China Regulatory Enforcement Quarterly - Q3 2015

Regulatory Update

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On August 12, a series of explosions in the northern port-city of Tianjin killed over one hundred people and injured hundreds of others. The explosions were allegedly caused by hazardous chemical materials in shipping containers stored at a warehouse owned by Tianjin Ruihai International Logistics Co. Ltd. ("Ruihai Logistics"), a firm which specializes in importing hazardous materials into China. The fires and subsequent damage caused by the explosions continued to rock the Binhai New Area of Tianjin for several days, including eight additional explosions occurring on August 15. Hundreds of residents of the Binhai New Area are still homeless, and many more are mourning over loved ones.

China’s state media reported that Ruihai Logistics had used the political connections of its owners to circumvent safety regulations and inspections. For example, fire safety documents stated that the warehouse was a safe distance of 1,000 meters away from public buildings, when in fact it was less than 600 meters from a residential apartment complex. Various other allegations have been raised including potential violations of land, environmental, and safety certifications.

A formal investigation was launched by the Ministry of Public Security, directly reporting to Premier LI Keqiang at the central government level. 23 business executives, including officials at Tianjin’s port and other local government authorities, had been arrested for their roles in the blasts.

In situations such as the Tianjin explosions, as well as the Chinese stock market meltdown which also occurred in Q3 of this year, the Chinese government has found itself responding to national crisis management issues where a rapid response pattern is beginning to form: 1) active management of public discourse and increased internet content controls, 2) rapid launch of an investigation including the detention and arrest of suspects, and 3) early strategic communications from central leaders regarding the central government’s response, including an emphasis on its continued fight against corruption.

The Tianjin incident as well as the Chinese stock market meltdown, which is covered in further detail in this newsletter, are just part of the backdrop to China’s regulatory enforcement landscape in Q3 2015. The finance, banking, and media sectors have come under fire as Chinese authorities attempt to restore investor confidence and prop up the sputtering Chinese economy. Additionally, we have seen an uptick in Chinese companies "self-reporting" bribery and corruption issues to authorities. This, along with President XI Jinping’s recent speech to U.S. technology companies in Seattle, emphasizing the government’s continued commitment to control domestic internet operations, evidences the increasingly active role the Chinese government is playing, both proactively and reactively in order to deal with the significant regulatory challenges it is facing.

What to expect in Q4 2015 and beyond

The Ninth Amendment to the PRC Criminal Law, which came into effect on November 1, 2015, is another strong indication that the central government will continue its push to crackdown on corruption.

The Central Commission for Discipline Inspection’s Central Inspection Team ("CI Team") has recently completed its second round of inspections targeting nine central units and 17 central state-owned enterprises ("SOEs") in various industries including transportation, energy, aerospace, publication and travel. The CI Team will shortly commence its third round of inspections against another 31 SOEs and various government bureaus and agencies, targeting principally those bureaus and SOEs in the financial and insurance sectors.

We have highlighted in this newsletter several other new regulations and enforcement trends, including those relevant to the life sciences, food and beverage, internet, and advertising sectors. We hope you enjoy this edition of the China regulatory enforcement quarterly.