely to reverse while European executives are heavily restricted from travelling to and
from China to develop potential greenfield projects.

In fact, the growing list of challenges is pushing many to reduce, localise and silo their China operations,
with an increasing number creating two separate systems—one for China and one for the rest of the
world—which is an expensive and inefficient solution.15 Several companies are also now looking into the
options of reshoring, ‘nearshoring’ and 'friend-shoring',16,17&18 a trend that is likely to continue as European
companies look to maintain a strong presence in this important market, while ensuring that they do not
become over-reliant.

As governments respond to the uncertain environment in China by reducing engagement, and businesses
increasingly consider shifting planned or future investments to other markets, 19 the chances for
miscommunication and misunderstanding increase. This issue risks being further aggravated by rising
negative public opinion in many countries towards China, which in turn pushes foreign governments to
take harsher stances towards the country.20 At the same time, given China’s self-imposed quarantine, it is
not possible that opinion leaders in China understand Europe better than they did pre-COVID.

The change in European public sentiment towards China, and the increasing need to ensure fairness in
its Single Market, has resulted in the European Union (EU) re-evaluating and updating its China policy.
Messaging coming from China now has a much bigger impact in the EU and is taken more seriously
than previously, as the population has become more sceptical towards the country. This—among other
factors—has had an influence on the EU's decision to become more proactive instead of reactive to third
countries, particularly through the development of new trade instruments. Although these instruments—
including the investment screening mechanism, the International Procurement Instrument (IPI) and the
anti-coercion instrument, among others—have not necessarily been developed specifically for China, they
are aimed at protecting the EU Single Market against distortions, pushing for reciprocal treatment and
increasing market access for EU companies in third countries; all issues that the EU has encountered in
regard to China.

14 Wang, Orange, Explainer: How much is China’s foreign direct investment and is it still a good destination for overseas investors?, SCMP, 10th June 2022, viewed 9th
August 2022, <https://www.scmp.com/economy/economic-indicators/article/3181037/how-much-chinas-foreign-direct-investment-and-it-still>
15　 This includes companies’ staff, supply chains, information technology systems and data storage infrastructure. For more information see: European Business in China
Business Confidence Survey 2022, European Union Chamber of Commerce in China, 20th June 2022, viewed 24th July 2022, <https://www.europeanchamber.com.cn/
en/publications-business-confidence-survey>; Some companies are also separating their research and development (R&D) operations, with core R&D being carried out
in Europe or other countries, and China R&D functions focussing more on localisation. For more information see: China’s Innovation Ecosystem: Right for many, but not
for all, European Union Chamber of Commerce in China and MERICS, 8th June 2022, viewed 28th July 2022, <https://www.europeanchamber.com.cn/en/publications-
archive/1019/China_s_Innovation_Ecosystem_Right_for_Many_But_Not_for_All>
16　 These are all terms that are related to the reshaping of supply chains to fix weaknesses and increase economic resilience. Reshoring is the act of bringing manufacturing
from a remote location to the company’s home country; nearshoring is the act of bringing manufacturing nearer to the point of use; friend-shoring is the act of relocating
manufacturing to a country that is considered a trusted partner to the company’s home country.
17 Masters, Brooke & Edgecliffe-Johnson, Andrew, Supply chains: companies shift from 'just in time' to 'just in case', Financial Times, 20th December 2021, viewed 11th July
2022, <https://www.ft.com/content/8a7cdc0d-99aa-4ef6-ba9a-fd1a1180dc82>
18　 Beattie, Alan, The US ‘friendshoring’ experiment risks making enemies, Financial Times, 2nd August 2022, viewed 3rd August 2022, <https://www.ft.com/content/d8a0ce5e-
dc8b-4bce-8dbf-c09d08d263a5>
19　 European Business in China Business Confidence Survey 2022, European Union Chamber of Commerce in China, p. 12, 20th June 2022, viewed 24th July 2022, <https://
www.europeanchamber.com.cn/en/publications-business-confidence-survey>
20 Kurlantzick, Joshua, China’s Collapsing Global Image, Council on Foreign Relations, p. 2, July 2022, viewed 12th August 2022, <https://www.cfr.org/report/chinas-
collapsing-global-image?utm_source=substack&utm_medium=email>

6 Executive Summary
 European Business in China Position Paper
欧盟企业在中国建议书 2022 /2023

Further adding to the complexity of EU-China relations and doing business in China is the position of
Taiwan in global supply chains and the potential for related geopolitical issues to erupt. As a leading
producer of semiconductors, Taiwan’s strategic importance in global supply chains cannot be overstated.21

Executive Summary
The semiconductor shortage, which started in 2020,22 illustrated both how critical semiconductors are to
multiple industries and how reliant the world is on Taiwan.23&24

The EU is looking to increase investment opportunities with Taiwan in areas where “interests intersect”,
including attracting additional investment in the EU’s semiconductor industry to reach the goals set out
in its European Chips Act.25&26 In May 2022, the EU and Taiwan committed to upgrading their annual
trade dialogue, which China perceived to be a breach of the ‘one China’ policy.27 EU-China relations had
already become more strained over Taiwan when a representative office was opened in the Lithuanian
capital of Vilnius in November 2021 under the name ‘Taiwan’ instead of ‘Taipei’, which is the name used
in 20 EU Member States.28&29 US-China tensions over Taiwan, which had been on the rise since former
US President Donald Trump made it policy to increase engagement with the island, have added further
complexity to the issue.30&31 Wary of becoming victims of a political dispute, European companies are
monitoring this increasingly sensitive issue and are assessing the potential risks very carefully.

Despite all these challenges, China is proficient at reacting and adapting to tectonic shifts, and turning
a crisis into an opportunity. The stage is set for it to do so, too, with much of the world expected to face
strong economic headwinds in the second half of 2022 and into 2023. This could provide the opportunity
for China to roll out its proven toolbox from the 1990s and turn its attention back to reform and opening up
to reaffirm its credentials of being a reliable, predictable and efficient market.32

Importantly, pursuing such a strategy would see China avoid punching below its economic weight.
Analysis carried out by the World Bank in 2021 illustrates that if China were to implement comprehensive
market reforms, its gross domestic product (GDP) per capita would reach US dollars (USD) 55,022 by
21　 Not only does Taiwan produce around two thirds of the world’s semiconductors, it is also the world’s largest producer of the most advanced. Advanced semiconductors
are seen as the ‘engines’ that will drive the future global economy: Taiwan/Pelosi, push to pick US or China leaves TSMC in dire straits, Financial Times, 2nd August
2022, viewed 3rd August 2022, <https://www.ft.com/content/2a86d801-2794-4320-a182-173c17dd50b0>; Jackson, Keith, Semiconductors are the engine of the global
economy—and America isn’t making enough of them, Fortune, 30th June 2020, viewed 4th August 2022, <https://fortune.com/2020/06/30/america-tech-semiconductor-
manufacturing-investment/>
22　 The shortage came about due to many different factors. Demand declined in many industries, particularly automotive, during the height of the COVID-19 pandemic,
as safety concerns saw factories slowdown or even cease production, which forced the semiconductor industry to work at a much-reduced capacity. At the same time,
demand for personal computers (PCs), laptops and gaming platforms increased due to large numbers of people being locked down and/or forced to work from home.
By the time demand had started to recover in the third quarter of 2020, the entire semiconductor supply chain was empty. The supply chain was further impacted in
different parts of the world by a host of other factors, including extreme winter weather conditions in Texas, power shortages, and a potential drought in Taiwan: Krysiak,
Bob, Why There Is a Global Semiconductor Shortage, GLG, 18th May 2021, viewed 3rd August 2022, <https://glginsights.com/articles/the-reason-why-there-is-a-global-
semiconductor-shortage/>
23　 Young, Chris, A China-Taiwan conflict could lead to a catastrophic semiconductor shortage in the world, Interesting Engineering, 2nd August 2022, viewed 3rd August 2022,
<https://interestingengineering.com/culture/a-china-taiwan-conflict-could-lead-to-a-catastrophic-semiconductor-shortage-in-the-world>
24　 Lee, Yen Nee, 2 charts show how much the world depends on Taiwan for semiconductors, CNBC, 15th March 2021, viewed 4th August 2022, <https://www.cnbc.
com/2021/03/16/2-charts-show-how-much-the-world-depends-on-taiwan-for-semiconductors.html>
25 Bermingham, Finbarr, EU to upgrade ties with Taiwan as China warns Brussels ‘not to gamble on this issue’, SCMP, 18th May 2022, viewed 3rd August 2022, <https://www.
scmp.com/news/china/diplomacy/article/3178237/eu-upgrade-trade-ties-taiwan>
26　 Digital sovereignty: Commission proposes Chips Act to confront semiconductor shortages and strengthen Europe’s technological leadership, European Commission, 8th
February 2022, viewed 3rd August 2022, <https://ec.europa.eu/commission/presscorner/detail/en/ip_22_729>
27　 Bermingham, Finbarr, EU to upgrade ties with Taiwan as China warns Brussels ‘not to gamble on this issue’, SCMP, 18th May 2022, viewed 3rd August 2022, <https://www.
scmp.com/news/china/diplomacy/article/3178237/eu-upgrade-trade-ties-taiwan>
28　 This led to China blocking imports of Lithuanian products and products with Lithuanian components, with the EU subsequently launching a WTO case against China over
economic coercion against Lithuania and other EU Member States: Valero, Jorge & Whitelaw, Kevin, EU Launches WTO Case Against China Over Lithuania Blockade,
Bloomberg, 27th January 2022, viewed 3rd August 2022, <https://www.bloomberg.com/news/articles/2022-01-27/eu-set-to-launch-wto-case-against-china-over-lithuania-
blockade>
29　 Bermingham, Finbarr, Slovenia tries to head off row with Beijing over Taiwan office, SCMP, 31st January 2022, viewed 8th August 2022, <https://www.scmp.com/news/
china/diplomacy/article/3165441/slovenia-tries-head-row-beijing-over-taiwan-office-saying-it>
30　 Chin, Josh, China-Taiwan Tensions: What’s Behind the Divide, The Wall Street Journal, 6th April 2022, 2nd August 2022, <https://www.wsj.com/articles/china-taiwan-
tensions-explained-11646894687>
31 Lee, Yimou & Wu, Sarah, Pelosi arrives in Taiwan vowing U.S. commitment; China enraged, Reuters, 3rd August 2022, viewed 3rd August 2022, <https://www.reuters.com/
world/asia-pacific/pelosi-expected-arrive-taiwan-tuesday-sources-say-2022-08-02/>
32　 OECD Economic Surveys: China 2022, OECD, pp. 68–108, 18th March 2022, viewed 14th July 2022, <https://www.oecd-ilibrary.org/economics/oecd-economic-surveys-
china-2022_b0e499cf-en>

Executive Summary 7
 2050, over 63 per cent higher than if it were to follow a path of limited market reforms (Figure 1).33 Is
China willing to sacrifice USD 22,000 per capita GDP on the altar of self-reliance?
Executive Summary

With the 20th National Congress of the Commuunist Party taking place on 16th October 2022, China finds
itself at a critical juncture: the decision of whether to take action to reach its full economic potential is
entirely in its own hands.

Figure 1: China’s potential growth trajectories

China’s output-side real GDP per capita (purchasing power parity (PPP) based), based on
three reform scenarios (2022‒2050)

60,000
GDP per capita (PPP adjusted 2011 USD)

$55,022

50,000
$45,723

40,000
$33,745

30,000

20,000

10,000

0
2022 2027 2032 2037 2042 2047

China: baseline projection (2022-2050) China: limited reforms (2022-2050)

China: comprehensive reforms (2022-2050)

Source: World Bank

33　 Based on unpublished analysis conducted by the World Bank at the request of the European Chamber.

8 Executive Summary
 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

Section One
Executive Position Paper 1
 Executive Position Paper
Executive Position Paper

Key takeaways

China’s standing as an investment destination is being eroded

• While China once shaped globalisation, the country is now being seen as less predictable, less
reliable and less efficient.
• This is leading to a loss of business confidence, opening the doors for other emerging markets to fill
the vacuum that has been created and aggressively pursue foreign investment that may otherwise
have been China-bound.

There are five key factors undermining the predictability, reliability and efficiency of China’s market:

1. State-owned enterprise (SOE) reforms have stalled, and policymaking has become more ad hoc
• While segments of China’s economy continue to open and are increasingly well-regulated, strategic
industries are only fully open to its favoured SOEs, to the detriment of the public sector.
• Over-reliance on SOEs has led to lower productivity.
• There has been a worrying trend in recent years of policies being implemented in a blanket manner,
with limited transparency and little prior consultation.

2. COVID policy is inflexible and inconsistently implemented

• China was successful in managing the initial COVID-19 outbreak in the first two years.
• However, continuing to adhere to stringent dynamic-zero control measures in the face of new,
highly transmissible variants threatens economic growth and stability.
• Sudden mass lockdowns and strict quarantines saw China’s economy slump in 2022.
• The uncertainty that businesses now feel has led to record numbers looking at shifting current or
planned investments to other markets.
• A way to alleviate the current situation would be to refocus on fully vaccinating the population and
to permit the best mix of vaccinations and boosters.
• China may not be able to fully reopen its borders until the latter half of 2023.

3. Diversity is dwindling and opportunities for knowledge-exchange are scarce

• People-to-people ties have been weakened due to travel restrictions, which is having a negative
impact on China’s image to the rest of the world.
• Companies’ foreign talent options are increasingly limited.
• The exodus of European nationals from China has accelerated.
• China-based staff have few, if any, opportunities to participate in information exchanges,
networking, training and the sharing of expertise with colleagues and partners at European
headquarters (HQs), and China operations are becoming more isolated.
• Executives from HQs are being deprived of first-hand China experience, which means less
opportunities for China to attract future investments.
• The lack of face-to-face interactions increases the risk of misunderstandings between China and
the rest of the world.

10 Executive Position Paper

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

4. Business is becoming increasingly politicised

• A long list of issues has increased political risks for businesses.
• Rising negative public sentiment towards China is pushing foreign governments to take harsher

Executive Position Paper

stances towards the country.
• Businesses are coming under pressure, both from consumers and through legislation, to
demonstrate transparency in their China operations.
• Companies need a transparent and predictable business environment to align their global corporate
pledges with realities on the ground.
• China needs to provide the conditions that allow companies to conduct trusted, third-party audits of
their operations so that they can be certified as being fully compliant with global legislation.

5. Supply chain strategies are shifting

• There are now many factors prompting companies to re-evaluate their production and distribution
networks.
• China’s position at the centre of global supply chains looks set to be challenged.
• There will not be full decoupling from China, but alternative supply chain strategies are increasingly
being discussed in boardrooms.
• Prior to the COVID-19 lockdowns in early 2022, some companies were looking into increasingly
onshoring supply chains into China, and several were looking into creating two separate supply
chains – one for China and one for the rest of the world.
• Since the lockdowns, more and more companies have started to explore options that can provide
more resilience in their supply chains.
• Companies will continue to maintain a strong presence in this important market, while keeping
viable back-up options.

What lies ahead?

Worst-case scenario

• China’s predictability, reliability and efficiency would continue to erode.

• European companies would have to further evaluate their future investments and operations in
China.
• Divergent systems would be created—one to serve China and one for the rest of the world—
slowing down innovation and leading to higher costs.
• More countries would be likely to try and increase their own self-reliance, undercutting globalisation.

The next 12 months – potential disruptions on the horizon

1. The European Union's (EU's) evolving China policy and new trade instruments
• The EU has long sought reciprocity and transparency with all of its trading partners.
• To protect the Single Market, and push for its companies to receive greater market access and
fairer treatment in third markets, the EU has created a series of trade tools.
• While it is crucial that the EU maintains a flexible China strategy that can evolve and adapt to
any emerging challenges, it is equally important that it continues to push for deeper bilateral
engagement with China.
• There are numerous shared challenges and areas for EU-China cooperation to deepen, including
World Trade Organization (WTO) reform, international standardisation and working together to

Executive Position Paper 11

 define a practical COVID-19 exit strategy.
• One area especially ripe for future cooperation is tackling climate change.
Executive Position Paper

2. Taiwan and semiconductors

• As a leading producer of semiconductors, Taiwan has strategic importance in global supply chains.
• As its largest investor, the EU maintains strong trade and investment relations with Taiwan and is
looking to deepen investment in areas where “interests intersect”.
• EU-China relations have been increasingly strained over Taiwan, with a series of incidents
escalating tensions and complicating the situation further.
• Wary of becoming victims of a political dispute, European companies are monitoring this
increasingly sensitive issue and are assessing the potential risks very carefully.
• It is important that the EU and China work together to de-escalate tensions over Taiwan.

Refocussing on reform efforts would rebuild investor confidence

• Focussing on comprehensive reform and opening up would be the most effective way for China to
quickly rebuild investor confidence.
• Doing so would put China on a much stronger growth trajectory through to the middle of the
century.
• To implement necessary reforms, political space must be given to policymakers to 'make mistakes',
and stakeholders to challenge policy ideas, to ensure that resulting policies are practical and
implementable.
 

12 Executive Position Paper

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

China’s standing as an investment destination is being eroded

Executive Position Paper

Over the past two decades, China shaped globalisation. Its impressive manufacturing bases and
advanced industrial clusters, combined with an abundance of cheap labour, transformed it into a leading
global destination for investment. However, China is increasingly being seen as less predictable, less
reliable and less efficient. This is leading to a loss of business confidence, presenting an opportunity for
other emerging markets—many of which would previously have been overlooked—to fill the vacuum
that has been created and aggressively pursue foreign investment that may otherwise have been China-
bound.

1. China’s predictability is being eroded by the frequent, erratic policy shifts that have taken place in
recent months, such as the unexpected disruptions to power supplies that took place in 2021, and the
sudden mass lockdowns that were imposed in an attempt to contain COVID. The surprise crackdowns
on the technology and education sectors have also made it clear to business that certainty can no
longer be taken for granted and have left many wondering which industry will be targeted next.1

2. China’s reliability is increasingly being questioned. The inability to carry out independent third-party
audits of China operations means the country is no longer viewed as a stable sourcing destination.
External factors such as new globally-binding regulatory measures, including the United States' (US')
Uygur Forced Labor Prevention Act and the EU’s forthcoming Corporate Sustainability Reporting
Directive,2 have added additional layers of complexity.

3. China’s efficiency is being undermined as companies decouple parts of their China operations from
global operations, both to hedge against potential global shocks and to remain compliant in both China
and their home markets. At the same time, structural advantages that the country had previously
capitalised on to great effect, such as its ‘demographic dividend’,3 are rapidly fading, leading to a loss
of productivity.

The loss of these three key pillars, which risks preventing China from maintaining a strong, sustainable
growth pattern, is happening due to five key factors:

1. SOE reforms have stalled, and policymaking has become more ad hoc

China’s ‘one economy, two systems’ model strengthens

Segments of China’s economy continue to open and are increasingly well-regulated, with restrictions on
foreign investment loosening in recent years.4 On the other side, strategic industries remain fully open
1　 He, Laura, China is cracking down on data privacy. That’s terrible news for some of its biggest tech companies, CNN, 8th July 2021, viewed 23rd July 2022, <https://edition.
cnn.com/2021/07/07/tech/china-didi-data-tech-crackdown-intl-hnk/index.html?utm_term=1658471593902aa57865d8b9e&utm_source=cnn_Meanwhile+in+China+-
+07.22.2022&utm_medium=email&bt_ee=RwpYzuwwK6vi6r4lFYXFm1PHd0C0IJLBODyNJTBgsSAFN%2FoTfsOpYhw026XRm3RM&bt_ts=1658471593909>
2　 These could both pose a compliance challenge for European businesses operating in China, or their partners, due to the inability to carry out independent third-party audits
of supply chains in Xinjiang to prove that their goods and services are free of forced labour. Implementation of the Uyghur Forced Labor Prevention Act, US Department
of State, 21st June 2022, viewed 13th July 2022, <https://www.state.gov/implementation-of-the-uyghur-forced-labor-prevention-act/>; New rules on corporate sustainability
reporting: provisional political agreement between the Council and the European Parliament, European Council, Council of the European Union, 21st June 2022, viewed
13th July 2022, <https://www.consilium.europa.eu/en/press/press-releases/2022/06/21/new-rules-on-sustainability-disclosure-provisional-agreement-between-council-and-
european-parliament/>
3　 The ‘demographic dividend’ refers to economic development that is driven by a high proportion of working-age population. This is being lost as China’s unprecedented low
number of newborns is being exacerbated by its rapidly ageing population. See: Magnus, George, Red Flags: Why Xi's China is in Jeopardy, pp. 112–129, Yale University
Press: New Haven.
4　 For example, in the automotive sector, restrictions have been removed on ownership as well as on the number of joint ventures that foreign entities can enter into: European
Chamber Stance on the Liberalisation of Ownership Restrictions in the Automotive Sector, European Union Chamber of Commerce in China, 11th January 2022, viewed
21st July 2022, <https://www.europeanchamber.com.cn/en/press-releases/3414/european_chamber_stance_on_the_liberalisation_of_ownership_restrictions_in_the_
automotive>

Executive Position Paper 13

 only to China’s SOEs, which hold the advantage in many areas of doing business—including access to
financing, licences and public procurement, and the ability to influence policy—and are largely protected
Executive Position Paper

from competition, to the detriment of the public sector, and small and medium-sized enterprises in
particular.5

Although the resurgence of SOEs is a longer-term trend, dating back to at least 2012, it accelerated
in 2017 following a speech delivered by President Xi Jinping at the 19th Party Congress, in which he
exhorted SOEs to become “stronger, better and bigger”.6 This advancement of the public sector diverges
from the spirit of reform and opening-up that put the country firmly on the path to WTO accession in 2001,
an event that catalysed the liberalisation of many sectors of China’s economy, promoted competition in
the private sector and made the market more predictable.

This approach is also seemingly at odds with China’s goal to alleviate structural problems in its economy
and increase productivity. International Monetary Fund (IMF) analysis shows that China’s economy is only
30 per cent as productive as leading economies such as Germany, the US and Japan, with this partly
due to the fact that “reform progress on SOEs and competitive neutrality has been lagging, contributing to
lower productivity and growth".7

The need to rebalance the state-owned and private sectors has been acknowledged publicly by
Chinese financial experts, including both the former and current People’s Bank of China governors
Zhou Xiaochuan and Yi Gang.8&9 Yi Gang asserted that China should consider applying the principle
of 'competitive neutrality' to SOEs as part of a solution to “solve the structural problems in the Chinese
economy”.10

Erratic policy implementation

While China has a strong track record of trialling policies before rolling them out, there has been a trend in
recent years of policies being implemented in a blanket manner, with limited transparency and little prior
consultation. The lack of policy consultation frequently ranks as a top issue facing businesses across all
European Chamber chapters.11

China’s ‘dual control’ mechanism provides a good example of the kind of economic damage that can be
caused by erratic policy implementation.12 In August 2021, in response to a National Development and
Reform Commission warning that only 10 out of 30 regions had achieved their energy reduction goals,

5　 For example, some formal restrictions have been removed in the financial sector, but only after it had become saturated by dominant domestic players. This left foreign banks to
compete in only a few remaining niches, such as cross-border services. In addition, even after formal market access has been granted, many companies struggle due to indirect
barriers, such as difficulties obtaining operating licences or certification: European Business in China Position Paper 2020/2021, European Union Chamber of Commerce in
China, September 2020, viewed 24th July 2022, <https://www.europeanchamber.com.cn/en/publications-archive/865/Executive_Position_Paper_2020_2021>
6　 Xi calls for furthering SOE reform, China Daily, 18th October 2017, viewed 29th July 2022, <https://www.chinadaily.com.cn/china/2017-10/18/content_33403609.htm>
7　 People’s Republic of China: 2020 Article IV Consultation – Press Release; Staff Report; and Statement by the Executive Director for the People's Republic of China,
International Monetary Fund, p.5, 8th January 2021, viewed 1st August 2022, <https://www.imf.org/en/Publications/CR/Issues/2021/01/06/Peoples-Republic-of-China-2020-
Article-IV-Consultation-Press-Release-Staff-Report-and-49992>
8 Miles, Tom, Ex-PBOC Chief says China Must Address “Loopholes” as Part of WTO Reform, Reuters, 19th September 2018, viewed 1st August 2022, <https://www.reuters.
com/article/us-china-economy-zhou-idUSKCN1LZ0XU>
9　 Antonini, Renato, Comment: Expect More on ‘Competitive Neutrality’ in WTO Reform Talks, Borderlex, 12th December 2018, viewed 1st August 2022, <https://borderlex.
net/2018/12/12/comment-expect-more-on-competitive-neutrality-in-wto-reform-talks/>
10　Ibid.
11　As part of its annual Business Confidence Survey, the European Chamber’s local chapters survey their membership on the top three priorities that the chapter should focus
its local government advocacy on. The need for both greater policy consultation and communication frequently rank as top concerns.
12 China’s ‘dual control’ mechanism was initially aimed at controlling energy consumption and energy intensity. It has since been announced that it will eventually be focussed
on carbon emissions and carbon intensity, which is a far more effective approach to tackling climate change: Yin, Ivy, China will establish dual control system for cutting
emissions, carbon intensity: Xi, S&P Global, 27th January 2022, viewed 10th March 2022, <https://www.spglobal.com/commodity-insights/en/market-insights/latest-news/
energy-transition/012722-china-will-establish-dual-control-system-for-cutting-emissions-carbon-intensity-xi>. For more information on the policy and how it impacted
businesses see: Carbon Neutrality: The Role of European Business in China’s Race to 2060, European Union Chamber of Commerce in China, pp. 9–10, 25th May 2022,
viewed 17th June 2022, <https://www.europeanchamber.com.cn/en/publications-carbon-neutrality-report>

14 Executive Position Paper

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

local governments took extreme measures to achieve their targets before the end of the year. Many
went as far as cutting off power supplies to businesses and residential properties, with some businesses
informed only a few hours in advance. This approach lacked transparency and consistency, and even

Executive Position Paper

legal grounds in certain cases.13 Furthermore, it did not deliver the desired result, as many companies
installed diesel or other highly-polluting, fossil-fuelled micro generators to enable them to continue
production; and in some cases, bringing operations back online consumed more energy than if they had
been left continuously running. This situation was seen by many business executives as the biggest blow
to China’s predictability in recent years.

In a similar vein, China’s crackdowns on technology and private education firms raised alarm bells
within the business community.14&15 Many education businesses were forced to close shop in a matter
of days, leaving investors to bear significant losses and parents out-of-pocket for what they believed
were investments in their children’s education. As outlined by the IMF, “the multitude, timing, seemingly
uncoordinated, and the discretionary nature of these interventions […] has led to heightened policy
uncertainty.”16 It raises questions over which sector will next be subject to sudden state intervention in an
effort to steer the economy.

2. COVID policy is inflexible and inconsistently implemented

China was successful in managing the initial stages of the COVID-19 pandemic in the first two years,
which led to a swift economic recovery relative to the rest of the world, while protecting the health of its
population. However, lacklustre vaccination rates, the reluctance to permit a better mix of vaccines and
the continued adherence to stringent COVID-19 control measures in the face of new variants of the virus
that are highly transmissible come at an extremely high and ever-increasing cost. Unlike the rest of the
world, China is far from herd immunity.

China’s goal of achieving its 2022 5.5 per cent growth target17 suffered a major blow when economic
growth fell to just 0.4 per cent in the second quarter. This was attributed predominantly to the impact of
the lockdown measures,18 and, with no exit strategy in sight, it is difficult to see how this will change in
the near future.19 The steep increase in unemployment rates among urban young people—which in July
2022 stood at 19.9 per cent among 16- to 24-year-olds—is attributable to long-standing issues as well as
COVID.20&21 This adds a complicated social dimension on top of the economic challenges.

13 Riordan, Primrose, White, Edward & Dempsey, Harry, China’s energy crisis threatens lengthy disruption to global supply chain, Financial Times, 17th October 2022, viewed
19th July 2022, <https://www.ft.com/content/5174e592-1f0b-4334-91ab-aa89ceff3821>
14 Ponciano, Jonathan, China Bans DiDi From App Stores Just Days After Massive U.S. IPO, Forbes, 4th July 2022, viewed 15th July 2022,<https://www.forbes.com/sites/
jonathanponciano/2021/07/04/china-bans-didi-from-app-stores-just-days-after-massive-us-ipo/?sh=31b54cce1202>
15 Schuman, Michael, China’s ‘Very Dangerous Trajectory’, The Atlantic, 21st June 2022, viewed 21st July 2022, <https://www.theatlantic.com/international/archive/2022/06/
china-xi-jinping-power-zero-covid/661228/>
16　People’s Republic of China: 2021 Article IV Consultation – Press Release; Staff Report; and Statement by the Executive Director for the People’s Republic of China, IMF,
28th January 2022, viewed 24th July 2022, <https://www.elibrary.imf.org/configurable/content/journals$002f002$002f2022$002f021$002farticle-A001-en.xml?t:ac=journals%2
4002f002%24002f2022%24002f021%24002farticle-A001-en.xml>
17　Xinhua Headlines: China sets 2022 GDP target at around 5.5 pct, giving a shot in arm to world recovery, Xinhua, 5th March 2022, viewed 26th July 2022, <https://english.
news.cn/20220305/e9e1edff08344543aee8bbc9d40fff58/c.html>
18 Dou, Eva, China’s economic growth slows to 0.4%, weakest in two years, The Washington Post, 15th July 2022, viewed 26th July 2022, <https://www.washingtonpost.com/
world/2022/07/14/china-gdp-economy-covid-lockdown/>
19　Oxford University associate George Magnus has estimated that China’s growth prospects could slow to two to three per cent for the coming years, in no small part due
to the knock-on effects of its COVID-19 polices. Should this happen, then China’s official goal of doubling its gross domestic product (GDP) per capita between 2020 and
2035 will not be realised. Magnus, George, The High Costs of Disengagement for China, Project Syndicate, 28th June 2022, viewed 14th July 2022, <https://www.project-
syndicate.org/commentary/us-china-rivalry-costs-of-deglobalization-by-george-magnus-2022-06?utm_source=substack&utm_medium=email>
20　Unemployment amongst 16–24-year-olds rose from 12.2 per cent in December 2019 to 19.3 per cent in 2022, and then to 19.9 per cent in July 2022: Pike, Lili, China
has an unemployment problem. Why nearly 20 percent of young job-seekers can’t land a job, GRID, 18th July 2022, viewed 26th July 2022, <https://www.grid.news/story/
global/2022/07/18/china-has-an-unemployment-problem-why-nearly-20-percent-of-young-job-seekers-cant-land-a-job/>; and Cheng, Evelyn, China’s consumer and factory
data miss expectations in July, CNBC, 14th August 2022, viewed 16th August 2022, <https://www.cnbc.com/2022/08/15/chinas-consumer-and-factory-data-miss-expectations-
in-july.html>
21　Wakabayashi, Daisuke, China’s Economy Hits a Slump as Covid Policy Takes a Toll, The New York Times, 14th July 2022, viewed 2nd August 2022, <https://www.nytimes.
com/2022/07/14/business/economy/china-economy-slows.html>

Executive Position Paper 15

 China’s stringent dynamic-zero COVID-19 policy had a negative impact on overall operations for 75 per
cent of respondents to a European Chamber flash survey carried out in April 2022.22 Overall, the most
Executive Position Paper

significant challenge was the massive uncertainty that it created. At the height of the lockdowns in April
2022,23 businesses were struggling to carry out the most basic tasks and did not know from one day to the
next if they would have enough staff to maintain operations or if their premises would be suddenly shut
down altogether.

This sense of uncertainty resulted in 23 per cent of respondents to the same flash survey considering
shifting current or planned investments in China to other markets.24 This is more than double the number
that were considering the same just two months prior and is the highest percentage that the Chamber has
recorded in the past decade.25

A significant 97 per cent of respondents to the flash survey reported that China’s tightening of COVID-19
containment measures had a negative impact on business travel.26 China’s aviation industry almost
ground to a halt in April 2022, with flight volumes sinking to a level last seen in 2003 during the severe
acute respiratory syndrome (SARS) outbreak.27 According to the Civil Aviation Administration of China,
the total passenger volume of domestic carriers in April 2022 dropped by 84.6 per cent compared to April
2021.28 Companies need certainty when they are making investments, so the inability to freely travel
and conduct face-to-face meetings, even within China, has made China’s business environment far less
predictable and reliable, while also decreasing its efficiency.

Inconsistent implementation of COVID-19 policies has also made for a more complex business
environment. For instance, as detailed in this year’s Logistics Working Group Position Paper, China
continues to impose varying COVID-19 containment measures on goods transported throughout the
country. This causes severe administrative headaches for businesses, disrupts supply chains and
negatively impacts the logistics industry’s growth prospects.29

China’s business environment will remain unpredictable as long as the threat of lockdowns exists. As
outlined in a letter sent by the European Chamber to Vice Premier Hu Chunhua in early April 2022,30 a
way out of this would be to focus on fully vaccinating the entire population, with special attention paid to
those at higher risk of disease, in particular the elderly and those with chronic conditions. It would also
be advisable to permit the best mix of vaccinations and boosters to be used, including those based on
messenger ribonucleic acid (mRNA) technology. However, this is not a realistic short-term solution for
three main reasons.

22　Flash Survey: COVID-19 and the War in Ukraine: The Impact on European Business in China, European Union Chamber of Commerce in China, 5th May 2022, viewed 29th
July 2022, <https://www.europeanchamber.com.cn/en/publications-archive/973>
23　At least 45 cities were under full or partial lockdown during this period, accounting for around 370 million people and 40 per cent of China’s GDP: Hancock, Tom, Lockdown
Financial Aid in China Leaves Households Behind, Bloomberg, 13th April 2022, viewed 26th July 2022, <https://www.bloomberg.com/news/articles/2022-04-13/lockdown-
financial-aid-in-china-leaves-households-behind#xj4y7vzkg>
24　Flash Survey: COVID-19 and the War in Ukraine: The Impact on European Business in China, European Union Chamber of Commerce in China, 5th May 2022, viewed 29th
July 2022, <https://www.europeanchamber.com.cn/en/publications-archive/973>
25　Since 2012, the percentages of respondents to the European Chamber’s Business Confidence Survey considering shifting current or planned investments out of China to
other markets are as follows: 2012, 22%; 2013, 10%; 2014, 11%; 2015, 16%; 2016, 11%; 2017, 12%; 2018, 11%; 2019, 15%; 2020, 11%; 2021, 9%; 2022, 11%.
26　Flash Survey: COVID-19 and the War in Ukraine: The Impact on European Business in China, European Union Chamber of Commerce in China, 5th May 2022, viewed 29th
July 2022, <https://www.europeanchamber.com.cn/en/publications-archive/973>
27 Domestic flights fall to 2003 levels under a quadruple whammy! How much longer will this dip last? What about the small and medium sized airlines?, CARNOC, 6th April
2022, viewed 9th August 2022, <http://news.carnoc.com/list/582/582249.html>
28　Key Performance Indicators for Civil Aviation Industry in April 2022, Civil Aviation Administration of China (CAAC), viewed 2nd August 2022, <http://www.caac.gov.cn/en/
HYYJ/SJ/202206/P020220606403625424209.pdf>
29　Logistics Working Group Position Paper 2022/2023, European Union Chamber of Commerce in China, p. 357.
30　Sent letter to Vice Premier Hu Chunhua of the State Council regarding the impact of current epidemic prevention measures on business, European Union Chamber of
Commerce in China, 9th April 2022, viewed 8th August 2022, <https://www.europeanchamber.com.cn/en/lobby-actions/5673#>

16 Executive Position Paper

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

First, at the time of writing, China’s vaccine delivery rate remains low: as of mid-July 2022 it was around
610,000 shots per day, far below its peak of 20 million shots per day during the summer of 2021.31&32

Executive Position Paper

Second, while as of April 2022 the vaccine status of China's overall population that had received at least
two shots stood at nearly 88 per cent, this only applied to around half of 80-year-olds, and more than 50
million people over the age of 60 had yet to receive two jabs.33 This is significant, as two jabs of China’s
domestic vaccines cannot be considered as being fully vaccinated: data gathered from the large outbreak
in Hong Kong in early 2022 has shown that they only become fully effective at protecting against severe
diseases after three doses have been administered.34

Third, foreign mRNA vaccines have not been approved for use in Mainland China at the time of writing.
While progress has been made towards a domestic mRNA vaccine, China is still playing catch-up with
regard to mastering the technology,35 and experts have warned that any domestic solution risks being
outpaced by the emergence of new COVID-19 variants.36

The European Chamber fears that China will not be able to fully reopen to the rest of the world until
at least the latter half of 2023, handing yet another advantage to other markets that can provide more
openness and predictability to investors.

3. Diversity is dwindling and opportunities for knowledge-exchange are scarce

People-to-people ties are being weakened as foreigners now have few opportunities to experience China
first-hand and Chinese officials and citizens are reluctant to travel overseas. As Figure 2 illustrates,
China’s banning of international flights—a policy adopted since the start of the pandemic—has resulted
in a near suspension of visitors to the country, and the number of tourists and workers (international and
Chinese) travelling from China overseas has plummeted. Trips out of China taken by Mainland Chinese
citizens fell 79 per cent compared with 2019 data, while trips by foreign nationals fell to just 4.6 per cent of
the 2019 figure.37

As documented in the European Chamber’s Human Resources Working Group Position Paper,
businesses are struggling to maintain foreign staff, as they are increasingly unwilling or unable to stay in
China due to its stringent travel restrictions.38 Companies are even questioning whether it is responsible
for them to deploy foreign staff to China when the numerous restrictions mean they are unable to
guarantee a basic duty of care for them and their families. Companies' foreign talent options are therefore
increasingly restricted to staff that are either very junior and have no family, or those that are senior and
whose families have grown up. This leaves an extremely shallow pool to draw from.

31　Reuters COVID-19 TRACKER: Mainland China, Reuters, last updated 15th July 2022, viewed 16th July 2022, <https://graphics.reuters.com/world-coronavirus-tracker-and-
maps/countries-and-territories/china/>
32　Had it maintained the rate of 20 million shots per day in June 2021, China would have been able to fully vaccinate its entire population in three months: Mallapaty, Smriti,
China is vaccinating a staggering 20 million people a day, Nature, 9th June 2021, viewed 16th July 2022, <https://www.nature.com/articles/d41586-021-01545-3>
33　Why so many elderly Chinese are unvaccinated: Some are complacent, others are afraid, The Economist, 2nd April 2022, viewed 29th July 2022, <https://www.economist.
com/china/2022/04/02/why-so-many-elderly-chinese-are-unvaccinated>
34　McMenamin, Martina E., Nealon, Joshua, Lin, Yun, Wong, Jessica Y., Cheung, Justin K., Lau, Eric H.Y., Wu, Peng, Leung, Prof. Gabriel M., & Cowling, Prof. Benjamin J.,
Vaccine effectiveness of one, two, and three doses of BNT162b2 and CoronaVac against COVID-19 in Hong Kong: a population-based observational study, The Lancet,
15th July 2022, viewed 10th August 2022, <https://www.thelancet.com/journals/laninf/article/PIIS1473-3099(22)00345-0/fulltext>
35　Zhao, Jinzhao, Jiang, Moting, Chen, Pengduo, & Han, Wei, In Depth: Why China Still Doesn’t Have an mRNA Shot, Caixin Global, 14th July 2022, viewed 5th August 2022,
<https://www.caixinglobal.com/2022-07-14/in-depth-why-china-still-doesnt-have-an-mrna-shot-101913146.html>
36　Olcott, Eleanor, New Covid variants threaten China’s mRNA vaccine hopes, Financial Times, 7th July 2022, viewed 8th July 2022, <https://www.ft.com/content/1ce91ee9-
5e74-40db-80ec-fc2cbe97533d>
37 Wang, Huiyao, China’s zero-COVID policy has damaged its stock of global talent, Financial Times, 17th July 2022, viewed 18th July 2022, <https://www.ft.com/content/
fef5a71d-8a19-4f65-804e-42bfb02af083>
38 See: Human Resources Working Group Position Paper 2022/2023, p. 65.

Executive Position Paper 17

 The lack of clarity on when current measures will be relaxed weighs heavily on career choices. After
having spent long periods separated from family members and facing significant barriers to return home
Executive Position Paper

and then come back to China, many foreign professionals have given up and either returned home for
good or taken opportunities in other countries. As reported in the European Chamber’s BCS 2022, the
exodus of European nationals from China was already underway prior to the pandemic but accelerated
as a result of it.39 The results of China’s seventh national census, conducted in 2020, shows that the
populations of foreign nationals from the US, Japan, Korea, Germany and France had dropped by 23, 44,
51, 22 and 39 per cent respectively since 2010.40 The European Chamber has estimated that the total
number of Europeans now living in China has halved since the start of the pandemic.41 It further estimated
that the current population of Europeans would not fill Beijing’s Bird’s Nest—a stadium with a capacity of
80,000—and that this figure could halve again by the end of summer 2022.42

Figure 2: Chinese international inbound and outbound passenger

numbers (2019–2022; millions of persons)
Volume of passengers (millions)

8
7
6
5
4
3
2
1
0
January-2019 January-2020 January-2021 January-2022

Source: Bruegel; data from the Civil Aviation Administration of China, CEIC

The strict travel restrictions have seen companies’ China operations becoming increasingly isolated and
challenged.43 Those that do decide to risk international travel have very few flights to choose from, which
has made the experience highly unpredictable and has seen the cost of tickets rise to stratospheric levels.
The suspension of flights to China when positive COVID cases have been detected among passengers
has further added to the unpredictability. And while travellers can now transit rather than having to fly
direct from their country of origin back to China, the mandating of COVID tests at each layover has made
the process very time-consuming and added even more cost.

39　European Business in China Business Confidence Survey 2022, European Union Chamber of Commerce in China, 20th June 2022, viewed 24th July 2022, <https://www.
europeanchamber.com.cn/en/publications-business-confidence-survey>
40　Number of foreigners on China, results of 7th national census, Expat Focus, 11th July 2022, viewed 5th August 2022, <https://mp.weixin.qq.com/s?__biz=MjM5OTg2
MTgzOA==&mid=2654317267&idx=1&sn=c790b7572d9186ac1fc15c3255db77d9&chksm=bcf401f28b8388e495d439dbd33c62d556744c1c65c6c100eeaea0ce63f
dc5b779a72e6b20ce#rd>
41　Wang, Huiyao, China’s zero-COVID policy has damaged its stock of global talent, Financial Times, 17th July 2022, viewed 18th July 2022, <https://www.ft.com/content/
fef5a71d-8a19-4f65-804e-42bfb02af083>
42 Expats flee as Shanghai’s Covid lockdown drags, The Standard, 29th April 2022, viewed 5th August 2022, <https://www.thestandard.com.hk/breaking-news/section/3/189637/
Expats-flee-as-Shanghai%27s-Covid-lockdown-drags%C2%A0>
43 In the European Chamber’s BCS 2022, 81 per cent of businesses reported that a lack of business travel negatively impacted them, with the top effects being: 1) difficulties
establishing/maintaining rapport with partners/clients (faced by 74 per cent); 2) difficulties with/ inability to secure new business deals or partnerships (faced by 60 per cent);
and 3) delays to delivery of / inability to deliver services / project deliverables (experienced by 42 per cent). European Business in China Business Confidence Survey 2022,
European Union Chamber of Commerce in China, pp. 18‒19, 20th June 2022, viewed 24th July 2022, <https://www.europeanchamber.com.cn/en/publications-business-
confidence-survey>

18 Executive Position Paper

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

One of the consequences is that China-based staff now have few, if any, opportunities to participate in
information exchanges, networking, training and the sharing of expertise with colleagues and partners in
Europe. This contrasts starkly with colleagues from other countries who can easily visit European HQs.

Executive Position Paper

Bringing in experts on short-term assignments to China to carry out maintenance or provide technical
assistance, for example, is also burdensome, if not impossible. Furthermore, executives from HQs are
being deprived of first-hand China experience and are opting to visit other destinations in the region
instead. This is resulting in less understanding of China, which will inevitably lead to less desire to engage
with the country. As expressed by a senior executive at one European multinational, “[c]ompanies’
headquarters are increasingly reluctant to contribute to or invest in China, given they have a diminishing
understanding of the country.”

Although statistics published by China’s Ministry of Commerce show that foreign direct investment (FDI)
into China grew in 2020, it is important to note that the place where a business is registered is counted as
the source of investment rather than where the actual money comes from. This means that investments
into China from Hong Kong, as well as Singapore and other tax havens such as the Cayman Islands
and the British Virgin Islands, are coming not only from multinationals, but also subsidiaries of Chinese
companies, a practice known as ‘round-tripping investment’.44 According to official figures, 71 per cent
of China’s FDI in 2021 came from Hong Kong, and according to a Fitch report, a large proportion of FDI
coming from Hong Kong and Macau originated from Chinese companies, calling “into question how ‘foreign’
such direct investments are”.45 Meanwhile, in 2020, investment from the EU into China dropped 11.8 per
cent from the previous year, and its proportion of overall FDI fell to 3.8 per cent from a high of 11.1 per
cent in 1999.46 While there are still “a select group of high-profile multinational companies ready to make
billion dollar splashes”,47 the trend of declining FDI is unlikely to reverse while European executives are
heavily restricted from travelling to and from China to develop potential greenfield projects. China’s ability
to attract foreign investment has also decreased because Chinese dignitaries who could previously travel
the world showcasing what the country can offer business are now mostly limited to online meetings,
which lack the ‘human touch’.

The absence of people-to-people exchanges is also damaging China’s image to the outside world.
Foreign nationals working in China are some of the best ‘ambassadors’ for the country ‒ they frequently
extol the positive aspects of their experiences when back in their home countries. 48 It is not just the
business world that is missing such ‘ambassadors’ either. Foreign students are also being prevented
from studying in China, while at the same time interest among Europeans to learn Chinese is fading.
Many journalists previously based in China are also being forced to report from outside of the country,
and tourists have simply not been coming for the past nearly three years.49 As highlighted by the PEW
Research Center’s Spring 2022 Global Attitudes Survey (Figure 3), unfavourable opinions towards China
are currently at an all-time high in many countries.50

44 Wang, Orange, Explainer: How much is China’s foreign direct investment and is it still a good destination for overseas investors?, SCMP, 10th June 2022, viewed 9th August
2022, <https://www.scmp.com/economy/economic-indicators/article/3181037/how-much-chinas-foreign-direct-investment-and-it-still>
45 O’Farrell, Seth, China’s foreign investment problem, FDi Intelligence, 18th February 2022, viewed 9th August 2022, <https://www.fdiintelligence.com/content/feature/chinas-
foreign-investment-problem-80679>
46　Wang, Orange, Explainer: How much is China’s foreign direct investment and is it still a good destination for overseas investors?, SCMP, 10th June 2022, viewed 9th August
2022, <https://www.scmp.com/economy/economic-indicators/article/3181037/how-much-chinas-foreign-direct-investment-and-it-still>
47　O’Farrell, Seth, China’s foreign investment problem, FDi Intelligence, 18th February 2022, viewed 9th August 2022, <https://www.fdiintelligence.com/content/feature/chinas-
foreign-investment-problem-80679>
48　European Business in China Business Confidence Survey 2022, European Union Chamber of Commerce in China, p. 21, 20th June 2022, viewed 24th July 2022, <https://
www.europeanchamber.com.cn/en/publications-business-confidence-survey>
49　Gibbs, Ker, Expat exodus is bad for China, bad for the US and bad for the world, SCMP, 19th November 2021, viewed 17th July 2022, <https://www.scmp.com/comment/
opinion/article/3156404/expat-exodus-bad-china-bad-us-and-bad-world>
50　The poll found that negative attitudes towards China were at the highest level on record in 10 of the 19 countries surveyed in 2022. Results are recorded annually and
date back to 2002; Large majorities continue to hold unfavorable view of China, Pew Research Center, 27th June 2022, viewed 12th July 2022, <https://www.pewresearch.
org/global/2022/06/29/negative-views-of-china-tied-to-critical-views-of-its-policies-on-human-rights/pg_2022-06-29_views-of-china_00-02/?utm_source=substack&utm_
medium=email>

Executive Position Paper 19

 Figure 3: Negative attitudes towards China are at an all-time high
Executive Position Paper

Source: PEW Research Center

4. Business is becoming increasingly politicised

In recent years, the EU-China relationship has yielded an astonishing number of issues that have
raised concerns and heightened political risks for business. The list includes allegations of human rights
abuses in Xinjiang;51 the politicisation of the COVID-19 pandemic; the EU’s labelling of China as a
‘systemic rival’;52 the removal of Lithuania from Chinese customs lists following its opening of a Taiwan
Representative Office;53 perceptions of China’s implementation of the National Security Law in Hong
Kong;54 and the Chinese Communist Party’s plan to insinuate itself deeper into every aspect of civil
society and business.55 In the European Chamber’s BCS 2022, 50 per cent of respondents reported that
China’s business environment became more politicised in 2021, a nine per cent year-on-year increase.
More BCS 2022 respondents also foresee that political pressure will increase rather than decrease over
the coming year.56

Rising negative public sentiment towards China is pushing foreign governments to take harsher stances
towards the country, further straining relations between China and its international partners. The evolving
United Kingdom (UK)-China relationship illustrates this dynamic. Just seven years ago, the UK viewed
China as a strong potential partner, and was the first Western country to embrace the founding of the

51　Emmott, Robin, EU extends human rights sanctions, including on Chinese officials, Reuters, 24th November 2021, viewed 13th July 2022, <https://www.reuters.com/world/
eu-extends-human-rights-sanctions-including-chinese-officials-2021-11-24/>
52　Von der Burchard, Hans, EU slams China as ‘systemic rival’ as trade tension rises, Politico, 12th March 2019, viewed 17th July 2022, <https://www.politico.eu/article/eu-
slams-china-as-systemic-rival-as-trade-tension-rises/>
53　Sytas, Andrius, Lithuania says Chinese customs is blocking its exports, Reuters, 3rd December 2021, viewed 17th July 2022, <https://www.reuters.com/article/china-lithuania-
trade-idUSKBN2II0Y7>
54　Kurlantzick, Joshua, China’s Collapsing Global Image, Council on Foreign Relations, July 2022, viewed 2nd August 2022, <https://www.cfr.org/report/chinas-collapsing-
global-image?utm_source=substack&utm_medium=email>
55 Russo, Federica, Politics in the Boardroom: The Role of Chinese Communist Party Committees, The Diplomat, 24th December 2019, viewed 20th July 2022, <https://
thediplomat.com/2019/12/politics-in-the-boardroom-the-role-of-chinese-communist-party-committees/>
56 European Business in China Business Confidence Survey 2022, European Union Chamber of Commerce in China, 20th June 2022, viewed 8th August 2022, <https://www.
europeanchamber.com.cn/en/publications-archive/1020/Business_Confidence_Survey_2022>

20 Executive Position Paper

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

Beijing-backed Asian Infrastructure Investment Bank.57 Former UK Prime Minister David Cameron
even went as far as to declare that UK-China relations were on the cusp of entering a “golden era”.58
Attitudes have shifted considerably in the intervening years.59 The final two candidates in the UK's 2022

Executive Position Paper

Conservative Party leadership battle both sought to gain an advantage by each attempting to portray
themselves as the bigger ‘China hawk’.60

Businesses with China operations are now having to walk a political tightrope that is becoming more
and more unstable. They are coming under pressure, both through legislation and from consumers, to
demonstrate transparency in their China operations. For example, businesses exporting from China to
the US are now bound by the Uyghur Forced Labor Prevention Act to prove that they are not involved
in forced labour practices.61 The EU is also planning to introduce similar legislation—the Corporate
Sustainability Reporting Directive (CSRD)—which will introduce strict reporting requirements, obliging
large public-interest companies to report on sustainability issues such as environmental, social and
governance (ESG) and human rights. Under the CSRD, companies’ sustainability reports will have to be
certified by independent, third-party auditors and will also need to be published in a dedicated section of
company management reports.62

For companies to align their global corporate pledges with realities on the ground, they need a business
environment that is transparent and predictable. Crucially, they need China to provide the conditions that
allow them to conduct trusted, third-party audits of their operations so that they can be certified as being
fully compliant with global legislation. They also need Chinese partners that are willing to demonstrate
a similar commitment to corporate sustainability. Until this is possible, businesses will face mounting
pressure to relocate operations away from sensitive regions.

At the same time, companies fear being perceived as acting against China’s interests on politically
controversial topics, as doing so risks a backlash, with the threat of consumer boycotts ever-present.
As highlighted by a recent study by the Swedish National China Centre,63 there were no fewer than 90
consumer boycotts of foreign companies from 2008 to 2021, with the majority of these occurring after
2016 (Figure 4). The study also found that foreign companies have been made scapegoats for geopolitical
or human-rights-related decisions taken by the governments in their home countries.

57　Osborn, Andrew, Britain says in ‘national interest’ to join China-backed bank, Reuters, 13th March 2015, viewed 29th July 2022, <https://www.reuters.com/article/us-britain-
asia-bank-cameron-idUKKBN0M91DV20150313>
58　Shirbon, Estelle & Jones, Gareth, China, Britain to benefit from ‘golden era’ in ties - Cameron, Reuters, 18th October 2015, viewed 29th July 2022, <https://www.reuters.com/
article/us-china-britain-idUSKCN0SB10M20151017>
59　In July 2022, then incumbent UK Prime Minister Boris Johnson resigned, sparking a battle for leadership of the UK Conservative Party. At the time of writing, a new leader
had not been elected.
60　Courea, Eleni & Lau, Stewart, In the race to succeed Boris Johnson, only China hawks need apply, Politico, 27th July 2022, viewed 30th July 2022, <https://www.politico.eu/
article/boris-johnson-china-liz-truss-rishi-sunak-tory-leadership/>
61　Implementation of the Uyghur Forced Labor Prevention Act, US Department of State, 21st June 2022, viewed 13th July 2022, <https://www.state.gov/implementation-of-the-
uyghur-forced-labor-prevention-act/>
62　A provisional agreement has already been reached between the European Council and the European Parliament on the CSRD with approval pending at the time of
writing: New rules on corporate sustainability reporting: provisional political agreement between the Council and the European Parliament, European Council, Council of
the European Union, 21st June 2022, viewed 13th July 2022, <https://www.consilium.europa.eu/en/press/press-releases/2022/06/21/new-rules-on-sustainability-disclosure-
provisional-agreement-between-council-and-european-parliament/>
63 Bohman, Viking & Pårup, Hillevi, Purchasing with the Party: Chinese consumer boycotts of foreign companies, 2008–2021, Swedish National China Centre, 11th July 2022,
viewed 11th August 2022, <https://kinacentrum.se/en/publications/chinese-consumer-boycotts-of-foreign-companies/>

Executive Position Paper 21

 Figure 4: Number of consumer boycotts of foreign companies in China 2008‒2021
Executive Position Paper

35

30

25

20

15

10

0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Source: Swedish National China Centre

Russia’s invasion of Ukraine, which saw over 1,000 companies publicly announce they would be
voluntarily curtailing their Russia operations,64 has acted as a further wake-up call for businesses, and
pushed them to evaluate how susceptible their China operations would be to a similar disruption.65 In a
flash survey conducted by the European Chamber in April 2022, a third of respondents reported that the
war in Ukraine made China a less attractive investment destination.66 This indicates that, regardless of
whether there is actually a serious dispute between Mainland China and Taiwan, just the threat of wars or
blockades is enough to increase the sense of unpredictability.

5. Supply chain strategies are shifting

Over the past two years, the fragility of global supply chains has been exposed and risk management
has become a priority. While there are many reasons for this, COVID-19, Russia’s invasion of Ukraine,
inadequate logistics infrastructure, a lack of truck drivers in many markets, as well as freak occurrences
such as the container ship that ran aground and blocked the Suez Canal,67 are some of the main factors
now prompting companies to re-evaluate their production and distribution networks. Legislation is an
additional driver of change as new or forthcoming laws—including the aforementioned US’ Uyghur Forced
Labor Prevention Act and the EU’s CSRD—will compel companies to carry out thorough due diligence,

64 Over 1,000 Companies Have Curtailed Operations in Russia – But Some Remain, Yale School of Management, 25th July 2022, viewed 26th July 2022, <https://som.yale.edu/
story/2022/over-1000-companies-have-curtailed-operations-russia-some-remain>
65　Sevastopulo, Demetri & Edgecliffe-Johnson, Andrew, Executives seek briefings on Taiwan war risk, Financial Times, 12th July 2022, viewed 16th July 2022, <https://www.
ft.com/content/8c753573-b2d7-42a9-810f-25ab37eb0099?utm_source=substack&utm_medium=email>
66 Flash Survey: COVID-19 and the War in Ukraine: The Impact on European Business in China, European Union Chamber of Commerce in China, 5th May 2022, viewed July
26th 2022, <https://www.europeanchamber.com.cn/en/publications-archive/973/Flash_Survey_COVID_19_and_the_War_in_Ukraine_The_Impact_on_European_Business_
in_China>
67　Egypt’s Suez Canal blocked by huge container ship, BBC, 24th March 2021, viewed 8th August 2022, <https://www.bbc.com/news/world-middle-east-56505413>

22 Executive Position Paper

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

both up- and downstream.68&69 As a result, China’s position at the centre of global supply chains looks set
to be challenged. There will not be full decoupling with companies leaving China altogether as the size
and potential of the market are still too great to ignore. Instead, more nuanced strategies will emerge.

Executive Position Paper

Prior to the Omicron outbreaks that led to full or partial lockdowns in at least 45 cities, several European
companies were further onshoring supply chains into China to better service the domestic market
and isolate themselves from potential global shocks. However, this strategy is not without significant
drawbacks: initial costs are steep, and communication and data flows between HQs and China operations
will be impeded for those that pursue this option. Furthermore, 31 per cent of European manufacturers
import critical components into China for which they cannot source alternatives, meaning that full
onshoring for them is not possible.70

Several companies had begun, or were exploring the possibility of, creating separate supply chains ‒ one
to serve China and one for the rest of the world. Indeed, some customers in China are already asking for
‘US-free’ products, and some customers in the US are asking for ‘China-free’ products, due to demands
from both the state and private sectors.71 Producing two separate products, one for each market, can allow
companies to avoid import and export restrictions. However, it also carries considerable risk. Operating
costs will increase while efficiency and economies of scale decrease, and any changes to regulations
may lead to this solution becoming redundant. Also, similar to the option of increasingly onshoring supply
chains into China, it may not be possible to find multiple sources for the same components, meaning that
this strategy is simply not feasible for some.

Since the lockdowns in early 2022, which paralysed supply chains in China, there has been a shift in
priorities, from ‘just in time’ to ‘just in case’.72&73 Companies are no longer just exploring ‘China+1’74
strategies. To strengthen risk management and reduce the risk of supply chain failures, many are
increasingly looking into ‘China+1+2+3’. While this will not necessarily affect existing investments, future
investments are increasingly likely to be placed outside China for risk reasons. It is probable that this
trend will continue, as European companies look to maintain a strong presence in this important market
while identifying viable back-up options.

Environmental legislation challenges feasibility of exporting from China

Environmental regulations, and growing consumer awareness for low-carbon products, could make it less
feasible for goods and components to be transported over longer distances.75 One example of this is in
the field of shipping, the mode of transportation that carries 90 per cent of global trade. The arrival of the
International Maritime Organization’s (IMO’s) 2023 regulations—targeted at heavily reducing the carbon

68　Implementation of the Uyghur Forced Labor Prevention Act, US Department of State, 21st June 2022, viewed 13th July 2022, <https://www.state.gov/implementation-of-the-
uyghur-forced-labor-prevention-act/>
69　New rules on corporate sustainability reporting: provisional political agreement between the Council and the European Parliament, European Council, Council of the
European Union, 21st June 2022, viewed 13th July 2022, <https://www.consilium.europa.eu/en/press/press-releases/2022/06/21/new-rules-on-sustainability-disclosure-
provisional-agreement-between-council-and-european-parliament/>
70 European Business in China Business Confidence Survey 2022, European Union Chamber of Commerce in China, p. 16, 20th June 2022, viewed 24th July 2022, <https://
www.europeanchamber.com.cn/en/publications-business-confidence-survey>
71 The Challenge of “Decoupling USA-China” – What Can the European Machinery Industry Do?, VDMA, p. 13 & p. 20, 12th July 2022, viewed 9th August 2022, <https://vdma.
org/viewer/-/v2article/render/54169456>
72 Masters, Brooke, and Edgecliffe-Johnson, Andrew, Supply chains: companies shift from 'just in time' to 'just in case', Financial Times, 20th December 2021, viewed 11th July
2022, <https://www.ft.com/content/8a7cdc0d-99aa-4ef6-ba9a-fd1a1180dc82>
73 Beattie, Alan, The US ‘friendshoring’ experiment risks making enemies, Financial Times, 2nd August 2022, viewed 3rd August 2022, <https://www.ft.com/content/d8a0ce5e-
dc8b-4bce-8dbf-c09d08d263a5>
74 “The phrase 'China+1' captures the strategy that many large manufacturers are following to increase the diversity and resiliency of their supply chains by moving some
Chinese-based sourcing to other countries.”: Is a China+1 strategy feasible?, Resilinc, 8th December 2020, viewed 9th August 2022, <https://www.resilinc.com/blog/is-a-
china-1-strategy-feasible/>
75 New rules on corporate sustainability reporting: provisional political agreement between the Council and the European Parliament, European Council, Council of the
European Union, 21st June 2022, viewed 13th July 2022, <https://www.consilium.europa.eu/en/press/press-releases/2022/06/21/new-rules-on-sustainability-disclosure-
provisional-agreement-between-council-and-european-parliament/>

Executive Position Paper 23

 footprint of shipping—could accelerate ‘nearshoring’ and ‘reshoring’ unless the transportation industry
invests in and develops green transport solutions that can reduce or eliminate its carbon emissions.76 EU
Executive Position Paper

shipping lines are already investing in decarbonising their operations, but as the world’s largest trading
nation, largest shipbuilder and host to the seven largest ports in the world, it will take collaboration with
stakeholders in China to meet both regulatory requirements and the expectations of consumers.

The EU’s CSRD—which also covers corporate reporting requirements on carbon footprints—and the EU’s
phased introduction of the carbon border adjustment mechanism (CBAM) from 2026 onwards will also
increasingly shape decision-making among companies that want to remain globally competitive.77&78
 
What lies ahead?

In a worst-case scenario, China’s predictability, reliability and efficiency would continue to erode, and
European companies would have to further evaluate how many eggs to keep in their China baskets, with
more exploring the idea of creating divergent systems, with one to serve China and one for the rest of the
world.79 The resulting loss of efficiency—such as the smaller data pools to draw from—would negatively
impact the pace of innovation and lead to higher costs. This would lead to China performing well below its
economic potential. Decoupling of market features, including branding, distribution, payment systems and
underlying technology, would accelerate the siloing of China operations as synergies with the rest of the
world become increasingly limited.80

As these dynamics continue, more countries would be likely to try and increase their own self-reliance,
particularly in critical areas such as medical devices, pharmaceuticals and raw materials. If globalisation
is not prevented from scaling down further into regionalisation, the likelihood of global conflict would
increase as dominant countries within each regional cluster push others to ‘take sides'.

The next 12 months – potential disruptions on the horizon

Looking towards the next 12 months, there are two potential disruptions that threaten to add complexity to
both the EU-China relationship and doing business in China: the EU’s reappraisal of its relationship with
China and Taiwan’s significance relative to the rest of the world.

The EU’s evolving China policy and new trade instruments

While the EU has been attempting to continually engage China at the political level on numerous
important issues, progress on concrete deliverables has fallen below expectations, particularly given
the country’s rise to global prominence since its WTO accession and the strength of its economy today.
76 The IMO's Greenhouse Gas Strategy aims to reduce the carbon intensity of international shipping by 40 per cent by 2030, and by 70 per cent by 2050, compared with
a 2008 baseline level. Under its 2023 measures, all ships of 400 gross tonnage and above will be required to have their Energy Efficiency Existing Ship Index (EEXI)
calculated, with specific requirements for improvements in energy efficiency depending on the size and type of ships. For gas carriers, ships of 10,000 deadweight tonnage
and above will be required to improve their technical energy efficiency by 30 per cent compared to a 2013 baseline. Failure to meet the required standard will exclude the
vessels from being used for international trade: Kim, Charles & He, Yanyu, Potential impact of IMO 2023 on global LPG shipping, IHS Markit, 2nd September 2021, viewed
14th July 2022, <https://ihsmarkit.com/research-analysis/IMO-2023-impact-on-lpg-shipping.html>
77 New rules on corporate sustainability reporting: provisional political agreement between the Council and the European Parliament, European Council, Council of the
European Union, 21st June 2022, viewed 13th July 2022, <https://www.consilium.europa.eu/en/press/press-releases/2022/06/21/new-rules-on-sustainability-disclosure-
provisional-agreement-between-council-and-european-parliament/>
78 “The Carbon Border Adjustment Mechanism (CBAM) is a climate measure that should prevent the risk of carbon leakage and support the EU's increased ambition on climate
mitigation, while ensuring WTO compatibility.”: Carbon Border Adjustment Mechanism: Questions and Answers, European Commission, 14th July 2021, viewed 3rd August 2022,
<https://ec.europa.eu/commission/presscorner/detail/en/qanda_21_3661>
79 European Business in China Business Confidence Survey 2022, European Union Chamber of Commerce in China, 20th June 2022, viewed 24th July 2022, <https://www.
europeanchamber.com.cn/en/publications-business-confidence-survey>
80 Decoupling: Severed Ties and Patchwork Globalisation, European Union Chamber of Commerce in China and MERICS, 14th January 2021, viewed 15th July 2022, <https://
www.europeanchamber.com.cn/en/publications-innovation-report>

24 Executive Position Paper

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

The increasing frustration that the EU has felt with regard to the lack of deliverables was encapsulated
by High Representative of the EU for Foreign Affairs and Security Policy Josep Borrell’s remarks, when
he described the April 2022 EU-China Summit—the two sides' flagship meeting—as a “dialogue of the

Executive Position Paper

deaf.”81

The shift in how the EU views its relations with China, and other third countries, is far from sudden. The
EU has long sought reciprocity and transparency with all its trading partners, and the European Chamber
has been advocating for greater market access and a level playing field for European business in China
for more than two decades. Back in 2017, European businesses began suffering from an accumulation
of “promise fatigue” after having received countless assurances from China about market-opening
and regulatory reform that never quite materialised.82&83 In that same year, the European Commission
proposed a new framework for investment screening. In his 2017 State of the Union address, then
president of the European Commission Jean-Claude Juncker said that the European trade agenda
needed to be strengthened, and that, “[While] Europe is open for business […] there must be reciprocity.
We have to get what we give.” In the same speech, when he announced the EU’s intention to introduce an
investment screening mechanism, he explained that “we are not naïve free traders”.84 The EU framework
for screening FDI, which became fully operational on 11th October 2020, is now in place to ensure that the
EU’s Single Market can remain fully open but not be taken advantage of or compromised.

The EU will also soon adopt the International Procurement Instrument (IPI), a mechanism that was first
discussed in 2012, aimed at ensuring reciprocity with regard to public procurement in third countries. The
EU has an open public procurement market in the interests of ensuring transparency and competition, and
eliminating corruption. With the introduction of this mechanism, the EU will be able to push for reciprocity
by rejecting companies’ bids on public procurement tenders in the EU if they come from a country that
discriminates against EU companies in their own public procurement market. The IPI was adopted by the
European Parliament on 9th June 2022,85 and then by the European Council on 17th June 2022,86 and the
regulation will come into force 60 days after its publication in the Official Journal of the European Union.

In December 2021, the European Commission published a proposal for the adoption of an anti-coercion
mechanism in “response to the EU and its Member States becoming the target of economic coercion in
recent years”, with ‘economic coercion’ defined as actions taken “by one country against another through
restrictions on trade or investment in order to interfere with their sovereign choices”. While the mechanism
is aimed at deterring third countries from taking coercive action against any EU Member State, it would
also allow for retaliation with countermeasures that could include restrictions on trade, investment and
funding.87

The EU has several additional tools in the legislative process, variously aimed at guaranteeing fairness
for EU companies, protecting the EU Single Market and ensuring transparency, in the interest of securing
81 Bermingham, Finbarr, EU-China summit was a ‘dialogue of the deaf’, says top Brussels diplomat, SCMP, 6th April 2022, viewed 26th July 2022, <https://www.scmp.com/news/
china/article/3173188/eu-china-summit-was-dialogue-deaf-says-top-brussels-diplomat>
82 European Business in China Position Paper 2017/2018, European Union Chamber of Commerce in China, p.9, 19th September 2017, viewed 10th August 2022, <https://
www.europeanchamber.com.cn/en/publications-archive?page=5&f%5Bcategory%5D%5B3%5D=1&f%5Bdate%5D%5B2017%5D=1>
83 When it Comes to China, Foreign Investors are Getting “Promise Fatigue”, Reuters, 19th September 2017, viewed 8th August 2022, <https://fortune.com/2017/09/18/china-
politburo-reforms-foreign-investment/>
84 President Jean-Claude Juncker’s State of the Union Address 2017, European Commission, 13th September 2017, viewed 1st August 2022, <https://ec.europa.eu/
commission/presscorner/detail/en/SPEECH_17_3165>
85 International public procurement instrument: securing fairness for EU firms, European Parliament, 9th June 2022, viewed 5th August 2022, <https://www.europarl.europa.eu/
pdfs/news/expert/2022/6/press_release/20220603IPR32143/20220603IPR32143_en.pdf>
86 International Procurement Instrument: Council gives green light to new rules promoting reciprocity, European Council, 17th June 2022, viewed 5th August 2022, <https://www.
consilium.europa.eu/en/press/press-releases/2022/06/17/international-procurement-instrument-council-gives-final-go-ahead-to-new-rules-boosting-reciprocity/>
87 The file on economic coercion has been given to the Committee on International Trade within the European Commission, with the committee due to vote on the proposal in
autumn 2022: Proposed anti-coercion instrument, European Parliament, 16th June 2022, viewed 1st August 2022, <https://www.europarl.europa.eu/thinktank/en/document/
EPRS_BRI(2022)729299>

Executive Position Paper 25

 fair market competition based on the principles of corporate sustainability. They include the regulation on
foreign subsidies distorting the internal market;88 the CSRD (see p. 21),89 a new trade instrument to ban
products made by forced labour,90 the CBAM 91 and an amendment to the blocking statute.92
Executive Position Paper

The creation of these trade tools is the result of the EU recognising that it needs to become more strategic
in its approach to protecting its own sovereignty, and pushing for its companies to receive greater market
access and fairer treatment in third markets. They are also not necessarily aimed specifically at China,
nor would they even come into use against any country that provides reciprocal market access, does not
practice coercion and does not adopt measures that may distort the EU Single Market.

In addition to strengthening its toolbox, the EU is deepening cooperation with likeminded partners, for
example through the EU-US Trade and Technology Council, described as “a transatlantic forum fostering
cooperation on trade- and technology-related issues, based on shared democratic values".93 The five
key areas for cooperation that were agreed upon at the inaugural meeting on 29th September 2021 are
all areas where the EU and the US is either competing, or experiencing challenges, with China. They
include export controls, FDI screening, secure supply chains (focussed on semiconductors in particular),
technology standards (including cooperation on artificial intelligence) and global trade challenges.94

The EU is also stepping up its engagement in the Indo-Pacific region, with a view to contributing to
“the region’s stability, security, prosperity and sustainable development, in line with the principles of
democracy, rule of law, human rights and international law.”95 Part of this strategy includes engaging with
China to cooperate “on issues of common interest and encouraging China to play its part in a peaceful
and thriving Indo-Pacific region”.96

While it is crucial that the EU maintains a flexible China strategy that can evolve and adapt to any
emerging challenges, it is equally important that it continues to push for deeper bilateral engagement.
Although the 2022 EU-China Summit was largely perceived to be a failure in terms of concrete
deliverables, one reassuring outcome was the agreement to continue with the EU-China High-level
Economic and Trade Dialogue (HED), which took place on 19th July 2022.97 While the HED did not come
close to solving the major long-standing points of friction, such as market access and regulatory reform,

88 This regulation will scrutinise the activities of third-country actors benefitting from subsidies within the Single Market—from mergers and acquisitions to bids—with a view
to prevent distortions and unfair competition: Foreign subsidies distorting the internal market: provisional political agreement between the Council and the European
Parliament, European Council, 30th June 2022, viewed 8th August 2022, <https://www.consilium.europa.eu/en/press/press-releases/2022/06/30/foreign-subsidies-regulation-
political-agreement/>
89 A provisional agreement has already been reached between the European Council and the European Parliament on the CSRD with approval pending at the time of writing: New
rules on corporate sustainability reporting: provisional political agreement between the Council and the European Parliament, European Council, Council of the European Union,
21st June 2022, viewed 13th July 2022, <https://www.consilium.europa.eu/en/press/press-releases/2022/06/21/new-rules-on-sustainability-disclosure-provisional-agreement-
between-council-and-european-parliament/>
90 European Parliament asks to ban forced labour products, European Coalition for Corporate Justice, 9th June 2022, viewed 5th August 2022, <https://corporatejustice.org/
news/european-parliament-asks-to-ban-forced-labour-products/>
91 “The Carbon Border Adjustment Mechanism (CBAM) is a climate measure that should prevent the risk of carbon leakage and support the EU's increased ambition on climate
mitigation, while ensuring WTO compatibility.”: Carbon Border Adjustment Mechanism: Questions and Answers, European Commission, 14th July 2021, viewed 3rd August 2022,
<https://ec.europa.eu/commission/presscorner/detail/en/qanda_21_3661>
92 “The blocking statute is an important achievement of unified EU action to protect EU operators, whether individuals or companies, from the extra-territorial application of third country laws.”:
Blocking statute: Protecting EU operators, reinforcing European strategic autonomy, European Commission, viewed 5th August 2022, <https://ec.europa.eu/info/business-economy-euro/
banking-and-finance/international-relations/restrictive-measures-sanctions/blocking-statute_en>
93 Shaping Europe’s digital future—Digital in the EU-US Trade and Technology Council, European Commission, viewed 5th August 2022, <https://digital-strategy.ec.europa.eu/
en/policies/trade-and-technology-council>
94 EU-US Trade and Technology Council, European Commission, viewed 5th August 2022, <https://ec.europa.eu/info/strategy/priorities-2019-2024/stronger-europe-world/eu-
us-trade-and-technology-council_en#areas-of-cooperation>
95 EU Strategy for Cooperation in the Indo-Pacific, European Union External Action Service, February 2022, viewed 5th August 2022, <https://www.eeas.europa.eu/sites/default/files/
eu-indo-pacific_factsheet_2022-02_0.pdf>
96 Questions and Answers: EU Strategy for Cooperation in the Indo-Pacific, 16th September 2021, viewed 5th August 2022, <https://ec.europa.eu/commission/presscorner/
detail/en/QANDA_21_4709>
97 EU-China: A stable global economy is a shared responsibility, European Commission, 19th July 2022, viewed 11th August 2022, <https://ec.europa.eu/commission/
presscorner/detail/en/IP_22_4547>

26 Executive Position Paper

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

or more recent issues, such as China’s economic coercion against Lithuania or the ‘circuit breaker’ policy
imposed on European airlines,98 the dialogue at least clarified areas where there is or is not room for
cooperation.

Executive Position Paper

The most positive aspect was that the HED resulted in several concrete outcomes that will be beneficial to
European industry. The more noteworthy are some of those linked to financial services,99 as they address
pressing issues that European companies have raised through the European Chamber to European and
Chinese regulators.

Continuing to hold these kinds of dialogues is critical for ensuring meaningful engagement at the political
level, which can help to provide more predictability at the business level. Engagements such as the
Symposium for the 70th anniversary of the China Council for the Promotion of International Trade (CCPIT)
are also important for keeping the channels of communication open. During that event, European
Chamber President Jörg Wuttke spoke directly with Premier Li Keqiang about the challenges being faced
by European companies in China.100 Continued EU-China engagement is vital because there are still
numerous shared challenges and many areas on which bilateral cooperation can deepen, including WTO
reform, international standardisation and working together to define a practical COVID-19 exit strategy. In
particular, there is enormous scope for the EU and China to cooperate on tackling climate change.101

Taiwan and semiconductors

Further adding to the complexity of EU-China relations and doing business in China is the position of
Taiwan in global supply chains and the potential for related geopolitical issues to erupt.

As a leading producer of semiconductors, Taiwan’s strategic importance in global supply chains cannot
be overstated. The semiconductor shortage, which started in 2020,102 illustrated both how critical
semiconductors are to multiple industries and how reliant the world is on Taiwan. 103 Not only does it
produce around two thirds of the world’s semiconductors, it also produces some of the most advanced.104
This increases the territory’s importance to the EU, the US and China, all of which are trying to not only
increase their respective domestic semiconductor production capacity but also secure access to the most
sophisticated chips. Advanced semiconductors are the ‘engines’ that will drive the future global economy

98 The ‘circuit breaker’ policy refers to the suspension of flights into China whose number of confirmed COVID cases reaches four per cent or above of the total number of
passengers. The period of suspension was one week as of August 2022: Circuit Breaker Measures for Scheduled International Passenger Flights Adjusted, CAAC, 8th
August 2022, viewed 16th August 2022, <http://www.caac.gov.cn/en/XWZX/202208/t20220808_214894.html>
99 Other positive outcomes included the commitment to conclude a bilateral agreement on regionalisation for certain animal diseases, under which export restrictions of animal
products in cases of outbreaks will be limited to certain areas within a country rather to the whole territory, although no concrete timeline was agreed; the discussions on the
implementation of the Geographical Indications Agreement, with a view to potentially add new products, could also be beneficial for European businesses; and both sides
committed to establishing a communication mechanism on critical raw materials which, if implemented, could help to address supply chain shortages: See: EU-China: A
stable global economy is a shared responsibility, European Commission, 19th July 2022, viewed 11th August 2022, <https://ec.europa.eu/commission/presscorner/detail/en/
IP_22_4547>
100 President Wuttke Attended the Symposium with Premier Li Keqiang on the 70th Anniversary of CCPIT, European Union Chamber of Commerce in China, 19th May 2022,
viewed 8th August 2022, <https://www.europeanchamber.com.cn/en/lobby-actions/5695/President_Wuttke_Attended_the_Symposium_with_Premier_Li_Keqiang_on_
the_70th_Anniversary_of_CCPIT_>
101 Carbon Neutrality: The Role of European Business in China’s Race to 2060, European Union Chamber of Commerce in China, 25th May 2022, viewed 17th June 2022,
<https://www.europeanchamber.com.cn/en/publications-carbon-neutrality-report>
102 The shortage came about due to many different factors. Demand declined in many industries, particularly automotive, during the height of the COVID-19 pandemic, as
safety concerns saw factories slow down or even cease production, which forced the semiconductor industry to work at a much-reduced capacity. At the same time,
demand for personal computers, laptops and gaming platforms increased due to increasing numbers of people being locked down and forced to work from home. By the
time demand had started to recover in the third quarter of 2020, the entire semiconductor supply chain was empty. The semiconductor supply chain was further impacted
in different parts of the world by a host of other factors, including extreme winter weather conditions in Texas, power shortages, and a potential drought in Taiwan: Krysiak,
Bob, Why There Is a Global Semiconductor Shortage, GLG, 18th May 2021, viewed 3rd August 2022, <https://glginsights.com/articles/the-reason-why-there-is-a-global-
semiconductor-shortage/>
103 Young, Chris, A China-Taiwan conflict could lead to a catastrophic semiconductor shortage in the world, Interesting Engineering, 2nd August 2022, viewed 3rd August 2022,
<https://interestingengineering.com/culture/a-china-taiwan-conflict-could-lead-to-a-catastrophic-semiconductor-shortage-in-the-world>
104 Taiwan/Pelosi, push to pick US or China leaves TSMC in dire straits, Financial Times, 2nd August 2022, viewed 3rd August 2022, <https://www.ft.com/content/2a86d801-
2794-4320-a182-173c17dd50b0>

Executive Position Paper 27

 through the ability “to deploy new game-changing technologies, such as 5G, artificial intelligence, and
quantum computing.”105 The fact that they are also key components in advanced military equipment
means gaining access to them is viewed as a national security issue.106
Executive Position Paper

As its largest investor,107 the EU maintains strong trade and investment relations with Taiwan and is
looking to deepen investment in areas where “interests intersect”. This includes attracting additional
investment in the EU’s semiconductor industry to fulfil the goals set out in its European Chips Act,108
which are “to ensure the EU’s security of supply, resilience and technological leadership in semiconductor
technologies and applications”.109 In the interests of increasing their level of cooperation in this and
other areas, in May 2022, the EU and Taiwan committed to upgrading their annual trade dialogue. This
provoked a stiff rebuke from the Chinese mission to the EU, which told Brussels “not to gamble” on what it
perceived to be a breach of the ‘one China’ policy.110

EU-China relations had already become more strained over Taiwan when a representative office was
opened in the Lithuanian capital of Vilnius in November 2021, under the name ‘Taiwan’ instead of ‘Taipei’,
which is the name used in 20 EU Member States.111 Viewing this as a challenge to the ‘one China’ policy,
in December 2021 Beijing began blocking imports of Lithuanian products as well as European goods that
contained Lithuanian components. This led to the EU taking China to the WTO over economic coercion
against Lithuania and other EU Member States.112 US-China tensions over Taiwan had already been on
the rise since former US President Donald Trump made it policy to increase engagement with the island.
Several additional incidents have since taken place that have escalated tensions,113&114 complicating the
situation further.

Wary of becoming victims of a political dispute, European companies are monitoring this increasingly
sensitive issue and are assessing the potential risks very carefully. For example, when Russia invaded
Ukraine, speculation rose that China may take similar actions against Taiwan, which prompted scenario-
planning to take place in European companies' HQs. This includes calculating the impact on global
operations in the event they have to withdraw from the China market in the same way that many did from
Russia.115

Refocussing on reform efforts would rebuild investor confidence

Since the founding of the People’s Republic, China has demonstrated the ability to reinvent itself. With

105 Jackson, Keith, Semiconductors are the engines of the global economy‒and America isn’t making enough of them, Fortune, 30th June 2020, 3rd August 2022, <https://
fortune.com/2020/06/30/america-tech-semiconductor-manufacturing-investment/>
106 Smith, Elliot, ‘Downright scary and untenable’: Commerce secretary warns U.S. needs to secure a future for its chip industry, CNBC, 25th May 2022, viewed 3rd August 2022,
<https://www.cnbc.com/2022/05/25/gina-raimondo-warns-us-needs-to-secure-future-for-chip-industry.html>
107 “2021 EU-Taiwan Relations” Published, European Economic and Trade Office in Taiwan, 27th September 2021, viewed 3rd August 2022, <https://www.eeas.europa.eu/
delegations/taiwan/2021-eu-taiwan-relations-published_en?s=242>
108 Bermingham, Finbarr, EU to upgrade ties with Taiwan as China warns Brussels ‘not to gamble on this issue’, SCMP, 18th May 2022, viewed 3rd August 2022, <https://www.
scmp.com/news/china/diplomacy/article/3178237/eu-upgrade-trade-ties-taiwan>
109 Digital sovereignty: Commission proposes Chips Act to confront semiconductor shortages and strengthen Europe’s technological leadership, European Commission, 8th
February 2022, viewed 3rd August 2022, <https://ec.europa.eu/commission/presscorner/detail/en/ip_22_729>
110 Bermingham, Finbarr, EU to upgrade ties with Taiwan as China warns Brussels ‘not to gamble on this issue’, SCMP, 18th May 2022, viewed 3rd August 2022, <https://www.
scmp.com/news/china/diplomacy/article/3178237/eu-upgrade-trade-ties-taiwan>
111 Bermingham, Finbarr, Slovenia tries to head off row with Beijing over Taiwan office, SCMP, 31st January 2022, viewed 8th August 2022, <https://www.scmp.com/news/china/
diplomacy/article/3165441/slovenia-tries-head-row-beijing-over-taiwan-office-saying-it>
112 Valero, Jorge & Whitelaw, Kevin, EU Launches WTO Case Against China Over Lithuania Blockade, Bloomberg, 27th January 2022, viewed 3rd August 2022, <https://www.
bloomberg.com/news/articles/2022-01-27/eu-set-to-launch-wto-case-against-china-over-lithuania-blockade>
113 Chin, Josh, China-Taiwan Tensions: What’s Behind the Divide, The Wall Street Journal, 6th April 2022, 2nd August 2022, <https://www.wsj.com/articles/china-taiwan-tensions-
explained-11646894687>
114 Lee, Yimou & Wu, Sarah, Pelosi arrives in Taiwan vowing U.S. commitment; China enraged, Reuters, 3rd August 2022, viewed 3rd August 2022, <https://www.reuters.com/
world/asia-pacific/pelosi-expected-arrive-taiwan-tuesday-sources-say-2022-08-02/>
115 Hille, Kathrin, Corporate jitters over Taiwan and China on the rise, Financial Times, 20th July 2022, viewed 2nd August 2022, <https://www.ft.com/content/bfa317e0-743b-
4994-a4f5-7c0b25ed9cec>

28 Executive Position Paper

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

the country now facing economic headwinds, focussing on comprehensive reforms, accelerating market
opening and avoiding decoupling would be the most effective way for it to do so again and quickly rebuild
investor confidence.

Executive Position Paper

As highlighted by the World Bank, for China “to achieve high-quality growth, policymakers should not
lose sight of critical structural reforms, despite the current challenging environment. Decisive action to
encourage a shift toward consumption, tackle social inequality, and rekindle innovation and productivity
growth—including in technologies vital for China’s dual carbon goals—would help achieve a more
balanced, inclusive, and sustainable growth trajectory."116 Figure 5 illustrates how adopting a path of more
comprehensive reforms would put China on a much stronger growth trajectory through to the middle of
the century.

Figure 5: China’s projected GDP average growth rate, per decade,

under three reform scenarios
Comprehensive reforms
12
Moderate reforms
Limited reforms
10
Projected GDP Growth Rate (%)

0
2021-30 2031-40 2041-50

Source: World Bank

For China to undertake necessary reforms, it will be important for political space to be given to
policymakers to 'make mistakes', discuss ideas and ultimately change course, something that was
previously a characteristic of policymaking in the country. As outlined by a prominent European think
tank focussed on China, technocrats, experts from various ministries and even think tanks now have less
scope to challenge policies—an important correction mechanism—with Chinese policymakers coming
under increased pressure to toe the party line, regardless of whether or not it makes sense in practice.117
The harsh repercussions faced by local Party officials that record COVID-19 cases in their jurisdictions
provide an example of how the ability to develop pragmatic policy has been eroded. By March 2022, over
1,000 local officials had been sacked or reprimanded for not strictly following China’s zero-COVID policy.
This has put them under pressure to adopt an often excessive ‘one size fits all’ approach, even at the

116 China Economic Update – June 2022, World Bank, p. 6, June 2022, viewed 26th July 2022, <https://documents1.worldbank.org/curated/en/099640106102210762/pdf/P1757
9708f26d5018098840f1ad978bb54b.pdf>
117 Grunberg, Nis & Drinhausen, Katja, The Party Leads on Everything, MERICS, 24th September 2019, viewed 1st August 2022, <https://merics.org/en/report/party-leads-
everything>

Executive Position Paper 29

 expense of economic growth.118&119

With the 20th National Congress of the Commuunist Party taking place on 16th October 2022, China has
Executive Position Paper

the platform to signal the direction in which the country is headed. The European Chamber believes that
by keeping the channels of communication open with business and adopting the 967 recommendations
outlined in this European Business in China Position Paper 2022/2023, China will be able to re-establish
a predictable, reliable and efficient market, and set itself on a course towards achieving its full economic
potential.

Recommendations

Recommendations for China

• Refocus on reform and opening up to address market access and regulatory issues, and to increase
the predictability, reliability and efficiency of the business environment.
• Remain committed to globalisation and contribute to the strengthening of multilateral institutions.
• Refrain from erratic policy shifts, and seek consultation with business, allowing reasonable transition
times before implementing any changes to policies or regulations.
• Allow flexibility and accept feedback from key stakeholders from government, think tanks and industry
so that new policies can be developed, and existing ones adapted, to tackle emerging challenges in a
way that does not sacrifice other key priorities such as sustainable economic growth.
• Continue with reforms that bring SOEs more in line with market forces through the adoption of modern
governance structures to make them more efficient, and eventually implement competitive neutrality.
• Refocus on fully vaccinating the population against COVID-19, particularly the elderly and others that
are most vulnerable, and permit the best mix of vaccines and boosters, including those based on
mRNA technology.
• Continue to increase international flights to China and rescind the ‘circuit breaker’ policy imposed on
airlines.
• Address barriers that prevent businesses from attracting and retaining foreign talent.
• Provide the conditions that allow companies to conduct independent, third-party audits of their
operations so that they can be certified as being fully compliant with global legislation.
• Continue to work with the EU and other key interlocutors to de-escalate tensions over Taiwan.
• Engage in dialogue with other governments and key stakeholders to depoliticise the business
environment, and refrain from punishing companies for the actions of their home governments.
• Increase China’s integration with the global economy and steer away from excessive ‘self-sufficiency’.
• Develop nuanced strategies for strengthening supply chains that do not err towards trade protectionism.
• Develop sound institutions that can provide a truly level playing field between foreign and Chinese
investors, and make administrative processes transparent, consistent and predictable.
• Deepen EU-China cooperation in areas where interests overlap, such as in relation to combating
climate change, international standard-setting, sustainable development, WTO reform and working
together to define a practical COVID-19 exit strategy.
• Ensure that European businesses can fully contribute their expertise and technology to help China
achieve its carbon neutrality goals.

118 Huang Zhenze, China’s ‘Fragmented Authoritarianism’ During the COVID-19 Pandemic, The Diplomat, 25th June 2022, viewed 2nd August 2022, <https://thediplomat.
com/2022/06/chinas-fragmented-authoritarianism-during-the-covid-19-pandemic/>
119 Zheng, William, Dozens of Chinese officials punished over latest wave of COVID-19 cases, SCMP, 21st March 2022, viewed 2nd August 2022, <https://sg.news.yahoo.com/
dozens-chinese-officals-punished-over-143444783.html>

30 Executive Position Paper

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

Recommendations for the European Union

• Continue to proactively engage with China, and reject calls for disengagement.

Executive Position Paper

• Remain deeply integrated with the global economy and steer away from excessive ‘self-sufficiency’.
• Enhance the overall coordination between member states and EU institutional stakeholders in order to
foster a united European approach towards China.
• Avoid provoking China unnecessarily, while defending European core interests.
• Ensure that responses are measured and proportionate when EU-China disagreements arise.
• Continue to work with China and other key interlocutors to de-escalate tensions over Taiwan.
• Deepen EU-China cooperation in areas where interests overlap, such as in relation to combating
climate change, international standard-setting, sustainable development, WTO reform and working
together to define a practical COVID-19 exit strategy.
• Re-calibrate the EU’s China strategy in such a way that reflects both existing and emerging priorities
and challenges, and strikes the right balance between collaboration and competition.
• Continue to work towards reciprocity with third countries, including in relation to public procurement.
• Continue to engage with chambers of commerce, China-focussed think tanks, industry organisations
and standard-setting bodies when formulating China policy, to ensure that it reflects on-the-ground
realities.
• Strengthen the competitive capabilities of European players by developing bottom-up industrial
policy that promotes market competition and innovation in strategic industries, without prescribing
technological pathways.

Recommendations for European Companies

• Maintain strong communication between company HQs and China operations, to ensure that HQs
receive accurate, on-the-ground information in order to make informed investment and operational
decisions.
• Continue to integrate foreign staff into China operations—as well as Chinese staff into global
operations—in order to maintain diverse teams and avoid talent silos.
• Establish ‘decoupling teams’ to evaluate the costs associated with both localisation in China and
disconnection from certain global systems.
• Develop a cost/benefit analysis of adopting either a ‘flexible architecture’ model that can be localised for
different markets or a ‘dual system’ model that completely separates China production from production
for the rest of the world.
• Continue to monitor areas of potential political risk or backlash.
• Develop strategies that can allow for quick adaptation to changes in markets, public opinion and
governments that could have an impact on China operations.
• Adhere to new, and prepare for emerging, global regulations on supply chains to demonstrate
transparency to the greatest extent possible, and to determine levels of exposure to current and
potential sanctions.
• Invest and participate more in government advocacy efforts through chambers of commerce, industry
associations and standard-setting bodies.

Executive Position Paper 31

2 Section Two
Horizontal Issues
 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

Horizontal Issues

The position papers in this section address the main horizontal issues that affect European
businesses in China, covered by the following 10 working groups and one sub-working group:

• Compliance and Business Ethics

Section Two: Horizontal Issues

• Environment
• Finance and Taxation
• Human Resources
• Intellectual Property Rights
• Inter-chamber Small and Medium-sized Enterprise
• Investment
• Legal and Competition
• Research and Development
• Standards and Conformity Assessment
- Quality and Safety Services

At the beginning of 2022, there was a drastic deterioration in China’s business environment. The
international travel restrictions that had been in place for more than two years were compounded
by domestic travel restrictions introduced in an attempt to contain the Omicron variant of COVID-19.
These restrictions have had an extremely negative impact on European businesses in China, both in
terms of human resources (HR) attraction and retention, and communication with headquarters.

While the easing of some travel restrictions in mid-2022—such as the removal of the requirement
for PU invitation letters,1 transit being permitted through third countries and the shortening of
centralised quarantine periods from 14 to seven days—were welcome developments, they were
too little, too late for many. The changes were announced at a time when many foreign national
employees had already decided to leave China after almost three years of travel restrictions, with
no indication of improvement. Months-long lockdowns in many cities in early 2022, along with the
threat of further ad hoc restrictions, fuelled the exodus of foreign nationals from China as they
found opportunities in other parts of the world that are now open again for business and travel.
According to the European Chamber’s Business Confidence Survey 2022 (BCS 2022), almost 40
per cent of respondents reported a decrease of foreign employees over the last five years, with
33 per cent indicating COVID-related restrictions as the main reason.2 Immigration and other HR-
specific issues and recommendations are addressed in the Human Resources Working Group
Position Paper.3

On 31st December 2021, the Ministry of Finance (MOF) and the State Taxation Administration (STA)
jointly announced that non-taxable allowances for foreign national employees—which include

1 Since November 2020, foreign nationals applying for Chinese work visas, as well as their relatives, have been required to obtain a special
invitation letter, referred to as a ‘PU letter’, from the Chinese foreign affairs authorities. The process for obtaining the PU letter was lengthy and
created additional uncertainty as some local authorities would not issue them due to various reasons, including quotas.
2　European Business in China Business Confidence Survey 2022, European Union Chamber of Commerce in China, p. 22, 20th June 2022, viewed
12th August 2022, <https://www.europeanchamber.com.cn/en/publications-business-confidence-survey>
3 See: Human Resources Working Group Position Paper 2022/2023, p. 65.

Horizontal Issues 33
 among other allowances for housing, education and language training—would be extended for two
more years.4 The Finance and Taxation Working Group, which had advocated for the last three years
for an extension of this exemption of allowances, welcomed this step, hoping that it would temporarily
stem the outflow of foreign talent from China.5 However, the ongoing stringent COVID containment
measures meant the 'expat exodus' continued unabated.

European companies reported ambiguous rules and regulations, the unpredictable legislative
environment, and discretionary enforcement of rules and regulations as the top three regulatory
Section Two: Horizontal Issues

challenges they faced in China in 2021.6 Ambiguous legal requirements and inadequate law/policy
implementation, as well as a lack of guidance on inter-market conflicts, are all issues addressed in
the Legal and Competition Working Group Position Paper.7 The working group continues to advocate
for the advancement of the rule of law in China, as well as the creation of a fair and unified market as
outlined in the Opinion on Accelerating the Establishment of a Unified Domestic Market (Opinion).8
Although not legislation, the Opinion explicitly calls for the eradication of all policies that compromise
fair competition between companies. Creating a level playing field between foreign-invested and
domestic companies had been expected following the promulgation of the Foreign Investment Law
(FIL) in 2020.9 Yet, more than two years later, foreign and Chinese companies are still being treated
differently, as the legal regime set up by the FIL does not fundamentally abolish the distinction between
foreign and domestic investment, and implementation of the law remains fragmented and inconsistent.

In addition, intellectual property rights (IPR) protection remains a significant concern for European
companies. Although European companies report a steady improvement in IPR enforcement, 46
per cent of respondents to the BCS 2022 still see it as inadequate, a poor result by any objective
assessment. Furthermore, 14 per cent reported still being compelled to transfer technology to maintain
market access,10 despite Article 22 of the FIL stating that, “No administrative department or its staff
member shall force any transfer of technology by administrative means."11

The Environment Working Group continues to raise important concerns around green development
and carbon neutrality, and to advocate for more engagement between China and Europe in these
fields. European companies in China are well positioned to leverage their advanced technologies and
management systems developed over decades in Europe to provide green solutions that can help
China achieve its 2030 and 2060 goals.12 The Environment Working Group will continue to engage with
national and local government stakeholders to promote knowledge exchanges in the development of
a low-carbon and circular economy, and to advocate for increased transparency and predictability of
enforcement of environmental protection rules and regulations.

4　Announcement on the Continuation of Implementation of Individual Income Tax Preferential Policies Such as for Foreign Nationals’ Benefits, MOF and
STA, 31st December 2021, viewed 11th July 2022, <http://szs.mof.gov.cn/zhengcefabu/202112/t20211231_3780374.htm>
5　See: Finance and Taxation Working Group Position Paper 2022/2023, p. 54.
6　European Business in China Business Confidence Survey 2022, European Union Chamber of Commerce in China, p. 22, 20th June 2022, viewed 12th
August 2022, <https://www.europeanchamber.com.cn/en/publications-business-confidence-survey>
7 See: Legal and Competition Working Group Position Paper 2022/2023, p. 103.
8 Opinion on Accelerating the Establishment of a Unified Domestic Market, State Council, 21st April 2022, viewed 21st July 2022, <http://www.gov.cn/
xinwen/2022-04/10/content_5684388.htm>
9　Foreign Investment Law of the People's Republic of China, National People's Congress (NPC), 15th March 2019, viewed 21st July 2022, <http://www.
npc.gov.cn/englishnpc/c23934/202012/5b80fe5055504efa93b6744f9272b3c2.shtml>
10 European Business in China Business Confidence Survey 2022, European Union Chamber of Commerce in China, pp. 34–36, 20th June 2022, viewed
26th July 2022, <https://www.europeanchamber.com.cn/en/publications-archive/1020/Business_Confidence_Survey_2022>
11 Foreign Investment Law of the People's Republic of China, NPC, 15th March 2019, viewed 21st July 2022, <http://www.npc.gov.cn/englishnpc/c23934/20
2012/5b80fe5055504efa93b6744f9272b3c2.shtml>
12 Carbon Neutrality: The Role of European Companies in China’s Race to 2060, European Union Chamber of Commerce in China, 25th May 2022, viewed
1st June 2022, <https://www.europeanchamber.com.cn/en/publications-carbon-neutrality-report>

34 Horizontal Issues
 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

Compliance and Business Ethics Working Group

Key Recommendations
1. Duly Consider the Adequacy and Effectiveness of a Corporate’s Compliance
Programme in the Principle of Enforcement

Section Two: Horizontal Issues

• Modify related legislations and implementation guidelines to allow recognition of the
implementation of a robust compliance system as a valid defence in bribery cases.
• Issue guidance on the key elements of an adequate and effective compliance programme.
• Enhance experience exchanges among the government and business community on best
practices in combatting corruption and bribery.

2. Encourage Systematic Compliance Talent Cultivation and Establish a

Holistic Compliance Professional Qualification and Management System
to Ensure State-of-the-art Compliance Capabilities
• Cultivate compliance professionals by creating a standardised curriculum in universities and
training programmes in law firms.
• Establish a compliance professional qualification certification at various levels and incentivise
companies to build internal compliance management systems.
• Establish continuous education programmes at local or national level that will allow compliance
professionals to update and broaden their expertise and techniques.

3. Incentivise Business Entities to Allocate Sufficient Resources for Developing

Compliance Expertise
• Draft and issue guidelines, local standards or industry standards to educate business entities
and society on compliance matters.
• Learn best practices from other law jurisdictions such as the United States or the European
Union on government-enterprise cooperation on compliance topics.
• Leverage experiences from multinationals to further enhance and improve state-owned and
private companies’ compliance practice through jour fixe meetings.

4. Create and Enhance an Expertise-Sharing and Communication Platform

among Business Entities, Policy-makers and Law Enforcement Authorities to
Leverage Jour Fixe Efforts and Upgrade Compliance Professionals’ Skills to
the Next Level
• Create common platforms enabling business entities, policy-makers and law enforcement
authorities to share expertise, and discuss and align best compliance practices.
• Initiate and implement collaboration systems among stakeholders with well-defined deliverables.
• Create a continued compliance education system to educate relevant China compliance
professionals and help them to upgrade their skills to the next level.

Compliance and Business Ethics Working Group 35

 Introduction to the Working Group The national and local governments have actively
enacted laws, regulations, and guidelines in recent
Created in 2015, the Compliance and Business Ethics
years to help build a rule of law society and compliance
Working Group aims to create a trusted environment
management systems in China. For instance, the Civil
for European Chamber members to discuss their
Code of China—consisting of seven sections with a
compliance and business ethics experiences. The
total of 1,260 articles, it well deserves its nickname
purpose is to foster learning and development in this
as an ‘Encyclopedia of Social Life’—took effect from
area, and thereby enhance the quality of compliance
1 st January 2021, and provides basic guidance for
among European Chamber member companies. The
civil activities, transaction activities and civil disputes.4
Compliance and Business Ethics Working Group also
Several regulations and judicial interpretations related
Section Two: Horizontal Issues

advocates to the Chinese Government on a range

to the Anti-monopoly Law (AML) or the Anti-unfair
of compliance-related issues that regularly affect
Competition Law (AUCL) were published over the past
European Chamber members. This working group is
two years. Although China already has numerous stand-
only open to in-house counsels, compliance officers
alone civil laws and regulations in place, these were
and internal auditors from industry players.
introduced at different times, sometimes overlap and
occasionally even contradict each other. The unified
Recent Developments Civil Code provides an overarching law that lawyers
Over the past few years, compliance in China has and judges can refer to when resolving civil cases in
evolved from the traditional areas of anti-corruption order to minimise contradicting verdicts.
and anti-bribery to new and broader areas—in line
with the government’s strengthening of a rule of law The following are highlights of other recent compliance-
society—which include data security and privacy related legislation developments:
protection, intellectual property protection, export
control and competition law compliance, among others.1 Anti-monopoly Law and Regulations
In President Xi Jinping’s speech on 14 th October During the State Administration for Market Regulation’s
2020 to mark the 40 th anniversary of the Shenzhen (SAMR’s) public consultation on the AML in January
Economic Zone, he mentioned the rule of law seven 2020, the working group raised concerns about the
times, and expressly stated that China needs to “make law’s lack of clear definitions on the implementation
rule of law the consensus and basic norm of society, process, and the need for measures to prevent the
and develop a market-orientated, law-based and abuse of power, as the proposed revisions will give
internationalised business environment”.2 The promotion enforcement agencies great discretion over the
of internationalising legal standards for business awarding of penalties.5
environment development in China is welcomed by both
domestic and international businesses, as it presents The Anti-monopoly Commission of the State Council
good opportunities and challenges for the compliance issued the Anti-monopoly Guidelines, effective from
community and governmental enforcement agencies. 7th February 2021, which aim to prevent monopolistic
The announcement on 9th March 2021 by the Ministry activities in the field of online platform economies.6&7
of Human Resources and Social Security (MOHRSS) The Shanghai Anti-unfair Competition Regulations,
that ‘corporate compliance officer’ is now officially promulgated by the Shanghai Municipal Government
recognised as a new profession in China is a good and effective from 1 st January 2021, require all
example of such internationalisation efforts.3 businesses in Shanghai to strengthen their internal

4　Civil Code, National People’s Congress, 2nd June 2020, viewed 6th May 2022, <www.
npc.gov.cn/npc/c30834/202006/75ba6483b8344591abd07917e1d25cc8.shtml>
1　Outline for Implementing the Building of a Rule of Law Society, State Council, 7th
5　Announcement of the State Administration for Market Regulation on the Public
December 2020, viewed 6th May 2022, <http://www.gov.cn/zhengce/2020-12/07/
Consultation on the Anti-monopoly Law Amendment Draft (Draft for Public
content_5567791.htm>
Consultation), SAMR, 2nd January 2020, viewed 6th May 2022, <http://www.samr.
2　Xi Jinping: Speech at the 40th Anniversary Celebration of Shenzhen Special
gov.cn/hd/zjdc/202001/t20200102_310120.html>
Economic Zone, Xinhua, 14th October 2020, viewed 6th May 2022, <www.xinhuanet.
6　The Anti-monopoly Guidelines of the Anti-monopoly Commission of the State
com/politics/leaders/2020-10/14/c_1126611290.htm>
Council on the Platform Economy, SAMR, 7th February 2021, viewed 6th May 2022,
3　The Ministry of Human Resources and Social Security, the State Administration for
<http://gkml.samr.gov.cn/nsjg/fldj/202102/t20210207_325967.html>
Market Supervision and Administration, and the National Bureau of Statistics jointly
7　The platform economy is economic and social activity facilitated by platforms,
release 18 new occupations including integrated circuit engineering and technical
typically online sales or technology frameworks. By far the most common type are
personnel, MOHRSS, 18th March 2021, viewed 6th May 2022, <www.mohrss.gov.cn/
'transaction platforms', also known as 'digital matchmakers'. Examples of transaction
SYrlzyhshbzb/dongtaixinwen/buneiyaowen/rsxw/202103/t20210318_411376.html>
platforms include Amazon, Airbnb, Uber and Baidu.

36 Compliance and Business Ethics Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

control and compliance management.8 Interpretations credit repair are expected to be released in the near
on Several Issues related to Application of the Anti- future.13
unfair Competition Law issued by the Supreme People’s
Court, aimed at providing judicial interpretation of the These measures and their associated risks and rewards
AUCL, took effect on 20th March 2022.9 The working have motivated companies to look more closely at
group welcomes these guidelines and believes that they their own internal compliance procedures, and have
will boost the development of corporate compliance facilitated the acceptance of compliance protocols by
programmes while increasing efficiency and consistency third parties. The Compliance and Business Ethics
in compliance enforcement. Working Group welcomes these developments as
a positive step in China’s reform process. However,

Section Two: Horizontal Issues

Social Credit System (SCS) uncertainty and inconsistency remain factors in law
The Chinese Government is committed to establishing enforcement and reform efforts. Regarding compliance
a national Corporate SCS that will be an embedded regulations, such ambiguity increases the risk of
mechanism, based on existing laws and regulations, unintentional infractions and can incentivise non-
to sanction or reward enterprises’ bad and good compliance in businesses.
behaviour. In 2014, the State Council published the Plan
for Establishing a Social Credit System (2014–2020), Key Recommendations
which was implemented by 2020, and a unified social
credit code system established at the national level.10 1 . Duly Consider the Adequacy and
On 10 th February 2021, the SAMR published draft Effectiveness of a Corporate’s Compliance
amendments to the Administrative Measures for the Programme in the Principle of Enforcement
List of Enterprises with Seriously Illegal and Dishonest
Acts for public consultation.11 On 13th January 2022,
the SAMR published the Opinions on Promoting the Concern
Category-based Management of Corporate Credit Risks The robustness of a company’s compliance system is
to Further Improve Regulatory Efficiency, which provide not fully taken into consideration when prosecution and
comprehensive implementation of enterprise credit risk punishment reduction measures are rendered in China.
classification management, effective enterprise credit
risk monitoring and early warning, and a proposal for Assessment
automatic classification of enterprises based on their Currently, there are no implementation measures
credit risk status over the preceding three years. 12 on lenient treatment for companies with a robust
While improvements on previous measures have compliance system when a bribery or corruption
been introduced in these draft amendments and issue arises. Although the AUCL was amended in
implementation rules, many clauses still need to be 2017 to distinguish bribery behaviour committed by a
clarified. In addition, more directives or guidelines on single employee and that committed by the business
operator, there are no official interpretations or real-
8　Regulations of Shanghai Municipality on Anti-unfair Competition, Shanghai Municipal life case studies of the types of evidence companies
People’s Congress, 28th October 2020, viewed 6th May 2022, <http://www.spcsc.
sh.cn/n8347/n8467/u1ai222523.html>
can use to make such distinguishments. 14 On 3 rd
9　Interpretations on Several Issues related to Application of the Anti-unfair Competition June 2021, the Supreme People’s Procuratorate
Law, Supreme People’s Court, 17th March 2022, viewed 22nd June 2022, <https://
www.court.gov.cn/fabu-xiangqing-351291.html>
13 On May 12th 2021, the National Development and Reform Commission (NDRC)
10 Plan for Establishing a Social Credit System (2014–2020), State Council, 27th June
issued a review of the Administrative Measures for Credit Repair (Trial) (Draft
2014, viewed 6th May 2022, <http://www.gov.cn/zhengce/content/2014-06/27/
for Comment), which provides detailed regulations on credit repair. The public
content_8913.htm>
consultation ran from 12th May 2021 to 12th June 2021. However, it is hard to predict
11 Administrative Measures for the List of Enterprises with Seriously Illegal and
when this Measures will be finalised and take effect. Administrative Measures for
Dishonest Acts (Draft for Comments), SAMR, 10th February 2021, viewed 22nd June
Credit Repair (Trial) (Draft for Comment), NDRC, 12th May 2021, viewed 6th May
2022, <https://www.samr.gov.cn/hd/zjdc/202102/t20210210_326053.html>
2022, <https://hd.ndrc.gov.cn/yjzx/yjzx_add.jsp?SiteId=359>
12 Opinions on Promoting the Category-based Management of Corporate Credit Risks
14 Article 7 of the AUCL states that: “Bribery committed by a staff member of a
to Further Improve Regulatory Efficiency, SAMR, 13th January 2022, viewed 22nd
business operator shall be deemed as bribery committed by the business operator,
June 2022, <https://gkml.samr.gov.cn/nsjg/xyjgs/202201/t20220113_339100.html>
except where the business operator has evidence to prove that the conduct of
the said staff member has nothing to do with seeking transaction opportunities or
competitive advantage for the business operator.” Anti-unfair Competition Law of
the People’s Republic of China, National People’s Committee Standing Committee,
4th November 2017, viewed 6th May 2022, <http://www.gov.cn/xinwen/2017-11/05/
content_5237325.htm>

Compliance and Business Ethics Working Group 37

 issued the Guidance on the Establishment of a Third- promptly, identified the gaps in the system and bridged
party Supervision and Evaluation Mechanism for those gaps to prevent similar misconduct in the future.
the Compliance of Enterprises Involved in the Case
(Trial Implementation).15 In September, the Supreme This means that if companies can show they took
People’s Procuratorate, the China Federation of meaningful actions to prevent bribery by employees,
Industry and Commerce and nine other departments they may be ‘rewarded’ with a partial or full defence.
jointly established the management committee Other factors are also taken into account, such as
of the third-party supervision and evaluation willingness to cooperate with the authorities. The
mechanism. In November of the same year, the nine applicability of the defence of adequate procedures
departments jointly issued two supporting provisions: depends on the circumstances of the offence, including
Section Two: Horizontal Issues

the Administrative Measures for the Selection and the scale and complexity of the organisation and
Appointment of Professionals of the Compliance any risks the potential act of bribery exposed the
Third-party Supervision and Evaluation Mechanism of company to. Anti-bribery procedures are expected to be
Enterprises Involved in the Case (Trial Implementation) proportionate to the risk.
and the Implementation Rules of the Guiding Opinions
on the Establishment of the Compliance Third-party Prerequisites for using a compliance system as a
Supervision and Evaluation Mechanism of Enterprises defence include the following principles:
Involved in the Case (Trial Implementation). Although
the authorities have implemented two rounds of pilot • Proportionate processes which are clear, practical,
programmes,16 the standards for compliance inspection accessible, effectively implemented and enforced
and evaluation need to be further refined. So far, there to maintain an anti-bribery stance and create a
has been no official interpretations or real-life case corporate culture that supports it.
studies of how a company with a robust compliance • A strong tone from the top of the organisation to
system may use its good compliance policy or history foster a culture of integrity, where management
of good compliance, for example, as a point of plea for should be involved in key decisions regarding, as
lenient treatment. well as in the communication of, anti-bribery policies
to ensure meaningful impact.
In other countries, such as Germany and Spain, • External communication to reassure third parties of
adequate compliance measures and policies adopted the company’s principles.
by the prosecuted company are recognised as a valid • C o m p r e h e n s i v e t r a i n i n g , w e l l - r o u n d e d r i s k
defence. For example, on 9th May 2017, the German assessment, effective due diligence and monitoring
Federal Court of Justice ruled that a compliance of the effectiveness of their anti-bribery policies and
management system can lead to a reduction of a procedures.
fine against a company.17 According to the ruling, two
issues were to be taken in consideration during the Allowing the compliance system defence will in addition
determination of fines: first, whether an effective and promote greater transparency and compliance, as
risk-adequate compliance management system was in companies are encouraged to improve their internal
place before the misconduct took place; second, and compliance systems. This statutory defence may also
most importantly, whether the management reacted allow other companies to assess what constitutes best
practices and implement their own strong compliance
15 Guidance on the Establishment of a Third-party Supervision and Evaluation systems. Consequently, it leads to continuous
Mechanism for the Compliance of Enterprises Involved in the Case (Trial
Implementation), Supreme People’s Procuratorate, 3rd June 2021, viewed 22nd June improvement by authorities, companies, their
2022, <https://www.spp.gov.cn/spp/xwfbh/wsfbh/202106/t20210603_520224.shtml> shareholders and society, contributing to a reduction in
16 A total of 10 provinces have participated in the two rounds of corporate compliance
trial programmes; procuratorates of the trial provinces handled 766 corporate bribery risks.
compliance cases, including 503 cases applicable to third-party supervision and
evaluation mechanism. Comprehensively Accelerating Corporate Compliance
Reform Trials! What are the Important Signals From This Meeting?, Supreme Recommendations
People’s Procuratorate, 2nd April 2022, viewed 22nd June, <https://www.spp.gov.cn/ • Modify related legislations and implementation
zdgz/202204/t20220402_553256.shtml>
17 Judgment of the 1st Criminal Senate of 9th May 2017, Bundesgerichtshof Im Namen guidelines to allow recognition of the implementation
des Volkes, 9th May 2019, viewed 6th May 2022, <https://juris.bundesgerichtshof.de/ of a robust compliance system as a valid defence in
cgi-bin/rechtsprechung/document.py?Gericht=bgh&Art=en&nr=78723&pos=0&a
nz=1> bribery cases.

38 Compliance and Business Ethics Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

• Issue guidance on the key elements of an adequate compliance professionals with sufficient training.
and effective compliance programme.
• Enhance experience exchanges among the government With the recent official recognition of corporate
and business community on best practices in compliance officer as a profession, China should step
combatting corruption and bribery. up its efforts to develop compliance talent by improving
compliance curriculum in universities and occupational
2. Encourage Systematic Compliance Talent schools, and establishing compliance professional
Cultivation and Establish a Holistic qualification systems and continuous education
programmes for compliance professionals. Guidelines
Compliance Professional Qualification
or policies should be developed at national or local
and Management System to Ensure State-

Section Two: Horizontal Issues

government levels to promote a culture of compliance
of-the-art Compliance Capabilities
in society, as well as encouraging the establishment of
a compliance organisation or a dedicated compliance
Concern
team and management system in enterprises. These
China lacks an overall framework for supporting the
could then contribute to developing compliance talent
development of compliance officers/professionals
and creating a robust and sustainable compliance
qualified to respond to the ever-expanding scope of
culture and ‘ecosystem’ in China.
compliance challenges.

Recommendations
Assessment
• Cultivate compliance professionals by creating a
In recent years, several central government departments,
standardised curriculum in universities and training
including the SAMR and the Ministry of Commerce,
programmes in law firms.
have issued regulations and guidelines on compliance
• Establish a compliance professional qualification
management. As a result, Chinese enterprises and
certification at various levels and incentivise companies
institutions are paying more attention to compliance
to build internal compliance management systems.
management systems. The working group finds it
• Establish continuous education programmes at
very encouraging that, in March 2021, the MOHRSS
local or national level that will allow compliance
added ‘corporate compliance officer’ to the list of official
professionals to update and broaden their expertise
professions, with the key responsibilities of setting
and techniques.
up a company’s compliance management strategy,
identifying and assessing relevant risks, implementing
3. Incentivise Business Entities to Allocate
compliance management systems and conducting
compliance training and investigations.18 Sufficient Resources for Developing
Compliance Expertise
Although external monitoring pressure by both
domestic and overseas regulatory bodies (such as Concern
the United States’ (US) Department of Justice (DOJ)) Compliance professionals lack sufficient investment and
and internal development needs continue to grow, resources to develop new expertise, and therefore
the corresponding increase in demand for qualified may not be able to cope with increased requirements
compliance professionals in China is not being met. In from various jurisdictions and as a result of geopolitical
addition, China currently has few systematic university- tensions.
level curriculum for compliance; most compliance
professionals come from legal, risk management or Assessment
finance backgrounds, and many government agencies Due to increasing geopolitical tensions and repeated
and large state-owned or private enterprises lack outbreaks of COVID-19, jurisdictions are increasingly
ring-fencing their regulatory framework to protect
their national security interests and critical assets. As
18 The Ministry of Human Resources and Social Security, the State Administration for
Market Supervision and Administration, and the National Bureau of Statistics jointly a result, legal professionals today not only need to
released 18 new occupations including integrated circuit engineering and technical manage traditional compliance challenges, such as
personnel, MOHRSS, 18th March 2021, viewed 6th May 2022, <http://www.mohrss.
gov.cn/SYrlzyhshbzb/dongtaixinwen/buneiyaowen/rsxw/202103/t20210318_411376. anti-bribery and anti-corruption, but also must tackle
html>

Compliance and Business Ethics Working Group 39

 newly emerging challenges, such as requirements guide to the US Foreign Corrupt Practices Act (FCPA).21
relating to sanctions and export control, personal data The guide provides companies, practitioners and the
protection, cybersecurity, environment, health and public with detailed information about the statutory
safety (EHS) customs and tax compliance. Some of requirements of the FCPA while also providing insight
those newly emerging topics—for example, personal into DOJ and SEC enforcement practices through
data protection or EHS—need special expertise, thus examples, summaries of applicable case law and DOJ
necessitating investment in training. Despite this, opinion releases. It also summarises applicable new
neither business entities nor the government are policies announced in recent years.
willing to allocate sufficient resources to developing
compliance professionals. Given this conservative Similar practices are implemented by the European
Section Two: Horizontal Issues

approach to investment in compliance amid the current Commission with respect to anti-trust compliance.
volatile, uncertain, confusing and ambiguous (VUCA) As an example, the European Commission and the
general conditions, 19 working group members have national competition authorities in all European Union
reported high levels of burnout and overstretching (EU) Member States created the European Competition
among compliance professionals. Network (ECN), under which members engage in
cooperation and exchange of best practices on merger
Compliance should not be left to business alone to control by setting up an EU Merger Working Group.22
manage and invest in; it also requires input from all The Compliance and Business Ethics Working Group
stakeholders in society, including the government, hopes that the Chinese Government, as part of
industry associations, and corporate citizens. Only when continuing efforts to provide increased transparency,
all these stakeholders allocate sufficient resources to could adopt mutatis mutandis best practices from other
promoting a strong compliance culture, sharpening jurisdictions to help businesses operating in China
professional expertise and advocating compliance best combat the ever-changing compliance challenges.
practice, can a robust compliance scheme gain a solid The working group noticed with pleasure that certain
foothold in society – which may further develop into an Chinese government regulatory authorities have already
open and diverse bedrock compliance ecosystem. taken substantial steps in this direction—for example,
the SAMR and its provincial counterparts (local SAMRs)
An option to engage all stakeholders is to create a have promulgated guidelines for anti-trust compliance
communication platform where multinationals can practices—and hopes such practices will be adopted by
communicate openly with their peers at state-owned other regulatory authorities.
and private enterprises, for example, via jour fixe
meetings.20 This will result in a platform inclusive of all Recommendations
kinds of commercial companies, which would ultimately • Draft and issue guidelines, local standards or
build up the compliance community and ecosystem in industry standards to educate business entities and
China. society on compliance matters.
• Learn best practices from other law jurisdictions
One way to mitigate burnout among compliance officers such as the US or the EU on government-enterprise
is to learn best practices from other jurisdictions. For cooperation on compliance topics.
example, the US DOJ and Securities and Exchange • Leverage experiences from multinationals to further
Commission (SEC) have jointly issued a 100-page enhance and improve state-owned and private
companies’ compliance practice through jour fixe
meetings.

19 Mastering 2020: How to get prepared for the VUCA world with Light Footprint
management, Roland Berger, February 2014, viewed 6th May 2022, <http://
contentworks.ro/wp-content/uploads/2019/05/Roland_Berger_TAB_
Mastering_2020_20140228-2.pdf>
20 Jour fixe meeting refers to regular structured meetings between a group of people
to maintain and develop the standard process. From a business and/or political
perspective, jour fixe meetings serve as a platform to “ensure the current process 21 A Resource Guide to the US Foreign Corrupt Practices Act, DOJ, 25th November
and future process changes are understood and agreed by all key stakeholders 2020, viewed 6th May 2022, <https://www.justice.gov/criminal-fraud/fcpa-resource-
and coded in the organisation’s formal process documentation”. Kuna, Hans, The guide>
Process Jour Fixe, 30th August 2020, viewed 27th June 2022, <https://hanskuna. 22 European Competition Network (ECN), 2021, European Commission, viewed 6th
com/2020/08/30/the-process-jour-fixe/> May 2022, <https://ec.europa.eu/competition/ecn/mergers.html>

40 Compliance and Business Ethics Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

4. Create and Enhance an Expertise- • Create a continued compliance education system

sharing and Communication Platform to educate relevant China compliance professionals
and help them to upgrade their skills to the next
among Business Entities, Policy-makers
level.
and Law Enforcement Authorities to
Leverage Jour Fixe Efforts and Upgrade
Compliance Professionals’ Skills to the Abbreviations
Next Level AML Anti-monopoly Law
AUCL Anti-unfair Competition Law
Concern DOJ Department of Justice

Section Two: Horizontal Issues

Athough the Chinese Government is increasingly ECN European Competition Network
emphasising compliance, it lacks well-defined EHS Environment, Health and Safety
compliance knowledge databases—in particular for EU European Union
specific fields—technical expertise on legislation- FCPA Foreign Corrupt Practices Act
making and enforcement, and best practice sharing MOHRSS Ministry of Human Resources and
among stakeholders. Social Security
NDRC National Development and Reform
Assessment Commission
In essence, compliance is a special field of professional SAMR State Administration for Market
practice. Therefore, professionalism needs to be Regulation
embedded and advocated throughout compliance SCS Social Credit System
exercise, i.e., from identifying compliance risks to SEC Securities and Exchange Commission
legislature and policy formulation, to implementation US United States
and through to review and improvement. VUCA Volatility, Uncertainty, Confusion and
Ambiguity
To create an expertise-sharing and communication
platform among business entities, it is of increasing
importance for China’s policy-makers and law
enforcement authorities to leverage jour fixe efforts
to help compliance professionals upgrade their skills.
Through such joint exercises and efforts, stakeholders
will gain insight into each other’s perspectives, positions
and concerns, which will ultimately provide the entire
ecosystem with better acumen for well-informed
decision-making.

In other jurisdictions, continued legal education is quite

customary. Similarly, continued compliance education
via Chinese Government advocacy can help to ensure
state-of-the-art expertise within China’s compliance
ecosystem and community.

Recommendations
• Create common platforms enabling business entities,
policy-makers and law enforcement authorities
to share expertise, and discuss and align best
compliance practices.
• Initiate and implement collaboration systems among
stakeholders with well-defined deliverables.

Compliance and Business Ethics Working Group 41

 Environment Working Group

Key Recommendations
1. Increase the Transparency and Predictability of Environmental Protection Enforcement
Section Two: Horizontal Issues

• Enforce the Environmental Protection Law and related regulations in a transparent fashion.
• C ommunicate environmental enforcement plans and incentive schemes well in advance of
implementation, and discuss with relevant industries how best to mitigate any potential negative
impact on them.
• Provide full online access to official environmental information, including policies and standards
that are applied locally and nationally.
• Install direct communication channels for companies to notify central government authorities
of any issues/irregularities related to ‘one-size-fits-all’ approaches or other unreasonable
environmental enforcement.
• Improve the effectiveness of mediation as a dispute resolution tool by establishing an expert group
of environmental mediators to conduct high-level mediation for major environmental disputes and
facilitate the training of government officials, judges and private sector actors.

2. Establish a Holistic Resource Management System to Address the Plastic

Pollution Crisis with Measures Along the Whole Value Circle
• Define an overall strategy for plastic pollution control based on circular economy and holistic
resource management concepts, with a mid- and long-term legislation framework that includes
quantitative targets, roadmaps and waste management hierarchy.
• Accelerate the policymaking process for packaging and packaging waste, with the extended
producers’ responsibility mechanism as the foundation.
• Introduce a defined roadmap to consolidate and formalise the long-existing informal scrap
collecting and recycling system to ensure post-consumption recyclable material can be recycled at
the highest possible quality for closed-loop or high-end applications.
• Improve market conditions for recycled materials in China to attract more social investment in
upgrading the sector by clarifying policies for recycled plastic for food-contact materials and
further developing industrial standards on recycled materials and processes.

3. Reinforce the Role Played by Environmental Facilities in China’s National

Emergency Response System
• E nhance construction of environmental facilities to ensure their effectiveness in national
emergency responses.
• Recognise the key role played by environmental facilities in ensuring the effectiveness of the
Chinese public health emergency response system, and extend to them the support they need.

4. Contribute to Decarbonisation by Pushing Green, Low Carbon and Circular

Economy Development
• Prioritise the implementation of a strategy to transition to a circular economy with a mid- and long-

42 Environment Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

term legislative framework, as well as pilot projects that include the joint involvement of Chinese
and European companies.
• Enhance industrial players’ involvement in, and promote frequent and in-depth exchanges and
dialogues on the joint Memorandum of Understanding on Circular Economy Cooperation.
• Encourage technology developments that can facilitate better recycling of not only high-value
and easy-to-recycle materials, such as cardboard and polyethylene terephthalate, but also
materials such as polypropylene, polyethylene, polystyrene, glass, waste polyester, non-ferrous
metals and critical mineral resources.

Section Two: Horizontal Issues

5. Develop the Recycling and Reuse Industry under the Dual Control of Energy
Consumption Policy
• C
larify that the recycling and reuse industry is considered a ‘green industry’ that meets the
requirements of Article 43 of the Guidance Catalogue for Industrial Structure Adjustment (2019),
while ensuring industries listed in the Guidance Catalogue for Green Industries (2019 version)
are not classified as high energy consumption projects by local governments.
• Strengthen policy research on the recycling and reuse industry to enhance coordination between
industrial development and dual control energy consumption policies.
• Clarify high energy consumption project standards, ensuring that energy usage of raw materials,
energy efficiency levels and environmental benefits are taken into consideration.
• P rioritise access to green energy supply for industry players in order to support overall
decarbonisation targets and improve the efficiency of resources.
• Implement financial subsidies and tax incentives, including green finance, that encourage the
recycling and reuse industry and the reduction of carbon emissions.

Introduction to the Working Group Resources, 2 along with local bureaux. The working
group also provides regular feedback to the Chinese
Established in 2006, the Environment Working Group
authorities on environmental regulations, standards
currently consists of more than 180 member companies
and technologies in China, and serves as a platform
involved in engineering, manufacturing, construction,
for companies to share best practices, experiences,
consulting and certification services. Members come
solutions and recommendations on how to best protect
from a variety of industry sectors, such as waste, water,
the environment.
smart grids, chemicals, pharmaceuticals, petroleum,
biochemistry and logistics. Environmental technology
service providers, environmental consultants and Recent Developments
lawyers are also active members of the working group. On 1st September 2020, the revised Prevention and
Control of Environmental Pollution from Solid Waste
The working group serves as a channel for government Law (Solid Waste Law) took effect, incorporating
stakeholder engagement, particularly with the National industrial solid waste into the sewage permit management
Development and Reform Commission (NDRC), the system and shifting the responsibility for properly
Ministry of Ecology and Environment (MEE), 1 the treating waste to the original producer. Another key
Ministry of Water Resources and the Ministry of Natural development was a five-year joint action plan between
the NDRC and the MEE, aimed at controlling white

2　Previously known as the Ministry of Land and Resources. It became the Ministry
1 Previously known as the Ministry of Environmental Protection. It became the of Natural Resources at the end of March 2018 following wider government
MEE at the end of March 2018 following wider government restructuring. restructuring.

Environment Working Group 43

 plastic pollution during the 14th Five-year Plan (14FYP) trillion (approximately United States dollars (USD) 340
period (2021–2025).3 billion) per year in the current decade, increasing to
CNY 3.9 trillion per year from 2031–2060.9
In January 2021, the MEE released pilot rules for the
national carbon emission trading system (ETS) after In a speech at the UN Biodiversity Conference (COP15)
having piloted local ETSs in seven provinces and Leaders Summit on 12 th October 2021, President
cities since 2011. 4 Effective from 1 st February 2021, Xi announced implementation plans and supporting
the national ETS allows companies emitting more than measures for peaking carbon emissions in key sectors,
26,000 tonnes of carbon dioxide (CO 2) per year to including the ‘1+N’ policy framework as the roadmap to
sell surplus emission allowances to those that expect carbon neutrality.10,11&12 The speech also emphasised
Section Two: Horizontal Issues

to exceed their pollution quotas, thereby shifting the the importance of building a green, low-carbon and
responsibility of emissions reduction to companies.5 circular economy in order for China to achieve its stated
goals. 13 In November 2021, the EU-China Common
At the United Nation’s (UN’s) Leaders Summit on Ground Taxonomy (CGT) was also published. The
Climate on 22 nd April 2021, aimed at promoting CGT is a crucial step towards developing international
multilateral climate change mitigation, President Xi taxonomies, a key part of which will entail aligning
Jinping stated that “to protect the environment is to definitions of terms such as ‘green’, ‘clean’ and ‘low
protect productivity”. 6 He also emphasised China’s carbon’.14
commitment to green development and ecological
conservation by reducing carbon emissions, recalling The European Union (EU) and China’s shared goal of
his announcement in 2020 at the UN’s 75th General climate change mitigation was demonstrated at the 26th
Assembly that China will peak carbon emissions UN Conference of Parties on Climate Change (COP26)
before 2030 and reach carbon neutrality in 2060 (30/60 in November 2021, during which China “accepted two
Goals).7 of the most important points in the Glasgow Climate
Pact: a reaffirmation of limiting global warming to 1.5
For China to achieve its 30/60 Goals, companies degrees Celsius and the targeting of fossil fuels”,
need access to sufficient funding to support their keeping the Paris Agreement alive.15 Although the EU
green transitions. As part of China’s latest efforts to and China have different frameworks and timelines
mobilise the necessary funds to reach its national for achieving carbon neutrality, with the EU aiming to
30/60 Goals, the central bank launched a new green become the world’s first climate-neutral continent by
finance tool on 1st July 2021 to direct capital towards 2050 and cut greenhouse gas (GHG) emissions by
green and sustainable projects by appraising the
green performance of investments through quarterly
evaluations. 8 It is estimated that China’s green 9　China Boosts Green Finance in Pursuit of Carbon Neutrality, Xinhua, 3rd July
investment needs to reach Chinese yuan (CNY) 2.2 2021, viewed 11th April 2022, <http://www.china.org.cn/business/2021-07/03/
content_77603598.htm>
10 ‘1+N’ framework, where the ‘1’ refers to the guiding opinions that set out the
3　The aim is to reduce the use and production of plastics and the amount of overarching principles of policies related to carbon peaking and carbon neutrality,
plastic waste in landfill sites, particularly with single-use plastics in key sectors while the ‘N’ refers to specific action plans that will be rolled at the local and
such as e-commerce and delivery services. See: China Unvells 5-Year Plan industry level.
To Control Plastic Pollution, China Daily, 23 rd September 2021, viewed 9 th 11 Working Guidance for Carbon Dioxide Peaking and Carbon Neutrality in Full
April 2022, <https://english.mee.gov.cn/News_service/media_news/202109/ and Faithful Implementation of the New Development Philosophy, NDRC, 24th
t20210923_952587.shtml> October 2021, viewed 9th April 2022, <https://en.ndrc.gov.cn/policies/202110/
4　China Issues Pilot Rules for National Carbon Emission Trading, CGTN, 6th t20211024_1300725.html>
January 2021, viewed 10th April 2022, <http://english.www.gov.cn/statecouncil/ 12 De Boer, Dimitri, and Fan, Danting, How is progress in China’s 1+N policy
ministries/202101/06/content_WS5ff5600fc6d0f72576943580.html > framework?, China Council for International and Cooperation on Environment
5　See the Carbon Market Sub-Working Group Position Paper 2022–2023 for and Development, 11th March 2022, viewed 13th April 2022, <https://cciced.eco/
further details. climate-governance/how-is-progress-in-chinas-1n-policy-framework/>
6　Full Text: Remarks by Chinese President Xi Jinping at Leaders Summit on 13 Full text: Xi Jingping's Speech At The COP15 Leaders' Summit, China Daily,
Climate, Xinhua, 22nd April 2021, viewed 11th April 2022, <http://www.xinhuanet. 12 th October 2021, viewed 8 th April 2022, <https://www.chinadaily.com.cn/
com/english/2021-04/22/c_139899289.htm> a/202110/12/WS61653286a310cdd39bc6e685.html>
7　Annual Installed Capacity Significantly Increases, Energy Storage World Forum, 14 Lund Larsen, Matthias, EU-China Opinion Pool: Rethinking EU-China climate
viewed 7th April 2022, <https://energystorageforum.com/news/energy-storage/ cooperation, Mercator Institute for China Studies, 18th November 2021, viewed
annual-installed-capacity-significantly-increases> 14th June 2022, <https://merics.org/en/opinion/eu-china-opinion-pool-rethinking-
8　PBOC Introduces New Green Finance Evaluation Tool for Country’s Lenders, eu-china-climate-cooperation>
Climate Cooperation, 12 th June 2021, viewed 11 th April 2022, <https:// 15 Jiang, Yifan, China At COP26: Coal, 1.5C And Short-term Actions, China
climatecooperation.cn/climate/pboc-introduces-new-green-finance-evaluation- Dialogue, 16th November 2021, viewed 29th May 2022, <https://chinadialogue.
tool-for-countrys-lenders/> net/en/climate/coal-1-5c-and-short-term-actions-china-at-cop26/>

44 Environment Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

at least 55 per cent by 2030,16 it is clear that the two all approach.18 It is therefore positive that some recent
sides are aligned on tackling climate change through progress has been made in this area, with the release
ambitious policies at home and close cooperation of the MEE’s Guiding Opinions on Strengthening the
with international partners. Europe has a wealth of Positive List Management of Ecological Environment
experience in green development through legislation, Supervision and Law Enforcement,19 on 7th April 2021.
technology and capitalisation. As outlined in the
European Chamber’s publication, Carbon Neutrality: Control of fine particulate matter (PM2.5) and ozone
The Role of European Companies in China’s Race to pollution improved in 2021 with recent reports showing
2060, 67 per cent of respondents to a survey conducted that, nationwide, air quality was good or excellent
in conjunction with the report are already pursuing for 87.5 per cent of the days in the year, while the

Section Two: Horizontal Issues

carbon neutrality, and 40 per cent have established average concentration of PM2.5 dropped by 9.1 per
decarbonisation teams in China, many of which report cent.20 However, there were still instances of severe
directly to the board. Driven by stringent environmental air pollution in certain parts of the country,21 leading
regulations and consumer demand, and guided by their to local governments imposing special measures to
global corporate carbon neutrality pledges, European control emissions. These were applied to all companies
companies in China now are well positioned to leverage in specific areas with little notice, regardless of their
their advanced technologies and management systems pollution control measures, resulting in all of them
to provide green solutions that can help China achieve having to reduce or cease operations until the air
its 30/60 Goals.17 pollution index had improved. The lack of due warning
on such special measures made it hard for many to
Key Recommendations take the necessary technical measures to reduce
emissions; and the setting of production limits puts
1. Increase the Transparency and Predictability these companies under enormous pressure, with some
of Environmental Protection Enforcement unable to complete client orders they had already
committed to. It is also notable that there is no long-
term incentive for companies to proactively reduce
Concern emissions if the same special measures are applied to
In order to meet their goals, local governments often all companies, regardless of their level of compliance.
implement environmental protection measures with While the Regulations on Management of Pollutant
a ‘one-size-fits-all’ approach, which results in unfair Discharge Permits, which came into effect on 1st March
enforcement that can both negatively impact compliant 2021,22 order manufacturers to closely monitor their
companies and devalue environmental protection own emission levels, the government’s one-size-fits-all
measures. approach is unfair to compliant companies. The working
group recommends that more clarity be provided
Assessment regarding compliance management and performance
Local government agencies are being encouraged to improvement. By clarifying how companies can be
implement rigorous environmental protection initiatives
18 The Masses Can't Stand It, Cadres Also Complain: Why The “One Size Fits
on top of existing strict rules, regulations and standards, All” Governance Continues Despite Repeated Prohibitions, Xinhuanet, 31st July
in order to meet their targets. This has resulted in 2019, viewed 13th April 2022, <http://www.xinhuanet.com/politics/2019-07/31/
c_1124820494.htm>
stricter environmental standards for wastewater 19 Guiding Opinions on Strengthening the Positive List Management of Ecological
discharge and air emissions, among others. It also Environment Supervision and Law Enforcement and Promoting Differentiated
Law Enforcement and Supervision, MEE, 7th April 2021, viewed 29th April 2022,
has led to environmental enforcement sometimes <http://www.mee.gov.cn/xxgk2018/xxgk/xxgk05/202104/t20210423_830095.
unexpectedly impacting companies that already comply html>
20 National Ecological Environment Quality Continued to Improve in 2021,
with relevant regulations because of a one-size-fits- And Eight Binding Indicators Were Successfully Completed, People’s Daily,
23 rd February 2022, viewed 13 th April 2022, <http://finance.people.com.cn/
n1/2022/0223/c1004-32358089.html>
21 During the 14th Five-Year-Plan Period, The Number of Days With Excellent Air Quality
16 European Green Deal, European Commission, viewed 1st June 2022, <https:// in China Will Increase to 87.5%, CCTV News, 27th February 2021, viewed 13th April
ec.europa.eu/clima/eu-action/european-green-deal_en> 2022, <https://news.cctv.com/2021/02/27/ARTIsi9LDPpuT9RnDglcrCUK210227.
17 Carbon Neutrality: The Role of European Companies in China’s Race to 2060, shtml>
European Union Chamber of Commerce in China, 25 th May 2022, viewed 1st 22 Regulations on the Administration of Discharge Permits, State Council,
June 2022, <https://www.europeanchamber.com.cn/en/publications-carbon- 29 th January 2021, viewed 29 th April 2022, <http://www.gov.cn/zhengce/
neutrality-report> content/2021-01/29/content_5583525.htm>

Environment Working Group 45

 exempted from temporary production restriction mediation and judicial mediation,25,26&27 together with the
measures, it will enable them to become frontrunners in xinfang or a ‘letters and visits’ system,28 which handles
green manufacturing, thereby attracting green financing the vast majority of China’s environmental disputes.
and contributing to the 30/60 Goals. While these processes channel and settle certain types
of environmental complaints in an economical way, they
In 2022, China is expected to introduce new incentives are inadequate for handling the more complex, higher-
to reduce pollution and carbon emissions,23 but it is not stakes disputes that commonly arise.
clear what they will include. Many European companies
report that they encounter unexpected requirements For complex cases, it would be more efficient to establish
to reduce their environmental impact through the a specialist and national environmental mediation body
Section Two: Horizontal Issues

procurement of energy from renewable energy sources, along the lines of the Environmental Dispute Adjustment
occasionally beyond what is realistically possible. For Committee in South Korea and the Environmental
companies that are already operating in authorised Dispute Coordination Commission in Japan.29&30 While
locations, such as designated industrial parks, and that there is no similar EU-level mediation body, several
adhere to the highest standards in order to comply with member states have similar bodies.31 These bodies
applicable regulations, such unexpected requirements consist of a panel of neutral mediation experts with solid
and ‘one-size-fits-all’ policies bring exactly the kind experience in environmental matters and the ability
of business uncertainty that they try to avoid when to quickly facilitate the resolution of environmental
choosing where to invest and manufacture. disputes. Such an expert body would also be expected
to conduct training programmes for government
The Environment Working Group realises that the officials, non-government organisations and the private
Chinese Government faces the difficult task of balancing sector, so that mediation can be more widely used in
the needs of a healthy population, and developing a environmental dispute resolution throughout China.
fair business environment and sustainable economy
while guaranteeing long-term energy security. However, Recommendations
the recent decisions to prioritise energy supply and • Enforce the Environmental Protection Law and related
economic recovery while introducing ‘flexibility’ in regulations in a transparent fashion.
areas such as energy intensity reductions has raised • Communicate environmental enforcement plans and
concerns about China's ability to realise all the incentive schemes well in advance of implementation,
environmental targets laid out in the 14FYP.24 Involving and discuss with relevant industries how best to
affected industries in the development of industry-level mitigate any potential negative impact on them.
action plans would help to bring about environmental • Provide full online access to official environmental
improvements in the shortest possible time. information, including policies and standards that are
Improvements could be accelerated further by focussing applied locally and nationally.
discussions on how to finance industrial upgrades that
25 People’s mediation: a mechanism provided under People's Mediation Law,
would be of benefit to both society and industry. which is conducted through People's Mediation Committees that are established
by rural village committees, resident committees, enterprises, institutions or
administrative organisations.
There is also room for improvement in dispute settlement 26 Administrative mediation: a mechanism where administrative organs mediate
mechanisms. Increasing sophistication in monitoring civil disputes that fall within their authority.
27 Judicial mediation: a mechanism integrated into litigation procedures that is
and enforcement should be matched by enhancing conducted under the guidance of a People’s Court with the mediation settlement
alternative dispute resolution (ADR) processes, in agreement having the same legal effect as a judgment.
28 Xinfang or ‘letters and visits’ system: a mechanism through which citizens, legal
particular mediation. Currently there are three ADR persons or other organisations lodge complaints with government at any level
options available: people’s mediation, administrative and through written correspondence, e-mail, fax, phone, visits, and so on, with
such complaints being dealt with by the relevant administrative departments.
29 Environment Disputes Resolution System: Seoul Resolute Disputes, Seoul
Solution, 20th June 2015, viewed 13th April 2022, <https://seoulsolution.kr/en/
content/environment-disputes-resolution-system-seoul-resolute-disputes>
23 The Key Points of Ecological and Environmental Protection Will be Defined in an 30 Environmental Dispute Coordination Commission, Japanese Ministry of Internal
Orderly Manner in 2022, and Green and Low-Carbon Development Will Take the Affairs and Communications, viewed 13th April 2022, <https://www.soumu.go.jp/
Lead, Xinhuanet, 10th January 2022, viewed 13th April 2022, <http://www.news. kouchoi/english/>
cn/2022-01/10/c_1128247497.htm> 31 Alternative dispute resolution for consumers, European Commission, viewed
24 Overall Carbon Reduction and Energy Security Based on National Conditions. 19th August 2022, <https://ec.europa.eu/info/live-work-travel-eu/consumer-rights-
National Energy Administration, 18 th February 2022, viewed 13 th April 2022, and-complaints/resolve-your-consumer-complaint/alternative-dispute-resolution-
<http://www.nea.gov.cn/2022-02/18/c_1310478264.htm> consumers_en>

46 Environment Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

• Install direct communication channels for companies action plan to cut usage of non-degradable single-
to notify central government authorities of any issues/ use plastics items, such as plastic bags, straws and
irregularities related to ‘one-size-fits-all’ approaches or utensils. This long-overdue reform has been welcomed
other unreasonable environmental enforcement. by many environmental activists in China, and includes
• Improve the effectiveness of mediation as a dispute stricter measures that have banned several types of
resolution tool by establishing an expert group of single-use plastic in major cities since the end of 2020,
environmental mediators to conduct high-level with a nationwide ban scheduled by 2025.
mediation for major environmental disputes and
facilitate the training of government officials, judges and However, there are concerns that this may simply lead
private sector actors. to suppliers and manufactures switching from single-

Section Two: Horizontal Issues

use plastics to other types of single-use materials, such
2. Establish a Holistic Resource Management as paper plastic composite materials or controversial
System to Address the Plastic Pollution ‘bio-degradable’ materials. In 2020 alone, 36
companies planned or constructed new bio-degradable
Crisis with Measures Along the Whole Value
plastic manufacturing facilities in China.35 To put this
Circle
into context, the new facilities increase production
capacity by more than 4.4 million tonnes, a sevenfold
Concern
increase in less than 12 months.36 The absence of a
Although China has a large capacity for plastic waste
renewed binding national standard for bio-degradable
recycling and has shown ambition to fight plastic
plastic is worrying, as it causes inconsistencies in
pollution, institutional arrangements are weak and there
quality that may lead to some degrading into harmful
is no holistic strategy or management system, which
microplastics. While the National Standardisation
hinders implementation of waste classification policies.
Management Committee published revised standard
recommendations in 2021, which define clear bio-
Assessment
degradation requirements for a range of plastics, they
In recent years, the mass production of durable and
remain non-binding.37
lightweight plastic for commercial use has become
relatively inexpensive thanks to technological
On 15 th September 2021, the NDRC and the MEE
advancements, but plastic usage has also led to dire
released the 14th Five-year Plan of Action for Plastic
consequences: plastic pollution is now one of the
Pollution Control (Action Plan),38 aimed at improving
world's most pressing issues related to environmental
the whole chain of the plastic pollution control system,
protection and climate change mitigation. On 2nd March
with measures to cut the production and use of plastics,
2022, during the fifth session of the UN’s Environment
develop alternatives for plastics, and substantially
Assembly (UNEA 5.2) in Nairobi, 175 member states,
reduce the amount of plastic waste in landfills and
including China, agreed to work on a legally binding
environmental leakage during the 14FYP period
global treaty to end the plastic pollution crisis. 32 As
(2021–2025). Unfortunately, while consolidation of
China is the world's second largest economy, and the
plastic recycling capacities is mentioned and “closed-
largest producer and consumer of plastic,33 the global
loop recycling” or high-end recycling encouraged, no
battle against plastic pollution will not be won without
quantitative target has been set. It should be noted
meaningful contribution from China.
that in the same policy a clear target has been set set
for the further development of the waste incineration
The NDRC and MEE jointly issued the Opinions on
Further Strengthening Plastic Waste Management
35 Biodegradables Will Not Solve China’s Plastics Crisis, Greenpeace International,
(Opinions) on 16 th January 2020, 34 with a five-year 17th December 2021, viewed 10 th June 2022, <https://www.greenpeace.org/
international/press-release/46066/biodegradables-will-not-solve-chinas-plastics-
32 Nations Sign Up to End Global Scourge of Plastic Pollution, UN News, 2nd March crisis/>.
2022, viewed 13th April 2022, <https://news.un.org/en/story/2022/03/1113142> 36 Ibid.
33 Heng, Cheryl, China’s Plastic Waste Mountain the Biggest in the World: Study, 37 Degradability and Identification Requirements of Biodegradable Plastics and
South China Morning Post, 23rd May 2021, viewed 13th April 2022, <https://www. Products, National Standardization Management Committee, 26 th November
scmp.com/news/china/science/article/3134480/chinas-plastic-waste-mountain- 2021, viewed 10th June 2022, <http://www.gb688.cn/bzgk/gb/newGbInfo?hcno=8
biggest-world-study> 986C280DFE938665FDFD654C5513472>
34 Opinions on Enhancing Plastics Waste Management, NDRC, 16 th January 38 China Unveils 5-year Plan to Control Plastic Pollution, State Council, 15 th
2022, viewed 13th April 2022, <https://www.ndrc.gov.cn/xxgk/zcfb/tz/202001/ September 2021, viewed 13th April 2022, <http://english.www.gov.cn/statecouncil/
t20200119_1219275.html?code=&state=123> ministries/202109/15/content_WS6141f622c6d0df57f98e03a1.html>

Environment Working Group 47

 capacity of 800 kilotonnes per day, which indicates that purposes, despite other developed economies such
burning plastic waste as a means of energy recovery is as the EU and US having done so for many years
still encouraged over recycling. without incident.43 Recycling plastic beverage bottles
significantly decreases their carbon footprint; for
Improperly managed plastic waste leads to environmental example, manufacturing a rPET bottle emits 70 per
leakage, and brings about risks to the environment, cent less CO2 than manufacturing a virgin PET plastic
biodiversity and health. While these issues are bottle. 44 It would therefore be an extremely positive
commonly acknowledged, there are two other aspects development if China can accelerate its policy research
that are often overlooked. and investigation, and eventually allow “closed-loop”
recycling for plastic bottles, as explicitly mentioned in
Section Two: Horizontal Issues

First, most of the current plastic available is produced the Action Plan.45
from fossil-fuel resources, thereby classifying plastic
as a ‘high carbon-intensity’ material. The burning or From a true circular economy perspective, since
incineration of plastic releases embedded carbon the quality of the input determines the quality of the
as CO2 – about 2.7 tonnes for every tonne of plastic output for down-stream processing plants, the most
burned.39 If the burning of plastics is not avoided, or at crucial phases are the collection and sorting of post-
least tightly controlled, China will struggle to reach its consumption plastics, which require both formalisation
commitments under the Paris Agreement as well as the and centralisation. For single-use plastic bottles, a
30/60 Goals. deposit and return system (DRS)—especially for
beverage containers—is a proven mechanism for
Second, China's plastic production is heavily dependent delivering the highest possible collection rate and
on imports. China spends trillions importing crude oil highest quality material recovery. In addition, DRS
to feed its fuel, plastic and chemicals production; 40 provides accurate data to all stakeholders along the
and imports more than 40 million tonnes of high-end value circle, thereby creating a stable demand-supply
polymers and plastic products. 41 While this material relationship as well as transparency that can help
technically has the potential to be recycled, it is the government improve its policymaking. Moreover,
incinerated after only being used once, resulting in a the DRS mechanism creates new and green job
huge loss of valuable natural resources. It is also worth opportunities, and can provide unofficial or part-time
pointing out that incineration can only recover a certain waste collectors with improved working conditions and
amount of energy and not the entire material value, wages.46
which excludes it from the circular economy.42
Creating a circular economy for plastic is not only
China has a functioning plastic bottle recycling industry, focussed on recycling; implementing better design
However, it is not well regulated and, in many cases, is also key to the concept of ‘reduce, reuse and
leads to secondary pollution and unavoidable down- recycle’. Therefore, incentives should be provided to
cycling. For example, high-value and high-quality food- support the development of more eco-friendly designs.
grade plastic beverage bottles get recycled to lower Requirements for producers to make products with
value short fibre only. Part of the reason for this is that longer durability and that are easier to repair, reuse or
China still prohibits recycled polyethylene terephthalate recycle should be outlined and enforced. In 2015, the
(rPET) plastic from being used again for food-contact EU introduced the Extended Producer Responsibility

43 Thematic Report 04 China Waste Plastic Recycling Industry, China-Italy

39 The Circular Economy – A Powerful Force for Climate Mitigation (Executive Chamber of Commerce, 4th May 2020, viewed 13th April 2022, <https://www.
S u m m a r y ) , M a t e r i a l E c o n o m i c s , v i e w e d 1 3 th A p r i l 2 0 2 2 , < h t t p s : / / sicab.net/wp-content/uploads/2020/05/04.-China-Waste-Plastic-Recycling-
materialeconomics.com/publications/the-circular-economy> Industry-Report.pdf>
40 China May Spend $100 Billion More On Crude Oil Impacts In 2022 Amid Surging 44 Bottle to Bottle, From the Source to the End User, Veolia, 2022, viewed 14th
Global Oil Prices: Experts, Global Times, 13th April 2022, viewed 14th April 2022, June 2022, <https://www.veolia.com/en/our-customers/achievements/industries/
<https://www.globaltimes.cn/page/202204/1259198.shtml> circular-economy/germany-rostock-0>
41 Brooks, Amy L.; Wang, Shunli; Jambeck, Jenna R., The Chinese Import Ban 45 China to Ramp Up Recycling, Incineration in New Plastic Pollution Push,
And Its Impact On Global Plastic Waste Trade, Science Advances, 2018, Reuters, 15th September 2021, viewed 21st April 2022, <https://www.reuters.
vol.4, viewed 29 th April 2022, <https://www.ncbi.nlm.nih.gov/pmc/articles/ com/world/china/china-ramp-up-recycling-incineration-new-plastic-pollution-
PMC6010324/> push-2021-09-15/>
42 Lovett, Gina, Why Are We Still Addicted to Burning Waste?, The Guardian, 3rd 46 Deposit-Refund System (DRS): Facts and Myths, Deloitte, April 2019, viewed
August 2015, viewed 13th April 2022, <https://www.theguardian.com/sustainable- 13th April 2022, <https://www2.deloitte.com/content/dam/Deloitte/pl/Documents/
business/2015/aug/03/why-are-we-still-addicted-to-burning-waste> Brochures/pl_DRS_Brochure_Deloitte.pdf>

48 Environment Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

(EPR) policy, 47 under which producers pay different • Introduce a defined roadmap to consolidate and
financial contributions to the scheme based on the formalise the long-existing informal scrap collecting and
end-of-life-costs of their products. A similar scheme in recycling system to ensure post-consumption recyclable
China would help create economic incentives for the material can be recycled at the highest possible quality
design of products that can be more easily recycled or for closed-loop or high-end applications.
reused. Currently, circular economy models for some • Improve market conditions for recycled materials in
‘high value’ and ‘easy-to-recycle’ materials such as China to attract more social investment in upgrading
cardboard, metal and PET plastic are better established, the sector by clarifying policies for recycled plastic for
due to the maturity of the collection and recycling value FCMs and further developing industrial standards on
chain. However, there are many other waste materials— recycled materials and processes.

Section Two: Horizontal Issues

such as polyolefins, glass and textiles—which are not
only high in volume, but also high in material value. 3. Reinforce the Role of Environmental
Policies to encourage technological innovation as well Facilities in China's National Emergency
as business model innovation should be encouraged to
Response System
also turn these waste products into valuable resources.
After China initially aimed to increase the recycling rate
Concern
in 46 municipalities to 35 per cent by 2020,48 it now
Although environmental facilities can play a key role in
strives to reuse 60 per cent of urban household waste
tackling public emergencies, such as national health
by 2025.49 Recycling rates are much higher in many
crises, they have been largely neglected in China,
EU Member States, like Germany for instance, where
which hinders the recovery process and even poses
the municipal waste recycling rate has already reached
potential risks to public safety.
68 per cent, which highlights that European companies
have expertise that can support China's waste reduction
Assessment
effort.50 Furthermore, it takes European municipalities
Environmental facilities providing quality services in
on average only two to three years to implement a
sanitation, wastewater treatment, municipal waste
zero-waste plan, illustrating how much experience both
treatment, as well as hazardous and medical waste
policymakers and companies have gained, which can
treatment not only contribute to promoting and
also contribute to develop China’s circular economy.51
safeguarding environmental standards, but also play
an important role in dealing with public emergencies.
Recommendations
This includes but is not limited to public health crises,
• Define an overall strategy for plastic pollution control
chemical plant explosions and oil spills in waters.52&53
based on circular economy and holistic resource
However, their role is usually downplayed in China.54
management concepts, with a mid- and long-term
legislation framework that includes clear quantitative
For example, there have been global discoveries of the
targets, roadmaps and waste management hierarchy.
existence of the COVID-19 virus in urban sewage and
• Accelerate the policymaking process for packaging
river water.55 Through investing in extra disinfection
and packaging waste, with the EPR mechanism as the
measures in China, environmental facilities have made
foundation.
a cohesive effort to prevent the COVID-19 virus from

47 Extended Producer Responsibility, Organisation for Economic Co-operation and 52 Take the Yancheng chemical plant explosion in March 2019, with a death toll
Development, n.d., viewed 21st April 2022, <https://www.oecd.org/env/tools- of 78, as a key example. In April 2019, in the immediate aftermath, Jiangsu
evaluation/extendedproducerresponsibility.htm> Province released the Plan for Regulating and Improving the Chemical Industry
48 Urban and Rural Municipal Solid Waste in China and the Circular Economy, of Jiangsu Province (Consultation Paper).
World Bank Group, April 2019, p. 18, viewed 27 th June 2022, <https:// 53 Xu, Yuanchao, Jiangsu Chemical Park Explosion: Rectify or Shutdown?,
openknowledge.worldbank.org/bitstream/handle/10986/33838/Urban-and-Rural- CWR, 18th June 2019, viewed 12th April 2022, <https://www.chinawaterrisk.
Municipal-Solid-Waste-in-China-and-the-Circular-Economy-A-Brief-Overview- org/resources/analysis-reviews/jiangsu-chemical-park-explosion-rectify-or-
and-Opportunities-Going-Forward.pdf?sequence=1&isAllowed=y> shutdown/>
49 China Aims To Re-use 60% Of Its Trash By 2025, Reuters, 13th May 2021, 54 Interpretation II of the Guiding Opinions on Accelerating the Construction
viewed 5th July 2022, <https://www.reuters.com/business/environment/china- of Urban Environmental Infrastructure and Facilities, NDRC, 15 th February
aims-re-use-60-its-trash-by-2025-2021-05-13/> 2022, viewed 13 th April 2022, <https://www.ndrc.gov.cn/xxgk/jd/jd/202202/
50 Waste Recycling in Europe, European Environment Agency, 18th November t20220215_1315548.html?code=&state=123>
2021, viewed 14th June 2022, <https://www.eea.europa.eu/ims/waste-recycling- 55 New Study Examines Whether COVID-19 Virus Has Entered Rivers and
in-europe> Streams, Yale School of Environment, 29th June 2020, viewed 13th April 2022,
51 Numbers and Statistics, Zero Waste Europe, 2021, viewed 14th June 2022, <https://environment.yale.edu/news/article/has-the-coronavirus-entered-rivers-
<https://zerowasteeurope.eu/impact/numbers-and-statistics/> and-streams>

Environment Working Group 49

 entering the environment again via the sewage network public health emergency response system, and extend
and waste system.56 However, the role of environmental to them the support they need.
facilities was largely neglected during the management
of the crisis. When policymakers were required to 4. Contribute to Decarbonisation by Pushing
handle an increasing workload to mitigate the spread of Green, Low Carbon and Circular Economy
the virus, environmental companies were not officially
Development
regarded as essential anti-COVID-19 companies.57 As
a result, they were not able to benefit from favourable
Concern
policies or supplies of personal protective equipment
The transition to a circular economy should be
made available to other companies deemed essential.
considered a key pillar of China's green and low
Section Two: Horizontal Issues

This left the safety of employees, supply chains and

carbon development strategy, yet current incentives
finances of environmental companies at risk, affecting
are insufficient to realise China’s goals to peak carbon
the quality and mobilisation of the environmental
emissions by 2030 and achieve carbon neutrality by
services critical to dealing with the crisis.
2060.

Similar issues also occurred with other environmental

Assessment
emergencies, which raised further concerns over
RE and energy efficiency development are crucial
public safety. According to the Ministry of Emergency
elements for tackling climate change effectively.60 Yet,
Management, in 2021 alone, there were 122 accidents
with existing technologies, the transition of the energy
in the chemical industry, causing 150 deaths. 58
system to renewables would only address 55 per cent
Without an efficient emergency response system
of GHG emissions, with the remaining 45 per cent
that incorporates environmental facilities for impact
derived from industry, agriculture and land use. 61 To
mitigation, such accidents are likely to cause secondary
address these emissions, it is vital to transition to a
environmental risks that may pose a threat to public
more circular economy. A circular economy refers to
health and safety. In many cities, environmental facilities
an industrial economy that is designed with the intent
are excluded from emergency response systems for
of being restorative, and one in which resources are
two main reasons: either because the cities in question
managed in a regenerative way. While RE is part of
are short of environmental facilities, or the role of the
the solution, a circular economy transition is needed
facilities has been neglected by local governments. It
to achieve a net-zero world. Through the reuse or
is therefore paramount that further policy reforms are
recycling of end-of-life products and packaging, waste—
implemented to increase awareness of the potential
and the subsequent carbon emissions associated with
consequences of environmental incidents and the role
the production and incineration of waste materials—
of environmental facilities.59
can be largely reduced. The successful implementation
of a circular economy requires a holistic design with a
Recommendations
concrete programme of action covering the whole cycle:
• Enhance construction of environmental facilities to
from design, production, consumption, waste reuse
ensure their effectiveness in national emergency
and waste management. Transition towards a circular
responses.
economy will also foster sustainable economic growth,
• Recognise the key role played by environmental
improve ecological development and generate green
facilities in ensuring the effectiveness of the Chinese
jobs.

56 How to Treat the Domestic Sewage of Isolation Hotels? Whole Process Monitoring, On 2 nd December 2015, the European Commission
China Forum of Environmental Journalists, 30th November 2021, viewed 13th April
2022, <http://www.cfej.net/news/rdzz/202111/t20211130_962251.shtml> adopted an ambitious circular economy package,
57 What Impact Does the Pandemic Have on Environmental Protection Enterprises?, creating a comprehensive framework to enable the
China Forum of Environmental Journalists, 14th February 2020, viewed 13th April
2022, <http://www.cfej.net/jizhe/cmlw/202002/t20200214_763938.shtml> transition from linear economies. The EU has since
58 China's Major Chemical Accidents Fell to Single Digits for the First Time in 2021,
Ministry of Emergency Management, 18th February 2022, viewed 13th April 2022,
<https://www.mem.gov.cn/xw/xwfbh/2022n2y15rxwfbh/mtbd_4262/202202/ 60 What is a Circular Economy?, Ellen MacArthur Foundation, viewed 12 th
t20220218_408142.shtml> April 2022, <https://ellenmacarthurfoundation.org/topics/circular-economy-
59 Suggestions on Improving China's Comprehensive Environmental Emergency introduction/overview>
Management Capacity, Guangmingwang, 28th April 2021, viewed April 13th 2022, 61 Fixing the Economy to Fix Climate Change, Ellen MacArthur Foundation, viewed
<https://theory.gmw.cn/2021-04/28/content_34805091.htm> 13th April 2022, <https://climate.ellenmacarthurfoundation.org/>

50 Environment Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

delivered on all the 54 actions outlined in the package, cent in 2020, up from 8.3 per cent in 2004.68 In China,
leading the way as a trailblazer for the rest of the the circularity rate rose from 2.7 per cent to 5.8 per
world. 62 In addition, the EU rolled out its Circular cent between 1995 and 2015, a great improvement
Economy Action Plan 2.0 on 11th March 2020, as one but still significantly lower than the EU´s 2004 rate. 69
of the key priorities of the EU Green Deal, and which The working group therefore recommends that China’s
forms a critical part of ‘Fit for 55’63 and the ultimate goal central government initiate an overall strategy for
of becoming net-zero by 2050. 64 Under this plan, a circular economy development, with a clearly defined
comprehensive legislative initiative will ensure that only mid- and long-term legislation framework, including
sustainable products with a strict eco-design framework quantitative targets and actionable roadmaps. This will
and proven circularity in the production process can lay the foundation for more effective EU-China dialogue

Section Two: Horizontal Issues

be sold in the EU market. This legislation will obviously and cooperation.
affect Chinese manufacturers and exporters to the EU.
Although the working group submitted numerous
On 17 th July 2018, China and the EU signed a comments in 2021 regarding the amendment of the
Memorandum of Understanding (MOU) on Circular CEPL,70 progress in adopting suggestions has been
Economy Cooperation, agreeing to establish a high relatively slow and non-transparent. Further clarification
priority dialogue on the circular economy to be led by should also be provided to encourage state-owned
high-level officials.65 It is important to acknowledge that enterprises (SOEs) to take a more proactive approach
the EU’s achievements relating to the circular economy to decarbonisation, a process that would benefit from
would not have been possible without a comprehensive, accelerating environmental reform and utilising best
cohesive action plan. By comparison, although China practices from industry players that are well advanced
now has many initiatives in areas such as industrial with their decarbonisation plans.
symbiosis, urban mining, resource recycling and
utilisation, and municipal waste separation, these Recommendations
efforts are led by different ministries without overall • Prioritise the implementation of a strategy to transition
coordination.66 to a circular economy with a mid- and long-term
legislative framework, as well as pilot projects that
China was a pioneer in facillitating a circular economy include the joint involvement of Chinese and European
when its Circular Economy Promotion Law (CEPL) companies.
became effective in January 2009, aimed at raising • Enhance industrial players’ involvement in, and promote
the utilisation rate of resources, protecting and frequent and in-depth exchanges and dialogues on, the
improving the environment and realising sustainable joint MOU on Circular Economy Cooperation.
development.67 However, with the rapid development • Encourage technology developments that can facilitate
in circular economy practices globally in recent years, better recycling of not only high-value and easy-to-
China may find itself lagging. For example, the EU recycle materials, such as cardboard and PET, but
increased the usage of circular material to 12.8 per also materials such as polypropylene, polyethylene,
polystyrene, glass, waste polyester, non-ferrous metals
62 First Circular Economy Action Plan, European Commission, n.d., viewed 13th and critical mineral resources.
April 2022, <https://ec.europa.eu/environment/topics/circular-economy/first-
circular-economy-action-plan_en>
63 Refers to the EU’s target of reducing net greenhouse gas emissions by at least
55 per cent by 2030.
64 Changing How We Produce and Consume: New Circular Economy Action Plan
Shows the Way to a Climate-Neutral, Competitive Economy of Empowered
Consumers, European Commission, 11th March 2020, viewed 11th April 2022,
<https://ec.europa.eu/commission/presscorner/detail/en/ip_20_420>
65 Roberts, Gethin, China and EU Sign Memorandum of Understanding on 68 EU’s Circular Material Use Rate Increased in 2020, Eurostat, 25th November
Circular Economy, Resource, 17th July 2018, viewed 13th April 2022, <https:// 2021, viewed 14 th June 2022, <https://ec.europa.eu/eurostat/web/products-
resource.co/article/china-and-eu-sign-memorandum-understanding-circular- eurostat-news/-/ddn-20211125-1>
economy-12744> 69 Wang, Heming et al., 2020, Measuring progress of China's circular economy,
66 Urbanization Series Report, National Academy of Development and Resources, Conservation and Recycling, vol. 163, no.105070, <https://doi.
Strategy, April 2014, viewed 13 th April 2022, <http://nads.ruc.edu.cn/upfile/ org/10.1016/j.resconrec.2020.105070>
file/20140402155143_62509.pdf> 70 Call for Comments on the Revision of the Circular Economy Promotion Law
67 China Circular Economy Promotion Law, Green Policy Platform, August 2008, of the People's Republic of China, NDRC, 10th September 2021, viewed 13th
viewed 13 th April 2022, <https://www.greengrowthknowledge.org/national- April 2022, <https://www.ndrc.gov.cn/hdjl/yjzq/202109/t20210910_1296453.
documents/china-circular-economy-promotion-law> html?code=&state=123>

Environment Working Group 51

 5. Develop the Recycling and Reuse Industry reuse as ‘high energy consumption’ projects. Due to
under the Dual Control Energy Consumption ‘one-size-fits-all’ practices, recycling and reuse projects
face many difficulties in obtaining administrative
Policy
approvals.
Concern
The recycling and reuse industry has been restricted in For example, if a company applies for administrative
some areas by the Dual Control of Energy Consumption approval for a project using PET polyester plastic
Policy,71 which ultimately hinders regulatory modernisation, recycled from waste beverage bottles as raw materials
advances in industry technology and opportunities for to produce environmentally friendly fibres, the high
solution providers. value-added project would boost development of new
Section Two: Horizontal Issues

low-carbon textile materials. However, due to the ‘one-

Assessment size-fits-all’ policy that categorises such projects under
The recycling and reuse industry for materials such the chemical fibre industry, it would also be deemed
as metals, plastic and even textiles plays an important a ‘high-energy-consuming’ project by the provincial
role in pollution control, carbon emissions reduction government, and therefore would be suspended. As a
and promoting material efficiency. One overlooked but major contributor to the circular economy, the recycling
important industry development is the newly released and reuse industry would be negatively impacted if
China Waste Textile Suggestion, a document jointly its supply chain is broken. 75 First, this would hinder
published by the NDRC, the MIIT and the MOFCOM on material streams and destroy the closed-loop of the
11th April 2022,72 which is intended to establish a plan to circular economy, further affecting the industry’s ability
recycle a quarter of China’s textile waste into 2 million to scale up. Second, it may increase pollution, energy
tonnes of new fibres each year by 2025, as part of its consumption and carbon emissions from the production
2030 carbon peaking goal. of new materials.

The recycling and reuse industry not only helps Recommendations

encourage resource conservation and closed- • Clarify that the recycling and reuse industry is considered
loop production, but is also strategically critical in a green industry that meets the requirements of Article
increasing national resources security as well as 43 of the Guidance Catalogue for Industrial Structure
life-cycle decarbonisation under the 30/60 Goals. A Adjustment (2019), while ensuring industries listed in the
series of policies have been published to push energy Guidance Catalogue for Green Industries (2019 version)
conservation and develop a circular economy, while are not classified as high energy consumption projects by
curbing projects with high energy consumption and local governments.
emissions, known as ‘two high’ projects. 73 However, • Strengthen policy research on the recycling and reuse
questionable classification standards for ‘resources’ industry to enhance coordination between industrial
and ‘waste’, ambiguities over legal liability and development and dual control energy consumption
different policy interpretations have long hindered the policies.
development of the recycling and reuse industry in • Clarify high energy consumption project standards,
China. 74 In some cases, local governments support ensuring that energy usage of raw materials, energy
upstream waste collection and processing as a circular efficiency levels and environmental benefits are taken
economy while criticising downstream recovery and into consideration.
• Prioritise access to green energy supply for industry
71 Dong, Lara and Feng, Xiaonan, China’s “Dual-Control” Implementation: A Tight players in order to support overall decarbonisation
Balancing Act Amid the Energy Transition, IHS Markit, 26th October 2021, viewed targets and improve the efficiency of resources.
19th April 2022, <https://ihsmarkit.com/research-analysis/chinas-dualcontrol-
implementation-a-tight-balancing-act-amid-t.html> • Implement financial subsidies and tax incentives,
72 Glover, Simon, China Announces Textile Recycling Targets, Ecotextile News, 13th including green finance, that encourage the recycling
April 2022, viewed 2nd May 2022, <https://www.ecotextile.com/2022041329224/
materials-production-news/china-announces-textile-recycling-targets.html> and reuse industry and the reduction of carbon
73 Fan, Angela, Three Reform Strategies Behind Xi’s Energy Revolution, US-China emissions.
Business Council, viewed 13th April 2022, <https://www.uschina.org/three-reform-
strategies-behind-xi%E2%80%99s-energy-revolution>
75 5 Barriers to Using Recycled Materials to Boost the Circular Economy, World
74 Li, Jingheng, Tightening Approval and Seeking Change in the Chemical
Economic Forum, 10th December 2021, viewed 13th April 2022, <https://www.
Industry, EEO, 12th June 2021, viewed 13th April 2022, <http://www.eeo.com.
weforum.org/agenda/2021/12/5-barriers-to-using-recycled-materials-to-boost-
cn/2021/0612/491462.shtml>
the-circular-economy/>

52 Environment Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

Abbreviations
14FYP 14th Five-year Plan
30/60 Goals China's plan to peak carbon emissions
before 2030 and achieve carbon
neutrality by 2060
ADR Alternative Dispute Resolution
CEPL Circular Economy Promotion Law
CGT Common Ground Taxonomy
CNY Chinese Yuan

Section Two: Horizontal Issues

CO2 Carbon Dioxide
COP Conference of Parties
DRS Deposit and Return System
EPR Extended Producer Responsibility
EU European Union
GHG Greenhouse Gas
MEE Ministry of Ecology and Environment
MOU Memorandum of Understanding
NDRC National Development and Reform
Commission
PBOC People’s Bank of China
PET Polyethylene Terephthalate
PM Particulate Matter
RE Renewable Energy
rPET Recycled Polyethylene Terephthalate
UN United Nations
UNEA United Nation’s Environment Assembly
USD United States Dollars

Environment Working Group 53

 Finance and Taxation Working Group

Key Recommendations
1. Provide Relevant Tax Reliefs to Mitigate the Negative Impacts Posed by
COVID-19 and Regain Economic Growth and Investment Momentum in China
Section Two: Horizontal Issues

• Implement temporary reductions in employer social security contributions, consumption tax rates
for raw materials, general value-added tax (VAT) rates and a one-off tax loss carrybackward for
2022 losses to 2021, as immediate response measures.
• Maintain an individual income tax regime that benefits both employees and employers.
• Provide research and development (R&D) incentives for multiple operational models, including
contractual R&D, and expand the tight five-year tax loss carryforward limitation for capital-
intensive investment projects.

2. Further the Implementation of Value-added Tax (VAT) Reform

• Introduce bad debt relief treatment for VAT purposes.
• Clarify the Chinese VAT place-of-supply rules in the draft VAT Law.
• Include more detailed provisions to define how a supply would be treated as out-of-scope, VAT
exempt or zero-rated.
• Expand the scope of zero-rating and provide clear guidance on the application thereof to
mitigate administrative burdens.
• Integrate the interactive customs and tax systems.
• Enable non-resident taxpayers to register for VAT in China.
• Allow all taxpayers to claim the input VAT incurred on loan interest.
• Allow qualified agencies to issue special VAT invoices.
• Eliminate the double VAT taxation issue for on-balance-sheet asset-backed securitisation.
• Allow negative VAT taxable income of financial products to be carried forward to the next year.

3. Take Prudent Steps in Consumption Tax Reform

• Involve experts in discussions on standards and measurements and, where necessary,
redetermine the scope of taxation.
• Publish in a timely manner the timetable and implementation rules for the various sectors
enlisted in the pilot programme of the Consumption Law reform and provide a sufficient transition
period for companies to adjust.
• Improve the effectiveness of the nationwide tax system and synchronise tax systems at central
and local levels.
• Review the applicable tax threshold, tax rates and taxation method to facilitate the macro-
development strategies of specific industries, in line with China’s consumption reality and to
better reflect international best practices.
• Implement unified direct exemption treatment for all refined oil products (ROPs) (including
naphtha) purchased, regardless of source (domestic or import), as feedstock to produce
chemical products without restrictions.
• Provide financial and tax incentives to encourage companies to invest in chemical recycling,

54 Finance and Taxation Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

such as exemption from consumption tax on ROPs made from recycled waste plastic and full VAT
refunds on ROPs or chemical products made from waste plastics.

4. Introduce Tax and Fiscal Measures to Encourage Automation and Further

Develop Digital Infrastructure
• Provide tax incentives for companies to invest in digital infrastructure such as hardware and
software, as well as more advanced automation.
• Review tax filings and other financial procedures to focus efforts on the development of the digital

Section Two: Horizontal Issues

economy.
• Accelerate the adoption of electronic invoicing.

5. Enhance Administrative and Organisational Efficiency for Multinational

Companies Investing in China
• Allow consolidated corporate income tax filing for Chinese holding companies with their wholly-
owned subsidiaries in China.
• Allow consolidated handling of VAT invoices for companies within a company group.
• Implement further guidance on VAT treatment for transfer pricing adjustments and open a
respective channel for payment approval.
• Increase flexibility for intercompany financing within China and across borders.
• Facilitate corporate restructurings and relocations within China through further guidance on
preconditions and implications.

Introduction to the Working Group The working group welcomes the two-year extension of
non-taxable allowances for foreign national employees
The Finance and Taxation Working Group consists of jointly announced by the Ministry of Finance (MOF)
a range of companies, from multinational corporations and the State Taxation Administration (STA) on 31 st
(MNCs) to auditing and law firms with operations in December 2021.1 The working group has advocated
China. The goal of the working group is to engage in tirelessly from 2018 to 2021 for the extension of these
an effective dialogue with regulators to develop an non-taxable allowances, which include those for
integrated set of taxation, finance and accounting rules housing, education and language training among others.
in line with international best practices and standards. These items had been set to become fully taxable in
The working group's recommendations are not sector 2022, which would have increased the financial burden
specific, but rather represent the interests of all of companies and/or individuals, resulting in a further
European Chamber member companies. decrease of international assignments to China with
ripple effects on foreign direct investment.
Recent Developments
When the two-year extension was announced, the
The working group appreciates efforts made by the
working group was hopeful that this solution would
Chinese authorities in promulgating new regulations
temporarily stem the outflow of foreign talent from
and reinforcing the existing tax administration. Through
China. However, by the time this Position Paper was
these efforts, China has made it easier to pay taxes by
being drafted, the situation had taken a drastic turn
implementing a preferential corporate income tax (CIT)
rate for small enterprises, reducing the value-added 1　Announcement on the Continuation of the Implementation of Non-taxable
tax (VAT) rate for certain industries and enhancing the Allowances of Individual Income Tax Policies for Foreign National Individuals,
MOF and STA, 31st December 2021, viewed 24th June 2022, <http://szs.mof.gov.
electronic filing and payment system. cn/zhengcefabu/202112/t20211231_3780374.htm>

Finance and Taxation Working Group 55

 towards deterioration from early 2022, due to China COVID-19 measures have made it a less attractive
adopting increasingly stringent COVID-19 containment destination for investment.6
policies. This not only had a severe impact on China’s
economic growth, but also immediately led to an Under these circumstances, it will take considerable
increasing number of foreign nationals leaving China.2 time and effort for China to revitalise its economy and
rebuild foreign investors’ confidence in the market.
Key Recommendations Though financial and tax support alone will not act as
a silver bullet against difficulties, well-formulated relief
1. Provide Relevant Tax Reliefs to Mitigate policies for tax and other contributions would help
the Negative Impacts Posed by COVID-19 mitigate the fallout for affected businesses, stabilise
Section Two: Horizontal Issues

and Regain Economic Growth and investment and hopefully bring the economy back on
Investment Momentum in China track in a timely manner.

