NPCSC Session Watch: Lawmaking Reforms, Corporate Bankruptcy, Charity, Financial Stability, Foreign Sovereign Immunity, Cross-Border Litigation & More

UPDATE (Jan. 3, 2023): On December 30, 2022, the NPCSC adopted the revision to the Wild Animals Protection Law, effective May 1, 2023, and the Reservists Law, effective March 1, 2023.

UPDATE (Dec. 27, 2022): The official readout of the session’s first meeting reveals that the NPCSC is also reviewing a draft amendment to the Foreign Trade Law [对外贸易法] to codify a pilot administrative reform that recently expired on December 1. The readout also shows that the State Council has requested an interpretation of “relevant articles” of the Hong Kong National Security Law, without elaborating. We expect both to pass on Friday. Finally, it appears that the draft revision to the Enterprise Bankruptcy Law [企业破产法] has been removed from this session’s agenda.

Last Friday, the Council of Chairpersons decided to convene the 38th and second-to-last session of the 13th NPC Standing Committee (NPCSC) from December 27 to 30. The session’s tentative agenda includes fifteen bills. The Hong Kong government’s requested interpretation of the Hong Kong National Security Law, however, is not among them. But as we have explained, the NPCSC may hide the existence of a bill until after its adoption, so it could still consider an interpretation at the upcoming session. Below we briefly preview the bills slated for review.

Returning Bills

Six bills return for further review.

First, the draft amendment to the Legislation Law [立法法] returns for a second review. The NPCSC is expected to submit it to the 2023 NPC session for a final review. We have recently discussed two of the most important provisions in the draft amendment, and plan to publish a comprehensive overview after the second draft is released after the upcoming session.

Second, the draft revision to the Wild Animals Protection Law [野生动物保护法] returns for its third review and the draft Reservists Law [预备役人员法] for its second; both are expected to pass. We may discuss them in more detail after the session.

Third, the draft revision to the Company Law [公司法], draft revision to the Counterespionage Law [反间谍法], and draft Qinghai–Tibet Plateau Ecological Conservation Law [青藏高原生态保护法] return for their second review as well. A third and final review awaits them in the near future.

New Bills

Nine new bills have been submitted for review.

First, the NPC Financial and Economic Affairs Committee submitted a draft revision to the Enterprise Bankruptcy Law [企业破产法]. The Law was enacted in 2006, replacing a trial version that went into effect in 1988. Last year, the NPCSC inspected the Law’s enforcement and concluded that some of its provisions “no longer meet practical needs.” The inspection team’s report identified a number of issues in the Law’s implementation: for instance, businesses are generally reluctant to file for bankruptcy because they fear it would expose them to potential liability for mismanagement; courts frequently refuse to accept bankruptcy cases or fail to follow statutory deadlines so that such cases generally take too long to resolve; reorganization (of a debtor’s business or debts to allow for continued operation) has been underused as a form of relief; and certain special entities, like state-owned enterprises and financial institutions, face additional hurdles when filing for bankruptcy. The draft revision will likely address those issues. We expect it to pass after at least three reviews.

Second, the NPC Environmental Protection and Resources Conservation Committee submitted a draft revision to the Marine Environmental Protection Law [海洋环境保护法], last substantially revised in 1999. The NPCSC inspected the Law’s enforcement in 2018 and in the resulting report recognized that the state of China’s marine environment was still “grim.” The report identified a host of causes, including poor oversight of wastewater outfalls, lax regulation of land-based sources of pollution, and inadequate protections against pollution from ships, oil spills, and marine farming. It thus recommended that the Law be amended as soon as possible. We expect the revision to pass after three reviews.

Third, the NPC Agriculture and Rural Affairs Committee submitted a draft Rural Collective Economic Organizations Law [农村集体经济组织法]. There is currently no authoritative definition of “rural collective economic organizations” (RCEOs) at the national level; leading provincial legislation has generally characterized them as “community-based economic organizations” that use collectively owned land as the basic means of production and that implement China’s two-tier land tenure system (under which individual households enter into contracts to cultivate small plots of land). Although RCEOs are referenced in the Constitution and a number of national laws, there is so far no comprehensive national legislation that regulate matters including their legal personhood, their business activities, criteria for RCEO membership, and their internal governance. Disputes frequently arise over RCEO memberships (and the important accompanying economic rights) in practice, but the courts have no clear rules to rely on. This new Law will likely fill many such gaps. We expect it to pass after three reviews.

