NPCSC Takes No Further Action on Foreign Investment Law (for Now), Adopts Two Tax Laws & Codifies Civil Service Reform

The 13^th NPC Standing Committee (NPCSC) concluded its seventh session on Saturday with the adoption of a series of laws and decisions. Below we will take a brief look at each.

To start, the NPCSC decided that the 2019 NPC session will convene on March 5, 2019 and proposed an agenda. But surprisingly missing from the agenda was the draft Foreign Investment Law [外商投资法] (summary and translation available here). State media reported last week that the chairman of the influential NPC Constitution and Law Committee recommended that the NPCSC submit the Law to the 2019 NPC session. Yet there is no indication that it took such action on Saturday.

Because under China’s Constitution the Law must be adopted by the full NPC, we see two alternative legislative timetables:

• Under the first, the NPCSC will review the draft a few more times during 2019 and submit it to the 2020 NPC session for adoption. This timeline is what we have been expecting, but the slow pace might not please the Trump Administration.
• Under the second, the NPCSC will review the draft again at its next regular session in late February 2019 and then submit it to the NPC session the following March. But this timetable faces two potential hurdles. First, the NPCSC will likely convene its February session either within or immediately after the public comments period for the Law’s first draft—ending on February 24—thereby leaving itself little time to review and incorporate the comments received. Second, Chinese law requires that the NPCSC distribute any bill it decides to have the full NPC consider to NPC delegates one month in advance—in this case, by February 5, 2019. Because it has not made—and will not able to make—such a decision by the deadline (which happens to be the 2019 Chinese New Year), the required distribution (at least one that is properly authorized by the NPCSC) cannot occur.

It unclear which timetable the authorities will choose. On the one hand, completing the legislative process for the Foreign Investment Law in 2020, while perfectly normal and even expected under Chinese law, might not help the Chinese Government in trade negotiations. And on the other, the NPCSC has itself created legal obstacles to expediting the legislative process by failing to submit the Law to the NPC on Saturday. We should know more about the fate of the Law by the end of February.

Moving on, the NPCSC approved two tax laws last week. The Vehicle Acquisition Tax Law [车辆购置税法] requires that organizations and individuals who “acquire”—defined to include “purchase, import, self-manufacture, receive as gift, or win”—cars, trolley cars, car trailers, or certain classes of motorcycles pay a 10% tax on the taxable value (further defined) of the vehicle. The Law will take effect on July 1, 2019. The Farmland Occupancy Tax Law [耕地占用税法] imposes a tax on any organization or individual who occupies farmland to “construct buildings or structures or engage in non-agricultural constructions.” The tax rates will vary from one county-level administrative division to another and will be set by provincial legislatures within specified ranges that are tied to the per capita area of farmland available within each administrative division. The average level of the rates applied in each province, moreover, must not be lower than the province-specific average rate prescribed by the Law, which will take effect on September 1, 2019.

The NPCSC also revised the Civil Servants Law [公务员法], codifying a civil service reform that has been piloted in certain central government agencies and local governments since early 2017. To not bore you with the technicalities, the gist of the revision is to make pay raises for grass-roots civil servants more likely by creating a separate salary track tied more closely to their seniority and competency than to their job responsibilities. The revision also places the civil service system under tighter Communist Party control, requiring the civil servants to uphold the Party’s leadership, barring those expelled from the Party from serving, and prohibiting any criticism of the Party in any form. In particular, article 59, item 3 prohibits civil servants from “sowing discord between ethnicities and undermining ethnic relations”; nothing of this sort immediately comes to mind. The revised Law will come into force on June 1, 2019.

The NPCSC adopted several more legislative bills on Saturday:

• An amendment to the Rural Land Contracting Law [农村土地承包法] that establishes land management right [土地经营权] as being separate from both land ownership right [土地所有权] and land contracting right [土地承包权]. In other words, a rural land contractor may now transfer her right to manage the land to a third-party and receive economic benefits therefrom. The amendment also extends the term of current farmland contracts by another 30 years when they expire and strengthens the protection for the land contracting and management rights of migrant workers, among other changes. The amendment will take effect on New Year’s Day.
• Minor amendments to the Urban Residents’ Committees Organic Law [城市居民委员会组织法] and Villagers’ Committees Organic Law [村民委员会组织法] that extend the term of office of these two types of “grass-roots mass organizations of self-government” from three years to five. Why the change? Because recent Party regulations also extended the tenure of its grass-roots committees to five.
• A minor amendment to the Social Insurance Law [社会保险法] that combines the accounts for the maternity insurance and basic healthcare insurance funds, a pilot reform that has been conducted since 2017.
• Minor amendments to the Products Quality Law [产品质量法] and 15 other laws.[*] They either are technical (to accommodate the latest government reorganization) or cut red tapes. The amendment to the Civil Aviation Law [民用航空法] also authorizes the Central Military Commission and the State Council to jointly regulate unmanned aerial vehicles, commonly known as drones, given the “acute safety issues brought about by their popularization.”

Finally, the NPCSC also adopted two other decisions at its recent session:

• The first extends a pilot land reform to December 31, 2019, pending amendments to the Land Management Law [土地管理法] and Urban Real Estate Administration Law [城市房地产管理法].
• The second authorizes the State Council, during a period of four years starting January 1, 2019, to allow local governments to issue bonds within 60% of their annual new debt limits (70% for general-purpose debt limits in 2019) before the NPC approves the State budget each March. This intends to solve the problem that local governments have been unable to raise funds by issuing bonds for the better part of the first half of each year.

Thanks to Taige Hu for research assistance.

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[*] The Compulsory Education Law [义务教育法], Import-Export Commodity Inspection Law [进出口商品检验法], Budget Law [预算法], Food Safety Law [食品安全法], Electric Power Law [电力法], Higher Education Law [高等教育法], Port Law [港口法], Enterprise Income Tax Law [企业所得税法], Labor Law [劳动法], Law on the Protection of the Rights and Interests of the Elderly [老年人权益保障法], Law on the Prevention and Control of Environmental Noise Pollution [环境噪声污染防治法], Environmental Impact Assessment Law [环境影响评价法], Private Education Promotion Law [民办教育促进法], Civil Aviation Law [民用航空法], and Law on the Prevention and Control of Occupational Diseases [职业病防治法].

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