Concern
In this regard, the MOF and STA jointly issued three
China’s COVID-19 containment policy has caused
notices to accelerate implementation of the tax credit
considerable economic loss for all companies in China,
refunds.7,8&9 This policy was emphasised again in May
including European businesses, generating a grim
2022 by the State Council as part of a package of
outlook and huge uncertainty for the Chinese economy.
measures to relieve economic burdens on enterprises.10
The working group welcomes the initiative and believes
Assessment
that it will help to remotivate market entities, provided
In response to the numerous outbreaks of the Omicron
that participation remains voluntary and implementation
variant in various parts of the country in early 2022,
is carried out under the principles of transparency and
China adopted more stringent COVID-19 containment
consistency between central and local governments.
measures and imposed full or partial lockdowns in 45
However, when the criteria for the various types of tax
cities, including Shanghai. These measures have posed
refunds are taken into account, only certain types of
major challenges for all businesses in China with regard
European companies would be eligible to benefit from
to supply chains, daily operations, retention of foreign
the initiative. Further measures, both as immediate
talent, and the ability to conduct business trips and
response and strategic consideration, are therefore
face-to-face meetings.3
urgently needed in order for a wider range of companies
to benefit, and the entire market to be revitalised.
Overall, these challenges caused by China’s pandemic
control measures have resulted in a large amount
As immediate response measures, stabilisation of
of uncertainty for business, including the European
employment could be supported through a temporary
community. As a result, nearly 60 per cent of European
discount on employers’ social security contributions.
Chamber’s members reported having decreased their
Price-driving trends could be curbed with temporary
2022 revenue projections.4 The measures have also
reductions of consumption tax for relevant raw
had a negative impact on the future outlook for foreign
materials (for example, oil-based products) that are
investment in China, as 23 per cent of European
required for many products along the value chain and
Chamber companies have started to consider shifting
current or planned investments in China to other
6　Ibid.
markets, 5 and 77 per cent reported that China’s 7 Public Notice [2022] No. 14: Announcement on Further Strengthening the
Implementation of VAT Credit Refunds at the End of the Period, MOF
and STA, 21 st March 2022, viewed 24 th May 2022, <http://szs.mof.gov.cn/
2　A flash survey conducted by the European Chamber in April 2022 shows that zhengcefabu/202203/t20220322_3796788.htm>
27 per cent of companies experienced difficulty retaining staff as an immediate 8 Public Notice [2022] No. 17: Announcement on Further Accelerating the
result of the pandemic control measures. See detail: European Chamber Flash Implementation of VAT Credit Refunds at the End of the Period, MOF
Survey on COVID-19 and the War in Ukraine: The Impact on European Business and STA, 17 th April 2022, viewed 24 th May 2022, <http://szs.mof.gov.cn/
in China, European Union Chamber of Commerce in China, 5 th May 2022, zhengcefabu/202204/t20220420_3804066.htm>
viewed 22nd May 2022, <https://www.europeanchamber.com.cn/en/publications- 9 Public Notice [2022] No. 19: Announcement on Continuously Accelerating
flash-survey-2022> the Implementation of VAT Credit Refunds at the End of the Period, MOF
3　Ibid, pp. 7–8. and STA, 17 th May 2022, viewed 24 th May 2022, <http://szs.mof.gov.cn/
4　Ibid. zhengcefabu/202205/t20220518_3811434.htm>
5　This is more than double the number that were considering the same in early 10 Li Keqiang Chaired the Executive Meeting of the State Council to Further Deploy
2022 and is in fact the highest percentage recorded in the past decade. Source: a Package of Measures to Stabilize the Economy, Xinhua, 1st June 2022, viewed
Ibid. 24th June 2022, <http://www.gov.cn/xinwen/2022-06/01/content_5693460.htm>

56 Finance and Taxation Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

have respective cost leverage. With regard to VAT, a tight five-year tax loss carryforward limitation for
temporary rate reduction could provide further stimulus. capital-intensive investment projects.
For heavily-affected businesses facing losses in 2022,
a one-off tax loss carrybackward for 2022 losses into 2. Further the Implementation of VAT Reform
2021 in combination with a respective CIT refund
could provide immediate and administratively-efficient
financial support. Concern
Although important reforms have already taken place,
As strategic response measures, in order to ensure China’s VAT system still needs to be further amended to
China remains a prioritised investment location, and better align with international norms.

Section Two: Horizontal Issues

gain momentum for research and development (R&D)
and regional headquarter activities, it will be important Assessment
to further encourage the mobility of people in both Significant changes to the Chinese VAT system have
directions. In terms of individual income tax, it will been introduced over the past few years. China’s
be more important than ever to offer a modern and tax system underwent a major overhaul in 2016,
fair tax regime for both employees and employers and the government has since clarified and updated
that allows both cross-border assignments as well VAT policies through circulars like Caishui [2016]
as local employments. The incentive rates of 15 per No. 36 (Circular 36).11 In November 2019, the MOF
cent for individual income tax available in areas in published a draft VAT Law that aims to consolidate
Guangdong, Hainan and other jurisdictions (with certain previous measures and further align China’s VAT
conditions) are effective in bringing in high-end talent practices with international standards. 12 While a
and foreign investment, and should be considered welcome development, this step alone does not ensure
for broader applicability. With regard to activity-based alignment, and measures to encourage the international
tax incentives, the working group believes that R&D competitiveness of businesses operating in the
activities should enjoy more comprehensive support, Mainland remain necessary. China would benefit from
including contractual R&D activities, irrespective of the proposed measure by reducing the burden on its tax
which operational model is applied. bureaus, which are currently being faced with requests
for clarification across the country. These measures are
From a general perspective, for capital intensive outlined below.
investments, the current limitation of five years for tax
loss carryforward is overly tight, as carryforwards expire Introduce Bad Debt Relief Treatment for VAT Purposes
quickly while loss-mitigating income is fully subject to The global economic downturn caused by the
tax. As such, the working group would recommend that COVID-19 pandemic has led governments to introduce
the tax loss carryforward limitation be increased to 10 special tax and fiscal policies to help taxpayers survive
years. The working group would also recommend an and recover. In the spirit of continuing these efforts,
immediate expansion of certain capital deductions for the working group recommends the introduction of bad
the 2022 and 2023 tax years to stimulate economic debt treatment for VAT purposes in China’s future VAT
activity in capital deployment. Law. This would enable taxpayers to reclaim VAT paid
on sales. Having a bad debt provision in the VAT Law,
Recommendations similar to the provisions on bad debt losses included
• Implement temporary reductions in employer social in the CIT Law,13 would align with the principle of fiscal
security contributions, consumption tax rates for neutrality, as taxpayers would not have to pay VAT
raw materials, general VAT rate and a one-off tax when they do not receive payment from their customers.
loss carrybackward for 2022 losses to 2021, as
11 Notice on Fully Expanding the VAT Pilot Programme, Caishui [2016] No. 36,
immediate response measures. STA, 23 rd March 2016, viewed 7 th April 2022, <http://www.chinatax.gov.cn/
• Maintain an individual income tax regime that n810341/n810755/c2043931/content.html>
12 Call for Comments on the Value-added Tax Law of the People's Republic of
benefits both employees and employers. China (PRC) (Draft for Comments), STA, 27th November 2019, viewed 7th April
• Provide R&D incentives for multiple operational 2022, <http://www.chinatax.gov.cn/chinatax/n810356/n810961/c5140207/
content.html>
models, including contractual R&D, and expand the 13 Corporate Income Tax Law of the PRC, State Council, 16th March 2007, viewed
20th June 2022, <http://www.gov.cn/flfg/2007-03/19/content_554243.htm>

Finance and Taxation Working Group 57

 Clarify the Chinese VAT Place-of-supply Rules in with the making of out-of-scope supplies.14 Current
the Draft VAT Law VAT rules, as well as the draft thereof, only imply
VAT neutrality in cross-border trade follows the input VAT recovery treatment, a condition that has
‘destination’ principle laid out in Organisation for caused disputes because tax authorities from different
Economic Cooperation and Development guidelines, locations have adopted varying interpretations. Based
which states that taxes should be collected in the on international VAT standards, out-of-scope supplies
country where the service is consumed. Currently, should not, in principle, lead to an input VAT recovery
China adopts a wider definition of VAT place-of-supply limitation, as long as they are closely linked to a taxable
rules: the place of supply of services is considered activity of the taxpayer.
to be in China if either the service provider or the
Section Two: Horizontal Issues

service recipient is located in China. However, the Expand the Scope of Zero-rating and Provide Clear
draft VAT Law states that services are deemed to take Guidance on the Application Thereof to Mitigate
place within the territory of China if the sellers are Administrative Burdens
domestic entities and the services are consumed within Currently, the rules for zero-rating for services and
the territory of China. The working group therefore goods are not applicable for all supplied services
recommends a further clarification of the determination and goods. For example, financial services provided
of ‘consumption’ in the draft VAT Law. overseas are not zero-rated. Furthermore, the zero
per cent VAT rate for exports can only be applied by
Moreover, it is recommended that the place of supply domestic taxpayers. Both the application of VAT to
also be clarified and that more detailed provisions be exported financial services and a limited VAT zero-rating
included. For example, the working group suggests concession make China’s financial services sector less
that the main place of supply for standard business-to- competitive internationally.
business services be defined as the place where the
customer is located. Exceptions should be included for The working group recommends implementing a zero
services that are deemed to be consumed in China, per cent VAT rate for all services provided overseas,
such as real estate-related services, transportation except those consumed inside China (see the earlier
services and entertainment services. This would mean recommendation for place-of-supply rules). Moreover,
that standard services provided by Chinese suppliers the working group recommends implementing a zero
to branches based overseas are not subject to Chinese per cent VAT rate on all export supplies of goods.
VAT unless an exemption applies. Additionally, it is necessary for the respective ministries
(the STA, the General Administration of Customs and
On business-to-customer services, the working group the MOF) to provide clear guidance on the conditions
advises that the main place of supply be defined as required for applying the zero per cent VAT rate to
the place where the supplier is established. Exceptions mitigate the administrative burden for taxpayers.
should be included for services that are deemed to be
consumed in the country where the customer is located, The Chinese export VAT refund system—of particular
such as telecommunication services, electronically- importance in China’s efforts to better align with
provided services, transportation services and international taxation principles—should be revised to
entertainment services. allow for VAT exemption on exports, as is the case in
most jurisdictions worldwide. This would go hand-in-
Include More Detailed Provisions to Define How A hand with changes to Chinese Accounting Standards
Supply Would Be Treated as Out-of-scope, VAT Exempt (CAS) aimed at bringing them in line with International
or Zero-rated Financial Reporting Standards and International
There is much uncertainty surrounding the draft VAT Accounting Standards.15
Law, including under what conditions supplies are
14 Out-of-scope supplies refers to supplies that fall outside the scope of goods and
to be treated as out-of-scope, exempt or zero-rated. services tax legislations, like sales in third countries or free trade zones, and
The Finance and Taxation Working Group suggests private transactions.
15 The standards became effective on 1st January 2021 and were applied for
clarifying the input VAT recovery rules associated the first time on 21 st December 2021. See: Chinese Accounting Standards
for Business Enterprises: Prepare for Changes in 2021, China Briefing, 24th
November 2020, viewed 7th April 2022, <https://www.china-briefing.com/news/
chinese-accounting-standards-business-enterprises-prepare-changes-2021/>

58 Finance and Taxation Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

Integrate the Interactive Customs and Tax Systems Allow Qualified Agencies to Issue Special VAT
Applying for an export tax rebate is a complex process Invoices
that entails cooperative work between customs and Bulletin [2019] No. 39 stipulates that the input
tax bureaux. In China, however, the customs system VAT associated with passenger transportation
and the tax system operate independent of each other, can be deducted. 17 However, both the collection
which precludes seamless data synchronisation and and the handling of qualified transportation tickets
delays the declaration of export tax refunds. In keeping with a passenger’s identity constitute a significant
with government efforts to optimise the business administrative burden. As large companies often book
environment, integrating the interactive systems of business travel through service agents, claiming input
customs and tax would make export tax refunds faster VAT on passenger transportation requires travel agents

Section Two: Horizontal Issues

and more convenient. and taxpayers not only to collect qualified transportation
tickets jointly, but also to handle special scenarios, such
Enable Non-resident Taxpayers to Register for VAT as changed or cancelled itineraries. High volumes of
in China travel transactions demand considerable resources and
At the time of writing, certain services provided by effort. Paper-ticket management, moreover, generates
overseas companies to private individuals in China are tremendous paper waste and runs counter to recent
not subject to Chinese VAT, while the same services VAT cost reduction benefits such as streamlining and
provided by Chinese companies are. On one hand, lowering rates. To mitigate such procedural burdens,
overseas companies are currently unable to reclaim service agents should be able to issue special VAT
Chinese input VAT, which creates a disadvantage for invoices, or e-VAT invoices, for specific passenger
overseas companies compared to local ones. On the transportation.
other hand, the current policies create a disadvantage
for Chinese companies compared to overseas ones, Eliminate the Double VAT Taxation Issue for On-
as they must pay VAT on the services. To align the balance-sheet Asset-backed Securitisation (ABS)
VAT position of Chinese companies with overseas Based on VAT Issues Related to Asset Management
companies, the working group recommends allowing Products (Caishui [2017] No. 56, hereinafter Circular
non-resident taxpayers to register for VAT in China, 56), starting from 1st January 2018, asset managers
including when they do not have a Chinese legal entity. shall be the VAT taxpayer in relation to VAT taxable
This would enable overseas entities to claim back activities that occur during the operation of the asset
Chinese input VAT. management products. For on-balance-sheet ABS,
interest collected from borrowers whose contracts
Allow All Taxpayers to Claim the Input VAT Incurred are the ABS’s underlying assets is still recognised
on Loan Interest as revenue on the profit and loss statement of the
The VAT reductions and preferential tax treatment originator (entities that create a securitised financial
implemented in April 2019 are aimed at reducing asset), and is hence subject to VAT on the originator’s
tax costs, promoting capital investment and side. Meanwhile, when the same interest amount is
spurring production upgrades to facilitate economic transferred to the trust company (asset manager), it will
restructuring. 16 Companies often rely on loans be also subject to VAT from the trust company’s side
for R&D, and related financing costs become a to comply with Circular 56. For originators, issuing on-
significant business expense. Further expansion of balance-sheet ABS is important to diversify financing
VAT deductions, therefore, should include the interest methods to ensure adequate liquidity under different
as well as other expenses related to corporate loan market conditions. The double VAT taxation has
services. This way, while the state reduces business increased funding costs, which has a negative impact
operating costs, enterprises will also be incentivised to on the business development of originators.
increase production and R&D investment.
Allow Negative VAT Taxable Income of Financial
Products to be Carried Forward to the Next Year
According to the current regulation, the difference
16 Bulletin on Policies of Further VAT Reform ([2019] No. 39), MOF, STA and
GACC, 21st March 2019, viewed 7th April 2022, <http://www.chinatax.gov.cn/
n810341/n810755/c4160283/content.html> 17 Ibid.

Finance and Taxation Working Group 59

 between the buying and selling prices of financial how excise duty was imposed in other countries. 18
products is subject to VAT. The negative amount can Over the last three decades, consumption tax has been
be carried forwarded to the next quarter, but not to the reformed several times to reflect China’s economic
next year, which means that if such negative amounts development and to guide consumer behaviour. For
are incurred in the last quarter of the year, they will be instance, in 2015, China introduced consumption tax
forfeited, even if VAT has been paid for the positive on certain types of batteries and paint with a view
amount in the previous quarters of the same year. This to curb their usage, as these products could have a
has a detrimental impact on businesses, as it generates negative impact on the environment.19 In December
uncertainty and unfairness, and is less beneficial than 2019, the draft Consumption Tax Law was released
the situation prior to the VAT reform, when taxpayers for public consultation. 20 While these developments
Section Two: Horizontal Issues

could apply for business tax refunds under the same are welcomed, further reforms should be implemented
scenario. to adequately reflect China’s economic development.
Increasing efficiency and equality should be prioritised
Recommendations in these reforms, especially when increasing equality
• Introduce bad debt relief treatment for VAT purposes. in this regard would support China’s goal of common
• Clarify the Chinese VAT place-of-supply rules in the prosperity.
draft VAT Law.
• Include more detailed provisions to define how Compared to the existing provisional consumption tax
a supply would be treated as out-of-scope, VAT rules, one significant update is the indication from the
exempt or zero-rated. State Council that a pilot reform is to be implemented
• Expand the scope of zero-rating and provide clear for consumption tax. The pilot reform programme is
guidance on the application thereof to mitigate introduced in detail in document Guo Fa [2019] No. 21,21
administrative burdens. which stipulates that it is to be applied to a selective list
• Integrate the interactive customs and tax systems. of sectors to adjust the tax scope, tax rates and taxation
• Enable non-resident taxpayers to register for VAT in points. The main purpose is for, under the premise of
China. controllable collection and management, some existing
• Allow all taxpayers to claim the input VAT incurred on consumption tax items at the production (import)
loan interest. stage to be gradually moved down to the wholesale
• Allow qualified agencies to issue special VAT or retail stages. In so doing, it is expected to elevate
invoices. local revenue sources and improve local consumption.
• Eliminate the double VAT taxation issue for on- However, to date, there is no clear timetable to guide
balance-sheet ABS. the progress of this pilot programme, nor a list of items
• Allow negative VAT taxable income of financial that will be included in the pilot, although high-end
products to be carried forward to the next year. watches and jewelry are mentioned as examples in the
Guo Fa [2019] No. 21.
3. Take Prudent Steps in Consumption Tax
Reform Previous rounds of the consumption tax reform were
accompanied by little to no transition period from the
Concern old to new policy. This causes companies a great deal
Because consumption tax regulations fail to adequately of uncertainty as they do not know if or when their
reflect China’s current economic development and
18 Interim Regulations on Consumption Tax of the PRC (Revised), State Council,
consumer habits—as evidenced by the scope, tax base 10th November 2008, viewed 27th June 2022, <http://www.gov.cn/zwgk/2008-
and tax collection channels—tax reform should be 11/14/content_1149528.htm>
19 Notice on New Consumption Tax of Battery Coating, MOF and STA, 26th January
prudently assessed and designed. 2015, viewed 10th April 2022, <http://www.chinatax.gov.cn/n810341/n810755/
c1489741/content.html>
20 Call for Comments on the Consumption Tax Law of the PRC (Draft for
Assessment Comments), MOF and STA, 3rd December 2019, viewed 10th April 2022, <http://
China first imposed consumption tax in 1994 on a www.chinatax.gov.cn/chinatax/n810356/n810961/c5140457/content.html>
21 State Council Notice on the Issuance of Adjustment of Revenue Division Reform
selection of products, many of which were aligned with between the Central and Local Governments after the Implementation of Larger
Tax Cuts and Fee Reductions, State Council, 26th September 2019, viewed 19th
April 2022, <http://www.gov.cn/zhengce/content/2019-10/09/content_5437544.
htm>

60 Finance and Taxation Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

products will be impacted, which makes it difficult for production of petrochemical products are consumption-
them to perform accurate stock management and tax exempt.
planning. For example, for high-end consumer goods
that have a longer sales cycle compared to fast-moving Petrochemical products can also be subject to double
consumer goods, it may take years between a batch of taxation. Under current consumption tax rules, there
those goods being imported and the same batch being exists no proper sub-code to categorise chemical
sold. In other words, if a batch of goods is imported products; as a result, while some domestically-produced
before the consumption tax pilot reform takes effect, chemical products are consumption-tax exempt, the
consumption tax will be paid when it is processed by same types of products imported from overseas are
customs (this portion of tax revenue goes directly to not. This discrepancy in tax treatment affects numerous

Section Two: Horizontal Issues

the national treasury), and if the reform/pilot reform chemical product categories, including light white
launches before the entire batch is ‘consumed’ at oil, heat-conducting oil and insulating oils. According
retail points, the remaining goods will have to be taxed to the prevailing consumption tax deduction policy,
again individually (this part of the tax revenue goes to when taxpayers purchase taxed raw materials to be
the local tax office). In other words, the same batch of used in the continuous production of taxable finished
goods would be subject to double consumption taxation. goods, only the consumption tax paid on prescribed
The additional consumption tax would be adjusted raw materials can be deducted in the consumption
into the retail price, thereby transferring the additional tax calculation for finished goods. This means that
cost to consumers, which would be damaging to sales non-listed raw materials would be subject to double
revenues and would ultimately make the Chinese consumption tax.
market less competitive and attractive for foreign
investment. The working group also recommends that the tax
threshold on certain goods be re-assessed and re-
The working group therefore recommends a clear adjusted to ensure it is in line with the economic
timetable, along with a reasonable transition period for development of the country.
the pilot programme, be provided as soon as possible
to allow companies to adjust accordingly. The working Finally, regarding low-carbon and circular economy
group further recommends that, in amending the policies, the working group urges efforts to speed up
draft Consumption Law, underlying problems in the the implementation of green transformation principles
national and local tax systems be addressed in order to (for example, re-use of plastic waste as a raw material)
introduce a new set of clear and effective measures and through tax incentives.24&25 This could include consumption
systems for consumption tax collection. tax exemption on ROPs made from recycled waste
plastic and 100 per cent VAT refunds on ROPs or
For example, Public Notice [2012] No. 47 and Public chemical products made from waste plastics.
Notice [2013] No. 50 levy consumption tax on refined
oil products (ROPs),22&23 which risks not only crippling Recommendations
the competitiveness of the petrochemical industry in • Involve experts in discussions on standards and
China, in light of how high the tax rate is (for example, measurements and, where necessary, re-determine
based on sales volume, the tax imposed on naphtha at the scope of taxation.
the time of writing is Chinese yuan (CNY) 2.4 per tonne, • Publish in a timely manner the timetable and
including 12 per cent surcharges), but also lowering implementation rules for the various sectors enlisted
tax compliance due to rising costs. Expert involvement in the pilot programme of the Consumption Tax Law
is necessary in clarifying the principles underpinning reform and provide a sufficient transition period for
consumption tax on ROPs, since it is international companies to adjust.
practice that hydrocarbons used as feedstock in the
24 For more details on plastic wastes recycling, see: Environment Working Group
Position Paper 2022/2023, p. 42.
22 Notice on Consumption Tax-related Policies, STA, 6th November 2012, viewed 25 In the European Chamber’s Carbon Neutrality report, 22 per cent of respondents
10 th April 2022, <http://www.chinatax.gov.cn/n810341/n810765/n812151/ hoped to receive tax incentives for decarbonisation initiatives: Carbon Neutrality:
n812386/c1082513/content.html> The Role of European Business in China’s Race to 2060, European Union
23 Notice on Supplementary Provisions on Issues Relating to Consumption Tax Chamber of Commerce in China, p. 8, 25th May 2022, viewed 20th June 2022,
Policies ([2013] No. 56), STA, 9th September 2013, viewed 10 th April 2022, <https://www.europeanchamber.com.cn/en/publications-archive/974/Carbon_
<http://www.chinatax.gov.cn/n810341/n810755/c1148574/content.html> Neutrality_The_Role_of_European_Business_in_China_s_Race_to_2060>

Finance and Taxation Working Group 61

 • Improve the effectiveness of the nationwide tax numerous processes and tasks that require in-person
system and synchronise tax systems at central and submission or verification. Most local tax offices in
local levels. China are routinely crowded, leading to inefficiencies
• Review the applicable tax threshold, tax rates and and paper-processing delays. Regulators are therefore
taxation method to facilitate the macro-development advised to review the full range of taxation processes
strategies of specific industries, in line with China’s and, where possible, adopt interventions to perform
consumption reality and to better reflect international current in-person tasks online. For example, hard-copy
best practices. documents and signature are still often required in fiscal
• Implement unified direct exemption treatment for all filings, both of which can be replaced by uploading
ROPs (including naphtha) purchased, regardless of scanned documents or electronic signatures. The
Section Two: Horizontal Issues

source (domestic or import), as feedstock to produce working group recommends that the tax authorities set
chemical products without restrictions. creating a fully automated system for tax administration
• Provide financial and tax incentives to encourage processes as a goal, similar to other government
companies to invest in chemical recycling, such as departments in China that are already striving toward
exemption from consumption tax on ROPs made digitalisation.
from recycled waste plastic and full VAT refunds
on ROPs or chemical products made from waste China has one of the most standardised invoicing
plastics. systems in the world (fapiao). While this standardisation
can create complexities, it also provides opportunities
4. Introduce Tax and Fiscal Measures to for efficiency and data collection where automation
Encourage Automation and Further and digitalisation are achieved. Electronic invoicing
Develop Digital Infrastructure (e-fapiao) was introduced into the Chinese tax system
in 2015, although currently both paper and e-fapiao co-
Concern exist, a hybrid system that leads to inconsistencies.27
Despite the deployment of numerous technologies While electronic invoicing of some key industries
over the past few years, the Chinese tax system has been piloted, the roll-out has been slow and
remains below par in terms of digitalisation compared inconsistent. As full adoption of electronic invoicing
to other government departments in China and tax would allow China to dramatically improve the tax filing
administrations around the world. environment and create business opportunities, the
working group suggests this be implemented as soon
Assessment as possible.
The Chinese tax authorities have adopted sweeping
reforms in recent years and made considerable Recommendations
progress in modernising the national tax system. • Provide tax incentives for companies to invest in
Nevertheless, efforts to digitalise the tax system still digital infrastructure such as hardware and software,
lag behind other government departments in China, as as well as more advanced automation.
well as other jurisdictions. Research has consistently • Review tax filings and other financial procedures
shown a strong link between the adoption of digital to focus efforts on the development of the digital
technologies and improvements in the overall business economy.
environment.26 In this regard, the digitalisation wave • Accelerate the adoption of electronic invoicing.
brought by COVID-19 clearly demonstrated the
important role that robust digital infrastructures play 5. Enhance Administrative and Organisational
in enabling operational efficiency and contactless Efficiency for Multinational Companies
transactions. (MNCs) Investing in China

While the tax authorities have consistently expanded Concern

online procedures in recent years, there are still Although China intends to offer a modern investment

26 Uncovering the Connection Between Digital Maturity and Financial Performance, 27 China Starts to Issue Special VAT E-invoices to New Taxpayers, STA, 4 th
Deloitte, 26th May 2020, viewed 12th April 2022, <https://www2.deloitte.com/us/ February 2021, viewed 12 th April 2022, <http://www.chinatax.gov.cn/eng/
en/insights/topics/digital-transformation/digital-transformation-survey.html> c101269/c5161519/content.html>

62 Finance and Taxation Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

environment to foreign investors, companies still face tax principles. In China, additional complexity arises
inefficiencies in tax administration. through the combination of tax implications as well as
payment approval restrictions, in particular in the area
Assessment of non-trade payments. The working group recommends
Modern China is increasingly in competition with implementing further guidance on how different types of
neighbouring investment locations for manufacturing, transfer pricing adjustments should be treated for VAT
establishment of regional headquarters and R&D. This purposes, as well as opening a respective channel for
has led China to make strong commitments to develop payment approval.
a modern and competitive investment environment.
From a tax perspective, apart from tax incentives, this Given the importance of cash in business, multinational

Section Two: Horizontal Issues

should also include increasing administrative efficiency. investors need flexibility to move cash according to
Multinational investors in China commonly maintain business needs among their legal entities both within
multiple legal entities spread over different domestic China and across borders. In China, two aspects
locations to serve the market, while carefully evaluating in particular restrict efficient cash allocation within
the administrative and real costs of doing so. company groups: the application of VAT on interest
charges (without availability of input credit); and the
Per current CIT regulations in China, each legal entity tightly-restricted framework of intercompany loans and
has to file its own annual CIT return, with CIT being cash pools, both within China and across borders. The
separately assessed and levied regardless of all legal working group recommends increasing the flexibility for
entities belonging to the same group of companies. intercompany financing, both within China and across
However, many other jurisdictions offer consolidated borders.
CIT regimes that allow companies within the same
group to file a consolidated annual return and pay CIT Where investors maintain multiple legal entities,
on that basis. This helps reduce administrative efforts changes in the business environment may need to be
and eliminates complexities around transfer pricing reflected in the legal entity structure within the company
within the company group. Such a concept may well group, for example, through mergers, splits, share
fit into the Chinese Holding Company (CHC) regime. transfers or similar activities, but also with regard to
The working group therefore recommends allowing relocation from one location to the other within China.
consolidated CIT filing for CHCs with their wholly-owned Relocations of legal entities within China typically
subsidiaries in China. fall between the competence of the authorities of the
old and new locations. Therefore, the working group
Per current VAT regulations, official VAT invoices recommends the promulgation of further guidance in
(fapiaos) can only be issued within the jurisdiction of this regard. In cases of legal entity restructurings, even
the tax authority in-charge. For groups of companies in when assets remain within the group of companies,
China, this implies that each legal entity must maintain tax implications can be severe and prohibitive while
separate invoicing capability. This is inefficient for preconditions for tax-deferred treatment are demanding
companies and contradicts the strategy to centralise and ambiguous. Therefore, the working group
administrative services. Given the national character of recommends publishing further guidance on unclear
VAT, as well as the trend towards electronic invoicing, preconditions as well as opening further restructuring
the working group recommends allowing consolidated scenarios under tax-deferral treatment like upstream
handling of VAT invoices on a nationwide basis. and side-stream transfers of shares within the group,
both domestic and cross-border.
For MNCs with a multitude of legal entities and huge
quantities of transactions between them, arranging Recommendations
reasonable intercompany prices is an administrative • Allow consolidated CIT filing for CHCs with their
challenge, involving careful arrangement, regular wholly-owned subsidiaries in China.
adjustments and appropriate documentation. Where • Allow consolidated handling of VAT invoices for
the taxable profit of legal entities deviates from the companies within a company group.
benchmarked target range, reasonable adjustments • Implement further guidance on VAT treatment for
have to be applied in line with international and Chinese transfer pricing adjustments and open a respective

Finance and Taxation Working Group 63

 channel for payment approval.
• Increase flexibility for intercompany financing within
China and across borders.
• Facilitate corporate restructurings and relocations
within China through further guidance on
preconditions and implications.

Abbreviations
ABS Asset-backed Securitisation
Section Two: Horizontal Issues

CAS Chinese Accounting Standards

CHC Chinese Holding Company
CIT Corporate Income Tax
CNY Chinese Yuan
GACC General Administration of Customs
of People's Republic of China
IP Intellectual Property
MNC Multinational Corporation
MOF Ministry of Finance
R&D Research and Development
ROP Refined Oil Products
STA State Taxation Administration
VAT Value-added Tax

64 Finance and Taxation Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

Human Resources Working Group

Key Recommendations
1. Enhance Workforce Flexibility and Modernise Chinese Labour Laws

Section Two: Horizontal Issues

• Update the current Labour Law and related regulations in order to provide clear guidelines on
work-from-home obligations and responsibilities.
• Allow employers to provide social insurance for employees hired at different locations to
facilitate remote working.
• Apply the same statutory standards to all employees and ensure a uniform interpretation of
the law is implemented at different locations.

2. Loosen Cross-border Travel Restrictions

• Enable business trips to China by foreign passport holders without additional travel/visa
restrictions.
• Further reduce quarantine periods across the country, especially in major entry ports.

3. Accelerate Full Resumption of Air Transportation for People between

China and the European Union (EU)
• Accelerate full resumption of air transportation and the mobility of people between China and
the EU.
• Facilitate a gradual and orderly resumption of international traffic to pre-COVID levels, and
publish in advance a roadmap of border opening under different circumstances that will be
consistent nationwide.

4. Enhance the Development of Practical Knowledge, Soft Skills and

Access to Vocational Training Institutions
• Create curricula that include both state-of-the art technical training and the soft skills
necessary to thrive in the digital era, sharing best practices between Chinese and European
institutes through pilot programmes.
• Invest in collaboration between education and business stakeholders, both in China and in
Europe, to integrate teaching activities with practical training in accordance with China’s and
the United Nations' development goals.
• Set up a more transparent mechanism to allow European companies in China access to talent
from local vocational institutions and to participate in vocational training programmes.

5. Implement a Fairer System to Employ and Include People with Disabilities

• Enhance the 2019 Overall Plan and support the Human Rights Action Plan by building a
partnership between employers, non-governmental organisations and government to establish
a job-search website where vacancies and training opportunities specifically suited to people

Human Resources Working Group 65

 with disabilities can be posted.
• Allow employers to hire people with disabilities on three to six-month-long training programmes
with no adverse termination costs if no employment contract is offered at the end of the
programme (in exchange for a certificate of training competition), or other flexible hiring options.
• Provide incentives to employers, such as reduced taxes or access to funds to support training
programmes and facility modifications, to encourage the hiring of people with disabilities.
• Adopt the Shenzhen model for Disability Fund contributions by reducing the basis from twice the
average wage to 60 per cent of the average wage to reduce the financial burden on businesses.
Section Two: Horizontal Issues

• Adopt a more transparent approach to the collection and use of the Fund.

Introduction to the Working Group COVID-19 prevention and control measure,1 with entry
policies updated repeatedly in accordance with evolving
Through nurturing people and effectively managing
local measures. While international travel restrictions
labour relations, human resources (HR) departments
both enhanced public health protection and enabled an
play a critical role in engaging the workforce to increase
effective recovery from the initial outbreak of COVID-19
business capacity, particularly amid major disruptions.
in China, they have also brought unprecedented
HR departments have also come to play an increasingly
labour mobility challenges, affecting the operations of
important role in such areas as corporate social
foreign-invested enterprises (FIEs) whose employees,
responsibility, sustainability and workplace ethics. At the
stranded overseas, cannot return to or join their China
same time, today’s rapid technological innovation and
assignments. This has led to some foreign staff having
socio-economic changes require greater adaptability
to be stationed elsewhere by headquarters, giving up
from employees for companies to get ahead in an ever
on the possibility of coming back to China altogether.
more dynamic work environment.
Others left China because they no longer wanted
to be separated from their families and loved ones
The Human Resources Working Group represents
indefinitely. These are unfavourable outcomes for China
European companies employing hundreds of thousands
as well as businesses, considering that many of these
of people who contribute to tax and social security
foreign experts have spent years developing a strong
funds in China. The working group aims to provide a
understanding of the language and culture.2
platform for exchanging information, experiences and
best practices among member companies, as well as
Effective from 6th June 2022, PU invitation letters are
to promote awareness of HR issues by facilitating an
no longer required for employees already holding
open dialogue with enterprises and relevant Chinese
a work permit or notice and their relatives. Starting
authorities. The working group tracks labour-related
from 28th June 2022, people who plan to resume work
policies and advocates for initiatives that advance
and production in China (including economy, trade,
organisational development, improve the health
education, science, technology, sports, culture and
and well-being of staff, and strengthen stakeholder
other fields) also no longer need to provide PU invitation
collaboration, in an effort to contribute to China’s
letters from relevant Chinese authorities when applying
development goal of creating more employment
opportunities in a stronger national economy.
1　 Announcement on the Temporary Suspension of Entry by Foreign Nationals
Holding Valid Chinese Visas or Residence Permits, Ministry of Foreign Affairs

Recent Developments
(MFA), 26th March 2020, viewed 21st June 2022, <https://english.www.gov.cn/
statecouncil/ministries/202003/27/content_WS5e7d34cfc6d0c201c2cbf8c6.
html>
International Travel Restrictions 2　 European Chamber Stance on Further Restrictions on the Return of Legal
Residents to China, European Union Chamber of Commerce in China, 3rd
China closed its borders to foreigners holding valid
November 2020, viewed 21 st June 2022, <https://www.europeanchamber.
visas or residence permits on 28th March 2020 as a com.cn/en/press-releases/3283/chamber_lauds_latest_change_in_foreign_
national_returnee_policy_now_looks_to_students>

66 Human Resources Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

for short-term business travel visas. 2022, 82 per cent of respondents stated they supported
the usage of mRNA vaccines.6
COVID-19 Vaccinations
Since the authorisation of domestically-developed 14th Five-year Plan (14FYP)
vaccines by the National Medical Products Administration Released in March 2021, the 14FYP calls for the
(NMPA),3 European businesses have requested greater deepening of the cooperation of industry sector and
transparency regarding the inclusion of their foreign education, broadening the use of employment subsidies
staff in China’s COVID-19 vaccination implementation and expanding enrolment in vocational colleges to
programme, as well as if and how vaccinations would support the development of talent and provide equitable
impact international travel.4 When vaccinations were job opportunities. 7 The Government Work Report in

Section Two: Horizontal Issues

rolled out in early 2021, there was a delay before 2021 and 2022 likewise called for further educational
any were made available to foreign nationals. This reform, particularly in developing more equitable and
situation was repeated when booster shots started higher-quality education.8
to be dispensed in late 2021. While some cities have
released notices for online registration for booster Private Data Protection
shots, this is not uniform throughout China. In addition, The Personal Information Protection Law took effect
some locations have waiting lists of up to 30 days or on 1 st November 2021, 9 and poses considerable
more for booster shots. challenges for HR management in terms of processing
employees’ personal information. Companies must
In June 2022, several overseas Chinese embassies notify employees on how their personal information will
released the Notice on Adjusting Visa Application be processed as well as their legal rights in relation to
Procedures for Foreign Nationals into China, 5 their own data, and obtain their consent for processing,
announcing that travellers inoculated with Chinese with the exception of personal information necessary
vaccines or World Health Organization (WHO)- for the performance of employment contracts or for HR
accredited vaccines can apply for a visa to China. The management purposes as set out in the company rules.
working group is pleased to see the inclusion of WHO- Regarding personal information of a sensitive nature, if
accredited vaccines and recommends that the Chinese a company needs to provide the personal information
authorities reduce the quarantine time for suitably of employees to a third party, the company may need
vaccinated travellers. to obtain the employees’ specific consent. In addition,
to export employees’ personal information outside
In April 2021, Chinese officials announced plans of China, a company must comply with mandatory
to approve China’s first foreign COVID-19 vaccine requirements such as undergoing an administrative
by July 2021, in a collaboration between German security assessment, getting certified as having
biotechnology company BioNTech and Shanghai providing adequate personal information protection, and
Fosun Pharmaceutical Group Co. On 10th May 2022, drawing up contracts with overseas recipients on usage
BioNtech confirmed that the Phase II clinical trial of of the information, among others.
messenger ribonucleic acid (mRNA) vaccine NOVEL
was completed. However, as of July 2022, the mRNA
vaccination has still not been approved for use. The
6　 European Chamber Flash Survey, COVID-19 and The War in Ukraine:
European Chamber recommends permitting the best
The Impact on European Business in China, European Union Chamber of
mix of vaccinations and boosters to be used in China: Commerce in China, 5 th May 2022, viewed 21 st June 2022, <https://www.
europeanchamber.com.cn/en/publications-archive/973>
in a survey published by the European Chamber in May
7　 Outline of the 14 th Five-year Plan for National Economic and Social
Development of the People's Republic of China and the Long-term Vision for
2035, State Council, 13th March 2021, viewed 21st June 2022, <http://www.gov.
3　 State Food and Drug Administration Conditionally Approved Beijing Kexing cn/xinwen/2021-03/13/content_5592681.htm>
Zhongwei Biotechnology Co, Ltd New Coronavirus Inactivated Vaccine (Vero 8　 Government Work Report, State Council, 5th March 2021, viewed 5th July 2022,
Cell) Registration Application, NMPA, 6th February 2021, viewed 10th April 2022, <http://www.gov.cn/guowuyuan/2021zfgzbg.htm?ivk_sa=1024320u>; Full Text:
<https://www.nmpa.gov.cn/yaowen/ypjgyw/20210206154636109.html> Report on the Work of the Government, Xinhua, 12th March 2022, viewed 9th
4　 European Chamber Stance on COVID-19 Vaccine, European Union Chamber July 2022, <https://english.www.gov.cn/premier/news/202203/12/content_
of Commerce in China, 10th February 2021, viewed 2nd April 2022, <https:// WS622c96d7c6d09c94e48a68ff.html>
www.europeanchamber.com.cn/en/press-releases/3325/european_chamber_ 9　 Personal Information Protection Law, National People’s Congress of the
stance_on_covid_19_vaccine> People’s Republic of China (NPC), 1st November 2021, viewed 21st June 2022,
5　 Notice on Adjusting Visa Application Procedures for Foreign Nationals into <http://www.npc.gov.cn/npc/c30834/202108/a8c4e3672c74491a80b53a172bb7
China, Chinese Embassy in Germany, 10th June 2022, viewed 16th June 2022, 53fe.shtml>
<http://de.china-embassy.gov.cn/chn/sgyw/202206/t20220610_10701726.htm>

Human Resources Working Group 67

 Leave for Employees’ Supporting Families employer has to set up a business unit there, which will
On 31st May 2021, the Chinese Government relaxed be very costly if remote working is adopted.
its birth control policy again, allowing each couple to
now give birth to up three children. Accordingly, based In addition, current regulations contain misleading
on the amended Population and Family Planning Law, wording that do not adequately reflect recent legislative
effective 20th August 2021,10 many local governments developments. For example, the Labour Law (revised
updated their regulations to grant employees extended 2018) still refers to a forty-four-hour week in spite
maternity leave, as well as parental leave and parent of forty hours now being the standard.12 The Labour
caring leave. Implementation of the leave is subject to Law also stipulates a sixty-day deadline for filing a
local regulations and company rules. labour dispute, although the Labour-dispute Mediation
Section Two: Horizontal Issues

and Arbitration Law (2008)13 provides for a one-year

Key Recommendations deadline. Interpretation of the Labour Law also differs
across cities in China; for example, the Shanghai
1. Enhance Workforce Flexibility and Higher People’s Court allows an employer to terminate
Modernise Chinese Labour Laws employment without specifying a reason after the expiry
of the second fixed-term contract, whereas the Beijing
Concern Higher People’s Court expressly denies the employer
The current Labour Law, Labour Contract Law and this very right.
related social security policies do not provide clear
guidelines and fair regulations on hiring employees in Furthermore, in light of the significant average salary
flexible, part-time ways, resulting in slower business increases in China over the past few years, 14 and to
development and financial burdens for employers as avoid unfair economic results, the Human Resources
well as employees. Working Group recommends that the 12-year cap
on severance payments in the Labour Contract Law
Assessment (revised 2013) be applied to all salary levels,15 and that
Home office and hybrid working modes are not sufficiently the calculation of severance payment upon termination
addressed in China’s current labour laws and of employment be unified nationwide.
regulations. This leads to uncertainties in workplaces,
especially when there are new waves of COVID-19 Recommendations
outbreaks. There is no clear legal basis yet that can • Update the current Labour Law and related regulations
be followed by employers that need or want to arrange in order to provide clear guidelines on work-from-
for employees to work from home in a flexible way. home obligations and responsibilities.
Employees may encounter frequent instructions to • Allow employers to provide social insurance for
work-from-home, a long-term shift to remote work, employees hired at different locations to facilitate
faster adoption of automation in the workplace and remote working.
pressure to develop new skills to match, without any • Apply the same statutory standards to all employees
indication of their rights—or obligations—on these and ensure a uniform interpretation of the law is
issues. implemented at different locations.

Further, the current Social Insurance Law only allows

employers to provide social insurance for employees
at the locations where the enterprise’s business units 12 Labour Law of the People's Republic of China, NPC, amended on 29th December
2018, viewed 5th July 2022, <http://www.npc.gov.cn/npc/c30834/201901/ffad2d4ae
are established.11 Therefore, expanding business to 4da4585a041abf66e74753c.shtml>
other locations in China is difficult, because in order to 13 Law of the People’s Republic of China on Labor-dispute Mediation and
Arbitration, International Labour Organization, 29th December 2007, viewed 5th
hire one or two employees in a particular location, an July 2022, <https://www.ilo.org/dyn/natlex/docs/ELECTRONIC/78743/108018/
F-268983075/CHN78743%20Eng.pdf>
14 Estimated to range between six and nine per cent (2010–2020); compiled
10　Population and Family Planning Law, NPC, amended on 20th August 2021, from Mercer Total Remuneration Surveys and notices released by municipal
viewed 21st June 2022, <http://www.npc.gov.cn/npc/c30834/202109/9ab0af087 authorities.
73c465aa91d95648df2a98a.shtml> 15 Labour Contract Law, Ministry of Human Resources and Social Security, 28th
11 Social Insurance Law, State Council, amended 29th December 2018, viewed 5th December 2012, viewed 5th July 2022, <http://www.mohrss.gov.cn/xxgk2020/
July 2022, <http://www.gov.cn/guoqing/2021-10/29/content_5647616.htm> fdzdgknr/zcfg/fl/202011/t20201102_394622.html>

68 Human Resources Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

2. Loosen Cross-border Travel Restrictions the potential difficulties in implementing family reunion
has been a major issue in attracting foreign talent,
especially senior experienced managers, to relocate
Concern to China, and retaining foreign hires. According
The international travel restrictions imposed by the to the European Chamber's Business Confidence
Chinese Government in 2020 to prevent the spread Survey 2022, COVID-19 exacerbates the challenge of
of COVID-19 domestically are still having a significant attracting and retaining talent. Challenges attracting
impact on global mobility and the ability of FIEs to hire talent was reported by 58 per cent of respondents, a
and retain international talents. nine-percentage point increase over the previous year;
challenges retaining talent was reported by 42 per cent

Section Two: Horizontal Issues

Assessment of respondents, again a nine-percentage point year-
Even though more than two and a half years have on-year increase. In relation to the specific challenges
passed since the initial COVID-19 outbreak, and faced when trying to attract and retain international
despite the fact that most countries have gradually talent, COVID-19-related factors topped the pack.
resumed cross-border travel, the Chinese Government Entry restrictions into China due to COVID-19 and visa/
has maintained a strict entry and exit policy. In March work permit restrictions—documents that have become
2020, China temporarily suspended the entry of more difficult to obtain due to additional COVID-19
foreign nationals, including those with valid visas and prevention measures introduced—ranked as the top
residence permits. In September 2020, the Ministry two issues preventing firms from attracting and retaining
of Foreign Affairs (MFA) and the National Immigration international talent.17
Administration adjusted their entry-restriction policies,
allowing foreign nationals into the country without A China business/trade visa (M visa) is issued to
special visa and PU letter requirements provided that foreigners coming for commercial and trade activities,
they hold valid residence permits for work, personal such as attending trade fairs, visiting clients and
matters and reunion purposes issued after 28th March factories, negotiating with clients, and signing contracts.
2020.16 All other foreign nationals, including relatives of Despite the recent relaxations in requirements for Z
foreign nationals who held valid residence permits for visas, M visas are still far from easy to obtain. This
work, had to go through the process of obtaining a PU means business trips between oversea headquarters
letter issued by the Foreign Affairs Office. The inability and China have become an unobtainable corporate
of employees and their dependents to return to China luxury for many, which is detrimental to timely and
has brought considerable challenges to FIEs, many of efficient communications between member companies’
which have had to suspend cross-border projects in European headquarters and their China subsidiaries.
light of China’s business travel restrictions. On 28th June, the Chinese embassy in France announced
that PU letters are no longer required for business visa
Since 6th June 2022, PU invitation letters are no longer applications.18 This waiver has since been adopted in
required for two groups of foreign nationals: those relation to many European Union (EU) Member States.
applying for Z visa (work visa) and their accompanying
foreign family members; and personnel returning to On 28th June, China announced changes to its pandemic
China to resume work (including foreign nationals control policy that significantly reduce quarantine times
who have already obtained work authorisation) and for international travellers, making it easier to enter
their foreign family members. This new policy allows the country. According to the ninth edition of the State
those who have not yet been issued a work permit Council’s report on COVID-19 epidemic prevention and
and their families to enter China. The waiver of the PU control, centralised quarantine for incoming travellers
letter is welcomed, as it will support the recruitment to China will be shortened to seven days, followed by
of overseas talent by enterprises based in China, and
the return of those whose work permit expired while
they were stranded overseas due to China’s COVID- 17 Business Confidence Survey 2022, European Union Chamber of Commerce,
related entry restrictions. Prior to this announcement, 20th June 2022, viewed 9th July 2022, <https://www.europeanchamber.com.cn/
en/publications-business-confidence-survey>
16 Announcement on Entry by Foreign Nationals Holding Valid Chinese Residence 18 Notice on Further Adjustment of Visa Policy to China, Embassy of the People’s
Permits of Three Categories, MFA, 23rd September 2020, viewed 14th April Republic of China in France, 28th June 2022, viewed 5th July 2022, <http://
2022, <http://www.gov.cn/xinwen/2020-09/23/content_5546462.htm> fr.china-embassy.gov.cn/zgzfg/zgsg/lsb/202206/t20220628_10711269.htm>

Human Resources Working Group 69

 three days of home health monitoring (7+3).19 airlines attempting to plan the frequency and routes of
flights to and from China.
The working group is pleased to see such positive steps
being taken to reduce international travel restrictions, China’s outbound travel is still extremely limited,
after having continuously advocated for this at both and “international flight seat capacity and passenger
central and local government levels since the outbreak numbers remain down by 95 percent compared to pre-
of the pandemic. However, at the time of writing, the COVID-19 levels. Government guidance is that all
Chinese Government has yet to provide a clear timeline nonessential outbound travel should be avoided.”24
indicating when international travel can fully resume. There are signs that restrictions may be eased: as
discussed in the previous Key Recommendation, some
Section Two: Horizontal Issues

Recommendations major cities have shortened the quarantine periods for

• Enable business trips to China by foreign passport inbound or returning passengers.
holders without additional travel/visa restrictions.
• Further reduce quarantine periods across the Internationally, an overwhelming number of countries
country, especially in major entry ports. have already reopened their airspace and borders
based on a roadmap of mutual recognition of health
information or other specific agreements. In Europe,
3. Accelerate Full Resumption of Air
for example, Iceland, Switzerland, the Netherlands,
Passenger Transportation between
Denmark, Sweden and Norway abolished nucleic acid
China and the European Union (EU) testing and vaccination passports in April 2022. The
following month, the European Commission announced
Concern
that passengers cannot be forced to show nucleic acid
Air traffic has not been fully restored, and the remaining
tests, vaccination certificates or health registration
strict travel and quarantine policies for international
before boarding flights in EU Member States.25
travellers are obstructing the movement of essential
personnel and talent between China and Europe.
Air travel is the only viable transportation option
for strengthening business and people-to-people
Assessment
exchanges between the EU and China. Therefore,
According to Civil Aviation Administration of China
a lack of smooth flight connections causes market
(CAAC) data, inbound and outbound international
access barriers and high communication costs. In
passenger air traffic rates declined by over 80 per cent
order to facilitate people mobility between China and
in both 2020 and 2021.20 Between January and May
EU Member States, travel restrictions—including the
2022, 312 flight ‘circuit breakers’21 were implemented
suspension of work permits or the imposition of visa
by the CAAC, reducing the number of inbound
restrictions—that hinder the resumption of airlines’
international passenger flights during that time by 768.22
normal, scheduled routes between the EU and China,
The cancellations were implemented following multiple
need to be urgently eased by the Chinese authorities.26
passengers testing positive for COVID-19 on arrival as
China attempted to contain Omicron outbreaks, and Recommendations
affected flights from Europe and other regions.23 The • Accelerate full resumption of air transportation and the
‘circuit breaker’ policy is a major hurdle for international mobility of people between China and the EU.
19 COVID-19 Prevention and Control Protocols (Edition 9) Officially Announced,
• Facilitate a gradual and orderly resumption of
State Council, 29 th June 2022, viewed 6 th July 2022, <http://www.gov.cn/ international traffic to pre-COVID levels, and publish in
xinwen/2022-06/29/content_5698473.htm>
20 Main Production Indicators, CAAC, December 2021, viewed 16th May 2022, <http://
www.caac.gov.cn/XXGK/XXGK/TJSJ/202202/P020220221495967458947.pdf> 24 Chen, Guang; Phillips, Matthew; Saxon, Steve & Yu, Jackey, China’s uneven
21 The ‘circuit breaker’ policy was introduced to penalise airlines that operate flights travel recovery: Long road to international travel furthers domestic opportunities,
to China with COVID-19 cases onboard. See: Civil Aviation Administration of McKinsey & Company, 30th August 2021, viewed 16th May 2022, <https://www.
China Government Information Disclosure Guidelines, CAAC, viewed 16th May mckinsey.com/industries/travel-logistics-and-infrastructure/our-insights/chinas-
2022, <http://www.caac.gov.cn/XXGK/> uneven-travel-recovery-long-road-to-international-travel-furthers-domestic-
22 Civil Aviation Administration: Since 2022, 312 Circuit Breakers have been opportunities>
Implemented, Reducing 768 Inbound Passenger Flights, National Business Daily, 25 The European Union has announced the lifting of all travel restrictions, Netease
23rd May 2022, viewed 17th June 2022, <https://i.ifeng.com/c/8GFwLsg0mHo> News, 21st May 2022, viewed 30th May 2022, <https://www.163.com/dy/article/
23 The Civil Aviation Authority issued five circuit breaker orders, CAAC, 4th February H7RO4NTI05128I5E.html>
2022, viewed 16th May 2022, <http://www.caac.gov.cn/XWZX/MHYW/202202/ 26 For more information on air travel issues, please refer to Key Recommendation
t20220204_211455.html> 1 of the Aviation and Aerospace Working Group Position Paper 2022/2023.

70 Human Resources Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

advance a roadmap of border opening under different welcomes the measures included in the revised
circumstances that will be consistent nationwide. Vocational Education Law, adopted by the Standing
Committee of the National People's Congress (NPCSC)
4. Enhance the Development of Practical on 20th April 2022.31 The revised law requires vocational
education to adopt a teaching model that features
Knowledge, Soft Skills and Access to
industry-education integration and school-enterprise
Vocational Training Institutions
cooperation. As reflected in the Human Resources
Working Group Position Paper 2021/2022, the working
Concern
group agrees with the NPCSC statement that “skilled
Due to the technological modernisation of production
workers with technical know-how are an important
processes, transition to electric vehicles and the overall

Section Two: Horizontal Issues

foundation for China's manufacturing industry and
digitalisation of manufacturing processes in many
innovation-driven growth”, and that students should be
industries, there is an increasing need for highly skilled
given the opportunities to pursue “all-round physical
workers, which the labour market currently cannot
and intellectual development”.32
provide for.

Many countries encounter similar challenges to China's

Assessment
in attracting and developing talent in the vocational
At the annual Two Sessions in 2021, President Xi
school setting, due to factors including social stigmas,
Jinping stressed the need to promote educational
the low quality of graduates and the fact that graduates
reforms in the wake of the pandemic, and building a
on average earn lower pay. 33 The working group
“balanced basic public education service system” to
sincerely welcome the government addressing this
contribute to the country’s high-quality development.27
major issue by adopting the Vocational Education Law
In line with this remark, governments at all levels
to enhance the status of vocational education in China.
have put additional emphasis on vocational training
institutions, in order to boost the modernisation of
The amended law also clarifies that “education fee
Chinese manufacturing, contribute to the China
surcharges, local education surcharge reductions and
Manufacturing 2025 goals,28 and help China become a
exemptions and other tax incentives will be implemented
major technological power by 2049.
for enterprises integrating production and education”.34
The working group sincerely welcome this provision,
The State Council issued a circular on February 2019
as it will facilitate in developing practical skills among
announcing that Chinese vocational schools would
students and recent graduates. In line with the amended
meet international advanced levels by 2022.29 Despite
law’s emphasis on "school-enterprise cooperation" in
the reform efforts outlined above, such standards have
vocational education, European companies in China are
yet to be achieved. As a result, access to skilled labour
willing to contribute to development of the labour market
remains a key challenge for foreign businesses in
by being included in cooperation schemes and in-depth
China, as several reports and surveys carried out by the
participation in vocational education programmes.35 As
European Chamber have shown.30

31　Liang, Xiaohui & Zhang, Su, The third review of the revised draft of the
The Human Resources Working Group therefore
Vocational Education Law intends to encourage enterprises to hold high-quality
vocational education, Teller Report, 18th April 2022, viewed 20th April 2022,
27　Xi Focus: Xi demands building quality, balanced basic public education service <https://www.tellerreport.com/news/2022-04-18-the-third-review-of-the-revised-
system, Xinhua, 6th March 2021, viewed 5th July 2022, <http://www.xinhuanet. draft-of-the-vocational-education-law-intends-to-encourage-enterprises-to-hold-
com/english/2021-03/06/c_139789921.htm> high-quality-vocational-education.S1-XIaPqVc.html>
28 The initiative’s goals include achieving domestic and international market- 32 Top legislator urges more legal support for vocational education development,
share targets in ten industries, attaining self-reliance for key components and NPC, 15th April 2022, viewed 20th April 2022, <http://subsites.chinadaily.com.cn/
turning the concept of ‘indigenous innovation’ into reality. For more details, npc/2022-04/15/c_744057.htm>
see: China Manufacturing 2025: Putting Industrial Policy Ahead of Market 33　Reform of vocational education sought, China Daily, 21st March 2022, viewed
Forces, European Union Chamber of Commerce in China, 7th March 2025, 20th April 2022, <http://www.china.org.cn/china/2022-03/21/content_78119884.
viewed 9 th July 2022, <https://www.europeanchamber.com.cn/en/china- htm>
manufacturing-2025> 34 Liang, Xiaohui & Zhang, Su, The third review of the revised draft of the
29　State Council encourages vocational education reform, Ministry of Education, Vocational Education Law intends to encourage enterprises to hold high-quality
20th February 2019, viewed 7th July 2022, <http://en.moe.gov.cn/news/press_ vocational education, Teller Report, 18th April 2022, viewed 20th April 2022,
releases/201902/t20190214_369280.html> <https://www.tellerreport.com/news/2022-04-18-the-third-review-of-the-revised-
30　Business Confidence Survey 2022, European Union Chamber of Commerce, draft-of-the-vocational-education-law-intends-to-encourage-enterprises-to-hold-
20th June 2022, viewed 5th July 2022, <https://www.europeanchamber.com.cn/ high-quality-vocational-education.S1-XIaPqVc.html>
en/publications-business-confidence-survey> 35 Ibid.

Human Resources Working Group 71

 part of corporate social responsibility activities and in accordance with China’s and the UN’s development
order to contribute to China’s ‘common prosperity’ goal, goals.
European companies in China would like to join forces • Set up a more transparent mechanism to allow European
with state and local enterprises to provide feedback on companies in China access to talent from local
the types of skills required by various industries, and vocational institutions and to participate in vocational
to set up full-time and part-time positions for vocational training programmes.
education graduates.
5. Implement a Fairer System to Employ
The Human Resources Working Group advises and Include People with Disabilities
Chinese policymakers to equip future leaders with
Section Two: Horizontal Issues

cognitive competencies and an entrepreneurial mindset

to navigate the future of work and solve the complex, Concern
fast-changing challenges of today by setting up pilot Companies face multiple challenges when it comes to
programmes that combine state-of-the-art technical identifying and hiring disabled people, including access
training with the necessary soft skills for talent to thrive to talent sources, training costs and risks associated
in the digital era. Pilot projects could be a platform for with unsuccessful hires.
sharing best practices between European and Chinese
vocational training institutes and to facilitate job Assessment
placement. In this context, Sino-European cooperative Companies operating in China are keen to explore
programmes, such as the Sino-German Bildungswerk new sources of talent, including hiring employees
der Wirtschaft initiative in Suzhou and the Sino- with disabilities. 38 However, accessing those talent
French training centre in Haining’s industrial park are pools, alongside the costs associated with training,
compelling examples of vocational hubs that blend as well as modifying equipment and buildings to
hands-on education with industry placement, mutually improve accessibility, continue to be barriers for many
benefitting students as well as enterprises.36&37 enterprises.

As a consequence of the increasing digitalisation In 2007, China adopted a mandatory, pro rata system
of work, shortages of skilled workers is becoming a for hiring people with disabilities, whereby companies
common challenge worldwide. Joining forces and further are obliged to proportionally hire disabled individuals
enhancing pilot projects that allow for joint programmes so that they constitute no less than 1.5 per cent of total
between Chinese and European institutions and staff. Enterprises unable to meet the quota must make
companies, both in China and in Europe, will facilitate contributions to the Disabled Persons’ Employment
mutual learning from best practices in order to Security Fund (Fund) in accordance with the law. While
contribute to a shared global prosperity in line with the most cities comply with this rate, in 2018, Shenzhen
2030 United Nations (UN) Sustainable Development decreased the rate to 0.5 per cent and also lowered the
Goals. contribution base to 60 per cent of the average annual
wage of employees in the previous year, as opposed to
Recommendations the original double the average wage requirement.39
• Create curricula that include both state-of-the art
technical training and the soft skills necessary In December 2019, the China Disabled Persons’
to thrive in the digital era, sharing best practices Federation and five ministries jointly announced an
between Chinese and European institutes through 'Overall Plan' to establish a mechanism for sharing
pilot programmes. information on the employment of disabled persons. The
• Invest in collaboration between education and
business stakeholders, both in China and in Europe, to
38　Cheng, Si, Cost-effective employees changing China's traditional job market,
integrate teaching activities with practical training in China Daily, 1st September 2021, viewed 21st June 2022, <http://english.www.
gov.cn/news/topnews/202109/01/content_WS612eea7ac6d0df57f98df79e.
36　BBW Suzhou, Bildungswerk der Wirtschaft (BBW) Suzhou, viewed 25th May, html>
2021, <http://www.bbw-suzhou.com/en/> 39　Measures of Shenzhen Municipality for the Administration of Collection and Use
37　Le Projet de Haining une Opportunité Exceptionnelle pour Votre Implantation of Employment Security Funds for Disabled Persons, Shenzhen Government,
en Chine, Energie7, 2015, viewed 25th May 2021, <https://www.energie7.com/ 23rd April 2018, viewed 16th May 2022, <http://www.sz.gov.cn/zfgb/zcjd/content/
nosservices/le-projet-de-haining/> post_4981685.html>

72 Human Resources Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

aim is to improve the quality of occupational training Abbreviations

for disabled employees, and to formulate policies
CAAC Civil Aviation Administration of China
for the integration of disabled hires into the regular
EASA European Aviation Safety Agency
workforce. However, employers still need better access to
EU European Union
government agencies and other organisations providing
FIE Foreign-invested Enterprises
training and resources to people with disabilities in
HR Human Resources
order to recruit hires, as well as to provide information
MFA Ministry of Foreign Affairs
on skills requirements. Additionally, the Human Rights
mRNA Messenger Ribonucleic Acid
Action Plan of China (2021–2025) has pledged to:
NMPA National Medical Products Administration

Section Two: Horizontal Issues

NPC National People’s Congress
• create 500,000 urban jobs for disabled people by
UN United Nations
2025;
WHO World Health Organisation
• offer occupational training for two million disabled
people in rural and urban areas;
• create an employment counselling system; and
• improve accessibility and work facilities to accommodate
people with disabilities.40

European Chamber member companies are eager

to support this initiative and work with the Chinese
Government and non-governmental organisations to
ensure the goals are reached.

Recommendations
• Enhance the 2019 Overall Plan and support the
Human Rights Action Plan by building a partnership
between employers, NGOs and government to
establish a job-search website where vacancies and
training opportunities specifically suited to people
with disabilities can be posted.
• Allow employers to hire people with disabilities on
three to six-month-long training programmes with no
adverse termination costs if no employment contract
is offered at the end of the programme (in exchange
for a certificate of training completion), or other
flexible hiring options.
• Provide incentives to employers, such as reduced
taxes or access to funds to support training
programmes and facility modifications, to encourage
the hiring of people with disabilities.
• Adopt the Shenzhen model for Disability Fund
contributions by reducing the basis from twice the
average wage to 60 per cent of the average wage to
reduce the financial burden on businesses.
• Adopt a more transparent approach to the collection
and use of the Fund.

40　Li, Lei, 500,000 jobs to be created for disabled, China Daily, 15th September
2021, viewed 5 th July 2022, <http://english.www.gov.cn/statecouncil/
ministries/202109/15/content_WS61412751c6d0df57f98e02c3.html>

Human Resources Working Group 73

 Intellectual Property Rights Working Group

Key Recommendations
1. Patents
1.1 Exclude Chinese Patent Applications and Patent Assignments from Technology
Exports and Simplify Overall Procedures
Section Two: Horizontal Issues

• A
mend the Regulations on the Administration of the Import and Export of Technology to exclude
Chinese patent applications or patent assignments from technology export by deleting “patent
assignment” and “patent application assignment” from Article 2.2.
• In the China National Intellectual Property Administration’s (CNIPA's) new Guidelines for Patent
Examination, exclude Chinese patent applications and patent assignments from technology export.

2. Trademarks
2.1 Consider Internet Activity and Accessibility from the Chinese Market in the
Determination of Pre-emptive Registration in Bad Faith
• C
onsider internet activity and accessibility by the Chinese market when determining pre-emptive
registration in bad faith.
2.2 Lower the Burden of Proof Required to Show Bad Faith in Accordance with the
Degree of Distinctiveness of the Trademark to be Protected
• L
ower the burden of proof required to show bad faith in accordance with the degree of
distinctiveness of the trademark to be protected.
2.3 Ensure that Protection of a Trademark is Conditioned by Its Use
• I ntroduce in the Trademark Law a new provision establishing that, except during the first three
years post-registration, protection of a trademark is conditioned by its use.
• Create a mechanism allowing the Trademark Review and Adjudication Department under the
Trademark Office of the CNIPA, when assessing an application for trademark refusal review, to
request that registrants of cited trademarks provide evidence of use, and to jointly adjudicate any
claim from the new trademark applicant against the cited trademarks, including oppositions or
requests for invalidation.

3. Access to Law
3.1 Retain the Focus on Intellectual Property (IP) Protection and Enforcement, Regardless
of Nationality of the IP Right (IPR) Holders
• Retain the focus on IP protection and enforcement, regardless of the nationality or provenance of
the owners of such IPR.
3.2 Simplify Procedures for the Provision of Formal Material from Overseas in Cases with
no Credible Probity Concerns
• A pply in a coherent and predictable manner the existing provisions on exemptions for notarisation
and legalisation for evidence produced outside of China and submitted in IPR civil litigation.
• Sign and ratify the Hague Convention on Abolishing the Requirement of Legalisation for Foreign
Public Documents and abolish, or at least reduce/manage, the requirement of legalisation for
foreign public documentation.

74 Intellectual Property Rights Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

4. Online IP Protection
4.1 Encourage E-Commerce Platforms to Allow Proof of IP Other Than Chinese IP
Certificates
• P
rohibit e-commerce platform operators from rejecting IPR-related documentation produced
outside of China that can be obtained through official or other public channels as sufficient proof of
IPR ownership in e-commerce IPR infringement procedures.
• Allow an IPR established in one case to be immediately used across all other cases within the
same e-commerce platform’s dispute resolution mechanism.

Section Two: Horizontal Issues

5. Trade Secrets
5.1 Clarify the Standard for 'Prima Facie Evidence' in Civil Litigation under the Anti-unfair
Competition Law
• P
rovide guidance to clarify the standard for 'prima facie evidence' and rules for burden of proof
transfer through judicial interpretation and sample cases.
5.2 Allocate More Resources to the National Anti-monopoly Bureau (NAB) and Public
Security Bureau (PSB) to Allow Them to Take Active Measures Against Trade Secret
Infringement
• L aunch special action projects annually within the law enforcement authorities to investigate and
crack down on trade secret infringements.
• Allocate more resources to the PSB and the NAB to process trade secret infringement reports,
especially in cases involving former employees.
• Strengthen the connection between administrative enforcement and judicial protection.
 

Introduction to the Working Group Recent Developments

Intellectual property (IP) laws protect human intellectual It is clear that IP protection is still a strong focus for
achievements by granting rights holders the exclusive the central government, with the publication of the
privilege to control and obtain benefits for what they Work Plan for IPR Development (2021–2035)1 and the
have created. Effective intellectual property rights (IPR) 14 th Five-year Plan of National IPR Application and
enforcement is crucial for innovating and competing Production,2 published in September and October 2021
in any market and for the facilitation of transnational respectively. Both these documents emphasise the
partnership agreements. If there is a lack of trust in IPR importance of innovation, application and protection of
protection, companies and individuals will be reluctant IPR.
to introduce their most valuable IP to a country and will
not be willing to develop cutting-edge IP creations. Following the issuance of several significant other
documents, IPR protection has been strengthened
The Intellectual Property Rights Working Group at the theoretical level. These include the formulation
represents a wide range of European interests in of the Measures for Administrative Rulings on Major
China’s IP regulatory framework and its enforcement Patent Infringement Disputes,3 and the Measures for
of IPR. With a presence in Beijing, Shanghai and
South China, the working group serves as a platform 1 Work Plan for IPR Development (2021–2035), State Council, 22nd September 2021,
for companies to share best practices on IP matters. viewed 20th April 2022, <http://www.gov.cn/zhengce/2021-09/22/content_5638714.
htm>
It is a bridge between China’s IP authorities and 2 14th Five-year Plan of National IPR Application and Production, State Council,
European business and offers support primarily through 28 th October 2021, viewed 20 th April 2022, <http://www.gov.cn/zhengce/
content/2021-10/28/content_5647274.htm>
recommendations aimed at improving the efficiency and 3　Measures for Administrative Rulings on Major Patent Infringement Disputes,
effectiveness of China’s IPR protection system. State Council, 26 th May 2021, viewed 20 th April 2022, <http://www.gov.cn/
zhengce/zhengceku/2021-05/29/content_5613827.htm>

Intellectual Property Rights Working Group 75

 Administrative Rulings on Early Resolution Mechanisms and security examination in order to regulate filing a
for Drug Patent Disputes, 4 which aim to establish foreign patent application based on the technology of
a framework through which technical investigators a Chinese patent. Furthermore, the Chinese patent
undertake administrative protection of IPR. assigned from a foreign individual/entity to a Chinese
individual/entity is not considered a technology import.
Key Recommendations This non-equivalence causes confusion on technology
export and import.
1. Patents
1.1 Exclude Chinese Patent Applications or Recommendations
Patent Assignments from Technology • Amend the Regulations on the Administration of the
Section Two: Horizontal Issues

Exports and Simplify Overall Procedures Import and Export of Technology to exclude Chinese
patent applications or patent assignments from
technology export by deleting “patent assignment”
Concern
and “patent application assignment” from Article 2.2.
Chinese patent applications or patents assignments are
• I n t h e C h i n a N a t i o n a l I n t e l l e c t u a l P r o p e r t y
categorised as technology exports when the assignor
Administration’s (CNIPA's) new Guidelines for Patent
includes a Chinese individual or entity and the assignee
Examination, exclude Chinese patent applications
includes a foreign individual or entity, and thus require
and patent assignments from technology export.
permission from the authorities for export, which creates
a huge administrative burden for parties assigning
2. Trademarks
Chinese patents.
2.1 Consider Internet Activity and Accessibility
by the Chinese Market in the Determination
Assessment
of Pre-emptive Registration in Bad Faith
According to Article 2.1 of the Regulation on Import
and Export of Technology Administration,5 ‘technology
Concern
export’ refers to the process of transferring technology
It is difficult to prove the ‘reputation’ or ‘fame’ of a
from China to overseas, through trade, investment, or
trademark when this trait is developed overseas, as
economic and technical cooperation. While Chinese
only Chinese sources are used during registration
patent applications or patents assignments are currently
examination, even in cases related to webpage
dealt with by the authorities as a technology export, they
contents.
do not in fact meet the requirements of the technology
export because a Chinese patent transferred from
Assessment
a Chinese company to a foreign company is still a
Under Article 32 of the Trademark Law (TML), a
Chinese patent, which is valid only within the territory of
trademark application should be rejected if applying for
China and is not transferrable overseas.
a trademark identical with or similar to other trademarks
with a certain reputation. 7 In practice, the CNIPA
The assignment of a Chinese patent does not result in
only considers ‘certain reputation’ in China. During
a foreign patent based on the assigned patent, because
opposition or cancellation of pre-emptive trademarks,
the filing of application in a foreign country must
it is difficult for the right holder to convince the CNIPA
comply with the confidentiality and security examination
that a trademark has a ‘certain reputation’ when this
regulated for in Article 19 of the Patent Law. 6 It is
reputation is held overseas, but not in the Chinese
not necessary to set barriers for the assignment of
market, even if Chinese consumers can access the
the Chinese patent in addition to this confidentiality
brand online.
4 Measures for Administrative Rulings on Early Resolution Mechanisms for Drug
Patent Disputes, China National Intellectual Property Administration (CNIPA), In many cases, proving use in China can be difficult.
5th July 2021, viewed 20th April 2022, <https://www.cnipa.gov.cn/art/2021/7/5/
art_74_160566.html> Taking the 2019 MUJI case as an example, 8 MUJI’s
5 Regulation on Import and Export of Technology Administration, State Council, 29th
November 2020, viewed 20th April 2022, <http://www.gov.cn/zhengce/2020-12/26/ 7　Trademark Law, NPC, 7th May 2019, viewed 20th April 2022, <http://www.npc.
content_5574449.htm> gov.cn/npc/c30834/201905/dacf65eec798444e821a1e06a347f3ee.shtml>
6　Patent Law, National People’s Congress (NPC), 19th November 2020, viewed 8 In the MUJI case, the court did not protect the MUJI trademark because it ruled
20th April 2022, <http://www.npc.gov.cn/npc/c30834/202011/82354d98e70947c0 that when Hainan Nanhua filed a similar trademark in 2000, MUJI was not well-
9dbc5e4eeb78bdf3.shtml> known in China.

76 Intellectual Property Rights Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

lack of trademark registration and prior use in Mainland does not conform with the provisions of this law”.9
China of 无 印 良 品 —the Chinese version of ‘MUJI’—
was key to the failure of their lawsuit against Hainan If the trademark to be defended is registered in China,
Nanhua. According to Article 13.2 of the Trademark trademark owners are often obliged to file oppositions
Law, a trademark that is well-known in China shall also or invalidation against similar trademark applications.
be protected (both against unfair registrations by others It is necessary to prove the likelihood of confusion
and from infringements) in respect to goods and kinds caused by these new applications. According to
of goods not directly and explicitly designated in the Article 12 of the Provisions of the Supreme People’s
trademark application. Court (SPC) on Several Issues concerning the Trial of
Administrative Cases involving Trademark Authorisation

Section Two: Horizontal Issues

If the definition of ‘certain reputation’ in Article 32 of and Confirmation (SPC Provisions), the court shall
the TML could be enlarged to include the internet examine the extent of similarity of the trademarks, of
as accessed by the Chinese market, many bad faith the goods concerned, the extent of distinctiveness of
registrations could be successfully dealt with. the trademark that requires protection, the degree of
attention of the general public, and the "intention of
Recommendation the trademark applicant [...] may also be taken into
• Consider internet activity and accessibility by the consideration." 10 Article 12 of the SPC Provisions
Chinese market when determining pre-emptive concerns well-known trademarks (Article 13.2 TML),
registration in bad faith. but is also to be applied to all situations, including those
referred to in Article 30 of the TML.
2.2 Lower the Burden of Proof Required to Show
Bad Faith in Accordance with the Degree Hence, if, for example, the disputed mark consists of the
of Distinctiveness of the Trademark to be names of the real right holders, which are not familiar to
Protected Chinese consumers in any way, only the bad faith filer
can explain how the disputed mark was created.
Concern
While bad faith is increasingly cited by the administrative Recommendation
and judicial authorities as grounds for refusal to grant • Lower the burden of proof required to show bad faith
trademarks, it remains a very difficult fact to prove. in accordance with the degree of distinctiveness of
the trademark to be protected.
Assessment
Two situations can be distinguished: 1) whether the 2.3 Ensure that Protection of a Trademark is
trademark to be defended is not registered in China; Conditioned by Its Use
and 2) whether it is already registered in China.
Concern
If it is not registered, the risk of the pre-emptive filing by Despite the revision of the TML providing for the refusal
a ‘trademark squatter’ is high. In such cases, it is not of trademarks filed in bad faith without intention to use,
always possible to prove sufficient prior use in China the number of trademark applications continues to grow,
and related ‘prior influence’, even if some internet access with a large percentage not used, which constitutes
to the mark can be established. Then, the examiner obstacles to legitimate applications and results in an
should examine the degree of distinctiveness of the increase of both procedure time and costs.
foreign trademark, i.e., how original, and how unrelated
it is to the products concerned. If the trademark is highly Assessment
distinctive, the act of filing the same mark, without being In October 2019, the CNIPA announced that the
able to explain how this specific name or design has average length of examination for trademark registration
been chosen, can allow for presumption of bad faith
on the part of the applicant. The above reasoning is 9　Trademark Law, NPC, 7th May 2019, viewed 20th April 2022, <http://www.npc.
gov.cn/npc/c30834/201905/dacf65eec798444e821a1e06a347f3ee.shtml>
increasingly used by the examiners with the Trademark 10 Provisions of the Supreme People's Court on Several Issues concerning the Trial
Office, who cite Article 7 of the TML (principle of good of Administrative Cases involving Trademark Authorization and Confirmation,
SPC, 11th January 2017, viewed 20th April 2022, <http://www.court.gov.cn/zixun-
faith) and the first sentence of Article 30, “a trademark xiangqing-34732.html>

Intellectual Property Rights Working Group 77

 had been shortened to five months, compared to the use, and to jointly adjudicate any claim from the new
original nine months provided for by Article 28 of the trademark applicant against the cited trademarks,
Trademark Law.11 Speeding up this process has caused including oppositions or requests for invalidation.
complications for companies. For example, when a
company applies for a trademark, it will at the same 3. Access to Law
time file for oppositions, non-use cancellations and/or 3.1 Retain the Focus on IP Protection and
invalidations against trademarks that could potentially Enforcement, Regardless of Nationality of the
block the registration. When the examination time for IPR Holders
registration was nine months, there was no problem, as
these actions would be dealt with around the same time Concern
Section Two: Horizontal Issues

as the trademark examination. Protection and enforcement of IPR are at risk of being
de-prioritised over more immediate concerns, which
However, the shorter trademark examination is forcing may impede effective enforcement of IPR.
companies to file a rejection appeal and possibly a
lawsuit in order keep their application alive until any Assessment
blocking trademark has been successfully opposed, While China dealt with the initial outbreak of COVID-19
cancelled or invalidated. This increases costs for comparatively well, its policies related to containment of
registrants and places a heavy burden on their the virus have had a significant impact on global trade
resources. and business activities throughout 2020 and 2021,
and the first half of 2022. In addition to the impact of
As the practice of ‘trademark hoarding’ is likely to COVID-19, several trade disputes— including between
continue if it is potentially profitable, the most efficient the United States and China, and the EU and China—
way to deter trademark hoarders is to provide that have had an impact on relations between the three
unused trademarks will not be protected after a certain parties. European Chamber members have over the
period of time. It is not feasible for the CNIPA to request same period voiced concerns about incidents that
at the initial examination stage submission of evidence could be associated with rising levels of protectionism
of use by registrants of prior trademarks found by and bias by various organs essential for the effective
internet search engine. Noting that, the working group protection of IPR in China. Examples include notaries in
advocates that if applicants of a refused trademark certain regions refusing to notarise evidence for ‘foreign’
file for review before the CNIPA, the CNIPA should companies, citing international trade tensions as the
summon the owner(s) of the cited prior trademarks reason they cannot provide such services to foreign
to appear in the review procedure and submit their applicants.
evidence of use if requested. Meanwhile, it should be
possible for the new trademark applicant to submit their Another worrisome development that must be seen
own claim of opposition and invalidation against the in connection with the fair and equal access to law
cited trademark(s). This would serve to deal with all the is the punishment of holders of standard-essential
connected cases at the same time. patents through so-called ‘anti-suit injunctions’ issued
by Chinese courts in cases where these patent holders
Recommendations enforce their legitimate rights abroad.12 Multinational
• Introduce in the Trademark Law a new provision companies holding patent rights under different
establishing that, except during the first three jurisdictions particularly face a serious risk of being
years post-registration, protection of a trademark is treated unequally by Chinese courts if they make use
conditioned by its use. of their legitimate rights outside of China. This will
• Create a mechanism allowing the Trademark Review likely affect mostly foreign right holders, as Chinese
and Adjudication Department under the Trademark companies usually opt to enforce their rights within
Office of the CNIPA, when assessing an application China due to various reasons, such as their familiarity
for trademark refusal review, to request that with the legal, social and economic environment.
registrants of cited trademarks provide evidence of
12 European Union Permanent Mission to the World Trade Organization Request
11 Trademark Law, NPC, 7th May 2019, viewed 20th April 2022, <http://www.npc.gov. for Consultation, EU, 18th February 2022, viewed 25th April 2022, <https://trade.
cn/npc/c30834/201905/dacf65eec798444e821a1e06a347f3ee.shtml> ec.europa.eu/doclib/docs/2022/february/tradoc_160051.pdf>

78 Intellectual Property Rights Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

Recommendation as Germany—leave recognition of public evidence

• Retain the focus on IP protection and enforcement, produced in other countries to the discretion of the
regardless of the nationality or provenance of the courts on a case-by-case basis.
owners of such IPR.
In fact, according to Article 8.3 of Several Provisions
3.2 Simplify Procedures for the Provision of of the Supreme People’s Court on Evidence in
Formal Material from Overseas in Cases with Civil Litigation Involving Intellectual Property Rights
no Credible Probity Concerns (Provisions),13 “a People’s Court shall not uphold the
objection raised by one party that publications, patent
Concern documents, etc.” that can be obtained through official or

Section Two: Horizontal Issues

Meeting the requirement for proving the content of other public channels are exempted from notarisation,
formal material for the purposes of civil litigation has authentication or other certification formalities.
always been arduous for parties litigating in China, According to Article 8.4 of the Provisions, this also
particularly for foreign entities and others that rely applies to evidence that can be authenticated by other
on evidence from abroad, a challenge that has been evidence.14 These provisions seem to grant People’s
amplified by the pandemic. Courts enough flexibility to assess the authenticity
of evidence produced in IPR civil litigation on the
Assessment specifics of each individual case. The working group
The status quo for formal material sourced overseas, recommends that People’s Courts across China apply
after the initial notarisation has taken place (to this point these provisions in a coherent and predictable manner.
there is no difference to evidence secured within China),
is that the relevant evidence must go through a process Finally, the Hague Convention on Abolishing the
that often involves having the notarisation attested by Requirement of Legalisation for Foreign Public
the responsible court. The court’s certification must Documents, 15 which currently has 120 contracting
then be attested first at the foreign office, and then at parties, only applies to the Special Administrative Zones
the Chinese missions (embassies or consulates) in the of Hong Kong and Macau, and not to Mainland China,
country of origin of the evidence. While this process which has neither signed nor ratified this international
had constituted a substantial burden to the effective and convention. The working group encourages evaluation
timely enforcement of IPR for member companies of of the benefits that signing and ratifying this international
the European Chamber in the past, the difficulties have convention would bring to effective IPR protection, both
been amplified by COVID-related health and safety for foreign and Chinese right holders alike.
measures necessitated in many countries that are the
origin of the evidence. As a result, despite their best Recommendations
efforts, and because of the necessity of complying with • Apply in a coherent and predictable manner the
local ‘COVID lockdown’ requirements, Chinese missions existing provisions on exemptions for notarisation
abroad were not able to keep pace with formalisation and legalisation for evidence produced outside of
demands for formal material. This led to backlogs China and submitted in IPR civil litigation.
(where Chinese courts have extended deadlines for • Sign and ratify the Hague Convention on Abolishing
submission of evidence), or missed deadlines (where the Requirement of Legalisation for Foreign Public
such extensions have not, or could not be granted), Documents and abolish, or at least reduce/manage,
which have impacted member companies adversely, as the requirement of legalisation for foreign public
they have not been able to effectively protect, enforce documentation.
or even defend their IPR in China.

Even after strict COVID control measures were

13 Several Provisions of the Supreme People’s Court on Evidence in Civil Litigation
relaxed in certain countries of origin of working group Involving Intellectual Property Rights, SPC, 16th November 2020, viewed 20th
members, the general problem of undergoing the time- April 2022, <https://www.court.gov.cn/zixun-xiangqing-272241.html>
14 Ibid.
consuming and often costly notarisation and legalisation 15 Hague Convention on Abolishing the Requirement of Legalisation for Foreign
process, regardless of the nature of the document(s) Public Documents, Hague Conference on Private International Law, 5th October
1961, viewed 25 th April 2022, <https://assets.hcch.net/docs/b12ad529-5f75-
involved, persists. By contrast, other countries—such 411b-b523-8eebe86613c0.pdf>

Intellectual Property Rights Working Group 79

 4. Online IP Protection channels. Article 8.4 of this document further opens
4.1 Encourage E-Commerce Platforms to the scope of admissible evidence to evidence formed
Accept Proof of IP Other Than Chinese IP outside of China that can be authenticated by other
Certificates evidence. It would be perfectly coherent with other
recent attempts to restrain the growing influence
Concern of e-commerce platforms to extend these efforts
E-commerce platforms require Chinese IP certificates to evidence of IPR ownership in e-commerce IPR
for enforcement, which is cumbersome for foreign rights infringement procedures.
holders.
Recommendations
Section Two: Horizontal Issues

Assessment • Prohibit e-commerce platform operators from

E-commerce platforms in China do not accept copyright rejecting IPR-related documentation produced
or trademark infringement cases if there is no Chinese outside of China that can be obtained through
copyright registration certificate or Chinese trademark official or other public channels as sufficient proof
certificate. European right holders with an international of IPR ownership in e-commerce IPR infringement
trademark registration designating China often do not procedures.
have Chinese trademark certificates.16 • Allow an IPR established in one case to be
immediately used across all other cases within the
Copyright, according to the Berne Convention, exists same e-commerce platform’s dispute resolution
the moment a work is made. China has created a mechanism.
copyright registration system in order to declare
the holders of copyright recognised by the Chinese 5. Trade Secrets
authorities, the China Trademark Office and the 5.1 Clarify the Standard for 'Prima Facie Evidence'
Trademark Review and Adjudication Board, which in Civil Litigation under the Anti-unfair
do not have a list of requirements regarding proof of Competition Law
copyright. Therefore, e-commerce platforms should not
act as courts, but instead should uphold the right of the Concern
copyright owner in notice and takedown cases. The vagueness of ‘prima facie evidence’ leaves
great discretion to the court, increases the burden of
Furthermore, requesting IP certificates issued in China producing evidence for trade secret owners and hinders
has no legal basis either in the E-commerce Law or in innovation.
the Reply of the SPC on Several Issues Concerning
the Application of Law to IPR Infringement Disputes Assessment
Involving the Internet.17 Both sets of rules only require Article 32 of the Anti-unfair Competition Law provides
“preliminary evidence of infringement” without limiting for the transfer of burden of proof, where as long as a
the scope of admissible evidence to Chinese IPR right holder provides “prima facie evidence”, the burden
certificates. E-commerce platform operators should can be transferred to the defendant. However, the
not be granted powers to set up higher requirements definition of what constitutes “prima facie evidence” is
than those existing in civil litigation. In fact, Article 8.3 yet to be clarified and is currently subject to different
of the Reply of the SPC on Several Issues Concerning interpretations among different courts and judges. 18
the Application of Law to IPR Infringement Disputes Neither do the Provisions of the Supreme People's
Involving the Internet “allows IPR holders to submit Court on Several Issues Concerning the Application of
evidence formed outside of China without having to Law in the Trial of Civil Cases Involving Trade Secret
undergo notarisation and legalisation if this evidence Infringement provide a detailed standard.19 In practice,
consists of publications, patent documents, etc.”
that can be obtained through official or other public 18 Anti-unfair Competition Law, NPC, 7th May 2019, viewed 20th April 2022, <http://
www.npc.gov.cn/npc/c30834/201905/9a37c6ff150c4be6a549d526fd586122.
16 Chinese trademark certificates must be applied for separately after the trademark shtml>
has officially already been registered in China. 19 Provisions of the Supreme People's Court on Several Issues Concerning the
17 Reply of the SPC on Several Issues concerning the Application of Law to IPR Application of Law in the Trial of Civil Cases Involving Infringements upon Trade
Infringement Disputes Involving the Internet, SPC, 12th September 2020, viewed Secrets, SPC, 12th September 2020, viewed 20th April 2022, <http://www.court.
20th April 2022, <https://www.court.gov.cn/fabu-xiangqing-254921.html> gov.cn/zixun-xiangqing-254751.html>

80 Intellectual Property Rights Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

a trade secret owner may only be able to provide and guidelines, organise anti-monopoly enforcement
limited clues, such as the digital copy of the infringer’s work, guide fair competition review work, and promote
tender document, to demonstrate a possibility of trade anti-monopoly enforcement international cooperation,
secret infringements, and the legality of such a clue which demonstrates the government’s determination
itself is dubious. In reality, trade secret owners still face to improve the level of fair competition theoretically. In
great difficulties in providing evidence to prove the March 2022, the NAB issued the Work Plan on National
infringement. Trade Secrets Innovation Protection Pilots,20 which calls
for joint efforts from multiple authorities to improve the
Recommendation level of trade secret protection. The working group will
• Provide guidance to clarify the standard for 'prima continue to monitor the administrative actions of the

Section Two: Horizontal Issues

facie evidence' and rules for burden of proof transfer NAB in 2022, given it was established just a short time
through judicial interpretation and sample cases. prior to the writing of this paper.

5.2 Allocate More Resources to the National Recommendations

Anti-monopoly Bureau (NAB) and Public • Launch special action projects annually within the
Security Bureau (PSB) to Allow Them to law enforcement authorities to investigate and crack
Take Active Measures Against Trade Secret down on trade secret infringements.
Infringement • Allocate more resources to the PSB and the NAB to
process trade secret infringement reports, especially
Concern in cases involving former employees.
The lack of stringent criminal liabilities leads to an • Strengthen the connection between administrative
absence of sufficient deterrents for infringers, which enforcement and judicial protection.
discourages innovation and creates dishonest working  
ethics. Abbreviations
CNIPA China National Intellectual Property
Assessment
Administration
Before the PSB can accept a crime report on an alleged
EU European Union
trade secret theft, right owners are usually required to
IP Intellectual Property
provide information on where the suspected infringer
IPR Intellectual Property Right
stores the trade secrets, which can be very difficult for
NAB National Anti-monopoly Bureau
the right owners. The PSB often delays procedures or is
NPC National People’s Congress
even reluctant to accept cases due to the complexity of
PSB Public Security Bureau
trade secrets infringement cases and the bureau’s lack
SPC Supreme People’s Court
of resources.
TML Trademark Law

The theft and misuse of trade secrets can lead to

huge losses for right owners, particularly those whose
businesses are based on such know-how. Such cases
usually involve a former employee of the right owner.
The working group is concerned that the current lack of
stringent criminal liabilities not only causes infringers to
disrespect the authority of the law, but also discourages
innovation and creates dishonest working ethics in
Chinese society.

As trade secret protection is stipulated in both the

Anti-unfair Competition Law and the Criminal Law,
it falls under the work scope of the NAB and the
PSB respectively. The new NAB, inaugurated in
20 Work Plan on National Trade Secrets Innovation Protection Pilots, State
November 2021, will draft anti-monopoly measures Administration for Market Regulation, 2nd March 2022, viewed on 20th April 2022,
<https://gkml.samr.gov.cn/nsjg/jjjzj/202203/t20220307_340204.html>

Intellectual Property Rights Working Group 81

 Inter-chamber Small and Medium-sized Enterprise
Working Group

Key Recommendations
1. Provide European Small and Medium-sized Enterprises (SMEs) in China
Section Two: Horizontal Issues

with Better Access to Financing

• Enhance the implementation of lending strategies to assist all SMEs—both European and
Chinese—operating in China.
• Increase incentives that encourage commercial banks to grant short-term overdrafts to SMEs
facing temporary cash shortages.
• Publish specialised credit risk assessment procedures or systems for providing both local and
international SMEs with loans.
• Develop a regulatory framework that encourages innovative financing support for SMEs, while
limiting potential financial risks.
• Encourage China to establish national funds for financing partnerships between European and
Chinese SMEs.
• Relax foreign exchange debt quota requirements to remove regulatory obstacles that limit SMEs’,
especially foreign-invested enterprises’, access to credit financing.
• Expand green finance tools (such as green bonds) for foreign companies, especially SMEs.
• Organise seminars with local banks and financing intermediaries, and include financing options in
a handbook on regulatory issues.
• Increase foreign SMEs’ awareness of and accessibility to government incentives and funding
instruments from local administrations.
• P ublish English-language versions of notices about the availability of local research and
development funds and grants, and communicate them in a timely manner.

2. Promote Coordination Between Different Administrative Departments and

Improve the Transparency, Clarity and Integrity of All Relevant Regulations
for SMEs
• I mplement a ‘one-stop-service’ system in provincial/regional administrative departments to
support all SMEs, both foreign and Chinese, in fulfilling their multiple registration and regulatory
obligations, as well as matters related to their daily operations.
• Improve data sharing and general administrative coordination among both different city districts
and different government departments.
• C ontinue efforts to alleviate administrative burdens for SMEs by reducing the number of
government approvals required and simplifying the remaining approval and filing procedures.
• Ease COVID-related travel restrictions to allow foreign nationals to return to China or move within
China, while upholding all necessary health and safety measures.
• Ease COVID-related logistical restrictions to allow smoother transportation of goods from China,
to China, or within China.

82 Inter-chamber Small and Medium-sized Enterprise Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

3. Reduce the Financial Burden of SMEs to the Greatest Extent Possible,

Including Through Measures Like Ensuring Reasonable Payment Terms and
Enforcing Timely Payments
• I ssue guidelines and implement effective industry supervision measures to ensure that state-owned
enterprises (SOEs) and private sector players respect contractual payment terms when dealing
with SMEs.
• Set a maximum payment term that is lawfully allowed to be included in contracts.
• Further encourage SOEs to sign contracts with SMEs that have reasonable payment terms.

Section Two: Horizontal Issues

• Improve legal debt collection procedures.
• Develop and implement further measures to encourage banks to provide financing solutions to
SMEs based on accounts receivable.
• Continue to develop targeted measures that reduce the financial burden of SMEs, such as reducing
social insurance costs and using an incremental approach for the allocation of corporate income
tax rates.

4. Promote the Value of Intellectual Property Rights (IPR) Protection and

Enforcement Mechanisms at the Consumer, Business and Local Government
Levels
• S trengthen enforcement and consistency with regard to notice-and-take-down procedures.
• Engage local enforcement agencies, customs authorities and courts to take effective action against
counterfeiting.
• Improve online access to IPR-related agencies in order to make it easier for SMEs to enforce their
rights in a more affordable way.
• Facilitate the legalisation of foreign documents by Chinese embassies.
• Increase the State Administration of Market Regulation’s power to enforce the European Union-
China Geographical Indications Agreement.

Introduction to the Working Group working group regularly organises meetings that provide
practical solutions and policy advice to European SMEs
The Inter-Chamber Small and Medium-sized Enterprise
and their stakeholders.3
(SME) Working Group was established in 2014 as a new
advocacy element of the European Union (EU) SME
Definition of SMEs in Europe and China
Centre (Phase Two),1 with the objective of strengthening
According to the European Commission’s 2020 revised
advocacy for European SMEs in China. The working
user guide regarding the definition of SMEs, an SME is
group is based on the European Chamber’s Small and
an enterprise that employs less than 250 people and has
Medium-sized Enterprise Forum. As SMEs are key
an annual turnover not exceeding euro (EUR) 50 million,
contributors to the overall economic development and
and/or total assets no greater than EUR 43 million. If an
social welfare of countries, the working group aims
enterprise has access to significant additional resources,
to bring together European SMEs to create a strong
it might not be eligible for SME status.4
channel through which concerns over the business
challenges they face in China can be expressed.2 The
In China, SMEs are defined according to the SME
1 About EU SME Centre, EU SME Centre, viewed 26th April 2022, <http://www.
eusmecentre.org.cn/about-centre> 3 Stakeholders include EU SME Centre implementation partners and EU Member State
2 The Inter-Chamber SME Working Group Position Paper presents the recommendations embassies, <www.eusmecentre.org.cn>
of SMEs from all EU Member States, regardless of their membership status with the 4 SME Definition – User guide 2020, European Commission, 8th September 2020,
European Chamber. viewed 26th April 2022, <https://ec.europa.eu/docsroom/documents/42921>

Inter-chamber Small and Medium-sized Enterprise Working Group 83

 Promotion Law as companies that “have a relatively and social development. Not only do they represent
small size in personnel and scope of business”.5 The more than 90 per cent of all companies in China but
standards for classifying SMEs are formulated by they contribute to more than half of the country’s gross
relevant departments of the State Council, and the domestic product. They also create more than 80 per
identification of a company as a micro, small or medium- cent of the jobs, hold more than 70 per cent of the
sized enterprise is dependent upon a series of variables, patents and contribute more than 50 per cent of the
such as the industry it belongs to, its operating income, taxes.10 Of the European SMEs either exporting to or
its total assets and its number of employees. 6 For investing and/or operating in China (or planning to do
example, a medium-sized agricultural enterprise is so), most are from the food and beverage, commercial
required to hire a minimum of 500 people to qualify as services, education, information and communication
Section Two: Horizontal Issues

an SME, while a small-sized construction enterprise can technologies and healthcare sectors.
have a maximum business revenue of United States
dollars (USD) 8.5 million.7 Recent Developments
Post-COVID-19 Era
EU SME Projects in China Implemented by the European
The outbreak and spread of COVID-19 dominated
Chamber
2020 and 2021, and the impact is still being felt in
The EU SME Centre (Phase Three) started in October
2022. The recent EU SME Centre report, Supply Chain
2020, and ran until June 2022. Phase IV, funded by the
in China: Challenges and Good Practices for SMEs
Single Market Programme (SMP), has started on 1st July
within Industrial Goods,11 indicates that factors such as
2022 and will run for 36 months. Its main objectives are:
increasing costs, unstable supplier performance, external
assisting European SMEs to establish and develop a
factors‚ and currency risks were of highest concern to
commercial presence in the Chinese market by providing
foreign companies with sourcing activities in China.
EU added-value support services; improving corporate
Following numerous outbreaks of the Omicron variant
synergies and increasing best practice-sharing at the
across the country in early 2022, China implemented
national and regional EU business association levels,
more stringent containment measures in at least 45 cities
with the ultimate goal of benefitting European SMEs
(including full or partial lockdowns – most significantly
intending to do business in China; and strengthening
Shanghai), causing disruption on a dramatic scale.
advocacy efforts on behalf of the European business
According to the European Chamber’s Flash Survey:
community to help create a better business environment
COVID-19 and the War in Ukraine: The Impact on
in China.8
European Business in China,12 the main difficulties were
in relation to logistics/warehousing, business travel and
Another notable EU SME project in China is the China
the ability to conduct face-to-face meetings.
IP SME Helpdesk, which supports European SMEs in
both protecting and enforcing their intellectual property
In addition, the numbers of foreign nationals living in
rights (IPR) in or relating to Mainland China, Hong
China has been dropping since the initial outbreak of
Kong, Macao and Taiwan, through the provision of free
COVID. At the time of writing, there are no indications
information and services.9
when the pandemic will subside. While the central
government’s extension of non-taxable allowances until
SMEs in China
the end of 2023 is a positive move that will help to stem the
SMEs play a very important role in China’s economic
flow of foreign talent from China, travel restrictions remain
onerous and currently constitute a highly significant barrier
5 Law of the People’s Republic of China on the Promotion of Small and Medium-sized
Enterprises, National People’s Congress, 2017, viewed 26th April 2022, <http://www. to foreign talent attraction and retention.
npc.gov.cn/zgrdw/npc/xinwen/2017-09/01/content_2027929.htm>
6 Statistical Criteria for the Classification of Large, Medium, and Small Micro-enterprises 10 Blazyte, Agne, Number of SMEs in China 2012-2020, Statista, 27th January 2022,
(2017) [CN], National Bureau of Statistics, 1st March 2018, viewed 26th April 2022, viewed 20th June 2022, <https://www.statista.com/statistics/783899/china-number-of-
<http://www.stats.gov.cn/tjsj/tjbz/201801/t20180103_1569357.html> small-to-medium-size-enterprises/>
7 Number of SMEs in China 2012–2020, Statista, 27th January 2022, viewed 29th April 11 Supply Chain in China: Challenges and Good Practices for SMEs within Industrial
2022, <https://www.statista.com/statistics/783899/china-number-of-small-to-medium- Goods, EU SME Centre, 27th February 2022, viewed 19th May 2022, <https://
size-enterprises/> eusmecentre.org.cn/report/supply-chain-china-challenges-and-good-practices-smes-
8 About Us, EU SME Centre, viewed 26th April 2022, <http://www.eusmecentre.org.cn/ within-industrial-goods>
about-centre> 12 Flash Survey: COVID-19 and the War in Ukraine: The Impact on European Business
9 About Us, China IPR SME Helpdesk, viewed 26th April 2022, <http://www.china- in China, European Union Chamber of Commerce in China, 5th May 2022, viewed 10th
iprhelpdesk.eu/content/about-hd> May 2022, <https://www.europeanchamber.com.cn/en/press-releases/3431>

84 Inter-chamber Small and Medium-sized Enterprise Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

Chart 1

Strict COVID-19 control measures negatively impact business activities, mostly travel,
face-to-face meetings and logistics/warehousing

Section Two: Horizontal Issues

Source: European Chamber Flash Survey

To regain confidence in the China market, European operating income, more than 10 per cent annual growth
businesses need more predictability. The working group in small industrial enterprises' research and development
expects the Chinese Government to introduce measures (R&D) spending and more than 10 per cent annual
to open further and ease COVID-related restrictions, growth in the number of SMEs’ patent applications. By
while maintaining a robust response to the pandemic to 2025, China aims to have developed a million innovative
minimise health risks. SMEs, 100,000 SMEs that specialise in niche sectors
and 10,000 ‘little giant’ companies that focus on a market
The 14th Five-year Plan (14FYP) for the Development niche and master key technologies with strong innovation
of SMEs and 2022 Government Report capacity and a large market share.15
The working group was pleased to observe that a
number of supportive measures for SMEs, in terms of The 2022 plenary sessions of the National People’s
reducing financial burdens, streamlining administrative Congress (NPC) and the Chinese People's Political
procedures and financing, were announced in the 14FYP Consultative Conference (Two Sessions) took place from
for Promoting the Development of SMEs and the 2022 4th to 11th March. During the Two Sessions, the 2022
Government Work Report.13&14 Government Work Report was released, proposing the
following measures for SMEs:
The 14FYP for Promoting the Development of SMEs was
jointly issued on 17th December 2021 by the Ministry of • Extending tax and fee reduction policies to support
Industry and Information Technology (MIIT), along with manufacturing, small and low-profit enterprises, and
the National Development and Reform Commission, self-employed businesses.
the Ministry of Science and Technology, the Ministry • Exempting small-scale taxpayers from value-added
of Finance (MOF) and 19 other departments, in an tax (VAT) for a period of time.
attempt to foster greater creativity among SMEs and a • Reducing by half the corporate income tax (CIT)
better business environment overall. Key targets include liability of small and low-profit enterprises for the
an above 18 per cent increase in SMEs' per capita portion of taxable income exceeding Chinese yuan
(CNY) 1 million but less than CNY 3 million, based on
13 14FYP for the Development of SMEs, State Council, 11th December 2021, viewed 27th existing preferential policies.
April 2022, http://www.gov.cn/zhengce/zhengceku/2021-12/17/content_5661655.htm
14 Government Work Report, State Council, 12th March 2022, viewed 27th April 2022, http:// 15 Ouyang Shijia, New 5-year plan to turbocharge SMEs, China Daily, 18th December
english.www.gov.cn/premier/news/202203/12/content_WS622c96d7c6d09c94e48a68ff. 2021, viewed 27 th April 2022, <https://www.chinadaily.com.cn/a/202112/18/
html WS61bd4ea0a310cdd39bc7c269.html>

Inter-chamber Small and Medium-sized Enterprise Working Group 85

 • Raising the addition pre-tax deduction of R&D expenses still only apply to medium-sized businesses.17 At the
of technology-based SMEs from 75 per cent to 100 per same time, SMEs from South China find it hard to
cent. access financing for basic infrastructure (machinery,
• Expanding the coverage of export credit insurance for equipment or vehicles), and the process is even
foreign trade SMEs. more complicated when applying for a loan for salary
• Significantly increasing the return ratio of unemployment payments. SMEs in Tianjin are more worried about
and work-related injury insurance premiums for micro- opaque official information, as they are rarely provided
and SMEs.16 with subsidy- and incentive-related information from
the local government. According to an EU SME Centre
Key Recommendations report,18 training sessions and workshops on incentive
Section Two: Horizontal Issues

schemes and funding programmes are often organised—

1. Provide European SMEs in China with though sometimes not heavily publicised—by local
Better Access to Financing administrations across China. Although dominated by
domestic actors, incentives and funding instruments
Concern in China are also open to foreign-invested enterprises
European SMEs operating in China still struggle to (FIEs). Awareness of these opportunities, however,
access financing, an obstacle that prevents them from remains overall low among European SMEs.
reaching their full potential and limits their ability to
further contribute to China’s economy. This contrasts with SMEs’ perception of financing in
Europe. According to the European Central Bank latest
Assessment Survey on the Access to Finance of Enterprises in the
Having sufficient access to financing is crucial for Euro Area, access to finance remained among the
enterprises’ development, and it is well-known that least reported obstacles. Between April and September
SMEs in China face different challenges when accessing 2021, not only were there were significant rebounds in
financing compared to larger companies. In the business activity and turnover, the availability of external
COVID-19 era, financing plays an even larger role in the finance and banks’ willingness to provide credit to SMEs
business operations of companies. Although Chinese also improved. The main concern for EU-based SMEs
policymakers have repeatedly tried to create favourable continued to be the lack of skilled labour.19
conditions for SMEs to gain access to financing, in
practice it still remains a major challenge, especially In China, in addition to SMEs’ difficulties in accessing
for international SMEs. The main reasons for this are financing, the options available are simply more limited
that SMEs are generally considered high-risk/low-return compared to the variety of financial tools available in
clients, and because domestic companies tend to be the EU. For foreign SMEs in China, these tools are
preferred due to their closer relationships with local considerably reduced despite the theoretical availability
banks. This approach may have negative repercussions of funds back in their home countries. For example, bank
in the long-run as SMEs and start-ups are generally at loans for FIEs are generally obtained against guarantees
the forefront of innovation. from banks outside of China, which typically require
further risk assessment by European headquarters.
The situation varies geographically. In the European However, foreign exchange loans, which should be
Chamber Southwest China Chapter, members indicate easier for FIEs to access, are limited by the so-called
that obtaining financing from domestic Chinese banks ‘borrowing gap’ – the difference between the total
remains difficult in practice. For instance, the Chengdu amount invested and the minimum amount of required
High-Tech Zone and Tianfu New Area have more capital that corresponds to the investment. Borrowing
progressive policies compared to other city districts
and municipalities, and foreign SMEs there can take 17 Southwest China Position Paper 2021/2022, European Union Chamber of Commerce
in China, 20th April 2022, viewed 27th April 2022, <https://www.europeanchamber.com.
advantage of some start-up benefits such as funding,
cn/en/press-releases/3428>
cash-back and tax refunds, but noted that many benefits 18 Incentives, Subsidies and Funding for Tech SMEs in China, EU SME Centre, 27th
October 2021, viewed 9th June 2022, <https://www.eusmecentre.org.cn/report/
16 Huld, Arendse & Zhou, Qian, China’s 2022 Government Work Report: Highlights from incentives-subsidies-and-funding-tech-smes-china>
the Two Sessions, China Briefing, 7th March 2022, viewed 27th April 2022, <https:// 19 Survey on the Access to Finance of Enterprises in the Euro Area – April to September
www.china-briefing.com/news/chinas-2022-government-work-report-highlights-from- 2021, European Central Bank, 24th November 2021, viewed 29th April 2022, <https://
the-two-sessions/> www.ecb.europa.eu/stats/ecb_surveys/safe/html/index.en.html>

86 Inter-chamber Small and Medium-sized Enterprise Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

from domestic Chinese banks, though possible in theory, the People’s Bank of China’s Green Bond Endorsed
is extremely difficult for FIEs. 20 In addition, although Projects Catalogue was published in April 2021, and
the EU and China maintain regular exchanges on SME defines criteria and taxonomy of green bond projects in
policies, bilateral financial support schemes are generally China in six sectors: energy-saving, clean production,
channelled through other sector or topic-specific clean energy, ecology and environment, green upgrading
programmes. of basic infrastructure, and green services. 25 This
latest version is more aligned with the EU’s taxonomy
The working group is aware of the recent steps taken compared to previous releases. Although it has become
by the Chinese authorities to tackle issues with SMEs’ easier for foreign companies in China to issue RMB-
access to financing. Measures include: creating the denominated bonds, the number actively doing so

Section Two: Horizontal Issues

new Beijing Stock Exchange for innovation-orientated (especially issuing green bonds) is very limited, and it is
SMEs;21 providing capital to local banks to issue loans still very difficult for issuers to transfer proceeds freely,
to small businesses; rolling over a CNY 400 billion including overseas.
relending quota that supports inclusive financing; and
ramping up long-term loans for manufacturing firms. 22 Aside from the damage caused by the COVID-19
However, these measures have achieved very limited crisis, there is also a need to increase SMEs’ access
success in the case of foreign SMEs. Currently, the to financing to help realise China’s mid- and long-
participation of foreign investors in the Beijing Stock term goals of increasing its middle-income population,
Exchange is still relatively restricted; only qualified boosting innovation, and achieving its ambitious carbon
foreign institutional investors and renminbi (RMB) neutrality goal. Therefore, existing measures and
qualified institutional investors are eligible to trade stocks channels to support SMEs’ access to financing should
listed on the bourse.23 be improved, and the development of new methods
considered.
One area where China excels globally, and which
could potentially ease the financing difficulties of SMEs Recommendations
operating in the country, is alternative online financing. • Enhance the implementation of lending strategies
An International Monetary Fund study on fintech credit to assist all SMEs—both European and Chinese—
risk assessments shows that not only are potential loan operating in China.
defaults from small companies predicted with higher • Increase incentives that encourage commercial
accuracy with fintech—which goes some way towards banks to grant short-term overdrafts to SMEs facing
addressing Chinese banks’ concerns that loans to SMEs temporary cash shortages.
are inherently riskier—but also that the approach benefits • Publish specialised credit risk assessment procedures
smaller SMEs in third- and fourth-tier cities, as it fosters or systems for providing both local and international
more inclusive financing.24 SMEs with loans.
• Develop a regulatory framework that encourages
In recent years China has also rapidly developed its innovative financing support for SMEs, while limiting
green financing system, and is now one of the world’s potential financial risks.
largest issuers of green bonds. The latest version of • Encourage China to establish national funds for
financing partnerships between European and
20 For more information on funding limitations for foreign banks, please refer to the Chinese SMEs.
Banking and Securities Working Group Position Paper 2022/2023. • Relax foreign exchange debt quota requirements
21 Hudd, Arendse, The New Beijing Stock Exchange for SMEs – What You Need to
Know, China Briefing, 18th November 2021, viewed 29th April 2022, <https://www. to remove regulatory obstacles that limit SMEs’,
china-briefing.com/news/beijing-stock-exchange-for-smes-what-we-know/> especially FIEs’, access to credit financing.
22 China adds new incentives for banks to lend to small businesses, Reuters, 15th
December 2021, viewed 29th April 2022, <https://www.reuters.com/markets/rates- • Expand green finance tools (such as green bonds) for
bonds/china-adds-new-incentives-banks-lend-small-businesses-2021-12-15/> foreign companies, especially SMEs.
23 These are programmes that allow foreign investment institutes that meet certain
criteria to invest in A-shares (RMB shares listed on Mainland China stock exchanges • Organise seminars with local banks and financing
that are only available to foreign investors through certain channels). intermediaries, and include financing options in a
24 Huang, Yiping; Zhang, Longmei; Li, Zhenhua; Qiu, Han; Sun, Tao; Wang, Xue,
Working Paper: Fintech Credit Risk Assessment for SMEs: Evidence from China,
International Monetary Fund, 25th September 2020, viewed 26th April 2022, <https:// 25 Green Bond Endorsed Projects Catalogue (2021 Edition), People’s Bank of
www.imf.org/en/Publications/WP/Issues/2020/09/25/Fintech-Credit-Risk-Assessment- China, 21st April 2021, viewed 29th April 2021, <http://www.pbc.gov.cn/goutongjiaol
for-SMEs-Evidence-from-China-49742> iu/113456/113469/4342400/2021091617180089879.pdf>

Inter-chamber Small and Medium-sized Enterprise Working Group 87

 handbook on regulatory issues. constraints are ranked as the top regulatory obstacles
• Increase foreign SMEs’ awareness of and accessibility in several industries, administrative issues are more
to government incentives and funding instruments industry-specific.26
from local administrations.
• Publish English-language versions of notices about In Southwest China, overlapping regulations and a lack
the availability of local R&D funds and grants, and of interdepartmental coordination results in administrative
communicate them in a timely manner. processes that are so arduous they negatively impact
SMEs’ daily operations.27 The working group believes
2. Promote Coordination Between Different that ‘one-stop’ service desks—such as those set up by
Administrative Departments and Improve the Chengdu Municipal Government—have the potential
Section Two: Horizontal Issues

the Transparency, Clarity and Integrity of to provide support for matters beyond new company
registration, such as those related to daily operations.28
All Relevant Regulations for SMEs
Working group members from Southwest China also
say there is need for improvement on data sharing and
general administrative coordination among both different
Concern
city districts and different government departments. They
Despite recent policy developments, China’s regulatory
also report a lack of consistency, with administrative
and licence approval system—particularly at the
processes differing depending on the industry sector.
implementation level—is still extremely burdensome
Within sectors where there is a heavy regulatory focus
for international SMEs in China, which impairs their
on safety standards, for example, the process for
development.
obtaining an operating licence is more complicated and
information channels more opaque. Member companies
Assessment
expressed the opinion that this is in large part due to
Thanks to a number of measures aimed at improving the
local officials not wanting to assume any unnecessary
business environment rolled out over the past few years,
risk.
foreign SMEs have reported advancements in areas
such as a reduction in the time required for registering or
Similarly, European SMEs in Tianjin find the local
closing down operations.
administrative system uncoordinated and burdensome
– different districts assume different roles, from
Although the efficiency of China’s registration processes
environmental to COVID-related policies; while SMEs in
has generally improved, according to feedback from
South China face long trademark registration processes.
working group members, the time required to set up
a business is still longer than the targets set by the
Not only did the pandemic bring to light inefficiencies
government. The approval of the business scope for
in areas like administrative procedures that in the
FIEs is subject to extensive scrutiny from the State
past might have gone unnoticed, it also added to the
Administration for Market Regulation (SAMR) and the
difficulties foreign companies encounter. A case in point
Ministry of Commerce, as well as additional specific
is the inability of many SMEs’ employees to return to
departments if special licensing is required. This process
China due to travel restrictions imposed in 2020 as
is especially difficult for smaller enterprises to navigate
COVID-19 control measures, making the hiring process
and can create additional costs, such as having to
and retention of both foreign and senior talent extremely
pay for office rental while licence applications are still
pending.
26 For example, licensing requirements/registration processes is less of an issue for
those in professional services, automotive and education, but is a significant issue in
Almost half of the European Chamber ’s Business industries such as medical devices, petrochemicals, and IT and telecommunications.
Customs regulations also do not pose a significant barrier for a number of industries,
Confidence Survey 2022 respondents reported that
but are a clear problem for industries such as transportation and logistics, machinery,
they faced either direct barriers, such as the negative food and beverage, and aviation and aerospace. European Business in China
Business Confidence Survey, European Union Chamber of Commerce in China,
list, or indirect barriers, such as complex and time-
20th June 2022, viewed 21st June 2022, <https://www.europeanchamber.com.cn/en/
consuming administrative approval requirements, and publications-business-confidence-survey>
27 Southwest China Position Paper 2021/2022, European Union Chamber of Commerce
de facto barriers like obtaining operating licences. While
in China, 20th April 2022, viewed 27th April 2022, <https://www.europeanchamber.com.
ambiguous rules and regulations and market access cn/en/press-releases/3428>
28 Ibid, pp. 11–12.

88 Inter-chamber Small and Medium-sized Enterprise Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

challenging. The lack of key personnel has caused a 3. Reduce the Financial Burden of SMEs to
host of operational challenges for SMEs, and certain the Greatest Extent Possible, Including
administrative procedures that require the physical Through Measures Like Ensuring
presence of a legal representative or signatory have
R e a s o n a b l e P a y m e n t Te r m s a n d
been rendered impossible. The inability to use certain
Enforcing Timely Payments
online tools that are blocked in China only aggravates
the situation. As of May 2022, despite China being ‘open’
Concern
to citizens holding valid residence permits, cross-border
It is increasingly challenging for European SMEs to
travel is not yet back to normal, with particular difficulties
shoulder the financial burdens associated with doing
for those whose visas have expired in the interim, while
business in China, with difficulties exacerbated by

Section Two: Horizontal Issues

quarantine processes are often unpredictable. Even
liquidity problems arising from an absence of maximum
business trips within China have become particularly
contractual payment terms, non-negotiable payment
difficult – provinces have established different entry
terms with state-owned enterprises (SOEs) or private
and exit rules and regulations, as well as different
sector players, and late/non-payments from clients.
quarantine measures. Likewise, logistical restrictions
have led to continuous disruptions to supply chains and
Assessment
manufacturing.
Since access to financing is limited for SMEs in general
in China, and international SMEs in particular, substantial
The working group therefore encourages the Chinese
reserve assets are a prerequisite for their business
Government to work with the European business
operations in the country. Usually, SMEs have limited
community to find solutions to administrative challenges
bargaining power during negotiations with clients for
faced by SMEs—some specific to foreign companies—
payments, often resulting in customers imposing onerous
derived from or intensified by COVID-19, and ways to
contractual payment terms. In addition, many customers
prevent such situations from arising in the future.
simply do not comply with these terms and pay late.

Recommendations
In China, most industries lack guidelines to ensure that
• Implement a ‘one-stop-service’ system in provincial/
market players respect contractual payment terms,
regional administrative departments to support all
and so enterprises set a maximum payment term to be
SMEs, both foreign and Chinese, in fulfilling their
included in contracts. Unlike in the EU, Chinese law has
multiple registration and regulatory obligations, as well
limited provisions on late payments (existing ones are
as matters related to their daily operations.
mostly referred to the Supreme Court’s Interpretation
• Improve data sharing and general administrative
on the Adjudication of Contract Disputes,29 and the Civil
coordination among both different city districts and
Procedure Law30). Debt collection services are available,
different government departments.
but are often not practical given the time and, most
• Continue efforts to alleviate administrative burdens
importantly, high costs involved.
for SMEs by reducing the number of government
approvals required and simplifying the remaining
R e g i o n a l l y, w h i l e S M E s i n S o u t h C h i n a r e p o r t
approval and filing procedures.
unreasonable payment terms from their suppliers,
• Ease COVID-related travel restrictions to allow foreign
which makes it very hard to buy materials upfront for the
nationals to return to China or move within China,
following few months, Tianjin SMEs often experience
while upholding all necessary health and safety
late payments from clients, which creates imbalance and
measures.
uncertainty with regard to their cash flow.
• Ease COVID-related logistical restrictions to allow
smoother transportation of goods from China, to
China, or within China.
29 Supreme Court’s Interpretation on the Adjudication of Contract Disputes, Hualv.com,
10th January 2019, viewed 26th April 2022, <https://www.66law.cn/laws/131741.aspx>
30 The major flaw is that while the debtor may not dispute the debt, they may refuse to
pay and then bring a claim that does not have to be substantiated in order for the court
to dismiss the case, which leaves the creditor to pursue their claim through regular
court proceedings. Civil Procedure Law of the People's Republic of China, MOFCOM,
9th April 1991, viewed 21st June 2022, <http://english.mofcom.gov.cn/aarticle/lawsdata/
chineselaw/200211/20021100053380.html>

Inter-chamber Small and Medium-sized Enterprise Working Group 89

 On 1st July 2020, the State Council issued the Regulation Table 1
on Ensuring Payments to Small and Medium-Sized
Company Cost to the Cost to the
Total cost Percentage of
Enterprises (Payment Regulations). 31 The working housing fund company individual
(CNY) salary
policy (CNY) (CNY)
group considers this a positive development in terms
of developing a regulatory framework to address late
5 per cent
payments, but notes that effective implementation, and 4,743 2,328 7,071 47.14 per cent
(minimum)
clear and well-developed regulations, will be key. The
working group is glad to see that, in December 2021, 12 per cent
5,792 3,378 9,171 61.14 per cent
(maximum)
the MIIT issued the Interim Measures for Handling
Complaints on Safeguarding Payments to SMEs
Section Two: Horizontal Issues

(Interim Measures) to refine and implement the Payment The working group also welcomed the Announcement of
Regulations. First, the Interim Measures clarify the Further Implementing Preferential Income Tax Policies
departments and channels for receiving complaints for Low-margin, Small Enterprises, which halved the
regarding late payments to SMEs and define the scope corporate income tax (CIT) for small and low-profit
of complaints. Second, the division of labour and time enterprises (from 10 per cent to five per cent) for taxable
limits for handling complaints are clearly outlined. Third, income between CNY 1 million and CNY 3 million. 34
a number of supporting and monitoring mechanisms are However, when profits go above CNY 3 million, the CIT
adopted.32 rate jumps immediately to 25 per cent of total profits
instead of taking an incremental approach.
European SMEs report that actions taken by the Chinese
Government to reduce the financial burden on small Given the challenges small companies are facing,
businesses—especially during COVID—such as the and will continue to face in the foreseeable future
temporary suspension of enterprise charges; reductions due to the uncertain economic situation, the working
or exemptions for tax payments and social welfare; group encourages the Chinese authorities to continue
and the extension of social insurance payment periods, developing SME-specific measures aimed at reducing
have been beneficial. The working group welcomed the their financial burden, particularly in the above-mentioned
24th March announcement by the MOF and the State areas.
Taxation Administration (STA) on VAT exemptions for
small-scale VAT taxpayers from April to December 2022. Recommendations
Moreover, the taxable sales income of small-scale VAT • Issue guidelines and implement effective industry
taxpayers earned before 31st March 2022 will be taxed at supervision measures to ensure that SOEs and private
a reduced rate.33 sector players respect contractual payment terms when
dealing with SMEs.
One area where room for improvement remains is social • Set a maximum payment term that is lawfully allowed
insurance. For instance, in the case of a person hired to be included in contracts.
on a gross salary of CNY 15,000 per month in Beijing, • Further encourage SOEs to sign contracts with SMEs
the Chinese social insurance on this salary is outlined in that have reasonable payment terms.
Table 1. • Improve legal debt collection procedures.
• Develop and implement further measures to encourage
banks to provide financing solutions to SMEs based on
accounts receivable.
• Continue to develop targeted measures that reduce
the financial burden of SMEs, such as reducing social
insurance costs and using an incremental approach
31 Regulations on Protecting Payments for Small and Medium-sized Enterprises, for the allocation of CIT rates.
State Council, 3rd July 2020, viewed 26th April 2022, <http://www.gov.cn/zhengce/
content/2020-07/14/content_5526768.htm>
32 Interim Measures for Handling Complaints on Safeguarding Payments to SMEs,
MIIT, 30th December 2021, viewed 29th April 2022, <http://www.gov.cn/zhengce/
zhengceku/2021-12/30/content_5665561.htm>
33 Notice on the exemption of value-added tax for small-scale taxpayers, MOF and STA, 34 Further Implementing Preferential Income Tax Policies for Low-margin, Small
24th March 2022, viewed 29th April 2022, <http://szs.mof.gov.cn/zhengcefabu/202203/ Enterprises, MOF and STA, 18th March 2022, viewed 29th April 2022, <http://szs.mof.
t20220324_3797862.htm> gov.cn/zhengcefabu/202203/t20220317_3795819.htm>

90 Inter-chamber Small and Medium-sized Enterprise Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

4. Promote the Value of IPR Protection and of which became effective in June 2021. These laws
Enforcement Mechanisms at the Consumer, significantly adjust the amount of damages infringers
Business and Local Government Levels must pay, modifications similar to those implemented
in the Trademark Law and the Civil Code. Regardless,
there is still room for improvement, as in large-scale
Concern infringements the damages granted by the courts
Ineffective IPR enforcement at the local level continues generally do not cover the actual losses suffered by
to limit the impact of recent positive changes to China’s enterprises. The calculation of statutory damages often
IPR legislative environment.35 seems arbitrary to many European companies, which
they report makes it difficult for them to accurately carry

Section Two: Horizontal Issues

Assessment out risk assessment and management.42
Despite improvements in legislation and enforcement,
difficulties related to navigating the Chinese IP system China’s E-commerce Law, which came into effect on
still pose a challenge for European companies. 36 1 st January 2019, strengthens IPR enforcement on
The COVID-19 pandemic has further exacerbated e-commerce platforms.43 However, the role of voluntary
other existing problems, such as issues relating to IP copyright registration certificates in the notice-and-
enforcement, document legalisation and handling of take-down procedures remains inconsistent, as some
sensitive information.37 e-commerce platforms do not consider the certificate as
basis to commence procedures, while in some cases bad
China’s IP laws and regulations have significantly faith copyright registration certificates in fact facilitate
improved over the past four years as the country trademark infringements. Furthermore, the notice-and-
reviewed and updated its major IP laws. Trademark take-down procedures allow bad faith online sellers to
protection has been strengthened by the Trademark Law, provide a statement of not having committed an offence.
which came into force on 1st November 2019 and bans While not being bad per se, such statements mandate
bad faith applications.38 Since its application, the China the platforms to end the measures taken against the
National Intellectual Property Administration has shown seller unless the claimant starts administrative or legal
determination in tackling bad-faith applications and actions within 15 days, which imposes significant costs
trademark squatting.39 However, as legislation evolves, on rights holders. Moreover, the latest draft amendments
infringers have become more sophisticated, highlighting of the E-commerce Law include a provision allowing
the need for more effective enforcement at state and sellers to provide a guarantee to the platforms for the
local government levels. amount of the estimated sales, to avoid temporary
restrictions imposed by the platforms while the notice-
Copyright and patent protection are also strengthened and-take-down procedure is pending.44 In practice, this
by the new Copyright Law and new Patent Law,40&41 both significantly reduces the efficiency of the notice-and-
take-down procedure during special sale promotions,
35 For more information on IP issues affecting European businesses, please refer to the when sales numbers are impossible to estimate, but are
Intellectual Property Rights Working Group Position Paper 2022/2023. likely to be extraordinarily high.
36 European Business in China Business Confidence Survey 2022, European Union
Chamber of Commerce in China, 20th June 2022, viewed 21st June 2022, <https://
www.europeanchamber.com.cn/en/publications-business-confidence-survey>
37 Protecting Intellectual Property in China during the COVID-19 Period, United 42 “It is difficult for the right holder to prove his rights by means of litigation, which
Kingdom Government, 3rd August 2020, viewed 13th May 2022, <https://www.gov.uk/ leads to the absolute dominant position in the application of statutory compensation
government/publications/protecting-intellectual-property-in-china-during-the-covid-19- rules. However, the scope of the amount of compensation awarded in the statutory
period> compensation rules is determined by judicial discretion, which is uncertain for the
38 Trademark Law, NPC, 7th May 2019, viewed 26th April 2022, <http://www.npc.gov.cn/ protection of the rights and interests of the right holder. Although the loss rules and
npc/c30834/201905/dacf65eec798444e821a1e06a347f3ee.shtml> the benefits rules are feasible in theory, few cases apply to them because the right
39 Report on the Implementation of China’s Amended Trademark Law, International holder cannot obtain the relevant evidence. The loss rules, which requires the right
Trade Mark Association, November 2021, viewed 13th May 2022, <https://www. holder to collect evidence, is a high cost for the small and medium enterprises.”:
inta.org/wp-content/uploads/public-files/advocacy/committee-reports/CHINA- Zhang, Jingchen, China’s Patent Law has Changed: How to understand and apply
TRADEMARK-LAW-REPORT_120121.pdf> infringement damages under the new rules, Swiss Chinese Law Review Journal, 19th
40 Decision of the Standing Committee of the National People's Congress on Amending April 2021, viewed 10th May 2022, <https://www.sclalawreview.org/understanding-and-
the Copyright Law of the People's Republic of China, NPC, 11th November 2020, applying-the-infringement-damages-article-of-chinas-2020-patent-law/>
viewed 26th April 2022, <http://www.npc.gov.cn/npc/c30834/202011/272b72cdb75945 43 E-Commerce Law, NPC, 31st August 2018, viewed 26th April 2022, <http://www.npc.
8d94c9b875350b1ab5.shtml> gov.cn/zgrdw/npc/lfzt/rlyw/2018-08/31/content_2060827.htm>
41 Decision of the Standing Committee of the National People's Congress on Amending 44 Public Consultation on the Decision on Amending the E-commerce Law of the
the Patent Law of the People's Republic of China, NPC, 18th October 2020, viewed People's Republic of China (Draft), SAMR, 31st August 2021, viewed 27th June 2022,
26th April 2022, <http://www.gov.cn/xinwen/2020-10/18/content_5552102.htm> <https://www.samr.gov.cn/hd/zjdc/202108/t20210831_334252.html>

Inter-chamber Small and Medium-sized Enterprise Working Group 91

 Despite improvements in China’s IP system, counterfeiting exchange for market access. 49 In the European
remains a major issue in China. According to the EU Chambers, Business Confidence Survey 2022,
Agency for Law Enforcement Cooperation and the although there was a two percentage point year-on-
EU Intellectual Property Office, China is still the origin year decrease in the number of European companies
of around 76 per cent of all counterfeited products reporting being compelled to transfer technology, 14 per
detained at the bloc’s borders.45 cent of respondents reported they were still compelled
to transfer technology, more than two years after the
On the enforcement side, China’s IP Court system implementation of the Foreign Investment Law, which
has progressed in recent years with the establishment should prohibit this practice.50
and subsequent expansion of specialised IP Courts
Section Two: Horizontal Issues

and Tribunals across China. The internet courts in The EU-China Agreement on Geographical Indications
Hangzhou, Beijing and Guangzhou have facilitated (GIs), which came to force in March 2021, marked
some IP-related dispute processes, and, the first an important step for the protection of GIs within the
blockchain-enabled notary opened in Beijing.46 These China market, covering 100 key EU GIs, and with 175
developments are especially significant for SMEs, as more EU GIs to be included over the next four years.
they have the potential to considerably reduce the costs However, some EU GIs may be excluded from acquiring
associated with IP dispute processes. protection because of their generic names (for example,
claims outside of the EU that ‘feta’ has become the
China’s COVID-19 containment measures have generic name for a white cheese aged in brine) or prior
complicated the registration and enforcement of IPR, trademarks. 51 These two exceptions can potentially
especially those of foreign companies. Delays in the endanger the success of future EU GI registrations.
legalisation of documents, such as power of attorney, Therefore, strengthening the SAMR’s powers to enforce
by Chinese embassies in companies’ home countries the EU-China GI Agreement will be crucial to the
has become one of the most significant obstacles for success of the initiative.
EU companies, as embassies in some countries can
take weeks or even months to offer appointments.47 Recommendations
• Strengthen enforcement and consistency with regard
On the political front, there have been several high- to notice-and-take-down procedures.
level statements regarding the protection of IP in • Engage local enforcement agencies, customs
China,48 and, more concretely, the condemnation of authorities and courts to take effective action against
unfair technology transfers. Yet, in practice, policy counterfeiting.
guidance at the municipal or provincial level, as well as • Improve online access to IPR-related agencies in
legal instruments such as joint venture requirements, order to make it easier for SMEs to enforce their
continue to compel technology transfers. For example, rights in a more affordable way.
guided by China Manufacturing 2025, local public • Facilitate the legalisation of foreign documents by
tenders often include a ‘made in China’ requirement, Chinese embassies.
pushing foreign companies into joint ventures in • Increase the SAMR’s power to enforce the EU-China
GI Agreement.
45 Intellectual Property Crime Threat Assessment 2022, EUIPO and EUROPOL, updated
16th March 2022, viewed 10th May 2022, <https://www.europol.europa.eu/publications-
events/publications/intellectual-property-crime-threat-assessment-2022>
46 China’s First Blockchain Notary Opens in Beijing, China Daily, 19 th April
2019, viewed 26 th April 2022, <http://tech.chinadaily.com.cn/a/201904/19/ 49 “Report on the protection and enforcement of intellectual property rights in third
WS5cba56daa310e7f8b1577bf4.html> countries” Commission Staff Working Document, European Commission, April
47 Delays with Chinese Embassy Attestation, Hague Apostille, 2021, viewed 13th May 2021, viewed 10th May 2022, <https://trade.ec.europa.eu/doclib/docs/2021/april/
2022, <https://www.hagueapostille.co.uk/blog/delays-chinese-embassy-attestation>; tradoc_159553.pdf>
Notice on the Application for Consular Legalisation to the Chinese Visa Application 50 European Business in China Business Confidence Survey, European Union
Service Centre in Madrid and Barcelona, Embassy of China in Spain, 2021, Chamber of Commerce in China, 20th June 2022, viewed 21st June 2022, <https://
viewed 13th May 2022, <http://es.chineseembassy.org/esp/lqyw/aacc3/202105/ www.europeanchamber.com.cn/en/publications-business-confidence-survey>
t20210528_9041564.htm>; Office Hours of Consular and Visa Section, Embassy 51 GIs identified as potentially problematic include: Perigord, Szegedi teliszalami/
of China in Ireland, 2020, viewed 13th May 2022, <http://ie.china-embassy.org/eng/ Szegedi szalami, Prosciutto Toscano, Fontina, Munster, Nurnberger Bratwurste,
lsfw/201512/t20151228_2238765.htm> Jambon de Bayonne and Beaufort; Hu, Weinian, Dinner for Three: EU, China and
48 14th Five-Year Plan for the National Economic and Social Development and the the US Around the Geographical Indications Table, Centre for European Policy
Long-Range Objectives Through the Year 2035, National Development and Reform Research, April 2020, viewed 26th April 2022, <https://www.ceps.eu/wp-content/
Commission, 23rd March 2021, viewed 10th May 2022, <https://www.ndrc.gov.cn/ uploads/2020/04/PI2020-07_EU-China-and-the-US-around-the-geographical-
xxgk/zcfb/ghwb/202103/t20210323_1270124.html?code=&state=123> indications-table.pdf>

92 Inter-chamber Small and Medium-sized Enterprise Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

Abbreviations
14FYP 14th Five-year Plan
CIT Corporate Income Tax
CNY Chinese Yuan
EU European Union
EUR Euro
FIE Foreign-Invested Enterprise
GI Geographical Indication
IP Intellectual Property

Section Two: Horizontal Issues

IPR Intellectual Property Rights
MIIT Ministry of Industry and Information
Technology
MOF Ministry of Finance
NPC National People's Congress
R&D Research and Development
RMB Renminbi
SAMR State Administration of Market
Regulation
SME Small and Medium-sized Enterprise
SOE State-owned Enterprise
STA State Taxation Administration
USD United States Dollar
VAT Value-added Tax

Inter-chamber Small and Medium-sized Enterprise Working Group 93

 Investment Working Group

Key Recommendations
1. Implement the Foreign Investment Regime and Adhere to the Principle of
National Treatment
Section Two: Horizontal Issues

• Continue to reduce the number of industry sectors on the negative lists in which foreign
investment is either restricted or prohibited.
• Introduce reporting, mediation and dispute resolution mechanisms and avenues of recourse for
foreign companies subject to compelled technology transfers.
• Implement and adhere to the principle of national treatment across government levels and
nationwide (in particular in the area of government procurement).
• Abolish specific laws and regulations imposing investment restrictions only on foreign investors,
including onshoring requirements and discriminatory requirements on licensing.
• Introduce legislation that allows for a national unified market aligned with international rules and
best practices, and the unification of standards and policies in different regions and industries.

2. Enhance Market Competitiveness and Further a Level Playing Field with

State-owned Enterprises (SOEs)
• Afford national treatment to all enterprises established in China, regardless of ownership and
company type.
• Reduce complexities around business licences and permits, and improve transparency in the
application of risk/return guidelines for SOE financing.

3. Streamline the Mergers and Acquisitions Process

• Formulate national-level guidance aimed at providing automatic, fast-track licensing for asset
deals that adequately reflect business transfers.
• Allow foreign-invested enterprises (FIEs) access to China’s capital market on an equal basis
with local players.
• Adhere to a strict application of bankruptcy laws and eliminate arbitrary considerations in
decisions involving informal reorganisation arrangements.
• Continue to harmonise the treatment of FIEs and domestic companies as per the Foreign
Investment Law (FIL) and eliminate remaining barriers to foreign investment by creating a level
playing field.

4. Further Open China’s Capital Market to Foreign-invested Enterprises (FIEs)

• Expand FIEs access to China’s capital market.
• Improve market regulation by the China Securities Regulatory Commission and its sister
financial regulators.
• Create a fair and level playing field for FIEs seeking to issue debt securities, including bonds
and asset-backed securities.
• Grant FIEs national treatment and allow them to list their shares on a Chinese stock exchange.
• Establish an ‘international board’ on the Shanghai Stock Exchange to allow international

94 Investment Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

enterprises to achieve a secondary listing of their equity securities in China’s A-share market.
• Simplify the rules for foreign investors selling shares of listed joint ventures as per the principle of
national treatment highlighted by the FIL.
• Remove the additional disclosure requirements on investments by foreign investors in listed
companies so as to correspond to the principle of national treatment

Section Two: Horizontal Issues

Introduction to the Working Group on-year, respectively.3 Mergers and acquisitions (M&A)
in China also surged to a new record-high of 12,790
T he I nv es t me n t Wo rk i n g Gro u p a d v o cates for
transactions, up 21 per cent from 2020. However, a
improvements in China’s investment environment in
drop in ‘mega-deals’ in 2021 meant deal values fell by
terms of market access and regulatory environment.
19 per cent to USD 637 billion from 2020’s record level
The working group’s membership is comprised of
of approximately USD 785 billion.4
service providers, including investment consultants,
law firms, private equity and venture capital firms,
Negative Lists
and banks, as well as a range of large European
On 27 th December 2021, the National Development
manufacturers. The working group seeks to achieve
and Reform Commission issued the Negative List of
a level playing field for foreign investors through the
Foreign Investment (2021 version),5 and the Ministry
notion of reciprocity. It further provides a platform for
of Commerce (MOFCOM) issued the Negative List of
knowledge exchange and expertise sharing among
Foreign Investment for Pilot Free Trade Zones (2021
professional investment advisors in China.
version).6

Recent Developments In the 2021 versions, the negative lists for foreign
In 2021, global foreign direct investment (FDI) investment in China and pilot free trade zones are
recovered from exceptionally low levels in 2020. further reduced by two items to 31 and three items to
According to the United Nations Conference on Trade 27 items respectively. In the automobile manufacturing
and Development, global direct investment flows sector, restrictions on foreign ownership in passenger
rebounded by 77 per cent to exceed pre-pandemic car manufacturing and restrictions on the establishment
levels.1 In 2021, China attracted a record high of United of joint ventures in China for the production of the same
States dollars (USD) 334 billion in net FDI, a 32 per vehicle products are abolished. The European Chamber
cent surge from the previous year. Net FDI inflows are welcomed the updates contained in the two negative
a major component of overall net overseas investment lists, which came into effect on 1 st January 2022. 7
into China, which rose 13 per cent to USD 661.6 Regarding market access in the pilot free trade zones,
billion in 2021, according to the State Administration in the radio and television equipment manufacturing
of Foreign Exchange (SAFE).2 Foreign investment in 3　China's FDI inflow up 14.9% to record high in 2021, National Development nd
China’s high-technology manufacturing and services Reform Commission, 29th January 2022, viewed 21st June 2022, <https://en.ndrc.
gov.cn/netcoo/achievements/202201/t20220129_1315532.html>
industries rose 10.7 per cent and 19.2 per cent year- 4　PwC M&A 2021 Review and 2022 Outlook Report, PwC, February 2022,
viewed 22nd June 2022, <https://www.pwccn.com/en/services/deals-m-and-a/
publications/ma-2021-review-2022-outlook.html>
5　Special Administrative Measures on Foreign Investment Access (Negative List)
(2021 version), State Council, 27th December 2021, viewed 22nd June 2022,
<http://www.gov.cn/zhengce/zhengceku/2021-12/28/content_5664886.htm>
1　Kratz, Agatha; Zenglein, Max J.; Sebastian, Gregor; & Witzke, Mark, Chinese FDI 6　Special Administrative Measures on Foreign Investment Access (Negative List)
in Europe 2021 Update, Rhodium Group and MERICS, April 2022, viewed 27th (2021 version) for Pilot Free Trade Zones, State Council, 27th December 2021,
April 2022, <https://rhg.com/wp-content/uploads/2022/04/MERICS-Rhodium- viewed 22nd June 2022, <http://www.gov.cn/zhengce/zhengceku/2021-12/28/
Group-COFDI-Update-2022-2.pdf> content_5664887.htm>
2　Cheng, Kelsey, Foreign Direct Investment in China Hit Record High in 2021, 7　European Chamber Stance on the Liberalisation of Ownership Restrictions In
Caixin Global, 28 th March 2022, viewed 21 st June 2022, <https://www. the Automotive Sector, European Union Chamber of Commerce in China, 11th
caixinglobal.com/2022-03-28/foreign-direct-investment-in-china-hit-record-high- January 2022, viewed 4th July 2022, <https://www.europeanchamber.com.cn/en/
in-2021-101862479.html> press-releases/3414>

Investment Working Group 95

 sector, restrictions on the production of ground receiving considering shifting current or planned investments
facilities and key components for satellite television and outside of China.11
radio broadcasting were abolished. The working group
views the updated Negative List for Foreign Investment Key Recommendations
as another small step forward in China’s reform and
opening up agenda. 1. Implement the Foreign Investment
Regime and Adhere to the Principle of
Zero-COVID Policy National Treatment
Starting from February 2022, clusters of the Omicron
Concern
variant of COVID-19 emerged in locations across
Section Two: Horizontal Issues

Inconsistent enforcement of the Foreign Investment

China, including Jilin, Shandong, Guangdong, Hebei
Law (FIL) and restrictions imposed on foreign-invested
and Shanghai. Among them, Shanghai experienced
enterprises (FIEs) continue to result in unequal
the country’s biggest outbreak since Wuhan in 2020.
treatment in the Chinese marketplace.
On 26th April 2022, Shanghai Commission of Disease
Control (CDC) officials said that, as of the date,
Assessment
the cumulative count of local cases had exceeded
Over two years after the promulgation of the FIL, China
500,000. 8 The surge occurred despite China’s long-
continues to differentiate between foreign and Chinese
held zero-COVID policy, which entailed strict social
companies in the field of investment. As highlighted
distancing, mass testing, lockdowns and largely
in the Investment Working Group Position Paper
closed borders. Strict COVID-19 containment policies
2021/2022, the FIL does not fundamentally abolish the
continue to complicate China’s economic interaction
distinction between foreign and domestic investment.
with the outside world, and with the significant uptick of
Omicron variant infections in China, international travel
The Investment Working Group maintains that no
restrictions are likely to remain in place for much of
compelling reasons exist to regulate companies
2022.9 This will further drag on the pace of deal-making
differently based on ownership structure or investor
and hinder due diligence processes.
nationality. China’s negative list system continues to
either prohibit or restrict foreign investment in certain
Since China largely closed its borders to foreigners
sectors. That being said, certain aspects of China’s
in March 2020, cross-border business trips between
market access have improved marginally, including the
th e i r h e ad q u a rte rs (H Q) i n Eu ro p e a n d C h i n a
lifting of ownership restrictions for manufacturers of
became an unobtainable corporate luxury for the
passenger vehicles.12
majority of European companies, which is detrimental
to timely communication between HQ and their
However, despite the aforementioned easing of market
China subsidiaries. China operations are becoming
access in China, foreign investors have lingering
increasingly isolated due to China-based staff, both
concerns, with 45 per cent of respondents to the
foreign and Chinese, being unable to travel to European
European Chamber’s Business Confidence Report
HQ for information exchanges, networking, training and
2022 reporting having lost business opportunities due
the sharing of expertise.10 According to the results of a
to market access barriers. What is most troubling is
flash survey by the European Chamber on the impact of
that a mere 12 per cent state that such hindrances are
both COVID-19 containment measures and the Russian
direct, like the negative lists, while one third report that
invasion of Ukraine, 23 per cent of respondents are
they are indirect, as in opaque licensing procedures and
8　Shanghai CDC: Since the end of February, the total number of cases has
exceeded 500,000, and the proportion of asymptomatic cases is about 90%,
SINA Finance and Economics, 26th April 2022, viewed 4th July 2022, <https://
finance.sina.com.cn/china/dfjj/2022-04-26/doc-imcwiwst4085685.shtml>
9　Shanghai CDC: Since the end of February, the total number of cases has
exceeded 500,000, and the proportion of asymptomatic cases is about 90%, 11 Flash Survey: COVID-19 and the War in Ukraine: The Impact on European
SINA Finance and Economics, 26th April 2022, viewed 4th July 2022, <https:// Business in China, European Union Chamber of Commerce in China, 5th May
finance.sina.com.cn/china/dfjj/2022-04-26/doc-imcwiwst4085685.shtml> 2022, viewed 23rd June 2022, <https://www.europeanchamber.com.cn/en/
10 European Business in China Business Confidence Survey 2022, European publications-archive/973/Flash_Survey_COVID_19_and_the_War_in_Ukraine_
Union Chamber of Commerce in China, 20th June 2022, viewed 23rd June 2022, The_Impact_on_European_Business_in_China>
<https://www.europeanchamber.com.cn/en/publications-business-confidence- 12 For more information, please refer to the Recent Developments section of this
survey> position paper..

96 Investment Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

administrative approvals.13 officials. 17 This suggests that the FIL has not been
implemented to the letter of the law.
Foreign Investment Law and Technology Transfer
Despite China releasing the Guidelines for Building When envisioning possible solutions, the EU-China
a Powerful Intellectual Property Nation (2021-2035) Comprehensive Agreement on Investment (CAI)
in September 2021,14 intellectual property protection contained a clear and comprehensive definition of
remains a significant concern for European companies forced technology transfers that covers most practices
as many are still being compelled to transfer technology aimed at involuntary transfers of technology by
to maintain market access. various parties. Although the CAI is currently frozen,18
the ongoing issues related to non-compliance by

Section Two: Horizontal Issues

Article 22 of the FIL states that “No administrative Chinese partners on compelled technology transfer
department or its staff member shall force any transfer could be reported and addressed under the umbrella
of technology by administrative means."15 In addition of mediation and dispute resolution mechanisms
to which, under the Implementing Regulations of the which had been envisioned in the draft agreement.
Foreign Investment Law of the People's Republic of Establishing multiple channels of communication and
China, Article 24 states that "No administrative authority dispute resolution mechanisms has the potential to
(including organisations with the function of managing benefit European businesses and their willingness to
public affairs as authorised by laws and regulations, invest in the Chinese market, as these enterprises rely
the same below) or their working personnel may force not only upon solid commitments, but also on linking
directly or in a disguised way any foreign investor or these commitments to effective implementation and
foreign-invested enterprise to transfer its technology enforcement mechanisms.
by virtue of implementing administrative licensing,
administrative inspection, administrative punishment, If foreign companies are subjected to unfair technology
administrative enforcement or other administrative transfers, an increased level of clarity on the avenues of
means."16 recourse is required, as in practice, FIEs still encounter
unequal treatment compared to their domestic
However, this does not address the core problem. competitors. This leaves the FIL provisions somewhat
According to the Business Confidence Survey 2022, dulled and ineffectual considering general business
14 per cent of respondents were compelled to transfer practices.
technology. Of those, one third said it took place in
the past two years and another 30 per cent reported Public Procurement
it was still taking place. This means that the majority Article 16 of the FIL states that, "The State shall
of compelled technology transfers occurred after the guarantee that foreign-funded enterprises can
FIL, which should prohibit this practice, went into effect participate in government procurement activities
on 1st January 2020. Most respondents report that the through fair competition. Products produced and
technology they were compelled to transfer was part of services provided by foreign-funded enterprises
a commercial agreement or joint venture requirements, within the territory of China shall be treated equally
but 31 per cent report that it happened due to written in a government procurement." However, Business
policy requirements or verbal pressure from government Confidence Survey 2022 findings indicate that in terms
of unequal treatment and the much sought-after concept
of national treatment, European companies experience
13 European Business in China Business Confidence Survey 2022, European differentiated treatment in a wide range of areas. While
Union Chamber of Commerce in China, 20th June 2022, viewed 23rd June 2022, 42 per cent reported market access issues and 22
<https://www.europeanchamber.com.cn/en/publications-business-confidence-
survey> per cent licensing issues, echoing previous findings,
14 Guidelines for Building a Powerful Intellectual Property Nation (2021–2035),
State Council, 22nd September 2022, viewed 4th July 2022, <http://www.gov.cn/ 17 European Business in China Business Confidence Survey 2022, European
zhengce/2021-09/22/content_5638714.htm> Union Chamber of Commerce in China, 20th June 2022, viewed 29th June 2022,
15 Foreign Investment Law of the People's Republic of China, National People’s <https://www.europeanchamber.com.cn/en/publications-archive/1020/Business_
Council (NPC), 15th March 2019, viewed 11th July 2022, <http://www.npc.gov.cn/ Confidence_Survey_2022>
englishnpc/c23934/202012/5b80fe5055504efa93b6744f9272b3c2.shtml> 18 European Chamber Stance on the European Parliament Freezing of the CAI
16 Regulation on the Implementation of the Foreign Investment Law, State Council, Ratification Process, European Union Chamber of Commerce in China, 28th
26th December 2019, viewed 10th April 2022, <http://www.gov.cn/zhengce/ May 2022, 11th July 2022, <https://www.europeanchamber.com.cn/en/press-
content/2019-12/31/content_5465449.htm> releases/3342>

Investment Working Group 97

 that 21 per cent highlighted differentiated treatment in the negative lists in which foreign investment is either
public procurement suggests this is becoming more restricted or prohibited.
of an issue in China. Respondents reported that their • Introduce reporting, mediation and dispute resolution
local competition is given tender details ahead of time, mechanisms and avenues of recourse for foreign
allowing them to assemble a highly competitive bid by companies subject to compelled technology transfers.
the submission deadline. • Implement and adhere to the principle of national
treatment across government levels and nationwide (in
National Unified Market particular in the area of government procurement).
On 10 th April 2022, the Central Committee of the • Abolish specific laws and regulations imposing
Communist Party of China and the State Council jointly investment restrictions only on foreign investors,
Section Two: Horizontal Issues

released the Opinions on Accelerating the Construction including onshoring requirements, and discriminatory
of the National Unified Market.19 This document outlines requirements on licensing.
plans to create a “national unified market” to improve • Introduce legislation that allows for a national unified
standardisation and consistency in the implementation market aligned with international rules and best
of regulations across a wide range of industries in practices, and the unification of standards and policies
China. in different regions and industries.

The construction of a national unified market was first 2. Enhance Market Competitiveness and
proposed in the 14th Five-year Plan (14FYP) in early Further a Level Playing Field with State-
2021, which sets out the goal of “optimising the market owned Enterprises (SOEs)
environment by benchmarking against advanced
international rules and best practices, promoting Concern
the coordination and unification of standards, rules, China’s SOEs continue to enjoy preferential treatment,
and policies in different regions and industries, and to the detriment of privately-owned competitors and
effectively eliminating local protectionism, industry Chinese consumers.
monopoly, and market segmentation.”20 The national
unified market will target a range of industries through Assessment
a variety of regulations, such as intellectual property Although SOEs constitute one strategic pillar of the
rights (IPR) protection, market access and anti- Chinese economy, achieving long-term, sustainable
monopoly regulations, as well as via various industry- development entails the creation of an efficient domestic
specific standards. market in which participation by all players is enabled
and fair competition for the benefit of consumers
While the Opinions are a welcome development, their ensured. Findings from the European Chamber’s
desired effect of consistency for all enterprises is Business Confidence Survey 2022 reveal that unequal
somewhat muted, as the Opinions do not constitute treatment persists for 46 per cent of respondents, 21
legislation, merely the means to spur further regulation highlighting once again the need for SOE reform.
and guidelines. In addition, the Opinions envision
amending segmented inefficiencies across different SOE Reform
local governments as opposed to more broad national- On 26 th February 2021, the State-owned Assets
based issues concerning providing a level playing field Supervision and Administration Commission and
to foreign investors. the Ministry of Finance (MOF) jointly issued the
Management Measures for the Formulation of Articles
Recommendations of Association of State-owned Enterprises, which will
• Continue to reduce the number of industry sectors on play a key role in the reform and future development of
China’s SOEs.
19 Opinions on Accelerating the Construction of the National Unified Market,
State Council, 25th March 2022, viewed 10th April 2022, <http://www.gov.cn/
zhengce/2022-04/10/content_5684385.htm>
20 Outline of the 14th Five-Year Plan for National Economic and Social Development 21 European Business in China Business Confidence Survey 2022, European
of the People's Republic of China and the Long-term Goals for 2035, State Council, Union Chamber of Commerce in China, 20th June 2022, viewed 29th June 2022,
12th March 2021, viewed 10th April 2022, <http://www.gov.cn/xinwen/2021-03/13/ <https://www.europeanchamber.com.cn/en/publications-archive/1020/Business_
content_5592681.htm> Confidence_Survey_2022>

98 Investment Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

Central SOEs are heavyweights in strategic industries, Recommendations

making government-led attempts to reform their • Afford national treatment to all enterprises established
structure especially challenging. Over the past few in China, regardless of ownership and company type.
decades, most efforts have been directed toward • Reduce complexities around business licences and
reforming these SOEs. As a result, explicit and implicit permits, and improve transparency in the application of
barriers to competition remain pervasive at the local risk/return guidelines for SOE financing.
level, where SOEs are less spread out geographically
than their central counterparts. The working group 3. Streamline the M&A Process
expects more focus on continuing SOE reform in a
deeper, systematic fashion that could lead to tangible Concern

Section Two: Horizontal Issues

improvements in the local business environment. M&A activity in China continues to be hindered by
regulatory and bureaucratic requirements that make
New Industries investment into China comparatively more expensive
The 14FYP sets environmental protection and than in competing geographies.
technological advancement as top national priorities
for the next five years. European companies are Assessment
eager to support China in this pursuit, yet face barriers Regulatory Burdens Affecting Inbound Investment
that risk impairing their ability to contribute to the The legal regime governing acquisitions in China
investment goals in new industries. In the absence of remains complicated and restrictive, and its application
fair competition, access to markets like green energy mostly unpredictable. Foreign investors have to
generation is limited for foreign companies, if not overcome a number of restrictions under the Provisions
outright restricted in areas such as carbon capture and on Merger and Acquisition of Domestic Enterprises by
storage, and power generation and distribution.22 Foreign Investors (M&A Rules)24 along with additional
challenges, such as merger control filing and national
This situation is worsened by restrictive regulations security review. A typical inbound M&A investment,
that widen the gap between FIEs and local players. for example, can take anything between 10 weeks, in
For example, data localisation requirements, although the absence of special approvals, and several years
applicable to both local and foreign companies for transactions that require reapplication for certain
alike, affect foreign players the most and result in a permits. Moreover, foreign M&As are regulated by a
duplication of data storage and management assets dedicated set of rules issued by the MOFCOM as well
and processes. as regulations applicable to general FDI in China, such
as the negative lists and the FIL.
A similar situation affects data-driven technology
industries, including cloud computing and information With regard to the regulatory burden for foreign
and communications technology. 23 Here, the impact investment into China, structural elements exist that
of a regulatory-induced market segmentation for make inbound M&As more resource-intensive and
foreign players is even more concerning, given that uncertain than in other legal systems. Among the
project success is closely tied to the ability to offer structural elements most cited by European investors
service bundling and data monetisation across service are unclear guidelines and uncertainty surrounding
lines. Current limitations in digital industries not only the implementation of regulations on bankruptcy, court
add complexity to any merger and acquisition (M&A) disputes, and permit granting and renewal, which
investment but also prevent FIEs from deploying often vary from region to region and city to city. In
synergetic strategies that generate wealth and growth consequence, many European companies estimate a
for domestic subsidiaries. higher risk premium for investments into China.

European investors also worry this comparative

disadvantage will intensify in the near future, especially
22 See the Environment Working Group Position Paper 2022/2023 for more
information. 24 Provisions on Mergers and Acquisitions of Domestic Enterprises by Foreign
23 See the Information and Communication Technology Working Group Position Investors (M&A Rules), MOFCOM, 24th July 2009, viewed 4th July 2022, <http://
Paper 2022/2023 for more information. www.gov.cn/flfg/2009-07/24/content_1373405.htm>

Investment Working Group 99

 in light of the growing geopolitical tensions, as Chinese economy: contrary to a decade ago, inbound
investment progressively shifts towards a greater focus European investment is now mostly aimed at China’s
on technology-intensive assets, in particular those value chains; new investment opportunities are also
related to decarbonisation and overall environmental opening up in capital intensive growth areas, such as
sustainability. In the green economy—an area in which decarbonisation and the green economy. Investors
European companies have much to offer to China— that intend to focus on these new areas can expect, to
complexities in the context of permit granting, coupled a large extent, to compete with SOEs, which already
with uncertainties surrounding standard setting, remain have advantages in the capital allocation of domestic
significant and risk hampering inbound investment – funds. Vis-à-vis these developments, the working group
battery manufacturing is one compelling example of urges regulators to expand foreign investors’ access to
Section Two: Horizontal Issues

how standards keep changing almost on an annual financing on market-consistent terms.

basis, adding layers of difficulty for foreign investors.25
Recommendations
Access to Capital Markets and Financing • Formulate national-level guidance aimed at providing
Foreign entities in China often complain of a less- automatic, fast-track licensing for asset deals that
than-level playing field when it comes to access to adequately reflect business transfers.
capital markets and financing of M&A transactions. • Allow FIEs access to China’s capital market on an
For example, current rules prevent the controlling equal basis with local players.
shareholder of a listed company from owning ‘competing’ • Adhere to a strict application of bankruptcy laws and
business outside of China, effectively requiring that eliminate arbitrary considerations in decisions involving
entire global operations be listed in the country, not informal reorganisation arrangements.
just the Chinese subsidiaries. 26 The unclear legal • Continue to harmonise the treatment of FIEs and
status of board members and top management in domestic companies as per the FIL and eliminate
listed companies is also a concern for multinational remaining barriers to foreign investment by creating a
corporations (MNCs) that would otherwise list domestic level playing field.
operations in Chinese stock markets. Further, capital
endowment requirements and exchange controls 4. Further Open China’s Capital Market to
place limitations on the ability of European companies FIEs
investing into China to fund operations and capital
investments through debt. Concern
There are still many restrictions hampering FIEs’
Foreign inbound M&A are still unlikely to obtain funding access to China’s capital markets in their entirety,
domestically in China. Most MNCs use offshore funds including equity, debt and structured products, which is
in their acquisitions; risk management by domestic detrimental to the Chinese economy.
Chinese banks generally hinges on the value of
hard assets on the balance sheet, such as land and Assessment
machinery. In fact, M&A funding by Chinese financial FIEs still face many access restrictions to China’s
institutions is subject to hard assets pledges. This capital markets – a situation that is detrimental to both
practice inevitably penalises MNCs that are looking them and the Chinese economy, for it contributes
to enter China, as they have less tangible assets to the continued underdevelopment of the domestic
onshore than their domestic counterparts. And in capital market. This lack of access prevents many FIEs
the rare instances where leveraged buy-out funding from further embedding themselves into the Chinese
is provided in China, it is extended on the basis of economy and society.
parent companies’ guarantees. This constraint has
become ever more critical with the emergence of A-share Markets
new drivers of growth and further rebalancing of the It is possible for an FIE to be listed on China’s
established stock markets by incorporating itself as,
25 See the Automotive Working Group Position Paper 2022/2023 for more
information. or converting itself into, a foreign-invested company
26 Measures for the Administration of Acquisition of Listed Companies, China limited by shares (FICLS), and then applying for a
Securities Regulatory Commission (CSRC), 31st July 2006, viewed 4th July 2022,
<http://www.csrc.gov.cn/csrc/c101864/c1024664/content.shtml> listing on the exchange of its choice in accordance with

100 Investment Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

the relevant regulations. However, the requirements of their equity securities in China’s A-share market.
that FICLS and their investors must satisfy are more Removing specific listing requirements in China, limited
stringent than those that apply to domestic companies. to companies that already have listed in their home
Some examples, according to China’s Company Law, markets, could be a practical solution to overcome
include requiring at least half of the shareholders technicalities such as horizontal competition, 28
to be domiciled in China and maintaining a foreign trademark or brand ownership, and on arm's length
shareholding of at least 10 per cent post-listing. trade and services29 arrangements.
Therefore, it is not possible to list a wholly foreign-
owned enterprise (WFOE) on the A-share market.27 On 25th March 2022, the CSRS approved the Interim
Measures for the Listing and Trading of Depository

Section Two: Horizontal Issues

Even if it were possible to list WFOEs, regulations by Receipts under the Stock Connect Scheme between
the China Securities Regulatory Commission (CSRC) Shanghai Stock Exchange and Overseas Stock
would require the listed entity to own its own IPR and Exchanges,30 thereby expanding the link between the
be free to compete on a global basis. This essentially stock exchanges of Shanghai and London to include
precludes an international company from listing a local bourses in Germany, Switzerland and Shenzhen. The
subsidiary, which differs from common practices in other regulator also enabled European companies to sell
financial markets, where a foreign investor can raise new shares and raise funds from investors in mainland
capital as well as control and operate a locally-listed China, and simplified their financial-reporting and
company without its global business being required disclosure requirements.
to become a domestic public entity. In the reform of
China’s capital markets, the working group recommends Debt Market
that access be made available to all economic actors, Since 2018, it has become easier for FIEs to routinely
including foreign investors operating successful local issue renminbi (RMB)-denominated debt securities,
subsidiaries in Mainland China. so-called ‘panda bonds’. The People’s Bank of
China (PBOC) and the MOF jointly published interim
Additional requirements applying to FICLS and their administrative rules for bond issuance by foreign
investors should also be removed, and international entities,31 which, as well as clarifying and simplifying a
businesses should be free to list on the A-share market number of issues, delegated registration of nonfinancial
in the same way as domestic companies. This would enterprises to the National Association of Financial
reflect the nationwide trend of harmonising regulatory Markets Institutional Investors (NAFMII). The rules
requirements that are applicable to both domestic also formally introduced the concept of ‘equivalent
and international entities, and the removal of many accounting standards’,32 allowing enterprises reporting
filing requirements in the field of FDI. It would also under non-Chinese accounting standards—such as the
encourage foreign private equity investment in domestic International Financial Reporting Standards—to access
companies, by facilitating foreign investors’ ability to the panda bond market without converting their financial
subsequently exit their investments through a Chinese statements to Chinese Generally Accepted Accounting
initial public offering. Principles.

To this end, domestic stock exchange listing rules In 2019, the PBOC took additional steps to open
should be amended to make it easier for foreign
companies to list on Chinese stock exchanges, thereby 28 Horizontal competition refers to the rivalry to gain customer preference among

increasing the attractiveness of China’s capital markets entities at the same level, such as competition among competing wholesalers or
competing retailers.
while leading to greater diversification from new, 29 'Arm's length’ trade and services refers to a business deal in which buyers and

high-quality issuers. This would also be conducive to sellers act independently without one party influencing the other.
30 Shanghai Stock Exchange Issues the Interim Measures for the Listing and
establishing the much-anticipated international board Trading of Depository Receipts under the Stock Connect Scheme between

on the Shanghai Stock Exchange, which would enable Shanghai Stock Exchange and Overseas Stock Exchanges and Relevant
Guidelines, Shanghai Stock Exchange, 25th March 2022, viewed 20th April 2022,
international enterprises to achieve a secondary listing <http://english.sse.com.cn/news/newsrelease/c/5700281.shtml>
31 Announcement [2018] No. 16 of the PBOC and the MOF on Interim Administrative
Measures for Bond Issuance by Overseas Institutions in the China Interbank
27 Shi, Emilia, Establishing a Business in China: Overview, Thomson Reuters, 1st
Bond Market, PBOC, 8th September 2018, viewed 15th April 2022, <http://www.
July 2019, viewed 14th April 2021, <https://uk.practicallaw.thomsonreuters.com/1-
gov.cn/gongbao/content/2019/content_5362059.htm>
623-4945?transitionType=Default&contextData=(sc.Default)>
32 Ibid.

Investment Working Group 101

 China’s financial sector and improve the rating quality of to issue debt securities, including bonds and asset
the bond industry by allowing foreign rating companies backed securities.
to conduct bond rating in the interbank bond market.33 • Grant FIEs national treatment and allow them to list
In December 2021, the PBOC and the SAFE solicited their shares on a Chinese stock exchange.
public opinions on the Provisions on the Administration • Establish an ‘international board’ on the Shanghai
of Funds for Domestic Issuance of Bonds by Overseas Stock Exchange to allow international enterprises to
Institutions (Draft for Comments).34 The draft proposes achieve a secondary listing of their equity securities in
that “funds raised by domestic bonds issued by China’s A-share market.
overseas institutions can be remitted abroad or retained • Simplify the rules for foreign investors selling shares
for domestic use. Those retained for domestic use shall of listed joint ventures as per the principle of national
Section Two: Horizontal Issues

comply with provisions on the administration of direct treatment highlighted by the FIL.
investment, foreign debt, etc. Overseas institutions are • Remove the additional disclosure requirements on
encouraged to collect, pay and use funds raised by investments by foreign investors in listed companies so
domestic bond issuance in the form of RMB”.35 as to correspond to the principle of national treatment

Inclusion into Global Bond Indices Abbreviations

Important steps have been taken to internationalise
14FYP 14th Five-Year Plan
China’s debt capital markets through the inclusion of
CAI Comprehensive Agreement on
Chinese bonds into global indices. 36 Since October
Investment
2021, Chinese government bonds are now listed on
CSRC China Securities Regulatory Commission
all three major global bond indices: the FTSE World
EU European Union
Government Bond Index; Bloomberg Global Aggregate
FDI Foreign Direct Investment
Index and JPMorgan GBI-EM Global Diversified Index.
FICLS Foreign-invested Company Limited
As a result, China is now the world's second-largest
by Shares
bond market. 37 The working group welcomes such
FIE Foreign-invested Enterprises
inclusions, which it believes will bring more overseas
FIL Foreign Investment Law
inflows into China, pushing the country’s markets further
IPR Intellectual Property Rights
into the mainstream for foreign investors.
M&A Mergers and Acquisitions
MNC Multinational Corporation
Recommendations
MOF Ministry of Finance
• Expand FIEs access to China’s capital market.
MOFCOM Ministry of Commerce
• Improve market regulation by the CSRC and its sister
NAFMII National Association of Financial
financial regulators.
Markets Institutional Investors
• Create a fair and level playing field for FIEs seeking
PBOC People’s Bank of China
RMB Renminbi
33 NAFMII Issues Guidelines on Debt Financing Instruments of Overseas Non-
Financial Enterprises (for Trial Implementation), NAFMII, 17th January 2019, SAFE State Administration of Foreign
viewed 15th April 2022, <http://www.nafmii.org.cn/english/lawsandregulations/ Exchange
selfregulatory_e/201902/t20190201_75773.html>; Anstey, Chris & Tu, Lianting,
China Opens to Foreign Credit Raters to Boost Bond Credibility, Bloomberg, WFOE Wholly Foreign-owned Enterprise
27th February 2019, viewed 15th April 2022, <https://www.bloomberg.com/ news/
articles/2019-02-27/china-opens-to-foreign-credit-raters-to-boost-bondcredibility>
34 Notice on Soliciting Public Comments on the Provisions on the Administration
of Funds Issued by Overseas Institutions in China (Draft), PBOC and SAFE,
2nd December 2021, viewed 26th May 2022, <http://www.pbc.gov.cn/tiaofa
si/144941/144979/3941920/4405194/index.html>
35 Two departments: encourage overseas institutions to issue bonds and raise funds
in China to receive, pay and use cross-border in the form of RMB, EqualOcean,
2nd December 2021, viewed 26th May 2022, <https://www.equalocean.com/
briefing/20211202230099707>
36 Strohecker, Karin, Index Inclusion May Boost China Bonds Flows to USD140bln
in 2021 - Goldman Sachs, Nasdaq, 15th January 2021, viewed 7th April 2022,
<https://www.nasdaq.com/articles/index-inclusion-may-boost-china-bonds-flows-
to-%24140bln-in-2021-goldman-sachs-2021-01-15>
37 More policies luring investors to bonds, China Daily, 4th December 2021,
viewed 27 th May 2022, <https://global.chinadaily.com.cn/a/202112/04/
WS61aaa6b7a310cdd39bc7949a.html>

102 Investment Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

Legal and Competition Working Group

Key Recommendations
1. Continue to Strengthen the Rule of Law to Sustain Fair Competition in the

Section Two: Horizontal Issues

Domestic Market and Contribute to Global Economic Recovery Amid
Uncertainties
• Continue to focus on advancing the rule of law and implement a fair competition review system to create
and maintain a market-orientated business environment.
• Continue to standardise the judicial decision-making process to improve the standardisation and
transparency of the application of discretion and ensure equitable, transparent, predictable and impartial
implementation and enforcement of laws and regulations nationwide.
• Enhance the legislative quality and remove inconsistencies within the laws and regulations to provide a
stable and predictable legal environment for businesses.
• Continue to standardise and maintain a compliant and transparent supply chain consistent with
international standards.
• Enhance the protection of trade secrets and continue lowering the prerequisite with regard to loss
estimation when initiating legal proceedings for infringements.
• Ensure prompt, comprehensive and correct enforcement of judicial decisions and arbitral awards by
providing enforcers and intellectual property right owners with relevant information.
• Enhance compliance with terms and deadlines in court and administrative procedures.
• Standardise the public consultation process.
• Permit foreign nationals to attend civil and commercial hearings in the People’s Courts without
pre-registration.
• Support and promote the role of domestic and foreign lawyers in China’s legal system.

2. Ensure Smooth Implementation of the Foreign Investment Law (FIL) and

Its Implementing Regulations, and Minimise Potential Negative Impacts on
Foreign Business
• F ormulate in a timely manner necessary implementation rules to clarify the uncertainties and ambiguities
caused by the introdution of the FIL, particularly the gaps created by abolishing old laws.
• Clarify national-security-related concerns at the working level.
• Adjust and consolidate all pertinent laws and regulations to maintain alignment of the whole legal
framework in the field of foreign investment, including greenfield investment and mergers and acquisitions
activities.
• Ensure transparency in the rule-making process by publishing a clear enactment and public consultation
timeframe, including information on the stakeholders in charge, and allow sufficient time for public
comments to reflect business concerns.
• Consider fundamentally changing the existing foreign investment management regime to eliminate
differentiation between Chinese and foreign investment, and ensure a level playing field and non-
discriminatory market access regime.

Legal and Competition Working Group 103

 3. Develop an Export Control Regulatory Framework that is Clear, Proportionate
and Aligned with Global Practices
• C larify the supervision and enforcement governmental organs, and the rights and powers thereof, so as
to facilitate direct dialogue and discussion between export control authorities and industry.
• Exempt commercial mass market products from export controls, focussing the export control system
instead on items that have a direct and strategic bearing on China’s national security.
• Ensure a practical and user-friendly licensing system featuring bulk and general licensing, and licensing
exceptions for intra-company transfers.
Section Two: Horizontal Issues

• Update the current dual-use control list with designations based on the nature of controlled items.
• Narrowly define the scope of ‘deemed exports’ subject to licensing, and introduce reasonable export
thresholds and exemption arrangements.
• Clarify the definition and management mechanism of “re-export”.

4. Eliminate Restrictions on the Legal Services that Foreign Law Firms can
Provide
• A llow foreign law firms to fully practice People's Republic of China (PRC) law in non-contentious areas
through the employment of individuals who are qualified and licensed to practise PRC law.
• Allow lawyers in foreign law firms to fully represent their clients before Chinese government authorities
as long as they have proper powers of attorney.
• Increase cooperation under the Pilot Work Plan, particularly in allowing easier access to this plan and
permitting the establishment of more closely integrated Sino-foreign joint venture firms to practice both
Chinese law and foreign law in their own name.
• Ensure consistent and transparent implementation and enforcement of laws and regulations concerning
foreign investments.
• Streamline the registration procedures and requirements for foreign lawyers.

5. Adopt Regulations that Encourage Fair Enforcement of the Anti-monopoly

Law (AML)
• E nsure that the AML is implemented and enforced equally among all companies, domestic or foreign,
including in the area of merger control enforcement and conduct issues.
• Ensure that all notified transactions are reviewed on a fair and timely basis, particularly transactions
involving markets that are regarded as sensitive or of strategic importance to China.
• Ensure that the application and enforcement of the AML is consistent with the policy objectives of the
fair competition review mechanism.
• Adopt centralised publication channels, such as websites, for all information relevant to AML
enforcement, including new measures and decisions both from the State Administration for Market
Regulation and local Administrations for Market Regulation.
• Clarify further and refine the conditions of AML enforcement and judicial practice.

6. Develop a Regulatory Framework that Enables All Aspects of Sustainability

to Permeate Corporate Governance and Supply Chains, and Strengthen
Cooperation with the European Union (EU) on Green Transition
• Plan ahead and develop an advanced regulatory framework which enables all aspects of sustainability,

104 Legal and Competition Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

including not only environmental but also social and governance (ESG) aspects, to permeate corporate
governance and supply chains in China.
• Review and reinforce China’s signature and ratification of existing international treaties relevant to
sustainability and ESG matters.
• Support awareness and enhance training of key players in the different industrial sectors, including state-
owned enterprises and private companies, for a deeper understanding of ESG matters and in preparation
for new sustainability challenges in global supply chains.
• Strengthen cooperation with the EU and EU Member States to create a sophisticated set of shared rules

Section Two: Horizontal Issues

and standards, such as the taxonomy projects, that could act as a benchmark for other countries.

