Shanghai-London Stock Connect: We expect the launch of the scheme in 2018 to be followed in 2019 by further rules to clarify certain aspects, including fungibility, market stabilisation, cross-border conversion mechanics, and synchronisation of settlement cycles between the two exchanges (to the extent not covered by any further rules passed towards the end of 2018).

Control of local government debt: In 2019, we expect Chinese authorities to continue their balancing act between bolstering financial stability on the one hand and providing economic stimulus on the other. Negotiations for the end of the Sino-US trade war, if successful, may assist the government’s efforts to strengthen the economy. New monitoring systems are expected to be rolled out, to help curb unnecessary government debt. Nevertheless, debt supporting public infrastructure projects will likely still be encouraged, at least in the short term.

Restrictions on foreign debt: In 2019, we expect the NDRC to continue to increase oversight over foreign debt, close loopholes and strengthen penalties for non-compliance. In particular, we may see it expand its scope to monitor short term foreign debt (i.e. debt with a tenor under 365 days) as well as the medium and long term foreign debt it currently regulates.

Expected antitrust enforcement trends: In 2019 the practices of the newly formed antitrust authority will be closely watched for any common interpretive and stronger activist trends. Enforcement against missed filings and gun-jumping is expected to continue, whilst sanctions for failure to notify a purely offshore transaction with no Chinese nexus may be seen for the first time. Global trends of fortifying antitrust and foreign investment regulation may result in clearances for complex deals or transactions involving strategic or sensitive sectors becoming increasingly challenging.

Anti-monopoly law reform: Recently, there have been calls for amendments to the Anti-Monopoly Law. In 2019, the antitrust community will continue to debate the proposed changes. Fair competition review, further rules on vertical agreements and enhanced penalties for failure to notify are among those proposed to be introduced.

Foreign investment in A-share companies: A further consultation draft on strategic investments by foreign investors in A-share listed companies was published in 2018, with the final rules expected to be passed in 2019. Key proposed changes include reducing the lock-up period from three years to one and abolishing the minimum 10% of share capital for such investments.

Auto sector: The timetable has been set for the removal of foreign investment limits in the auto sector, beginning with new energy vehicles and special-purpose vehicles in 2018, then extending to commercial vehicles in 2020 and passenger vehicles (including the ability to have more than two presences) in 2022. New requirements for investments in the auto sector, to be released imminently, are expected to restrict new production capacity in complete combustible fuel vehicle projects and introduce additional criteria (including a minimum 100,000 passenger vehicles or 5,000 commercial vehicles) for complete electric vehicle projects.

Share buy-backs: In November, following the reform to the PRC Company Law, the Shanghai and Shenzhen stock exchanges issued consultation draft implementation rules for share buy-backs. The drafts further clarify that repurchases/buy-backs are “necessarily intended for preserving the value of listed companies and shareholders’ interests”. The drafts contain detailed requirements on buy-back plans and disclosure procedures, as well as measures to prevent abuse of share buy-backs. We expect the drafts to be finalised and enacted in 2019.

Foreign investment law: 2019 may see the enactment or the publication of a further consultation draft of the Draft Foreign Investment Law since the first draft was published in 2015. The new law is expected to bring “variable interest entity” structures within the scope of foreign investment regulation and harmonise the corporate governance requirements for Sino-foreign joint ventures and domestic companies. 

Foreign investment reform: In 2019, the government is expected to continue opening up the market to foreign investors and improving the foreign investment environment. A new negative list applying to foreign and domestic investors in all sectors is expected to be published in early 2019, which will entrench the principle of “investment is permitted where not prohibited”. Further, the government expects to remove, by March 2019, all restrictions on market entry by foreign investors (other than those set out in the “negative list” of restrictions on foreign investment), as well as all licensing requirements that do not appear in an approvals catalogue which will be published imminently. The services sectors, including finance, education and health, are likely to form the focus of foreign investment reform in 2019. 

Financial crime: 2019 may see increased focus by authorities on financial crime. The trend of prosecuting high-ranking executives (such as Huarong chairman Lai Xiaomin, senior management of various banks and chairmen/vice-chairmen of financial regulators) is expected to continue. CSRC is expected to continue its trend of imposing maximum penalties and lifetime bans for market misconduct and transferring more cases to the police for criminal investigation. 