Fourth, the NPC Social Development Affairs Committee submitted a draft revision to the Charity Law [慈善法]. The Law was enacted in March 2016 and took effect in September of that year. While the Law has contributed to the “steady development” of China’s philanthropic sector, according to the NPCSC’s 2020 report on the Law’s implementation, new circumstances since its enactment, especially the Covid-19 pandemic, have also exposed its various shortcomings. Early pandemic response revealed that charitable organizations lacked platforms and mechanisms to share information and allocate resources in emergencies. Information disclosure by charitable organizations has also been overall inadequate. In addition, local governments not only have engaged in “excessive regulation,” but have also failed to penalize charity fraud and embezzlement of charitable assets. Finally, the report noted that the Law does not regulate online crowdfunding initiated by individuals and urged the legislature to adopt comprehensive rules on online charity. We expect the draft revision to pass after three reviews.

Fifth, the State Council submitted a trio of new bills.

  • Draft Value-Added Tax Law [增值税法]. Once enacted, the Law would replace the State Council’s 1993 Interim Regulations on Value-Added Tax [增值税暂行条例], as part of China’s ongoing effort to levy all taxes by statute, not administrative regulations. The Ministry of Finance and State Taxation Administration sought public comment on a prior draft in late 2019. According to the two agencies, the Law would generally maintain the tax’s current framework and overall tax burden. We expect it to pass after two or three reviews.
  • Draft Financial Stability Law [金融稳定法]. This bill was drafted by the People’s Bank of China (PBOC) in consultation with five other State Council agencies to establish “long-term mechanisms for preserving financial stability.” A prior draft was released for public comment in spring 2022. According to the PBOC, such a law is necessary because existing legal provisions on financial stability are “scattered” in multiple laws and regulations, are too general, and lack an “overall design” and “cross-industry and cross-departmental arrangements.” We expect the bill to pass after three reviews.
  • Draft Foreign Sovereign Immunity Law [外国国家豁免法]. The doctrine of foreign sovereign immunity (or state immunity) protects a state from the proceedings before a foreign court. There are two approaches to sovereign immunity—“absolute” or “restrictive”—and China has long adhered to the former. Thus, foreign states and their properties now enjoy total immunity from the jurisdiction of Chinese courts. Under the restrictive approach, by contrast, a state may be sued in a foreign court under certain circumstances, such as when it acts more like a private person than a sovereign (e.g., engages in commercial transactions). An influential NPC delegate bill from 2020 urged China to adopt the restrictive approach, citing the need to provide a domestic judicial forum for Chinese parties harmed by foreign states in international commerce and to counter “American hegemony” (pointing specifically to the spate of U.S. lawsuits filed against China for allegedly causing the Covid-19 pandemic). The draft Law signals that China may be moving away from its absolute approach to sovereign immunity. And whatever approach the Law ends up adopting, it will also bind the courts of Hong Kong and Macao under the NPCSC’s 2011 interpretation of the Hong Kong Basic Law (whether or not the Law is formally made applicable in the two cities).

Finally, the Supreme People’s Court (SPC) submitted separate bills to amend the Civil Procedure Law (CPL) [民事诉讼法] and the Administrative Litigation Law (ALL) [行政诉讼法]. The draft CPL amendment would likely focus on revamping the Law’s Part IV (on special rules for foreign-related civil litigation), according to a recent SPC report. “Foreign-related” [涉外] cases are those that involve “foreign factors” such as foreign parties, subject matters, or legal facts, and include cases involving the recognition or enforcement of foreign judgments or arbitral awards. (Cases relating to Hong Kong, Macao, and Taiwan are treated as foreign-related in practice.) In the report, the SPC acknowledged difficulties in serving parties and gathering evidence overseas, determining foreign law, and shortening litigation timelines, as well as the need to improve the jurisdictional rules for foreign-related civil cases. We expect the draft CPL amendment to pass after at least two reviews. As for the draft ALL amendment, it is so far unclear if it is related to the CPL amendment (i.e., would make similar changes to the ALL’s rules on foreign-related cases) or not. We expect it to pass after two or three reviews depending on its content and scope.

The upcoming NPCSC session will also adopt a decision to convene to the 2023 NPC session (the inaugural session of the 14th NPC) and hear a report by the NPCSC Legislative Affairs Commission on its effort to review sub-statutory legislation in 2022.

With contribution from Taige Hu

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