Introduction to the Working Group during the 14 th Five-year Plan period, to develop a
law-based government and market-orientated society.
Created in 2000, the Legal and Competition Working
However, some of these legislations, such as the Anti-
Group fosters greater legal transparency and
foreign Sanctions Law, the Data Security Law (DSL)
awareness of legal developments that affect foreign
and the Personal Information Protection Law (PIPL),
trade and investment in China. It also advocates for the
may greatly impact the daily operations of European
strengthening of the rule of law in China and foreign
companies based in China.
businesses’ better access to the Chinese market,
including the legal services market. It is now comprised
Anti-foreign Sanctions Law
of approximately 480 individuals that represent over
On 10th June 2021, the NPCSC passed the Anti-foreign
270 member companies.
Sanctions Law, which took effect immediately.1 The law
targets those involved in forming and implementing
Recent Developments sanctions against China, outlining the circumstances for
A number of welcome developments were carried out applying countermeasures, establishing a coordination
by the legislative, regulatory and judicial bodies in China mechanism for countermeasures and countersanctions,
in 2021 and early 2022, such as granting legislative and the obligations of relevant organisations and
power to local governments to promote high-level individuals. The law does not establish a separate
reform and opening up. For example, on 10th June 2021, entity for implementation of foreign sanctions and
the Standing Committee of the 13th National People's countermeasures, while the ways countermeasures will
Congress (NPCSC) adopted the decision on authorising be carried out will depend on the implementation rules.
the Shanghai Municipal People's Congress and its
Standing Committee to formulate regulations for the Data Security Law and Personal Information Protection
Pudong New Area. In addition, on 15th July 2021, the Law
Chinese Communist Party’s (CPC) Central Committee The DSL and PIPL were enacted on 1st September and
and the State Council issued guidelines on supporting 1st November 2021 respectively, marking China’s first
reform and opening up in the Pudong New Area and legislation dedicated to data protection and personal
making it a 'pioneer area' for socialist modernisation. information protection.2&3 The laws are part of a larger
The Pudong Government was also granted significant
1 Anti-foreign Sanctions Law, NPCSC, 10th June 2021, viewed 18th April 2022,
autonomy In local legislation and stronger administrative <http://www.npc.gov.cn/npc/c30834/202106/d4a714d5813c4ad2ac54a5f0f7
power. 8a5270.shtml>
2 Data Security Law, NPCSC, 1st September 2021, viewed 15th April 2022,
<http://www.npc.gov.cn/npc/c30834/202106/7c9af12f51334a73b56d7938f99
Changes and progress on the rule of law also took a788a.shtml>
place over the past year. China issued a series of 3 Personal Information Protection Law, NPCSC, 1st November 2021, viewed 16th
April, 2022, <http://www.npc.gov.cn/npc/c30834/202108/a8c4e3672c74491a8
plans focussing on legal framework construction
0b53a172bb753fe.shtml>

Legal and Competition Working Group 105

 security framework under the Cybersecurity Security 1) Continue to focus on advancing the rule of law
Law (CSL), which came into force in 2017. The DSL and enforce a unified domestic market that is non-
regulates data activities in Mainland China, with the aim discriminatory and fair for foreign companies
of ensuring data security, promoting data development China’s ambition to create a fair and united market
and use, protecting the lawful rights and interests of was outlined in the Opinion on Accelerating the
natural persons and organisations, and safeguarding Establishment of a Unified Domestic Market (Opinion),
national sovereignty, security and development issued by the State Council on 10 th April 2022.4 The
interests. The PIPL introduces new grounds for Opinion explicitly calls for eradication of all policies
processing personal information, such as that related that compromise fair competition between companies.
to human resources. However, data localisation The working group therefore calls for an immediate
Section Two: Horizontal Issues

requirements and cross-border data transfer restrictions and robust implementation of the Opinion at all levels,
remain, while detailed guidelines and implementation through for example, transforming requirements into
rules are still lacking, such as on important data legal and regulation systems, enhancing the fair
catalogues, the administrative review process for data/ competition review, reducing the Negative List for
infrastructure security and overseas data transfer, and Foreign Investment and ensuring non-discriminatory
contract templates for overseas processing, among enforcement of anti-trust law.5
others. The working group recommends providing clear
2) Standardise the enforcement of laws and regulations
and transparent guidelines that will enable companies
Despite the significant improvements already achieved
to efficiently achieve compliance.
by China, European companies still encounter
inconsistencies in the application and enforcement of
Key Recommendations laws and regulations. This is often due to discretionary
1. Continue to Strengthen the Rule of implementation, which can vary depending on the parties
involved, the location or the sector. The working group
Law to Sustain Fair Competition in the
expects the government to continue standardising all
Domestic Market and Contribute to Global
judicial and administrative proceedings to create a more
Economic Recovery Amid Uncertainties
predictable, transparent and impartial legal system. To
achieve this, the authorities should reduce the adoption
and application of open clauses in legislation, publish
Concern
enforcement details and related decision-making
European companies still face challenges, including
processes, and enhance and expand existing law
ambiguous legal requirements, inadequate law/policy
enforcement monitoring and reporting systems, among
implementation as well as a lack of guidance on inter-
other methods.6&7
market conflicts, especially against the current backdrop
of geopolitical tensions and COVID-19.
4 Opinion on Accelerating the Establishment of a Unified Domestic Market,
CPCCC and State Council, 10th April 2022, viewed 16th April 2022, <http://
Assessment www.gov.cn/xinwen/2022-04/10/content_5684388.htm>
Since joining the World Trade Organization in 2001, 5 Negative list for Foreign Investment, MOFCOM, 28th December 2021, viewed
29th June 2022, <http://er.mofcom.gov.cn/article/jmxw/202112/20211203232425.
China has gradually improved its implementation of
shtml>
the rule of law and convergence with international 6 Since early 2021, regulatory documents and drafts aimed at improving law
standards, thus contributing to a legal system that enforcement quality and limiting discretional judgments in some areas have
been subsequently released, such as the Guidance for Improvement of
supports a fair and just market environment. At the
Law Enforcement Effectiveness in Ecosystem and Environment Protection,
same time, there is still a lack of transparency and Ministry of Ecology and Environment (MEE), 6th January 2021, viewed

impartiality in law enforcement in certain areas of 16 th April 2022, <http://www.mee.gov.cn/xxgk2018/xxgk/xxgk03/202101/

t20210114_817353.html>; Guidance for Differentiated Law Enforcement
trade and investment. The COVID-19 pandemic and based on Affirmative List in Ecosystem and Environment Protection, MEE,
geopolitical uncertainties further complicate and April 6th 2021, viewed 16th April 2022, <http://www.tjhx.gov.cn/zwgk/zfxxgk/

exacerbate the challenges European businesses face zfgbm/qsthjj/fdzdgknr/zdmsxx/hjbh/202110/P020211029478194648929.pdf>;

and the Trial Standard for Discretional Administrative Penalty on Fishing in
in China. The Legal and Competition Working Group Oceans, Ministry of Agriculture and Rural Affairs and China Coast Guard,
therefore expects further improvements in the following 26th November 2021, viewed 16th April 2022, <http://www.gov.cn/zhengce/
zhengceku/2021-12/23/content_5664119.htm>
areas:
7 One example of good practice is a compliance system set up by the Ministry
of Justice (MOJ) for the public to report law enforcement issues, viewed 16th
April 2022, <http://www.12348.gov.cn/sfbxzzf/#/suggestion/suggestion>

106 Legal and Competition Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

3) Enhance legislative quality and remove 5) Enhance trade secret protection

inconsistencies within laws and regulations to There were several significant developments in laws
provide a stable and predictable legal environment addressing trade secrets in 2020,11 in particular, the
for businesses punitive damages rules, the shifting of the burden of
Consistency within the legal framework is of fundamental proof of non-violation onto the infringer, and a more
importance for business to plan operations and exercise precise scope of what constitutes as ‘trade secrets’.
their legal rights. However, several stipulations in The working group expects the continuous improvement
Chinese legislations are inconsistent with or even of trade secret protection by allowing right holders to
contradictory to their upper-level laws or regulations. use remedial costs instead of established actual losses
For instance, the Regulation on the Administration to initiate criminal proceedings for an infringement,

Section Two: Horizontal Issues

of Human Genetic Resources8 stipulation that patent as well as permitting an individual to be held liable for
rights will be shared is in discord with the Civil Code trade secrets misappropriation. Once fully implemented,
and the Patent Law, which allow contractual terms the improved IP protection regime with respect to trade
to define intellectual property (IP) allocation.9 Stricter secrets will increase the safety and sustainability of
enforcement of the Legislation Law and the associated foreign investment, especially for those devoted to
legislative review to amend or repeal contradictions generating innovative products. For more information on
and inconsistencies within legal and regulation systems trade secrets, please refer to the Intellectual Property
could provide and sustain a stable and coherent legal Rights Working Group Position Paper on page 74.
environment for companies.10
6) Ensure enforcement of judgments and awards
4) Continue to standardise and maintain transparent Problems related to the enforcement of judgments and
supply chain regulations consistent with international arbitral awards in China are still quite common, as the
standards People’s Courts and the winning parties in proceedings
Global supply chains have been in turmoil not only are too often not provided with the adequate means to
because of COVID-19 but also due to geopolitical follow up on enforcement proceedings.
tensions. The interdependence between countries
in a globalised supply chain promotes adherence to 7) Strengthen compliance with terms and deadlines
international rules and, where possible, harmonisation in court and administrative procedures
of regulations across international markets. The working Stipulated terms and deadlines in court and administrative
group acknowledges China’s continued levelling up of procedures are crucial for companies to know when
its supply chain towards international standards, which, they can seek legal recourse and damages during
through dialogue and cooperation with other countries, complex disputes. The current uncertainty of judicial
can create and maintain a green, transparent and and administrative proceedings may cause companies
ethical supply chain that is up to global standards. to doubt their ability to obtain procedural justice, while
seeing their costs increase. Thus, the working group
hopes that measures will be taken by the relevant
8 Article 24 states that patents developed in international research using authorities to strengthen adherence to terms and
Chinese human genetics shall be co-owned by the Chinese organisation and
the foreign counterparty, viewed 16th April 2022: Regulation of the People's
deadlines, and make available a recourse/appeals
Republic of China on the Administration of Human Genetic Resources, mechanism to resolve non-compliance issues.
State Council, 1st July 2019, viewed 22nd June 2022, <http://www.gov.cn/
zhengce/2020-12/27/content_5574163.htm>
9 The Civil Code (Articles 859-860) and the Patent Law (Art. 8) both allow
8) Improve the public consultation process
contracts as the base for IP allocation between counterparties. Civil Code, Public consultation is a crucial element in the law-
National People’s Congress (NPC), 28th May 2020, viewed 16th April 2022,
making process, as it facilitates resolving potential
<https://flk.npc.gov.cn/detail2.html?ZmY4MDgwODE3MjlkMWVmZTAxNzI5Z
DUwYjVjNTAwYmY%3D>; Patent Law, NPC, 1st June 2021, viewed 16th April problems in the practical implementation of laws before
2022, <https://flk.npc.gov.cn/detail2.html?ZmY4MDgwODE3NTJiN2Q0MzAx their official promulgation, and therefore ensures better
NzVlNDY1MWNiZDE1NDc%3D>.
legislation. Despite efforts to improve transparency,
10 The Legislation Law (amended in March 2015) requires amendment or repeal
of lower-level laws/regulations that contradict with upper-level ones (Art.
11 For instance, the Supreme People’s Court (SPC) issued the Provisions of the
96) and provides legislative review process for consistency check (articles
Supreme People's Court on Several Issues Concerning the Application of
th
68 and 77, and Chapter 5), Legislation Law, NPC, 15 March 2015, viewed
Law in the Trial of Civil Cases Involving Infringements upon Trade Secrets,
16th April 2022, <http://www.npc.gov.cn/zgrdw/npc/dbdhhy/12_3/2015-03/18/
SPC, 11th September 2020, viewed 16th April 2022, <http://www.court.gov.cn/
content_1930713.htm>
zixun-xiangqing-254751.html>

Legal and Competition Working Group 107

 and the Ministry of Justice’s (MOJ’s) work to maintain 10) Promote the role of domestic and foreign
its public consultation website, many other ministries lawyers
and commissions—especially at the provincial level and Legal professionals—including private practice lawyers
below—still do not allow a period of at least 30 days for and in-house counsels, domestic and foreign lawyers—
public consultation on draft regulations. Failure to do play a pivotal role in enhancing and strengthening the
so is also contrary to commitments made in the Interim rule of law in its formal, procedural and substantive
Regulation on Major Administrative Decision-making aspects, both domestically and at an international
Procedures. 12 In addition, the public consultation level. Therefore, the working group expects recognition
process should be made more transparent by sharing a and support for all legal professionals, in view of their
working plan with enough lead time and providing alerts importance to business.
Section Two: Horizontal Issues

of forthcoming public consultation exercises. Legislators

should also publish major contributions received from Recommendations
stakeholders, together with feedback from regulators on • Continue to focus on advancing the rule of law and
the stakeholders’ comments, in a manner similar to the implement a fair competition review system to
European Commission website.13 create and maintain a market-orientated business
environment.
9) Provide access to judicial judgments and participation • Continue to standardise the judicial decision-making
in court hearings process to improve the standardisation and transparency
European businesses welcome the increase in of the application of discretion and ensure equitable,
transparency and publicity of court judgments, as transparent, predictable and impartial implementation
well as improvements to the websites of the Supreme and enforcement of laws and regulations nationwide.
• Enhance the legislative quality and remove inconsistencies
People’s Court (SPC) and local courts, 14&15 through
within the laws and regulations to provide a stable and
which numerous court judgments are now available,
predictable legal environment for businesses
pursuant to Article 156 of the Civil Procedure Law.
• Continue to standardise and maintain a compliant and
The publication of guiding cases by the SPC is also a
transparent supply chain consistent with international
welcome step towards developing a comprehensive
standards
approach to jurisprudence and should contribute to
• Enhance the protection of trade secrets and continue
more consistent interpretation and implementation of
lowering the prerequisite with regard to loss estimation
laws and regulations nationwide.16 The working group
when initiating legal proceedings for infringements.
encourages the courts to continuously consolidate • Ensure prompt, comprehensive and correct enforcement
and disclose cases and judgments from all levels, and of judicial decisions and arbitral awards by providing
expects that—as is common practice in European enforcers and IP right owners with relevant information.
jurisdictions—foreign nationals could have full public • Enhance compliance with terms and deadlines in court
access to commercial and civil hearings in the People’s and administrative procedures.
Courts without the need to pre-register or be specially • Standardise the public consultation process.
authorised. • Permit foreign nationals to attend civil and commercial
hearings in the People’s Courts without pre-registration.
• Support and promote the role of domestic and foreign
lawyers in China’s legal system.

12 Interim Regulation on Major Administrative Decision-making Procedures, 2. Ensure Smooth Implementation of the
State Council, 8th May 2019, viewed 16th April 2022, <http://www.gov.cn/ Foreign Investment Law (FIL) and Its
zhengce/content/2019-05/08/content_5389670.htm>
13 For example, the Public Consultation Section of the European Commission
Implementing Regulations, and Minimise
website, viewed 16th April 2022, <https://ec.europa.eu/info/consultations_en> Potential Negative Impacts on Foreign
14 For example, the website of the SPC has special sections for publishing court
decisions and judicial enforcement, viewed 16th April 2022, <https://www.court.
Business
gov.cn/fabu-gengduo-15.html>
15 For example, Beijing local court’s website, viewed 16th April 2022, <https:// Concern
bjgy.chinacourt.gov.cn/paper.shtml>
16 Please see the ‘Guiding Cases’ section on the China Courts’ website,
Although the FIL and its implementing regulations have
viewed 16 th April 2022, <https://www.chinacourt.org/article/index/id/ been effective since 1st January 2020, there is still room
MzAwNDAwMjAwMSACAAA.shtml>

108 Legal and Competition Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

for improvement in China’s legal regime for foreign direct and indirect barriers focus on areas such as re-
investment in terms of creating a level playing field. investment of FIEs based in China; foreign-invested
holding/investment companies; the administration of
Assessment total investment, registered capital and foreign debt
The FIL addresses many key concerns of foreign of FIEs; and mergers and acquisitions (M&A) by
investors, such as IP protection, equal support policies, foreign investors of domestic enterprises. The working
participation in government procurement, and pre- group hopes that, in the course of implementing the
establishment national treatment and negative-list FIL, such restrictions under other regulations will be
management. However, many regulations under also abolished to create a truly level playing field for
the FIL—and to some extent substantiated by its foreign investors. The working group further hopes that

Section Two: Horizontal Issues

implementing regulations—require more detailed rules transparency in the FIL implementation process will be
to ensure operability, as well as to link with relevant maintained by publishing a clear enactment timeframe,
laws and regulations, to truly reflect the intention of the including information on the respective stakeholders
law. responsible for rule-making, and allowing sufficient time
for public comments to reflect business concerns.
The working group is encouraged by the MOF’s
publication on 20 th October 2021 of the Notice on Although the FIL reiterates the concept of national
Implementing the Policies on Equal Treatment treatment for foreign companies, it still does not
of Domestic and Foreign-invested Companies in fundamentally abolish the distinction between foreign
Government Procurement Activities,17 which states that and domestic investment, which means that a level
“government procurement shall give equal treatment playing field cannot be achieved in practice. The
to products domestically produced in China (including European Chamber believes there are no compelling
the services provided) by local and foreign enterprises.” reasons to regulate companies differently due
This regulation marks the first official call in writing for to their ownership structure or by the nationality
equal treatment of domestic and foreign companies’ of their investors. To do so creates unnecessary
products in government procurement. In addition, the complexities in practice, as there are always cases
Regulations on Optimising the Business Environment where differentiating foreign investment from domestic
explicitly oblige governmental agencies at all levels to investment is very difficult (such as ‘variable interest
treat all market entities in a non-discriminatory way, entity structure’ cases). By contrast, the European
regardless whether domestic or foreign.18 The working Union (EU) and EU Member States market economies
group expects further similar efforts from relevant do not have a special law specifically treating foreign
stakeholders to facilitate successful implementation of capital differently. Considering China is the world's
the FIL, as well as its supporting regulations. second largest economy, and is increasingly sharing
and leading international responsibilities in more and
However, restrictions in other foreign investment more areas, real consideration should be given to
regulations, rules and policies remain. According to the fundamentally changing the existing foreign investment
European Chamber Business Confidence Survey 2022 management regime in favour of a more confident and
(BCS), more than 40 per cent of respondents missed open attitude. In particular, this should entail ceasing to
out on business opportunities due to market access differentiate between Chinese and foreign investment.
restrictions, a figure that has stayed much the same
for the past seven years.19 Regulations imposing these Furthermore, The working group is particularly concerned
over the national security review (NSR) mechanism
17 Notice on Equal Treatment of Domestic and Foreign-invested Companies in
within the FIL framework, as it could be influenced
Government Procurement Activities, MOF, 13th Oct 2021, viewed on May 18th
2021, <http://www.gov.cn/zhengce/zhengceku/2021-10/26/content_5644953. by global political tensions. In addition, on 20 th
htm> December 2020, the National Development and Reform
18 Regulations on Optimising the Business Environment, State Council,
Commission (NDRC) and the Ministry of Commerce
1 st October 2020, viewed on May 18 th , <http://www.gov.cn/zhengce/
content/2019-10/23/content_5443963.htm> (MOFCOM) jointly issued the Foreign Investment
19 European Business in China Business Confidence Survey 2022, European Security Review Measures (Review Measures). 20
Union Chamber of Commerce in China, 20th June 2022, viewed 20th June
2022, <https://www.europeanchamber.com.cn/en/publications-business-
confidence-survey> 20 Foreign Investment Security Review Measures, MOFCOM & NDRC, 20th

Legal and Competition Working Group 109

 Although the Review Measures provide more detail with global practices in order to minimise disruption to
on the NSR mechanism, the list of sensitive areas that business operations.
could potentially trigger a NSR remains quite vague and
general. While the NDRC has made efforts to assist Assessment
businesses—for example, setting up a contact point for With the enactment of the Export Control Law on 1st
NSR-related consultancy—it is necessary for additional December 2020, China's export control legal system
relevant stakeholders to provide more clarity on this came under global focus, due to increasingly complex
topic. According to the Business Confidence Survey political and economic frictions domestically and
2022, ambiguity in rules and regulations has been abroad, and reconstruction of the global industrial
citied by European Chamber member companies for chain following the bilateral tariffs imposed between
Section Two: Horizontal Issues

six consecutive years as the most significant regulatory the United States and China. However, detailed judicial
obstacle to doing business in China, highlighting implementation rules and plans on the law, including
once again the need for regulatory reform, as well as corresponding supplemental guidance rules, remain
improved communication between government and unclear. The Legal and Compliance Working Group
industry.21 expects the following improvements:

Recommendations 1) Supervision structure and mechanism

• Formulate in a timely manner necessary implementation According to the Export Control Law, China intends
rules to clarify the uncertainties and ambiguities of the to adopt a unified export control system, which will
FIL, particularly the gaps created by abolishing old be subject to administration through a control list and
laws. export licensing. However, the mere promulgation of
• Clarify national security-related concerns at the working the Export Control Law is far from sufficient for the
level. contemplated unification.
• Adjust and consolidate all pertinent laws and
regulations to maintain alignment of the whole legal Previously, the Foreign Trade Law and relevant
framework in the field of foreign investment, including regulations and rules from various governmental
greenfield investment and M&A activities.
authorities formulated export limitations. Therefore,
• Ensure transparency in the rule-making process by
China’s current export control management is co-
publishing a clear enactment and public consultation
regulated among multiple enforcement organs
timeframe, including information on the stakeholders in
with different management concepts. For example,
charge, and allow sufficient time for public comments to
controlled export goods, technologies and dual-use
reflect business concerns.
items are managed by the Department of Foreign Trade,
• Consider fundamentally changing the existing
the Department of Trade in Services and Commercial
foreign investment management regime to eliminate
Services, and the Bureau of Industry, Security, Import
differentiation between Chinese and foreign investment,
and ensure a level playing field and non-discriminatory and Export Control under the MOFCOM respectively,
market access regime. each of which has a separate regulatory system.

2) Scope of controlled items

3. Develop an Export Control Regulatory
The applicable scope of the Export Control Law is
Framework that is Clear, Proportionate
set out in Article 2, which covers relevant goods,
and Aligned with Global Practices
technologies and services, as well as technical
information related to controlled items. Although the
Concern
Export Control Law lists the forms of controlled items,
China’s Export Control Law needs implementation
it does not provide further clarity on sources, content
regulations that are clear, proportionate and aligned
and exceptions that may apply and other specific
applications. Given the diversity of current international
December 2020, viewed 6th April 2022, <http://www.mofcom.gov.cn/article/i/
jyjl/j/202012/20201203024706.shtml> trade supply chains and cross-border research and
21 European Business in China Business Confidence Survey 2022, European development (R&D) activities, these definitions may not
Union Chamber of Commerce in China, 20th June 2022, viewed 20th June
meet the requirements for identification of controlled
2022, <https://www.europeanchamber.com.cn/en/publications-business-
confidence-survey>

110 Legal and Competition Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

items in the daily operations of enterprises. user-friendly licensing system, including leveraging
procedures (such as special bulk and general licensing
The working group is concerned about industrial policy mechanisms with multi-year expirations), licence
elements being incorporated into a national security- exceptions (such as intra-company licence exceptions)
orientated Export Control Law, and recommends and other implementation and management methods.
that the proposed export control system focus only A flexible licensing system could minimise uncertainty
on items that have direct and strategic significance over control status, thereby reducing unnecessary
to national security. Globally, a very small fraction of regulatory burdens for both exporters and the Chinese
goods and technology are subject to export controls. authorities. For example, general licences or licence
The proposed Chinese system should not attempt to exceptions could authorise exporters to export dual-use

Section Two: Horizontal Issues

restrict commercial mass market items that, by volume items and technology to a specific destination based
or distribution, are not susceptible to control, and on clearly defined parameters. The working group also
instead provide for licensing exceptions, including intra- recommends that licence requirements be based on
company transfers. classification level rather than product level, given the
export volume and scale of companies.
3) Controlled activities
The Export Control Law explicitly includes ‘deemed Recommendations
export’ and ‘re-export’ as controlled activities for the • Clarify the supervision and enforcement governmental
first time, greatly expanding the scope of controlled organs, and the rights and powers thereof, so as to
activities. However, uncertainty remains over how to facilitate direct dialogue and discussion between export
interpret these new concepts. control authorities and industry.
• Exempt commercial mass market products from export
According to Article 2 of the Export Control Law, controls, focussing the export control system instead
‘deemed export’ refers to the provision of controlled on items that have a direct and strategic bearing on
items by citizens, legal persons and other non- China’s national security.
incorporated organisations of China to foreign • Ensure a practical and user-friendly licensing system
featuring bulk and general licensing and licensing
organisations and individuals. Such control measures
exceptions for intra-company transfers.
may trigger concerns for multinational companies
• Update the current dual-use control list with designations
(MNCs) that conduct R&D activities in China, as an
based on the nature of controlled items.
export is ‘deemed’ to be taking place when data is
• Narrowly define the scope of ‘deemed exports’
released to a foreign national, despite their physical
subject to licensing, and introduce reasonable export
presence in China. The working group recommends
thresholds and exemption arrangements.
narrowly defining the export licenses’ application
• Clarify the definition and management mechanism of
scope with reasonable Chinese export thresholds, and
‘re-export’.
establishing certain exemption arrangements to allow
MNCs to apply for an automatic general licence or
4. Eliminate Restrictions on the Legal
facilitative licence.
Services that Foreign Law Firms can
While Article 45 of the Export Control Law contains a Provide
provision on ‘re-export’, it is widely acknowledged that,
Concern
one simple provision is far from adequate for such
The working group continues to be concerned about the
a complex activity. Detailed and delicate regulation
restrictions placed on foreign lawyers and foreign law
arrangements are needed to guide companies on how
firms operating in China, including those that apply in
to comply with this control.
any area of practice and those that apply in instances
of cooperation with and/or hiring of Chinese firms and
4) Export licence mechanism
lawyers.
Though a licensing system for the export of controlled
items is confirmed in the Export Control Law, the
detailed rules need further refinement and clarity.
The authorities should implement a practical and

Legal and Competition Working Group 111

 Assessment quality of the information exchanged with the Chinese
The Legal and Competition Working Group welcomes authorities, limits the sharing of experience by foreign
the registration and control of foreign law firms and law firms with European investors, and sometimes
lawyers by the appointed authorities. However, the results in misunderstandings between the Chinese
failure to eliminate restrictions on the provision of legal authorities and European investors. As a result, it is
services, at least in certain areas of the law—including often difficult for foreign investors to understand the
foreign investment, contractual and commercial Chinese Government’s proceedings.
matters, employment matters, M&A, competition law,
banking and finance law, and capital markets law (i.e., 3) Developing relationships and dialogues with
‘non-contentious areas’)—is an increasingly significant supervising authorities
Section Two: Horizontal Issues

issue when it comes to fostering economic progress In almost all jurisdictions, lawyers and firms are
and working relationships between EU Member States registered as ‘special professionals’, with stricter
and China. Further opening up the legal services conduct codes and special requirements for practice.
sector—especially cooperation between foreign and As registered lawyers and representatives of firms
Chinese law firms and the practice of non-contentious registered in the EU, working group members value
areas—in cross-border investments, would afford very much the guidance of, and dialogues with, EU
Chinese clients and companies better access to the supervision authorities at the central level. The working
guidance of international laws and practices. It would group would like to have such exchanges with the
also support international clients in their investments MOJ and other competent departments at the central
into China, through provision of integrated Chinese and level in China. Such open channels enable valuable
international legal advice. exchanges among professionals that are practicing law
in different areas, including private practitioners, in-
1) Employment of Chinese-licensed lawyers by house counsels, public administration and legislative
European law firms and foreign partners of Chinese bodies, either foreign or Chinese.
firms
Currently, when European law firms operating in 4) Access to joint venture (JV) firms
Mainland China hire licensed People’s Republic of Commitments between Mainland China and the Hong
China (PRC) lawyers, those individuals' qualifications Kong and Macao special administrative regions,22&23
and licences to practice PRC law in non-contentious and for pilot plans of JVs between domestic and foreign
areas are suspended. At the same time, foreign lawyers law firms,24 indicate that China is looking at opening
are not allowed to become partners of Chinese firms. at least part of its legal market. While a few pilot JV
Removal of these restrictions will provide clients—both firms have been established since 2015, existing rules
Chinese and foreign—with faster, more cost-effective have not yet been deployed nationally, and only allow a
and efficient access to legal advice, both locally and in ‘one office, two teams’ model, not a ‘fully integrated JV
the international arena. This will also broaden the career model’, which combines the strengths of the Chinese
prospects of both PRC and EU lawyers, allowing them and foreign firms’ partners. Also, under the Shanghai
to grow and gain expertise in local and international pilot, the thresholds for forming a JV firm is much higher
environments, which will benefit cross-border investors than for domestic law firms, which prevents small and
from both China and the EU.
22 Agreement on Trade in Services to the Mainland and Hong Kong Closer
Economic Partnership Arrangement, MOFCOM, 27th November 2015, viewed
2) Participation of lawyers from foreign law firms in 28 th April 2022, <https://www.devb.gov.hk/filemanager/en/content_164/
Chinese Government meetings Agreement_on_Trade_in_Services_EN_19Oct2017.pdf>
23 Agreement on Trade in Services to the Mainland and Macao Closer
Appearance, participation and representation by
Economic Partnership Arrangement, MOFCOM, 2nd July 2007, viewed 28th
lawyers from foreign law firms (including PRC-licensed June 2021, <https://www.dsedt.gov.mo/public/docs/CEPA_ACBLCS/index/
lawyers) before Chinese government authorities and en/main_text.pdf>
24 Official Reply of the Ministry of Justice on Approving the Work Plan
other public, non-judicial, authorities on behalf of
for the Pilot Program of Exploring the Manner of and Mechanisms for
their clients are only permitted occasionally and on Closer Business Cooperation between Chinese and Foreign Law Firms
a case-by-case basis. The lack of a transparent and in China (Shanghai) Pilot Free Trade Zone, MOJ, 27 th January 2014,
viewed 28th April 2022, <http://www.china-shftz.gov.cn/PublicInformation.
consistently enforced right of access and representation
aspx?GID=e86e7a98-b9c0-4901-b874-d3eeee11b6d2&CID=953a259a-
for lawyers working in foreign law firms reduces the 1544-4d72-be6a-264677089690&MenuType=>

112 Legal and Competition Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

medium-sized China operations of foreign law firms This is the first amendment to the law since it was
from benefiting from this scheme. issued in 2008. The Legal and Competition Working
Group welcomes the adoption of the amendment,
5) Registration procedures and requirements as it highlights the government’s commitment to
Registration of a new foreign lawyer in the PRC can promote market-orientated reforms and safeguard fair
take several months, as the procedure is still two- competition in line with China’s reform agenda, as laid
fold; i.e., local and central. Requirements for a chief down in the third and fourth plenums of the 18th CPC
representative to have at least three years of foreign bar Congress. However, the amendment does not revise
registration and six months' domicile in the PRC, plus the whole AML, therefore, uncertainty remains among
the requirement of at least two foreign representatives businesses regarding enforcement in certain areas.

Section Two: Horizontal Issues

for each firm, are more stringent than immigration This uncertainty stems from the lack of clarity with
requirements for foreign representatives working in regard, but not limited, to:
other sectors, and are very burdensome in comparison
to international practices. 1) The standards, fairness and proportionality of
proceedings. For example, the amendment introduces
Recommendations a new prohibition on organising or facilitating entry
• Allow foreign law firms to fully practice PRC law in into anti-competitive agreements. The precise
non-contentious areas through the employment of scope of organisation or facilitation is also unclear,
individuals who are qualified and licensed to practise leaving room for discretionary and inconsistent
PRC law. application of the law. The amendment also
• Allow lawyers in foreign law firms to fully represent their suggests that anti-competitive conduct could be
clients before Chinese government authorities as long subject to criminal liability without specificity. In the
as they have proper powers of attorney. area of merger control, given the proposed increase
• Increase cooperation under the Pilot Work Plan, of fines to up to 10 per cent of a business’ turnover
particularly in allowing easier access to this plan and for violations. clear and transparent standards are
permitting the establishment of more closely integrated
more important than ever before. Fairness and
Sino-foreign JV firms to practice both Chinese law and
proportionality are also critical considerations if
foreign law in their own name.
restrictive conditions are imposed in order to allay
• Ensure consistent and transparent implementation and
businesses’ concerns that restrictive conditions
enforcement of laws and regulations concerning foreign
can be driven by non-competition considerations,
investments.
especially where the transaction involves sensitive
• Streamline the registration procedures and requirements
or strategically important markets in China.
for foreign lawyers.

2) The introduction of a ‘suspension’ mechanism in

5. Adopt Regulations that Encourage Fair
the calculation review period for the concentration
Enforcement of the Anti-monopoly of undertakings is expected to address the high
Law (AML) percentage of refiled transactions and to avoid the
review period being prolonged arbitrarily in practice.
Concern However, businesses remain concerned that this
Although some enforcement issues have been clarified may not fully address the underlying concerns
in the amendment of the AML, there are ambiguities about the relative unpredictability of merger reviews,
that require further clarification. especially under the standard case procedure.
At the same time, a significant proportion of
Assessment transactions are currently reviewed under the ‘simple
On 24th June 2022, the Standing Committee of the 13th case’ procedure, which enables the SAMR to review
National People's Congress voted to adopt the decision and approve transactions quickly, and has resulted
on amending the AML, effective from 1st August 2022.25 in a higher level of transparency. The Legal and
Competition Working Group encourages the SAMR
25 Decision of the Standing Committee of the National People's Congress on
Amending the AML of the People’s Republic of China, NPC, 24th June 2022,
viewed 27th June 2022 <http://www.npc.gov.cn/npc/c30834/202206/e42c256f af7049449cdfaabf374a3595.shtml>

Legal and Competition Working Group 113

 to expand the benefits of this system (for example, as websites, for all information relevant to AML
by introducing higher market share thresholds enforcement, including new measures and decisions
consistent with those in the EU). both from the SAMR and local AMRs.
• Clarify further and refine the conditions of AML
3) The relationship between administrative enforcement enforcement and judicial practice.
by the SAMR and enforcement through the courts
is not addressed. In particular, it still leaves the 6. Develop a Regulatory Framework that
divergence between administrative enforcement Enables All Aspects of Sustainability
and judicial rulings on the treatment of resale price to Permeate Corporate Governance
maintenance unresolved, which creates uncertainty and Supply Chains, and Strengthen
Section Two: Horizontal Issues

for businesses on the appropriate legal test to apply. Cooperation with the EU on Green
Transition
4) While the Legal and Competition Working Group
commends the SAMR for including the fair competition Concern
review mechanism as a core pillar of AML Mismatches among rules and regulations between the
enforcement, it remains concerned that, in practice, EU and China will cause further disruption to global
certain Chinese policies create the potential for supply chains and additional difficulties in cross-border
discrimination between domestic and foreign investments.
companies (for example, granting subsidies, or
bank guarantees or loans, on preferential terms to Assessment
support overseas acquisitions or public procurement The working group welcomes the developments in new
projects). EU legislation on sustainability, also in the corporate
governance sphere. Such sophisticated regulations,
5) The working group calls for the creation of a however, also bring complex challenges in terms of
centralised publication channel for all decisions, due diligence on supply chains and responsibilities of
laws and regulations related to the AML. As local corporate board members.
AMRs become more active in enforcing the AML,
a centralised repository and timely publication of Several pieces of legislation have been proposed or
local measures or decisions are critical to ensure adopted by the EU to support its sustainability efforts.
transparency and full compliance by businesses. Some of those rules—such as the proposed Directive
In this regard, the working group welcomes the on sustainable corporate governance—will pose
adoption of sector-specific guidelines since late challenges to both European and Chinese companies.
2020 (notably related to the automobile sector, The planned enhanced duties of businesses will cover
active pharmaceutical ingredients and digital more than just listed companies, and will likely cascade
platforms), as well as compliance guidelines at in the supply chain to foreign suppliers, as well as
central and local levels. Chinese companies operating in the EU with revenues
over a certain level. Furthermore, the mismatch
Recommendations between the new EU regime and the Chinese business
• Ensure that the AML is implemented and enforced and legal environment will put both FIEs in China and
equally among all companies, domestic and foreign, Chinese suppliers in a complex position in terms of
including in the areas of merger control enforcement
compliance obligations and with regard to competition.
and conduct issues.
• Ensure that all notified transactions are reviewed
Therefore, China should prepare a legislative framework
on a fair and timely basis, particularly transactions
that can comply with such corporate sustainability
involving markets regarded as sensitive or of strategic
regulations. While current Chinese legislation covers
importance to China.
non-financial reporting by listed companies and
• Ensure that application and enforcement of the AML
disclosure of environmental matters and efforts, China
is consistent with the policy objectives of the fair
could also benefit from more sophisticated sustainability
competition review mechanism.
• Adopt centralised publication channels, such legislation covering all environmental, social and
governance (ESG) matters. This would also assist

114 Legal and Competition Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

China in realising its goals to peak carbon emissions Abbreviations

by 2030 and reach carbon neutrality by 2060, as well
AML Anti-monopoly Law
as allowing a level playing field for all business entities,
CPC Communist Party of China
including state-owned enterprises, private companies
CSL Cybersecurity Law
and foreign companies.
DSL Data Security Law
ECL Export Control Law
Building a complete sustainability legislative regime
ESG Environmental, Social and Governance
and compliance thereof will be a long and bumpy road,
EU European Union
and therefore an early start is suggested, to give all
FIE Foreign-invested Enterprise
stakeholders time to understand and comply.

Section Two: Horizontal Issues

FIL Foreign Investment Law
IP Intellectual Property
Recommendations
JV Joint Venture
• Plan ahead and develop an advanced regulatory
framework which enables all aspects of sustainability, M&A Mergers and Acquisitions
including not only environmental but also social MNC Multinational Corporation
and governance aspects, to permeate corporate MOFCOM Ministry of Commerce
governance and supply chains in China. MOF Ministry of Finance
• Review and reinforce China’s signature and ratification MOJ Ministry of Justice
of existing international treaties relevant to sustainability NDRC National Development and Reform
and ESG matters. Commission
• Support awareness and enhance training of key players NPC National People’s Congress
in the different industrial sectors, including state-owned NPCSC Standing Committee of the National
and private companies, for a deeper understanding of People’s Congress
ESG matters and in preparation for new sustainability PIPL Personal Information Protection Law
challenges in global supply chains. SAMR State Administration for Market
• Strengthen cooperation with the EU and EU Member Regulation
States to create a sophisticated set of shared rules and SPC Supreme People’s Court
standards, such as the taxonomy projects, that could
act as a benchmark for other countries.

Legal and Competition Working Group 115

 Research and Development Working Group

Key Recommendations
1. Encourage Foreign-invested Enterprises (FIEs) to Contribute to Research
and Development (R&D) in China by Optimising the Financial Incentives
Framework and Improving International R&D Cooperation
Section Two: Horizontal Issues

• Establish a common, reciprocal, transparent and efficient mechanism to facilitate European Union
(EU)-China R&D cooperation with the participation of European companies based in China.
• Publish notices about R&D fund and grant applications in a timely manner, allowing an appropriate
response period.
• Remove restrictions that hinder multinational corporations from applying for High and New Technology
Enterprise status.
• Develop comprehensive regulations based on local governments’ best practices that encourage the
development of foreign-funded R&D centres.

2. Facilitate the Mobility of International Talent To and From China

• Provide a single window to consult on topics related to foreign talent and actively communicate policy
changes via various channels, including industrial associations and organisations, in a timely manner.
• Increase foreign enterprises’ autonomy in issuing invitations to international talent and establish a
preferential visa policy targeting R&D personnel for important projects.
• Clarify existing policy requirements for recruiting foreign nationals as interns.
• Encourage special visa facilitation for young researchers in general.

3. Facilitate Multinational Enterprises’ Digital Innovation in China

• Publish a list of open databases that foreign enterprises can access, and clarify whether FIEs can
establish and manage their own public database independently.
• Promote the harmonisation of Chinese and international information and communication technology
standards to incentivise international companies to increase R&D investments in China.
• Integrate investment in information technology infrastructure in state-level economic and technological
development zones into the development plans for local digital economies.

4. Invest More in R&D of Green and Sustainable Technology to Accelerate Along

the Path Towards Carbon Neutrality and Realise China’s Overall Environmental
Goals
• Provide enterprises with additional incentives that focus on the long-term development of new
breakthroughs in green technologies.
• Facilitate the creation of pilot and demonstration areas and projects for low-carbon and sustainable
technologies and their scale-up and commercialisation.
• Enhance EU-China collaboration in R&D of low-carbon and circular technologies.
• Provide more transparency for China’s carbon technology roadmap and R&D programmes, like
the Action Plan for Carbon Dioxide Peaking Before 2030 and the EU-China joint research funding
agreement.

116 Research and Development Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

5. Strengthen Protection of R&D—Including Intellectual Property (IP)-related

Aspects—to Develop a World-class Innovation Environment
• Consult with universities, foreign research institutions, and Chinese and international companies’ R&D
departments when drafting new policies related to innovation and intellectual property rights (IPR)
protection.
• Increase technical expertise and avoid local protectionism in local courts, and establish a more
centralised jurisdiction for IPR-related cases related to innovation and R&D.
• Enhance the enforcement of IPR legislation to avoid compelled technology transfers or technology
transfer difficulties.

Section Two: Horizontal Issues

• Allow the existence of co-ownership of IP between the parent company and local affiliates (or
ownership of the parent company) in R&D projects funded by the Chinese Government.

Introduction to the Working Group China 12 th out of 132 countries. 2 In 2021, China's
whole-of-society R&D spending grew by 14.2 per cent
The European Chamber’s Research and Development
year-on-year to 2.79 trillion yuan over 2020, with R&D
( R& D) Wor k i n g Gro u p p ro v i d e s a p l a tform for
intensity hitting 2.44 percent whole-of-society research
exchanging information, experiences and best practices
and development (R&D) investment reached Chinese
among member companies. It also promotes the
yuan (CNY) 2.79 trillion.3
dialogue about, and transparency of, Chinese R&D
policies. The working group developed from the former
On 1 st June 2021, the Patent Law of the People's
Research and Development Forum, as members felt
Republic of China (2021 Revision) came into force.4
the need to engage directly with Chinese authorities
This revision strengthens the protection of the rights and
at both central and local levels to advocate on issues
interests of patent holders. It also regulates the patent
related to conducting R&D in China. The working
application process and improves the implementation
group is comprised of professionals directly involved
of the patent authorisation system. This revision also
in R&D, with representatives from more than 50
strengthens protection of the rights and interests
European multinational corporations (MNCs) that
of scientific researchers and reduces the need for
have R&D operations in China. Various industries are
repeated R&D, thereby helping to promote innovation.
represented in the working group, including automotive,
petrochemicals, chemicals and refining, information and
On 10 th June 2021, the Standing Committee of the
communications technology (ICT), aerospace, energy
National People's Congress passed the Data Security
and pharmaceuticals, among others. Many of the
Law,5 which came into effect on 1st September 2021. It
working group’s activities are aimed at helping China
functions as the highest-level administration of China’s
to strengthen its global science and technology (S&T)
data security regime. To further implement this law, on
cooperation with the international R&D community, in
4 th November 2021, the Cyberspace Administration
order for China to reach its goal of becoming a world
of China issued the Regulations on Network Data
S&T power by 2049,1 leaping from ‘Made in China’ to
‘Created in China’.

Recent Developments 2　Global Innovation Index 2021, WIPO, 2021, viewed 10th June 2022, <https://www.
wipo.int/global_innovation_index/en/2021/>
3　China’s basic research spending rises to 6.09% of entire R&D expenditure in 2021,
The 2021 Global Innovation Index, published by the
a step closer to 2025 goal of 8% globally, Global Times, 25th February 2022, viewed
World Intellectual Property Organization (WIPO), ranks 16th April 2022, <https://www.globaltimes.cn/page/202202/1253194.shtml>
4　Patent Law of the People's Republic of China (2021 Revision), National People's
Congress (NPC), 19th November 2020, viewed 16th April 2022, <http://www.npc.gov.
cn/npc/c30834/202011/82354d98e70947c09dbc5e4eeb78bdf3.shtml>
1　Building a World Power in Science and Technology, Xinhua, 30th May 2018, 5　Data Security Law of the People's Republic of China, State Council, 10th June 2021,
viewed 10th March 2022, <http://www.xinhuanet.com/politics/xxjxs/2018-05/30/ viewed 16th April 2022, <http://www.gov.cn/xinwen/2021-06/11/content_5616919.
c_1122908666.htm> htm>

Research and Development Working Group 117

 Security Management (Draft for Comments).6 On 10th in-depth interviews. It revealed that 73 per cent of
February 2022, the Ministry of Industry and Information survey respondents increased their China-based R&D
Technology (MIIT) issued the Measures for the spending from 2020 to 2021, and that 77 per cent of
Administration of Data Security in the Informatisation respondents intend to increase R&D spending further in
Field (Draft for Comments). 7 These regulations put 2022.
forward new requirements for cross-border data transfer
and require enterprises to conduct regular security The report explains how China’s innovation ecosystem
audits and backups. The working group is concerned is attractive to larger companies in industries in which
about implementation as many important terms, such investment is encouraged by China due to the number
as ‘core data’, ‘important data’ and ‘general data’, are and variety of collaboration partners, which range
Section Two: Horizontal Issues

not clearly defined within these measures. Furthermore, from established national champions to companies
their implementation will affect cross-border R&D data that are part of China’s vibrant start-up ecosystem as
flows, which may significantly increase compliance well as inventive scientists and researchers. Survey
costs. respondents also widely praised the size of the
market and the fast pace of commercial application of
On 26th October 2021, the State Council released the R&D results.10 However, negative aspects were also
Action Plan for Carbon Dioxide Peaking Before 2030.8 reported, including weak IPR protection systems; an
It serves as a guiding document for China to establish unlevel playing field for foreign companies; negative
a low-carbon regulatory framework and develop a clean sentiment in companies’ home markets towards R&D
and efficient domestic industrial structure until 2030. in China; and insufficient local talent, which specifically
The plan clarifies the Chinese Government's intention referred to challenges in finding suitable hardware
to peak carbon emissions by 2030, and at the same engineers, as reported by many of the interviewees.
time clearly encourages companies to undertake major The report also revealed the benefits that European
national green and low-carbon science and technology companies can derive from their participation very much
projects. depends on the sector they are in. Companies that are
in industries or sectors in which investment in China is
On 24th December 2021, the Standing Committee of not encouraged—like ICT and all things digital—find
the National People's Congress (NPCSC) issued the themselves increasingly squeezed out of the market,
Science and Technology Progress Law.9 It reiterates and are struggling with local R&D as a result.
the goals of enhancing independent innovation capacity
and building an innovative country. Furthermore, it Key Recommendations
mentions that China will increase investment in S&T
and make special efforts to increase the technological 1. Encourage Foreign-invested Enterprises
progress of enterprises. The working group welcomes (FIEs) to Contribute to R&D in China
the announcement of the law and looks forward to its by Optimising the Financial Incentives
further implementation to the benefit of both Chinese Framework and Improving International
and international companies with R&D operations. R&D Cooperation

In June 2022, the European Chamber published Concern

the report China’s Innovation Ecosystem: Right for Compared with local Chinese enterprises, FIEs still
many, but not for all, based on a member survey and face greater difficulties both acquiring high and new
technology enterprise (HNTE) status, and obtaining
6　Regulations on Network Data Security Management (Draft for Comment), access to public funding and grants for R&D.
Cyberspace Administration of China, 4th November 2021, viewed 16th April 2022,
<http://www.cac.gov.cn/2021-11/14/c_1638501991577898.htm?ivk_sa=1024320u >
7　Measures for the Administration of Data Security in the Informatization Field (Draft Assessment
for Comment), MIIT, 13th February 2022, viewed 16th April 2022, <http://www.gov.cn/
xinwen/2022-02/13/content_5673340.htm>
China has a solid set of incentives in place to stimulate
8　Action Plan for Carbon Dioxide Peaking Before 2030, State Council, 26th October
2021, viewed 16th April 2022, <http://www.gov.cn/zhengce/content/2021-10/26/
content_5644984.htm> 10 China’s Innovation Ecosystem: Right for many, but not for all, European Union
9　Science and Technology Progress Law of the People's Republic of China, MOST, Chamber of Commerce in China, 8th June 2022, viewed 29th June 2022, <https://
24th December 2021, viewed 16th April 2022, <http://www.most.gov.cn/xxgk/ www.europeanchamber.com.cn/en/publicationsarchive/1019/China_s_Innovation_
xinxifenlei/fdzdgknr/fgzc/flfg/202201/t20220118_179043.html > Ecosystem_Right_for_Many_But_Not_for_All>

118 Research and Development Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

innovation, including ‘strategic support’ (long-term procedures for relevant programmes, and struggle to
structural incentives like HNTE status and a super- access relevant information. R&D cooperation between
deduction scheme for reducing costs) and ‘tactical EU and China has great potential. On the one hand,
support’ (focussed grants for projects with a definite in the fields of agriculture, food and biotechnology,
scope and target). The criteria for HNTE status climate change and biodiversity, China and the EU
recognition were revised in 2016 by the Ministry of share the same goals. Strengthening scientific research
Science and Technology (MOST), the Ministry of cooperation between the two sides would help to
Finance (MOF) and the State Administration of Taxation integrate existing scientific research resources and
(SAT).11 Although certain requirements were somewhat stimulate researchers on both sides. On the other
relaxed, such as the minimum R&D expense ratio hand, China and the EU are also important trading

Section Two: Horizontal Issues

and the level of academic qualifications of technical partners to each other. Strengthening relevant scientific
personnel, those relating to IP ownership were research cooperation would help to facilitate quicker
tightened, with the applicant needing to own the core IP commercialisation of scientific research results. In
of their product or service. order to further promote international R&D cooperation,
China and the EU should hold open discussions on
Although FIEs run some of China’s largest R&D establishing a common, reciprocal, transparent and
operations, in many cases their core technologies were efficient mechanism.
originally developed outside of China, thus they lack IP
ownership within China. Even if FIEs are willing to re- Regarding Chinese domestic R&D grant applications,
register for patents in China, patent priority will only be there are indications that MNCs are disadvantaged
granted if applicants submit the relevant applications due to the preference of some local authorities for
within 12 months of the date when the patent was ‘domestic champions’. For example, considering the
first filed, and only if the country which it was first filed amount and complexity of the required materials,
has an agreement signed or an international treaty application and announcement periods are often
with China. Applicants must also submit examination extremely short. This leaves very little time for FIEs to
information from the country of origin within a prescribed translate documentation and send to their European
time limit, or the application will deemed as having been headquarters for input.
withdrawn.12 This will not only increase FIEs’ operating
costs, but also raises the risk of infringement. Given The Chinese Government’s commitment to allow
these challenges, the working group recommends international businesses to participate in national S&T
that the authorities agree to accept globally-registered projects and to offer national treatment outside the
patents as part of the HNTE application process. negative list, as stated in the Notice of the State Council
on Several Measures for Promoting Growth of Foreign
Frameworks allowing international R&D cooperation Investment—is positive.14 The working group is pleased
between China and other countries exist in abundance, to note that provincial policies encouraging foreign-
for example, the EU-China S&T Co-funding Agreement,13 funded R&D centres were passed in the past few years.
through which, academic and industry members from Shanghai published a set of comprehensive regulations
Europe and China have jointly developed innovative in November 2020 on foreign-funded R&D centres,
technologies of common interest. However, there which cover numerous topics, from tax and funding
has been a lack of coordination between the Chinese support, customs clearance and cross-border finance
Government and the EU in terms of funding, project facilitation to talent acquisition and development. 15
timelines and approval processes. FIEs often face These policies and programmes provide FIEs with many
opaque or unclear application information and R&D-related convenience under certain circumstances.
It is very encouraging to see such support mechanisms
11 Regulation on the Determination and Administration of High and New-Technology
Enterprise (2016 Revision), MOST, MOF and SAT, 2016, viewed 16th April 2022,
<http://www.most.gov.cn/kjzc/gjkjzc/qyjsjb/201706/t20170629_133827.html> 14 Notice of the State Council on Several Measures for Promoting Growth of Foreign
12 Patent Law of the People's Republic of China (2021 Revision), NPC, 19th November Investment, Ministry of Commerce, 16th August 2017, viewed 16th April 2022, <http://
2020, viewed 16th April 2022, <http://www.npc.gov.cn/npc/c30834/202011/82354d98 www.mofcom.gov.cn/article/ae/ai/201708/20170802627851.shtml>
e70947c09dbc5e4eeb78bdf3.shtml> 15 Regulations of Shanghai Municipality on Encouraging the Establishment and
13 China and EU sign new round of joint research funding agreement, MOST, 26th April, Development of Foreign-funded Research and Development Centres, Shanghai
viewed 28rd April 2022, <http://www.most.gov.cn/kjbgz/202204/t20220426_180342. Municipal Commission of Commerce, 1st December 2020, viewed 6th April 2022,
html> <https://en.sww.sh.gov.cn/2020-12/01/c_424414.htm>.

Research and Development Working Group 119

 from local governments for FIEs, and it is hoped similar have been released, coupled with the fact that multiple
initiatives will be expanded throughout China in the government agencies—including the Human Resources
long-term. and Social Security Bureau, the S&T Commission
Talent Service Office and the Foreign Expert Office—
Recommendations release information through their own channels, it is
• Establish a common, reciprocal, transparent and challenging for FIEs to follow and clearly understand
efficient mechanism to facilitate EU-China R&D them.
cooperation with the participation of European
companies based in China. Existing policies also need to be clarified. For example,
• Publish notices about R&D fund and grant applications currently, only "well-known domestic enterprises"
Section Two: Horizontal Issues

in a timely manner, allowing an appropriate response are allowed to hire foreign interns, but the definition
period. of a "well-known domestic enterprise" is not clear.
• Remove restrictions that hinder MNCs from applying Furthermore, rules such as "only Fortune 500
for HNTE status. companies can hire qualified foreign interns"16 should
• Develop comprehensive regulations based on local be rescinded. All companies should be at liberty to
governments’ best practices that encourage the hire whichever interns they identify as potential future
development of foreign-funded R&D centres. talent, in the interests of creating a more favourable and
stimulating R&D and innovation environment in China.
2. Facilitate the Mobility of International
Talent to and from China Chinese visa policies are currently strongly biased in
favour of fresh graduates and interns from top global
Concern universities and senior foreign talent that has achieved
International enterprises engaged in R&D struggle to specific accolades during their careers. However, the
recruit and retain international talent, especially young number of people that this applies to is limited. A great
researchers. deal of young talent has adequate education and are
capable, qualified and, importantly, willing to come to
Assessment China to contribute and gain experience. According
Some previous concerns related to the acquisition and to a 2019 EURAXESS survey, over 95 per cent of
retention of talent have been addressed through policy European researchers working in China (some currently
adjustments, such as permitting visas for foreign interns in higher positions) moved here early in their career
and permanent residence for senior talent or long-term and stayed for approximately seven to 10 years.17 This
employees. A series of changes to policies governing suggests that early exposure to the Chinese market
Chinese work permits and permanent residency status and innovation ecosystem encourages long-term
for foreign nationals were also introduced in 2017 and commitment. Therefore, the working group encourages
2018, and policies related to talent acquisition that had adapting a more friendly visa policy to welcome all
been piloted in free trade zones (FTZs) were rolled out young talent.
nationwide in 2019.
Recommendations
However, since 2020, the mobility of talent has • Provide a single window to consult on topics related
been severely impacted by pandemic-related travel to foreign talent and actively communicate policy
restrictions. Although the Ministry of Foreign Affairs changes via various channels, including industrial
announced in June 2022 that PU letters are no longer associations and organisations, in a timely manner.
required for foreign nationals applying for Z visas and • Increase foreign enterprises’ autonomy in issuing
business visas, and that accompanying foreign family invitations to international talent and establish a
members may apply for a dependent visa, multiple
other long-standing obstacles remain. 16 The National Immigration Administration Promotes the Replication of 12 Policies on
Immigration and Immigration Facilitation in the FTZs Nationwide, Ministry of Public
Security, 17th July 2019, viewed 23rd April 2022, <https://www.mps.gov.cn/n6557558/
Efforts have been made to facilitate the development c6613913/content.html>
17 Results of a survey on the internationalisation of Chinese universities, EURAXESS,
of R&D through measures related to hiring foreign
16th April 2021, viewed 23rd April 2022, <https://euraxess.ec.europa.eu/worldwide/
nationals. However, the complexity of policies that china/results-survey-internationalisation-chinese-universities>

120 Research and Development Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

preferential visa policy targeting R&D personnel for Development of Industrial Big Data (Guidance), which
important projects. includes new measures to accelerate data pooling,
• Clarify existing policy requirements for recruiting promote data sharing and deepen data application. 21
foreign nationals as interns. The following recommendations included in the
• Encourage special visa facilitation for young researchers Guidance were notable:
in general.
• "Facilitate international collaboration…”; and
3. Facilitate Multinational Enterprises’ Digital • "Boost exchange and collaboration on big industrial
Innovation in China data in policies, technologies, standards, talent, and
enterprises at a more comprehensive deeper level."

Section Two: Horizontal Issues

Concern
The lack of access to open data sources, the requirements Despite this, there are still no clear guidelines on how
for international companies to establish databases in FIEs can access and use such data resources.
China, and the lack of harmonisation between Chinese
and international IT standards discourage international China’s “autonomous and controllable”22 guidelines are
companies from both carrying out IT R&D and also having an impact on European R&D operations.
transferring technologies to China. For example, with implementation of the Data Security
Law, the Cyberspace Administration of China issued
Assessment the Regulations on Network Data Security Management
In order to encourage domestic innovation, China (Draft for Comments), which was passed by the
has promoted several notable policies over the past NPCSC on 11th June 2021.23 On 10th February 2022,
decade, such as Made in China 2025, 18 the Platform the MIIT issued the Measures for the Administration
for Action to Promote Big Data Development,19 and the of Data Security in the Informatisation Field (Draft
New Generation Artificial Intelligence (AI) Development for Comments). These measures put forward new
Plan. 20 Implementation of these policies helped to requirements for cross-border data transfer and
accelerate the development of AI and big data in China. require enterprises to conduct regular security audits
As a result, there has been a proliferation of new digital and backups. The Chinese Government's purpose of
tools and apps in recent years, with many maturing and maintaining national data security is understandable
being widely adopted, such as the digital codes used for but companies still have legitimate concerns that the
health kits throughout China as part of the COVID-19 implementation of these measures will both negatively
tracking and tracing efforts. However, the participation impact cross-border R&D-related data flows and
of foreign companies in the development of them has increase compliance costs. Companies in the ICT
so far been minimal. This is of detriment to the market, sector have expressed concern that they may in the
as deeper participation from FIEs can stimulate the future be forced to either increase R&D activities in
market through increased competition, resulting in China to comply with these policies and maintain
better products. Therefore, the participation of FIEs market share, or leave the market altogether.24 Data
in developing the national or regional digital tools and management rules in China also raise major concerns.
apps should be encouraged. While China’s sheer size makes it an attractive data
pool too big to ignore, this data loses value when
Innovation depends on access to open data sources
21 Guidance on the Development of Industrial Big Data, NPC, 8th April 2020, viewed 23rd
and the freedom to create and manage databases.
April 2022, <http://www.gov.cn/zhengce/zhengceku/2020-05/15/content_5511867.htm>
However, FIEs face many hurdles to access such 22 ‘Autonomous and controllable’ (also referred to as ‘secure and controllable’) is a
concept put forward in several recent laws and regulations whereby the government
resources in China. In 2020, the National People’s
would have broad discretion on deciding how it protects information networks,
Congress (NPC) released the Guidance on the devices and data deemed critical to national and economic security. This concept
is closely linked to the development and use of Chinese indigenous products and
18 Notice from the State Council on Made in China 2025, NPC, 2nd June 2020, viewed technologies instead of foreign ones.
23rd April 2022, <http://www.gov.cn/zhengce/content/2015-05/19/content_9784.htm> 23 Data Security Law of the People's Republic of China, State Council, 10th June 2021,
19 Platform for Action to Promote Big Data Development, People.cn, 5th September viewed 16th April 2022, <http://www.gov.cn/xinwen/2021-06/11/content_5616919.
2015, viewed 23rd April 2022, <http://politics.people.com.cn/n/2015/0905/c1001- htm>
27545655.html> 24 Decoupling: Severed Ties and Patchwork Globalisation, European Union Chamber
20 New Generation Artificial Intelligence Development Plan, NPC, 20th July 2017, of Commerce in China and the Mercator Institute for China Studies (MERICS),
viewed 23 rd April 2022, <http://www.gov.cn/zhengce/content/2017-07/20/ January 2021, viewed 23rd April 2022, <http://europeanchamber.com.cn/en/
content_5211996.htm> publications-decoupling>

Research and Development Working Group 121

 companies encounter barriers to dynamic and effective • Integrate investment in IT infrastructure in state-level
cross-border data transfer processes. economic and technological development zones into
the development plans for local digital economies.
The Research and Development Working Group and the
Standards and Conformity Assessment Working Group 4. Invest More in R&D of Green and Sustainable
are both recommending that China further harmonise Technology to Accelerate Along the Path
domestic and international IT standards, and involve Towards Carbon Neutrality and Realise
FIEs in the process.25 Even though the Regulation for China’s Overall Environmental Goals
Implementing the Foreign Investment Law stipulates
that FIEs must be consulted equally on the formulation Concern
Section Two: Horizontal Issues

and revision of national, industrial, local and group The Chinese Government does not currently provide
standards, 26 most standard-setting bodies currently sufficient support for either R&D of green and
only allow limited participation from international sustainable technologies or the commercial application
companies. 27 Aligning rules with the international of subsequent results, which may hinder China’s overall
community would help to raise the international profile green development and slow its progress towards
of China’s innovative sectors, bring global recognition carbon neutrality.
for China’s R&D capacity and improve the reputation of
Chinese products in international markets. Assessment
Green development is a national strategy of China.30 On
Article 15 of the Notice to Promote Innovation in State- 22nd September 2020, President Xi Jinping stated in his
level Economic and Technological Development Zones speech at the 75th General Debate of the United Nations
to Create a New Plateau for Reform and Opening-up General Assembly that China will increase its nationally
(Notice) encourages all kinds of capital to invest in IT determined contributions, adopt more targeted policies
infrastructure in state-level economic and technological and measures, and "strive to reach its peak carbon
development zones to promote the development of dioxide emissions by 2030, and strive to achieve carbon
a digital economy.28 The Research and Development neutrality by 2060 (30/60 Goals)."31
Working Group and the Standards and Conformity
Assessment Working Group recommend that the Notice Adopted in 2021, China’s 14th Five-year Plan (14FYP)
be rolled out nationwide as soon as possible in order for emphasised the development of action plans to achieve
it to serve its intended purpose of boosting innovation in peak carbon emissions by 2030. On 26 th October
China.29 2021, the State Council released the Action Plan for
Carbon Dioxide Peaking Before 2030. The plan clarifies
Recommendations the Chinese government's determination to achieve
• Publish a list of open databases that foreign carbon peaking in 2030, and at the same time clearly
enterprises can access, and clarify whether FIEs encourages companies to undertake major national
can establish and manage their own public database green and low-carbon science and technology projects,
independently. and showed the willingness to open facilities, data and
• Promote the harmonisation of Chinese and international other resources. The working group looks forward to
ICT standards to incentivise international companies seeing the further implementation of the plan, and at the
to increase investment in R&D in China. same time hopes to strengthen further communication
with relevant departments, so that FIEs can better help
25 For more information, please see the Standards and Conformity Assessment China to achieve its 30/60 Goals.
Working Group Paper 2022/2023.
26 Regulation for Implementing the Foreign Investment Law, State Council,
26 th December 2019, viewed 23 rd April 2022, <http://www.gov.cn/zhengce/ While the introduction of a national emissions trading
content/2019-12/31/content_5465449.htm>
27 For more information, please see the Standards and Conformity Assessment
Working Group Paper 2022/2023. 30 China’s National Plan on Implementation of the 2030 Agenda for Sustainable
28 Notice to Promote Innovation in State-level Economic and Technological Development, Ministry of Foreign Affairs, September 2016, viewed 29th Junel 2022,
Development Zones to Create a New Plateau for Reform and Opening-up, State <https://www.fmprc.gov.cn/mfa_eng/zxxx_662805/W020161014332600482185.
Council, 28th May 2019, viewed 23rd April 2022, <http://www.gov.cn/zhengce/ pdf>
content/2019-05/28/content_5395406.htm> 31 Matt McGrath, Climate Change: China aims for ‘carbon neutrality by 2060’, BBC
29 For more information, please see the Standards and Conformity Assessment News, 22nd September 2020, viewed 29th Junel 2022, <https://www.bbc.com/news/
Working Group Position Paper 2022/2023. science-environment-54256826>

122 Research and Development Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

system (ETS) is a positive development, achieving • Facilitate the creation of pilot and demonstration areas
the 30/60 Goals will require a comprehensive green and projects for low-carbon and sustainable technologies
and low-carbon transition, which in turn will need and their scale-up and commercialisation.
a comprehensive and transparent roadmap and a • Enhance EU-China collaboration in R&D of low-
complementary legal and regulatory system that takes carbon and circular technologies.
into consideration the characteristics of different regions • Provide more transparency for China’s carbon
and industries.32 This will require extensive financial technology roadmap and R&D programme, like the
support to support the transition. By November 2021, Action Plan for Carbon Dioxide Peaking Before 2030
the People's Bank of China (PBOC) already issued and the EU China joint research funding agreement.
the carbon-reduction supporting tools, 33 and will

Section Two: Horizontal Issues

guide financial institutions through the tools available 5. Strengthen Protection of R&D—Including
to provide low-cost loans to firms in crucial carbon- IP-related Aspects—to Develop a World-
reduction fields. However, this support is mostly class Innovation Environment
provided to industrial carbon-reduction activities.
Concern
Measures that motivate enterprises to participate Despite continuous improvements to China’s overall IP
in the R&D of low-carbon technologies will also be protection system, European companies still struggle
needed. Given that a significant amount of investment to protect their IPR related to R&D, which discourages
is required in these areas, additional non-monetary them from investing in cutting-edge technological
incentives are needed for companies to engage in innovation in China.
R&D and application of breakthrough low-carbon and
clean technologies. The transition from the laboratory Assessment
to market needs to be accelerated in order to increase Enhancing IP protection and enforcement in China
success rate of such technologies. These could is crucial for developing an innovative country,35 with
include creating open R&D cooperation platforms, and innovation-driven enterprises and that promotes high-
establishing pilot and demonstration areas. quality economic growth. China’s new Patent Law, which
went into force on 1 st June 2021, should contribute
The EU and China are currently preparing the EU- to developing a more favourable R&D environment.
China Joint Roadmap for Future Science, Technology In addition, the Science and Technology Progress
and Innovation Cooperation, with both sides anticipating Law (revised in 2021) was officially promulgated on
that it will be updated on a regular basis to take into 24 th December 2021, with the aim of establishing
account new developments.34 Given the EU's relatively and improving China’s IP system at the legal level,
well-established legal and regulatory framework, its boosting social awareness of IPR, protecting IPR and
determination to develop green technologies and halve encouraging independent innovation. Furthermore,
emissions by 2030, as well as the related advanced with local governments being tasked with optimising
technology of European companies, the Research and their respective business environments, all regions are
Development Working Group recommends increasing carrying out actions with the aim of strengthening IP
EU-China collaboration in this area. enforcement.

Recommendations To further China’s goal of creating a better technological

• Provide enterprises with additional incentives innovation environment, the function, value and
that focus on the long-term development of new impact of its patent system needs to be adjusted so
breakthroughs in green technologies. that it balances existing right holders and new market
entrants. Fostering R&D in new technologies, such
32 Climate Change 2020 Green Paper Launch and Green Low Carbon Development
as biotechnology and AI, requires that the related IP
Summit Forum Held in Beijing, NetEase, 30th November 2020, viewed 29th Junel
2022, <https://www.163.com/dy/article/ FSMNQ11S05446XON.html> legal framework and patent system is able to swiftly
33 Announcement of the carbon-reduction supporting tools, PBOC, 8th November
and strategically respond to the challenges that
2021, viewed 29 th Junel 2022, <http://www.pbc.gov.cn/goutongjiaol
iu/113456/113469/4384182/index.html>
34 China and EU sign new round of joint research funding agreement, MOST, 26th April, 35 Opinions of the Supreme People's Court on Comprehensively Strengthening the
viewed 28rd April 2022, <http://www.most.gov.cn/kjbgz/202204/t20220426_180342. Judicial Protection of Intellectual Property Rights, Invest in China, 15th April 2020,
html> viewed 23rd April 2022, <http://www.court.gov.cn/zixun-xiangqing-226491.html>

Research and Development Working Group 123

 arise. In order to realise these changes in the most requirements. 37 It is clear that there is still a need
effective way, it would be beneficial to consult with for further enhancement of IPR-related legislation.
experts from the private sector and the academic and Integrating international companies’ feedback can help
scientific communities. In order to prevent potential to improve China’s overall IPR protection framework,38
misjudgements, it is also recommended that the which will help to encourage increased investment in
interpretation of the newly revised Patent Law be R&D, eventually increasing China’s innovation capacity.
strengthened before being actively communicated to
local governments and enforcement authorities. The process for transferring IP from Chinese firms to
foreign parties has become progressively tighter, with
Disputes need courts with a high level of technical transfers being strictly reviewed if they affect ‘national
Section Two: Horizontal Issues

competence. However, while China has established security’ or core technology in strategic fields.39 New IP
several specialised IP Courts—and general courts produced by projects that receive Chinese state funding
in Tier-1 cities tend to have more experience in require: 1) approval from the relevant government
hearing IPR-related cases and can count on better authorities if IP is to be transferred or exclusively
prepared judges and experts—this level of expertise licensed to non-Chinese entities, including international
is not available in all local courts. One way to expand project partners that contribute background IP; and
the range of IPR cases that can be heard by such 2) that the first licence of the newly produced IP be in
courts could be to have a more centralised system China. A certain degree of relaxation of such restrictions
for adjudication, which would alleviate pressure in can incentivise FIEs to participate in China's innovation
technically-complex cases while also reducing local projects, as IP owned by FIEs could prove essential
protectionism. It would also improve the ability of background IP in some projects. For example, without
local courts to hear IP-related cases by establishing self-owned IP rights, enterprises are not eligible for
a complete expert hearing system, and promoting the China’s HNTE benefits, due to the patent requirement.40
progress of IP-related cases nationwide.
Recommendations
Technology transfers, both from FIEs to ‘indigenous’ • Consult with universities, foreign research institutions,
Chinese companies and the other way round, is and Chinese and international companies’ R&D
challenging. On 2 nd March 2019, the State Council departments when drafting new policies related to
repealed three controversial articles within the innovation and IPR protection.
Te c h n o l o g y I m p o r t a n d E x p o r t A d m i n i s t r a t i v e • Increase technical expertise and avoid local
Regulation, 36 a positive development in controlling protectionism in local courts, and establish a more
compelled technology transfer from a legal perspective. centralised jurisdiction for IPR-related cases related
Yet the repeal of these articles does not automatically to innovation and R&D.
mean that compelled technology transfers are not • Enhance the enforcement of IPR legislation to
still taking place. It remains of significant concern avoid compelled technology transfers or technology
that European companies are still being compelled transfer difficulties.
to transfer technology to maintain market access— • Allow the existence of co-ownership of IP between
as reported by 14 per cent of respondents to the the parent company and local affiliates (or ownership
European Chamber’s Business Confidence Survey of the parent company) in R&D projects funded by
2022—even after the Foreign Investment Law, which the Chinese Government.
expressly prohibits unfair technology transfers,
took effect on 1 st January 2020. While the Foreign
Investment Law has banned administrative tools from 37 European Business in China Business Confidence Survey 2022, European Union
Chamber of Commerce in China, 20th June 2022, viewed 20th June 2022, p. 34,
compelling technology transfers, this does not address <https://www.europeanchamber.com.cn/en/publications-business-confidence-
the core problem. Modern transfers are compelled not survey>
38 For more information, please see the Intellectual Property Rights Working Group
through administrative means but by market access Paper 2022/2023.
39 External Transfer of Intellectual Property Rights Measures (Trial Implementation),
State Council, 18th March 2018, viewed 23rd April 2022, <http://www.gov.cn/zhengce/
content/2018-03/29/content_5278276.htm>
40 Measures for the Administration of Recognition of High-tech Enterprises, MOST,
36 Administrative Decree No. 709, State Council, 2nd March 2019, viewed 23rd April 14th April 2008, viewed 6th July 2022, <http://www.most.gov.cn/xxgk/xinxifenlei/
2022, <http://www.gov.cn/zhengce/content/2019-03/18/content_5374723.htm> fdzdgknr/fgzc/gfxwj/gfxwj2010before/200811/t20081129_65744.html>

124 Research and Development Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

Abbreviations
CNY Chinese Yuan
EU European Union
ETS Emissions Trading System
FIE Foreign-invested Enterprise
FTZ Free Trade Zone
HNTE High and New Technology Enterprise
IP Intellectual Property
IPR Intellectual Property Right

Section Two: Horizontal Issues

ICT Information and Communications
Technology
IT Information Technology
MIIT Ministry of Industry and Information
Technology
MNC Multinational Corporation
MOF Ministry of Finance
MOST Ministry of Science and Technology
NPC National People’s Congress
PBOC People’s Bank of China
R&D Research and Development
S&T Science and Technology
STA State Taxation Administration
WIPO World Intellectual Property Organization

Research and Development Working Group 125

 Standards and Conformity Assessment Working Group

Key Recommendations
1. Implement the Principles of the World Trade Organization Agreement on
Technical Barriers to Trade (WTO/TBT) Related to Standards, Technical
Regulations and Conformity Assessment Procedures
Section Two: Horizontal Issues

• Ensure proper notification of all mandatory standards that may impact market access, and enlarge
the scope to cover all mandatory market access requirements.
• Continue to limit the scope of technical regulations and mandatory standards to issues related to
the protection of the environment, health and safety, in accordance with the WTO/TBT Agreement.
• Rescind mandatory industry standards or convert them to recommended or mandatory national
standards as soon as possible.
• Provide English versions of the notified documents.

2. Review Mandatory Market Access Requirements, Including the Simplification

of Testing and Certification Procedures
• Optimise the synchronisation of mandatory standards, compulsory certification schemes and
administrative licensing schemes.
• Support the recognition of test reports at both the national and international levels.
• Allow more manufacturers to use their own testing laboratories, provided they meet all necessary
accreditation requirements.
• Ensure all mandatory-type approval schemes for market access are based only on national
mandatory standards and supervised by one standardisation committee to avoid breaching
China’s WTO obligations.
• Simplify the designation processes for China Compulsory Certificate testing laboratories and
certification bodies to allow international laboratories or certification bodies to join the system.

3. Ensure that all Relevant Stakeholders Enjoy Equal Access and Participation
Rights in Standardisation Work
• Grant fair access to all technical committees (TCs) for interested stakeholders.
• Grant equal rights to all organisations/companies participating in TCs.
• Encourage open and extensive industry involvement in all types of standardisation work, including
the development of standardisation strategies and participation in international standardisation
activities.
• Ensure transparency with regards to membership requirements, participation or sponsorship fees,
and disclosure of financial information in standardisation projects.
• Support foreign enterprises applying for standardisation revision project registration.

4. Continue the Current Reform of the Chinese Standardisation System and

Increase Harmonisation Efforts
Mandatory national standards
• Expand the standardisation reform to include exempted areas.

126 Standards and Conformity Assessment Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

• Introduce reasonable transition periods for mandatory standards in a transparent manner and
implement the European concept of transition periods in more industries.
• Accelerate the revision of traditional standards to match new technological developments.
• Avoid referring to recommended standards in mandatory standards.
Recommended national standards
• Avoid implementing recommended standards as mandatory standards.
• Avoid referring to recommended standards in law enforcement and market surveillance.
• Follow the same notification procedure of mandatory standards and provide sufficient transition

Section Two: Horizontal Issues

periods in cases where recommended standards must be implemented as mandatory.
Social organisation standards
• Stick to the policy of independent development and free use of social organisation standards
and strictly avoid the inclusion of such standards in administrative measures.
• Establish proper procedures to facilitate the transformation of social organisation standards into
national and industry standards.
• Ensure there is transparency in processes related to social organisation standards, and that
equal access is granted to all relevant players.
• Formulate in a timely manner an intellectual property (IP) management system to disclose
necessary patent-related information.
• Obtain the authorisation of copyright owners in cases where their standards are referenced, and
clearly mention the referencing of such standards in the published document.
Enterprise standards
• Clarify the definition of ‘enterprise standards’ in the context of self-declaration obligations.
• Clarify the disclosure or format requirements for enterprises, and limit the scope of the self-
declaration mechanism to mandatory national standards adopted by enterprises.
• Improve the enterprise standards online service platform by making it more user-friendly.
• Allow enterprises to make self-declarations of enterprise standards on their own websites.
• Ensure the enterprise standards ‘top runner’ system is fair, open, transparent and follows a
reliable scientific process.
• Protect the intellectual property rights (IPR) of enterprise standards.
Industry standards
• Enhance coordination between industry standards and other standards to avoid overlaps.
International standards
• Continue participating in international standards-setting activities and increase the adoption rate
of identical international standards.

5. Ensure Fair and Transparent Market Surveillance

• Align market surveillance and market access requirements.
• Limit administrative penalties in market surveillance to the violation of laws, regulations,
mandatory standards and certification schemes, and make non-mandatory requirements in
market surveillance subject only to civil liability.
• Increase the number of product categories to be checked in the market.
• Increase market surveillance efforts and impose more strict verification requirements for
e-commerce platforms.
• Increase market surveillance in the case of certain enterprise standards.
• Provide diverse channels for reporting non-compliance.

Standards and Conformity Assessment Working Group 127

 • Intensify follow-up market checks and develop processes and penalties that serve as effective
deterrents.
• Allow commercial organisations that meet accreditation requirements to join market surveillance.

Quality and Safety Services Sub-working Group

1. Ensure Equal and Fair Treatment in Government Procurement Activities for
Foreign-invested Testing, Inspection and Certification (TIC) Agencies
• Regulate government procurement by establishing a fair, transparent, impartial and efficient
Section Two: Horizontal Issues

management system.
• Remove all conditions that are not related to the capabilities necessary to perform the bid, and
provide a platform for fair competition among testing and inspection service providers.

2. Accelerate Market-orientated Reforms of Government-affiliated TIC Agencies,

and the Establishment of a Fair, Open TIC Market System
• Continue accelerating market-orientated reform of government-affiliated TIC agencies.
• Reduce excessive and unclear market access barriers and adopt international norms for
assessment.
• Provide true national treatment for foreign-invested TIC agencies.

3. Allow Foreign-invested TIC Agencies to Provide Container Inspection

Services
• Allow foreign-invested TIC agencies to provide container inspection services.

4. Accelerate the Marketisation Process of Special Equipment Inspection

Services
• Establish a market competition mechanism and allow enterprises to freely choose inspection
agencies for statutory inspections.
• Enhance the diversity of inspection entities to provide both greater consumer choice and space
for non-government-affiliated inspection agencies to grow.

5. Establish and Implement in a Timely Manner a System for Customs to Accept

Inspection Results from Third-party Agencies for Imported Commodities,
Including Imported Bulk Commodities
• Create and implement a system for customs to accept third-party inspection results for imported
and exported commodities as soon as possible.
• Open up the market and accept evaluations by all inspection agencies, including foreign-
invested, private and state-owned agencies, and grant equal treatment to foreign-invested
inspection agencies.

128 Standards and Conformity Assessment Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

Introduction to the Working Group The Involvement of European Business in China’s

Standardisation System
The Standards and Conformity Assessment (SCA)
On 2 nd December 2021, the European Chamber,
Working Group was founded in 2008. Its members come
together with the Swedish Institute of International
from various industry sectors including automotive,
Affairs, published the report The Shape of Things to
automotive components, construction, cosmetics,
Come: The Race to Control Technical Standardisation,
healthcare equipment, electrical equipment, information
which examines China’s standardisation system and
and communication technology and machinery. It
European businesses engagement in standardisation
contains the Quality and Safety Services Sub-working
activities in China.3 The report used quantitative data
Group. The Standards and Conformity Assessment
from the European Chamber’s European Business in

Section Two: Horizontal Issues

Working Group aims to support the development of
China Business Confidence Survey 2020 (BCS 2020)4
China’s SCA systems in order to facilitate China’s
and a dedicated questionnaire developed for the report
integration into the global economy. As China opens
as well as qualitative input from more than 30 interviews
its door wider to the world, SCA will be essential to
with business and government stakeholders. Some of
facilitating cooperation between the European Union
the key data points of the survey are as follows:
(EU) and China in investment, trade, environment,
healthcare and production activities.
• 37 per cent of respondents to the BCS 2020 reported
being involved in standardisation activities in China.
Recent Developments • The survey conducted for the standardisation report—
China’s Updated Standardisation Strategy specifically aimed at member companies involved
On 10th October 2021, the Central Committee of the in standardisation activities in China—indicated
Communist Party of China and the State Council that considerations about technical standards are
released the National Standardisation Development important for 54.8 per cent of respondents when
Outline (Outline), setting new targets for China’s assessing investment opportunities.
standardisation system until 2035.1 On 6th December • A majority of respondents to the survey view state and
2021, the 14th Five-year Plan for the Construction of state-linked stakeholders (Chinese state institutions,
the National Standard System for Promoting High- research centres and state-owned enterprises) as key
Quality Development (14FYP on Standardisation) players in the standardisation bodies they participate
was published.2 The overarching objectives of these in.
strategies include: achieving a standardisation • 67.7 per cent of respondents planned to either
system that promotes the high-quality development maintain or increase resources dedicated to
of both state and market-led standards by 2025; standardisation activities in China.
establishing a whole-of-society standardisation system,
with a focus on standardisation development in the Key Recommendations
fields of agriculture, industry (particularly emerging
1. Implement the Principles of the World
technologies), the service sector and climate; promoting
Trade Organization Agreement on
enhanced integration between innovation and research
Technical Barriers to Trade (WTO/
and development (R&D) activities and standardisation;
TBT) Related to Standards, Technical
and strengthening the coordination between domestic
Regulations and Conformity Assessment
and international standardisation.
Procedures

Concern
China’s practices do not fully comply with WTO/TBT

3　Rühlig, Tim, The Shape of Things to Come: The Race to Control Technical
1　The Central Committee of the Communist Party of China and the State Council
Standardisation, European Union Chamber of Commerce in China and the
issued the National Standardisation Development Outline, State Council, 10th
Swedish Institute of International Affairs (UI), 2nd December 2021, viewed 19th April
October 2021, viewed 18th March 2022, <http://www.gov.cn/zhengce/2021-10/10/
2022, <https://www.europeanchamber.com.cn/en/publications-standardisation-
content_5641727.htm>
report>
2　Notice on Printing and Distributing the "14th Five year Plan for the Construction of
4　European Business in China Business Confidence Survey 2020, European Union
the National Standard System for Promoting High-Quality Development", State
Chamber of Commerce in China, p. 64, 10th June 2020, viewed 19th April 2022,
Administration for Market Regulation (SAMR), 6th December 2021, viewed 18th
<http://www.europeanchamber.com.cn/en/publications-archive/774/European_
April 2022, <https://gkml.samr.gov.cn/nsjg/bzjss/202112/t20211214_338077.html>
Business_in_China_Business_Confidence_Survey_2020>

Standards and Conformity Assessment Working Group 129

 Agreement principles and create unnecessary obstacles working group is pleased to note that China intends to
for foreign enterprises trying to access the Chinese limit the scope of mandatory standards to the above-
market. mentioned objectives and recommends that China
continue to fulfil its commitments in this regard, by
Assessment either rescinding mandatory industry standards, or
a) Proper notification of mandatory standards, converting them to either recommended or mandatory
technical regulations and conformity assessment national standards.5
procedures—including administrative
Recommendations
licensing—required for market access
• Ensure proper notification of all mandatory standards
According to the WTO/TBT Agreement, government
Section Two: Horizontal Issues

that may impact market access, and enlarge

bodies of signatory countries and regions are obliged
the scope to cover all mandatory market access
to notify other WTO members about proposed technical
requirements.
regulations and conformity assessment procedures
• Continue to limit the scope of technical regulations
at an early stage. The goal is to ensure that these
and mandatory standards in accordance with the
regulations and procedures do not create unnecessary
WTO/TBT Agreement.
obstacles to trade or foster protectionism. While the
• Rescind mandatory industry standards, or convert
working group recognises the positive progress made
them to recommended or mandatory national
by China in this regard, there are still many cases
standards as soon as possible.
where either no notification was given or the information
• Provide English versions of the notified documents.
was incomplete.

Currently, many mandatory market access schemes 2. Review Mandatory Market Access
in China have never been notified to the WTO despite Requirements, Including the Simplification
affecting market access for the products they cover. of Testing and Certification Procedures
Examples include the Certification of Critical Network
Equipment and Security-specific Products, the Licence
Concern
for Sale of Computer Information System Security-
Market access barriers are created when certain
specific Products, and the Technical Review on the
products have to fulfil multiple requirements published
Compliance of On-vehicle Terminals and Platforms
by different authorities that are not coordinated with
of Satellite Positioning Systems. The working group
one another, while certain testing and certification
recommends that the government take meaningful
procedures place unnecessary burdens on
steps to address this issue.
manufacturers by increasing costs, and hinder the
import of technology and services without increasing
The working group also suggests that English versions
product safety.
of the notified standards be published for reference. In
this regard, commitments made in both the 14FYP on
Assessment
Standardisation and the Outline to increase the number
a) The concurrent existence of mandatory
of English language versions of mandatory national
standards are a welcome step. standards, compulsory certification and
administrative licensing schemes
b) Limiting the scope of technical regulations According to the Standardisation Law, many products
and mandatory standards to issues related must comply with mandatory standards.6 In addition,
other regulations require certain products to comply
to the protection of the environment,
with specific mandatory certification schemes and
health and safety (EHS), according to the
individual administrative licensing schemes. Although
WTO/TBT Agreement
The WTO/TBT Agreement allows countries to take 5 For more sector-specific information linked to WTO/TBT notification and
exemptions, please see Key Recommendation (KR) 1 of the Fashion and Leather
necessary measures to fulfil legitimate objectives, such Desk Working Group Position Paper 2022/2023, p. 234.
as national security requirements, the prevention of 6　Standardisation Law of the People’s Republic of China, National People’s
Congress (NPC), 4th November 2017, viewed 20th June 2022 <http://www.npc.gov.
deceptive practices, and the protection of EHS. The cn/npc/c30834/201711/04d8afd2637d4f68bea84391e46d986f.shtml>

130 Standards and Conformity Assessment Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

the Standardisation Law and subsequent regulations group recommends that China use the procedures
provide for the streamlining of standards, some already established for existing certification bodies
areas like environmental protection, engineering and as a model to follow. Part of these efforts could be
medical devices are exempted. Furthermore, the lack managed by the relevant authorities in China, and
of coordination between these regulations results could, for example, facilitate the use of test reports
in overlapping testing requirements, which leads to documenting manufacturers’ in-house testing or
additional costs for manufacturers and can even delay third-party type testing for medical device product
product launches. registration. In addition, where products comply with
international standards that have been identically
Part of the reason for this lack of cohesion is that adopted domestically, relevant testing reports should

Section Two: Horizontal Issues

these regulations have been formulated by different also be recognised in China. Finally, the working
ministries and government authorities that work group recommends that the designation process
independently from one another. Therefore, improved for certification bodies is simplified in order to allow
coordination among relevant authorities would help to globally-recognised entities to access the system.
eliminate any overlap or conflict between the various
mandatory standards, compulsory certification schemes Since September 2020, according to the Opinions of
and administrative licensing systems, and could the General Office of the State Council on Supporting
ensure these schemes are only based on mandatory the Transfer of Export Products to Domestic Sales, in
standards. It would also allow for reductions in waiting order to support development of the domestic market
times for companies to access the latest technologies for export products and ease the administrative burden
and increase manufacturing efficiency, which in turn of foreign enterprises, companies are allowed to sell
would help to revitalise the Chinese economy. products developed before 2021 if they provide a self-
declaration that the products conform to mandatory
b) Recognition of test reports at both national national standards. 7 Enterprises can make this
and international levels, and increasing declaration through the enterprise standard information
the efficiency of testing and certification public service platform, or in the form of product
instructions, factory certificates and product packaging,
processes
among others. The working group welcomes these
Currently, there are various unified testing and
measures and hopes that they will remain in place.
certification schemes for different products in China,
such as the China Compulsory Certificate (CCC) and the
c) Recommended standards used as market
urban transit equipment certification. In addition, some
domestic certification systems adopt the same technical access requirements
standards as international certification systems, for Recommended standards by definition should remain
example, the CCC for explosion-proof products and voluntary. Unfortunately, some have either become de
equipment for potentially explosive atmospheres facto mandatory after being chosen as the basis for
(ATEX). However, European companies still find that mandatory certification and administrative licensing
some test reports issued by testing laboratories are not schemes, or include some mandatory terms. The
accepted by other testing laboratories for identical tests practice of using recommended standards in mandatory
of the same product. In such cases, manufacturers certification schemes is still widespread in China.
have to re-test their products, which wastes company The lack of transparency in these instances causes
resources and ultimately results in delayed product problems for enterprises that must comply with multiple
launches, increased costs and reduced efficiency. mandatory market access schemes.

Ensuring nationwide recognition of test reports for Recommendations

the same technical qualifications would avoid product • Optimise the synchronisation of mandatory standards,
test repetition and facilitate business at both national compulsory certification schemes and administrative
and international levels. This will require certain
7　Opinions of the General Office of the State Council on Supporting the Transfer of
testing requirements to be clearly defined, to ensure
Export Products to Domestic Sales, State Council, 22nd June 2020, viewed 19th
testing equivalence across China. The working April 2022, <http://www.gov.cn/zhengce/content/2020-06/22/content_5521078.
htm>

Standards and Conformity Assessment Working Group 131

 licensing schemes. have reduced and now only occur in a limited number
• Support the recognition of test reports at both national of sectors (such as cryptography and rail), European
and international levels. Chamber member companies continue to experience a
• Allow more manufacturers to use their own testing variety of indirect barriers (see Figure 1).8
laboratories, provided they meet all necessary
accreditation requirements. Another issue encountered by members is linked
• Ensure all mandatory-type approval schemes for to local standards projects. The approval of such
market access are based only on national mandatory projects must be confirmed with the relevant local
standards and supervised by one standardisation standardisation department. However, applications
committee to avoid breaching China’s WTO led by foreign-funded enterprises for local standards
Section Two: Horizontal Issues

obligations. projects can be difficult, and often result in failure.

• Simplify the designation processes for CCC- One of the main reasons is that when government-
testing laboratories and certification bodies to allow commissioned research projects purchase services,
international laboratories or certification bodies to join associated tenders often have rigid requirements for
the system. participating institutions to include in their bids personnel
with professional titles, including senior professional
3. Ensure That all Relevant Stakeholders titles. These stringent requirements can often be difficult
Enjoy Equal Access and Participation for foreign-funded institutions and enterprises to meet
Rights in Standardisation Work because, while in many cases their personnel have the
required knowledge and experience, they do not have
Concern the equivalent professional titles. The working group
Even though numerous pieces of Chinese legislation thus recommends that authorities expand the eligibility
stipulate that all relevant stakeholders shall be granted criteria for these projects to ensure that a higher
equal access and participation rights in standardisation number of qualified stakeholders can participate.
work, there is still a gap in implementation.
Both the Outline and the 14FYP for Standardisation
Assessment commit to ensuring open, inclusive and transparent
Equal participation in standardisation work in China is a standardisation processes for all stakeholders. In this
long-standing concern for foreign-invested enterprises new phase of standardisation reform, the working
(FIEs). Although this principle has been enshrined in group recommends that the Chinese Government step
multiple pieces of Chinese legislation, like the Foreign up its efforts to encourage FIEs’ equal participation
Investment Law and more recently the Outline and in domestic standardisation activities. This includes
the 14FYP for Standardisation, there is still room for being able to hold the secretariat of a TC, lead the
improvement when it comes to implementation. For drafting of Chinese standards, participate in or lead
instance, at the macro level, opportunities for providing China’s international standardisation activities in
feedback on major standardisation strategies, such as certain technical fields, and access incentive policies
China Standards 2035 and its final iteration, the Outline, from governments at all levels. In addition, the
in their development/drafting phases, have remained at standardisation behaviour of social groups—such as
best limited for international players. associations, industry alliances and federations—
should be supervised to ensure fair and equal access,
Access to technical committees (TCs) is one area in and participation rights, of all stakeholders.9
which some encouraging progress has been made
throughout the past few years. However, the principle
of granting equal access to TCs to all stakeholders
has not been fully implemented. Both the survey and 8　Rühlig, Tim, The Shape of Things to Come: The Race to Control Technical
Standardisation, European Union Chamber of Commerce in China and the
subsequent interviews conducted for the European Swedish Institute of International Affairs, 2nd December 2021, viewed 19th April
Chamber report The Shape of Things to Come: The 2022 <https://www.europeanchamber.com.cn/en/publications-standardisation-
report>
Race to Control Technical Standardisation, show that 9 For more sector-specific information on European business access to and
while direct barriers—such as instances of companies participation in standardisation activities in China, please see KR3 of the Rail
Working Group Position Paper 2022/2023 on p. 300, and KR3 of the Automotive
being expressly denied participation in TCs—seem to Working Group Position Paper 2022/2023 on p. 187.

132 Standards and Conformity Assessment Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

Figure 1: Which of the following obstacles has your company faced when trying to gain
access to, or obtain equal treatment within, standardisation activities in China (in %)?
How has your industry's business environment changed over the past year?

Section Two: Horizontal Issues

1

Source: European Chamber member survey on standardisation

Recommendations standards over the past few years, as well as in

• Grant fair access to all TCs for interested stakeholders. establishing processes for the management of such
• Grant equal rights to all organisations/companies standards. As a result, the working group expects the
participating in TCs. following:
• Encourage open and extensive industry involvement
in all types of standardisation work, including the • Notification of all mandatory national standards in
development of standardisation strategies and accordance with WTO procedures.
participation in international standardisation activities. • Alignment with international standards.
• Ensure transparency with regard to membership • No conflicting mandatory requirements and standards.
requirements, participation or sponsorship fees, • A reduction of mandatory standards to a minimum.
and the disclosure of financial information in • Guarantees that, before listing and drafting any
standardisation projects. mandatory national standard, calls for comments
• Support foreign enterprises bidding for local involving key industry stakeholders will be open for
standardisation projects by expanding tender eligibility two months.
requirements for qualified experts. • Basing new standards projects on technological
developments and the need to unify technical
4. Continue Reforming the Chinese requirements instead of non-technology-based
Standardisation System and Increase considerations.
Harmonisation Efforts • The establishment of clear work processes, roles
and responsibilities for both industry authorities and
Concern the Standardisation Administration of China (SAC)
Neither the revised Standardisation Law nor other in organising the drafting of mandatory national
relevant standardisation reforms have been completely standards.
implemented in all technical fields, and the transparency • Equal participation rights in the drafting of mandatory
and fairness of existing standard-setting procedures still national standards for domestic and international
need to be improved. stakeholders.
• That recommended standards will no longer be
Assessment referred to in any mandatory national standards.
a) Mandatory national standards • Acceleration of the revision of traditional standards to
The working group has observed progress in China’s match new technological developments.
streamlining and consolidation of mandatory national • Stipulation of reasonable transition periods between

Standards and Conformity Assessment Working Group 133

 issuance and implementation dates for mandatory the WTO, but—as alluded to in KR 2—these standards
national standards. have subsequently been implemented as mandatory, a
practice that should not be permitted.10
The working group recommends that European best
practices are followed with regard to transition periods, c) Social organisation standards
to ensure that the time allowed is reasonable and that One of the key points of the Provisions on the
products manufactured according to the old standard Administration of Social Organisation Standards is
can be sold in the market after the implementation date that if standards formulated by associations meet the
of the new standard. This would involve either taking stipulated requirements, the association can apply to
the implementation date of the new mandatory standard have them converted into national, industry or local
Section Two: Horizontal Issues

as the time at which production is switched, rather than standards.11 Government bodies are also encouraged to
the time to switch products being sold, or combining apply social organisation standards in industrial policy
the grace period with an additional transition period for formulation, administrative management, government
sales. Either solution would give foreign manufacturers procurement, and testing and certification, as well
more time to make necessary changes across their as bidding. When social organisation standards are
supply chains and for testing laboratories to adapt their transformed into national or industry standards, an
facilities, and prevent both an unnecessary waste of open and inclusive process in which all stakeholders
resources and additional costs for companies. have equal opportunities to provide feedback should
be guaranteed. Similarly, when a social organisation
European companies observe that in some cases the standard is transformed into a mandatory national
official released standard specifies a shorter transition standard, the relevant standard-setting and WTO/TBT
period than the previous draft made available to foreign procedures should be followed.12
companies, which causes serious problems for them.
For instance, in the case of imports, different transition Currently, some associations favour their own interests
periods can result in insufficient lead time for companies through the formulation of social organisation standards
to be compliant with mandatory requirements and thus by means of requiring membership fees, charging for
delay the import of affected products. To avoid these the formulation of standards or simply refusing access
issues, greater transparency in standard setting is to FIEs. The working group believes that FIEs and
required. domestic companies should have equal access to all
Chinese social organisations.
b) Recommended national standards
In the past few years, some recommended standards Finally, the working group recommends that the
have been directly adopted as mandatory requirements relevant authorities formulate an intellectual property
without relevant stakeholders being clearly notified (IP) management system to disclose necessary patent-
or given a sufficient transition period. In some cases, related information in a timely manner, particularly for
these voluntary standards have even been used in standard-essential patents. The Chinese authorities
market surveillance. The authorities should avoid should also ensure that copyright owners’ authorisation
implementing recommended standards as market is obtained in cases where their standards are
access requirements. If recommended standards referenced within other standards, and that the
are utilised, then sufficient industry research and referencing of such standards is clearly mentioned in
the same notification procedure as for mandatory the published document.
standards should be carried out before implementation.
Furthermore, a reasonable transition period should be
provided. 10 For more sector-specific information on the importance of ensuring recommended
standards are implemented while taking into consideration their voluntary nature,
please see KR1 of the Information and Communication Technology Working
In addition, some TCs have also tried to formulate Group Position Paper 2022/2023, p. 338.
11 Provisions on the Administration of Social Organisation Standards (Trial
industry standards or recommended national standards
Implementation), National Social Organisation Standards Information Platform,
instead of mandatory standards, to both reduce the time 26th December 2017, viewed 19th April 2022, <http://www.ttbz.org.cn/Home/>
12 For more sector-specific information on the experiences of European businesses
dedicated to this process and avoid having to notify
with the social organisation standards system, please see KR3 of the Rail Working
Group Position Paper 2022/2023, p. 300.

134 Standards and Conformity Assessment Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

d) Enterprise standards to list all categories on the platform, this remains a

The Standardisation Law defines enterprise standards mandatory selection item, raising compliance risks
as individual companies’ proprietary product or service post-market surveillance if the correct category is not
specifications, which detail product features and/or how available. The working group is pleased to note that
a company puts together its products and services. the draft Measures for the Promotion of Enterprise
These details—in particular the testing methods—often Standards allow enterprises to self-declare enterprise
contain confidential information protected through IP standards via channels other than the national
rights (IPR). However, Article 27 of the Standardisation enterprise standards online service platform. However,
Law states that the function and performance indicators the draft Measures do not provide practical guidance
of products need to be disclosed. While the principle on how to indicate enterprises’ own disclosure channel

Section Two: Horizontal Issues

of making limited standards disclosures for the sake of on the national service platform, which needs to be
adherence to customer protection requirements or for clarified, either in the final iteration of the regulation or
limited marketing purposes is acceptable, companies through other relevant documents.
should not be required to disclose confidential
information that could potentially put their IP at risk. In Schemes such as the ‘top runner’ system have also
that respect, the working group welcomes the clauses raised concerns among the business community, partly
in the draft Measures for Promotion of Enterprise because of questions regarding the scientific nature
Standardisation issued by the State Administration for of the assessment method, and partly because of the
Market Regulation (SAMR) on 24th November 2021, involvement of the government in a system that—
which permit enterprises to not disclose testing or according to the spirit of standardisation reform—
inspection methods that contain commercial secrets, should be based on market competition and encourage
and hopes that this clause will be maintained in the final market-led processes. 13 Members of the working
document. group are also concerned about the possibility of some
companies developing advanced standards for the ‘top
The current written guidelines and definitions under runner’ system purely as a marketing tool, and do not
the system are not sufficient to direct enterprises necessarily reflect the actual quality of the products in
from a compliance point of view. However, during the market. The working group therefore recommends
market surveillance by the Chinese authorities, some that the government take steps to ensure the system
European companies have reported being strongly is fair, open and transparent, and follows a reliable
encouraged to follow the format for national standards scientific process that includes measures to check the
and include all information (including type test and real situation in the market.
factory inspection) in the disclosed standards, even
if the company already meets quality compliance e) Industry standards
requirements. This is concerning, as it points towards The Standardisation Law has clarified that industry
more stringent and extensive disclosure requirements. standards are voluntary standards; yet, some industry
Therefore, the working group suggests limiting the standards remain mandatory, such as the YY series
scope of the self-declaration mechanism to mandatory standards for medical devices. Furthermore, while the
national standards, and that the disclosure and format number of mandatory national standards has been
requirements of enterprise standards be clarified, with reduced, the amount of industry, market-driven social
any potential requirements that could lead to involuntary organisation and enterprise standards is sky-rocketing.
disclosure of IP to the public avoided by all means. This situation has created numerous overlaps among
different standards. One of the stated goals of the
With regard to the enterprise standards management SAC’s Guiding Opinions on the Further Strengthening
system, an online service platform has been set up, and
13 In 2018, an enterprise standard ‘top runner’ system was established to encourage
manufacturers are encouraged to make disclosures
enterprises to proactively set and implement advanced standards. This system
online and sign the self-declaration of conformity. materialised with the joint issuing of the Opinions on Implementing the Enterprise
Standards ‘Top Runner’ System (Opinions) by eight regulatory agencies.
However, to be more user-friendly, the platform still
According to the Opinions, third party institutions will assess the quality of different
needs improvement in certain areas, such as the enterprise standards and rank them: Eight departments, including the State
Administration for Market Regulation, issue Opinions on the Implementation of the
categories of products listed. Although it is impossible
‘Top-Runner’ System, SAC, 3rd July 2018, viewed 27th June 2022, <http://www.sac.
gov.cn/xw/bzhxw/201807/t20180703_342614.htm>

Standards and Conformity Assessment Working Group 135

 Management of Industry Standards is to optimise Recommendations
the industry standard supply structure and improve Mandatory national standards
coordination. 14 The working group hopes that the • Expand the standardisation reform to include
Administrative Measures for Industry Standards—which exempted areas.
had been originally included in the SAMR’s 2021 and • Introduce reasonable transition periods for mandatory
2022 legislative workplans but still were not published standards in a transparent manner and implement
as of June 2022—can provide further guidance for the the European concept of transition periods in more
effective implementation of this goal, and recommends industries.
that harmonisation efforts be expanded to the whole • Accelerate the revision of traditional standards to
standards system.15 match new technological developments.
Section Two: Horizontal Issues

• Avoid referring to recommended standards in

f) International standards mandatory standards.
Key policy documents like the revised Standardisation Recommended national standards
Law, the Outline and the 14FYP for Standardisation, • Avoid implementing recommended standards as
have consistently pointed towards the Chinese mandatory standards.
Government’s willingness to increase its participation • Avoid referring to recommended standards in law
in international standardisation activities and to enforcement and market surveillance.
continue to adopt international standards. In that • Follow the same notification procedure of mandatory
regard, the targets in the Outline and the 14FYP for standards and provide sufficient transition periods
Standardisation to achieve an 85 per cent adoption in cases where recommended standards must be
rate of international standards, and ensuring that 85 implemented as mandatory.
per cent of domestic TCs mirror international ones are Social organisation standards
seen as a positive step by the working group.16 In 2021, • Stick to the policy of independent development and
the overall percentage of new international standards free use of social organisation standards and strictly
issued by China reached the same levels as the 2013 avoid the inclusion of such standards in administrative
peak, making up 33 per cent of total standards issued. measures.
The number of standards identical to their international • Establish proper procedures to facilitate the
counterparts also increased in 2021.17 The authorities transformation of social organisation standards into
should continue to increase the issuance and the national and industry standards.
adoption rate of identical international standards. The • Ensure there is transparency in processes related to
working group also recommends that the authorities social organisation standards, and that equal access
clarify the methodology of the calculations used to is granted to all relevant players.
establish the adoption rate of international standards in • Formulate in a timely manner an IP management
order to enhance transparency and accountability.18 system to disclose necessary patent-related
information.
• Obtain the authorisation of copyright owners in cases
14 Guiding Opinions on Further Strengthening Management of Industry Standards, where their standards are referenced, and clearly
SAC, 10 th April 2020, viewed 19 th April 2022, <http://www.sac.gov.cn/sbgs/ mention the referencing of such standards in the
sytz/202004/P020200415371585800963.pdf>
15 2021 Legislative Work Plan, SAMR, 1st April 2021, viewed 19th April 2022, <http:// published document.
gkml.samr.gov.cn/nsjg/fgs/202104/t20210401_327476.html>; and 2022 Legislative Enterprise standards
Work Plan, SAMR, 28th April 2022, viewed 29th April 2022, <https://gkml.samr.gov.
cn/nsjg/fgs/202204/t20220427_344262.html> • Clarify the definition of ‘enterprise standards’ in the
16 The 14th Five-year Plan for the National Economic and Social Development of
context of self-declaration obligations.
the People’s Republic of China, State Council, 13th March 2021, viewed 12th April
2022, <http://www.gov.cn/xinwen/2021-03/13/content_5592681.htm> • Clarify the disclosure or format requirements for
17 This calculation was made by collecting the data on national standards published
enterprises, and limit the scope of the self-declaration
on the SAC’s National Public Service Platform for Standards Information. National
Public Service Platform for Standards Information, SAC, viewed 19th April 2022 mechanism to mandatory national standards adopted
<http://std.samr.gov.cn/gb/search/gbAdvancedSearch?type=std>
by enterprises.
18 For more sector-specific information on the perspective of European business
regarding adoption of and harmonisation with international standards, please see • Improve the enterprise standards online service
KR3 of the Rail Working Group Position Paper 2022/2023, p. 300, KR1 of the
platform by making it more user-friendly.
Construction Working Group Position Paper 2022/2023, p. 320, and KRs 1 and 3
of the Information and Communication Technology Working Group 2022/2023, • Allow enterprises to make self-declarations of
p. 338 and p. 341 respectively.

136 Standards and Conformity Assessment Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

enterprise standards on their own websites. for Market Supervision and Administration and on
• Ensure the enterprise standards ‘top runner’ system is 2nd July 2021, the Decision on Amending the ‘Interim
fair, open, transparent and follows a reliable scientific Provisions on Administrative Punishment Procedures
process. for Market Supervision and Administration’ and Two
• Protect the IPR of enterprise standards. Other Regulations, which regulate the penalties for non-
Industry standards compliance with market surveillance requirements.19&20
• Enhance coordination between industry standards The working group recommends that such penalties
and other standards to avoid overlaps. only apply to violations of national laws, regulations
International standards and mandatory standards, and that non-mandatory
• Continue participating in international standard-setting requirements be subject to civil liability rather than

Section Two: Horizontal Issues

activities and increase the adoption rate of identical administrative penalties.
international standards.
Another issue encountered by European companies in
certain sectors is that market surveillance of mandatory
5. Ensure Fair and Transparent Market
requirements in products is not sufficient. For example,
Surveillance
out of more than 50 categories of lighting products,
Concern the SAMR generally only checks three, and they do
The current market surveillance process for many so once a year. In addition, the quality of the products
products has been extended in practice to voluntary sold online is not properly monitored and supervised.
requirements, which are not related to mandatory Many e-commerce platforms currently do not ensure
market access requirements, while not enough strict checking of mandatory requirements, such as
products—particularly on e-commerce platforms—are the CCC and energy labelling, for the products sold on
being checked for mandatory requirements. their platforms. For example, the working group has
observed that many lighting products being sold on a
Assessment major e-commerce platform, especially those produced
While the working group recognises that product quality in Zhongshan city in Guangdong Province—the largest
surveillance and inspection in China is becoming more manufacturing hub for lighting products globally—do
standardised and systematic, it would like to highlight not have CCC certificates. Checking standards that
that some technical market surveillance requirements manufacturers claim they are compliant with is often
ar e not in li n e w i th m a n d a to ry m a rk e t access overlooked. These standards can be either mandatory,
requirements. recommended, social or enterprise standards. The
working group therefore recommends that the relevant
Market surveillance has been extended in practice to authorities implement proper checks to ascertain if
recommended and voluntary standards, which has these claimed standards are really being followed.
resulted in the punishment of manufacturers whose In particular, when the standards are part of the ‘top
products do not meet the requirements. This increases runner’ system, it is important to check the compliance
workloads for both manufacturers and the authorities, of products with said standards in order to support the
and prevents them from focussing on important tasks fairness of the programme.
such as improving EHS and preventing deceptive
practices. Additionally, in market surveillance processes, To ensure a sufficient level of surveillance, more
European business have been strongly encouraged to resources are needed to perform compliance checks. In
make extensive disclosures for enterprise standards. line with international best practices, more commercial
The working group therefore recommends aligning organisations—like industry associations and testing
market surveillance and market entry requirements, and laboratories—could be allowed to perform that type
limiting market surveillance to compliance with national
laws, regulations and mandatory standards. 19 Interim Provisions on Administrative Punishment Procedures for Market
Supervision and Administration, SAMR, 2nd January 2019, 12th April 2021, <http://
gkml.samr.gov.cn/nsjg/bgt/201901/t20190102_279555.html>
On 2nd January 2019, the SAMR released the Interim 20 Decision on Amending the ‘Interim Provisions on Administrative Punishment
Procedures for Market Supervision and Administration’ and Two Other
Provisions on Administrative Punishment Procedures Regulations, SAMR, 2nd July 2021, viewed 20th April 2022 <http://www.gov.cn/
gongbao/content/2021/content_5639835.htm>

Standards and Conformity Assessment Working Group 137

 of work provided they meet relevant accreditation Abbreviations
requirements. Meanwhile, the authorities could also
14FYP 14th Five-year Plan
consider developing diverse channels to identify
ATEX Equipment for Potentially Explosive
more non-compliant products on the market. One
Atmospheres
avenue could be to develop a smartphone application,
BCS Business Confidence Survey
WeChat mini-programme or official website that allows
CCC China Compulsory Certification
consumers and other relevant stakeholders to report
EHS Environment, Health and Safety
non-compliant products in the market. This practice has
EU European Union
provided positive results in international markets like
FIE Foreign-invested Enterprise
India.
Section Two: Horizontal Issues

IP Intellectual Property
IPR Intellectual Property Rights
Finally, the working group believes that, in order to
KR Key Recommendation
avoid instances of the performance/safety features of
R&D Research and Development
products sold in the market differing from the samples
SAC Standardisation Administration of
sent for testing, the authorities should intensify their
China
follow-up market checks, and develop processes and
SAMR State Administration for Market
penalties that serve as effective deterrents.
Regulation
SCA Standards and Conformity Assessment
Recommendations
TC Technical Committee
• Align market surveillance and market access
WTO/TBT Technical Barriers to Trade of the
requirements.
World Trade Organisation
• Limit administrative penalties in market surveillance to
the violation of laws, regulations, mandatory standards
and certification schemes, and make non-mandatory
requirements in market surveillance subject only to
civil liability.
• Increase the number of product categories to be
checked in the market.
• Increase market surveillance efforts regarding
e-commerce platforms and impose stricter verification
requirements.
• Increase market surveillance in the case of certain
enterprise standards.
• A l l o w c o m m e r c i a l o r g a n i s a t i o n s t h a t m e e t
accreditation requirements to join market surveillance.
• Provide diverse channels for reporting non-
compliance.
• Intensify follow-up market checks, and develop
processes and penalties that serve as effective
deterrents.
• Allow commercial organisations that meet accreditation
requirements to join market surveillance.

138 Standards and Conformity Assessment Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

Quality and Safety Services Sub-working Group

Introduction to the Sub-working Group QSS sector, while foreign-invested TIC agencies
account for only a small portion. Despite TIC services
Established in 2012, the Quality and Safety Services
being included in the Catalogue of Encouraged
(QSS) Sub-working Group is a sub-working group of the
Industries for Foreign Investment, 1&2 government-
Standards and Conformity Assessment (SCA) Working
affiliated TIC agencies are still favoured in terms of
Group. The QSS sector is made up of independent
developing national and industry standards, receiving

Section Two: Horizontal Issues

third-party agencies that provide manufacturers, trade-
important science and research projects, and being
related parties and end users with testing, inspection
appointed or recommended as third-party organisations
and certification (TIC) services, and other conformity
in government procurement. This puts foreign-invested
assessment services related to their products and
QSS agencies at a competitive disadvantage in
management systems, with the aim of improving the
areas that are of crucial importance to the Chinese
safety and quality of products on the market. The
Government.3
members of the sub-working group are primarily
European TIC industry leaders that have operated in
Market Developments in the TIC Industry
China for over two decades, providing professional,
China’s TIC industry continued to grow throughout
reliable and high-quality services for Chinese
2021. According to the SAMR, there were 932
manufacturers and other sectors.
certification bodies in the country as of the end of 2021,
representing 28 per cent year-on-year growth; a total of
These member companies have contributed significantly
3,020,000 verification certificates were issued by TIC
to both China's market-orientated reforms and the
agencies to 867,000 companies or organisations, an
Belt and Road Initiative by sharing their expertise and
increase of 12 per cent and eight per cent respectively
advanced management experience with the State
year-on-year; and 49,000 TIC agencies were
Administration for Market Regulation (SAMR) and the
accredited, representing 11 per cent growth year-on-
Certification and Accreditation Administration of China
year.4
(CNCA). The sub-working group identifies industry
concerns and makes constructive recommendations
Developments in the Regulatory Environment
in order to create a more transparent and better-
On 8th April 2021, the SAMR published the Measures
coordinated QSS system that improves market access
for the Regulation and Administration of Testing and
for all players. The sub-working group is advocating
Inspecting Institutions, 5 with the aim of increasing
for China to further open its TIC market and provide
accountability, improving overall management,
opportunities for cooperation between Europe and
and combatting dishonest and fraudulent practices
China in the area of quality and safety management.
among testing and inspection service providers, while
regulating the overall development of the industry.
Recent Developments
Compared to other major economies, China imposes
1　Catalogue of Encouraged Industries for Foreign Investment (2019), National
strict regulations on third-party TIC agencies, which Development and Reform Commission (NDRC) and Ministry of Commerce
come under the primary purview of the SAMR. China’s (MOFCOM), 30th June 2019, viewed 23rd March 2022, <http://www.mofcom.gov.
cn/article/b/f/201906/20190602877005.shtml>
regulatory agencies exert a tremendous amount of 2　Catalogue of Encouraged Industries for Foreign Investment (2020), NDRC and
influence on quality and safety systems—as well as the MOFCOM, 27th December 2020, viewed 23rd March 2022, <http://www.mofcom.
gov.cn/article/zcfb/zcwgtz/202012/20201203026619.shtml>
development and enforcement systems for standards— 3　For more details about difficulties foreign-invested TIC agencies are facing,
by dictating the development of national quality please refer to Key Recommendation 3 of the Standards and Conformity
Assessment Working Group Position Paper 2022/2023.
infrastructure regulations. 4　Report on the 2022 National Certification, Accreditation, Testing & Inspection
Conference, CNCA, 21st January 2022, viewed 10th April 2022, <http://www.cnca.
gov.cn/rdzt/gzhy/202201/t20220128_65967.shtml>
State-owned enterprises and government-affiliated 5　Measures for the Regulation and Administration of Testing and Inspection
organisations have significant market share in China’s Institutions, SAMR, 8th April 2021, viewed 10th April 2022, <https://gkml.samr.gov.
cn/nsjg/fgs/202104/t20210423_328131.html>

Quality and Safety Services Sub-working Group 139

 On 22 nd November 2021, the SAMR solicited public Furthermore, in the process of promoting a market-
comments on the revised Regulations of the People's orientated approach to public resource allocation,
Republic of China on Certification and Accreditation,6 many current practices are found to conflict with current
with the sub-working group subsequently submitting legislation, and are not in line with China’s efforts
comments collected from member companies. The to join the World Trade Organization’s Agreement
sub-working group hopes that the SAMR will take on Government Procurement. Public bidding and
these comments into consideration and adopt the most competitive negotiation are the two statutory methods
practical before publishing the revised regulations. of public procurement most commonly adopted by
the Chinese authorities. Comparatively speaking, the
Key Recommendations process of competitive negotiation is less contentious,
Section Two: Horizontal Issues

as it relies solely on prices to determine winning

1. Ensure Equal and Fair Treatment in bids and the tender price will eventually be publicly
Government Procurement Activities for announced. The public bidding process, on the other
Foreign-invested TIC Agencies hand, involves a comprehensive scoring method with
price accounting for only a portion of the score. Other
Concern
factors, such as product quality, sales and after-sales
Certain unreasonable conditions set in government
services, are taken into consideration, which can
procurement activities constitute invisible barriers that
leave the system at risk of manipulation. Specifically,
exclude foreign-invested TIC agencies from obtaining
bidding requirements could be established to impede
equal and fair treatment during the process.
bidders that are otherwise qualified but unable to meet
unreasonable procurement rules set in the bidding
Assessment
document.
China is committed to and has achieved notable results
in establishing a government procurement system
In July 2019, the MOF issued the Notice on Promoting
that provides equal and fair treatment for domestic
Fair Competition in Government Procurement and
enterprises and foreign-invested enterprises (FIEs).7
Optimising the Business Environment, 9 requiring
On 26th October 2021, the Ministry of Finance (MOF)
all relevant government authorities to eliminate any
released the Notice on the Implementation of Policies
practices and regulations that hinder fair competition
Relating to the Equal Treatment of Domestic and
in the field of government procurement. It also requires
Foreign Enterprises in Government Procurement,8 a
the authorities to implement a fair competition review
reform initiative to expand the scope of procurement.
system in line with both the Plan for Deepening the
As a result, more third-party inspection agencies have
Reform of the Government Procurement Mechanism
been able to participate in government quality sampling
and the Notice by the State Council General Office
and inspection activities.
on Focussing on Enterprises' Concerns and Further
Promoting the Implementation of Policies to Optimise
However, since this reform involves multiple parties,
the Business Environment.10&11 Any public procurement
overlapping responsibilities between different authorities
tenders that have not undergone a fair competition
have become a prominent issue. The imposition of
review process cannot be published at all.
unfair and unreasonable bidding requirements in
government procurement that exclude or restrict market
However, in practice, some local governments still adopt
competition is another major hurdle encountered by
terms or conditions that could be considered to exclude
FIEs.
9 Notice on Promoting Fair Competition in Government Procurement and
Optimising the Business Environment, MOF, 26 th July 2019, viewed 10 th
6　Notice on Call for Public Consultation on Regulations of the People's Republic of April 2022, <http://www.mof.gov.cn/gkml/caizhengwengao/wg201901/
China on Certification and Accreditation, 22nd November 2021, viewed 28th April wg201908/201912/t20191230_3452065.htm>
2022, <https://www.samr.gov.cn/hd/zjdc/202111/t20211122_337100.html> 10 Plan for Deepening the Reform of the Government Procurement Mechanism,
7　State Council Policy Briefing on 29th October 2019, State Council Information Central Committee for Deepening Overall Reform, 14th November 2018, viewed
Office, 29 th October 2019, viewed 10 th April 2022, <http://www.gov.cn/ 10th April 2022, <http://www.cgpnews.cn/articles/46544>
xinwen/2019zccfh/69/index.htm> 11 Notice of the State Council General Office on Focussing on Enterprises'
8　Notice on the Implementation of Policies Relating to the Equal Treatment of Concerns and Further Promoting the Implementation of Policies to Optimise
Domestic and Foreign Enterprises in Government Procurements, MOF, 26th October the Business Environment, State Council General Office, 8th November 2018,
2021, viewed 23rd May 2022, <http://www.gov.cn/zhengce/zhengceku/2021-10/26/ viewed on 10th April 2022, <http://www.gov.cn/zhengce/content/2018-11/08/
content_5644953.htm> content_5338451.htm>

140 Quality and Safety Services Sub-working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

or restrict competition in their bidding processes. 2. Accelerate Market-orientated Reforms

For instance, factors taken into consideration under of Government-affiliated TIC Agencies,
the public bidding system include: 1) enterprises’ and the Establishment of a Fair, Open
experiences in sampling and inspection services TIC Market System
carried out by administrations for market regulation
at the national and provincial level; 2) experience Concern
in developing national or industrial standards; 3) The progress of market-orientated reforms of
recommendations or awards received; and 4) year- government-affiliated TIC agencies needs to be
end performance reviews. However, government accelerated to further remove industry barriers.
outsourcing of sampling and inspection services was

Section Two: Horizontal Issues

only recently opened nationwide to the private sector, Assessment
meaning that foreign-invested TIC agencies have not TIC services play a vital role in promoting the sustainable
had enough time to accrue relevant sampling and development of entire industries, safeguarding the
inspection service experience.12 Foreign-invested TIC rights and interests of consumers, and facilitating trade,
agencies also have fewer opportunities to take part service market regulation and social governance.
in Chinese standardisation technical committees or Having more world-leading foreign-invested players
sub-committees, or to participate in the development in the China market is beneficial to end-users and
of national or industry standards. Moreover, awards, consumers, as the quality, safety and performance
commendations and performance assessments are metrics of products will be better guaranteed. In
only available for public agencies and do not directly addition, a market filled with more competent players
relate to the capabilities of bid participants. helps to accelerate overall industry upgrading and
replace lower-quality service providers with high-quality
These inherent problems in the evaluation criteria ones, which can provide an assessment basis for
for private inspection and testing agencies constitute government and regulatory officers.
unreasonable invisible barriers, particularly for foreign-
invested agencies. They have resulted in foreign- For the TIC industry to further facilitate economic and
invested TIC agencies receiving low scores in bidding social progress, a more mature, market-orientated,
and being practically excluded from market competition. transparent system needs to be developed, in which
fair competition is promoted among all TIC agencies,
Recommendations whether state-owned, Chinese private or foreign-
• Regulate government procurement by establishing a invested.
fair, transparent, impartial and efficient management
system. The Modernisation of Market Regulation and
• Remove all conditions that are not related to the Administration in the 14th Five-year Plan, published by
capabilities necessary to perform the bid, and the State Council in December 2021, clearly states that
provide a platform for fair competition among testing the market-orientated reform should be maintained and
and inspection service providers. reform of TIC agencies actively encouraged, along with
the development of third-party testing and inspection
service providers. 13 The sub-working group believes
that a specific market-orientated reform initiative
would foster a fair and open TIC market system, and
accelerate growth of the TIC industry overall, which
would serve economic and social development to the
12 Despite several local governments outsourcing third party inspection services greatest extent.
since 2013, it was not until the introduction of the Administrative Measures on
Food Safety Sampling Inspection, approved by the SAMR on 30th July 2019,
and effective on 1st October 2019, that sampling and inspection services were The sub-working group also believes that further
officially opened to private inspection agencies. Article 11, Chapter 3 of these progress in market-orientated reforms of government-
measures clearly state that market regulatory and administrative entities may
independently perform sample tests or authorise a service provider to do
so: Administrative Measures on Food Safety Sampling Inspection, SAMR, 13 The Modernisation of Market Regulation and Administration in the 14th Five-year
1 st October 2019, viewed 22 th June 2022, <https://gkml.samr.gov.cn/nsjg/ Plan, State Council, 14th December 2021, viewed 10th April 2022, <http://www.
fgs/201908/t20190816_306080.html> gov.cn/zhengce/content/2022-01/27/content_5670717.htm>

Quality and Safety Services Sub-working Group 141

 affiliated TIC agencies is needed. This was invested TIC agencies are restricted from providing
acknowledged in the 13th Five-year Plan for China's container inspection services.
Testing, Inspection, Certification and Accreditation
Development, 14 issued in November 2016 by the Assessment
then General Administration of Quality Supervision, In China, containers are currently subject to statutory
Inspection and Quarantine and other government surveys managed by the Ministry of Transport and
authorities. 15 However, the latest statistics released the China Maritime Safety Administration. The latter
by the SAMR for the TIC industry show that, by the delegates the qualification of statutory surveys of
end of 2020, government-affiliated TIC agencies still containers solely to the China Classification Society
accounted for 22.81 per cent of all 48,919 TIC agencies (CCS)—a secondary public interest institution—which
Section Two: Horizontal Issues

in the country.16 then subcontracts the work to its subsidiary company,

the China Classification Society Certification Company,
In addition, varying degrees of industry barriers authorising it to carry out surveys of containers
remain, such as unreasonable and non-transparent owned by both domestic and foreign enterprises.
market access conditions. These barriers are present Pursuant to the Regulations of the People's Republic
predominantly in domains related to the inspection of of China Governing Inspection of Ships and Offshore
industrial products that require administrative permits, Installations,17 the Notice on Improving the Supervision
such as special equipment and healthcare equipment. and Management of Inspections Carried Out by Foreign
The relevant administrative authorities set high market Ship Inspection Agencies in China and the Vessel
entry thresholds and onerous documentation, such as Inspection Administration Regulations, 18&19 foreign-
requiring TIC agencies to provide total headcounts, invested ship inspection agencies registered in China
as well as the titles and qualifications of their staff, are only permitted to inspect containers owned by
which impedes fair competition. If such barriers are not foreign businesses (i.e., foreign export containers). In
removed, it will not be possible to introduce advanced other words, foreign-invested inspection and testing
technologies and experience to the Chinese market in a service providers registered in China are not permitted
timely manner, and innovation and competitiveness will to conduct legal inspections on containers owned by
be restricted, thereby impeding overall development of domestic organisations subject to such requirements.
the Chinese TIC industry.
The sub-working group recommends that China
Recommendations open up the container inspection market to ship
• Continue accelerating market-orientated reform of inspection agencies from all member states signatory
government-affiliated TIC agencies. to the International Convention for Safe Containers
• Reduce excessive and unclear market access (Convention), 20 and grant foreign-invested TIC
barriers and adopt international norms for agencies authorisation to provide inspection services
assessment. for containers owned by Chinese businesses, for the
• Provide true national treatment for foreign-invested following reasons:
TIC agencies.
1) To meet the principle of reciprocity
3. Allow Foreign-invested TIC Agencies to The relevant authorities of European Union (EU)
Provide Container Inspection Services Member States neither restrict Chinese inspection

17 Regulations of the People's Republic of China Governing Survey of Ships and

Concern Offshore Installations, State Council, 2nd March 2019, viewed 10th April 2022,
<http://www.gov.cn/gongbao/content/2019/content_5468917.htm>
According to certain government regulations, foreign- 18 Notice on Improving the Supervision and Management of Inspections Carried
Out by Foreign Ship Inspection Agencies in China, pkulaw.cn, 2nd March 2009,
14 The 13 th Five-year Plan for China's Testing, Inspection, Certification and viewed 10th April 2022, <http://pkulaw.cn/fulltext_form.aspx?Db=chl&Gid=8492e
Accreditation Development, CNCA, 3rd November 2016, viewed 11th May 2022, 9f098114d90bdfb>
<http://www.cnca.gov.cn/rdzt/2015/sswzt/zcdt/201612/t20161213_53010.shtml> 19 Vessel Inspection Administration Regulations, MOT, 4th February 2016, viewed
15 Its functions are now assumed by the CNCA and the Standardisation 10th April 2022, <http://xxgk.mot.gov.cn/jigou/fgs/201602/t20160204_2973409.
Administration. html>
16 SAMR’s Latest Data for Year 2020 on the Development of China’s TIC Industry, 20 International Convention for Safe Containers, International Maritime Organization,
9th June 2021, viewed 28th April 2022, <http://epaper.cqn.com.cn/article/498931. 6th September 1977, viewed 10th April 2022, <https://www.imo.org/en/About/
html> Conventions/Pages/International-Convention-for-Safe-Containers-(CSC).aspx>

142 Quality and Safety Services Sub-working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

agencies or their inspection companies established applications and human resource policies.22
in EU countries to inspecting containers owned by
non-EU governments, nor do they prohibit them from 4) To avoid monopolistic behaviour, in line with
inspecting containers owned by businesses from international practices
EU countries. Therefore, it is recommended that the The statutory inspection of containers is a charged
relevant authorities in China follow the principle of service provided by third parties. The service fees are
reciprocity. The sub-working group also suggests that adjusted in accordance with market prices, and supply
China no longer restrict the licensed business scope of and demand, as international practices dictate. In the
inspection agencies in China, which are invested in and majority of jurisdictions worldwide, enterprises are at
established by European classification societies, based liberty to choose inspection services from international

Section Two: Horizontal Issues

on the nationality of container owners. classification societies that have the qualifications
required by the Convention for statutory inspection
2) To meet the principle of mutual recognition of services. When administrative measures specify only
the Convention a single organisation can provide such services, a
According to the Convention, once an inspection agency monopoly can easily result, as this results in a lack
obtains the necessary qualification to survey containers of competition and a price adjustment mechanism for
from one contracting state, then all contracting states inspection fees.
must accept the qualification of the agency in question,
as well as the inspection process and results it provides. 5) To promote the development of the industry and
However, such mutual recognition is not observed in the alleviate the burden on enterprises
Chinese market, with European enterprises restricted T h e i m p l e m e n t a t i o n o f t h e Ve s s e l I n s p e c t i o n
to inspecting only containers owned by foreign Administration Regulations has been impeded by
businesses. In so doing, China does not recognise China’s administrative policy that foreign ship inspection
the qualifications granted by the governments of the companies cannot carry out surveys of containers
counterpart contracting states and, as such, violates the owned by Chinese enterprises.23 For instance, if foreign
principle of mutual recognition under the Convention. ship inspection companies wish to conduct inspection
services on Chinese hazardous cargo tank containers
3) To conform to the 'pre-establishment national used for international shipping to Europe, when applying
treatment plus negative list' administrative system for a testing certificate with the CCS, they also need
Article 4 of the Foreign Investment Law stipulates to apply separately for an additional certificate issued
that China will apply the 'pre-establishment national by a ship inspection company domiciled in an EU
treatment plus negative list' administrative system to Member State and registered in China. This certificate
foreign investments. This means there is an obligation is issued after the same tank containers are tested in
to treat foreign investors in industries not included in accordance with the European Agreement Concerning
the Negative List for Foreign Investment (Negative the International Carriage of Dangerous Goods by
List), jointly issued by the National Development Road. This certificate is required because China has
and Reform Commission (NDRC) and the Ministry yet to become a member of the European Agreement;
of Commerce (MOFCOM), 21 no less favourably than consequently, without the authorisation of EU countries,
domestic investors at the initial stage of market the CCS cannot issue a corresponding certificate for
access. In addition, Article 6 of the Regulation on these containers. Therefore, the policy prohibiting
the Implementation of the Foreign Investment Law EU-domiciled ship inspection agencies in China from
stipulates that domestic enterprises and FIEs shall inspecting Chinese-owned containers prevents Chinese
be treated equally by the authorities with respect to businesses from receiving the desired services. It
government funding arrangements, land supply, tax also adversely affects China’s international shipping
reductions, certification, standard setting, project business and impedes the advancement of the Belt and

22 Regulation on the Implementation of the Foreign Investment Law, State Council,

26 th December 2019, viewed 10 th April 2022, <http://www.gov.cn/zhengce/
21 China’s Negative List for Foreign Investment Access (New Edition): English content/2019-12/31/content_5465449.htm>
Version Available, China Briefing, 28th December 2021, viewed 13th May 2022, 23 Vessel Inspection Administration Regulations, MOT, 4th February 2016, viewed
<https://www.china-briefing.com/news/chinas-foreign-investment-negative-list- 10th April 2022, <http://xxgk.mot.gov.cn/jigou/fgs/201602/t20160204_2973409.
2021-edition-english-version/> html>

Quality and Safety Services Sub-working Group 143

 Road Initiative. Moreover, the cost burden is doubled, small proportion of the total,24 which is a model unique
as two inspection agencies must carry out a procedure to China.
that could otherwise have been completed by one.
Supervision, inspection and periodic inspection of
Recommendation special equipment tasks are allocated to inspection
• Allow foreign-invested TIC agencies to provide agencies within the market regulatory system by the
container inspection services. SAMR, based on reasonable assignment of regional
jurisdiction. Responsibility for inspection results and
4. Accelerate the Marketisation Process of quality is also delegated to these agencies. Public TIC
Special Equipment Inspection Services institutions are categorised as either state-funded,
Section Two: Horizontal Issues

partially state-funded or self-funded, the latter two being

the most dominant in the market. By that logic, testing
Concern and inspection fees are of a public administrative nature
The rapid development of China's economy and society and are charged to organisations that manufacture,
has exposed many issues in its TIC industry, including install and use special equipment at prices fixed by the
a lack of clarity in terms of accountability, insufficient price supervision authorities. The revenue from testing
supply, low productivity and corruption. and inspection services for special equipment is a
significant source of income for government inspection
Assessment agencies, whose qualifications are granted by the
‘Special equipment’—a term used in China—is defined SAMR.
as equipment that could pose a significant risk to
health and safety, such as boilers, pressure vessels The current model for the testing and inspection of
(including gas cylinders), pressure pipes, elevators, special equipment in the Chinese market is problematic
lifting machinery, passenger ropeways, large-scale in the following ways:
amusement facilities and special-purpose motor
vehicles. There is no universal standard definition of 1) Unclear liabilities for different parties
this concept, with other countries enacting special According to Chinese law, special equipment must
laws for a certain group of devices that could pose a undergo testing and inspection before being put into
significant risk to human safety, providing provisions use. Manufacturers and users assume primary liability,
on safety supervision. The list of items for specialised with government departments assuming supervisory
supervision is similar to China’s. Inspection and testing liability and inspection agencies inspection liability.
of special equipment refers to the supervision, regular Currently, special equipment inspection and testing
inspection and type-testing of boilers, pressure vessels in China is conducted by inspection agencies under
(including gas cylinders), pressure pipelines, elevators, regulatory agencies and is an administrative practice.
hoisting machinery, passenger ropeways, large-scale These agencies charge fees and issue inspection
amusement facilities, and non-destructive testing for the reports just like ordinary businesses, making it hard to
production, use and inspection of such equipment. distinguish between government authority and business
operation responsibilities. This means that government
There was a large increase of special equipment inspection agencies play the role of both referee and
recorded in China in 2021. As of the end of 2021, player at the same time.
China had set up 5,075 supervisory agencies to test
and inspect special equipment—one national-, 33 2) Prone to corruption
provincial-, 496 municipal-, 2,570 county- and 1,973 Enterprises are not allowed to choose an inspection
district-level—supported by 112,363 supervisory
workers. The majority of testing and inspection agencies 24 As of the end of 2021, special equipment across China amounted to
181,623,000 units, including: 347,100 boilers; 4,694,900 pressure vessels;
are government-affiliated institutions tasked with quality 8,799,800 elevators; 2,730,200 units of heavy-lifting machinery; 1,114 passenger
supervision, with non-public agencies making up only a ropeways; 25,200 large-scale amusement facilities; 1,564,000 special-
purpose motor vehicles. Additionally, there were 202,000,000 gas cylinders and
7,575,000 kilometres of pressure pipelines. See: Notice on the Safety Status of
Special Equipment in 2021 by the State Administration for Market Regulation,
SAMR, 19th April 2022, viewed 25th April 2022, <https://gkml.samr.gov.cn/nsjg/
tzsbj/202204/t20220419_341377.html>

144 Quality and Safety Services Sub-working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

agency due to the 'regional coverage' assignment of institutions to make the TIC industry market-orientated.
testing and inspection services for special equipment.
This means that government authorities have absolute The importance of market-orientated reforms is as
dominance in the industry. This has resulted in follows:
insufficient performance improvements for government
inspection and testing agencies, a high degree of 1) They help balance the shortfall in the supply of
exclusiveness and ultimately poor service. Inadequate testing and inspection services for special equipment
supervision can even lead to agencies leveraging their and the general public’s safety needs. Making
power to gain market share. testing and inspection services market-orientated
can effectively improve their volume, quality and

Section Two: Horizontal Issues

3) Inadequate supply of services efficiency, thereby addressing safety issues.
In recent years, the surge in the volume of special 2) They accelerate changes to government functions
equipment in China has led to rapidly growing demand and reform of public institutions. Developing special
for testing and inspection services. In response, the equipment testing and inspection services that are
authorities have integrated inspection agencies to market-orientated would force public institutions
combine their resources. Although some progress to shift from a self-serving role to a consumer-
has been made, the primary role of the market in orientated one.
allocating resources is not being fully utilised, given 3) They help stimulate social vitality and promote
that the authorities still decide which companies will be societal development. Progressing towards market-
responsible for inspections. Restricted by the nature orientated testing and inspection services for special
of China’s public institution system, local government equipment allows the authorities to ‘return’ power to
inspection agencies lack the staff required to cope with the market and society.
the burgeoning demand for special equipment. This
leads to sub-par inspections and quality, which results Recommendations
in high accident rates. • Establish a market competition mechanism and allow
enterprises to freely choose inspection agencies for
The factors causing the above problems are as follows: statutory inspections.
• Enhance the diversity of inspection entities to provide
1) Lack of competition both greater consumer choice and space for non-
Fair competition is the most powerful driving force in government-affiliated inspection agencies to grow.
upgrading service standards and quality. Given the
monopolistic position held by public institutions and 5. Establish and Implement in a Timely
government-affiliated agencies in TIC, the absence of Manner a System for Customs to Accept
external pressure from competitive players in the field Inspection Results from Third-party
means there is little impetus for the improvement of Agencies for Imported Commodities,
efficiency and service quality. Including Imported Bulk Commodities

2) Lack of flexibility in public institutions’ systems

Government-affiliated agencies are highly restricted by Concern
public institution management systems with regard to While demand for inspections is increasing,
personnel, pricing, technical research and development, customs inspection talent is both in short supply and
and equipment investment. As such, these agencies geographically imbalanced, which slows customs
lack the discretion and liberty of deciding their own clearance processes for imported commodities and
development path, making it difficult for them to grow as affects trade facilitation.
scientific and technical organisations. In addition, they
face a contradiction – on one side they are labelled non- Assessment
profit, public institutions, while on the other, revenue As China’s economy continues to develop, higher
is one of the indicators for performance appraisal by standards of customs supervision and services are
the local supervision bodies. This dilemma can only be required. While customs services have improved
addressed in tandem with the state's reform of public in recent years, customs clearance efficiency is

Quality and Safety Services Sub-working Group 145

 still lacking. Reforms are needed that can optimise The advantages of accepting third-party inspection
clearance management, reduce both clearance costs results are as follows:
and the time needed for import and export, and increase
supervision efficiency. 1) Greater relief in areas where law enforcement
lacks staff and funding
China is stepping up reforms to simplify administration Third-party agencies can make up for the lack of
and delegate power, combine decentralisation and enforcement power due to shortages in human
management, and optimise public services. In this resources and funding among existing supervisory
context, third-party inspection agencies are starting authorities.
to play an increasingly important role in the quality
Section Two: Horizontal Issues

and safety supervision of imported and exported 2) Improved inspection processes

commodities. According to the Opinions of the State Reliable third-party agencies can be utilised to ensure
Council on Improving the Quality Safety Risk Early imported commodities maintain the same quality
Warning and Quick Response Regulation System and safety standards as in their country of origin by
for Imports and Exports and Effectively Protecting extending inspection services overseas. This can
Consumer Rights and Interests, 25 customs should address complex problems that could arise with
improve the management system in order to accept overseas law enforcement, for example, relating to
inspection results from qualified third-party agencies the legality of jurisdiction and protection of domestic
and thereby encourage their participation in supervision industries.
work. The sub-working group believes that third-party
inspection results will become the primary means 3) Increased versatility of law enforcement and
to supervise the quality of imported and exported supervision
commodities. This practice will also apply to imported The supervisory authorities tend to struggle to adjust
bulk resource-based commodities. law enforcement standards and procedures to meet
the evolving needs of commodity quality and safety
On 1 st October 2020, in a significant shift in its supervision. Third-party agencies are able to rapidly
inspection and supervision of imported crude oil, the update their inspection criteria and methods, which
customs authorities implemented the ‘release before could help mitigate authorities’ enforcement limitations.
declaration modification’, which allows cargo to be As such, third-party agencies are better able to respond
unloaded while samples are sent for inspection.26 This to emerging commodity quality and safety crises.
model was introduced to further optimise the business
environment at ports and significantly reduce the In October 2021, the General Administration of Customs
clearance time and costs for imported crude oil, thereby (GAC) sought public opinions on the Administrative
facilitating trade. Under the new policy, crude oil is Measures for Customs Import and Export Commodity
subject to customs inspection and can only be sold or Inspection and Credit Acceptance (Draft for Comments)
used by enterprises after being issued a certificate of (Administrative Measures).27 The sub-working group
quality. Although it reduces clearance time, inspection welcomes the draft, which is aimed at improving
work is still necessary and a backlog may build up if both the trade supervision model and increasing the
the volume of bulk imports continues to increase. This efficiency and volume of commodity import and export
would result in import and export enterprises having transactions. The sub-working group hopes that the
to queue up for their inspection results. An effective GAC will issue the official version of the Administrative
solution would be to allow third-party inspection Measures, along with all necessary supporting
agencies market access and accept their inspection documentation, and implement the inspection
results. acceptance management system in a timely manner,
taking into account the comments provided by all
25 Opinions of the State Council on Improving the Quality Safety Risk Early
Warning and Quick Response Regulation System for Imports and Exports stakeholders, including testing and inspection agencies.
and Effectively Protecting Consumer Rights and Interests, State Council,
14th September 2017, viewed 20th June 2022, <http://www.gov.cn/gongbao/
content/2017/content_5232364.htm> 27 GAC Notice on Call for Public Comments on the Administrative Measures for
26 ‘Release before Declaration Modification’ Regulation to Speed up Imported Customs Import and Export Commodity Inspection and Credit Acceptance (Draft
Crude Oil Inspection, GAC, 12th October 2020, viewed 25th April 2022, <http:// for Comments), GAC, 8th October 2021, viewed 25th April 2022, <http://www.
www.customs.gov.cn//customs/xwfb34/302425/3313452/index.html> customs.gov.cn/customs/302452/302329/zjz/3938404/index.html>

146 Quality and Safety Services Sub-working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

Recommendations
• Create and implement a system for customs to
accept third-party inspection results for imported and
exported commodities as soon as possible.
• Open up the market and accept evaluations by all
inspection agencies, including foreign-invested,
private and state-owned agencies, and grant equal
treatment to foreign-invested inspection agencies.

Section Two: Horizontal Issues

Abbreviations
CCS China Classification Society
FIE Certification and Accreditation
Administration of China
EU European Union
FIE Foreign-invested Enterprise
GAC General Administration of Customs
MOF Ministry of Finance
MOFCOM Ministry of Commerce
NDRC National Development and Reform
Commission
QSS Quality and Safety Services
SAMR State Administration for Market
Regulation
TIC Testing, Inspection and Certification

Quality and Safety Services Sub-working Group 147

3 Section Three
Goods
 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

Goods

The Goods section of the Position Paper encompasses 11 European Chamber working groups and
four sub-working groups:

• Agriculture, Food and Beverage • Fashion and Leather

- Paediatric Nutrition, and Food for Special Medical Purpose • Healthcare Equipment
(two working groups) • Maritime Manufacturing and
- Dairy Industry Industrial Services
• Automotive • Petrochemicals, Chemicals
• Automotive Components and Refining
• Cosmetics • Pharmaceutical
• Energy • Rail
- Carbon Market

Section Three: Goods

Business became more difficult in 2021 for 54 per cent of respondents to the European Chamber’s
Business Confidence Survey 2022 (BCS 2022) that manufacture goods. The main causes for this
were ongoing COVID-19-related restrictions, China’s complex and opaque regulatory environment,
and the increased politicisation of business. Maritime manufacturing and services was an outlier in
this regard, with a notable 90 per cent of respondents from the industry reporting that the business
environment improved in 2021.1 This is partly due to new International Maritime Organization (IMO)
measures aimed at reducing carbon emissions,2 alongside greater pressure to decarbonise shipping.3
Shipowners need to now either invest in efficiency improvements or order new vessels to replace or
upgrade part of their non-compliant fleet.

By contrast, not a single member from the healthcare equipment and pharmaceutical industries
reported that doing business got easier in 2021.4 This is in no small part due to China’s staunch
protection of its domestic firms, a concerning dynamic that has continued despite the ongoing
pandemic.5 For example, in the medical devices industry, the Chinese Government continues to
provide local firms with direct financial support, tax benefits and research and development incentives,
while maintaining opaque approval processes and its centralised volume-based procurement (VBP)
directive, which disadvantages foreign companies.6 A significant 72 per cent of BCS 2022 respondents

1　European Business in China Business Confidence Survey 2022, European Union Chamber of Commerce in China, 20th June 2022, viewed 13th July 2022,
<https://www.europeanchamber.com.cn/en/publications-archive/1020/Business_Confidence_Survey_2022>
2　 Two IMO indexes—the Efficiency Existing Ship Index (EEXI) and the Carbon Intensity Indicator (CII)—have been established to provide shipowners with
a reference point to reduce their greenhouse gas emissions levels: Understanding New IMO Decarbonisation Measures EEXI And CII, Bureau Veritas, 3rd
May 2021, viewed 8th April 2022, <https://www.bvsolutions-m-o.com/magazine/understanding-new-imo-decarbonization-measures-eexi-and-cii>
3　See for example: Sustainable maritime fuels - 'Fit for 55' package: the FuelEU Maritime proposal, European Parliament, 11th April 2022, viewed 13th April,
<https://www.europarl.europa.eu/thinktank/en/document/EPRS_BRI(2021)698808>
4　European Business in China Business Confidence Survey 2022, European Union Chamber of Commerce in China, 20th June 2022, viewed 13th July 2022,
<https://www.europeanchamber.com.cn/en/publications-archive/1020/Business_Confidence_Survey_2022>
5　Protectionism in critical industries has existed for some time in China, but it is even more troubling at a time when the fight against the pandemic would be
best served by deploying the best technologies and solutions, regardless of origin.
6　Erixon, Fredrik, Guildea, Anna, Guinea, Oscar & Lamprecht, Philip, China’s Public Procurement Protectionism and Europe’s Response: The Case of
Medical Technology, European Centre for International Political Economy, December 2021, viewed 18th April 2022, <https://ecipe.org/publications/chinas-
public-procurement-protectionism/>

Goods 149
 from the healthcare equipment industry reported missing out on business opportunities due to market
access restrictions or regulatory barriers, the highest among all industries represented in the survey.
The second highest was the pharmaceutical industry, with 58 per cent reporting this to be the case,
despite being granted nominal market access. China’s VBP system,7 as well as slower drug review
and approval processes,8 partly account for this and provide a good example of how some barriers that
cause foreign firms to miss opportunities are hidden.

All goods manufacturers were negatively impacted by China’s stringent COVID-19 policies throughout
2021. Local governments adopted ad hoc measures that led to long delays for and restrictions on
lorries and other freight vehicles entering their territory, and ports suffered unprecedented levels of
congestion.9 The situation deteriorated rapidly in early 2022 following Omicron outbreaks, as local
governments imposed full or partial lockdowns in at least 45 cities—accounting for 40 per cent of
China’s gross domestic product with a combined population of 370 million people—causing disruption
on an unprecedented scale.10 A flash survey conducted by the European Chamber in April 2022
revealed that these measures had a negative impact on 94 per cent of respondents overall, with 92 per
cent reporting that both upstream and downstream supply chains suffered damage.11

The chemical industry was significantly impacted by supply chain disruptions and intermittent
Section Three: Goods

chemical park closures due to China’s COVID-19 policy. Many chemical manufacturers faced logistics
bottlenecks, including shortages of raw materials, interprovincial border restrictions and a general
lack of transportation.12 These challenges posed safety risks for hazardous chemicals, and severely
disrupted production for crucial sectors such as semiconductors and healthcare, with repercussions for
international supply chains, and both the domestic and global economies.

Another hurdle for goods manufacturers was China’s energy crunch from September to October
2021, when severe power shortages occurred in at least 20 provinces.13 Local governments instructed
factories to limit power usage, curb output or even halt production until further notice, including those
compliant with environmental protection measures. The Energy Working Group is advocating for
local governments to avoid such one-size-fits-all approaches, as abrupt power shortages seriously
jeopardise industrial operations, creating short-term safety risks—especially in the chemical and
healthcare industries—and undermining business confidence in the medium to long-term. Significantly,

7　 As a result of the VBP policy, a company that wins a bulk purchase bid on generic drugs secures a sizeable chunk of the Chinese pharmaceutical market
and can reduce marketing outlays. However, the aggressive price-cutting required to win puts a huge strain on profits, and leads to a race to the bottom on
pricing: Foreign Drug Giants Undercut by up to 95% in China Bidding War, Bloomberg, 20th August 2020, viewed 4th April 2022, <https://www.bloomberg.
com/news/articles/2020-08-20/foreign-drug-giants-undercut-by-up-to-95-in-china-bidding-war>
8　In China, drug review and approvals processing for pharmaceuticals developed abroad is slower, which has resulted in foreign pharmaceutical companies
missing business opportunities. In addition, localised testing requirements for biologics and the quality of imported ingredients, increase the costs of bringing
drugs produced overseas to market, disproportionately hindering foreign firms: Atkinson, Robert, The Impact of China’s Policies on Global Biopharmaceutical
Industry Innovation, Information Technology and Innovation Foundation, 8th September 2020, viewed 4th April 2022, <https://itif.org/publications/2020/09/08/
impact-chinas-policies-global-biopharmaceutical-industry-innovation>
9　 Jiang, Yaling & Qu, Tracy, China’s COVID-19 Lockdowns Wreak Logistics Havoc and Slow Global Supply Chains, South China Morning Post, 14th April
2022, viewed 20th April 2022, <https://www.scmp.com/tech/policy/article/3174163/chinas-covid-19-lockdowns-wreak-logistics-havoc-and-slow-global-supply>
10 Hancock, Tom, Lockdown Financial Aid in China Leaves Households Behind, Bloomberg, 14th April 2022, viewed 29th April 2022, <https://www.bloomberg.
com/news/articles/2022-04-13/lockdown-financial-aid-in-china-leaves-households-behind>
11 Specifically, 85 per cent reported challenges sourcing raw materials or components needed for production; 89 per cent struggled to transport such raw
materials or components; 87 per cent had difficulties delivering finished products within China; and 83 per cent had problems delivering them to the rest of
the world. Flash Survey: COVID-19 and the War in Ukraine: The Impact on European Business in China, European Union Chamber of Commerce in China,
5th May 2022, viewed 25th July 2022, <https://www.europeanchamber.com.cn/en/press-releases/3431>
12 Analysis: China's widening COVID curbs threaten global supply chain paralysis, Reuters, 13th April 2022, viewed 15th April 2022, <https://www.reuters.com/
world/china/chinas-widening-covid-curbs-threaten-global-supply-chain-paralysis-2022-04-13>
13 Tabahriti, Sam, The global trickle down of China’s energy supply shortage, Power Technology, 30th November 2021, 13th July 2021, <https://www.power-
technology.com/analysis/china-energy-crisis/>

150 Goods
 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

since these power shortages, the central government has repeatedly emphasised the importance
of ensuring energy security while balancing economic growth and climate goals. To achieve this,
China will need to ensure European investment and technology has equal access to its renewable
energy sector, while accelerating the coal-to-gas transition and developing new, high-quality power
infrastructure and a green power market, among others.

An additional issue for European manufacturers in China is new and forthcoming supply chain
legislation. The United States (US) Uyghur Forced Labor Prevention Act (UFLPA), effective from
21st June 2022,14 restricts imports from Xinjiang and establishes a ‘rebuttal presumption’. This puts
the burden of proof on importers to show that goods being imported into the US have not been
produced using forced labour. Also on 21st June 2022, the European Council and the European
Parliament reached a political agreement on the Corporate Social Responsibility Directive (CSRD).15
The CSRD introduces strict reporting requirements, obliging large public-interest companies to
report on sustainability issues such as environmental, social and governance and human rights.
Under the CSRD, companies’ sustainability reports will have to be certified by independent, third-
party certifiers/auditors, and published in company management reports. The provisional agreement
is still subject to approval by the Council and the European Parliament.

Section Three: Goods

These challenges are putting European companies’ China operations in an increasingly precarious
position. Many are considering further onshoring their supply chains into China to better service
the domestic market. However, this may leave them highly exposed to global shocks. For example,
just 19 per cent of BCS 2022 respondents in the manufacturing sector report they do not import
any components or equipment into China that cannot be easily replaced in the event of a supply
disruption. By contrast, one in two respondents note that while they can source alternatives for
equipment/components, they will be either more expensive or lower quality and/or with compatibility
issues. A further 31 per cent of manufacturers import critical components for which they cannot
source alternatives at all.

Looking forward, manufacturers will continue to evaluate which parts of their supply chain they
can shift into China to service the domestic market, while diversifying supply chains for the rest of
the world to reduce overreliance on any one country. Companies will also increasingly investigate
the options of reshoring, near-shoring and friend-shoring,16 particularly for the production of critical
goods. In short, while they recognise the need to maintain a strong presence in this crucial market,
European companies look set to continue decoupling China and global operations in the areas
where it makes most sense.

14 Blinken, Anthony J., Implementation of the Uyghur Forced Labor Prevention Act, US Department of State, 21st June 2022, viewed 13th July 2022,
<https://www.state.gov/implementation-of-the-uyghur-forced-labor-prevention-act/>
15 New rules on corporate sustainability reporting: provisional political agreement between the Council and the European Parliament, European Council,
Council of the European Union, 21st June 2022, viewed 13th July 2022, <https://www.consilium.europa.eu/en/press/press-releases/2022/06/21/new-
rules-on-sustainability-disclosure-provisional-agreement-between-council-and-european-parliament/>
16 Reshoring is the act of bringing manufacturing from a remote location to the company’s home country; near-shoring is the act of bringing manufacturing
nearer to the point of use; friend-shoring is the act of relocating manufacturing to a country considered a trusted partner to the company’s home country.

Goods 151
 Agriculture, Food and Beverage Working Group

Key Recommendations
1. Implement the Measures for Registration of Overseas Manufacturers
Reasonably, without Creating Either Excessive Constraints for Companies or
Trade Disruption
• Take a reasonable approach to regulations on imported foods based on scientific assessment
of the actual risks.
• Provide updated guidance on the General Administration of Customs website on frequently-
asked-questions to avoid inconsistency between central and local customs.
• Set up an additional communication channel to deal with inquiries from overseas applicants
on registration.
• Clarify the post-registration audit process, including relevant schemes and criteria, as well as
timelines for recommencement of onsite inspections of overseas food producer facilities.
Section Three: Goods

2. Distribute Responsibilities Proportionately Across the Supply Chain While

Implementing the ‘Punishment Exemption’ Principle Where Appropriate,
Reasonably Design the Major Punishment System and Establish a Unified
National Traceability System
2.1 Distinguish the Responsibilities of Food Producers and Food Business Operators,
and Establish a Punishment System that is Reasonable and Based on Specific
Principles
• Distinguish and enforce the responsibilities of food producers and food business operators
separately.
• Take full account of the subjectivity of senior management of companies while penalising
individuals responsible for legal violations.
• Implement the concept of presumption of innocence in China's criminal law throughout the law
enforcement process in the food area, and transfer the burden of proof from companies to law
enforcement departments.
• Abide strictly by the principle of ‘matching misbehaviour and penalties’ and improve the
fairness and consistency of law enforcement in all regions.
2.2 Establish a Unified National Food Traceability Platform, Legal Framework and
Basic Standards to Promote Effective Tracing
• Unify the national platform, regulations and standards for food safety traceability.
• Ensure that tracing entities, products and information are bonded, technologies used are
compatible and information gathered is reliable.
2.3 Implement the ‘Punishment Exemption’ Principle on Agricultural Products and
Imported Foods From Production to Circulation
• Distinguish product traceability information and product label information to ensure companies
will not be penalised for inconsistencies.

152 Agriculture, Food and Beverage Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

3. Implement an Approval Process and Regulatory Standards to Encourage

the Recycling of Food-grade Recycled Polyethylene Terephthalate (rPET)
Materials
• Implement an assessment system and corresponding regulatory standards for rPET
materials in food contact materials.
• Encourage the implementation of primary recycling of food-grade PET bottles to reduce the
use of raw plastics.

4. Improve Effective Management and Consumer Education on Soon-to-expire

Food and Reprocessed Raw Materials to Encourage Rational Consumption
and Reduce Food Waste
• Encourage consumers to reasonably consume soon-to-expire food.
• Encourage companies to reasonably use reprocessed raw materials to reduce waste.

5. Further Relax Foreign Investment Negative List Restrictions in the Seed

Industry and Level the Playing Field
• Relieve restrictions on genetically modified (GM) technology and GM seed production.

Section Three: Goods

• Further relax restrictions on foreign investment in the selection, breeding and production of
new crop varieties of wheat and maize.
• Allow foreign investment in rice and soybean breeding and production.

6. Accelerate the Approval Procedure for GM Microorganism (GMM) Food,

Feed Additives and GM Agricultural Products
• Establish different approval procedures based on products’ safety risk levels.
• Simplify the approval requirements and speed up the approval process for food nutritional
fortification substances and additives produced with or from GMM without living GMMs and
recombinant deoxyribonucleic acid (DNA).
• Refer to EU normal practice, whereby third-party test reports or independent culture
collection organisations could be used instead of depositing GMM strains for feed enzyme
production to the Ministry of Agriculture and Rural Affairs for submission to the institution.

7. Strengthen Communication with the Organisation for Economic Co-operation

and Development (OECD) to Support the Advancement of China's Accession
to the OECD Framework Agreement on the Pesticide Field
• Strengthen communication with the OECD and its members to support the advancement of
China’s accession to the OECD framework agreement on pesticide.

8. Optimise Implementation of the ‘14th Five-year’ National Health Plan in

Conjunction with the United Nations Sustainable Development Goals to
Educate Consumers on Making Healthier Choices
8.1 Continue to Encourage the ‘Three Reductions and Three Health’ Based on
Scientific Assessment
• Implement the 14th Five-year’ National Health Plan based on scientific data and current
conditions, taking regional differences into account.

Agriculture, Food and Beverage Working Group 153

 • Advance the implementation of educational programmes on healthy eating, appropriate
portions and consumption frequency.
• Coordinate all stakeholders in adopting a more uniform front-of-package labelling
framework and implement multiple measures to provide healthier food choices
8.2 Continue to Reduce Harmful Use of Alcohol by Cutting Excise Tax on Low-alcohol
Products
• Continue to raise public awareness on responsible drinking and dining to reduce harmful
and excessive use of alcohol.
• Reduce the excise tax on low-alcohol products.
8.3 Improve the Plant-based Food Certification System, Develop Industry and
National Standards Based on Existing Group Standards, Increase Marketing
Activities and Boost Public Awareness
• Create plant-based food standards and corresponding food production licence
classifications.
• Improve public awareness and expand the sales channels for plant-based food.

Dairy Industry Sub-working Group

Section Three: Goods

1. Improve Dairy-related National Food Safety Standards

• Better align the development and revision of dairy-related standards with international
standards and practices, as well as the reality of domestic and international dairy markets
and supply chains.
• Implement the Dairy Products Quality and Safety Improvement Action Plan and related
industry policies by encouraging the introduction of group/industry standards instead of
national standards.
• Optimise the development and revision of the national food safety standards to provide a
more transparent and open channel to all industry players.

2. Optimise the Regulation of Cultures Applied in Dairy Production

• Revise the labelling requirement in the relevant national food safety standard so that
only the general name of the ‘food culture’ needs to be listed on the label instead of all
individual cultures (except for probiotics), in order to align with international regulations.
• Exempt cultures that have a history of safe use in dairy production from the food culture
positive list, and classify them as permitted ingredients in dairy production as soon as
possible.

Food for Special Medical Purpose Sub-working Group and

Paediatric Nutrition Sub-working Group
1. Optimise the Registration System for Special Food
1.1 Enhance the Transparency and Consistency of Product Registration, and
Ensure Administration is Based in Law
• Improve the registration review and approval process, and inform the industry of any new
requirements in a timely manner.

154 Agriculture, Food and Beverage Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

• Establish a communication mechanism between the State Administration for Market

Regulation (SAMR), the Centre for Food Evaluation and industry to strengthen guidance
on the research and development of food for special medical purpose (FSMP), and to
enhance overall communication.
• Refrain from imposing new requirements for products that have already passed technical
review, following the ‘principle of non-retroactivity’.
• Ensure that future production conforms to the latest requirements by accepting a future
guarantee statement from companies.
• Determine raw material standards to be applied during technical review according to the
time the batches for registration are produced, and only require companies to comply with
the new standards post-review during production or upon expiry of the interim standard
period.
1.2 Continue to Explore Alternative Plans for Overseas Onsite Inspection to Address
Challenges Faced by Overseas Manufactures in Infant Formula and FSMP
Registration
• Clarify both the ‘actual needs’ for conducting onsite inspections (i.e., specify the criteria to
implement an on-site inspection) and the timeline for overseas onsite inspections.
• Explore alternatives to overseas onsite inspections, such as cooperating with overseas

Section Three: Goods

authorities, entrusting qualified third-party organisations or considering remote inspections,
so that overseas onsite inspections will not continue to be delayed due to COVID-19.
• Ensure overseas onsite inspections are carried out in an orderly fashion under the newly
revised national food safety standards related to infant formula.
1.3 Publish the Criteria for Differences in FSMP Formulas with Regard to Registration
Review
• Clarify the requirements for formula differentiation or formula upgrades of FSMP, and issue
relevant guidelines as soon as possible.
1.4 Establish a ‘Green Channel’ for the Registration and Approval of FSMP Products
for Rare Diseases
• Revise the Administrative Measures for the Registration of Food for Special Medical
Purpose to reflect the actual development of the sector, and conduct priority reviews and
approvals of applications from such special channels for FSMP for subjects with rare
diseases such as congenital metabolism defects.
• Strengthen communication among central and local governments, and the industry.
• Promote the implementation of pilot policies at the local level and allow conditional
approvals of overseas marketed FSMP to be used by those with rare diseases.
• Develop documentation for approving and managing the donation of FSMP for use by
those with rare diseases.
• Accelerate the review and approval of FSMP for rare diseases on the basis of ensuring the
safety, effectiveness and quality control of the approved FSMP, so that patients can obtain
reliable treatment as soon as possible.

2. Continue to Fine-tune National Food Safety Standards Related to FSMP

to Ensure the Smooth Transition of Product Registration under New
Standards
• Accelerate the revision of new national standards and clarify the timeline for their
introduction as soon as possible.

Agriculture, Food and Beverage Working Group 155

 • Accelerate the revision of the Administrative Measures for the Registration of Food for
Special Medical Purposes.
• Establish a sufficient transition period for new national standards for FSMP, taking into
account the cycle from product development to product launch.
• Fine-tune old standards’ indicators to form new standards based on the safe use of special
medical products already registered and marketed.
• Investigate the necessity and feasibility of conducting clinical trials for the registration of
FSMP products for specific diseases, and give clear guidance to companies.

3. Optimise the Requirements for Clinical Trials of FSMP

3.1 Rationalise the Requirements Imposed on Trial Participants
• Waive clinical trials or conduct post-marketing clinical data collection for hypoallergenic
formulas for toddlers over one year old.
• Provide relevant data, establish a method for exemption from conducting clinical trials, or
allow a reduction in the use of clinical trial cases or conduct clinical research after marketing
for populations under the age of 10 and subjects with rare diseases, to ensure the proper
use of clinical trial resources and to satisfy the needs of special groups.
Section Three: Goods

• Accept the normal diet as a control group, and either the ‘before and after’ comparison of
one patient, or the comparison with standard normal growth, instead of mandating parallel
controlled clinical trials.
• Establish a channel for consultations on clinical trial design prior to registration review,
allowing companies to discuss experimental designs with review institutions before
conducting clinical trials
3.2 Adjust the Evaluation Indicators in Clinical Trials to Reflect the Features of FSMP
Products
• Study the effects of renal-specific formulas by using before/after comparisons (i.e., single-
arm) or by comparing with the renal-specific formulae marketed overseas.
• Consider the fact that FSMPs are only clinical nutritional support products, and design
reasonable clinical observation indicators.
• Allow the sharing of clinical trials data on functional-equivalent (solid/liquid) formulas.

4. Encourage the Expansion of FSMP Market Access Channels, Standardise

Post-market Supervision, and Improve Public FSMP Education
• Take comprehensive efforts to improve management, policy and regulation, and follow-up
supervision, as well as to raise public awareness, to promote development of the FSMP
industry in China.
• Include special medical products in the national medical charging system so as to provide
more and better choices for nutritional support treatment for the majority of patients.

5. Establish an Appropriate Regulatory Framework to Supervise the Retail

Marketing of 0–12-months Infant Formula and Provide a Detailed Plan to
Effectively Encourage Breastfeeding
• Modify the Administrative Measures for the Sale of Breast Milk Substitutes in accordance

156 Agriculture, Food and Beverage Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

with existing nutritional and health conditions in China, and in a way consistent with the
prohibitions on inappropriate promotion of 0–12-months infant formula as set out in China’s
Advertising Law.
• Establish appropriate norms and regulatory frameworks through the SAMR and provide detailed
plans and enforcement programmes to prevent and detect inappropriate advertising and
promotion of 0–12-months infant formula in retail channels to effectively protect breastfeeding.

Introduction to Working Group requirements may pose burdensome financial and

administrative duties for food manufacturers and
The Agriculture, Food and Beverage (AFB) Working
importers.
Group represents a wide range of companies that
include importers and exporters, manufacturers,
In January 2022, the Registration and Administration
distributors, retailers, catering service providers,
of Overseas Manufacturers of Imported Food (Decree
specialised testing laboratories and consultants.
248) came into effect.2 Compared to its earlier version

Section Three: Goods

Currently, the working group has over 150 member
released in 2018 (Decree 243), Decree 248 expands the
companies.
scope of application to all food categories and imposes
new requirements on overseas producers and operators
The working group is comprised of three sub-working
involved in importing food into China. The working
groups – the Dairy Industry Desk, the Food for Special
group highly appreciates the General Administration of
Medical Purposes Advisory Committee, and the
Customs of China (GACC) engagement in dialogue with
Paediatric Nutrition Desk. The Dairy Industry Desk
member companies and responses to industry inquiries
was originally established in 2014 as the Cheese
regarding compliance and registration requirements
Industry Desk to improve market access for European
ahead of the promulgation of Decree 248.
cheese and cheese products. Its members include
ten prominent European cheese producers and
The National Health Commission issued the National
industry associations. The Food for Special Medical
Food Safety Standard – Standard for Nutrition Labelling
Purposes Advisory Committee was established in 2016,
of Pre-packaged Foods (Draft for Comments) in
and its members include four leading international
September 2021.3 The proposed draft further clarifies
manufacturers specialising in special nutrition. The
the applicability of the standard, expands on terminology
Paediatric Nutrition Desk was established in 2009 and
used. revises certain terms and definitions, and adds
currently has nine international companies as members
rules,such as mandatory labelling and warnings.
and four domestic manufacturers as local partners.
However, the working group is still concerned about
label updates, transition periods, and the conditions
Recent Developments for positive and negative function claims, which could
A number of major legislative changes that raised increase the burden on food producers' and importers'
concerns for the industry took place in 2021. On 29th time and resources.
April 2021, the Anti-food Waste Law was amended,
to immediate effect.1 The law defines the concept and On 21 st June 2022, the Agricultural Product Quality
coverage of food waste at the legislative level, and Safety Law (Revised Draft) was submitted to the
plays an important role in preventing food waste and
2　Registration and Administration of Overseas Manufacturers of Imported Food,
ensuring national food security. However, compliance GACC, 12th November 2021, viewed 20th April 2022, <http://jckspj.customs.gov.
cn/spj/zcfg18/bmgz91/3979122/index.html>
3　National Food Safety Standards - Standard for Nutrition Labelling of Prepackaged
1　Anti-Food Waste Law of the People's Republic of China, National People‘s Foods (Draft for Opinions), NPC, 28th January 2022, viewed 20th April 2022,
Congress (NPC), 25th May 2021, viewed 20th April 2022, <http://www.yxlzw.gov. <http://www.nhc.gov.cn/sps/s7887k/202109/5548757c9f1c415abb3c37456bbfd
cn/html/2021/20210525898.shtml> ab9.shtml>

Agriculture, Food and Beverage Working Group 157

 Standing Committee of the National People’s Congress In addition to the Decree, further clarification of the
(NPC) for review. 4 The proposed draft specifies the scheme, criteria and timelines for post-registration
main responsibilities of producers, operators, and local audit would similarly reduce the pressure on resources.
governments, as well as the supervisory responsibilities For example, the GACC official website could provide
of the competent authorities. Based on the draft, a further guidance on the scope and implementation
traceability system for agricultural products will be of Decree 248, including frequently-asked-questions
implemented to improve quality and safety. The working (FAQs) on registration through the China Import Food
group looks forward to the adoption of the revised Enterprises Registration (CIFER) platform. For instance,
law, and will continue to monitor relevant issues such several working group members report that when they
as the primary responsibilities of food producers and contacted the official GACC dedicated email address
operators, and implementation of the traceability concerning technical issues with their registration
system. on CIFER, they only received a standard reply
recommending them to follow the guidance provided
Key Recommendations in an attached CIFER manual. However, as the CIFER
manual does not and cannot address all issues, an
1. Implement the Measures for Registration additional communication channel in English is needed.
of Overseas Manufacturers Reasonably,
Without Creating Either Excessive Recommendations
Constraints for Companies or Trade • Take a reasonable approach to regulations on imported
Disruption foods based on scientific assessment of the actual
Section Three: Goods

risks.
Concern • Provide updated guidance on the GACC website on
Although the Regulations on the Administration of FAQs to avoid inconsistency between central and
Registration of Overseas Food Manufacturing Enterprises local customs.
(Decree 248) came into effect in January 2022, food • Set up an additional communication channel to
importers still face difficulties in completing registration. deal with inquiries from overseas applicants on
registration.
Assessment • Clarify the post-registration audit process, including
Compared to its 2018 version, Decree 248 expands relevant schemes and criteria, as well as timelines
the scope of registration to manufacturers of all types for recommencement of onsite inspections of
of food, introduces risk management principles and overseas food producer facilities.
urges companies to establish effective food safety and
hygiene management systems to ensure food exported 2. Distribute Responsibilities Proportionately
to China meets requirements. Although Decree 248 Across the Supply Chain while Implementing
could enhance the supervision of imported food to the ‘Punishment Exemption’ Principle where
ensure food safety, certain requirements also increase
Appropriate, Reasonably Design the Major
compliance pressures on food companies. For example,
Punishment System and Establish a Unified
Decree 248 requires a new registration every time the
National Traceability System
legal representatives of a company change, which
2.1 Distinguish the Responsibilities of Food
is a disproportionate approach as executive rotation
Producers and Food Business Operators,
does not impact food product safety. This also imposes
and Establish a Punishment System that
a significant administrative burden on companies,
is Reasonable and Based on Specific
especially as the registration number must be displayed
Principles
on the inner and outer packaging of a food product. The
GACC should instead consider allowing companies to
Concern
change the name of their legal representative through a
Relevant laws and regulations do not clearly define
simple amendment to an existing registration.
the distinct responsibilities of food producers and food
business operators, while implementation of policies
4　Agricultural Product Quality Safety Law (Revised Draft), NPC, 29st June 2022,
viewed 20th June 2022, <http://www.npc.gov.cn/flcaw/flca/ff80818181809294018 and standards is inconsistent across different regions.
18f64bf55738f/attachment.pdf>

158 Agriculture, Food and Beverage Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

Assessment traceability system, and food producers and food

Food producers (including farming, manufacturing business operators shall establish relevant policies and
and processing) and food business operators bear implementation practices. Yet government departments
different responsibilities in the value chain. However, at all levels in different regions have established their
in many cases, the Food Safety Law and its supporting own traceability platforms independently of each
regulations often regulate responsibilities and obligations other. The tracing categories and technologies used
by combining food producers and food business are incompatible, which seriously hinders cross-
operators, resulting in operators often having penalties departmental and cross-regional food safety traceability.
imposed on them that should be borne by producers.5 Effective food safety traceability must integrate all links
With the implementation of policies and punishment in the food value chain and requires a uniform platform,
standards also varying among different regions, these regulations and standards. Given the long and complex
challenges become even more severe. food safety value chain, it is necessary to ensure
that the tracing entities, products and information are
In addition, the senior management of chain retailers bonded, and that platforms are compatible with each
are normally not involved in the daily operations of other, in order to provide true and reliable information.
each store. The existing systems of punishment, broad
principles and inconsistent policies and enforcement Recommendations
among regions increase the potential compliance, • Unify the national platform, regulations and standards
reputational and financial risks for chain retailers and for food safety traceability.
their senior management. • Ensure that tracing entities, products and information

Section Three: Goods

are bonded, technologies used are compatible and
Recommendations information gathered is reliable.
• Distinguish and enforce the responsibilities of food
producers and food business operators separately.
2.3 Implement the ‘Punishment Exemption’
• Take full account of the subjectivity of senior
Principle on Agricultural Products and
management of companies while penalising individuals
Imported Foods From Production to
responsible for legal violations.
Circulation
• Implement the concept of presumption of innocence in
China's criminal law throughout the law enforcement Concern
process in the food area, and transfer the burden Information in the food traceability system cannot be
of proof from companies to law enforcement updated in a timely manner, causing consumers and
departments. anti-counterfeiting professionals to file incorrect
• Abide strictly by the principle of ‘matching misbehaviour complaints, which certain government agencies treat as
and penalties’ and improve the fairness and ‘mislabelling’ and penalise the companies.
consistency of law enforcement in all regions.
Assessment
2.2 Establish a Unified National Food Traceability Article 136 of the Food Safety Law lays out the ‘punishment
Platform, Legal Framework and Basic exemption’ principle, under which a food business
Standards to Promote Effective Tracing operator that has fully implemented its compliance
responsibilities can be exempted from punishment for
Concern mislabelling. The Food Safety Law also encourages
Different government agencies at all levels have set companies to implement traceability systems to display
up various food traceability platforms with incompatible product information for consumers via QR codes and
technologies and inconsistent standards. other means. 6 Most companies upload traceability
information manually to their system and generate their
Assessment own labels. However, the level of digitalisation in the
Article 42 of the Food Safety Law stipulates that the industry varies widely. Moreover, standards relating
state shall establish a whole-value-chain food safety to food traceability systems are still in the preliminary
5　Food Safety Law, National People’s Congress, 7th January 2019, viewed 20th April
2022, <http://www.npc.gov.cn/npc/c30834/201901/c6d064de8295489288ec1383
6　Ibid.
b33212ee.shtml>

Agriculture, Food and Beverage Working Group 159

 stages, and requirements in terms of technology energy consumption by 79 per cent. 8 Food-grade
frameworks are not yet clear. As a result, companies rPET materials are already widely used in European
might be penalised because of inconsistent and countries and the United States, but China is still in the
inaccurate tracing information. Additional clarification process of conducting a risk assessment of such FCM
on requirements is needed so that product traceability materials. Government agencies should issue relevant
information provided is not held to the same criteria policies, regulations and standards as soon as possible
as product label information. In addition, implementing to encourage the use of rPET materials in FCM in order
the ‘punishment exemption’ principle in regard to to facilitate achieving carbon neutrality in the food and
agricultural products and imported foods will ensure that beverage industry.
companies are not overly penalised due to immature
technology. Recommendations
• Implement an assessment system and corresponding
Recommendation regulatory standards for rPET materials in FCM.
• Distinguish product traceability information and • Encourage the implementation of primary recycling
product label information to ensure companies will of food-grade PET bottles to reduce the use of raw
not be penalised for inconsistencies. plastics.

3. Implement an Approval Process and 4. Improve Management of and Consumer

Regulatory Standards to Encourage Education on Soon-to-expire Food
Section Three: Goods

the Recycling of Food-grade Recycled and Reprocessed Raw Materials to

Polyethylene Terephthalate (rPET) Encourage Rational Consumption and
Materials Reduce Food Waste

Concern Concern
The lack of a properly developed system and standards Current regulations and national standards relating to
for recycled food contact materials (FCM) in China soon-to-expire food and reprocessing food materials
means that all food-grade PET bottles are made using are not fully developed, and the public lacks proper
raw materials refined from petroleum, which consumes understanding of soon-to-expire food, which leads to
a huge number of resources. unnecessary waste.