Collection of social security funds to be stepped up: The Central Committee of the Communist Party of China and the General Office of the State Council have decreed that from 1 January 2019, all social insurance funds will only be collected by local tax administrations. This is expected to lead to much stronger enforcement, compared with the previous practice of collection by local social insurance fund administrations. Overzealous enforcement may be a concern, such as the example of a local Changzhou company in August being ordered to pay ten years’ outstanding contributions totalling approximately RMB 1.8 million. Yet the authorities have also urged localities to put enforcement of overdue contributions on hold, and given assurance that contribution rates will be simultaneously lowered. In November, 28 government departments announced their intention to combat non-compliance in future social security contribution. Sharing of information on non-compliant companies among these departments is likely to create problems for persistent offenders.

HMT Residents: Following the removal in 2018 of work permit requirements for Hong Kong, Macau and Taiwan (“HMT”) residents, a consultation draft rule that will apply the PRC social security regime to HMT residents is expected to be passed in 2019. Employers will be required to make contributions for HMT residents employed, though they are expected to be permitted to opt out from participating in the pensions and unemployment insurance schemes if they have joined social security or provident fund schemes in their home jurisdiction.

Land reform: Following two years of consultation, 2019 may see reform enabling collective land to be used for non-agricultural purposes, which will allow such land use rights to be leased, transferred or rented in order to ensure that land in urban and rural areas can be transacted on the same basis. The launch of a pilot programme in 13 cities this year is a promising sign that transactions in collective land may be expedited on a nationwide basis through the decentralisation of approval powers and doing away with the compulsory acquisition process in limited circumstances.

Personal data: Guidelines for the conduct of privacy impact assessments are expected to come into force in 2019. These will require data controllers to conduct overall assessment of risk levels based on the impact of their operations to data subjects’ interests and the likelihood of data breaches occurring. Additional evaluation guidelines apply to cross-border data transfers, data anonymisation/de-identification, processing, transfer, sharing and disclosure arrangements and the impact of data breaches. In addition, a draft standard was published in November, which broadly specifies the security measures data controllers and collectors will need to make to their IT systems and networks in order to ensure the safety of personal data in the collection, storage, use and administration process. These guidelines are intended to be used by cybersecurity authorities in supervising and monitoring compliance with personal data protection rules.

E-commerce: China’s new e-commerce law will come into force on 1 January 2019. It subjects e-commerce platforms to wide-ranging obligations, including information retention and filings with authorities, monitoring the health and safety of the products/services supplied and policing IP infringements by on-platform vendors. The new law tracks the EU approach in requiring vendors to provide a “no profiling” option as an alternative to products being offered to users based on automated analysis of their preferences.

Financial services: In April 2018, the China Securities Regulatory Commission (“CSRC”) permitted foreign majority ownership of securities companies, with full liberalisation of foreign ownership caps to occur by 2020. This was followed, in August 2018, by removal of all limits on foreign shareholding in financial asset management companies and Chinese-funded commercial banks. Foreign majority ownership of life insurance joint ventures is expected to be introduced in 2020, with all foreign ownership caps removed by 2022. The framework for dealing with foreign investors’ applications for majority ownership will be progressively revamped, with new rules on equity investments in securities companies expected to be published in 2019.

Anti-money laundering and counter-terrorist financing (“AML/CFT”): Rules for the PBOC’s online AML/CFT platform linking service providers who use internet and communications technology to provide financial and information services will come into effect from 1 January 2019. These service providers, including CBIRC-regulated entities, will be required to establish AML/CFT departments and AML/CFT internal control policies, with responsibility for implementation resting with the legal representative. Service providers will be subject to AML/CFT inspections by the PBOC and required to monitor transactions for involvement with terrorist organisations that appear in lists published by the government, financial regulators and the United Nations (“UN”) Security Council. For banks specifically, from 2019: (i) boards are likely to assume responsibility and have to designate a senior manager for AML/CFT; and (ii) other expected AML/CFT requirements include UN sanctions resolutions, annual AML/CFT audits and completing AML/CFT evaluation before establishing new branches, undertaking new business lines or introducing new IT systems.