Assessment Assessment
The 14th Five-year Plan Action Plan for Plastic Pollution The release of the Anti-food Waste Law in 2021
Control clearly encourages homogenisation and high demonstrates the importance the Chinese Government
value-added utilisation of waste plastic. 7 However, has placed on combatting food waste domestically
the lack of clear industry standards in China makes and promoting green consumption by encouraging the
it difficult for companies to take action, despite the public to consume food more rationally.9 The National
availability of proven food-grade PET bottle primary Development and Reform Commission (NDRC) in 2021
recycling technology. also issued the Action Plan to Combat Food Waste10
and the Green Consumption Implementation Plan11 to
The food-grade PET bottle recycling rate in China is optimise the implementation of the law. The Action Plan
as high as 94 per cent. Fully implementing primary
8　Dong, Ying & Sochi, Edward, Research on Food Grade Recycled PET Bottles for
recycling of food-grade PET bottles could help China Realizing China's ‘Carbon Neutral’ Goal, Pepsi Asia R&D Centre, 15th July 2021,
conserve tens of millions of tonnes of raw materials viewed 20th June 2022, <https://kns.cnki.net/kcms/detail/detail.aspx?FileName=Z
BZZ202107007&DbName=CJFQ2021>
refined from petroleum and reduce greenhouse gas 9　Full text of the Anti-food Waste Law of the People's Republic of China,
emissions by 63 per cent (including more than 50 NPC, 25 th May 2021, viewed 20 th April 2022, <http://www.yxlzw.gov.cn/
html/2021/20210525898.shtml>
million tonnes of carbon emissions), thereby reducing 10 Notice on the issuance of the Work Programme against Food Waste, NDRC,
30th November 2021, viewed 20th April 2022, <https://www.ndrc.gov.cn/xwdt/
tzgg/202112/t20211217_1308234.html?code=&state=123>
7　14th Five-year Plan Action Plan for Plastic Pollution Control, NDRC, 9th August 11 The National Development and Reform Commission and seven other departments
2021, viewed 20th April 2022, <https://www.ndrc.gov.cn/xxgk/zcfb/tz/202109/ jointly issued the "Implementation Plan for Promoting Green Consumption", NDRC,
t20210915_1296580.html?state=123&code=&state=123> 28th January 2022, viewed 20th April 2022, <https://www.ndrc.gov.cn/fzggw/jgsj/zys/
sjdt/202201/t20220128_1313761.html?code=&state=123>

160 Agriculture, Food and Beverage Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

aims to improve approaches to the sale of food product Administrative Measures for Access of Foreign
and the food labelling system, by encouraging food Investments 2021 nor the FTZ Negative List 2021
producers to clearly indicate the ‘best by’ and expiration lifted restrictions with respect to crop breeding and
dates on food packaging, as well as to sell food close to seed production. The Negative List 2021 and the FTZ
the ‘best by’ date at discounted prices. Negative List 2021 still prohibit foreign investment in
“genetically modified (GM) varieties breeding and GM
These initiatives have been effective in reducing food seed production.” Prohibiting foreign investment in
waste in China, but retailers and consumers still have these areas not only limits competition and efficiency
concerns about the safety of soon-to-expire food. but is detrimental to China’s goals for innovation and
Government agencies should issue guidelines and modernisation of the agricultural sector.
increase public education efforts to develop a rational
understanding among consumers of soon-to-expire Recommendations
food, and how it differs to expired food. • Relieve restrictions on GM technology and GM seed
production.
China should also improve regulations and national • Further relax restrictions on foreign investment in
standards on raw food materials processing, such as the selection, breeding, and production of new crop
the National Food Safety Standard General Hygiene varieties of wheat and maize.
Practice for Food Production (GB 14881).12 So long • Allow foreign investment in rice and soybean
as food safety is not affected, food materials should breeding and production.
be allowed to be reprocessed and used again. This

Section Three: Goods

can help the industry reduce raw material waste, and 6. Accelerate the Approval Procedure for
is also in line with the Anti-Food Waste Law and other GM Microorganism (GMM) Food, Feed
supporting policies. Additives and GM Agricultural Products

Recommendations
• Encourage consumers to reasonably consume soon- Concern
to-expire food. The approval procedure for GMM feed additives and
• Encourage companies to reasonably use reprocessed GM agricultural products is currently inefficient, and
raw materials to reduce waste. there is no pathway for the importation of agricultural
microbial products.
5 . Further Relax Foreign Investment
Negative List Restrictions in the Seed Assessment
Industry and Level the Playing Field According to the Guidance for the Safety Assessment
of GMM for Animal Use, 13 products derived from
Concern the expression products of GMM (such as phytase,
The 2021 update of the Special Administrative Measures antimicrobial peptides) or metabolites, and from
for Foreign Investment (Negative List 2021) relaxed inactivated GMM, should pass an intermediate test
some restrictions in the seed industry, but it still prohibits and environmental release evaluation before they can
or restricts foreign investment in seed selection, apply for a safety certificate. However, feed products
breeding and production. produced with a GMM but without living GMMs and
recombinant deoxyribonucleic acid (DNA), which are
Assessment excluded from the scope of the GM food and feed
Although the 2018 Free Trade Zone Special Administrative regulation in the European Union (EU), are still included
Measures on Access to Foreign Investment (FTZ in this category in China. They thus need to go through
Negative List 2018) increased foreign equity caps the aforementioned procedure, which is unnecessarily
on wheat and maize breeding and seed production complex and time-consuming. In addition, a long
from 49 per cent to 66 per cent, neither the Special approval procedure and uncertainties herein raised will

12 National Food Safety Standard General Hygiene Practice for Food Production 13 Guidance for the Safety Assessment of GMM for Animal Use, Ministry of
(GB 14881), National Health Commission, 26th June 2013, viewed 20th April 2022, Agriculture, 3rd February 2012, viewed 20th April 2022, <http://www.moa.gov.cn/
<http://www.nhc.gov.cn/cms-search/xxgk/getManuscriptXxgk.htm?id=56f30af754 ztzl/zjyqwgz/sbzn/201202/t20120203_2474484.htm>
ef49448705806d35af06a1>

Agriculture, Food and Beverage Working Group 161

 also slow down the development of new GMM feed overseas Good Laboratory Practice (GLP) data to
additives. Differentiating non-GMM-containing products support pesticide registration applications in China, and
from GMM-containing products, and requiring only the foreign products are required to carry out all registration
intermediate test for the issuance of safety certificates tests in China, which has increased costs for foreign
for the former, would shorten the time from import to the enterprises.
market.
Assessment
To apply for the safety certificate, agricultural GM On 1 st June 2017, China’s newly revised Pesticide
biological samples and control samples, as well as Management Regulations went into effect, 15 with
testing materials and testing methods, to the Ministry the Pesticide Registration Administration Measures
of Agriculture and Rural Affairs (MARA) for safety released shortly afterwards. The industry is concerned,
assessment, according to Administrative Measures for however, that the provisions related to the approval
Safety Assessment of Agricultural Genetically Modified of overseas test data in Article 16 of the Measures
Organisms.14 The MARA then transfers the materials is difficult to implement in practice because China
to the designated institution for verification. This may has not signed a mutual recognition agreement with
lead to inefficiencies in evaluation process, which will any country or international organization, such as the
slow down industrial development and innovation. OECD framework agreement (or the OECD pesticides
Adopting the current normal practice in EU, whereby programme). China is in discussions but has yet to join
third-party test reports or evaluation by independent the mutual acceptance of data (MAD) system of the
culture collection organisation, instead of depositing the OECD in the pesticide field. 16 Consequently, foreign
Section Three: Goods

GMM strains for feed enzyme production to the MARA, enterprises must conduct registration tests with a
which then sends them to the institution, would boost China-based entity, at a cost of Chinese yuan (CNY)
efficiency across the entire safety assessment process. 20–30 million per registration, and face an additional
procedure that can stretch out for three to four years.
Recommendations China is now one of the only countries in the world that
• Establish different approval procedures based on will not accept data for pesticide registration under the
products' safety risk level. MAD system and which requires all registration tests to
• Simplify the approval requirements and speed up be conducted within its territory.
the approval process for food nutritional fortification
substances and additives produced with or from Recommendation
GM microorganisms without living GMMs and • Strengthen communication with the OECD and its
recombinant DNA. members to support the advancement of China’s
• Refer to EU normal practice, whereby third-party accession to the OECD framework agreement on
test reports or independent culture collection pesticide.
organisations are used for evaluation, instead of
depositing GMM strains for feed enzyme production 8. Optimise Implementation of the 14th Five-
with the MARA for submission to the institution. year National Health Plan in Conjunction
with the United Nations Sustainable
7. Strengthen Communication with the Development Goals to Educate
Organisation for Economic Co-operation Consumers on Making Healthier Choices
and Development (OECD) to Support the 8.1 Continue to Encourage the ‘Three Reductions
Advancement of China's Accession to and Three Health’ Based on Scientific
the OECD Framework Agreement on the Assessment
Pesticide Field
Concern
Concern Current health and wellness policies lack incentives,
As of 1st January 2021, the MARA has stopped accepting
15 Pesticide Management Regulation, State Council, 1st April 2017, viewed May 22nd
14 Regulations on the Safety Management of Agricultural Genetically Modified 2022, <http://www.gov.cn/zhengce/content/2017-04/01/content_5182681.htm>
Organisms, MARA, 22nd December 2017, viewed 20th April 2022, <http://www. 16 Mutual Acceptance of Data (MAD), OECD, 2020, viewed 21st April 2022, <https://
moa.gov.cn/ztzl/zjyqwgz/zcfg/201007/t20100717_1601306.htm> www.oecd.org/env/ehs/mutualacceptanceofdatamad.htm>

162 Agriculture, Food and Beverage Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

making it is difficult for companies to create healthier It is hoped that the government can also provide
products, invest in public education or actively engage guidance and encouragement for companies to further
in responsible marketing. motivate them to produce healthier food and beverages.

Assessment Recommendations
The importance of improving public health in China has • Implement the 14th Five-year National Health Plan
become more evident since the COVID-19 outbreak. based on scientific data and current conditions,
In April 2022, the 14th Five-year National Health Plan taking regional differences into account.
proposed to fully promote a national healthy lifestyle • Advance the promotion of educational programmes
through the ‘Three Reductions and Three Health’— on healthy eating, appropriate portions and
salt reduction, oil reduction, sugar reduction, mouth consumption frequency.
health, weight health, bones health—and other special • Coordinate all stakeholders to adopt a more uniform
actions.17 FOP framework and implement multiple measures to
provide healthier food choices.
Chinese food and beverage industry players
expect clearer guidance from the authorities on the 8.2 Continue to Reduce Harmful Consumption
implementation of the Healthy China 2030 blueprint,18 of Alcohol by Cutting Excise Tax on Low-
which recommends mandating labelling of sugars like alcohol Products
sucrose, encouraging companies to advocate low sugar
or sugar-free products, actively encouraging the use Concern

Section Three: Goods

of front-of-package labelling (FOP) information to help The 14th Five-year National Health Plan encourages
consumers select healthy food quickly, and improving reducing the harmful use of alcohol, but the path for
the supervision and management of pre-packaged food implementation needs to be clarified and improved.
nutrition labels.
Assessment
The China National Food Industry Association and The 14th Five-year National Health Plan clearly specifies
the Chinese Nutrition Society each have their own that health education on alcohol control should be
FOP labelling system to indicate certain ingredients strengthened to reduce the harmful use and overuse
and their recommended daily intake to consumers, to of alcohol.19 On 8th June 2022, the Ministry of Industry
encourage reduction of intake of salt, oil and sugar and Information Technology and four other ministries
from food. However, the overlapping systems could jointly issued the Guidelines to Promote the High-
confuse consumers and create difficulties for regulatory Quality Development Of Light Industry to meet people's
agencies. Many countries have their own FOP labelling increasing desire for a better and healthier life, as well
systems. As such, China needs to develop a national as the diverse needs of all generations.20 Specifically,
FOP system that suits its unique national conditions the Guidelines underline support for innovation and
while taking into account other countries' requirements development in "low-alcohol baijiu, yellow wine and
to avoid possible trade barriers. non-alcoholic beer (NAB)", to provide products tailored
for different consumer groups.
The food and beverage industry has conducted many
useful studies and practices in product diversification Based on international experience and World Health
and enhancing product nutritional and health values Organization (WHO) studies, raising public awareness
since the introduction of the Healthy China strategy, and on responsible drinking, and increasing taxation
has effectively implemented the key ‘Three Reductions’ on products, can reduce the harmful and over-
initiative, through product innovation and diversification
in order to raise nutritional and health awareness
19 14th Five-year National Health Plan, State Council, 20th May 2022, viewed
among consumers, and advocate for healthy lifestyles. 20 th June 2022, <http://www.gov.cn/zhengce/zhengceku/2022-05/20/
content_5691424.htm>
17 14th Five-year National Health Plan, State Council, 20th May 2022, viewed 20 Guidelines to Improve the High-quality Development of the Light Industry, Ministry
20 th June 2022, <http://www.gov.cn/zhengce/zhengceku/2022-05/20/ of Industry and Information Technology, Ministry of Ecology and Environment,
content_5691424.htm> Ministry of Human Resources and Social Security and SAMR, 8th June 2022,
18 Healthy China 2030 blueprint, State Council, 2019, viewed 21st April 2022, <http:// viewed 21st June 2022, <http://www.gov.cn/zhengce/zhengceku/2022-06/19/
www.gov.cn/xinwen/2019-07/15/content_5409694.htm> content_5696665.htm>

Agriculture, Food and Beverage Working Group 163

 consumption of alcohol. 21 For example, in most EU and purchasing channels, which greatly impede the
Member States, NAB is exempt from excise tax.22 NAB industry's long-term development. The main issues
refers to beer with alcohol content less than or equal include:
to 0.5 per cent VOL (0.5 mililitres (ml) ethanol in 100
ml beer at 20 degrees Celsius (°C)).23 In China, NAB 1. There are currently no industry standards for plant-
is taxed at the same rate as normal beer, with excise based meat and egg products, or a specific food
tax amount accounting for seven to nine per cent of production licence classification.
beer sales revenue, which the working group considers 2. Chinese consumers have many misconceptions
inappropriate. A lower excise tax rate for NAB would about plant-based food, such as that plant-based
facilitate reducing the harmful use of alcohol, adopting food is different from vegetarian food, which could
to the ageing society and improving people’s quality of discourage them from purchasing products.
life, while also increasing NAB competitiveness. 3. There are limited purchasing channels for plant-
based meat and egg products.
Recommendations
• Continue to raise public awareness on responsible Recommendations
drinking and dining to reduce harmful and excessive • Create plant-based food standards and corresponding
use of alcohol. food production licence classification.
• Reduce the excise tax on low-alcohol products. • Improve public awareness and expand the sales
channels of plant-based food.
8.3 Improve the Plant-based Food Certification
Section Three: Goods

System, Develop Industry and National Abbreviations

Standards Based on Existing Group
AFB Agriculture, Food and Beverage
Standards, Increase Marketing Activities,
CIFER China Import Food Enterprises
and Boost Public Awareness
Registration
CNY Chinese Yuan
Concern
DNA Deoxyribonucleic Acid
The development of China's plant-based market is still
EU European Union
at an early stage, and there is an urgent need for a well-
FAQ Frequently-asked-questions
developed certification system, standards, and effective
FCM Food Contact Materials
promotion and education to guide consumers to make
FOP Front of Package
rational choices.
FTZ Free Trade Zone
GACC General Administration of Customs of
Assessment
China
Plant-based foods refer to foods made from plants or
GB Guobiao
processed plants instead of animal materials to serve
GM Genetically Modified
as the sole or main source of protein and fat. They are
GMM Genetically Modified Microorganism
processed to have a flavour, texture and shape similar
MARA Ministry of Agriculture and Rural
to animal-sourced foods. Current plant-based foods in
Affairs
the market include plant-based meat, dairy and eggs,
MAD Mutual Acceptance of Data
with the main raw materials including beans, nuts
NAB Non-alcoholic Beer
and coconuts. However, the plant-based food market
NDRC National Development and Reform
in China is still developing, and faces several issues
Commission
in terms of standard setting, consumer awareness
OECD Organisation for Economic Cooperation
21 Shield, Kevin D., Rylett, Margaret & Rehm, Jürgen, Public health successes and and Development
missed opportunities: trends in alcohol consumption and attributable mortality in
the WHO European Region, 1990–2014, WHO, 29th October 2016, viewed 21st R&D Research and Development
June 2022, <https://apps.who.int/iris/handle/10665/329489> rPET Recycled Polyethylene Terephthalate
22 Excise Duty Table, European Commission, 9th January 2021, viewed 21st April
2022, <https://taxation-customs.ec.europa.eu/system/files/2021-09/excise_ SAMR State Administration for Market
duties-part_i_alcohol_en.pdf> Regulation
23 T/CBJ 3108 Non-alcoholic Beer, China Alcoholic Drink Association, 14th October
2021, viewed 30th June, <https://www.sohu.com/a/496245602_121124454> WHO World Health Organisation

164 Agriculture, Food and Beverage Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

Dairy Industry Sub-working Group

Introduction to the Sub-working Group urbanisation advances and rising income levels.
Although the price of raw milk generally remained high
Dairy products are important sources of protein, iodine,
in 2021, the price gap ratio between domestic and
calcium and several other vitamins. The consumption
international raw materials narrowed significantly due
of these products in China continues to grow, and
to increases in freight transportation costs. However,
the industry is undergoing rapid development and
dairy farming returns trended downward throughout the
modernisation. In 2021, the 27 European Union (EU)
year due to relatively faster growth in feed prices and
Member States and the United Kingdom combined
production costs.3
were the second biggest dairy supplier for the Chinese
market, accounting for almost half of all imports.1
Because China's demand for dairy products is growing
while the production capacity of its domestic dairy
The European Chamber’s Dairy Industry Sub-working
industry remains limited, there is a great need for
Group, originally the Cheese Industry Desk, was
imported dairy products, particularly milk powder,
established in 2014, and has nine prominent European
cheese, butter, cream and whey powder. In 2021,
dairy producers and industry associations that are
China's total imports of dairy products reached 3.9
committed to bringing the best dairy products to the
million tonnes, with a value of United States dollars

Section Three: Goods

Chinese market. The sub-working group represents
(USD) 13.8 billion and representing a growth rate
members’ interests and promotes constructive dialogue
of 18.5 per cent year-on-year. Solid dairy products
between relevant stakeholders, including industry
accounted for more than 67 per cent of imports,
associations and regulators, to ensure a level playing
representing a year-on-year growth rate of 17.4 per cent.4
field for all market participants.

The EU-China Agreement on the Protection and

Recent Developments Cooperation of Geographical Indications (GI) (EU-China
Importers of dairy products continue to face severe GI Agreement) came into force on 1st March 2021. 5
challenges as a result of the global COVID-19 Included among the first 200 GI products mutually
outbreak and China’s subsequent introduction of strict recognised by China and Europe were 14 cheese
epidemic prevention and control policies. Due to the products. Four years after its entry into force, an
special characteristics of some dairy products and raw additional 175 GI names from each side will be covered
materials—for example, the shelf life of most dairy by the scope of this agreement, with 19 more cheese
products is between 12–18 months—the working group products from Europe to become available to Chinese
is concerned that COVID-19 tests and disinfection consumers.6 This is extremely welcome news to the EU
measures have affected clearance lead times and dairy industry, which expects the implementation of the
further impacted product quality/shelf life. agreement to provide fresh impetus for cooperation and
exchange with the Chinese dairy industry.
At the same time, China's dairy market experienced
stable growth in 2021, including in raw milk production, In April 2021, the General Administration of Customs
dairy product processing and dairy consumption (GACC) published the modified Regulations on
demand. The total dairy output increased by 9.4 per 3　Liu, Changquan, 2021 Review and 2022 Outlook of the China Dairy Industry,
cent year-on-year, and dairy consumption by 10.6 Chinese Journal of Animal Science, 4th March 2022, viewed 11th April 2022,
<http://news.foodmate.net/2022/03/622076.html>
per cent, with similar levels of growth expected to 4　China Dairy Trade Monthly Report of January 2022, National Dairy Industry,
continue in 2022.2 Part of this is a result of continuing Technology and Economy Research Office, 26th January 2022, viewed 12th April
2022, <https://mp.weixin.qq.com/s/11sqXjq48YGJ2xxsPp3MoQ>
5 EU-China Agreement on Geographical Indications to Take Effect in March,
1　Chinese Dairy Imports Update – Apr ’22, Atten Babler Commodities, 22nd April Xinhuanet, 1 st March 2021, viewed 13 th June 2022, <http://www.gov.cn/
2022, viewed 13th June 2022, <https://www.attenbablercommodities.com/index. xinwen/2021-03/01/content_5589472.htm>
php/2022/04/21/chinese-dairy-imports-update-apr-22/> 6　Agreement Between the Government of the People’s Republic of China and the
2 2022 will see continued rapid growth in dairy product consumption demand, European Union on Cooperation on, and Protection of Geographical Indications,
Economic Daily, 18th February 2022, viewed 11th April 2022, <https://www.cfsn. Ministry of Commerce, 18th September 2020, viewed 20th April 2022, <http://
cn/front/web/site.searchshow?pdid=132&id=73594> images.mofcom.gov.cn/tfs/202009/20200918163349821.pdf>

Dairy Industry Sub-working Group 165

 the Registration and Administration of Overseas • National Food Safety Standard Fermented Milk (GB
Manufacturers of Imported Food (Decree 248),7 which 19302-2010);12
entered into force on 1 st January 2022. The newly • National Food Safety Standard Milk Powder (GB
revised regulation updates the product scope, and 19644-2010);13
includes additional details on registration methods, • National Food Safety Standard Cream, Butter and
registration conditions and procedures, verification Anhydrous Cream (GB 19646-2010);14
methods, the period of validity of the registration and • National Food Safety Standard Whey Powder and
labelling requirements. Manufacturers of dairy products Whey Protein Powder (GB 11674-2010);15
are required to register their production facilities with • National Food Safety Standard Prepared Milk (GB
the GACC and meet all requirements of Decree 248 25191-2010);16
before exporting their products to China. Prior to Decree • National Food Safety Standard Lactose (GB 25595-
248 taking effect, the Dairy Industry Sub-working 2010);17 and
Group had actively participated in discussions with the • National Food Safety Standard Good Manufacturing
GACC and submitted industry input on the legislation. Practice for Dairy Products (GB 12693-2010).18
In response to industry questions, the GACC released
Announcement 103 in December 2021,8 which provides In March and September 2021, the NHC and the
additional information on several issues regarding State Administration for Market Regulation (SAMR)
registration and the marking of registration numbers published the modified National Food Safety Standard
on product labelling and packaging. The response was Cheese (GB 5420-2021) 19 and the National Food
Section Three: Goods

much welcomed by the European dairy industry. Safety Standard Limit of Pathogen in Pre-packaged
Foods (GB 29921-2021)20 respectively, both of which
Several national food safety standards related to became effective in November 2021. The standard GB
dairy products are under revision and have not been 5420-2021 not only enables more high-quality cheese
published at the time of writing. Between 2015 and varieties that have a long and safe consumption history
2017, the former National Health and Family Planning in the European market to enter the Chinese market,
Commission (NHFPC)—now the National Health but also fully guarantees the safety of cheese products
Commission (NHC)—announced the initiation of on the Chinese market and promotes the development
revisions to a series of national food safety standards of the cheese industry in China; the standard GB
related to dairy products, including: 29921-2021 contributes to the establishment of a

• National Food Safety Standard Raw Milk (GB 19301- 12 National Food Safety Standard Fermented Milk (GB 19645-2010), NHFPC,
26 th March 2010, viewed 16 th April 2022, <https://sppt.cfsa.net.cn:8086/
2010); 9 staticPages/849A1775-3D0A-4674-BCE4-3253BE5531CB.html>
• National Food Safety Standard Pasteurised Milk (GB 13 National Food Safety Standard Milk Powder (GB 19644-2010), NHFPC, 26th
March 2010, viewed 16th April 2022, <https://sppt.cfsa.net.cn:8086/staticPages/
19645-2010);10 EF931D82-DF12-4CF5-B123-5D1B099D887E.html>
• National Food Safety Standard Sterilised Milk (GB 14 National Food Safety Standard Cream, Butter and Anhydrous Cream (GB 19646-
2010), NHFPC, 26th March 2010, viewed 16th April 2022, <https://sppt.cfsa.net.
25190-2010);11 cn:8086/staticPages/6818B3FF-4E2C-400B-AF62-D7BE3CF7FE3A.html>
15 National Food Safety Standard Whey Powder and Whey Protein Powder (GB
11674-2010), NHFPC, 26th March 2010, viewed 16th April 2022, <https://sppt.
7　Regulations on the Registration and Administration of Overseas Manufacturers cfsa.net.cn:8086/staticPages/806A934C-35AA-44F6-8BE5-110A11B2B4D7.
of Imported Food, GACC, 16th April 2021, viewed 20th April 2022, <http://jckspj. html>
customs.gov.cn/spj/zcfg18/bmgz91/3625617/index.html> 16 National Food Safety Standard Prepared Milk (GB 25191-2010), NHFPC, 26th
8　Announcement on Matters Related to the Implementation of the Provisions on March 2010, viewed 16th April 2022, <https://sppt.cfsa.net.cn:8086/staticPages/
the Administration of the Registration of Overseas Production Enterprises of EA77F1FA-3775-46D3-83C4-C845AD564355.html>
Imported Food and the Measures on the Administration of Food Safety in Import 17 National Food Safety Standard Processed Lactose (GB 25595-2010), NHFPC,
and Export, GACC, 15th December 2021, viewed 20th April 2022, <http://jckspj. 21st December 2010, viewed 16th April 2022, <https://sppt.cfsa.net.cn:8086/
customs.gov.cn/spj/zcfg18/gfxwj65/4058583/index.html> staticPages/3885AFC7-00A0-40EC-98C1-38E88900BD6E.html>
9　National Food Safety Standard Raw Milk (GB 19301-2010), NHFPC, 18 National Food Safety Standard Good Manufacturing Practice for Dairy
26 th March 2010, viewed 16 th April 2022, <https://sppt.cfsa.net.cn:8086/ Products (GB 12693-2010), NHFPC, 26th March 2010, viewed 16th April 2022,
staticPages/6DEFF20C-AEBD-49D3-8C35-C9B086A0F44B.html> <https://sppt.cfsa.net.cn:8086/staticPages/3A0055A3-DAFA-4D30-BC81-
10 National Food Safety Standard Pasteurised Milk (GB 19645-2010), NHFPC, 26th 73DF14E8D029.html>
March 2010, viewed 16th April 2022, <https://sppt.cfsa.net.cn:8086/staticPages/ 19 National Food Safety Standard Cheese (GB 5420-2021), NHC and SAMR,
BB832452-5017-4EA8-AD06-A6F1557A423D.html> 22 nd February 2021, viewed 20th April 2022, <https://sppt.cfsa.net.cn:8086/
11 National Food Safety Standard Sterilised Milk (GB 19645-2010), NHFPC, db?type=1&guid=9D350D1F-E59B-4A08-9A3C-D111DB951743>
26 th March 2010, viewed 16 th April 2022, <https://sppt.cfsa.net.cn:8086/ 20 National Food Safety Standard Limit of Pathogen in Pre-packaged Foods (GB
staticPages/69F95D12-21FC-46D0-BA60-0D8802593A1A.html> 29921-2021), NHC and SAMR, 7th September 2021, viewed 20th April 2022,
<https://sppt.cfsa.net.cn:8086/db?type=1&guid=B2CDB561-52B4-4A09-8E58-
95596958CF04>

166 Dairy Industry Sub-working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

more scientific and reasonable food safety supervision Group expects that the formulation and revision of the
system in China. national food safety standards for dairy products will
be compatible with related international standards and
On 28th July 2022, the NHC and the SAMR published manufacturing conditions, while maintaining a high level
the modified National Food Safety Standard Processed of food safety. As market demand for dairy products
Cheese and Cheese Products (GB 25192-2022) and continues to increase in China, sub-working group
the National Food Safety Standard Condensed Milk members continually seek opportunities to enhance
Products (GB 13102-2022), both of which will be communication with the regulatory authorities and
effective from 30th December 2022.21 There are only present Chinese customers with a greater variety of
five months from the publication of the standard until nutritional products.
implementation, and companies have to revise their
labels accordingly during this short period. The grace
Key Recommendations
period is too short and the industry faces challenges
in not having enough time to revise the label and 1. Improve Dairy-related National Food
order packaging materials. This will lead to severe Safety Standards
consequences for the industry.
Concern
As current revisions to China’s dairy-related standards
At the time of writing, the other previously mentioned sometimes do not take into account the reality of
dairy standards are still in the process of revision, domestic and international markets and supply chains,

Section Three: Goods

organised by the NHC’s National Food Safety Standards many dairy products that have a long history of safe
Review Committee. The sub-working group has consumption in global markets are, and will continue
submitted comments on many of them and expects to be, unable to meet the required Chinese standards,
subsequent revisions to be based on existing scientific which may hinder innovation in China’s dairy sector.
evidence. At the same time, the sub-working group
hopes the barriers currently hindering the import of Assessment
certain European dairy products and the development According to the Food Safety Law, food safety
of China's domestic dairy industry can be further standards are in place to protect public health, meaning
removed. the formulation of national food safety standards
should be based on the results of risk assessments.
It is important for regulatory barriers to continue to be
The law states that relevant international standards
reduced and for the development of the dairy industry
and international food safety risk assessment results
to be facilitated, in line with the Chinese Government's
should be referenced, and the drafting of national food
position on promoting trade liberalisation and economic
safety standards should be open to food producers,
globalisation. As dairy products are well-recognised as
traders, consumers and relevant departments for public
nutritional foods, the development of the industry would
consultation.24
help to improve the overall health and nutrition status of
the Chinese population, an aim that is laid down in the
Most of the current national food safety standards
strategic plan Healthy China 2030,22 and the National
related to dairy products were formulated and
Nutrition Plan 2017–2030.23
released in 2010. Over the past 12 years, innovation
in technology for dairy production has increased,
The Chinese Government intends to enhance its
and product categories have become richer and
technical competence with respect to dairy industry
more varied. Meanwhile, the Chinese dairy market
regulation in order to ensure the safety of dairy
has become more internationalised. The conflict that
products in China. The Dairy Industry Sub-working
has arisen between the current national food safety
21 Notice on the Issuance of 36 National Food Safety Standards and 3 Amendments standards for dairy products and the development
(2022, No. 3), 28th July 2022, viewed 1st August 2022, <http://www.nhc.gov.cn/sps/ status of the international and domestic dairy markets
s7891/202207/d30f4827b27148779c93f3090fc2afc3.shtml>
22 Outline of Healthy China 2030, State Council, 25th October 2016, viewed 20th
April 2022, <http://www.gov.cn/xinwen/2016-10/25/content_5124174.htm> 24 Food Safety Law (Revised 2021), National People’s Congress, 30th November
23 National Nutrition Plan (2017–2030), State Council, 30th June 2017, viewed 20th 2021, viewed 20 th April 2022, <http://gxj.guiyang.gov.cn/zfxxgk/fdzdgknr/
April 2022, <http://www.gov.cn/zhengce/content/2017-07/13/content_5210134. zdlyxxgk/xfpgygl/202111/t20211130_71841361.html>
htm>

Dairy Industry Sub-working Group 167

 is a problem that needs to be urgently solved through will result in fluctuations of the raw material market. This
revision of the relevant standards. deviates from the fundamental objective of the revision
of national food safety standards, which is to ensure
For example, the definition of ‘processed cheese’ food safety and public health.
and the testing methods for phosphates are the main
industry concerns with regard to GB 25192-2010. In Due to China’s limited cultivated areas for raising
the modified National Food Safety Standard Processed dairy cattle, inadequate feeding technology, climate
Cheese and Cheese Products (GB 25192-2022), the conditions and other reasons, the domestic supply of
melting salt—which is required for production and high-quality milk is insufficient to meet demand, so
features in the current standard—has been removed imported dairy ingredients and products are necessary
from the definition of ‘processed cheese’, bringing the supplements. In order to meet the increasingly
definition better in line with international standards and diversified demands of domestic consumers and to
products. However, in the new standard, the proportion provide high-quality, reasonably priced products for
of cheese used as the main raw material was adjusted domestic consumption, the Dairy Industry Sub-working
from more than 15 per cent to more than 50 per cent, Group recommends that the development status of the
and a new category of ‘cheese products’ (in which the domestic and international dairy industries, and the
proportion of cheese used is less than 50 per cent and objective situation of Chinese and global supply chains,
more than 15 per cent) was added. This classification should be fully taken into account when formulating
does not conform to international standards and policies and standards.
Section Three: Goods

industry practices, or reflect the wide variety of

processed cheese marketed worldwide. The move may In terms of industrial policies related to improving the
result in some popular processed cheese products not quality of dairy products and encouraging the use of
being classified as ‘processed cheese’ but instead as fresh milk to produce dairy products, the sub-working
'cheese products', thus impeding product innovation. group recommends encouraging the creation of industry
For instance, some spreadable processed cheeses that standards and group standards to guide enterprises to
have a high water content, and have other raw materials develop higher quality products, rather than mandatory
added to enrich the texture and taste, may not meet national food safety standards. It further recommends
the 50 per cent cheese content requirement. Moreover, taking a holistic approach to promoting the sustainable
there is no clear way to accurately gauge the cheese development of China's dairy industry, based on the
content in processed cheese products, which may lead concept of globalisation.
to difficulties for both enterprises’ implementation and
the government’s administration of the standard. Recommendations
• Better align the development and revision of dairy-
Additional problems with national food safety standards related standards with international standards and
related to dairy products include the mixing of safety practices, as well as the reality of domestic and
standards with quality standards, and the influence international dairy markets and supply chains.
of industrial policies on the revision of mandatory • Implement the Dairy Products Quality and Safety
standards. Improvement Action Plan and related industry
policies by encouraging the introduction of group/
For example, the industry learned that in the latest industry standards instead of national standards.
revision to the draft standard GB 19644, the definition • Optimise the development and revision of national
of ‘modified milk powder’ was changed so that the main food safety standards to provide a more transparent
ingredient should contain no less than 70 per cent milk and open channel to all industry players.
solids, and that ‘main ingredients’ must be limited to
processed products produced from raw milk and/or
whole milk (or skimmed or partially skimmed) derived
from a single variety. This modification aims to improve
the overall quality of milk powder products, but, at the
same time, it will require large-scale adjustments to
existing mixed milk powder products on the market that

168 Dairy Industry Sub-working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

2. Optimise the Regulation of Cultures in dairy products, as it requires information that is very
Applied in Dairy Production difficult to obtain—such as the toxicological assessment
of a certain culture, which is very time- and resource-
Concern consuming—thereby hindering the development of the
Many cultures traditionally used in European dairy Chinese dairy industry, especially the cheese sector. In
production processes are not included in the positive list addition, the review process itself is labour-intensive,
that China uses to regulate the application of cultures in which is an unnecessary cost, as these cultures have a
food production, which acts as a barrier to the Chinese long history of safe usage in a wide variety of European
market. dairy products.

Assessment Authoritative lists of microorganisms used by

China’s regulation of food cultures allows only a very international organisations, or in countries other than
limited number of microbial cultures to be used. In China, include cultures that are generally recognised
2010, the then Ministry of Health issued the List of for their history of safe usage. Such lists include those
Cultures Applied in Food (List).25 It included a ‘positive’ published as a result of a joint project between the
list that recognised only a few microorganism types, International Dairy Federation (IDF) and the European
mainly used for yoghurt manufacturing, with regulated Food and Feed Cultures Association in 2002, and a
cultures applied in food for infants and young children Danish Veterinary and Food Administration (DVFA)
featuring in another list. This regulation exempts a list of notified microbial cultures that are used in food

Section Three: Goods

number of cultures that are traditionally used for food production. After being reviewed and updated in 2012
manufacturing and processing. Although exempted and 2018, the IDF inventory now lists approximately
cultures listed in the notice are not specified as 300 microbial cultures covering a wide range of food
those used in traditional Chinese cooking, the official matrices.27 The Chinese Government and a number of
interpretation and actual implementation does in fact research institutes are cooperating with the IDF to have
apply only to cultures used in ‘traditional Chinese food’; the cultures used in manufacturing traditional Chinese
this includes vinegar, soy sauce and Chinese liquor, food included in the inventory.
among others.
The DVFA list of notified microbial cultures is a record of
After seven additional notices on updates of the List, all microbial cultures the organisation has been notified
a total of 38 cultures are now listed, expanded from of, and can be expanded if culture manufacturers
the original 21. This means that only 17 cultures have provide more information. Safety documentation is not
been added in 12 years. Cultures other than the 38 precluded in the notification process: the DVFA does
listed and those used in Chinese traditional foods not approve microbial cultures before they are used, but
are not permitted for use in food production until safe-use history and safety risks are evaluated before
they are approved in a safety review conducted by a culture is included on the list. In European countries,
the NHC. In October 2021, the National Food Safety cultures are considered ingredients and must satisfy
Assessment Center issued a public consultation on a legal safety requirements, with the responsibility for their
draft of a revised List.26 New varieties of cultures were safety lying with manufacturers. Related regulations
included and naming rules revised to reflect the latest state that manufacturers shall only use cultures that
international trends. However, most cultures that are have a history of safe use.
traditionally used for cheese production are still not
included in the List. Furthermore, the review process is The contributions certain microbes have made to
made almost impossible for producers of cultures used cheese have been widely recognised, and pure
microbial cultures are commonly used by dairy makers.
In addition to lactic acid bacterial starter cultures,
25 Notice of Ministry of Health Office on Issuing the List of Cultures Applied in Food,
NHC, 28th April 2010, viewed 20th April 2022, <www.nhc.gov.cn/sps/s3593/20100 various species of bacteria and fungi are often added to
4/65839d2d57554dd29ae40a52dca92c74.shtml>
26 Public Consultation on the List of Cultures Applied in Food and the List of 27 Bourdichon, F., Casaregola, S., Farrokh, C., Frisvad, J.C., Gerds, M.L., Hammes,
Cultures Applied in Infant and Young Children Food, National Food Safety W.P., & Powell, I.B., Food fermentations: microorganisms with technological
Assessment Center, 28th October 2021, viewed 13th June 2022, <http://www. beneficial use, International Journal of Food Microbiology, vol.154, no.3, pp.
cfsa.net.cn:8033/UpLoadFiles//news/upload/2021/2021-10/23c78b5e-5a92- 87–97, 15th March 2012, viewed 20th April 2022, <https://www.sciencedirect.com/
43a5-927b-ef15ada6bda9.pdf> science/article/pii/S0168160511007586>

Dairy Industry Sub-working Group 169

 dairy products to give them very specific characteristics.
For instance, blue-mould cheeses have always
been fermented with Penicillium roqueforti; spores of
the filamentous fungus Penicillium camemberti are
inoculated into milk during the production of bloomy,
rind cheeses such as Brie and Camembert; and the
actinomycete bacterium Brevibacterium linens (B. linens)
contributes to the reddish-orange colour found in the
traditional cheese Epoisses. Dairy makers have learned
over centuries how to consistently cultivate specific
microbial colonies by controlling the conditions a dairy
product is subjected to during the ageing process.
Recognising the historical safe use of cultures applied
in cheese will help promote the industry in China and
allow Chinese customers to enjoy a wider variety of
dairy products.

Recommendations
• Revise the labelling requirement in the relevant
Section Three: Goods

national food safety standard so that only the general

name of the ‘food culture’ needs to be listed on
the label instead of all individual cultures (except
for probiotics), in order to align with international
regulations.
• Exempt cultures that have a history of safe use in
dairy production from the food culture positive list,
and classify them as permitted ingredients in dairy
production as soon as possible.

Abbreviations
DVFA Danish Veterinary and Food
Administration
EU European Union
GACC General Administration of
Customs of China
GI Geographical Indication
IDF International Dairy Federation
NHC National Health Commission
NHFPC National Health and Family Planning
Commission
SAMR State Administration for Market
Regulation
USD United States Dollar

170 Dairy Industry Sub-working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

Food for Special Medical Purpose Sub-working Group

and Paediatric Nutrition Sub-working Group

Introduction to the Sub-working Groups in slower growth of the domestic infant formula industry:
there were 10.62 million births in 2021, a decrease of
The European Chamber's Food for Special Medical
11.5 per cent compared with 2020.4
Purpose (FSMP) Sub-working Group was established in
2016, and counts as members four leading international Considering China’s rapidly ageing population, as well
manufacturers that specialise in special nutrition. The as the increased focus on personal health awareness
European Chamber's Paediatric Nutrition Sub-working and the improvements in related policies, China’s
Group was established in 2009, and currently has nine FSMP industry has huge potential.5 For instance, in
international companies as members and four domestic 2021, Shanghai and several other provinces and cities
manufacturers as local partners. promulgated administrative measures for the operation
and use of FSMP, which has incrementally improved
The Food for Special Medical Purposes Sub-working the supervision system for the industry.6
Group and the Paediatric Nutrition Sub-working Group
fall under the European Chamber’s Agriculture, Food As of 31 st December 2021, 81 FSMP products and
and Beverage Working Group. All groups consider it 1,392 modified infant milk powder formulas had been

Section Three: Goods

crucial to regulate the special food sector with modern approved for recipe registration (with 48 modified infant
legislation and standards based on scientific evidence milk powder formulas deregistered).7&8 The registration
and input from both industry and the public at large. rate of infant formula has dropped dramatically since
2018, while that of FSMP has stagnated over the same
Recent Developments period, as can be seen in Table 1.

In the past two years, European companies have faced

Table 1: Registration of FSMP and Infant Formulas 9
unprecedented challenges and uncertainties resulting
from China’s COVID-19 containment measures, Infant formula
Year FSMP registrations
registrations
including lockdowns in cities, disrupted supply chains,
2017 3 904
and increasingly expensive and unstable logistics.
2018 18 243
According to a European Chamber flash survey 2019 22 86
published in May 2022, 75 per cent of respondents 2020 14 70
reported that the pandemic control measures have 2021 24 41
had a negative impact on their overall operations.1 For
The Administrative Measures for the Registration
the special food sector, the impact can be seen in the
of Food for Special Medical Purposes, which aim
decrease of imports. For example, in 2021, the import
to safeguard FSMP quality and safety, and improve
volume of infant formula decreased by 21.8 per cent
registration management, have been under revision
year-on-year to 272,700 metric tonnes, and its value
was United States dollar (USD) 4.5 billion, a decrease 4　 Intensifying Competition: With 30 Per Cent of Mother and Baby Stores Closed, Milk
Powder Industry is a Bit Cold, Sina Finance, 20th January 2022, viewed 24th April
of 14.6 per cent.2 Infant formula manufacturers have 2022, <https://cj.sina.com.cn/articles/view/6745116791/1920a507701901c5mv>
also been impacted by rising business costs. 3 In 5　 Liang, Yuan; Hu, Mengyao; Zhao, Yuanzhi & Zha, Tiantian, FSMP Market is
Expected to Reach 10 Billion Yuan in 2021, People's Daily, 14th October 2021,
addition, demographic changes in China have resulted viewed 24th April 2022, <https://new.qq.com/rain/a/20211014A06ECN00>
6　 FSMP Industry’s 2021 Top Ten Events, Guangming.com, 5th January 2022, viewed
24th April 2022, <https://shipin.gmw.cn/2022-01/05/content_35428285.htm>
1　 Flash Survey: COVID-19 and the War in Ukraine: The impact on European business
7　 2021 Information on Registration and Approval of Formulas for Special Medical
in China, European Union Chamber of Commerce in China, 5th May 2022, viewed
Purposes – Annual Check, Food Safety and Compliance Division, 18th January
12th June 2022, <https://www.europeanchamber.com.cn/en/publications-flash-
2022, viewed 21st April 2022, <http://news.foodmate.net/2022/01/618033.html>
survey-2022>
8　 2021 Information on Registration and Approval of Infant Formulas for Special
2　 2021 Review and 2022 Outlook of China's Dairy Industry, China Dairy Industry
Medical Purposes – Annual Check, Food Safety and Compliance Division, 12th
Association, 8th April 2022, viewed 21st April 2022, <https://news.foodmate.
January 2022, viewed 21st April 2022, <http://news.foodmate.net/2022/01/617507.
net/2022/04/625712.html>
html>
3　 Liu, Changquan, 2021 Review and 2022 Outlook of China's Dairy Industry, Chinese
9　 These statistics are consolidated based on the public information published by the
Journal of Animal Science, 4th March 2022, viewed 24th April 2022, <http://news.
Centre for Food Evaluation (CFE) of the State Administration for Market Regulation
foodmate.net/2022/03/622076.html>
(SAMR), <http://www.cfe-samr.org.cn/sldt/sdxx/yyepfrfcppf_180/pjfb_181/>

Food for Special Medical Purpose Sub-working Group and Paediatric Nutrition Sub-working Group 171
 by the State Administration for Market Regulation of Modified Infant Milk Powder Formulas (Trial).16
(SAMR) since 18 th October 2021. 10&11 In addition, • O n 24 th December 2021, the SAMR issued the
the National Food Safety Standard – General Rules Announcement on Strengthening the Quality and
for Food for Special Medical Purposes (GB 29922- Safety Supervision of Solid Beverages.17
2013) 12 and the National Food Safety Standard – • On 24th December 2021, the SAMR’s CFE issued
General Rules for Infant Formulas for Special Medical the Frequently Asked Questions and Answers for
Purposes (GB 25596-2010),13 are under revision as of the Registration of Modified Infant Milk Powder
July 2022. The Food for Special Medical Purpose Sub- Formulas.18
working Group provided comments and suggestions on
these measures and standards, and looks forward to The requirement to register recipes for infant and young
subsequent revisions taking this feedback into account. children milk-based formula was introduced in 2016,
and the first batch of registration applications were
Other recent regulatory and standard changes that approved in August 2017. Companies were obliged to
have had a significant impact on the operation and apply for a registration extension for these recipes in
management of FSMP and the recipe registration of February 2022, six months prior to the expiration of the
infant formula include the following: registration. However, due to strict COVID-19 control
measures—including lockdowns—in certain parts of
• O n 18th March 2021, the National Health Commission China then, many companies were not able to submit
(NHC) and the SAMR issued the National Food their documents in time, which raised a great deal of
Section Three: Goods

Safety Standard – Infant Formula (GB 10765- concern over their applications. Companies have also
2021), National Food Safety Standard – Older Infant had to start preparing for the registration of recipes
Formula (GB 10766-2021), and National Food modified to comply with the new standards GB 10765-
Safety Standard – Young Children Formula (GB 2021, GB 10766-2021 and GB 10767-2021. On 26th
10767-2021).14 The standards will become effective April 2022, the SAMR’s CFE held an online seminar
on 22nd March 2023, and companies have already to address both of these challenges.19 The industry
started registering their updated recipes according welcomed this opportunity and recommends more
to the new standards. frequent communication among the CFE, the SAMR
• O n 2 3 r d M a r c h 2 0 2 1 , t h e S A M R i s s u e d t h e and industry to address such issues.
Announcement on Matters Concerning the Formula
Registration of Infants and Young Children Formula Key Recommendations
Milk Powder Product.15
• O n 12 th April 2021, the SAMR’s Centre for Food 1. Optimise the Registration System for
Evaluation (CFE) issued the Technical Guiding Special Food
Principles for Registration and Labelling Specifications 1.1 Enhance the Transparency and Consistency
of Product Registration and Ensure
10　Administrative Measures for the Registration of Food for Special Medical Purposes,
former China Food and Drug Administration (CFDA), 7th March 2016, viewed 24th Administration is Based in Law
April 2022, <http://www.gov.cn/gongbao/content/2016/content_5076983.htm>
11　SAMR’s Notice on the Call for Comments on the Administrative Measures for
the Registration of Food for Special Medical Purposes (Draft for Comments), Concern
SAMR, 18th October 2021, viewed 12th June 2022, <https://www.samr.gov.cn/hd/
Frequent changes have been made to the administration
zjdc/202110/t20211018_335729.html>
12　National Food Safety Standard - General Rules on Formula Foods for Special of infant formulas and FSMP in recent years, and
Medical Purposes (GB 29922-2013), former National Health and Family Planning
Commission (NHFPC), 26th December 2013, viewed 24th April 2022, <https://sppt. 16 Technical Guiding Principles for Registration and Labeling Specifications of Modified
cfsa.net.cn:8086 /staticPages/EC073419-CC4C-463E-9BA2-8372D034396C.html> Infant Milk Powder Formulas (Trial), SAMR CFE, 12th April 2021, viewed 22nd April
13　National Food Safety Standard - General Rules for Infant Formulas for Special 2022, <https://www.cfe-samr.org.cn/zcfg/yyepfrfcppf_146/gfxwj_150/202104/
Medical Purposes (GB 25596-2010), former Ministry of Health (MOH)，21st t20210412_3095.html>
December 2010, viewed 24th April 2022，<http://www.nhc.gov.cn/sps/s7891/20101 17　Announcement on Strengthening the Quality and Safety Supervision of Solid
2/539e2314f74b402696c44e0906aa9ef1.shtml> Beverages, SAMR, 7th January 2022, viewed 21st April 2022, <https://gkml.samr.
14　Notice on the Issuance of 50 National Food Safety Standards and 4 Amendments gov.cn/nsjg/spscs/202201/t20220107_338958.html>
Including National Food Safety Standard - Cheese (GB 5420-2021), NHC, 18th 18　Frequently Asked Questions and Answers for the Registration of Modified Infant
March 2021, viewed 24th April 2022, <http://www.nhc.gov.cn/sps/s7891/202103/0bd Milk Powder Formulas, SAMR CFE, 24th December 2021, viewed 24th April 2022,
b6c4318724644b40e3f3f894aa88f.shtml> <https://www.cfe-samr.org.cn/tzgg/202112/t20211224_4173.html>
15　Announcement on Matters Concerning the Formula Registration of Infants and 19 The CFE Successfully Held an Online Communication Seminar on Recipe
Young Children Formula Milk Powder Product, SAMR, 23rd March 2021, viewed Registration of Infant and Young Children Milk-based Formula, SAMR CFE, 9th
22nd April 2022, <http://gkml.samr.gov.cn/nsjg/tssps/202103/t20210324_327214. May 2022, viewed 12th June 2022, <http://www.cfe-samr.org.cn/zxdt/202205/
html> t20220509_4275.html>

172 Food for Special Medical Purpose Sub-working Group and Paediatric Nutrition Sub-working Group
 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

the subsequent increased uncertainty over technical guidance on the R&D of FSMP, and to enhance
reviews and approval requirements now pose overall communication.
considerable challenges in terms of compliance and • Refrain from imposing new requirements for products
registration. that have already passed technical review, following
the ‘principle of non-retroactivity’.
Assessment • Ensure that future production conforms to the latest
Over the past five years, the requirements for both requirements by accepting a future guarantee
infant formula recipe registration and FSMP product statement from companies.
registration have become increasingly strict and • D etermine raw material standards to be applied
rigorous. For instance, some regulations were updated during technical review according to the time the
at the end of 2020 to include requirements relating to batches for registration are produced, and only
additives and control schemes for pollutants. However, require companies to comply with the new standards
the adjusted review and approval requirements have post-review during production or upon expiry of the
not been communicated to the industry in a timely and interim standard period.
effective manner. Many enterprises only become aware
of the new requirements when they commenced product 1.2 Continue to Explore Alternative Plans for
registration review, which is the last critical step in new Overseas Onsite Inspection to Address
product development. Furthermore, enterprises may not Challenges Faced by Overseas Manufactures
be able to meet new requirements that come into effect in Infant Formula and FSMP Registration

Section Three: Goods

while their applications are being reviewed, which will
increase administrative burdens for companies and may Concern
even result in registration failures. Manufacturers of infant and young children milk-based
formula and FSMP are facing operational challenges
Prior to the preparation of product registration due to both unclear regulations related to onsite
applications, enterprises need two to five years to inspections and the fact that the product registration
conduct research and development (R&D), production process has been suspended indefinitely because
testing and clinical trials, with investments running to onsite inspections are no longer taking place as a result
tens of millions of Chinese yuan. Failure to publish of the COVID-19 pandemic.
new registration review and approval requirements in
a timely manner will therefore not only result in huge Assessment
challenges in the registration process for enterprises, Article 13 of the Management Measures on the
but also waste time and resources. Registration of Infant and Young Children Milk-based
Powder Formula states that the CFE shall conduct
In addition, innovative R&D processes may lead to onsite inspections based on "actual needs".20 A similar
issues arising that are not yet clarified in existing requirement for FSMP registration is prescribed in
registration regulations. Adding an early communication Article 11 of the 2016 Administrative Measures for the
mechanism among the SAMR, the CFE and industry Registration of Food for Special Medical Purpose. Yet
stakeholders, so that the SAMR and the CFE can learn it remains unclear what "actual needs" means in both
of R&D trends as soon as possible, would also facilitate cases. At present, onsite inspections remain suspended
targeted discussions on product registration issues, due to the COVID-19 pandemic, and the authorities
and help applicants to assess the feasibility of the have neither made nor published plans for onsite
development of innovative categories. inspections of overseas factories, so manufacturers
cannot plan ahead. As a result, the process—from
Recommendations the submission of a registration to the final launch of
• Improve the registration review and approval process, a new product—is unpredictable. Enterprises are now
and inform the industry of any new requirements in a at risk of failing to obtain the necessary approvals for
timely manner. registrations and ordinary business operations, while
• E stablish a communication mechanism between
the SAMR, the CFE and industry to strengthen 20　Management Measures on the Registration of Infant and Young Children Milk-
based Powder Formula, former CFDA, 15th March 2016, viewed 20th April 2020,
<http://www.gov.cn/gongbao/content/2016/content_5145569.htm>

Food for Special Medical Purpose Sub-working Group and Paediatric Nutrition Sub-working Group 173
 consumers and patients are unable to obtain the latest specified in the registration regulation and the criteria
products in a timely manner. for such differences are not published in any official
guidelines, causing uncertainty among enterprises.
Furthermore, the revised infant formula standards,
including GB 10765-2021, GB 10766-2021, and GB Assessment
10767-2021, were released in March 2021, with a FSMP are designed to meet the specific nutritional
transition period of only two years. Certain FSMP needs of people with dietary restrictions, digestion and
standards (General Rules for Infant Formulas for absorption disorders, metabolic disorders or certain
Special Medical Purposes (GB 25596-2010) and diseases. In clinical use, these products are already
General Rules for Food for Special Medical Purposes diversified based on individual patient needs and their
(GB 29922-2013)) are also under revision. According different medical conditions. It is essential to introduce
to industry feedback, review and approval of recipe a greater variety of safe and high-quality FSMP into
registration of infant and young children milk-based the Chinese market to meet the various needs of
formula and FSMP product registrations are more patients and clinicians. This would also contribute to the
arduous than in previous years. Failure to restart development of China’s FSMP industry, paving the way
overseas onsite inspections will have an immeasurable for highly personalised products and services. However,
impact on EU infant milk-based formula and FSMP the current review process for different recipes is
manufacturers that have been operating in China for unclear, which creates uncertainties, increases costs
many years, and will constitute a serious obstacle to and discourages companies from providing a greater
Section Three: Goods

the normal trading of infant formulas between China variety of FSMP products for Chinese patients. For
and Europe. It may even affect the development of EU- enterprises to be able to develop their products and
China relations. Consumers may also have the supply apply for registration with less uncertainty, the criteria
of products they love and trust being cut off. for formula differentiation need to be clarified and
published officially.
Recommendations
• Clarify both the ‘actual needs’ for conducting onsite Recommendation
inspections (i.e., specify the criteria to implement • Clarify the requirements for formula differentiation
an on-site inspection) and the timeline for overseas or formula upgrades of FSMP, and issue relevant
onsite inspections. guidelines as soon as possible.
• Explore alternatives to overseas onsite inspections,
such as cooperating with overseas authorities, 1.4 Establish a ‘Green Channel’ for the Registration
entrusting qualified third-party organisations or and Approval of FSMP Products for Rare
considering remote inspections, so that overseas
Diseases
onsite inspections will not continue to be delayed
due to COVID-19. Concern
• E nsure overseas onsite inspections are carried The rate at which FSMP products for rare diseases are
out in an orderly fashion under the newly revised registered and approved in China is very slow, which
national food safety standards related to infant prevents patients from obtaining the latest products in a
formula. timely manner.

1.3 Publish the Criteria for Differences in FSMP Assessment

Formulas with Regard to Registration 1) Registration challenges
Review For FSMP used for patients with rare diseases, such as
congenital metabolism defects, the content of specific
Concern nutrients included is usually strictly controlled. Such
When a company submits registration applications for products are also subject to strict restrictions regarding
multiple FSMP products, it is often requested to provide the use of shared production lines. However, due to
evidence of significant difference among the product the low yield of FSMP, it is expensive for companies
recipes, though the requirement on difference is not to provide dedicated production facilities for such

174 Food for Special Medical Purpose Sub-working Group and Paediatric Nutrition Sub-working Group
 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

products. For foreign companies, the output of one applications from such special channels for FSMP
factory can usually meet the needs of many countries, for subjects with rare diseases such as congenital
and it is not conducive to the commercialisation of metabolism defects.
products if formulas must be developed according to • Strengthen communication among central and local
the regulations of each country. In addition, Chinese governments, and the industry.
registration regulations require trial production and • P romote the implementation of pilot policies at
stability testing of three commercial batches for each the local level and allow conditional approvals of
formula, the costs of which can be higher than the overseas marketed FSMP to be used by those with
potential return on product sales in China. rare diseases.
• Develop documentation for approving and managing
Most Chinese enterprises are reluctant to register FSMP the donation of FSMP for use by those with rare
due to the high costs, and would rather produce and diseases.
sell the goods as non-FSMP. This means that patients • Accelerate the review and approval of FSMP for
who rely on such foods for long-term treatment can only rare diseases on the basis of ensuring the safety,
access those that are not strictly regulated. As such effectiveness and quality control of the approved
food products become subject to stricter regulation, FSMP, so that patients can obtain reliable treatment
many patients will struggle to obtain the products they as soon as possible.
rely on, which may cause a deterioration of their health.
2. Continue to Fine-tune National Food

Section Three: Goods

Furthermore, in China, rare diseases, other than Safety Standards Related to FSMP to
phenylketonuria, are not included in new-born
Ensure the Smooth Transition of Product
screening, therefore treatment costs are non-
Registration under New Standards
reimbursable through the basic medical insurance,
compounding the lack of incentive for companies to
Concern
register related products as FSMP.
The current development and timeline for the revision
of national food safety standards for FSMP are unclear,
2) Slow local implementation of pilot policies
causing uncertainty among enterprises regarding
Some local governments allow the import of foreign
registration renewals and the re-registration of products.
FSMP that are not yet registered in China for urgent
use by those with rare diseases. However, the
Assessment
implementation of such policies is slow and lacks
1) Introduction of new standards and administrative
transparency. In addition, insufficient communication
measures
between central and local governments results in local
Both the National Food Safety Standard – General
governments still being constrained by the current
Rules for Infant Formulas for Special Medical Purposes
administrative measures on FSMP.
(GB 25596-2010) released in 2010,21 and the National
Food Safety Standard – General Rules for Food for
3) Unclear import procedures for donation
Special Medical Purposes (GB 29922-2013) released in
During the COVID-19 pandemic, FSMP was in short
2013,22 are currently under revision. The Administrative
supply in China. European companies hoped that
Measures for the Registration of Food for Special
donations of products would solve this problem.
Medical Purposes, released in 2016,23 is also under
However, due to the absence of written regulations on
amendment.
donations, there were many problems in the process
and the products are still unable to enter the country,
21　National Food Safety Standard – General Rules for Infant Formulas for Special
despite government support for such donations. Medical Purposes (GB 25596-2010), former MOH, 21st December 2010, viewed
20th April 2022, <http://www.nhc.gov.cn/sps/s7891/201012/539e2314f74b402696c4
4e0906aa9ef1.shtml>
Recommendations 22 National Food Safety Standard – General Rules for Food for Special Medical
• Revise the Administrative Measures for the Purposes (GB 29922-2013), former NHFPC, 26th December 2013, viewed 20th April
2022, <https://sppt.cfsa.net.cn:8086/staticPages/EC073419-CC4C-463E-9BA2-
Registration of Food for Special Medical Purpose 8372D034396C.html>
to reflect the actual development of the sector, 23　Administrative Measures for the Registration of Food for Special Medical Purposes,
former CFDA, 7th March 2016, viewed 24th April 2022, <http://www.gov.cn/gongbao/
and conduct priority reviews and approvals of content/2016/content_5076983.htm>

Food for Special Medical Purpose Sub-working Group and Paediatric Nutrition Sub-working Group 175
 It takes quite a long time for a company to develop process. Clinical trials are costly and time-consuming.
FSMP products, which is exacerbated by China’s In addition, the feasibility of clinical trials varies with
lengthy registration process. To register a product in each product and are therefore complicated in terms of
China, a company needs to provide sufficient medical trial design and selection of subjects. As registrations
evidence to prove that the formula is designed for for disease-based FSMPs are still at a very early stage,
certain special disease types, as well as to conduct enterprises are concerned that their clinical studies may
clinical trials and facilitate onsite inspection of its not meet the registration requirements, which would
production facilities in China or overseas. As onsite result in a waste of resources and increased costs.
inspections are currently not taking place due to Furthermore, as there are currently very few product
the pandemic, and the timeline for the introduction registration applications for specific disease types, the
of new standards and further details of the revised amount of products that will be successfully registered
adm inis t r at iv e me a s u re s a l s o re ma i n u n cl ear, is unlikely to meet the huge demand among patients in
companies face a great deal of uncertainty when China.
developing and registering their products. As a result,
products registered under new national standards will Currently, GB 29922-2013 is also in the process of
not be launched as scheduled, leading to a supply being revised, with certain adjustments made to the
shortage. original categorisation of specific diseases. This will
inevitably lead to changes to requirements of relevant
On 5 th August 2021, the SAMR’s CFE released clinical trials.
Section Three: Goods

the Frequently Asked Questions and Answers for

Registration of Food Formulas for Special Medical The changes to both documents will have a significant
Purposes (Q&A) 24 to elaborate on the registration impact on the registration review of products for specific
requirements for FSMP products. However, the Q&A diseases, which is causing concern among the industry.
includes additional requirements for general nutrient-
complete products to those in the published registration Recommendations
regulations and secondary documents. On 18th October • Accelerate the revision of new national standards
2021, the SAMR issued the Administrative Measures and clarify the timeline for their introduction as soon
for Registration of Food Formulas for Special Medical as possible.
Purposes (Draft for Public Comments) (Administrative • Accelerate the revision of the Administrative Measures
Measures). 25 The draft, which aims to improve for the Registration of Food for Special Medical
the process, included the additional requirements Purposes.
introduced in the Q&A. Due to the tightening of • E stablish a sufficient transition period for new
registration requirements and the time needed to national standards for FSMP, taking into account the
develop new formulas in accordance with the new cycle from product development to product launch.
national standards, the Administrative Measures • F ine-tune old standards’ indicators to form new
and its supporting secondary documents should be standards based on the safe use of special medical
promulgated urgently. products already registered and marketed.
• Investi gate the necessi ty and feasi bi l i ty of
2) FSMP designed for specific diseases conducting clinical trials for the registration of
The Administrative Measures specify that applications FSMP products for specific diseases, and give clear
for the registration of specific nutritional formulas should guidance to companies.
include clinical study reports. The measures apply to 13
disease-based FSMPs, yet only three relevant clinical 3. Optimise the Requirements for Clinical
study guidelines have been issued so far, with little
Trials of FSMP
practical information provided on the requirements or
3.1 Rationalise the Requirements Imposed on
24　Frequently Asked Questions and Answers for Registration of Food Formulas for
Trial Participants
Special Medical Purposes, SAMR CFE, 25th August 2021, viewed 18th May 2022,
<http://www.cfe-samr.org.cn/tzgg/202108/t20210825_3873.html>
25 Administrative Measures for Registration of Food Formulas for Special Medical
Concern
Purposes (Draft for Public Comments), SAMR, 18th October 2021, viewed 18th May Uniform clinical trial requirements are not suitable for
2022, <https://www.samr.gov.cn/hd/zjdc/202110/t20211018_335729.html>

176 Food for Special Medical Purpose Sub-working Group and Paediatric Nutrition Sub-working Group
 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

diversified FSMP products, and therefore clinical trial for toddlers over one year old.
regulations must be reassessed and revised. • P rovide relevant data, establish a method for
exemption from conducting clinical trials, allow a
Assessment reduction in the use of clinical trial cases or conduct
Due to ethical concerns over age and selection clinical research after marketing for populations
criteria, certain difficulties may arise when clinical trials under the age of 10 and subjects with rare diseases,
involving paediatric patients are launched, especially to ensure the proper use of clinical trial resources
large-scale trials. The Announcement on the Technical and to satisfy the needs of special groups.
Guiding Principles for Paediatric Populations in Drug • Accept the normal diet as a control group, and either
Clinical Trials (No. 48 of 2016) clearly stipulates that the ‘before and after’ comparison of one patient,
in designing clinical trials for drugs used in paediatric or the comparison with standard normal growth,
populations,26 the principle of “smallest sample size, instead of mandating parallel controlled clinical
fewest specimens and least pain” shall be observed, trials.
while ensuring all evaluation needs are met. Based on • E stablish a channel for consultations on clinical
these guiding principles, application channels need to trial design prior to registration review, allowing
be provided for exemption of clinical trials or reduction companies to discuss experimental designs with
of the number of cases required for clinical trials in a review institutions before conducting clinical trials
paediatric population.
3.2 Adjust the Evaluation Indicators in Clinical

Section Three: Goods

For instance, the specifications for the category ‘food Trials to Reflect the Features of FSMP
protein intolerance’ of FSMP in the National Food Products
Safety Standard General Rules for Food for Special
Medical Purposes (GB 29922-2013) is similar to that Concern
of the category ‘FSMP for infants (0–12 months) Requirements for clinical trials as the secondary
with milk protein allergies’ in National Food Safety documents of the 2016 Administrative Measures for the
Standard Infant Food for Special Medical Purposes Registration of Food for Special Medical Purposes for
(GB 25596-2010). As clinical studies are not required 13 disease-specific FSMPs provide barely any scientific
for the registration of infant FSMP, it should also not be or objective reflections of the actual effectiveness of
required for the registration of hypoallergenic formulas such products in nutritional therapy for patients.
for toddlers over a year old. Moreover, as infants aged
from 6–12 months and young children over one year old Assessment
have started eating other foods, FSMP clinical studies When establishing clinical regulations, it is important
on this population are increasingly difficult to carry out that scientific and clinical research are combined to
due to increased diet diversity. design a reasonable evaluation plan that conforms to a
patient's usage habits, rather than simply adopting the
In order to obtain the necessary sample size for rare clinical trial method used in medicine and non-inferiority
disease clinical trials, a relatively long clinical trial of effectiveness indicators.
cycle is needed, due to low morbidity, the difficulties
for patients to join such trials and the relatively high For example, for renal-specific formulas, ordinary
dropout rate. Furthermore, such disease-specific FSMP nutrient-complete formula cannot be used as a control
are always in demand by clinical patients and cannot be group in the clinical study process, as patients with
replaced by normal FSMP. kidney disease are required to avoid or reduce the
intake of certain nutrients or ingredients, such as
Recommendations protein, potassium, calcium and phosphorus. Ordinary
• Waive clinical trials or conduct post-marketing nutrient-complete formula is therefore not suitable for
clinical data collection for hypoallergenic formulas such patients to use long-term as it increases health
risks, especially for outpatients for whom the daily
26 Announcement of CFDA About the Release of Technical Guiding Principles dosage cannot be controlled.
for Paediatric Populations in Drug Clinical Test (No. 48 [2016]), CFDA, 7th
March 2016, viewed 14 th July 2022, <https://www.nmpa.gov.cn/xxgk/ggtg/
qtggtg/20160307164401912.html>

Food for Special Medical Purpose Sub-working Group and Paediatric Nutrition Sub-working Group 177
 Most imported disease-based FSMPs currently on the products’, and most clinicians still consider such
China market have been sold in many other markets products as enteral nutrition preparations.
for several years and have been clinically observed
during that time. The industry recommends recognising FSMP needs to be used under the guidance of doctors
foreign clinical trial data for products that meet Chinese or clinical nutritionists, so should be marketed mainly
national food safety standards without requiring any through healthcare institutions and pharmacies, in
adjustments, to avoid wasting resources by repeating line with international standards. However, FSMP
clinical trials in China. products face significant challenges in circulation and
application in healthcare facilities and clinical use in
Recommendations China. FSMP, health foods, functional beverages and
• Study the effects of renal-specific formulas by using general foods are all available in hospitals’ nutrition
before/after comparisons (i.e., single-arm) or by department (canteen), yet, although companies invest a
comparing with renal-specific formulae marketed lot of resources in product registration, approved FSMP
overseas. does not have an edge over other foods in hospitals.
• Consider the fact that FSMPs are only clinical Moreover, healthcare professionals are unable to
nutritional support products, and design reasonable prescribe FSMP because it is not listed in the current
clinical observation indicators. healthcare prescription system, and pharmacies are
• Allow the sharing of clinical trials data on functional- unable to sell FSMP products due to business licensing
equivalent (solid/liquid) formulas. restrictions and medical insurance compensation rules.
Section Three: Goods

4. Encourage the Expansion of FSMP Market The Interim Measures for the Administration of
Access Channels, Standardise Post-market Advertisements on Drugs, Medical Devices, Dietary
Supplements and FSMP specify that the marketing and
Supervision and Improve Public FSMP
advertising of general nutrient-complete FSMP products
Education
must follow the same policy for over-the-counter drugs,
and disease-specific FSMP must be regulated in the
Concern
same way as prescription drugs.28 Such strict limitations
Despite being an emerging food category, the
give consumers an overall impression that FSMP are
development of the FSMP industry in China over the
closely related to drugs, which is compounded by the
past decade has been slow, which is partly a result of
presence of similar products in the market, such as
strict regulations and restrictions on product standards,
health foods, functional drinks and protein drinks. The
registration technical reviews, onsite inspections, and
variety of product categories makes it more difficult for
advertising and promotion.
consumers to decide which product to use.

Assessment
Promotion and advertising restrictions also affect
China’s ‘dual-track system’ for the registration of FSMP
product distribution. According to related regulations,
has a serious impact on specific nutrient-complete
general nutrient-complete FSMP products are permitted
products suitable for people with specific disease
to be sold in regular supermarkets. However, the
conditions.27 Under the current regulations, it takes more
lack of public awareness of such products leads to
than five years to complete the registration process.
low consumer demand, while distribution costs are
This factor, combined with product development costs,
high, which hinders supermarket sales. Failure to
results in few specific nutrient-complete FSMP products
market in busy supermarkets impacts the ability to
being launched in the Chinese market. Those currently
raise awareness of such products. In the long run, this
being sold are old products certified before 2009 as
endless loop results in poor market development of
‘enteral nutrition preparations’. Therefore, very few
such products.
hospitals are familiar with ‘specific nutrient-complete

27　Before the category of FSMP was officially introduced in China in 2013, and the
28 Interim Measures for the Administration of Advertisements on Drugs, Medical
registration system established in 2016, certain FSMP products were registered
Devices, Dietary Supplements and FSMP, SAMR, 24th December 2019, viewed
as drugs. In China’s current health system, certain products are still registered and
20th April 2022, < https://gkml.samr.gov.cn/nsjg/fgs/201912/t20191227_309564.
regulated as drugs, while others are registered as FSMP.
html>

178 Food for Special Medical Purpose Sub-working Group and Paediatric Nutrition Sub-working Group
 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

Recommendations Recommendations
• Take comprehensive efforts to improve management, • Modify the Administrative Measures for the Sale of
policy and regulation, and follow-up supervision, Breast Milk Substitutes in accordance with existing
as well as to raise public awareness, to promote nutritional and health conditions in China, and in a
development of the FSMP industry in China. way consistent with the prohibitions on inappropriate
• Include special medical products in the national promotion of 0–12-months infant formula as set out
medical charging system so as to provide more and in China's Advertising Law.
better choices for nutritional support treatment for • E stablish appropriate norms and regulatory
the majority of patients. frameworks through the SAMR and provide detailed
plans and enforcement programmes to prevent and
5. Establish an Appropriate Regulatory detect inappropriate advertising and promotion of
Framework to Supervise the Retail 0–12-months infant formula in retail channels to
effectively protect breastfeeding.
Marketing of 0–12-months Infant Formula
and Provide a Detailed Plan to Effectively
Encourage Breastfeeding Abbreviations
CFDA China Food and Drug Administration
Concern CFE Centre for Food Evaluation
The lack of a framework to standardise and regulate the FSMP Food for Special Medical Purpose
marketing of formulae for infants aged 0–12 months in GACC General Administration of Customs of

Section Three: Goods

retail channels may have an adverse influence on the China
protection and promotion of breastfeeding. MOH Ministry of Health
NHC National Health Commission
Assessment NHFPC National Health and Family Planning
On 15 th November 2021, the NHC released the Commission
Breastfeeding Promotion Action Plan (2021–2025),29 R&D Research and Development
which requires that, by 2025, the national breastfeeding SAMR State Administration for Market
rate for infants aged 0–6 months should exceed 50 per Regulation
cent. To achieve this goal, the NHC plans to enforce
two tasks, "improving the policy system to build a
breastfeeding support environment; and strengthening
industry supervision and effectively cracking down
on violations of laws and regulations that endanger
breastfeeding."

Improper advertising and promotion of infant formulas

may mislead mothers to give up breastfeeding
prematurely, adversely affecting the breastfeeding rate.
China lacks a framework and specific implementation
plan to regulate and standardise the marketing of 0–12
months infant formulas in retail channels. Relying only
on the self-discipline of companies is not enough to
prevent inappropriate or illegal behaviour in the market,
such as providing pregnant women with free infant
formula samples and promoting infant formulas to
parents through stores.

29　Notice on Printing and Distributing the Breastfeeding Promotion Action Plan

(2021–2025), NHC, 15th November 2021, viewed 15th April 2022, <http://www.gov.
cn/zhengce/zhengceku/2021-11/24/content_5653169.htm>

Food for Special Medical Purpose Sub-working Group and Paediatric Nutrition Sub-working Group 179
 Automotive Working Group

Key Recommendations
1. Unify Policies Related to Vehicle Data Security Administration and Permit
Cross-border Transfer of Data for Research Purposes
• E nsure implementation of the upcoming automotive data security management system is fully
coordinated among the Cyberspace Administration of China (CAC), the Ministry of Industry and
Information Technology and other government agencies, to avoid regulatory overlaps.
• E nsure that the automotive data security management system is developed with a global
perspective in line with the international development of the automotive industry.
• Improve legislation related to cross-border data transfer and enable secure, adequate and steady
cross-border transfers under the premise of ensuring data security.
• Give opportunities to foreign automotive companies to assist the CAC and other agencies in
developing policies related to automotive data and information security.
Section Three: Goods

2. Create a Predicable, Non-discriminative and Balanced Legislative Environment

that is Conducive to the Sustainable Development of New Energy Vehicles
(NEVs)
Policy transparency and predictability
• Ensure international automotive manufacturers can participate in the drafting and revision of new
policies and regulations.
• Provide lead time of at least four to five years for automotive manufacturers to plan and react to
released policies and planning documents.
Equal treatment
• Provide the same incentives and equal rights for imported and locally produced NEVs.
• Ensure technology neutrality without distinction between electric vehicle classes, as well as equal
access to registration plates at the regional level.
Decarbonisation
• Provide ample lead time when designing the decarbonisation roadmap for the automotive
industry.
• Calculate separately the emissions of upstream and downstream suppliers to provide additional
incentives to decarbonise.
• Allow reimbursement or other incentives for proven decarbonisation initiatives.
• Enable utility companies to offer private renewable energy charging solutions.
• Develop whole-life-cycle carbon emission regulations that highlight the individual development
status of each phase in the lifecycle.
Incentives (national level)
• Extend the 2020–2022 NEV subsidies and purchase tax exemption (PTE) to 2025.
• Maintain existing technical requirements and the current policy in order to mitigate the impact on
the NEV market.
• Ensure models that have been approved and listed in the tax exemption list are still eligible for
PTE even after new taxation policies have been released.

180 Automotive Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

Licence plate quotas and restrictions (local level)

• Prohibit local governments from issuing fragmented implementation measures and unique
requirements that restrict the purchase of NEVs.
• Enhance local incentive measures, for example by lifting licence plate quota.
Charging infrastructure
• Enhance standards related to charging infrastructure to keep pace with NEV development.
• Harmonise standards with in-use pillars and new generation pillars.
• Coordinate charging infrastructure development with green energy, power grids and vehicles.
• Harmonise the standards of high-power charging, including fast-charging.
• Encourage private wall-box installations in residential compounds.
NEV credits
• Consult with the industry in advance to avoid setting policy goals or management measures
related to dual credits for 2024 and 2025 that are too aggressive, and give enterprises enough
lead time to make plans.
• Release the plan for dual credits and carbon emissions as early as possible so that enterprises
have enough time to prepare for compliance.

Section Three: Goods

3. Establish a Consistent, Transparent and Friendly Legislative and Policy
Environment to Promote Intelligent and Connected Vehicle (ICV) Development

• I mprove the legal and standards system and gradually abolish institutional obstacles for the
development of ICVs.
• Ensure consistency, non-discrimination and appropriateness of market access laws, regulatory
systems and technical requirements related to ICVs.
• Clearly define the responsibilities of government agencies in charge of regulating ICVs, to avoid
over-burdening companies due to regulatory overlaps.
• Optimise the policy environment to ensure that foreign-invested enterprises (FIEs) can fully
participate in the legislative process.
• Allow FIEs the same access, including voting rights, as domestic automotive brands in standards
and technical committees related to ICVs.
• Amend the high-definition mapping regulations.
• Reasonably liberalise the cross-border flow of automotive data and support enterprises to
improve intelligent connectivity technologies with global research and development capabilities.
• Provide enough lead time for automotive manufacturers to implement ICV regulations.

4. Commercial Vehicles
4.1 Recognise Optimised Vehicle Specifications in the Regulations of Commercial
Vehicles (CVs)
• I nvolve the automotive industry early in the process of drafting and updating regulations for CVs.
• Implement only one national standard covering CVs.
• P ublish recommended standards (GB/T) and industry standards under the World Trade
Organization/Technical Barriers to Trade publication system as mandatory standards.
• Grant sufficient lead time for manufacturers to adapt to new regulations.
• Unify market access requirements and implementation procedures.
• Simplify the registration process for the issuance of transport licences.

Automotive Working Group 181

 4.2 Minimise the Carbon Footprint of CVs by Harmonising Fuel Consumption and
Emissions Regulations Among Ministries and by Measuring Fuel Consumption in
Relation to Payload
• U se GB 1589-2016 to optimise transport units in cities and to strive for long vehicle
combinations.
• Implement proper road classification and allow for different lengths and gross combination
weight, depending on road and bridge conditions.
• Amend standard GB 1589-2016 to allow for more than six axles.
• C alculate the carbon footprint of vehicles as carbon dioxide (CO 2) emissions (energy
consumption) per tonne per kilometre.
• Include in government plans and roadmaps the use of biofuel by CVs to reduce CO2 emissions.
4.3 Allow Longer Vehicle Combinations to Increase Transport Efficiency
• Complete the development of the long vehicle combination standard as soon as possible.

5. Motorcycles
5.1 Rescind the 13-year ‘Shelf Life’ Limitation for Motorcycles in China
• L
ift the mandatory scrapping requirement for motorcycles, and adopt annual inspections of
motorcycles used for 13 years, so as to extend their service life.
Section Three: Goods

5.2 Open to Motorcycles All Roads that Permit Four-wheeled Vehicles, Including
Highways
• F urther refine the limitations and restriction areas for motorcycles, open highways to motorcycles
over 250 cubic centimetres (cc), and effectively enforce national laws regarding roads and
highways.
• P erform category-based administration of motorcycle plate number and driver's licence
examination according to motorcycle displacement range, with electric motorcycles
corresponding to the levels per motor output power.
• Encourage the development of motorcyclist retraining institutions to educate users on safety and
environmental protection after they obtain a driver's licence.

Introduction to the Working Group The working group actively maintains communication
with government authorities on topics of market access,
The Automotive Working Group is composed of
creation of technical standards, unified regulatory
European manufacturers and importers of passenger
benchmarks, fair competition and improving the
vehicles, commercial vehicles (CVs), motorcycles,
business environment.
automotive components including tyres, special
vehicles and automation systems. The Automotive
Working Group has more than 100 members and works Recent Developments
closely with the Auto Components Working Group, On 22nd July 2021, the State Administration for Market
which consists of more than 80 European companies Regulation (SAMR) promulgated the Provisions on
involved in the manufacture of automotive components, Liabilities for the Repair, Replacement and Return of
machine tools to produce automotive components and Household Automotive Products, 1 which took effect
automotive assembly lines. The core members of the on 1st January 2022. The provisions put forward more
Automotive Working Group are also members of the stringent requirements relating to operators’ three
Automobile Associations of the European Union (EU) warranty services (‘3Rs-warranty policy’), expanding the
and individual EU Member States. 1　Provisions on Liabilities for the Repair, Replacement and Return of Household
Automotive Products, SAMR, 22nd July 2021, viewed 15th April 2022, <http://www.
gov.cn/zhengce/zhengceku/2021-07/27/content_5627788.htm>

182 Automotive Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

warranty scope to include new energy vehicles (NEVs), The 2022 Notice on the Financial Subsidies Policy for
and further improving the overall regulatory system. Promoting New Energy Vehicles was jointly issued on
31st December 2021 by the Ministry of Finance (MOF),
On 16th August 2021, the Cyberspace Administration of the MIIT, the Ministry of Science and Technology
China (CAC), together with the National Development (MOST) and the NDRC. 6 The Notice states that the
and Reform Commission (NDRC), the Ministry of previous subsidy policy on purchases of NEVs will
Industry and Information Technology (MIIT), the expire on 31st December 2022, after which no subsidies
Ministry of Public Security (MPS) and the Ministry of will be provided. This is welcomed by the working
Transport (MOT), jointly issued the Several Provisions group, as it means that new imported NEVs will be able
on the Management of Automobile Data Security (Trial) to compete on a more level footing with domestic NEVs.
(Trial Provisions), 2 laying down rules for regulating
the processing of automotive data, protecting the On 10th January 2022, the NDRC and other government
legitimate rights and interests of individuals and departments issued the Implementation Opinions on
organisations, safeguarding national security and Further Enhancing the Service Guarantee Capability
social public interests, and promoting the reasonable of Electric Vehicle Charging Infrastructure.7 According
development and utilisation of automotive data. To to the Opinions, by the end of the 14th Five-year Plan
support the implementation of the Trial Provisions, the period, China aims to build an electric vehicle charging
National Information Security Standardisation Technical infrastructure network capable of meeting the demands
Committee (TC260) issued a technical document, of over 20 million such vehicles, in order to support the

Section Three: Goods

TC260-001 Security Guidelines for Processing development of the NEV industry and to realise the
Vehicle Collected Data on 8th October 2021,3 refining country’s carbon peak and neutrality goals.
the requirements of the Trial Provisions regarding
the transmission, storage and cross-border transfer Equipment Industry Division I of the MIIT issued
of automotive data, and providing guidelines for the 2022 Work Guidelines on Automotive Industry
implementing certain Trial Provisions principles. Standards on 18th March 2022.8 The document provides
detailed plans for setting standards in nine fields,
On 27th December 2021, the NDRC and the Ministry including NEVs, intelligent and connected vehicles
of Commerce (MOFCOM) jointly released the Special (ICVs), automotive chips, carbon emissions, traditional
Administrative Measures for Foreign Investment vehicles and vehicle parts, among others. The working
Access (Negative List) (2021 Edition),4 and the Special group hopes that Chinese and European standards
Administrative Measures for Foreign Investment organisations and automobile manufacturers can enter
Access in Pilot Free Trade Zones (Negative List) into deeper collaboration on cutting-edge automotive
(2021 Edition).5 Following the removal of ownership technologies, especially the areas of intelligent
restrictions as well as restrictions on the number of connectivity, and energy saving and carbon neutrality.
joint ventures foreign entities can enter into, foreign
automotive manufacturers will now be able to work Key Recommendations
with their Chinese partners to formulate appropriate
investment and development strategies, integrate 1. Unify Policies Related to Vehicle Data
global resources and enhance the efficiency of their Security Administration and Permit Cross-
operations. border Transfer of Data for Research
2　Several Provisions on the Management of Automobile Data Security (Trial), CAC,
Purposes
NDRC, MIIT, MPS & MOT, 16th August 2021, viewed 15th April 2022, <http://www.
cac.gov.cn/2021-08/20/c_1631049984897667.htm>
Concern
3　TC260-001 Security Guidelines for Processing Vehicle Collected Data, NISSTC,
8th October 2021, viewed 15th April 2022, <https://www.tc260.org.cn/front/cbw. Various pieces of legislation relating to vehicle data
html?start=0&length=4&type=6>
6　2022 Notice on The Financial Subsidies Policy for Promoting New Energy
4　Special Administrative Measures for Foreign Investment Access (Negative List)
Vehicles, MOF, MIIT, MOST and NDRC, 31st December 2021, viewed 15th April
(2021 Edition), NDRC and MOFCOM, 27th December 2021, viewed 15th April
2022, <http://jjs.mof.gov.cn/zhengcefagui/202112/t20211231_3780322.htm>
2022, <https://www.ndrc.gov.cn/xxgk/zcfb/fzggwl/202112/t20211227_1310020.
7　Implementation Opinions on Further Enhancing the Service Guarantee Capability
html?code=&state=123>
of Electric Vehicle Charging Infrastructure, NDRC, 10th January 2022, viewed 15th
5　Special Administrative Measures for Foreign Investment Access in Pilot
April 2022, <http://jjs.mof.gov.cn/zhengcefagui/202112/t20211231_3780322.htm>
Free Trade Zones (Negative List) (2021 Edition), NDRC and MOFCOM, 27th
8　2022 Work Guidelines on Automotive Industry Standards, MIIT, 18th March 2022,
December 2021, viewed 15th April 2022, <https://www.ndrc.gov.cn/xxgk/zcfb/
viewed 15th April 2022, <https://www.miit.gov.cn/jgsj/zbys/qcgy/art/2022/art_b703
fzggwl/202112/t20211227_1310019.html?code=&state=123>
341da41a49c682a7c878c868dcbb.html>

Automotive Working Group 183

 security have been imposed by different regulators The relevant Chinese authorities should also actively
without a full understanding of the industry, resulting communicate and coordinate with industry players,
in official policy interpretations that are too vague to including international automotive companies, when
properly guide the industry towards compliance. formulating related policies, to ensure they are
complete, scientific and appropriate when implemented.
Assessment
The three highest-level data laws pertaining to Key Recommendations
data security in China, the Cybersecurity Law, the • Ensure implementation of the upcoming automotive
Data Security Law and the Personal Information data security management system is fully coordinated
Protection Law, have already come into effect.9,10&11 among the CAC, the MIIT and other government
The Several Provisions on the Management of agencies to avoid regulatory overlaps.
Automobile Data Security (Trial) (Provisions) on • Ensure that the automotive data security management
the management of automotive data security has system is developed with a global perspective, in line
also been released and implemented. Although with the international development of the automotive
companies involved in automobile production, sales, industry.
operations and maintenance need precise guidance • Improve legislation related to cross-border data transfer
on the specific information to be reported, as well as and enable secure, adequate and steady cross-border
related procedures, the CAC has not yet published transfers under the premise of ensuring data security.
standardised report templates and procedures for • Give opportunities to foreign automotive companies
Section Three: Goods

the annual automotive data security management to assist the CAC and other agencies in developing
required by the Provisions. In practice, there have policies related to automotive data and information
been circumstances where local authorities in different security.
regions are unable to specify report requirements, or
where two authorities in the same area—for example, 2. Create a Predicable, Non-discriminative and
the CAC in Shanghai and Shanghai Communications Balanced Legislative Environment that is
Administration—have different requirements for annual
Conducive to the Sustainable Development
report submissions.
of NEVs
Because data flow is the basis of a data economy, it is
Concern
essential that authorities consider the balance between
The lack of transparency and equal treatment in policy
regulatory needs and innovation when formulating data
implementation, combined with stricter requirements on
regulations for the automotive industry. Data needed
the supply side and the lack of clarity on the demand
for automobile research and development (R&D), as
side, creates uncertainty for NEV developers.
well as personal information and vehicle data that does
not contain sensitive information, should be allowed to
Assessment
flow freely, as long as they do not endanger national
Policy transparency and predictability
security and has been anonymised. Immediate remote
As product decisions need to be made several years
assistance from engineers outside the country is
ahead of the launch of new NEV models, it is important
often required to analyse and solve problems under
that the government ensures policy transparency and
emergency circumstances, such as car accidents;
early industry involvement before introducing new
therefore, a special process should be allowed where
policies. Manufacturers need long-term policies that
data that needs to be sent overseas in order to ensure
are clearly communicated, so, in the absence of a
vehicle and user safety is exported first and approved
predictable way to determine whether a NEV product
later.
will be able to fulfil new regulatory requirements, original
equipment manufacturers (OEMs) will remain cautious
9　Cybersecurity Law, Standing Committee of the National People’s Congress
about investing in and developing new models.
(NPCSC), 7th November 2016, viewed 15th April 2022, <http://www.gov.cn/
xinwen/2016-11/07/content_5129723.htm>
10 Data Security Law, NPCSC, 10th June 2021, viewed 15th April 2022, <http://www.
Equal treatment
gov.cn/xinwen/2021-06/11/content_5616919.htm>
11 Personal Information Protection Law, NPCSC, 20th August 2021, viewed 15th April There is a trend towards abandoning ‘technology
2022, <http://www.gov.cn/xinwen/2021-08/20/content_5632486.htm>

184 Automotive Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

neutrality’, as the government is only promoting electric Exemption From Vehicle Purchase Tax for NEVs,
cars. For example, some provinces and municipalities purchase tax exemption (PTE) incentives will end at the
have introduced different licence plate policies for end of 2022.16 The adoption of NEVs by the consumers
battery electric vehicles (BEVs) and plug-in hybrid is important for China to achieve its decarbonisation
electric vehicles (PHEVs). Both BEVs and PHEVs play targets. The withdrawal of tax exemptions and other
vital roles in electrification of the automotive industry incentive policies for consumers risks undermining
and should be treated equally. NEV policies should the NEV market. Therefore, to support development
therefore be consistently implemented nationwide of the NEV industry, the working group recommends
without special local requirements. extending PTE until 2025. In addition, the working
group recommends changing the method for deciding
Decarbonisation and announcing thresholds for granting PTE. Currently,
China’s 14 th Five-year Plan provides some general the MIIT releases technical requirements for NEVs to be
guidance towards achieving peak carbon by 2030,12 but eligible for PTE without prior notice nor sufficient lead
lacks the level of specificity required by the automobile time. This disrupts manufacturers’ production schedules
industry. Similarly, China’s ‘1+N’ policy framework for for launching new NEV products, which—due to the
achieving peak carbon and carbon neutrality is of great time needed to develop new products—are decided
significance to automotive manufacturers, 13&14 but a well in advance.
clear roadmap with concrete solutions for achieving
the 2030 goals is yet to be developed. Adding to Licence plate quotas and restrictions (local level)

Section Three: Goods

the challenge of developing practical solutions, To promote NEV sales, many local governments lifted
policymakers often have a limited understanding of restrictions on NEV licence plate quotas. However, there
company operations (for more on this issue, please are exemptions. For example, in Beijing, there is still
refer to the Carbon Neutrality report published by the an annual quota in place, which substantially restricts
European Chamber).15 To achieve carbon neutrality in purchases. There are other instances of fragmented
the automotive industry, synergies with upstream and policy implementation and differing requirements at the
downstream suppliers are necessary for developing a local level with regard to automotive manufacturers’
policy for zero-emission cars. access to free licence plates, which will further hinder
NEV consumption.
For both public and private charging in China, it is
currently unclear how to access renewable energy Charging Infrastructure
(RE) and how to trace its use for emissions calculation The NEV Industrial Development Plan 2021–2035
purposes. Most provinces lack a policy that allows included a 20 per cent NEV market share target for
utility companies to directly sell RE to charging station 2025.17 As the number of NEVs on the road increases,
operators. In terms of life-cycle assessments, attempts emerging challenges to the development and rolling
to draft regulations on whole-life-cycle carbon emissions out of charging infrastructure—such as harmonisation
are delayed due to a lack of alignment among relevant of standards of in-use and new generation pillars, 18
Chinese authorities. and coordination among power grids, vehicles and the
infrastructure itself—need to be dealt with.
Incentives (national level)
According to the Announcement on the Policy of Although private wall boxes are crucial for the daily use
12 Outline of the 14th Five-year Plan for National Economic and Social Development of BEVs, their installation in residential compounds is
of the People's Republic of China and the Long-term Vision for 2035, State
difficult for several reasons, despite policy support for
Council, 13 th March 2021, viewed 10 th April 2022, <http://www.gov.cn/
xinwen/2021-03/13/content_5592681.htm> residential charging. Challenges include limited power
13 Opinions of the Central Committee of the Communist Party of China and the State
Council on the Complete and Accurate Implementation of the New Development 16 Announcement on the Policy of Exemption from Vehicle Purchase Tax for NEVs,
Concept and Good Performance of Carbon Peak and Carbon Neutral Work, CPCC MOF, State Taxation Administration and MIIT, 16th April 2020, viewed 20th May 2022,
and State Council, 22nd September 2021, viewed 10th April 2022, <http://www.gov. <http://www.gov.cn/zhengce/zhengceku/2020-04/22/content_5505188.htm>
cn/zhengce/2021-10/24/content_5644613.htm> 17 NEV Development Plan 2021-2035, State Council, 20th October 2020, viewed 15th
14 What is the ‘1’ in the ‘1+N’ policy system of carbon neutrality and carbon peaking?, April 2022, <http://www.gov.cn/zhengce/content/2020-11/02/content_5556716.
QQ.com, 26th October 2021, viewed 10th April 2022, <https://new.qq.com/ htm>
omn/20211026/20211026A095MJ00.html> 18 There are three generations of pillars in the market now, but due to lack of
15 Carbon Neutrality: The Role of European Business in China's Race to 2060, harmonisation between them, old cars can’t use the new-generation charging
European Union Chamber of Commerce in China, 25th May 2022, viewed 10th pillars, and vice-versa; which is a waste of resources and causes great
June 2022, <https://www.europeanchamber.com.cn/en/publications-archive/974> inconvenience for NEV users.

Automotive Working Group 185

 in city centre infrastructure and insufficient shared car Decarbonisation
parks, among others. • Provide ample lead time when designing the
decarbonisation roadmap for the automotive industry.
Another issue hindering the development of charging • Calculate the emissions of upstream and downstream
infrastructure is that there is a lack of cooperation suppliers separately to provide additional incentives to
between vehicle manufacturers and charging station decarbonise.
providers. While there are many charging station • Allow reimbursement or other incentives for proven
providers and BEV OEMs, the development and decarbonisation initiatives.
promotion of convenient charging services (such as • Enable utility companies to offer private RE charging
plug and charging) relies heavily on communication solutions.
and data exchange platforms between vehicles and • Develop whole-life-cycle carbon emission regulations
charging stations (especially next-generation fast- that highlight the individual development status of each
charging interfaces), as well as supporting policies and phase in the lifecycle.
regulations. Incentives (national level)
• Extend the 2020–2022 NEV subsidies and PTE to
NEV credits 2025.
Rules for dual credits after 2024 have not yet been • Maintain existing technical requirements and the
released,19 which may impact healthy development of current policy in order to mitigate the impact on the
the automotive industry, which relies on a stable and NEV market.
Section Three: Goods

predictable regulatory environment to plan production • Ensure models that have been approved and listed in
schedules. Before setting up the rules, full consultation the tax exemption list are still eligible for PTE even after
with the industry is necessary to avoid making over- new taxation policies have been released.
aggressive goals or impractical transition periods. Licence plate quotas and restrictions (local level)
While the NEV Development Plan 2021–2035 outlines • Prohibit local governments from issuing fragmented
a proposal to connect the Dual Credits Measures and implementation measures and unique requirements
China’s emissions trading scheme, details on how these that restrict the purchase of NEVs.
two systems will be integrated are not yet in place. It • Enhance local incentive measures, for example, by
is important to clarify the integration details as early as lifting licence plate quotas.
possible to give manufacturers the lead time they need Charging infrastructure
to achieve compliance. • Enhance standards related to charging infrastructure to
keep pace with NEV development.
Recommendations • Harmonise standards among in-use pillars and new
Policy transparency and predictability generation pillars.
• Ensure international automotive manufacturers can • Coordinate charging infrastructure development with
participate in the drafting and revision of new policies green energy, power grids and vehicles.
and regulations. • Harmonise standards for high-power charging,
• Provide lead time of at least four to five years for including fast-charging.
automotive manufacturers to plan and react to released • Encourage private wall-box installations in residential
policies and planning documents. compounds.
Equal treatment NEV credits
• Provide the same incentives and equal rights for • Consult with the industry in advance to avoid setting
imported and locally produced NEVs. policy goals or management measures related to
• Ensure technology neutrality without distinction dual credit targets for 2024 and 2025 that are too
between EV classes, as well as equal access to aggressive, and give enterprises enough lead time to
registration plates at the regional level. make plans.
• Release the plan for dual credits and carbon emissions
19 The Decision to Amend the Parallel Management Measures for Corporate as early as possible so that enterprises have enough
Average Fuel Consumption of Passenger Vehicle and New Energy Vehicle
Credits states that "the accounting requirements for 2024 and subsequent years time to prepare for compliance.
shall be separately announced by the MIIT": MIIT, MOF, MOFCOM, General
Administration of Customs, and SAMR, 15th June 2020, viewed 10th April 2022,
<http://www.gov.cn/zhengce/zhengceku/2020-06/22/content_5521144.htm>

186 Automotive Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

3. Establish a Consistent, Transparent and among regulatory agencies is therefore crucial to

Friendly Legislative and Policy Environment ensure drafting efficiency and the effectiveness of
policies regulating ICVs, and to avoid regulatory
to Promote Intelligent and Connected Vehicle
overlap, thereby reducing the burden on companies that
(ICV) Development
develop ICVs and enable new technologies to thrive.

Concern
Vehicle intelligence cannot be improved without
The lack of consistency and transparency in ICV
high-definition maps. Although there is currently no
legislation, as well as poorly defined responsibilities
dedicated law on maps for ICVs in China, the Basic
among different authorities, creates unnecessary
Requirements of Security Processing Technology for
confusion and challenges for automotive companies.
Navigable Electronic Maps provide that, "navigable
electronic maps must be encrypted using spatial
Assessment
location technology (‘encryption and deflection’) prior
Chinese authorities have issued several laws to
to publication, sale, dissemination, display, and use."22
support and standardise the development of the ICV
Furthermore, elevation information (such as the height
industry in recent years.20 However, the way policy has
of a car driven on a flyover) is prohibited from being
been formulated and implemented raises issues of
shown on navigation maps. Deflected positions and a
consistency and transparency.
lack of elevation information affect both the accuracy
and reliability of automatic navigation, which seriously
The legislation process remains opaque, despite active

Section Three: Goods

compromises the safety of automatic driving.
efforts by Chinese authorities to improve policy drafting
and implementation in recent years, and foreign-
Automotive companies have been heavily influenced
invested enterprises (FIEs) still have less chances to
by the globalisation of the automobile market and its
participate in drafting compared to major domestic
supply chains, under which independent enterprises,
companies. There is also a lack of representatives
joint ventures and FIEs must all exchange data
from FIEs in Chinese ICV standards committees,
across borders while conducting R&D on ICVs for
such as the National Technical Committee of Auto
such purposes as iterating algorithms and upgrading
Standardisation (SAC/TC114/SC34) and the TC260. In
self-driving systems based on traffic data. The R&D,
addition, drafts or final regulations need to be published
production, sales and services of ICV companies,
in a timely fashion to enable automotive manufacturers
especially for imported automotive products, would be
to be compliant. This is particularly important for
greatly restricted if there is no scientific management
FIEs, because they generally need to devote global
system to facilitate appropriate and effective cross-
R&D resources to meet new Chinese compliance
border exchanges of automotive data.
requirements. It would help significantly in this regard
to involve both domestic enterprises and FIEs in policy
Key Recommendations
and standards drafting from the very beginning. This
• Improve the legal and standards system and gradually
would also facilitate building a global standards system
abolish institutional obstacles for the development of
for ICVs, which in turn would help to promote the export
ICVs.
of Chinese vehicles.21
• Ensure consistency, non-discrimination and
appropriateness of market access laws, regulatory
With the development of electric vehicles and artificial
systems and technical requirements related to ICVs.
intelligence, there are an increasing number of new
• Clearly define the responsibilities of government
technologies from other industries, such as information
agencies in charge of regulating ICVs, to avoid
technology and electronics, being integrated into the
regulatory overlaps over-burdening companies.
automotive industry, bringing new challenges to the
• Optimise the policy environment to ensure that FIEs
existing regulatory system. Strengthened collaboration
can fully participate in the legislative process.
20 China has issued several laws relevant to the automotive industry, including the • Allow FIEs the same access, including voting rights, as
Cybersecurity Law, the PIPL, the DSL and the Road Traffic Safety Law (Revised
Draft). 22 GB 20263-2006 Navigable Electronic Map - Basic Requirements of Security
21 Please see the Standardisation and Conformity Assessment Position Paper Processing Technology, Standardisation Administration of China (SAC), 15th
2022/2023 for more information regarding equal access issues in standardisation March 2006, viewed 10th April 2022, <http://openstd.samr.gov.cn/bzgk/gb/newGbI
in China. nfo?hcno=517545EC0EE59615E0CA8D7EA56B153B>

Automotive Working Group 187

 domestic automotive brands in standards and technical CVs becomes impossible when new regulations are
committees related to ICVs. introduced too quickly. It is furthermore superfluous to
• Amend the high-definition mapping regulations. have an additional testing system to qualify for transport
• Reasonably liberalise the cross-border flow of licences, as all necessary testing should only be done
automotive data and support enterprises to improve in the China Compulsory Certificate system.
intelligent connectivity technologies with global R&D
capabilities. By continuing to regulate CVs in the same way as
• Provide enough lead time for automotive manufacturers passenger vehicles, without taking into account the vast
to implement ICV regulations. differences between these distinct categories, overall
development will be held back and the profitability of the
4. Commercial Vehicles Chinese transportation industry as a whole will suffer.
4.1 Recognise Optimised Vehicle Specifications The homologation and certification system must be
in the Regulations of Commercial Vehicles designed in such a way that time to market for CVs is
(CVs) kept to a minimum. Only then can the transport industry
develop the most optimised transport solutions.
Concern
Regulators fail to recognise the specific nature of CVs, As a member of the World Trade Organization (WTO),
which hampers industry development. China is obligated to invite other WTO member states’
comments on new national ‘mandatory’ standards
Section Three: Goods

Assessment (guobiao, or GB) that have the binding force of technical

Although CVs have wheels and an engine, and are regulations. The category of technical standards thus
often used on public roads, they are not the same made public under the Technical Barriers to Trade (TBT)
as passenger vehicles. While the sales volume of publication procedure should be extended to cover
heavy-duty CVs is less than five per cent of that of ‘recommended’ standards (GB/T) as well as industry
passenger vehicles, the way CVs are regulated has standards, because they often become mandatory in
more far-reaching implications for society as a whole. practice by executive order.
This is mostly because CVs are essential for efficient
transportation – they are used by companies to Companies should be given 24 months to prepare for
transport goods and people, and to provide other vital the implementation of new rules and regulations, as
services. Such companies are often highly specialised, short implementation times result in immense costs
and need very specific, tailor-made vehicles to provide and complications, for example, as happened with
optimal services, as well as to maximise their revenue introduction of the China V, China VIa and China
in the process. VIb.23&24

Specialist vehicles play an important role in upholding Recommendations

critical functions in our increasingly modernised society: • Involve the automotive industry early in the process of
they consist of a chassis that carries a specialised drafting and updating regulations for CVs.
superstructure to provide dedicated services. Examples • Implement only one integrated national standard
include refuse collectors, fire engines, construction covering CVs.
wreckers, vacuum tanks, bridge inspection vehicles, sky • Publish recommended standards (GB/T) and industry
lifts, cranes and snow ploughs. As a consequence, CVs standards under the WTO/TBT publication system as
comprise a much wider variety of models and variants mandatory standards.
per vehicle type compared to passenger vehicles, yet • Grant sufficient lead time for manufacturers to adapt to
China’s vehicle homologation and registration system new regulations.
makes no distinction between them. The system is also • Unify market access requirements and implementation
overly complicated, slow and costly, which holds back procedures.
the time to market for vehicles that could provide crucial
23 China Light Duty Emissions, TransportPolicy.net, 20th April 2020, viewed 15th April
services to society. In addition, the introduction of new 2022, <https://www.transportpolicy.net/standard/china-light-duty-emissions/>
24 Sales Transition Period of National IV Emission Vehicle Extended Leads to
technologies gets delayed and stock management of
Parallel Imports Price Up, Dealers Look Forward to Rules, QQ.com, 15th May
2020, viewed 26th June 2022, <https://new.qq.com/rain/a/20200515A0OQJU00>

188 Automotive Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

• Simplify the registration process for the issuance of opportunities to carry more goods with fewer engines.27
transport licences.
Biogas is a renewable fuel, the combustion of which
4.2 Minimise the Carbon Footprint of CVs does not contribute to a net increase of CO 2 in the
by Harmonising Fuel Consumption and atmosphere, as opposed to natural gas, a fossil fuel
Emissions Regulations Among Ministries that does. A biogas system is part of a circular economy
and by Measuring Fuel Consumption in industrial chain, 28 and the use of biogas and other
Relation to Payload forms of biofuels are proven technologies in the CV and
transport sectors in Europe. The use of biofuels in CVs
Concern is a good alternative to electrified vehicles as long as
While the EU has one harmonised carbon dioxide the energy mix contains a high share of fossil energy.
(CO 2 ) regulation, 25 China has several regulations Furthermore, the use of biofuels made from waste,
for fuel consumption and CO 2 emissions for CVs, such as sludge, food waste and other organic waste, is
which are not harmonised among different ministries, a reliable and well-proven way to affect an immediate
while an unscientific measurement is applied for fuel reduction in CO2 emissions from CVs.
consumption.
Recommendations
Assessment • Use GB 1589-2016 to optimise transport units in cities
Although modern society cannot survive without and to strive for long vehicle combinations.

Section Three: Goods

transportation, there is a serious need to minimise • Implement proper road classification and allow for
its impact on our environment and the world’s different lengths and GCW, depending on road and
finite resources. Regulators, OEMs, operators and bridge conditions.
consumers therefore need to work together to reduce • Amend standard GB 1589-2016 to allow for more than
the negative impact of transportation: this must become six axles.
an integral part of corporate social responsibility. • Calculate the carbon footprint of vehicles as CO2
emissions (energy consumption) per tonne per
The lowest-hanging fruit when it comes to reducing kilometre.
the carbon footprint is to use larger transport units, i.e., • Include in the government plans and roadmaps the use
fewer engines to transport more goods. Regardless of of biofuel by CVs to reduce CO2 emissions.
whether transport is moving on highways or through
cities, the transport unit should always be as large as 4.3 Allow Longer Vehicle Combinations to
possible, while adhering to all relevant standards. Increase Transport Efficiency

The standard GB 1589-2016 allows the in-city use of Concern

vehicles with a total weight of 31 tonnes, that have up to Current standards and regulations limit the types of
four 12-metre-long axles.26 Within the limits of permitted vehicle and trailer combinations that can be used, which
outer dimensions and axle loads, society and industry has resulted in overcapacity of inefficient vehicles.
should always seek optimised transport solutions in
and outside of cities. In many countries, up to 12 axles Assessment
and over 100 tonnes gross combination weight (GCW) The current standards GB1589-2016 and GB7258-2017
are allowed on certain routes, providing even greater limit the use of long vehicle and trailer combinations
that are common in many countries around the world.29
25 The EU Emissions Trading Scheme (ETS) and its reform in brief, European 27 Enough empirical studies show that this has no negative impact on road
Parliament, 9th March 2021, reviewed 12th April 2022, <https://www.europarl. safety – rather the opposite; High Capacity Transport, Towards Efficient, Safe
europa.eu/news/en/headlines/society/20170213STO62208/the-eu-emissions- and Sustainable Road Freight, Organisation for Economic Co-operation and
trading-scheme-ets-and-its-reform-in-brief> Development, 2nd May 2019, viewed 15th April 2022, <https://www.itf-oecd.org/
26 GB 1589-2016 Limits of Dimensions, Axle Load and Masses for Motor Vehicles, sites/default/files/docs/high-capacity-transport.pdf>
Trailers and Combination Vehicles, General Administration of Quality Supervision, 28 Biogas from municipal wastewater that is purified and upgraded to contain a
Inspection and Quarantine, and SAC, 26th July 2016, viewed 15th April 2022, high proportion of methane can be used as a vehicle fuel and is an example of
<http://c.gb688.cn/bzgk/gb/showGb?type=online&hcno=4D4FEB86F718FA6C4 a circular economy industrial chain, <https://smartcitysweden.com/focus-areas/
E2F8A0BB0EC9AC2> climate-energy-environment/biogas/>
29 GB 7258-2017 Technical Specifications for Safety of Power-driven Vehicles
Operating on Roads, SAMR and SAC, 29th September 2017, viewed 10th April,
<http://openstd.samr.gov.cn/bzgk/gb/newGbInfo?hcno=06A0C376A0CA7B14E9
3106194C99730F>

Automotive Working Group 189

 Using so-called road trains is the single most effective of motorcycles when the 13-year mandatory scrapping
way to reduce transportation carbon emissions and rule was first established in 2012.30
freight costs. It is encouraging that China is now piloting
long vehicle combinations, and that relevant standards Given that motorcycles have become for many
and regulations are about to be revised. The working consumers a lifestyle more than a transportation
group believes such revisions will facilitate the early solution, it will benefit domestic manufacturers and
introduction of road trains on Chinese highways. consumers, as well as boosting domestic motorcycle
consumption growth, if the 13-year mandatory shelf-
Recommendation life limitation is lifted. Also, mandatory scrapping of
• Complete the development of the long vehicle motorcycles after 13 years, even those in good shape,
combination standard as soon as possible. is not only hard for owners to accept, but also has a
significant negative impact on the environment due to
5. Motorcycles the waste produced. Mandatory scrapping of working
5.1 Rescind the 13-year ‘Shelf Life’ Limitation motorcycles is also not conducive to the development
for Motorcycles in China of the circular economy advocated by the Chinese
Government.
Concern
The mandatory imposition of a 13-year shelf life on Safety concerns are a likely reason for the government
high-quality motorcycles does not reflect the potential imposing a uniform 13-year limit on motorcycles. To
Section Three: Goods

lifetime of vehicles manufactured to a high standard, address this issue, the working group recommends
and hinders foreign companies from further investment, introducing inspections similar to those mandated for
as well as undermining the development of a circular automobiles, through which motorcycles, after being
economy. used for 13 years, will be required to undergo an annual
inspection (or multiple times per year, to be justified) to
Assessment ensure that they meet safe driving conditions.
In most provinces in China, the service life period of
newly bought motorcycles is limited to 13 years from the Recommendation
day of registration. In East China’s Jiangsu Province, • Lift the mandatory scrapping requirement for motorcycles,
the limitation is 11 years. Both imported and locally and adopt annual inspections of motorcycles used for 13
produced motorcycles must abide by the regulation years, so as to extend their service life.
without distinction of engine cylinder categories.
5.2 Open to Motorcycles All Roads that Permit
The output volume of motorcycles imported to China Four-wheeled Vehicles, Including Highways
are generally above 150 cubic centimetres (cc), and
with an average market price of more than Chinese Concern
yuan (CNY) 30,000. These products are in line with Banning motorcycles from highways or other areas
both China's type certification standards and foreign designated by local governments hinders both the
technical regulations, including those of the EU. At consumption and mobility of motorcycles.
present, China's product type certification experiments
include emissions durability projects that follow the Assessment
world's most stringent standards of pollutant control; Even though motorcycles are permitted on highways
electronic fuel injection technology, as well as the same under national law, some provinces have implemented
emissions after-treatment equipment used in cars, are local restrictions due to safety concerns. Today, the
also applied to all imported and domestic motorcycles. construction quality and maintenance of both highways
This is a technological leap of several generations and general roads are at a good level. Signage,
compared to that available and consumer purchase cost protection measures, surveillance cameras and rapid
police responses are already in place. Meanwhile,
30 Regulations for Motor Vehicle Mandatory Scrapping Standard, MOFCOM,
NDRC, MPS and Ministry of Environmental Protection, 27 th December
2012, viewed 26 th June 2022, <http://www.mofcom.gov.cn/article/swfg/
swfgbh/201303/20130300062947.shtml>

190 Automotive Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

providing retraining for motorcyclists after they receive environmental protection after they obtain a driver's
their licence would also help to address safety concerns licence.
and educate them on environmental protection.

About 200 cities in China currently have local Abbreviations

restrictions on motorcycles, 31 including bans on BEV Battery Electric Vehicle
motorcycle licensing, and riding in urban centre areas CAC Cyberspace Administration of China
and defined neighbourhoods. Such measures are cc Cubic Centimetre
based on the simplicity of early motorcycles in China, CCC China Compulsory Certificate
their poor performance, and high levels of both carbon CNY Chinese Yuan
and noise emissions, as well as early motorcycle riders’ CO2 Carbon Dioxide
poor awareness of laws and regulations. CV Commercial Vehicle
EU European Union
Now that improved technologies are being applied FIE Foreign-invested Enterprise
in motorcycle production—with large-displacement GB Guobiao
models of 250cc output volume and above that are GCW Gross Combination Weight
equipped with antilock braking system gradually ICV Intelligent and Connected Vehicle
becoming the mainstream—these restrictions are no MIIT Ministry of Industry and Information
longer appropriate. Administration requirements should Technology

Section Three: Goods

correspond to different displacement ranges. Another MOF Ministry of Finance
reason to review and abolish restrictions on motorcycle MOFCOM Ministry of Commerce
use is the shift in consumption patterns from commuting MOST Ministry of Science and Technology
purposes to lifestyle purposes, such as sport and MOT Ministry of Transport
travel. Removing restrictions will boost consumption MPS Ministry of Public Security
of motorcycles and associated equipment, and help NDRC National Development and Reform
growth in such service industries as fitness and tourism. Commission
For example, domestic tourism, including the type of NPCSC Standing Committee of the National
remote area exploration popular among motorcyclists, People’s Congress
will eventually return to pre-pandemic levels. The vast OECD Organisation for Economic
majority of motorcycle riders are responsible consumers Co-operation and Development
of tourism and deserve attention and service in all OEM Original Equipment Manufacturer
provinces. Allowing motorcycles on regular highways PHEV Plug-in Hybrid Electric Vehicle
not only demonstrates a spirit of fairness but also helps PTE Purchase Tax Exemption
boost tourism development. R&D Research and Development
RE Renewable Energy
Recommendations SAC Standardisation Administration of
• Refine further the limitations and restriction areas China
for motorcycles, open highways to motorcycles over SAMR State Administration of Market
250cc, and effectively enforce national laws regarding Regulation
roads and highways. TBT Technical Barriers to Trade
• Perform category-based administration of motorcycle TC260 National Information Security
plate number and driver's licence examination Standardisation Technical Committee
according to motorcycle displacement range, with WTO World Trade Organization
electric motorcycles corresponding to the levels per
motor output power.
• Encourage the development of motorcyclist
retraining institutions to educate users on safety and

31 Motorcycle ban spreads to 200 cities, will be released in controversy after 37

years?, QQ News, 11th February 2022, viewed 10th April 2022, <https://new.
qq.com/omn/20220211/20220211A0AAQG00.html>

Automotive Working Group 191

 Auto Components Working Group

Key Recommendations
1. Mandate Snow Tyre Usage During the Cold Season of Low-temperature
Areas to Improve Road Safety and Reduce Societal Costs of Accidents
• Promulgate in a timely manner China’s national standards for snow tyres to regulate snow
tyre products and their use in the Chinese market.
• Formulate snow tyre legislation to mandate the usage in China’s low-temperature areas to
improve road safety and reduce the negative impact on society.

2. Improve the Development of the Intelligent Connected Vehicles (ICV)

Industry, Implement Appropriate Data Standards, and Increase Industry-
wide Data Collaboration and Sharing
• I mprove legislation on data circulation, sharing and utilisation, particularly relating to use of
automotive and ICV market data.
Section Three: Goods

• A ccelerate the standardisation of automotive data, and organise the Standardisation

Administration of China, the China Association of Automobile Manufacturers, and all relevant
industry stakeholders to actively discuss and create specifications to systematically optimise
automotive data standards.

3. Allow the Import of Rejected Auto Parts from Overseas Markets for Quality
Assessment by Analysis Centres Based in China
• R elease annual quotas for companies with relevant qualifications to import rejected auto
components from overseas markets to conduct quality inspection and analysis.
• Allow the components of returned parts to be shipped to a lower-level supplier for in-depth
analysis, both domestically and internationally.

Introduction to the Working Group Recent Developments

The Auto Components Working Group was created in Market Development
2000, the year the European Chamber was established. China’s auto production in 2021 increased by 3.4 per
It consists of around 80 international companies cent, with 26.1 million vehicles produced, though sales
involved in the manufacturing of auto components, decreased by 1.6 per cent, to 26.3 million units year-
machine tools for producing auto components and on-year. 1 The auto sector can be broken down into
automotive assembly lines. Members also import and two sub-sectors: passenger vehicles and commercial
distribute auto components and provide after-sales vehicles. In 2021, passenger vehicle production and
services in China. This working group has fostered ties sales volumes increased by 8.4 per cent and 2.0 per
with various organisations and governmental bodies in cent year-on-year, reaching 21.4 million and 21.5 million
Europe and China. units respectively.

1　2021 Automotive Industry Development Conditions, China Association of

Automobile Manufacturers, 21st January 2022, viewed on 14th April 2022, <http://
www.caam.org.cn/search/con_5235337.html>

192 Auto Components Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

The passenger vehicle market showed substantial aims to expand the application of clean energy sources
growth In the first quarter (Q1) of 2021 on the low base such as electricity, hydrogen energy, natural gas and
of Q4 2020. However, the impact of COVID-19 and low advanced liquid biofuels in the transportation field. This
global production capacity of semi-conductor chips led plan requires vigorously promoting NEVs, gradually
to a decline in passenger vehicle sales and production reducing the proportion of traditional fuel vehicles
in Q2 and Q3 of 2021, though the passenger vehicle in new vehicle production, sales and car ownership,
market stabilised in Q4 as chip shortages gradually and further replacing urban public service vehicles
eased. Moreover, as the per capita disposable income with EVs. The Action Plan also encourages adoption
of urban residents increased, sales of high-end of electric, hydrogen and liquid biofuel-powered
passenger vehicles also grew significantly. heavy-duty freight vehicles. It recommends recycling
waste in emerging industries such as retired power
The NEV sector was one of the largest contributors to batteries, and promoting the high-quality development
the increase in sales of passenger vehicles in 2021, of remanufacturing industries such as automotive
a 42 per cent year-on-year increase. NEV production components. It also aims to provide macro guidelines
and sales keep rising annually, with nearly 80 per cent for China’s automotive industry to achieve carbon
purchased by individuals. neutrality.

Commercial vehicle production and sales volumes Policy Environment

decreased 20 per cent and 18.7 per cent respectively, Intelligent and Connected Vehicles (ICVs)

Section Three: Goods

falling to 4.7 million and 4.8 million units respectively The Ministry of Industry and Information Technology
in 2021. Market performance was significantly better in (MIIT), Ministry of Public Security (MPS) and Ministry
the first half of 2021 than in the second half. Similar to of Transport (MOT) jointly issued the Management
passenger vehicles, production and sales of commercial Specification for Road Testings and Demonstrative
vehicles showed substantial increases in Q1 2021 Application of Intelligent and Connected Vehicles (Trial
from the low base of the previous year. In Q2 2021, Version), which went into effect in September 2021.5
the sales volume began to decline year-on-year, and The specification supports further development of
the downward trend continued in the second half of the highway testing and demonstrative applications of ICV
year.2 transport of people and goods, and comprehensive
assessments of test demonstration areas, as well as
Several factors caused the mixed results for the encouraging data sharing and mutual recognition of
industry throughout the year. The recovery from the test results. Implementation of the specification will
low market base of 2020 saw positive growth in Q1, standardise the ICV testing system, and further promote
which was stifled by the impact of shortages in chips the collaborative development of the whole industry
and raw materials, while the continuous implementation chain. The working group welcomes policy development
of China's carbon emission reduction strategy and in this field, as it was a key recommendation in the Auto
related incentives boosted NEV production and sales. Components Working Group Position Paper 2021/2022.
Last but not least, the 14th Five-year Plan for National
Economic and Social Development and the Long-range Key Recommendations
Objectives Through the Year 2035 reiterated the goal of
common prosperity, which drove up consumption levels, 1. Mandate Snow Tyre Usage During the
including in the automobile industry.3 Cold Season of Low-temperature Areas
to Improve Road Safety and Reduce
Carbon Neutrality for the Auto Industry Societal Costs of Accidents
The State Council issued the Action Plan for Carbon
Concern
Dioxide Peaking before 2030 in October 2021,4 which
There are no regulations to mandate the usage of snow
2　Ibid. tyres in complex road conditions of snow and slush in
3　14th Five-year Plan for National Economic and Social Development and the Long-
range Objectives Through the Year 2035, State Council, 13th March 2021, viewed
21st April 2022, <http://www.gov.cn/xinwen/2021-03/13/content_5592681.htm> 5　Management Specification for Road Testing and Demonstrative Application of
4　 Action Plan for Carbon Dioxide Peaking Before 2030, State Council, 26th October Intelligent and Connected Vehicles (Trial Version), State Council, 27th July 2021,
2021, viewed 16th April 2022, <http://www.gov.cn/zhengce/content/2021-10/26/ viewed 14th April 2022, <http://www.gov.cn/zhengce/zhengceku/2021-08/03/
content_5644984.htm> content_5629199.htm>

Auto Components Working Group 193

 China’s low-temperature regions, 6 which significantly standards for snow tyres to regulate snow tyre
increases tyre-related crashes and fatalities. products and their use in the Chinese market.
• Formulate snow tyre legislation to mandate the
Assessment usage in China’s low-temperature areas to improve
Complex snowy and icy road conditions are common road safety and reduce the negative impact on
in the cold regions of China. The tread compound society.
of normal tyres tends to stiffen and lose traction and
grip in low temperatures, which makes accelerating, 2. Improve the Development of the ICV
cornering and braking less reliable and riskier on snowy and Industry, Implement Appropriate Data
icy roads. Therefore, the promotion of snow tyres and Standards, and Increase Industry-wide
the formulation of legislation and standards to mandate Data Collaboration and Sharing
snow tyre usage is essential to ensure driving safety
under snowy road conditions. Concern
Current data-related policies and standards of
Snow tyres are specially developed for use during relevance to the ICV market in China are not yet
winter, with a soft rubber compound and tread. clear, making it difficult for data service providers,
pattern designed to deliver excellent grip and driving automotive components manufacturers and after-sales
performances in complex winter road conditions such maintenance companies to effectively obtain vehicle
as snow and ice, with significantly improved braking operation data.
Section Three: Goods

distance. Their use is crucial to avoid sideslip and

ensure driving safety. According to a survey by the Assessment
China In-depth Accident Study of the China Automotive Developing ICVs has become the main trend in the
Technology and Research Centre, snow tyre usage led automotive industry in China, which in turn has had
to a significant decline in car accidents (occurring twice a huge impact on the auto components industry.
as less) and fatalities (nearly three times less).7 As increasing numbers of ICVs enter the market,
approximately 10 terabytes of data per vehicle per
Number of day will be generated.9 Management of this data will
Road Condition Tyre Category Accident Ratio
Accidents have a significant impact on the future development of
Snow tyre 36 1 (benchmark) transportation and the whole industry value chain:
Snow/ice
Normal tyre 55 2
1. Data exchange and collaboration between the
intelligent traffic system, road systems and ICVs will
Road Condition Tyre Category Fatal Accidents Fatal Ratio improve automated driving capabilities, road access
Snow tyre 6 1 (benchmark) efficiency and passenger safety.
Snow/ice 2. A u t o m o t i v e a n d a u t o m o t i v e c o m p o n e n t s
Normal tyre 14 3.055
manufacturers can analyse data to provide optimised
services and better user experiences.
Currently, snow tyres are already mandatory8 during
3. Third-party service providers can use the data to
winter in many European countries (including Austria,
provide maintenance services.
Finland, Sweden and Norway) to ensure driving safety.
The working group recommends that China introduce a
Therefore, it is crucial to ensure the automotive data
similar policy in the affected areas of its northern region.
is standardised and transferable to allow automotive
manufacturers, auto component manufacturers
Recommendations
and third-party maintenance companies to develop
• Promulgate in a timely manner China’s national
and provide differentiated services, which will in
turn encourage healthy industry development and
6　China’s low-temperature areas refer to Heilongjiang, Jilin and Liaoning provinces, fair competition. Furthermore, standardised data
the northern part of Xinjiang and Inner Mongolia Autonomous Region, among
others.
7 This data was supplied by a member company. 9 Research Report on Data Security of Intelligent and Connected Vehicles,
8　The ‘mandatory’ notice can vary, depending on the country involved, and the map CERT, 20th June 2021, viewed on 10th March 2022, <https://www.sohu.com/
is updated regularly. a/473091463_118021>

194 Auto Components Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

SNOW TYRE OBILIGATIONS ACROSS EUROPE30

Section Three: Goods

will prevent data barriers and monopolies, improve data-sharing. Specifically, China should develop a
consumer experiences and protect user rights. well-structured legal framework for automotive data,
comprising data exchange platforms, an independent
While China has enacted several data protection- third-party certification system, and an accessible data
related legislation, there is limited progress in data flow, standard and data classification system, to ensure data
sharing, utilisation and standardisation, especially in security. Furthermore, China should also promote the
the automotive sector. A balance between guaranteeing circulation, analysis and use of data, to facilitate the
data security and improving data flow is needed if the development of the ICV industry as well as a future
industry is to develop. intelligent transportation system.

Data sharing is essential for both upstream and The European Union (EU) is gradually establishing a
downstream automotive companies. The working data regulatory system for the automotive industry, with
group recommends the Chinese Government design the relevant policies and practices listed below.
principles and frameworks based on data type for
open data-sharing between organisations, focussing EU Data Act
on elements such as data transparency, joint value The EU passed the Data Act in April 2022, 10 which
creation, mutual respect, and fair and healthy contains important provisions concerning the right to
competition. The government should also promote the use and share data, including:
creation of technology and platforms that can facilitate 10 European Union Data Act, European Commission, 22nd March 2022, viewed 14th
April 2022, <https://digital-strategy.ec.europa.eu/en/policies/data-act>

Auto Components Working Group 195

 1. Users and third parties have the right to access and 3. Allow the Import of Rejected Auto Parts
utilise data, that is, product (such as automotive) from Overseas Markets for Quality
users have the right to access, use or share their Assessment by Analysis Centres Based
product usage data with third parties. in China
2. Unfair data sharing contracts are prohibited.
Concern
EU Regulation on the Free Flow of Non-personal Data According to China's current laws and regulations, 13
The EU introduced the Regulation on the Free Flow of rejected auto parts from overseas markets are regarded
Non-personal Data in November 2018 to ensure the as ‘electromechanical waste products’ and cannot be
free flow of non-personal data in business.11 The main imported for dismantling and analysis.
objectives are to (1) increase the cross-border free flow
of non-personal data in the Single Market; (2) ensure Assessment
that competent authorities' power to request access The automobile industry is an essential pillar of China's
to data for regulatory purposes is not compromised; economy, with the newly developed sections playing an
and (3) ensure that professional data storage users important role in the entire industrial chain. Considering
or other data processing services are able to easily China’s influence on neighbouring economies, some
change service providers and migrate data without large multinational auto parts companies that intend
overburdening service providers or distorting the to set up regional analysis centres in China are likely
market. to upgrade these centres to regional headquarters.
Section Three: Goods

This in turn gives their business the potential to affect

EU Directive on Open Data and the Re-use of Public the entirety of Asia and beyond. Though the direct
Sector Information economic revenue generated by analysis centres is
The EU passed the Directive on Open Data and the Re- limited, the indirect return is significant. The main duty
use of Public Sector Information in 2019,12 which aims of the analysis centres is to conduct technical analysis
to remove major barriers to data re-use, and promote on returned auto parts to determine the reasons for
the re-use of public sector data across the bloc and the the failure of the returned parts. Such analysis not
development of data-intensive technologies. only can help a company improve its product quality
and technical capabilities but can also assist in the
The working group recommends that the Chinese establishment of a quality management system in
Government issue similar policies and regulations China for domestic auto parts. In addition, analysing
to promote collaborative data-sharing across the rejected parts from overseas markets can help Chinese
automotive industry chain. subsidiaries enhance their understanding of product
application and environments in other regions. It will
Recommendations also allow these China-based centres to bring their
• Improve legislation on data circulation, sharing and research and development (R&D) capabilities closer
utilisation, particularly relating to use of automotive to the technical level of the corporate headquarters.
and ICV market data. Therefore, analysis of rejected auto parts from overseas
• Accelerate the standardisation of automotive data, markets is key to the industrial advancement and
and organise the Standardisation Administration of market development of Chinese companies.
China, China Association of Automobile Manufacturers,
and all relevant industry stakeholders to actively discuss Moreover, in recent years, China Customs has
and create specifications to systematically optimise consistently emphasised the need to improve customs
automotive data standards. clearance efficiency to optimise the import/export
business environment. R&D is a priority for many auto
components companies; therefore, the facilitation of
11 Regulation (EU) 2018/1807 of the European Parliament and of the Council of the import and export of R&D materials and analysis of
14 November 2018 on a framework for the free flow of non-personal data in the
European Union, European Commission, 14th November 2018, viewed 14th April
2022, <https://eur-lex.europa.eu/eli/reg/2018/1807/oj> 13 Customs Law of the People's Republic of China (Amended in 2021), Shantou
12 Directive (EU) 2019/1024 of the European Parliament and if the Council, European Customs District, 23rd August 2021, viewed 10th July 2022, <http://lasa.customs.
Commission, 20th June 2019, viewed 14th April 2022, <https://eur-lex.europa.eu/legal- gov.cn/shantou_customs/zfxxgk39/3008252/3008377/2659888/2660195/index.
content/EN/TXT/?uri=CELEX:32019L1024&qid=1649934357210> html>

196 Auto Components Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

parts can play a decisive role in boosting the economy. the operations of individual companies affected but also
the development of international business is impeded.
Through innovative systems and mechanisms, As domestic auto component enterprises continue to
strengthened coordination and interconnection, improved expand their overseas markets, they will also face the
legal guarantees, and benchmarking against advanced same dilemma when attempting to return parts to China
international standards, China can create a stable, fair, for quality analysis.
transparent, and predictable environment for various
entities to invest in and start businesses. Recommendations
• Release annual quotas for companies with relevant
Rejected auto components are divided into three types: qualifications to import rejected auto components
1. Those produced in China and supplied to domestic from overseas markets to conduct quality inspection
automobile manufacturers; and analysis.
2. Those produced in China and supplied to overseas • Allow the components of returned parts to be shipped
automobile manufacturers; to a lower-level supplier for in-depth analysis, both
3. Those produced overseas and supplied to an domestically and internationally.
overseas manufacturer.
Abbreviations
In China, types 2 and 3 are regarded as ‘electromechanical
EU European Union
waste products’ and forbidden for import, meaning that
EV Electric Vehicle

Section Three: Goods

Chinese auto component companies cannot analyse
ICV Intelligent Connected Vehicle
rejected parts from overseas markets. According to
MIIT Ministry of Industry and Information
the Administrative Procedures on Goods of Temporary
Technology
Entry and Exit (Administrative Procedures), 14 if the
MOT Ministry of Transport
parts enter China through temporary import and export,
MPS Ministry of Public Security
they must be re-exported within a specified time, and
NEV New Energy Vehicle
the inbound and outbound status of goods should
OE Original Equipment
remain the same. However, in-depth analysis of the
R&D Research and Development
rejected parts will require disassembly. If component
issues are involved, the components (the percentage
of which can be as high as 60 per cent of the part)
also need to be disassembled and sent to downstream
suppliers—which may be located overseas as well
as in China—for a more in-depth analysis, but the
Administrative Procedures do not allow components
to be disassembled from the main body and shipped
separately.

Under the Regulation on Repair, Replacement and

Refund of Private Cars (3R Regulations), manufacturers
are liable for the repair, replacement and return of
components in relation to certain quality issues.15 Auto
components sold abroad also need to comply with
overseas regulations. However, as the Administrative
Procedures do not currently allow for the importation or
disassembly of rejected parts for analysis, not only are

14 Administrative Procedures on Goods of Temporary Entry and Exit (Administrative

Procedures), GACC, 7th December 2017, viewed 10th March 2022, <http://www.
gov.cn/gongbao/content/2018/content_5260801.html>
15 Regulation on Repair, Replacement and Refund of Private Cars (3R Regulations),
State Administration of Market Regulation, 27th July 2021, viewed 10th March
2022, <http://www.gov.cn/xinwen/2021-07/27/content_5627785.htm>

Auto Components Working Group 197

 Cosmetics Working Group

Key Recommendations
1. Ensure a Smooth Transition Period with Clear Implementing Guidelines
for the Cosmetics Supervision and Administration Regulation (CSAR)
Supplementary Legislation
• Implement streamlining and delegation in supplementary legislation to establish an efficient
supervision system based on risk management, with companies bearing the responsibility for
product quality and safety.
• Provide sufficient transition periods for changes that will have a significant influence on the
industry and prepare flexible policies for grace periods on a case-by-case basis, to ensure a
smooth and stable transition.
• Collect issues raised during the implementation of new regulations and launch necessary policy
interpretations that are pertinent to the implementation and release of the regulations.
Section Three: Goods

2. Encourage Safety Supervision in a Scientific Way to Boost Innovation in the

Cosmetics Industry
2.1 Raw Material Safety Information Submission
• Accept new product registration applications when the reporting code for raw material safety
information or safety information annex is missing, provided this information can be submitted
later.
• Allow an entity’s registrant or notifier to fill in raw material safety information, using their own
signatures or seals as verification, instead of those of raw material suppliers.
• Regard the raw material safety information submitted by suppliers as being subject to in-market
product risk monitoring and traceability.
• Cancel the requirement of product re-registration and notification for those registered or notified
before 1st January 2023 with formula changes in raw material components and content provided
by suppliers, if the amount of raw material added in the formula, raw material manufacturer and
trade name remain the same (except in cases where name changes are not for quality and safety
reasons).
• Develop standardised guidelines for the registration of raw material composition and to identify
the proportion of impurities to ensure a consistent raw material reporting standard is used by raw
material suppliers and cosmetics companies.
2.2 Modern Risk Management System
• Promote alternatives to animal testing, and formulate detailed implementation rules for innovative,
non-test assessment methods such as Threshold of Toxicological Concern (TTC) and read-
across.
• Phase out the requirement to submit animal test data for registration of cosmetics in special
cases where such data is still needed.
2.3 Scientific and Sound Adverse Effects Monitoring Rules
• Take into consideration the sales quantity, adverse reaction types, and cause and effects when

198 Cosmetics Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

determining product safety.

2.4 Feasible Regulatory Supervision Model and Pathway for Innovative Cosmetics
Products
• Establish management and surveillance mechanisms for personalised cosmetics that include
administrative provisions on registration and notification, production and sales, in order to allow
market access and promote the development of and meet the demand for personalised cosmetics in
China.
• Provide clear definition and scope of "cosmetics that must used in conjunction with devices" and
refine the related detailed management requirements.
• Develop administrative standards with reference to different circumstances and risk control points
related to product quality and safety.

3. Ensure the Smooth Implementation of the Provisions on the Management of

Cosmetics Registration and Notification Dossiers
3.1 Transparent and Unified Evaluation Standards and Guidelines
• Formulate detailed, transparent and consistent criteria for the evaluation of cosmetics, as well as
guidelines to allow manufacturers to compile registration dossiers.

Section Three: Goods

• Conduct investigations and surveys prior to introducing new or controversial evaluation requirements
and then publicly notify companies before such review requirements are implemented.
3.2 Capacity Training for Evaluators and Manufacturers and Improving Communication
Between Different Stakeholders
• Increase different forms of training by authoritative individuals, such as formal in-person training
sessions, online interpretations and question-and-answer (Q&A) sessions, to provide an official
interpretation of the regulations and consistent answers to specific questions.
• Establish an open consultation and communication mechanism for different stakeholders, in support
of the evaluation and registration of cosmetics.
• Establish a Q&A section on the National Medical Product Administration’s website, sharing regularly
updated information on common challenges experienced during the registration process and
providing an authoritative interpretation of regulations and provisions.

4. Improve the Management of Efficacy Claims and Labelling

4.1 Administration of Efficacy Claim Evaluation
• Extend the application scope of the guiding principle of equivalent evaluations to all product
efficacies, not only multi-colour cosmetics products.
• Accept an applicant’s rationale as to why minor differences in formulas do not affect efficacy, and
allow for slight adjustments of pigments, essences and antiseptics in formulas.
4.2 Administration of Labelling
• Issue implementation guidelines for the Administrative Measures of Cosmetics Labelling as soon as
possible.
• Issue a series of supporting policies, such as the use of electronic labels, to resolve the difficulties of
labelling for small-sized products.
• Allow the Chinese label to reflect selected efficacy claims within the scope of the Classification
Catalogue of Efficacy Claims, and allow any information required by the laws and regulations of the
region of origin to be either noted on, or covered by, the Chinese label.

Cosmetics Working Group 199

 Introduction to the Working Group (NBS), overall retail sales of consumer goods in 2021
increased 12.5 per cent year-on-year, exceeding
In this paper, ‘cosmetics’ refers to daily-use chemical
Chinese yuan (CNY) 44 trillion. Annual retail sales
products intended to be applied externally to parts of
of cosmetics by companies above the ‘designated
the human body—such as skin, hair, nails and lips—by
size’—defined as those whose main annual business
rubbing, spraying or other similar ways for the purposes
income exceeds CNY 20 million—grew by 14 per cent.2
of cleansing, protecting, beautifying or grooming.1 They
According to the General Administration of Customs
are used by individuals to improve both appearance and
(GACC), the quantity and value of imported beauty
well-being. Although once thought of as luxury products,
cosmetics and toiletries in China continued to rise from
most people now consider cosmetics daily necessities.
January to December 2021, with a cumulative increase
Thus, creating a sustainable cosmetics industry will
of 23.1 per cent and valued at approximately CNY
help to improve people’s quality of living.
150 billion.3 China’s cosmetics industry was relatively
resilient and maintained steady growth in 2021,
The Cosmetics Working Group consists of more than
bolstered by the rapid emergence of live streaming
70 members, including a large number of internationally
e-commerce as companies adapted their business
well-known cosmetics brands, with a diverse range
models to cope with pandemic-related restrictions.
of business models. The majority of members are
industry leaders and have established research and
However, most cosmetics industry players were
development (R&D) as well as production facilities in
significantly impacted by COVID-19 containment
China. Their expertise has been widely recognised
Section Three: Goods

measures implemented by China in March 2022, which

by consumers and they have contributed significantly
saw the city of Shanghai placed under lockdown.
to cosmetics development in China. The cosmetics
Factories and R&D centres based in the city were
industry has also acted as a catalyst for other related
shut, and supply chains and operations grounded to
industries, such as fine chemicals, packaging, logistics
a standstill. According to the results of a flash survey
and advertising.
conducted by the European Chamber in May 2022,
as result of these stringent restrictions, 80 per cent of
The purpose of the Cosmetics Working Group is to:
respondents from the cosmetics industry decreased
- present the interests of European cosmetics companies
their 2022 revenue projections; 20 per cent are now
and facilitate information exchange among members,
considered downsizing operations; and 40 per cent
professional associations and regulatory bodies;
were considering shifting current or future investments
- promote the healthy and sustainable development
to other markets.4
of China’s cosmetics industry and contribute to
the formation of an efficient, fair and transparent
The interruption to operations also presented cosmetics
regulatory environment; and
manufacturers with difficulties in meeting the 1st May
- ensure consumer safety.
2022 deadline for completion of the supplementary
documentation required for previously registered and
European cosmetics companies possess cutting-
notified cosmetics, and to submit the summary of
edge technologies and extensive experience in quality
product efficacy claims. Failure to meet this deadline
management and safety assessment. A fully-opened
would have negatively impacted manufacturing and
market that allows both competition and cooperation
product launches. In response to industry concerns,
between Chinese and European cosmetics companies
the National Medical Product Administration (NMPA)
will ensure that the domestic market becomes stronger,
and provide Chinese consumers access to a variety of 2　Statistical Communiqué of the People's Republic of China on National Economic
new and advanced products. and Social Development in 2021, NBS, 28th February 2022, viewed 18th April
2022 <http://www.stats.gov.cn/tjsj/zxfb/202202/t20220227_1827960.html>
3　China's Total Export & Import Values, December 2021 (in USD), GACC,

Recent Developments 14th January 2022, viewed 18 th April 2022, <http://www.customs.gov.cn//

customs/302249/zfxxgk/2799825/302274/302275/4122074/index.html>
4　Unpublished statistics from Flash Survey: COVID-19 and the War in Ukraine: The
According to China’s National Bureau of Statistics Impact on European Business in China, European Union Chamber of Commerce
in China, 5th May 2022, viewed 6th June 2022, <https://europeanchamber.oss-cn-
1　Cosmetics Supervision and Administration Regulation (CSAR), State beijing.aliyuncs.com/upload/documents/documents/Flash_Survey_COVID_19_
Council, 29th June 2020, viewed 19th April 2022, <http://www.gov.cn/zhengce/ and_the_War_in_Ukraine_The_impact_on_European_business_in_China_
content/2020-06/29/content_5522593.htm> FINAL[973].pdf>

200 Cosmetics Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

released measures allowing “vacancy management” 5 requirements on the whole process of R&D, production
and extended the deadline by eight months for companies and operations. It is recommended that—in line with
to submit the required information. This helped to ensure the best practices of mature, international markets—
a smooth transition to the new regulations and enable the Chinese regulatory authorities should, during
enterprises to resume operations with minimal impact.6 the extremely intensive promulgation of regulations,
minimise the impact of such regulations on the launch
These new regulations are part of several recently of new products. This can help to ensure high-quality
issued by China while stepping up its oversight and development of the cosmetics industry while promoting
administration of cosmetics. Since 2021, the NMPA smooth implementation of new regulations.
has published more than ten supporting regulations
and explanations concerning the registration and Key Recommendations
notification of cosmetics, oversight of manufacturing
and operations, safety evaluation and adverse reaction 1. Ensure a Smooth Transition Period with
monitoring, classification and efficacy claim verification, Clear Implementing Guidelines for the
label administration, and the administration of children’s Cosmetics Supervision and Administration
cosmetics. The implementation of these regulations is Regulation (CSAR) Supplementary
aimed at improving companies’ quality management Legislation
systems, encouraging increased investments in R&D
and enhancing the overall level of quality and safety Concern

Section Three: Goods

assurance in China’s cosmetics industry. The CSAR supplementary regulations contain new and
unique requirements, many of which have a short lead-
The Provisions for the Management of Cosmetics time for enforcement, which will pose many challenges
Registration and Notification Dossiers were promulgated for cosmetics manufacturers.
on 1 st May 2021, which conditionally waived the
requirement for animal testing of non-special cosmetics Assessment
imported into China. 7 This reflects a breakthrough The promulgation of the CSAR marks significant
in the application of equal treatment by the Chinese progress in promoting administrative streamlining and
Government in terms of registration and notification decentralisation of authority.8 It also implements a risk-
requirements for domestically produced and imported based classification management system, which is
products. conducive to innovation and upgrading R&D operations.
Furthermore, the CSAR also encompasses a registrant
The Cosmetics Working Group will continue to and notifier system, which improves the compliance level
support the formulation and revision of provisions and for the entry threshold of cosmetics manufacturing and
standards by the regulatory authorities, offer expert operations as a whole. However, detailed supporting
know-how for the formulation and implementation of regulations are needed if all of these systems are to be
supporting regulations, and actively cooperate with the effectively implemented.
authorities to smoothly implement the new regulations.
The Cosmetics Working Group expects the regulatory The CSAR significantly alters the definition and scope
authorities to continue with an inclusive approach to of cosmetics, the oversight and administration of
the legislative process, fully heed the opinions of the products with special efficacies and ingredients, and
industry, strengthen field visits and investigations, labelling requirements. These alterations will entail
and objectively assess the actual impact of new changes to the supervisory framework, which in turn
will have a long-term impact on the industry. Full
5　“Vacancy management” refers to measures that allow copies or electronic consideration should therefore be given to the potential
versions of documentation for registration and notification to be accepted first, effects that these new regulations may have, and the
with the original material being submitted when circumstances permit.
6　 Response Letter to the Request about Issues regarding Cosmetic Registration principle differences between the respective laws and
and Notification Management during Epidemic Prevention and Control, NMPA, regulations of China and Europe. Only with policies
27th April 2022, viewed 6th June 2022, <https://www.nmpa.gov.cn/xxgk/fgwj/gzwj/
gzwjhzhp/20220427173951109.html>
7　Announcement of Provisions for Management of Cosmetic Registration and 8　Cosmetics Supervision and Administration Regulation (CSAR), State Council,
Notification Dossiers, State Council, 26th February 2021, viewed 18th April 2022, 29 th June 2020, viewed 19 th April 2022, <http://www.gov.cn/zhengce/
<http://www.gov.cn/zhengce/zhengceku/2021-03/04/content_5590288.htm> content/2020-06/29/content_5522593.htm>

Cosmetics Working Group 201

 that prevent short-term industry fluctuations can the for all product registration from 1 st January 2023.9
regulations be implemented satisfactorily, to the benefit The raw material reporting codes will be automatically
of companies, consumers and the industry as a whole. generated after the raw material suppliers, or other
Detailed introductions and explanations are essential authorised companies, submit the safety information
for the successful implementation of new regulations, as via the Raw Material Safety Information Registration
they help the industry fully understand how to comply Platform, which also went into operation on 1st January
with new regulations in a consistent way. 2022. Applicants can then link the codes to their raw
material safety information documentation.
Recommendations
• Implement streamlining and delegation in supplementary However, the results of an internal member survey
legislation to establish an efficient supervision conducted by the Cosmetics Working Group show
system based on risk management, with companies little progress in the reporting of raw material safety
bearing the responsibility for product quality and information among raw material suppliers, with the
safety. majority of cosmetic companies only receiving reporting
• Provide sufficient transition periods for changes codes for less than 10 per cent of the total raw materials
that will have a significant influence on the industry used, which seriously impedes the registration progress
and prepare flexible policies for grace periods on a for regular cosmetics.
case-by-case basis, to ensure a smooth and stable
transition. Furthermore, the combined raw material information
Section Three: Goods

• Collect issues raised during the implementation reported by raw material suppliers is often different
of new regulations and launch necessary to that provided by cosmetics companies during
policy interpretations that are pertinent to the registration. This is due to the adjustment of raw
implementation and release of the regulations. material production processes, different interpretations
of the same materials and the failure of raw material
2. Encourage Safety Supervision in a Scientific suppliers to promptly inform downstream cosmetics
Way to Boost Innovation in the Cosmetics companies of such adjustments, among other reasons,
Industry which pose compliance risks for cosmetics companies.
2.1 Raw Material Safety Information Submission Compounding this situation, raw material safety
information forms and quality information documents
Concern that were previously collected from raw material
In addition to challenges related to obtaining safety suppliers are often lacking the signatures and seals that
information for raw materials from suppliers, which need are now required for registration under the Provisions.
to be submitted by companies for product registration, The above factors have greatly hindered foreign
there are also inconsistencies in the procedures cosmetics from entering the Chinese market.
for obtaining safety data, which poses a potential
compliance risk for registered and notified products. Recommendations
• Accept new product registration applications when
Assessment the reporting code for raw material safety information
According to the Provisions for the Management of or safety information annex is missing, provided this
Cosmetics Registration and Notification Dossiers information can be submitted later.
(Provisions), for newly registered cosmetics that contain • Allow an entity’s registrant or notifier to fill in
functional raw materials—such as antiseptics, sun raw material safety information, using their own
protection, colouring, hair dye, blemish removal and signatures or seals as verification, instead of those of
skin whitening—companies are now required to submit raw material suppliers.
corresponding raw material safety information (reporting • Regard the raw material safety information submitted
codes or details listed in Attachment 14 of the Provisions) by suppliers as being subject to in-market product
as of 1st January 2022. In addition, applicants will risk monitoring and traceability.
need to provide safety information for raw materials
9　Announcement of Provisions for Management of Cosmetic Registration and
Notification Dossiers, State Council, 26th February 2021, viewed 18th April 2022,
<http://www.gov.cn/zhengce/zhengceku/2021-03/04/content_5590288.htm>

202 Cosmetics Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

• Cancel the requirement of product re-registration and with these innovative assessment methods. In addition,
notification for those registered or notified before 1st most enterprises are unable to conduct comprehensive
January 2023 with formula changes in raw material safety assessments due to varying levels of technical
components and content provided by suppliers, if capability. Meanwhile, supervision enforcement
the amount of raw material added in the formula, raw authorities still lack the skills and practical experience
material manufacturer and trade name remain the to adequately review the assessment reports submitted
same (except in cases where name changes are not by the few enterprises that do have assessment
for quality and safety reasons). capabilities.
• Develop standardised guidelines for the registration
of raw material composition and to identify the Most major economies and regions have either
proportion of impurities to ensure a consistent raw prohibited or are in the process of setting up a schedule
material reporting standard is used by raw material to ban animal testing for cosmetics’ market approval.
suppliers and cosmetics companies. China is the only country which mandatorily requires
animal testing for the registration of certain cosmetics.
2.2 Modern Risk Management System The Provisions for the Management of Cosmetics
Registration and Notification Dossiers came into force
Concern on 1st May 2021, with the intention of allowing general
Due to the lack of detailed guidelines, as well as cosmetics (including imported general cosmetics)
varying levels of capability among both regulators that meet the required conditions for exemption from

Section Three: Goods

and companies, the procedure for evaluating and submitting results for toxicological testing on animals.12
implementing the Technical Guidelines for Cosmetics This is another important milestone for China in the
Products Safety Assessment is extremely challenging, gradual progress to replace mandatory animal testing.
particularly with regard to innovative assessment However, for special cosmetics, cosmetics that use
methods like the Threshold of Toxicological Concern new ingredients within the three-year monitoring period,
(TTC) and ‘read-across’.10 and cosmetics for use by infants and children, as well
as new ingredients in the Chinese market, several
Assessment compulsory toxicological animal tests are still required
As of 1st January 2022, cosmetic product registrants and for registration.
notifiers must conduct cosmetic safety assessments
and submit reports based on the requirements specified Recommendations
in the Technical Guidelines for Cosmetic Products • Promote alternatives to animal testing, and formulate
Safety Assessment before applying to either register detailed implementation rules for innovative, non-test
special cosmetic products or notify general cosmetic assessment methods such as TTC and read-across.
products. 11 The guidelines adopt the widely-used • Phase out the requirement to submit animal test
principle of weight of evidence and modern safety data for the registration of cosmetics in special cases
assessment methods and tools, including TTC, read- where such data is still needed.
across, chemical grouping and other popular non-
testing assessment methods. This demonstrates that 2.3 Scientific and Sound Adverse Effects
China’s cosmetics safety evaluation procedure is now Monitoring Rules for Cosmetics Products
in line with advanced, international safety evaluation
concepts and methods. However, the supervision Concern
enforcement authorities, technical review experts and The incident report requirement contained in the
many cosmetics enterprises in China are not familiar Measures for the Management of Cosmetics Adverse
Reaction Monitoring13 fails to take a proportionate risk-
10 Read-across is when the already available data of a data-rich substance (the
source) is used for a data-poor substance (the target) that is considered similar based approach.
enough to the source substance to use the same data as the basis for a safety
assessment. Elisabet Berggren, Read-Across with Computational and In vitro 12 Announcement of Provisions for Management of Cosmetic Registration and
Data, DG Joint Research Centre, European Commission, viewed 11th May Notification Dossiers, State Council, 26th February 2021, viewed 18th April 2022,
2022, <https://www.toxicology.org/events/shm/fda/docs/4%20SOT%20FDA%20 <http://www.gov.cn/zhengce/zhengceku/2021-03/04/content_5590288.htm>
Berggren%20Read-Across.pdf> 13 Announcement of the National Medical Products Administration on Publishing
11 Technical Guidelines for Safety Assessment of Cosmetics (2021 Version) (No. 51 the Measures for the Management of Cosmetic Adverse Reaction Monitoring
of 2021), NMPA, 9th April 2021, viewed 18th April 2022, <https://www.nmpa.gov. (No. 16, 2022), NMPA, 15th February 2022, viewed 20th April 2022, <https://www.
cn/xxgk/ggtg/qtggtg/20210409160436155.html> nmpa.gov.cn/xxgk/ggtg/qtggtg/20220221165805149.html>

Cosmetics Working Group 203

 Assessment
The reasons for adverse reactions to cosmetic products 2.4 Feasible Regulatory Supervision Model and
are complex and varied. In addition to the cosmetic Pathway for Innovative Cosmetics Products
products themselves, individual allergies, external
conditions, underlying diseases, and even diet and
medication can trigger adverse reactions. To mitigate Concern
adverse reactions to cosmetics that are serious or China has not formulated or implemented specific
may cause a greater societal impact, cosmetic product regulations and standards for innovative cosmetics,
registrants and notifiers should investigate the possible such as personalised products and cosmetics used
reasons and propose appropriate measures. in conjunction with devices, which runs counter to
the CSAR’s principle of encouraging innovation and
The majority of mild adverse reactions to cosmetic impedes the development of the cosmetics industry.
products are reported by consumers. The descriptions
provided of the reaction, symptoms and other factors Assessment
are often not objective and scientific enough, making As economies across much of the world become
it difficult or even impossible to make accurate increasingly service-driven, personalised services and
judgements about the exact causes of those adverse cosmetics used in conjunction with devices are emerging
reactions. Furthermore, in practice, some consumers as dominant market trends. Consumers are more likely
refuse to be contacted due to personal reasons, which to choose cosmetics according to, for example, their
Section Three: Goods

makes follow-up impossible. own skin conditions, among other personal preferences.
A vast increase in consumer requirements for specific
If it is necessary to submit a report whenever any cosmetics has resulted, with personalised products now
suspicious adverse reactions are detected during a fast-growing consumption segment for customers
testing period, this may lead to a large amount of globally. During the China International Import Expos
unsubstantiated information on cosmetic products that have taken place so far, cosmetics companies
being collected and stored, yet the absolute number showcased numerous personalised products that
of adverse reaction reports is not an indication of embody the latest international innovative technologies,
actual product safety. The absolute number of adverse and which proved very popular with attendees.
reactions reports can be used for initial screening
to verify whether products are safe. However, it is Personalised products are covered in the European
necessary to conduct a comprehensive analysis that Union’s regulations relating to cosmetics and can be
takes sales volume (product sales are significantly launched in the market as long as they meet relevant
higher during new product launch periods or sales cosmetics quality and safety requirements. However, in
promotions), reaction types and the severity of addition to there being no regulations for personalised
reactions, as well as correlating evaluation results, products in China, companies find there is no flexibility
into consideration to make an accurate judgement on to launch such products. This is because Chinese
product safety. High numbers of adverse reactions regulations require that product formulas must be
during sales promotions may be misjudged as severe fixed before they can be launched, and also that an
cases and therefore likely to cause greater societal appropriate manufacturing licence must be held in
impact. This would result in subsequent investigations order to undertake filling and compounding processes,
and analysis by monitoring agencies at all levels, meaning that personalised services (which can entail
which would be a significant waste of administrative the creation of new formulas or dispensed package)
resources. cannot be carried out at point of sale.

Recommendation Across the world, many different types of cosmetics

• Take into consideration the sales quantity, adverse used in conjunction with devices are being developed,
reaction types, and cause and effect when determining in order to improve usage effect and the overall
product safety. experience. However, in the Provisions for the
Management of Cosmetics Registration and Notification
Dossier, definition of this category as “cosmetics that

204 Cosmetics Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

must be used in conjunction with devices” is too vague.14 clear interpretations of each section of the registration
In conjunction with this, the associated management dossier in a timely manner, and to determine nationwide
measures and standards are also not specific enough unified criteria for review. Official interpretations
to guide industry players in implementing requirements of regulations and the process for implementing
in an innovative manner while ensuring compliance. related requirements should also be communicated
to companies in advance, to allow them to effectively
Recommendations prepare materials that ensure they are in compliance.
• Establish management and surveillance mechanisms It would also be beneficial for local supervisors to
for personalised cosmetics that include administrative uniformly review the requirements, so as to avoid
provisions on registration and notification, production wasting companies’ resources.
and sales, in order to allow market access and
promote the development of, and meet the demand Recommendations
for, personalised cosmetics in China. • Formulate detailed, transparent and consistent
• Provide clear definition and scope of “cosmetics that criteria for the evaluation of cosmetics, as well
must be used in conjunction with devices" and refine as guidelines to allow manufacturers to compile
related detailed management requirements. registration dossiers.
• Develop administrative standards with reference • Conduct investigations and surveys prior to introducing
to different circumstances and risk control points new or controversial evaluation requirements and
related to product quality and safety. then publicly notify companies before such review

Section Three: Goods

requirements are implemented.
3. Ensure the Smooth Implementation of
the Provisions on the Management of 3.2 Capacity Training for Evaluators and Manufacturers,
Cosmetics Registration and Notification and Improving Communication Between Different
Dossiers Stakeholders
3 . 1 Transparent and Unified Evaluation
Concern
Standards and Guidelines
There is currently a lack of systematic training, and
Concern insufficient communication channels between regulators
Due to significant changes following the implementation and industry, with regard to implementation of the new
of the Provisions on the Management of Cosmetics requirements under the Provisions for the Management
Registration and Notification Dossiers,15 local Medical of Cosmetics Registration and Notification Dossiers,16
Products Administrations have not yet been able to which leads to different interpretations by different
apply unified products and ingredients evaluation manufacturers, and delays in both registrations and
criteria, which is increasing companies’ operational implementation of the new regulations.
burdens and impacting their marketing plans.
Assessment
Assessment Due to major changes to registration and notification
There is a long-standing problem in that product in the Provisions for the Management of Cosmetics
reviewers in different regions of China have inconsistent Registration and Notification Dossiers, stakeholders are
review criteria. In addition, in the new provisions, struggling to comply with them. Although a large amount
the NMPA has promulgated new requirements for of training has been provided by third parties following
the registration dossier, including specification of the promulgation of the Provisions, the interpretations
ingredients, samples from trial-production and efficacy provided have been neither consistent nor authoritative,
claims on packaging, among others. The requirements meaning the quality of the training was not assured.
have changed considerably, so it is necessary for the
authorities to formulate and promulgate detailed and In addition, communication between manufacturers
and regulators is currently insufficient due to, among
14 Announcement of Provisions for Management of Cosmetic Registration and other reasons, a lack of personnel, which leads to
Notification Dossiers, State Council, 26th February 2021, viewed 18th April 2022,
<http://www.gov.cn/zhengce/zhengceku/2021-03/04/content_5590288.htm>
15 Ibid. 16 Ibid.

Cosmetics Working Group 205

 delays in providing feedback to manufacturers. With manufacturers often develop multiple flavours or
the implementation of new regulations, there is a need colours of a product based on the same basic formula.
for proper consultation to ensure that policies are In addition, once the EU changes regulations on
interpreted by regulators in a unified way and to ensure cosmetics preservatives, manufacturers often need to
a smooth registration and notification process for slightly adjust the formulas of preservatives. However,
cosmetics. it is important to understand that such slight changes in
essences, pigments and preservatives will not affect the
Recommendations efficacy of a product.
• Increase different forms of training by authoritative
individuals, such as formal in-person training If all products need to be tested for efficacy, as required
sessions, online interpretations and question- under the Guidelines for Cosmetics Efficacy Claim
and-answer (Q&A) sessions, to provide an official Evaluation,18 it will not only be inconsistent with current
interpretation of regulations and consistent answers industry practices, but will also put great pressure
to specific questions. on already limited inspection and testing resources,
• Establish an open consultation and communication resulting in an increase of testing costs and the delay
mechanism for different stakeholders to support the of product launches. According to incomplete statistics
evaluation and registration of cosmetics. from Cosmetics Working Group member companies,
• Establish a Q&A section on the NMPA’s website, the testing costs of each enterprise will increase by
sharing regularly updated information on common hundreds of thousands, or even millions, of Chinese
Section Three: Goods

challenges experienced during the registration yuan under this requirement. Moreover, unnecessary
process and providing an authoritative interpretation repeated tests will not bring any benefits to consumers.
of relevant regulations and provisions. On the contrary, the increase in costs will eventually be
passed on to them.
4. Improve the Management of Efficacy
Claims and Labelling Recommendations
4.1 Administration of Efficacy Claim Evaluation • Extend the application scope of the guiding principle
of equivalent evaluations to all product efficacies, not
only multi-colour cosmetics products.
Concern • Accept an applicant’s rationale as to why minor
The ban on applying the ‘read-across’ method for differences in formulas do not affect efficacy, and allow
efficacy evaluations of similar products, with an for slight adjustments of pigments, essences and
exception applied only to multi-shade makeup products, antiseptics in formulas.
is inconsistent with global norms and results in the need
for repetitive tests that increase companies’ costs and 4.2 Administration of Labelling
put pressure on their limited testing resources.
Concern
Assessment The lack of detailed labelling implementation rules
The read-across evaluation method17 of similar formulas brings significant operational challenges to the whole
is an important basic principle and a practical tool in the industry.
R&D of cosmetic products. It is widely used within the
cosmetics industry internationally in efficacy and safety Assessment
evaluation. This method can be used for test formulas New requirements have been added to the Administrative
and marketing formulas at the R&D stage. In order M e a s u r e s f o r C o s m e t i c s L a b e l l i n g , 19 o b l i g i n g
to meet the needs of consumers for varied products, manufacturers to include more detail from the original
label in Chinese on the labelling for the Chinese market.
17 Read-across is when the already available data of a data-rich substance (the This includes the full list of ingredients, instructions
source) is used for a data-poor substance (the target) that is considered similar
enough to the source substance to use the same data as the basis for a safety 18 Guidelines for Cosmetics Efficacy Claim Evaluation, NMPA, 9th April 2021, viewed 21st
assessment. Elisabet Berggren, Read-Across with Computational and In vitro April 2022, <https://www.nmpa.gov.cn/xxgk/ggtgqtggtg/20210409160321110.html>
Data, DG Joint Research Centre, European Commission, viewed 11th May 19 Administrative Measures for Cosmetics Labelling, NMPA, 9 th April
2022, <https://www.toxicology.org/events/shm/fda/docs/4%20SOT%20FDA%20 2021, viewed 21 st April 2022, <https://www.nmpa.gov.cn/xxgk/ggtg/
Berggren%20Read-Across.pdf> qtggtg/20210603171933181.html>

206 Cosmetics Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

for use, the shelf-life after opening, and any safety- or claims on the Chinese label of an imported product
efficacy-related words. The Administrative Measures should correspond to the relevant contents of the
also require the Chinese name and date of expiry to be original label. Since the regulations and management
printed on the primary innermost packaging. However, of cosmetics varies widely in different countries, other
companies encounter many minor and practical countries and regions have not put forward similar
difficulties in the implementation of these regulations, requirements for imported cosmetics. This provision
including the following: is equivalent to a disguised mandatory requirement
for the labels of foreign original packaging of imported
1. The printing area is limited, not only on small-sized cosmetics to meet the requirements of Chinese
products (<15 grams/15 millilitres), but also on many regulations. If there are discrepancies, manufacturers
normal-sized products. must design labels only for export to China, which will
2. The Chinese name of a product, especially that of seriously impact their global supply chains and logistics.
special cosmetics, can only be printed after being
approved by the NMPA, hence the production cycle Recommendations
will be prolonged and the time to market delayed. • Issue implementation guidelines for the Administrative
3. Imported products to be sold in China cannot use Measures for Cosmetics Labelling as soon as
uniform packaging designed for the global market, possible.
requiring re-labelling of cosmetics to take place after • Issue a series of supporting policies, such as the
import, which will increase product quality risks and use of electronic labels, to resolve the difficulties of

Section Three: Goods

trade costs. labelling for small-sized products.
• Allow the Chinese label to reflect selected efficacy
Although companies can try to increase their labelling claims within the scope of the Classification
space by expanding the outer box, cosmetics Catalogue of Efficacy Claims, and allow any
packaging also needs to comply with the mandatory information required by the laws and regulations of
national standard GB 23350 Restrictions on Excessive the region of origin to be either noted on, or covered
Packaging Requirements for Food and Cosmetics.20 by, the Chinese label.
Therefore, if relying only on traditional forms of labelling,
the problem of insufficient labelling space cannot be Abbreviations
fully resolved.
CNY Chinese Yuan
CSAR Cosmetics Supervision and
It is a global trend that electronic labels have been
Administration Regulation
applied in other industries like pharmaceutical and
GACC General Administration of Customs of
medical devices. The prevalence of smart devices and
China
the technological maturity of digital information systems
NBS National Bureau of Statistics
provide the opportunity to expand the application of
NMPA National Medical Product Administration
digital labelling technology to the fields of consumer
Q&A Question-and-Answer
goods.
R&D Research and Development
TTC Threshold of Toxicological Concern
Electronic labelling would meet supervisors’ information
acquisition requirements and allow traceability
of consumer use, while also helping with anti-
counterfeiting efforts. Furthermore, it would reduce the
amount of packaging material waste, benefitting the
environment.

In addition, the Administrative Measures for Cosmetics

Labelling stipulate that the product safety and efficacy

20 Restrictions on Excessive Packaging Requirements for Food and Cosmetics,

Ministry of Industry and Information Technology (MIIT), 5th March 2020, viewed
18th April 2022, <http://www.gdcdc.cn/upfile/2020/03/20200306164707_441.pdf>

Cosmetics Working Group 207

 Energy Working Group

Key Recommendations
1. Gas
1.1 Accelerate the Transition from Coal to Gas in China’s Energy Mix
• Emphasise the role of gas in achieving carbon neutrality in China’s energy policies.
• Accelerate reform of the gas infrastructure regulatory regime:
- Open investment to all entities, including private companies and foreign-invested enterprises
(FIEs).
- Ensure open access to all upstream producers and downstream end-users.
- Clarify the conditions of third-party access for natural gas (NG) infrastructure.
- Optimise the terms of terminal use agreements (short, mid- and long-term) in tariffs,
conditions of capacity attributions and prioritisation, and penalties.
- Adopt non-discriminatory rules for the sale of infrastructure capacity.
Section Three: Goods

• Encourage provincial pipeline companies to be open to both PipeChina and FIEs.

• Encourage PipeChina to be open to foreign equity.
• Improve downstream competition by giving smaller companies fair and open access to
supply, and allowing city gas companies and industrial companies to source directly from gas
producers.
• Encourage the building of gas storage systems, particularly underground storage facilities, that
are open to all domestic and international investors.
• Develop underground gas storage in a market system with an independent commercial
performance index.
• Continue upgrading the market-orientated pricing structure of NG and reduce the levels of gas
distribution.
• Clarify market regulation to foster FIEs’ direct investments in NG infrastructure to improve
security of supply and reduce import needs.
• Encourage liquified NG bunkering by setting up national standards in line with international
standards.
• Foster market transparency through early establishment of regulations on information-sharing
and monitoring mechanisms.
• Switch from gas production based on coal gasification to biomethane and biogas production
from biomasses.
• Incentivise the deployment of methane abatement measures and technologies along the gas
value chain.

2. Renewable Energy and Power System

2.1 Ensure European Companies Have Equal Access in the Renewable Energy (RE)
Sector and Provide a Minimum Quota per Province
• Mandate provincial governments to diversify the ownership of RE projects, by giving five to
ten per cent of project development rights to foreign players or Sino-foreign joint ventures, and

208 Energy Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

clearly define foreign investment as entities that are originally headquartered abroad, rather than
foreign subsidiaries of domestic companies.
• Allow more flexibility on the change of shareholding of RE assets before the commercial operation
date, and refine relevant regulations to differentiate between speculation and legitimate market
activities.
• Further improve the transparency and accessibility of competitive allocation schemes, and
increase the weighting of on-grid price components in the bidding criteria.
• Increase the quality of RE projects by setting targets for RE transmission (based on gigawatts per
hour), ensuring better administration of the power system, optimising the planning process for new
installations and increasing project alignment with international environmental, health and safety
standards.
• Accelerate the digitalisation of RE projects by easing restrictions on data transmission and export.
2.2 Develop New, High-quality Power Infrastructure and a Well-functioning Power
Market
• Enact overall planning and enhance coordination among multiple stakeholders along the supply
chain, to set up a new power infrastructure that can integrate with traditional facilities to make the
large-scale utilisation of renewables feasible.
• Accelerate the application of digital technology and smart power installations from both the

Section Three: Goods

distribution- and demand-side.
• Provide policy schemes to incentivise a wide deployment of decentralised power generation, and
to facilitate microgrid penetration, and the use of energy storage.
• Promote green power grid products such as sulphur hexafluoride-free switchgears.
• Develop smart energy management platforms and software to stabilise and balance the load, and
lower energy costs and consumption.
• Accelerate the operation of green power markets from pilot runs, expand their coverage, facilitate
inter-provincial transactions, and encourage the procurement of long-term power purchase
agreements (PPAs).
• Improve synergy among existing policy and market mechanisms such as PPAs, green electricity
certificates, provincial renewables portfolio standards and the carbon market.
• Refine transaction rules to increase market accessibility and policy transparency for RE
procurement, especially for international companies.
2.3 Enhance the Hydrogen Supply Chain and Use of Low-carbon Hydrogen Solutions

• Enhance efforts to invest and develop infrastructures for hydrogen production, transport and
distribution.
• Adopt a certification scheme aligned with international standards, such as CertifHy in Europe, to
define low carbon and/or renewable hydrogen.
• Reinforce mechanisms to incentivise the large-scale production of low-carbon or renewable-based
hydrogen by electrolysis of water using curtailed electricity.
• Define and simplify specific safety regulations to be harmonised at the national level for hydrogen
production, distribution, storage (such as liquid hydrogen) and usage (for example, hydrogen
refuelling stations).
• Promote medium and long-distance hydrogen transportation using different methods, including

Energy Working Group 209

 pipelines and/or shipping.
• Implement regulations in accordance with international bodies for liquid hydrogen to optimise
hydrogen transportation and develop mobility usage while reducing total cost of ownership.
• Allow on-board storage type IV vessels to increase hydrogen storage density.
• Promote hydrogen usage for power generation, heating and for decarbonising highly polluting
industries.
2.4 Set Clear Targets and Policies for the Development of Bioenergy
• Recognise the role of bioenergy in securing energy supply and achieving decarbonisation
targets.
• Define national policies and concrete actions for the development of biofuels and biogas (for
electricity production), with binding short- and medium-term targets.
• Identify a portfolio of subsidies that provinces can adopt to foster the development of cellulosic
bioethanol, biodiesel, biogas and biomethane plants.
• Accelerate government efforts to achieve the E10 policy target nationwide.
• Promote the development of biodiesel by policy mandate, such as the rollout of a nationwide
B5 policy.

3. Energy Efficiency and Digitalisation

Section Three: Goods

3.1 Boost Innovation in Energy-efficiency (EE) Solutions

• Raise minimum energy performance standards (MEPs) and further expand the EE standards
system, including but not limited to MEPs for buildings, data centres and consumer network
connected devices.
• Strengthen international communications to harmonise mutual recognition on EE standards
and certification schemes in China and the European Union (EU).
• Promote EE improvements for existing coal-fired power plants through equipment retrofitting,
while adjusting MEP and greenhouse gas emission thresholds for new coal-fired power plants.
• Further expand EE demonstration and pilot projects, including fourth-generation district energy
systems (DES), property EE solutions, the Top Runner Programme and EU-China joint EE projects.
• Promote the concept of total cost of ownership in DES, and evaluate EE objectives and results
throughout an asset’s life span.
• Further expand the green bond catalogue, set up a national EE innovation fund and establish
preferential financing measures for energy service companies.
3.2 Take an Integrated Approach Towards Net-zero Cities
• Adopt a circular economy approach and apply energy-saving solutions throughout urban
infrastructure planning, construction and operations.
• Strengthen collaboration in both public and private areas throughout the city value chain,
including policy-makers, business, infrastructure and real estate developers, city administrators,
civil society and the financial sector.
• Establish a system of common technical standards with which to evaluate and assess
environmental sustainability in a consistent and transparent way.
• Initiate and sponsor zero-carbon pilot projects at the local level before gradually scaling up to
district and city level.

210 Energy Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

Carbon Market Sub-working Group

1. Increase the Accuracy and Transparency of Carbon Emissions Monitoring,
Reporting and Verification (MRV) in China’s National Emissions Trading
System (ETS)
• Upgrade the verification management regulations and relevant technical guidelines.
• Carry out a comprehensive assessment of verification agencies and strengthen their capacity
according to new procedures and requirements, to determine the recommended list of
verification agencies for the national ETS.
• Set up an accreditation institution to ensure the eligibility of verifiers.
• Ensure that public financing for verification is guaranteed, particularly in provinces where public
finance faces challenges, to ensure the sustainability of verification.
• Release a specific administrative order to detail the rules for information disclosure.
• Actively explore innovative ways of improving verification work.
• Align China’s MRV system with international standards.

2. Open the National Carbon Market to Institutional Investors Through Well-

Section Three: Goods

formulated Rules and Gradually Introduce Emissions Allowance Auctioning to
Boost Market Trading and Enhance Market Liquidity
• Allow institutional investors to participate in the national carbon market, to boost market size
and enhance carbon market liquidity.
• Release clear rules to incentivise institutional investors to play a positive role in the national
carbon market.
• Develop carbon futures, forwards and options in the national ETS, to establish a complete
financial trading, pricing and hedging system for China's carbon emission rights.
• Set a timeline to introduce auctions into the carbon allowance allocation mechanism.
• Build a healthy voluntary carbon market, restart the China Certified Emissions Reduction (CCER)
mechanism and develop a clear policy on the harmonisation of CCERs with international carbon
credits.

3. Facilitate Government, Civil Society and Business Exchanges Between the EU

and China on the Latest Decarbonisation Policies and Actions to Reinforce
Cooperation in Line with China’s 2060 Carbon Neutrality Target and the EU
Green Deal
• Engage with both European and Chinese businesses regarding the latest progress of
policymaking and implementation, to achieve strategic decarbonisation targets in the EU and
China.
• Provide support to domestic think tanks and facilitate their exchanges with EU peers on the
rules, progress and impact of the EU’s Carbon Border Adjustment Mechanism (CBAM) on EU-
China trade and investment.

Energy Working Group 211

 Introduction to the Working Group to long-term. The working group expects the central
government to institutionalise policy consultations
The Energy Working Group is composed of more than with all industry stakeholders, including European
200 equipment manufacturing, energy production companies. Local governments should also avoid
and infrastructure companies, service providers and one-size-fits-all compulsory measures to limit energy
consultants along the energy value chain. The working usage, and instead adopt realistic, localised planning
group seeks to establish an effective and constructive that allows different regions to peak carbon emissions
dialogue on energy policies with relevant regulators, before 2030 and achieve carbon neutrality by 2060
provide input on China’s energy policy work and (30/60 Goals) at a pace suitable for them.
share best practices from European energy industries
operating in China. The working group cooperates As the national roadmap for decarbonisation, China’s
closely with the European Commission and actively ‘1+N’ policy framework is seen as the joint most
participates in the European Union (EU)-China Energy significant future policy for European Chamber
Cooperation Platform. It also collaborates with the members, alongside those related specifically to
China Electric Power Planning and Engineering restrictions on carbon emissions. On 24th October 2021,
Institute, having jointly built the China-Europe Energy the ‘1’—the overarching guidance for realising the 30/60
Innovation Cooperation network covering 350 major Goals (Working Guidance)3 was released by the central
Chinese and European energy companies in four main government; and two days later, the first Action Plan
sectors: smart energy, hydrogen, wind power and for Carbon Dioxide Peaking Before 2030 (Action Plan)4
energy storage.
Section Three: Goods

as published, marking the start of the ‘N’—the detailed

action plans for peaking emissions across specific
Recent Developments sectors and industries.
From September to October 2021, local governments
instructed factories to limit power usage, curb output Since the 2021 power shortages, the central
or even halt production until further notice. Severe government has repeatedly emphasised the importance
power shortages occurred shortly afterwards across of ensuring national energy security to stabilise
20 provinces in China. The factors that led to the economic growth. For instance, a major change in
energy crunch varied across the country and affected energy cap assessment was revealed at the Central
different provinces to differing degrees. 1 The major Economic Work Conference in December 2021,
theme across all regions, however, was the mismatch with the announcement that newly added renewable
between high market prices for coal and the wholesale capacity and feedstock energy would be excluded from
tariff for coal-fired power generators, which remains total energy consumption control, thus transitioning
strictly controlled. In addition, China’s ‘dual-control’ from ‘dual-control’ of energy consumption and intensity
policy—which caps provincial energy consumption and to ‘dual-control’ of total carbon emissions and intensity.5
energy intensity—led several local governments to take This was echoed at the 2022 ‘Two Sessions’, when
extreme measures to avoid overrunning their targets President Xi Jinping reiterated that coal will continue
for the year. 2 Finally, extreme weather and intermittent to be the mainstay of the nation’s energy mix. 6 The
renewables output also played a role in some regions. 14 th Five-year Plan (14FYP) for the Modern Energy
To ease the outages, China took a raft of emergency
reform measures to boost coal production capacity
3　Working Guidance for Carbon Dioxide Peaking and Carbon Neutrality in Full
and streamline the coal-electricity pricing mechanism. and Faithful Implementation of the New Development Philosophy, National
Abrupt power shortages seriously jeopardise industrial Development and Reform Commission (NDRC), 24th October 2021, viewed 22nd
June 2022, <https://en.ndrc.gov.cn/policies/202110/t20211024_1300725.html>
operations, creating short-term safety risks— 4 Action Plan for Carbon Dioxide Peaking Before 2030, NDRC, 27th October
especially in the chemical and healthcare industries— 2021, viewed 22 nd June 2022, <https://en.ndrc.gov.cn/policies/202110/
t20211027_1301020.html>
and undermine business confidence in the medium 5 China to ease energy use curbs to relieve economic pressures, Reuters,
13 th December 2021, viewed 23 rd April 2022, <https://www.reuters.com/
1　The 2021 energy crisis: Implications for China’s energy market and policies, markets/commodities/china-ease-energy-use-curbs-relieve-economic-
Oxford Energy Forum, March 2022, viewed 22nd April 2022, <https://a9w7k6q9. pressures-2021-12-13/>
stackpathcdn.com/wpcms/wp-content/uploads/2022/03/OEF-131.pdf> 6　You, Xiaoying, Analysis: What does China’s coal push mean for its climate
2　China warns two-thirds of regions for missing energy targets, Reuters, 3rd June goals?, Carbon Brief, 29th March 2022, viewed 27th April 2022, <https://www.
2021, viewed 8th June 2022, <https://www.reuters.com/business/energy/china- carbonbrief.org/analysis-what-does-chinas-coal-push-mean-for-its-climate-
warns-two-thirds-regions-missing-energy-targets-2021-06-03/> goals>

212 Energy Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

System 7 also stressed the role that coal will play in to 2060,11 the majority of European companies have
ensuring China’s basic energy needs. The 14FYP global decarbonisation pledges to fulfil and are already
unprecedentedly highlights the balancing capacity of comparatively well advanced with their strategies: 40
the power system, and that, as a peaking source, gas per cent have established decarbonisation teams; and
will develop “where local circumstances permit”, given 67 per cent have achieved a basic level of preparation.
fuel cost and availability considerations.8 Whereas the At the government level, the EU is already deep into
13FYP focussed on overcapacity, the 14FYP names the process of developing and rolling out the European
coal as “the backstop of supply security” and excludes Green Deal to its 27 Member States. Much like China’s
caps on coal consumption and coal-fired power provinces, each member state is at a different level
capacity. It is clear that China will continue advancing of development and has unique socio-economic
the energy transition, but under the premise of supply conditions, making the EU a logical institutional partner
security. for China to collaborate with on decarbonisation.

As a result of geopolitical tensions, worldwide fuel Key Recommendations

shortages and skyrocketing oil and gas prices, China
is moving to reinforce energy security in every sector. 1. Gas
In April 2022, the State Council issued instructions for 1.1 Accelerate the Transition from Coal to Gas
setting up a unified national energy market 9 to improve in China’s Energy Mix
the interconnectivity of energy supply chains and
Concern

Section Three: Goods

ensuring the standardisation of energy infrastructure
and trading markets, thus helping China to withstand The transitional role of natural gas (NG) may be
soaring global commodity prices while enhancing its compromised by coal as energy security becomes a
domestic supply. top priority in 2022, while many foreign companies still
encounter difficulties in accessing gas infrastructures.
China will need to carefully balance energy supply
security, price affordability and environmental Assessment
sustainability. National and regional policies should be The role of gas
coordinated, industry-specific plans under the ‘1+N’ In comparison to coal, NG is a more reliable, cleaner
policy framework rapidly rolled out, and a uniform and safer energy source. In the Working Guidance
mechanism for carbon emission measurements and and the Action Plan,12 gas is acknowledged as a clean
verification established. 10 Experiences derived from energy in the decarbonisation of commercial road
European technology, solutions and applications can be transportation and vessels; as a peak-shaving facility
used to address some of the fundamental challenges in the power system, synchronising development with
China is facing in its energy transition. According to renewable energy (RE); and as a replacement of coal in
the European Chamber’s report, Carbon Neutrality: heavily polluting sectors. However, the National Energy
The Role of European Companies in China’s Race Administration’s (NEA’s) Guiding Opinions of Energy
Work in 2022, emphasise coal’s importance, particularly
7　China’s 14 th Five-year Plan for the Modern Energy System, NDRC and
its combination with RE.13 China has also cut import
National Energy Agency (NEA), 22 nd March 2022, viewed 24 th April 2022, tariffs for coal to zero from May 2022 to March 2023.
<https://www.ndrc.gov.cn/xxgk/zcfb/ghwb/202203/t20220322_1320016.
html?code=&state=123>
While coal may be regarded as the cornerstone for
8 China’s 14th Energy Five-year Plan: Pivoting toward a “modern energy system”, energy security in the short term, unabated coal, plus
IHS Markit, 13 th April 2022, viewed 23 th April 2022, <https://ihsmarkit.com/
research-analysis/chinas-14th-energy-fiveyear-plan-pivoting-toward-a-modern-
RE, will not be sufficient for China to achieve its 30/60
ener.html>
9 China’s “National Unified Market” – Standardizing the Domestic Market to 11 Carbon Neutrality: The Role of European Companies in China’s Race to 2060,
Spur Internal Circulation, China Briefing, 14 th April 2022, viewed 22 nd June European Union Chamber of Commerce in China, 25th May 2022, viewed 31st
2022, <https://www.china-briefing.com/news/chinas-national-unified-market- May 2022, <https://www.europeanchamber.com.cn/en/press-releases/3436>
standardizing-the-domestic-market-to-spur-internal-circulation/> 12 Working Guidance for Carbon Dioxide Peaking and Carbon Neutrality in Full
10 For more information on carbon emissions monitoring, reporting and verification, and Faithful Implementation of the New Development Philosophy, NDRC, 24th
refer to the Carbon Market Sub-working Group Position Paper 2022/2023; for October 2021, viewed 22nd June 2022, <https://en.ndrc.gov.cn/policies/202110/
more recommendations on decarbonisation at local and national levels, refer t20211024_1300725.html>; Action Plan for Carbon Dioxide Peaking Before
to the European Chamber’s report Carbon Neutrality: The Role of European 2030, NDRC, 27th October 2021, viewed 22nd June 2022, <https://en.ndrc.gov.cn/
Companies in China’s Race to 2060, European Union Chamber of Commerce in policies/202110/t20211027_1301020.html>
China, 25th May 2022, viewed 31st May 2022, <https://www.europeanchamber. 13 Guiding Opinions of Energy Work in 2022, NEA, 17th March 2022, viewed 17th
com.cn/en/press-releases/3436> May 2022, <http://zfxxgk.nea.gov.cn/2022-03/17/c_1310534134.htm>

Energy Working Group 213

 Goals. Therefore, the working group strongly advocates import costs during winter peaks. Several government
for NG to be brought back onto the agenda and play a announcements on opening up midstream access have
transitional role. been made,15 but real progress in the implementation
of these policies is needed. The working group also
Non-discriminatory third-party access (TPA) to gas advocates for more progress in PipeChina’s opening
infrastructures to foreign equity, and that underground gas storage
China’s current NG transportation, distribution network be developed in a market system with an independent
and storage capacity are unable to satisfy the growth commercial performance index so that it can fully
in demand and energy transition. It is positive that the function.
14FYP for the Modern Energy System contains goals
for 55–60 billion cubic metres (bcm) of gas storage Production, importation, transportation, storage,
capacity by 2025, the equivalent of around 13 per distribution and smart metering along the NG supply
cent of gas demand, and over 230 bcm of domestic chain must be carefully planned and well-coordinated,
production by 2025.14 The storage target implies that as both effectiveness and efficiency bottlenecks—
government estimates of gas demand are between such as TPA to LNG when state-owned enterprises
423–462 bcm by 2025. (SOEs) are reluctant to free up terminal and pipeline
infrastructures—restrict market opening, damage the
Positive signs for gas market deregulation came with diversification of supply and hinder energy transition.
the establishment of the China Oil and Gas Piping Domestic standards should also be aligned with
Section Three: Goods

Network Corporation (PipeChina) in 2020, which international ones to promote LNG development, and
separates transmission and sales businesses, allowing distributed energy production taken into consideration
for more market competition for third parties. In 2021, in order to design efficient grids.
several provinces integrated their gas infrastructures
into PipeChina. Under the guidance to accelerate the Decarbonisation across the gas value chain
construction of a unified national market, gas supply The long-term emissions benchmark for gas is net
chains are expected to be further interconnected, and zero, therefore developing decarbonised gases will
the infrastructure and trading markets standardised. be critical. This can be achieved by capturing the
The working group recommends early establishment carbon contained in the NG; developing biogas and
of regulations on information-sharing and monitoring tackling methane emissions. As well as NG, technical
mechanisms, allowing PipeChina to publish pipeline utilisation of biogas is mature enough today for wide
and terminal utilisation rates and spare capacity data by commercialisation, yet, a lack of clear incentive
location. This would help foreign-invested enterprises policies and stable feedstock supply has led to biogas
(FIEs) access transparent information, thereby development lagging far behind. Tackling methane
facilitating their marketing of gas in China. emissions from gas operations is also one of the best
near-term opportunities.16 Policy tools,17 with the help of
FIEs can introduce advanced solutions and best transparent and reliable emissions data, can effectively
practices into the Chinese NG market (operations and drive down methane emissions. European industries
management) if encouraged to play a bigger role. Given have a wealth of relevant experience in this area.
that the upstream exploration and wholesale marketing
are already open to foreign investors, it is critical to Recommendations
ensure the same applies to all midstream access—the • Emphasise the role of gas in achieving carbon
infrastructure—at both the national and provincial level.
A lack of access to midstream energy infrastructure 15 For example, the creation of PipeChina; opening up of LNG terminals for third
party access; Work Plan for the Special Supervision of Fair Opening of NG
upsets the delicate balance between centres of Pipeline Networks and LNG Terminals, NEA, 31st May 2021, viewed 7th June
production and consumption, the NG system’s ability 2022, <http://zfxxgk.nea.gov.cn/2021-05/31/c_1310000748.htm>; Catalogue of
Encouraged Industries for Foreign Investment (Edition 2022)(Draft), NDRC and
to deal with seasonal changes and peaks in demand, MOFCOM, 10th May 2022, viewed 8th June 2022, <https://hd.ndrc.gov.cn/yjzx/
and the possibility of optimising liquified NG (LNG) yjzx_add.jsp?SiteId=380>
16 In the oil and gas sector, it is possible to avoid more than 70 per cent of current
methane emissions with existing technology, and around 45 per cent could be
14 China’s 14th Five-year Plan for the Modern Energy System, NDRC and NEA, avoided at no net cost.
22nd March 2022, viewed 24th April 2022, <https://www.ndrc.gov.cn/xxgk/zcfb/ 17 For example, leak detection and repair requirements, technology standards and
ghwb/202203/t20220322_1320016.html?code=&state=123> bans on non-emergency flaring and venting.

214 Energy Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

neutrality in China’s energy policies. 2. Renewable Energy and Power System

• Accelerate reform of the gas infrastructure regulatory 2.1 Ensure European Companies Have Equal
regime: Access in the RE Sector and Provide a
- Open investment to all entities, including private Minimum Quota per Province
companies and FIEs.
- Ensure open access to all upstream producers Concern
and downstream end-users. European companies require a level playing field when
- Clarify the conditions of TPA for NG infrastructure. competing with Chinese companies in the RE sector.
- Optimise the terms of terminal use agreements
(short, mid- and long-term) in tariffs, conditions Assessment
of capacity attributions and prioritisation, and Currently, most operational RE projects in China
penalties. are controlled by a mere handful of companies,
- Adopt non-discriminatory rules for the sale of particularly SOEs, with foreign enterprises facing more
infrastructure capacity. constraints to develop, own or operate renewable
• Encourage provincial pipeline companies to be open assets. Significantly, China’s 30/60 Goals have
to both PipeChina and FIEs. led power generation companies to pursue a more
• Encourage PipeChina to be open to foreign equity. aggressive approach in obtaining development rights
• Improve downstream competition by giving for RE projects, especially large-scale ones. Provincial
smaller companies fair and open access to supply, governments are responsible for granting these

Section Three: Goods

and allowing city gas companies and industrial development rights, while the central government still
companies to source directly from gas producers. holds the approval right of provincial planning. It is
• Encourage the building of gas storage systems, particularly challenging for foreign players to obtain
particularly underground storage facilities, that are development rights for RE projects through the current
open to all domestic and international investors. open process. Setting a minimum quota per province
• Develop underground gas storage in a market and per year for foreign developers and/or investors
system with an independent commercial performance to develop RE projects would attract additional
index. foreign direct investment while bringing technological
• Continue upgrading the market-orientated pricing improvements.
structure of NG and reduce the levels of gas
distribution. Several hurdles have often prevented international
• Clarify market regulation to foster FIEs’ direct players from participating in the RE sector. For instance,
investments in NG infrastructure to improve security changing the shareholding of RE assets before
of supply and reduce import needs. commercial operation date is not permitted, in particular
• Encourage LNG bunkering by setting up national due to concerns about speculation.18 A more flexible
standards in line with international standards. regulation would allow foreign players to invest across
• Foster market transparency through early the whole life cycle of a RE asset. Also, the allocation
establishment of regulations on information-sharing of development rights for RE projects is not always
and monitoring mechanisms. fully transparent. To boost foreign investment in the
• Switch from gas production based on coal projects, local governments should further improve the
gasification to biomethane and biogas production transparency and accessibility of competitive allocation
from biomasses. schemes, and increase the weighting of on-grid price
• Incentivise the deployment of methane abatement component in the bidding criteria (especially for offshore
measures and technologies along the gas value wind).19
chain.
18 An investor having completed the filing procedures for a photovoltaic power plant
may not transfer the project to another without consent of the filing authority
before the project is brought online, according to the Notice on Regulating the
Order of Photovoltaic Power Plant Investment and Development, NEA, 28th
October 2014, viewed 6th July 2022, <http://zfxxgk.nea.gov.cn/auto87/201410/
t20141029_1857.htm>.
19 Since 2019, offshore wind power projects and their developers are selected by
local NEAs through a competitive allocation scheme; Offshore Wind Worldwide
- Regulatory framework in selected countries, Hogan Lovells, April 2022, viewed

Energy Working Group 215

 The quality of RE projects also needs to be enhanced. • Further improve the transparency and accessibility
In 2021, China brought 54.88 gigawatts (GW) of new of competitive allocation schemes, and increase the
solar power into operation, and added more offshore weighting of on-grid price components in the bidding
wind capacity than the rest of the world in the last five criteria.
years.20 Yet, equipment often operates below capacity, • Increase the quality of RE projects by setting targets
with the RE curtailment phenomenon being a long- for RE transmission (based on GW per hour),
standing problem.21 Authorities should set targets based ensuring better administration of the power system,
on installed capacity as well as the capacity connected optimising the planning process for new installations
to the grid; ensure better coordination among multiple and increasing project alignment with international
players (central and local governments, grid, power environmental, health and safety standards.
generation companies and large electricity consumers); • Accelerate the digitalisation of RE projects by easing
and consider local consumption capacity when restrictions on data transmission and export.
planning new installment projects. Policies and project
management requirements that encourage increased 2.2 Develop New, High-quality Power Infrastructure
alignment with international environmental, health and and a Well-functioning Power Market
safety standards should also be formulated to reduce
long-term costs. Concern
The digitalisation movement in China’s power system
Finally, restrictions on RE projects’ data transmission has occurred without overall coordination along the
Section Three: Goods

should be eased. The 14FYP for the Modern Energy supply chain, and the market accessibility for green
System reiterated the importance of digitalisation, an electricity is limited.
area in which European companies are well-qualified
to contribute solutions. However, more flexibility is Assessment
needed for convenient data transmission and data China’s ‘new infrastructure’ proposal22 has led to a lot
transparency. This will boost modern business models of digitalisation movement in the power sector, much
such as unattended maintenance and operations, thus without a clear roadmap or coordination among the
increasing performance and driving down the costs of various players. Hasty investments and redundant
RE project operations. construction will quickly lead to problems such as
overcapacity, a focus on construction at the expense
Recommendations of operations, and poor integration with traditional
• Mandate provincial governments to diversify the infrastructure.
ownership of RE projects, by giving five to 10
per cent of project development rights to foreign Alongside the digital upgrading of the main power grid,
players or Sino-foreign joint ventures, and clearly the digitalisation of power distribution and demand-
define foreign investment as entities that are side response is equally important. A smarter energy-
originally headquartered abroad, rather than foreign production system that can make large-scale utilisation
subsidiaries of domestic companies. of renewables feasible should be established, and
• Allow more flexibility on the change of shareholding greener power equipment and technologies deployed.
of RE assets before the commercial operation For example, 95 per cent of China’s power grids use
date, and refine relevant regulations to differentiate traditional switchgear technology, which contains the
between speculation and legitimate market activities. world’s strongest GHG: sulphur hexafluoride (SF6).23 As
for demand-side management, it is essential to develop
12th May 2022, <https://www.hoganlovells.com/en/publications/offshore-wind-
worldwide_regulatory-framework-in-selected-countries>
smart energy management platforms and software that
20 Vetter, David, China Built More Offshore Wind In 2021 Than Every Other Country monitor energy consumption data in real time, aiding
Built In 5 Years, Forbes, 26th January 2022, viewed 24th April 2022, <https://
www.forbes.com/sites/davidrvetter/2022/01/26/china-built-more-offshore-wind-in-
grid operators in stabilising and balancing the load, and
2021-than-every-other-country-built-in-5-years/?sh=288956744634> ultimately lowering costs and consumption.
21 Especially problematic for onshore wind power in northern areas, due to
institutional causes such as the lack of co-ordination in power system
22 How Can Foreign Technology Investors Benefit from China’s New Infrastructure
administration, leading to transmission constraints, system imbalances and
Plan? China Briefing, 7th August 2020, viewed 23rd June 2022, <https://www.
overcapacity, and ultimately to wind power curtailment; Offshore Wind Worldwide
china-briefing.com/news/how-foreign-technology-investors-benefit-from-chinas-
- Regulatory framework in selected countries, Hogan Lovells, April 2022, viewed
new-infrastructure-plan/>
12th May 2022, <https://www.hoganlovells.com/en/publications/offshore-wind-
23 SF6 is an extremely potent and persistent greenhouse gas that is primarily
worldwide_regulatory-framework-in-selected-countries>
utilised as an electrical insulator and arc suppressant.

216 Energy Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

Many uncertainties surrounding China’s power market for bulk trades.27

remain, especially regarding green electricity trading.
Since early 2020, demand for green energy among Recommendations
European companies has become increasingly urgent, • Enact overall planning and enhance coordination
due to concrete global targets set by their headquarters among multiple stakeholders along the supply
aimed at decarbonising operations. According to a chain, to set up a new power infrastructure that can
European Chamber survey, European companies’ integrate with traditional facilities to make the large-
China and global decarbonisation strategies are closely scale utilisation of renewables feasible.
aligned, both being largely dependent on access to and • Accelerate the application of digital technology and
investment in RE.24 smart power installations from both the distribution-
and demand-side.
While some European companies have achieved • Provide policy schemes to incentivise a wide
carbon neutrality already through the procurement of deployment of decentralised power generation, and
green electricity certificates (GECs), this is not sufficient to facilitate microgrid penetration, and the use of
for most large manufacturers, which need to purchase energy storage.
green energy directly. It is encouraging to see that, • Promote green power grid products such as SF6-
following continuous advocacy efforts by the European free switchgears.
Chamber’s Tianjin Chapter, preparation for the local • Develop smart energy management platforms and
green electricity transaction market started in July software to stabilise and balance the load, and lower

Section Three: Goods

2021; while in September 2021, China’s green power energy costs and consumption.
trade pilot programme was officially launched,25 helping • Accelerate the operation of green power markets
to accelerate direct green electricity transactions. from pilot runs, expand their coverage, facilitate
Yet, more actions are needed to enable large-scale inter-provincial transactions, and encourage the
corporate procurement of RE. First, transactions should procurement of long-term PPAs.
be shifted from pilot phase to normal operation as soon • Improve synergy among existing policy and market
as possible to establish stable market expectation and mechanisms such as PPAs, GECs, provincial RPS
scale up transactions. The sources of RE involved and the carbon market.
in the market should also be expanded. 26 Second, • Refine transaction rules to increase market accessibility
inter-provincial transactions should be promoted to and policy transparency for RE procurement,
address the unequal demand and supply of RE across especially for international companies.
different regions in China. Third, long-term (five to ten
years) power purchase agreements (PPAs) should be 2.3 Enhance the Hydrogen Supply Chain and
encouraged to provide guaranteed revenue streams Use of Low-carbon Hydrogen Solutions
for investors. Fourth, linking existing mechanisms—
such as direct PPAs, GECs, provincial renewables
portfolio standards (RPS) and the carbon emissions Concern
trading market—is urgently required to avoid double Although China has embraced the essential role that
counting. Finally, improving market accessibility and hydrogen can play in the process of decarbonisation,
policy transparency would give international companies onerous or missing regulations are slowing down the
confidence they can achieve their renewable proper scale-up of the supply chain, and not enough
consumption commitments for their operations in China. has been done to develop low-carbon hydrogen
To facilitate this, transaction rules should be refined solutions.
and clearly disclosed, with regular updates, such as
minimum trading volumes and eligible industry sectors Assessment
Throughout 2021 and in early 2022, China reassessed
24 Carbon Neutrality: The Role of European Companies in China’s Race to 2060,
European Chamber, 25 th May 2022, viewed 31 st May 2022, <https://www. the role hydrogen can play in the energy system, and
europeanchamber.com.cn/en/press-releases/3436>
25 Pilot direct trading of green power launched, China Daily, 8 th September 27 Addressing barriers to large-scale corporate renewable energy procurement
2021, viewed 22nd June 2022, <https://www.chinadaily.com.cn/a/202109/08/ in China, Carbon Trust, March 2022, viewed 15 th May 2022, <https://www.
WS6137f32ba310efa1bd66dfa0.html> carbontrust.com/zh/ziyuan>
26 Currently, the pilot programme is only open to large power users and utility-level,
subsidy-free wind and solar projects.

Energy Working Group 217

 accelerated market development. In mid-2021, the ongoing, thanks to technological progress, the rest of
government announced the fuel cell electric vehicles the supply chain (such as storage, transportation and
(FCEVs) national pilot scheme. 28 which proposed dispensing) is still lagging due to missing regulations.
subsidies to support key cities in their deployment Therefore, regulations regarding medium and long-
of both FCEVs and associated infrastructures. In distance hydrogen transportation using liquid hydrogen
December 2021, the 14FYP for Industrial Sectors’ and/or NG pipelines must be implemented to foster an
Green Development 29 embraced hydrogen as a key efficient and scalable supply chain while decreasing
solution in decarbonising hard-to-abate industries. total cost of ownership. 33 Second, China needs to
Ultimately, in early 2022, the 14FYP for the Modern enhance development of infrastructures for hydrogen
Energy System and the Medium- and Long-Term Plan production, transport and distribution, as well as
for the Development of Hydrogen Energy Industry increases in hydrogen storage density by upgrading on-
(2021-2035) were published, laying out a national board storage to Type IV vessels and hence improving
strategy for developing the hydrogen energy industry FCEV competitiveness. 34 Finally, China’s numerous
and complementing local plans.30 codes and standards on hydrogen value chains should
be simplified and aligned with those already issued
The 14FYP for the Modern Energy System mainly by internationally recognised bodies, such as the
focusses on energy security, which relies mostly International Standards Organization,35 to create a more
on fossil fuels. It also maintains strong momentum sustainable and globally competitive market.36
in investment in RE when associated with storage
Section Three: Goods

solutions, for which hydrogen is essential. At the same China also needs to decarbonise hydrogen production.
time, the first-ever national hydrogen development Options include promoting schemes such as using
plan confirms the molecule as an essential element RE for water electrolysis, biomethane reforming and
in China’s future energy system, and clarified the key capturing existing low-carbon off-gases. This could
targets for its development.31 be enhanced by a certification scheme aligned with
international standards, such as the EU’s CertifHy, to
Development of the industry also took place at local and define low-carbon and renewable hydrogen production.
individual company levels. A large number of provinces
and cities enhanced their hydrogen strategies, with Hydrogen also has great potential to decarbonise
clear targets for FCEVs and infrastructure deployment. heavy polluting industries. For instance, a hydrogen-
Both local and foreign companies are actively investing based power system can act as a systemic ‘buffer’
across the entire value chain, deploying the latest for harmonising continuous production from fossil
technologies related to green hydrogen production, fuels, nuclear plants and intermittent production from
conditioning, hydrogen refuelling stations32 and FCEV renewables to optimise electricity supply and demand
manufacturing. patterns.37 Therefore, re-electrification from green or
low-carbon hydrogen should be promoted, starting
There are still several steps China must take to further
with pilot schemes. Plans are underway for electricity
support hydrogen deployment. The supply chain needs
produced by large-scale RE projects in western and
to be enhanced and become much more efficient.
northern China to be transported through various
Although production scaling-up and cost reduction is

33 Total cost of ownership is an estimate of all the direct and indirect costs involved
28 This scheme initially included three city alliances around Beijing, Shanghai and
in acquiring and operating a product or system over its lifetime.
Guangdong, and was later extended to Hebei and Henan provinces.
34 Onboard hydrogen storage continues to be a key technical barriers for
29 14FYP for Industrial Sectors’ Green Development, Ministry of Industry and
widespread adoption of hydrogen fuel cell vehicles. Type IV vessels are
Information Technology, 3rd December 2021, viewed 31st May 2022, <https://
composite tanks made of carbon fibre with a polymer liner (thermoplastic). They
www.miit.gov.cn/jgsj/jns/lszz/art/2021/art_6e16097b9b924904906bb4543d72e3
are the lightest of the pressure vessels, making them most suitable for vehicle
ef.html>
applications.
30 Chipman Koty, Alexander, China’s Hydrogen Energy Industry: State Policy,
35 ISO/TC 197 Hydrogen Technologies, ISO, n.d., viewed 17th May 2022, <https://
Investment Opportunities, China Briefing, 4 th April 2022, viewed 24 th April
www.iso.org/committee/54560.html>
2022, <https://www.china-briefing.com/news/chinas-hydrogen-energy-industry-
36 For more information on alignment with international standards, please refer
government-policies-foreign-investment-outlook/>
to the Standards and Conformity Assessment Working Group Position Paper
31 According to the plan, China aims to lower costs for green hydrogen; explore
2022/2023.
hydrogen-related technology research and innovation; have 50,000 FCEVs on
37 Harnessing the Full Power of Renewable Energy with Hydrogen, European
the road and produce 100,000–200,000 tonnes of hydrogen using renewable
Commission, 29th August 2016, viewed 26th May 2022, <https://ec.europa.eu/
sources annually by 2025.
programmes/horizon2020/en/news/harnessing-full-power-renewable-energy-
32 Ningjing Liu, Sinopec to Build 1,000 Hydrogen Refuelling Stations by 2025,
hydrogen>
Seneca ESG, 23 rd February 2021, viewed 27 th April 2022, <https://www.
senecaesg.com/blog/sinopec-to-build-1000-hydrogen-fueling-stations-by-2025/>

218 Energy Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

carriers (pipelines, liquid hydrogen or ammonia) to integrating bioenergy (such as bioethanol, biodiesel,
the eastern region. In addition, in the heating sector, biogas) into oil and gas pipelines to diversify the energy
legislation, standards and remunerations to blend mix.
hydrogen into NG pipelines should be introduced. 38
Likewise, more support is needed to develop hydrogen Cellulosic ethanol—produced from fibrous lignin
usage as a feedstock for heavily-polluting industries contained in straw—is regarded as a good substitute
such as steel, cement and glass. for traditional gasoline in the transportation sector.
Promoting cellulosic ethanol will help China reduce
Recommendations its dependence on gasoline while accelerating
• Enhance efforts to invest and develop infrastructures decarbonisation before total electrification and
for hydrogen production, transport and distribution. widespread application of hydrogen energy. If the E10
• Adopt a certification scheme aligned with international policy continues to advance in China,39 and the annual
standards, such as CertifHy in Europe, to define low consumption of biofuel ethanol reaches nine million
carbon and/or renewable hydrogen. tonnes, crude oil imports can be reduced by around
• Reinforce mechanisms to incentivise the large- 27 million tonnes, which should in turn cut carbon
scale production of low-carbon or renewable-based emissions by 21 million tonnes. However, preliminary
hydrogen by electrolysis of water using curtailed research and achieving economies of scale in cellulosic
electricity. ethanol production will require continuous capital
• Define and simplify specific safety regulations to investment. Government support and subsidies are

Section Three: Goods

be harmonised at the national level for hydrogen therefore necessary to facilitate large-scale production
production, distribution, storage (such as liquid of cellulosic ethanol, which will foster a mature market
hydrogen) and usage (for example, hydrogen for biofuel.
refuelling stations).
• Promote medium and long-distance hydrogen Biodiesel can also provide alternatives to fossil fuels in
transportation using different methods, including the heavy transportation sector, and even in aviation
pipelines and/or shipping. and maritime transport. Animal fats, vegetable oils,
• Implement regulations in accordance with international used cooking oils and high-acidity oils are all good
bodies for liquid hydrogen to optimise hydrogen raw materials for producing biodiesel. 40 In terms of
transportation and develop mobility usage while application, either pure biodiesel can be used (B100), or
reducing total cost of ownership. it can be blended with petro-diesel. While a B5 mandate
• Allow on-board storage type IV vessels to increase is implemented in many European countries,41 Shanghai
hydrogen storage density. has been the only Chinese city to implement it so far.
• Promote hydrogen usage for power generation, As biodiesel is key to China’s green transition in the
heating and decarbonising highly polluting industries. transportation and agricultural sectors, a nationwide B5
mandate would accelerate this movement.
2.4 Set Clear Targets and Policies for the
Development of Bioenergy Recommendations
• Recognise the role of bioenergy in securing energy
Concern supply and achieving decarbonisation targets.
The promotion of bioenergy use in China is hampered • Define national policies and concrete actions for the
by a lack of the concrete actions and policy support development of biofuels and biogas (for electricity
necessary to ease implementation at the regional level. production), with binding short- and medium-term
targets.
Assessment • Identify a portfolio of subsidies that provinces
As part of its 30/60 Goals, China has attached a
39 E10 petrol contains 10 per cent biofuel ethanol. See: The Plan for Expanding
growing importance to bioenergy, and is exploring Biofuel Ethanol Production and Promoting Ethanol Usage in Motor Vehicles,
NEA, 13th September 2017, viewed 27th April 2022, <http://www.nea.gov.cn/2017-
09/13/c_136606035.htm>
38 McDonald, Jeff & Robinson, J.; Platts Expands Hydrogen Assessments; Efforts to 40 An enzymatic process helps convert these tougher oils into biodiesel and
Blend with Natural Gas Increasing, S&P Global Platts, 1st April 2020, viewed 17th improve production rates, while significantly reducing pollution caused by harsh
May 2022, <https://www.spglobal.com/platts/en/market-insights/latest-news/natural- chemicals.
gas/040120-platts-expands-hydrogen-assessments> 41 B5 is five per cent biodiesel, 95 per cent petroleum diesel.

Energy Working Group 219

 can adopt to foster the development of cellulosic wasted during distribution, due to a lack of automatic
bioethanol, biodiesel, biogas and biomethane plants. control measures. The integration of a full-range
• Accelerate government efforts to achieve the E10 of digital and mechanical solutions, 44 coupled with
policy target nationwide. enforcement of pay-per-use regulations, is needed to
• Promote the development of biodiesel by policy significantly reduce energy losses and optimise overall
mandate, such as the rollout of a nationwide B5 performance. In addition, the concept of long-term total
policy. cost of ownership should be introduced, to ensure the
functionality of the pipe systems and the district heating
3. Energy Efficiency and Digitalisation operations over time. Fourth, EE demonstration and
3.1 Boost Innovation in Energy-efficiency (EE) pilot projects should be further expanded, including
Solutions fourth-generation DES,45 property EE solutions and the
Top Runner Programme,46 as well as EU-China joint EE
Concern projects. Finally, green finance instruments should be
As China plans to shift from control of energy intensity leveraged to incentivise EE innovation and the market
to carbon intensity, it poses the risk that the importance as a whole. This can be done through further expanding
of EE will be diluted. the green bond catalogue,47 setting up a national EE
innovation fund and establishing preferential financing
Assessment measures for energy service companies.
China has made remarkable achievements in EE,
Section Three: Goods

especially since introducing the binding ‘dual-control’ Recommendations

targets and the energy conservation inspection • Raise MEPs and further expand the EE standards
mechanism during the 11FYP period (2006–2010). system, including but not limited to MEPs for
From 1998 to 2020, China’s energy intensity dropped by buildings, data centres and consumer network
around 45 per cent. However, as the Chinese economy connected devices.
entered the mid-to-late industrialisation phase, many • Strengthen international communications to
provinces have been struggling to achieve their EE harmonise mutual recognition on EE standards and
targets. Furthermore, China’s shift to carbon intensity certification schemes in China and the EU.
control poses the risk that support for EE solutions may • Promote EE improvements for existing coal-fired
be diluted in the transition process. Energy efficiency, as power plants through equipment retrofitting, while
the ‘first fuel’, should remain central to China’s energy adjusting MEP and GHG emission thresholds for
transition roadmap; and the Chinese Government new coal-fired power plants.
should reiterate its ambitions to strengthen innovative • Further expand EE demonstration and pilot projects,
EE solutions and incentivise further EE improvements. including fourth-generation DES, property EE
solutions, the Top Runner Programme and EU-China
First, it is crucial to raise minimum energy performance joint EE projects.
standards (MEPs) and expand the EE standards • Promote the concept of total cost of ownership
system.42 China also needs to collaborate with the EU in DES, and evaluate EE objectives and results
on mutual recognition of EE standards and certification throughout an asset’s life span.
schemes, thereby reducing costs for importers and • Further expand the green bond catalogue, set
exporters. Second, efficiency increases can be attained up a national EE innovation fund, and establish
through retrofitting43 existing coal-fired power stations preferential financing measures for energy service
with carbon capture and storage systems, and adjusting companies.
MEP and greenhouse gas emissions thresholds 44 These solutions include energy metering, hydraulic dynamic balancing,
for newly approved coal-fired power plants. Third, automatic control valves, frequency pump controls and artificial-intelligence-
based operation/management systems,
modern, smart district energy systems (DES) should 45 Distribution of district heating: 4th Generation, Danfoss, June 2020, viewed 23rd June
be widely used to efficiently heat and cool buildings. 2022, <https://assets.danfoss.com/documents/57293/BE343939535432en-010101.
pdf>
Currently, more than 30 per cent of heat generated is 46 Japan’s Top Runner Programme, introduced in 1999, is a set of EE standards
for energy-intensive products, such as home appliances and motor vehicles.
42 including but not limited to MEPs for buildings, data centres and consumer
47Green Bond Endorsed Projects Catalogue (2021 Edition), PBOC, 21 st
network-connected devices.
April 2021, viewed 29 th April 2021, <http://www.pbc.gov.cn/goutongjiaol
43 Work carried out to improve an existing building by making it more energy-
iu/113456/113469/4342400/2021091617180089879.pdf>
efficient.

220 Energy Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

3.2 Take an Integrated Approach Towards envelopes, heating, cooling, lighting and other facilities
Net-zero Cities and equipment in public institutions and transport.
For instance, district heating expansion could be
Concern coordinated with building renovations.51
An integrated approach to the planning and operation of
the urban ecosystem can boost energy efficiency while Recommendations
reducing overall emissions and costs. • Adopt a circular economy approach and apply
energy-saving solutions throughout urban
Assessment infrastructure planning, construction and operations.
Cities today account for 70 per cent of global emissions • Strengthen collaboration in both public and private
and consume 78 per cent of primary energy.48 Despite areas throughout the city value chain, including
increasing focus on maximising energy efficiency in policy-makers, business, infrastructure and real
power infrastructure, factories, buildings, data centres estate developers, city administrators, civil society
and public transportation, progress has mostly taken and the financial sector.
place in isolation. A holistic, cross-sectoral approach • Establish a system of common technical standards
to the planning and operations of the urban ecosystem with which to evaluate and assess environmental
should therefore be adopted. sustainability in a consistent and transparent way.
• Initiate and sponsor zero-carbon pilot projects at the
Systemic efficiency, a circular economy approach local level before gradually scaling up to district and

Section Three: Goods

to water, waste, and materials, can boost energy city level.
efficiency and decarbonise cities.49 Systemic efficiency
encompasses clean electrification, smart digital Abbreviations
technology, and efficient buildings and infrastructure.
14FYP 14th Five-year Plan
The Suzhou Industrial Park is a leader in systemic
bcm Billion Cubic Metres
efficiency through circularity of industrial waste and
COD Commercial Operation Date
by-products. Accounting for more than 13 per cent of
DES District Energy System
Suzhou’s gross domestic product, the cluster’s energy
EE Energy Efficiency
intensity has dropped by 10.3 per cent over the past
ESCO Energy Service Company
four years. Clean energy consumption represents
EU European Union
more than 75 per cent of its energy usage, the largest
FCEV Fuel Cell Electric Vehicles
share among all national development zones in China.
FIE Foreign-invested Enterprise
Significantly, more than 90 per cent of investment in
GEC Green Electricity Certificate
the park comes from foreign-owned enterprises, and
GHG Greenhouse Gas
more than two-thirds of the industrial output value is
GW Gigawatt
created by foreign capital.50 Companies in a cluster can
LNG Liquefied Natural Gas
scale up efficiency gains, driving shared value across
MEP Minimum Energy Performance
the cluster and the surrounding areas. Therefore,
Standards
local governments should initiate and sponsor pilot
NDRC National Development and Reform
projects such as net-zero industrial parks, residential
Commission
compounds and campuses.
NEA National Energy Administration
NG Natural Gas
To maximise EE, energy-saving solutions should be
PPA Power Purchase Agreement
applied throughout the urban design and building
RE Renewable Energy
process, and in the renovation of existing building
RPS Renewables Portfolio Standard
48 Net Zero Carbon Cities: An Integrated Approach, World Economic Forum, 11th SF6 Sulphur Hexafluoride
January 2021, viewed 16th May 2022, <http://www3.weforum.org/docs/WEF_
Net_Zero_Carbon_Cities_An_Integrated_Approach_2021.pdf> SOE State-owned Enterprise
49 Ibid. TPA Third-Party Access
50 How industrial clusters can become net-zero carbon exemplars, World Economic
Forum, 11 th March 2021, viewed 31 st May 2022, <https://www.weforum.
org/agenda/2021/03/how-industrial-clusters-can-become-net-zero-carbon- 51 District Heating, IEA, November 2021, viewed 15th May 2022, <https://www.iea.
exemplars/> org/reports/district-heating>

Energy Working Group 221

 Carbon Market Sub-working Group

Introduction to the Sub-working Group of key regulatory documents that allow for trading in
China’s national ETS to begin. The documents include
The Carbon Market Sub-working Group advocates for
guidelines and rules covering allowance allocation, legal
functional domestic and international frameworks for
compliance and institutional arrangements, monitoring,
greenhouse gas (GHG) emissions trading. It is a sub-
reporting and verification (MRV) of emissions, and data
working group of the European Chamber’s Energy
transparency.
Working Group and consists of approximately 70
member companies that represent all aspects of the
In order to regulate the emissions allowance allocation
carbon market sector, including project developers,
to enterprises, on 30 th December 2020, the MEE
carbon funds, investors, lawyers, auditors and
issued the 2019–2020 Implementation Programme for
consultants, as well as financial institutions and
National Carbon Emissions Trading Quota Setting and
companies under compliance obligations. The sub-
Allocation (Power Generation Industry) and the List
working group seeks involvement in a carbon market
of Covered Entities for 2019–2020 National Carbon
that results in real and verifiable GHG reductions, while
Emissions Trading Quota Management.2 The allowance
balancing economic efficiency with environmental
allocation programme defines the list of entities in the
Section Three: Goods

integrity and social equity.

power generation sector that are participating, and
mentions for the first time that responsibility for carbon
To deliver on the Paris Agreement’s climate goals, the
emissions control at the national level has now been
sub-working group advocates for market-orientated
transferred to enterprises. This is of great significance
carbon pricing by:
for promoting supply-side structural reforms targeting
energy conservation and emissions reduction, as well
• seeking to strengthen the credibility and functionality
as high-quality economic development that does not
of today’s carbon markets;
sacrifice either the environment or people’s health, 3
• calling for wider market access to China’s carbon
because the entities covered by the ETS will have
markets;
compliance obligations. This will engender more
• promoting accelerated growth of high-integrity,
stringent adherence to regulations and incentivise
voluntary markets with globally harmonised trading
decarbonisation actions at the enterprise level.
rules;
• fostering a framework for common, robust accounting
The MEE’s Measures for the Administration of National
rules to create a new, more ambitious international
Carbon Emissions Trading (Measures) 4 came into
carbon trading mechanism; and
force on 1st February 2021, with the first compliance
• building a professional community and networks that
cycle running from January 2021 to 31 st December
can deliver a just transition to net zero in the longer
2021, covering 2019 and 2020 emissions. More than
term.
two thousand power companies have been allocated
allowances, making it the world’s largest ETS.5 Other
Recent Developments key emitting industries are expected to be included
On 22nd September 2020, at the United Nations (UN)
2　Notice on List of Covered Entities for 2019–2020 National Carbon Emissions
General Assembly, President Xi Jinping pledged that Trading Quota Management, MEE, 30th December 2020, viewed 6th May 2022,
China would peak emissions before 2030, and achieve <http://www.mee.gov.cn/xxgk2018/xxgk/xxgk03/202012/t20201230_815546.
html>
carbon neutrality before 2060. 1 In line with these 3　Meeting on Carbon Market Administrative Policy, MEE, 5th January 2021,
pledges, the Ministry of Environment and Ecology viewed 15th June 2022, <http://www.mee.gov.cn/ywdt/hjywnews/202101/
t20210105_816140.shtml>
(MEE) and the State Council have issued a number 4　 Measures for the Administration of National Carbon Emissions Trading, MEE, 5th
January 2021, viewed 19th April 2022, <https://www.mee.gov.cn/xxgk2018/xxgk/
xxgk02/202101/t20210105_816131.html>
1　Full text of Xi's statement at the General Debate of the 75th Session of the United 5　The First Implementation Cycle of the National Carbon Market was Officially
Nations General Assembly, Qiushi, 23rd September 2020, viewed 19th April 2022, Launched, Xinhua, 6th January 2021, viewed 19th April 2022, <http://www.gov.cn/
<http://en.qstheory.cn/2020-09/23/c_538398.htm> xinwen/2021-01/06/content_5577348.htm>

222 Carbon Market Sub-working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

later, once conditions are met. initial stage of the market, spot trading of allowances
was only carried out among 2,162 key emitting
The Measures provide a high-level interim regulatory enterprises in the power sector; however, it is expected
framework for carbon emission allowance allocation, that financial institutions and individual investors will
registration, trading and settlement, and MRV, as well gradually join trading in the future. On 26 th October
as the supervision and management of these activities. 2021, the MEE issued the Notice on the Clearing
Provincial environment and ecology bureaus collected and Settlement of the Carbon Emission Allowances
information from participating entities to open accounts in the First Compliance Cycle of the National Carbon
in the registry and exchange platform, which was Emissions Trading Market, stipulating that enterprises
submitted to the MEE. are permitted to offset no more than five per cent of
their emissions via the China Certified Emissions
The MEE has established a three-tiered governance Reduction (CCER) scheme. It further established that
structure: the national authority (MEE) sets the rules there is no restriction on the varieties and generation
and oversees the system, sharing joint oversight time of CCERs (except that those used must not come
of trading activities with other regulators; provincial from emission-reduction projects already included
environment and ecology bureaus oversee the under national carbon market allowance management).
implementation of these rules; and municipal-level This means that tens of millions of tonnes of CCERs
authorities assume local management duties. previously under the United Nation’s (UN’s) Clean
Development Mechanism can enter the national carbon

Section Three: Goods

On 30th March 2021, a draft of the State Council Interim market, which will greatly enhance market vitality and
Regulation on the Management of Carbon Emissions increase the price of CCERs. In 2021, 160.4 million
Trading (Interim Regulation) was published for tonnes of CCERs were traded, marking a significant
comment. 6 The Interim Regulation addresses inter- increase from the previous year.
ministerial coordination on overall ETS regulatory
oversight and imposes higher-level penalties to deter Released in December 2021, the Guidelines on
non-compliance. It also leaves space for an absolute Accounting Methodology and Reporting on GHG
cap on allowance and sets more detailed rules on MRV Emissions for Enterprises (revised) regarding MRV:
and information disclosure.
• clarified the accounting boundaries and definition of
On 19th May 2021, the MEE issued a series of rules units;
for participating entities in the power generation sector • intensified quality control and process management
on registering and interacting with the national registry regarding emissions data;
systems, based in Hubei and Shanghai respectively.7 • improved the accounting details and enhanced
These rules came into force on the date of issuance, operability;
further setting forth specific provisions on registration, • ensured fairness and consistency;
settlement and trading, and providing direction for • updated the average emissions factor for the national
Hubei and Shanghai to formulate specific operating power grid; and
rules during the next stage. • added information disclosure requirements for
technical service providers.
On 16 th July, the long-awaited National Carbon
Trading System was finally launched on the Shanghai The first compliance cycle of the national emissions
Environment and Energy Exchange. Trading started at trading market was successfully concluded on 31 st
Chinese yuan (CNY) 48 per tonne, with prices remaining December 2021, achieving a 99.5 per cent performance
modest on the opening day as expected. During the completion rate. By that point, the national carbon
market had run for 114 trading days, recording 162
6　Call for Comments on Draft of the State Council Interim Regulation on the
Management of Carbon Emissions Trading (Interim Regulation), MEE, 30th million tonnes in cumulative trading volume as well as
March 2021, viewed 6th May 2022, <http://www.mee.gov.cn/xxgk2018/xxgk/ trading carbon emission allowances worth CNY 7.7
xxgk06/202103/t20210330_826642.html>
7　The Rules on Carbon Trading Registration Management (trial), the Rules on billion. The closing price on 31st December 2021 was
Carbon Trading Management (trial), and the Rules on Carbon Trading Settlement CNY 54.22 per tonne, up 13 per cent from the opening
Management (trial), MEE, 19th May 2021, viewed 6th May 2022, <http://www.mee.
gov.cn/xxgk2018/xxgk/xxgk01/202105/t20210519_833574.html> price on the first day. More than half of the key emitting

Carbon Market Sub-working Group 223

 Figure 1: Price trend in national carbon market (CNY/tonne), 2021 China Carbon Pricing Survey

60

55

50
CNY/tonne

45

40

35

30
07-2021 08-2021 09-2021 10-2021 11-2021 12-2021

units actively participated in market trading. Since the would help to give more play to the role of market-
start of online trading, the operation of the national based carbon pricing.
Section Three: Goods

carbon market has been stable, and has helped to raise

awareness of emissions reduction among enterprises, The eight regional carbon markets in Shenzhen,
contributing to an increasingly active market. 8 In Shanghai, Beijing, Guangdong, Tianjin, Hubei,
general, the role of the national carbon market as a key Chongqing and Fujian have shown positive results in
policy tool to control and reduce GHG emissions and to terms of emissions reduction,11 and provided valuable
promote the realisation of China’s carbon peaking and experience for the central government to establish a
carbon neutrality goals has been gradually enhanced. national carbon pricing mechanism. Each province
has set up respective carbon intensity-based caps on
To date, China’s ETS only covers the power generation emissions, rather than the absolute caps implemented
sector; there is no official roadmap or timetable by other international ETS. The Chinese Government
for expanding coverage to the other eight sectors believes that this approach is the most suitable given
that were nominated in the initial discussions of the the dual demands of achieving economic growth
national ETS. 9 The MEE is reportedly accelerating and emissions reduction, without compromising the
sectoral expansion and plans to include at least a country’s energy security. Transitioning from carbon
few more by 2025. Although policymakers, policy intensity-based allocation of allowances to an absolute
advisors and market participants have raised different cap on emissions is increasingly recognised as an
proposals regarding which of the eight sectors should important step to improve the effectiveness of the ETS,
be prioritised, the consensus is that cement and to incentivise transformational change both in the power
aluminium are the strongest candidates.10 The gradual sector and in other industrial sectors that will be added
inclusion of more energy-intensive industries, including into the system in the coming years.
aviation, papermaking and building materials, and
the introduction of more emitting entities with varying While the pilots will continue to operate parallel to the
mitigation costs during the 14th Five-year Plan period national ETS, it is anticipated that overlapping entities
will be gradually integrated into the national market
8　Slater, H., De Boer, D., Qian, G. & Shu, W., 2021 China Carbon Pricing Survey, instead. Large emitting companies in various sectors
China Carbon Forum, 22nd January 2022, viewed 19th April 2022, <http://www.
chinacarbon.info/wp-content/uploads/2022/02/EN_2021-China-Carbon-Pricing-
other than power generation are still regulated by the
Survey-Report.pdf> respective regional markets, though some captive power
9　Petrochemicals, chemicals, building materials, steel, non-ferrous metals,
papermaking and civil aviation, in addition to the power sector.
plants in Beijing and Guangdong are gradually shifting
10 In-depth Q&A: Will China’s emissions trading scheme help tackle climate
change?, Carbon Brief, 24th June 2021, viewed 20th April 2022, <https://www. 11 The effectiveness of China’s regional carbon market pilots in reducing firm
carbonbrief.org/in-depth-qa-will-chinas-emissions-trading-scheme-help-tackle- emissions, PNAS, 20th December 2021, viewed 15th June 2022, <https://www.
climate-change> pnas.org/doi/10.1073/pnas.2109912118>

224 Carbon Market Sub-working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

to the national ETS. The pilots’ role will decrease as Key Recommendations
the national ETS develops and an increasing number
of entities shift to it from their regional ETS.12 Yet, at the 1. Increase the Accuracy and Transparency
moment, there is very little information about how the of Carbon Emissions Monitoring,
incompatibility between the pilots and national ETS will Reporting and Verification (MRV) in
be addressed (technical issues such as mismatched China’s National Emissions Trading
sectoral coverage and thresholds for inclusion), and System (ETS)
what concrete milestones will be implemented when
Concern
transitioning from regional pilots to a fully functioning
Although progress has been made in improving the
national ETS.
accuracy and transparency of emissions data, detailed
rules for information disclosure and legal support for
The launch of the national ETS marks a significant step
stringent enforcement are still needed, as well as
towards the goal of realising the intended role of carbon
alignment of China’s MRV system with international
pricing, hence reducing China’s emissions. Around 40
standards.
per cent of China's annual carbon emissions have so far
been covered by the national ETS. With the continuous
Assessment
improvement of the carbon pricing mechanism, China’s
Accuracy: improving MRV
carbon market is expected to grow into a large market
The reliability of GHG emissions data is the cornerstone
with a trading value of CNY 100 billion, which will
of any carbon pricing policy tool. To ensure the

Section Three: Goods

provide a price signal and even financial support for
credibility of ETS data, it is important that an effective
carbon emissions reduction across the economy.13
and accountable regulatory framework for MRV
is enforced in relation to CO 2 emissions. It is also
The Paris Agreement provides a solid basis for
important to introduce an appeal mechanism to allow
the functioning of international carbon markets
disputes arising from enforcement to be solved in a fair
and reinforces global targets, transparency and
and efficient way. The following challenges still exist
the accountability of Parties, by allowing Parties to
with China’s ETS:
use international trading of emission allowances;
establishing a framework for common robust accounting
1) The 24 technical guidelines issued on MRV need to
rules; and creating a new, more ambitious market
be modified in response to problems that have arisen
mechanism. For much of the remaining work necessary
in practice. The MRV of GHG emissions involves
to strengthen the system, and to develop a thriving
many varied industrial production procedures—
market, the experience and involvement of European
including industrial sectors with complex industrial
companies will be invaluable. In May 2022, the
processes such as chemicals, petrochemicals, steel
European Chamber released Carbon Neutrality: The
and cement—that require clear identification and
Role of European Business in China’s Race to 2060, a
definition of an abundance of factors, boundaries,
significant report that identifies areas in which EU-China
methodologies and formulas. In the past eight
cooperation can be deepened so that China can front
years of measuring GHG emissions since the first
load the technologies it needs to accelerate its carbon
guidelines were issued, manufacturers in these
neutrality drive.14 The sub-working group looks forward
industrial sectors have provided a great deal of
to cooperating proactively with the Chinese authorities
tangible feedback and suggestions based on their
in the coming years to promote an effective and vibrant
experiences, which should be taken into account
carbon market that plays a major role in achieving
when modifying technical guidelines relating to the
China’s carbon neutrality goals.
nationwide ETS.
12 The first year of China’s national carbon market reviewed, China Dialogue, 17th 2) The supervision of the performance of verification
February 2022, viewed 20th April 2022, <https://chinadialogue.net/en/climate/the-
first-year-of-chinas-national-carbon-market-reviewed/> agencies needs to be strengthened. The
13 How can China’s national carbon market contribute to reducing emissions? professionalism, compliance and technical capability
China Dialogue, 20th August 2021, viewed 19th April 2022, <https://chinadialogue.
net/en/climate/how-can-chinas-national-carbon-market-contribute-to-reducing- of verifiers will greatly affect the credibility of
emissions/> the monitoring results. However, currently, each
14 Carbon Neutrality: The Role of European Companies in China’s Race to 2060,
European Union Chamber of Commerce in China, 25th May 2022, viewed 31st province selects verification agencies based on
May 2022, <https://www.europeanchamber.com.cn/en/press-releases/3436>

Carbon Market Sub-working Group 225

 their own criteria, due to the absence of a unified The MEE, under the State Council, is responsible for
national rule. The draft of the Interim Regulations regularly disclosing information on carbon emission
on the Management of Carbon Emissions Trading, allowance trading and on the completion status of
released for public comment in March 2021, states carbon emission allowances submitted by entities each
that provincial governments will secure the agencies year. By the end of the first half of 2022, the MEE had
through public procurement to verify the GHG not yet disclosed the total emissions and total allocated
emissions of entities, but more details are yet to be allowances from the first compliance period, which
released.15 leaves uncertainties over the status of compliance and
3) In terms of violations by third-party verifiers, the market balances.
revised draft cancels fines and instead says that
violations will be recorded in the Corporate Social In a well-designed system, the regulator should develop
Credit System, and only bans offending entities from a transparent platform and provide access to complete,
operating verification business for three years (Article unrestricted data on trading, emissions and compliance.
26).16 This contrasts starkly with the outright ban that This would promote business confidence in the
was stipulated in the earlier 2019 regulation. Given environmental and financial integrity of China’s ETS.
the expected demand for verification services and It would also provide an additional level of scrutiny,
the potential shortage of experienced, well-qualified allowing for early detection of systemic risks.
verifiers, there is a risk that insufficient penalties may
leave the door open to potential fraud. Furthermore, stakeholders need market information
Section Three: Goods

4) The capacity of enterprises in non-pilot regions regarding supply and demand imbalances, and CO2
to conduct MRV still needs to be enhanced. As emissions in order to design and implement a sound
the most important stakeholder in the process of compliance strategy. The platform for information
MRV, enterprises must understand how to apply disclosure of power generation should be easily
the guidelines in their own factories or installations, accessible and trackable. Companies that are already
and how to respond to the requests of verifiers and engaged in the early stages of evaluating the impact
authorities. Despite much training on MRV having of carbon pricing policies on their businesses and
been provided for enterprises, there is still strong strategies should be encouraged to share information on
demand for further capacity-building due to the their governance and risk management best practices.
complexity of the process and frequent changes
to requirements. As multinational companies There is a range of policies on carbon-related
can help to improve MRV services overall, it is information disclosure across China’s provinces.
therefore important that market access for MRV Apart from the pilot carbon markets, there are five
service providers be based on technical capacity provinces that have issued measures on GHG
and worldwide track record rather than nationality. information disclosure (Shaanxi, Sichuan, Jiangxi, Jilin
Currently, foreign companies are not yet allowed and Zhejiang). In addition, the central government is
access to this market at all; they can only provide including information disclosure in the key performance
secondary consulting on processes but cannot indicators (KPIs) of local governments. Therefore, all
conduct the official MRV. provinces will report the progress of work on disclosure
in their annual progress reports.
Transparency: promoting the disclosure of climate-
related information at the enterprise level In December 2021, the MEE issued the Measures for
To run effectively, markets rely on an unimpeded flow the Administration of Legal Disclosure of Enterprise
of information, clear rules and rigorous oversight. The Environmental Information,17 which represents China’s
Carbon Market Sub-working Group therefore advocates latest push to standardise and mandate environmental,
for more transparency in market activity, aggregated if social and governance (ESG) reporting for companies.
necessary to protect commercially sensitive information. This provides another tool for the government to
hold market entities accountable for violations of
15 Call for Comments on Draft of the State Council Interim Regulation on the
Management of Carbon Emissions Trading, MEE, 30th March 2021, viewed
19 th April 2022, <http://www.mee.gov.cn/xxgk2018/xxgk/xxgk06/202103/
17 Measures for the Administration of Legal Disclosure of Enterprise Environmental
t20210330_826642.html>
Information, MEE, 18th December 2021, viewed 19th April 2022, <https://www.
16 Ibid.
mee.gov.cn/xxgk2018/xxgk/xxgk02/202112/t20211221_964837.html>

226 Carbon Market Sub-working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

environmental regulations. A wide range of market public on an annual basis.

entities—including both those that engage in production
with a high environmental impact and those that finance Recommendations
such projects—will need to submit an annual report • Upgrade the verification management regulations
detailing environmental information, such as emissions and relevant technical guidelines.
of carbon and pollutants, pollution control facilities and • C a r r y o u t a c o m p r e h e n s i v e a s s e s s m e n t o f
history of environmental violations, among others.18 verification agencies and strengthen their capacity
according to new procedures and requirements,
While the new regulations on information disclosure to determine the recommended list of verification
will likely boost transparency for large emitters, it is agencies for the national ETS.
uncertain what level of transparency will be required • Set up an accreditation institution to ensure the
for ETS-related data. In the regional pilot markets, eligibility of verifiers.
regulators have consistently declined to release full • Ensure that public financing for verification is
data sets that are easily comparable year-on-year, guaranteed, particularly in provinces where public
usually opting instead to give an approximation of the finance faces challenges, to secure the sustainability
number of allowances distributed each year, the number of verification.
of market participants and the share of participants • Release a specific administrative order to detail the
meeting annual compliance obligations. rules for information disclosure.
• Actively explore innovative ways of improving

Section Three: Goods

To further improve the accuracy and transparency of verification work.
carbon-related information in China’s national ETS, it • Align China’s MRV system with international
is necessary to release a specific administrative order, standards.
detailing the exact requirements for the disclosure of
data, the pace at which disclosure is expected and 2. Open the National Carbon Market to
an overall timeline for the procedure. Moreover, it is Institutional Investors Through Well-
important to actively explore new ways of conducting formulated Rules and Gradually Introduce
verification work. This should include taking advantage Emissions Allowance Auctioning to Boost
of the technical standards and management system of Market Trading and Enhance Market
the MEE and its local branches. Liquidity

T h e p r a c t i c a l c h a l l e n g e s f a c i n g C h i n a ’s E T S Concern
should be taken into account, and the experience Although it is widely recognised that the participation
of other environmental market mechanisms and of institutional investors is critical for market-based
data management systems should be drawn upon, price formation, market liquidity and resilience, financial
with regard to verification agency qualifications, institutions and non-compliance entities are not yet
standardisation, pricing and methodologies. Aligning allowed to participate in China’s carbon market.
China’s MRV with international standards avoids
reinventing the wheel, while contributing to building a Assessment
harmonised international carbon market. China should China's carbon market has so far limited trading to
also establish an accreditation authority that has open, covered enterprises only, and has been dominated by
detailed and transparent rules for organisations applying the bulk transactions of state-owned enterprises that
for accreditation. It can regularly conduct in-depth were made in order to meet their emission reduction
audits of these organisations, spot-checking projects targets. Although the Chinese Government has
and accompanying sites, thus ensuring their eligibility to indicated that when conditions are ready the national
be third-party verifiers. In the interests of transparency, carbon market will be opened up to institutional
a list of qualified verifiers should be disclosed to the investors, such as financial institutions, only covered
entities in the power sector can currently trade. There
18 China ESG Reporting – New Measures on Disclosure of Enterprise Environmental is also scope for regulators to explore the potential
Information, China Briefing, 23rd February 2022, viewed 19th April 2022, <https://www. for providing additional and varied trading products
china-briefing.com/news/china-esg-reporting-disclosing-enterprise-environmental-
information/> (for example, forwards, futures and options), which

Carbon Market Sub-working Group 227

 Figure 2: Factors yielding additional emissions reductions in the ETS and ETS Auctioning Scenarios
compared with the No-Carbon-Pricing Scenario, 2025–2035, IEA and Tsinghua University20

ETS ETS Auctioning

2025 2030 2035 2025 2030 2035
0
Switch from fossil to non-fossil
technologies
Mt CO2

- 200
Coal-to-gas switch
- 400
Switch from unabated coal to
- 600 coal+CCS

- 800 Switch from less- to more-

efficient coal technologies
-1 000
Technology efficiency
improvements
-1 200

would be able to efficiently drive price discovery of the emit, truly applying the ‘polluter pays principle’ relative
Section Three: Goods

true value of carbon reductions.19 Diversifying market to their contribution to climate change. 21 Allowance
participants and trading products are important steps to auctioning in China’s output-based ETS would make
enhance liquidity and create additional stakeholders to it more attractive to switch to non-fossil and gas fuel
ensure healthy development of the market over time. sources, leading to faster decommissioning of existing
coal-fired units and fewer installations of new ones.
The ETS would be more effective in terms of cutting Second, auctions create new revenues that can be
emissions if emissions allowance auctioning was invested in low-carbon technologies, or used to address
gradually introduced, making enterprises more aware of distributional impacts and electricity affordability. The
carbon costs. Allowances in China’s ETS are currently higher the share of allowance auctioning, the deeper
allocated for free, based on a unit’s actual generation and quicker power sector decarbonisation is likely to be.
during the first compliance period (2019–2020). With
free allowance allocation, the carbon cost imposed Gradually phasing in allowance auctioning according to
by the ETS remains limited, as only entities facing a clear timeline would accelerate the energy transition,
allowance deficits need to purchase allowances for allowing market participants time to adapt to the system
compliance. This is a key factor in why the regional while creating a stronger market signal that China is
markets have not been very active, and consequently strengthening its decarbonisation actions through a
not led to effective pricing. market-orientated approach.

Traditionally, ETSs are introduced with emissions Co-ordinating the ETS with other market-based policies,
allowances being allocated freely as a measure to assist such as the CCER offsetting scheme, could further
the transition to address competitiveness and carbon accelerate the energy transition while reducing the cost
leakage concerns. Nonetheless, gradually phasing of emissions. In March 2017, all applications related to
out free allocation has two main advantages that often CCER projects and registration were suspended (due
eventually outweigh these concerns. First, auctions to a low trading volume and lack of standardisation in
increase the incentive for participants to mitigate their carbon audits), and have not yet resumed. In November
emissions by requiring them to purchase their right to 2021, the State Council announced that the Beijing
Green Exchange will host the national trading platform
19 Forward and futures contracts are the agreement between two parties to buy and
sell an asset at a specified price by a certain date, while options give buyers the 20 The Role of China’s ETS in Power Sector Decarbonisation, IEA, April 2021,
right, but not the obligation, to buy or sell an underlying asset at an agreed-upon viewed 19th April 2022, <https://www.iea.org/reports/the-role-of-chinas-ets-in-
price and date. Price discovery is the overall process, whether explicit or inferred, power-sector-decarbonisation>
of setting the spot price or the proper price of an asset, security, commodity or 21 The ‘polluter pays principle’ is the commonly held belief that those who cause
currency. pollution should bear the costs.

228 Carbon Market Sub-working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

of CCERs. According to the Shanghai Environment exclusive exchanges on the latest policies and actions
and Energy Exchange, the government was actively among multiple stakeholders, which will help to achieve
preparing for the relaunch of CCER in 2022. Analysts political reciprocity, and boost EU-China commercial
assume that, after the scheme resumes, low trading cooperation and trade relations.23
volumes will no longer be a problem once more sectors
are included in the national ETS.22 Assessment
Climate change requires collective action on a global
The voluntary carbon market is a crucial tool for funding scale because most GHG emissions accumulate
climate solutions. There should be no contradiction over time and mix globally. Moreover, emissions by
between a company cutting its own emissions and using any agent—individuals, communities, companies or
high-quality voluntary carbon credits to compensate for countries—affect other agents. International climate
residual emissions. Looking ahead, the working group change negotiations have traditionally been driven
is anticipating a clear policy on the usage of offsets, at a national level, but the 2015 Conference of the
such as the eligibility for CCER application, the types Parties (COP) in Paris resulted in the recognition
of CCERs to be used and the harmonisation of CCERs that an important role can and should be played by
with international carbon credits. local governments, cities, the private sector and civil
society. 24 The Paris Agreement entered into force
Recommendations at the end of 2016. 25 As a long-lasting agreement,
• Allow institutional investors to participate in the it establishes a broad desire for controlling climate

Section Three: Goods

national carbon market to boost market size and change. The agreement has mechanisms for countries
enhance carbon market liquidity. to come back to the table to propose new plans,26 but of
• Release clear rules to incentivise institutional course the responsibility for staying the course lies with
investors to play a positive role in the national carbon everyone.
market.
• Develop carbon futures, forwards and options in In September 2021, the EU and China issued a Joint
the national ETS to establish a complete financial Press Communiqué following the Second EU-China
trading, pricing and hedging system for China's High-level Environment and Climate Dialogue, and
carbon emission rights. during COP26, the United States and China released a
• Set a timeline to introduce auctions into the carbon Joint Glasgow Declaration on Enhancing Climate Action
allowance allocation mechanism. in the 2020s. Although China was generally seen as a
• Build a healthy voluntary carbon market, restart the constructive contributor at COP26, there is increasing
CCER mechanism and develop a clear policy on the attention being paid to China’s domestic efforts to
harmonisation of CCERs with international carbon reduce its reliance on coal. Most analyses of long-term
credits. pathways see carbon pricing playing a key role in these
efforts.27
3. Facilitate Government, Civil Society and
Business Exchanges Between the EU Looking into the EU Green Deal and China’s 30/60
and China on the Latest Decarbonisation Goals, both parties seem to share many common
Policies and Actions to Reinforce objectives related to achieving a low-carbon economy
Cooperation in Line with China’s 2060 and the UN’s Sustainable Development Goals (SDGs).
Carbon Neutrality Target and the EU Of particular relevance are SDG13 (taking urgent
Green Deal action to combat climate change and its impacts),
23 For more information on EU-China climate cooperation, please refer to the Energy
Concern Working Group Position Paper 2022/2023.
24 One example of this multi-stakeholders and bottom-up initiative is the US Climate
In order to achieve their ambitious climate targets, both Alliance created in 2017: US States Form Alliance to Meet Paris Climate
the EU and China need to incentivise wide-ranging and Commitments, Financial Times, 6th June 2017, viewed 20th April 2022, <https://www.
ft.com/content/27c5bad2-4895-11e7-919a-1e14ce4af89b>
25 Adoption of the Paris Agreement, UNFCCC, 12th December 2015, viewed 20th
April 2022, <https://unfccc.int/resource/docs/2015/cop21/eng/l09r01.pdf>
22 What is the China Certified Emission Reduction scheme and why is it important
26 The Paris Agreement’s pledge and review mechanism aims to secure and
for Beijing’s carbon neutral goal?, South China Morning Post, 31st January 2022,
increase the level of ambition among the Parties and is essential to keep the
viewed 5th May 2022, <https://www.scmp.com/business/article/3165425/what-
world on a low-emissions pathway.
china-certified-emission-reduction-scheme-and-why-it-important>

Carbon Market Sub-working Group 229

 and SDG7 (ensuring access to affordable, reliable, transparently and frequently, but China should also
sustainable and modern energy for all). They pave the proactively conduct rigorous research, encourage
way for businesses in the EU and China to engage and effective bilateral or multilateral dialogues, formulate
cooperate to create mutually beneficial commercial coping strategies, and explore a cooperative rule-setting
opportunities in the transition to a low-carbon economy. process. Above all, multilateralism and cooperativeness
are urgently needed to move the global climate agenda
Both China and the EU have recognised that market- forward.30
based instruments are one of the most cost-effective
policy tools in addressing climate change. As such, they Recommendations
have been cooperating on ETS since 2014, with joint • Engage with both European and Chinese businesses
projects to support emissions trading in China. In view regarding the latest progress of policymaking and
of these successful past exchanges, a Memorandum of implementation, to achieve strategic decarbonisation
Understanding to Enhance Cooperation on Emissions targets in the EU and China.
Trading was signed between both parties,28 which saw • Provide support to domestic think tanks and facilitate
the establishment of an EU-China policy dialogue on their exchanges with EU peers on the rules, progress
ETS. This dialogue now takes place regularly at director and impact of the EU’s CBAM on EU-China trade
general or vice minister level. The sub-working group and investment.
expects that the EU and China will maintain close
exchanges and cooperation on ETS in the next couple
Abbreviations
Section Three: Goods

of years, aiming to demonstrate how the two largest

carbon markets in the world can jointly adopt and CBAM Carbon Border Adjustment Mechanism
improve their carbon pricing policies and measures to CCER Chinese Certified Emission Reduction
achieve ambitious climate targets. CNY Chinese Yuan
CO2 Carbon Dioxide
Perhaps the most controversial EU measure is the COP Conference of the Parties
Carbon Border Adjustment Mechanism (CBAM), which ESG Environmental, Social and Governance
is now in the legislative process. The related GHG ETS Emissions Trading System
emissions reporting is likely to start from 2023 on EU European Union
carbon-intensive imports to counter carbon leakage. The GHG Greenhouse Gas
CBAM is viewed as an instrument of fair competition KPI Key Performance Indicators
within the EU – it ensures foreign companies bear the MEE Ministry of Ecology and Environment
same environmental costs as European competitors. MRV Monitoring, Reporting and Verification
However, Chinese commentators are unsure about the SDGs Sustainable Development Goals
EU’s motivation for creating the CBAM and criticise its UN United Nations
scope, design, risks and compatibility with the Paris
Agreement and the World Trade Organization.29

China exports more manufactured goods and services

to the EU than any other country. Unsurprisingly, the
introduction of the CBAM—the pace of which may
be accelerated according to proposals by some EU
Member States—has thus raised concerns among
Chinese stakeholders. To overcome this, not only
should the EU communicate CBAM polices more
27 Slater, H., De Boer, D., Qian, G. & Shu, W., 2021 China Carbon Pricing Survey,
China Carbon Forum, 22nd January 2022, viewed 19th April 2022, <http://www. 29 EU-China climate policy – balancing cooperation and pressure, MERICS, 30th
chinacarbon.info/wp-content/uploads/2022/02/EN_2021-China-Carbon-Pricing- July 2021, viewed 20th April 2022, <https://merics.org/en/short-analysis/eu-china-
Survey-Report.pdf> climate-policy-balancing-cooperation-and-pressure>
28 EU and China step up cooperation on climate change and clean energy, EU 30 EU-China Roundtable on Carbon Border Adjustment Mechanism, Agora
Commission, 16th July 2018, viewed 20th April 2022, <https://ec.europa.eu/info/ Energiewende, July 2021, viewed 20th April 2022, <https://static.agora-
news/eu-and-china-step-cooperation-climate-change-and-clean-energy-2018- energiewende.de/fileadmin/Projekte/2021/2021-02_EU_Lead_markets/
jul-16_en>; <https://ec.europa.eu/clima/system/files/2018-07/20180713_mou_ A-EW_222_EU-China_CBAM_WEB.pdf>
en.pdf>

230 Carbon Market Sub-working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

Fashion and Leather Working Group

Key Recommendations
1. Amend the Product Quality Law
1.1 Remove the Abstract Term ‘Unqualified Product’ and Introduce the Concept of ‘Safe
Product’, and Confirm Whether a Product’s Conformity with Mandatory National
Standards or a Product Having Unreasonable Risk Can Be Used as Criteria for Judging
its Safety and Initiating Administrative Penalties
• R emove the term ‘unqualified product’ and introduce the term ‘safe product’.
• C onfirm whether a product’s conformity with national standards, or its potential to cause
unreasonable risk, can be used as criteria in assessing its safety and initiating administrative
penalties.
• Ensure that voluntary standards cannot be used as the basis for administrative penalties.
1.2 Confirm That if Products Fail to Satisfy Their Declared Quality Standards Enterprises
Only Assume Civil Responsibility

Section Three: Goods

• C
larify that enterprises shall only bear civil liability for a safe product that does not meet the quality
standards claimed by the enterprise, and shall not be subject to administrative penalties.

2. Revise the Mandatory National Standard GB 18401 National General Safety

Technical Code for Textile Products
• L
aunch the revision of GB 18401-2010 as early as possible, and consider adjusting the colour
fastness criteria for special products.
• Take the half-grade-difference into consideration as a general safety conformity scale and apply it
when judging the conformity of a product.
• Change colour fastness from being a ‘key quality item’ to a ‘normal quality item’ when making
national-, provincial- or city-level implementation rules for product inspections, and apply it in
product inspections, to facilitate a change in the safety scale and judging standard for product
conformity.
• Include the test for dyes and auxiliaries that pose a risk of harming personal health in the safety
assessment of mandatory standard GB 18401.

3. Take Resolute Action to Curb the Sale of Fake Goods Online and Promote
Industrial Self-governance
• C all on grassroots courts, especially local intellectual property (IP) courts, to be more proactive in
identifying the relevant responsibilities of platforms in individual cases and ensure various network
platforms, including social media, actively fulfil their social and legal responsibilities for IP rights (IPR)
protection.
• Supervise and encourage courts at all levels throughout China to actively strengthen IPR protection
online by sharing case studies of ground-breaking judgments.
• Classify platforms (for example, traditional e-commerce and social media platforms) according to
modes of query, channels of information display, methods of user access, payment and settlement,
and other technical features, and set up proper administrative measures.
• Reconsider the guarantee scheme under the E-Commerce Law and introduce a court system to

Fashion and Leather Working Group 231

 give a decision whether or not a guarantee should be accepted and the measures against the
infringement be withdrawn.
• Encourage the development and improvement of standards related to the protection of IPR in
e-commerce and promote them to be adopted in relevant legislation.
• Take heed of and respect effective IPR protection models agreed between rights holders and
platforms.

4. Release the Implementing Legislation for the Personal Information Protection

Law (PIPL) as Soon as Possible, to Provide Companies with Clear Guidance
on Data Compliance and Secure Cross-border Data Transfer
• E ncourage enterprises to abide by relevant regulation through internal contracts and corporate
commitments.
• E ncourage and promote the reasonable autonomy of enterprises and industries for general
e-commerce operations.

5. Allow Enterprises to Not Display Recommended Product Standards on

Imported Apparel
Section Three: Goods

• C
larify that apart from domestic compulsory standards, imported clothing and leather products do
not need to display a Chinese product standard on the product nor mandatorily implement voluntary
standards.

Introduction to the Working Group had a significant impact on European Chamber member
companies operating in the industry:
Established in 2016, the Fashion and Leather Working
Group is comprised of 12 members, mainly from
1. Product Quality Law
European fashion and leather industry, that produce and
The working group has been closely following the
import high-end apparel, leather bags, suitcases, shoes
latest revision of the Product Quality Law since it
and other fashion-related products for the Chinese
was first announced in 2019. 1 In 2021, due to the
market. The working group represents the high-end
COVID-19 pandemic, the department responsible for
consumer goods industry when communicating with
drafting the revision within the State Administration for
relevant policymakers on common industry issues.
Market Regulation (SAMR) made slow progress; no
updated draft proposal was released and the SAMR
Since its establishment, the working group has actively
did not arrange any consultation in 2021 with important
followed relevant legislative developments and offered
external stakeholders, whereas they had done so with
recommendations for creating an orderly market
the European Chamber and other foreign chambers of
environment that protects the rights and interests of
commerce in October 2020. The working group notes
consumers.
that the Product Quality Law is part of the SAMR’s
legislative work plan for 2022,2 and expects significant
Recent Developments
The working group covers the following sectors: textiles, 1　 Revision of the Product Quality Act in full swing, State Administration for Market
Regulation (SAMR), 25th April 2019, viewed 15th April 2022, <http://www.samr.
clothing, leather goods and high-end consumer goods.
gov.cn/xw/zj/201904/t20190425_293135.html>
The following policy updates over the past year have 2　 Notice of the SAMR on the Issuance of the Legislative Work Plan for 2022,
SAMR, 26th April 2022, viewed 10th May 2022, <https://gkml.samr.gov.cn/nsjg/
fgs/202204/t20220427_344262.html>

232 Fashion and Leather Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

progress over the coming year, including a draft being 4. Duty-free Business Policy of Hainan Free Trade
submitted for public comments. Port (FTP)
According to the General Plan for the Construction of
2. Textiles - Technical Specification for Identification the Hainan Free Trade Port (General Plan),7 Hainan
of Fibre Content (GB/T 29862) island will be developed into a free trade port with a
At the beginning of 2022, the Technical Committee high level of openness. The General Plan also indicates
of Textile Standardisation (TC209) announced that Hainan will create a global duty-free shopping and
amendments to GB/T 29862. 3 Since the types and fashion consumption centre to support China’s ‘dual
content of fibres are vital to the quality of textiles, circulation’ policy. This is an attractive proposition for
textile and garment enterprises have always applied European fashion brands, many of which are looking to
the standard, even though it is not mandatory but invest in the Hainan FTP, and expect to open and own
recommended. However, today the standard no directly-operated duty-free shops there. However, the
longer meets industry needs, as new materials, new specific duty-free policies of Hainan’s retail market are
technologies and new products are being developed unclear, which has raised concerns among companies.
and applied, which require technical requirements within There is already a batch of duty-free franchisees
the standard to be changed accordingly. The revision currently operating in Hainan with special quotas, and
process is expected to last 18 months and end in June it is has yet not been clarified whether or not other
2023.4 retail companies will be treated equally to them and be
extended the same duty-free quota.8

Section Three: Goods

3. Measures for the Administration of Customs
Import-Export Commodity Inspection Credit- 5. International Consumption Centres
Acceptance (Draft for Comment) On 19th July 2021, the Chinese Government approved
In November 2021, the General Administration Shanghai, Beijing, Guangzhou, Tianjin and Chongqing
of Customs (GAC) issued the Measures for the to take the lead in developing international consumption
Administration of Customs Import-Export Commodity centres. 9 The concept of international consumption
Inspection Credit-Acceptance (Draft for Comment). 5 centres was introduced in China’s 14th Five-year Plan.
Through these measures, the GAC launched an If the cities that have been selected demonstrate high-
innovative supervision model that will accept results level opening-up and institutional innovation, this will
from laboratories and testing agencies both within increase investment confidence among international
China and from abroad with regard to the inspection of fashion brands. The working group is looking forward to
import and export commodities. This initiative will make more favourable policies being launched that will help
the import and export of goods more convenient and will to further promote investment in these cities.
save enterprises time and costs in customs clearance.
The measures are similar to those piloted by Shanghai
Customs for some years, which have been welcomed
by importers,6 and the working group looks forward to
their release.

3　 Textiles - Technical specification for identification of fibre content (GB/T 29862),

General Administration of Quality Supervision, Inspection and Quarantine
(AQSIQ) and the Standardisation Administration of China (SAC), 12th November
2013, viewed 10th April 2022, <http://www.gb688.cn/bzgk/gb/newGbInfo?hcno= 7　 General Plan for the Construction of Hainan Free Trade Port (General Plan),
78E12DC297A27F3AB95C25986FD71586> State Council of the Central Committee of the Communist Party of China, 1st
4　 Revision of Textiles —Technical Specification for Identification of Fiber Content, June 2020, viewed 10th April 2022, <http://www.gov.cn/zhengce/2020-06/01/
National Public Service Platform for Standards Information, 31st December content_5516608.htm>
2021, viewed 10th April 2022, <http://std.samr.gov.cn/gb/search/gbDetailed?id= 8　 There are currently a dozen entities operating franchises in Hainan that are
BF447BF930E7F2C1E05397BE0A0A44D2> qualified to distribute duty-free products with a given quota of Chinese yuan
5　 Measures for the Administration of Customs Import-Export Commodity 100,000 per tourist per year. Whether these special enterprises will continue
Inspection Credit-Acceptance (Draft for Comment), GAC, 8th October 2021, enjoying the privilege and other types of companies be treated differently after
viewed 10th April 2022, <http://www.customs.gov.cn/customs/302452/302329/ Hainan launches the independent customs operation in 2025 is a big concern
zjz/3938404/index.html> for foreign companies, as any differentiation would constitute unfair competition.
6　 Notice on Further Optimising the Inspection of Imported Clothing, Shanghai 9　 The First Batch of International Consumer Centre Cities Set Up in Five Places,
Customs District, 3rd October 2020, viewed 10th April 2022, <http://shanghai. People’s Daily, 17th August 2021, viewed 10th April 2022, <http://www.gov.cn/
customs.gov.cn/shanghai_customs/423405/zfxxgkml4748/3834963/index.html> xinwen/2021-08/17/content_5631627.htm>

Fashion and Leather Working Group 233

 Key Recommendations necessity for a Product Quality Law that is in line with
international standards to safeguard the integration of
1. Amend the Product Quality Law domestic and foreign trade.12
1.1 Remove the Abstract Term ‘Unqualified Product’
and Introduce the Concept of ‘Safe Product’, When comparing foreign and domestic administrative
and Confirm Whether a Product’s Conformity priorities and practices related to product quality, it
with Mandatory National Standards or a Product is clear that the European Union (EU), the United
Having Unreasonable Risk Can Be Used as States and other developed countries put more focus
Criteria for Judging its Safety and Initiating on safety-related standards. In the textiles sector,
Administrative Penalties for instance, there are more than a hundred safety-
based criteria in Europe—derived from the General
Concern Product Safety Directive 13 and the Registration,
The concept of ‘unqualified product’ is too abstract, Evaluation, Authorisation and Restriction of Chemicals
which results in severe administrative penalties being (REACH) 14—that deal with carcinogens, mutagens,
imposed upon enterprises that make mistakes in reproductive toxicity, sensitisation, endocrine disorders
labelling. and environmental protection; whereas in China there
are only two safety-related chemical standards –
Assessment covering azo and formaldehyde.
Various local law enforcement authorities have defined
‘unqualified products’ differently, and the ambiguity of
Section Three: Goods

Due to this lack of safety standards, China’s market

the concept has resulted in the current scope of ‘non- supervision and inspection authorities are not sufficiently
conforming products’ being too broad. Since the term able to protect consumers’ health and safety. Meanwhile,
‘unqualified product’, referred to in the Product Quality the current government enforcement focus is more
Law, 10 has not been clearly defined, considerable on non-safety-related standards, which hinders
administrative resources that could be used to combat innovation and the development of the industry
products in the market that are unsafe or pose a risk to overall as companies concentrate on conforming with
people’s lives are instead wasted on supervising safe these requirements. Therefore, the working group
but substandard products, which ultimately does not recommends the concept of a ‘safe product’ be adopted,
protect consumer safety. It also results in companies and that a product’s conformity with mandatory national
potentially facing serious administrative penalties for standards and its potential unreasonable risk should be
minor labelling defects. confirmed as the criteria for judging its safety, to resolve
current challenges faced by the industry, including those
Furthermore, this practice is not in line with certain outlined below.
provisions of the World Trade Organization Agreement
on Technical Barriers to Trade (WTO/TBT). 11 For Challenge 1
instance, in China, violation of a declared voluntary Companies that produce and sell goods need to
standard results in classification as an ‘unqualified include a large amount of product information on labels,
product’, for which the enterprise is punished as for meaning that production and sales involves many
violation of a mandatory standard. However, the WTO/ departments (which may include foreign agencies). It
TBT only allows mandatory standards to be applied in is therefore inevitable that some faults or translation
consideration of national security, prohibition of fraud, errors may occur, resulting in incomplete or inaccurate
and health, safety and environmental protection. As product labelling information. Currently, due to the lack
discussed in the Recent Developments section, in of a clear specification of ‘unqualified products’ in the
response to the impact of the COVID-19 pandemic, Product Quality Law, companies are often subject to
China is trying to develop several international
12　For more information about the WTO/TBT rule, please see Key Recommendation
consumer cities or regions, which increases the
1 of the Standardisation and Conformity Assessment Working Group Position
Paper 2022/2023.
10　Product Quality Law, National People’s Congress (NPC), 7th January 2019, 13　General Product Safety Directive, European Commission, 11th January 2018,
viewed 10th April 2022, <http://www.npc.gov.cn/npc/c30834/201901/7f507d5963 viewed 10 th April 2022, <https://ec.europa.eu/info/general-product-safety-
074e9ebc73c986e155b931.shtml> directive_en>
11　Technical Barriers to Trade Agreement, WTO, 1st January 1980, viewed 10th 14 REACH, European Commission, 24th August 2016, viewed 10th April 2022,
April 2022, <https://www.wto.org/english/docs_e/legal_e/17-tbt_e.htm> <http://ec.europa.eu/environment/chemicals/reach/reach_en.htm>

234 Fashion and Leather Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

high administrative penalties for minor product label sheer number of voluntary standards, revising them
defects unrelated to safety, which greatly increases the to take into consideration the special characteristics
burden on companies. In recent years, the SAMR has of all products would be an extremely onerous task.
implemented a traceability management system for Therefore, enforcing the law and implementing
product quality issues, aimed at combatting counterfeit administrative penalties in line with voluntary standards
and substandard products at the source. The working is not a scientific approach.
group welcomes the traceability management system
initiative. However, all local market supervision Challenge 4
agencies involved in the value chain of a product—from Voluntary standards include requirements and
where the product is inspected to where the producer or assessment methods for general characteristics of
importer is located to where the products are stocked— detailed product types, and are significantly influenced
are obliged to enforce the traceability system in relation by the features of existing products, raw materials and
to ‘unqualified products’, which again brings the technologies. Enterprises that engage in technological
ambiguity of the term to the fore, in particular as local innovation, such as working with new materials or
enforcement officials focus on inaccurately labelled innovative manufacturing processes, or that choose
products rather than products with safety problems. non-harmful natural colourants over artificial synthetic
If the law is not changed, valuable administrative chemical colourants may face the risk of administrative
resources will continue to be wasted, which will multiply penalties or being targeted by professional claimants.
difficulties for enterprises. This leads to some being more risk averse with regard

Section Three: Goods

to innovation, which in turn hinders the drive towards
Challenge 2 creating and sustaining a natural, green environment
Current voluntary standards are numerous and categorised free from harmful substances. The working group
in different systems, including ‘local standards’, ‘industrial believes that this goes against the original objectives
standards’ and ‘national standards’. For instance, there and spirit of the Product Quality Law, which is intended
are over 1,300 voluntary national standards related to to improve product quality.
textile and leather technology and the garment industry
in general, and more than 2,000 voluntary industry In the third and fourth challenges detailed here, if the
standards related to textiles. In some cases, different Product Quality Law uses voluntary standards as a
standards and regulations are misaligned or conflict recommendation and reference—and an enterprise’s
with one another. As a result, it is challenging and civil liability can be based on whether a product or its
burdensome for enterprises to accurately determine the description actually misleads consumers and causes
voluntary standards that are applicable. them losses—it would be more in line with China’s legal
principles that administrative laws uphold justice, and
Challenge 3 punishment will be proportional to the damage caused.
Despite the large number of voluntary standards, they Such application of the law would give enterprises
do not address certain special characteristics of specific more room to innovate independently and raise product
products. For example, the generalised assessment quality, and would also be in line with the current reform
indicators for the colour fastness of leather products blueprint for simplifying administrative procedures.
in QB/T 1333 Handbag and Knapsack—the widely
applied standard for handbag and knapsack products— Recommendations
did not take into account the special characteristics • Remove the term ‘unqualified product’ and introduce
of suede materials, which led to significantly differing the term ‘safe product’.
opinions among many experienced testing agencies. • Confirm whether a product’s conformity with national
Some enterprises faced administrative penalties as a standards, or its potential to cause unreasonable risk,
result, which provided a basis for professional claimants can be used as criteria in assessing its safety and
to purchase such products with the ulterior motive of initiating administrative penalties.
demanding large amounts of compensation. It was not • Ensure that voluntary standards cannot be used as
until 2018 that special regulations accounting for the the basis for administrative penalties.
special characteristics of suede materials were included
in the revised version of QB/T 1333. In view of the

Fashion and Leather Working Group 235

 1.2 Confirm that if Products Fail to Satisfy their recommends the alignment of revisions to the Product
Declared Quality Standards, Enterprises Only Quality Law, and ensuring that voluntary standards are
Assume Civil Responsibility indeed, by definition, ‘voluntary’; that is, their nature as
a standard for regulating civil liability relationships is
Concern recognised.
The application of administrative penalties on
enterprises whose products fail to satisfy their declared Recommendation
quality standards is a waste of public resources and • Clarify that enterprises shall only bear civil liability for a
overburdens enterprises, as such a failure should only safe product that does not meet the quality standards
be deemed a breach of contract with consumers. claimed by the enterprise, and shall not be subject to
administrative penalties.
Assessment
When a product does not meet the quality standards 2. Revise the Mandatory National Standard
claimed by the enterprise (such as voluntary standards), GB 18401 National General Safety
but complies with mandatory national standards without
Technical Code for Textile Products
unreasonable danger, China’s Standardisation Law,15
the Civil Code16 and the Protection of Consumer Rights
Concern
and Interests Law 17 clearly state the enterprise has
Including colour fastness of textiles as a compulsory
broken its commitment to the consumer on product
testing item under standard GB 1840118 does not make
Section Three: Goods

quality, and should be liable for liquidated damages.

sense as it is merely a burden to enterprises and is in
no way related to a product’s safety.
This stance unfairly increases enterprises’ contractual
obligations and responsibilities, and unbalances market
Assessment
regulation. Consumer demand for new products, new
The mandatory national standard GB 18401 requires
materials and new processes is constantly increasing,
several colour fastness tests, including water resistance,
requiring enterprises to focus more on reinvention and
perspiration resistance, dry rubbing resistance and
continual innovation. Therefore, to protect people’s
saliva fastness. Colour fastness refers to “the ability of
health and safety, the final version of the revised
the colour of a textile to withstand various effects during
Product Quality Law should provide enterprises with
processing and use, expressed in terms of the degree
a relatively fair and reasonable legal environment that
of discolouration and the degree of staining of the
fosters production innovation and promotes production
lining fabric”. It is the consensus of the textile industry
quality improvements. Frequent fines would have
that this fastness to dyeing is a physical performance
the opposite effect and hinder the development of
indicator that does not directly affect personal health or
enterprises, as well as the overall level of national
the safety of life and property. In other words, it is the
innovation.
dyes and auxiliaries themselves that may have a direct
impact on personal health and the safety of life and
The 2017 revision of the Standardisation Law specifies that
property, thus the relevant authorities should establish
compulsory national standards must be implemented,
a preventive management mechanism for the chemical
while encouraging the adoption of other standards such
hazards of dyes and auxiliaries in the entire textile
as voluntary, group and enterprise standards. This was
chain. At present, there are no relevant domestic laws,
a critical step in making administrative management
regulations or mandatory assessments that do this.
more efficient and aligned with international practices.
The working group welcomed the accurate scoping of
In other countries’ laws and regulations on textiles,
voluntary standards in the Standardisation Law, and
the dyeing fastness performance is included in the
15　Standardisation Law, NPC, 4th November 2017, viewed 10th April 2022, <http:// standards or certifications voluntarily adopted by
www.npc.gov.cn/zgrdw/npc/xinwen/2017-11/04/content_2031446.htm> enterprises. The chemical risks from dyes and auxiliary
16　Civil Code of the People's Republic of China, NPC, 28th May 2020, viewed 10th
April 2022, <http://www.npc.gov.cn/npc/c30834/202006/75ba6483b8344591abd
07917e1d25cc8.shtml> 18 National Standard GB 18401 National General Safety Technical Code for Textile
17　Protection of Consumer Rights and Interests Law, NPC, 25th October 2013, Products, AQSIQ & SAC, 14th January 2018, viewed 10th April 2022, <http://
viewed 10th April 2022, <http://www.npc.gov.cn/zgrdw/npc/xinwen/2013-10/26/ www.gb688.cn/bzgk/gb/newGbInfo?hcno=52C1F4CBDE863F5095D7C9D17F8
content_1811773.htm> E3F71>

236 Fashion and Leather Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

substances are assessed and controlled separately. of the Testing Capacity for Perspiration Resistance
Colour Fastness of Textiles and Silk Products (CNCA-
Taking mulberry silk fabric as an example, the colour 20-13)’ among national inspection and test institutions.19
fastness is generally not high because it is composed Those participating represented nearly all the leading
of natural protein fibre, which is vulnerable to high advanced test laboratories and agencies, including
temperature, and therefore cannot tolerate high provincial quality supervision and inspection centres,
temperature dyeing/colour fixation in the dyeing customs technical centres, fabric inspection test
process. Especially when the colours being used are laboratories, and civil and foreign test agencies. The
dark or black, the extra dyestuff cannot be absorbed results show that 32.8 to 39 per cent of institutions
by fibre within the dyeing time, which results in dye reported a half-grade-difference in the test of the
molecules accumulating on the fibre surface and staining level of BNH-2 blue cotton sticky fabric; and
forming floating colours, which impacts the results of 21.5 to 35.9 per cent reported a half-grade-difference
colour fastness tests. To improve the colour fastness, with RNH-2 red silk fabric. In other words, about one
fabric factories add various auxiliaries in dyeing in spite third of laboratories found a half-grade-difference in
of the resulting environmental hazards and health and the test for perspiration colour fastness. This suggests
safety risks. that a half-grade-difference of colour fastness is an
approved scale of conformity.
The short fibres of grinding, lint, velvet and other velvet
fabric products are very easily rubbed off. In the rubbing In national-, provincial- and city-level market inspections,

Section Three: Goods

colour fastness test, test institutions hold varying colour fastness is a ‘key quality item’ and mandatory
opinions on whether or not short fibres should be taken test item as per the Implementation Rules of National
into account, as well as how it should be done, when Inspections on Product Quality. 20 In cases of non-
assessing the staining level, which leads to inconsistent conformity, a product will be determined as unqualified.
conclusions because the existence of short fibres will Despite the half-grade-difference having been verified
directly affect the inspector’s visual rating results. as an approved scale of conformity, such a result
usually causes the product to be downgraded from
Denim fabric is one of the most popular fabrics globally, ‘qualified product’ to ‘unqualified product’. This results
but the characteristics of indigo dyes cause the dye to in enterprises being punished by market surveillance
be adsorbed by the cellulose fibres only through van authorities and the company’s credibility being harmed.
der Waals forces, i.e., physical action, with almost no
chemical bonding between the fibres, resulting in a According to the Notice on the Organisation of the Review
low colour fastness. Although consumers generally of Mandatory National Standards in 2021, 21 TC209
accept the wash fading characteristics of denim fabrics, launched a review of GB 18401-2010 in September 2021,
denim manufacturers continue to strengthen the colour encompassing the applicability, conformity, effectiveness
fastness of their fabrics in order to meet the standard and other aspects of the standard. As of mid-2022, the
requirements for colour fastness. In this process, denim conclusions of the review have not been made public.
manufacturers constantly strengthen the washing and
colour-floating treatment of their blanks and finished Recommendations
products, and increase the finishing process, generating • Revise GB 18401-2010 as soon as possible, and
a large amount of waste water and emissions, which is consider adjusting the colour fastness criteria for
not conducive to overall environmental protection and special products.
sustainable development requirements. • Take the half-grade-difference into consideration as
a general safety conformity scale and apply it when
Assessment of colour fastness is always based on
visual measurement by the tester under certain light 19 Final Report of Proficiency Testing Programme on Tests for Colour Fastness to
Perspiration of Textiles and Silks, SAMR, September 2020, viewed 10th April 2021,
conditions, and the differences between the skills and <http://www.cnca.gov.cn/zl/nlyz/xmss/202009/W020200928369465129012.pdf>
capability of the testers, their subjectivity and so on 20　Implementation Rules of National Inspections on Product Quality, SAMR, 31st
July 2020, viewed 10th April 2022, <http://gkml.samr.gov.cn/nsjg/zljdj/202007/
directly impact the test results. t20200731_320439.html>
21　Notice on the Review of Mandatory National Standards in 2021, SAC, 15th
September 2021, viewed 10 th April 2022, <https://www.samr.gov.cn/bzjss/
In 2020, the SAMR conducted a project titled ‘Verification tzgg/202109/t20210917_334847.html>

Fashion and Leather Working Group 237

 judging the colour fastness of a product. challenging for both rights holders and law enforcement
• Change colour fastness from being a ‘key quality item’ to agencies.
a ‘normal quality item’ when making national-, provincial-
or city-level implementation rules for product inspections, On 24 th August 2020, the Judicial Committee of
and apply it in product inspections, to facilitate a change the Supreme People’s Court (SPC) adopted the
in the safety scale and judging standard for product Official Reply on Several Issues Concerning the
conformity. Application of Law to Disputes over Internet-related
• Include a test for dyes and auxiliaries that pose a risk IPR Infringement,22 which requires network platforms
of harming personal health in the safety assessment to bear joint liability with network users and platform
of mandatory standard GB 18401. operators for any damages caused through the fault of
the network platform.
3. Take Resolute Action to Curb the Sale of
Fake Goods Online and Promote Industrial On 10th September 2020, the SPC issued the Notice
Regarding Issuing Guiding Opinions on the Trial
Self-governance
of Intellectual Property (IP) Civil Cases Involving
E-commerce Platforms,23 which further increases and
Concern
clarifies the responsibilities and obligations of platforms
Fake goods are still being sold on social media
to prevent and protect IPR in their daily business
platforms in China, and the lack of effective enforcement
activities. The notice emphasises that if the platform
of rules and regulations is harming the legitimate rights
Section Three: Goods

operator “knows” or “should know” that a business

of a growing number of right holders.
owner operating on the platform infringes upon IPR,
it should take necessary measures following the
Assessment
principle of “reasonable prudence”; the reasonableness
Over the last few years, China’s e-commerce industry
of the measures taken by platform operators has
has developed dramatically in both the number
also been further clarified and refined therein. The
and format/structure of platforms and businesses,
Measures for the Supervision and Administration of
while various innovative promotion methods have
Network Transactions,24 which went into effect on 1st May
also emerged, placing increasingly higher demands
2021, further refine the management responsibilities
on companies conducting daily supervision and
of e-commerce platforms regarding the review and
administration. Combatting the sale of fake products
registration of operators on the platform. It stipulates
through social media is quite different than through
that operators of third-party trading platforms must
e-commerce platforms. For instance, while online
take necessary measures to protect the rights of the
platform owners and intellectual property right (IPR)
exclusive use of registered trademarks and the name
holders themselves can run searches and monitor
rights of companies.
e-commerce platforms, due to their openness to user
access, it is more difficult to effectively supervise
On 31st August 2021, the SAMR drafted the Decision on
social media due to the levels of confidentiality
Amending the E-commerce Law (Draft for Comments).25
involved. This makes selling counterfeit goods via, for
As fashion and leather brands suffer deeply from sales
example, WeChat Moments, more convenient, with
of counterfeit goods online, the working group paid
sales volumes potentially far exceeding that of other
close attention to the legislation and raised a strong
online platforms. In addition, in recent years, more
and more mini apps and livestreaming platforms have 22 Official Reply on Several Issues Concerning the Application of Law to Disputes
been taking advantage of the secrecy of social circles, over Internet-related IPR Infringement, Supreme People’s Court (SPC), 12th
September 2020, viewed 10 th April 2022, <http://www.court.gov.cn/fabu-
the uncertainty of the origin of certain goods and the xiangqing-254921.html>
convenience of third-party payments. The owners of 23 Notice from the SPC regarding Issuing Guiding Opinions on the Trial of
Intellectual Property Civil Cases Involving E-commerce Platforms, SPC,
some of these apps and platforms are leveraging these 10th September 2020, viewed 10th April 2022, <http://www.court.gov.cn/fabu-
conditions to rampantly sell counterfeit goods through xiangqing-254931.html>
24 Measures for the Supervision and Administration of Network Transactions,
‘livestreaming rooms’ and so-called ‘group buying’. SAMR, 15th March 2021, viewed 10th April 2022, <http://www.samr.gov.cn/xw/
This makes monitoring counterfeit sales extremely zj/202103/t20210315_326928.html>
25　SAMR Circular on the Decision on Amending the E-commerce Law (Draft for
Comments), SAMR, 31st August 2021, viewed 10th April 2022，<https://www.
samr.gov.cn/hd/zjdc/202108/t20210831_334252.html>

238 Fashion and Leather Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

objection to the guarantee provisions introduced in E-Commerce Law and introduce a court system
the amendment. These provisions state that as long to assess whether or not a guarantee should be
as the in-platform operator provides a guarantee for accepted and the measures against the infringement
potential losses caused by IP infringement to the be withdrawn.
e-commerce platform operator, the platform operator • Encourage the development and improvement of
can temporarily suspend the measures taken against standards related to the protection of IPR in e-commerce
the suspected infringement. The working group believes and promote their adoption in relevant legislation.
this provision will very likely be abused for profit by • Take heed of and respect effective IPR protection
malicious counterfeiters or even e-commerce platforms. models agreed between rights holders and platforms.
For example, in the peak season of online sales (such
as the ‘Double 11’ period), infringing products can be 4. Release the Implementing Legislation for
sold if a deposit is made, which will cause huge or even the Personal Information Protection Law
irreparable damage to right holders.
(PIPL) as Soon as Possible, to Provide
Companies with Clear Guidance on Data
At the same time, the working group has also noted
Compliance and Secure Cross-border
that the national recommended standard GB/T 39550-
2020 Management of IP Protection on E-Commerce Data Transfer
Platforms 26 puts forward detailed constructive
Concern
opinions on the protection and management of IPR on
Promulgation of the PIPL and the Data Exit Security

Section Three: Goods

e-commerce platforms, including the daily management
Assessment Measures present new and serious
responsibilities, effective measures to combat IP
compliance challenges for multinational companies’
infringement, as well as some functional requirements
(MNCs’) cross-border data transfers.
like data sharing with supervision departments or
having to establish a dedicated in-house IP department.
Assessment
It is advised that these kinds of standards be continually
The PIPL has high requirements for, and positively
improved, so as to establish good references for further
promotes, the protection of personal information,
revisions to the E-commerce Law, and potentially for
covering the majority of consumer information. 27
judicial decisions and law enforcement practices.
However, it also poses challenges for companies
from a compliance perspective, particularly regarding
Recommendations
the separate consents of multiple information owners
• Call on grassroots courts, especially local IP courts, to be
required for various forms of data collection and
more proactive in identifying the relevant responsibilities
outbound transfer.
of platforms in individual cases and ensure various
network platforms, including social media, actively fulfil
Article 4 of the Data Exit Security Assessment Measures
their social and legal responsibilities for IPR protection.
(Measures), 28 released on 7 th July 2022 by the
• Supervise and encourage courts at all levels
Cyberspace Administration of China, states that
throughout China to actively strengthen IPR protection
where a critical information infrastructure operator or
online by sharing case studies of ground-breaking
a personal information processor that: a) processes
judgments.
personal information of up to one million individuals
• Classify platforms (for example, traditional e-commerce
provides personal information overseas; or b) provides
and social media platforms) according to modes of
the personal information of 100,000 individuals or
query, channels of information display, methods of
sensitive personal information of 10,000 individuals
user access, payment and settlement, and other
abroad cumulatively since 1st January of the previous
technical features, and set up proper administrative
year, it should be declared to the national network
measures.
• Reconsider the guarantee scheme under the
27　Personal Information Protection Law, NPC, 20th August 2021, viewed 10th April
2022, <http://www.npc.gov.cn/npc/c30834/202108/a8c4e3672c74491a80b53a1
26　GB/T 39550-2020 Management of IP Protection on E-Commerce Platforms, 72bb753fe.shtml>
SAMR and SAC, 9th November 2020, viewed 10th April 2022，<http://openstd. 28　Data Exit Security Assessment Measures, Cyberspace Administration of China,
samr.gov.cn/bzgk/gb/newGbInfo?hcno=E315E3B122771E0D38B843BC19E6E 7 th July 2022, viewed 10 th July 2022, <http://www.cac.gov.cn/2022-07/07/
5F4> c_1658811536396503.htm>

Fashion and Leather Working Group 239

 information department through the local provincial Assessment
network information department. According to the In practice, companies that do not label their products
thresholds set in the Measures, most companies will with a Chinese standard number may be rejected by
fall under its scope and will therefore need to undergo store owners or penalised by government inspection
security assessment for personal information data authorities, which causes many inconveniences for
transfers overseas. Therefore, foreign companies are companies.
highly concerned that whether the national and regional
internet information departments will have enough Paragraph 3 of Article II of China’s Standardisation Law
manpower and resources to complete such a vast states that mandatory standards must be implemented
number of assessments in a timely manner once the and that the use of recommended standards is
regulation takes effect in September 2022.29 encouraged. 30 According to the law, recommended
product standards are not to be mandatorily implemented.
In the course of future law enforcement, the However, in practice, if law enforcement departments
authorities should take into consideration the need for make it compulsory for imported clothing and leather
frequent daily data-sharing within international group goods to display a product standard number, and
corporations, as well as the huge costs involved in consider it as a basis for sampling, this recommended
the associated compliance, and the negative impact product standard becomes mandatory by default,
on global operations of MNCs that time-consuming which is not in line with the legislative intent of the
assessments conducted by the authorities will have. Standardisation Law.
Section Three: Goods

Instead of carrying out strict industry-wide regulation,

it would be advisable to instead encourage non-critical The reason why such product standards are
infrastructure industries to carry out reasonable and recommended is because the content of the provisions
effective regulation through internal contracts and do not involve personal or personal property safety, but
corporate commitments. This would help to prevent only the product’s raw production control requirements.
a dampening of investment confidence and avoid the Therefore, failure to comply with such standards will
adverse consequence of global supply chains being not cause harm to consumers or damage their personal
transferred out of China. property.

Recommendations Products manufactured abroad must be produced

• Encourage enterprises to abide by relevant regulation according to the standards or technical specifications
through internal contracts and corporate commitments. of the place of production. As Chinese voluntary
• Encourage and promote the reasonable autonomy of production or product execution standards may differ,
enterprises and industries for general e-commerce they should not be applied to certain products that will
operations. be imported to China. Due to their inability to meet
domestic product standards, a large number of foreign-
5. A l l o w E n t e r p r i s e s t o N o t D i s p l a y produced products that can be sold without problem
Recommended Product Standards on abroad are unable to be sold in China, which limits
consumers’ choices.
Imported Apparel

Many other industries have recognised this problem and

Concern
raised it with relevant government authorities, which
Although existing laws do not clearly state whether
has led to provisions being made in relevant Chinese
or not imported apparel and leather products should
standards or standard interpretations that “imported
display a product standard number, some market
products do not need to be marked with a product
surveillance agencies require it for use in product
standard number”—illustrating that the application
inspection, which is unnecessarily burdensome for
of domestic recommended product standards is not
enterprises.
mandatory—such as the following examples:

29　Please also see the Cybersecurity Sub-working Group Position Paper 30 Standardisation Law, NPC, 4th November 2017, viewed 10th April 2022, <http://
2022/2023 for more information regarding data cross-border transfer. www.npc.gov.cn/zgrdw/npc/xinwen/2017-11/04/content_2031446.htm>

240 Fashion and Leather Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

Example 1, cosmetics: According to Article 6.6 of the Abbreviations

National Compulsory Standard GB 5296.3: Instruction
AQSIQ General Administration of Quality
for Use of Consumer Products – General Labelling
Supervision, Inspection and Quarantine
for Cosmetics, 31 “cosmetics should be marked with
EU European Union
the national or industry standards used”. However,
FTP Free Trade Port
the Implementation Guide for GB 5296.3 allows that
GAC General Administration of Customs
“imported cosmetics do not need to be marked with a
IP Intellectual Property
production licence number, sanitary licence number nor
IPR Intellectual Property Right
a product standard number”.
MNC Multinational Corporation
NPC National People’s Congress
Example 2, food and beverage: Article 4.1.10 of GB 7718-
PIPL Personal Information Protection Law
2011 General Labelling Rules for Pre-packaged Food,32
REACH Registration, Evaluation, Authorisation
clearly states that “pre-packaged food manufactured
and Restriction of Chemicals
and sold in China should be marked with the referred
SAC Standardisation Administration of
standard number and serial number of that product
China
(excluding imported pre-packaged food).”
SAMR State Administration for Market
Regulation
Example 3, cross-border trade: According to Article
SPC Supreme People’s Court
4.1.3.1 of the Notice on Improving the Supervision on the
TBT Technical Barriers to Trade

Section Three: Goods

Import of Cross-border E-commerce Retail (Document
TC209 Technical Committee of Textile
486),33 released by the Ministry of Commerce and five
Standardisation
other departments, “products that comply with standards
WTO World Trade Organization
and technical specifications of quality, safety, health,
environment, and labelling of the country of origin need
not comply with Chinese standards. Consumers bear
their own risks.”

Recommendation
• Clarify that, apart from domestic compulsory
standards, imported clothing and leather products
do not need to mandatorily implement voluntary
standards nor display a Chinese product standard
number on the product.

31　National Compulsory Standard GB 5296.3: Instruction for use of consumer

products – General labelling for Cosmetics, SAMR & SAC, 17th June 2008,
viewed 10th April 2022, <https://openstd.samr.gov.cn/bzgk/gb/newGbInfo?hcno=
86DDF327060B99B817E89EF7BD0052C2>
32 GB 7718-2011 General Labelling Rules for Pre-packaged Food, National Health
Commission, 20th April 2011, viewed 10th April 2022, <https://sppt.cfsa.net.
cn:8086/staticPages/9058ADC5-AFC3-4586-9798-D0170F6F879C.html>
33 Notice of Six Departments on Improving the Supervision on Import of Cross-
border E-commerce Retail (Document 486), State Council, 1 st December
2018, viewed 10 th April 2022, <http://www.gov.cn/xinwen/2018-12/01/
content_5345041.htm>

Fashion and Leather Working Group 241

 Healthcare Equipment Working Group

Key Recommendations
1. Increase the Role of Market Forces in the Procurement of Medical Devices
by Giving Greater Weighting to Device Quality and Clinical Needs
1.1 Prioritise Value-based Procurement and Improve Enforcement Procedures in
Volume-based Procurement (VBP)
• Determine quality and clinical requirements as the main criteria for deciding VBP tenders, as
opposed to procurement prices.
• Establish an inter-ministerial communication platform to ensure that VBP tendering and
implementation of tendering results adhere to generally accepted principles of VBP tenders,
particularly in terms of realising procurement volume, terms of delivery and payment as agreed
in the tender.
• Limit VBP to genuine large-volume procurement, in general at the provincial level or above.
• Grant a transitional period before implementation of VBP tenders at the provincial level or
Section Three: Goods

above, to allow winning bidders time to prepare sufficient inventory.

• Set sufficient intervals between VBP tenders to allow procurement agencies to evaluate the
clinical application of VBP products in hospitals, quality of services and reliability of supply.
• Increase new innovative consumable medical devices available to patients by procuring
outside VBP tenders, and conduct clinical evaluations of these new products to allow them to
participate in the next round of VBP with a reasonable and justified price.
1.2 Optimise the Legislative and Administrative Framework for Hospital Payment
Reform to Promote the Use of Innovative Treatment Methods
• Update cost factors and ratios in diagnosis-related groups (DRG) and diagnosis intervention
packets (DIP) regularly to establish a reasonable payment standard.
• Establish a reasonable pathway to market for innovative treatment methods to accelerate
patients’ access to new medical technologies.
• Optimise the DRG sub-groups to adapt them to clinical requirements and allow flexibility to
meet the varying needs of different regions.
1.3 Regularly Update the Healthcare Service Catalogue to Promote the Use of
Innovative Treatment Methods
• Adhere to and implement the separation of medical consumables from medical service pricing
items.
• Strengthen policy mechanism, including increasing medical treatment prices to discourage the
illegal multiple use of disposable medical devices.
• Accelerate the dynamic adjustment of pricing catalogues to facilitate patients’ access to
innovative treatment methods and state-of-the-art medical devices.

2. Continue to Advance the Development of Regulatory Science and Accelerate

the Promotion of Innovation
2.1 Introduce Innovative Regulatory Methods for Standalone Medical Software
• Allow software such as controller-type software and pre-processing software to be registered as

242 Healthcare Equipment Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

standalone software.
• Remove the requirement to specify the version number of each software module in applications
for registration of medical systems.
• Remove mandatory compliance of medical software with GB/T 25000.51-2016.
• Assign low-risk medical software to class I and enhance rules for risk classification.
• Streamline the requirements for registration alteration when only minor modifications are made
to medical software, and provide a guideline defining which modifications qualify as ‘minor’.
• Allow supplementary registration of recall-related software modifications, to allow for quick
updates to medical software and reduce risks for patients and clinicians, with modifications
approved afterwards.
2.2 Harmonise Regulatory Requirements for Relocating Manufacturing from Overseas
to China with International Practices
• Broaden the scope of foreign-invested enterprises, making National Medical Products
Administration (NMPA) Announcement No. 104 applicable if the import registrant and the
domestic factory eventually belong to the same corporate firm.
2.3 Formulate a Sharing of Responsibilities between Manufacturers, Service Providers
and Hospitals in Post-market Supervision

Section Three: Goods

• Formulate specific requirements for medical institutions and service providers to report real and
effective adverse events or defect information to manufacturers.
• Require the NMPA and the National Health Commission (NHC) to jointly develop regulations on
the use of medical devices, with specific requirements and articles on penalties.

3. Simplify Maintenance of Existing Registration Details when Mandatory

Standards are Updated
• Accelerate the conversion from mandatory industrial standards to recommended ones
according to the China’s Standardisation Law and international practices.
• Simplify the process for changing registration details triggered by the revision of mandatory
standards and shorten the review time for registration alteration.
• Establish procedures to avoid repeated testing, taking reference from International Organization
for Standardization/International Electrotechnical Commission test reports.
• Build up regulatory capacity to enable fast and smooth processing of registration alteration.

4. Promote the Application of High-quality, High-precision Medical Devices in

Public Hospitals
• Promote the concept of value-based procurement, ensuring the best outcome when using
limited public resources.
• Limit the application of the Government Procurement Law to funds administered by the Ministry
of Finance and its local agencies.
• Increase transparency in the evaluation of import applications and invite experts from foreign-
invested enterprises to participate in expert panels.
• Grant transitional periods for the importation of medical devices when manufacturers are in the
process of relocating manufacturing into China.

Healthcare Equipment Working Group 243

 5. Align Different Policies and Develop a Roadmap to Guide and Support the
Refurbishment and Remanufacturing of Medical Equipment in China
• Develop a roadmap and industrial development plan to guide and support medical equipment
refurbishment and remanufacturing in China.
• Facilitate the transformation of IEC standard, IEC 63077:2019 Good Refurbishment Practices for
Medical Imaging Equipment, into a Chinese standard.
• Develop a workable policy for medical equipment to be imported for repair, including for
remanufacturing and refurbishment.

6. Promote Market Access for High-precision and Innovative In-vitro Diagnostics

(IVDs)
6.1 Reflect IVDs’ Technical Features in Medical Treatment Pricing Catalogues
• Consider the special characteristics of IVDs and the differences in methodology when formulating
the amended version of the National Medical Services Pricing Catalogue.
• Include different diagnosis methods and technologies in provincial procurement catalogues,
and purchase according to the quality of diagnostic products and the principles of accuracy and
sensitivity.
• Ensure that only validated reagents are used with IVD devices.
Section Three: Goods

6.2 Shorten the Pre-market Approval Time for Initial Registration and Registration
Alteration
• Increase reviewers’ training on registration documentation requirements among and with industry
to provide more clarity and predictability during the file review phase.
• Establish a notification channel for simple, literal, non-critical modifications, such as labelling
amendments and changes to the instruction for use.
• Establish a unified procedure for domestic and imported IVD reagents to allow for the change of
manufacturing site through a notification to the responsible Medical Products Administration.
• Accelerate the issuance of registration certificates after internal approval has been given by the
NMPA.
• Grant a grace period of six months for using an invalidated registration certificate after approval
has been granted for minor changes to registration details.

Introduction to the Working Group Equipment Working Group invest heavily in developing
innovative treatments, and fully support the
Medical devices, including in-vitro diagnostics (IVD),
government’s efforts to ensure patients’ access to state-
play a crucial role in the prevention, diagnosis and
of-the-art, safe, efficacious and affordable medical
treatment of diseases, while supporting and monitoring
devices. They maintain this commitment by investing in
the convalescence of patients in hospitals, clinics
modern Chinese research, development and production
and those undergoing homecare. Therefore, medical
facilities, as well as in the education of Chinese doctors
devices are key to improving the overall health of the
and healthcare professionals. The working group has
population as laid down in the strategic plan Healthy
established contact with major stakeholders both in
China 2030.1
China and in Europe. It organises regular meetings with
the National Medical Products Administration (NMPA)
Members of the European Chamber’s Healthcare
as well as Health Security Administrations (HSAs) and
1　 Outline of Healthy China 2030, State Council, 25th October 2016, viewed 18th Health Commissions at different government levels to
April 2022, <http://www.gov.cn/xinwen/2016-10/25/content_5124174.htm>

244 Healthcare Equipment Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

get first-hand information on regulatory and healthcare harbours, and the reduction in road freight arising from
policy developments, and to present suggestions from the Shanghai lockdown led to disruptions in production
the European medical device industry. all over China, and caused a great deal of uncertainty
over the economic outlook. Findings from a flash survey
To enhance international cooperation, in 2007, the conducted by the European Chamber in April 2022
working group established contact with the European show that, as a result of China’s imposition of more
Coordination Committee of the Radiological, stringent COVID-19 containment measures, 58 per
Electromedical and Healthcare Information Technology cent of respondents reported having decreased their
Industry (COCIR), a major medical technology 2022 revenue projections; 23 per cent are considering
industry association based in Europe. In April 2014, shifting current or planned investments out of China to
the European Chamber founded the Consumable other markets; and 77 per cent report that China is now
and Disposable Medical Devices (CDMD) Advisory a less attractive investment destination.3
Committee, a group consisting of Chinese subsidiaries
of international market leaders in the field of In 2021, government procurement legislation was a
consumable medical devices and IVD. major topic for the working group. Encouragingly, the
Ministry of Finance (MOF) published an authoritative
The Healthcare Equipment Working Group wishes to notice, stating that “government procurement shall give
continue to engage in a constructive dialogue with all equal treatment to products domestically produced
relevant government agencies, both at the national and in China [...] by local and foreign enterprises.”

Section Three: Goods

provincial/local level in China. However, while market access improved for products
manufactured in China by foreign-invested enterprises
Recent Developments (FIEs), procurement of imported medical devices
became more restricted. In a notice published on 10th
After the disruption caused to the medical device
August 2021, the MOF stated that public hospitals
market in the first half of 2020, China’s health
carrying out procurement within their regular budget—
authorities managed to control the spread of COVID-19
whatever the source of the budget—must apply
in the second half of 2020 and throughout 2021, which
government procurement rules, 4 implying that, in
brought stability to business development. In 2021,
accordance with to the Government Procurement Law
imports of medical devices grew by 18.4 per cent year-
(GPL),5 public hospitals must preferably buy medical
on-year to United States dollar (USD) 50.2 billion. 2
devices manufactured in China.
However, when that figure is broken down, it shows
huge disparities between different product categories.
Controlling medical expenses remains a priority for the
For example, imports of IVD instruments grew by
Chinese health authorities. One tool to achieve this is
49.9 per cent, indicating that health authorities want
volume-based procurement (VBP) for CDMD. After a
to strengthen the ability of the healthcare system to
first VBP tender in September 2021, IVD reagents were
enable early diagnosis of infectious and other diseases.
procured by VBP in Anhui Province.6 As the number
However, over the same period, imports of ventilators—
of VBP tenders increased rapidly in the second half
a device high in demand during the initial outbreak of
of 2020, the process of VBP tendering has become
COVID-19—fell by 13.6 per cent.
more mature and transparent; however, there is still

In March 2022, a large-scale outbreak of COVID-19 in 3　 Flash Survey: COVID-19 and the War in Ukraine: The Impact on European
Shanghai resulted in temporary closures of numerous Business in China, European Union Chamber of Commerce in China, 5 th
May 2022, viewed 5th May 2022, <https://www.europeanchamber.com.cn/en/
foreign- and Chinese-invested medical device publications-archive/973>
manufacturing facilities. Because of the variety and 4　 Reply of the MOF to Petition No.8584 on the Fourth Session of the 13 th
National People’s Congress, MOF, 10th August 2021, viewed 12th April 2022,
complexity of medical devices, manufacturers depend <http://gks.mof.gov.cn/jytafwgk_8304/2021jytafwgk_1/rddbjyfwgk/202108/
more heavily on global supply chains than many other t20210810_3744263.htm>
5　 Government Procurement Law (2014 Amended Version), National People’s
industries. Delays of imports of components at major Congress, 31th August 2014, viewed 25th June 2022, <http://jrs.mof.gov.cn/
zhuanti2019/ppp/zcfbppp/201410/t20141030_1155101.htm>
2　 Annual Summary: Summary and Analysis of China’s 2021 Medical Device In- 6　 Trial Development of Volume-based Procurement of Reagents for Clinical
and Export Figures, China Business Intelligence Network, 29th January 2022, Application in Anhui Province, Central Government of the People’s Republic
viewed 18th April 2022, <https://baijiahao.baidu.com/s?id=17232169231202885 of China, 26th September 2021, viewed 18th April 2022, <http://www.gov.cn/
91&wfr=spider&for=pc> xinwen/2021-09/26/content_5639398.htm>

Healthcare Equipment Working Group 245

 a tendency for tenders to be decided mainly by price, In addition, the CMDE and the NHSA have strengthened
possibly compromising quality of treatment. their cooperation by sharing data and increasing
technical consultation, striving for integration of
The second major tool aimed at controlling healthcare regulatory and procurement processes, and addressing
expenses are case-based payment systems for insufficient consistency in medical device classification,
hospital treatment. Starting from early 2022, the nomenclature and code assignment.
National Healthcare Security Administration (NHSA)
is conducting a three-year trial phase for diagnosis- Key Recommendations
related groups (DRG), a disease classification system
widely used in European Union (EU) Member States, 1. Increase the Role of Market Forces in
and big data diagnosis-intervention packages (DIP), an the Procurement of Medical Devices
alternative payment system developed in China.7 The by Giving Greater Weighting to Device
trial covers almost all cities in China. Quality and Clinical Needs
1.1 Prioritise Value-based Procurement and
Regulatory Environment Improve Enforcement Procedures in
In February 2021, the State Council issued the revised Volume-based Procurement (VBP)
Regulation on the Supervision and Administration
of Medical Devices (Order No. 739), 8 the highest- Concern
level legal document on medical device regulation The medical device industry is facing challenges in VBP
Section Three: Goods

in China. Order No. 739 is aimed at increasing activities, particularly with regard to the criteria for selecting
regulatory efficiency and promoting innovation, and in winning tenders, which tend to be based on price at the
many respects brings Chinese regulation in line with expense of product quality and clinical requirements, as
international best practices. well as in terms of enforcing agreed VBP.

The Centre for Medical Device Evaluation (CMDE) has Assessment

improved its internal management by standardising the In 2019, the State Council published the Work Plan
work of evaluators through operation procedures, and on High-value Consumables Governance (Work
increasing predictability of the evaluation process by Plan), 10 stipulating a framework for medical device
establishing an internal quality control system. VBP. Since the Work Plan was released, procurement
agencies at different levels have conducted more than
Communication with manufacturers has also improved, 120 VBP tenders with very different procedures and
though additional channels for consultation prior rules. However, the frequency of VBP tenders and the
to submissions would further increase regulatory absence of central guidelines on tender management
efficiency. caused considerable challenges for bidders.

In March 2021, the NMPA and the Standardisation The industry supports the efforts of the NHSA and local
Administration of China (SAC) published the Opinion HSAs to control expenses and promote economies of
on Further Promoting the High-quality Development of scale, justifying lower prices for higher quantities. In
Medical Device Standardisation.9 Subsequently, China’s nationwide VBP tenders, prices decreased by around
standardisation bodies accelerated their updates to 80 per cent, meaning that the winning bidders had to
relevant standards, with the gap between international streamline their operations to cut costs while maintaining
and Chinese standards narrowing. the quality of their products and services. At the same
time, as elective surgeries decreased due to COVID-19
7　 Notification by the National Healthcare Security Administration on a Three- prevention measures, delivery costs increased, which—
Year Plan to Roll-out DRG/DIP Payment Reforms, NHSA, 26th November 2021, combined with complicated procurement procedures—
viewed 18th April 2022, <http://www.nhsa.gov.cn/art/2021/11/26/art_37_7406.
html> led to challenges for manufacturers. Moreover, in a few
8　 Regulation on the Supervision and Administration of Medical Devices, provinces and cities, the actual procurement volume
State Council, 2021, viewed 18 th April 2022, <http://www.gov.cn/zhengce/
content/2021-03/18/content_5593739.htm>
9　 Opinion on Further Promoting the High-quality Development of Medical Device 10 Work Plan on High-value Consumables Governance, State Council, 31st July
Standardisation, NMPA and SAC, 2021, viewed 19th April 2022, <https://www. 2019, viewed 19th April 2022, <http://www.gov.cn/zhengce/content/2019-07/31/
nmpa.gov.cn/xxgk/fgwj/gzwj/gzwjylqx/20210330170905141.html> content_5417518.htm>

246 Healthcare Equipment Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

did not meet the contractually agreed volume. In other by public healthcare insurance for diagnosis and
cases, some hospitals asked for additional discounts treatment, such as DRG and DIP—are putting financial
after the minimum price had already been agreed on, pressure on hospitals, which may result in reduced
or delayed payments. Solving these issues requires procurement and utilisation of innovative and high-
cooperation among different government departments, quality medical devices.
as tendering falls under the responsibility of local
HSAs while hospital management is under local Health Assessment
Commissions. Public hospitals in China mainly rely on three sources of
income: payments through public healthcare insurance;
Although a certain—often too small—percentage of co-payment by patients; and state subsidies, with
new and innovative consumable medical devices can prices for medical services controlled by provincial
be procured outside of VBP, health authorities do not governments. Currently, the income of most public
encourage hospitals to use this option. Furthermore, hospitals barely meets their expenses, mainly due
when adding such consumable medical devices into the to underestimation of labour costs. Due to current
next round of VBP, the guiding price should be based COVID-19 prevention measures, public hospitals are
on the results of clinical evaluations. facing increasing challenges, such as restrictions on
receiving patients, and the diversion of resources to
Recommendations prevent COVID-19 and related infections in medical
• Determine quality and clinical requirements as the personnel, all of which result in a decrease of hospital

Section Three: Goods

main criteria for deciding VBP tenders, as opposed to revenues.
procurement prices.
• Establish an inter-ministerial communication platform Meanwhile, hospital payment system reform has been
to ensure that VBP tendering and implementation accelerated, following the NHSA’s publication of the
of tendering results adhere to generally accepted Three-year Work Plan for DRG/DIP Payment Reform.11
principles of VBP tenders, particularly in terms of This plan stipulates that by the end of 2025, DRG/DIP
realising procurement volume, terms of delivery and is to be applied in most hospitals, thereby handing over
payment as agreed in the tender. responsibility for cost control to them. DRG is a mature
• Limit VBP to genuine large-volume procurement, in cost calculation system that could have a negative
general at provincial level or above. impact if not implemented properly. For example, if a
• Grant a transitional period before implementation of treatment fee calculated by DRG is too low, hospitals
VBP tenders at the provincial level or above, to allow may tend to choose products with lower prices over
winning bidders time to prepare sufficient inventory. better quality but higher priced ones. It may also
• Set sufficient intervals between VBP tenders to hinder market access for new medical technologies.
allow procurement agencies to evaluate the clinical In addition, DRG is based on historical data from the
application of VBP products in hospitals, quality of previous three years and does not reflect fast-changing
services and reliability of supply. cost structures. This can result in discrepancies
• Increase the new innovative consumable medical between the theoretical payment standards and reality.
devices available to patients by procuring outside VBP Noting that, it is necessary to ensure that the sub-group
tenders, and conduct clinical evaluations of these new of DRG can meet current clinical demands.
products to allow them to participate in the next round
of VBP with a reasonable and justified price. One aim of China’s healthcare reform is to sufficiently
value the labour of medical personnel. Compared with
1.2 Optimise the Legislative and Administrative other professions in China, medical personnel are
Framework for Hospital Payment Reform to relatively underpaid.12 Gradually increasing salaries of
Promote the Use of Innovative Treatment
Methods 11 Three-year Work Plan for DRG/DIP Payment Reform , NHSA, 19 th
November 2021, viewed 25 th April 2022, <http://www.gov.cn/zhengce/
zhengceku/2021-11/28/content_5653858.htm>
Concern 12 Representative of National People’s Congress Proposed Four Points to
Far-reaching reforms of hospital financing—especially Improve Treatment of Medical Personnel, China Healthcare, 25th May 2020,
viewed 7th May 2022, <https://www.cn-healthcare.com/articlewm/20200525/
new methods to calculate the amount of reimbursement content-1116152.html>

Healthcare Equipment Working Group 247

 medical personnel in China or identifying other ways to the same time, designated prices for some treatments
incentivise quality of care would also benefit patients, are too low, resulting in multiple uses of disposable
and constitutes a cost factor that needs to be figured medical devices, which goes against the regulations
into DRG budgets. of both the NMPA and the NHC, and risks patients’
health.13&14 Additionally, for certain treatments, single-
Recommendations use medical devices are bundled into medical service
• Update cost factors and ratios in DRG and DIP pricing items, which greatly limits clinicians’ choice and
regularly to establish a reasonable payment standard. use of innovative medical technology.
• Establish a reasonable pathway to market for
innovative treatment methods to accelerate patients’ Recommendations
access to new medical technologies. • Adhere to and implement the separation of medical
• Optimise the DRG sub-groups to adapt them to clinical consumables from medical service pricing items.
requirements and allow flexibility to meet the varying • Strengthen policy mechanism, including increasing
needs of different regions. medical treatment prices to discourage the illegal
multiple use of disposable medical devices.
1.3 Regularly Update the Healthcare Service • Accelerate the dynamic adjustment of pricing
Catalogue to Promote the Use of Innovative catalogues to facilitate patients’ access to innovative
Treatment Methods treatment methods and state-of-the-art medical
devices.
Section Three: Goods

Concern
Irregular or delayed updates to the healthcare service 2. Continue to Advance the Development of
catalogue can hinder patients’ access to innovative Regulatory Science and Accelerate the
treatment methods.
Promotion of Innovation
2.1 Introduce Innovative Regulatory Methods
Assessment
for Standalone Medical Software
The inclusion of medical treatments in a catalogue
of state-approved treatment methods and assigning Concern
prices is a pre-condition for public hospitals to offer a The life-cycle of standalone software is much shorter
diagnosis and related treatment to patients. However, than that of other medical devices, therefore applying
while China’s healthcare reform is intended to improve traditional regulatory concepts decelerates development
the value of the country’s medical service, this is not of the medical software industry in China and inhibits
reflected in the most recent National Medical Treatment patients’ access to innovative diagnosis and treatment.
Pricing Catalogue, which was published in 2012, with a
new version under preparation by the NHSA. The speed Assessment
of innovation in medical devices is such that many Medical software modules, such as controllers and
treatment methods listed in the 2012 pricing catalogue pre-processing software, are designed to be installed
have already been discarded or modified, while more on different medical device hardware. In the EU and
innovative treatment methods and medical devices other major economies, such software modules can
are not included. As there is currently no nationwide be registered independently from the hardware. In
approval procedure and timeline for adding new China, however, hardware and software modules must
technology, this leads to delays in clinical application, be registered as one entity, and the exact version
while new treatment methods at the provincial level still number of each software module must be specified
need to be approved by the NHSA. during registration. This means that each time software

For many treatments, single-use medical devices—

13　Reply to Enquiry No. 1718 (No. 184 under Medical and Sports Category) of the
such as implants—are the most significant price factor Third Plenary Meeting of the 13th National People’s Consultative Conference,
in a medical bill. Tightly-controlled treatment pricing NMPA, 4th August 2020, viewed 8th May 2021, <https://www.nmpa.gov.cn/zwgk/
jyta/zhxta/20200804171454155.html>
therefore gives hospitals only one option: to use 14 The Ministry of Health Issues a Regulation that Disposable Medical Devices
relatively cheap single-use medical devices, which may Shall Not be Used Repeatedly (in Chinese), Central People’s Government of
the People’s Republic of China, 25th July 2006, viewed 8th May 2021, <http://
lead to the quality of treatment being compromised. At www.gov.cn/jrzg/2006-07/25/content_345790.htm>

248 Healthcare Equipment Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

modules are modified, a large number of costly and 2.2 Harmonise Regulatory Requirements for
time-consuming registration alterations are required, Relocating Manufacturing from Overseas
which delays employment of state-of-the-art software in to China with International Practices
hospitals.
Concern
The international standard ISO/IEC 25051:2014 Though the NMPA simplified the policy for the
Software Engineering - Systems and Software Quality registration of products whose manufacture has been
Requirements and Evaluation - Requirements for Quality moved to China, it stipulates that the legal manufacturer
of Ready to Use Software Product and Instructions for of such products must be the enterprise established in
Testing is a non-mandatory standard for software China by the licence holder of the imported products,
development. In China, it has been transformed into which is not common practice for multinational
GB/T 25000.51-2016. While this is also a recommended companies (MNCs).
standard, the NMPA requirement for full compliance
makes it de facto mandatory. Assessment
Many MNCs have dozens of legal entities, one of which
Unlike the EU, China classifies no software as a low- may be the licence holder of medical devices imported
risk class I medical device, but always as either class to China. In most cases, these entities are not direct
II or class III medical devices instead, which require investors of the factory in China. Requiring all import
type testing and clinical evaluation or trial procedures. registrants to directly invest in the domestic factory for

Section Three: Goods

Furthermore, the NMPA defines software recalls as all products whose manufacture has been transferred
a major product modification, which necessitates to China goes against common practice for MNCs.
registration change. However, such modifications can This will have an impact on decision-making processes
only be implemented after approval from the NMPA, when companies are considering relocating their
which is a regulatory inconsistency that leaves the manufacturing from overseas to China.
industry in an impossible situation.
Moreover, if the import registrant and the domestic
Recommendations factory eventually belong to the same corporate firm,
• Allow software such as controller-type and pre- the quality management system (QMS) of the domestic
processing software to be registered as standalone factory would become consistent with and traceable
software. to the import registrant, which has the licensed QMS.
• Remove the requirement to specify the version number In such cases, product quality is guaranteed, and
of each software module in applications for registration accelerated registration should apply, in accordance
of medical systems. with the NMPA Announcement on Matters Related to
• Remove mandatory compliance of medical software the Production of Imported Medical Device Products in
with GB/T 25000.51-2016. a Chinese Factory (2020, No. 104).15
• Assign low-risk medical software to class I and
enhance rules for risk classification. Recommendation
• Streamline the requirements for registration alteration • Broaden the scope of FIEs, making NMPA Announcement
when only minor modifications are made to medical No. 104 applicable if the import registrant and the
software, and provide a guideline defining which domestic factory eventually belong to the same
modifications qualify as ‘minor’. corporate firm.
• Allow supplementary registration of recall-related
software modifications to allow for quick updates to
medical software and reduce risks for patients and
clinicians, with modifications approved afterwards.

15　Announcement on matters related to the production of imported medical

device products in a Chinese factory (2020, No. 104), NMPA, 25th September
2020, viewed 14 th April 2022, <https://www.nmpa.gov.cn/xxgk/ggtg/
qtggtg/20200925152407171.html>

Healthcare Equipment Working Group 249

 2.3 Formulate a Sharing of Responsibilities • Require the NMPA and the NHC to jointly develop
between Manufacturers, Service Providers regulations on the use of medical devices, with specific
and Hospitals in Post-market Supervision requirements and articles on penalties.

Concern 3. Simplify Maintenance of Existing

While the NMPA is strengthening the regulatory Registration Details when Mandatory
framework for post-market supervision, including after-
Standards are Updated
sales service, maintenance and recall, the current lack
of a clear division of responsibilities can delay or even Concern
prevent necessary corrective actions. The promulgation of revised mandatory standards
often requires time-consuming and costly changes to
Assessment the registration details of medical devices, which can
Adverse event monitoring and re-evaluation play a disrupt their supply to the Chinese market.
critical role in the post-market supervision of medical
devices. They also act as important communication Assessment
channels among manufacturers, service providers and The State Council’s Order No. 739 stipulates that
medical institutions. Currently, there are two regulations after mandatory standards are implemented, medical
governing medical device usage: the Administrative device registrants must promptly identify the differences
Measures for Use Quality Supervision of Medical between their product’s technical requirements and the
Section Three: Goods

Devices;16 and the Administrative Measures for Clinical mandatory standards, and change registration details
Use of Medical Devices.17 The content of these two accordingly.
measures is similar but emphasised differently, which
has resulted in confusion among device users. This Mandatory standards account for 21 per cent of all
is particularly the case with regard to after-sales and medical device standards, including major ones such
the maintenance of medical devices, as the measures as the GB 9706 series for medical equipment. 18 If a
do not establish specific requirements for medical mandatory standard is updated, it will result in many
institutions to monitor and report adverse events. registration alterations, which are time-consuming
and costly, particularly for products that need to apply
Manufacturers are unable to obtain timely or complete more than one mandatory standard. Not only do such
information during the collection and investigation changes increase the burden of registrants, they may
of adverse events, which precludes comprehensive also affect product supply and clinical use if processes
analysis and evaluation in some cases and therefore are delayed during registration, such as product type
prevents timely risk analysis evaluation and risk control. testing. If the revision of mandatory standards affects
Inaccurate descriptions of product defects or adverse products that are part of VBP, there will be an even
events, for example—with different organisations and wider impact.
institutions providing different descriptions of device
defects and adverse events—hinders information Changes to registration triggered by the revision of
exchange, product risk control and improvement, mandatory standards requires additional type testing. At
and decision-making for drug supervision and health present, the quantity and testing capacity of qualifying
administrative departments. test institutes are far below industry needs. To address
this problem, on 12th May 2022, the MOF issued the
Recommendations Notice on Issuing the Central Infrastructure Investment
• Formulate specific requirements for medical institutions Budget (Appropriation) of the Medical Device Testing
and service providers to report real and effective Capacity-building Project in 2022.19
adverse events or defect information to manufacturers.
18 Annual Report of China's Medical Device Standard Management 2021, NMPA,
16　Administrative Measures for Use Quality Supervision of Medical Devices, 18th February 2022, viewed 14th April 2022, <https://www.nmpa.gov.cn/ylqx/
NMPA, 2015, viewed 14th April 2022, <https://www.nmpa.gov.cn/ylqx/ylqxfgwj/ ylqxjgdt/20220218145010154.html>
ylqxbmgzh/20151021120001725.html> 19　Notice on Issuing the Central Infrastructure Investment Budget (Appropriation)
17 Administrative Measures for Clinical Use of Medical Devices, NHC, 12th January of the Medical Device Testing Capacity-building Project in 2022, MOF, 12th
2021, viewed 14 th April 2022, <http://www.gov.cn/gongbao/content/2021/ May 2022, viewed 14th May 2022, <http://jjs.mof.gov.cn/zxzyzf/jjzc/202205/
content_5600085.htm> t20220512_3809965.htm>

250 Healthcare Equipment Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

Many Chinese standards lag behind the corresponding continued in local procurement.21
International Organization for Standardization (ISO)
or International Electrotechnical Commission (IEC) The working group welcomes the MOF’s assurance that
standards, which most imports comply with when they products domestically produced in China by FIEs will be
are listed in the country of origin. To qualify for such treated equally to Chinese brands, and expects this to
standards, those products have been marketed abroad be stringently implemented at the local level. However,
for many years and proved safety and effectiveness in with regard to imported medical devices, the MOF’s
clinical use. It can therefore be deduced that simplifying new extended definition of government procurement
the process of changing registration as a result of contradicts previous practices where hospitals using
mandatory standards being revised will not cause new their own funds had the option to buy imported medical
risks to the safety and effectiveness of medical devices, devices.
and therefore re-testing is not required.
Hospitals need a huge variety of medical devices: for
Recommendations example, there are 500,000 different types of medical
• Accelerate the conversion from mandatory industrial devices available in the European market, most
standards to recommended ones according to the of which are manufactured in small quantities. It is
Standardisation Law and international practices. unrealistic to expect to manufacture all these devices
• Simplify the process for changing registration details to a high quality in China, therefore imported medical
triggered by the revision of mandatory standards and devices help to ensure high-quality supply. Application

Section Three: Goods

shorten the review time for registration alteration. of sub-standard medical devices may cause suffering to
• Establish procedures to avoid repeated testing, taking patients, and in the long-term lead to increased medical
reference from ISO/IEC test reports. expenses. Therefore, international best practices
• Build up regulatory capacity to enable fast and smooth emphasise the clinical value, not just the price, when
processing of registration alteration. deciding tenders.

4. Promote the Application of High-quality, Applications for hospital procurement of imported

High-precision Medical Devices in Public medical devices need to be approved by expert
committees. To ensure decisions are fact-based,
Hospitals
international expertise is required. While European
medical device enterprises have expressed willingness
Concern
to expand investment and manufacture additional
The MOF’s 2021 announcement that all procurement
medical devices in China,22 the high regulatory hurdles
by public hospitals is to be considered ‘government
involved in relocating production are time-consuming.
procurement’, with a preference for procuring ‘made
in China’ medical devices, could deprive patients of
Due to the vast number of medical devices required,
access to high-quality, high-precision imported devices.
FIEs will always need to sell a mix of locally produced
and imported products. As medical systems often
Assessment
consist of both locally manufactured and imported
After the Foreign Investment Law (FIL) entered into
components, restrictions on imports may negatively
force on 1st January 2020,20 its slow implementation at
affect FIEs readiness to invest further resources in the
the local level became a source of concern for FIEs.
Chinese market.
Despite the FIL’s provision that products manufactured
in China by FIEs will receive equal treatment in
Recommendations
government procurement activities, the ‘buy-China
• Promote the concept of value-based procurement,
policy’—i.e., preferential treatment of Chinese brands—
ensuring the best outcome when using limited public

21 Healthcare Equipment Working Group Position Paper 2021/2022, European

Union Chamber of Commerce in China, 23 th September 2021, viewed
12 th April 2022, pp. 253–254, <https://www.europeanchamber.com.cn/en/
20 Foreign Investment Law, National People’s Congress, 15th March 2019, viewed publications-archive/953/Healthcare_Equipment_Working_Group_Position_
12th April 2022, <http://www.npc.gov.cn/npc/c30834/201903/121916e4943f416b Paper_2021_2022>
8b0ea12e0714d683.shtml> 22 Orally expressed during visits to member companies.

Healthcare Equipment Working Group 251

 resources. been added: “Used mechanical and electrical products
• Limit the application of the GPL to funds administered that appear in the List of Commodities Forbidden to Be
by the MOF and its local agencies. Imported, and under the conditions of environmental
• Increase transparency in the evaluation of import protection and safety products, can be imported for
applications and invite experts from FIEs to participate repairing (including re-manufacturing) and re-export
in expert panels. with the consent of the MOFCOM.” Although this policy
• Grant transitional periods for the importation of medical supports the development of inbound medical device
devices when manufacturers are in the process of repair (including remanufacturing) business in some
relocating manufacturing into China. free trade zones (FTZs), the actual implementation
process for the import of used parts is still unclear.
5. Align Different Policies and Develop a
Roadmap to Guide and Support the In addition, some policies from other government
departments still act as barriers to the refurbishment
Refurbishment and Remanufacturing of
and remanufacturing of medical equipment in China.
Medical Equipment in China
For example, Order No. 739 forbids the import of used
medical devices that have expired or are considered
Concern
‘invalid’ or ‘obsolete’ without defining these terms. Such
Current unclear policies and harsh regulations in China
ambiguity in messaging will confuse industry players
prevent remanufacturing and refurbishment of medical
and prevent them from investing in the refurbishing and
equipment for the Chinese market, which increases
Section Three: Goods

remanufacturing of medical equipment in support of

medical expenses and contradicts the national strategy
China’s national circular economy strategy.
to develop a green circular economy.

Recommendations
Assessment
• Develop a roadmap and industrial development plan
Refurbishment and remanufacturing of medical
to guide and support medical equipment refurbishment
equipment can reduce expenses, save natural
and remanufacturing in China.
resources and decrease environmental pollution.
• Facilitate the transformation of IEC standard, IEC
As per international practices, original equipment
63077:2019 Good Refurbishment Practices for Medical
manufacturers (OEMs) of large-scale medical imaging
Imaging Equipment, into a Chinese standard.
equipment, such as magnetic resonance imaging
• Develop a workable policy for medical equipment to be
(MRI) or computed tomography (CT) machines, have
imported for repair, including for remanufacturing and
established mature quality control and standardised
refurbishment.
refurbishment processes. The IEC standard, IEC
63077: 2019 Good Refurbishment Practices for Medical
Imaging Equipment has been published to meet global 6. Promote Market Access for High-precision
demand for safe and effective refurbished medical and Innovative In-vitro Diagnostics (IVDs)
equipment. The standard strongly promotes the use 6.1 Reflect IVDs’ Technical Features in Medical
of, and market access for, refurbished medical imaging Treatment Pricing Catalogues
equipment and the importance of uniform practices
worldwide. Concern
At present, medical treatment pricing catalogues do
In recent years, the working group has observed some not reflect products’ technical features, which puts
positive changes in policies driving the development of innovative diagnostic methods at a disadvantage.
a circular economy in the medical device industry. For
instance, Order No. 7 on Amending the Administrative Assessment
Measures for the Import of Electromechanical Products In clinical practice, IVD devices and reagents are the
was published by the Ministry of Commerce (MOFCOM) basis for correct diagnosis of diseases. Manufacturers
in 2018.23 In Article 30 of this legislation a provision has are permanently developing new IVD products to
increase the accuracy, sensitivity, specificity, stability
23　Amending the Administrative Measures for the Import of Electromechanical
Products, MOFCOM, 10th October 2018, viewed 7th April 2021, <http://www.
and speed of diagnosis methods. Correct diagnosis is a
mofcom.gov.cn/article/b/c/201811/20181102804608.shtml>

252 Healthcare Equipment Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

precondition for efficacious treatment; whereas a wrong 2022/112 registration transition period of five years.24
diagnosis may be very costly for the healthcare system. On 15 th November 2021, the CMDE published the
Testing for COVID-19 provides a very pertinent example Announcement on Issuing the Folder Structure of the
– a false-negative test result may not only delay Electronic Application Catalogue for the Registration of
treatment of one patient but also be a starting point of a Medical Devices (No. 15, 2021),25 followed by a public
mass infection. consultation on the Filing Review Requirements for
Various Registration Types.26
Different prices should be assigned to diagnosis methods
of different accuracy, sensitivity and reliability in national After these regulations came into force in 2022, criteria
and provincial medical treatment pricing catalogues to for accepting registration documents appeared to be
avoid hospitals operating at a loss. Currently, in most ambiguous. For example, different reviewers at the
cases, the same price is assigned to different diagnosis CMDE and its sub-centres gave conflicting instructions
methods. on which documents need to be supplemented after
initial evaluation. Additionally, when the manufacturing
The tendency in procurement to cut prices across site of imported IVD reagents is changed, the NMPA
the board may lead to the use of reagents that do requires the filing of a time-consuming registration
not suit the designated IVD device. Because IVD change, whereas domestics products in the same
devices and reagents are developed as one complete situation only need to undergo a far simpler notification
system, replacing reagents with cheaper but unverified process. For example, modification of the registration

Section Three: Goods

alternatives may lead to a serious deterioration in the of imported IVD reagents includes chemical tests
quality/accuracy of diagnosis. for three consecutive batches, meaning the whole
approval procedure takes about a year longer than for
Recommendations domestic products. This is one example of remaining
• Consider the special characteristics of IVDs and the redundant changed-registration testing requirements
differences in methodology when formulating the and performance data requirements faced by FIEs.
amended version of the National Medical Services
Pricing Catalogue. Furthermore, after internal approval has been given by
• Include different diagnosis methods and technologies the NMPA, it takes usually two to four weeks to issue
in provincial procurement catalogues, and purchase the new registration certificate. During this period, the
according to the quality of diagnostic products and the manufacturer is unable to produce using either the new
principles of accuracy, sensitivity. or the old registration. As the manufacture of reagents
• Ensure that only validated reagents are used with IVD requires a continuous flow, these gaps cause serious
devices. disruptions in the value chain.

6.2 Shorten the Pre-market Approval Time Recommendations

for Initial Registration and Registration • Increase reviewers’ training on registration documentation
Alteration requirements among and with industry to provide more
clarity and predictability during the file review phase.
Concern • Establish a notification channel for simple, literal, non-
Under the new registration framework promulgated critical modifications, such as labelling amendments
by the NMPA, new and amended registrations for IVD
reagents in China take much longer than in Europe 24　Regulation (EU) 2022/112 of the European Parliament and of the Council of
and face increasing uncertainties during technical 25 January 2022 amending Regulation (EU) 2017/746 as regards transitional
provisions for certain in vitro diagnostic medical devices and the deferred
evaluation. application of conditions for in-house devices, EUR-Lex, 25 th January
2022, viewed 26 th April 2022, <https://eur-lex.europa.eu/legal-content/EN/
TXT/?uri=uriserv:OJ.L_.2022.019.01.0003.01.ENG>
Assessment 25 Announcement on Issuing the Folder Structure of the Electronic Application
In September 2021, the NMPA promulgated new Catalogue for the Registration of Medical Devices (No. 15, 2021), CMDE,
15th November 2021, viewed 27th June 2022, <https://www.cmde.org.cn/xwdt/
registration regulations for IVDs, which came into shpgzgg/gztg/20211115161000245.html>
force after a very short transition period of just two 26　Filing Review Requirements for Various Registration Types, NMPA, 25 th
February 2022, viewed 26th April 2022, <https://www.nmpa.gov.cn/xxgk/zhqyj/
months, compared with the EU’s Regulation (EU) zhqyjylqx/20220302135737184.html>

Healthcare Equipment Working Group 253

 and changes to the instruction for use.
• Establish a unified procedure for domestic and imported
IVD reagents to allow for the change of manufacturing
site through a notification to the responsible Medical
Products Administration.
• Accelerate the issuance of registration certificates after
internal approval has been given by the NMPA.
• Grant a grace period of six months for using an
invalidated registration certificate after approval has
been granted for minor changes to registration details.

Abbreviations
CDMD Consumable and Disposable Medical
Device
CMDE Centre for Medical Device Evaluation
COCIR European Coordination Committee
of the Radiological, Electromedical
and Healthcare Information
Technology Industry
Section Three: Goods

DIP Diagnosis-intervention Package

DRG Diagnosis-related Groups
EU European Union
FIE Foreign-invested Enterprise
FIL Foreign Investment Law
GPL Government Procurement Law
HSA Health Security Administration
IEC International Electrotechnical
Commission
ISO International Organization for
Standardization
IVD In-vitro Diagnostics
MOF Ministry of Finance
MOFCOM Ministry of Commerce
NHSA National Healthcare Security
Administration
NMPA National Medical Products Administration
OEM Original Equipment Manufacturer
SAC Standardisation Administration of
China
USD United States Dollar
VBP Volume-based Procurement

254 Healthcare Equipment Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

Maritime Manufacturing and Industrial Services

Working Group

Key Recommendations
1. Provide a Comprehensive Roadmap Detailing How the Maritime Sector Will
be Included in China’s 2060 Carbon Neutrality Pledge
1.1 Increase Foreign Companies’ Access to Green Demonstration Projects and Pilot Projects
• Involve foreign companies in green demonstration projects and pilot projects by improving their
access to such initiatives.
• Develop and implement a transparent and open mechanism that allows all companies—
both Chinese and foreign—to contribute to the development and construction of the green
infrastructure needed to successfully decarbonise domestic shipping in China.
• Establish a decarbonisation task force involving policymakers and businesses, both Chinese
and foreign.
1.2 Support Decarbonisation of the Domestic Fleet by Clarifying the Application Process and
Timeline for Certification of Maritime Equipment Imported from Abroad for Installation on

Section Three: Goods

China-flagged Vessels
• E nsure that the Maritime Safety Administration Type Approval Certificate application process is
transparent, and clearly designate a single point of contact to liaise with and to whom relevant
documentation should be submitted.
• Issue official documentation once the application has been received.
• Stipulate the timeframe for reviewing an application from when it is received to when the
permits will be issued.
• Create a mechanism that allows companies to track their applications.

2. Issue Guidance on the Transportation of Liquified Natural Gas (LNG)

2.1 Accelerate the Deployment of LNG Bunkering and Ship-to-Ship Regulations along Coastal
Areas
• Issue relevant local guidelines for ship-to-ship transfers and LNG bunkering in Chinese coastal
areas.
• Increase cooperation with European ports offering similar services, to better understand
hazard identification analysis and hazard and operability analysis workshop results and the
corrective actions that have been implemented.
2.2 Authorise LNG Transportation on Domestic Waterways at Both the National and Provincial
Level
• Issue relevant local guidelines promoting safe transportation of LNG on domestic waterways,
making the adoption of large-capacity LNG carriers and LNG storage under atmospheric
conditions possible.
• Invite foreign-invested companies and foreign experts to share their insights and
recommendations with regulators.

Maritime Manufacturing and Industrial Services Working Group 255

 3. Advance the Opening-up of the Cruise Market in China and Support the Restart
of Business Operations
• I ssue a plan with a clear timeline for cruise businesses in China to restart international operations.
• Allow foreign-invested cruise operators to offer ‘cruises to nowhere’ departing from Chinese ports.
• Allow foreign-invested travel agencies to sell tickets directly to Chinese customers.

4. Ease Cross-border Movement of Foreign Experts, Managers and Specially-trained

Maritime Engineers/Maintenance Workers
• E
ase COVID-related travel restrictions and implement a fast-track programme for foreign maritime
experts, managers and specially-trained engineers, and facilitate foreign marine technicians’ access
to Chinese ports.

5. Amend Value-added Tax (VAT) Regulations on Imported Ship Components from

Outside China for Assembly Onboard
• E
xempt imported ship components for assembly onboard from VAT payments, in line with
international practice, in order to foster the domestic ship-repair-and-conversion business.
Section Three: Goods

Introduction to the Working Group Recent Developments

The Maritime Manufacturing and Industrial Services Coming from a record-low base in 2020, due to the
Working Group (previously the Shipbuilding Working COVID-19 crisis coming on top of several years of
Group) represents European companies that design, a sluggish market, the world’s shipbuilding industry
manufacture, maintain and repair ships, as well as experienced a surge in growth in 2021, with orders
maritime equipment manufacturers and technology reaching a level not seen since the mid-2000s.
providers, classification societies, maritime service Shipbuilders are optimistic that strong orders will
providers and cruise operators.1 continue for several years past 2025, for several
reasons. First, new International Maritime Organization
While the maritime sector plays an essential role in (IMO) measures, driven by regulatory changes related
satisfying the increasing global demand for cleaner and to the decarbonisation of shipping, will take effect as of
safer transportation systems—with the decarbonisation 2023.3&4 Shipowners need to either invest in efficiency
of shipping being vital to delivering on global climate improvements or place orders for new vessels to replace
ambitions—the green and digital transformation of or upgrade part of their non-compliant fleet. Second, as
maritime and offshore operations present challenges the global economy slowly rebounded from the impact
and opportunities for both European and Chinese of the outbreak of COVID-19, resurgent demand and
companies in terms of supplying new innovative depleted inventories, coupled with congestion at major
solutions. Furthermore, as ships and associated ports, sent shipping freight rates soaring during 2021,
maritime technology and equipment fall into the 3 The purpose of these new IMO measures is to steer ocean-going ships closer
category of ‘dual-use’ technology, China defines the to Paris Agreement targets. Two IMO indexes—the Efficiency Existing Ship
Index (EEXI) and the Carbon Intensity Indicator (CII)—have been established to
maritime sector as a strategic sector that is subject to provide shipowners with a reference point by which to reduce their greenhouse
national security and sovereignty considerations.2 gas (GHG) emissions levels: Understanding New IMO Decarbonization
Measures: EEXI And CII, Bureau Veritas, 3 rd May 2021, viewed 8 th April
2022, <https://www.bvsolutions-m-o.com/magazine/understanding-new-imo-
decarbonization-measures-eexi-and-cii>
1　Classification societies establish and maintain technical standards for various 4　See for example: Sustainable maritime fuels – 'Fit for 55' package: the
industries. FuelEU Maritime proposal, European Parliament, 11th April 2022, viewed 13th
2 ‘Dual-use’ technology and/or equipment refers to that which is suitable for both April 2022, <https://www.europarl.europa.eu/thinktank/en/document/EPRS_
civilian and military purposes. BRI(2021)698808>

256 Maritime Manufacturing and Industrial Services Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

allowing shipping lines to invest in fleet expansion.5 after Greece, accounting for about 16 per cent of the
Third, the global trend of shipyard consolidation has world’s tonnage, equating to 329 million DWT.14
continued, primarily with a view to streamline operations
and invest in developing new technologies. This has Regulatory developments
impacted yard space availability.6&7 There is a number of regulatory developments with
regard to China’s pledge to peak carbon emissions
According to the China Association for National before 2030 and achieve carbon neutrality by 2060 that
Shipbuilding Industry (CANSI), China completed are worth highlighting, including:
39.7 million deadweight tonnage (DWT) in 2021, 8
and reclaimed its position as the largest shipbuilding • On 26 th October 2021, the State Council issued
nation in the world in terms of annual order volume by the Carbon Peak 2030 Action Plan, which declares
compensated gross tonnage (CGT). In 2021, China support for the use of liquified natural gas (LNG)
accounted for half of the global total of 45.7 million as a transition fuel for ships, and prompts Chinese
CGT in new orders made during the year,9 while orders shipbuilders to develop electric and LNG-powered
received for export ships also increased. As a result, vessels. The plan also states that the upgrading and
the orderbooks of Chinese state-owned shipyards are conversion of old ships must be accelerated, and
full until 2025, with the exception of a few yards in the use of shore power by ships in port promoted. In
northeast China, and the orderbooks of smaller private addition, demonstration applications of coastal and
shipyards are full past 2023. 10 China’s ship exports inland green intelligent ships are to be carried out.15

Section Three: Goods

in 2021 grew by 18.6 per cent year-on-year to reach • On 3rd December 2021, the Ministry of Industry and
United States dollars (USD) 22.47 billion, with exports Information Technology (MIIT) released the 14th Five-
to Europe totalling USD 4.6 billion. 11 Bulk carriers, year Plan for Green Development of Industry, which
oil tankers and container ships continue to dominate details that China aims to accelerate the development
China’s ship exports, accounting for 57 per cent of the of green intelligent ships, and lays out a proposal
total.12 for the comprehensive utilisation of solid waste from
marine engineering equipment. The plan also seeks
Moreover, the global orderbook for merchant ship to restrict the use of hazardous substances in ships
newbuildings at the end of 2021 accounts for 12.8 per by formulating inspection guidelines and building a
cent of the existing fleet’s capacity.13 China now has database of hazardous substances covering the entire
become the second largest owner of the global fleet industrial chain.16
5　Costas Paris, Ship Orders Surge as Carriers Rush to Add Capacity, The Wall • On 21st January 2022, the Ministry of Transport (MOT)
Street Journal, 8th June 2021, viewed 11th April 2022, <https://www.wsj.com/ adopted the 14th Five-year Plan for Development of
articles/ship-orders-surge-as-carriers-rush-to-add-capacity-11623179052>
6 Shin Watanabe, Chinese state-owned shipbuilder lets shipyard go under in rare Green Transport Industry—on which the working group
move, Nikkei Asia, 2nd December 2021, viewed 11th April 2022, <https://asia. advocated for more specific targets in respects of port
nikkei.com/Business/Companies/Chinese-state-owned-shipbuilder-lets-shipyard-
go-under-in-rare-move> infrastructure decarbonisation, green-powered vessels
7　Mid-Sized Shipyards Consolidating and Restructuring due to Downturn, The and green maritime financing bonds, among others—
Maritime Executive, 9 th November 2020, viewed 11 th April 2022, <https://
www.maritime-executive.com/article/mid-sized-shipyards-consolidating-and- laying out the general targets for decarbonisation of
restructuring-due-to-downturn> China’s vessel fleets in the near term.17 These include
8　Analysis of the economic operation of the shipbuilding industry in 2021,
CANSI, 9th January 2022, viewed 11th April 2022, <http://www.cansi.org.cn/cms/ reducing carbon dioxide (CO2) emissions per unit of
document/17230.html> transport turnover of operating vessels by 3.5 per cent
9　China Wins Number-One Rank in Annual Shipbuilding Orders for 2021, The
Maritime Executive, 3rd January 2022, viewed 11th April 2022, <https://www. by 2025 (taking 2020 as the baseline), and reducing
maritime-executive.com/article/china-wins-number-one-rank-in-annual-
shipbuilding-orders-for-2021> 14 Daniel, Laurent; Lee, Changhoon & Spieth, Judith, Shipbuilding policy and
10 Fleet Forecast data basis September 2021 (100+ GT), Orderbook data basis developments in selected economies, OECD, 15th September 2021, viewed 8th
start 2022, Clarksons Research, 10th February 2022, viewed 21st April 2022, April 2022, <https://www.oecd-ilibrary.org/science-and-technology/shipbuilding-
<https://www.clarksons.net/n/#/portal> policy-and-market-developments-in-selected-economies_5872e0cf-en>
11 Analysis of the economic operation of the shipbuilding industry in 2021, CANSI, 15 Notification of the State Council on Printing and Distributing 2030 Carbon Peak
9 th January 2022, viewed 11 th April 2022, <http://www.cansi.org.cn/cms/ Action Plans, State Council, 26th October 2021, viewed 19th April 2022, <http://
document/17230.html> www.gov.cn/zhengce/content/2021-10/26/content_5644984.htm>
12 Ibid. 16 14th Five-Year Plan for Green Development of Industry, MIIT, 3rd December 2021, viewed
13 Powerful growth in the China-owned fleet, Hellenic Shipping News, 16th June 19th April 2022, <http://www.gov.cn/zhengce/zhengceku/2021-12/03/5655701/files/4
2022, viewed 16th June 2022, <https://www.hellenicshippingnews.com/powerful- c8e11241e1046ee9159ab7dcad9ed44.pdf>
growth-in-the-china-owned-fleet/> 17 China’s vessel fleets include the inland waterway vessels, ships in coastal trade,
short-sea shipping liners and ocean-going fleets.

Maritime Manufacturing and Industrial Services Working Group 257

 total nitrogen oxide (NO x) emissions by seven per Assessment
cent by 2025 (taking 2020 as the baseline).18 It also Marine equipment and energy-saving technologies
states that ports and service areas within the Yangtze are at the heart of the huge and critical process of
River Economic Zone should reach 100 per cent shore decarbonising shipping. In the short-term, there is
power capacity by 2025.19 potential for the use of transition fuels such as fossil
LNG in large ships, and batteries and hydrogen
While these plans are aimed at accelerating the in smaller ships. Alternative carbon-neutral fuels
decarbonisation of Chinese domestic inland shipping, such as green-anhydrous ammonia (NH3), green
it is unclear how they will be implemented. Targets methanol, green LNG and green hydrogen, which
laid out in the MOT’s 14th Five-year Plan are moreover take well-to-wake emissions—meaning emissions
highly unambitious, as regulators have sought to from fuel production, transportation, distribution and
control emissions emanating from shipping for quite eventually combustion onboard—into account, may
some time. As the Asian Development Bank noted in a become more dominant fuels in the long-term. This
recent report on green shipping in China, “development approach is in line with proposals put forward by the
has been uneven and largely uncoordinated because European Commission and by China on approaches to
of insufficient integration, knowledge, and capacity to decarbonisation.21&22
implement new energy applications in domestic river
ships and ports.”20 According to a mapping exercise on green
demonstration projects carried out by the Getting to
There are currently no policies or regulations geared
Section Three: Goods

Zero Coalition, in 2021, China had 15 maritime zero-

toward integrating international technology into China’s emission pilots and demonstration projects.23 Of these,
domestic shipping industry. In addition, China’s failure eight are targeted at domestic shipping. None of the
to provide a clear indication of its current market—such projects identified include a foreign equipment or
as size, age and type of fleet—may lead to both foreign technology provider as a project partner.24
and domestic companies finding it difficult to accurately
assess the business potential and identify the right Most working group members note that they do not
technology mix. receive information directly from the Chinese authorities
on green demonstration projects for domestic, inland
Key Recommendations shipping, but rather tend to hear of them when it is too
1. Provide a Comprehensive Roadmap late to get involved or when no foreign suppliers are
being considered. Some recent examples include:
Detailing How the Maritime Sector Will
be Included in China’s 2060 Carbon
• A state-sponsored project for the Yangtze River Three
Neutrality Pledge Gorges 1, the world’s largest electrical cruise ship,
1.1 Increase Foreign Companies’ Access to Green
powered by a battery with a capacity of 7,500 kilowatt
Demonstration Projects and Pilot Projects
(kW) hours, allowing it to sail 100 kilometres on a
single charge.25
Concern
21 Proposal for a Regulation of the European Parliament and of the Council on the Use
Decarbonisation of inland and coastal water
of Renewable and Low-carbon Fuels in Maritime Transport and Amending Directive
transportation will be key in reaching China’s 2060 2009/16/EC, European Union, 14th July 2021, viewed 9th May 2022, <https://eur-lex.
europa.eu/legal-content/EN/TXT/?uri=CELEX%3A52021PC0562>
carbon neutrality goal, yet European companies are
22 Notice on Releasing of the 14 th Five-year Plan for Development of Green
largely prevented from participating in green maritime Transport Industry by the Ministry of Transport, State Council, 29th October 2021,
viewed 20th June 2022, <http://www.gov.cn/zhengce/zhengceku/2022-01/21/
demonstration projects and other pilot projects because
content_5669662.htm>
of unclear tendering processes and other relevant 23 The Getting to Zero Coalition is a multi-stakeholder, multi-country, industry-
led platform for collaboration that brings leading stakeholders from across the
information.
maritime and fuels value chains together with the financial sector and other
18 Notice of the Ministry of Transport on printing and distributing the "14 th Five- stakeholders committed to making commercially viable zero-emission vessels
Year Plan for Development of Green Transportation", Ministry of Transport, a scalable reality by 2030: Kilemo, Heidi, Montgomery, Robert & Leitão, Ana
21 st January 2022, viewed 18 th April, <https://xxgk.mot.gov.cn/2020/jigou/ Madalena, Mapping of Zero Emission Pilots and Demonstration Projects Third
zhghs/202201/t20220121_3637584.html> Edition, The Getting to Zero Coalition, 31st March 2022, viewed 12 th April,
19 Ibid. <https://www.globalmaritimeforum.org/publications/mapping-of-zero-emission-
20 People’s Republic of China: Study on the Development of Green Ports and pilots-and-demonstration-projects>
Shipping, Asia Development Bank (ADB), December 2021, viewed 8th April 2022, 24 Data shared courtesy of the Getting to Zero Coalition.
pp.2-3, <https://www.adb.org/projects/55032-001/main> 25 Yangfei Zhang & Kun Liu, Largest electric cruise ship makes debut, China

258 Maritime Manufacturing and Industrial Services Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

• A ‘Green Pearl River’ project that includes the design existing fleet to LNG-fuelled vessels. 32 These and
and construction of 50 LNG-fuelled river vessels. As similar projects around the country would have been of
far as the working group is aware, foreign suppliers great interest to European maritime companies. In the
and Chinese suppliers with foreign sub-suppliers were experience of the working group, the reasons for foreign
not considered.26 companies being unable to join demonstration projects
• A project, under the banner ‘Norway-China Hydrogen for domestic, inland shipping is threefold. First, for these
Initiative’, to build up the hydrogen value chain kinds of projects, the provider must be certified by the
deemed necessary to achieve zero-emission domestic China Classification Society (CCS), and foreign-made
shipping on the Yangtze River before 2040, funded maritime equipment and technology destined for China-
by the Beijing-Tsinghua Industrial Research and flagged vessels must have additional certification from
Development (R&D) Institute (BTIRDI)27 and the Three the Maritime Safety Administration (MSA) (see Key
Gorges Corporation on the Chinese side. 28 Some Recommendation 1.2). Second, budgets and prices
working group members reached out to see if there are tend to be low, meaning that in most cases only low-end
opportunities to join, as they have a strong interest in local manufacturers can meet the requirements – this
entering early into the zero-emission inland waterway sometimes also discourages mid-range and high-end
transition, but without success.29 Chinese suppliers. Finally, China’s focus on developing
self-sufficiency in the maritime industry means domestic
There also is a lack of clarity on processes for manufacturers are to a certain degree still favoured.
participation in demonstration projects and initiatives All these factors make it challenging for European

Section Three: Goods

at the local level, as additional information on project companies to increase their market share.
details and bidding is not readily available. In 2021,
Fujian Province issued its Work Plan for Promoting However, the main issue is that demonstration projects
the High-quality Development of Ship and Marine for domestic, inland shipping are not visible upfront.
Engineering Equipment in Fujian Province (2021– While foreign companies are sometimes invited
2023), 30 which states that there will be at least 10 to provide training and workshops, and engage in
electric ship demonstration projects. Guangdong consultancy for domestic shipping projects (most
Province has also issued its Inland Shipping Green notably foreign classification societies), only domestic
Development Demonstration Project Implementation companies are invited to join as full-fledged project
Plan,31 with a heavy emphasis on conversion of the partners or technology providers. In some cases,
Daily, 30th March 2022, viewed 13th April, <https://english.www.gov.cn/news/ Chinese shipyards that obtain government funding for
topnews/202203/30/content_WS6243ad1ac6d02e5335328724.html> R&D projects may subcontract to a foreign company.
26 CSSC commences construction of 50 LNG-fuelled bulk carriers for ‘Green Pearl
River’ project, Manifold Times, 5th April 2021, viewed 13th April 2022, <https://
www.manifoldtimes.com/news/cssc-commences-construction-of-50-lng-fuelled- For China to reach its emission reduction targets
bulk-carriers-for-green-pearl-river-project/>
27 The BTIRDI is a public institution jointly established in 1998 and managed by the for domestic and inland shipping, it is imperative to
Beijing Municipal People's Government and Tsinghua University. upgrade its existing fleets with new technologies,33 a
28 China calls for Norwegian tech firms to take part in hydrogen growth industry,
BI Norwegian Business School, 4 th October 2019, viewed 13 th April 2022, task to which European companies could contribute.
<https://www.bi.edu/about-bi/news/2019/09/China-Calls-for-Norwegian-tech- In view of potential future exports of vessels to Europe
companies/>
29 It is unclear whether this is due to being blocked or that there are no real through these local projects, cooperation with European
activities in this field yet. Although the 2040-target timing is quite distant, to reach suppliers is also in the interests of Chinese shipbuilders,
it the work needs start now, with studies, infrastructure and pilots.
30 The plan envisions Fujian becoming a leading R&D and manufacturing base equipment manufacturers and other stakeholders.
for domestic electric ships and other high-technology ship products, such as
deep-sea mining vessels, roll-on-roll-off (ro-ro) vessels, cruise ships, electric
ships and new high-performance ocean-going fishing vessels, with a combined The development and construction of the green
output value of Chinese yuan (CNY) 30 billion by 2023: Notice on Printing and infrastructure needed to successfully decarbonise
Distributing the Work Plan for Promoting the High-quality Development of Ship
and Marine Engineering Equipment in Fujian Province (2021–2023), People’s gd.gov.cn/zwgk/wjk/qbwj/yfb/content/post_3491983.html>
Government of Fujian Province, 17th August 2021, viewed 11th April 2022, <http:// 32 The subsidy standards are as follows: for ships 300kW and below power, the
gxt.fujian.gov.cn/gk/zfxxgk/zfxxgkml/gfxwj/202108/t20210819_5672794.htm> maximum subsidy limit is CNY 900,000; for ships with power 300–600kW, the
31 General Office of the People's Government of Guangdong Province issued the maximum subsidy limit is CNY 1.3 million; for ships with power 600–1,000kW,
‘Guangdong Provincial Division of Labour Plan to Enhance Inland Navigation CNY 1.7 million; for ships with power 1,000–1,500kW, CNY 2.5 million; and for
Capacity and Promote Green Development of Inland Shipping Overall’, ships with power above 1,500kW, the maximum subsidy limit is CNY 3.8 million.
‘Guangdong Provincial Inland Shipping Capacity Improvement Implementation The specific subsidy implementation plan shall be formulated separately by the
Plan’ and the ‘Guangdong Provincial Inland Shipping Green Development Provincial Department of Finance and the Department of Transportation: Ibid.
Demonstration Project Implementation Plan’, People’s Government of 33 Ibid.
Guangdong Province, 19th August 2021, viewed 11th April 2022, <https://www.

Maritime Manufacturing and Industrial Services Working Group 259

 domestic shipping could be accelerated if a transparent procedure or ‘wheelmark’ for equipment, components,
and open mechanism for project bidding and or materials destined for China-flagged ship classes,
certification of marine equipment and technology despite the CCS being authorised to perform the
destined for China-flagged vessels is established. MED certification.34 As a result, European equipment
Moreover, establishing a decarbonisation task force manufacturers are forced to apply for and obtain CCS
in shipping and maritime manufacturing involving certification, which often results in additional costs. This
policymakers and businesses, both Chinese and practice is unfair, as Chinese marine manufacturers can
foreign, could ensure best-practice sharing and mutual automatically obtain a MED certification from the CCS
benefits in the global fight against climate change. or another classification society approved by the EU,
allowing them full access to the European market and
Recommendations vessels flying flags of any member state.
• Involve foreign companies in green demonstration
projects and pilot projects by improving their access to In addition, some European manufacturers are also
such initiatives. subject to higher certification costs at the CCS than
• Develop and implement a transparent and open local manufacturers, even though their products
mechanism that allows all companies—both Chinese are similar and have similar safety criticality or
and foreign—to contribute to the development and environmental performance. Likewise, it has in the past
construction of the green infrastructure needed to been unclear whether Chinese authorities will approve
successfully decarbonise domestic shipping in China. ballast water treatment systems (BWTS) manufactured
Section Three: Goods

• Establish a decarbonisation task force involving by European or other foreign equipment manufacturers
policymakers and businesses, both Chinese and for installment on Chinese vessels, regardless of
foreign. whether it has an IMO-TAC issued by the CCS or
another classification society.
1.2 Support Decarbonisation of the Domestic Fleet
by Clarifying the Application Process and This TAC issue has been a long-term concern for
Timeline for Certification of Maritime Equipment working group members, as previously detailed in
Imported from Abroad for Installation on China- the Shipbuilding Working Group Position Paper
flagged Vessels 2019/2020. 35 One member company noted that
although it first applied in 2015, it did not obtain TAC
Concern approval until 2018. In addition, the approval was
The process of applying for and obtaining the MSA Type granted as a ‘one-off’ by the CSS on behalf of the MSA,
Approval Certificate (TAC), in order to have equipment but did not include approval for China-flagged vessels.
installed on China-flagged vessels, is not transparent. While it has since then become easier for foreign
BWTS manufacturers to obtain both the CCS and the
Assessment MSA-TAC-approval, the process for certifying other
Foreign-manufactured marine equipment destined for foreign-made energy efficiency technology and marine
China-flagged vessels needs two TACs: first, a TAC for equipment is still unclear and complicated.
vessels classified by the CCS and flying a non-Chinese
flag; and second, a TAC for vessels flying a China flag According to the Asian Development Bank, in 2020,
from the MSA. Based on the experience of working more than 90 per cent of Chinese domestic, inland
group members, while the process for obtaining the vessels operated on traditional diesel engines. 36
first TAC is relatively straightforward, that for obtaining Depending on sources consulted, estimates of the
an MSA-TAC is highly opaque and ambiguous. Among
34 The MED certification covers a limited number of types of marine equipment,
other issues, there is neither a clear point of contact to
such as life-saving and firefighting equipment and scrubbers, and does not cover
liaise with and submit relevant documentation, nor has ballast water devices. However, it is still considered essential certification for
European maritime manufacturers.
any timeframe been stipulated for the process.
35 Shipbuilding Working Group Position Paper 2019/2020, European Union
Chamber of Commerce in China, 24 th September 2019, viewed 21 st April,
<https://www.europeanchamber.com.cn/en/publications-archive/711/
European manufacturers must obtain the MSA-TAC
Shipbuilding_Working_Group_Position_Paper_2019_2020>
because China does not accept the European Union 36 People’s Republic of China: Study on the Development of Green Ports and
Shipping, ADB, December 2021, viewed 8th April 2022, <https://www.adb.org/
(EU) Marine Equipment Directive (MED) certification
projects/55032-001/main>

260 Maritime Manufacturing and Industrial Services Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

number domestic, inland river vessels in China range refuelling challenges to both domestic and international
between 115,000 to 200,000, but all will need to be ships bunkering at Chinese ports.
replaced or upgraded over the next 40 years.37&38
Assessment
According to working group calculations, European Despite a national regulation on LNG ship-to-ship
suppliers would be able to take 25 per cent of this transfers and LNG bunkering services having been
upgrading demand if barriers were lowered. Therefore, under development and discussion for many years,39 it
considering that the average price of a new inland ship has yet to be officially promulgated.
is approximately euro (EUR) 1.5 million, with equipment
representing about 70 per cent of the newbuilding cost, In August 2021, the MSA issued the Measure for
the yearly market potential for European suppliers the Safety Supervision and Administration of Water
would be between EUR 650 million and EUR 2 Liquified Natural Gas Filling Operations, which took
billion. Apart from the business opportunities, the effect as of 30th September 2021 and will be valid for
decarbonisation of domestic shipping could be quickly five years. 40 The Measure covers safety regulations
accelerated if foreign-made marine equipment (with related to ship-to-ship and onshore storage-to-ship LNG
suitable technology) could be made readily available to filling operations. However, as detailed guidelines are
Chinese vessels. yet to be released by local MSA authorities, ship-to-ship
LNG transfer remains out of reach in most provincial
ports.
Recommendations

Section Three: Goods

• Ensure that the MSA-TAC application process is
To ensure the safety of bunkering operations, it is
transparent, and clearly designate a single point of contact
standard practice to conduct both a concept hazard
to liaise with and to whom relevant documentation should
identification analysis and a hazard and operability
be submitted.
analysis of the intended gas system. Many European
• Issue official documentation once the application has
(as well as Singaporean) ports have solid experience in
been received.
carrying out these studies in order to define dedicated
• Stipulate the timeframe for reviewing an application
regulations and, as a result, have conducted hundreds
from when it is received to when the permits will be
of LNG ship-to-ship transfers safely. The working group
issued.
believes that establishing a cooperative framework
• Create a mechanism that allows companies to track
between one of these ports and Chinese ports could
their applications.
help accelerate the implementation of the national rules
at the provincial level.
2. Issue Guidance on the Transportation
of LNG Recommendations
2.1 Accelerate the Deployment of LNG Bunkering • Issue relevant local guidelines for ship-to-ship transfers
and Ship-to-Ship Regulations along Coastal and LNG bunkering in Chinese coastal areas.
Areas • Increase cooperation with European ports offering
similar services, to better understand hazard
Concern identification analysis and hazard and operability
The current lack of regulations on LNG ship-to- analysis workshop results and the corrective actions
ship transfers and LNG bunkering services presents that have been implemented.

37 Information on the number of domestic ships is not precise and varies largely
depending on the sources consulted. Both the ADB and the Chinese consultancy
Zhi Yan estimate that there were 115,000 domestic inland vessels in 2020, but
Statista estimates there were 126,800 vessels at the end of 2020: Ibid.; Current
Competition and Investment Outlook of Transport Vessel industry in China 2021-
2027, Zhi Yan Consultancy, 3rd June 2021, viewed 13th April 2021, <https://www. 39 Bunkering LNG ship-to-ship can take place between two seagoing ships at
chyxx.com/industry/202106/954998.html>; Number of transport vessels in China anchorage or in port.
from 2008 to 2021 (in 1,000s), Statista, 1st February 2022, viewed 13th April 40 Notice of the Maritime Safety Administration of the People’s Republic of
2022, <https://www.statista.com/statistics/258515/number-of-vessels-in-china/> China on Amending and Issuing the Measure for the Safety Supervision and
38 In 2021, the working group held a meeting with the China Transport Planning Administration of Water Liquified Natural Gas Filling Operations, MSA, 27th
and Research Institute, which noted that there were approximately 200,000 August 2021, viewed 12th April 2022, <https://www.msa.gov.cn/html/xxgk/tzgg/
inland river vessels in China. wgfw/20210830/5C1201AF-E262-4207-91F1-2CD37127635F.html>

Maritime Manufacturing and Industrial Services Working Group 261

 2.2 Authorise LNG Transportation on Domestic 3. Advance the Opening-up of the Cruise
Waterways at Both the National and Provincial Market in China and Support the Restart
Level
of Business Operations

Concern
Concern
Existing regulation on LNG transportation on main
China’s cruise market is only partly open to foreign-
domestic waterways is insufficient due to a lack of
invested cruise operators, which negatively impacts
alignment at local levels.
business sustainability as restrictions continue to slow
business growth, while the lack of a timeline for cruise
Assessment
businesses to restart international operations is causing
There is a clear guideline for the development of
grave financial burdens and will substantially discourage
LNG transportation on domestic, inland waterways.41
the global cruise industry from investing in China.
However, inner waterways such as the Yangtze River,
Pearl River and the Yellow River flow through several Assessment
provinces, and difficulties associated with coordination On 14 th March 2020, the global cruise market was
and varying safety concerns mean implementation at shut down due to COVID-19 control measures, an
the local level (province and county) is evolving very unprecedented move that resulted in USD 32.7 billion
slowly. total expenditures created by the cruise industry by the
end of 2020.43 All foreign-owned cruise ships operating in
Section Three: Goods

Following an expert assessment meeting in late 2020 Shanghai had to dock offshore or on standby in other ports
between MOT officials and 50 LNG industry experts, such as Singapore and Dubai. Most have since been re-
approval was granted for LNG carriers to enter the assigned to serve other markets, primarily because China
Yangtze River. Provincial branches of the MSA were is yet to resume international ocean cruising.
deemed responsible for overseeing implementation.
In September 2021, the Jiangsu Province MSA issued Since the initial outbreak of COVID-19, the sanitation
detailed trial measures on safety measures for the and epidemic prevention system of global cruise ships
navigation, operation and bunkering of LNG vessels in and ports has greatly improved. According to the Cruise
its local section of the Yangtze River.42 However, as the Lines International Association (CLIA), the world's
proposal specifies many restrictions, as of mid-2022, no largest cruise industry trade association, the infection
LNG carrier has sailed on the Yangtze River. To resolve rate in mid-2022 is about eight per 10,000 passengers.
this, the working group recommends working with both By the end of 2021, 86 countries and regions had
Chinese and foreign experts, especially on the industry resumed international ocean cruise operations. 44 In
side, to move forward on LNG carriers entering the June 2022, the CLIA estimated that the number of
Yangtze River. passengers in 2023 will exceed that of 2019.45

Recommendations In other non-CLIA countries, effective communication

• Issue relevant local guidelines promoting safe platforms have been established between government,
transportation of LNG on domestic waterways, making medical authorities and cruise operators to enable
the adoption of large-capacity LNG carriers and LNG industry re-opening. Meanwhile, the Chinese
storage under atmospheric conditions possible. Government has yet to lay out a roadmap for re-
• Invite foreign-invested companies and foreign experts opening its international cruise market, which has
to share their insights and recommendations with left the industry in the dark as to how to prepare for
regulators. business to restart.
43 Cruise Industry Shutdown Has Cost Billions of Dollars, Hundreds of Thousands
Of Jobs, CLIA Says, The Business Journals, 14th December 2020, viewed 16th
41 Guidance on Promoting the Application of LNG in the Water Transport Sector
June 2022, <https://www.bizjournals.com/southflorida/news/2020/12/14/cruise-
by the Ministry of Transport, MOT, 23rd October 2013, viewed 16th June 2022,
industry-shutdown-losses-to-surpass-32b.html>
<http://www.gov.cn/gongbao/content/2013/content_2547150.htm>
44 State of the Cruise Industry Outlook 2022, Cruise Lines International Association,
42 Notice on the Issuance of the ‘Safety Measures for Navigation, Berthing and
January 2022, viewed 12 th April 2022, <https://cruising.org/en/news-and-
Operation of Bulk LNG Vessels Carriers Sailing on the Jiangsu Section of the
research/research/2022/january/state-of-the-cruise-industry-outlook-2022>
Yangtze River (Trial)’, General Office of Jiangsu Maritime Safety Administration,
45 CLIA Optimistic About Greece Cruise Travel in 2022 and Beyond, GTP, 10th June
20 th September 2021, viewed 12 th April 2022, <https://www.js.msa.gov.cn/
2022, viewed 16th June 2022, <https://news.gtp.gr/2022/06/10/clia-optimistic-
art/2021/9/20/art_11434_1274993.html>
about-greece-cruise-travel-in-2022-and-beyond/>

262 Maritime Manufacturing and Industrial Services Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

In contrast to the European and United States (US) 4. Ease Cross-border Movement of Foreign
cruise markets, only Chinese-flagged local cruise ships Experts, Managers and Specially-trained
are allowed to offer packages off the coast of China,
Maritime Engineers / Maintenance
with no foreign-invested operators currently permitted to
Workers
do so. Rules concerning cabotage and foreign-flagged
vessels,46 combined with the fact that foreign-invested
Concern
travel agencies are not allowed to sell cruise tickets
China’s current strict quarantine measures and visa
directly to Chinese customers (but are forced to sell via
restrictions make it difficult for foreign, specially-trained
Chinese tour operators instead), have been a drag on
maritime experts and marine technicians to enter China
market growth.
to take up full-term employment, or to conduct specific,
short-term activities related to installation, maintenance
Prior to COVID-19, China had overtaken Germany
and repairs onboard ships, as well as the newbuilding
to become the world’s second largest cruise market
of ships.
after the US, and had seen a double-digit annual
increase that would have allowed it to reach 10 million
Assessment
passengers by 2026. Therefore, despite the barriers
Prior to entering China, foreign companies’ employees
they encountered, foreign cruise operators had been
face complex application procedures for obtaining visas
willing to increase investments in China. However,
to travel to China, both for employment and to conduct
after two years of zero profits since the outbreak of
specific, short-term activities related to installation,

Section Three: Goods

COVID-19, and with other large markets opening up
maintenance and repairs of equipment and ships,
while China operations remain at a standstill, many
or newbuilding of ships. Upon arrival in China, strict
foreign cruise operators are now considering whether to
quarantine requirements (up to a minimum of three
exit the China market.
weeks plus one week of self-observation) are imposed,
and in some cases, foreign experts face an additional
However, if China opened up so-called ‘cruises
two weeks of quarantine when travelling between
to nowhere’ to international ocean cruise liners, it
provinces.
could help stimulate the growth of the Chinese travel
market by bringing more revenues to local travel
While most working group members engaged in
agencies. Regulators could grant special permission
shipbuilding and maritime equipment report that they
for international cruise lines as part of the central
set up local teams over the last two years to handle
government’s efforts to revitalise the domestic travel
maintenance—and in cases where specially-trained
market. Piloting cruises to nowhere on a trial basis
maritime experts and marine technicians from abroad
under the current circumstances considered safe
were required, they managed to get by with the support
enough by medical experts and other authorities as
of the shipyard—the story is completely different for
neither passengers nor crew members would have
classification societies and service providers.
contact with other countries’ citizens.

The main reason is that the invitation letter (PU letter)

Recommendations
verification became more complicated in 2021, with not
• Issue a plan with a clear timeline for cruise businesses
only the officially listed documents required but also
in China to restart international operations.
often ad hoc documentation requested on a case-by-
• Allow foreign-invested cruise operators to offer ‘cruises
case basis, on top of prior verification by the Chinese
to nowhere’ departing from Chinese ports.
Foreign Affairs Office. Therefore, the working group is
• Allow foreign-invested travel agencies to sell tickets
happy to see that, from the beginning of June 2022,
directly to Chinese customers.
foreigners no longer need to apply for a PU letter, or
invitation letter, before applying for certain types of
visas. 47 However, at time of writing, implementation
remains to be observed.

46 Cabotage is the right to operate sea, air or other transportation services within 47 Process to approve working visas to be simplified for entering China: AmCham
a particular territory. Maritime cabotage laws govern the transportation of goods China, Global Times, 10th June 2022, viewed 23rd June 2022, <https://www.
and people between ports. globaltimes.cn/page/202206/1267811.shtml>

Maritime Manufacturing and Industrial Services Working Group 263

 Another issue is access to Chinese ports: to date, all and equipment destined for so-called ‘export projects’,
have some sort of restrictions on entry by foreign crew which include a foreign shipowner and a foreign flag,
and technicians.48&49 In addition, COVID-19 containment conducted in foreign currency.
measures have caused disruptions, with shipyards
occasionally forced to temporarily shut down and—as This practice affects the Chinese shipbuilding business
during the Shanghai lockdown in spring 2022—declare when it comes to ship repair and conversion (especially
force majeure.50 These restrictions pose a challenge for the cruise industry,). As a result, and combined with
for the entire maritime industry, and discourage foreign the COVID-19 restriction, many ship operators prefer
investment and long-term partnerships in China. to go to Singapore or elsewhere in Southeast Asia to
repair and convert their ships. A direct consequence
Recommendation of this is that China’s ship-repair-and-conversion
• Ease COVID-related travel restrictions and implement business segment is not growing as it should be, and
a fast-track programme for foreign maritime experts, consequently Chinese shipyards are generating losses.
managers and specially-trained engineers, and Additionally, it is currently not possible to replace all
facilitate foreign marine technicians’ access to Chinese ship components from overseas with local Chinese
ports. components, simply because neither the standards nor
the quality assurance are compatible.
5. Amend Value-added Tax (VAT) Regulations
on Imported Ship Components from Recommendation
Section Three: Goods

• Exempt imported ship components for assembly

Outside China for Assembly Onboard
onboard from VAT payments, in line with international
practice, in order to foster the domestic ship-repair-
Concern
and-conversion business.
In contrast to international industry norms, Chinese
shipbuilders that acquire and import ship components
and equipment from outside China to be assembled Abbreviations
onboard an international China-flagged vessel must pay CANSI China Association for National
the VAT, which unfairly impacts the competitiveness of Shipbuilding Industry
European maritime equipment manufacturers. CCS China Classification Society
CGT Compensated Gross Tonnage
Assessment CNY Chinese Yuan
According to international practice, no additional VAT CO2 Carbon Dioxide
is required on imported components being assembled EUR Euro
onboard a seagoing vessel if it is operated for at least DWT Dead Weight Tonnage
70 per cent navigation on high seas and 100 per IMO International Maritime Organization
cent commercially. In China, the VAT is payable on LNG Liquified Natural Gas
all renminbi contracts for both domestic and imported MED Marine Equipment Directive
products. However, local suppliers do not need to pay MOT Ministry of Transport
the import duty of 10 per cent if products are destined MSA Maritime Safety Administration
for international seagoing vessels flying a Chinese flag, NOx Nitrogen Oxide
but they must pay if the product or components are R&D Research and Development
manufactured outside of China. It should however be TAC Type Approval Certificate
noted that China does not impose VAT on components USD United States Dollar
48 Weekly Update on COVID-19 in China, Ocean Favor Shipping (Shanghai) VAT Value-added Tax
Ltd, 21 st February 2022, viewed 8 th April 2022, <https://secureservercdn.
net/160.153.138.163/w3t.a8c.myftpupload.com/wp-content/uploads/2022/02/
Weekly-Update-on-COVID-19-in-China-8th-Week.pdf>
49 Live port quarantine requirements map for China, Ocean Favor Shipping
(Shanghai) Ltd, 2022, viewed 8th April 2022, <https://www.oceanfavor.com/
index2.html>
50 Shanghai Lockdown Shutters Three State-Owned Shipyards, Maritime Executive,
7th April 2022, viewed 13th April 2022, <https://www.maritime-executive.com/
article/shanghai-lockdown-shutters-three-major-cssc-shipyards>

264 Maritime Manufacturing and Industrial Services Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

Petrochemicals, Chemicals and Refining Working Group

Key Recommendations
1. Sustainability and Green Chemistry
1.1 Promote Sustainability through Effective Communication, Best Practice Sharing, and Innovation on
Safety and Environmental/Carbon Management
• S trengthen government-international businesses cooperation and encourage the central
authorities to involve affected companies as key stakeholders, particularly regarding the
emissions trading system (ETS), Responsible Care, and health, safety and environment
management.
• Establish regular, formal and transparent communication channels to collect feedback from
foreign enterprises and industrial associations on regulation drafting and implementation
to avoid ‘one-size-fits-all’ measures, and a central platform on which standard answers to
frequently-asked-questions can be published and relevant parties can raise queries.
• C larify the distinction in standards between mandatory requirements and good practices

Section Three: Goods

and provide regulatory flexibility for industry evolution, including the incorporation of new
technologies.
• Conduct regulatory training for authorities at every level (town, provincial and national) to align
interpretations and enforcement.
• A ccelerate the establishment and development of the national green electricity market,
standardise the certification of carbon credit from the consumption of green electricity and issue
green electricity consumption certificates on a regular basis.
• E ncourage enterprises to purchase green electricity by differentiating purchased green
electricity from grid electricity emissions in the ETS, and establishing a channel for electricity
and carbon markets in line with international standards.
• Clarify the definition of ‘two-high’ projects and provide industry development guidelines on local
project approvals.
1.2 Improve Policies for Promotion of the Circular Economy Within the Chemical Industry

• Foster value chain cooperation as well as regulatory, financial and tax support to promote the
implementation of circular economy principles, for example, re-use of chemical waste as a raw
material and energy co-generation.
• Encourage energy/resource sharing and collaboration within chemical parks.
• Simplify the certification and approval requirement to encourage waste recycling and utilisation
projects while offering the possibility of case-by-case exemptions.
• G rant tax incentives that promote plastic recycling processes and improve urban waste
infrastructure, and speed up the construction of a green standard system for recycled plastics.
• Standardise chemical recycling of plastic waste requirements, particularly regarding onsite pre-
treatment and transportation to industrial parks for recycling.
1.3 Boost the Green Development of Chemical Parks by Providing More Efficient and Integrated
Public Utility Services
• Consider specific industrial characteristics when establishing plans and layouts for chemical

Petrochemicals, Chemicals and Refining Working Group 265

 parks.
• S trengthen unified planning for the construction and management of industrial gas, public
pipelines, heating, hazardous chemical (HC) waste disposal facilities and other public utilities at
chemical parks.
• Speed up the deployment of measures to improve energy consumption intensity and efficiency
in chemical parks under the 30/60 Goals through building, optimising and sharing common
utilities such as steam, waste water treatment and hazardous waste facilities.
• Encourage renewable energy investment by establishing mechanisms such as a fast-track
approval procedure for on-site photovoltaics installations in chemical parks.

2. Investment and Manufacturing Costs

2.1 Guarantee Fair and Reasonable Treatment by Local Authorities with Respect to Relocations
and Temporary Closures of Enterprises and Chemical Parks
• Ensure that any criteria provided and actions undertaken to have businesses relocate or
temporarily close are based on law and regulations, transparent and published well in advance.
• U se a ‘case-by-case’ approach to address suggestions for plant relocations, with significant
lead-time and lenient timelines to avoid disrupting chemical supply chains.
• Reach mutual agreement with companies on relocation timelines and fair compensation to
Section Three: Goods

decrease their associated costs.

• Factor in secondary risks on overall shutdown polices, including COVID-19-related closures and
particularly in relation to measures given at short notice, to avoid disruptions to chemical plant
operations that may increase risks of explosions.
• Establish a direct communication channel for companies to submit suggestions to the authorities
on the relocation or shutdown of chemical plants.
2.2 Facilitate the Diversity and Competitiveness of the Oil and Gas Sectors
a) Continue Deregulation of the Retail Fuel Market
• Fully remove oil product price ceilings to deliver a competitive retail fuel market in China, and
establish a clear time schedule for market deregulation.
b) Deregulate the Liquefied Petroleum Gas (LPG) Market on a National Level
• Fully deregulate limitations on the new energy market on a national level, including cylinder LPG
prices for domestic use, particularly where local governments set the retail price.
2.3 Simplify the Regulatory Process to Support New Market and Technology Innovation in Fine
Chemical Manufacturing
• S implify the permit allocation process for minor recipe changes within the same product
category to promote quick market responses and encourage innovation.
• Simplify the permit allocation process for plant debottlenecking projects that aim to increase
production capacity and optimise the workflow without changing the main production process or
increasing emissions.
• Establish a standardised permit approval process and provide measures to correct permit
applications during the approval procedure.
• Streamline, and involve industrial experts with relevant expertise, in the permit approval review
process.

266 Petrochemicals, Chemicals and Refining Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

3. Chemicals Management
3.1 Develop a Well-argued and Practical Legislation Framework for Chemical Risk Management

• R emove local barriers to HC transportation and enhance capacity building for HC transportation,
import and export.
• Adopt risk management option analysis guidance by ensuring key stakeholders are involved and
all factors (for example, exposure scenarios, socio-economic analyses, alternative availability)
are considered in the decision-making process for chemicals prioritisation and risk management
measures selection.
• E xempt low volume notification for new chemicals and HC registration from notification
requirements.
• Simplify and improve the registration system for HC and new chemicals.
• Minimise the scope of HC control under the ‘one enterprise, one product and one code’ policy
and prohibit the downloading of product labels to protect confidential information.
• Include chemical manufacturers in the risk assessment process to determine the chemicals listed
under Priority Assessment Chemicals and Priority Control Chemicals, taking the entire chemical
supply chain into consideration.

Section Three: Goods

Introduction to the Working Group China Petroleum and Chemical Industry Federation
(CPCIF) and the Association of International Chemical
The Petrochemicals, Chemicals and Refining (PCR)
Manufacturers (AICM), which share the aim of facilitating
Working Group represents the leading European
the Chinese manufacturing industry in becoming more
companies in the petroleum and chemical industry in
sustainable and innovative.
China, many of which are Fortune Global 500 companies.
The aim of the working group is to improve the operating
conditions for PCR companies in China by facilitating Recent Developments
communication between member companies, the China’s chemical market has contributed half of the total
government and Chinese industrial associations. The global growth of the industry over the past two decades,1
working group provides up-to-date information on yet it is still in the midst of a profound transition; reflecting
pressing issues related to the chemical industry and the consumer-demand trends and navigating stricter
effects of various locally enacted regulations. environmental regulations. The working group greatly
appreciates the constructive exchanges that have taken
The Petrochemicals, Chemicals and Refining Working place between European stakeholders and Chinese
Group maintains an ongoing strategic dialogue with officials, as well as the market-driven approach taken by
the Ministry of Ecology and Environment (MEE), the much of the new domestic legislation regulating the PCR
Ministry of Emergency Management (MEM), the Ministry industry in recent years.
of Commerce, the Ministry of Transportation, the State
Administration for Market Regulation, the Ministry of Sustainability and Green Chemistry
Industry and Information Technology (MIIT), the National I n t h e l e a d - u p t o t h e 2 6 th U N C l i m a t e C h a n g e
Development and Reform Commission (NDRC), as well Conference of the Parties (COP26) in November
as counterparts from the Delegation of the European 2021, China released its long-awaited Action Plan for
Union (EU) to China and the European Commission.
1 Hong, Sheng and Jie, Yifan and Liu, Nathan, China’s Chemical Industry: New
The working group also has a close relationship with
Strategies For a New Era, McKinsey, 20th March 2019, viewed 8th June 2022,
several chemical industry associations, including the <https://www.mckinsey.com/industries/chemicals/our-insights/chinas-chemical-
industry-new-strategies-for-a-new-era>

Petrochemicals, Chemicals and Refining Working Group 267

 Reaching Carbon Dioxide Peak Before 2030 and the roadmap from 2025–2030.7 The working group hopes
Working Guidance for Carbon Dioxide Peaking and there will be further roadmaps clarifying requirements for
Carbon Neutrality, which form the basis of the policy the chemical industry in order to facilitate its expansion
framework for reaching its two key carbon reduction under the 30/60 Goals.
targets – to peak carbon emissions by 2030 and reach
carbon neutrality by 2060 (30/60 Goals).2 At the forefront Certain sustainability regulations on sustainability of
is transitioning to a low-carbon economy by curbing ‘two relevance to the industry are already in place. On 22nd
high’ projects (high energy consumption, high pollution February 2021, the State Council released a plan for
including carbon emissions),3 which focusses on carbon- the development of a circular economy, which includes
intensive industries such as steel manufacturing, non- the creation of a formal scrap-recycling system and a
ferrous metals and petrochemicals. Realising the focus on Extended Producer Responsibility.8 The legal
30/60 Goals will require a rapid green transformation framework of the national pollutant discharge permit
amongst industries and significant drops in pollutants system, which obliges manufacturers to apply for permits
and emissions intensity, with initiatives such as the before discharging pollutants through the Regulations on
national emissions trading system (ETS) launched on Management of Pollutant Discharge Permits, has been in
1st February 2021 under the jurisdiction of the MEE, and effect since 1st March 2021.9 In addition, on 3rd February
online trading commencing in July 2021.4 Forecasts in 2022, the NDRC, MIIT, MEE and the National Energy
early 2022 predicted China’s emission trading market Administration (NEA) jointly issued the Implementation
to see a 70 per cent expansion that year, due to plans Guidelines for Energy Conservation and Carbon
Section Three: Goods

to add heavy industry and manufacturing, with carbon Reduction Renovation and Upgrading in Key Areas of
prices potentially reaching Chinese yuan (CNY) 65 per Energy-consuming Industries (2022 Edition),10 modifying
tonne, up from the CNY 54.22 seen at the end of 2021.5 key areas of high energy-consuming industries across
However, due to the poor quality of reported data, plans the supply chains of industries such as oil refining,
to expand the ETS market to include aluminium and cement, iron, steel and chemicals. The guidelines aim
cement will be delayed to 2023 at the earliest, hindering to improve energy efficiency levels across 17 different
China’s progress towards decarbonisation.6 industries while giving full play to their advantages in
capital, talent and technology.
As the world’s largest greenhouse gas emitter, the
success of China’s ETS will be critical in peaking carbon Investment and Manufacturing Costs
emissions by 2030. The European Chamber’s Carbon The Yangtze River Protection Law, which entered
Neutrality: The Role of European Business in China’s into force in March 2021, prohibits the construction
Race to 2060 outlined that although China’s overarching or expansion of chemical parks and projects within
14 th Five-year Plan (14FYP) provides some general one kilometre of the river, with no nuance for projects
guidance towards 2030, the specific mechanisms for intended to upgrade plants’ safety and ecological
achieving the 30/60 Goals are not adequately defined, protection. 11 Several working group members report
nor are sufficient details provided for the national-level local authorities ordered them to shut down within
unreasonably short timeframes. Many also received

2 Working Guidance for Carbon Dioxide Peaking and Carbon Neutrality in Full 7 Carbon Neutrality: The Role of European Business in China’s Race to 2060,
and Faithful Implementation of the New Development Philosophy, NDRC, 24th European Union Chamber of Commerce in China, 25th May 2022, viewed 12th
October 2021, viewed 23rd April 2022, <https://en.ndrc.gov.cn/policies/202110/ June 2022, p. 9, <https://www.europeanchamber.com.cn/en/publications-carbon-
t20211024_1300725.html> neutrality-report>
3 Huld, Arendse, Understanding China’s Action Plan for Reaching Peak Carbon 8 Guiding Opinions of the State Council on Accelerating the Establishment and
Emissions by 2030, China Briefing, 11th November 2021, viewed 24th April 2022, Improvement of a Green and Low-Carbon Circular Development Economic
<https://www.china-briefing.com/news/china-carbon-emissions-understanding- System, State Council, 22nd February 2021, viewed 23rd April 2022, <http://www.
peak-emissions-action-plan/> gov.cn/zhengce/content/2021-02/22/content_5588274.htm>
4 China’s National Carbon Market is About to Launch, China Dialogue, 29th January 9 Order No. 736 of the State Council of the People's Republic of China, State
2021, viewed 23 rd April 2022, <https://chinadialogue.net/en/climate/chinas- Council, 29th January 2021, viewed 24th April 2022, <http://www.gov.cn/zhengce/
national-carbon-market-is-about-to-launch/> content/2021-01/29/content_5583525.htm>
5 Xue, Yujie, China’s Emissions Trading Market Likely To See Expansion, Rising 10 Implementation Guide for Energy Conservation and Carbon Reduction
Carbon Price in 2022 Say Analysts, SCMP, 9th January 2022, viewed 25th April Transformation and Upgrading in Key Areas of High Energy Consuming Industries,
2022, <https://www.scmp.com/business/china-business/article/3162702/chinas- NDRC, 3rd February 2022, viewed 15th April 2022, <https://www.ndrc.gov.cn/xwdt/
emissions-trading-market-likely-see-expansion-rising> tzgg/202202/t20220211_1315447.html?code=&state=123>
6 National Carbon Market Expansion May Be Delayed to 2023, China Dialogue, 19th 11 Yangtze River Protection Law of the People's Republic of China, National People’s
May 2022, viewed 28th June 2022, <https://chinadialogue.net/en/digest/national- Congress, 26th December 2020, viewed 25th April 2022, <http://www.npc.gov.cn/
carbon-market-expansion-may-be-delayed-to-2023/> npc/c30834/202012/1626d0bc5284485588222995e712c434.shtml>

268 Petrochemicals, Chemicals and Refining Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

conflicting information from different government framework for HC management,16 but enforcement of
departments and encountered difficulties in establishing other chemical-related regulations by local authorities
direct negotiation channels with the relevant authorities. remains inconsistent.
This situation, in addition to further mandatory shutdowns
related to localised COVID-19 containment measures On 7th April 2021, the MEE published the Guiding Opinions
and local energy curbs, has presented a triple whammy on Strengthening the Positive List Management of
to the chemical industry. The government should avoid Ecological Environment Supervision and Law Enforcement
a ‘one-size-fits-all’ approach to closures, and provide and Promoting Differentiated Law Enforcement and
transparent and fair criteria, and adequate timeframes, Supervision.17 The working group is pleased that the central
for plant shutdowns to mitigate business disruption. authorities adopted its suggestion to avoid 'one-size-fits-
all' solutions when enforcing compliance, considering
In 2022, due to the severity of COVID-19-induced the different levels of maturity of operational practices
lockdown measures in Shanghai from March to the end in the chemical industry. Further measures have been
of May,12 the chemical industry has been significantly implemented to encourage the safe production of HC,
impacted by supply chain disruptions and intermittent including oil and gas. Issued by the MEM on 21st March
chemical parks closures. Many chemical manufacturers 2022,18 the 14th Five-year Plan for the Safe Production of
encountered logistics bottlenecks, including shortages Hazardous Chemicals aims to prevent major workplace
of raw materials, interprovincial border restrictions and accidents caused by HC, and implement a system for
a general lack of transportation. 13 These challenges screening, prevention and control of hidden dangers

Section Three: Goods

pose safety risks for hazardous chemicals (HC), as well by 2025. However, it is vital that risk assessment be
as severely disrupting production for crucial sectors undertaken with a scientific approach rather than a
such as semiconductors and healthcare, which will zero-risk approach that leads to the over-management
in turn lead to repercussions for international supply of chemical safety—particularly for new chemical
chains, and both the domestic and global economy. The registration—which has proved to hinder innovation.
secondary risks of transporting HC should also be taken
into consideration when implementing COVID-related
curbs, to ensure stability for the chemical manufacturing Key Recommendations
industry.14
1. Sustainability and Green Chemistry
1 . 1 Promote Sustainability through Effective
Chemicals Management Communication, Best Practice Sharing, and
The MEE’s Measures for Environmental Management Innovation on Safety and Environmental/Carbon
Registration of New Chemical Substances (Order No. 12)
Management
went into effect at the beginning of 2021.15 Although the
legislation eases new substance reporting requirements, Concern
the lack of reporting exemptions for low-quantity Recent government policies reinforced negative views
chemicals used in research will likely hamper innovation concerning the chemical industry in China and ignored
capacity and add to manufacturers’ administrative its significant contributions to promoting the responsible,
burdens. The MEM’s draft Hazardous Chemicals green and innovative economy necessary to realise the
Safety Law similarly creates a standardised legislative 30/60 Goals.

12 Zheng, Xin, Chemical Firms Coping With Lockdown, China Daily, 29 th April Assessment
2022, viewed 1 st May 2022, <https://global.chinadaily.com.cn/a/202204/29/ The chemical industry is a key stakeholder in developing
WS626b3748a310fd2b29e5a0cd.html>
13 Analysis: China's Widening COVID Curbs Threaten Global Supply Chain
Paralysis, Reuters, 13th April 2022, viewed 15th April 2022, <https://www.reuters. 16 People's Republic of China Hazardous Chemicals Safety Law (Draft for
com/world/china/chinas-widening-covid-curbs-threaten-global-supply-chain- Comments), MEM, 2nd October 2020, viewed 24th April 2022, <https://www.mem.
paralysis-2022-04-13> gov.cn/gk/tzgg/tz/202010/t20201002_368140.shtml>
14 Guangzhou Emergency Management Bureau: Chemical Enterprises Need to 17 Guiding Opinions on Strengthening the Positive List Management of Ecological
Pay Attention to Six Types of Secondary Safety Risks of the Epidemic, People’s Environment Supervision and Law Enforcement and Promoting Differentiated Law
Government of Guangzhou Municipality, 13th April 2022, viewed 15th April 2022, Enforcement and Supervision, MEE, 7th April 2021, viewed 21st May 2021, <http://
<http://www.gz.gov.cn/zt/zzyyzq/bmdt/content/post_8182915.html> www.mee.gov.cn/xxgk2018/xxgk/xxgk05/202104/t20210423_830095.html>
15 Measures for Environmental Management Registration of New Chemical 18 China Unveils Plan to Strengthen Safe Production of Hazardous Chemicals, China
Substances (Order No. 12), MEE, 29th April 2020, viewed 24th April 2022, <http:// Daily, 21st March 2022, viewed 15th April 2022, <https://www.chinadaily.com.cn/
www.mee.gov.cn/xxgk2018/xxgk/xxgk02/202005/t20200507_777913.html> a/202203/21/WS62382915a310fd2b29e52484.html>

Petrochemicals, Chemicals and Refining Working Group 269

 a clear and comprehensive strategy on building a requirement. 20 Interpretation should therefore be
sustainable green economy and in helping China clarified and aligned among local and central authorities
reach its ambitious 30/60 Goals — with the launch before new regulations go into force. However, even
of the national ETS constituting a vital step. Now when clarifications are provided, policies might still not
that the ETS is poised to deeply transform the power be adequately enforced locally, as in the case of the
generation industry, the working group urges the MEE pollutant discharge permit (PDP). Although the MEE
and corresponding provincial authorities to maintain clarified in multiple policy documents that the PDP will be
communication with all chemical industry stakeholders, the only management tool for site-specific supervision,
as their operations will be included in or impacted by the this is still not adequately enforced, despite being in
scheme. When the ETS is expanded, it should be on place since 2018. 21&22
a product-by-product basis, to ensure necessary lead
time and opportunities for stakeholder engagement. Although the authorities have ambitious plans for
Furthermore, the ETS should incentivise the adoption greening the economy and promoting innovation,
of advanced technologies and allocate emission credits the mechanisms for facilitating cooperation between
based on industry benchmarks and sector goals, companies and institutions are often lacking, and
rather than providing more credits based on ‘historical plans also may not distinguish between mandatory
emissions’, which puts early adopters of energy efficient requirements and good practices. The standard for
measures at a disadvantage. volatile organic compounds (VOCs), for example, requires
manufacturers to remove 90 per cent of VOCs even
Section Three: Goods

Many accidents in the chemicals industry stem from a lack if emissions are already limited. This comes at a high
of risk awareness and knowledge about best practices. cost in terms of both investment and energy efficiency.
Multinational chemical companies’ maturity on health, Meanwhile, in the Guiding Opinions on Promoting
safety and environment (HSE) matters is not recognised the Development of the Petrochemical and Chemical
by the Chinese authorities, which still insist on a 'one-size- Industry in the 14th Five-year Plan Period,23 jointly issued
fits-all' approach to the industry, such as bans affecting by the MIIT and five other departments, requirements
compliant and non-compliant companies alike.19 Therefore, include significantly reducing energy consumption and
a formal channel of communication and cooperation carbon emission per unit of bulk products, and reducing
between chemical companies and government officials total VOC emissions by more than 10 per cent compared
is necessary to promote responsible and sustainable to the 13FYP period.
practices, and improve preventative measures.
This collaboration should include chemical parks or Despite establishing the national green electricity
associations such as the AICM, CPCIF and Together trading pilot in September 2021, 24 and getting trials
for Sustainability. Practical steps like providing English- of several provincial-level green electricity markets
language versions of policies, and more opportunities underway, 25 the market is far from active, and the
for comments and discussion, could also facilitate carbon emission certification process has not yet
communication.
20 Plan for Improving the Dual Control System of Energy Consumption Intensity and
Total Amount, State Council, 11th September 2021, viewed 22nd April 2022, <http://
Vaguely-written regulations lead to difficulties in www.gov.cn/zhengce/zhengceku/2021-09/17/content_5637960.htm>
interpreting laws and regulations, and thereby result in 21 MEE Answers Reporter's Questions on the Technical Specifications for the
Application and Issuance of Pollutant Discharge Permit and Industrial Solid Waste,
major inconsistencies in enforcement. For example, if MEE, 15th November 2021, viewed 22nd April 2022, <https://www.mee.gov.cn/ywdt/
a new regulation is not clear enough, local government zbft/202111/t20211115_960421.shtml>
22 Suggestions on Comprehensively Promoting Post Pollution Permit Management,
departments may stop issuing permits until they receive Guangmingwang News, 24th April 2020, viewed 22nd April 2022, <https://theory.
more specific guidelines from a higher department. gmw.cn/2020-04/24/content_33766478.htm>
23 Six Departments Jointly Issue Guidance on the "14th Five-year Plan" to Promote
This has occurred frequently in the past few years the High-quality Development of the Petrochemical and Chemical Industry, MIIT,
in relation to HSE management, and is currently a 7th April 2022, viewed 28th June 2022, <https://www.miit.gov.cn/zwgk/zcwj/wjfb/yj/
art/2022/art_4ef438217a4548cb98c2d7f4f091d72e.html >
concern for classifying projects under the ‘two-high’ 24 China's Green Power Trading Pilot Was Officially Launched - There Is a ‘China
Plan’ for Green Power Consumption, State Council, 9th September 2021, viewed
24th April 2022 <http://www.gov.cn/xinwen/2021-09/09/content_5636363.htm>
25 Green Electricity Trading Featured By 'Integration of Certificate and Power',
19 AICM Points Out Barriers to Responsible Care in China, Chemical Watch, 28th Dentons, 27th May 2022, viewed 30th June 2022, <https://www.dentons.com/en/
July 2016, viewed 22nd April 2022, <https://chemicalwatch.com/48853/aicmpoints- insights/articles/2022/may/27/green-electricity-trading-featured-by-integration-of-
outbarriers-to-responsible-care-in-china> certificate-and-power>

270 Petrochemicals, Chemicals and Refining Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

been fully clarified. Furthermore, a systematic carbon industry development guidelines on local project
emissions for purchased energy mechanism has yet to approvals.
materialise, which leads to inconsistencies in carbon
dioxide (CO2) reporting. To accelerate establishment 1.2 Improve Policies for Promotion of the Circular
of the national green electricity market and encourage Economy Within the Chemical Industry
greater enterprise engagement, the certification of
carbon credits from consumption of green electricity Concern
should be standardised and issued regularly, while green China needs stronger institutional management and
electricity purchases should be differentiated from grid flexible enforcement to promote circular innovation within
electricity emissions in the ETS. The working group the chemical industry, and to establish a complete plastic
believes focussing on overall energy consumption and and chemical waste recycling system.
environmental protection would be more conducive
Assessment
to greening operations than an arbitrary emissions
Around half of global CO 2 emissions come from the
standard. The government should also establish sound
extraction and processing of materials that underpin
and practical communication platforms that encourage
a ‘take-make-dispose’ economy. In contrast, a circular
industries to reduce their environmental impact and fully
economy aims to close industrial loops by turning outputs
utilise existing resources in an innovative manner, for
from one manufacturer, including waste, into inputs for
example, in hazardous waste management.
another. China recognised the importance of this issue
by enacting the Circular Economy Promotion Law (CEPL)

Section Three: Goods

Recommendations
in 2008.26 In addition, in July 2018, the EU and China
• Strengthen government-international businesses
signed a Memorandum of Understanding on Circular
cooperation and encourage the central authorities
Economy Cooperation. 27 As the circular economy is
to involve affected companies as key stakeholders,
an emerging model, it still faces economic challenges,
particularly regarding the ETS, Responsible Care and
including financing research and development (R&D),
HSE management.
building a circular value chain, and fostering acceptance
• Establish regular, formal and transparent communication
of new methods such as the use of recycled materials,
channels to collect feedback from foreign enterprises
which many view as low-quality.28 Although the State
and industrial associations on regulation drafting and
Council issued guiding opinions in February 2021
implementation to avoid ‘one-size-fits-all’ measures,
outlining an overall system for circular economy
and a central platform on which standard answers
development,29 progress in adopting suggestions has
to frequently-asked-questions can be published and
been relatively slow, despite industry players submitting
relevant parties can raise queries.
comments on the amendment of the CEPL in September
• Clarify the distinction in standards between mandatory
2021. 30 The Guiding Opinions should be followed up
requirements and good practices and provide
with a clearly defined mid- and long-term legislation
regulatory flexibility for industry evolution, including the
framework, including targets and roadmaps, that
incorporation of new technologies.
involves both Chinese and EU companies to encourage
• Conduct regulatory training for authorities at every level
innovation and draw upon the EU’s circular economy
(town, provincial and national) to align interpretations
framework.
and enforcement.
• Accelerate the establishment and development of 26 Circular Economy Promotion Law, MEE, 29th August 2008, viewed 17 th May
2022, <https://english.mee.gov.cn/Resources/laws/envir_elatedlaws/201712/
the national green electricity market, standardise the t20171212_427823.shtml>
certification of carbon credit from the consumption 27 China and EU Sign Memorandum of Understanding on Circular Economy,
Resource, 17th July 2018, viewed 22nd April 2022, <https://resource.co/article/
of green electricity and issue green electricity china-and-eu-sign-memorandum-understanding-circular-economy-12744>
consumption certificates on a regular basis. 28 Circular Economy and Material Value Chains, World Economic Forum, n.d.,
viewed 21st April 2022, <https://www.weforum.org/projects/circular-economy/>
• Encourage enterprises to purchase green electricity 29 Guiding Opinions on Accelerating the Establishment and Improvement of a
by differentiating purchased green electricity from grid Green and Low-Carbon Circular Development Economic System, State Council,
2 nd February 2021, viewed 28 th June 2022, <http://www.gov.cn/zhengce/
electricity emissions in the ETS, and establishing a content/2021-02/22/content_5588274.htm>
channel for electricity and carbon markets in line with 30 CBCGDF Welcome Public Suggestions for the Revision of Circular Economy
Promotion Law of the People's Republic of China by National Development and
international standards. Reform Commission, China Biodiversity Conservation and Green Development
• Clarify the definition of ‘two-high’ projects and provide Foundation, 15th September 2021, viewed 25th April 2022, <http://www.cbcgdf.org/
English/NewsShow/5004/17261.html>

Petrochemicals, Chemicals and Refining Working Group 271

 As chemicals are essential for many industries, chemical environmental footprint. Simplifying the permit allocation
manufacturers are key players in the midstream of many process for projects with favourable impacts on the
supply chains.31 Foreign chemical companies operating circular economy, and applying a flexible approach
in China already have a strong focus on whole life cycle based on individual circumstances, would encourage
sustainability, as well as on developing products that plants and chemical parks to carry out innovative pilot
are recyclable by design at the end of their lifespan. In projects.
China, incomplete physical and policy infrastructures
hinder the mass adoption of chemical recycling of waste Recommendations
plastics, which is generally sourced from the ‘dry waste’ • Foster value chain cooperation as well as regulatory,
category of urban waste. However, it is often difficult financial and tax support to promote the implementation
to separate waste plastics that are of sufficient high of circular economy principles, for example, re-use
quality to be used as raw materials from other dry waste. of chemical waste as a raw material and energy co-
Advancements in urban domestic waste infrastructure generation.
are therefore necessary to improve recycling processes. • Encourage energy/resource sharing and collaboration
A cross-provincial disposal system that can combine within chemical parks.
capacity and facilities for all types of waste should also • Simplify the certification and approval requirement to
be established. encourage waste recycling and utilisation projects while
offering the possibility of case-by-case exemptions.
Meanwhile, the authorities and industry can collaborate • Grant tax incentives that promote plastic recycling
Section Three: Goods

to create green standards for the whole plastic recycling processes and improve urban waste infrastructure, and
supply chain, particularly regarding necessary onsite speed up the construction of a green standard system
pre-treatment and transportation to industrial parks for for recycled plastics.
recycling. In addition, tax reforms that exempt green • Standardise chemical recycling of plastic waste
products/services from consumption tax, and moving requirements, particularly regarding onsite pre-
tax collection to the end of retail consumption, would treatment and transportation to industrial parks for
facilitate the development of the chemical recycling recycling.
industry. Furthermore, full value-added tax refunds, and
extending or expanding various existing preferential tax 1.3 Boost the Green Development of Chemical Parks
treatments (for example, the catalogues of preferential by Providing More Efficient and Integrated Public
corporate income tax treatments for specialised Utility Services
environmental protection, water conservation or energy
usage reduction equipment),32 could likewise offset the Concern
costs of investing in the sophisticated equipment and As the most significant platform and incubator of the
technology required by chemical recycling enterprises.33 chemical industry, chemical parks play a key role in
ensuring the supply of reliable, efficient, and low-carbon
In general, the authorities should ensure that the public utilities, yet efficient and integrated access to
applicability of regulations and standards to specific clean electricity, water and industrial gas have not been
cases or overall environmental footprint is considered. taken into consideration in their design.
For example, GB 18484 Pollution Control Standard
for Hazardous Wastes Incineration requires online Assessment
monitoring for all incineration projects, even if no In 2020, there were 616 chemical parks and industrial
dangerous pollutants are emitted. 34 Overly detailed parks focussed on the petrochemical industry across
requirements like this ignore a project’s overall China, considered a crucial pillar supporting China’s
economic development.35 The petrochemical industry is
31 2019 AICM Sustainable Development Report, AICM, 4th June 2019, viewed 21st characterised by long industrial chains, complex products
April 2022, <http://aicm.cn/upload/files/20190604/1559634731364010712.pdf>
32 A Summary of China's Corporate Income Tax Incentives, Jones Day, July and high energy consumption. In 2020, carbon emissions
2008, viewed 22nd April 2022, <https://www.jonesday.com/en/insights/2008/07/ from the industry contributed 20 per cent of overall
a-summary-of-chinas-corporate-income-tax-incentives>
33 For more information, please see the Finance and Taxation Working Group
Position Paper 2022/2023 35 Ecological Thinking Should Be Established in the Development of the Park, CCIN,
34 Pollution Control Standard for Hazardous Wastes Incineration, MEE, 1st January 1st March 2022, viewed 22nd April 2022, <http://www.ccin.com.cn/detail/e5f6d0a0c
2002, viewed 22nd April 2022, <http://www.mee.gov.cn/image20010518/1533.pdf> 4a0d1b4751567221e464023/news>

272 Petrochemicals, Chemicals and Refining Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

industrial emissions,36 while in 2019, the total energy 2. Investment and Manufacturing Costs
consumption of petrochemical exceeded 600 million 2.1 Guarantee Fair and Reasonable Treatment by
tonnes of standard coal for the first time.37 The industry’s Local Authorities with Respect to Relocations
high energy consumption is exacerbated by the intrinsic and Temporary Closures of Enterprises and
nature of the chemical parks, which mainly rely on Chemical Parks
traditional fossil fuels and consume more energy than
similar industrial parks focussed on different industries, Concern
such as electronics. Chemical parks therefore face Despite progress in national legislation to ensure that
additional challenges in realising the green development the shutdown or relocation of chemical facilities do not
transition. To encourage investment in renewable energy unfairly target companies that comply with HSE regulations,
in these industrial parks—for example, installing on- implementation—particularly on the local level—has yet
site photovoltaics—the authorities should implement to reassure compliant companies that they will receive
initiatives to streamline the investment process, such as consistent and fair treatment.
establishing fast-track approval procedures.
Assessment
Although the MIIT released the Guiding Opinion for The chemical industry has played a significant role in
Promoting Standardised Development of Chemical the economic development of China through its high
Parks in 2015,38 there is still insufficient infrastructure production value and tax rates, and is regarded by many
and utilities to enable the transition process, while local governments as one of their main pillars of finance

Section Three: Goods

energy curbs are increasingly imposed on energy- and taxation revenue. However, due to a number of
intensive industries. The lack of facilities is mainly due significant accidents in recent years, EHS regulations for
to the pressure on park management to attract further the industry are getting increasingly stricter. As a result,
economic investment, leading to the neglect of planning 2021 saw a drop in incidents, with 122 PCR-related
issues such as public utilities, electricity supplies, accidents and 150 deaths, a decrease of 124 deaths and
heating and industry gas. In order to reach the 30/60 42 accidents compared to 2019.39
Goals, chemical parks should optimise industrial waste
treatment and other public utilities. Provincial and local government bureaus are enforcing
tighter regulations and increasing plant inspections,
Recommendations which place additional administrative burdens on
• Consider specific industrial characteristics when companies, like preparing excessive documentation
establishing plans and layouts for chemical parks. at the request of the authorities. Furthermore, many
• Strengthen unified planning for the construction and provinces such as Jiangsu, Shandong and Shanxi
management of industrial gas, public pipelines, heating, abruptly mandated the relocation of PCR-related plants
HC waste disposal facilities and other public utilities at into chemical parks, thereby disrupting operations
chemical parks. severely.
• Speed up the deployment of measures to improve energy
consumption intensity and efficiency in chemical parks The working group welcomes the checks and inspections
under the 30/60 Goals through building, optimising and necessary to ensure the safety of workers and the
sharing common utilities such as steam, waste water general public, as well as to protect the environment.
treatment and hazardous waste facilities. However, one-size-fits-all enforcement focusses on
• Encourage renewable energy investment by establishing quotas rather than performance, which can damage
mechanisms such as a fast-track approval procedure the chemical supply chain and have negative industrial
for on-site photovoltaics installations in chemical parks. repercussions. Closure or relocation initiatives should
involve continuous communication between authorities
36 The Task of Green and Low-carbon Development of Chemical Industry Park is
and enterprises, employing a ‘one enterprise, one
Urgent, CCIN, 22nd June 2021, viewed 22nd April 2022, <http://www.ccin.com.cn/
detail/c3c24d73e8afe54e80a314278bc3cb76> policy’ customised approach, especially in light of recent
37 China's Crude Oil Production Has Reversed the Downward Trend for Three
Consecutive Years, CNPC, 15th January 2020, viewed 22nd April 2022, <http://
news.cnpc.com.cn/system/2020/01/15/001759872.shtml> 39 Ministry of Emergency Management: In 2021, There Were 122 Chemical
38 Guiding Opinion to Promote the Standardized Development of Chemical Industry Accidents in the Country, Killing 150 People, Chem Vogel, 22nd February 2022,
Parks, MIIT, 25th November 2015, viewed 22nd April 2022, <https://www.miit.gov. viewed 25th April 2022, <https://chem.vogel.com.cn/c1160843.shtml?msclkid=1f75
cn/zwgk/zcwj/wjfb/qt/art/2020/art_568c1587f2af497192c10290a277c2cc.html> 40ddc05911ec94d13f8b35913293>

Petrochemicals, Chemicals and Refining Working Group 273

 COVID-19 outbreaks and containment measures. In investment and progress towards a competitive retail
addition, the time allowed for relocation is often also market.
unrealistic in terms of the requirements involved in
moving entire operations and workforces. Furthermore, Assessment
provincial safety and environmental offices advise China’s oil market prices are currently regulated through
municipal governments on which plants should a system of price caps by the central government and
be closed or relocated. Enterprises are unable to only tenuously linked to international oil prices.40 There
communicate directly with these offices and therefore have been several positive signals in recent years
rely on information from local government industry that suggest the government intends to deregulate the
and information bureaus, which take the advice of retail fuel sector. For instance, the Several Opinions
the offices as orders rather than suggestions, even if on Deepening Oil and Gas Sector Reform (Opinions),
there is no evidence that a plant’s operations cause released by the State Council in 2017, 41 advocated
environmental hazards. Furthermore, foreign-invested a central role for the market in guiding oil prices.
enterprises requested to relocate should be treated However, the actions encouraged by the Opinions have
equally to local companies, and should receive clear not been forthcoming. Furthermore, the Measures on
information and relocation criteria, be able to discuss the Supervision and Administration of Fair Opening of
relocation timelines with local authorities to minimise Oil and Gas Pipeline Facilities were published in May
the associated costs, and receive fair compensation 2019, but also do not mention how oil prices are to be
after relocation. determined.42
Section Three: Goods

Recommendations Deregulating oil prices would bring several key benefits,

• Ensure that any criteria provided and actions such as supporting China’s commitment to continue its
undertaken to have businesses relocate or temporarily economic reform. A fully functioning retail fuel market
close are based on law and regulations, transparent would also boost service and product quality by offering
and published well in advance. consumers greater choices between high and low-
• Use a ‘case-by-case’ approach to address suggestions quality fuel.43 Retail fuel market opening has also led
for plant relocations, with significant lead-time and to price decreases because it attracts international oil
lenient timelines to avoid disrupting chemical supply companies and investment, and therefore increases
chains. competition.
• Reach mutual agreement with companies on
relocation timelines and fair compensation to decrease Recommendation
their associated costs. • Fully remove oil product price ceilings to deliver a
• Factor in secondary risks on overall shutdown polices, competitive retail fuel market, and establish a clear
including COVID-19-related closures and particularly time schedule for market deregulation.
in relation to measures given at short notice, to avoid
disruptions to chemical plant operations that may b) Deregulate the Liquefied Petroleum Gas (LPG)
increase risks of explosions. Market on a National Level
• Establish a direct communication channel for
companies to submit suggestions to the authorities Concern
on the relocation or shutdowns of chemical plants. Despite deregulation of the LPG market across most of

40 Review of China's Oil Pricing Mechanism, Sina Finance, 7th March 2022, viewed
2.2 Facilitate the Diversity and Competitiveness of 22nd April 2022, <https://finance.sina.com.cn/money/future/fmnews/2022-03-07/
the Oil and Gas Sectors doc-imcwiwss4603517.shtml>
41 Several Opinions on Deepening Oil and Gas Sector Reform, State Council, 21st
a) Continue Deregulation of the Retail Fuel Market May 2017, viewed 22nd April 2022, <http://www.gov.cn/zhengce/2017-05/21/
content_5195683.htm>
42 Lian, Jing; Du, Lijing; Luo, Ce & Tu, Haoxue, A Milestone in the Reform of Oil
and Gas Sector -- Preliminary Comments on the Measures on the Supervision
Concern and Administration of Fair Opening of Oil and Gas Pipeline Facilities, Junhe,
25 th June 2019, viewed 28 th June 2022, <http://www.junhe.com/legal-
Despite signals of opening the retail fuel sector, updates/960?locale=en>
regulations and price ceilings continue to hinder foreign 43 China Gasoline Retailing Development Trends Report 2019, Deloitte, May 2019,
viewed 16th May 2022, <https://www2.deloitte.com/cn/en/pages/about-deloitte/
articles/pr-china-gasoline-retailing-development-trends-report-2019.html>

274 Petrochemicals, Chemicals and Refining Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

the country, LPG for domestic use is still regulated in manufacturers sometimes need to adjust recipes or
several provinces, preventing market competition and technologies. If these adjustments involve raw materials
giving retailers little room to make profit. that are not on the plant’s list of registered chemicals,
the new materials must undergo an entirely new permit
Assessment allocation process, even if they are replacing a listed
The biggest proportion of LPG usage goes toward ingredient with similar properties and do not bring any
heating and cooking at the household level, yet while additional operational risk or pollution.
industrial and commercial LPG is fully deregulated,
certain provinces and municipalities such as Shanghai The same constraint is true for production increases.
still regulate cylinder LPG prices for household use. Permit allocation processes stipulate maximum
For example, for standard cylinders of 14.5 kilograms production capacities; therefore, to increase
(kg), the Shanghai Government sets the maximum manufacturing capacity—for instance, when
retail price as the local refineries’ price plus CNY 25 to debottlenecking 45 is required—manufacturers must
cover labour, cylinder, production and transportation relaunch the permit process, which usually takes
costs, as well as depreciation, safety management six months to one year. Creating a simplified permit
fees, sales and management costs, and tax, among allocation process for minor replacements of fine
other external expenses. Although changes in the chemical ingredients or slight capacity increases
maximum retail price are announced periodically, the would reduce administrative burdens and allow
CNY 25 price differential has not been adjusted for five manufacturers to respond more competitively to market

Section Three: Goods

years. Since 10th April 2022, the maximum retail price advancements. Since the HSE-related regulatory
has been adjusted to CNY 126 per standard cylinder, system was introduced in 2011, 46 many companies
in comparison to the March 2021 price of CNY 84 per have faced challenges in closing the gaps between their
cylinder.44 existing facilities and new requirements. This is partly
due to the lack of mechanisms to support companies
Recommendation on both compliance as well as safety training. As each
• Fully deregulate limitations on the new energy market chemical producer handles thousands of different
on a national level, including cylinder LPG prices for products, professional expertise including sufficient
domestic use, particularly where local governments industrial knowledge is required to conduct risk-based
set the retail price. permit reviews. Therefore, streamlining permit approval
procedures would prevent unreasonable delays and
2.3 Simplify the Regulatory Process to Support onerous requirements.
New Market and Technology Innovation in Fine
Chemical Manufacturing Recommendations
• Simplify the permit allocation process for minor recipe
Concern changes within the same product category to promote
Strict permit allocation requirements for increasing quick market responses and encourage innovation.
production capacity or making minor changes to product • Simplify the permit allocation process for plant
recipes hinder fine chemical manufacturers from quickly debottlenecking projects that aim to increase
adapting to market conditions. production capacity and optimise the workflow without
changing the main production process or increasing
Assessment emissions.
The permit allocation process for fine chemicals • Establish a standardised permit approval process,
manufacturing is very stringent, and includes requirements and provide measures to correct applications during
for safety, environmental impact and occupational health the approval procedure.
assessments, as well as capital expenditure thresholds. • Streamline, and involve industrial experts with relevant
To adapt to market changes, downstream fine chemical expertise, in the permit approval review process.

45 What is Debottlenecking?, Simplicable, 7th February 2015, viewed 22nd April

44 Notice of Shanghai Development and Reform Commission on Adjusting The 2022, <https://simplicable.com/new/debottlenecking>
Maximum Retail Price of Civil Cylinder Liquefied Petroleum Gas, People’s 46 What is HSE?, China Safety, 13th April 2011, viewed 22nd April 2022, <https://
Government of Shanghai, 9th April 2022, viewed 22nd April 2022, <https://www. www.china-safety.org.cn/caws/Contents/Channel_21048/2012/1107/185627/
shanghai.gov.cn/gwk/search/content/6e5306f106f54706ac832741181df1ac> content_185627.htm>

Petrochemicals, Chemicals and Refining Working Group 275

 3. Chemicals Management Unlike in early drafts, the final version of Order No.
3.1 Develop a Well-argued and Practical Legislation 12 does not exempt new chemical substances under
Framework for Chemical Risk Management 0.1 metric tonnes per year that undergo reasonable
risk assessment. Reporting substances of such small
Concern volume would be overly burdensome for chemical
Although the legislative framework for chemical enterprises. For example, manufacturers often provide
management has become more streamlined, specific reagents in dosages of several milligrams, or even
legislation for classification and labelling of new micrograms, to thousands of downstream users. It is
chemicals, priority chemicals and HC fail to capture not feasible to track management of these substances
the principle of proportionality for risk assessment and after registration. Moreover, the environmental exposure
management. risk of such small amounts of new chemical substances
used for laboratory research is extremely low. The
Assessment draft Hazardous Chemicals Safety Law, released
Regulators attach great importance to preventing HC in a call for comments by the MEM on 2 nd October
accidents, and the resulting overcautious management 2020,50 exempts HC used for R&D, trial production and
has increased the compliance burden for the whole marketing, as well products containing low volumes of
value chain. During the Shanghai lockdowns from HC. Low volumes of new chemicals under the same
March to May 2022, complicated interprovincial border conditions should also be exempted from notification
checkpoint procedures, and stringent requirements and registration requirements.
Section Three: Goods

for travel permits, health code and 48-hour nucleic

acid reports, severely impacted the efficiency of HC The MEE has developed an online registration system
transportation, thereby posing major health and safety for new chemical substances,51 and the updated HC
risks.47 registration system was officially launched in February
2022, with a more streamlined and easier to navigate
Restrictions on HC continue to tighten both within interface. The working group hopes the online platform
China as well as in the EU. However, the EU’s risk can be further improved to make the registration
management option analysis (RMOA)48 has proven to process smoother and more efficient. For instance, as
be an effective process for chemical industry players some data required—such as storage, transportation,
to provide input on management measures for certain usage and emergency measures—is already provided
substances, such as the hazard profile, potential in products’ safety data sheets, authorities should avoid
exposure scenarios, the availability of alternative the need to duplicate information and thereby reduce
solutions and how chemical legislation interacts with the administrative burden. Furthermore, the system
other legislation. The EU’s RMOA could likewise serve should also allow for corrections, such as removing
as an example of appropriate risk management, under substances, rather requiring re-registration each time.
which chemicals listed for priority assessment are
not automatically subject to priority control without On 5 th June 2021, Guangdong Province piloted a
additional analysis and public consultation. ‘one enterprise, one product, one code’ policy ([Quick
Response] QR Code Policy). Over 85 per cent of
T h e M E E ’s G u i d e l i n e s f o r t h e E n v i r o n m e n t a l Guangdong Province’s producers and importers have
Management Registration of New Chemical Substances since registered hazardous products and generated
(Order No. 12) went into effect on 1st January 2021, Q R c o d e s u n d e r t h e n e w p l a t f o r m , 52 d o u b l i n g
replacing the Order No. 7 legislative framework. 49 registration rates. The QR Code Policy is expected to
47 Chinese Truckers Left Stranded for Days at Highway Exit by Hardline COVID
Curbs, Reuters, 15th April 2022, viewed 22nd April 2022, <https://www.reuters.
com/world/china/chinese-truckers-left-stranded-days-highway-exit-by-hardline-
50 People’s Republic of China Hazardous Chemicals Safety Law (Draft for
covid-curbs-2022-04-15/>
Comments), MEE, 2nd October 2020, viewed 22nd April 2022, <https://www.mem.
48 Risk Management Option Analysis Conclusion Document, Swedish Chemicals
gov.cn/gk/tzgg/tz/202010/t20201002_368140.shtml>
Agency, 20th December 2017, viewed 22nd April 2022, <https://www.echa.europa.
51 Measures for Environmental Management Registration of New Chemical
eu/documents/10162/0bb59072-df52-49b7-9434-5631b4bc9b89>
Substances, MEE, 29th April 2020, viewed 22nd April 2022, <https://www.mee.
49 Announcement on the Issuance of the ‘Guidelines for the Environmental
gov.cn/xxgk2018/xxgk/xxgk02/202005/t20200507_777913.html>
Management Registration of New Chemical Substances’ and Related
52 More Than 1,000 Enterprises Applied for "One Enterprise, One Product and One
Supporting Forms and Filling Instructions, MEE, 16th November 2020, viewed
Code" in Guangdong, China News, 1st September 2021, viewed 22nd April 2022,
22 nd April 2022, <http://www.mee.gov.cn/xxgk2018/xxgk/xxgk01/202011/
<https://www.chinanews.com.cn/cj/2021/09-01/9555945.shtml>
t20201119_808843.html>

276 Petrochemicals, Chemicals and Refining Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

be implemented nationwide in the near future.53 The Recommendations

plan also proposes enhancing the digital management • Remove local barriers to HC transportation and
of hazardous products to allow HC data be transferred enhance capacity building for HC transportation,
efficiently throughout the whole product life cycle. The import and export.
working group hopes that the control scope of HC • Adopt RMOA guidance by ensuring key stakeholders
can be minimised to reduce administrative burdens. are involved and all factors (for example, exposure
For example, considering the current catalogue and scenarios, socio-economic analyses, alternative
classification principles for HC, the number of QR codes availability) are considered in the decision-making
needed are beyond what is reasonable, and may lead process for chemicals prioritisation and risk
to excessive enterprise compliance and government management measures selection.
supervision pressure. Furthermore, under the current • Exempt low volume notification for new chemicals and
system, product labels can be easily downloaded by HC registration from notification requirements.
scanning the QR code, which poses risks to intellectual • Simplify and improve the registration system for HC
property. Preventing such downloads or permitting and new chemicals.
enterprises to use their self-generated QR codes would • Minimise the scope of HC control under the ‘one
reduce the administrative burden on both the authorities enterprise, one product and one code’ policy and
and enterprises. prohibit the downloading of product labels to protect
confidential information.
On 1st January 2022, the MEE released the Guidelines • I n c l u d e c h e m i c a l m a n u f a c t u r e r s i n t h e r i s k

Section Three: Goods

for Screening of Priority Assessment Substances, 54 assessment process to determine the chemicals
outlining the related principles, procedures and technical listed under PAC and PCC, taking the entire chemical
requirements. This demonstrates that China’s chemicals supply chain into consideration.
management system is increasingly evolving to
resemble the EU Registration, Evaluation, Authorisation
and Restriction of Chemicals (REACH) approach, 55
which was adopted to improve HSE protection against
chemical risks while also enhancing the competitiveness
of the EU chemicals industry. Similarly, the MEE is to
expand its list of priority control chemicals (PCCs), with
preparation of the third batch underway at the time of
writing.56 However, chemicals listed under these ‘priority
lists’ (firstly as priority assessment chemicals (PACs)
before PCCs) are considered inherently hazardous to
environmental and human health, leading to further
restrictions in their production, usage, and import and
export, and increasing administrative burdens. The
working group hopes to increase engagement with the
MEE to ensure European industry players are involved
in the risk assessment process for chemical substances
included in the expanded PACs and PCCs lists.

53 "One Enterprise, One Product and One Code" to Open the Era of Code
Scanning of Hazardous Chemicals, CIRS, 12th January 2022, viewed 22nd April
2022, <https://www.cirs-group.com/reg/news/hazchem/14360.html>
54 Guidelines for Screening of Priority Assessment Chemical Substances, MEE, 1st
January 2022, viewed 22nd April 2022, <https://www.mee.gov.cn/ywgz/fgbz/bz/
bzwb/gthw/qtxgbz/202112/t20211227_965407.shtml>
55 Understanding REACH, ECHA, viewed 22nd April 2022, <https://echa.europa.eu/
regulations/reach/understanding-reach>
56 List of Chemicals for Priority Control (Second Batch), MEE, 2nd November 2020,
viewed 17th May 2022, <https://www.mee.gov.cn/xxgk2018/xxgk/xxgk01/202011/
t20201102_805937.html>

Petrochemicals, Chemicals and Refining Working Group 277

 Abbreviations
AICM Association of International Chemical
Manufacturers
CEPL Circular Economy Promotion Law
CNY Chinese Yuan
CO2 Carbon Dioxide
CPCIF China Petroleum and Chemical
Industry Federation
ETS Emissions Trading System
EU European Union
HC Hazardous Chemicals
HSE Health, Safety and Environment
kg Kilogram
LPG Liquefied Petroleum Gas
MEE Ministry of Ecology and Environment
MEM Ministry of Emergency Management
MIIT Ministry of Industry and Information
Technology
NDRC National Development and Reform
Section Three: Goods

Commission
PAC Priority Assessment Chemicals
PCC Priority Control Chemicals
PCR Petrochemicals, Chemicals and
Refining
PDP Pollutant Discharge Permit
REACH Registration, Evaluation, Authorisation
and Restriction of Chemicals (EU)
R&D Research and Development
RMOA Risk Management Option Analysis
VOC Volatile Organic Compounds

278 Petrochemicals, Chemicals and Refining Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

Pharmaceutical Working Group

Key Recommendations
1. Further Advance Regulatory Harmonisation and Convergence with
International Standards
• Encourage greater harmonisation of the Chinese regulatory and quality system with international
standards from the International Council for Harmonisation of Technical Requirements for
Pharmaceuticals for Human Use (ICH) and the Pharmaceutical Inspection Co-operation Scheme
(PIC/S), and more active participation in the International Coalition of Medicines Regulatory
Authorities (ICMRA) in order to contribute to global alignment.
• Reduce barriers in the drug review and approval process, notably in the clinical trial assessment
review and approval process, by aligning with major regulatory agencies and World Health
Organization standards.
• Implement more effective and efficient post-approval change management to ensure continuity of
supply.

Section Three: Goods

• Support the National Medical Products Administration (NMPA) to introduce e-labelling to ensure
sustainable labelling updates in the long run and to resolve the grace period issue.

2. Ensure Clear Interpretations and Consistent Implementation of Intellectual

Property (IP) Laws and Policies to Better Foster Pharmaceutical Innovations for
Chinese Patients
• Implement an effective patent term extension (PTE) mechanism that will encourage and protect
innovation, including: 1) a clear definition of ‘new drug’, which should include any drug which has
firstly obtained marketing authorisation from the NMPA and provided a thorough set of efficacy
and safety data in support of its application; 2) clarified protection scope during the extended
patent term; and 3) transparent and clear calculation for PTE.
• Improve the patent linkage mechanism to balance the interest of originators and generics,
and to provide more clarity on the linkage rules, including: 1) extended stay period (more than
nine months) for both chemical and biological products; 2) remedy if a generic or biosimilar
manufacturer submits an erroneous/inconsistent declaration; and 3) clear guidance on patent
linkage rules for biologics.
• Enforce the six-year regulatory data protection (RDP) rule under the existing Regulations for
Implementing the Drug Administration Law.
• Provide clear guidance for RDP in the draft amendment of the Regulations for Implementing the
Drug Administration Law, including clarification of the drugs eligible for RDP and a clear timetable
for implementation of a comprehensive RDP regime.
• Eliminate the mandatory patent-sharing requirements under the Human Genetic Resources
regime and resort to the pertinent legal requirements, such as those provided in the Patent Law.

3. Establish a National/Provincial Funding Pool for Rare Diseases, with a

Higher National Negotiation Price Threshold for High-value Rare Disease
Drugs, and Encourage Local Governments to Continue Provincial-level
Coverage for Rare Diseases
• Build a dedicated, national, multi-party, innovative access review and payment model that works

Pharmaceutical Working Group 279

 seamlessly with basic medical insurance (BMI) in exploring additional funding for rare disease
drugs, including commercial health insurance (CHI) and charity funds, to keep rare disease
patients’ co-pay at reasonable levels.
• Eliminate the Chinese yuan (CNY) 300,000 annual price threshold for National Reimbursement
Drug List (NRDL) negotiations for rare disease drugs.
• Adopt a fit-for-purpose value assessment framework that meets the unique characteristics of rare
diseases and considers all relevant elements of product value in a multi-dimensional framework,
including patient benefit and social value.
• Exempt the cost-effective analysis model or increase the incremental cost-effective ratio
threshold when conducting value assessment for rare disease drugs, especially for breakthrough
therapies.
• Encourage local governments to continue provincial-level coverage for rare diseases, leveraging
CHI and charity funds, and exempt rare disease drugs from provincial reimbursement drug lists
(PRDL) delisting.
• Accelerate CHI development, include more rare disease drugs in city CHI special drug lists,
increase the reimbursement ratio, and develop special CHI for rare disease drugs.
• Implement a quality control waiver (for both registration testing and commercial testing) for
rare disease drug imports provided they are uninterruptedly controlled according to globally
Section Three: Goods

harmonised manufacturing, distribution, and storage standards (for example, good manufacturing
practice, good distribution practice and good storage practice).

4. Improve the Dynamic Update Mechanism in the NRDL to Promote the Medical
Insurance System Reform, as Well as Hospital Access for NRDL Drugs,
and Introduce a Value-based Evaluation Mechanism for Innovative Drugs
Inclusion
• Reward innovation adequately, include value-based assessments in the NRDL process, and
determine pricing and reimbursement in line with fund affordability.
• Explore a new co-payment model with reimbursement for certain high-value innovative drugs,
partially shared by both the BMI and CHI, to reduce pressure on the BMI and create development
space for CHI.
• Simplify the hospital access process by holding, in the short-term, special Drug Committee
Meetings (DCMs) for negotiated drugs within a set time-range, referencing Shanghai’s policy
where local authorities mandate hospitals to host DCM, and apply this model nationwide.
• Consider more options to improve hospital access in the long-term, including a joint National
Healthcare Security Administration (NHSA)-National Health Commission (NHC) mechanism to
grant access to newly listed NRDL drugs.
• Exclude negotiated drugs when evaluating increases of medical expenses in performance
appraisals of medical insurance designated institutions, and ensure their usage is not affected by
hospitals’ annual budget caps.
• Establish a linkage mechanism to allow inclusion of qualified national volume-based procurement
(VBP) drugs in the NRDL.
• Include the single pill combination in the NRDL to improve patients’ compliance and expand their
access to drugs with safe and better clinical efficacy, particularly for chronic diseases such as
hypertension and diabetes.
• Include biomarker testing costs in the medical insurance fund for precision tumour treatment.

280 Pharmaceutical Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

5. Further Improve Implementation of Volume-based Procurement (VBP) and

Establish a Follow-up Evaluation Mechanism to Ensure Market Competition
as well as Patients’ and Doctors’ Access to High-quality, Safe and Efficacious
Drugs
• Develop a long-term follow-up evaluation mechanism on the medical expenses and quality of all
VBP products, and fully respect the opinions of doctors and patients based on the actual situation
of clinical treatment practice, to accumulate and supply evidence for VBP policy improvement.
• Improve competition rules, avoid awarding bids quoting extremely low prices, and assess the
supply capacity of bidding entrants.
• Ensure provincial drugstores also provide brand drugs that are not VBP winners to secure
patients and doctors’ access to brand drugs.
• Extend the grace period of reimbursement payment standards (RPS) implementation of VBP
drugs to mitigate patients’ treatment costs.
• Improve the regulatory framework on biosimilars to ensure safety, efficacy and interchangeability
before expanding the scope of biologics VBP.
• Prevent regional authorities from piloting VBP on biologics, considering the high risks of treatment
replacement to patient safety.

Section Three: Goods

• Exclude patented medicines (including but not limited to patents on compounds) in VBP,
which abrogates innovators’ IP rights and, in regard to therapeutic class tendering, treats as
interchangeable products with very different clinical characteristics and performance.

6. Harmonise the Vaccine Policy Environment with International Standards to Improve

and Accelerate Access to Innovative Vaccines for the Chinese Population
• Increase the availability of innovative vaccines and immunisation to the Chinese population
through harmonising the regulatory environment with international standards, including but not
limited to international multi-centre trial blood samples requirements, technical guidance and
pharmacopeia.
• Promote the reform of China’s procurement criteria and process to include all NMPA-approved
vaccines, both imported and locally manufactured, on the National Immunisation Programme to
enable access for more innovative vaccines and build a more sufficient and sustainable supply to
address public health needs.
• Promote routine vaccination and vaccination strategy for respiratory diseases, such as influenza,
to avoid dual infection with COVID-19, and expand influenza immunisation programmes in
provinces and cities.
• Implement a vaccine pilot launch in the coming year in qualifying pilot zone areas to provide the
Chinese population faster access to and more choices on disease prevention.
• Prioritise prevention and realise healthy ageing through promoting the construction of adult
vaccine infrastructure to improve public awareness of adult disease prevention.
• Update the current categorisation and regulatory approach for prophylactic bio-products to
properly categorise and guide their usage, boost innovation and enhance the diversity and
accessibility of advanced measures for disease prevention.

Pharmaceutical Working Group 281

 7. Clearly Define the Projects and Scope of Prohibited Investment in the
Development and Application of Human Stem Cells, Genetic Diagnosis
and Treatment Technologies in the Foreign Investment Negative List, and
Ease Restrictions on Foreign Investment in this Area Through Regular
Government-Industry Meetings
• Issue unified and consistent guidelines by all relevant authorities to define the scope of “prohibited
investment” and “development and application” to facilitate investment and R&D planning by
foreign companies.
• Allow pilot projects in selected areas, for example, the ‘two zones’ of Beijing, the Pudong New
Area of Shanghai, Tianjin Free Trade Zone, the Greater Bay Area and Hainan Free Trade Port, to
gradually ease foreign investment restrictions before applying successful outcomes nationwide.
• Solicit advice from enterprises, industry associations and chambers of commerce on amendments
to the Negative List and hold regular meetings with industry to explore ways to ease restrictions
on foreign investment.
• Strengthen the supervision capacity and mechanisms of relevant departments, such as the
NMPA, the Human Genetic Resources Administration of China and the NHC, to support post
market surveillance once Negative List restrictions are lifted.
Section Three: Goods

Introduction to the Working Group year Plan (14FYP) 1 and the Healthy China 2030
blueprint.2 In January 2022, China released its sector-
The Pharmaceutical Working Group represents
specific 14 th Five-year Plan on the Development of
nearly 40 international pharmaceutical manufacturing
the Pharmaceutical Industry, which also focusses on
companies operating in China. The working group
innovation, alongside supply chain security.3 This strong
engages in a constructive dialogue with Chinese
commitment to pharmaceutical innovation is supported
central and local authorities to support the development
by China’s rapidly evolving regulatory landscape, as
of a sustainable pharmaceutical ecosystem, and
well as major legislative steps in intellectual property (IP)
government policies that foster innovation and
protection, and special access policies in various parts
patients’ access to affordable, innovative and high-
of China (such as the Guangdong-Macau-Hong Kong
quality healthcare solutions. In particular, the working
Greater Bay Area,4 Shanghai Pudong Zhangjiang,5 and
group has established a sound communication
channel with the Chinese healthcare and regulatory
authorities, with whom it shares its expertise and policy
recommendations based on international best practices
1 14 th Five-year Plan for National Economic and Social Development of the
and members’ experiences accumulated during People's Republic of China and the Long-term Goals for 2035, State Council,
decades of healthcare reform in European countries. 13th March 2021, viewed 24th June 2022, <http://www.gov.cn/xinwen/2021-03/13/
content_5592681.htm>
2　Healthy China 2030 Blueprint, Chinese Communist Party Central Committee and

Recent Developments State Council, 25th October 2016, viewed 24th June 2022, <http://www.gov.cn/
zhengce/2016-10/25/content_5124174.htm>
3 14th Five-Year Plan on the Development of the Pharmaceutical Industry, Ministry
China’s healthcare system reform continues to deepen, of Industry and Information Technology, 31st January 2022, viewed 27th April
with the key objectives of further providing innovative 2022, <http://www.gov.cn/zhengce/zhengceku/2022-01/31/content_5671480.
htm>
healthcare solutions for the Chinese population 4 ‘Hong Kong-Macau Drug and Medical Device Pass’ Policy Landed in Nine Cities
and fostering innovation, in line with the 14 th Five- in the Greater Bay Area, Guangming Net, 28th August 2021, viewed 27th April
2022, <https://news.gmw.cn/2021-08/28/content_35119407.htm>
5 Announcement on Passing the Regulations of Shanghai Pudong New Area on
Promoting Zhangjiang Biomedical Industry Innovation, Shanghai Municipal
People’s Congress, 30th December 2021, viewed 27th April 2022, <http://www.
spcsc.sh.cn/n8347/n8467/u1ai241152.html>

282 Pharmaceutical Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

Shenzhen6) for pharmaceutical companies. Technology (MOST) called for public consultation
on the Implementation Rules for the Regulation on
Regarding market access policies, cost control Human Genetic Resources Management.11
remains at the centre of China’s reimbursement and • On 9 th May 2022, the National Medical Products
pricing regimes for pharmaceuticals, as volume- Administration (NMPA) called for public consultation
based procurement (VBP) schemes and National on the Implementation Regulations of the Drug
Reimbursement Drug List (NRDL) negotiations mature. Administration Law.12

The working group commends the Chinese authorities The Pharmaceutical Working Group encourages
on the major reform efforts they have undertaken. the Chinese Government to continue taking steps
However, major challenges, such as finding the right toward a sustainable healthcare system that ensures
balance between cost control and innovation, as well as faster and broader access to best-in-class medicines
implementing laws and policies, lie ahead. The working and vaccines, while also continuously incentivising
group is committed to working alongside Chinese innovation and fair competition.
authorities and policymakers in their efforts to improve
Chinese patients’ access to innovative healthcare Key Recommendations
solutions.
1. Further Advance Regulatory Harmonisation
Several important regulations and public consultations and Convergence with International
Standards

Section Three: Goods

relating to the pharmaceutical industry have been
published since mid-2021, including:
Concern
• On 1st June 2021, the China National Intellectual Gaps in the harmonisation and convergence of China’s
Property Administration enacted the new Patent regulatory framework with international standards, in
Law.7 particular in the Chinese Pharmacopeia (ChP), remain
• On 15th June 2021, the National Healthcare Security a key concern of the industry.
Administration (NHSA) called for public consultation
on the Healthcare Security Law.8 Assessment
• On 15 th November 2021, the National Health Since 2015, the NMPA has taken important steps to
Commission (NHC) called for public consultation align China’s regulatory environment with international
on the Administrative Measures for the National standards, and encourage pharmaceutical innovation
Essential Medicines Catalogue.9 and simultaneous research and development (R&D),
• On 19th November 2021, the State Council published as well as registration of innovative drugs in China
the Opinions on Improving the Medical Insurance and overseas. Since joining the International Council
and Assistance System for Critical and Serious for Harmonisation of Technical Requirements for
Diseases.10 Pharmaceuticals for Human Use (ICH) in 2017, China
• On 22nd March 2022, the Ministry of Science and has implemented over 40 ICH guidelines.13

6　Opinions on the Several Special Measures for Relaxing Market Access in The NMPA has established a regulatory framework
Building Shenzhen into a Pilot Demonstration Area of Socialism with Chinese
Characteristics, National Development and Reform Commission and Ministry
providing more regulatory efficiency and transparency
of Commerce, 26th January 2022, viewed 27th April 2022, <http://www.gov.cn/ through greater alignment with international practices.
zhengce/zhengceku/2022-01/26/content_5670555.htm>
7 Patent Law of the People’s Republic of China, CNIPA, 23 rd November 2021,
The 2019 Drug Administration Law (DAL) and the 2020
viewed 18th April 2022, <https://www.cnipa.gov.cn/art/2020/11/23/art_97_155167.
html>
8　Call for Public Consultation on the Healthcare Security Law, NHSA, 25 th
June 2021, viewed 18th April 2022, <http://www.nhsa.gov.cn/art/2021/6/15/ 11 Call for Public Consultation on Implementation Rules for the Regulation on
art_48_5268.html> Human Genetic Resources Management, MOST, 22nd March 2022, viewed 18th
9　Call for Public Consultation on the Administrative Measures for the National April 2022, <http://www.most.gov.cn/tztg/202203/t20220322_179904.html>
Essential Medicines Catalogue, NHC, 15th November 2021, viewed 18th April 12 Call for Public Consultation on the Implementation Regulations of the Drug
2022, <http://www.nhc.gov.cn/yaozs/s7656/202111/068c31b85cb7486b9f77057b Administration Law, NMPA, 9th May 2022, viewed 24th May 2022, <https://www.
3e358aae.shtml> nmpa.gov.cn/xxgk/zhqyj/zhqyjyp/20220509222233134.html>
10 Opinions on Improving the Medical Insurance and Assistance System for Critical 13 NMPA holds a symposium on the process and prospects of ICH in China, NMPA,
and Serious Diseases, State Council, 19th November 2021, viewed 18th April 10th April 2021, viewed 27th April 2022, <http://english.nmpa.gov.cn/2021-04/10/
2022, <http://www.gov.cn/zhengce/content/2021-11/19/content_5651446.htm> c_610224.htm>

Pharmaceutical Working Group 283

 Drug Registration Regulation (DRR)14 have significantly products in a timely manner and ensure the continuous
streamlined and speeded up the drug approval supply of marketed products. The definition of the
process. 15 Accelerated pathways have also been ‘implementation date’ in particular has implications
created to allow faster approval for innovative drugs, linked to chemistry manufacturing and control (CMC)
and multiple efforts are ongoing to improve the quality variation, labelling updates and Marketing Authorisation
and efficiency of the review and approval system. Holder (MAH) transition.
In parallel, the NMPA is also actively encouraging
multinational companies (MNCs) to further integrate For CMC variation, Chinese regulations do not permit
China into global R&D of innovative drugs with clinical applications for review and approval of post-marketing
value. CMC changes to be submitted simultaneously in China
and overseas, and the drug may only be manufactured
The continuous harmonisation of China’s regulatory after the changes are approved. This means the time
framework would enable MNCs to introduce innovative lag between the implementation of such changes
medicines in China in a timely manner to the benefit outside China and the supply of the post-change
of Chinese patients. First, the further harmonisation of drugs to the Chinese market can take an average
Chinese quality standards and ChP requirements with of 19 months. Of those, the time lag attributable to
international standards is crucial for pharmaceutical the ‘manufacturing upon approval’ requirement can
companies that develop and manufacture drug products account for an average of almost nine months. As a
globally, independent of whether located in China or result, companies have no other choice but to store in
Section Three: Goods

overseas. However, there are still gaps in ChP general advance manufacturing materials, sometimes valued
monographs that have already been harmonised by at up to hundreds of millions of US dollars (USD), to
the Pharmacopeial Discussion Group (PDG), 16 and ensure supply to the Chinese market during this period.
differences in requirements compared to some ICH However, such reserves only maintain supply for an
guidelines. average of nine months, bearing a high risk of supply
failure.
In addition, the clinical trial applications process in China
requires substantial testing and related manufacturing For labelling updates, as no grace period has been
information, including biologics upstream construction mentioned in the regulations, the manufacturer has to
information and batch records, that are only requested implement the new labelling immediately upon approval.
at the marketing authorisation application (MAA) This is not practical and may lead to out-of-stock and/
stage by other regulatory agencies, like the European or resource wasting for the old-materials write-off.
Medicines Agency (EMA) and the United States (US) In regard to the ongoing MAH transition, if no grace
Food and Drug Administration. Such requests hinder period is provided, the supply, bidding and listing will be
Chinese companies and MNCs’ China affiliates from impacted. One solution is to introduce e-labelling: the
participating in multi-regional clinical trials in China, MAH would simply need to upload the newly approved
which is not in alignment with the government spirit to e-labelling onto the database linked to the e-code
encourage domestic simultaneous drug development. provided on product packaging and patients can access
the updated e-labelling information by rescanning the
Moreover, issues linked to post-approval variation e-code, even from older packs/cartons.
management impact the industry’s ability to launch new
Lastly, China’s ‘new drug’ definition, including in the
14 Drug Registration Regulation, State Administration for Market Regulation, recently revised DAL and DRR, remains misaligned
22 nd January 2020, viewed 24 th June 2022, <https://gkml.samr.gov.cn/nsjg/ with international standards. China defines a new
fgs/202003/t20200330_313670.html>
15 Newly Revised Drug Administration Law Adopted After Deliberation —To drug as one that has not yet been marketed anywhere
Comprehensively Implement the Four Strictest Requirements and Effectively in the world, and not simply new to China, 17 This
Protect Drug Safety for the Public, NMPA, 26th August 2019, viewed 27th April
2022, <http://english.nmpa.gov.cn/2019-08/26/c_411183.htm>. exposes drugs manufactured and approved abroad to
16 The PDG was formed in 1989 with representatives from the European, Japanese potential different treatment from those manufactured
and the US Pharmacopeia. In May 2001, the PDG welcomed the World Health
Organization as an observer. The PDG generally meets twice a year and holds
monthly status and technical teleconferences to advance harmonisation work. 17 Circular on the Publication of Chemical Drug Registration Classification and
See: Pharmacopeial Discussion Group (PDG), Usp.org, viewed 4th July, <https:// Declaration Requirements, NMPA, 30 th June 2020, viewed 27 th April 2022,
www.usp.org/harmonized-standards/pdg> <https://www.nmpa.gov.cn/xxgk/ggtg/qtggtg/20200630180301525.html>.

284 Pharmaceutical Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

domestically, and may result in them losing key benefits. innovative medicines from both global and domestic
This misalignment will also reduce domestic and foreign players.
companies’ flexibility to include the Chinese market in
their long-term global drug development plans. In recent years, China has enacted several laws
and policies to advance important IP reforms.
Recommendations However, further work is still required to ensure that
• Encourage greater harmonisation of the Chinese implementation effectively advances innovation and
regulatory and quality system with international patient access.
standards from the ICH and the Pharmaceutical
Inspection Co-operation Scheme (PIC/S) and more Patent term extension (PTE)
active participation in the International Coalition of China has provided both patent term adjustment (PTA)
Medicines Regulatory Authorities (ICMRA) in order to and PTE, as outlined in the recently amended Patent
contribute to global alignment. Law,18 the draft Implementing Rules of the Patent Law
• Reduce barriers in the drug review and approval and the draft Patent Examination Guidelines. However,
process, notably in the clinical trial assessment detailed rules for PTA and PTE are still pending. With
review and approval process, by aligning with major regard to PTE, the type of drugs and patents eligible for
regulatory agencies and World Health Organization PTE, the definition of ‘new drug’, the scope of protection
standards. provided during PTE, as well as PTE calculation need
• Implement more effective and efficient post-approval to be further clarified in finalised rules and guidelines as

Section Three: Goods

change management to ensure continuity of supply. soon as practical.
• Support the NMPA to introduce e-labelling to ensure
sustainable labelling updates in the long run and to Patent linkage (PTL)
resolve the grace period issue. Despite the implementation of the PTL system, drug
innovators are concerned about the short stay period
2 . Ensure Clear Interpretations and provided for chemical drugs (nine months only), which
Consistent Implementation of Intellectual may not be sufficient for resolving patent disputes; the
Property (IP) Laws and Policies to Better lack of a stay period for biological drugs; and the lack of
remedy if a generic or biosimilar manufacturer submits
Foster Pharmaceutical Innovations for
an erroneous/inconsistent declaration. Furthermore, the
Chinese Patients
prevailing linkage-related legislation lacks clarity, which
has caused uncertainties over implementation.
Concern
The protection of pharmaceutical IP in China is
Regulatory data protection (RDP)
hindered by ineffective, unequal and unpredictable
As part of its accession to the World Trade Organisation,
implementation, especially regarding regulatory data
China committed to providing RDP. The Implementation
protection (RDP), patent term extension (PTE), the
Regulations of the Drug Administration Law anticipate
definition of 'new drug', and patent linkage (PTL)
a six-year protection period for test data of products
system.
containing new chemical ingredients. However, in
practice, there is no enforcement mechanism to prevent
Assessment
the unfair commercial use of safety and efficacy data
As global experience and practice have shown, IP
generated by innovative pharmaceutical companies.
rights are fundamental for investment in R&D that leads
As the Regulations are under amendment, the working
to new medicines, as well as in facilitating access to
group strongly recommends retaining and clarifying the
medicines. The Chinese economy—now the second
RDP clause, and setting up a clear timetable for RDP
largest in the world—is on the path to innovation in all
implementation.
sectors, including healthcare and pharmaceuticals.
Hence, establishing a multi-dimensional IP protection
mechanism in China that encompasses patents and
regulatory data protection will facilitate innovation in
18 Patent Law of the People’s Republic of China, NPC, 19th November 2021, viewed
pharmaceuticals and accelerate patient access to 24th June 2022, <http://www.npc.gov.cn/npc/c30834/202011/82354d98e70947c09db
c5e4eeb78bdf3.shtml>

Pharmaceutical Working Group 285

 Mandatory IP-sharing related to human genetic 3. Establish a National/Provincial Funding
resources (HGR) requirements Pool for Rare Diseases, with a Higher
In 2019, the State Council released the Regulations on National Negotiation Price Threshold
Management of Human Genetic Resources of China,
for High-value Rare Disease Drugs,
addressing mandatory patent-sharing requirements
and Encourage Local Governments to
between foreign companies and local partners (such
Continue Provincial Level Coverage for
as hospitals) where the collaboration (including pre-
Rare Diseases
clinical and clinical trials) utilises China’s HGR. While
the pertinent laws, such as the Patent Law, already
Concern
provide rules on patent co-ownership and interest-
Insufficient funding of rare disease drugs in China
sharing in respect to agreements between contracting
continues to hinder patients’ sustainable access to
parties in general, 19 the mandatory patent-sharing
treatment, and the national negotiation mechanism
requirement under the HGR regime forms a significant
and value assessment framework is not optimised for
hurdle and creates uncertainty for foreign companies
innovative rare disease treatments, while rare disease
conducting clinical research in China. The working
drugs risk removal from provincial reimbursement drug
group recommends eliminating such mandatory patent-
lists (PRDL).
sharing requirements.

Assessment
Recommendations
The Chinese authorities have undertaken significant
• Implement an effective PTE mechanism that will
Section Three: Goods

reform efforts to allow greater access to innovative

encourage and protect innovation, including:
treatment for rare diseases patients in China. In 2018,
1) a clear definition of ‘new drug’, which should
the NMPA Center for Drug Evaluation (CDE) published
include any drug that has firstly obtained marketing
the First List of Clinically Urgently-needed Drugs
authorisation by the NMPA and provided a thorough
Launched Abroad, which includes 40 drugs.20 In 2019,
set of efficacy and safety data in support of its MAA;
a second list with an additional 26 drugs was released,
2) clarified protection scope during the extended
including 17 rare disease drugs.21 Inclusion on these
patent term; and 3) transparent and clear calculation
lists resulted in 15 out of the 66 drugs—of which
for PTE.
four were rare disease drugs—receiving regulatory
• Improve the patent linkage mechanism to balance
approval in less than 10 months. In addition, the Drug
the interest of originators and generics, and to
Registration Administrative Measures made innovative
provide more clarity on the linkage rules, including:
and rare disease drugs eligible for priority review and
1) extended stay period (more than nine months) for
approval, effective from 1st July 2020.22 As of December
both chemical and biological products; 2) remedy
2021, more than 60 rare disease drugs have been
if a generic or biosimilar manufacturer submits an
approved for marketing in China, and more than 40
erroneous/inconsistent declaration; and 3) clear
have entered the NRDL, including seven rare disease
guidance on patent linkage rules for biologics.
drugs added to the list in 2021.23
• Enforce the six-year RDP rule under the existing
Regulations for Implementing the Drug Administration
The working group commends these efforts by the
Law.
Chinese authorities and encourages continued reform
• Provide clear guidance for RDP in the draft
amendment to the Regulations for Implementing the
20 CDE Solicitation on the List of Urgently Needed Drugs, Lexology, 3rd September
Drug Administration Law, including clarification of 2018, viewed 4 th July 2022, <https://www.lexology.com/library/detail.
the drugs eligible for RDP, and a clear timetable for aspx?g=6f8c9add-dd48-45bd-911d-182faf5fdaab>
21 CDE releases the List of the Second Batch of Overseas New Drugs Urgently
implementation of a comprehensive RDP regime. Needed in Clinical Settings, China Daily, 29th May 2019, viewed 4th July 2022,
• Eliminate the mandatory patent-sharing requirements <https://govt.chinadaily.com.cn/s/201905/29/WS5dd1fca1498e7df3800ef678/
cde-releases-the-list-of-the-second-batch-of-overseas-new-drugs-urgently-
under the HGR regime and resort to the pertinent needed-in-clinical-settings.html>
legal requirements, such as those provided in the 22 Administrative Measures of Drug Registration, State Administration for Market
Regulation, 30th March 2020, viewed 3rd April 2021, <http://gkml.samr.gov.cn/
Patent Law. nsjg/fgs/202003/t20200330_313670.html>.
23 Over 60 rare disease drugs approved for the Chinese market, Xinhua, 19th
19 Regulations on Management of Human Generic Resources in China, State December 2021, viewed 27th April 2022. <http://english.www.gov.cn/statecouncil/
Council, 10th June 2019, viewed 24th June 2022, <http://www.gov.cn/zhengce/ ministries/202112/19/content_WS61be7078c6d09c94e48a26d9.html>.
content/2019-06/10/content_5398829.htm>

286 Pharmaceutical Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

to further improve patients’ access to rare disease Finally, China’s quality control (QC) testing requirements
drugs. However, insufficient funding remains a critical for all imported biological drugs have material impacts
obstacle to the sustainable treatment of rare diseases in on the accessibility of rare disease drugs for Chinese
China. At the national level, the current reimbursement patients. Up to 45 per cent of each imported batch is
system is inadequate to provide sustainable coverage lost to QC testing, while the testing process further
for rare disease patients, who still need to pay around delays delivery.
20 to 30 per cent for NRDL-listed drugs and even higher
for prescriptions in outpatient settings. This results in Recommendations
a significant economic burden for such patients, as • Build a dedicated, national, multi-party innovative
treatment costs are relatively high. access review and payment model that works
seamlessly with basic medical insurance (BMI)
Moreover, the national negotiation mechanism and exploring additional funding for rare disease drugs,
value assessment framework used for most drugs is including CHI and charity funds, to keep rare disease
not optimised for the most innovative rare disease patients’ co-pay at a reasonable level.
treatments. NRDL negotiation sets a Chinese yuan • Eliminate the CNY 300,000 annual price threshold
(CNY) 300,000 annual price threshold for all drugs, for NRDL negotiation for rare disease drugs.
which hinders the entry of high-value rare complex • Adopt a fit-for-purpose value assessment framework
disease drugs. Current economic evaluation is also that meets the unique characteristics of rare diseases
a big challenge for the pricing of rare disease drugs and considers all relevant elements of product value

Section Three: Goods

in NRDL negotiations, such as the cost-effectiveness in a multi-dimensional framework, including patient
modelling and incremental cost-effective ratio threshold. benefit and social value.
Furthermore, commercial health insurance (CHI) • Exempt the cost-effective analysis model or increase
and charity funds do not often provide supplemental the incremental cost-effective ratio threshold when
coverage for rare disease patients’ co-pay fees. conducting value assessment for rare diseases
drugs, especially for breakthrough therapies.
At the regional level, several provinces (including • Encourage local governments to continue provincial-
Ningxia, Zhejiang, Jiangsu and Shandong) have level coverage for rare diseases, leveraging CHI and
successfully piloted innovative models to cover rare charity funds, and exempt rare disease drugs from
disease treatment costs, benefitting from more agility PRDL delisting.
at the local level. However, the NHSA has mandated • Accelerate CHI development, include more rare
provinces to strictly follow the NRDL and remove by disease drugs in city CHI special drug lists, increase
the end of 2022 all drugs from PRDL that are not the reimbursement ratio, and develop special CHI for
listed on the NRDL. 24 De-listing rare disease drugs rare disease drugs
that are not listed on the NRDL may lead to forced • Implement a quality control waiver (for both registration
treatment switches that could jeopardise patients’ testing and commercial testing) for rare disease
treatment continuity and expose them to life-threatening imports, provided that they are uninterruptedly
risks. Provinces have up until now been leading controlled according to globally harmonised
the exploration of innovative ways to leverage CHI manufacturing, distribution, and storage standards
and charity to build a multi-layer reimbursement for (for example, good manufacturing practice, good
rare disease patients. Ceasing PRDL updates may distribution practice and good storage practice).
discourage regional authorities from further exploring
innovative and sustainable payment models for rare
diseases.

24 In 2022, the State Council’s Government Work Report stated that “the
reimbursement drug scope to be unified” as a policy goal for the year. Also in
2022, the State Council issued the 2022 Priority Tasks in Deepening Healthcare
Reform, which stated “the reimbursement drug scope to be unified”: 2022
Government Work Report, State Council, 12th March 2022, viewed 4th July 2022,
<http://www.gov.cn/premier/2022-03/12/content_5678750.htm>; 2022 Priority
Tasks in Deepening Healthcare Reform, State Council, 25th May 2022, viewed
4th July 2022, <http://www.gov.cn/xinwen/2022-05/25/content_5692276.htm>

Pharmaceutical Working Group 287

 4. Improve the Dynamic Update Mechanism leveraged as a supplementary element to partly cover
in the NRDL to Promote the Medical innovative treatments and technologies that may not be
Insurance System Reform, as Well as affordable under the BMI alone.28

Hospital Access for NRDL Drugs, and

The common issue of certain NRDL products not being
Introduce a Value-based Evaluation
included in hospital formularies, the ‘last kilometre’
Mechanism for Innovative Drugs
problem, caught the attention of the government, which
Inclusion
issued several polices to improve the situation.29,30&31
In Shanghai, local authorities mandate hospitals to
Concern
host Drug Committee Meetings (DCMs), from whom
Steep price cuts and barriers to NRDL implementation
hospitals need approval to grant drugs access to their
at hospital-level remain problematic and hinder the
formulary. However, as most hospitals do not host
development of the biomedical industry and patient
DCMs regularly, the latest NRDL-listed drugs cannot
access to innovative medicines.
get access to hospitals in a timely manner.

Assessment
At present, China’s NRDL and VBP systems have
China reached a new stage of its medical insurance
been normalised and institutionalised. Some exclusive
system reform in June 2021, when the NHSA released
patented products have entered the NRDL negotiation
the draft Healthcare Security Law as an overarching
list over several consecutive years, and had their
framework.25
Section Three: Goods

clinical effectiveness, safety, innovation and fairness

fully acknowledged by the experts. However, they fail to
China’s health security system has adopted many
be listed in the NRDL simply because of disagreement
strategic procurement mechanisms to provide high-
over the sharp reduction in price required. These
quality and affordable medical services. For instance,
products often later end up being included in the VBP
China has updated the NRDL annually since 2017.
when their patent expiration dates approach, with the
However, Chinese patients still have limited access to
price determined by the government through the VBP
many innovative medicines that may not be included in
mechanism. A linkage mechanism that allows these
the NRDL, as the negotiation process remains primarily
types of VBP products to be included in the NRDL
driven by price. This process should instead balance
could help Chinese patients benefit from them quicker,
and recognise the value of innovative medications
ease government administrative processes and save
to patients, the healthcare system and society. To
administrative costs.
improve patients’ adherence and expand their access
to drugs that are safer and have higher clinical efficacy,
In recent years, Chinese regulators have actively
particularly for common chronic diseases such as
promoted the development of personalised precision
hypertension and diabetes, the NHSA should also
medicines, and encouraged the simultaneous
expand the NRDL to include single pill combination as
development of anti-tumour drugs and corresponding
clinical guidelines recommend.26&27
diagnostic reagents. However, biomarker testing, which
is the cornerstone of precision treatment, still follows
The 14FYP proposes that 1) biomedicines be included
as a “national mega-innovation field”; 2) appropriate
28 Outline of the 14 th Five-Year Plan (2021-2025) for National Economic and
incentives for corporate innovation be made available Social Development and the Long-Range Objectives Through the Year 2035,
within the health security system, and 3) that CHI be State Council, 13th March 2021, viewed 12th April 2022, <http://www.gov.cn/
xinwen/2021-03/13/content_5592681.htm>
29 NHSA, NHC Guidance on establishing and improving the ‘dual channel’
25 Announcement of National Healthcare Security Administration on Public Opinions management mechanism of NRDL negotiation drugs, NHSA and NHC, 10th
on Healthcare Security Law (draft for comments), NHSA, 15th June 2021, viewed May 2021, viewed 13 th April 2022, <http://www.nhsa.gov.cn/art/2021/5/10/
12th April 2022, <http://www.nhsa.gov.cn/art/2021/6/15/art_48_5268.html> art_37_5023.html>
26 Guidelines for Hypertension Prevention and Treatment in China (2018 revision), 30 NHSA, NHC Notice on adapting to normalisation of national medical insurance
Chinese Journal of Cardiovascular Diseases, vol. 24, no. 1, February 2019, negotiation and continuing to guarantee NRDL negotiated drugs landing, NHSA
viewed 18 th April 2022, <https://www.cnki.com.cn/Article/CJFDTOTAL- and NHC, 10th September 2021, viewed 13th April 2022, <http://www.nhsa.gov.
XIXG201901003.htm> cn/art/2021/9/10/art_37_5939.html>
27 National Guidelines on Hypertension Prevention and Management Guidelines at 31 Notice on the performance appraisal operation manual of national tertiary public
Grassroots Level (2020 version), National Centre of Cardiovascular Diseases, hospitals (2022 Edition), NHC, 30th March 2022, viewed 14th April 2022, <http://
December 2021, viewed 18 th April 2022, <https://hbp-office.nccd.org.cn/ www.nhc.gov.cn/yzygj/ylyxjg/202204/d61b7201a56643d1a876e103340e5897.
download.html> shtml>

288 Pharmaceutical Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

the model of independent pricing by medical institutions 5. Further Improve Implementation of

or third-party testing institutions, and is not yet included Volume-based Procurement (VBP)
in the medical insurance fund. To a certain extent, the and Establish a Follow-up Evaluation
high costs of biomarker testing limits patients’ choices
Mechanism, to Ensure Market
of drugs listed in the NRDL and impacts treatment.
Competition as well as Patients’ and
Therefore, the working group recommends taking
Doctors’ Access to High-quality, Safe
NHSA COVID-19 testing proposals as an example,32
and Efficacious Drugs
and explore setting government-guided price standards
for biomarker testing in medical institutions, while
Concern
gradually including testing expenses for precision
While China’s VBP policy has significantly reduced drug
tumour treatment in the medical insurance fund.
prices, problems in drug selection, procurement, supply
and quality supervision have impacted both patients’
Recommendations
and doctors’ access to drugs, and there have not been
• Reward innovation adequately, include value-based
follow-up evaluations of these impacts.
assessments in the NRDL process, and determine
pricing and reimbursement in line with fund
Assessment
affordability.
On 23rd September 2021, the State Council published
• Explore a new co-payment model with reimbursement
the Notice on the National Medical Security Plan
for certain high-value innovative drugs, partially
in the 14 th Five-Year Plan, setting a clear target for

Section Three: Goods

shared by both BMI and CHI, to reduce pressure on
universal medical VBP to cover 500 drugs by 2025,
the BMI and create development space for CHI.
thereby “continuously improving the people's sense
• Simplify the hospital access process by holding, in
of acquisition, happiness, and security”.33 The 2022
the short-term, special DCMs for negotiated drugs
National Medical Security Work Conference reported
within a set time-range, referencing Shanghai’s
that the cost burden of drugs and consumables was
policy where local authorities mandate hospitals to
significantly reduced, with savings in the first five
host DCM, and apply this model nationwide.
batches of drugs VBP and coronary stents VBP in 2021
• Consider more options to improve hospital access
reaching nearly CNY 170 billion.34
in the long-term, including a joint NHSA-NHC
mechanism to grant access to new NRDL drugs.
The working group fully supports the government’s
• Exclude negotiated drugs when evaluating increases
goal of reducing patients’ financial burden. However,
of medical expenses in performance appraisals
it also notes that low price is still the key factor in
of medical insurance designated institutions, and
winning bids while enterprises’ supply capacity is not
ensure their usage is not affected by hospitals’
fully considered, and there is no clear and scientific
annual budget caps.
price competition mechanism. A mature and scientific-
• Establish a linkage mechanism to allow qualified
effectiveness evaluation system on VBP is also lacking.
national VBP drugs to be included in the NRDL.
The working group has noticed that some VBP drugs
• Include the single pill combination in the NRDL
have low reimbursement payment standards (RPS) –
to improve patients’ compliance and expand
some as low as CNY 0.5 per day. Such low VBP RPS
their access to safe drugs with better clinical
affects patients’ access to brand drugs, especially
efficacy, particularly for chronic diseases such as
patients with chronic diseases who may depend on
hypertension and diabetes.
branded drugs for treatment continuity.
• Include biomarker testing costs in the medical
insurance fund for precision tumour treatment.
According to the NHSA, since the release of the
Guideline on Establishing Credit Evaluation System

32 On 19 th June 2020, the NHSA issued the Notice on Further Improving the 33 Notice on the 14th Five-year Plan for National Medical Security, State Council,
COVID-19 Detection Capability, which proposes including nucleic acid testing 23 rd September 2021, viewed 20 th April 2022. <http://www.gov.cn/gongbao/
and related consumables in the provincial medical insurance reimbursement content/2021/content_5643264.htm>
scheme. On 21st March 2022, the NHSA again requested the temporary inclusion 34 National Conference on Medical Security Held in Beijing, NHSA, 14th January
of COVID-19 antigen detection reagents and corresponding detection items in 2022, viewed 20 th April 2022, <http://www.nhsa.gov.cn/art/2022/1/14/
the provincial BMI and medical service catalogue. art_14_7780.html>

Pharmaceutical Working Group 289

 for Drug Prices and Bidding in 2020,35 by September biologics, considering the high risk of treatment
2021, a total of 69 enterprises had been rated, replacement to patient safety.
including five with 'seriously' discreditable behaviour. • Exclude patented medicines (including but not limited
Most discreditable acts are cited as "failure to supply to patents on compounds) in VBP, which abrogate
according to agreement, cut off supply". innovators’ IP rights and, in regard to therapeutic
class tendering, treats as interchangeable products
In 2021, the NHSA began to expand VBP to biologics. with very different clinical characteristics and
Several regional VBPs involve generic medicines that performance.
have not passed the Generic Quality Consistency
Evaluation. Without a sound framework that ensures 6. Harmonise the Vaccine Policy Environment
the quality, efficacy, safety, interchangeability and with International Standards to Improve and
traceability of biologic and biosimilar products, such Accelerate Access to Innovative Vaccines
VBP and other ‘forced-switch’ policies can put patient
for the Chinese Population
safety and therapeutic continuity at risk, due to the high
complexity of biologics and the conditions that they Concern
treat. The current vaccine policy environment in China (in
particular, the registration process and ChP) is not
Lastly, new concerns with the national VBP programme harmonised with international standards, impeding
have emerged with respect to the protection of IP the Chinese population’s timely access to innovative
Section Three: Goods

rights. Members of the working group noted that the vaccines, and there are no dynamic adjustment
list of products for the fourth national VBP had included mechanisms for vaccines to be included in the National
a compound for which the patent was still valid and Immunisation Programme (NIP).
for which an administrative lawsuit was in progress.
Additionally, the announced procurement for the sixth Assessment
national VBP (insulin) group included patented and off- ‘Prevention first’ serves as one of the core strategies
patent products in the same class for competitive lowest of national Healthy China initiatives. With COVID-19
price bidding. remaining a global health concern, the Chinese
Government has prioritised reforming the national
Recommendations disease control system and strengthening vaccine R&D
• Develop a long-term follow-up evaluation mechanism capabilities. These priorities were also highlighted in the
on the medical expenses and quality of all VBP 14FYP, as well as during the 2021 and 2022 plenary
products, and fully respect the opinions of doctors sessions of the National People’s Congress (NPC) and
and patients based on the actual situation of clinical the Chinese People’s Political Consultative Conference,
treatment practice, to accumulate and supply also known as the ‘Two Sessions’.
evidence for VBP policy improvement.
• Improve competition rules, avoid awarding bids On 13th May 2021, China announced the establishment
quoting extremely low prices, and assess the supply of the National Disease Prevention and Control Bureau,
capacity of bidding entrants. and on 16 th February 2022, details on its overall
• Ensure provincial drugstores also provide brand structure, detailed roles and responsibilities were
drugs that are not VBP winners to secure patients released.36 This reinforces the role assigned to disease
and doctors’ access to brand drugs. prevention and control on the national political agenda.
• Extend the grace period of RPS implementation of In addition, progress has been made on legislation
VBP drugs to mitigate patients’ treatment costs. to reinforce pandemic prevention and response
• Improve the regulatory framework on biosimilar to capabilities, and enhance technology innovation
ensure safety, efficacy and interchangeability before capacity. The Public Health Emergency Response Law,
expanding the scope of biologics VBP. listed in the NPC Standing Committee 2021 Legislative
• Prevent regional authorities from piloting VBP on
36 Chinese Centre for Disease Control and Prevention’s Measures on Functional
35 Guideline on Establishing Credit Evaluation System for Drug Prices and Bidding, Configuration, Internal Organisation, and Staff Management, State Council, 16th
NHSA, September 2020, viewed 24 th June 2022, <http://www.nhsa.gov.cn/ February 2022, viewed 24th June 2022, <http://www.gov.cn/zhengce/2022-02/16/
art/2020/9/16/art_104_6497.html> content_5674041.htm>

290 Pharmaceutical Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

Work Plan, is under drafting, 37 and the Infectious Lastly, in the evolving COVID-19 reality, it is even
Disease Prevention and Control Law is under revision more critical to strengthen routine vaccination for the
by the NHC at the time of writing.38 Chinese population to avoid unnecessary crowding out
of medical resources. Promoting vaccination against
While the working group commends these developments, other respiratory diseases, such as influenza, and
it expects to see further regulatory reforms to foster the expanding immunisation programmes to more Chinese
building of an innovative domestic vaccine ecosystem. provinces and cities would be in line with international
China has actively participated in global initiatives best practices, and will help avoid dual infection with
on fighting COVID-19, especially in contributing to COVID-19.
vaccine development and supply. In this context, the
harmonisation of China’s vaccine regulatory framework Recommendations
with international standards will not only help Chinese • Increase the availability of innovative vaccines
people get quicker access to more innovative vaccines, and immunisation to the Chinese population by
but also support the expansion of China-manufactured harmonising the regulatory environment with
vaccines into global markets. international standards, including but not limited
to international multi-centre trial blood samples
Despite efforts to speed up the registration and requirements, technical guidance and pharmacopeia.
approval process for vaccines, the time required • Promote the reform of procurement criteria and
remains challenging, and affects the simultaneous processes to include all NMPA-approved vaccines,

Section Three: Goods

global development of vaccines. There is also a lack both imported and locally manufactured, on the NIP
of clarity regarding requirements on international multi- to enable access for more innovative vaccines and
centre trial blood samples, technical guidance and build a more sufficient and sustainable supply to
pharmacopeia. Although pilot zone policies on the address public health needs.
fast launch of innovative drugs have greatly benefitted • Promote routine vaccination and vaccination strategy
Hainan and the Guangdong-Hong Kong-Macau Greater in respiratory diseases, such as influenza, to avoid
Bay Area, vaccines—categorised as drugs in China— dual infection with COVID-19, and expand influenza
do not qualify, despite their growing importance in the immunisation programmes in provinces and cities.
public health system. • Implement vaccine pilot launches this coming year
in qualifying pilot zone areas to provide the Chinese
Considering China’s fast-ageing population, it is population with faster access to and more choices on
also important to reinforce vaccine awareness disease prevention.
among the general public, for vaccines—alongside • Prioritise prevention and realise healthy ageing
their high social economic value—are a key public through promoting the construction of adult vaccine
health solution for improving people’s health and life infrastructure to improve public awareness of adult
expectancy. Furthermore, prophylactic agents, such disease prevention.
as monoclonal antibodies/insulin, have emerged that • Update the current categorisation and regulatory
can protect populations from infectious diseases, yet approach for prophylactic bio-products to properly
Chinese regulations do not include categories for such categorise and guide their usage, boost innovation
innovative prophylaxes. In addition, procurement of NIP and enhance the diversity and accessibility of
vaccines is open to domestically-produced products advanced measures for disease prevention.
only. Imported vaccines that are safe, urgently needed
and affordable should be included in the NIP – thereby
improving access and sustainable supply of innovative
vaccines.

37 National People’s Congress Standing Committee’s 2021 Legislative Work Plan,

National People’s Congress, 21st April 2021, viewed 30th June 2022, <http://www.
npc.gov.cn/npc/c30834/202104/1968af4c85c246069ef3e8ab36f58d0c.shtml>
38 Notice on Public Consultation on the Infectious Diseases Prevention and
Control (Revised Draft for Comments), NHC, 2nd October 2020, viewed 8th May
2021, <http://www.nhc.gov.cn/wjw/yjzj/202010/330ecbd72c3940408c3e5a4
9e8651343.shtml>

Pharmaceutical Working Group 291

 7. Clearly Define the Projects and Scope While CGT is developing rapidly in Europe and the US,
of Prohibited Investment in the the Chinese CGT ecosystem has numerous barriers,
Development and Application of Human including limitations on foreign investment, localisation
of technology and IP, varying levels of capabilities
Stem Cells, Genetic Diagnosis and
among medical organisations and inconsistent
Treatment Technologies in the Foreign
reimbursement periods. This is extremely challenging
Investment Negative List, and Ease
for the commercialisation of CGT products, which in
Restrictions on Foreign Investment in
turn significantly delays patient access to innovative
this Area through Regular Government- therapies. In regard to investment access, although R&D
Industry Meetings and production of cell therapy products are encouraged
in the Catalogue of Industries for Encouraged Foreign
Concern Investment (2020), the current Negative List for Foreign
Article 19 of China’s Foreign Investment Negative List Investment still states China will “prohibit investment in
(2021 Edition) may obstruct China's harmonisation with the development and application of human stem cells,
global frontier biotechnology R&D development trends, genetic diagnosis and treatment technologies”.44 As the
hinder sustainable foreign investment, and delay access Negative List does not provide a detailed interpretation
of patients in China to new innovative therapies. of “prohibited investment” or define “development and
application”, it causes confusion and uncertainty for
Assessment foreign companies in regard to CGT clinical trials, new
Cell and gene therapy (CGT) has transformed the
Section Three: Goods

drug application and investment planning, to name just

way genetic and other challenging diseases are a few areas.
being treated globally. CGT is recognised as the third
revolution of the bio-pharmaceutical industry, following Recommendations
the invention of small molecular drugs and antibody • Issue unified and consistent guidelines by all
drugs. relevant authorities to define the scope of “prohibited
investment” and “development and application” to
The financing of R&D of CGT products reached euro facilitate investment and R&D planning by foreign
(EUR) 20.1 billion globally in 2021, up 16 per cent companies.
compared with EUR 17.3 billion in 2020.39 By the third • Allow pilot projects in selected areas, for example,
quarter of 2021, there were 1,386 CGT products on the ‘two zones’ of Beijing, the Pudong New Area of
clinical trials around the world, 175 of which were in the Shanghai, Tianjin Free Trade Zone, the GBA and
third phase.40 In addition, by 2021, 30 CGT products Hainan Free Trade Port, to gradually ease foreign
had been approved in Europe and the US.41 As of mid- investment restrictions before applying successful
2022, producers of 17 CGT products or therapies have outcomes nationwide.
submitted or indicated plans to submit biologic license • Solicit advice from enterprises, industry associations
applications or MAA.42 By the end of 2022, the number and chambers of commerce on amendments to the
of EMA-approved gene therapies for rare diseases is Negative List and hold regular meetings with industry
expected to double from a year earlier.43 to explore ways to ease restrictions on foreign
investment.
• Strengthen the supervision capacity and mechanisms
39 Smith, Jonathon, Europe Trailed US Despite Record Gene and Cell Therapy of relevant departments, such as the NMPA, the
Funding in 2021, Labiotech, 14th January 2022, viewed 14th April 2022, <https://
www.labiotech.eu/trends-news/gene-therapy-cell-arm/> Human Genetic Resources Administration of China
40 Cell and Gene State of the Industry Briefing, Alliance for Regenerative Medicine, and the NHC, to support post-market surveillance
10th January 2022, viewed 14th April 2022, <https://alliancerm.org/arm-event/
sotibriefing/> once Negative List restrictions are lifted.45
41 China Cell and Gene Therapy Industry Development White Paper, Frost &
Sullivan, June 2021, pp. 37-39. viewed 22nd August 2022, <http://www.frostchina.
com/wp-content/uploads/2021/06/1-3.pdf>
42 Cell and Gene State of the Industry Briefing, Alliance for Regenerative Medicine, 44 Foreign Investment Negative List 2021 Edition, 27 th December 2021,
10th January 2022, viewed 14th April 2022, <https://alliancerm.org/arm-event/ viewed 4 th July 2022, <http://www.gov.cn/zhengce/zhengceku/2021-12/28/
sotibriefing/> content_5664886.htm>
43 Smith, Jonathon, Europe Trailed US Despite Record Gene and Cell Therapy 45 While most developed markets do not prohibit foreign investment in CGT,
Funding in 2021, Labiotech, 14th January 2022, viewed 14th April 2022, <https:// comprehensive supervision mechanisms to monitor the manufacture of CGT
www.labiotech.eu/trends-news/gene-therapy-cell-arm/> related products is a standard practice.

292 Pharmaceutical Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

Abbreviations
BMI Basic Medical Insurance
CDE Center for Drug Evaluation
CGT Cell and Gene Therapy
CHI Commercial Health Insurance
ChP Chinese Pharmacopeia
CMC Chemistry Manufacturing Control
CNY Chinese Yuan
DAL Drug Administration Law
DCM Drug Committee Meetings
DRR Drug Registration Regulation
EMA European Medicines Agency
EUR Euro
FYP Five-year Plan
HGR Human Genetic Resources
ICH International Council for Harmonisation
of Technical Requirements for
Pharmaceuticals for Human Use
ICMRA International Coalition of Medicines

Section Three: Goods

Regulatory Authorities
IP Intellectual Property
MAA Marketing Authorisation Application
MAH Marketing Authorisation Holder
MNC Multinational Company
MOST Ministry of Science and Technology
NHC National Health Commission
NHSA National Healthcare Security
Administration
NIP National Immunisation Programme
NMPA National Medical Products Administration
NPC National People’s Congress
NRDL National Reimbursement Drug List
PDG Pharmacopeial Discussion Group
PIC/S Pharmaceutical Inspection Co-
operation Scheme
PRDL Provincial Reimbursement Drug List
PTA Patent Term Adjustment
PTE Patent Term Extension
PTL Patent Linkage
QC Quality Control
R&D Research and Development
RDP Regulatory Data Protection
RPS Reimbursement Payment Standards
US United States
USD United States Dollar
VBP Volume-based Procurement

Pharmaceutical Working Group 293

 Rail Working Group

Key Recommendations
1. Continue to Expand Market Access and Improve Fair Competition in the Rail
Industry
• R ecognise that foreign-invested enterprises’ (FIEs’) and joint ventures’ (JVs’) technologies meet
‘autonomous and controllable’ requirements under certain circumstances pursuant to the principle
of treating all company entities equally in the Foreign Investment Law.
• Ensure the full participation of FIEs and JVs in construction and after-sales services projects to
China's ‘large rail’ and ‘urban rail’ markets.
• Eliminate the ‘one-point scoring system’ for subway projects and treat domestic and foreign
companies equally.
• Encourage innovation of different market entities to continuously improve product quality, service,
technology and safety in the rail industry.
• Remove barriers in the field of bidding, and treat all market entities fairly.
Section Three: Goods

2. Increase the Participation of FIEs and Utilise Their Advantages in National

Initiatives and Projects in Order to Boost the Economy
• E stablish a dialogue mechanism to take into account the views of FIEs in China when formulating
and implementing national initiatives such as ‘new infrastructure’ and the Belt and Road Initiative,
and when implementing plans.
• Provide more support on innovation and research and development support for FIEs.
• Facilitate the exchange of leading global industrial practices, innovations and technologies for rail
tracks, adjacent property assets, and systems operation and maintenance, through collaborative
European Union-China infrastructure projects, both within China and overseas.

3. Promote the Adoption and Absorption of FIEs’ Advanced Technologies in the

Rail Industry to Help the Formulation of Domestic Standards and Technical
Specifications, and Improve the Participation of FIEs and JVs in, and
Transparency of, the Formulation Process
• P rovide equal access to all companies legally registered in China to participate in the
standardisation activities of relevant technical committees or working groups, and give them the
right to vote.
• Ensure that FIEs equally participate in the formulation of national standards, industry standards,
social organisation standards and enterprise standards, and encourage close and non-
discriminatory coordination between standard-setting bodies and FIEs.
• Encourage the adoption of advanced technologies in Chinese standards, and their convergence
with international standards.
• Accelerate the modernisation of the rail standards system, to make it fair, reasonable, inclusive,
and transparent, and make the extensive participation of stakeholders in the standard-setting
process in the important evaluation indicator.
• Regulate the standardisation activities of associations and recognise standards of associations

294 Rail Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

as national standards or industry standards before applying them to the product certification
system.
• Establish a mechanism for regular exchanges between key stakeholders in Europe and China,
in particular with major Chinese state-owned enterprises, to promote understanding of the
direction of technology and standards development.

4. Improve the Rail Industry Supply Chain through Further Improved Protection
of Intellectual Property Rights (IPR)
• I mprove IPR enforcement in order to encourage increased investment in the rail industry and
to foster the participation of small and medium-sized enterprises in the supply chain.

Introduction to the Working Group The Chinese Government attaches great importance
to the development of its rail industry, and has issued
The Rail Working Group consists of manufacturers
a series of national guiding policies and documents
of vehicles, infrastructure, and signal, traction and
to develop “a country with a strong transportation
braking systems, as well as service providers, in the

Section Three: Goods

network".3 On 11th March 2021, the National People's
rail industry. It represents the common interests of the
Congress (NPC) adopted the Outline of the 14 th
European rail transport industry, promoting market
Five-year Plan for National Economic and Social
access and fair competition, as well as participation in
Development and the Long-range Objectives Through
national and third-country infrastructure projects and
the Year 2035 (14FYP),4 which, among other things,
standardisation activities.
states China’s intention to "speed up the construction
of a country with a strong transportation network, by
Recent Developments building a modern and comprehensive transportation
China's rail industry has grown rapidly in the last few system, and promote the integrated development
years. According to the Ministry of Transport (MOT), of various modes of transportation, and improving
during the 13 th Five-year Plan (FYP) period from the network effect and operational efficiency”. The
2016 to 2020, China’s total operating railway network 14FYP includes the planning of strategic backbone
reached 146,000 kilometres (km), covering 99 per cent channels,5 high-speed railway, ordinary railway, urban
of cities with a population of more than 200,000 people. agglomeration, and urban rail transportation. At the
The total length of high-speed rail is about 38,000 km, 2022 ‘Two Sessions’, many rail transportation proposals
ranking first in the world and covering 95 per cent of were raised, including that national industrial authorities
China’s cities with a population of one million or above.1 should coordinate on and promulgate a dedicated fifth
The total length of urban rail in operation in 50 major generation mobile network (5G) frequency for the rail
cities in Mainland China reached nearly 9,200 km as industry as soon as possible.
of 31st December 2021, including more than 7,250 km 3　The CPC Central Committee and the State Council Issued the Programme of
of subways accounting for 78.9 per cent of total urban Building National Strength in Transportation, Central People's Government of the
People’s Republic of China (PRC), 19th September 2019, viewed 23rd May 2022,
rail. In 2021 alone, a total of more than 1,200 km of <http://www.gov.cn/zhengce/2019-09/19/content_5431432.htm>
new urban rail transit lines were added, with 39 new 4　The Outline of the 14 th Five-Year Plan for National Economic and Social
Development and the Long-Range Objectives Through the Year 2035 of
lines coming into operation.2 However, compared with the People's Republic of China, Central People's Government of the PRC,
developed countries, China's rail industry still has a lot 13 th March 2021, 23 rd May 2022, <http://www.gov.cn/xinwen/2021-03/13/
content_5592681.htm>
of room for development. 5　China’s strategic backbone channels include comprehensive transportation
1　Press Conference Held by the State Council Information Office on Transport corridors, exit and entry channels of Xinjiang and Tibet, central and western
Development Achievements in the Period of the 13 th Five-Year Plan, region channels, and river and coastal channels: The draft outline of the 14FYP
MOT, 22 nd October 2020, viewed 23 rd May 2022, <https://www.mot.gov. and the long-range objectives through the year 2035 proposed the acceleration
cn/2020wangshangzhibo/shisanwufzcj/> of the construction of a country with a strong transportation network and to
2　Association Express: Overview of Urban Rail Transit Routes in Mainland China improve the network effect and operational efficiency, MOT, 8th March 2021,
in 2021, China Association of Metros, 31st December 2021, viewed 14th March viewed 23 rd May 2022, <https://www.mot.gov.cn/jiaotongyaowen/202103/
2022, <https://www.camet.org.cn/xhfb/9269> t20210308_3529817.html>

Rail Working Group 295

 At the Fifth Plenary Session of the 19th Central Committee important role in recent years, serving as the backbone
of the Communist Party of China (CPC) in October of China's rail transportation industry. The Chinese
2020, President Xi Jinping emphasised the need Government has put forward new requirements for
to "coordinate the advancement of infrastructure SOEs, as part of a three-year reform plan for the
construction and accelerate China's construction public sector. One of the stated goals is for SOEs
towards a transportation powerhouse”.6 In August 2020, to further strengthen overseas outreach and cross-
the China State Railway Group Co. Ltd (China Railway) border acquisitions, with a focus on the integration and
released the Outline of Advanced Railway Planning development of enterprises. 10 With these supportive
Towards Becoming a Transport Powerhouse in the New policies, the working group believes foreign-invested
Era, which described the two main goals for 2035 and enterprises (FIEs) and SOEs will be able to cooperate
2050:7 better and create a mutually beneficial situation.

• building a strong and modernised transportation In recent years, the rail industry has been rapidly
system that is advanced by international standards by digitalising and becoming more environmentally
2035; and friendly. On 23rd December 2021, the National Railway
• becoming an important player in global railway Administration (NRA) issued the 14th Five-year Plan
development and an important participant in the for Railway Science and Technology Innovation,
formulation of global railway standards by 2050. which emphasise that the rail industry should "focus
on promoting the deep integration of cutting-edge
Section Three: Goods

Despite the promising rail transportation market, the technologies with the railway sector, strengthen
working group noticed that tighter national restrictions the research and application of intelligent railway
on approving urban rail and subway projects have been technologies, and promote the sharing of transport big
imposed in recent years, based on a series of policy data."11 FIEs possess rich experience in, and cutting-
documents such as the Opinions on Further Improving edge technologies for, industrial digitalisation and
Railway Planning and Construction Work issued by interconnection of the rail transportation system, which
the National Development and Reform Commission can benefit the development of all parts of the rail
(NDRC) in 2021,8&9 which emphasises preventing and industrial chain, and ultimately achieve an intelligent
addressing debt risks. During the 14FYP period, local and digitalised industry.
governments are urged to strictly manage the risks
incurred by taking on debt in order to invest in urban rail. Compared with other modes of transportation, rail has
The first round of construction planning from cities that always led efforts to save energy and reduce carbon
do not have the basic conditions required for urban rail emissions; greening is an integral part of high-quality
construction and ordinary prefecture-level cities will not development of the industry. On 22nd September 2020,
be accepted; for cities that have not met the passenger Chinese President Xi Jinping made a pledge that China
flow targets for three years of operation, a new round of will peak carbon emissions by 2030 and achieve carbon
construction planning cannot be submitted. neutrality by 2060. On 21 st January 2022, the MOT
issued the 14th Five-year Plan for Green Transportation,
State-owned enterprises (SOEs) have played an which focusses on accelerating energy saving and
carbon reduction efforts for the whole transportation
6　Accelerating the Building of a Strong Transportation Country (In-depth Study and
Implementation of the Spirit of the Fifth Plenary Session of the 19th CPC Central industry, and establishing more international exchanges
Committee), Huanqiu Net, 17th December 2020, viewed 23rd May 2022, <https:// and collaboration on green transportation. 12 The
baijiahao.baidu.com/s?id=1686284011216770493&wfr=spider&for=pc>
7　The ‘Outline of Advanced Railway Planning Towards Becoming a Transport working group strongly supports efforts to save energy
Powerhouse in the New Era’ was introduced, China Railway, 13th August 2020, and reduce carbon emissions in the rail industry, and
viewed on 23rd May 2022, <http://www.china-railway.com.cn/xwzx/rdzt/ghgy/
mtbd/202008/t20200813_107702.html> its members have already established decarbonisation
8　General Office of the State Council Notification on the Opinions of the National targets and plans. Some member companies have
Development and Reform Commission and Other Units on Further Improving
Railway Planning and Construction Work, General Office of the State Council, 10 Ibid.
29 th March 2021, viewed 14 th March 2022, <http://www.gov.cn/zhengce/ 11 14 th Five-Year Plan for Railway Science and Technology Innovation, NRA,
content/2021-03/29/content_5596585.htm> 23 rd December 2021, viewed 8 th March 2022, <http://www.gov.cn/zhengce/
9　Focusing on Science and Technology Innovation, Three-Year Action Campaign zhengceku/2021-12/24/content_5664357.htm >
to Reform State-Owned Enterprises Begins, Central People's Government 12 14th Five-Year Plan for Green Transportation, MOT, 21st January 2022, viewed
of the PRC, 12 th March 2021, viewed 8 th April 2022, <http://www.gov.cn/ on 8 th March 2022, <https://xxgk.mot.gov.cn/2020/jigou/zhghs/202201/
xinwen/2021-03/12/content_5592630.htm> t20220121_3637584.html>

296 Rail Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

taken the lead in taking actions to achieve carbon equipment is autonomous and controllable, advanced,
neutrality, and are actively promoting the measurement suitable, safe and efficient.”15 Furthermore, the Central
and analysis of carbon emissions for all parts of the Economic Work Conference, held in Beijing from 16th
industrial chain. to 18 th December 2020, identified the government’s
priorities for 2021, with “enhancing the autonomous and
Key Recommendations controllable ability of industrial and supply chains” being
the second item on the list. 16 On 26 th August 2021,
1. Continue to Expand Market Access and the MOT and the Ministry of Science and Technology
Improve Fair Competition in the Rail stated in the Opinions on Speeding up the Building of
Industry National Strength in Transportation with Scientific and
Technological Innovation that the “basic research and
Concern original innovation capabilities in the transport sector
Wholly foreign-owned enterprises (WFOEs) and shall be comprehensively enhanced, core technologies
joint ventures (JVs) controlled by foreign investors shall become autonomous and controllable, leading
are at a disadvantage to domestic enterprises under technologies shall be fully integrated into the transport
the requirement for ‘autonomous and controllable’ sector, and a basic science and technology innovation
technology in the Chinese rail industry. system shall be created to meet the needs to build a
transportation powerhouse by 2035.”17
Assessment

Section Three: Goods

Market access restrictions are still a major problem The working group fully understands China's
for FIEs wanting to invest in China's rail industry. The determination to enhance the security of industrial
European Chamber’s Business Confidence Survey and supply chains, particularly in an increasingly
2022 found that 42 per cent of respondents missed complex global environment, and FIEs are willing to
out on business opportunities due to market access support this policy by utilising their own technological
restrictions, a figure that has stayed much the same advantages and localisation strategies. However,
for the past seven years.13 In addition, in recent years, the process of formulating and implementing specific
the concept for technology in China to be ‘autonomous policies in the rail industry often follows a ‘one-size-fits-
and controllable’ has been mentioned frequently in all’ approach, which excludes FIEs and JVs controlled
important industry documents. In November 2017, by foreign investors on the grounds of upholding the
the NDRC stated in the Three-year Action Plan on ‘autonomous and controllable’ policy. This puts FIEs
Enhancing Core Competitiveness in the Manufacturing at a distinct disadvantage, whereby they are unable to
Sector (2018–2020) that it is necessary to “develop compete fairly with domestic enterprises. This happens
products that are internationally advanced and that particularly frequently in new construction and after-
have independent intellectual property rights” to sales projects for railways, urban rail and subways.
realise the “industrialisation of key rail equipment For example, when participating in the bidding of rail
technologies”. 14 One of the development goals projects in recent years, in the scoring system, WFOEs
stipulated in the Outline of Advanced Railway Planning and JVs controlled by foreign investors often receive
Towards Becoming a Transport Powerhouse in the no points in the category of ‘localisation’, JVs in which
New Era (Outline), issued by China Railway on 12 th both Chinese and foreign stakeholders account for 50
August 2020, is to “develop advanced and independent per cent of the shares can receive half a point, while
technology through innovation”; that is, to “improve
15 The Outline of Advanced Railway Planning Towards Becoming a Transport
the independent innovation capacity and the level Powerhouse in the New Era, China Railway, 12th August 2020, viewed 23rd
May 2022, <http://www.china-railway.com.cn/xwzx/rdzt/ghgy/gyqw/202008/
of industry chain modernisation of railways, improve
t20200812_107636.html>
the science and technology innovation systems of 16 Central Economic Work Conference Held in Beijing, Xi Jinping and Li Keqiang
Made Important Speeches, Li Zhanshu, Wang Yang, Wang Huning, Zhao
railways, and ensure that the key core technology and
Leji, and Han Zheng Attended the Meeting, Xinhuanet, 18th December 2020,
13 European Business in China Business Confidence Survey 2022, European Union viewed 23rd May 2022, <http://www.xinhuanet.com/politics/leaders/2020-12/18/
Chamber of Commerce in China, 20th June 2022, viewed 20th June 2022,<https:// c_1126879325.htm>
www.europeanchamber.com.cn/en/publications-business-confidence-survey> 17 Opinions of the Ministry of Transport and the Ministry of Science and Technology
14 Notice by the National Development and Reform Commission on the Three-year on Speeding up the Building of National Strength in Transportation with
Action Plan on Enhancing Core Competitiveness in the Manufacturing Sector, Scientific and Technological Innovation, Ministry of Transport, 26 th August
Central People's Government of the PRC, 29th November 2017, viewed 23rd May 2021, viewed 14th March 2022, <https://xxgk.mot.gov.cn/2020/jigou/kjs/202108/
2022, <http://www.gov.cn/xinwen/2017-11/29/content_5243125.htm> t20210826_3616711.html>

Rail Working Group 297

 Chinese domestic enterprises or JVs controlled by observed and that FIEs will enjoy national treatment.19
Chinese investors receive a full point. This differential The working group supports this sentiment very much
treatment between domestic and foreign investors and will following related developments closely.
is referred to as the ‘one-point scoring system’. The
working group has been informed that such differential The working group also noted that, in September
treatment was still happening in some local subway 2020, the NDRC mentioned in the Notice on Further
bidding projects in early 2022. With the current fierce Standardising Business Qualification Review in the
market competition in the sector, whether an original Bidding Process (Notice) that the authorities should
equipment manufacturer (OEM) wins a bid may be “remove hidden barriers and unreasonable thresholds
determined by a single point during the evaluation in bidding to maintain a fair and competitive bidding
process. Therefore, in order to win bids, OEMs tend to environment [...] all types of market entities should
play it safe and no longer choose foreign equipment be treated fairly.”20 In addition, on 13th October 2021,
suppliers. This unfair one-point scoring system impedes the Ministry of Finance (MOF) stated in the Notice
FIEs that could potentially provide competitive pricing, on Implementing the Policies on Equal Treatment
technologies and services, thus undermining their of Domestic and Foreign-invested Companies in
confidence in long-term development and investment in Government Procurement Activities (Notice 1)
China. The working group notes that some FIEs have that it is necessary to “ensure that domestic and
already had internal discussions on adjusting their long- foreign companies participate equally in government
term development strategies in the Chinese market. procurement”, “treat domestic and foreign companies
Section Three: Goods

equally in government procurement activities” and

The working group believes that the one-point scoring “equally protect the rights of domestic and foreign
system seriously contradicts the Foreign Investment companies in order to build an integrated, open,
Law, which “encourage[s] further open[ing] up, actively competitive and orderly government procurement
promote[s] foreign investment, and protect[s] the market system and encourage fair competition in
legal rights and interests of foreign investment”.18 At government procurement”.21 The working group hopes
the same time, the system prevents WFOEs and JVs that the matters mentioned in the Notice and Notice 1
controlled by foreign investors from better integrating can be implemented to further ensure the government's
into China’s ‘dual circulation’ strategy. The working equal treatment of domestic and foreign enterprises in
group recommends the authorities rescind the one-point the procurement process.
scoring system and other differential treatment imposed
on foreign or domestic enterprises. Recommendations
• Recognise that FIEs’ and JVs’ technologies meet
For many years FIEs and JVs have made important ‘autonomous and controllable’ requirements under
contributions to China's economy, especially to certain circumstances pursuant to the principle of
the railway transportation industry, through their treating all company entities equally under the Foreign
technological advantages, innovation, international Investment Law.
vision and localisation of operations. Premier Li Keqiang • Ensure the full participation of FIEs and JVs in
mentioned during the Two Sessions in 2022 that China construction and after-sales services projects to
would be steadfast in expanding reform and opening up, China's ‘large rail’ and ‘urban rail’ markets.
make full use of international and domestic markets and • Eliminate the ‘one-point scoring system’ for subway
resources, continue to expand international economic projects and treat domestic and foreign companies
collaboration and trade, and encourage deep reforms equally.
and high-quality development by opening up to the 19 Government Work Report by Premier Li Keqiang (Text Abstract), Central
world at a higher level. He also said that China will take People's Government of the PRC, 5th March 2022, viewed 14th March 2022,
<http://www.gov.cn/premier/2022-03/05/content_5677248.htm>
multiple measures to stabilise foreign trade and make 20 Notice of National Development and Reform Commission General Office
greater use of foreign investments, and will ensure and State Administration for Market Regulation General Office on Further
Standardising Business Qualification Review in the Bidding Process, NDRC &
that the Negative List for Foreign Investment is fully SAMR, 22nd September 2020, viewed 23rd May 2022, <https://www.ndrc.gov.cn/
xxgk/zcfb/tz/202009/t20200928_1239758.html?code=&state=123 https>
18 Foreign Investment Law, NPC, 15th March 2019, viewed 30th April 2022, <http://
21 Notice on Implementing the Policies on Equal Treatment of Domestic and
www.npc.gov.cn/zgrdw/npc/xinwen/2019-03/15/content_2083532.htm>
Foreign-invested Companies in Government Procurement Activities, Central
People's Government of the PRC, 13th October 2021, viewed 14th March 2022,
<http://gks.mof.gov.cn/guizhangzhidu/202110/t20211020_3759590.htm>

298 Rail Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

• Encourage innovation of different market entities and well-recognised local service and operation teams.
to continuously improve product quality, services, However, to maintain a stable market there is a need for
technology and safety in the rail industry. sharing, reciprocity and mutual assistance with regard
• Remove barriers in the field of bidding and treat all to investment opportunities. Therefore, the underlying
market entities fairly. logic of the European companies seeking to expand
their market share has been to maintain an equal
2. Increase the Participation of FIEs and distribution of benefits. The working group believes that
Utilise Their Advantages in National allowing more European companies to participate in
the BRI and other national strategies will help to raise
Initiatives and Projects in Order to Boost
the quality, feasibility and sustainability of rail projects
the Economy
through increased competition and the introduction of
world-class technologies and services. In addition, the
Concern
expertise of European equipment manufacturers and
FIEs’ participation in national initiatives and projects
service providers can help to develop the international
will greatly encourage their long-term investment and
competitiveness of Chinese OEMs.
bolster their confidence in the Chinese market, but
FIEs’ advantages are not being fully utilised and levels
Since 2018, ‘new infrastructure’ construction has been
of foreign investment are currently relatively low.
one of the most significant aspects of China's domestic
development, in which rail transportation plays an
Assessment

Section Three: Goods

essential part. The experience of many developed
Since its announcement, the Belt and Road Initiative
countries shows that the planned urban agglomerations
(BRI) has introduced new opportunities across
and metropolitan areas can help to improve productivity
the Eurasian continent. It provides more regional
and save land and energy, which is a priority for
opportunities for FIEs to invest and develop in China,
China's development, with rail transportation being
and has the potential to enhance the scope of and
the ‘bloodline’ for the integration of urban areas.25 The
opportunities for cooperation between FIEs and Chinese
Central Economic Work Conference in December 2021
enterprises, which is conducive to the formation of
and the 2022 Government Work Report reiterated the
complementary advantages and increasing economic
government’s intent to “accelerate the construction of
benefits. The 2022 Government Work Report mentions
new types of infrastructure and carry out planning for
that China will continue to “encourage high-quality
major infrastructure construction in an appropriately
collaboration pursuant to the BRI, steadily develop
advanced manner.” China also vigorously promotes
infrastructure connectivity, and improve collaboration on
the development and integration of key regions such
major projects”.22 According to a report by the European
as Beijing-Tianjin-Hebei, the Yangtze River Delta and
Union Chamber of Commerce in China on the BRI, a
the Greater Bay Area. 26&27 Members of the working
small number of European companies in China are
group welcome these national policies and are willing
involved in construction for the initiative. Of those that
to deepen their presence in the Chinese market, share
are taking part, “nearly 40% of (surveyed) companies
their technology and experience, and increase their
believe that procurement systems for BRI projects are
investment. However, the participation of FIEs in the
not transparent enough”.23
rail industry is relatively low, and only a few are still
participating in large rail projects, with many excluded
Rail transport has significant advantages over other
due to ‘autonomous and controllable’ policies.
modes of transport in terms of cost effectiveness and
carbon emissions,24 and many European rail companies
Many European companies are very advanced in
have built up a strong presence in the international
25 2022 Research Report on China’s New Infrastructure Construction, Zeping
markets in BRI regions, having established stable, solid
Hongguan, 28th February 2022, viewed 12 th March 2022, <https://baijiahao.
22 2022 Government Work Report, NDRC, 5th March 2022, viewed 11th March 2022, baidu.com/s?id=1725968577005626648&wfr=spider&for=pc>
<http://www.gov.cn/xinwen/2021-03/13/content_5592786.htm> 26 Central Economic Work Conference Held in Beijing, Xi Jinping and Li Keqiang
23 The Road Less Travelled: European Involvement in China’s Belt and Road Made Important Speeches, Li Zhanshu, Wang Yang, Wang Huning, Zhao
Initiative, European Union Chamber of Commerce in China, 16th January 2020, Leji, and Han Zheng Attended the Meeting, Xinhuanet, 10th December 2021,
viewed 24 th May 2022, <http://europeanchamber.com.cn/en/publications- viewed 16 th March 2022, <http://www.news.cn/politics/leaders/2021-12/10/
archive/762/The_Road_Less_Travelled_European_Involvement_in_China_s_ c_1128152219.htm>
Belt_and_Road_Initiative> 27 2022 Government Work Report, NDRC, 5th March 2022, viewed 12th March
24 Ibid. 2022, <http://www.gov.cn/xinwen/2021-03/13/content_5592786.htm

Rail Working Group 299

 upgrading and digitalising rail products and generating encounter difficulties providing input on the decision-
innovations. They also have advantages in running making process. Second, as a result of standardisation
cross-cultural operations and a solid track record of reform in China, social organisations have been
implementing complex infrastructure projects in other endowed with the legal status to formulate social
countries. The working group believes that, if provided organisation standards for themselves. Meanwhile,
equal treatment and equal access to research and such standards are often applied in product certification
development (R&D) funding, European companies systems that are de facto mandatory. However, FIEs do
could further accelerate the development of China’s rail not have equal rights to participate in the development
industry, which is in line with the government’s long- of social organisation standards nor are they given
term sustainability goals. the opportunity to make suggestions in practice. Third,
large domestic SOEs have been pressuring external
Recommendations suppliers to adopt their internal standards in recent
• Establish a dialogue mechanism to take into account years. Due to the lack of involvement of stakeholders
the views of FIEs in China when formulating and along the industry chain in their formulation, these
implementing national initiatives such as ‘new internal standards often lack sophistication and have
infrastructure’ and the Belt and Road Initiative, and low applicability and universality. This has affected the
when implementing plans. application of advanced technologies in China to an
• Provide more support on innovation and R&D support extent, and it has become a significant hidden barrier
for FIEs. to FIEs trying to enter the market. Last but not least,
Section Three: Goods

• Facilitate the exchange of leading global industrial Chinese rail sector standards lack both information
practices, innovations and technologies for rail tracks, and transparency, some are only available to certain
adjacent property assets, and systems operation and selected FIEs and updates to the content of standards
maintenance, through collaborative European Union- are normally confidential and not accessible.28
China infrastructure projects, both within China and
overseas. The Opinions of the Ministry of Transport on Several
Issues Concerning Promoting the Modernisation of
3. Promote the Adoption and Absorption the Transport Governance System and Governance
of FIEs’ Advanced Technologies in the Capability, released on 24th October 2020, state that,
"improving the standard system in transportation sector,
Rail Industry to Assist in Formulation
strengthening effective supply of standards in key areas,
of Domestic Standards and Technical
and making use of the guiding role of standardisation” is
Specifications, and Improve the
essential for boosting the modernisation of the transport
Participation of FIEs and JVs in, and administration system. 29 On 27 th December 2021,
Transparency of, the Formulation Process the NRA released the 14th Five-year Plan of Railway
Standardisation Development and presented a series of
specific goals and requirements. These include but are
Concern not limited to the following:
FIEs in the rail industry generally do not have the
same opportunities to participate in the formulation • “Support the development of social organisation
of standards and specifications in the same way that standards and enterprise standards for emerging
local enterprises do, and they also have very limited strategic segments of the rail industry and key
opportunities to put forward opinions and suggestions, common technologies, with the goals of building a
which may create market entry barriers and result in high-standard rail market system and accelerating
unfair competition. indigenous innovation”;
28 The Shape of Things to Come: The Race to Control Technical Standardisation,
Assessment European Union Chamber of Commerce in China, December 2nd 2021, viewed
24th May 2022, <https://europeanchamber.oss-cn-beijing.aliyuncs.com/upload/
FIEs in the rail industry face four key issues when documents/documents/The_Shape_of_Things_to_Come_English_Final[966].
trying to participate in standards setting. First, they are pdf>
29 Opinions of the Ministry of Transport on Several Issues Concerning Promoting
usually unable to participate equally in the formulation the Modernisation of the Transport Governance System and Governance
of standards and regulations as local enterprises, and Capability, MOT, 24th October 2020, viewed 23rd May 2022, <http://xxgk.mot.gov.
cn/2020/jigou/zcyjs/202010/t20201024_3479808.html>

300 Rail Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

• “Encourage companies [...] to set enterprise standards international standards research as well as the in-
that are technologically more advanced than national depth research and analysis of the differences and
and industry standards to improve product and service similarities of Chinese and foreign standards, and
quality”; enhance the conversion rate of applicable standards.”32
• “Encourage [...] the transformation of social organisation European companies operating in China have actively
standards into national and industry standards”; participated in formulating several international railway
• “Proactively reference standards when making standards, and have accumulated rich experience
regulations and policy documents”; and in the development, applicability and trends of rail
• “Accurately adopt standards in industry development, transportation industry standards. They have also
industry management, market access, and safety and actively participated in the analysis and research of
quality supervision and management.”30 international standards, and can thus make valuable
contributions. The working group therefore recommends
The above policy statements indicate that during that FIEs be allowed equal participation in China's
the 14FYP period, the relationship among social standardisation activities, as enshrined in the Foreign
organisation standards, enterprise standards and Investment Law, the Standardisation Law and the
industry access and market supervision in the field of principles of the negotiated European Union-China
rail transportation is set to become closer. Given that Comprehensive Agreement on Investment. The working
FIEs in the rail industry operating in China also need group further suggests that the fairness, rationality,
to ensure compliance with relevant standards and openness and transparency, as well as extensive

Section Three: Goods

technical specifications, it is particularly important to participation by all stakeholders, in the standard-setting
allow them to participate as equal market players in the process be taken as important indicators for improving
formulation of standards, technical specifications and the modernisation of the standards system for the rail
the corresponding conformity assessment systems, and industry.
to encourage them to liaise and cooperate closely with
the relevant standard-setting bodies. FIEs’ interest in taking part in the setting of rail-related
standards and technical specifications derives from
Some positive signs have been expressed in relevant their willingness to access the Chinese rail market
policy documents in this regard. On 23rd February 2022, and specific projects, and is without prejudice to
17 government agencies, including the Standardisation the economic and technological security objectives
Administration of China (SAC) and the MOT, jointly that China’s indigenous innovation policies seek
issued the Opinions on Encouraging the High-quality to ensure. On the contrary, allowing international
and Standardised Development of Social Organisation participation in the Chinese standardisation system
Standards, requiring the participation of a wide range is conducive for Chinese domestic companies to stay
of stakeholders including production, operation, abreast of technology and standardisation trends at
management, construction, consumption, testing and the international level, and absorb what they need,
certification, and other entities. It also encourages thereby contributing to indigenous innovation. In light
standards-setting organisations to establish systems of the macro circumstances and industry realities,
to attract FIEs and foreign experts to participate in FIEs are willing to contribute to the long-term, gradual
the development of social organisation standards. 31 improvement of the standardisation system. Yet it
The 14th Five-year Plan for Railway Standardisation is important to note, already at this stage, that the
Development also indicated that China should “deepen standards created for the market should remain market-
railway standardisation exchange and cooperation orientated and technology neutral, so as to allow market
[...] ensure timely tracking of international and foreign players—FIEs included—to plan technology, capital,
railway technical standards developments, strengthen personnel and other inputs in an efficient and effective
manner.
30 14 th Five-year Plan for Railway Standardisation Development, NRA, 27 th
December 2021, viewed 14 th March 2022, <http://www.nra.gov.cn/jglz/fgzd/
gfwj/202112/t20211227_309143.shtml>
31 Opinions on Encouraging the High-quality Development of Association Standards
and Regulations, SAC and 16 other government agencies, 23 rd February
32 14 th Five-year Plan for Railway Standardisation Development, NRA, 27 th
2022, viewed 14th March 2022, <https://www.samr.gov.cn/bzcxs/zcfg/202202/
December 2021, viewed 14 th March 2022, <http://www.nra.gov.cn/jglz/fgzd/
P020220223539027798259.pdf>
gfwj/202112/t20211227_309143.shtml>

Rail Working Group 301

 Recommendations In the rail industry, SMEs can drive innovation and
• Provide equal access to all companies legally registered technological progress for the industrial supply chain.
in China to participate in the standardisation activities of They have the flexibility and specialised expertise to
relevant technical committees or working groups, and actively promote innovation and provide necessary
give them the right to vote. products and services for larger rail companies.
• Ensure FIEs can participate equally in the formulation Specialised companies are normally active in multiple
of national standards, industry standards, social industries, which helps them to introduce best practices
organisation standards and enterprise standards and and cutting-edge technologies from elsewhere.
encourage close and non-discriminatory coordination
between standards-setting bodies and FIEs. To ensure the healthy development of the rail industry,
• Encourage the adoption of advanced technologies China needs to secure the participation of SMEs.
in Chinese standards, and their convergence with Meanwhile, as IPR is crucial to SMEs, China will need
international standards. to continue to improve its IPR enforcement regime.
• Accelerate the modernisation of the rail standards
system, to make it fair, reasonable, inclusive and Recommendation
transparent, and make the extensive participation • Improve IPR enforcement in order to encourage
of stakeholders in the standards-setting process an increased investment in the rail industry and to foster
important evaluation indicator. the participation of SMEs in the supply chain.
• Regulate the standardisation activities of associations
Section Three: Goods

and recognise standards of associations as national Abbreviations

standards or industry standards before applying them
5G fifth generation mobile network
to the product certification system.
BRI Belt and Road Initiative
• Establish a mechanism for regular exchanges between
CPC Communist Party of China
key stakeholders in Europe and China, in particular
FIE Foreign-invested Enterprise
with major Chinese SOEs, to promote understanding
FYP Five-year Plan
of the direction of technology and standards
IPR Intellectual Property Rights
development.
JV Joint Venture
km Kilometre
4. Optimise the Rail Industry Supply Chain
MOF Ministry of Finance
by Further Improving Intellectual Property MOT Ministry of Transportation
Rights (IPR) Enforcement NDRC National Development and Reform
Commission
Concern NPC National People’s Congress
Poor IPR enforcement discourages technological NRA National Railway Administration
innovation in the rail industry, especially by specialised OEM Original Equipment Manufacturer
small and medium-sized enterprises (SMEs). PRC People’s Republic of China
R&D Research and Development
Assessment SAC Standardisation Administration of
In the Business Confidence Survey 2022, 86 per cent China
of respondents reported that China's written intellectual SME Small and Medium-sized Enterprise
property laws and regulations are excellent or SOE State-owned Enterprise
adequate. However, 46 per cent of respondents report WFOE Wholly Foreign-owned Enterprise
that IPR enforcement is inadequate.33 As a result, many
are reluctant to bring their latest technology to China,
which has the potential to affect project execution and
partnerships between foreign and Chinese companies.

33 European Business in China Business Confidence Survey 2022, European

Union Chamber of Commerce in China, 20th June 2022 viewed 20th June 2022,
<https://www.europeanchamber.com.cn/en/publications-business-confidence-
survey>

302 Rail Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

Section Four
Services 4
 Services

The Services section of the Position Paper includes four working groups and three sub-working
groups of the European Chamber:

• Aviation and Aerospace

• Construction
- Heating
• Information and Communication Technology (ICT)
- Cybersecurity
• Logistics
- International Liner Shipping

In 2021, China’s gross domestic product (GDP) growth rate was 8.1 per cent,1 with the services
industry achieving a growth rate of 8.2 per cent and accounting for 53.3 per cent of GDP.2&3

According to the European Chamber’s Business Confidence Survey 2022, while 2021 revenues
improved for European companies’ China operations overall,4 it was a mixed bag for those in
the service industry. For example, while more than three quarters of respondents in the logistics
and transportation sector reported revenue increases of over five per cent, more than a third of
respondents in the aviation and aerospace sector reported revenue decreases of over five per cent,
half of which reported decreases of over 20 per cent.5

While China’s service sector rebounded better than expected in the first two months of 2022, things
Section Four: Services

took a turn for the worse following Russia’s invasion of Ukraine and the mass lockdowns that were
imposed across China in an effort to contain outbreaks of the COVID-19 Omicron variant. According
to a flash survey conducted by the European Chamber at the end of April 2022, because of China’s
stringent COVID-19 containment measures, 94 per cent of respondents reported a negative impact
on their ability to conduct face-to-face meetings, and 97 per cent reported a negative impact on
business travel—both of which are crucial for the healthy functioning of the service sector—and
around 60 per cent reduced their 2022 revenue projections.6

According to the International Air Transportation Association (IATA), both international travel to
China and domestic travel in China remain at a very low level. China’s international ticket sales
per month were 97 per cent below 2019 levels between January 2022 and May 2022.7 As of June
2022, the China Civil Aviation Administration (CAAC) continues to issue circuit-breaker orders to
1　 Statistical Communiqué of the People's Republic of China on the 2021 National Economic and Social Development, National Bureau of Statistics
of China (NBSC), 28th February 2022, viewed 14th July 2022, <http://www.stats.gov.cn/english/PressRelease/202202/t20220227_1827963.html>.
2　 Ibid.
3　 Ibid.
4　 Business Confidence Survey 2022, European Union Chamber of Commerce in China, 20th June 2022, viewed 14th July 2022, <https://www.
europeanchamber.com.cn/en/publications-business-confidence-survey>
5　 Ibid.
6　 Flash Survey: COVID-19 and The War in Ukraine: The Impact on European Business In China, European Union Chamber of Commerce in
China, 5th May 2022, viewed 14th July 2022, <https://www.europeanchamber.com.cn/en/publications-flash-survey-2022>
7　 China’s New COVID Lockdowns Hit Domestic Air Travel, IATA, 29th April 2022, viewed 23rd July 2022. <https://www.iata.org/en/iata-repository/
publications/economic-reports/chinas-new-covid-lockdowns-hit-domestic-air-travel/>

304 Trade in Services

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

international flights.8&9 The European Chamber is advocating the Chinese authorities to accelerate
reasonable resumption of air transportation and the mobility of people and air cargo between China
and the European Union (EU) as soon as possible.10

The full or partial closure of at least 45 cities starting in April 2022, as COVID-19 containment
measures were tightened, had a severe impact on the logistics industry. For example, commercial
freight volume was down 9.9 per cent year-on-year. Express delivery providers faced inconsistent
and sporadic rules that blocked the passage of vehicles in different parts of the country, leading to a
large backlog of express shipments at airports and distribution centres. Although the State Council
and relevant ministries have jointly published multiple policies to standardise control measures
throughout the country,11 there has only been a gradual improvement.12

In addition to these new issues, and the increased uncertainty that they bring, traditional challenges
of doing business in China remain, and in some cases have deteriorated. Market access barriers,
standardisation and data security regulations remain key concerns for European companies
operating in China.

For example, 64 per cent of surveyed member companies of the Aviation and Aerospace Working
Group reported that they have missed business opportunities due to market access barriers.13
International computer reservation system providers are prevented from fully operating in China
due to the Interim Permit Management Measures of Using and Entering the Foreign Computer
Tickets Reservation System by the Sales Agency Appointed by Foreign Airline Carriers in China
(CCAR315) and other relevant policies, even though this sector is not on the Negative List for
Foreign Investment.14

Section Four: Services

China’s construction and building sector is the largest in the world. It discharged roughly 20 per cent
of both China’s total emissions and global construction emissions in 2020,15 making decarbonisation
of this sector crucial for China to reach its 30/60 Goals.16 According to the China Association of
Building Energy Efficiency, without introducing any new technologies or approaches, peaking
emissions in the construction and building sector will only be possible by 2040, which would be
a real blow to China’s carbon neutrality drive.17 Key to greening the sector will be introducing a

8　 CAAC Issues Circuit-breaker Orders for Multiple Inbound Flights, CAAC, 6th July 2022, viewed 23rd July 2022, <http://www.caac.gov.cn/en/
XWZX/202207/t20220706_214013.html>
9　 Circuit breakers are regulatory measures to temporarily halt in trading on an exchange. On 4th June 2020, the CAAC issued the Notice on
Adjustments to International Passenger Flights, which introduced the circuit breakers measures to manage inbound international flights to
China. This policy introduced a reward and suspension mechanism, with detailed policies for the carriers to increase or suspend flights. For
more information, please view: CAAC Notice on Adjustments to International Passenger Flights, CAAC, 4th June 2020, viewed 19th August 2022,
<http://www.caac.gov.cn/en/XWZX/202006/t20200604_202949.html>
10　For more information, please read the Aviation and Aerospace Working Group Paper on p. 307.
11 For example, on 14th April, the State Council issued the Notice of the Special Class for Traffic Control and Transportation Support of the
Comprehensive Group of the Joint Prevention and Control Mechanism of the State Council on Making Every Effort to Ensure the Smooth Flow of
Freight Logistics, State Council, 14th April 2022, viewed 14th July 2022, <http://www.gov.cn/xinwen/2022-04/14/content_5685295.htm>
12　For more information, please read the Logistics Working Group Position Paper on p. 357.
13　Business Confidence Survey 2022, European Union Chamber of Commerce in China, 20th June 2022, viewed 14th July 2022, <https://www.
europeanchamber.com.cn/en/publications-business-confidence-survey>
14　For more information, please read the Aviation and Aerospace Working Group Position Paper on p. 307.
15 Wang, Yuanfeng, China’s carbon neutrality challenge, China Daily, 27th November 2020, viewed 14th July 2022, <https://www.chinadailyhk.com/
article/150772>
16　China’s 30/60 Goals are to peak carbon emissions before 2030 and to achieve carbon neutrality by 2060.
17　Interview with President of China Association of Building Energy Efficiency Wu Yong, Secretariat of China Association of Building Energy
Efficiency, 7th September why? 2021, viewed 15th July 2022, <https://www.cabee.org/site/content/24137.html>

Trade in Services 305

 clear and transparent legal framework for the certification of ‘green’ buildings. Currently, there are
more than 10 different standards used for assessing different types of buildings at different stages
of the construction process. Furthermore, as the application of green building labels is voluntary, it
is difficult for European businesses to effectively promote their leading green technologies, building
materials and expertise.18

As digitalisation looks set to underpin China’s economic growth in the coming decades, the
challenges facing European companies in the ICT industry unfortunately look set to increase, as
China seeks to increase self-reliance in related technologies under the banner of ‘national security’.
Although European ICT companies have played an important role in supplying infrastructure,
devices, services and applications to and in China, they have, by and large, been excluded from
new opportunities in the market. This can be clearly seen in the continued drop in market share of
European providers. By the end of 2021, China had deployed 1.42 million fifth generation mobile
technology (5G) base stations (more than 60 per cent of the global total) and developed 355 million
5G subscribers (more than 70 per cent of the global total). At the same time, the percentage market
share of European 5G service providers dropped to a single digit after having been around 30 per
cent for the provision of 4G services. This has seriously weakened the strategic importance of the
China market to EU investors in key ICT market segments, led to a de-prioritisation of China in global
investment planning, and jeopardised the outlook for EU-China global collaboration in the broader
ICT industry.19 Ongoing restrictions on foreign shareholders in value-added telecommunication
services also remain a key concern for the sector. 20 The burdensome and vaguely-defined
requirements for data localisation, data security and cybersecurity are not only concerns for ICT and
cybersecurity-related service providers but for all companies that need to communicate with either
their headquarters or overseas branches.21

Last but not least, after more than 20 years of advocacy, the International Liner Shipping Sub-
Section Four: Services

working Group had a breakthrough in November 2021, when the State Council announced
permission, on a pilot basis, for foreign carriers to carry out cargo relay to/from three northern
China ports for transhipment at Yangshan Port. It is believed that this will create new business
opportunities, and reduce emissions and costs, while improving operational efficiency. However,
there still a need to address certain restrictions that are preventing foreign carriers from fully utilising
this opportunity.22

18　For more information, please read the Construction Working Group Position Paper on p. 316
19 For more information, please refer to the Information and Communication Technology Working Group Paper on p. 335.
20　For more information, please refer to the Information and Communication Technology Working Group Paper on p. 335.
21 For more information, please refer to the Cybersecurity Sub-Working Group Paper on p. 347.
22 For more information, please read the International Liner Shipping Sub-working Group Position Paper on p. 368.

306 Trade in Services

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

Aviation and Aerospace Working Group

Key Recommendations
1. Accelerate Full Resumption of Air Transportation for People and Cargo
between China and the European Union (EU)
• A ccelerate full resumption of air transportation and the mobility of people and air cargo between
China and the EU.
• Consult with the European Commission, EU Member States, the European Aviation Safety
Agency, and international bodies such as the International Civil Aviation Organization and the
International Air Transport Association (IATA), to create an agreed system for mutual recognition
of health information, and promote the use of digital health certificates for international
passengers.
• Synchronise the requirement of cycle threshold levels in polymerase chain reaction (PCR) tests
for infected inbound passengers with the requirement for local COVID-19 patients for discharge
from hospital.
• Skip PCR testing procedures on foreign crew members to ensure return flights' operational
reliability as the current closed-loop quarantine layover arrangement is watertight.
• Resume as early as possible consultations between China and EU Member States to ensure
the restoration of bilateral air traffic entitlements as granted by Air Service Agreements, in order
to facilitate a gradual and orderly resumption of international traffic, with a roadmap of border
opening that will be consistent nationwide.
• Commit to applying international practices, as defined by the IATA, on slot allocation at airports
to ensure fast recovery of air traffic flows with a reasonable grace period to allow airlines to
adjust capacity back to pre-COVID-19 levels.

Section Four: Services

2. Realise the Full Potential of the Negative List (2021), and Relevant International,
Regional or Bilateral Agreements Signed by the EU and China
• R
eview past policies and regulations and promptly abandon those that are not in compliance
with the Negative List (2021).
• Promote EU-China collaboration in the aviation industry in rule-making, regulatory approvals
and policy implementation.
• Simplify airworthiness approval processes by effectively implementing the Bilateral Aviation
Safety Agreement/Technical Information Procedures.
• Strengthen the consultation process to allow industry stakeholders to contribute their expertise
and experience to improve industry governance.

3. Increase the Efficiency of Airspace Utilisation in China

• E nhance the utilisation of new data exchange technologies and systems interoperability in the
aviation sector to ease airspace congestion and improve efficiency in the short term.
• Develop innovative operational concepts, procedures and human resources to maintain a high
level of safety of air traffic management (ATM) services, while developing flexibility, capacity
and service orientation, and reducing the environmental impact of flying.

Aviation and Aerospace Working Group 307

 • U tilise EU and China expertise to implement a nation-and system-wide information management-
based data communication platform with a centralised pool of data.
• Increase EU-China bilateral cooperation in the field of new applications and operational concepts
covering airspace design, flow management and interoperable flight management between flight
information regions.
• Improve aircraft arrival capacity at major airports by implementing distance-based and time-
based separation.
• Enhance exchanges between the European and Chinese authorities and industry to enable
harmonisation of unmanned aerial vehicle standards and regulations, and integration of ATM and
unmanned aircraft systems traffic management.
• Increase communication and explore a new framework to comply with both EU and China
requirements for data management to improve collaboration on data-driven applications and
platforms.

4. Accelerate the Development of a Sustainable Ecosystem in China and

Europe by Deepening Business-driven Actions Under Suitable Research,
Legal, Standards and Investment Cooperation Frameworks
• C reate a trusted and long-term communication channel between the EU and China, dedicated to
the development of sustainable aviation.
• Cooperate on scenarios to prepare for the future of decarbonised aviation, including but not
limited to sustainable air fuels, power-to-liquid technology and hydrogen.
• Relaunch projects on industrialisation of alternative fuels including power-to-liquid technologies
and hydrogen by creating concrete-use cases.
• Leverage existing and previous cooperation frameworks, such as Horizon Europe, to implement
concrete projects on sustainable aviation technology.
Section Four: Services

Introduction to the Working Group Industry 4.0 and the intelligent aviation industry; post-
crisis industrial development; smart aviation; air cargo
The Aviation and Aerospace Working Group includes
business; airworthiness certification; implementation
over 50 passenger and freight air carriers and
of the European Union (EU)-China Bilateral Aviation
manufacturers of a wide range of aerospace products,
Safety Agreement (BASA) and Technical Information
including civil aircraft, engines, helicopters, space
Procedures (TIP), and mutual recognition of
systems and other products across the supply chain.
vaccinations, among others. The working group
It is also comprised of maintenance and service
also worked on strengthening communication and
companies that carry out repairs, training and other
partnerships with Chinese and European stakeholders
activities that support the aviation and aerospace
in the interest of enhancing EU-China aviation
industries.
cooperation and facilitating European business in
China. Activities focussed on the 14th Five-year Plan
COVID-19 has had a devastating impact on the aviation
(14FYP) in the areas of civil aviation and transportation,
and aerospace industries. The working group has
unmanned aerial vehicle (UAV) technology and market
worked relentlessly to address several directly and
development in China and Europe, and sustainable
indirectly related issues. These include discussions
development and emissions reduction.
with the authorities addressing: the resumption of
flights; the waiver of slot rights in China and Europe;
The working group maintains a sound relationship

308 Aviation and Aerospace Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

with key stakeholders, including the Civil Aviation large aircrafts. However, China needs to make further
Administration of China (CAAC), the Ministry of reforms in its aviation industry while also improving
Industrial Information and Technology, the Civil Aviation its legal system and strengthening international
University of China, the International Air Transport cooperation, both to break through the bottlenecks of
Association (IATA), the International Civil Aviation administrative inefficiencies and boost innovation.
Organization (ICAO), the China Quality Certification
Centre, the Chinese Aeronautical Establishment, the According to the 14th Five-year Plan for Civil Aviation
China Aeronautical Research and Development Centre, Development in China, published by the CAAC in
the European Aviation Safety Agency (EASA), the January 2022, China is committed to developing a
Directorate General for Transportation at the European smarter, greener and more efficient aviation sector
Commission, and the embassies of EU Member from 2021 to 2025. 7 The plan highlights that China
States in China. The working group also maintains will promote the application of sustainable air fuels
communication with other Chinese entities like the (SAFs), develop a market-orientated emission reduction
China-Europe Association for Technical and Economic mechanism,8 and accelerate the circular economy of
Cooperation Constitution, and industrial actors like the aircraft.9 China is targeting an increase in utilisation
Aviation Industry Corporation of China, the Commercial of SAFs by 50,000 tonnes from 2021 to 2025 and
Aircraft Corporation of China (COMAC), and several promotion of the development of electric and gas-
Chinese airlines, among others. electric aeroplanes. China is also planning to increase
the digitalisation of the civil aviation industry and
Recent Developments develop a high-quality air logistics system.10&11

By the beginning of 2022, both domestic and international

2022 marks the tenth year of the aviation industry’s
air travel in China had only slowly recovered, 1
inclusion in the EU emissions trading system (ETS),
mainly due to COVID-19 testing and quarantine
the world’s first international ETS. Over the last
requirements.2 It is projected that the global aviation
decade, all airlines operating in Europe have been
sector will recover to pre-pandemic levels by 2023.3
required to monitor, report and verify their carbon
Despite increased oil prices, safety concerns and, in
dioxide (CO 2) emissions. 12 In December 2019, the
particular, strict restrictions, 4 China is targeting the
EU launched the European Green Deal, which sets

Section Four: Services

recovery of international air travel from 2023 to 2025.5
a goal for the transport industry to reduce carbon
Any such recovery depends to a large extent on the
emissions by 90 per cent by 2050 compared to 1990
implementation of effective vaccination programmes
levels.13 A group of new proposals was approved by
and their global recognition.
the European Commission’s Directorate-General for
Climate Action in July 2021 to facilitate the EU’s climate
The development of aviation intelligence and
information technologies is accelerating. China has 7　 The 14th Five-year Plan for Civil Aviation Development is issued, CAAC, 7th January
certain advantages in the manufacture of feeder liners, 2022, viewed 12th April 2022, <http://www.caac.gov.cn/XWZX/MHYW/202201/
t20220107_210799.html>
general aviation aircraft, helicopters and rescue planes,6 8　 According to the 14th Five-year Plan for Civil Aviation Development, a market-
and is one of a few countries capable of assembling based voluntary emission mechanism as opposed to a government-led mandatory
emission mechanism is promoted. For example, under a market-orientated
emission mechanism, a company with expertise in energy-saving equipment
1　 Passenger Traffic Recovery Continues in March, IATA, 4th May 2022, viewed 10th (company A) can offer services to a steel-making company in need of lowering
June 2022, <https://www.iata.org/en/pressroom/2022-releases/2022-05-04-01/> emission costs (company B). Thus, A and B can realise win-win results.
2　Progress in Opening the World to Travel, IATA, 17th March 2022, viewed 12th April 9　 Notice by the CAAC on issuing the 14th Five-year Special Plan for Green
2022, <https://www.iata.org/en/pressroom/2022-releases/2022-03-17-01/> Development of Civil Aviation, CAAC, 21st December 2021, viewed 12th April 2022,
3　Cornwell, Alexander, Airline body IATA now sees industry recovery in 2023, <http://www.caac.gov.cn/XXGK/XXGK/FZGH/202201/t20220127_211345.html>
IATA, 10th May 2022, viewed 31st May 2022, <https://www.reuters.com/business/ 10 Notice by the CAAC on issuing the Roadmap for Smart Development of Civil
aerospace-defense/iata-boss-says-high-fuel-prices-not-likely-impact-travel-demand- Aviation, CAAC, 21st January 2022, viewed, 12th April 2022, <http://www.caac.gov.
now-2022-05-09/> cn/XXGK/XXGK/ZCFB/202201/t20220121_211212.html>
4　Airlines, airports, regulators scramble to ferret out flight hidden risks in wake of 11 CAAC issued the 14th Five-year Special Plan for Air Logistics Development, CAAC,
crash, Global Times, 30th March 2022, viewed 12th April 2022, <https://www. 16th February 2022, viewed 12th April 2022, <http://www.caac.gov.cn/XWZX/
globaltimes.cn/page/202203/1257199.shtml> MHYW/202202/t20220216_211783.html>
5　China targets 2023–2025 for recovery in international air travel, Reuters, 7th January 12 Aviation and the EU ETS, European Commission, viewed 12th April 2022, <https://
2022, viewed 24th April 2022, <https://www.reuters.com/world/china/china-targets- ec.europa.eu/clima/eu-action/european-green-deal/delivering-european-green-deal/
over-270-civil-airports-by-2025-aviation-regulator-2022-01-07/> aviation-and-eu-ets_en>
6　China's AG600 large amphibious aircraft gets financial-leasing support, Xinhua, 4th 13 Providing Efficient, Safe and Environmentally Friendly Transport, European
March 2022, viewed 12th April 2022, <https://english.news.cn/20220304/2d1586655 Commission, viewed 12 th April 2022, <https://ec.europa.eu/info/strategy/
c5f4ce39ab79d3156654069/c.html> priorities-2019-2024/european-green-deal/transport-and-green-deal_en>

Aviation and Aerospace Working Group 309

 neutrality commitments, which emphasise a “route- did not benefit from many of these financial incentives
based approach” in aviation emissions calculations.14 due to travel bans on international passengers and non-
In light of the development of these EU environmental operation of flights.
regulations, a number of EU companies have become
pioneers in green technologies, digital management In order to prevent and control COVID-19 cases being
and capitalisation in the aviation industry. These same imported from abroad through passenger air travel,
companies and members of the working group are the CAAC issued the Five-One policy and the Notice
keen to contribute to China’s commitment to carbon on the Adjustment of Circuit Breaker Measures for
neutrality and digitalisation. According to the findings International Passenger Flights in March and December
of the European Chamber report, Carbon Neutrality: 2020 respectively, which specify that one passenger
The Role of European Companies in China’s Race to flight of one route operated by one foreign airline to
2060, 46 per cent of member companies have taken China from overseas is permitted every one week.17&18
concrete steps to decarbonise their China operations, The Five-One policy has been partially softened since
and around 67 per cent have achieved at least a basic then, allowing foreign airlines to apply for more than
level of preparation.15 one flight per week, but only under strict conditions.
Certain cities, such as Beijing, still do not allow foreign
Key Recommendations carriers to fly there non-stop from EU Member States,
resulting in unequal treatment between Chinese and
1. Accelerate Full Resumption of Air foreign carriers. In addition, the circuit breaker policy
Transportation for People and Cargo penalised airlines that carried five or more COVID-
between China and the European Union 19-positive passengers into China,19 even though the
(EU) airlines themselves were already complying with the
Chinese regulations to accept the health code issued
Concern and verified by Chinese embassies.
Air traffic entitlements have not been fully restored,
and China’s remaining strict travel and quarantine Regrettably, these limitations are still in place as of
policies for international travellers and crew are June 2022, and bilateral air traffic entitlements with
EU Member States have not yet been restored. The
Section Four: Services

seriously harming the operations of European carriers

and obstructing the movement of essential people and Five-One Policy has not helped in the opening of
cargo between China and Europe. airspace in China and has hindered enforcement of the
International Trade Law. These unfair arrangements
Assessment also seriously harm the operations of European carriers
At the end of 2019, COVID-19 emerged in China and and need to be rectified to ensure fair competition.
subsequently spread worldwide. Following the decrease
in demand for air travel due to travel restrictions Throughout 2022, there have been some signals that
imposed as a result, the aviation industry suffered restrictions will be relaxed. In March 2022, the National
historic losses. The Chinese authorities launched aid Health Commission published the Diagnosis and
measures to assist the industry, such as subsidies Treatment Protocol for Novel Coronavirus Pneumonia
for airlines that continued to fly, reductions of or (Trial Version 9).20 Based on Trial Version 9, COVID-19
exemptions from airport fees, increases in infrastructure patients can be discharged from hospital if their cycle
investment related to emergency needs, the resumption threshold (CT) value of polymerase chain reaction
of work and restoring safety.16 However, foreign airlines
17 Notice on Further Reducing International Passenger Flights during the Epidemic
Prevention and Control Period, CAAC, 26th March 2020, viewed 12th April 2022,
14 Aviation and the EU ETS, European Commission, viewed 8th June 2022, <https:// <http://www.caac.gov.cn/XXGK/XXGK/TZTG/202003/P020200326766958017420.
ec.europa.eu/clima/eu-action/european-green-deal/delivering-european-green-deal/ pdf>
aviation-and-eu-ets_en> 18 Notice on Adjustment of Circuit Breaker Measures for International Passenger
15 Carbon Neutrality: The Role of European Companies in China’s Race to 2060, Flights, CAAC, 16th December 2020, viewed 12th April 2022, <http://www.caac.gov.
European Union Chamber of Commerce in China, 25th May 2022, viewed 8th June cn/XXGK/XXGK/TZTG/202012/t20201216_205607.html>
2022, <https://www.europeanchamber.com.cn/en/publications-carbon-neutrality- 19　Ibid.
report> 20 Notice on Diagnosis and Treatment Protocol for Novel Coronavirus Pneumonia (Trial
16 Notice on Support Policies to Actively Respond to COVID-19, CAAC, 9th March Version 9), National Health Commission, 15th March 2022, viewed 27th April 2022,
2020, viewed 12th April 2022, <http://www.caac.gov.cn/XXGK/XXGK/TZTG/202003/ <http://www.nhc.gov.cn/yzygj/s7653p/202203/b74ade1ba4494583805a3d2e4009
t20200309_201361.html> 3d88.shtml>

310 Aviation and Aerospace Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

(PCR) tests is 35 or above. However, for inbound • S ynchronise the requirement of CT levels in PCR tests
passengers confirmed as being infected with COVID-19 for infected inbound passengers with the requirement
upon arrival, a PCR test with a CT value of 40 is still for local COVID-19 patients for discharge from
required before they can be discharged from hospital. hospital.
Requirements should be synchronised so that incoming • S kip PCR testing procedures on foreign crew
passengers receive the same treatment as local members to ensure return flights' operational reliability
residents. as the current closed-loop quarantine layover
arrangement is watertight.
Another example of a relaxation of restrictions arose • Resume as early as possible consultations between
during the 2022 Winter Olympics in Beijing, when China and EU Member States to ensure the restoration
exceptions were granted to foreign airline crews to of bilateral air traffic entitlements as granted by Air
skip the PCR test to facilitate smooth transportation of Service Agreements, in order to facilitate a gradual
athletes and other Winter Olympics stakeholders in and and orderly resumption of international traffic, with
out of China. Upon arrival in Beijing, all crew members a roadmap of border opening that will be consistent
were subject to closed-loop quarantine management, nationwide.
posing no risk of spreading infection outside of the ‘loop’. • Commit to applying international practices, as defined
This practice worked well and could be promoted to by the IATA, on slot allocation at airports to ensure fast
facilitate flight operations, at the very least to stabilise recovery of air traffic flows with a reasonable grace
the frequency of air cargo flights. period to allow airlines to adjust capacity back to pre-
COVID-19 levels.
Air travel is the only viable transportation option
for strengthening business and people-to-people 2. Realise the Full Potential of the Negative
exchanges between the EU and China. A lack of smooth List (2021), and Relevant International,
flight connections causes market access barriers and
Regional or Bilateral Agreements Signed
high communication costs. An overwhelming number
by the EU and China
of countries worldwide have already reopened their
airspace and borders based on a roadmap of mutual
Concern
recognition of health information or other specific

Section Four: Services

Numerous EU-China initiatives have been introduced
agreements: China is now one of the last exceptions,
that cover aviation investment and airworthiness,
and the restrictions in China are also affecting the
but few have delivered significant results due to
recovery of the Asian market. 21 Therefore, in order
implementation issues and a lack of support.
to facilitate trade and exchanges with the EU and
EU Member States, travel restrictions—including the
Assessment
suspension of work permits or the imposition of visa
China is a very important part of the aviation industry
restrictions—that hinder the resumption of airlines’
and will continue to hold an irreplaceable position in
normal, scheduled routes between the EU and China,
the post-COVID era. Europe and China are already
urgently need to be eased by the Chinese authorities.
significant trading partners and have established strong
collaboration in the aviation and aerospace sector.
Recommendations
To further leverage and contribute to this relationship,
• Accelerate full resumption of air transportation and the
EU-China exchanges on the formulation of aviation
mobility of people and air cargo between China and
regulations and industry consultations need to be
the EU.
enhanced and elevated.
• Consult with the European Commission, EU Member
States, the EASA, and international bodies such as
Following the release of the Special Measures on
the ICAO and the IATA, to create an agreed system for
Foreign Investment (Negative List 2021) by the National
mutual recognition of health information, and promote
Development and Reform Commission (NDRC) and the
the use of digital health certificates for international
Ministry of Commerce (MOFCOM) on 27th December
passengers.

21　Accelerate Asia-Pacific Aviation Recovery, IATA, 17th May 2022, viewed 8th June
2022, <https://www.iata.org/en/pressroom/2022-releases/2022-05-17-01/>

Aviation and Aerospace Working Group 311

 2021,22 government agencies were urged to review past 3. Increase the Efficiency of Airspace
policies and regulations and promptly abandon those Utilisation in China
not in compliance with the updated list.
Concern
However, the working group notes that some incumbent Congested airspace in China—caused by both limited
regulations that are not consistent with the Negative air routes and a lack of data exchange/communication,
List 2021 are still in force and need to be repealed or in conjunction with inefficient air traffic management
replaced, including but not limited to: the Interim Permit (ATM)—leads to additional costs, longer flying times
Management Measures of Using and Entering the and increased environmental damage for air carriers,
Foreign Computer Tickets Reservation System by the while restricted access to low-altitude airspace further
Sales Agency Appointed by Foreign Airline Carriers in hinders the development of the industry.
China (CCAR315),23 the Notice on Issuing the Measure
of Management for Air Transport E-Ticket Itinerary Assessment
Receipt (Interim) [2008] (Notice No. 54), 24 and its The rapid increase in air traffic demand globally calls for
subsequent Notice No. 83 issued in 2012.25 further development of ATM organisations, operational
concepts, systems, human resources and procedures,
After the EU-China BASA and TIP were signed in as well as civil-military cooperation in order to further
September 2020, both the EASA and the CAAC started improve services, and increase safety, efficiency and
to implement them. The industry is encouraged by the environmental performance. In view of traffic hotspots,
improved mutual trust and approval efficiency brought as well as EU-wide regulatory developments regarding
by this implementation; however, the working group all these aspects, considerable experience has been
considers that to further simplify airworthiness approval built up in Europe, which—while it may not be directly
processes and remove pain points, consultation with transferrable to China—can serve to accelerate the
industry stakeholders is necessary. development of China’s aviation industry.

Recommendations China has been investing heavily in the expansion of its

• Review past policies and regulations and promptly ATM systems to support the rapid growth in air travel.
abandon those that are not in compliance with the
Section Four: Services

To allow airports to reach their full capacities, many

Negative List (2021). construction and expansion projects are being carried
• P romote EU-China collaboration in the aviation out at an accelerated pace throughout the country.
industry in rule-making, regulatory approvals and
policy implementation. However, different types of systems are being
• S implify airworthiness approval processes by implemented in different projects, making it increasingly
effectively implementing the BASA/TIP. challenging to achieve seamless interoperability
• Strengthen the consultation process to allow industry and data exchange. This has been compounded
stakeholders to contribute their expertise and by insufficient ability to centralise ATM data or
experience to improve industry governance. utilise concepts such as big data, despite the early
implementation of the Central Air Traffic Flow
Management (C-ATFM) system. This represents a
significant missed opportunity to study ways to improve
the efficiency of air traffic flows in China and increase
22 Special Measures on Foreign Investment (Negative List 2021), NDRC and the capacity of airport resources, as well as to better
MOFCOM, 27th December 2021, viewed 22nd August 2022, <http://www.gov.cn/
zhengce/zhengceku/2021-12/28/content_5664886.htm> utilise airspace.
23 Interim Permit Management Measures of Using and Entering the Foreign Computer
Tickets Reservation System by the Sales Agency Appointed by Foreign Airline
Carriers in China, CAAC, 28th March 2016, viewed 13th April 2022, <http://www. If dataflow is the bloodstream of the ATM systems,
caac.gov.cn/XXGK/XXGK/MHGZ/201605/t20160530_37632.html> then having an interoperable data exchange and
24 Notice on Issuing the Measure of Management for Air Transport E-Ticket Itinerary
Receipt (Interim) [2008], STA and CAAC, 9th July 2008, viewed 13th April 2022, information management platform would form a critical
<http://www.caac.gov.cn/XXGK/XXGK/TZTG/201510/t20151022_2507.html> vein, linking every system and sub-system within
25 Notice on Issues Relating to the Use of the Electronic Ticket Itinerary for Air
Transportation for International Passenger Tickets, STA and CAAC, 30th August the ATM ecosystems. Having such a well-connected
2012, viewed 13th April 2022, <http://www.shuiwu114.com/zcfgkShow/43691.aspx>

312 Aviation and Aerospace Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

infrastructure would unlock huge potential in operational of the CAAC and leading European Air Navigation
concepts to improve airspace congestion. For instance, Service Providers. Integration of civil/military and
better air traffic flow management coordination could international/domestic airspace and routing would
be achieved; landing and take-off sequences could also help increase the flexibility and punctuality of
be dynamically exchanged between airports and flights, and create room for future growth in aircraft
transmitted across different system platforms; aeroplane movements. Being able to fly the shortest routes,
separation could be safely reduced to increase airspace without having to circumnavigate restricted airspace,
capacity; and coordination between heterogeneous ATM has clear implications on both costs and time, as well
systems could be more seamless, thereby reducing the as the environment, as suggested in the report released
workload of air traffic controllers. by the European Chamber in 2020, In for the Long
Haul: Developing a Sustainable Operating Environment
The working group is pleased to see the CAAC set out for Airlines in China.28
a roadmap for smart development in civil aviation.26 The
working group also notes the ongoing actions to push Another issue that requires improvements to China’s
development, for example, the publication of a series of ATM is the rapid development of the unmanned aircraft
regulations on Smart Civil Aviation Data Management.27 systems (UAS) industry, which has exacerbated
To leverage the expertise and intelligence from both the safety and security challenges. Public safety incidents
EU and China, the working group recommends more and airspace conflicts between UAVs and civil
cooperation and international exchange to support transport aircraft are not unusual. The working group
better data usage under proper governance and to recommends that the Chinese authorities safeguard
ensure the consistency of regulations among different civil manned air traffic while promoting UAS usage.
regions. From an industry perspective, UAS traffic management
(UTM) and the insertion of UAS into civil airspace
The 14FYP includes regional projects, such as the should be subjects of future research in order to
Greater Bay Area, which calls for harmonisation of the optimise the usage of airspace by different stakeholders
ATM across Guangzhou, Shenzhen, Zhuhai, Hong while maintaining and further developing civil air traffic
Kong and Macau. These regional projects require a safety and capacity.
re-planning of ATM that spans different government

Section Four: Services

administrations. It demands an efficient ATM concept, Recommendations
smooth coordination and effective operational • E nhance the utilisation of new data exchange
procedures. It also calls for flow management tools that technologies and systems interoperability in the
can optimise airspace efficiency and runway capacities aviation sector to ease airspace congestion and
of the different airports. improve efficiency in the short term.
• Develop innovative operational concepts, procedures
Looking forward, the working group would like to see and human resources to maintain a high level of
both the EU and China engage in long-term cooperation safety of ATM services, while developing flexibility,
on ATM modernisation plans. This would enhance capacity and service orientation, and reducing the
cooperation between service providers and industries environmental impact of flying.
in the EU and China, and encourage the adoption of • Utilise EU and China expertise to implement a nation-
common standards and the sharing of best practices. and system-wide information management-based
data communication platform with a centralised pool of
In the meantime, to improve controllers’ career data.
planning, professional development and training, the • Increase EU-China bilateral cooperation in the field of
working group suggests implementing a working-level new applications and operational concepts covering
partnership between the Air Traffic Management Bureau airspace design, flow management and interoperable
flight management between flight information regions.
26 Notice on issuing the Roadmap for Smart Development of Civil Aviation by the • Improve aircraft arrival capacity at major airports
CAAC, CAAC, 21st January 2022, 8th June 2022, <http://www.caac.gov.cn/XXGK/
XXGK/ZCFB/202201/t20220121_211212.html>
27 CAAC issued a Series of Regulations on Smart Civil Aviation Data Management, 28 In for the Long Haul: Developing a Sustainable Operating Environment for Airlines
CAAC, 5th January 2022, viewed 8th June 2022, <http://www.caacnews.com. in China, European Union Chamber of Commerce in China, 2nd June 2020, viewed
cn/1/1/202201/t20220105_1337422.html> 8th June 2022, <https://www.europeanchamber.com.cn/en/press-releases/3228>

Aviation and Aerospace Working Group 313

 by implementing distance-based and time-based while accommodating the growing demand for flights,
separation. the aviation industry needs to develop climate/
• E n h a n c e e x c h a n g e s b e t w e e n t h e E u r o p e a n energy scenarios for China and Europe that take
and Chinese authorities and industry to enable into consideration the evolution of air traffic, energy
harmonisation of UAV standards and regulations, and pathways, competition with other industries for access
integration of ATM and UTM. to renewable energy, regulations and the ecosystem
• Increase communication and explore a new framework in general. Through such cooperation, there are good
to comply with both EU and China requirements for prospects of both the EU and China benefitting from the
data management to improve collaboration on data- era of decarbonised aviation.
driven applications and platforms.
A significant part of realising sustainable aviation will
4 . Accelerate the Development of a be putting in place industrial solutions for sustainable
Sustainable Ecosystem in China and energy. In the short-term, the use of SAF is a common
strategy in the EU and China. Very promising
Europe by Deepening Business-driven
cooperation initiatives have been launched to create
Actions Under Suitable Research, Legal,
a SAF industry in China for the benefit of original
Standards and Investment Cooperation equipment manufacturers and airlines. 31 EU-China
Frameworks cooperation on SAFs has already taken place, with test
flights successfully carried out in Shanghai in 2012.
Concern Unfortunately, because Chinese standards are not
Although China and Europe both committed to the Paris compatible with international standards, the cooperation
Agreement, differences in political strategies to reach was suspended. However, following the launch of the
the targets of this agreement, and approaches to the CAAC roadmap for sustainable aviation,32 the working
COVID-19 crisis, constitute barriers on the route to the group believes that new opportunities now exist to
goal. have more commercial flights utilising SAF until 2025.
In the medium to long-term, the development and
Assessment industrialisation of power-to-liquid technologies and
Recent issues between the EU and China have evolved hydrogen will be key to ensuring the decarbonisation of
Section Four: Services

in such a way that existing cooperation schemes have the aviation industry. The working group recommends
been negatively impacted. These issues include the reactivating bilateral discussions to promote the
COVID-19 situation; the position of the EU regarding industrialisation and use of new fuels.
China as "a competitor, rival and partner", 29 and the
evolution of the Chinese industry and subsequent With regard to joint green aviation research, the EU
political moves to protect it. Negotiations on the Carbon and China have launched a number of coordination and
Offsetting and Reduction Scheme for International support actions (CSA) since 2005, as well as several
Aviation (CORSIA) are still ongoing between the ICAO successful research and innovation actions, which have
and the Chinese authorities. With the ICAO assembly benefitted both the Chinese and European industries.
taking place in late September/October 2022, 30 the The existing, long-term CSA within the Seventh
working group recommends creating a trusted and Framework Programme, the Greener Aeronautics
long-term communication channel between the EU and International Networking 2 (GRAIN2),33 under Horizon
China dedicated to the development of sustainable 2020, has now closed and there are no other joint
aviation. calls scheduled in the near future. The working group

In order to achieve emission reduction commitments 31 The Business Aviation Sustainable Aviation Fuel Alliance (SAF Alliance) has
released new SAF guidelines, Tanpaifang, 27th August 2020, viewed 13th April 2022,
29 “China is a partner, competitor and rival”: Interview by Foreign Minister Heiko Maas <http://www.tanpaifang.com/tanguwen/2020/0827/73530.html>
with Redaktionsnetzwerk Deutschland, German Federal Foreign Office, 12th July 32 Notice on issuing the 14th Five-Yyar Special Plan for Green Development of Civil
2020, viewed 13th April 2022, <https://www.auswaertiges-amt.de/en/newsroom/ Aviation by CAAC, CAAC, 21st December 2021, viewed 13th April 2022, <http://www.
news/maas-rnd/2367552> caac.gov.cn/XXGK/XXGK/FZGH/202201/t20220127_211345.html>
30 New decisions at ICAO Council's 223rd Session support aviation's recovery and 33 Coordination and support action: Seventh Framework Programme – GRAIN2,
development, ICAO, 29th June 2021, viewed 19th April 2022, <https://www.icao. European Commission, 31st March 2015, viewed 13th April 2022, <https://trimis.
int/Newsroom/Pages/New-decisions-at-ICAO-Councils-223rd-Session-support- ec.europa.eu/sites/default/files/project/documents/10294/final1-grain2-m36-final-
aviations-recovery-and-development.aspx> report.pdf>

314 Aviation and Aerospace Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

recommends that both the EU and China launch new

cooperation schemes on the standardisation and
certification of new technology, products and services
for green aviation development.

Recommendations
• C reate a trusted and long-term communication
channel between the EU and China, dedicated to the
development of sustainable aviation.
• Cooperate on scenarios to prepare for the future of
decarbonised aviation, including but not limited to SAF,
power-to-liquid technology and hydrogen.
• Relaunch projects on industrialisation of alternative
fuels including power-to-liquid technologies and
hydrogen by creating concrete-use cases.
• L everage existing and previous cooperation
frameworks, such as Horizon Europe, to implement
concrete projects on sustainable aviation technology.

Abbreviations
14FYP 14th Five-year Plan
ATM Air Traffic Management
BASA Bilateral Aviation Safety Agreement
CAAC Civil Aviation Administration of China
COMAC Commercial Aircraft Corporation of
China

Section Four: Services

CORSIA Carbon Offsetting and Reduction
Scheme for International Aviation
CSA Coordination and Support Action
CT Cycle Threshold
EASA European Union Aviation Safety
Agency
ETS Emissions Trading System
EU European Union
GA General Aviation
IATA International Air Transport Association
ICAO International Civil Aviation
Organization
MOFCOM Ministry of Commerce
NDRC National Development and Reform
Commission
PCR Polymerase Chain Reaction
SAF Sustainable Aviation Fuel
TIP Technical Implementation Procedure
UAS Unmanned Aircraft System
UAV Unmanned Aerial Vehicle
UTM UAS Traffic Management

Aviation and Aerospace Working Group 315

 Construction Working Group

Key Recommendations
1. Accelerate Decarbonisation of the Built Environment and Support Construction
of Green Buildings
• Make voluntary green building labels mandatory, coherent and compatible with international
standards.
• Develop databases and tools to support the industry’s transition to a carbon-neutral, more
resilient, future.
• Include life-cycle costing approaches in public procurement procedures and increase the weight
of energy efficiency performance on procurement scorecards.
• Ensure equal access for European investments and technologies in China’s construction sector.
• Involve European companies in the implementation process for green building standards /
calculation of carbon emission standards.
• Develop knowledge-sharing, practical training of building practitioners and education programmes,
drawing on the expertise of European companies and institutions.

2. Allow European Companies Greater Access to the Bidding Process for

Government Procurement Work
• J oin the World Trade Organization’s Government Procurement Agreement to allow foreign
companies greater access to the bidding process for government procurement work, ensuring
that tendering and construction services are covered.

3. Facilitate Market Access for European Planning, Architecture and Design,

Section Four: Services

Construction, and Real Estate Service Providers to Enable Fair Competition

and Encourage Expertise Sharing
• F oster mutual recognition of degrees, certificates and experience to further level the playing field
for foreign-invested construction and design firms.
• Allow foreign-invested architectural firms to register as certifying bodies for environmental product
declarations.
• Improve local standards to reach the same quality as international green building standards.
• A llow qualification exams to be conducted in English to offer fair opportunities for foreign
professionals.

4. Continue to Ensure a Fair, Balanced and Open Market for Foreign Investment in
the Real Estate (RE) Sector
• I ssue further clarifications or implementing rules regarding Circular No. 122 to create a fair market
environment for foreign companies investing in the Chinese RE market.
• Facilitate market access of foreign-invested RE enterprises to absorb immovable assets from
illiquid or insolvent Chinese developers.

316 Construction Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

Heating Sub-working Group

1. Update the Standard for Energy Efficiency of Domestic Gas Appliances
and Introduce National Guidelines or Policies to Promote Full Premixed
Condensing Boilers with Level I Energy Efficiency
1.1 Update the Energy Efficiency Standard, and Refine and Improve Requirements
for Domestic Gas Appliances
• Update and refine the energy efficiency standards for domestic gas appliances.
• Refine and improve the efficiency requirements for domestic gas appliances.
• Establish energy efficiency requirements for major components while keeping the overall
requirements coherent.
• Abandon outdated energy efficiency evaluation methods and implement a standardised carbon
efficiency evaluation system alongside primary energy to compare the thermal efficiency rates
of different primary energies and the wiring system efficiencies of various heating products.
1.2 Introduce Policy Guidelines for Promoting Energy-saving and Low-emission Gas
Boiler Technologies
• Introduce policy guidelines for promoting energy-saving and low-emission technologies,
starting from key cities and regions.
• Issue relevant policies to encourage consumers to buy full premixed condensing boilers for the
first installation of heating in a building.
• Encourage research projects on full premixed condensing technology, including its application,
energy-saving and emission-reducing effects.

2. Improve and Effectively Implement Standards for the Installation and

Maintenance of Heating Boilers, and Educate Consumers on the Need for

Section Four: Services

Regular Maintenance and Replacement
2.1 Strengthen the Standardisation and Management of the Installation of Heating Boilers

2.1.1 Improve the Standards for Installation of Heating Boilers and Strengthen the
Standardisation and Management of Responsible Enterprises and Personnel
• Formulate and implement regulations for installation of heating boilers.
• Emphasise and introduce the use of water treatment products for new installations.
• Improve the training for personnel and enterprises responsible for installation and establish a
vocational certification system.
2.1.2 Reasonably Adjust the Content and Cycle of Product Tests for Local Market
Access based on the China Compulsory Certification (CCC) Policy
• Reasonably reduce repetitive test items for local market access, and extend the test cycle.
2.2 Strengthen the Publicity and Effective Supervision of the Maintenance of Heating
Boilers
• Strengthen effective supervision of regular maintenance of heating boilers, and educate
consumers accordingly.
• Issue regulations for periodic maintenance of heating boilers to ensure their efficient and safe
operation.

Construction Working Group 317

 • Improve awareness of overall heating system safety, and service employee and user
knowledge of the benefits of using water treatment products in heating systems.
• Encourage factory and gas management departments to work together to raise awareness of
the requirements for regular maintenance of wall-hung heaters.
2.3 Cultivate Consumers’ Awareness of the Need for Timely Removal and Replacement of
Heating Boilers with High Energy Consumption and Emissions or Those at the End of
Their Service Life
• Cultivate consumers’ awareness of the need for timely removal and replacement of heating
boilers with high energy consumption and emissions or those at the end of their service life.
• Assist users in ensuring regular maintenance and repairment of wall-hung heaters, providing
guidance to end-users, and raising gas safety awareness.
• Formulate policies to encourage and support consumers to replace low-efficiency and high-
energy-consumption heating boilers that have reached the end of their service life with more
efficient and eco-friendly full premixed condensing boilers.

3. Research and Discuss the Role of Hydrogen-mixed Technology in the

Laying of Gas Pipeline Networks for Domestic Appliances in China
• Set up pilot areas, build demonstration projects, and promote the concept of zero-carbon
heating via hydrogen.
• Draft corresponding standards and regulations to guide products and industries with
standardised development.
• Encourage the creation of technical standards, such as manufacturing standards and
standards for the installation and inspection of hydrogen blending and pure hydrogen
combustion equipment.
Section Four: Services

Introduction to the Working Group including the Ministry of Housing and Urban-rural
Development (MOHURD), the National Development
The Construction Working Group is the voice of
and Reform Commission (NDRC), the Ministry of Land
European, world-leading real estate investors, land
and Natural Resources, the Ministry of Industry and
developers, architects, engineers, project managers,
Information Technology (MIIT), the Ministry of Science
main contractors, suppliers, certification bodies and
and Technology, European Union (EU) institutions and
other professional consultants specialising in the
construction-related organisations and associations.
construction industry that are operating in China.
This cooperation provides feedback on and support for
Chinese construction policies, with a current focus on
The Construction Working Group was established
sustainable urban development and the promotion of
in 2003, to represent European construction service
investment in high-quality, energy-efficient buildings.
providers (CSPs) operating in China. As part of the
European Chamber’s working group reorganisation
in March 2016, the European Heating Industry Desk Recent Developments
became a sub-working group of the Construction Market Trends in 2021
Working Group. Faced with sporadic outbreaks of COVID-19 and
regulatory tightening, China’s property and construction
The main objective of the Construction Working sectors experienced a significant slowdown in 2021
Group is to engage in dialogue with key stakeholders, despite a 0.4 and 4.4 per cent increase in investment in

318 Construction Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

infrastructure and real estate development respectively.1 forecast sales to stay weak in 2022 before further policy
Investment also increased in the mining industry by relaxation.9
10.9 per cent; and in the power, heat, gas and water
production and supply industry by 1.1 per cent, while A Greener, Smarter and Safer Path Towards Carbon
investment in water conservancy, environment and Neutrality
public facilities management decreased by 1.2 per China’s construction sector generates about 11 per
cent; in road transportation also by 1.2 per cent; and cent of the world’s total carbon emissions each year.10
in railway transportation by 1.8 per cent.2 The total In the last quarter of 2020 and the first quarter of 2021,
construction output value reached Chinese yuan (CNY) China’s carbon dioxide (CO2) emissions rose sharply by
29.3 trillion, up 11 per cent year-on-year.3 The value approximately nine per cent compared with the previous
added of construction enterprises was over CNY 8,000 year, as construction and heavy industrial activities led
billion, up 2.1 per cent over the previous year.4 Since the recovery after the initial COVID-19 lockdowns were
2012, the ratio of value added by the construction lifted.11 As building and construction activities worldwide
industry to China’s national gross domestic product are responsible for almost 40 per cent of global carbon
(GDP) has remained above 6.8 per cent. The ratio in emissions, reform and decarbonisation of the sector are
2021 declined compared to 2020 but still reached seven key to meeting the goals of the Paris Agreement as well
per cent.5 as for China to reach its dual objectives of peaking CO2
emissions before 2030 and achieving carbon neutrality
by 2060 (30/60 Goals).12
By the end of 2021, the urbanisation rate reached 64.7
per cent, 0.83 percentage points higher than the end Since the State Council’s first regulation related to
of 2020.6 After a rebound in housing demand from late- building energy conservation in 1986, China has
2020 to mid-2021, fuelled by a surge in household made remarkable achievements in the formulation
savings, housing sector activity weakened quickly and of standards, engineering design and construction.
land sales plunged due to regulatory tightening and Some 199 building energy-efficiency-related policies
credit conditions. 7 Since September 2021, China’s have been issued by the MOHURD, the Ministry of
largest property developer, Evergrande, and a few other Finance and the State Council since 1986. 13 The
major developers have experienced debt payment development process can be divided into four phases:

Section Four: Services

delays and liquidity stress. Their troubles have spread the exploration phase between 1986 and 2000, where
to their suppliers, investors and clients . As a result, the building energy efficiency goal was set at a 30 per
the amount of new construction projects and projects cent reduction in building energy consumption; the pilot
under construction contracted from the third quarter of demonstration phase between 2000 and 2005, with the
2021, and the average house price started to decline introduction of a series of energy-efficiency standards,
for both new and second-hand housing.8 Fitch Ratings with energy-efficiency targets set to 50 per cent; the
development phase from 2005 to 2015, with targets set
1　National Economy Continued to Recover with Expected Development Targets to 65 per cent; and the final phase starting in 2015, with
Well Achieved in 2021, National Bureau of Statistics (NBS), 17th January 2022,
viewed 1st April 2022, <http://www.stats.gov.cn/english/PressRelease/202201/ 9　Slow Recovery for China New Housing Sales After 1Q22 Trough, Fitch Ratings,
t20220117_1826409.html> 21st April 2022, viewed 25th May 2022, <https://www.fitchratings.com/research/
2　Investment in Fixed Assets from January to December 2021, NBS, 18th corporate-finance/slow-recovery-for-china-new-housing-sales-after-1q22-
January 2022, viewed 25th May 2022, <http://www.stats.gov.cn/english/ trough-21-04-2022>
PressRelease/202201/t20220118_1826496.html> 10 Wang, Yuanfeng, China’s carbon neutrality challenge, China Daily, 27th November
3　Statistical analysis of the development of the construction industry in 2021, 2020, viewed 2nd April 2021, <https://www.chinadailyhk.com/article/150772>
The Paper, 15th March 2022, viewed 1st April 2022, <https://m.thepaper.cn/ 11 Myllyvirta, Lauri, Analysis: China’s CO2 emissions see first quarterly fall since
newsDetail_forward_17126351> post-lockdown surge, Carbon Brief, 25th November 2021, viewed 2nd April 2022,
4　Ibid. <https://www.carbonbrief.org/analysis-chinas-co2-emissions-see-first-quarterly-
5　Ibid. fall-since-post-lockdown-surge>
6　Statistical Communiqué of the People's Republic of China on the 2021 National 12 For more information on carbon neutrality, please also refer to the European
Economic and Social Development, National Bureau of Statistics (NBS), Chamber’s report: Carbon Neutrality: The Role of European Business in China’s
28th February 2022, viewed 1st April 2022, <http://www.stats.gov.cn/english/ Race to 2060, European Union Chamber of Commerce in China, 25th May 2022,
PressRelease/202202/t20220227_1827963.html> viewed 26th May 2022, <https://www.europeanchamber.com.cn/en/publications-
7　China Economic Update - Rebalancing Act: From Recovery to High- carbon-neutrality-report>
Quality Growth, World Bank Group, December 2021, viewed 2nd April 2022, 13 Wu, Zezhou; He, Qiufeng; Yang, Kaijie; Zhang, Jinming & Xu, Kexi, Investigating
<https://thedocs.worldbank.org/en/doc/7aa7a16968768ccb51f181865 the Dynamics of China’s Green Building Policy Development from 1986 to 2019,
4d42561-0070012021/original/CEU-December-2021-ENG.pdf> International journal of environmental research and public health, vol.18, no.1, p.
8　Ibid. 196, 29th December 2020, viewed 25th May 2022, <https://www.ncbi.nlm.nih.gov/
pmc/articles/PMC7795857/

Construction Working Group 319

 Beijing, Shanghai, Jiangsu and Zhejiang establishing a (Outline) also emphasises the development of urban
75 per cent building energy-efficiency target.14 agglomerations, putting forward the strategy of “two
horizontals and three verticals” to upgrade five urban
In October 2021, the MOHURD released a new national clusters, i.e., Beijing-Tianjin-Hebei, the Yangtze River
standard, the General Specifications for Building Energy Delta, the Pearl River Delta, Chengdu-Chongqing and
Conservation and Renewable Energy Utilisation, to the middle reaches of the Yangtze River.
be implemented from 1 st April 2022. 15 The standard
sets requirements for calculating carbon emissions The Beijing-Tianjin-Hebei Integration Plan
and improving energy efficiency and consumption The region, made up of the two municipalities of
of buildings. Control of energy consumption, energy Beijing and Tianjin as well as the province of Hebei,
conservation and emission reductions have become accounts for approximately 10 per cent of China’s total
compulsory for every company in China. Building on GDP, eight per cent of China’s population and covers
the 13 th Five-year Plan’s (FYP’s) requirements for over 200,000 square kilometres (km 2). The Beijing-
energy conservation in buildings and green building Tianjin-Hebei Integration Plan’s main objective was the
targets, the 14FYP emphasises the need for clean, low- overall development of Hebei Province. However, to
carbon production, safe and high-quality buildings and ensure sustainable development, resources within the
more widespread application of advanced information region will need to be rebalanced and green solutions
technology.16 implemented to tackle environmental problems.19

Coordinated Regional Development to Pursue Common To this end, President Xi Jinping announced the
Prosperity creation of the Xiong’an New Area in 2017. Spanning
Regional development stands out as one of the major three counties in Hebei Province, about 100 km
components of China’s 14FYP. 17 Amid its efforts to southwest of Beijing, the new area is intended to act as
pursue ‘common prosperity’, China is aiming for a testing ground for pilot reforms and new technologies.20
increasingly balanced development among its regions, The Outline also highlights the importance of high-
working toward developing the West, revitalising the quality development of Tianjin’s Binhai New Area, of
north-eastern region, and accelerating modernisation the construction of the Zhangjiakou Capital Water
of the East. As a result, new projects, such as a new Source Conservation Functional Zone and Ecological
Section Four: Services

section of a pipeline transporting natural gas from Environment Supporting Zone, and of the deeper
the city of Zhongwei in northwest China’s Ningxia Hui integration of Beijing-Tianjin-Hebei production and
Autonomous Region to the city of Ji’an in east China’s innovation chains.
Jiangxi Province, commenced construction in late
2021.18 Key Recommendations
The Outline of the People’s Republic of China 14 th 1. Accelerate Decarbonisation of the Built
Five-year Plan for National Economic and Social Environment and Support Construction
Development and Long-Range Objectives for 2035 of Green Buildings

14 Sun, Yuning; Xu, Li; Chen, Xing; and Zai, Debin, Research on energy consumption Concern
constitution and energy efficiency strategies of residential buildings in China based While new technologies and alternative building
on carbon neutral demand, Sustainability, vol.14, no.5, p. 2741, 25th February 2022,
viewed 2nd April 2022, <https://doi.org/10.3390/su14052741> materials can already help both the construction sector
15 Announcement on the Issuance of the National Standard on General and China meet their emission targets, procedural and
Specifications for Building Energy Conservation and Renewable Energy
Utilisation, MOHURD, 13th October 2021, viewed 2nd April 2022, <https://www. legal inefficiencies prevent their deployment.
mohurd.gov.cn/gongkai/fdzdgknr/zfhcxjsbwj/202110/20211013_762460.html>
16 14th Five-year Plan for Construction Industry, MOHURD, 25th January 2022,
viewed 2nd April 2022, <http://www.gov.cn/zhengce/zhengceku/2022-01/27/ Assessment
content_5670687.htm> Between the State Council’s first regulation related to
17 Outline of the People’s Republic of China 14th Five-year Plan for National
Economic and Social Development and Long-Range Objectives for 2035, building energy conservation in 1986 and the Green
National People's Congress, 12th March 2021, viewed 2nd April 2022, <http://www.
gov.cn/xinwen/2021-03/13/content_5592681.htm> 19 Preen, Mark, The Beijing-Tianjin-Hebei Integration Plan, China Briefing, 26th April
18 China begins construction on new section of gas transmission pipeline, State 2018, viewed 2nd April 2022, <https://www.china-briefing.com/news/the-beijing-
Council, 23rd September 2021, viewed 2nd April 2022, <http://english.www.gov.cn/ tianjin-hebei-integration-plan/>
news/topnews/202109/23/content_WS614c2b35c6d0df57f98e0b91.html> 20 Ibid.

320 Construction Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

Label Management Scheme published by the MOHURD risk-warning and decision-making assistance can
in January 2021, 21 technical criteria, assessment not only help optimise construction processes and
standards and grade setting have improved, which is improve site safety, but also raise the general quality of
helping to guide the industry towards carbon neutrality. constructions. The working group believes European
However, the procedural and legal landscape is companies’ expertise and high-efficiency products are
fragmented with more than 10 different standards in line with China’s 30/60 Goals and could be of great
used for assessing different types of buildings and benefit to China’s ongoing development.
at different stages of the construction process. At the
same time, the application of green-building labels Decarbonising the sector will also come down to finding
remains voluntary.22 In order to decarbonise the built and using greener materials, as more than 90 per
environment and construction of green buildings faster cent of the construction industry’s carbon emissions
and more efficiently, it would be preferable to move from come from materials used. The steel industry alone
a system that is voluntary to one based on mandatory burns more than a fifth of China’s coal. Cement is
standards. another high-polluting sector in China because its
production is coal-fuelled and energy-intensive.24 Even
Green building design and development requires a though special preference is given to companies and
thorough understanding of the different parameters products that meet environmental standards and a
influencing the overall performance of a building. National Recommended Catalogue of Energy-saving
Buildings are responsible for the consumption of Technologies and Equipment for Industry has been
resources and energy as well as greenhouse gas compiled for reference and study,25 there is no clear
emissions at each stage of their life cycles. In Europe, database of eco-friendly building materials mentioning
open databases and tools to calculate the environmental the materials’ environmental performance in a
performance of building elements and buildings in a standardised way.
uniform way are available for industry professionals,
certification bodies and other stakeholders.23 Thanks While the transition to green construction is gaining
to data-sharing and industry cooperation, inefficiencies momentum in China, it is hampered by a lack of
can be avoided; lessons learned from other projects understanding of sustainability and green building
can be applied to increase time and cost efficiency; and principles among some key players and decision-

Section Four: Services

progress can be measured consistently. Furthermore, makers. Professional training in green building practices
identification and calculation of energy consumption and technology is therefore essential to optimise
and emission data are necessary to formulate effective development of the industry.
policy interventions. Therefore, the working group
recommends that the relevant authorities develop Internationally, three major certification systems for
databases and tools to support the industry’s transition buildings were established in the 1990s, starting with the
to a low-carbon, more resilient future. The working British Building Research Establishment Environmental
group also suggests including life-cycle costing Assessment Method in 1990, followed by the High
approaches in public procurement procedures and Environmental Quality developed by the French in 1996
increasing the weight of energy-efficiency performance and finally the Leadership in Energy and Environmental
on procurement scorecards. Design by the United States Green Building Council
in 1998. 26&27 European land developers, architects,
The 14FYP encourages more widespread application
24 The Chinese Companies Polluting the World More Than Entire Nations,
and integration of new technologies, such as the Bloomberg, 25th October 2021, viewed 8th April 2022, <https://www.bloomberg.
Internet of Things, artificial intelligence and big data com/graphics/2021-china-climate-change-biggest-carbon-polluters/>
25 Notice on the Announcement of the Fifth Batch of Green Manufacturing List, MIIT,
processing, in the construction sector. Information 16th October 2020, viewed 8th April 2022, <https://www.miit.gov.cn/zwgk/zcwj/wjfb/
collection, data analysis, real-time monitoring, early zh/art/2020/art_6dc9386121b945b3927fdcca5c79cd1b.html>
26 Zeinal Hamedani, A., & Huber, F., 2012, A Comparative Study of DGNB, LEED
and BREEAM Certificate Systems in Urban Sustainability, The Sustainable City
21 Green Label Management Scheme, MOHURD, 8th January 2021, viewed 7th April VII: Urban Regeneration and Sustainability (WIT Transactions on Ecology and
2022, <http://www.gov.cn/zhengce/zhengceku/2021-01/17/5580528/files/6f59e30 The Environment, vol. 155), vol.1, pp. 121–132, viewed 25th May 2022, WIT
c120043da8eb221f3ab18a665.pdf> Press ISSN 1743-3541 1, <https://www.witpress.com/Secure/elibrary/papers/
22 Ibid. SC12/SC12011FU1.pdf>
23 About TOTEM, TOTEM Create | Evaluate | Innovate, 2018, viewed 8th April 2022, 27 For more information on standards, please also refer to the Standards and
<https://www.totem-building.be/pages/about.xhtml#2.1> Conformity Assessment Working Group Position Paper 2022/2023 on p. 126.

Construction Working Group 321

 engineers and project managers have extensive (WTO) in 2001, China committed to join the
expertise and deep knowledge from working with such organisation’s Government Procurement Agreement
technical requirements. The working group therefore (GPA) “as soon as possible”. 30,31&32 On 21 st October
recommends that China develops knowledge-sharing, 2019, China submitted its seventh offer (sixth revised
practical training of building practitioners and education offer) for accession to the agreement,33 which included
programmes in cooperation with and drawing on the further commitments to open up market access to
expertise of European companies and institutions. foreign companies. China currently has GPA observer
status.
Recommendations
• Make voluntary green building labels mandatory, In this context, on 3 rd December 2019, the NDRC
coherent and compatible with international standards. proposed revisions to the TBL and invited public
• Develop databases and tools to support the comments to be submitted by 1st January 2020. These
industry’s transition to a carbon-neutral, more revisions are part of a wider effort by China to modernise
resilient, future. its already twenty-year-old procurement framework.34
• Include life-cycle costing approaches in public
procurement procedures and increase the weight The Ministry of Finance is at the time of writing
of energy efficiency performance on procurement examining how application of the GPL conflicts with the
scorecards. TBL, China’s GPA accession and recent reforms in the
• Ensure equal access for European investments and country’s procurement regime.35 This is also in line with
technologies in China’s construction sector. the Foreign Investment Law that came into effect at
• Involve European companies in the implementation the beginning of 2020.36 So far, the GPL “is much more
process for green building standards / calculation of closely aligned with GPA requirements than the TBL”.37
carbon emission standards.
• Develop knowledge-sharing, practical training of The proposed revisions to the TBL by the NDRC
building practitioners and education programmes, could have a positive impact and lead to increased
drawing on the expertise of European companies transparency and improved fairness in tendering
and institutions. activities, which would bring it more in line with GPA
Section Four: Services

2. Allow European Companies Greater 30 The GPA is a plurilateral agreement between 48 WTO member countries that
Access to the Bidding Process for have agreed to open up their non-defence public procurement markets to each

Government Procurement Work other. Suppliers of each GPA member country can participate in the public
procurement bids of other GPA member countries and be treated no less
favourably than local bidders in the award of government contracts. However, out
Concern of these, 11 members are in the process of acceding to the Agreement (including
China). See Agreement on Government Procurement, WTO, viewed 14th April
Foreign-invested companies face many constraints 2022, <https://www.wto.org/english/tratop_e/gproc_e/gp_gpa_e.htm>
when bidding for government procurement projects. 31 Heilman Grier, Jean, Do Open Markets Decrease China’s Incentive to Join GPA?,
Perspectives on Trade: Perspectives and Observations, 2nd November 2017,
viewed 14th April 2022, <https://trade.djaghe.com/?p=4414>
Assessment 32 Wang, P., 2009, China’s accession to the WTO – challenges and the way forward,
Journal of International Economic Law, vol. 12, no. 3, pp. 663–706, viewed 15th
China currently has two sets of laws governing public April 2022, <https://academic.oup.com/jiel/article-abstract/12/3/663/817776>
tendering: the Government Procurement Law (GPL) 33 China Submits Revised Offer for Joining Government Procurement Pact, WTO,
23rd October 2019, viewed 15th April 2022, <https://www.wto.org/english/news_e/
and the Tender and Bidding Law (TBL).28&29 news19_e/gpro_23oct19_e.htm>
34 Heilman Grier, Jean, China: Revising Tendering and Bidding Law, Perspectives
on Trade: Perspectives and Observations, 13th April 2020, viewed 15th April 2022,
After its accession to the World Trade Organization <https://trade.djaghe.com/?p=6363>
35 Government Procurement Law (Draft for Comments), MOF, 8th December 2020,
28 Broadly speaking, the GPL covers central and sub-central government purchases. viewed 15th April 2022, <http://www.gov.cn/hudong/2020-12/08/content_5567837.
See The Government Procurement Law, Standing Committee of the National htm>; Administrative Measures for the Management of Government Procurement
People’s Congress, 29th June 2002, viewed 15th April 2022, <http://www.ccgp.gov. Demand, MOF, 10th May 2021, viewed 15th April 2022, <http://gks.mof.gov.cn/
cn/zcfg/gjfg/201310/t20131029_3587339.htm> guizhangzhidu/202105/t20210510_3699403.htm>
29 The TBL regulates all state-owned enterprise tenders, in particular, large- 36 Foreign Investment Law of the People's Republic of China, Investment Policy Hub,
scale infrastructure projects (such as in construction, aviation, shipping, UNCTAD, 19th March 2019, viewed 15th April 2022, <https://investmentpolicy.
engineering, architecture, transportation, power and water), as well as large- unctad.org/investment-laws/laws/317/china-foreign-investment-law-of-the-people-
scale, privately-invested projects for public interest (mainly joint ventures). See: s-republic-of-china>
Tender and Bidding Law, China.org.cn, 12th February 2011, viewed 15th April 37 Heilman Grier, Jean, China: Revising Tendering and Bidding Law, Perspectives
2022, <http://www.china.org.cn/china/LegislationsForm2001-2010/2011-02/12/ on Trade: Perspectives and Observations, 13th April 2020, viewed 15th April 2022,
content_21908008.htm> <https://trade.djaghe.com/?p=6363>

322 Construction Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

requirements.38 The revisions would help China pave Assessment

the way towards fulfilling its WTO commitments, but it Construction is one of the key drivers of a country’s
remains to be seen how they will be implemented, as economy, especially for a large country like China in the
foreign companies still face many issues when it comes midst of rapid urbanisation. The healthy development
to obtaining government procurement work. It is also of the construction industry is of paramount importance
worth mentioning that the longer China fails to accede to ensuring the effective use of resources and providing
to the GPA and open up its procurement markets, the optimum living standards and environmental protection.
more likely it is to end up in the crosshairs of the EU’s For instance, good city planning can: optimise land use
proposed International Procurement Instrument.39 and ensure the long-standing quality of construction;
positively influence peoples’ moods by providing
The European Chamber’s Business Confidence Survey visually attractive architecture; and ensure the overall
2022 registered that 28 per cent of civil engineering quality of a city’s construction by utilising advanced
and construction companies reported missing business technology and management skills—including the
opportunities due to market access restrictions proper application of new materials—which reduces
and regulatory barriers, which include barriers to the total amount of labour and financing needed while
government procurement processes.40 This data serves also minimising disturbance to the environment. In most
to illustrate the importance of a timely accession of cases, European CSPs are not allowed to bid for third-
China to the GPA and an accurate revision of the TBL. parties contracts in Chinese Government projects. As a
result, European service providers gain no recognition
Recommendation for the value they add, cannot control the quality of the
• Join the WTO’s GPA to allow foreign companies final design and their business opportunities in China
greater access to the bidding process for government are extremely limited.
procurement work, ensuring that tendering and
construction services are covered. Foreign construction companies have been permitted to
establish wholly foreign-owned construction enterprises
3. Facilitate Market Access for European in China for more than 15 years, and relevant limitations
Planning, Architecture and Design, on the performance of so-called wholly foreign-
Construction and Real Estate Service owned projects were abolished in connection with the

Section Four: Services

Providers to Enable Fair Competition Foreign Investment Law, which is much appreciated.
and Encourage Expertise Sharing However, in order to further level the playing field,
fostering the mutual recognition of certificates,
Concern degrees and experience between China and the EU
European CSPs—including architects, quantity may help facilitate the issuance of construction and
surveyors, project managers and contractors—face design licences to European CSPs operating in China.
difficulties entering the Chinese market, preventing The working group also recommends that foreign
them from sharing their world-class expertise and professionals in the field of architecture be given the
cutting-edge technology with Chinese CSPs. opportunity to conduct in English the exams needed to
gain local Chinese qualifications, with the qualification
based on knowledge of local codes and rules. This
would guarantee fair and equal opportunities for foreign
38 Ibid. professionals in China.
39 Legislative Train Schedule: A Balanced and Progressive Trade Policy to Harness
Globalisation - A New EU International Procurement Instrument (IPI), European
Parliament, 26th April 2020, viewed 15th April 2022, <https://www.europarl.europa. Foreign companies would also like to see local
eu/legislative-train/theme-a-balanced-and-progressive-trade-policy-to-harness-
globalisation/file-international-procurement-instrument-(ipi)> standards and regulations standardised so that they
40 Even if improvements were seen in the civil engineering and construction sector, coordinate with, and guarantee the same quality as,
members report that barriers remain and that the decrease is partly attributable
to the change in business strategies they have adopted in China. They are well-established European and international green
either increasingly providing design and consulting services to domestic players, building standards.
or pursuing joint projects with local government or private players, to enable
them to circumvent regulatory barriers. European Business in China Business
Confidence Survey 2022, European Union Chamber of Commerce in China, 20th Recommendations
June 2022, viewed 20th June 2022,<https://www.europeanchamber.com.cn/en/
publications-business-confidence-survey> • Foster mutual recognition of degrees, certificates

Construction Working Group 323

 and experience to further level the playing field for these requirements relating to the full payment of
foreign-invested construction and design firms. registered capital by FIEs and on the proportion of
• Improve local standards to reach the same quality as registered capital having to equal up to 50 per cent
international green building standards. of total investment. Furthermore, Circular No. 122
• Allow qualification exams to be conducted in English simplified the procedure allowing foreign-invested RE
to offer fair opportunities for foreign professionals. companies to register foreign currencies directly.43

4. Continue to Ensure a Fair, Balanced The working group welcomed this improvement and
and Open Market Exists for Foreign recognised the positive steps undertaken by the
Investment in the Real Estate (RE) Sector Chinese authorities to promote a more mature and
international investment environment. However, the
working group believes that outdated or obsolete terms
Concern and restrictions carried forward from Circular No. 171
In China’s RE sector, both foreign and domestic need to be clarified. It has been seven years since
developers face procedural and regulatory hurdles, Circular No. 122 was released as an update, and no
and European land developers are still locked out of significant improvement has yet been seen on this
the market due to stringent regulations and unclear issue.
government approval processes.
Furthermore, the Notice on Further Strengthening and
Assessment Regulating the Examination, Approval and Supervision
The RE field in China still has very stringent regulations of Foreign Direct Investment in the Real Estate Industry
that cause a lot of problems for both domestic and (Circular No. 50), issued in 2007, introduced rigid
foreign enterprises. Foreign-invested enterprises (FIEs) controls on foreign investment in high-end RE projects,
in the RE sector are faced with even more stringent particularly for the acquisition of and investment in
regulations than FIEs in other sectors. One of the most domestic RE enterprises. 44 Some of the stringent
stringent regulations, the Opinions for Regulating the measures introduced in this circular have not been
Access by and Administration of Foreign Investment in removed yet.
the Real Estate Market (Circular No. 171),41 addresses
Section Four: Services

a variety of measures for controlling the flow of foreign For instance, Circular No. 122 does not expressly
capital in the RE sector. Besides outlining the required address a major practical hurdle that RE FIEs face
50 per cent proportion between registered capital and when seeking foreign loans, i.e., according to relevant
investment, Circular No. 171 lists two more conditions regulations issued by the State Administration of
that affect FIEs: they are not allowed to obtain loans Foreign Exchange (SAFE),45 any RE FIE approved and
from Chinese or overseas sources before getting land- registered with the Ministry of Commerce on or after 1st
use rights certification or before realising 35 per cent of June 2007 is not permitted to register its foreign debts
their total investment.42 This creates unfair competition with the SAFE. Therefore, unless the SAFE makes
between local and foreign companies, especially in further clarifications on this point, the benefits and
relation to the different requirements for registering flexibility brought by Circular No. 122 will be limited.
capital.
Recommendations
In 2015, the Notice to Adjust Policies regarding Market • Issue further clarifications or implementing rules
Access and Administration of Foreign Investment in regarding Circular No. 122 to create a fair market
China’s Real Estate Market (Circular No. 122) rescinded
43 Circular of the MOHURD and Other Departments on Adjusting Policies Regarding
Market Access and Administration of Foreign Investment in China’s Real Estate
41 Impact of Recent Restrictions on Foreign Investors in the Chinese Real Estate Market, MOFCOM, 19th August 2015, viewed on 9th May 2022, <http://wzs.mofcom.
Market, JD, March 2008, viewed 15th April 2022, <https://www.jonesday.com/ gov.cn/article/n/201508/20150801093662.shtml>
en/insights/2008/03/impact-of-recent-restrictions-on-foreign-investors-in-the- 44 Notice on Further Strengthening and Regulating the Examination, Approval and
chinese-real-estate-market> Supervision of Foreign Direct Investment in the Real Estate Industry, MOFCOM,
42 Regarding the realisation of total investment, the rate is also 35 per cent for 23rd May 2007, viewed 15th April 2022, <http://www.mofcom.gov.cn/aarticle/b/
domestic companies. See, Guidance to Risk Management of Real Estate Loan g/200707/20070704900232.html>
for Commercial Banks [2004] No. 57, Central People’s Government of the 45 Notice of the Measures for the Administration of Foreign Debt Registration, SAFE,
People’s Republic of China, 30th June 2006, viewed 15th April 2022, <http://www. 28th April 2013, viewed 15th April 2022, <http://www.gov.cn/zwgk/2013-05/03/
gov.cn/ztzl/2006-06/30/content_323806.htm>. content_2395170.htm>

324 Construction Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

environment for foreign companies investing in the

Chinese RE market.
• Facilitate market access of foreign-invested RE
enterprises to absorb immovable assets from illiquid
or insolvent Chinese developers.

Abbreviations
CNY Chinese Yuan
CO2 Carbon Dioxide
CSP Construction Service Provider
EU European Union
FIE Foreign-invested Enterprise
FYP Five-year Plan
GDP Gross Domestic Product
GPA Government Procurement Agreement
GPL Government Procurement Law
km Kilometre
m2 Square Metre
MIIT Ministry of Industry and Information
Technology
MOHURD Ministry of Housing and Urban-Rural
Development
NBS National Bureau of Statistics
NDRC National Development and Reform
Commission
RE Real Estate

Section Four: Services

SAFE State Administration of Foreign
Exchange
TBL Tender and Bidding Law
WTO World Trade Organization

Construction Working Group 325

 Heating Sub-working Group

Introduction to the Sub-working Group water combi-boilers (hereinafter referred to as heating

boilers) decreased by more than 20 per cent, with total
The Heating Sub-working Group (or the Europe China
sales volume of 3.1 million units, falling back to a level
Heating Initiative (ECHI)) seeks to promote European
similar to market volume in 2018.3 Sales in the CTG
technologies that provide eco-friendly and sustainable
replacement market dropped significantly in 2021, by
heating appliances and components. The goal is to
a decrease of 64.6 per cent compared with 2020 (2.68
ensure that energy resources are conserved, while
million units) as the CTG transition programme comes
air quality is improved by significantly decreasing
to an end.4 On the other hand, the non-CTG (traditional
pollutant emissions. The ‘coal-to-gas’ (CTG) transition
retail and engineering) market reached 2.15 million
programme 1 is one of China’s national strategies to
units, with an annual sales increase of 41.4 per cent
fundamentally reduce particulate matter and nitrogen
compared to 2020 (1.52 million units). The annual sales
oxide (NOx) emissions, as well as to achieve increased
volume of condensing boilers increased by 18.2 per
energy efficiency. 2 European heating manufacturers
cent compared to 2020 figures, rising from 220,000 to
can make significant contributions to the successful
260,000 units. The growth can be attributed to imported
implementation of the CTG strategy while helping
brands, which increased by approximately 53 per cent
China to realise its carbon neutrality goals. The
year-on-year (from 111,000 to 160,000 units).5
recommendations in this Position Paper aim to provide
Chinese stakeholders with valuable industry insights
Regulatory Environment
and experience to improve the regulatory environment
The Chinese authorities set stricter technical product
of the heating industry in China and benefit the Chinese
requirements in 2021 to strengthen the heating
population.
appliance industry management. The Certification and
Accreditation Administration (CNCA) published the
The representation of the European Heating Industry in
Notice on Amending the Compulsory Product Certificate
China was created in 2002. It currently consists of 14
Section Four: Trade in Services

Rules for Domestic Gas Equipment on 6 th July

European enterprises involved in the manufacturing
2021,6 which changed the safety testing programme
of highly efficient and renewable-based heating
requirements. Furthermore, the national standard GB
technologies and heating components. They
25034-2020 Gas-fired Heating and Hot Water Combi-
manufacture heating appliances (such as high-
Boilers came into effect on 1st November 2021, which
efficiency heating boilers), burners, water heaters,
supervises and urges companies to produce safer,
renewables (such as solar and heat pumps) and
standardised products under the new requirements,
industrial components. In 2016, the Heating Working
aiming to revive the sluggish domestic market for
Group became a sub-working group of the Construction
heating boilers. 7 While the Compulsory Product
Working Group. Together with its parent group, it strives
Certification Catalogue Description and Definition Table
to promote advanced European heating technology and
(2020 version) was not updated along with GB 25034-
offers information on the latest trends and developments
2020, and continues to restrict certification of products
in the heating industry.
using more than 70 kilowatts (kW) and products with
maximum heating water pressure greater than 0.3MPa,
Recent Developments
3　Gas-Fired Heating and Hot Water Combi-Boilers 2021 Market Statistics, China
Market Developments Gas Heating Specialty Committee (CGHC), 28 th January 2022, viewed 16 th
March 2022, <http://cghc.chinagas.com.cn/News/detail/item/2372/category/204.
In 2021, the market for gas-fired heating and hot
html>
4 ibid.
1　CTG strategy refers to the energy-efficiency policy of the Chinese central 5 ibid.
government and the Beijing-Tianjin-Hebei governments to promote replacing 6 Notice of the CNCA on Amending the Compulsory Product Certificate Rules for
coal with natural gas. Domestic Gas Equipment, CNCA, 6th July 2021, viewed 16th March 2022, <http://
2　Notice on the Action Plan for Comprehensive Management of Air Pollution in www.cnca.gov.cn/zw/gg/gg2021/202107/t20210706_65191.shtml>
the Autumn and Winter of 2018/2019 in Beijing-Tianjin-Hebei and Surrounding 7　The Promotion Conferences on Mandatory National Standard for Gas-fired
Areas, Ministry of Ecology and Environment (MEE), 21 st September 2018, Heating and Hot Water Combi-boilers GB 25034-2020 were successfully held in
viewed 16th March 2022, <http://www.mee.gov.cn/gkml/sthjbgw/sthjbwj/201809/ Shanghai, Guangdong and Tianjin, bgl88.com, 21st December 2020, viewed 16th
t20180927_630570.htm> March 2022, <http://www.bgl88.com/cms/show-11363.html>

326 Heating Sub-working group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

the certification scope is expected to be updated by the Key Recommendations

appropriate agencies in the near future.8
1. Update the Standard for Energy Efficiency
The National Energy Administration’s (NEA’s) Energy of Domestic Gas Appliances and
Work Guidance 2021 lays out the future direction for Introduce National Guidelines or Policies
the energy and heating sector, to “enhance energy to Promote Full Premixed Condensing
security capabilities, expedite clean and low-carbon Boilers with Level I Energy Efficiency
development, achieve harmonious development of 1.1 Update the Energy Efficiency Standard,
both energy and ecology, increase clean heating, and Refine and Improve Requirements for
carry out clean heating conversions according to local Domestic Gas Appliances
conditions, and implement and improve the clean
heating policy system to ensure the safe and stable Concern
operation of heating facilities”. 9 The working group The energy efficiency standard for heating boilers is out
hopes the NEA guidelines will go further and promote of date and does not reflect the energy efficiency levels
studying and testing hydrogen blending standards to such appliances can actually achieve.
provide a theoretical basis for developing large-scale,
long-distance hydrogen blending and pure hydrogen Assessment
transportation. GB 20665-2015 Minimum Allowable Values of Energy
Efficiency and Energy Efficiency Grades for Domestic
During the 14th Five-year Plan period, the working group Gas Instantaneous Water Heaters and Gas-fired
hopes that China's efforts to foster energy efficiency and Heating and Hot Water Combi-Boilers, 12 which took
reduce environmental pollution will boost the market for effect in June 2016, has played a vital role in promoting
highly efficient and energy-saving boilers. The CGHG the structural upgrading of heating boilers, and
has called on all parties in the heating boiler industry implementing energy-saving and emission-reduction
to improve collaborative technological innovation requirements for gas appliances. The standard divides
and technology sharing, in order to encourage the energy efficiency into three levels: the thermal efficiency
widespread use of energy-saving technologies such value for Level I equals a minimum of 96 per cent, Level

Section Four: Trade in Services

as condensation technology in heating boilers.10 It also II a minimum of 88 per cent, and Level III a minimum
states that efforts should be made to deepen consumer of 84 per cent. Currently, only heating boilers of Level
and industry awareness, and push ahead with II or higher can enter the market. Some regions and
marketing energy-saving products such as condensing cities already promote a large-scale utilisation of Level I
boilers.11 energy efficiency heating boilers only, with Levels II and
III becoming obsolete. However, the energy efficiency
The Heating Sub-working Group is ready to share of the latest full premixed condensing boilers could
its experience in the policymaking process to help reach 108 per cent of this standard,13 therefore updating
achieve these government goals. In return, the working GB 20665-2015 would help promote use of the most
group hopes that government agencies fully consider efficient products on the market while continuing to
protecting the interests of companies, reducing the weed out products with lower energy-efficiency rates.
administrative burden on companies, and facilitating
collaborative and healthy industry development. Coal-fired power generation accounted for 63.2 per
cent of China's total in 2020. 14 In addition, power

12 GB 20665-2015 Minimum Allowable Values of Energy Efficiency and Energy

Efficiency Grades for Domestic Gas Instantaneous Water Heater and Gas-fired
8 Notice of the State Administration for Market Regulation on Optimizing the
Heating and Hot Water Combi-boilers, SAMR, 15th May 2015, viewed 16th March
Compulsory Product Certificate Catalogue, CNCA website, 28 th April 2020,
2022, <http://www.gb688.cn/bzgk/gb/newGbInfo?hcno=75D38814EF3EE95E56
viewed 16 th March 2022, <http://www.cnca.gov.cn/zw/gg/zjgg/202008/
E53DC00CF759C6>
t20200820_63968.shtml>
13 Gas Condensing Technology: Key for Efficiency and Clean Air in China,
9　Notice of the National Energy Administration on Printing and Distributing the
Federation of German Heating Industry, 3rd June 2019, viewed 16th March 2022,
"Guiding Opinions on Energy Operations in 2021", NEA, 22nd April 2020, viewed
<https://www.bdh-industrie.de/fileadmin/user_upload/ISH2019/Broschueren/
16th March 2022, <http://www.nea.gov.cn/2020-06/22/c_139158412.htm>
broschuere_februar_2019_gas_condensing_technology_cn.pdf>
10 Gas-Fired Heating and Hot Water Combi-Boilers 2021 Market Statistics, China
14 China Coal-fired Power Generation Report in 2021, Chinapower, 21st July 2021,
Gas, 28th January 2022, viewed 16th March 2022, <http://cghc.chinagas.com.cn/
viewed 15th March 2022, <http://mm.chinapower.com.cn/zx/zxbg/20210721/89863.
News/detail/item/2372/category/204.html>
html>
11 Ibld.

Heating Sub-working Group 327

 Nation-wide monthly average temperature distribution map

January 2021

transmission losses will lower the actual efficiency rate. energy efficiency when operating at below-freezing
Therefore, when comparing the energy efficiency of gas temperatures.
and electrical appliances, it is important to bear in mind
the primary energy thermal efficiency, instead of simply When evaluated alongside several other heating
comparing energy efficiency, to accurately measure products, heat pumps are generally more energy-
Section Four: Trade in Services

actual carbon emissions between different heat sources efficient. However, over time, and given China's energy
and actual product energy efficiency. endowment restrictions, the carbon emissions of heat
pumps are higher than fully premixed wall-mounted gas
In addition, heat source products should be tested boilers, due to heat pumps' reliance on only a single
at various outdoor temperatures or simulated indoor heat source for power generation.
temperatures. For example, the tests should be
performed at 10 degrees Celcius (°C), 0°C and -10°C, In Europe, energy labels for household heating products
to accurately reflect the heat source product's actual display 10 levels and have specific requirements
energy efficiency. Heat source products are mainly relating to energy efficiency, which helps to better
used in winter. The map above shows the average categorise products.16 While European standards for
temperatures in China in January, which in most areas energy efficiency of domestic appliances differ from
is below 0 °C. Chinese standards, a more refined evaluation system in
China would encourage manufacturers to pursue higher
The energy efficiencies of various heat-producing energy efficiency.
products, such as air-source heat pumps, varies based
on the outdoor temperature. For example, in the air- Recommendations
source heat pump cycle, heat energy is drawn from • Update and refine the energy efficiency standards for
outside air or flowing water that is at a temperature domestic gas appliances.
higher than the evaporation temperature, which then is • Refine and improve the efficiency requirements for
heated mechanically and supplied to the indoor heating domestic gas appliances.
system.15 As a result, heat pumps have relatively low
16 About the Energy Label and Ecodesign, European Commission, n.d., viewed
th
16th March 2022, <https://ec.europa.eu/info/energy-climate-change-environment/
15 The First Law of Thermodynamics, Baidu Encyclopedia, viewed 15 March 2022,
standards-tools-and-labels/products-labelling-rules-and-requirements/energy-label-
<https://baike.baidu.com/item/laws-of-thermodynamics/476312>
and-ecodesign/about_en>

328 Heating Sub-working group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

• Establish energy efficiency requirements for major the Municipal Catalogue of Promotion, Restriction
components while keeping the overall requirements and Prohibition of the Use of Building Materials. In
coherent. new, renovation and expansion projects, the use of
• Abandon outdated energy efficiency evaluation condensing boilers with Level II energy efficiency or
methods and implement a standardised carbon below is prohibited, and NOx emissions must meet
efficiency evaluation system alongside primary the Level V requirement of the condensing boilers
energy to compare the thermal efficiency rates of national standard.18
different primary energies and the wiring system
efficiencies of various heating products. This guideline helped to effectively control pollutant
emissions while reducing consumers’ gas fees.
1.2 Introduce Policy Guidelines for Promoting
Energy-saving and Low-emission Gas The relevant institutions lack full understanding of
Boiler Technologies premixed condensing technology applications and its
energy-conserving and emission-reducing benefits. In
Concern addition, China lacks supporting policies to encourage
The government does not sufficiently encourage the high-efficiency and low-emission heating technologies,
adoption of energy-efficient and low-emission heating such as full premixed condensing technology, which
technologies, such as full premixed condensing offers high energy efficiency and low NOx emissions
technologies, while relevant applications and research and has relatively low replacement costs.
are limited, resulting in a lack of active promotion of air
pollution control or energy efficiency policies. Most studies on premixed condensing technology
applications are from enterprises and associations, such
Assessment as the Beijing Association of Building Energy Efficiency
There are two main types of heating boilers: and Environmental Engineering. Very few universities
conventional and condensing. Condensing boilers have relevant departments or research programmes,
increase energy efficiency by up to 20 per cent and except for Tongji University and Tianjin Chengjian
reduce pollutant emissions; for example, they can cut University, which have research projects on condensing

Section Four: Trade in Services

NOx emissions by up to 75 per cent compared with technology and full premixed combustion. The working
non-condensing models.17 group recommends that industry stakeholders and
authorities consider the advantages of full premixed
Therefore, it is better when formulating guidelines and condensing technology. It is necessary to strengthen
policies on energy efficiency and pollution control in relevant Chinese institutions' research in full premixed
construction projects to promote the use of condensing condensing technology applications and the effects on
boilers from first installation. Doing so will eliminate energy conservation and emission reduction. Also, the
the need to rearrange corresponding accessories and working group recommends implementing subsidies
pipes in order to replace conventional gas boilers in the for high-efficiency and low-emission technologies such
future. as full premixed condensing boilers in major cities
and regions, and further expanding the projects to
Article 26 of Beijing's Three-year Action Plan for more areas to encourage consumers to purchase full
Winning the Battle of Blue Sky Protection, a guiding premixed condensing boilers.
document on energy conservation and emission
reduction from 2018–2020, states clearly: Recommendations
• Introduce policy guidelines for promoting energy-
Further reduce NOx emissions from heating boilers saving and low-emission technologies, starting from
The Beijing Municipal Commission of Housing and key cities and regions.
Urban-Rural Development leads the revision of • Issue relevant policies to encourage consumers to
buy full premixed condensing boilers for the first
17 Gas Condensing Technology: Key for Efficiency and Clean Air in China,
Federation of German Heating Industry, 3rd June 2019, viewed 16th March 2022,
< https://www.bdh-industrie.de/fileadmin/user_upload/ISH2019/Broschueren/ 18 Three-Year Action Plan for Winning the Battle of Blue-Sky Protection, State
broschuere_februar_2019_gas_condensing_technology_cn.pdf> Council, 3rd July 2018, viewed 16th March 2022, <http://www.gov.cn/zhengce/
content/2018-07/03/content_5303158.htm >

Heating Sub-working Group 329

 installation of heating in a building. such problems and advance energy conservation and
• Encourage research projects on full premixed emission reduction efforts.
condensing technology, including its application,
energy-saving and emission-reducing effects. While the Chinese Government and authorities have
issued new national standards for heating boilers and
2. Improve and Effectively Implement formulated industry standards for product applications,
Standards for the Installation and there is still a lack of effective monitoring and
Maintenance of Heating Boilers, and maintenance after installation. Although the installation
Educate Consumers on the Need for of heating boilers requires professionals and enterprises
Regular Maintenance and Replacement with technical capabilities to select, design and install
the entire system, the authorities lack effective rules and
2.1 Strengthen the Standardisation and regulations for monitoring practitioners' and enterprises'
Management of the Installation of Heating capabilities, as well as for supervising installations.
Boilers Based on feedback from member companies, the
main issues that arise during warranty are a result of
2.1.1 Improve the Standards for Installation low-quality installation. If installation quality cannot be
of Heating Boilers and Strengthen the effectively controlled and improved, it will hinder the
Standardisation and Management of further development of the industry.
Responsible Enterprises and Personnel
European Union (EU) Member States have over 50
years of rich experience in using heating boilers.
Concern More importantly, EU heating boiler-related standards,
The development of the heating boiler market is products, applications and services are mature and
hindered by the lack of adequate installation technical comprehensive. EU Member States also have well-
guidelines or standards, as well as the varying regulated and mature methods and systems for
competence of enterprises and personnel responsible certifying the qualifications of installation engineers
and providers, as well as for supervising installation
Section Four: Trade in Services

for installation, both of which raise safety concerns.

quality. European enterprises represented by the ECHI
Assessment entered the Chinese market quite early, and therefore
Heating boilers are complex products that require have much experience—from both China and Europe—
the installation of heating and hot water systems. to assist the Chinese authorities in formulating relevant
The operation of these products involves the use of regulations. Establishing a training mechanism for
gas, running water, electricity, air intake and exhaust heating boilers installers and a vocational threshold
pipes. To ensure long-term efficient use and stable would promote the technical skills of qualified installers
and safe operation, equipment manufacturers should and ensure the quality of installation as well as safety
provide a complete set of products and systems as during subsequent usage.
well as periodic servicing and maintenance (see Key
Recommendation 2.2). In addition, the working group recommends using
water treatment products for new installations,
The water quality of domestic heating systems has a including magnetic filters to filter debris from the
significant impact on the system's operating efficiency water and system protectors to prevent corrosion and
and service life. In general, installation companies limescale problems in the long term. European quality
and consumers pay little attention to this aspect. certification systems such as KIWA and BuildCert CIAS
Poor water quality can lead to the system clogging are mature standards for water treatment equipment
up, higher unnecessary after-sales costs, and lower and chemicals. 19 As working group members have
heating efficiency rates due to limescale and corrosion, 19 KIWA GAS TEC is the most respected gas safety certification organisation in
Europe, founded in 1929 and based in Apeldoorn in the Netherlands. For over
which is contrary to the Chinese Government's energy 70 years, it has focussed on providing independent third-party safety monitoring
conservation and emission reduction efforts. A good and testing certification services for the gas applications industry. The BuildCert
CIAS, also known as the BuildCert Chemical Inhibitor Approval Scheme (CIAS),
quality chemical protector and magnetic filter can avoid is an experimental test for central heating system protector performance based
on British Heating Industry Standard BS 7593-2019, which is an extension of the

330 Heating Sub-working group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

qualifications and experience in these standards, as simplify the industrial product approval procedure.
they can engage in information-sharing with their
Chinese counterparts and the authorities. European Tests for domestic gas appliances under the previous
manufacturers / critical parts manufacturers have similar production certification system and tests on the
qualifications from their experiences in the developed compatibility of local gas sources are not aligned
EU market . in terms of test items or standards. Additionally, the
tests overlap with or exceed test items under the new
Recommendations CCC system. The sub-working group believes that
• Formulate and implement regulations for installation the various tests could be integrated and optimised
of heating boilers. alongside the CCC system and implementation of GB
• Emphasise and introduce the use of water treatment 25034-2020 Gas-fired Heating and Hot Water Combi-
products for new installations. boilers.
• Improve the training for personnel and enterprises
responsible for installation and establish a vocational Recommendation
certification system. • Reasonably reduce repetitive test items for local
market access, and extend the test cycle.
2.1.2 Reasonably Adjust the Content and
Cycle of Product Tests for Local Market 2.2 Strengthen the Publicity and Effective
Access based on the China Compulsory Supervision of the Maintenance of
Certification (CCC) Policy Heating Boilers

Concern Concern
Since implementing the CCC policy, authorities' Consumers only pay attention to initial investment in
requirements for product quality control and supervision the purchase and installation of heating boilers, and
have improved, but local repetitive test items and the overlook the servicing and maintenance necessary for
test cycle remain unchanged. long-term operation.

Section Four: Trade in Services

Assessment Assessment
In recent years, as China amended standards and In European countries, where technologies and
requirements relating to natural gas supply, the quality applications for heating boilers are quite developed,
of the fuel has improved and stabilised. the necessity for regular maintenance has been
accepted by the public. As a result, Europe has mature
Since 2020, domestic gas appliances have been supervision measures that could act as an example
managed by the CCC from 1st October 2020, which, for Chinese market regulators and consumers.
from the perspective of company product quality However, cultivating consumers’ awareness of the
management, involves high-level requirements need to regularly maintain heating boilers depends on
for product quality control and management of vigorous publicity and effective supervision by relevant
gas appliance companies. In the Decision of the authorities, along with appeals and calls from the
State Council on Further Reducing the Catalogue industry.
of Production Licences for Industrial Products and
Simplifying the Examination and Approval Procedures,20 U s u a l l y, t h e a f t e r - s a l e s s e r v i c e s p r o v i d e d b y
the CCC system is applied to products involving public manufacturers and the regular maintenance provided
health, safety and environmental protection to ‘unify by systems installers only focus on the main system
certification standard and reasonably reduce and component, resulting in incomplete maintenance.
combine certification test items’. The management Instead of only performing maintenance on the heating
system aims to unify market access conditions as well boiler, system maintenance coverage needs to include
the whole system. For example, the impact of poor
industry specification Approved Document L - Conservation of fuel and power.
20 Decision of the State Council on Further Reducing the Catalogue of Production water quality on gas furnaces for heating hot water in
Licences for Industrial Products and Simplifying the Examination and Approval closed water systems should not be underestimated.
Procedures, State Council, 30th September 2018, viewed 16th March 2022,
<http://www.gov.cn/zhengce/content/2018-09/30/content_5327123.htm>

Heating Sub-working Group 331

 However, if the entire gas furnace system is kept to improving environmental protection, but also helps
maintained, problems due to water quality issues would to reduce maintenance requirements and costs for
not inevitably lead to declines in energy efficiency or users. Heating boilers have been installed and used in
boiler operational failures. China for more than 20 years, and a certain number of
products in the market have exceeded their intended
Regular maintenance guarantees the efficient operation service life. If these old products are not replaced in line
of heating boilers, increases reliability, prolongs service with relevant regulations, emissions of carbon dioxide
life, and reduces operation costs and risks. Regular and NOx will not be reduced as fast as is needed to
inspection is an indispensable part of maintenance. meet China’s carbon neutrality goals. The sub-working
In Europe, there is a system for periodic inspection group is aware that several EU Member States have
for leakage of flue combustion emissions (such as programmes to assess the age and efficiency of
carbon monoxide and NOx), originally established previously installed condensing boilers. This has raised
for environmental protection but which also secures awareness among consumers that some products
combustion performance and safety of the boilers. Gas need to be replaced and that energy and household
security is also both an environmental protection and expenses could be saved by doing so. In Beijing,
livelihood issue, in which the regular maintenance of new, renovation and expansion projects prohibit the
wall-mounted gas boilers is vital. Apart from having use of heating boilers with Level II energy efficiency
manufacturers effectively promote awareness of these or below, and support and encouragement to replace
issues, gas companies also need to cooperate to gain about 800,000 low-efficiency and high-emission heating
consumer trust and convince them of the need for boilers is to start in the near future.21 This will help
regular maintenance for wall-mounted gas boilers. to improve regional air quality and save energy. The
working group hopes that such replacement work can
Recommendations be embarked on in more places.
• Strengthen effective supervision of regular maintenance
of heating boilers, and educate consumers accordingly. The development of consumer awareness largely
• Issue regulations for periodic maintenance of heating depends on the immediate interests of users. For
boilers to ensure their efficient and safe operation. instance, gas fees can be reduced in the long-term
Section Four: Trade in Services

• Improve awareness of overall heating system safety, by dismantling energy-intensive and high-emission
and service employee and user knowledge of the gas heaters and replacing them with environmentally
benefits of using water treatment products in heating friendly and energy-efficient condensing heaters. In
systems. terms of safety, replacing worn-out gas heaters ensures
• Encourage factory and gas management departments user personal and property safety. The working group
to work together to raise awareness of the recommends that gas companies regularly conduct
requirements for regular maintenance of wall-hung gas safety inspections to supervise and optimise wall-
heaters. hung heater energy efficiency and lifespans, and to
encourage regular maintenance or replacement of wall-
2.3 Cultivate Consumers’ Awareness of the hung heaters.
Need for Timely Removal and Replacement
of Heating Boilers with High Energy Recommendations
Consumption and Emissions or Those at • Cultivate consumers’ awareness of the need for
the End of Their Service Life timely removal and replacement of heating boilers
with high energy consumption and emissions or
Concern those at the end of their service life.
Chinese consumers are not accustomed to replacing • Assist users in ensuring regular maintenance and
heating boilers that have reached the end of their repairment of wall-hung heaters, providing guidance
service life or that do not meet relevant regulations.
21 Beijing Building Energy-Efficiency & Environment Engineering Association,
China Quality Supervising and Test Centre for Gas Appliances, Guangdong Gas
Combi-Boiler Chamber of Commerce and the ECHI jointly submit a report on
Assessment
the research project of BCEMA on replacing wall-hung boiler policy in Beijing-
Replacement of heating boilers with high energy to-Beijing Municipal Government in 2020, BCEMA, 2020, report not available
publicly.
consumption and high emissions is not only conducive

332 Heating Sub-working group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

to end-users, and raising gas safety awareness. European countries. In collaboration with the countries’
• Formulate policies to encourage and support national energy departments, pilot projects have been
consumers to replace low-efficiency and high-energy- set up, in order to advertise and encourage zero-carbon
consumption heating boilers that have reached the heating technology, which has started to receive public
end of their service life with more efficient and eco- acceptance and awareness. Currently, there are few
friendly full premixed condensing boilers. policies to create conditions and opportunities to assist
the domestic heating industry in taking the first step
3. Research and Discuss the Role of toward zero-carbon emissions. Therefore, progress
Hydrogen-mixed Technology in the in this area is plodding, regardless of technological
Laying of Gas Pipeline Networks for developments, product iteration or concept development
Domestic Appliances in China at the consumption level.

Concern An appropriate proportion of hydrogen blended into

The government's encouragement of hydrogen mixing existing natural gas pipeline networks to be transported
in civil natural gas pipelines is insufficient, related to end-users can help Chinese stakeholders accumulate
applications and research are limited, and there is a experience for future large-scale, long-distance and
lack of national or industry standards. low-cost hydrogen delivery. Hydrogen blended can
play a role in energy storage, power-load shifting and
Assessment peak shaving, effectively reducing carbon emissions.
Economic development and improvements in Although the Medium and Long-term Plan for the
people's living standards has caused China’s energy Development of Hydrogen Energy Industry (2021-2035)
consumption and carbon emissions to increase defines hydrogen energy as new energy and supports
significantly, so that its total carbon emission now hydrogen delivery through natural gas pipelines,
accounts for a third of global carbon emissions.22 Since there are no additional supporting policies, technical
President Xi Jinping announced in September 2022 measures or technical standards for implementation.26
that China’s carbon emissions will peak in 2030 and As a result, agencies still regard hydrogen as a
carbon neutrality will be accomplished by 2060 (the hazardous chemical based on the Catalogue of

Section Four: Trade in Services

30/60 Goals), the Chinese Government has determined Hazardous Chemicals 2015, 27 thus restricting the
the way for low-carbon development for various application of hydrogen energy in a broader range of
industries,23 including the construction industry.24 A rapid fields. Infrastructure (such as hydrogen production,
and efficient energy transition is critical to realising the hydrogen blending technology and pipeline networks
30/60 Goals. coverage) is necessary for applying hydrogen energy
technology. Despite having the latest technologies and
Heating and cooling buildings alone accounts for nearly products at their downstream hydrogen and heating
one-third of global carbon emissions; 25 therefore, equipment manufacturers disposal, the market lacks the
the heating industry plays a vital role in the energy necessary application environment and implementation
transition. European heating equipment and solution conditions. Therefore, downstream hydrogen and
vendors have strived to encourage low-carbon and heating equipment manufacturers cannot play a leading
even zero-carbon energy solutions in the European role and take social responsibility in the zero carbon
market. In recent years, over 80 projects on the use field.
of hydrogen in buildings have sprung up in several
The working group recommends that the energy supply
22 White Paper on Low Carbon Transition of Chinese Energy Companies,
Accenture, 6 th November 2021, reviewed 15 th March 2022, <https://www.
departments develop a sound top-level design, expedite
accenture.com/cn-zh/insights/energy/chinese-energy-enterprises-low-carbon- the research and development of standards and
transition>
23 The Strategy and Challenges of Realising the Dual Carbon Policy, gmw.cn, 7th
technical specifications related to hydrogen blending
July 2021, reviewed 11th May 2022, <https://www.gmw.cn/xueshu/2021-07/07/ 26 China releases medium- and long-term development plan for hydrogen energy,
content_34976788.htm> Tank News International, 5 th April 2022, viewed 28 th June, 2022, <https://
24 State Council: Notice on the Issuance of the Carbon Peaking Action Plan by tanknewsinternational.com/china-releases-medium-and-long-term-development-
2030, State Council, 26th October 2021, reviewed 11th May 2022, < http://www. plan-for-hydrogen-energy/>
gov.cn/zhengce/content/2021-10/26/content_5644984.htm> 27 Catalogue of Hazardous Chemicals 2015, Ministry of Emergency Management
25 Why the Building Sector? Architecture 2030, viewed 15th March 2022, <https:// (MEM), 31st March 2015, reviewed 11th May 2022, <http://www.gov.cn/flfg/2011-
architecture2030.org/why-the-building-sector/> 03/11/content_1822902.htm >

Heating Sub-working Group 333

 in natural gas pipelines for civil construction. It should Abbreviations
be clarified that hydrogen production stations used for
CCC China Compulsory Certification
carrying a blend of natural gas and hydrogen are not
CGHC China Gas Heating Specialty Committee
subject to the entry of hazardous chemical production
CNCA Certification and Accreditation
projects into chemical parks 28 and that natural gas
Administration of the China
blending pipelines are still managed as natural
CTG Coal-to-Gas
gas pipelines. Additionally, under the guidance and
ECHI Europe China Heating Initiative
participation of the NEA, hydrogen blending standards
EU European Union
should be studied and tested, mainly; hydrogen blending
HVAC Heating, Ventilation and Air Conditioning
ratios (five per cent, 10 per cent, 15 per cent, 20 per
kW Kilowatt
cent); the impact on the natural gas combustibility and
MEE Ministry of Ecology and Environment
the Wobble Index;29 as well as the degree of damage
MEM Ministry of Emergency Management
caused by pipeline materials. This will help to provide
NEA National Energy Administration
a theoretical basis for the development of large-scale,
NOx Nitrogen Oxide
long-distance, hydrogen blending, and pure hydrogen
SAMR State Administration for Market
transportation. Technical standards for natural gas
Regulation
pipelines blended with hydrogen should be prepared
for the civil HVAC30 industry, alongside the construction
of independent civil buildings and the creation of
demonstration projects for the application of natural gas
blending and hydrogen combustion condensing boilers
in civil construction, in order to prove actual operation
data for large-scale improvement and implementation.

Recommendations
• Set up pilot areas, build demonstration projects,
and promote the concept of zero-carbon heating via
Section Four: Trade in Services

hydrogen.
• Draft corresponding standards and regulations to
guide products and industries with standardised
development.
• Encourage the creation of technical standards, such
as manufacturing standards and standards for the
installation and inspection of hydrogen blending and
pure hydrogen combustion equipment.

28 Implementation Measures for Safety Production Permit for Hazardous Chemical

Production Enterprises, MEM, 6th March 2017, reviewed 11th May 2022, <https://
www.mem.gov.cn/gk/zfxxgkpt/fdzdgknr/gz11/201112/t20111201_405679.shtml >
29 The Wobbe Index is a measure of the interchangeability of fuel gases and their
relative ability to deliver energy. It gives an indication of whether a turbine or
burner will be able to run on an alternative fuel source without tuning or physical
modifications.
30 HVAC refers to heating, ventilation, and air conditioning.

334 Heating Sub-working group

 European Business in China Position Paper
欧盟企业在中国建议书 2022 /2023

Information and Communication Technology

Working Group

Key Recommendations
1. Ensure that Supply Chain Regulations Serve to Secure Foreign Investment
and Anchor China More Deeply into the Global System, Not Vice Versa
• Give full play to the role of international companies in stabilising the information and communication
technology (ICT) supply chain.
• Ensure that regulatory controls improve overall supply chain security, instead of pursuing self-
sufficiency at the expense of long-term interdependencies and cooperation prospects.
• Narrowly define the concept of ‘national security’ to avoid generalisation.
• Allow voluntary standards and certification programmes to remain truly so.
• Rely on international standards to the largest extent possible, rather than imposing undue
restrictions on both the usage of such standards, and the scenarios in which they can be used (for
example, only for international interconnection).
• Ensure technology neutrality in supply chain regulations to drive competition and long-term
growth.

2. Ensure Reciprocity on Market Share for European ICT Companies

• Implement measures to improve market share for the European ICT industry to ensure and
maintain reciprocity in the long run.
- Identify all ICT market segments where market share reciprocity is lacking and develop
actions—jointly defined by Chinese and European stakeholders—that address the imbalances.
- Review the status of market share reciprocity regularly.

Section Four: Services

• Establish an open and effective monitoring and correction mechanism for ICT market reciprocity,
with sponsorship from the EU and China, in order to address the current, prominent issues.

3. Open up Value-added Telecoms Services (VATS) and Internet Sectors to

International Companies
• Reduce further the Negative List and allow increased international participation in the telecoms-
and internet-related sectors.
• Continue to open up the Telecoms Catalogue and allow international companies in China to
obtain VATS licences, particularly for internet resource collaboration, internet protocol virtual
private network, internet access services, online data processing and transaction processing
services, and information services.

4. Develop and Implement Commercial Cryptography Laws, Regulations,

Standards and Conformity Assessment Systems in Such a Way that They
are Clear, Fair and Conducive to International Harmonisation
• Allow the adoption of international standards related to commercial cryptography.
• Reference explicitly the primary function test in the revised Commercial Cryptography Regulation.
• Define narrowly the scope of commercial cryptography products subject to testing, certification,

Information and Communication Technology Working Group 335

 application security assessment, and import licence and export control.
• Ensure technology-neutral and streamlined conformity assessment processes for commercial
cryptography, and that intellectual property and trade secrets are protected.
• Define ‘mass consumer products’ as ‘cryptography features as found in components and
products openly available to the public, that can be either charged or free, for personal or
business use, and where the cryptographic functionality cannot be modified by the end user’.
• Clarify the scope and processes for commercial cryptography application security assessments
in such a way that they are proportionate and non-disruptive to normal business activities.
• Refrain from mandating or expanding the scope of conformity assessment under the guise
of ‘application promotion’, and revise incompatible regulations, standards and conformity
assessment systems.
• Apply clarity and transparency to the design and roll-out of the Cryptography Law’s
implementing regulations and ensure that any such regulations, including standards, are fully in
line with the superordinate law.

5. Ensure Timely and Globally-harmonised Spectrum Allocations for Key

Technologies and Applications Development that Benefit both China and
the Global Industry as well as Consumers
• Ensure the timely availability for usage of 5G spectrum, the 60 gigahertz (GH) band and the
79–81GHz band.
• Strengthen exchanges and coordination between China and the European Union regarding
spectrum regulation in the lead-up to the World Radiocommunication Conference-23, including
by integrating the spectrum topic in relevant government-to-government dialogues.

Cybersecurity Sub-working Group

Section Four: Services

1. Ensure that Chinese Security Legislation Does Not Create Discriminatory

Market Access Barriers
• Define the concepts of ‘national security’ and 'critical information infrastructure' as narrowly as
possible, and differentiate them from ‘commercial security’ in a clear manner.
• Limit the applicability and influence of the various theoretically non-binding documents, such
as recommended national standards, in such a manner that they do not go beyond binding
legislation.
• Promote mutual recognition and adoption and reliance upon, applicable international standards
and global industry best practices.
• Relax restrictions on cross-border data transfer to allow easier market access.
• Take steps to ensure that the terms negotiated in cross-national trade and investment deals are
effectively implemented in practice.

2. Minimise Unnecessary Operational Burdens Created by Extensive, Ambiguous and

Discretionary Security Schemes
• Ensure consistency between upper-level legislation and relevant implementing regulations,
and follow the least interference principle in the course of legitimate international business
operations.

336 Information and Communication Technology Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022 /2023

• Ensure a coordinated and unified approach for oversight and enforcement among the government
authorities involved.
• Reduce security-related administrative burdens on companies, including those due to duplicative
or fragmented requirements.

3. Ensure Transparency, Consistency, Non-discrimination and Proportionality in

Security Rulemaking and Law Enforcement
• Provide in a timely and meaningful manner an open and transparent platform that allows
European businesses to engage in security rulemaking.
• Review existing and planned security-related laws and regulations, and release unambiguous
implementation guidelines to ensure consistent requirements and enforcement.
• Clarify the roles and responsibilities of government authorities involved in security rulemaking.
• Recognise multinational corporations with operations in China as Chinese companies and avoid
extensive interpretations of “national security”.
• Ensure security regulations are appropriate and commensurate with the risk.

Introduction to the Working Group goals for a wide spectrum of ICT market segments,
such as communication network infrastructure, green
Formed in 2001, the Information and Communication
and intelligent computing facilities, and converged
Technology (ICT) Working Group consists of major
infrastructures such as the Industrial Internet and the
European telecommunications vendors, service
Internet of Vehicles. The plan also encourages the
providers, digital content providers and other companies
development of emerging technologies like artificial
that meet on a regular basis to assess reforms that can
intelligence (AI), big data, blockchain, edge computing,
affect the ICT industry. The working group also serves

Section Four: Services

embedded subscriber identification module and
as a platform for information exchange on developments
quantum computing in vertical industries. Meanwhile,
in the ICT industry, including but not limited to
the plan aims to strengthen industry management,
standardisation and conformity assessment, services,
including with regard to spectrum resources and
technical regulations, research and development
terminal equipment, and through the formulation of the
(R&D), interoperability and global harmonisation. The
Telecommunications Law and data regulations.
Information and Communication Technology Working
Group contains the Cybersecurity Sub-working Group.
On 30 th November 2021, the MIIT released the 14 th
Five-year Plan for the Development of the Big Data
Recent Developments Industry, 2 proposing a host of measures including
ICT Industrial Development Blueprint establishing a market-orientated pricing mechanism
A number of policies and strategies were released for data as a key factor of production; incentivising
in late 2021 that shed light on China’s ICT industrial advanced big data-powered products and services;
development plan. tapping into big data potential across such vertical
industries as equipment manufacturing, consumer
On 16th November 2021, the Ministry of Industry and goods, information and communications, finance,
Information Technology (MIIT) released the Information healthcare, power and transportation; and developing
and Communication Industry Development Plan During basic hardware and software, open-source framework
the 14th Five-year Plan Period,1 formulating development and other technologies. In addition, the MIIT plans to

1　 14 th Five-year Plan for Developing the Information and Communications

2 14th Five-year Plan for the Development of the Big Data Industry, MIIT, 30th
Industry, MIIT, 16th November 2021, viewed 20th April 2022, <https://wap.miit.
November 2021, viewed 20th April 2022, <https://www.miit.gov.cn/zwgk/zcwj/
gov.cn/zwgk/zcwj/wjfb/tz/art/2021/art_3a0b0c726bd94b7d9b5092770d581c73.
wjfb/tz/art/2021/art_c4a16fae377f47519036b26b474123cb.html>
html>

Information and Communication Technology Working Group 337

 introduce policies, regulations and standards to better Key Recommendations
balance security and development.
1. Ensure that Supply Chain Regulations
th
On 12 January 2022, the State Council released Serve to Secure Foreign Investment
the 14 th Five-year Plan for the Digital Economy and Anchor China More Deeply into the
Development.3 The plan puts forward eight major tasks Global System, Not Vice Versa
and a number of sub tasks, including expediting the
Concern
construction of network infrastructure and national-
The implementation of excessive, non-transparent and
level integrated big data centres (one highlight of which
sometimes arbitrary supply chain controls damages
is the Eastern Data, Western Computing project);
trust and international cooperation, as well as the allure
boosting the digital transformation of traditional
of the Chinese market as an investment destination,
industries; enhancing innovation of key technologies in
which could result in necessary interdependencies
strategic fields such as sensors, quantum information,
within the supply chain being dissolved.
network communications, integrated circuits, key
software, big data, AI and blockchain; developing new
Assessment
business models such as smart elderly care, automated
ICT users rely on a globally distributed and interconnected
driving, unmanned delivery, smart parking and smart
supply chain ecosystem. Improved supply chain security
manufacturing; and establishing regulations on cross-
is a reasonable and internationally shared desire, needed
border data flows, market access, anti-monopoly work
to address a wide range of disruptive factors such as
and the digital yuan.
product deficiencies, malicious human activities and
natural disasters. However, as a result of geopolitics,
Another sectoral Five-year Plan released in 2021 of
the Information and Communication Technology
relevance to the ICT industry is the Cyberspace Affairs
Working Group has witnessed a number of controls
Commission’s (CAC’s) plan for national informatisation.4
being misused, which subsequently led to import
The plan aims to advance both the country’s digital
substitution.
infrastructure construction and key technologies, with
a focus on fifth generation mobile technology (5G),
It is costly and impossible for any country alone to try to
vehicle-mounted intelligent equipment and smart road
Section Four: Services

indigenise the entire ICT supply chain, which is the most

infrastructure, advanced automatic driving above
complex and globalised of any industry. To improve
Level 3, and critical and advanced areas such as
supply chain security therefore, a country needs to
AI, quantum information and integrated circuits. The
consider its unique situation and strike a proper balance
document requires full implementation of pre-entry
between: 1) finding ways to anchor itself more deeply
national treatment plus negative list management for
into the global ecosystem; and 2) developing a certain
foreign investment, as well as expansion of access to
level of technological autonomy, which should only act
the value-added telecom services (VATS) market. The
as a fail-safe, to ultimately ensure better coupling across
working group looks forward to concrete opening-up
different layers of the supply chain. President Xi Jinping
measures being trialled in the free trade zones, and
stated in a speech to the Chinese Communist Party’s
being rolled out nationwide as soon as possible.
Central Economic and Financial Affairs Commission in
April 2020 that the way forward for China is to deepen
its “involvement in global industrial chains”. President Xi
further noted that “the fewer impediments to domestic
economic flow, the more global resources will gravitate
toward China”.5

Self-sufficiency should be treated as one of many

th
3　 14 Five-Year Plan for the Digital Economy Development, State Council, means, and not as an end in itself that becomes an
12 th January 2022, viewed 30 th March 2022, <http://www.gov.cn/zhengce/
content/2022-01/12/content_5667817.htm>
4　 14th Five-Year Plan for National Informatisation, Cyberspace Affairs Commission 5　 Xi Jinping, China's Medium- and Long-Term Economic, Social Development
of the CPC Central Committee, 27th December 2021, viewed 20th April 2022, Strategy, Qiushi, 31 st October 2020, viewed 15 th April 2022, <http://www.
<http://www.cac.gov.cn/2021-12/27/c_1642205314518676.htm> qstheory.cn/dukan/qs/2020-10/31/c_1126680390.htm>

338 Information and Communication Technology Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022 /2023

absolute priority. The EU seems to have recognised procure ‘secure and controllable’ ICT; 11 and state-
this, stating in a recent industrial policy aimed at owned enterprises that are considered commercial
improving the bloc’s supply capacities for certain ICT players yet expected to support and drive industrial
components that the objective is not “to become self- and supply chain development.12 As a result of such a
sufficient, which is not an achievable target”, but to subtle approach, checks imposed by such multilateral
“strengthen its strengths and work with third countries agreements as the World Trade Organization Technical
in a supply chain where interdependencies will remain Barriers to Trade (WTO/TBT) could be circumvented.
strong.”6 This is why it is important to take stock of the negative
impact of opaque, overly stringent and discriminatory
To maintain those interdependencies, regulatory supply regulatory controls on overall business confidence,
chain controls must be carefully designed to ensure that irrespective of whether they are legally well-founded.
regular contractual activities are still permissible, and
to provide the minimum regulatory certainty, economies Excessive controls erode trust along the ICT supply
of scale and returns on investment necessary for chain. According to the European Chamber’s Business
sustainable long-term investment. Yet the working group Confidence Survey 2022, 46 per cent of respondents
is aware of examples, in both the ICT industry and its expect negative impacts as a result of CII guidelines/
related upstream and downstream industries, where requirements and 47 per cent expect negative
such controls are putting members at a significant impacts as a result of ‘autonomous and controllable’
competitive disadvantage. In some instances, this is requirements. More broadly, 42 per cent of respondents
due to such controls being broad and opaque, and missed out on business opportunities due to market
involving lengthy processes and heavy documentation access restrictions and regulatory barriers in 2021,
requirements, as is the case with the Cybersecurity and 54 per cent of respondents expect the number
Review Measures.7 Also, in some commercial market of regulatory obstacles to increase over the next five
segments, China-specific standards, technology years. Eroded trust could affect broader aspects like
roadmaps and product implementations are being innovation, talent and international cooperation, which
mandated, because foreign technology is unreasonably would not be conducive to supply chain security.
considered to be inherently less secure, and therefore
may not pass politicised supply chain scrutiny. 8 In Although grateful for the market openings and business

Section Four: Services

fact, very often the foreign technology in question has environment improvements that have taken place in
already long been deployed globally, and proved secure recent years in many other industries, the Information
by countless attacks and close examinations. and Communication Technology Working Group hopes
to see a further reduction in regulatory barriers to boost
Some of these controls are being carried out in a business confidence among European investors in the
sophisticated way, such as through the broadening of ICT sector. Members of the working group have been,
the ‘national security’ concept to commercial fields,9 and are willing to remain, valuable contributors to, and
and the mandating of non-mandatory standards stabilisers of, the Chinese economy. They look forward
and certification programmes. 10 Another method is to cooperating, partnering and competing with domestic
by cascading relevant targets down to government- Chinese companies along the ICT supply chain in a
supported industry alliances; critical information market free of excessive regulatory controls, and where
infrastructure (CII) operators that are encouraged to both domestic and international companies can find
room to grow and prosper.
6　 Proposal for a Council Regulation amending Regulation (EU) 2021/2085
establishing the Joint Undertakings under Horizon Europe, as regards the
Chips Joint Undertaking, EUR-Lex, 8th February 2022, viewed 1st April 2022, Recommendations
<https://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX:52022PC0047>
7　 Cybersecurity Review Measures, CAC, 4th January 2022, viewed 22nd April • Give full play to the role of international companies in
2022, <http://www.cac.gov.cn/2022-01/04/c_1642894602182845.htm> stabilising the ICT supply chain.
8　 Please refer to key recommendations 2 and 3 of this paper, Key Recommendation
1 of the Cybersecurity Sub-working Group Position Paper, and Key
Recommendation 1 of the Rail Working Group Position Paper. 11　While ‘secure and controllable’ itself can be interpreted in a risk-based and non-
9　 Please refer to Key Recommendation 2 of this paper and Key Recommendation discriminatory way, certain real-life regulations and/or practices run contrary to
1 of the Cybersecurity Sub-working Group Position Paper. this positive direction.
10 Please refer to Key Recommendation 1 of the Standards and Conformity 12 Full Text: Report on the Work of the Government, Xinhua, 12th March 2022,
Assessment Working Group Position Paper, and Key Recommendation 3 of viewed 1 st April 2022, <http://www.xinhuanet.com/english/2021-03/12/
this paper. c_139806315.htm>

Information and Communication Technology Working Group 339

 • Ensure that regulatory controls improve overall supply advanced 5G network. According to MIIT statistics,13
chain security, instead of pursuing self-sufficiency by the end of 2021, China had deployed 1.42 million
at the expense of long-term interdependencies and 5G base stations (more than 60 per cent of the global
cooperation prospects. total) and developed 355 million 5G subscribers
• Narrowly define the concept of ‘national security’ to (more than 70 per cent of the global total). China’s
avoid generalisation. total 5G investment in 2020 and 2021 amounted to
• A l l o w v o l u n t a r y s t a n d a r d s a n d c e r t i f i c a t i o n approximately CNY 360 billion.
programmes to remain truly so.
• Rely on international standards to the largest extent The global success of the mobile industry relies on
possible, rather than imposing undue restrictions on harmonised standards. In this field, China and the EU
both the usage of such standards, and the scenarios have made the most contributions and have cooperated
in which they can be used (for example, only for both in the 4G era and now towards 5G, to great mutual
international interconnection). benefit.
• Ensure technology neutrality in supply chain
regulations to drive competition and long-term However, as the commercial development of 5G in
growth. China has exploded, European ICT companies’ 5G
market share has dropped dramatically, creating a
2. Ensure Reciprocity on Market Share for significant imbalance in bilateral 5G market share
European ICT Companies reciprocity. In fact, the EU industry’s market share in
China dropped from around 30 per cent in 4G to single
Concern digit market share in 5G, a drop so sharp that it can
Continued unbalanced reciprocity on market share in hardly be explained by commercial reasons alone.
certain important ICT market segments risks seriously According to one market report published in February
weakening the strategic importance of China to 2022,14 the EU industry’s accumulated 5G market share
European Union (EU) industry regarding scale and in China sank to just 2.9 per cent by the end of 2021,
sustainability, causing de-prioritisation of its market in while that of domestic vendors hit a record-high of 97.1
global investment planning and jeopardising the future per cent. In an apple-to-apple comparison, Chinese
of EU-China ICT industry collaboration and technology vendors had won more than 30 per cent of 5G market
Section Four: Services

acceleration. share in the EU market by the end of 2021, representing

a 10-fold imbalance in reciprocity.15
Assessment
China and the EU have long been important trading This trend of increasing imbalance represents the
partners, with the Information and Communication general challenge or fear that many European
Technology Working Group’s members—who have had companies are facing today in the China market. It
long-term investments in China—playing a cornerstone is a significant concern and has seriously weakened
role in building up supply chain interdependencies. the strategic importance of the China market to EU
Ensuring reciprocity in market access, but more investors in key ICT market segments, led to a de-
importantly in market share—the ultimate way to prioritisation of China in global investment planning,
confirm meaningful access—is undisrupted by non- and jeopardised the outlook for EU-China global
commercial considerations is crucial to maintaining and collaboration in the broader ICT industry. Due to the
further promoting such vital interdependencies. visibility of large Chinese 4G/5G tenders and the
broad attention they attract from the global industry,
In this regard, the current dynamic of the 5G market the increasing imbalance over the past ten years has
landscape is emblematic of the loss of market share
due to excessive regulatory controls, as discussed in 13 Interpretation of the ICT Industry Statistical 2021, MIIT, 25th January 2022,
viewed 18th April 2022, <https://www.miit.gov.cn/gxsj/tjfx/txy/art/2022/art_e2c78
the preceding key recommendation, and has become a 4268cc74ba0bb19d9d7eeb398bc.html>
major issue of concern. 14 2021 5G global market report, Dell'Oro Group, 24th February 2022, viewed 18th
April 2022, <https://www.delloro.com/market-research/telecommunications-
infrastructure/mobile-radio-access-network/>
In 2019, China began a massive deployment of 5G 15　Dell'oro Report: Global Ran Market to Grow Over 10% By 2021 Huawei
maintains share lead, C114.net.cn, 24th February 2022, viewed 18th April 2022,
technology, and now has the world’s largest and most <http://www.c114.com.cn/news/116/a1188479.html>

340 Information and Communication Technology Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022 /2023

unfortunately set a negative example to other European According to China’s 2021 Negative List for Foreign
industries. To ensure sustainable global collaboration Investment,16 and Telecom Service Catalogue 2015,17
in ICT technology, and to work towards harmonisation generally only companies that are less than 49 per
of the ICT ecosystem in the best interests of end cent foreign-invested can apply for a Basic Telecoms
consumers, this issue needs to be urgently addressed. Services licence. Also, only companies that are less
than 50 per cent foreign-invested can apply for a VATS
Recommendations licence, with the exception of e-commerce, domestic
• Implement measures to improve market share for multi-party communications services, store-and-forward
the European ICT industry to ensure and maintain services and call centre services. Substantial changes
reciprocity in the long run. are needed in the Chinese market to open up the
- Identify all ICT market segments where market majority of VATS, which remain restricted. According
share reciprocity is lacking and develop actions— to analysis by the China Academy of Information
jointly d e fi n e d b y C h i n e s e a n d European and Communication Technology (CAICT), as of the
stakeholders—that address the imbalances. end of December 2021, foreign-invested enterprises
- Review the status of market share reciprocity accounted for only 2.8 per cent of the total number of
regularly. VATS business operators issued by the MIIT.18
• Establish an open and effective monitoring and
correction mechanism for ICT market reciprocity, a. Cloud services
with sponsorship from the EU and China, in order to Cloud services are commonly understood as comprising
address the current, prominent issues. Infrastructure as a Service (IaaS), Platform as a Service
(PaaS) and Software as a Service (SaaS). While China
3. Open up Value-added Telecoms Services has issued numerous policies promoting cloud services
(VATS) and Internet Sectors for International domestically, international providers still encounter
Companies insurmountable market access barriers in the form of
licensing requirements.
Concern
Although many European companies have attempted Among the various types of VATS under the Telecom
to enter or expand into the Chinese VATS and internet Service Catalogue 2015,19 internet resource coordination

Section Four: Services

market, VATS and internet business operation licences (IRC) is one of the services that foreign players most
act as a major barrier to their participation. want to provide.20 In addition, the provision of SaaS, of
which there is no clear definition in Chinese policies,
Assessment could also be subject to licensing, as some types of
The convergence of the telecoms, internet, software, SaaS might fall within the scope of various telecom
consumer electronics and information technology services under the Telecom Service Catalogue, such as
industries, together with traditional sectors’ digital IRC or information services. Licences for these services
transformation, is accelerating economic development. remain difficult for international companies, or those not
European companies play a fundamental and meeting a certain domestic shareholding cap, to obtain.
irreplaceable role in global supply chains and
technology ecosystems, putting them in a position
to greatly contribute to China as it seeks to further 16 Special Management Measures for Foreign Investment Access (Negative
encourage innovation and opening up. European List) (2021), National Development and Reform Commission (NDRC),
27 th December 2020, viewed 20 th May 2022, <http://www.gov.cn/zhengce/
companies are important providers to China of ICT zhengceku/2021-12/28/content_5664886.htm>
infrastructure, devices and services, thereby creating a 17 Telecom Service Catalogue 2015, MIIT, 28th December 2015, viewed 7th April
2022, <https://www.miit.gov.cn/zwgk/zcwj/wjfb/tg/art/2020/art_e98406cd89844f
significant source of employment. Nevertheless, they 7e92ea1bcf3b5301e0.html>
are almost completely excluded from new opportunities 18　Analysis Report on Domestic Value-added Telecommunications Business
Licensing, CAICT, December 2021, viewed 7th April 2022, <http://www.caict.
in China’s ICT market. ac.cn/kxyj/qwfb/qwsj/202201/P020220117587898212350.pdf>
19　Telecom Service Catalogue 2015, MIIT, 28th December 2015, viewed 20th May
2022, <https://www.miit.gov.cn/zwgk/zcwj/wjfb/tg/art/2020/art_e98406cd89844f
7e92ea1bcf3b5301e0.html>
20 IRC is defined as a sub-category of Internet Data Centre (IDC) services, while
IaaS is a type of IDC services (IDC with or without IRC), and PaaS likely falls
into the category of IRC.

Information and Communication Technology Working Group 341

 b. IP-VPN and allow international companies in China to
International companies in China have limited access obtain VATS licences, particularly for IRC, IP-VPN,
to domestic IP-VPN services. Businesses, innovation, internet access services, online data processing and
cross-border transactions and ultimately investments transaction processing services, and information
are all underpinned by free access to, and flow of, services.
information. Further opening-up of domestic IP-
VPN services to foreign enterprises would therefore 4. Develop and Implement Commercial
help increase competition and bring more affordable Cryptography Laws, Regulations,
solutions to companies, small and medium-sized Standards and Conformity Assessment
enterprises in particular. Systems in Such a Way that They are
Clear, Fair and Conducive to International
c. Internet access services Harmonisation
The working group welcomes the trial policy allowing
foreign participation in internet access services Concern
announced by the Beijing Government and the State The Cryptography Law’s roll-out and the development
Council in February 2019. 21 Large-scale opening in of its implementing regulations do not accurately reflect
internet access services is strongly needed at the the language used in the law itself.
national level, so this trial will have a positive impact on
guiding industry openness and development. However, Assessment
implementation plans are needed to provide clarity to While most jurisdictions do not apply strict restrictions
foreign enterprises that want to apply for such a licence to the domestic production and use of cryptography,
or trial qualification. China has long been one of the most challenging
environments in this regard for international companies
d. Online data processing and transaction processing to navigate. Significant improvements to the substantive
services (except e-commerce services) and procedural aspects of the Chinese commercial
Online data processing and transaction processing cryptography regulatory system are needed for it to
services are growing in relevance for big data service remain aligned with the Cryptography Law,22 established
providers and other data platform businesses. international practices and the World Semiconductor
Section Four: Services

However, many foreign companies are concerned Council principles, which call for deregulating
about regulatory uncertainty when introducing new data commercial cryptography in mass-marketed ICT
platform business models in China. products. In particular, the regulatory system should
continue to rely on the ‘core function’ principle clarified
e. Information services (except APP store services) by the State Cryptography Administration (SCA) in
Information services are another VATS of particular 2000, or on a similar concept.
interest to international companies operating in China,
but is also highly regulated. As mobile Internet and a. Standardisation
the IoT continue to develop, these kinds of restrictions China’s national standardisation body for cryptography,
are an increasingly burdensome obstacle to European the National Information Security Standardisation
businesses that wish to bring their expertise to the Technical Committee’s (TC260’s) Working Group
Chinese market. 3 on Cryptographic Solutions, and the industry
standardisation body, the Cryptography Standardisation
Recommendations Technical Committee, have long been closed to foreign
• Reduce further the Negative List and allow increased participation. While the TC260’s Working Group 3
international participation in the telecoms- and has recently taken in two international companies as
internet-related sectors. a goodwill gesture, other international applications
• Continue to open up the Telecom Services Catalogue remain pending. The Information and Communication
Technology Working Group hopes that European
21 Reply of The State Council on the Comprehensive Pilot Work Plan for Promoting
the Expansion and Opening Up of Beijing's Service Industry, State Council, 22 Cryptography Law, National People’s Congress Standing Committee, 27th
22 nd February 2019, viewed 20 th May 2022, <http://www.gov.cn/zhengce/ October 2019, viewed 5th April 2022, <http://www.oscca.gov.cn/sca/xxgk/2019-
content/2019-02/22/content_5367708.htm> 10/27/content_1057225.shtml>

342 Information and Communication Technology Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022 /2023

companies can be granted equal access to these Furthermore, commercial cryptography—to the extent
standardisation bodies, as they are equally bound by considered for testing and certification—needs to
relevant standards set by the bodies.23 be limited to cases where encryption is the primary
function. That means a component in a product
At the same time, certain standards developed by these should not be considered the product’s primary
closed or semi-closed bodies contain requirements function if encryption is not the core function or set of
incompatible with China’s WTO/TBT commitments functions of the component; or the feature set is not
and the Cryptography Law and unconducive to specifically designed or fixed and cannot be modified
improving overall security. For example, although to customer specification. The working group also calls
TC260 has been actively pushing domestic Chinese for adequate protection for applicants’ IP and trade
algorithms to become international standards, and secrets. Protection should ensure that source code,
with some success, certain standards for information non-public design information and trade secrets cannot
system cryptography application still demand be systematically demanded, and that international
compliance with national and industry standards, while laboratories are allowed to conduct relevant testing
referring to international standards only where global activities.
interconnection is needed.24
c. Import licence and export control
b. Testing and certification China released both the import licence and export
The Cryptography Law replaced the previous control lists dedicated to commercial cryptography—
administrative licensing-based market access system with a narrower scope for import licensing that is much
with one that features mandatory and voluntary testing welcomed by the working group—and the revised
and certification.25 The working group believes that this Catalogue of Technologies Subject to Import Prohibition
voluntary certification system needs to remain truly and Restriction,28 which lists foreign “data encryption
voluntary and open to international companies for every technology employing a key strength greater than 256
specific product category in the certification catalogue in bits” as a technology that requires an import permit.
a reciprocal manner. Significantly, while no international The following aspects in the lists and the catalogue
chip makers have so far managed to obtain a certificate would benefit from additional clarification in explicit,
for security chips, their Chinese counterparts can obtain written form, preferably in the revised Commercial

Section Four: Services

all qualifications necessary to operate in the European Cryptography Regulation,29 in order to facilitate import
market. For example, Tongxin Microelectronics was the and export compliance, especially in the face of
first to pass the SOGIS Common Criteria Evaluation technological advancements such as post-quantum
Assessment Level (EAL) 6+ security certification in July cryptographic algorithms.
2020,26 and it only took Huada Electronic Design three
months to pass the same EAL later that year.27 • Primary function test: As the import licence and
export control lists for commercial cryptography have
23 Key Recommendation 3 of the Standards and Conformity Assessment Position placed a much stronger emphasis on products whose
Paper 2022/2023 also discusses the lack of access by international companies ‘primary function’ is encryption, the working group
to certain Chinese standards developing organisations.
24 Key Recommendation 4 of the Standards and Conformity Assessment Position encourages the primary function test to be explicitly
Paper 2022/2023 discourages the adoption of recommended national standards adopted in the regulation in all circumstances.
as market access requirements, and calls for improving the adoption rate of
international standards. • Mass consumer product exemption: While the
25 Announcement on Releasing the Commercial Cryptographic Products lists seem to have implicitly exempted “commercial
Certification Catalogue (First Batch) and the Commercial Cryptographic
Products Certification Rules, SCA, 11th May 2020, viewed 5th April 2022, <http:// cryptography in mass consumer products” as per
www.oscca.gov.cn/sca/xwdt/2020-05/11/content_1060749.shtml> the Cryptography Law, the working group believes
26　Applus+ Laboratories evaluates TMC secure microcontroller ‘THD89’, the first
Chinese chip to achieve Common Criteria EAL6+ high assurance certification, this term should be clearly defined as “cryptography
Applus+ Laboratories, 9th August 2020, viewed 6th April 2022, <https://www.
appluslaboratories.cn/cn/en/news/applus+-laboratories-evaluates-tmc-secure-
microcontroller-%E2%80%98thd89%E2%80%99,-the-first-chinese-chip-to- 28 Catalogue of Technologies Subject to Import Prohibition and Restriction, Ministry of
achieve-common-criteria-eal6+-high-assurance-accreditation- Commerce (MOFCOM), 19th November 2021, viewed 5th April 2022, <http://cnzh.
27 CEC Huada Electronics Design Co Ltd achieves SOGIS EAL6+ certificate gov.cn/UploadFile/SiteFile/798/2021/11/19/9e1ff36542654997ae508932492c9b9c.
within 3 months of applying to the Dutch Common Criteria scheme (NSCIB), pdf>
Brightsight, 18th November 2020, viewed 5th April 2022, <https://www.brightsight. 29 Commercial Cryptography Regulation (Revised Draft for Comments), SCA, 20th
com/blogs/post/cec-huada-electronics-design-co-ltd.-achieves-sogis-eal6- August 2020, viewed 5th April 2022, <https://oscca.gov.cn/sca/hdjl/2020-08/20/
certificate-within-3-months-of-applying-to> content_1060779.shtml>

Information and Communication Technology Working Group 343

 features in components and products openly that cryptography regulations and policies do not
available to the public, that can be either charged constitute an unfair advantage for domestic enterprises
or free, for personal or business use, and where the is to guarantee that SCA-approved technologies
cryptographic functionality cannot be modified by the include international ones; to design the certification
end user”. programme in such a way that it remains technology-
• Scope of security chips: A clearer definition is neutral and focusses only on elements conducive to
needed for ‘security chips’ subject to export control, improving overall security; to certify the products of
excluding general-purpose chips, and including only international companies in a timely, transparent and
security chips with indigenous, non-public algorithms reciprocal manner; and to narrow the scope of voluntary
tailor-made for such sectors as electricity, taxation, certification and that of the security assessment down
public security and finance, and which meet the to what has been prescribed in the Cryptography Law.
technical thresholds.
• Key strength: The threshold of “key strength greater Recommendations
than 256 bits” should explicitly refer to symmetric • Allow the adoption of international standards related
algorithm keys, as asymmetric algorithms generally to commercial cryptography.
have much longer keys for equivalent resistance to • Reference explicitly the primary function test in the
attack. revised Commercial Cryptography Regulation.
• Define narrowly the scope of commercial cryptography
d. Application promotion products subject to testing, certification, application
The revised draft of the Commercial Cryptography security assessment and import licence and export
Regulation demands in Chapter VI—which is dedicated control.
to ‘application promotion’—that networks with classified • E n s u r e t e c h n o l o g y - n e u t r a l a n d s t r e a m l i n e d
cybersecurity protection above Grade 3 also undergo conformity assessment processes for commercial
security assessment for commercial cryptography; cryptography, and that IP and trade secrets are
and that they only use tested and certified commercial protected.
cryptography products, as well as technologies included • Define ‘mass consumer products’ as ‘cryptography
in a so-called catalogue for guidance of commercial features in components and products openly
cryptography technologies proposed in Article 9. Such available to the public, that can be either charged
Section Four: Services

provisions are beyond the Cryptography Law, as they or free, for personal or business use, and where the
establish a new requirement for technology review, cryptographic functionality cannot be modified by the
significantly broaden the scope of security assessment end user’.
from CII to all networks above Grade 3, and make the • Refrain from mandating or expanding the scope of
voluntary certification programme a de facto mandatory conformity assessment under the guise of ‘application
requirement. According to the law, only “commercial promotion’, and revise incompatible regulations,
cryptography products involving national security, standards and conformity assessment systems.
national economy, people’s livelihood, and social and • Ensure that any implementing regulations and
public interests” included in the Catalogue of Critical standards are fully in line with the Cryptography Law.
Network Equipment and Specialised Network Security
Products are mandated to be certified. 5. Ensure Timely and Globally-harmonised
Spectrum Allocations for the Development
These provisions have been coupled with industrial of Key Technologies and Applications that
policies aimed at promoting voluntary certification Benefit both China and the Global Industry
and the use of domestic algorithms. For example, the as well as Consumers
working group is aware of cases where the government
has subsidised efforts to replace international Concern
cryptography in key industries like financial services In today’s challenging world, it is an urgent, common
and automotive. goal of the global ICT industry to avoid fragmented
spectrum allocation, which will jeopardise both the
As far as the Information and Communication Technology global ecosystem and technology development.
Working Group is concerned, the only way to ensure

344 Information and Communication Technology Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022 /2023

Assessment This sectoral 14th Five-year Plan also reveals the MIIT’s
Successful spectrum management is key to the radio intention of adding mid-band spectrum resources,
industry and serves as an enabler of the ICT industry as they strike a better balance between capacity
and broader economic sectors. The Information and and coverage. Efforts are still needed to harmonise
Communication Technology Working Group strongly the use of this spectrum between different countries
advises that China, as an important global stakeholder, and regions, especially regarding agenda item 1.2
identify key spectrum in a timely and globally of the WRC-23 on frequency-related matters in IMT
harmonised manner, so as to underpin growth and identification. 34 The working group calls on the EU
secure long-term competitive advantages in the global and China to increase exchanges on this agenda
ecosystem. item, conclude relevant technical studies as soon as
possible, and jointly ensure the optimal assignment of
a. 5G spectrum the relevant bands at the upcoming WRC.
A proper spectrum mix is needed to support cost-
e ff e c t i v e 5 G d e p l o y m e n t . W h i l e t h e M I I T h a s b. 60GHz frequency band
already identified 3,300–3,600 megahertz (MHz), Unlicensed spectrum is the backbone for many new
4,800–5,000MHz30 and 703–733/758–788MHz as 5G technologies and key economic sectors. One very
frequency bands,31 it is becoming increasingly important promising band is 60GHz, as it enjoys a large and
to identify additional, high-quality spectrum resources to contiguous bandwidth, allowing for communication links
accommodate accelerated 5G roll-out across China. with high-speed data transmission with very high data
rates and, for radar, a much higher range resolution
At the International Telecommunication Union (ITU) that enables detection of micro motions in the millimetre
World Radiocommunication Conference in 2019 (WRC- range. In addition, the high free-space path loss and
19), a number of millimetre wave bands, including strong oxygen absorption at 60GHz effectively reduce
the 24.25–27.5 gigahertz (GHz), 37–43.5GHz, 45.5– interference risks between devices. These features
47GHz, 47.2–48.3GHz, and 66–71GHz bands, were make this band unsuitable for IMT, but one of the
identified for International Mobile Telecommunications best candidates for such short-range technologies
(IMT). In China, in 2017, the MIIT had sought the as radar, contactless connector and WiGig (wireless
public’s opinions on 24.75–27.5GHz, 37–42.5GHz and gigabit protocol). The Information and Communication

Section Four: Services

other possible bands for 5G in the millimetre wave Technology Working Group itself counts many members
range, 32 and approved 5G trial frequencies usage who have either been commercialising 60GHz devices,
in the 24.75–27.5GHz and 37–42.5GHz bands the or stand to benefit from the innovative, smart, energy-
same year. According to the MIIT’s 14th Five-year Plan saving and safety features that these devices offer.
for Developing the Information and Communications It has noted similarly strong interest from domestic
Industry,33 China will make dedicated usage plans for Chinese companies along the value chain.
5G/6G frequencies, and release 5G millimetre wave
frequencies in different stages. The working group China is among the pioneers in 60GHz allocation, with
calls on the MIIT to make these bands available to the MIIT allowing the band to be used by low-power,
industry as early as possible, and looks forward to short-range devices as early as October 2006.35 Today,
communicating with the MIIT to better prepare the nearly all major economies—including Europe and the
industry for upcoming millimetre wave frequency United States—have opened, or are in the process
allocations. of opening up, the band for unlicensed applications
such as in-cabin sensing, consumer electronics, smart
30　Notice on Matters Concerning the Usage of 3300-3600MHz and 4800-
5000MHz Frequency Bands by 5G Systems, MIIT, 15th November 2017, viewed building, robotics, healthcare and augmented reality /
4th April 2022, <https://ythxxfb.miit.gov.cn/ythzxfwpt/hlwmh/zcwj/xzxk/wxdhwxtx/
virtual reality. Many of these economies are important
art/2020/art_8e89ad16e5b44fb89c5bc316c259fd3c.html>
31 Notice on Adjusting the Usage Plan of the 700MHz Frequency Band, MIIT, 1st export markets of Chinese companies. This explains
April 2020, viewed 4th April 2022, <https://www.miit.gov.cn/jgsj/wgj/wjfb/art/2020/
art_c4a1c245a208400cb0f0a95bcc91745d.html>
34 ITU-R Preparatory Studies for WRC-23, ITU, viewed 5th April 2022, <https://
32 Public Call for Comments on Planning Millimetre-wave Spectrum for 5G Use,
www.itu.int/en/ITU-R/study-groups/rcpm/Pages/wrc-23-studies.aspx>
MIIT, 8th June 2017, viewed 4th April 2022, <https://www.miit.gov.cn/gzcy/yjzj/
35 Notice on Relevant Matters Concerning the Use of Low-power Short-range
art/2020/art_55b1cecbe2b2416094d70922057b4ed9.html>
Technology in 60GHz, MIIT, 23rd October 2006, viewed 5th April 2022, <https://
33 14th Five-year Plan for Developing the Information and Communications Industry,
www.miit.gov.cn/n1146295/n1146592/n3917132/n4062354/n4062391/
MIIT, 16th November 2021, viewed 4th April 2022, <https://www.miit.gov.cn/zwgk/
n4062397/n4062399/c4148141/part/4148142.pdf>
zcwj/wjfb/tz/art/2021>

Information and Communication Technology Working Group 345

 why the 60GHz device market has been forecasted Abbreviations
to be on the verge of significant growth in the coming
ADAS Advanced Driver Assistance System
years. To benefit from it, regulators and market players
AI Artificial Intelligence
need to take immediate actions. The Information and
BCS Business Confidence Survey
Communication Technology Working Group therefore
CAC Cyberspace Affairs Commission
invites the MIIT to clarify that the 60GHz band remains
CAICT China Academy of Information and
an unlicensed band, and that existing technical
Communication Technology
parameters specified in 2006 remain valid until the
CII Critical Infrastructure Information
release of new rules.
CNY Chinese Yuan
EAL Evaluation Assessment Level
c. 79–81GHz frequency band
EU European Union
Another frequency band of interest to the working group
G Mobile Technology Generation
is 79–81GHz. In December 2021, the MIIT released
GHz gigahertz
the Interim Provisions on Automotive Radar Radio
IaaS Infrastructure as a Service
Management, officially allocating parts of this band,
ICT Information and Communication
namely 76–79GHz, for advanced driver assistance
Technology
systems (ADAS). 36 This move is welcomed, as it
IDC Internet Data Centre
represents further international harmonisation. As a next
IMT International Mobile Telecommunications
step, the working group recommends the 79–81GHz
IoT Internet of Things
band be equally reserved for ADAS applications. This
IP Intellectual Property
would enable next-generation automotive radars to
IP-VPN Internet Protocol Virtual Private
further improve their resolution, boost automotive
Network
safety, and benefit China as it seeks to become a world
IRC Internet Resource Collaboration
leader in intelligent and connected vehicles.
ITU International Telecommunication
Union
Recommendations
MHz megahertz
• Ensure the timely availability for usage of 5G
MIIT Ministry of Industry and Information
spectrum, the 60GHz band and the 79–81GHz band.
Section Four: Services

Technology
• Strengthen exchanges and coordination between
MOFCOM Ministry of Commerce
China and the EU regarding spectrum regulation in
NDRC National Development and Reform
the lead-up to the WRC-23, including by integrating
Commission
the spectrum topic in relevant government-to-
PaaS Platform as a Service
government dialogues.
R&D Research and Development
SCA State Cryptography Administration
SaaS Software as a Service
TBT Technical Barriers to Trade
TC260 National Information Security
Standardisation Technical Committee
VATS Value-added Telecoms Services
WiGig Wireless Gigabit
WRC World Radiocommunication Conference
WTO World Trade Organization

36 Interim Provisions on Automotive Radar Radio Management, MIIT, 6th December

2021, viewed 5th April 2022, <https://wap.miit.gov.cn/zwgk/zcwj/wjfb/tz/art/2021/
art_289b278b60dc47d7a01292d15a0a2bde.html>

346 Information and Communication Technology Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

Cybersecurity Sub-working Group

Introduction to the Sub-working Group Cybersecurity Review

On 4 th January 2022, the Cybersecurity Review
In view of the increasingly strengthened Chinese
Measures (CSRM) were issued,3 making it mandatory
regulatory environment, the Cybersecurity Sub-working
that CII operators procuring network products and
Group was established in February 2016 under the
services, and online platform operators conducting
European Chamber’s Information and Communication
data handling activities that influence or may influence
Technology (ICT) Working Group, focussing on security
national security, proactively apply for a cybersecurity
legislation, standardisation and enforcement that impact
review. The review assesses several factors, including
multiple industries.
the “security, openness, transparency, and diversity
of sources of products and services; the reliability
Recent Developments of supply channels, as well as the risk of supply
Security Legislation disruptions due to political, diplomatic, and trade
Effective as of 1 st June 2017, 1 the Cybersecurity factors”. Many substantive and procedural aspects of
Law (CSL) outlines a series of general and specific the review remain unclear.
compliance requirements for network operators. In
recent years, other pieces of security legislation have Data Protection
been released to complement the CSL. They include, On 1st September 2021, the DSL took effect,4 aimed at
notably, the Data Security Law (DSL), the Personal establishing comprehensive systems for data security
Information Protection Law (PIPL) and the Cryptography by calling for classified and hierarchical management
Law. Over the coming year, the sub-working group of data, and establishing various risk assessment
expects the obligations defined in these laws and their mechanisms. Notably, the DSL introduces the concept
implementing regulations to grow more complex and of "national core data" and states that the catalogues
interlinked, and relevant enforcement efforts to intensify. of important data will be formulated by relevant local

Section Four: Services

governments and industry authorities.
Critical Information Infrastructure (CII) Protection
On 1 st September 2021, the Critical Information On 1st November 2021, the PIPL took effect.5 The PIPL
Infrastructure (CII) Security Protection Regulation serves to protect natural persons’ personal information
came into force,2 demanding strengthened protection by setting mechanisms and legal liabilities for collection
of CII while leaving ambiguity on some key terms, its and processing activities. While containing many
scope and obligations. It encourages the procurement positive provisions, the law also raises questions
of “secure and trustworthy” network products and regarding the broad and outcome-based definition
services, which is of concern to the sub-working of ‘sensitive personal information’, the emphasis on
group. In practice, this request often translates into ‘separate’ consent, as well as restrictions relating to
Chinese companies’ products being favoured in public data localisation and cross-border data transfer.
procurement, at the expense of products offered by
foreign multinational corporations (MNCs). A CII- The DSL and the PIPL will complement the CSL
designation will also trigger other obligations under by serving as superordinate laws for China’s data
Chinese security legislation, such as mandatory protection framework, and for industry authorities
certification and assessment, and cybersecurity review. to base their data regulations on. Another important

3　 Cybersecurity Review Measures, Cyberspace Administration of China (CAC),

4th January 2022, viewed 22nd April 2022, <http://www.cac.gov.cn/2022-01/04/
c_1642894602182845.htm>
1　 Cybersecurity Law, National People's Congress Standing Committee (NPCSC), 7th 4　 Data Security Law of the People’s Republic of China (PRC), NPCSC, 10th June
November 2016, viewed 17th May 2022, <http://www.gov.cn/xinwen/2016-11/07/ 2021, viewed 17th May 2022, <http://www.npc.gov.cn/npc/c30834/202106/7c9af12f
content_5129723.htm> 51334a73b56d7938f99a788a.shtml>
2　 Critical Information Infrastructure Security Protection Regulations, State 5　 Personal Information Protection Law of the PRC. NPCSC, 20th August 2021, viewed
Council, 17th August 2021, viewed 6th April 2022, <http://www.gov.cn/zhengce/ 6th April 2022, <http://www.npc.gov.cn/npc/c30834/202106/7c9af12f51334a73b56d
content/2021-08/17/content_5631671.htm> 7938f99a788a.shtml>

Cybersecurity Sub-working Group 347

 horizontal regulatory development is the draft Sectoral Regulations
Regulations on Network Data Security Management, A host of sectoral security regulations are being rolled
released by the Cyberspace Administration of China out in parallel to the abovementioned horizontal
(CAC) in November 2021,6 which apply to the use of ones. One example is the revised draft Measures on
networks that conduct data-handling activities within the Administration of Data Security in the Industrial
Mainland China, as well as to the supervision and and Information Technology Sector (Trial), 10 which
management of network data security. Worryingly, the puts forward a classification and grading method for
draft regulations contain several discrepancies with the those who handle data in this field, as well as specific
upper-level laws, as well as additional requirements that obligations such as the need to file important data and
go beyond them. core data catalogues, and to conduct various security
assessments.
Cross-border Data Transfer
Several regulations on the cross-border transfer of European companies in other sectors, such as
data have been released at the time of this paper’s automotive, banking and healthcare, are also taking
finalisation, bringing additional demand for compliance notice of cybersecurity and data security development,
efforts. as can be seen in the relevant chapters of the Position
Paper 2022/2023.
On 24th June 2022, the National Information Security
Standardisation Technical Committee (TC260) released Key Recommendations
the Practice Guidelines for Cybersecurity Standards
– Technical Specification for the Certification of 1. Ensure that Chinese Security Legislation
Cross-border Handling of Personal Information.7 The Does Not Create Discriminatory Market
guidelines flesh out a certification system for the cross- Access Barriers
border processing of personal information within a
Concern
MNC, or a similar economic or business entity, as well
Certain security schemes may lead to the creation
as for the handling of personal information of natural
of an environment that is discriminatory towards
persons in China by foreign personal information
international businesses, in which they are restricted or
handlers outside China. On 30th June, the CAC released
Section Four: Services

even prohibited from providing products and services to

the Standard Contractual Provisions for Cross-border
segments of the Chinese market.
Personal Information Transfer (Draft for Comment),8
unveiling the draft standard contract that can be signed
Assessment
by data handlers and overseas data recipients. On
The Cybersecurity Sub-working Group perceives
7th July, the CAC published the Measures on Security
that certain requirements under Chinese security
Assessment of the Cross-border Transfer of Data,
legislation, notably the CSL, the DSL, the PIPL and the
effective as of 1st September.9 The measures lay out the
Cryptography Law, may present de facto market access
requirements for cross-border transfer of important data
barriers for international businesses, and calls for a
and personal information by CII operators and other
change.
companies that reach certain thresholds of data.

Classified Cybersecurity Protection System (CCPS)

The CCPS classifies networks into five ascending
protection levels based on their sensitivity to individuals’
6　 Regulations on Network Data Security Management (Draft for Comments), CAC,
14th November 2021, viewed 21st April 2022, <http://www.cac.gov.cn/2021-11/14/ rights and interests, as well as general public and
c_1638501991577898.htm>
national security, and specifies the corresponding
7　 Practice Guidelines for Cybersecurity Standards – Technical Specification for
the Certification of Cross-Border Handling of Personal Information, TC260, 24th security safeguards for each level. It is based on a draft
June 2022, viewed 30th June 2022, <https://www.tc260.org.cn/front/postDetail.
CCPS regulation released by the Ministry of Public
html?id=20220624175016>
8　 Standard Contractual Provisions for Cross-border Personal Information Transfer
(Draft for Comment), CAC, 30th June 2022, viewed 15th July 2022, <http://www.cac.
gov.cn/2022-06/30/c_1658205969531631.htm> 10　Call for Comments on the Measures for the Administration of Data Security in the
9　 Measures on Security Assessment of the Cross-border Transfer of Data, CAC, Field of Industrial and Informatization (Trial), Ministry of Industry and Information
7 th July 2022, viewed 15 th July 2022, <http://www.cac.gov.cn/2022-07/07/ Technology (MIIT) , 13th February 2022, viewed 4th April 2022, <http://www.gov.cn/
c_1658811536396503.htm> hudong/2022-02/13/content_5673340.htm>

348 Cybersecurity Sub-working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

Security (MPS) in June 2018,11 as well as a number of newly imposed requirement, online platform operators
already effective standards. holding personal information of more than one million
users that are to be newly listed on foreign markets
In addition to being burdensome, the CCPS is must also report for review.
increasingly being leveraged to advance restrictions
on ICT products and services. For example, it imposes The CSRM includes broadly defined triggers, as it
limitations on network operators over a certain CCPS will look at the security, openness, transparency and
level, by requiring infrastructure for cloud computing diversity of the supply source, as well as the effect
to be kept within China, customer data and personal of “political, diplomatic and trade factors” on supply
information to be stored within China, and operation chains.12 These non-technical factors, as well as the
and maintenance to be conducted within China. These review’s lengthy processes and lack of transparency,
limitations raise de facto barriers for businesses that pose potential market access restrictions for MNCs.
want to manage cloud computing services, or for those Furthermore, the CSRM may put suppliers at risk of
that reach the CCPS level specified, especially those data exposure through the need to disclose confidential
with an international presence and globally connected information and trade secrets, since disclosure of
service networks, as they would have to spend more transactions and other documents may be required.
on local infrastructure. It also raises concern among Due to these considerations, the sub-working group
companies accessing these services with regard to the is concerned that the CSRM creates an environment
reliability of these businesses’ international connectivity. in which domestic companies are favoured over their
international peers in the long-term.
Similarly, the draft CCPS regulation requires networks
above level three to use cryptography technology, Cryptography Law
products and services accredited by the State The Cryptography Law specifically requires that all
Cryptography Administration (SCA). Obtaining such business entities, including MNCs in China, be treated
accreditation has long remained an obstacle for many equally in research, production and sales of commercial
MNCs in China. The revised draft of the Commercial cryptography. However, ambiguities in both the law
Cryptography Regulation further requires that networks and its implementing regulations have created serious
above CCPS level three undergo security assessment concerns for the sub-working group, as they have given

Section Four: Services

for commercial cryptography, a process that favours rise to requirements that are incompatible with existing
domestic technology. For more details, please refer to and well-established international principles, which call
Key Recommendation (KR) 4 of the Information and for governments to avoid restrictive or burdensome
Communication Technology Position Paper 2022/2023. licensing, certification and other obligations limiting or
delaying the import, trade and export of mass-marketed
The draft CCPS regulation is also affecting market ICT products to which commercial cryptography is
entry of ICT products and services, as it requires ubiquitous.13&14
products and services purchased by network operators
above level three to pass a security review when such To avoid unnecessary market access barriers, it is
purchases have the potential to impact national security, important that the various regulatory mechanisms the
the specific assessment criteria of which remains law seeks to establish remain transparent and narrow
unclear. The security review is further discussed in the in scope. This includes ensuring that commercial
section on the CSRM. products with cryptography as a secondary feature are
not subject to certification and import/export restrictions;
Cybersecurity Review Measures (CSRM)
The CSRM mandates that CII operators must 12 Cybersecurity Review Measures, Cyberspace Administration of China (CAC),
proactively apply for a non-transparent cybersecurity 4th January 2022, viewed 22nd April 2022, <http://www.cac.gov.cn/2022-01/04/
c_1642894602182845.htm>
review when their purchases of network products and 13　Joint Statement of the 17th Meeting of the World Semiconductor Council, World
services affect or may affect national security. As a Semiconductor Council, 23rd May 2013, viewed 19th May 2022, <http://www.
semiconductorcouncil.org/wp-content/uploads/2016/07/May_2013_WSC_-_
GAMS_version_Joint_Statement_of_the_17th_Meeting_of_the_WSC_Final_23_
11　Regulation on Classified Cybersecurity Protection (Draft for Comments), MPS, 27th M-1.pdf>
June 2018, viewed 21st April 2022, <http://www.mps.gov.cn/n2254536/n4904355/ 14　For more information, please refer to KR 4 in the Information and Communication
c6159136/content.html> Technology Working Group Position Paper 2022/2023.

Cybersecurity Sub-working Group 349

 that terms such as ‘national security’, ‘national that encourage a sustainable and healthy flow of
economy and people’s livelihood’, and ‘public interests’ data across borders. This would also facilitate more
are not interpreted extensively; that the category of effective and efficient cooperation between Chinese
mass consumer products exempted from import and and international businesses, with a view to further
export restrictions is broadly defined; that voluntary promoting China’s digital economy.
certification is not enforced as a de facto mandatary
requirement; that requirements applicable only to CII Overall, the aforementioned elements of the various
and party/government organs are not expanded— Chinese security schemes may pose obstacles to
through lower-level implementing regulations—to international companies. If the nationality of a product
networks above level three under the CCPS; and that or service—which is in itself difficult to define in ICT—
the adoption of international standards, protection of is taken as the foundation for security, and if data
sensitive intellectual property and mutual recognition flows are disproportionately restricted, international
for certification and attestation are all taken into companies will face insurmountable barriers across the
consideration. entire Chinese market. China will incur problems if the
most technologically advanced and secure products
Data Localisation and Cross-border Data Transfer and services are banned or blocked from its market.
In view of the relatively low triggers of regulatory cross- Furthermore, conformity assessment requirements in
border data transfer security assessment defined by China often differ from international standards, adding
the CAC, which are discussed in the next KR, data complexity and creating extra costs for international
localisation and cross-border data transfer restrictions companies to either re-certify or tailor products and
can essentially act as market access barriers for MNCs services. Uncertainties linked to security schemes also
in China that have to transfer data across borders at a constitute a competitive disadvantage for international
higher frequency for normal business reasons and in businesses as they plan their China market strategies,
response to their headquarters’ requests. raising concerns that such schemes will put their trade
secrets in jeopardy and harm the market’s perception of
MNCs in China generally find themselves at a competitive their credibility.
disadvantage, as they need to put in extra resources to
comply with China-specific regulations, and their ability Recommendations
Section Four: Services

to provide innovative products and timely services is • Define the concepts of ‘national security’ and ‘CII’
curtailed as a result of onerous data restrictions. They as narrowly as possible, and differentiate them from
may also receive less favourable treatment compared ‘commercial security’ in a clear manner.
to domestic competitors by being given lower security • Limit the applicability and influence of the various
ratings in bidding processes because they have theoretically non-binding documents, such as
to transfer data across borders. In certain extreme recommended national standards, in such a manner
circumstances, suppliers seeking certain qualifications that they do not go beyond binding legislation.
are being pushed to localise their production in China • Promote mutual recognition and adoption and
on the grounds that the cross-border transfer of data reliance upon, applicable international standards and
during production processes poses unnecessary risks. global industry best practices.
Finally, such restrictions inhibit cross-border business • Relax restrictions on cross-border data transfer to
activities,15 thereby leading to a reduced need in the allow easier market access.
Chinese market for cross-border services, the provision • Take steps to ensure that the terms negotiated
of which by members of the Cybersecurity Sub-working in cross-national trade and investment deals are
Group are an essential part of today’s interconnected effectively implemented in practice.
digital economy.

The Cybersecurity Sub-working Group is hopeful that

Chinese regulators will develop policies and regulations

15　This is the case, for example, with the CSRM’s restriction on the overseas listing of
online platform operators holding large amounts of personal information, which has
been discussed further above.

350 Cybersecurity Sub-working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

2. Minimise Unnecessary Operational Burdens been cumulatively provided abroad by the handler since
Created by Extensive, Ambiguous and 1st January of the previous year.
Discretionary Security Schemes
The sub-working group sees several issues with these
Concern requirements. Firstly, once the regulatory security
The ever-increasing complexity of the security assessment is triggered, the data handler may no
regulatory environment is leading to administrative, longer be able to resort to signing a standard contract or
operational and cost challenges for organisations, and to being certified for cross-border handling of personal
may result in increased uncertainty as well as adverse information, for transferring data across borders, even
effects on the security of information technology (IT) when it comes to low-risk scenarios, such as the intra-
systems, competitiveness and innovation. company transfer of employees’ personal information
by a large MNC. Secondly, for those that handle large
amounts of personal information, even if only one piece
Assessment
of such information is transferred abroad, a regulatory
Data restrictions
security assessment will still be unnecessarily triggered.
China’s PIPL sets forth different avenues for data
Thirdly, it would be beneficial for the CAC to clarify that,
handlers to transfer their data abroad, namely passing
as the Measures only concern the cross-border transfer
a regulatory security assessment, signing a standard
of data, any thresholds they define are irrelevant to
contract, and being certified in respect of personal
local data storage obligations under the PIPL.
information protection. The details of these mechanisms
were finally being fleshed out at the time of this paper’s
As the regulatory security assessment focusses, among
finalisation, notably with the release of the Measures
other aspects, on the necessity of the purpose, scope
on Security Assessment of the Cross-border Transfer
and methods of the cross-border data transfer, the
of Data (Measures), 16 the Standard Contractual
sub-working group also urges that the assessment
Provisions for Cross-border Personal Information Transfer
give due consideration to MNCs’ legitimate business
(Draft for Comment),17 and the Practice Guidelines for
and operation needs. While localisation of data might
Cybersecurity Standards – Technical Specification for
be technically feasible in some circumstances, setting
the Certification of Cross-border Handling of Personal
up duplicate IT systems within China just to meet

Section Four: Services

Information.18 While the sub-working group took note
localisation requirements and service local employees,
of several improvements in these regulations, some
customers and business partners can be problematic.
requirements are still overly stringent, and could lead to
This is not only because of the extra infrastructure
increased operational burdens.
costs, but also because MNCs will need to custom
build and maintain interfaces to synchronise data
For example, under the Measures, a regulatory security for reporting, analysis and other normal business
assessment must take place as long as one of the operations purposes, hire staff with expertise to support
several easily attainable thresholds—considering that the infrastructure, and even significantly alter their
MNCs typically handle large volumes of customer established global and local operation and production
and employee data—is reached by the data handler, processes. This is not a scalable approach for running
including in cases where the personal information of a global business, and could eventually hamper foreign
over one million people is being handled; or where the investment, as well as the provision of innovative
personal information of over 100,000 people or the products in the China market.
sensitive personal information of 10,000 people has
Although the overarching framework for cross-border
16　Measures on Security Assessment of the Cross-border Transfer of Data, CAC, data transfer is in place, rules on the identification
7 th July 2022, viewed 15 th July 2022, <http://www.cac.gov.cn/2022-07/07/ of ‘important data’, and the actual important data
c_1658811536396503.htm>
17 Standard Contractual Provisions for Cross-border Personal Information Transfer catalogues, have yet to be finalised, making it
(Draft for Comment), CAC 30th June 2022, viewed 15th July 2022, <http://www.cac. impossible for important data handlers to meaningfully
gov.cn/2022-06/30/c_1658205969531631.htm>
18 Practice Guidelines for Cybersecurity Standards – Technical Specification for comply with the general requirements. The sub-
the Certification of Cross-Border Handling of Personal Information, TC260, 24th working group hopes that the scope of important data
June 2022, viewed 30th June 2022, <https://www.tc260.org.cn/front/postDetail.
html?id=20220624175016> will be clearly and narrowly defined, and that the CAC

Cybersecurity Sub-working Group 351

 and other industry regulators can provide a sufficient legal dilemma between compliance with Chinese and
grace period between any future release of important foreign laws. Clarification is needed on the conditions
data identification guidelines and catalogues, and their and necessary procedures for obtaining the regulatory
implementation. greenlight.

Besides data localisation and cross-border data Cybersecurity vulnerability management and incident
transfer, improvements are needed when it comes to notification
data collection and processing in general. For example, China has put in place dedicated rules governing
operational burdens may also increase as a result of cybersecurity vulnerabilities. In July 2021, the
the PIPL’s requirement for separate consent, which can Ministry of Industry and Information Technology
be very difficult to implement in the business context. (MIIT), the CAC and the MPS jointly released the
Also, while the PIPL has broadened the legal grounds Administrative Provisions on Security Vulnerabilities
for personal-information handling from obtaining of Network Products (Administrative Provisions). 20
the individual’s consent to concluding or performing The Administrative Provisions are complemented by
a contract, implementing lawful human resources a mandatory national standard titled Critical Network
management and performing statutory duties, and Devices Security Common Requirements, 21 which
allows handlers to choose between these grounds, includes provisions related to coordinated vulnerability
the subsequent draft Regulations on Network Data disclosure (CVD).
Security Management risk turning the additional legal
grounds into criteria that must be followed by personal The Administrative Provisions appear to have unified—
information handlers when obtaining consent, 19 an to a certain extent—the patchwork regulatory system
inconsistency that needs to be rectified in the final proposed by a previous draft for public consultation.
version of the regulations. It also demonstrates willingness to increase cross-
ministerial coordination, by calling for timely information
The draft Regulations on Network Data Security sharing and joint assessment and handling of major
Management, as well as several planned and released vulnerabilities. However, it includes a specific provision
sectoral data protection rules in the automotive and mandating the reporting of vulnerabilities to the MIIT, an
industrial and IT sectors, require the submission obligation that has not undergone proper public review,
Section Four: Services

of annual data security reports to, and the filing of and which significantly diverges from well-established,
important-data handling activities with, local cyberspace broadly-adopted best practices and international
or industrial and IT authorities. The Cybersecurity Sub- standards in the field of CVD and vulnerability
working Group remains doubtful about the necessity for handling—as articulated in standards such as ISO/
establishing the important data filing system, and about IEC 29147 (2018) and ISO/IEC 30111 (2019). This
the system’s ability to add to overall security. To the is being monitored with concern by the international
extent that the system must remain, the sub-working community.22
group calls on relevant authorities to ensure a central
point of contact for all filing and reporting activities, The process of CVD is a standardised, multi-
which would be crucial for those that, due to the nature step process through which stakeholders identify,
of their business, are subject to multiple regulators and develop, validate, distribute and deploy mitigations
therefore concurrent filing and reporting obligations. for security vulnerabilities. One key objective of CVD
and vulnerability-handling processes is to minimise
Finally, the DSL includes general restrictions on data users’ risk and potential harm and costs associated
handlers seeking to provide data to foreign judicial with the vulnerability. To minimise this risk, CVD
and law enforcement authorities, which may lead to a
20　Administrative Provisions on Security Vulnerabilities of Network Products, MIIT,
19 According to Article 19, data handlers handling personal information shall have CAC and MPS, 12th July 2021, viewed 8th April 2022, <http://www.gov.cn/zhengce/
a clear and reasonable purpose and abide by the principles of legality, propriety zhengceku/2021-07/14/content_5624965.htm>
and necessity. Where they handle personal information on the basis of individual 21　Critical Network Devices Security Common Requirements, MIIT, 20th February
consent, they shall satisfy a number of requirements, such as: 1) the handled 2021, viewed 28th June, <http://std.samr.gov.cn/gb/search/gbDetailed?id=BBE32B6
personal information is necessary to provide services, or necessary to fulfil duties 61B848FC8E05397BE0A0AB906>
provided in laws or administrative regulations; and 2) it is limited to the shortest 22 Coordinated Vulnerability Disclosure Policies in the EU, European Union Agency
period and lowest frequency necessary to realise the handling purpose, and adopt for Cybersecurity, p. 37, 13th April 2022, viewed 22nd April 2022, <https://www.enisa.
methods minimising effects on individuals’ rights and interests. See: Ibid. europa.eu/publications/coordinated-vulnerability-disclosure-policies-in-the-eu>

352 Cybersecurity Sub-working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

directs the recipient of a vulnerability to only disclose DSL25 also provide that mandatory notifications must be
information about the vulnerability to other parties provided to the “relevant authorities” in cases of data
that are absolutely required to develop and deploy a breaches, which are, incidentally, cyber incidents. In
mitigation, fix or ‘patch’. Disclosure to unnecessary this regard, it is important to have a unified regulatory
parties increases the likelihood of information leakage framework, with one agency coordinating the different
that could enable malicious actors and harm users. authorities on incident notification. Multiple notifications
Requiring disclosure to specific parties assumes that to different authorities on the same incident may result
all are necessary. In this regard, the sub-working in potentially different—if not conflicting—responses
group applauds that a relevant recommended national or demands in response, which will increase both the
standard—GB/T 30276-2020 Specification for administrative burden and the level of uncertainty over
Cybersecurity Vulnerability Management—removed the potential outcome.
references to ‘vulnerability management organisation’—
a concept that appeared in the draft for public Overall, these recommendations aim to ensure that
consultation, and which includes the CAC and other China’s cybersecurity vulnerability management
sectoral authorities—from the final release, as these framework is both effective and business friendly.
parties are unnecessary during CVD. This is particularly important for small and medium-
sized enterprises (SMEs), which lack the resources to
However, this ambiguous requirement reemerged in efficiently tackle the associated increasing breadth and
the Administrative Provisions. As discussed earlier, number of mandatory requirements.
unmitigated vulnerability information should only be
communicated on a need-to-know basis, to prevent CII protection
it from being exploited. This is particularly important China’s security legislation, including the CSL, the PIPL,
considering the interdependencies between products the DSL and the Cryptography Law, all contain specific
nowadays. The sub-working group strongly urges a obligations for the protection of CII. These requirements
clear clarification that “reporting vulnerabilities to the are being broadened in ways that bring about significant
MIIT within two days” is only required after remediations operational burdens to the business community.
and mitigations are made available, and recommends
disclosing information related to unmitigated For example, the addressees of such CII protection

Section Four: Services

vulnerabilities in a confidential manner, and only to the requirements have been expanded in many instances
parties necessary to develop and test the proposed regardless of whether the networks/infrastructure in
remediation or mitigation during the CVD process. question are truly critical for the normal functioning
of the core business. Also, many requirements that
It should also be recognised that in certain limited originally were only destined for CII have been
cases, disclosure of information on an unmitigated gradually expanded to cover networks with classified
vulnerability can support users’ response when, for cybersecurity protection above level three, or even
example, the vendor no longer exists or the vulnerability broader network operators, as is the case with the data
concerns an open-source software/module or a localisation and cross-border data transfer security
commonly-used protocol, and there is no owner of the assessment obligation outlined above, as well as
technology or a different coordinator that is developing with commercial cryptography application security
a mitigation and leading a CVD process. assessment.26

Another concern is that of incident notification. While The Cybersecurity Sub-working Group strongly believes
the CSL requires that cyber incidents be notified to the it is important for regulators to clearly delineate the
“relevant competent authorities”,23 the PIPL24 and the boundaries between what falls within the scope of
CII and what falls outside, and to avoid interpreting
and applying relevant requirements in an expansive

23　Cybersecurity Law, NPCSC, Article 25, 7th November 2016, viewed 9th April 2022,
<http://www.gov.cn/xinwen/2016-11/07/content_5129723.htm> 25　Data Security Law, NPCSC, 10th June 2021, viewed 9th April 2022, <http://www.npc.
24 Personal Information Protection Law, NPCSC, Article 57, 20th August 2021, viewed gov.cn/npc/c30834/202106/7c9af12f51334a73b56d7938f99a788a.shtml>
9th April 2022, <http://www.npc.gov.cn/npc/c30834/202108/a8c4e3672c74491a80b 26　Please refer to KR 4 of the Information and Communication Technology Position
53a172bb753fe.shtml> Paper 2022/2023.

Cybersecurity Sub-working Group 353

 manner, in order to increase legal certainty, reduce of Enterprises, Industry Associations and Chambers of
burdensome obligations and leave room for normal Commerce in the Making of Administrative Measures,
business activities as well as international exchange Provisions and Normative Documents.27
and cooperation.
In addition to data regulations, transparency is also
Recommendations needed in the development of other laws, regulations
• Ensure consistency between upper-level legislation and standards that can be disruptive to normal
and relevant implementing regulations, and follow the business operations, including those relating to CCPS,
least interference principle in the course of legitimate cybersecurity review, cybersecurity vulnerability
international business operations. management and commercial cryptography. Proper
• Ensure a coordinated and unified approach for public consultation needs to be guaranteed, in particular
oversight and enforcement among the government if new legal obligations are being introduced, or if there
authorities involved. is major disagreement with the previous draft. In this
• Reduce security-related administrative burdens on regard, the sub-working group calls on the Ministry of
companies, including those due to duplicative or Justice to ensure that the forthcoming CCPS Regulation
fragmented requirements. and the Commercial Cryptography Regulation undergo
an additional round of public consultation before being
3. Ensure Transparency, Consistency, finalised.
Non-discrimination and Proportionality
in Security Rulemaking and Law Consistency
Enforcement It is laudable that the PIPL allows for processing to
take place not only when consent has been obtained,
Concern but also when it is necessary for executing a contract,
Transparency, consistency, non-discrimination and performing a legal obligation, responding to an
proportionality are becoming increasingly important emergent public health event, protecting the life or
in order to create a healthy security environment property of an individual, publishing news or carrying
for domestic companies and MNCs alike, but are out “media supervision for the public interest”. Such
not always ensured in current rule-making and law alignment with the Personal Information Security
Section Four: Services

enforcement. Specification demonstrates consistency between

regulatory requirements at different levels.
Assessment
China’s security regulatory landscape has been Consistency is also important in delineating the roles
undergoing rapid changes over the past few years as a and responsibilities of different government authorities.
result of such legislation as the CSL, the DSL, the PIPL Wo r r y i n g l y, a g r o w i n g n u m b e r o f g o v e r n m e n t
and the Cryptography Law. To reassure the business agencies—including but by no means limited to
community that the country’s security environment will the CAC, the MPS and the MIIT—are having their
remain predictable in the face of a rapidly evolving say in cyber and data protection, with overlapping
regulatory framework, it is of paramount importance or at least unclear responsibilities. As European
when formulating and implementing laws, regulations experience has shown, the co-existence of different,
and standards that China ensures the following: unsupervised regulators may lead to serious difficulties,
inconsistencies and adverse effects and, if maintained,
Transparency will necessitate an effective, clear and transparent
The sub-working group recognises and appreciates coordination mechanism, with one central leading
the efforts made by relevant government agencies to authority.
communicate with the industry, such as in the making
of the data regulations in the industrial and IT sector. With respect to commercial cryptography, consistency is
It hopes that transparency can be further improved by
increasing communication with industry associations in 27　Notice on Fully Listening to Opinions of Enterprises, Industry Associations and
the development of broader rules, as is endorsed by the Chambers of Commerce in the Making of Administrative Measures, Provisions and
Normative Documents, State Council, 13th March 2019, viewed 20th May 2022,
State Council in its Notice on Fully Listening to Opinions <http://www.gov.cn/zhengce/content/2019-03/13/content_5373423.htm>

354 Cybersecurity Sub-working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

needed at different levels. First, it is necessary between indigenous innovation and supply chain controls to the
the Cryptography Law and its own implementing extent that normal business activities are significantly
regulations, in particular the Commercial Cryptography jeopardised, as detailed in KR 1 of the Information and
Regulation;28 and second, between the CSL and the Communication Technology Working Group Position
Cryptography Law, with regard to the various security Paper 2022/2023.
assessments, reviews and testing and certification
systems. One notable example of inconsistency is Overall, the Cybersecurity Sub-working Group hopes
the fact that certain cybersecurity standards currently these process-related recommendations could lead
mandate compliance with recommended national and to the removal of excessive market access barriers
industry standards related to cryptography, as well as and operational burdens discussed in the preceding
the use of commercial cryptography products that have key recommendations, and to more business-friendly
been approved or certified by the State Cryptography security rules being promulgated nationwide across all
Administration, although such products are not included sectors.
in the product catalogue for mandatory certification.
Recommendations
Non-discrimination • Provide in a timely and meaningful manner an open
The sub-working group calls on China to eliminate and transparent platform that allows European
any elements in laws, regulations, standards and businesses to engage in security rulemaking.
practices that risk discriminating against foreign- • Review existing and planned security-related
invested companies. One example of this is that it is laws and regulations, and release unambiguous
currently impossible for international companies to implementation guidelines to ensure consistent
access certain security-related standardisation bodies, requirements and enforcement.
and to implement domestic Chinese algorithms which • Clarify the roles and responsibilities of government
are nonetheless mandated by an increasing number of authorities involved in security rulemaking.
government agencies. Also, despite reassurances from • R e c o g n i s e M N C s w i t h o p e r a t i o n s i n C h i n a
the CAC that the emphasis on “secure and trustworthy” as Chinese companies and avoid extensive
(and other similar terms) ICT products and services is interpretations of “national security”.
not targeting international companies, in reality this term • Ensure security regulations are appropriate and

Section Four: Services

still has a close connotation with indigenous innovation. commensurate with the risk.

Proportionality
Security laws and regulations need to be technically
credible and innovation-friendly. Intervention at all
levels, from national regulations to business security
measures, should be appropriate to and commensurate
with the risk, and not limit the opportunities offered by
digital transformation nor create unreasonable costs
for businesses. One telling example of the lack of
proportionality is the fact that a regulatory cross-border
transfer security assessment is currently needed for
handlers of large amounts of personal information, even
if only one piece of such information is being transferred
abroad.

While China—like all other countries and regions—

has a legitimate right to strengthen the resilience
of its supply chains, such efforts should remain
inclusive and not place an overly strong emphasis on

28　For more details, please refer to KR 4 of the Information and Communication

Technology Working Group Position Paper 2022/2023.

Cybersecurity Sub-working Group 355

 Abbreviations
CAC Cyberspace Administration of China
CCPS Classified Cybersecurity Protection
Scheme
CII Critical Information Infrastructure
CSL Cybersecurity Law
CSRM Cybersecurity Review Measures
CVD Coordinated Vulnerability Disclosure
DSL Data Security Law
EU European Union
ICT Information and Communication
Technology
IEC International Electrotechnical
Commission
ISO International Standardization
Organization
IT Information Technology
KR Key Recommendation
MIIT Ministry of Industry and Information
Technology
MNC Multinational Corporation
MPS Ministry of Public Security
NPCSC National People’s Congress Standing
Committee
PIPL Personal Information Protection Law
SCA State Cryptography Administration
SME Small and Medium-sized Enterprise
Section Four: Services

TC260 National Information Security

Standardization Technical Committee
WSC World Semiconductor Council

356 Cybersecurity Sub-working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

Logistics Working Group

Key Recommendations
1. Customs Issues
1.1 Continue Normal Clearance Procedures even if the Clearance Lead Time has been Reached

• Continue to follow normal clearance procedures instead of requesting the return of shipments
that are not cleared within the stipulated time period.
1.2 Establish Detailed and Enforceable Implementation Guidelines for Voluntary Disclosures
and Use of the Customs Declaration Sheet
• Establish detailed voluntary disclosure guidelines and executable processes.
• Establish clear rules and requirements that allow enterprises to make amendments to declared
information.
1.3 Enable ‘Full-paperless’ Customs Declarations via All Platforms
• Enable ‘full-paperless’ customs declarations as common practice via all platforms and only
require paperwork in specific situations, such as when the shipment is categorised as high-
risk.
1.4 Implement a National Declaration Model (NDM) for Low-value Shipments
• Further facilitate trade by extending NDM for low-value shipments, in order to support remote
declarations and allow shipments to transit through Chinese cities for clearance.
• Support greater network efficiency and optimise distribution networks within China.
1.5 Clarify the Jurisdiction for Dangerous Goods Regulations (DGR)
• Clarify the jurisdiction for DGR to facilitate transportation of dangerous goods..

Section Four: Services

• Adopt a standard on DGR that is consistent with industrial regulations and international rules.
1.6 Optimise the Authorised Economic Operator (AEO) Programme
• Simplify the AEO re-verification audit requirements.
• Introduce penalty criteria for a downgraded AEO status that are proportional to the yearly
actual value of import and export declarations.
• Allow companies that have underpaid duty and import taxes to preserve their AEO status and
customs rating without suspension or downgrading—except for non-compliance cases related
to smuggling—by paying extra duty and import taxes, when the amount underpaid does not
exceed a defined threshold.
• Grant more beneficial treatment to AEO companies.
• Establish more AEO mutual recognition agreements with other countries.
1.7 Develop Smart Customs and Innovative Customs Management Methods
• Put more strategic efforts into driving Smart Import/Export via technology innovations by
further adopting advanced technologies such as artificial intelligence, Internet of Things and
blockchain.

2. Express Delivery Services (EDS)

2.1 Classify EDS as ‘Essential’ to Ensure Uninterrupted Door-to-Door Delivery of Key
Shipments
• Promote understanding of the need for ‘essential services’, including EDS, both domestic and

Logistics Working Group 357

 international services.
• Take into account the long-term nature of the COVID-19 pandemic, and the importance of EDS
to people’s daily lives and supply chains in crisis situations.
• Establish measures to maintain the smooth flow of express deliveries and transportation of
goods under COVID-19 conditions.
2.2 Clarify the Standards and Guidance for the EDS Industry under the Cybersecurity Law
• Fully consider the nature of international express delivery, and involve international express
carriers in the policymaking process to increase policy transparency.
• Provide clear standards and guidance for the EDS industry, as well as reasonable transition
periods.
2.3 Simplify the Licensing and Management Requirements for International Express Companies

• R evert to the previous geographical scope requirement for obtaining international express
licences in China.
• Avoid directly applying the management requirements of the franchise model to the agency
model, including the duplicated licence requirement.
2.4 Implement More Measures to Encourage Green and Sustainable Development in the EDS
Industry
• Facilitate the implementation of new energy vehicles in the EDS industry.
• Encourage collaboration along the supply chain to promote green packaging.

International Liner Shipping Sub-working Group

1. Adhere to the Principle of Reciprocity when Issuing Cargo Relay Permissions
in Services

and Simplify Customs Declaration Procedures

Services

• Adhere to the principle of reciprocity by granting permission to carry out cargo relay at Yangshan
to vessels’ countries of registration whose cabotage or international cargo relay conditions are
Trade
Four:Four:

in line with China’s partial opening, and work towards a further relaxation of rules in line with
China’s commitment to reform and open up.
Section

• Simplify customs declaration procedures by treating relay cargo as international transshipment.

Section

2. Establish Sound and Transparent Principles for Ocean Freight

• Publish detailed guidelines specifying that filings of new charges, or increments of existing
charges, will be approved by the Ministry of Transport (MOT) / Shanghai Shipping Exchange
(SSE) within a specific timeline if reasonable justification is provided.
• Create certainty for commercial carriers in commercial operations by providing clear guidance
on how to comply with SSE filing requirements and by making transparent the rationales for
container liner shipping charges.
• Impose tariff filing and audit requirements on non-vessel common carriers, freight forwarders and
booking agents, similar to those imposed on carriers.

358 Logistics Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

3. Provide Flexibility when Determining Non-compliance during Freight Filing

Audits
• Establish guidance for exceptional cases and allow a reasonable ratio of tolerance when
determining non-compliance during freight filing audits conducted by the MOT/SSE.

4. Amend Current Regulations that Hold Carriers of Dangerous Goods (DG)

Liable for Misdeclarations by Shippers
• Amend current regulations that hold carriers liable for DG misdeclarations, and impose
administrative/civil/criminal liabilities upon the party that initially submits false information.

5. Ratify the Hong Kong International Convention for the Safe and Environmentally
Sound Recycling of Ships
• Ratify the Hong Kong International Convention for the Safe and Environmentally Sound
Recycling of Ships.

6. Monitor the Impact that the Integration of Coastal Ports Has on Fair Competition

• Closely monitor potential infringement of competition law by port groups.

• Implement measures and controls to prevent post-merger port groups creating monopolies.

7. Facilitate the Use of Foreign Carriers’ Empty Containers for Transportation of

Domestically-traded Goods during Container Repositioning
• Facilitate the use of foreign carriers’ empty containers for the transportation of domestic goods
during container repositioning.

Section Four: Services

8. Collaborate with the International Liner Shipping Community to Decarbonise
the Industry
• Build partnerships between research institutions, shipping companies, shipbuilders and their
suppliers in China and Europe to develop and adapt carbon neutral technologies.
• Agree on technical standards to avoid potential inefficiencies and waste, through approaches
such as enhanced cooperation within the International Maritime Organization.
• Cooperate on the establishment of a global infrastructure ensuring availability of carbon
neutral fuels.
• Extend until 31 st March 2023 the grace period for dual side Alternative Marine Power
installations for vessels calling at Shanghai.

9. Provide Flexibility in COVID-19 Policies to Facilitate Seafarer Crew Changes and

Dry Docking by Foreign-flagged Vessels
• Provide flexibility in COVID-19 policies to facilitate seafarer crew changes in China and to
reduce the detention period of infected seafarers.

Logistics Working Group 359

 Introduction to the Working Group used by the industry in order to build a greener modern
logistics system.
The Logistics Working Group was founded in 2003 and
represents a wide range of logistics service providers in
The standardisation of packaging is vital to ensure as
freight forwarding, including sea, air, land and express
much of the materials used can be recycled at their
delivery, as well as warehousing and distribution. The
final destination as possible. Meanwhile, although the
Logistics Working Group is also composed of the
SPB has rolled out several directives and regulations
International Liner Shipping Sub-working Group, with
on green packaging for the EDS in the past two to
core members from leading international maritime
three years, the measures are aimed at domestic
transport enterprises.
deliveries. Packaging required to safely ship goods
overseas is generally of different material, therefore
Recent Developments international express items often do not comply with
Logistics Under the COVID-19 Pandemic domestic packaging and shipping requirements,
The COVID-19 pandemic has had an enormous impact which impacts the efficiency of the service. Also,
on the logistics industry, especially due to lockdowns in some recent policies require express companies to
port cities disrupting supply chains. Due to quarantine refuse self-packaging express items that fail to meet
measures in various cities, transborder transportation green packaging requirements.4 As the EDS industry
suffered a shortage of labour in both manufacturing and cannot afford to take on all obligations relating to green
logistics. According to the Ministry of Transport (MOT), packaging requirements, regulators should encourage
the foreign trade volume from January to February 2022 collaboration along the supply chain to promote green
witnessed, a decrease of 3.9 per cent year-on-year.1 packaging.

Though COVID-19 also brought many challenges As part of China’s ‘1+N’ policy system for its carbon
to the express delivery services (EDS) sector, the peaking and carbon neutrality goals (30/60 Goals), 5
industry still saw growth in 2021 due to its supporting the MOT issued the 14 th Five-year Development
role in people’s daily lives as well as supply chains. Plan for Green Transportation, 6 which emphasises
the importance of new energy vehicles (NEVs). This
in Services

According to preliminary statistics released by the State

development plan stipulates that NEVs should account
Services

Post Bureau (SPB),2 in 2021, the volume of deliveries

increased by 30 per cent year-on-year to 108.5 billion for no less than 80 per cent of public transportation,
Trade

taxis and logistics vehicles. While many cities have

Four:Four:

items, and total revenue by 18 per cent to just over

CNY 1 trillion. This growth is expected to continue in already introduced NEVs in the EDS industry, the
Section

2022; with delivery volume forecast to increase by charging infrastructure available is not adequate to also
Section

another 13 per cent (122.5 billion items), and business cater for suitable NEVs for the EDS industry, such as
revenue by 12 per cent to CNY 1.16 trillion. However, electric tricycles.
Omicron varient outbreaks in early 2022 led to the EDS
industry facing inconsistent COVID-19 containment Internationalising Chinese Logistics Rules, Strengthening
requirements for express shipments, obstruction of the Chinese Industry Business Participation in International
passage of express vehicles, and a large backlog of Markets
express shipments at airports and operation centres, Coordinating China’s logistics rules with international
which may negatively impact industry growth this year. standards is an important step for opening up. This
encompasses actions like promoting cooperation
Logistics Under China’s Carbon Neutrality Goals through schemes like the Regional Comprehensive
On 14 th December 2020, the State Council issued 14th December 2020, viewed 31th March 2022, <http://www.gov.cn/zhengce/
the Notice on Accelerating Green Packaging content/2020-12/14/content_5569345.htm>
4　Measures for the Administration of Mail Express Packaging, MOT, 8th February
Transformation, 3 aimed at reforming the packaging 2022, viewed 29th June 2022, <https://xxgk.mot.gov.cn/2020/jigou/fgs/202102/
1　Economic Operation of Transportation in January and February, MOT, 25 th t20210225_3527950.html>
March 2022, viewed 31 th March 2022, <https://xxgk.mot.gov.cn/2020/jigou/ 5　China’s 1+N Climate Policy System: The Path to Carbon Neutrality, Seneca
zhghs/202203/t20220325_3647807.html> ESG, 4th November 2022, viewed 29th June 2022, <https://www.senecaesg.com/
2　China’s postal industry business revenue has reached 1.27 trillion in 2021, SPB, insights/chinas-1n-climate-policy-system-way-to-carbon-neutrality/>
6th January 2022, viewed 26th April 2022, <http://www.spb.gov.cn/gjyzj/c204534/2 6　14 th Five-year Development Plan for Green Transportation, MOT, 21 st
02201/92ddd33fc7ac4db68955b87043ea2a1f.shtml> January 2022, viewed 31th March 2022, <https://xxgk.mot.gov.cn/2020/jigou/
3　Concerning Accelerating Green Packaging Transformation Notice, State Council, zhghs/202201/t20220121_3637584.html>

360 Logistics Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

Economic Partnership, and strengthening implementation Assessment

of Chinese industry regulations. Coordinating domestic The GACC made great progress on voluntary disclosure
standards is also urgently required. Taking dangerous in 2022, with the announcement of Circular No. 54 on
goods regulations (DGR) as an example, the lack of the voluntary disclosure process for dutiable imports.7
consistency among different local customs creates However, the existing customs voluntary disclosure
difficulties when items are being transported. rule in China is still very strict and lacks actionable
guidance and processes. The rules and consequences
Key Recommendations of voluntary disclosure are unclear, and local customs
authorities enforce them differently. Enterprises are
1. Customs Issues more than willing to undertake voluntary disclosure, yet
1.1 Continue Normal Clearance Procedures even if the inconsistency of enforcement prevents them from
the Clearance Lead Time has been Reached doing so.

Concern At the same time, the CDS amendment to the Customs

Due to the strict adherence of some local customs Inspections Regulations remains a challenge for
authorities to the lead-time indicator, they request enterprises, and important issues have not been
shipments that have not been cleared within the addressed in new regulations released in 2022.8 For
specified clearance lead time be returned, which example, while enterprises may unintentionally make
increases companies’ costs and administrative burdens. wrong declarations due to mistakes introduced by
overseas suppliers, local customs administrations will
Assessment not allow them to update the declaration, even through
In recent years, the General Administration of Customs voluntary disclosure. This creates non-compliance risks
of China (GACC) has made great strides in reducing for enterprises.
customs clearance lead-times to further facilitate trade.
In line with this effort, local customs administrations Recommendations
have been setting specific goals to manage clearance, • Establish detailed voluntary disclosure guidelines and
for example, by stipulating that shipments must be executable processes.
released within a specified time period. However, in • Establish clear rules and requirements that allow

Section Four: Services

cases where clearance has not been made by the enterprises to make amendments to declared
specified lead-time, local customs authorities will often information.
request shipments to be returned, necessitating that the
entire process be re-done, instead of following normal 1.3 Enable ‘Full-paperless’ Customs Declarations
clearance procedures and extending the clearance via All Platforms
time.
Concern
Recommendation Although clearance documents can be sent to customs
• Continue to follow normal clearance procedures authorities via the single-window platform, as the
instead of requesting the return of shipments that are process is still not fully paperless via all platforms, it
not cleared within the stipulated time period. increases the burden on enterprises’ operations.

1.2 Establish Detailed and Enforceable Implementation Assessment

Guidelines for Voluntary Disclosures and Use of Thanks to the efforts of the GACC, China’s customs
Customs Declaration Sheet (CDS ) declaration procedure has been simplified during the
past few years, which has facilitated international trade.
Concern Importers, exporters and customs brokers can now
The current customs voluntary disclosure rule in China
7 GACC 2022 Circular No. 54 (Announcement on the Handling of Matters Related
is very general and lacks actionable guidance and to Voluntary Disclosures of Tax-related Violations), GACC, 1st July 2022, viewed
5th July 2022, <http://www.customs.gov.cn/customs/302249/2480148/4447524/
process, while the CDS amendment to the Customs
index.html >
Inspection Regulations has increased compliance risks 8　Decision on Amending and Cancelling some Laws and Regulations, State
Council, 29th March 2022, viewed 12th April 2022, <http://www.gov.cn/zhengce/
for enterprises.
content/2022-04/07/content_5683886.htm>

Logistics Working Group 361

 scan clearance documents and send them to customs The rapid development of international trade and
authorities via the digital single-window platform instead cross-border e-commerce has resulted in a substantial
of providing them on paper, as was the previous increase in the volume of low-value goods being
practice. However, the declaration process is not yet shipped. The majority of low-value shipments are
fully paperless. For instance, certain documents, such samples and advertising materials, which are very time-
as invoices, cannot be completed online; the declarant sensitive and require fast customs clearance.
still has to print the necessary documents, fill them
out and then scan them into the customs declaration While the GACC recently expanded the national
system. customs clearance integration reform to include
Category C items through the express delivery channel,
To further improve customs clearance efficiency and they are still not eligible for NDM. In consideration of the
better protect the environment, the working group increasing volumes of low-value shipments, extending
strongly recommends adopting a fully paperless NDM to Category C items would greatly reduce the
customs declaration model as common practice via all administrative burden on businesses and improve
platforms. Paperwork should be only required when customs clearance efficiency.
absolutely necessary, such as when a shipment is
categorised as high risk. Recommendations
• Further facilitate trade by extending NDM for low-value
Recommendation shipments, in order to support remote declarations and
• Enable ‘full-paperless’ customs declarations as allow shipments to transit through Chinese cities for
common practice via all platforms and only require clearance.
paperwork in specific situations, such as when the • Support greater network efficiency and optimise
shipment is categorised as high-risk. distribution networks within China.

1.4 Implement a National Declaration Model (NDM) 1.5 Clarify the Jurisdiction for Dangerous Goods
for Low-value Shipments Regulations (DGR)
in Services

Concern Concern
Services

Low-value shipments through the express delivery It is unclear whether jurisdiction for DGR falls under
Trade

channel are unable to enjoy NDM benefits, such as the Civil Aviation Administration of China (CAAC)
Four:Four:

allowing remote declarations across China, mutual or customs, which impacts the efficiency of the
Section

recognitions and applying consistent customs transportation of dangerous goods.

Section

standards, which impacts efficiency and increases

companies’ workloads. Assessment
Since China re-joined international aviation activity in
Assessment 1974, the global industry’s Technical Instructions have
The GACC initiated national customs clearance improved the safety of transportation of dangerous
integration reform in 2017 with the release of goods. 10 However, due to the lack of consistent
Announcement No. 25 [2017]. 9 Since then, national regulation, the jurisdiction for classification and transport
customs risk prevention and control centres and tariff requirements of dangerous goods remains unclear,
collection administration centres have been set up to which creates confusion for companies.
support remote declarations and allow shipments to
transit through Chinese cities for clearance. However, At present, the Provisions of the Civil Aviation
low-value shipments, including samples and low-value Administrations of China on the Administration of the
items under Chinese yuan (CNY) 5,000 (Category C) Transport of Dangerous Goods by Air states in Article
items through the express delivery channel, were not 17 that a permit for air transport of dangerous goods
included in this system. granted by a CAAC regional administration shall specify
9 GACC Announcement No. 25 [2017] (Announcement on Promoting the
the type of dangerous goods approved for transport
Reform of National Customs Clearance Integration), GACC, 28 th June 10 Technical Instructions for the Safe Transport of Dangerous Goods by Air (Doc-
2017, viewed 29 th June 2022, <http://guangzhou.customs.gov.cn/ custo 9284), International Civil Aviation Organization, viewed 29th June 2022, <https://
ms/302249/302266/302267/711020/index.html> www.icao.int/safety/dangerousgoods/pages/technical-instructions.aspx>

362 Logistics Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

and the validity period of the permit.11 Meanwhile, the customs authorities work with qualified business
Regulations on the Safety Management of Hazardous partners to gain additional competitiveness and
Chemicals only require the CAAC to take responsibility effectiveness in the facilitation of international supply
for safety management of the transport of hazardous chains by reducing customs clearance lead time and
chemicals by air, the enterprises conducting the cost. The AEO certification system is an important part
transportation and the transport vehicles.12 It does not of the national credit system, and customs authorities
clarify whether the CAAC is responsible for specifying can use it to reduce any conflict that may arise between
the categories of goods that will be considered customs supervision and trade facilitation.
dangerous. Therefore, the working group strongly
advises that the jurisdiction for DGR be clearly outlined, The working group welcomes the efforts of the GACC
to facilitate the timely and safe transportation of to enhance China’s AEO programme in recent years,
dangerous goods. and recommends it continue its efforts to provide more
benefits for enterprises in the future. For instance,
Recommendations based on the GACC’s current AEO rules, AEO
• Clarify the jurisdiction for DGR to facilitate transportation enterprises need to be re-verified by customs authorities
of dangerous goods.. every five years to maintain their qualification, which
• Adopt a standard on DGR that is consistent with costs enterprises greatly in terms of money, manpower,
industrial regulations and international rules. time and resources. In order to reduce the burden
on enterprises and improve efficiency, some of these
1.6 Optimise the Authorised Economic Operator re-verification requirements or processes should
(AEO) Programme be simplified. For example, as the internal policies,
systems or structure of most multinational companies
Concern (MNCs) do not change very frequently, repeating certain
Despite the significant investments that companies processes each time during re-verification is a waste of
have made in applying for and obtaining the AEO resources for all parties.
qualification, the benefits are not immediately apparent,
which restricts these companies’ operational efficiency. Furthermore, the AEO rules also clearly state that any
enterprise will be downgraded and lose their AEO

Section Four: Services

Assessment qualification if they are penalised with a single fine over
An AEO is defined in the World Customs Organization’s CNY 30,000 or fines that exceed CNY 50,000 within a
(WCO) Framework of Standards to Secure and year (a single fine over CNY 10,000 or fines that exceed
Facilitate Global Trade (SAFE Framework) as “a party CNY 30,000 for brokerage enterprises). In other words,
involved in the international movement of goods in a relatively small fine imposed as a consequence of
whatever function that has been approved by or on minor non-compliance can result in the loss of AEO
behalf of a national customs administration when qualification for MNCs, which would significantly impact
complying with WCO or equivalent supply chain security their daily operations. In addition, AEO enterprises that
standards”.13 This concept, which originally appeared have demonstrated considerable internal control and
in the Community Customs Code,14 is one of the core compliance capabilities should be eligible for more
concepts in the SAFE Framework. In the AEO system, preferential treatment.

11 Provisions of the Civil Aviation Administrations of China on the Administration of

the Transport of Dangerous Goods by Air, MOT, 13th April 2016, viewed 12th April It is very encouraging to see the progress China has
2022, <http://www.gov.cn/gongbao/content/2016/content_5103153.htm>
made in signing AEO mutual recognition agreements
12 Regulations on the Safety Management of Hazardous Chemicals, State Council,
2nd March 2011, viewed 12th April 2022, <http://www.gov.cn/flfg/2011-03/11/ with other countries. China should continue to establish
content_1822902.htm>
such agreements, as they will be very beneficial in
13 AEO Template, WCO, June 2018, viewed 27th April 2022, <http://www.wcoomd.
org/-/media/wco/public/global/pdf/topics/facilitation/instruments-and-tools/tools/ improving the efficiency and reducing the expense of
safe-package/aeo-template.pdf?la=en#:~:text=AEO%3A%20Authorized%20
cross-border activities.
Economic%20Operator%20(AEO,equivalent%20supply%20chain%20security%20
standards>
14 Community Customs Code, European Union regulations | European Encyclopedia
Recommendations
of law, viewed 1 th July 2022, <https://europeanlaw.lawlegal.eu/community-
customs-code/> • Simplify the AEO re-verification audit requirements.
• Introduce penalty criteria for a downgraded AEO

Logistics Working Group 363

 status that are proportional to the yearly actual value 2. Express Delivery Services (EDS)
of import and export declarations. 2.1 Classify EDS as ‘Essential’ to Ensure Uninterrupted
• Allow companies that have underpaid duty and import Door-to-Door Delivery of Key Shipments
taxes to preserve their AEO status and customs
rating without suspension or downgrading—except Concern
for non-compliance cases related to smuggling—by EDS and the transportation of goods have been
paying extra duty and import taxes, when the amount severely affected by domestic COVID-19 containment
underpaid does not exceed a defined threshold. measures in 2022, which in turn caused disruption to
• Grant more beneficial treatment to AEO companies. international supply chains.
• Establish more AEO mutual recognition agreements
with other countries. Assessment
Since the beginning of 2022, as a result of strict
1.7 Develop Smart Customs and Innovative Customs COVID-19 prevention measures introduced in some
Management Methods regions of China, the EDS industry was often unable
to make door-to-door deliveries, and even experienced
Concern service restrictions and business suspension in certain
In order to realise its ambition to become a major areas. Nationwide, the EDS industry also faced
international trade hub, China should develop similar inconsistent COVID-19 containment requirements
levels of smart customs and innovative customs for express shipments, obstruction of the passage
supervision methods being adopted by other of express vehicles, and a large backlog of express
international hubs. shipments at airports and operation centres.

Assessment EDS have shown extraordinary resilience throughout

The rapid rate of technological development has the pandemic. They have also been proven as essential
opened up opportunities for China Customs to for the continuity of global supply chains and for the
strategically explore and drive digital innovations door-to-door supply of urgently needed goods such
(artificial intelligence (AI), blockchain, Internet of Things as medical equipment, medicine and food. Express
in Services

(IoT), big data, cloud technology, among others) that delivery has an important role to play in China’s efforts
Services

can enable smart customs clearance in the future. to contain COVID-19, as EDS supply the public with
Trade

daily necessities, facilitate the smooth operations of the

Four:Four:

In recent years, there have been many assessments manufacturing industry and maintain the stability of the
Section

of the potential application of IoT and other advanced supply chain both domestically and internationally.
Section

technology in import and export processes, with

some highly advantageous initiatives having already The State Council and various ministerial government
undergone pilot testing rounds. These innovative agencies have repeatedly made clear in recent policies
technologies could assist in areas such as real-time that EDS is one of the key sectors for important
tracking of bonded goods, smart inspection, smart material transportation. 15 However, when it comes
declaration, and delivery of dangerous or sensitive to implementation, some industry regulators or local
goods. As future Smart Import/Export processes governments still do not recognise the importance of
will heavily rely on such technology innovations, the EDS as an essential service, especially the international
Chinese authorities should collaborate with European services. Therefore, to prepare for any future
companies with experience in these fields and in resurgence of COVID-19 or other potential disasters,
other international trade hubs to develop domestic coordination between all levels of government,
applications. including national agencies, must be improved to
ensure uninterrupted delivery of essential goods, and
Recommendation
15 Notice of the Special Class for Traffic Control and Transportation Support of
• Put more strategic efforts in driving Smart Import/ the Comprehensive Group of the Joint Prevention and Control Mechanism of
Export via technology innovations by further adopting the State Council on Making Every Effort to Ensure the Smooth Flow of Freight
Logistics, MOT, 14th April 2022, viewed 29th June 2022, <http://www.gov.cn/
advanced technologies such as AI, IoT and blockchain. xinwen/2022-04/14/content_5685295.htm>

364 Logistics Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

measures introduced that reflect the vital nature of the According to current regulations, express delivery
EDS industry. companies must transmit data to the GACC and the
SPB on a daily basis. However, the industry requires
Recommendations further clarification on how security assessments will
• Promote understanding of the need for ‘essential be implemented, which organisations and regulatory
services”, including EDS. both domestic and agencies will be responsible for implementation, and
international services. their responsibilities. If, due to lack of clarification on
• Take into account the long-term nature of the these issues, the security assessment process affects
COVID-19 pandemic, and the importance of EDS customs clearance efficiency, it will negatively impact
to people’s daily lives and supply chains in crisis the entire industry and its customers. Specifying
situations. the detailed threshold that may trigger a security
• Establish measures to maintain the smooth flow of assessment as well as related standards and guidance
express deliveries and transportation of goods under is required to enable data processors to comply
COVID-19 conditions. accordingly.

2.2 Clarify the Standards and Guidance for the EDS Recommendations
Industry Under the Cybersecurity Law • Fully consider the nature of international express
delivery, and involve international express carriers
Concern in the policymaking process to increase policy
While many laws and regulations on cybersecurity, transparency.
data security and personal information protection have • Provide clear standards and guidance for the EDS
been recently introduced, there is still a lack of relevant industry, as well as reasonable transition periods.
standards and guidelines for the EDS industry, posing
a huge challenge to express delivery companies' 2 . 3 Simplify the Licensing and Management
cybersecurity compliance. Requirements for International Express Companies

Assessment
The Cybersecurity Law came into effect in June 2017, Concern

Section Four: Services

with subsequent supporting implementing regulations The geographical scope requirement for obtaining
and policies that regulate the information-sharing of international express licences in China and applying
stakeholders. The Measures for Security Assessment the management requirements of the franchise model
of Cross-border Data Transfer formulated by the to the agency model constitute access barriers to the
Cyberspace Administration of China (CAC), which will industry for international express companies.
take effect on 1st September 2022, specified a six-month
transitional period.16 The international express industry Assessment
expects that the competent authorities can give specific At present, neither the Postal Law, the Interim Regulations
guidance on the process of security assessment, help on Express Delivery nor the Administrative Measures
enterprises fully understand the specific requirements for the Management of Express Delivery Business
of security assessment, and promote the whole industry Licences define the geographical scope of international
to quickly and efficiently implement the regulatory express delivery business licences.
requirements of the CAC.
In 2012, the revised Postal Law introduced new
By its nature, the international EDS industry involves a requirements for international express delivery
large amount of personal information (such as name, enterprises, including the need to obtain an International
phone number, address, information on package Express Delivery Business Licence issued by the
contents), most of which inevitably needs to be provided industry’s regulatory authorities. From this point, the
outside China for cross-border trade and transportation. geographical scope of international express delivery
business licences was restricted to the provincial level,
16 Measures for Security Assessment of Cross-border Data, CAC, 7th July 2022,
viewed 26th August 2022, <http://www.gov.cn/zhengce/zhengceku/2022-07/08/ including autonomous regions and provincial-level
content_5699851.htm>
municipalities.

Logistics Working Group 365

 However, in 2019 and 2020, when some express actual operation, the express company cooperates with
companies applied to renew their expiring licences, the local agency because it has limited local business
they found that the SPB had adjusted the geographical scale. When the regulator requires express companies
scope for express licensing from province/autonomous- to also have a licence in the areas where it cooperates
region/municipality level to city/district/prefecture and with an agency, it goes against the business logic of the
autonomous prefecture level. For example, in 2020, the agency model and results in duplicated licences.
scope for international express delivery in the Zhejiang
Pilot Free Trade Zone was expanded to Hangzhou, Recommendations
Ningbo and Jingyi Districts in addition to Zhoushan • Revert to the previous geographical scope requirement
District, whereas originally international EDS were not for obtaining international express licences in China.
limited to the city/district/prefecture and autonomous • Avoid directly applying the management requirements
prefecture level.17 The SPB also issued a declaration of the franchise model to the agency model, including
that implied the international express delivery services the duplicated licence requirement.
should implement the changes immediately.18
2.4 Implement More Measures to Encourage Green
However, no amendment in the Postal Law was issued and Sustainable Development in the EDS
to support this adjustment, and the geographical Industry
scope requirement remained unclear. Consequently,
the lack of information and prior notice constitute an Concern
additional market access barrier to the EDS industry. It The EDS industry is eager to fulfil the requirements
is also inconsistent with the State Council’s repeated set in order to realise China’s 30/60 Goals, but
requirements for the expansion, opening up and implementation will take time and companies need
improvement of the business environment for foreign- more guidance to be able to start now.
invested enterprises, as mentioned in Circular No. 23. It
is also incompatible with China’s commitments to the Assessment
World Trade Organization on market opening. In 2021, the MOT and other regulators rolled out a
number of policies concerning sustainable measures in
in Services

On a different note, express industry regulatory the EDS industry, following the guidance on achieving
Services

bodies in China treat the agency model adopted by China’s 30/60 Goals.19
Trade

international express delivery enterprises in the same

Four:Four:

way as the franchise model operated by domestic The EDS industry supports China’s efforts to promote
Section

express enterprises. In the franchise model, both green transportation options and is willing to expand its
Section

the franchisor and franchisee are required to hold an use of NEVs. In the international EDS sector, transport
international express licence at the city level, where vehicles not only have to contend with the challenges
the franchisee will leverage the franchisor brand to of transporting packages over long distances, but must
conduct business locally. In the agency model, the also be able to make deliveries within a city. They
agency holds its city-level express licence to serve must consider not only issues of energy conservation
last-mile pick-up and delivery for multiple international and environmental protection but also be able to
express enterprises, which cover cross-border delivery adapt their transportation fleet to address a range of
with their own international express licence at the port circumstances, including ‘last mile’ delivery.
city. However, under the agency model in China, the
international express enterprise is also required to Local transportation agencies and municipal governments
hold a city-level licence in the agency city. In terms of should consider the needs of the EDS industry when
formulating relevant policies on NEVs. Reducing
17 Expanding the Applicable Scope of Delegation of the Approval Item for
International Express Delivery Business Permits to Lower Levels within the restrictions on such vehicles used for express delivery in
Scope of China (Zhejiang) Pilot Free Trade Zone, SPB, 30nd November 2020, cities, and accelerating the construction of infrastructure
viewed 29th June 2022, <https://zwfw.spb.gov.cn/zhfw/zhfwDetail?uuid=f0318a4
b173744588197fe809c59b80e&code=90000&flag=false&type=gb> to support NEVs (for example, charging stations and
18 Determining upon Declaration the Satisfaction of the Supervisory Requirements
19 Working Guidance for Carbon Dioxide Peaking and Carbon Neutrality in
of the Customs in the Verification of the Territorial Scope of International Express
Full and Faithful Implementation of the New Development Philosophy, State
Delivery Business Licensing, SPB, 3th March 2020, viewed 13 th April 2022,
Council, 22 th September 2021, viewed 14 th April 2022, <http://www.gov.cn/
<http://www.gov.cn/zhengce/zhengceku/2020-03/27/content_5496225.htm>
zhengce/2021-10/24/content_5644613.htm>

366 Logistics Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

parking lots for delivery vehicles) would enable greater Abbreviations

adoption of NEVs in the EDS industry without imposing
AEO Authorised Economic Operator
undue burdens.
AI Artificial Intelligence
CAAC Civil Aviation Administration of China
Several policies and draft regulations published for
CDS Customs Declaration Sheet
comment have included provisions that consumers'
CNY Chinese Yuan
own packaging materials should meet established
DGR Dangerous Goods Regulations
requirements regarding the use of green packaging
EDS Express Delivery Services
for express delivery mail. For example, according to
GACC General Administration of Customs of
the Green Packaging Specification for Express Mail
China
issued in June 2020, express delivery enterprises
IoT internet of things
cannot accept items for shipping by express mail from
MNC Multinational Company
consumers whose own packaging fails to meet green
MOT Ministry of Transport
packaging requirements and who refuse to replace
NDM National Declaration Model
the packaging materials. If such a situation persists,
NDRC National Development and Reform
it is likely to increase the incidence of disputes with
Commission
consumers, decrease consumer confidence in EDS,
NEV New Energy Vehicle
and obliges express delivery entities to communicate
SAFE Standards to Secure and Facilitate
the need for green packaging to consumers. Building
Global Trade
public awareness around these new green packaging
SPB State Post Bureau
requirements and working together with the EDS
WCO World Customs Organization
industry to increase public understanding would reduce
the incidence of disputes between consumers and
industry stemming from the use of packaging materials
that fail to meet environmental requirements.

Recommendations
• Facilitate the implementation of NEVs in the EDS

Section Four: Services

industry.
• Encourage collaboration along the supply chain to
promote green packaging.

Logistics Working Group 367

 International Liner Shipping Sub-working Group

Introduction to the Working Group Market forces will restore balance to supply and demand,
provided markets are not obstructed, but the main
Transporting more than 80 per cent of global trade,1
challenge for companies will be to make supply chains
ocean shipping is the most efficient and cost-effective
more resilient and efficient. A major lesson learnt is
method of international transportation for most goods,
that pre-COVID supply chains had become too lean
and helps to create prosperity among nations and
through an excessive focus on cost over durability,
peoples.2 The maritime industry has been a key enabler
and relationships between shippers and carriers had
of economic growth in, and an indispensable partner
become too opportunistic in many cases. To enhance
to, China as it developed into the world’s largest trading
efficiency, investments in digitalisation and in increasing
nation, meaning that both the Chinese and global
transparency and flexibility must be made collectively
economies are dependent on a well-functioning and
throughout the entire transport chain. More committed
healthy maritime transport industry.
relations must also be forged, for example through two-
way commitments that apportion costs to both parties
The International Liner Shipping Sub-working Group—
in the event that agreements, such as bookings, are not
originally the Maritime Transport Working Group—was
kept or if cargoes are not leaving ports as promised.
established in 2000 to represent international maritime
transport enterprises operating in China. The objective
The pursuit of carbon neutrality
of the working group is to work towards a more efficient,
In September 2020, President Xi Jinping announced
environmentally sustainable and competitive maritime
that China will become carbon neutral by 2060, while
transport environment in China by engaging in dialogue
the European Union (EU) has committed to doing so by
with relevant government institutions.
2050. In many industries, maritime transport in particular,
there are limits to the carbon emission reductions that
Recent Developments
in Services

can be achieved by using existing technologies. New

Services

The impact of the COVID pandemic on the industry technologies therefore need to be developed in order
and lessons to take forward to ensure carbon neutrality, whether by 2050 or 2060.
Trade
Four:Four:

The COVID-19 pandemic has resulted in serious Developing and implementing entirely new maritime
propulsion technologies and fuels requires international
Section

disruptions to trade flows and unprecedented swings in

collaboration, due to the scale and urgency of the
Section

demand for shipping services. Demand collapsed during

the first half of 2020, only to rebound very strongly in the challenge. In this respect, China and the EU are natural
second half of the year. Carriers have been impacted partners as they are global leaders within the maritime
by COVID-19 restrictions imposed in overseas markets, industry, with the world’s five largest container shipping
which resulted in delays and congestion in ports, companies being based in either China or Europe. China
equipment imbalances and market volatility. The liner is also the world’s largest shipbuilding nation, accounting
shipping industry responded by mobilising all available for about 50 per cent of all tonnage being built globally,
tonnage and equipment. However, this cannot resolve while many European companies and institutions are
the bottlenecks that have been created, as simply leaders in maritime technology. Paramount to achieving
adding more vessels just further adds to congestion, carbon reduction targets will be agreeing on technical
both in overseas ports and further inland. To address standards so that global efforts to reduce emissions
the challenges effectively, all links in the transport chain are truly cooperative and not mutually exclusive. With
must work together. this in mind, the International Liner Shipping Sub-
working Group strongly suggests that China, Europe
and other stakeholders in the maritime industry, prioritise
1 How Soaring Shipping Costs Raise Prices Around the World, International
Monetary Foundation (IMF), 28th March 2022, viewed 19th April 2022 <https:// collaboration on research and development, standard-
blogs.imf.org/2022/03/28/how-soaring-shipping-costs-raise-prices-around-the-
setting and implementation.
world/>
2 Introduction to IMO, International Maritime Organization (IMO), 2019, viewed 19th
April 2022, <http://www.imo.org/en/About/Pages/Default.aspx>

368 International Liner Shipping Sub-working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

Cargo relay go well beyond the requirements of Chinese carriers in

The announcement in late 2021 that foreign carriers the EU. Member carriers also encountered situations in
would be allowed to engage in international relay which the customs declaration process for cargo relay
in Shanghai as part of a pilot project constituted a could be further simplified, such as the processing for
major breakthrough. Carriers have been discussing international transhipment.
this market opening with relevant authorities for
many years, as it would potentially create significant If China only allows cargo from three ports in northern
operational efficiencies, lower the cost of transport, China to be transshipped at Yangshan, this can only be
reduce the emission of greenhouse gases and create defined as partial opening up of its cabotage restrictions.
added business for Chinese ports. While the liner Under the principle of reciprocity, a vessel’s registration
shipping community is grateful for this significant policy country should therefore be eligible to obtain permission
development, the pilot opening in Shanghai retains a for cargo relay if that country also adopts a partial
number of significant restrictions on foreign carriers, opening-up policy.
which limits the benefits of the opening and, for some
carriers, make it impossible to utilise this important The General Administration of Customs (GAC) has
change. published customs declaration procedures in connection
with cargo relay. 5 Customers can only apply for tax
Key Recommendations refunds once the relay shipment has exited China from
Shanghai, which is contrary to international practices. For
1. Adhere to the Principle of Reciprocity instance, if cargo is transshipped at Busan from Tianjin
when Issuing Cargo Relay Permissions or Dalian, the cargo leaving Tianjin and Dalian is deemed
and Simplify Customs Declaration as having left the Chinese border, meaning tax refunds
Procedures can be triggered. Yangshan is currently considered a
domestic port, however, if it can be regarded as a foreign
Concern port, tax refunds can also be triggered after leaving
A lack of reciprocal treatment with regard to cabotage Tianjin/Dalian en route to Yangshan. Nevertheless, it
rights between China and both vessels’ countries of should be noted that, for historical reasons, Qingdao has
registration and their home countries, in combination already acquired the status that triggers immediate tax

Section Four: Services

with complex customs rules, are resulting in difficulties refunds, even if the next port call is Yangshan.
implementing international relay.
Recommendation
Assessment • Adhere to the principle of reciprocity by granting
The State Council announced permission for foreign permission to carry out cargo relay at Yangshan to
carriers vessels to carry out cargo relay from three vessels’ countries of registration whose cabotage or
northern China ports for transshipment at Yangshan on international cargo relay conditions are in line with
18 th November 2021. 3 Following this announcement, China’s partial opening, and work towards a further
foreign-flagged vessels meeting certain requirements relaxation of rules in line with China’s commitment to
were told they would be allowed to participate in this pilot reform and open up.
on a reciprocal basis.4 However, during the application • Simplify customs declaration procedures by treating
process, member carriers encountered a requirement relay cargo as international transshipment.
that a full opening-up of cabotage restrictions by the
home country of the applicant carrier, as well as the 2. Establish Sound and Transparent Principles
vessel's country of registration, is pre-requisite for for Ocean Freight
obtaining a cargo relay licence. These requirements

3 Approval of the Temporary Adjusted Implementations of Relevant Administrative

Concern
Regulations in Shanghai Pilot Free Trade Zone Lingang New Area by State Charges collected by other parties in the international
Council, Central Government of the People's Republic of China (PRC),
18 th November 2021, viewed 19 th April 2022, <http://www.gov.cn/zhengce/
container liner shipping logistics supply chain are not
content/2021-11/18/content_5651689.htm>
4 Notice of the MOT on the Pilot International Cargo Relay of Non-five star Flagged
Foreign Vessels, MOT, 13th December, 2021, viewed 19th April 2022, <https://xxgk. 5 Decree No. 12 of 2022, GAC, 28th January 2022, viewed 4th July 2022, <http://www.
mot.gov.cn/2020/jigou/syj/202112/t20211213_3631052.html> customs.gov.cn/customs/302249/302266/302267/4172300/index.html>

International Liner Shipping Sub-working Group 369

 regulated in the way as charges collected by carriers, Recommendations
which creates a lack of transparency with regard to • Publish detailed guidelines specifying that filings of new
Shanghai Shipping Exchange (SSE) filing criteria. charges, or increments of existing charges, will be
approved by the MOT/SSE within a specific timeline if
Assessment reasonable justification is provided.
Regulators in China have acknowledged the consensus • Create certainty for commercial carriers in commercial
reached between the EU and the MOT that “ocean operations by providing clear guidance on how to
freight rates should be determined by the market, not comply with SSE filing requirements and by making
by government interventions or instructions.” 6 This transparent the rationales for container liner shipping
consensus underpins the collection of charges by charges.
carriers, including freight, surcharges, behavioural • Impose tariff filing and audit requirements on NVOCCs,
charges and fees for value-added services. However, freight forwarders and booking agents, similar to
the regulations are still vague, which makes it difficult those imposed on carriers.
for carriers to achieve compliance. It also causes
misunderstandings among shippers and makes it difficult 3. Provide Flexibility when Determining Non-
for carriers to file their freight rates and charges with the compliance During Freight Filing Audits
SSE. For instance, Article 15 of the revised Regulations
of the PRC on International Maritime Transportation only
indicates the classification of filing freight rates;7 and
Concern
the SSE only mentions that ocean freight and maritime-
The zero-tolerance standard applied to data reporting
related surcharges, including terminal handling charges
and filing errors has made it almost impossible for
(THC), are included, without defining categories of
carriers to achieve full compliance during freight filing
charges nor specifying the criteria under which filings will
audits conducted by the SSE.
be accepted.8

Assessment
Additionally, due to high demand and congestion at ports
International carriers have made significant efforts to
as a consequence of COVID-19 measures, ocean freight
in Services

increase the accuracy of their freight rate filings, and

rates grew to historically high levels. This situation, in
Services

considerable improvements have been achieved so

conjunction with the vagueness of relevant regulations,
far. However, considering the large amount of data
Trade

makes it difficult for carriers to file rate increases with the

Four:Four:

filed with the SSE on daily basis, it is inevitable that

SSE.
human error and/or information technology (IT) system
Section

malfunctions will sporadically result in erroneous data

Section

It is important to note that the extremely high rates that

filings. In such situations, it is neither fair nor reasonable
some shippers experienced, which was reported by the
to attribute all such errors to a single reporting subject,
media, were likely due to players in the logistics chain
as it not the intention of either IT systems or personnel
other than carriers, which are not subject to ceiling
to make compliance mistakes. During audits of carriers’
rates as filed by carriers with the SSE. This led to unfair
data, there is no flexibility provided by the SSE in
and misdirected criticism of carriers. In the interests of
acknowledging carriers’ explanations as to the root
fairness and transparency, non-vessel common carriers
cause of the mistake, and even in cases when a minimal
(NVOCCs), freight forwarders and booking agents should
number of unintentional mistakes have been made, all
therefore be subject to tariff filing and audit requirements,
liner operators in question will be subject to a penalty of
similar to those imposed on carriers.
no less than Chinese yuan (CNY) 20,000 but no more
6 The long-term consensus reached between the EU and the MOT that “ocean than CNY 100,000.9 The working group believes that
freight rates should be determined by the market, not by government interventions carriers would be encouraged to further improve filing
or instructions,” was quoted in the media press release concerning the MOT’s
responses to recent high freight rates on the Chinese Government website: accuracy if the authorities took a more collaborative
24th June 2021, viewed 8th July 2022, <http://www.gov.cn/hudong/2021-06/24/ approach instead of taking punitive action when
content_5620615.htm>
7 Regulations of the PRC on International Maritime Transportation, Central unintentional mistakes are made.
Government of PRC, 2019, viewed 19th April 2022, <http://www.gov.cn/gongbao/
content/2019/content_5468927.htm> 9 Regulations of People's Republic of China on International Maritime Transportation,
8 About Freight Filing System, SSE, viewed 19th April 2022, <https://en.sse.net.cn/ Central Government of PRC, 2019, viewed 19th April 2022, <http://www.gov.cn/
filingen/aboutfiling.jsp> gongbao/content/2019/content_5468927.htm>

370 International Liner Shipping Sub-working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

Recommendation Kong Convention) was adopted by the IMO in 2009.10 It

• Establish guidance for exceptional cases and allow a will have a profound positive impact on the environment
reasonable ratio of tolerance when determining non- once it enters into force, however a threshold exists with
compliance during freight filing audits conducted by regard to the number of IMO member states needed to
the MOT/SSE. ratify the convention before it can take effect.

4. Amend Current Regulations that Hold China is a responsible and active country in setting out
Carriers of Dangerous Goods (DG) Liable environmental targets and is also the biggest shipbuilding
country in the world. The ratification by China of the
for Misdeclarations by Shippers
Hong Kong Convention would therefore constitute a
decisive step for the convention to finally enter into force.
Concern
It is not rational to hold carriers liable and impose
Recommendation
penalties on them for the misdeclaration of dangerous
• Ratify the Hong Kong International Convention for the
goods by shippers, as they have no means of detecting
Safe and Environmentally Sound Recycling of Ships.
such cases or preventing them from occurring.

Assessment 6. Monitor the Impact that the Integration of

The current Regulation on Safety Administration of Coastal Ports has on Fair Competition
Dangerous Goods (DG) in Ports, issued by the MOT,
stipulates that carriers are the ultimate entrusted parties Concern
for terminal operation, which makes them liable for The integration of coastal ports and the formation of
misdeclarations of DG and therefore subject to penalties. port groups over the past three years may erode free
However, carriers only receive cargo information from market competition and lead to monopolies, which would
shippers, booking agents or freight forwarders during ultimately undermine the competitiveness and efficiency
the booking stage and have neither right nor ability to of Chinese ports and, by extension, China’s foreign
check a container’s content upon cargo receipt. As such, trade.
asking carriers to take responsibility and bear the legal

Section Four: Services

consequence of any DG misdeclaration is both unfair Assessment
and contrary to international practice. The integration of ports in China over the past three
years may weaken free market competition. These
Recommendation integrations create monopolies and limit terminal
• Amend current regulations that hold carriers liable for operator choices, as they are all controlled by the same
DG misdeclarations, and impose administrative/civil/ operator. This could result in ports increasing handling
criminal liabilities upon the party that initially submits charges, dictating terms of service agreements and
false information. offering little room for negotiating claims from carriers.
Such abuse of their dominant positions would leave
5. Ratify the Hong Kong International Convention carriers with no alternatives.

for the Safe and Environmentally Sound

Recommendations
Recycling of Ships
• Closely monitor potential infringement of competition
law by port groups.
Concern
• Implement measures and controls to prevent post-
The Hong Kong International Convention for the Safe
merger port groups creating monopolies.
and Environmentally Sound Recycling of Ships is yet
to enter into force due to the lack of ratification by IMO
members including China.

Assessment
10 The Hong Kong International Convention for the Safe and Environmentally
The Hong Kong International Convention for the Safe Sound Recycling of Ships, IMO, viewed 19th April 2022, <http://www.imo.org/
and Environmentally Sound Recycling of Ships (Hong en/About/Conventions/ListOfConventions/Pages/The-Hong-Kong-International-
Conventionfor-the-Safe-and-Environmentally-Sound-Recycling-of-Ships.aspx>

International Liner Shipping Sub-working Group 371

 7. Facilitate the Use of Foreign Carriers’ There have been signs of technological decoupling
Empty Containers for Transportation in some industries, and different standards emerging
in different geographies. If that were to happen in the
of Domestically-traded Goods During
shipping industry it would lead to a significant waste
Container Repositioning
of resources and, in the worst case, prevent global
decarbonisation targets from being achieved. Global
Concern
collaboration among multiple stakeholders is critical
Current limitations on using foreign carriers’ empty
for technology development and aligning standards.
containers for domestic transportation during
As China and Europe are global maritime leaders
repositioning decreases efficiency and wastes
they are natural partners to collaborate on developing
resources.
technologies, establishing infrastructure and agreeing
standards for carbon neutral shipping.
Assessment
It is common practice for foreign carriers to arrange
On a side note, local transport authorities in Shanghai
empty container repositioning.11 However, according to
are pushing for the use of shore power in the port of
China’s current customs regulations, these containers
Shanghai by means of dual side Alternative Marine
should remain empty during repositioning from one
Power (AMP) installations. There is a strict deadline for
place to another within Chinese territory. Given the
vessels that are currently equipped with single side
shortage of containers since the outbreak of COVID-19,
AMP facilities to achieve dual side installations by
leaving a container empty during repositioning is a
1 st October 2022. However, due to global bottlenecks in
waste of scarce transportation resources. Combining
shipyard capacity, as well as within China, as a result of
repositioning of international empty containers with
the pandemic, it is recommended that the deadline be
domestic transportation of goods would reduce costs
extended until 31st March 2023.
not only for carriers but also for domestic traders.
Furthermore, it would reduce the carrier’s carbon
Recommendations
footprint.
• Build partnerships between research institutions,
shipping companies, shipbuilders and their suppliers
in Services

Recommendation
in China and Europe to develop and adapt carbon
Services

• Facilitate the use of foreign carriers’ empty containers

neutral technologies.
for the transportation of domestic goods during
Trade

• Agree on technical standards to avoid potential

Four:Four:

container repositioning.
inefficiencies and waste, through approaches such
Section

as enhanced cooperation within the IMO.

8. Collaborate with the International Liner
Section

• Cooperate on the establishment of a global

Shipping Community to Decarbonise infrastructure ensuring availability of carbon neutral
the Industry fuels.
• Extend until 31st March 2023 the grace period for
Concern dual side AMP installations for vessels calling at
International collaboration and alignment are critical for Shanghai.
the maritime industry to deliver decarbonisation targets
prescribed by governments in China and Europe.
9. Provide Flexibility in COVID-19 Policies to
Assessment
Facilitate Seafarer Crew Changes and Dry
China has committed to becoming carbon neutral Docking by Foreign-flagged Vessels
by 2060 and the EU has committed to being so by
2050. In order to achieve those ambitious targets, Concern
new technologies need to be adopted, and multiple Excessively strict COVID-19 policies have made it de
stakeholders need to work together, be it government facto impossible for international crew change in China
authorities, industry and consumers. and a timely release of seafarers who are infected by
COVID-19.
11 What is Empty Container Repositioning (and What Causes It)?, Shipsta,
20th May 2021, viewed 19th April 2022, <https://blog.shipsta.com/en/empty-
containerrepositioning>

372 International Liner Shipping Sub-working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

Assessment
China has made great achievements in containing the
spread of COVID-19 throughout the country, thereby
making significant contributions towards global trade.
However, trade is still being hindered because China
continues to apply extremely stringent restrictions on
international seafaring crews.

For seafarer crew changes in China to be permitted,

current regulations demand all-crew COVID-19 tests,
as well as no foreign port calls within 14 days. Criteria
for identifying positive cases are also excessively strict,
resulting in the detention of seafarers at Chinese ports
for unnecessarily long periods. The same criteria also
apply to vessels dry docking at Chinese shipyards. In
the interests of restoring global trade to pre-pandemic
levels, it is recommended that flexibility be applied to
COVID-19 test standards for seafarers onboard foreign-
flagged vessels in a way that is proportionate to the
diminishing effect of the COVID-19 virus.

Recommendation
• Provide flexibility in COVID-19 policies to facilitate
seafarer crew changes in China and to reduce the
detention period of infected seafarers.

Abbreviations

Section Four: Services

AMP Alternative Marine Power
CNY Chinese Yuan
COVID-19 Coronavirus Disease 2019
DG Dangerous Goods
ETS Emissions Trading System
EU European Union
GAC General Administration of Customs
IMO International Maritime Organization
MOT Ministry of Transport
NVOCCs Non-Vessel Operating Common
Carriers
PRC People’s Republic of China
SSE Shanghai Shipping Exchange
THC Terminal Handling Charges

International Liner Shipping Sub-working Group 373

5 Section Five
Financial Services
 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

Financial Services

The European Chamber has three separate working groups that cover the financial services sector:

• Banking and Securities

• Non-banking Financial Institutions
• Insurance

European financial service companies in China have witnessed an overall acceleration of opening-
up in the financial sector, with the issuing of a series of financial industry and capital market policies,
and further relaxing of market access restrictions.

On 15th July 2021, the Chinese Communist Party’s Central Committee and the State Council
issued guidelines on supporting reform and opening up in the Pudong New Area and making it a
‘pioneer’ area for socialist modernisation. The guidelines aim to support the Pudong in exploring
the implementation of capital account convertibility; renminbi (RMB) and foreign exchange futures
trading in the China Foreign Exchange Trading System (CFETS); and developing offshore RMB
trading on the condition that any related risks are controllable. In September 2021, the Bond Connect
programme between the Mainland China and Hong Kong was launched, allowing domestic investors
access to bonds traded and circulated in the Hong Kong bond market through relevant institutions in
the Mainland and Hong Kong. In October 2021, the Cross-boundary Wealth Management Connect
Scheme in the Greater Bay Area (GBA) was launched, with 20 banks participating.1 This scheme
will allow Hong Kong and Macao investors to access qualified investment products or wealth
management products of the corresponding bank in Mainland China and the GBA, and vice-versa for
Mainland investors, through the closed-loop capital channel of the banking system in the GBA. The
total volume of the scheme will be up to a total of CNY 150 billion.

On 21st July 2021, Premier Li Keqiang stressed during a State Council executive meeting China’s
intention to continue to deepen financial reform and opening, and to optimise market access for
foreign banks, insurance and other financial institutions. Meanwhile, foreign exchange management
pilot projects took place in the Shanghai Free Trade Zone, the GBA and the Hainan Free Trade Port,
among other areas, to prepare for more high-level institutional openings.
Section Five: Financial Services

The working groups appreciate China’s continuous efforts to reform and open its financial services
sector, and welcome the policies and measures taken to stabilise the financial market under the dual
pressures of the pandemic and economic downturn. However, members of the working groups report
that they are still facing restrictions and barriers in terms of market access and competition with local
enterprises.

According to the European Chamber Business Confidence Survey 2022 (BCS 2022), a considerable
number of European enterprises (36 per cent) believe they have received unequal treatment in terms
of market access, communication with the Chinese Government and access to subsidies. More than

1　Cross-Boundary Wealth Management Connect Scheme in the Greater Bay Area, Hong Kong Monetary Authority, 20th June 2020, viewed 13th July 2022,
<https://www.hkma.gov.hk/eng/news-and-media/insight/2020/06/20200629/>

Financial Services 375

 40 per cent of respondents report that they missed business opportunities in 2021 due to market
access restrictions or regulatory barriers, a continuation of a trend that has changed little over the
past seven years.2

For the banking sector, foreign banks’ access to the CFETS interbank market is capped at two
times their operative capital in China, which heavily impacts their operations as these banks
only have limited capital compared with their local competitors. This issue has been raised in
the Banking and Securities Working Group Position Paper for 15 consecutive years. Lifting this
restriction would result in a more active and liquid RMB interbank market that would benefit all
banks. In addition, the Carbon Emission Reduction Facility programme, launched in November
2021 by the People’s Bank of China (PBOC) is in its initial pilot stage, with only Chinese banks
eligible for application as of the time of writing. Not giving foreign banks equal treatment to apply
will restrict both foreign banks' and their clients’ capabilities to fulfill their zero-emission pledges.3

For the non-banking sector, on 31st December 2021, the PBOC issued the Regulations on Local
Financial Supervision and Administration (Draft for Comments) (Draft Regulation).4 If the Draft
Regulation were to be enforced as proposed, financial leasing companies would in principle not be
allowed to engage in cross-provincial business. Meanwhile, 'golden' financial leasing companies—
all majority-owned by Chinese banks or state-owned enterprises—would be excluded from the
scope of the Draft Regulation and could continue to work nationwide.5

China’s cybersecurity and data governance landscape is becoming increasingly difficult for many
businesses to navigate, especially foreign financial service providers. Data localisation requirements
force foreign banks to partly disconnect their China operations from their global systems, which
is increasingly constraining their ability to provide cross-border services – one of the few areas
in which they can currently add value in the Chinese market. This is also a negative outcome for
their foreign clients in China and their Chinese clients looking to expand overseas. According to
the BCS 2022, more than 60 per cent of respondents in the financial services industry report that
China’s critical information infrastructure requirements create obstacles for further investment, and
54 per cent expect 'secure/autonomous and controllable' technologies guidelines to have a similar
negative impact.6 Therefore, the working groups advocate refraining from mandating banks and
financial institutions to localise their data or their entire information technology systems, and instead
adopt a risk-based approach that is aligned with global best practices.
Section Five: Financial Services

The financial services working groups will continue to monitor progress in the opening up of China’s
financial sector. Through careful observations and detailed recommendations in the following
papers, the working groups hope to make meaningful contributions to this end.

2　European Business in China Business Confidence Survey 2022, European Union Chamber of Commerce in China, 20th June 2022, viewed 30th June
2022, <https://www.europeanchamber.com.cn/en/publications-business-confidence-survey>
3　The People's Bank of China launched a carbon reduction support tool, PBOC, 9th November 2021, viewed 30th June 2022, <http://chengdu.pbc.gov.cn/
chengdu/129314/4385264/index.html>
4　Regulations on Local Financial Supervision and Administration (Draft for Comments), PBOC, 31st December 2021, viewed 30th June 2022, <http://jr.jl.gov.
cn/jrzc/gjbwgzjwj/202201/t20220104_627855.html>
5　Under the current regulatory framework, leasing institutions fall into two categories: the so-called 'golden' financial leasing companies (金融租赁公司)
regulated from the beginning by the China Banking and Insurance Regulatory Commission, and the financial leasing companies (融资租赁公司) originally
regulated by the Ministry of Commerce.
6　European Business in China Business Confidence Survey 2022, European Union Chamber of Commerce in China, 20th June 2022, viewed 30th June
2022, <https://www.europeanchamber.com.cn/en/publications-business-confidence-survey>

376 Financial Services

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

Banking and Securities Working Group

Key Recommendations
1. Lift Constraints that have a Disproportionate Impact on Foreign Banks’
Business Development
1.1 Allow Foreign Banks to Become Bond Connect Market Makers Without the
Precondition of Being a Chinese Interbank Bond Trial Market Maker
• Grant qualified foreign banks the status of Bond Connect market makers without them first
having to become a Chinese Interbank Bond trial market maker.
1.2 Address Funding Limitations for Foreign Banks
• Ease the ‘two-times’ capital restriction for small and medium-sized banks in China.
• Allow foreign banks to borrow money overseas and swap directly to renminbi (RMB) to fund
themselves or their loan portfolio.
• Simplify the procedures for foreign banks to issue RMB-denominated bonds (panda bonds),
‘Chinese yuan (CNY bonds)’ and asset-backed securities for funding purposes.
• Permit foreign bank branches to issue ‘CNY bonds’.
• Remove the requirement to provide two years’ worth of financial data for China operations
when a new branch applies to participate in the National Interbank Lending Market and trade
on the RMB Money Market on the China Foreign Exchange Trade System platform.
1.3 Address the Major Impacts of Macro Prudential Policy on the Foreign Banking
Industry
• Provide flexibility to small-sized banks’ Macro Prudential Assessment capital adequacy ratio
(CAR) calculations to relax growth pressure in China.
• Set a CAR threshold for large or systemically important banks.
• Allow netting in cross-border financing exposure calculations.
• Ease the long-term foreign debt quota for foreign financial institutions well as foreign-invested
enterprises in China.
1.4 Provide More Flexibility on Ratios, Especially Monitoring Ones, and Allow Proper
Justification
• Consider local tier-1 capital as a stable resource in liquidity ratios (liquidity matching ratios
(LMRs) and loan-to-deposit ratios (LDRs)), and treat deposits from parent institutions as Section Five: Financial Services

corporate deposits.
• Afford intragroup funding the same value as ‘corporate deposits’ in the liquidity ratio.
• Give full exemption for intragroup exposure during large exposure management.
• Increase the weight for bonds and certificates of deposit in the LMR for a residual maturity
below three months, and include intragroup funding in the LDR at a reasonable weight.
• Consider foreign banks’ situation and provide flexibility or waive the requirement of deposit
deviation ratio for banks with a small balance sheet.
• Treat deposits from consumer finance companies as corporate deposits in the liquidity ratio

Banking and Securities Working Group 377

 calculation, taking into account their stability.
• Treat auto finance company loans as corporate loans in the LMR.
• Increase the single borrower limit for acquisition finance loans to the same as those for other
loans at 10 per cent of the tier-1 capital.
1.5 Draw on Foreign Banks’ Knowledge and Experience, and Extend Them Equal
Access to Apply for the People’s Bank of China’s (PBOC’s) Carbon Emission
Reduction Facility
• Extend equal access to foreign banks to apply for the PBOC’s Carbon Emission Reduction
Facility.

2. Reduce Entry Barriers and Optimise the Regulatory System for Foreign
Entities’ Participation in China’s Capital Markets
2.1 Adhere to the Same Securities Custody Licence Requirement in Implementation and
Use Clear Wording for Securities Fund Custody Licence Application Requirements
• Establish coordination between the China Securities Regulatory Commission (CSRC) and
the China Securities Depository and Clearing Corporation Limited (CSDC) to remove the
requirement on paid-in capital of no less than CNY 8 billion.
• Clarify foreign bank subsidiaries’ eligibility to rely on their parent company’s net assets value
and other financial indicators when applying for a securities fund custody licence.
2.2 Allow Qualified Foreign Fund Service Providers to Offer Fund Accounting (FA)
and Transfer Agency (TA) Services to Private Fund Managers Registered with the
Asset Management Association of China (AMAC)
• Allow qualified foreign fund service providers to offer FA and TA services to private fund
managers registered with the AMAC.

3. Develop China’s Futures and Derivatives Market

3.1 Allow Qualified Foreign Banks to Trade China Government Bond Futures
• Allow qualified foreign banks to trade China government bond futures.
3.2 Allow Onshore Banks to Engage in Non-hedging, Cross-border Derivatives
Transactions with Parent Banks
• Allow onshore banks to engage in non-hedging, cross-border derivatives and either remove
the relative prohibition from Article 17 of the Draft Guidance or define certain cross-border
Section Five: Financial Services

derivatives transactions that could be carved out from the prohibition.

3.3 Remove the Three Per Cent Market Risk Capital Ratio Limit
• Adhere to the principle of reciprocity and cancel the three per cent market risk capital ratio
limit.

4. Limit Data Localisation and Prescriptive Cybersecurity Requirements

4.1 Allow Free Cross-border, Intra-group Data Flows, Reduce the Scope of ‘Important
Data’ and Facilitate Cross-affiliate Information Sharing
• Refrain from mandating banks to localise their data or their entire information technology
systems.
• Define clear compliance guidance with regard to ‘data localisation/copy’ versus ‘system

378 Banking and Securities Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

localisation’ for the banking industry.

• Allow companies and their headquarters/subsidiaries to conduct intra-party, cross-border data
transfers and uphold the principles of free movement of data that China signed up to in the Group
of 20 Osaka Leaders Declaration.
• Remove unnecessary information-sharing firewall rules and allow cross-affiliates to share
information.
• Define clearly critical data category in banking industry as guidance for FIs on critical data
identification, to avoid creating unreasonable compliance risks and costs for multinational financial
institutions.
• Promulgate clear implementation rules on both the Personal Information Protection Certificate
and the Standard Template to facilitate sharing of personal information among cross-affiliates.
4.2 Adopt International Best Practices on Cybersecurity and Technology, and Reduce
the Scope of Critical Information Infrastructure (CII)
• Adopt a regulatory approach to cybersecurity and CII management that is risk-based, aligned with
global best practices and avoids mandating the adoption of certain products or services.
• Issue a CII operator identification rule for the banking industry to ensure efficient and effective
protection.
4.3 Adopt Safe and Sound Cybersecurity and Technology Supervisory Practices
• Recognise risks associated with mandated penetration testing and allow for firm-led penetration
testing for firms with such capabilities and resources.
• Adopt industry best practices for penetration testing as outlined in the updated Global Financial
Market Association’s Framework for the Regulatory Use of Penetration Testing in the Financial
Services Industry.

Introduction to the Working Group 2.38 per cent in 2007 to 1.2 per cent in 2019,1 which
is significantly lower than in other emerging markets.
The Banking and Securities Working Group represents
However, within this confined environment, foreign
around 40 banking and securities financial institutions
banks continue to develop steadily.
(FIs) in China. The working group engages with the
China Banking and Insurance Regulatory Commission
Moving forward, China’s financial sector will need Section Five: Financial Services
(CBIRC) and other financial services regulators to
regulators to take a more systematic approach to
improve the operating environment for European
implementing essential reforms, such as: setting up a
banking and securities enterprises in China.
clearer market governance framework; encouraging
greater integration of international experiences; allowing
Recent Developments more international rating agencies into the market; and
Although there has been greater opening of financial implementing better auditing regulations.
services sector since 2018, and the 2020 Negative List
for Foreign Investment abolished the investment limits The United States (US)-China ‘Phase One’ Trade Deal
for foreign banks, the sector is still strictly controlled.
1　 The latest figures show that total assets of foreign banks in China are Chinese
Foreign banks’ market share in terms of total assets yuan (CNY) 3.37 trillion, less than 1.2 per cent of total assets of the Chinese
continued to decline in recent years from a peak of banking industry. See: Foreign Banks Establish 41 Legal Person Lenders in
China, Total Assets Approach $480 Billion, China Banking News, 12th December
2019, viewed 26th April 2022, <http://www.chinabankingnews.com/2019/12/12/
foreign-banks-establish41-legal-person-lenders-in-china-total-assets-approach-
480-billion/>

Banking and Securities Working Group 379

 in 2020 was seen as a small step forward in cementing disclosure by listed companies is encouraged by
market opening for foreign banks in China, particularly regulators, with the aim of helping investors prejudge
with regard to custody licences, underwriting and the listed companies’ future sustainability.
elimination of foreign equity limits. Nevertheless, the
outbreak of COVID-19, and the subsequent introduction Although China established its basic ESG information
of stringent measures to try and contain the Omicron disclosure framework in September 2018, currently,
variant—in particular the shutdown of Shanghai, China’s listed companies in China are only required by the
financial centre—delayed further opening up. China Securities Regulatory Commission (CSRC) to
disclose ESG information voluntarily. Furthermore,
First Basic Law for China’s Futures and Derivatives although the Governance Guidelines of Listed
Market Companies,3 revised by the CSRC, is a fundamental
On 21 st April 2022, the Standing Committee of the legal framework to regulate disclosure activities, it does
National People's Congress passed the Futures and not contain specific provisions for disclosure standards
Derivatives Law, which took effect on 1st August 2022. and formats. The overall disclosure system is still yet
This is a milestone in the legal construction of a Chinese to take shape and disclosure standards still need to be
futures and derivatives market and further opening to unified. More guidelines are therefore needed to further
international integration. Article 32 and Article 37 of improve the ESG information disclosure regulatory
this law recognise the legal certainty and enforceability system.
of the ‘single agreement’ and ‘close-out netting’
mechanisms respectively. This is a positive move China began carbon emissions trading in 2010. The
and should precipitate: 1) the incorporation of ‘close- development of its carbon market can be roughly
out netting’ in the calculation method under the macro divided into two stages. Carbon emissions trading
prudential framework; and 2) clear supplementary was first piloted in eight cities and provinces from
provisions concerning the suspension of netting in the September 2010 to June 2021; since July 2021, carbon
draft Financial Stability Law. emissions have been traded nationwide, with the pilots
still functioning concurrently.
The Development of Carbon Trading and Environment,
Social Responsibility And Corporate Governance In preparation for the second stage, on 19th April 2021,
(ESG) in China’s Capital Markets the Guangzhou Futures Exchange (GFE) was officially
The United Nations-supported Principles for inaugurated. The China National Energy Trading System
Responsible Investment (UN PRI) was initiated in (ETS) - Shanghai Environment and Energy Exchange
2006,2 to promote responsible investments in global (SHEEX) launched the national-level Carbon Emission
capital markets as well as the sustainable development Allowance (CEA) on 22nd June 2021.
of the global financial system. Under the guidance of
this initiative, the concept of ESG has been gradually As the national ETS matures and expands to cover
Section Five: Financial Services

penetrating global markets and gaining increasing more sectors, it is likely that the provincial-level ETSs
attention from both investors and financial institutes. will be gradually phased out. In the meantime, given
There are now more than 4,800 global signatories to their more than 15 years’ worth of experience in risk
the UN PRI, including asset holders, asset managers management, establishing pricing mechanisms and
and financial service providers, with total assets under liquidity setup, allowing foreign banks to participate
management (AUM) exceeding US dollar (USD) 120 in these two carbon trading markets would help to
trillion. accelerate the sustainable development of the ETS.

From 2018, the pace of Chinese institutions signing up

to the UN PRI accelerated significantly as enthusiasm
for investments based on ESG principles increased.
In the securities market, ESG-related information

2　 The Principles for Responsible Investment (UN PRI), Nomura, viewed 4th July 3　 Governance Guidelines of Listed Companies, CSRC, 30th September 2018,
2022, <https://global.nomura-am.co.jp/responsibility-investment/investors/un- viewed 26 th May 2022, <http://www.csrc.gov.cn/csrc/c101864/c1024585/
pri.html> content.shtml>

380 Banking and Securities Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

Key Recommendations banks have limited capital. Lifting this restriction would
result in a more active and liquid RMB interbank market
1. Lift Constraints That Have a Disproportionate that would benefit all banks.
Impact on Foreign Banks’ Business
Development In addition to the ‘two-times’ capital restriction, State
1.1 Allow Foreign Banks to Become Bond Connect Administration of Foreign Exchange (SAFE) approval
Market Makers Without the Precondition of is required before the foreign debt of international
Being a Chinese Interbank Bond Trial Market FIs can be exchanged to RMB or sold on through a
Maker swap deal. Considering foreign banks’ limited access
to onshore liquidity (due to small balance sheet size,
Concern limited corporate deposits base, no retail banking
Foreign banks encounter difficulties qualifying to activity), allowing them to swap overseas sources into
become Bond Connect market makers, and thus cannot RMB would help the origination of commercial loans to
serve their offshore clients’ needs for bond price quotes Chinese clientele and support the local economy.
on this channel.
Foreign banks—depending on whether they are
Assessment incorporated in China or operating as a branch—
Foreign banks—which very often face stricter face problems associated with the issuance of any
compliance requirements and are smaller than their of the three distinct types of RMB-denominated debt
Chinese peers in terms of balance sheet size—cannot securities: onshore bonds issued by onshore Mainland-
easily compete on bond-trading turnover and inventory based issuers; onshore bonds issued by offshore
size. However, foreign banks usually have bigger issuers (‘panda bonds’); and bonds issued offshore by
overseas client bases that are eager to trade with both onshore and offshore issuers (for example, Dim
them via Bond Connect, and to get market updates Sum, Lion City).4
and recommendations to access the onshore Chinese
Interbank Bond Market (CIBM). Therefore, difficulties in Qualifying locally-incorporated, foreign banks are
qualifying to become Bond Connect market makers are allowed to issue debt securities and onshore asset-
limiting foreign banks’ ability to develop business and backed securities (ABS) in the CIBM for funding
bring investment into China. purposes once pre-approved by the CBIRC and the
People's Bank of China (PBOC). 5 However, foreign
Recommendation banks’ branches are still not allowed to do so.
• Grant qualified foreign banks the status of Bond
Connect market makers without them first having to Recommendations
become a CIBM trial market maker. • Ease the ‘two-times’ capital restriction for small and
medium sized banks in China.
1.2 Address Funding Limitations for Foreign • Allow foreign banks to borrow money overseas and Section Five: Financial Services
Banks swap directly to RMB to fund themselves or their
loan portfolio.
Concern • Simplify the procedures for foreign banks to issue
Foreign banks face funding restrictions due to stringent RMB-denominated bonds (panda bonds), ‘Chinese
regulatory approvals, have limited access to the China yuan (CNY bonds)’ and ABS for funding purposes.
Foreign Exchange Trade System (CFETS) interbank • Permit foreign bank branches to issue ‘CNY bonds’.
market and also encounter problems associated with • Remove the requirement to provide two years’ worth
the issuance of renminbi (RMB)-denominated debt of financial data for China operations when a new
instruments in China, all of which stifle their growth. branch applies to participate in the National Interbank

4　 Emerging Market Focus – Panda: From Zero to a USD 2trn Market in Ten Years
Assessment
[Client Note], Crédit Agricole Corporate & Investment Bank, 3rd May 2016,
Access to the CFETS interbank market for foreign viewed 26th April 2022. Please note, this was a non-public client note courtesy
of Crédit Agricole.
banks is capped at two times their operative capital in
5　 National Bond Market Issuance Regulations for Financial Bonds, ChinaBond, 1st
China, which heavily impacts their operations as these June 2005, viewed 26th April 2022, <http://www.chinabond.com.cn/Info/843356>

Banking and Securities Working Group 381

 Lending Market and trade on the RMB Money Market 3) Long-term foreign debt quota limit
on the CFETS platform. The Circular YF [2017] No. 9 set the upper limit of the
cross-border financing risk-weighted balance for both
1.3 Address the Major Impacts of Macro Prudential foreign FIs as well as foreign-invested enterprises in
Policy on the Foreign Banking Industry China. However, it does not allow additional foreign
debt registration above the upper limit unless otherwise
Concern approved by relevant foreign debt management
The calculation of broad credit growth under the departments. This current framework represents an
Macro Prudential Assessment (MPA) framework has obstacle to banks that want to service businesses with
a negative impact on foreign banks’ ability to grow genuine financing needs.
business in China.
Recommendations
Assessment • Provide flexibility to small-sized banks’ MPA CAR
1) Cross-border financing updates calculations to relax growth pressure in China.
Effective from 25 th May 2021, the PBOC lifted the • Set a CAR threshold for large or systemically important
cross-border financing leverage ratio under the MPA for banks.
relatively small-sized banks (including subsidiaries and • Allow netting in cross-border financing exposure
branches of foreign banks)—whose capital size is below calculations.
CNY 100 billion—from 0.8 to 2.0, with an additional • Ease the long-term foreign debt quota for foreign FIs
initial financing quota of CNY 10 billion for each bank as well as foreign-invested enterprises in China.
provided for. This encouraging move addresses the
constraints set by Circular YF [2020] No. 301, and 1.4 Provide More Flexibility on Ratios, Especially
demonstrates the PBOC’s sensible and sound use of its Monitoring Ones, and Allow Proper
counter-cyclical policy tool. Justification

2) Broad credit growth Concern

The calculation of broad credit growth under the PBOC Close control exercised over many ratios, including the
is linked to targeted M2 money creation.6&7 That being loan-to-deposit ratio, the deviation ratio and intra-group
said, both government bonds and policy banks’ bonds large exposure, disrupts foreign banks’ daily activities.
will remain incorporated into the calculation of broad
credit growth year-on-year. However, according to the Assessment
MPA requirement, even though the positive deviation According to the Administrative Measures on Liquidity
of broad credit growth from targeted M2 growth falls Risk of Commercial Banks, 8 banks must maintain a
within the range of 20–25 per cent, failure to meet the liquidity matching ratio (LMR) and a high-quality liquid
minimum requirements for capital adequacy ratio (MPA asset adequacy ratio (HQLAAR) of over 100 per cent,
Section Five: Financial Services

CAR) will lead to foreign banks’ MPA assessment result as well as a low loan-to-deposit ratio (LDR). However,
being completely rejected, no matter if the bank is large the development of a bank’s corporate lending
or small. capabilities for its local clients could be improved by
modifying some constraints on the local liquidity ratio
In order to provide more space for broad credit growth, imposed on subsidiaries:
it would be preferable to adopt different MPA CAR
calculations for banks of different sizes. • Local tier-1 capital is not considered a stable resource

6　 Broad credit growth refers to credit growth that covers all credit activities
from depository/lending institutes and banks, inclusive of deposit, loan and
settlement business.
7　 M2 refers to the standard measures of the money supply. The sum of M2 is M1
(the sum of currency held by the public and transaction deposits at depository
institutions, which are FIs that obtain their funds mainly through deposits from
the public, such as commercial banks, savings and loan associations, savings
banks and credit unions) plus savings deposits, small-denomination time 8　 CBIRC Issues Measures to Manage Liquidity Risk for Commercial Banks,
deposits (those issued in amounts of less than USD 100,000) and retail money Moody’s Analytics, 25th May 2018, viewed 26th April 2022, <http://www.cbrc.gov.
market mutual fund shares. cn/chinese/newShouDoc/8189EEE949DB48F8993ACCCA638ED24B.html>

382 Banking and Securities Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

for ‘sources of weighted funds’ in the LMR.9&10 Tier-1 face regulatory penalties such as access restrictions,
capital is also not counted as a resource for the LDR, downgraded ratings, business restrictions and punitive
whereas in practice it is a stable source of funding DDR requirements.
used to develop a foreign bank’s corporate lending
capacity. On 2nd April 2021, the CBIRC announced through the
• For the LMR, ‘interbank lending’ does not distinguish Circular on Clarifying the Regulatory Requirements
between intragroup and ‘external/market’ interbank for Foreign funded Banks on Large Risk Exposures of
borrowing, although the funding comes from different Their Parent Bank Groups that it would exempt foreign
types of sources.11 FIs in China from intragroup exposure during large
• In the HQLAAR, the intragroup deposit is treated exposure management.14 However, the intra-group ratio
as an interbank deposit for financing purposes, is now considered a monitoring ratio and banks are
with a less favourable weight (100 per cent) than being asked to work on lowering it.
a corporate deposit (35 per cent). However, the
intragroup deposit is very stable and tends to stay Foreign direct investment in China has increased
with the subsidiary in China for longer periods than substantially over the past few years, and inflows
normal corporate deposits.12 hit a record high in 2021 with a 14.9 per cent surge
• In the LMR, an auto finance company (AFC) is treated from the previous year.15 This has created numerous
as interbank instead of a ‘corporate’ counterpart, opportunities in the onshore acquisition finance market,
which requires higher LMR funding. However, the which remains attractive for foreign capital. However,
banking relation with AFCs is driven more by a according to CBIRC’s Guidelines to Risk Management
corporate relation rather than an interbank relation of Commercial Banks' Merger and Acquisition Loans,16
and should therefore be treated as such. loans dedicated for acquisition finance cannot exceed
• In the LMR, the weight for bonds issued and five per cent of the bank’s tier-1 capital for a single
certificates of deposit (CD) below three months (zero borrower, while other loans are allowed up to 10 per
per cent), similar to interbank borrowing or deposits cent, which limits development of this investment
from banks, are too low and would not favour the market.
market of bonds or CD issuances from foreign
banks. Recommendations
• Consider local tier-1 capital as a stable resource in
While initially the CBIRC had allowed some flexibility for liquidity ratios (LMRs and LDRs), and treat deposits
small foreign banks in cases of DDR ratio overshoots from parent institutions as corporate deposits.
resulting from passive deposit-taking from customers, • Afford intragroup funding the same value as
this was prohibited as of June 2018.13 As a result, it is ‘corporate deposits’ in the liquidity ratio.
more difficult for small banks to control the DDR ratio • Give full exemption for intragroup exposure during
variation due to passive deposit banking. Sometimes large exposure management.
banks have to sacrifice customers' deposit needs and • Increase the weight for bonds and certificates of Section Five: Financial Services
service quality to meet the DDR ratio requirement, or deposit in the LMR for a residual maturity below
three months, and include intragroup funding in the
9　 Tier-1 capital describes the capital adequacy of a bank and refers to core LDR at a reasonable weight.
capital that includes equity capital and disclosed reserves. From a regulator’s
point of view, tier-1 capital is the core measure of the financial strength of a • Consider foreign banks’ situation and provide
bank because it is composed of core capital. See What Is Tier 1 Capital?, flexibility or waive the requirement of deposit
Investopedia, 9th May 2019, viewed 25th March 2021, <https://www.investopedia.
com/terms/t/tier1capital.asp> deviation ratio for banks with a small balance sheet.
10 CBIRC Issues Measures to Manage Liquidity Risk for Commercial Banks,
Moody’s Analytics, 25th May 2018, viewed 26th April 2022, <http://www.cbrc.gov. 14 Circular of the General Office of the China Banking and Insurance Regulatory
cn/chinese/newShouDoc/8189EEE949DB48F8993ACCCA638ED24B.html> Commission on Clarifying the Regulatory Requirements for Foreign-funded
11　Intra-group funding is more stable than interbank funding given the relation Banks on Large Risk Exposures of Their Parent Bank Groups, CBIRC, 2nd
between the subsidiary and its parent entity. April 2021, viewed 26th May 2022, <http://www.cbirc.gov.cn/cn/view/pages/
12　In the same fashion, in the HQLAAR, corporate finance companies (CFCs) ItemDetail.html?docId=981215&itemId=928&generaltype=0>
deposits are treated as interbank deposits. However, CFCs’ funding is largely 15　China's FDI inflow up 14.9% to record high in 2021, State Council, viewed 20th
made up of deposits of group member entities that are more than three months June 2022, <http://english.www.gov.cn/archive/statistics/202201/13/content_
old, and hence are very stable. WS61e011f5c6d09c94e48a394c.html>
13　Order [2018] No. 48, CBIRC, 18th June 2018, viewed 26th April 2022, <http:// 16　Guidelines to Risk Management of Commercial Banks’ Merger and Acquisition
www.cbirc.gov.cn/cn/view/pages/ItemDetail.html?docId=181941&itemId=928&g Loans, CBIRC, 12nd March 2015, viewed 12nd July 2022, <https://www.cbirc.gov.
eneraltype=0> cn/cn/view/pages/ItemDetail.html?docId=70196&itemId=915&generaltype=0>

Banking and Securities Working Group 383

 • Treat deposits from consumer finance companies 2. Reduce Entry Barriers and Optimise the
(CFCs) as corporate deposits in the liquidity ratio Regulatory System for Foreign Entities’
calculation, taking into account their stability. Participation in China’s Capital Markets
• Treat AFC loans as corporate loans in the LMR. 2.1 Adhere to the Same Securities Custody
• Increase the single borrower limit for acquisition Licence Requirement in Implementation
finance loans to the same as those for other loans at and Use Clear Wording for Securities Fund
10 per cent of the tier-1 capital. Custody Licence Application Requirements

1.5 Draw on Foreign Banks’ Knowledge and Concern

Experience, and Extend them Equal Access Contradictory requirements from different regulators
to Apply for the PBOC’s Carbon Emission and unclear wording in the requirements constitute
Reduction Facility obstacles for banks applying for custody licences.

Concern Assessment
Not giving foreign banks equal access to apply for the The CSRC’s requirement for paid-in capital to be no
PBOC’s carbon emission reduction facility will restrict less than CNY 8 billion for Qualified Foreign Institutional
both foreign banks' and their clients’ capability to fulfil Investors (QFII) and RMB Qualified Foreign Institutional
net-zero emission pledges. Investor (RQFII) custodian licence applicants was
removed in 2020. However, in practice it is still in force
Assessment due to a contradictory guideline released by the China
The Carbon Emission Reduction Facility programme, Securities Depository and Clearing Corporation Limited
launched in November 2021 by the PBOC, is in its (CSDC).
initial pilot stage, with only Chinese banks eligible to
apply to participate. The aim of the programme is to In addition, the CSRC requires applicants for the
support enterprises registered in China—mainly in Securities Investment Funds Custody Licence to have
the field of clean energy, energy saving and carbon a minimum net capital of CNY 20 billion. Foreign bank
abatement technology at the initial pilot phase—to meet branches are allowed to use their parent company’s net
their pledges of achieving net-zero carbon emissions by assets value and other financial indicators, however it is
2060. not clear if foreign bank subsidiaries are allowed to do
the same.
The working group understands that the facility is being
piloted in a closed testing environment, but since it Recommendations
offers a favourable condition of one-year lending rate • Establish coordination between the CSRC and the
of 1.75 per cent—which can be rolled over twice and CSDC to remove the requirement for paid-in capital
is much lower than the benchmark loan rate—this of no less than CNY 8 billion.
Section Five: Financial Services

represents unequal treatment for foreign banks, which • Clarify foreign bank subsidiaries’ eligibility to rely on
are unable to compete when it comes to supporting their parent company’s net assets value and other
Chinese international clients’ green financing demands. financial indicators when applying for a securities
Additionally, foreign banks have to meet performance fund custody licence.
indicators set by the CBIRC on harmonising green
financing activities in China, so it is reasonable to 2.2 Allow Qualified Foreign Fund Service
expect that they are treated equally in order for them to Providers to Offer Fund Accounting (FA) and
fulfil this regulatory requirement. Transfer Agency (TA) Services to Private
Fund Managers Registered with the Asset
Recommendation
Management Association of China (AMAC)
• Extend equal access to foreign banks to apply for the
PBOC’s Carbon Emission Reduction Facility.
Concern
Foreign fund service providers are not afforded equal
treatment in China’s asset management market.

384 Banking and Securities Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

Assessment programme to trade China Government Bond Futures

The Qualified Domestic Limited Partner (QDLP) pilot on the China Financial Futures market.
programme, introduced in 2013 as the first programme
allowing global asset managers to launch funds in Assessment
China, only allows three global FIs to provide fund On 21st February 2020, the Ministry of Finance (MOF)
administration services to global asset managers’ and the CSRC launched a pilot programme for eligible
wholly foreign-owned enterprises in China. Prior to commercial banks and insurance companies to trade
the change of the Asset Management Association of China government bond futures on the China Financial
China’s (AMAC’s) Administrative Measures in 2017, Futures Exchange. While the five major Chinese banks
the programme had been attracting many global have been allowed to participate in this pilot, no foreign
asset managers for both alternative and traditional bank has yet been included.
investments, and global service providers had facilitated
the initial launch of global asset managers’ businesses Some leading foreign banks in China have become
in China. major holders and traders of China government bond
futures, having provided liquidity in the market, and at
In March 2017, the AMAC published the Administrative the same time accumulating significant government
Measures on Private Investment Fund Service Business bond exposure. Allowing these foreign banks to trade
(Trial) (Trial Administrative Measures), requesting fund government bond futures will help them improve
administrators that provide fund accounting and transfer risk management and further benefit the market
accounting services in China to register with them. As with a broader investor base and improved pricing
of mid-2022, there are around 45 domestic fund service mechanisms.
providers registered with the AMAC, with no foreign
fund service providers approved yet. Recommendation
• Allow qualified foreign banks to trade China
Since the AMAC is still updating the Trial Administrative government bond futures.
Measures with regard to the registration qualifications
for fund service providers, it is not yet clear whether 3.2 Allow Onshore Banks to Engage in Non-
foreign-invested FIs will be allowed to provide FA and hedging, Cross-border Derivatives
TA services. Transactions with Parent Banks

It would be beneficial to China to allow global asset Concern

service providers into the market, as it would not only Prohibiting onshore banks from carrying out cross-
enhance competition between institutions, but also lift border, over-the-counter (OTC) derivatives transactions
the whole industry’s service level, which would help to for non-hedging purposes may have a negative impact
develop a healthy and sustainable eco-system for its on the market.
fund industry. Section Five: Financial Services

Assessment
Recommendation Regulators’ recognition of foreign banks’ legitimate and
• Allow qualified foreign fund service providers to traditional business needs on cross-border derivatives
offer FA and TA services to private fund managers hedging transactions between their onshore entities
registered with the AMAC. (inclusive of incorporated banks and branches) and
their offshore affiliates (normally their head office, or
3. Develop China’s Futures and Derivatives parent banks) was a welcome development.
Market
3.1 Allow Qualified Foreign Banks to Trade However, under the terms set out in Article 2 and
China Government Bond Futures Article 17 of the Guidance on Promoting the Proper
Development of Derivatives Business (Draft for
Concern Comments) (Draft Guidance), jointly issued by the
Foreign banks are not treated equally in the pilot PBOC, the CBIRC, the CSRC and the SAFE on 3rd

Banking and Securities Working Group 385

 December 2021, 17 cross-border OTC derivatives 3.3 Remove the Three Per Cent Market Risk
transactions for non-hedging purposes are clearly Capital Ratio Limit
prohibited to all onshore licensed FIs in China, except
when otherwise provided. Concern
Setting the market risk capital ratio within three per
In accordance with Article 4 of the Revised Interim
cent will hinder foreign banks’ development in China’s
Administrative Measures for Derivative Business of
financial markets.
Banking Financial Institutions, issued by the CBIRC in
2011,18 derivatives for non-hedging purposes include:
Assessment
Based on the Measures for Administration of Derivative
1. RMB/forex derivatives initiated by foreign banks’
Product Transactions of Banking Financial Institutions
institutional clients;
(2011 Revision) circulated by the CBIRC,20 the market
2. cross-border derivatives embedded in structured
risk capital of banking FIs engaged in non-hedging
deposits and traded between the onshore banks
derivative product transactions under the Basel
and their offshore counterparties; and
framework's current standardised approach may not
3. cross-border derivatives transacted intra-group,
exceed three per cent of their core capital.21 Regulatory
although intra-group exposure already has
departments of the CBIRC may implement dynamic
been exempted in the Circular on Clarification
differential management within such capital ratio limits
of Supervisory Requirement of Large Amount
based on the operational situation of the banking
Exposure of Foreign Invested Legal Person Banks
financial institution in question. Calculating market
to Parent Bank Group, which was issued by the
risk capital under the standardised approach must be
CBIRC on 2nd April 2021.19
implemented in accordance with the relevant provisions
of the Measures for Administration of the Capital
Because foreign banks need to provide robust risk
Adequacy Ratio of Commercial Banks.
management products and services to their onshore
clients, allowing onshore banks to engage in these non-
For most locally-incorporated foreign banks, the loan
hedging, cross-border derivatives would be essential
asset scale is still limited due to their lack of retail
for the healthy development of risk management
business, with their strength usually derived from
capabilities of FIs. In addition, foreign-invested banks
derivative business allowing them to leverage global
in China have actual business needs for cross-border
risk management experience and resources. This
derivatives transactions. It is therefore a concern that
means that the CAR can be still maintained at a high-
the prohibition of these cross-border derivatives for non-
level when the market risk capital ratio utilisation
hedging purposes may result in related risk exposures
exceeds three per cent. Giving foreign banks the
remaining with onshore banks.
flexibility to allocate capital in the areas they would like
Recommendation to invest in is important for their development in China.
Section Five: Financial Services

• Allow onshore banks to engage in non-hedging, Foreign banks have robust market risk management
cross-border derivatives and either remove the frameworks to ensure the market risk exposure is
relative prohibition from Article 17 of the Draft monitored within the defined limits. The major market
Guidance or define certain cross-border derivatives risk exposure of foreign banks are CNY risks managed
transactions that could be carved out from the locally, while non-CNY risk is back-to-back hedged with
prohibition. their regional/global centre.

1 7 　G u i d a n c e o n P r o m o t i n g t h e P r o p e r D e v e l o p m e n t o f D e r i v a t i v e s
Business (Draft for Comment), PBOC, CBIRC, CSRC and SAFE, 3 rd
December, 2021, viewed 26 th May 2022, <http://www.pbc.gov.cn/tiaofa 20　Measures for Administration of Derivative Product Transactions of Banking
si/144941/144979/3941920/4406767/2021120317533996960.pdf> Financial Institutions (2011 Revision), CBIRC, 27th January 2011, viewed 26th
18 Revised Interim Administrative Measures for Derivative Business of Banking May 2022, <http://www.cbirc.gov.cn/cn/view/pages/ItemDetail.html?docId=3830
Financial Institutions, CBIRC, 27th January 2011, viewed 26th May 2022, <http:// &itemId=928&generaltype=0>
www.cbirc.gov.cn/cn/view/pages/ItemDetail.html?docId=3830&itemId=928&gen 21　The Basel framework’s current standardised approach prescribes the use
eraltype=0> of external credit ratings to determine certain exposures’ risk weights. The
19 Circular on Clarification of Supervisory Requirement of Large Amount Exposure current standardised approach for credit risk is set out in Basel II: International
of Foreign Invested Legal Person Banks to Parent Bank Group, CBIRC, 2nd Convergence of Capital Measurement and Capital Standards: A Revised
April 2021, viewed 26th May 2022, <http://www.cbirc.gov.cn/cn/view/pages/ Framework - Comprehensive Version, BIS, 30th June 2006, viewed 5th July
ItemDetail.html?docId=981215&itemId=928&generaltype=0> 2022, <www.bis.org/publ/bcbs128.htm>

386 Banking and Securities Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

Foreign banks are very active players that not only Cybersecurity Law and Data Security Law
provide diversified hedging solution to domestic clients, The CSL and DSL’s lack of clearly defined key terms,
but also introduce offshore investors to the onshore such as 'important data', and inconsistencies among
market to boost RMB internationalisation. Capping the subsequent draft regulations and implementation
market risk capital ratio would limit the contribution that measures, create huge uncertainties and unpredictability
foreign banks make in providing derivatives to offshore for European FIs investing in China. For more information
investors. It is notable that Chinese banks with a on CSL and DSL-related measures, please refer to
presence in Europe do not face such ratio controls. the Cybersecurity Sub-working Group Position Paper
2022/2023 on page 347.
Recommendation
• Adhere to the principle of reciprocity and cancel the Data localisation
three per cent market risk capital ratio limit. Data localisation and limitations on the free flow of
data can seriously hinder financial service firms’ ability
4. Limit Data Localisation and Prescriptive to deliver core products and services to customers,
Cybersecurity Requirements manage risk, and comply with financial regulatory
4.1 Allow Free Cross-border, Intra-group Data requirements in various jurisdictions. Unfortunately, data
Flows, Reduce the Scope of ‘Important Data’ localisation requirements are pervasive in the financial
and Facilitate Cross-affiliate Information sector. Those requirements, in particular relating to
Sharing the Anti-money Laundering Law and counter-terrorism
financing regulations, are challenging for FIs operating
Concern in China and make it impossible for multinational FIs to
Stringent data localisation requirements put financial use their global operating models. This also raises the
institutions’ global operating models risk while increasing threshold for new FIs attempting to enter the Chinese
foreign banks’ operational risks and associated costs, market.
constituting the main barriers for market entry.
While the working group recognises China’s endorsement
Assessment of the Group of 20 (G20) Osaka Leaders Declaration
European banks continue to encounter a host of promoting free data flow with trust, 23 and China’s
problems in relation to data localisation and prescriptive interests in promoting digital trade through applications
cybersecurity requirements in China, in both financial to the Digital Economy Partnership Agreement (DEPA),
regulations and the Cybersecurity Law (CSL), Data it urges China to uphold those principles and explicitly
Security Law (DSL), and the Personal Information allow cross-border transfer of data. For the financial
Protection Law (PIPL), as well as associated sector, allowing cross-border data transfer is a first step
implementation measures.22 to truly open up the domestic financial sector.

22 Those measures include, but are not limited to: the CBIRC’s Banking FIs Anti- Data-sharing among affiliates Section Five: Financial Services
money Laundering and Counter Terrorist Financing Management Measures
(2019), State Council, 29 th January 2019, viewed 25 th April 2022, <http:// Regulatory restrictions on information-sharing among
www.gov.cn/gongbao/content/2019/content_5446227.htm>; the Notice on affiliates are costly for foreign FIs as different IT systems
the Measures for Cybersecurity Censorship, Cyberspace Administration of
China (CAC), 28th December 2021, viewed 25th April 2022, <http://www.cac. are required, which discourages foreign investment.
gov.cn/2022-01/04/c_1642894602182845.htm>; the Notice on Soliciting Unnecessary information-sharing firewall rules should
Public Opinions on the Measures for Cybersecurity Censorship (Draft), CAC,
24th May 2019, viewed 26th April 2022, <https://www.cac.gov.cn/201905/24/ be rescinded and the importance of information-sharing
c_1124532846.htm>; the Notice on Soliciting Public Comments on the among cross-affiliates within the same financial group
Administrative Measures on Data Security (Draft), CAC, 28 th May 2019,
viewed 26th April 2022, <https://www.cac.gov.cn/2019-05/28/c_1124546022. should be recognised.
htm>; Notice on Seeking Public Comments on the Measures on the Security
Assessment of Data Cross-border Transfer (Draft), CAC, 29th October 2021,
<http://www.cac.gov.cn/2021-10/29/c_1637102874600858.htm>; Notice on Item 2 of Article 38 of the PIPL clarifies that personal
Seeking Public Comments on GB/T XXXXX – XXXX Information Security information protection needs to be certified by
Technology – Guideline for Identification of Critical Data, National Public
Service Platform for Standards Information, 13th January 2022, viewed 25th specialised agencies in accordance with the regulations
April 2022, <https://www.tc260.org.cn/file/2022-01-13/bce09e6b-1216-4248-
859b-ec3915010f5a.pdf>; and the Notice on Seeking Public Comments on
23　G20 Osaka Leaders’ Declaration, European Council, 29th June 2019, viewed
the; Administrative Measures on Network Data Security (Draft), CAC, 14th
26 th April 2022, <https://www.consilium.europa.eu/media/40124/final_g20_
November 2021, viewed 25th April 2022, <http://www.cac.gov.cn/2021-11/14/
osaka_leaders_declaration.pdf>
c_1638501991577898.htm>

Banking and Securities Working Group 387

 released by the Cyberspace Administration of China requires national security reviews under Article 27 of
(CAC); item 3 of the same article outlines the condition the Cryptography Law, in accordance with the CSL.25
that a standard contract is needed.24 However, both These requirements will have significant implications for
provisions appear in the basic law only, and in the FIs’ global systems and operating models. A regulatory
absence of further detailed guidelines, banks face approach to cybersecurity therefore should be risk-
compliance risks. based, aligned with global best practices and avoid
mandating the adoption of certain products or services.
Recommendations The same principle should apply to CII management.
• Refrain from mandating banks to localise their data
or their entire IT systems. It would also be beneficial for the development of
• Define clear compliance guidance with regard to ‘data the financial services industry for scope of the CII
localisation/copy’ versus ‘system localisation’ for the to be reduced, with CII operator identification rules
banking industry. established by the banking industry regulator so that
• Allow companies and their headquarters/subsidiaries the protection of truly critical systems can be prioritised.
to conduct intra-party, cross-border data transfers In view of foreign FIs’ already limited market share,
and uphold the principles of free movement of data including them in the scope of CII would deviate from
that China signed up to in the G20 Osaka Leaders the ‘prioritised protection’ approach demanded by the
Declaration. CSL, and would be counter-productive in terms of
• Remove unnecessary information-sharing firewall security and cost-effectiveness.
rules and allow cross-affiliates to share information.
• Define clearly critical data category in the banking Recommendations
indus t r y as g u i d a n c e fo r F I o n c ri ti c a l data • Adopt a regulatory approach to cybersecurity and CII
identification, to avoid creating unreasonable management that is risk-based, aligned with global
compliance risks and costs for multinational financial best practices and avoids mandating the adoption of
institutions. certain products or services.
• Promulgate clear implementation rules on both the • Issue a CII operator identification rule for the banking
Personal Information Protection Certificate and the industry to ensure efficient and effective protection.
standard template to facilitate sharing of personal
information among cross-affiliates. 4.3 Adopt Safe and Sound Cybersecurity and
Technology Supervisory Practices
4.2 Adopt International Best Practices on
Cybersecurity and Technology, and Concern
Reduce the Scope of Critical Information Increasing cybersecurity inspections and penetration
Infrastructure (CII) testing requirements brings unintentional risks to FIs
and interconnected global financial systems.
Section Five: Financial Services

Concern
Prescriptive cybersecurity requirements and mandatory Assessment
requirements on technology severely limit firms’ ability In 2020, the CBIRC kicked off a round of penetration
to optimise their cybersecurity strategies and negatively testing (also known as pen-testing) on banks’ IT systems.
impacts their cybersecurity capabilities. The working group has also noticed requirements for
penetration testing in the CSRC’s Measures for the
Assessment IT Management of Securities and Fund Operators
The CSL requires multi-level protection scheme 2.0 (2019) and the draft Cybersecurity Measures in
compliance from all network operators in China, Securities and Futures Industries (2022). 26 While
which imposes the requirement for maintenance and the regulators’ intention of underpinning FIs' cyber
support for systems rated Level 3 and above to be
localised, mandates the use of certain products and 25　Cryptography Law of People’s Republic of China, NPC, 26th October 2019,
viewed 7th July 2022, <http://www.npc.gov.cn/npc/c30834/201910/6f7be7dd5ae
24　Personal Information Protection Law, National People’s Congress (NPC), 20th 5459a8de8baf36296bc74.shtml>
August 2021, viewed 5th July 2022, <http://www.npc.gov.cn/npc/c30834/202108/ 26　Order No. 152, CSRC, 19th December 2018, viewed 26th April 2022, <http://
a8c4e3672c74491a80b53a172bb753fe.shtml> www.csrc.gov.cn/pub/zjhpublic/zjh/201812/t20181221_348485.htm>

388 Banking and Securities Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

resiliency is understandable, this approach may Abbreviations

increase or exacerbate existing risks, as pen-testing
ABS Asset Backed Securities
has the potential to introduce new vulnerabilities
AFC Auto Finance Company
and unintentionally, or needlessly, expose FIs’ most
CAC Cyberspace Administration of China
sensitive information to a third party.27
CBIRC China Banking and Insurance Regulatory
Commission
It would be preferable to adopt the Global Financial
CD Certificate of Deposit
Market Association’s Framework for the Regulatory Use
CFC Corporate Finance Company
of Penetration Testing in the Financial Services Industry
CFETS China Foreign Exchange Trade System
instead, as it would allow they to conduct a firm-led
CIBM China Interbank Bond Market
test if they have the capability to do so. Notably, firm-
CII Critical Information Infrastructure
led testing results have been shown to be far more
CNY Chinese Yuan
informative for regulatory purposes.
COVID-19 Coronavirus Disease 2019
CSDC China Securities Depository and
It is important that the relevant authorities understand
Clearing Corporation Limited
the potential sensitivity of some data that can be
CSL Cybersecurity Law
revealed in pen-testing reports, so that regulators limit
CSRC China Securities Regulatory Commission
the collection of sensitive data to that which is directly
DSL Data Security Law
relevant and necessary to accomplish a specific
ETS Energy Trading System
purpose.
EU European Union
FI Financial Institution
Recommendations
FIE Foreign-invested Enterprise
• Recognise risks associated with mandated penetration
GFE Guangzhou Futures Exchange
testing and allow for firm-led penetration testing for
HQLAAR High-quality Liquid Asset Adequacy
firms with such capabilities and resources.
Ratio
• Adopt industry best practices for penetration testing
LDR Loan to Deposit Ratio
as outlined in the updated Global Financial Market
LMR Liquidity Matching Ratio
Association’s Framework for the Regulatory Use
MPA Macro-prudential Assessment
of Penetration Testing in the Financial Services
NAFMII National Association of Financial
Industry.
Market Institutional Investors
PBOC People’s Bank of China
PIPL Personal Information Protection Law
SAFE State Administration of Foreign Exchange
SCH Shanghai Clearing House

Section Five: Financial Services

SHEEX Shanghai Environment and Energy
Exchange

27 ‘Penetration testing' is the practice of testing a computer system, network or

web application to find security vulnerabilities that an attacker could exploit.
Pen-testing can be automated with software applications or performed
manually. The process involves gathering information about the target
beforehand, identifying possible entry points, attempting to break in—either
virtually or in reality—and reporting back the findings. See pen test (penetration
testing), TechTarget, viewed 26th April 2022, <https://searchsecurity.techtarget.
com/definition/penetration-testing>

Banking and Securities Working Group 389

 Non-Banking Financial Institutions Working Group

Key Recommendations
1. Lift Geographical Restrictions on Financial Leasing Companies’ Cross-
provincial Operations
• Revise Article 11 of the draft Local Financial Supervision and Administration Regulation to lift
geographical restrictions on financial leasing companies.

2. Secure the Protection of Ownership of Leased Assets

• C onfirm that when an equipment leasing company (ELC) is financing a vehicle by sale and
leaseback (SALB) contract, the asset registration on the Zhongdengwang platform is sufficient to
protect the ownership right of the ELC.
• Confirm that when an ELC is financing equipment other than vehicles under a SALB contract, the
sole asset registration on the Zhongdengwang platform protects the ownership right of the ELC.
• Ensure that the transfer of the vehicle registration certificate cannot be completed by any local
bureaus of the Department of Motor Vehicles without properly checking the Zhongdengwang
platform.
• Improve the Zhongdengwang platform by creating a dedicated field to fill out the serial number of
an asset instead of a general comment box as of today.

3. Promote Innovation in Financial Services by Enabling ELCs to Finance

Intangible Assets / Supply Chains Using Factoring
• P
romote innovation in financial services by maintaining ELCs’ right to use factoring to finance
intangible assets / supply chains and by enabling ELCs to develop new intangibles leasing
solutions.

4. Ensure Consistent Tax Schemes Between ELCs and ‘Golden’ Financial

Leasing Companies
4.1 Clarify the Basis for Value-added Tax (VAT) Deductions between Headquarters and the
Branch Office of an ELC
Section Five: Financial Services

• Clarify that the branch office of an ELC whose main operation is financial leasing is qualified to
deduct loan interest, bond interest and vehicle purchase tax from its sales amount.
• R ecognise returned vehicles as goods with partial-use value, allowing for simplified VAT
calculation at two per cent for remarketing income.
4.2 Align Taxation of ELCs with Financial Institutions
• Issue specific guidance and procedures for financial control of the leasing industry.
• Apply a 5:1 related-party debt-to-equity ratio for ELCs.

5. Allow ELCs to Obtain Cross-border Corporate Guarantees and Cross-

border Bank Guarantees
• Allow ELCs to obtain cross-border corporate guarantees and cross-border bank guarantees.

390 Non-banking Financial Institutions Working Group $

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

6. Include Consumer Finance Companies (CFCs) and Automotive Finance

Companies (AFCs) in the Pilot Programme to Sell Non-Performing Loans
(NPLs) in Batches to Asset Management Companies
• L ift restrictions on batch transfers of NPLs in the consumer finance industry and the automotive
finance industry, and issue clear supportive guidance on this process.
• Include CFCs and AFCs in the NPL pilot project and set up relevant rules and policies to support/
facilitate the sale of NPLs by CFCs and AFCs, including an end-to-end process for realising NPL
transfer to sale.

Introduction to the Working Group among others.3&4

The Non-banking Financial Institutions (NBFI) Working

Automotive Finance Companies (AFCs)
Group was established in 2008. It includes leading
In October and November 2003, the CBRC
European consumer finance specialists who operate
successively issued the Administrative Measures for
consumer finance companies (CFCs), auto finance
Auto Finance Companies and the Detailed Rules for
companies (AFCs), small loan companies and other
the Implementation of Administrative Measures for Auto
entities engaged in consumer finance services in
Finance Companies,5&6 officially opening up China’s
cooperation with third parties (for example, guarantee
automotive consumer credit industry and allowing
companies) in China. As of 2020, the working group
qualified Chinese and foreign institutions to establish
also includes equipment leasing companies (ELCs).
AFCs in China.7&8

Consumer Finance Companies (CFCs)

In 2009, the China Banking Regulatory Commission
(CBRC)—now the China Banking and Insurance
Regulatory Commission (CBIRC)—issued the Pilot
3 By the end of 2020, a total of 30 licensed CFCs had been approved for establishment
Management Measures for Consumer Finance with assets reaching Chinese yuan (CNY) 524.65 billion and a collective loan
Companies, marking the formal entry of consumer balance of CNY 492.78 billion: Chinese Consumer Finance Set for Reshuffle amidst
Window Guidance Pressure on Rates, China Banking News, 3rd August 2021,
finance into the regulatory era.1 viewed 19th April 2022, <https://www.chinabankingnews.com/2021/08/03/chinese-
consumer-finance-set-for-reshuffle-amidst-window-guidance-pressure-on-rates/>
4 Fitch Ratings expects rising consumer lending activities in China despite regulatory
Licensed CFCs operate under the comprehensive tightening to reduce financial risks and increase overall consumer protection:

Section Five: Financial Services

supervision of the CBIRC, and are permitted to provide The Rise of Consumer Finance in China to Bolster Consumption, Fitch Ratings,
28 th January 2021, viewed 19 th April 2022, <https://www.fitchratings.com/
consumption-purpose loans—excluding car loans and research/corporate-finance/the-rise-of-consumer-finance-in-china-to-bolster-
mortgages—nationwide.2 CFCs can directly pay loans consumption-28-01-2021>
5 Administrative Measures for Auto Finance Companies, State Council, 3rd October
on behalf of consumers to merchants selling personal 2003, viewed 19 th April 2022, <http://www.gov.cn/gongbao/content/2004/
durable consumer goods such as household appliances content_62732.htm>
6 Detailed Rules for the Implementation of Administrative Measures for Auto Finance
or electronic products (excluding houses and cars), or Companies, Ministry of Commerce (MOFCOM), 12th November 2003, viewed 19th
provide direct loans to consumers for personal uses April 2022, <http://www.mofcom.gov.cn/aarticle/b/f/200311/20031100150937.html>
7 Licensed AFCs operate under comprehensive supervision of the CBIRC and can
and services, such as travel, weddings and education, provide car loans nationwide: Ibid.
8 By the end of 2021, a total of 25 AFCs had been approved for establishment with
total assets of CNY 977.48 billion. There is huge potential for development in
China’s automotive finance industry, as the penetration rate is still below the global
average of 70 per cent: Global and China Automotive Finance Markets 2020–2026
Featuring Profiles of 14 OEM-related Automotive Finance Companies, 5 Dealership
Auto Finance Companies and 11 Other Auto Finance Companies, Research and
Markets, 3rd September 2020, viewed 19th April 2022, <https://www.globenewswire.
1 Pilot Management Measures for Consumer Finance Companies, State Council, com/news-release/2020/09/03/2088231/28124/en/Global-and-China-Automotive-
22nd July 2009, viewed 19th April 2022, <http://www.gov.cn/gongbao/content/2010/ Finance-Markets-2020-2026-Featuring-Profiles-of-14-OEM-related-Automotive-
content_1539397.htm> Finance-Companies-5-Dealership-Auto-Finance-Companies-and-11-Other-Auto-
2 Ibid. Financ.html>

$ Non-banking Financial Institutions Working Group 391

 Equipment Leasing Industry (ELCs) February 2022, the National Development and Reform
China has around 12,000 leasing companies, 70 of 9&10
Commission released a list of measures to provide
which were licensed by the CBIRC, with the remaining, fiscal and logistical support for businesses that have
such as the ELCs, by the MOFCOM. As a result, under been hit particularly hard by the COVID-19 pandemic,
the current regulatory framework, leasing institutions such as the extension of tax reductions and exemptions
fall into two categories: the so-called 'golden' financial as well as better access to loans, guarantees, financing
leasing companies regulated from the beginning by the and credit support for MSMEs.15
CBIRC, and the financial leasing companies originally
regulated by the MOFCOM,11 although the two types NBFIs are an important source of alternative financial
essentially conduct the same business. services, such as investment, risk pooling, financial
consulting, brokering, money transmission and
Recent Developments consumer credit. They play an important role in boosting
domestic consumption and economic development
‘Common prosperity’ was widely discussed in 2021, and
by providing individuals and businesses—MSMEs in
repeatedly brought up in official meetings and documents,
particular—with access to financing. 16 By supporting
starting with the 14th Five-year Plan (14FYP).12 With the
individuals and MSMEs, NBFIs can contribute to
“completion of the building of a moderately prosperous
people-centred development and reducing regional
society in all respects”, achieving common prosperity has
disparities, thus helping the Chinese Government reach
become a new goal guiding some of China’s policymaking
its common prosperity goals.
since the release of the 14FYP. In addition, at the 10th
meeting of the Central Committee for Financial and
Economic Affairs in August 2021, Chinese President Xi Key Recommendations
Jinping associated common prosperity with promoting 1. Lift Geographical Restrictions on
fairness, making regional development more balanced, Financial Leasing Companies’ Cross-
stressing people-centred growth and boosting the wealth provincial Operations
of low-income groups.13
Concern
Ensuring economic stability has been another recent Restricting cross-provincial operations of financial
priority for the Chinese Government; adhering to leasing companies will have significant negative
its “proactive fiscal policy and a prudent monetary consequences for European financial leasing
policy”, providing more targeted and sustainable fiscal companies because only a limited volume of their
incentives and support for micro, small and medium- business happens within their province of registration.
sized enterprises (MSMEs) and individuals. 14 On 28th
Assessment
9 Until 20th April 2018, China’s leasing companies were either supervised by the
CBIRC as NBFIs or by the MOFCOM and its authorised provincial-level commerce
On 31st December 2021, the People’s Bank of China
Section Five: Financial Services

departments as corporations: Herrera Tio, Bernadette, Moody's: China's financial (PBOC) issued the Local Financial Supervision and
leasing sector to benefit from new supervisory regime, S&P Global, 17th May 2018,
viewed 19th April 2022, <https://www.spglobal.com/marketintelligence/en/news-
Administration Regulation (Draft for Comments) (Draft
insights/trending/tjaqbuyafski2hqbalyhdw2> Regulation).17 The purpose of the Draft Regulation is
10 The MOFCOM regulated the financial leasing business in accordance with the
Measures for Supervision and Administration of Financial Leasing Enterprises and
to further clarify the responsibilities and missions of
relevant law before transferring the responsibilities and duties to the CBIRC in 2018: local financial authorities and improve the local financial
Measures for Supervision and Administration of Financial Leasing Enterprises,
MOFCOM, 24th September 2013, viewed 19th April 2022, <http://ltfzs.mofcom.gov.
supervision system, to ensure the implementation of
cn/article/ae/201309/20130900320558.shtml> the central government's requirements on serving the
11 ‘Golden’ financial leasing companies, 金融租赁公司 in Chinese and financial leasing
companies, 融资租赁公司 in Chinese.
12 Outline of the People’s Republic of China 14th Five-year Plan for National Economic
15 Several Policies on Promoting the Recovery and Development of Service Industries
and Social Development and Long-Range Objectives for 2035, National People's
in Difficulty, National Development and Reform Commission, 28 th February
Congress (NPC), 12th March 2021, viewed 19th April 2022, <http://www.gov.cn/
2022, viewed 19th April 2022, <https://www.ndrc.gov.cn/xxgk/zcfb/tz/202202/
xinwen/2021-03/13/content_5592681.htm>
P020220218522078793799.pdf>
13 Xi Urges Financial Risk Prevention while Seeking High-quality Growth, CGTN, 17th
16 Nonbanking Financial Institution, World Bank, viewed 19th April 2022, <https://
August 2021, viewed 19th April 2022, <http://eng.mod.gov.cn/news/2021-08/17/
www.worldbank.org/en/publication/gfdr/gfdr-2016/background/nonbank-financial-
content_4892182.htm>
institution>
14 Li Keqiang Meets the Press with the Leaders of Major International Economic
17 Local Financial Supervision and Administration Regulation (Draft for Comments),
Institutions, Ministry of Foreign Affairs, 7th December 2021, viewed 19th April
PBOC, 31st December 2021, viewed 25th March 2022, <http://www.pbc.gov.cn/
2022, <https://www.fmprc.gov.cn/mfa_eng/topics_665678/kjgzbdfyyq/202112/
rmyh/105208/4436903/index.html>
t20211207_10463489.html>

392 Non-banking Financial Institutions Working Group $

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

real economy, preventing and controlling financial risks, More importantly, the business model of European
and deepening financial reform.18 However, the working financial leasing companies is often vendor-orientated,
group is deeply concerned about Article 11 of the Draft meaning they support the sales of vendor partners by
Regulation, which restricts financial leasing companies’ providing financing solutions attached to the sale of new
cross-provincial business and operations.19 equipment. European financial leasing companies have
particularly strong expertise in asset collateralisation
Although the so-called 'golden' financial leasing and in sectors in which their partner’s equipment is
companies and financial leasing companies essentially used, enabling good control of risk and operations.
carry out the same business nationwide, if the Draft Therefore, restricting cross-provincial operations is not
Regulation were to be enforced as proposed, financial directly related to preventing financial risks. In fact,
leasing companies would be, in principle, not allowed limiting European financial leasing companies’ ability
to engage in cross-provincial business. Meanwhile, the to support their vendors could be perceived by some
'golden' financial leasing companies—all majority-owned as unintentionally favouring Chinese state-owned
by Chinese banks or state-owned enterprises—would and Chinese bank-owned 'golden' financial leasing
be excluded from the scope of the Draft Regulation and companies.
could continue to work nationwide. The working group
believes this would have negative consequences for Historically, there has never been any mention of
European financial leasing companies, which fall under imposing geographical restrictions on financial leasing
the financial leasing companies’ category, for several companies’ operations in regulations published by the
reasons. MOFCOM or the CBIRC,20&21 nor in any local interim
measures introduced in Beijing and Shanghai. 22&23
First, quite a few European financial leasing companies In fact, when European financial companies entered
are registered either in Beijing or in Shanghai. Only the Chinese market and established their leasing
a limited volume of their business happens within the subsidiaries, they did so based on a nationwide
province of registration as their customers, mainly business plan.
small and medium-sized enterprises (SMEs), are
scattered across the country. Preventing financial The working group welcomes the policies and
leasing companies from operating across provinces measures taken by the Chinese Government and
would lead to a substantial increase of their operating financial regulators to address current economic
and compliance costs; companies would either lose challenges and ensure financial market stability.
the income from other provinces, or be forced to open However, financial leasing transactions are not purely
new branches – and it remains unclear from the Draft financial activities, they also have the characteristics
Regulation if that will be an option. Financial leasing of combining financing and assets. As China is a
companies would also have to spend a tremendous unified market, cross-provincial transactions in the
amount of time and energy on communication with real economy are a normal phenomenon and the
the different provincial regulators. Non-compliance or financial leasing transactions that are closely linked to Section Five: Financial Services
delays in complying with the requirements might create
difficulties for European leasing companies to carry 20 This has been the case since the earliest supervision by the Ministry of Foreign Trade
out their normal operations, or force them to leave and Economic Cooperation, to supervision by the MOFCOM with the Measures for
the Administration of Foreign Investment in the Leasing Industry, MOFCOM, 17th
the Chinese market altogether. This is contrary to the February 2005, viewed 25th March 2022, <http://tfs.mofcom.gov.cn/article/date/i/r/
original intention of European leasing companies in cx/200503/20050300022951.shtml>; Nor is the imposition of geographical restrictions
mentioned in the Measures for Supervision and Administration of Financial Leasing
China, which is to serve the Chinese real economy by Enterprises, MOFCOM, 24th September 2013, viewed 25th March 2022, <http://ltfzs.
financing their Chinese and international customers mofcom.gov.cn/article/ae/201309/20130900320558.shtml>
21 Interim Measures for the Supervision and Administration of Financial Leasing
wherever they are based in China. Companies, CBIRC, 26th May 2020, viewed 25th March 2022, <http://www.gov.cn/
gongbao/content/2020/content_5537939.htm>
22 Guidelines for the Supervision and Administration of Beijing Financial Leasing
Companies (for Trial Implementation), Beijing Local Financial Supervision and
18 Annex 2: Draft Instructions for the Local Financial Supervision and Administration Administration Bureau, 16th April 2020, viewed 25th March 2022, <http://jrj.beijing.
Regulation (draft for comments), PBOC, 31st December 2021, viewed 5th May 2022, gov.cn/zcfg/bjszcfg/202004/t20200416_1805595.html>
<http://www.pbc.gov.cn/rmyh/105208/4436903/index.html> 23 Interim Measures for the Supervision and Administration of Financial Leasing
19 Local Financial Supervision and Administration Regulation (Draft for Comments), Companies in Shanghai (Draft for Comment), Shanghai Local Financial Supervision
PBOC, 31st December 2021, viewed 25th March 2022, <http://www.pbc.gov.cn/ and Administration Bureau, 1st February 2021, viewed 25th March 2022, <http://jrj.
rmyh/105208/4436903/index.html> sh.gov.cn/zwdt-gg/20210201/0c0e8f2715cb4bba8c2d797a867308d3.html>

$ Non-banking Financial Institutions Working Group 393

 assets and the real economy cannot simply be divided (Zhongdengwang).25&26 However, this double registration
among different regions. The working group believes process increases the administrative and financing
the financial leasing business does not align with the costs of ELCs, and negatively impacts financing pricing.
concept of ‘regional’ or ‘local’ finance, from its nature,
its characteristics, its status of operations and from the On 28 th May 2020, the National People’s Congress
historical continuity of supervision. In Europe, there is (NPC) adopted the Civil Code, which took effect on 1st
no such regional limitation within a member state. The January 2021.27 Article 745 states that, “The lessor’s
working group therefore does not recommend inhibiting ownership over the leased object shall, without being
the development of the financial leasing industry for registered, not be asserted against a bona fide third
the convenience of supervision. Furthermore, the person.”
working group believes this is not in line with the
central government’s requirements for serving the real Following the promulgation of the Civil Code, the State
economy, preventing and controlling financial risks, and Council issued the Decision of the State Council on the
deepening financial reform.24 Implementation of Unified Registration of Guarantee
over Chattels and Rights (Decision) on 22nd December
Recommendation 2020. 28 In this document, the Zhongdengwang is
• Revise Article 11 of the draft Local Financial Supervision designated as the unified centre for registering
and Administration Regulation to lift geographical financial leasing transactions. By registering financial
restrictions on financial leasing companies. leasing transactions on Zhongdengwang, the lessor’s
ownership should be protected. This policy intends to
2. Secure the Protection of Ownership of cover all leasing types (regardless of whether direct
Leased Assets lease or SALB) and leased assets (regardless of
whether general equipment or vehicles).
Concern
Registration of an asset with the Department of Motor As a result, on 29th December 2020, China’s Supreme
Vehicles (DMV) under the Vehicle Administrative Office People’s Court (SPC) amended some earlier judicial
(VAO) is not recognised as registration of ownership, interpretations.29 For instance, Article 9 of the Decision
therefore the owning leasing company is at significant recommended that the mortgage self-owned leasing
risk of a leased asset title being transferred without its assets option, as in the Interpretation of the Supreme
consent or knowledge to one or multiple third parties. People's Court on Issues Concerning the Application
of Law in the Trial of Cases Involving Disputes over
Assessment Financial Leasing Contracts, promulgated on 24 th
When leasing a vehicle, registration with the DMV is February 2014,30 be deleted.
done in the name of the lessee (the customer/permit
holder). The name of the lessor is not mentioned in the After all these recent legal developments, the working
Section Five: Financial Services

registration certificate, which places the ELC at risk group is questioning whether the ownership of an ELC
of the registration certificate being transferred without is sufficiently protected by registering the financial
consent to one or multiple third parties. The lessor
25 Credit Reference Centre of the PBOC website, 14th January 2013, viewed 19th April
could potentially lose ownership of the vehicle due to 2022, <http://www.pbccrc.org.cn/crc/dsj/index_list_list.shtml>
the bona fide position of the new registered party with 26 CCRC Movable Financing Registration Platform (Zhongdengwang), 2015, viewed
19th April 2022, <https://www.zhongdengwang.org.cn/>
the DMV, despite the ELC’s ownership of the vehicle 27 People’s Republic of China Civil Code, NPC, 2nd June 2020, viewed 19th April 2022,
being stipulated under the sale and leaseback (SALB) <http://www.npc.gov.cn/npc/c30834/202006/75ba6483b8344591abd07917e1d25
cc8.shtml>
contract. To guard against this, ELCs follow the practice 28 Decision of the State Council on the Implementation of Unified Registration of
of registering a mortgage on the vehicle in the DMV Guarantee over Chattels and Rights, State Council, 22nd December 2020, viewed
19th April 2022, <https://www.pkulaw.com/en_law/6938bfb6624beb87bdfb.html>
platform (mortgage of self-owned property) as well as 29 Decision to Amend 27 Civil Judicial Interpretations Including the Interpretation of the
registering the vehicle in the PBOC’s Credit Reference SPC on Several Issues Concerning the Application of the Trade Union Law of the
People's Republic of China in Civil Trials, SPC, 29th December 2020, viewed 19th
Centre of the Movable Financing Registry Platform April 2022, <https://www.pkulaw.com/en_law/6938bfb6624beb87bdfb.html>
30 Interpretation of the Supreme People's Court on Issues concerning the Application
24 Annex 2: Draft Instructions for the Local Financial Supervision and Administration of Law in the Trial of Cases Involving Disputes over Financial Leasing Contracts,
Regulation (Draft for Comments), PBOC, 31st December 2021, viewed 5th May 2022, SPC, 24th February 2014, viewed 20th June 2022, <https://www.court.gov.cn/fabu-
<http://www.pbc.gov.cn/rmyh/105208/4436903/index.html> xiangqing-6314.html>

394 Non-banking Financial Institutions Working Group $

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

leasing on Zhongdengwang under SALB transactions similar platforms. 33,34&35 The Zhongdengwang has
of general equipment. If so, there would be no need to the same potential because it provides a favourable
register an additional mortgage on Zhongdengwang basis for the process of taking back defaulted vehicles
of the self-owned leased assets. This uncertainty and indirectly supports the development of a healthy
is particularly pressing for leasing of vehicles, as it market. In addition, the platform already allows for
remains unclear whether ELCs still need to register a serial number to be entered or the uploading of
a mortgage at the DMV in order to avoid losing the invoice documents when registering, but it is neither a
position of bona fide third party. In addition, the working mandatory nor a recommended field.
group is concerned a mortgage of leased assets by
ELCs under the current new legal environment may In addition, the Zhongdengwang and the DMV’s
become counter-productive, as it may lead to a different identification codes for vehicles currently do not
interpretation of the transaction nature from financial correspond, which could lead to the same vehicle
leasing to mortgage loans. being registered by different parties. The working group
therefore recommends that DMV bureaus be granted
This concern was highlighted in a 2020 case of vehicle access to the Zhongdengwang platform for the purpose
financing in the city of Ningbo, whereby an ELC of checking the existence of any right privilege on a
financed a vehicle by SALB and registered a mortgage vehicle, and that they be permitted to obtain consent
on the DMV platform to protect its ownership rights. from the legal owner prior to authorising any change to
However, the court rejected the claim that the lessor or transfer of the registration certificate. The working
had obtained vehicle ownership because there was no group also suggests that the VAO confirms whether
registration under the lessor’s name in the DMV and the sole asset registration on the Zhondengwang is
thus reclassified the financing from SALB to a mortgage sufficient to protect the ownership of an ELC under
loan.31 SALB contract.

This case has raised concern among industry players It is notable that the financing of equipment/assets
that there is no proper methodology for an ELC to other than vehicles is also of concern, as mortgage
have its ownership recognised unconditionally through registration in the DMV is limited to vehicles only. The
SALB. In May 2021, the PBOC released the Uniform working group stresses the need to clarify whether the
Registration Measures for Moving Property and Rights registration of an asset on the Zhongdengwang platform
Guarantees (Revised Draft for Comments), which are by an ELC is sufficient to protect its ownership rights
implementation measures of the Civil Code.32 However, under a SALB contract.
as vehicles are excluded from the draft regulation, the
working group has submitted comments advocating for Recommendations
this to be amended in the final draft. • Confirm that when an ELC is financing a vehicle
by SALB contract, the asset registration on the
In the EU and other mature markets, the interests of Zhongdengwang platform is sufficient to protect the Section Five: Financial Services
ELCs are legally protected through registration on ownership right of the ELC.

33 In Spain, a property register in communication with the Traffic Department ensures

that there is a limitation over the vehicle in the name of the leasing company until
the contract period is terminated. To remove this limitation, a special document from
the leasing company has to be sent to the register or the customer. See: Register of
Movable Property, Registradores de España, 2022, viewed 29th April 2022, <https://
www.registradores.org/el-colegio/registro-de-bienes-muebles>
34 In Portugal, registration is done directly in the Traffic Department. See: Vehicles,
Instituto da Mobilidade e dos Transportes, 1st January 2012, viewed 29th April 2022,
<http://www.imt-ip.pt/SITES/IMTT/PORTUGUES/VEICULOS/Paginas/Veiculos.
aspx>
35 A by-the-book example is the Personal Properties Security Register (PPSR) Platform
covering Australia and New Zealand. The platform includes a direct link from
31 Summary of Financial Lease Contract Dispute, Ningbo Intermediate People's Court, the enterprise resource planning software to the government website to register
28th September 2020, viewed 12th April 2021, <https://wenshu.court.gov.cn/website/ pledges. ELCs may also register their encumbrance on the vehicle using the vehicle
wenshu/181010CARHS5BS3C/index.html> identification number and register it against the customer. The PPSR Platform allows
32 Uniform Registration Measures for Moving Property and Rights Guarantees (Revised for registration by multiple customers, for example, borrower and operator. The
Draft for Comments), PBOC, 19th May 2021, viewed 27th April 2022, <http://www. customer still registers the vehicle in their name, but ELCs maintain the legal rights to
pbc.gov.cn/tiaofasi/144941/144979/3941920/4251286/index.html> the vehicle. See the PPSR Platform website: <https://www.ppsr.gov.au/>

$ Non-banking Financial Institutions Working Group 395

 • Ensure that vehicle registration certificate transfers Administration of Financial Leasing Companies, issued
cannot be completed by local DMV bureaus without in May 2020, do not permit ELCs to have a licence
first checking the Zhongdengwang platform. to conduct any factoring after mid-2023. 39 Taking
• Improve the Zhongdengwang platform by creating a away ELCs’ right to use factoring solutions to finance
dedicated field for the serial number of an asset instead intangible assets and supply chains will have a serious
of the general comment box that is currently presented. impact on their business, leading to potential losses of
• Confirm that when an ELC is financing equipment other around CNY 2–3 billion of new business in 2023 for the
than vehicles under a SALB contract, the sole asset European ELCs alone. This measure will also limit both
registration on the Zhongdengwang platform protects innovation in financial services and Chinese customers’
the ownership right of the ELC. access to advanced financing solutions. In fact, it
constitutes a step back for Chinese customers, who will
3. Promote Innovation in Financial Services not have adequate solutions for their intangible assets /
by Enabling ELCs to Finance Intangible supply chain financing requirements.
Assets / Supply Chains Using Factoring
Factoring companies do not perform the same business
as ELCs, as they purchase short-term receivables (up
Concern to 90 days in most cases), whereas ELCs use factoring
Preventing ELCs from using factoring to finance to finance intangibles and/or non-remarketable assets—
intangible assets / supply chains limits both innovation which are therefore considered intangible assets—with
and Chinese consumers’ access to advanced methods a tenure of up to five years. This requires know-how
of financing. that European ELCs have developed over the years
and are keen to bring to the Chinese market. It has
Assessment facilitated customers from European business access
Financing of intangible assets, such as licence-based to expensive information technology and industrial
software and supply chains, is an emerging trend that software, enabling companies to achieve higher
is crucial for ELCs. Indeed, ELC members of the Non- efficiency, and to become more sophisticated and
banking and Financial Institutions Working Group technologically advanced.
report that intangible assets and supply chain financing
represent a substantial proportion of their business, W hen i t comes to suppl y chai n fi nanci ng, t he
accounting for up to 40 per cent of their overall underlying assets are just mere components that will
financing.36 be temporarily owned either by distributors or original
equipment manufacturers (OEMs), system integrators
The working group believes these product offerings are (SIs) or engineering procurement construction (EPC)
consistent with the spirit of the State Council’s Guiding contractors before they are sold. The duration of
Opinions on Accelerating the Development of the Financial temporary ownership of these components varies
Section Five: Financial Services

Leasing Industry (Guobanfa [2015] No. 68), which seeks between a few months to a year. Distributors, OEMs,
to strengthen financial innovation.37 Furthermore, the SIs and EPCs have to pay for the components they
State Council’s Promoting the Experience of the Pilot procure from their upstream suppliers with their own
Reform of China (Shanghai) Pilot Free Trade Zone cash, and these components will stay in their inventory
(Circular 65), 38 issued in December 2014, enabled for months before being sold to their end-users when
ELCs to conduct factoring business related to their they can collect the money back. As these components
main business nationwide. Since then, many ELCs are not typical leasable assets, receivable finance
have obtained such a factoring licence. However, the (factoring) by ELCs constitutes the ideal product to
CBIRC’s Interim Measures for the Supervision and serve this demand from different industrial players.

36 According to information provided by the working group’s ELC members. The working group acknowledges that there are some
37 Guiding Opinions of the General Office of the State Council on Accelerating the pilot cases of intangible assets financing through
Development of the Financial Leasing Industry, State Council, 31st August 2015,
viewed 19th April 2022, <http://lawinfochina.com/display.aspx?id=26921&lib=law>
38 Promoting the Experience of the Pilot Reform of China (Shanghai) Pilot Free Trade 39 Interim Measures for the Supervision and Administration of Financial Leasing
Zone (Circular 65), State Council, 21st December 2014, viewed 19th April 2022, Companies, CBIRC, 26th May 2020, viewed 25th March 2022, <http://www.gov.cn/
<http://www.gov.cn/zhengce/content/2015-01/29/content_9437.htm> gongbao/content/2020/content_5537939.htm>

396 Non-banking Financial Institutions Working Group $

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

leasing in China, but would like to get the regulator’s Furthermore, considering the conditions of SALB
full understanding and support to create an innovative business, vehicles returned by a lessee to an ELC
corridor, enabling ELCs to engage in intangible and should be recognised as goods with a partial-use value
supply chain financing. (i.e., used goods). Therefore, the remarketing income
should be subject to the simplified VAT calculation
Recommendation method at the three per cent rate and then subsequently
• Promote innovation in financial services by creating lowered to two per cent as soon as possible.
ELCs’ right to use lean version of factoring to finance
intangible assets / supply chains and by enabling ELCs Recommendations
to develop new intangibles leasing solutions. • Clarify that the branch office of an ELC whose main
operation is financial leasing is qualified to deduct loan
4. E n s u r e C o n s i s t e n t Ta x S c h e m e s interest, bond interest and vehicle purchase tax from its
Between ELCs and ‘Golden’ Financial sales amount.
Leasing Companies • Recognise returned vehicles as goods with partial-use
4.1 Clarify the Basis for Value-added Tax (VAT) value, allowing for simplified VAT calculation at two per
Deductions between Headquarters and the cent for remarketing income.
Branch Office of an ELC
4.2 Align Taxation of ELCs with Financial Institutions
Concern
Inconsistency among tax authorities in interpreting VAT Concern
regulations not only increases the tax burden on ELCs Financial leasing businesses are treated and taxed as
but also hinders the development of the industry by financial companies under the ‘Business to VAT’ tax
forcing companies to change their business model or reform, yet financial institutions and ELCs often receive
even give up their operations. different tax treatment.

Assessment Assessment
To support the rapid development of the leasing There are two main ways in which ELCs often receive
industry, the Chinese Government has provided a different tax treatment under China’s current regime.
preferential VAT regulation allowing for the deduction
of loan interest, bond interest and vehicle purchase tax The first is related to VAT. Based on the Notice on
from the sales amount when calculating VAT liability. Clarification of VAT Policies for Finance, Real Estate
However, this preferential VAT regulation does not apply Development and Education Support Services (Caishui
to branch offices of an ELC. Many European investors [2016] No. 140),41 a financial institution is exempt from
operate several different entities throughout China, and VAT on interest incurred if a client has defaulted after 90
inconsistency in interpreting tax regulation is frequently days, in which cases VAT shall be paid when interest is
encountered in different locations, especially for emerging collected. An ELC, on the other hand, is required to pay Section Five: Financial Services

industries such as leasing. For instance, the Notice on the VAT throughout the entire contract period regardless of
Conversion of Business Tax into Value-added Tax on a any client default. This can lead to significant losses for
Pilot Basis (Caishui [2016] No. 36) indicates that an ELC the ELC in cases of non-payment.
that has obtained approval from the MOFCOM and is
engaged in financial leasing operations can avail of the The second situation is related to the thin-cap ratio.
preferential VAT, provided its paid capital reaches CNY Under the Notice on Tax Collection Policy Issues
170 million.40 However, in practice, the interpretation by Relating to Standards for Pre-tax Deduction of Interest
most tax authorities is that there is no paid capital for a Payment Expenses of Related Parties of Enterprises
branch office.

41 Notice on Clarification of VAT Policies for Finance, Real Estate Development

40 Notice on the Conversion of Business Tax into Value-Added Tax on a Pilot Basis and Education Support Services, (Caishui [2016] No. 140), State Taxation
(Caishui [2016] No. 36), State Council, 23rd March 2016, viewed 19th April 2022, Administration, 21st December 2016, viewed 19th April 2022, <https://www.shui5.cn/
<http://www.gov.cn/gongbao/content/2016/content_5088782.htm> article/9c/109420.html>

$ Non-banking Financial Institutions Working Group 397

 (Caishui [2008] No. 121), 42 a financial institution is 5. Allow ELCs to Obtain Cross-border
subject to a 5:1 thin-cap ratio when calculating non- Corporate Guarantees and Cross-
deductible interest actually paid, while an ELC, which is border Bank Guarantees
categorised as a non-financial institution, is subject to a
2:1 thin-cap ratio. Concern
European leasing companies can use their international
The MOFCOM’s Measures for Supervision and connections to finance the Chinese subsidiaries of
Administration of Financial Leasing Enterprises, issued multinational companies they have strong business
in September 2013, 43 state that, “Financial leasing ties with in their home country, but certain restrictions
directly serves the real economy and plays an important remain in this respect.
role in promoting the development of equipment
manufacturing industry, SME financing, enterprise Assessment
technology upgrading and transformation, equipment The Regulations on the Administration of Foreign
import and export, and commodity circulation. It is Exchange for Cross-border Guarantees, issued by
an important means to promote the integration of the State Administration of Foreign Exchange (SAFE)
industry and finance and develop the real economy.” on 15 th May 2015, only allow banks and financial
The fact that the regulatory responsibility for leasing institutions registered in Mainland China to obtain
companies changed from the MOFCOM to the CBIRC cross-border guarantees. 45 This limits the ability of
in 2018 further exemplifies that government authorities European ELCs in terms of risk appetite to support
fully recognise that leasing companies are financial foreign investment in China. As a result, Chinese SME
institutions and therefore should be subject to CBIRC subsidiaries of foreign companies have difficulties
regulations. accessing local structured financing.

In Europe, most countries have interest-to-pre-tax- Foreign-invested ELCs receive cross-border guarantees
earning limits in place, and ELCs do not face limitations in some lease contracts for securing the lessee in
such as the 2:1 thin-cap ratio. Most commonly, the limit China (to fulfil the rental payment obligation under the
is set at 30 per cent of earnings before interest, taxes, lease agreement). Currently, it is difficult to receive real
depreciation and amortisation.44 In China, applying a payment from the parent company outside of China
2:1 ratio for ELCs leads to intense funding pressure and if the lessee is in default. This is because leasing
increased costs. However, if ELCs were to be regulated companies are not regarded in China as financial
as financial institutions, it would greatly increase institutions, and therefore are not eligible for the
their compliance costs. The working group therefore Onshore Borrowing with Offshore Guarantee (waibao
encourages the regulator to issue specific guidance neidai), which allows China-based subsidiaries to
and procedures on taxation of ELCs and to apply a 5:1 receive money from their parent company outside of
related-party debt-to-equity ratio. China.46 The working group estimates that around 20 to
Section Five: Financial Services

30 per cent of additional business is not realised due to

Recommendations this constraint on foreign ELCs.
• Issue specific guidance and procedures for financial
control of the leasing industry. Recommendation
• Apply a 5:1 related-party debt-to-equity ratio for ELCs. • Allow ELCs to obtain cross-border corporate
guarantees and cross-border bank guarantees.

42 Notice on Tax Collection Policy Issues Relating to Standards for Pre-tax Deduction
of Interest Payment Expenses of Related Parties of Enterprises (CaiShui [2008]
No. 121), State Taxation Administration, 19th September 2008, viewed 19th April
2022, <http://www.chinatax.gov.cn/chinatax/n810341/n810765/n812171/200809/
c1191330/content.html> 45 Notice of the State Administration of Foreign Exchange on the Issuance of
43 Measures for Supervision and Administration of Financial Leasing Enterprises, Regulations on the Administration of Foreign Exchange for Cross-Border
MOFCOM, 24th September 2013, viewed 25th March 2022, <http://ltfzs.mofcom.gov. Guarantees [2014] No. 29, SAFE, 15th May 2015, viewed 19th April 2022, <http://
cn/article/ae/201309/20130900320558.shtml> www.safe.gov.cn/shenzhen/2015/0515/133.html>
44 A. Kristina Zvinys, Thin-Cap Rules in Europe, Tax Foundation, 27th August 2020, 46 Notice on the Measures for the Administration of the Registration of External Debt,
viewed 13th June 2022, <https://taxfoundation.org/thin-capitalization-rules-thin-cap- SAFE, 3rd May 2013, viewed 19th April 2022, <http://www.gov.cn/zwgk/2013-05/03/
rules-europe-2020/> content_2395170.htm>

398 Non-banking Financial Institutions Working Group $

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

6. Include CFCs and AFCs in the Pilot transactions were handled, disposing of 27,438 NPLs
Programme to Sell Non-Performing from 7,825 households. The total outstanding principal
Loans (NPLs) in Batches to Asset reached approximately CNY 1.77 billion, the total
transfer price CNY 223 million and the average principal
Management Companies (AMCs)
recovery rate 12.57 per cent. Personal business credit
Concern loans represented the highest proportion. Under the
According to the current regulations, it is not feasible programme, the six state-owned banks sold 29 batches
for CFCs to sell NPLs, as individual loans cannot be of personal business, and 17 AMCs acquired a total of
transferred in batches and other NPLs sold in batches 42 batches.49
can only be assigned to financial AMCs or a local
recognised AMC. The working group views this development as a
breakthrough in the sale of NPLs in batches, which is
Assessment now expected to accelerate. This will help to improve
With the development of the CFC industry and the the asset quality of banks and financial institutions in
AFC industry in China, a large amount of NPLs have China. However, as the pilot runs until 31st December
accumulated in the market. It is difficult for CFCs and 2022, it remains to be seen what the market impact
AFCs to dispose of NPLs, as individual loans (including and revenue of such NPLs sale would be. Therefore,
all kinds of loans with individuals as the main borrowers, if the pilot is successful and opening is consolidated,
such as housing, automobile or student loans, and the working group advocates for the inclusion of
credit card debts) cannot be transferred in batches CFCs and AFCs, and for relevant rules and policies
(equal to 10 or more NPLs). Other NPLs sold in batches to be formulated that support and facilitate NPL sales,
can only be assigned to AMCs or a local recognised including an end-to-end process for realising NPL sale.
AMC.47 CFCs’ business particularity is to grant small
ticket loans to multiple individual borrowers. Considering Recommendations
this, it is not practical for CFCs to dispose of NPLs in • Lift restrictions on batch transfers of NPLs in the
batches of less than 10 loans. As NPLs accumulate, consumer finance industry and the automotive finance
CFCs and AFCs must often resort to writing them off. industry and issue clear supportive guidance on this
process.
Unfortunately, China still has no regulatory mechanism • Include CFCs and AFCs in the NPL pilot project and set
that allows and guides the sale of NPLs by CFCs and up relevant rules and policies to support/facilitate the
AFCs; however, the working group has noticed some, sale of NPLs by CFCs and AFCs, including an end-to-
albeit small, positive developments on this front. In end process for realising NPL transfer to sale.
January 2021, the CBIRC issued the Notice Concerning
the Undertaking of Non-Performing Loan Transfer
Trial Work, including in its scope sales of consumer
loans, credit card overdrafts and personal business Section Five: Financial Services

loans. Under this pilot programme, six Chinese state-

owned banks and 12 commercial banks are eligible to
sell NPLs in batches to AMCs.48 In 2021, 45 business

47 Local AMCs are financial institutions with special permissions to engage in the
wholesale purchase of financial non-performing assets, but they do not have
financial institution licences. In August 2021, local regulators solicited the opinions
of members of the local AMC sector on the draft version of the Local Asset
Management Company Supervisory and Regulatory Provisional Measures to “seek
to remedy gaps in local AMC regulation in China, amidst a broader push to step up
oversight of the Chinese financial sector.” Local Asset Management Companies Set
for New Rules to Address Regulatory Gaps, China Banking News, 4th August 2021,
viewed 20th June 2022, <https://www.chinabankingnews.com/2021/08/04/local-
asset-management-companies-set-for-new-rules-to-address-regulatory-lacunas/>
48 China Commences Trial for Bulk Transfer of Personal Non-performing Loans to
Asset Management Companies, China Banking News, 12th January 2021, viewed
19th April 2022, <https://www.chinabankingnews.com/2021/01/12/china-commences- 49 Launch of the 2021 Annual Report on Non-Performing Loan Transfer Pilot
trials-for-transfer-of-personal-non-performing-loans-to-asset-management- Operations, Yindeng Centre, 26th May 2022, viewed 20th June 2022, <http://www.
companies/> yindeng.com.cn/Home/cn/zczrxx/jlyd/20220526/1424186.shtml>

$ Non-banking Financial Institutions Working Group 399

 Abbreviations
14FYP 14th Five-year Plan
AFC Auto Finance Company
AMC Asset Management Company
CBRC China Banking Regulatory Commission
CBIRC China Banking and Insurance
Regulatory Commission
CFC Consumer Finance Company
CNY Chinese Yuan
DMV Department of Motor Vehicles
ELC Equipment Leasing Company
EPC Engineering Procurement Construction
ICT Information and Communications
Technology
MOFCOM Ministry of Commerce
MSME Micro Small, and Medium-sized
Enterprise
NBFI Non-banking Financial Institution
NPC National People's Congress
NPL Non-performing Loan
OEM Original Equipment Manufacturer
PBOC People’s Bank of China
PPSR Personal Properties Security Register
SAFE State Administration of Foreign
Exchange
SALB Sale and Leaseback
SI System Integrator
SME Small and Medium-sized Enterprise
VAO Vehicle Administrative Office
VAT Value-added Tax
Section Five: Financial Services

400 Non-banking Financial Institutions Working Group $

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

Insurance Working Group

Key Recommendations
1. Allow Foreign-invested Insurers to Shape their Distribution Networks as
They See Fit
• A llow foreign-invested insurance companies to apply at any time for approval licences to open
new branches in as many provinces as they believe necessary and to apply for branch licences
in batches.
• Ensure that provincial licences cover the whole province without any further requirements at
the sub-provincial level.
• Train, support and empower local China Banking and Insurance Regulatory Commission
offices to handle licence applications from foreign-invested insurers.

2. Clarify that Foreign Shareholders Can Exercise their Equity Right

Proportional to their Equity Shares
• C
larify how the Guidelines for Corporate Governance of Banking and Insurance Institutions
apply to foreign-invested insurance companies in joint ventures, and more specifically how
historical arrangements such as 50/50 governance models can be preserved in the future.

3. Build a Fair and Comprehensive Regulatory Environment that Encompasses

Different Insurance Business Models
• Implement a level playing field for insurers of any size, as well as between insurers and online
intermediaries, to ensure undistorted competition and fair treatment of consumers, and to
support ongoing product innovation.

4. Create More Opportunities for Foreign Insurers to Contribute to China’s

Pension Reform
• Include foreign insurers in third-pillar pilot programmes and invite them to share their expertise.

Section Five: Financial Services

Introduction to the Working Group households to deploy their resources without having
to worry about unforeseen events. Insurance is also
The Insurance Working Group is the voice of Europe’s
a formidable engine of local and regional economic
insurance industry in China, and was the first of the
growth because it enables trade, innovation and risk
European Chamber’s working groups to be set up.
protection. The insurance industry plays a vital role in
It represents leading European insurers, brokers
improving the livelihoods, quality of life and wellbeing
and other service providers engaged in life, non-life,
of all people, which is a key focus of China’s common
reinsurance and speciality insurance. Insurance is a
prosperity policy.1
form of safety in an unpredictable world – it shields
families, individuals and businesses alike from all
kinds of risks that may arise from our modern and 1 Chipman Koty, Alexander, How to Understand China’s Common Prosperity Policy,
China Briefing, 21st March 2022, viewed 21st June 2022, <https://www.china-briefing.
complex society. Insurance is therefore a key element
com/news/china-common-prosperity-what-does-it-mean-for-foreign-investors/#healt
for economic freedom, as it enables companies and hcareandwellnessHeader>

Insurance Working Group 401

 While members of the Insurance Working Group have compliance management, safeguard the legal rights
varying operational structures, all of them consider and interests of policyholders, and guarantee the
China a long-term priority market. They are fully competence of individuals occupying key functions in
committed to contributing to the sustainable growth insurance companies.5 Cybersecurity, data localisation,
of the Chinese insurance market and they are aware and data transfer and protection have also become
of the crucial role commercial insurance plays in increasingly pressing issues for European financial
China’s economy and society. To this end, they want to institutions in China. 6 Strict compliance with these
provide added value to the industry by introducing best regulatory requirements increases operational risks and
practices and technical know-how. associated costs.

Recent Developments In 2021, China’s insurance sector struggled to generate

profit as consumer demand faltered and the economy
In over 40 years of reform and opening-up, China has
was shaken by a series of shocks, including sporadic
grown into the world's second-largest insurance market
COVID-19 outbreaks, a property market slump and
after the United States. However, China’s insurance
regulatory crackdowns on various sectors.7 For the
market growth is largely based on the activities of
second straight year, insurance companies in China
domestic players, with no single foreign or Sino-foreign
reported a premium growth slowdown as well as lower
joint venture (JVs) insurers capturing over two per
investment returns. Insurance companies are shifting
cent of the market. Most foreign-invested insurance
away from their traditional sales-focussed approach to a
companies that have entered the Chinese market are
more productive model with products that better respond
relatively small JVs, as regulatory restrictions still limit
to consumer demand. The COVID-19 pandemic has
the rate of branch expansion and the percentage of
also accelerated the transformation by pushing insurers
foreign ownership.2
to partner with technology companies to drive efficiency
and expand capabilities. While demand for insurance
China has taken steps to foster the openness of
is still huge, the sector needs to transform its services
its financial sector in recent years, encouraging
and products to meet customers’ needs and take its
the development of new insurance products and
business online to offer digital channels and remote
removing significant barriers for foreign insurers,
sales solutions.8
such as the requirement to have operated for at
least 30 years before entering China; the 50 per cent
foreign ownership cap for life insurance JVs with a Key Recommendations
Chinese partner; and rules on the establishment and 1. Allow Foreign-invested Insurers to
management of branches that specifically applied to Shape their Distribution Networks as
foreign insurers. 3 As a result, a few foreign players They See Fit
have established wholly or majority foreign-owned
Section Five: Financial Services

companies, or increased their shareholding in JVs since Concern

2019.4 It is challenging for foreign insurers to obtain approval
from the CBIRC and its local offices to open or close
Ensuring economic stability has also been among the provincial branches.
Chinese Government’s recent priorities and has guided
its policymaking over the past years, with regulators
issuing an increasing number of measures to contain
hidden risks within the insurance sector. In 2021, the 5 Zhan Hao et al., Insurance and Reinsurance in China: Overview, Thomson
China Banking and Insurance Regulatory Commission Reuters Practical Law, 1st December 2021, viewed 12th May 2022, <https://
uk.practicallaw.thomsonreuters.com/5-501-2000?transitionType=Default&contex
(CBIRC) adopted over 30 new measures to improve tData=(sc.Default)&firstPage=true#co_anchor_a850984>
6 For more information on the impacts of cybersecurity and data protection in
China, please refer to the Cybersecurity Sub-working Group Position Paper
2 China market opportunities for foreign insurance companies under the new 2022/2023, p. 347.
opening-up policies, Deloitte, June 2020, viewed 22nd April 2022, < https://www2. 7 Kelsey Cheng and Wu Yujian, China’s Insurers Suffer Rocky First Quarter Amid
deloitte.com/cn/en/pages/financial-services/articles/china-market-opportunities- Covid Fallout, Volatile Markets, Caixin Global, 6th May 2022, viewed 10th May
for-foreign-insurance-companies-under-the-new-opening-up-policies.html> 2022, <https://www.caixinglobal.com/2022-05-06/chinas-insurers-suffer-rocky-
3 Ibid. first-quarter-amid-covid-fallout-volatile-markets-101881410.html>
4 Ibid 8 Ibid.

402 Insurance Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

Assessment Environment in the Banking and Insurance Industries.9

The current regulatory treatment of domestic and foreign However, based on the working group’s observations,
insurance players is equal on paper, but because the local CBIRC offices are not familiar with the procedures
Chinese market is perceived to be a very expensive and have to consult with headquarters before making
investment, the number of new market entrants is low. decisions, which prolongs the approval process and
In addition, the insurance market is still dominated adds more uncertainties for applicants. The working
by large domestic players that have the advantage group therefore recommends, training, supporting and
of established branch networks. This is a significant empowering local CBIRC offices to handle licence
disincentive for new foreign-invested entrants, which— applications from foreign-invested insurers. In addition,
as restrictions mean they can only open an average of The working group also recommends the CBIRC and
one branch per year—face a seven-to-ten-year waiting its local offices should also clarify their powers and
period just to be able to cover less than one third of all authority, based on which of the local offices publish
Chinese provinces. Most companies that have already guidelines concerning administrative licensing/approval
entered the China market found it more profitable to management, and endeavour to accelerate the approval
build their network with a Chinese partner; however, process.
this may lead to other challenges, as the appetite for
risk and profit between the two partners in such a JV is Recommendations
often different. • Allow foreign-invested insurance companies to apply at
any time for approval licences to open new branches in
These dynamics impact the opening-up and reform of as many provinces as they believe necessary, and to
China’s insurance sector because if foreign insurers apply for branch licences in batches.
do not perceive the Chinese market to be profitable, • Ensure that provincial licences cover the whole
the overall growth rate of the market will slow down. province without any further requirements at the sub-
If foreign-invested insurers could apply for branch provincial level.
licences in batches, instead of one province at a time, • Train, support and empower local CBIRC offices to
more players would be encouraged to enter the market, handle licence applications from foreign-invested
which in turn would help to foster a more competitive insurers.
landscape. Once an insurance company has obtained
a provincial licence, it would also be positive for China’s 2. Clarify that Foreign Shareholders Can
insurance industry if this licence could cover the whole Exercise their Equity Right Proportional
province without any further requirements at the sub- to their Equity Shares
provincial level, such as the opening of sub-branches.
Concern
For insurance companies already based in China, part Under the Guidelines for Corporate Governance
of the problem in expanding branches is that local of Banking and Insurance Institutions (Guidelines)
CBIRC offices lack experience in dealing with foreign- published by the CBIRC in June 2021, it is unclear Section Five: Financial Services
invested insurers. This has an impact on licence whether foreign shareholders are able to exercise
applications and business development. Additional their full right to nominate directors for the board, or
requirements at the sub-provincial level further impede independent directors and supervisors, based on their
market access or make it economically difficult for small proportion of equity shares.
insurers, including all foreign ones. As of July 2021, the
CBIRC has delegated powers and authorities regarding Assessment
the supervision of property and casualty (P&C) and The Guidelines stipulate that one shareholder, including
life insurance companies to its provincial offices. In its affiliates, shall not nominate directors for more
December 2020, the CBIRC issued the Circular on than one third of all board seats, and impose similar
Deepening the Reform of Streamlining Administration
and Delegating Power, Improving Regulation and
9 Circular on Deepening the Reform of Streamlining Administration and Delegating
Upgrading Services and Optimising the Business Power, Improving Regulation and Upgrading Services and Optimising the
Business Environment in the Banking and Insurance Industries, CBIRC, 30th
December 2020, viewed 22nd April 2022, <http://www.cbirc.gov.cn/cn/view/pages/
ItemDetail.html?docId=956594&itemId=928&generaltype=0>

Insurance Working Group 403

 limitations on nominations for independent directors define “state-owned” banks and insurance companies,
and supervisors. 10 This means that for foreign life which creates ambiguity, as the extent to which these
JV insurance companies with foreign shareholders’ requirements will apply to foreign-invested insurance
holdings equal to or higher than 50 per cent, the foreign JVs will depend on the CBIRC’s interpretation. The
shareholders will not be able to exercise their equity working group, therefore, suggests that the regulator
right based on the proportion of equity shares they hold. further clarify whether foreign-invested insurance
companies in JVs are subject to the requirements to
This limitation imposed on director nomination rights is integrate the corporate CCP leadership into all aspects
consistent with the requirement that one shareholder of corporate governance.
shall not hold more than one third of equity shares for
local insurance companies as stipulated in the CBIRC’s Recommendation
Administrative Measures for the Equity of Insurance • Clarify how the Guidelines apply to foreign-invested
Companies.11 However, following reforms to China’s insurance companies in JVs, and more specifically
financial sector, foreign shareholders can now hold how hi stori cal arrangements such as 50/50
up to 100 per cent of shares of a foreign-invested governance models can be preserved in the future.
life or P&C insurance company. Therefore, the newly
proposed limitation limitation in the Guidelines is not 3. Build a Fair and Comprehensive Regulatory
consistent with rules stipulated in the CBIRC’s Circular Environment that Encompasses Different
on Clarifying the Time Point for Removing the Foreign Insurance Business Models
Shareholding Percentage Limit on Joint Venture Life
Insurance Companies.12 The working group, therefore, Concern
suggests that the regulator further clarifies whether The current regulatory framework, coupled with
foreign-invested insurance companies in JVs are increasing compliance costs, results in an unlevel
excluded from the limitations imposed on director playing field and discourages innovation in the
(as well as independent director and supervisor) insurance industry.
nominations for shareholders.
Assessment
The Guidelines also put a strong emphasis on the Insurance companies are having to change their
Chinese Communist Party's (CCP) role in corporate business models due to increased digitalisation. This
governance, requiring state-owned banks and is reflected in the CBIRC’s Measures for Internet
insurance companies to ensure that: 1) CCP leaders Insurance Business, in which insurance companies
are integrated into all aspects of corporate governance using online platforms are included. Members of the
and their articles of association; 2) CCP members Insurance Working Group increasingly see different
sit on the board of directors and senior management types of insurance models being established, with a
team; and 3) the CCP committee participates in the particular trend in insurers partnering up with technology
Section Five: Financial Services

decision-making of major issues within the enterprise. companies. This has reshaped the value chain, with
Privately owned banks and insurance companies are disruptive innovations and big data now enabling
only required to establish a CCP organisation to ensure smarter solutions for processes and automation. This
“the core role of the Party and the implementation of poses a challenge for both the regulator, which must
the Party's lines and policies”.13 The Guidelines do not draft and promulgate many dedicated regulations, and
for insurance companies, which must comply with a
10 Guidelines for Corporate Governance for Banking and Insurance Institutions, growing number of regulations that are sometimes
CBIRC, 8th June 2021, viewed 22nd April 2022, <http://www.cbirc.gov.cn/cn/view/
pages/ItemDetail.html?docId=989067&itemId=915&generaltype=0>
contradictory.
11 Administrative Measures for the Equity of Insurance Companies, State
Council, 2nd March 2018, viewed 22nd April 2022, <http://www.gov.cn/gongbao/
content/2018/content_5294432.htm>
The access to online distribution for all insurance
12 Circular on Clarifying the Time Point for Removing the Foreign Shareholding product categories should be identical for insurers
Percentage Limit on Joint Venture Life Insurance Companies, CBIRC, 6 th
December 2019, viewed 22nd April 2022, <http://www.cbirc.gov.cn/cn/view/pages/
of all sizes, i.e., qualitative prerequisites and any
ItemDetail.html?docId=858344&itemId=928&generaltype=0> financial ratio thresholds should be the same. There
13 Guidelines for Corporate Governance for Banking and Insurance Institutions,
CBIRC, 8th June 2021, viewed 22nd April 2022, <http://www.cbirc.gov.cn/cn/view/
should be no nominal thresholds, such as a minimum
pages/ItemDetail.html?docId=989067&itemId=915&generaltype=0>

404 Insurance Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

solvency capital, because this would exclude small employer-sponsored occupational annuities and
and medium-sized insurers—potentially including most personal savings-funded insurance.14 A growing number
or all European insurers operating in China—from of officials and economists are concerned about the
important segments of online distribution, especially sustainability of the current state-dominated system,
on the life insurance side. Insurers which are small warning that it might soon run short of funds. 15 As
in terms of premium income, profit, nominal solvency employer-sponsored pensions only cover a limited
capital or other key performance indicators should portion of the population, developing the private
not be excluded from the online distribution of certain pension system—the third pillar—has become a priority
types of products. The product scope should reflect the for policymakers.16
recent low interest rate environment and differentiated
consumer needs. Furthermore, life insurers should be In June 2021, the CBRIC initiated a one-year pilot
allowed to sell online not only traditional life, annuity scheme for commercial pension products in Zhejiang
and pension products, but also products with profit Province (including Ningbo) and Chongqing, allowing
participation and unit-linked products, while providing workers to open individual pension accounts at one of
full transparency to consumers on what is guaranteed the six participating insurance companies, i.e., China
and what is not. Life Insurance, People’s Life Insurance, Taiping Life
Insurance, China Pacific Life Insurance, Taikang Life
Most European life insurers have developed relevant Insurance and Xinhua Life Insurance.17 According to
expertise and a track record in their home markets the CBIRC, the six insurers had underwritten nearly
to help mitigate the impact of lower interest rates on 50,000 policies worth a total of Chinese yuan (CNY)
clients. Based on this experience, they can contribute 400 million (United States dollars (USD) 63.2 million) as
to the further development of the Chinese life insurance of January 2022, including almost 10,000 policyholders
market. from the new economy sector, such as couriers and
drivers of ride-hailing platforms. 18 On 15 th February
Recommendation 2022, the CBIRC issued the Notice on Expansion
• Implement a level playing field for insurers of of the Pilot Scope of Exclusive Commercial Pension
any size, as well as between insurers and online Insurance, expanding its commercial pension pilot
intermediaries, to ensure undistorted competition and scheme nationwide from 1st March 2022, and allowing
fair treatment of consumers, and to support ongoing other pension providers, including state-owned national
product innovation. pension insurance, to participate. 19 The regulator
has called on pension providers to keep exploring
4. Create More Opportunities for Foreign new products to cater to the needs of China’s ageing
Insurers to Contribute to China’s Pension population.
Reform

Section Five: Financial Services

14 Jiang, Xueqing, Final pillar of pension system investment in focus, State Council,
Concern 16th November 2021, viewed 22nd April 2022, <http://english.www.gov.cn/news/
topnews/202111/16/content_WS619308c8c6d0df57f98e507b.html>
China’s three-pillar pension system—conceptually 15 In 2018, the first pillar funds accounted for 74.7 per cent of total pension funds
similar to many European countries but far more in China, while the funds in enterprise annuities and occupational annuities—
the ‘second pillar’—made up 25.3 per cent. See: Insurance Operations - Building
imbalanced, with low coverage and insufficient benefit a Pension System in the Post-Epidemic and Post-Demographic Dividend Era,
adequacy—is not equipped to cater to China’s rapidly National Institution for Finance and Development, 1st August 2020, viewed 22nd
April 2022, <https://mp.weixin.qq.com/s/0Iap-m-wPXI880PmK0iuaA>
ageing society. 16 Wu Yujian et al, In Depth: China’s Pension Insurers Told to Stop Pursuing Quick
and Risky Profits, Caixin Global, 10 th March 2022, viewed 22 nd April 2022,
<https://www.caixinglobal.com/2022-03-10/in-depth-chinas-pension-insurers-
Assessment told-to-stop-pursuing-quick-and-risky-profits-101853868.html>
Since 2014, when the Chinese Government announced 17 Notice on Launching the Pilot Programme for Exclusive Commercial Pension
Insurance, CBIRC, 15th May 2021, viewed 22nd April 2022, <http://www.cbirc.gov.
plans to unify its urban and rural pension schemes cn/cn/view/pages/ItemDetail.html?docId=983945&itemId=925&generaltype=0>
by 2020, the authorities have paid greater attention 18 Notice on the Expansion of the Pilot Scope of Exclusive Commercial Pension
Insurance, CBIRC, 21st February 2021, viewed 22nd April 2022, <https://www.
to China’s three-pillar pension system and, more cbirc.gov.cn/cn/view/pages/ItemDetail.html?docId=1039066&itemId=915>
particularly, to the reform and development of the 19 Notice on the Expansion of the Pilot Scope of Exclusive Commercial Pension
Insurance, CBIRC, 21st February 2021, viewed 22nd April 2022, <http://www.
second and third pillars consisting respectively of cbirc.gov.cn/cn/view/pages/govermentDetail.html?docId=1039036&itemId=861&
generaltype=1>

Insurance Working Group 405

 On 21st April 2022, the State Council solicited public
opinions on a framework for a private pension
programme. The scheme outlined in the Notice on
Soliciting Public Opinions for the Development of
Personal Pensions will be government-backed and
voluntary. People can decide whether to participate and
which financial products to invest in, with preferential
tax policies to be rolled out to encourage participation
in the programme. Selected cities will carry out a trial
run for a year before nationwide implementation.20 The
working group believes it would be valuable for China to
allow foreign insurers to participate in this type of third-
pillar pilot programme, to offer their expertise and help
develop product innovation.

Recommendation
• I n c l u d e f o r e i g n i n s u r e r s i n t h i r d - p i l l a r p i l o t
programmes and invite them to share their expertise.

Abbreviations
CBIRC China Banking and Insurance
Regulatory Commission
CCP Chinese Communist Party
CNY Chinese Yuan
JV Joint Venture
P&C Property and Casualty
USD United States Dollar
Section Five: Financial Services

20 Notice on Soliciting Public Opinions for the Development of Personal Pensions,

State Council, 21 st April 2022, viewed 22 nd April 2022, <http://www.gov.cn/
zhengce/content/2022-04/21/content_5686402.htm>

406 Insurance Working Group

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

Section Six
Forums 6
 Corporate Social Responsibility Forum

The Corporate Social Responsibility (CSR) Forum is an event-driven platform that regularly organises meetings,
training courses and events of interest to all European Chamber members. Established in 2005, it is now comprised
of more than 250 member companies that cover a wide range of corporate functions, such as sustainability/CSR,
marketing and communications, public relations, government relations, corporate governance and compliance,
human resources, the environment, and health and safety.

The CSR Forum promotes best practices established by European companies and emphasises the importance of
Section Six: Forums

a strategic and innovative approach to CSR. Furthermore, the forum fosters CSR collaboration and co-innovation
between the European Chamber, Chinese government agencies, professional organisations and local non-
governmental organisations.

As the shared goal and common interest of both the European Union (EU) and China, carbon neutrality is and will
continue to be the focus of the CSR community. In 2019, as part of efforts to transition its economy to a sustainable
and resource-efficient economic model, the EU launched its Green Deal strategy, and stated its aim to be climate
neutral—an economy with net-zero greenhouse gas emissions—by 2050. The Chinese Government has also
repeatedly emphasised the importance of establishing a sustainable economy as part of its national strategy to
reach ‘carbon peak’ by 2030 and ‘carbon neutrality’ by 2060.1 Many European Chamber member companies have
also made carbon commitments and set themselves decarbonisation goals. Moreover, proactive engagement in
transitioning to low-carbon operations will bring members’ significant opportunities for corporate development.

To offer members a platform to share best practices, the CSR Forum held 22 activities—including meetings, seminars
and conferences on topics such as China’s 30/60 carbon neutrality goals—in Beijing and Shanghai in 2021. In
addition, regular forum meetings also covered a wide range of topics, including corporate sustainability strategy
planning, dealing with pandemic-related disruptions, diversity and inclusion, circular supply chain management, and
common prosperity.

The European Chamber held its 5th Sustainable Business Awards and its 7th CSR Awards in 2021, and continues to
host dialogues on topics related to CSR through its Corporate Social Profitability Chief Executive Officer/VIP Talk
series. This series brings together corporate leaders for high-level discussions on the importance of incorporating
sustainability and innovation into strategic decision-making to improve companies’ bottom lines.

The European Chamber has established strong partnerships with governmental stakeholders such as the EU
Delegation to China, the Norwegian Consulate General in Shanghai, the Dutch Embassy, the Swedish Embassy and
the German Embassy to advocate CSR awareness and responsible business conduct in the business community.

In 2022/2023, the Corporate Social Responsibility Forum will continue to foster dialogue between European Chamber
member companies and Chinese stakeholders to promote the best European CSR practices and explore new,
innovative ways to act sustainably.

1 Carbon Peak and Carbon Neutrality 30/60 Targets Kicks Off a New Era of Low Carbon, Tencent News, 5 th March 2021, viewed 2 nd April 2022, <https://new.qq.com/
omn/20210305/20210305A0DAWP00.html>

408 Corporate Social Responsibility Forum

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

Government Affairs Forum

Established in 2011, the Government Affairs Forum consists of government affairs (GA) professionals from European
Chamber member companies that represent a wide range of industries. Most of the forum’s participants have a
great deal of experience in GA and policy advocacy at the local and national level in both Europe and China. The
overall aim of the Government Affairs Forum is to promote a fair business environment in China, by helping member
companies to understand and navigate China’s challenging regulatory landscape, an area that lacks transparency
and predictability.

Section Six: Forums

The forum frequently hosts meetings featuring speakers from academia, industry and the Chinese Government. As a
result, the forum has established itself as a platform for sharing best practices, social networking and where members
can learn more about recently-enacted policies and the latest GA trends. This forum is open to all members of the
European Chamber.

In 2021, the forum solicited members’ comments on the Regulations of China (Beijing) Pilot Free Trade Zone and the
Catalogue of Industries Encouraging Foreign Investment 2021, and submitted this information to the Beijing Municipal
Bureau of Commerce, the Beijing Municipal Development and Reform Commission and the National Development
and Reform Commission (NDRC). The purpose of submitting members’ opinions and suggestions, on these
regulations and others, is to promote a level playing field, contribute towards China's economic development and to
enhance European Union (EU)-China cooperation.

The Government Affairs Forum provides a platform for dialogue with all levels of the Chinese Government. It gives
local policymakers the opportunity to provide policy interpretations so that forum members can better understand
important industry and regional developments.

In March 2021, the forum met with officials from Beijing’s Tongzhou District to learn more about the development of
the Beijing sub-centre.

In May 2021, the forum invited officials from the China (Beijing) Pilot Free Trade Zone and Integrated National
Demonstration Zone for Opening up the Service Sector Leading Group (the Two Zone Office) to introduce the Two
Zones.

In July 2021, at the national level, the forum participated in the EU-China Green Development Partnership Dialogue
hosted by the NDRC.

In October 2021, approximately 70 members attended a meeting with representatives from the Beijing Bureau of
Ecology and Environment, who provided analysis of the capital’s decarbonisation policies.

In December 2021, the forum held a seminar on the role that GA functions play in crisis management, with over 20
members participating. A GA expert shared her insights through case studies and gave guidance to members on how
to better interact with Chinese government authorities.

Government Affairs Forum 409

 Manufacturing Forum

Since its establishment in 2012, the Manufacturing Forum has kept pace with the ever-changing challenges faced by
European manufacturing companies operating in China.

The forum is comprised of 150 member companies that cover a wide range of industries, such as automotive,
consumer goods, electronics, energy, healthcare, machinery, petrochemicals and telecommunications. It functions as
a platform for sharing practical information between members and supporting their operations in China.
Section Six: Forums

Throughout 2021 and early 2022, the forum organised many events, including meetings, factory tours, seminars and
training courses. Topics covered in these events included: decarbonisation, energy-saving policies, power shortages
and the impact of the travel restrictions—such as hindering experts from travelling to China to upgrade machinery and
train local teams—as well as disruptive innovation; lean management; and the lack of talent in the Greater Bay Area
within the manufacturing industry, among others.

The forum also has a WeChat group for members that allows them to share information in a timely manner, and
exchange experiences and ideas conveniently and efficiently. Issues that emerged for discussion via the WeChat
group include:

• local regulation updates;

• industry information;
• human resources concerns;
• requests for help from the European Chamber; and
• requests for help from other members.

In May and September 2021, manufacturers in several Chinese provinces were forced to shut down production with
little or no notice from their local governments, which imposed the measures in order to curb energy consumption
and as part of China’s planned energy transition to renewable sources. In response, the European Chamber took
coordinated actions at both national and local levels to help members communicate with the relevant authorities and
solve their issues. The Manufacturing Forum also helped member companies organise a series of events, giving
practical solutions through best-practices sharing, updates on energy transition trends and advice on how to upgrade
their energy usage and achieve their carbon neutrality goals.

In addition, due to the wave of COVID-19 outbreaks across various regions in early 2022, local governments enacted
a series of measures relating to international courier services, with strict requirements for the decontamination of all
components coming from abroad. The forum organised exchange meetings with local authorities on the topic, and
actively sought government updates on the relevant policies.

Going forward, the Manufacturing Forum intends to continue to engage members by organising more interactive
activities and providing information on industry-related topics, such as manufacturing innovation, supply chain
management and energy transition. The forum will also focus on the potential future opportunities for European
enterprises operating in China in respect to new technologies (such as artificial intelligence, fifth generation mobile
technology and autonomous driving) and decarbonisation (such as ‘clean tech’—environmentally friendly practices
and technologies—and energy efficiency).

410 Manufacturing Forum Position Paper

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

Marketing and Communications Forum

The Marketing and Communications Forum is comprised of marketing and communications professionals from a
wide range of industries. They represent nearly 400 member companies based in the European Chamber’s Beijing,
Shanghai and South China chapters. Through regular activities such as meetings, seminars and training sessions,
the forum provides a platform to exchange information, experiences and best practices among members on the best
use of marketing and communications to achieve business objectives in China.

Looking back over 2021, it is obvious that markets continued to be influenced by the COVID-19 pandemic, causing

Section Six: Forums

disruptions to business operations. Despite this looming shadow, the global economy is steadily, if slowly, recovering.
Against this backdrop, the Marketing and Communications Forum’s events placed a spotlight on innovative marketing
strategies and digitalisation processes that optimise sales revenue. They also provided a platform to discuss
emerging trends with member companies, and to share suggestions and best practices.

The Marketing and Communications Forum started 2021 with events on marketing trends and strategy sharing in
January and March, organised by the Beijing and South China chapters respectively. In addition, due to the intensified
political sensitivities of doing business in China, the forum organised a webinar in March on crisis communication,
traditionally always a popular topic. Speakers shared their professional experiences in public relations relating to
dealing with crises.

The forum also organised a series of events aimed at helping member companies utilise tools and technologies
to better realise growth targets. For example, an event in May introduced innovative project management theories
and tools for marketing professionals, while another event in November illustrated how marketing technology can
empower company branding and growth.

The e-commerce market continued to grow – according to Xinhua, China’s annual online commodity sales broke the
Chinese yuan (CNY) 10 trillion threshold for the first time in 2021.1 Tapping into this trend, in April the forum organised
a webinar on the Chinese e-commerce market, providing advice on entering the China market through e-commerce
platforms. By presenting a clear overview of the Chinese e-commerce market, the webinar showed how brands
need to adapt to the digitalisation trend and localise their branding to suit Chinese consumers’ preference for online
platforms.

Video is now one of the most popular means of obtaining information, making it an increasingly important and
influential tool for companies to convey their key messages. Enterprises are increasingly choosing to provide video
content on their media channels to engage followers. Therefore, the Marketing and Communications Forum organised
experience-sharing sessions on video marketing in Beijing in September 2021 and in the South China Chapter a
month later.

The Marketing and Communications Forum will continue to hold events relevant to members’ interests in the coming
year. In parallel, training courses on content marketing, social media, crisis management, video marketing and
live-streaming will also be provided across all chapters, helping members to constantly improve their professional
marketing and communications skillsets.

1 China’s Annual Online Commodity Sale Broke the 1000 Billion RMB Threshold For The First Time in 2021, Xinhua, 28th January 2022, viewed 2nd March, <http://www.gov.cn/
xinwen/2022-01/28/content_5670892.htm>

Marketing and Communications Forum 411

 Small and Medium-sized Enterprise Forum

Comprised of more than 200 European small and medium-sized enterprises (SMEs), the European Chamber’s
Small and Medium-sized Enterprise Forum was established in 2005 to provide a platform for SME members to share
experiences and gain practical information on how to successfully operate in China. Relevant stakeholders also
include European and Chinese government officials and SME support service organisations, such as the European
Union (EU) SME Centre and China Intellectual Property (IP) SME Helpdesk.

SMEs face numerous challenges in China’s increasingly competitive markets. As national issues in 2021 evened out,
Section Six: Forums

additional focus was put on local issues like securing funding through Greater Bay Area subsidies. However, certain
difficulties remain unaddressed. Attracting, hiring and retaining talent, for instance, is an issue critical to every SME’s
operations that is greatly exacerbated by the restrictive COVID-19-related travel and quarantine policies imposed by
China on international travellers.

In 2021, China continued to encourage development of the SME sector, specifically with commitments in the 14th Five-
year Plan to improve the business and innovation environment for small businesses, as well as plans to strengthen
China’s middle-income group. Moreover, in the same spirit, the National Development and Reform Commission
indicated in its 2022 Plan for National Economic and Social Development that emphasis would be placed on
improving the business environment for SMEs in order for them to thrive in China, as well as providing opportunities
for them to work in conjunction with larger companies to meet national goals.1

Nevertheless, European SMEs regularly report encountering market access barriers or discretionary implementation
of regulations while conducting business in China.2 To help European SMEs overcome these challenges, the Small
and Medium-sized Enterprise Forum maintains a strong network for companies to share resources and insights on
the regulatory environment. The forum also works closely with relevant European Chamber working groups to ensure
that specific SME requirements and concerns are voiced in any advocacy activities.

In 2021, the Small and Medium-sized Enterprise Forum organised many events in the European Chamber’s Beijing,
Shanghai and South China chapters. These events focussed on areas such as policy environment, regional business
opportunities and intellectual property, among others. In addition, a new branch of the forum was established in 2021
by the Tianjin Chapter.

In 2022/2023, the forum will remain a source of regular policy updates, as well as insights on topics such as talent
management, best-practice sharing, and new regulations and guidelines that may impact SME operations. The forum
will also continue to provide a platform and opportunities for European SMEs to share solutions to common problems
and to foster success.

1 Plan downloadable from: China releases reports on budgets, national economic and social development plans, State Council Information Office, 14th March 2022, viewed 20th April
2022, <http://english.scio.gov.cn/topnews/2022-03/14/content_78106885.htm>
2 European Business in China Business Confidence Survey 2021, European Union Chamber of Commerce in China, 10th June 2021, viewed 20th April 2022, <https://www.
europeanchamber.com.cn/en/publications-business-confidence-survey>

412 Small & Medium-sized Enterprises Forum

 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

Sports Forum

The Sports Forum is a platform intended to connect European Chamber member companies in the sports industry for
the purposes of insight and business intelligence-sharing. It also aims to bring together European sports companies,
government stakeholders and local communities through the integration of sports, education and business, and to
contribute to the development of the sports environment in China in a cooperative and non-politicised manner. The
Sports Forum was established in late November 2020 by six European Chamber members that rank among Europe’s
top sports companies. Within the next 18 months, the forum grew to comprise 34 member companies.

Section Six: Forums

The Sports Forum follows the positive spirits of the Olympic Games: faster; higher; stronger; together. Ahead of the
Beijing Winter Olympics 2022, the European Chamber held a meeting with Gou Zhongwen, minister of the General
Administration of Sports (GAS) and chair of the Beijing Olympic Committee, to discuss how the European Chamber
can promote the development of sports and the Olympic spirit in China. The European Chamber has established
strong partnerships with the GAS and the Shanghai Administration of Sports (SAS). The Chamber signed five-
year cooperation agreement with the GAS on 1st November 2021, committing both sides to cooperating on the
development of sporting activities, and the promotion of sports-related industries and events.

Sport can improve living standards, help individuals in their pursuit of a better life, promote economic and social
development, and achieve the goals of Healthy China 2030. Youth sport, in particular, is a priority for the Chinese
Government. This, alongside the integration of sport and education, and the coordination of cultural learning and
physical exercise, are focal points of the China Sports Law,1 in drafting at the time of writing, and the 14th Five-year
Plan for the Development of Sports.2 The Sports Forum supports China’s national Integration of Sports and Education
strategy,3 and hopes to establish further cooperation to better facilitate the sports industry and this programme.

Since its formation, the forum has held 11 activities, including meetings and roundtable discussions, in both Beijing
and Shanghai. In the coming year, the Sports Forum will continue to organise events and foster dialogue between
European Chamber member companies and Chinese stakeholders to promote the benefits of sports, and work with
relevant government agencies and other stakeholders to exchange best practices in sports in both the European
Union and China.

1 [Call for comments] China Sports Law draft and its explanation, Tencent News, 5th November 2021, viewed 1st April 2022, <https://new.qq.com/omn/20211105/20211105A02QHW00.
html>
2 Notice of the General Administration of Sport on the issuance of the 14th Five-year Plan for the Development of Sports, GAS, 8th October 2021, viewed 1st April 2022, <http://www.gov.cn/
zhengce/zhengceku/2021-10/26/content_5644891.htm>
3 Notice of the General Administration of Sports and the Ministry of Education on the Issuance of Opinions on Deepening the Integration of Sports and Education and Promoting Healthy
Youth Development, GAS and Ministry of Education, 31st August 2020, viewed 1st April 2022, <http://www.gov.cn/zhengce/zhengceku/2020-09/21/content_5545112.htm>

Sports Forum 413

7 Section Seven
Appendix
 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

Abbreviations

14FYP 14th Five-year Plan

30/60 Goals China's plan to peak carbon emissions before 2030 and achieve carbon neutrality by 2060
5G Fifth Generation Mobile Network
ABS Asset-backed Securitisation
AFB Agriculture, Food and Beverage
AFC Auto Finance Company
ADAS Advanced Driver Assistance System
ADR Alternative Dispute Resolution
AEO Authorised Economic Operator
AFC Auto Finance Company
AI Artificial Intelligence
AICM Association of International Chemical Manufacturers
AMC Asset Management Company
AML Anti-money Laundering
AML Anti-monopoly Law
AMP Alternative Marine Power

Abbreviations
AQSIQ General Administration of Quality Supervision, Inspection and Quarantine
ATEX Equipment for Potentially Explosive Atmospheres
ATM Air Traffic Management
AUCL Anti-unfair Competition Law
BASA Bilateral Aviation Safety Agreement
bcm Billion Cubic Metres
BCS Business Confidence Survey
BEV Battery Electric Vehicle
BMI Basic Medical Insurance
BRI Belt and Road Initiative
CAAC Civil Aviation Administration of China
CAC Cyberspace Administration of China
CAI Comprehensive Agreement on Investment
CAICT China Academy of Information and Communication Technology
CANSI China Association for National Shipbuilding Industry
CAS Chinese Accounting Standards
CBAM Carbon Border Adjustment Mechanism
CBIRC China Banking and Insurance Regulatory Commission
CBRC China Banking Regulatory Commission
cc Cubic Centimetre
CCC China Compulsory Certification
CCE Continued Compliance Education
CCER Chinese Certified Emission Reduction
CCP Chinese Communist Party
CCPIT China Council for the Promotion of International Trade
CCPS Classified Cybersecurity Protection Scheme
CCS China Classification Society
CD Certificate of Deposit
CDE Center for Drug Evaluation

Abbreviations 415
 CDMD Consumable and Disposable Medical Devices
CDS Customs Declaration Sheet
CEA China Emission Allowance
CEPL Circular Economy Promotion Law
CFC Corporate Finance Company
CFDA China Food and Drug Administration
CFE Centre for Food Evaluation
CFETS China Foreign Exchange Trade System
CGHC China Gas Heating Specialty Committee
CGT Cell and Gene Therapy
CGT Common Ground Taxonomy
CGT Compensated Gross Tonnage
CHC Chinese Holding Company
CHI Commercial Health Insurance
ChP Chinese Pharmacopeia
CIBM China Interbank Bond Market
CIFER China Import Food Enterprises Registration
CII Critical Infrastructure Information
CIT Corporate Income Tax
CLE Continued Legal Education
Abbreviations

CMC Chemistry Manufacturing Control

CMDE Centre for Medical Device Evaluation
CNCA Certification and Accreditation Administration of China
CNIPA China National Intellectual Property Administration
CNY Chinese Yuan
CO2 Carbon Dioxide
COCIR European Coordination Committee of the Radiological, Electromedical and Healthcare Information
Technology Industry
COD Commercial Operation Date
COMAC Commercial Aircraft Corporation of China
CORSIA Carbon Offsetting and Reduction Scheme for International Aviation
COP Conference of Parties
CPCIF China Petroleum and Chemical Industry Federation
CRR Capital Requirements Regulation
CSA Coordination and Support Action
CSAR Cosmetics Supervision and Administration Regulation
CSDC China Securities Depository and Clearing Corporation Limited
CSL Cybersecurity Law
CSP Construction Service Provider
CSRC China Securities Regulatory Commission
CSRD Corporate Sustainability Reporting Directive
CSRM Cybersecurity Review Measures
CT Cycle Threshold
CTG Coal-to-gas
CV Commercial Vehicle
CVD Coordinated Vulnerability Disclosure
DAL Drug Administration Law
DCM Drug Committee Meetings
DDR Deposit Deviation Ratio
DES District Energy Systems

416 Abbreviations
 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

DG Dangerous Goods
DGR Dangerous Goods Regulations
DIP Diagnosis-intervention Package
DMV Department of Motor Vehicles
DOJ Department of Justice
DPL Data Protection Law
DRG Diagnosis-related Group
DRS Deposit and Return System
DRR Drug Registration Regulation
DSL Data Security Law
DVFA Danish Veterinary and Food Administration
DWT Dead Weight Tonnage
EAL Evaluation Assessment Level
EASA European Aviation Safety Agency
ECHI Europe China Heating Initiative
ECL Export Control Law
ECN European Competition Network
EDS Express Delivery Services
EE Energy Efficiency
EHS Environment, Health and Safety

Abbreviations
ELC Equipment Leasing Company
EMA European Medicines Agency
EPC Engineering Procurement Construction
EPR Extended Producer Responsibility
ESCO Energy Service Company
ESG Environmental, Social and Governance
ETS Emissions Trading System
ETS Energy Trading System
EU European Union
EUR Euro
EV Electric Vehicle
FAO Foreign Affairs Office
FAQ Frequently-asked-Questions
FCEV Fuel Cell Electric Vehicles
FCM Food Contact Materials
FCPA Foreign Corrupt Practices Act
FDI Foreign Direct Investment
FI Financial Institution
FICLS Foreign-invested Company Limited by Shares
FIE Foreign-invested Enterprise
FIL Foreign Investment Law
FOP Front of Package
FSMP Food for Special Medical Purpose
FTP Free Trade Port
FTZ Free Trade Zone
FYP Five-year Plan
G Mobile Technology Generation
GA General Aviation
GACC General Administration of Customs of People's Republic of China
GB Guobiao

Abbreviations 417
 GCW Gross Combination Weight
GDP Gross Domestic Product
GEC Green Electricity Certificate
GFE Guangzhou Futures Exchange
GFMA Global Financial Market Associations
GHG Greenhouse Gas
GHz Gigahertz
GI Geographical Indication
GM Genetically Modified
GMM Genetically Modified Microorganism
GPA Government Procurement Agreement
GPL Government Procurement Law
GW Gigawatt
HC Hazardous Chemicals
HED European Union-China High Economic and Trade Dialogue
HGR Human Genetic Resources
HNTE High and New-Technology Enterprise
HQ Headquarters
HQLAAR High-quality Liquid Asset Adequacy Ratio
HR Human Resources
Abbreviations

HSA Health Security Administration

HSE Health, Safety and Environment
HVAC Heating, Ventilation and Air Conditioning
IaaS Infrastructure as a Service
IATA International Air Transport Association
ICAO International Civil AviationOrganization
ICH International Council for Harmonisation of Technical Requirements for Pharmaceuticals for Human
Use
ICMRA International Coalition of Medicines Regulatory Authorities
ICT Information and Communications Technology
ICV Intelligent and Connected Vehicles
IDC Internet Data Centre
IDF International Dairy Federation
IEC International Electrotechnical Commission
IMF International Monetary Fund
IMO International Maritime Organization
IMT International Mobile Telecommunications
IoT Internet of Things
IP Intellectual Property
IPI International Procurement Instrument
IPR Intellectual Property Rights
IP-VPN Internet Protocol Virtual Private Network
IRC Internet Resource Collaboration
ISO International Organization for Standardization
IT Information Technology
ITU International Telecommunication Union
IVD In-vitro Diagnostics
JV Joint Venture
kg Kilogram
km Kilometre

418 Abbreviations
 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

KPI Key Performance Indicators

KR Key Recommendation
kW Kilowatt
LDR Loan to Deposit Ratio
LMR Liquidity Matching Ratio
LNG Liquefied Natural Gas
m2 Square Metre
M&A Mergers and Acquisitions
MAA Marketing Authorisation Application
MAD Mutual Acceptance of Data
MAH Marketing Authorisation Holder
MARA Ministry of Agriculture and Rural Affairs
MED Marine Equipment Directive
MEE Ministry of Ecology and Environment
MEM Ministry of Emergency Management
MEP Minimum Energy Performance Standards
MFA Human Resources
MHz Megahertz
MIIT Ministry of Industry and Information Technology
MNC Multinational Corporations

Abbreviations
MOF Ministry of Finance
MOFCOM Ministry of Commerce
MOH Ministry of Health
MOHRSS Ministry of Human Resources and Social Security
MOHURD Ministry of Housing and Urban-Rural Development
MOJ Ministry of Justice
MOST Ministry of Science and Technology
MOT Ministry of Transport
MOU Memorandum of Understanding
MPA Macro-prudential Assessment
MPS Ministry of Public Security
mRNA Messenger Ribonucleic Acid
MRV Monitoring, Reporting and Verification
MSA Maritime Safety Administration
MSME Micro Small, and Medium-sized Enterprise
NAB National Anti-monopoly Bureau
NAB Non-alcoholic Beer
NAFMII National Association of Financial Markets Institutional Investors
NBFI Non-banking Financial Institution
NBS National Bureau of Statistics
NDM National Declaration Model
NDRC National Development and Reform Commission
NEA National Energy Administration
NEV New Energy Vehicle
NG Natural Gas
NGO Non-governmental Organisation
NHC National Health Commission
NHFPC National Health and Family Planning Commission
NHSA National Healthcare SecurityAdministration
NIA National Immigration Administration

Abbreviations 419
 NIP National Immunisation Programme
NMPA National Medical Products Administration
NOx Nitrogen Oxide
NPC National People’s Congress
NPCSC Standing Committee of National People’s Congress
NPL Non-performing Loan
NRA National Railway Administration
NRDL National Reimbursement Drug List
NVOCC Non-vessel Operating Common Carriers
OE Original Equipment
OECD Organisation for Economic Cooperation and Development
OEM Original Equipment Manufacturer
P&C Property and Casualty
PaaS Platform as a Service
PAC Priority Assessment Chemicals
PBOC People’s Bank of China
PC Personal Computer
PCC Priority Control Chemicals
PCR Petrochemicals, Chemicals and Refining
PCR Polymerase Chain Reaction
Abbreviations

PDG Pharmacopeial Discussion Group

PDP Pollutant Discharge Permit
PET Polyethylene Terephthalate
PHEV Plug-in Hybrid Electric Vehicle
PIC/S Pharmaceutical Inspection Cooperation Scheme
PIPL Personal Information Protection Law
PM Particulate Matter
PMI Purchasing Managers Index
PPA Power Purchase Agreement
PPP Purchasing Power Parity
PSB Public Security Bureau
PRC People’s Republic of China
PRDL Provincial Reimbursement Drug List
PTA Patent Term Adjustment
PTE Patent Term Extension
PTE Purchase Tax Exemption
PTL Patent Linkage
Q&A Question-and-Answer
QC Quality Control
QSS Quality and Safety Services
R&D Research and Development
RDP Regulatory Data Protection
RE Real Estate
RE Renewable Energy
REACH Registration, Evaluation, Authorisation and Restriction of Chemicals
RMB Renminbi
RMOA Risk Management Option Analysis
ROP Refined Oil Products
rPET Recycled Polyethylene Terephthalate
RPS Reimbursement Payment Standards

420 Abbreviations
 European Business in China Position Paper
欧盟企业在中国建议书 2022/2023

RPS Renewables Portfolio Standard

S&T Science and Technology
SaaS Software as a Service
SAC Standardisation Administration of China
SAF Sustainable Aviation Fuel
SAFE Standards to Secure and Facilitate Global Trade
SAFE State Administration of Foreign Exchange
SALB Sale and Leaseback
SAMR State Administration for Market Regulation
SARS Severe Acute Respiratory Syndrome
SC State Council
SCA Standards and Conformity Assessment
SCA State Cryptography Administration
SCH Shanghai Clearing House
SCS Social Credit System
SDG Sustainable Development Goal
SEC Securities and Exchange Commission
SF6 Sulphur Hexafluoride
SHEEX Shanghai Environment and Energy Exchange
SI System Integrator

Abbreviations
SME Small and Medium-sized Enterprise
SOE State-owned Enterprise
SPB State Post Bureau
SPC Supreme People’s Court
SSE Shanghai Shipping Exchange
STA State Taxation Administration
TAC Type Approval Certificate
TBL Tender and Bidding Law
TBT Technical Barriers to Trade
TC Technical Committee
TC209 Technical Committee of Textile Standardisation
TC260 National Information Security Standardisation Technical Committee
THC Terminal Handling Charges
TIC Testing, Inspection and Certification
TIP Technical Implementation Procedure
TML Trademark Law
TPA Third-party Access
TTC Threshold of Toxicological Concern
UAS Unmanned Aircraft System
UAV Unmanned Aerial Vehicle
UK United Kingdom
UN United Nations
UNEA United Nations Environment Assembly
US United States
USD United States Dollars
UTM UAS Traffic Management
VAO Vehicle Administrative Office
VAT Value-added Tax
VATS Value-added Telecoms Services
VBP Volume-based Procurement

Abbreviations 421
 VOC Volatile Organic Compounds
VUCA Volatility, Uncertainty, Confusion and Ambiguity
WCO World Customs Organization
WFOE Wholly Foreign-owned Enterprise
WHO World Health Organisation
WiGig Wireless Gigabit
WIPO World Intellectual Property Organization
WRC World Radiocommunication Conference
WSC World Semiconductor Council
WTO World Trade Organization
Abbreviations

422 Abbreviations
Beijing South China - Shenzhen
Tel: +86 (10) 6462 2066 Tel: +86 (755) 8632 9114
Fax: +86 (10) 6462 2067 Fax: +86 (755) 8632 9785
Email: [email protected] Email: [email protected]

Nanjing Southwest - Chengdu

Tel: +86 (25) 8362 7330 Tel: +86 (28) 8527 6517
Fax: +86 (25) 8362 7332 Fax: +86 (28) 8527 6517
Email: [email protected] Email: [email protected]

Shanghai Southwest - Chongqing

Tel: +86 (21) 6385 2023 Tel: +86 (23) 6308 5669
Fax: +86 (21) 6385 2381 Fax: +86 (23) 6308 5669
Email: [email protected] Email: [email protected]

Shenyang Tianjin
Tel: +86 (24) 3198 4229 Tel: +86 (22) 5830 7608
Fax: +86 (24) 3198 4229 Fax: +86 (22) 5830 7608
Email: [email protected] Email: [email protected]

South China - Guangzhou

Tel: +86 (20) 3801 0269
Fax: +86 (20) 3801 0275
Email: [email protected]