China Regulatory Enforcement Quarterly - Q4 2015

Regulatory Update

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Legal and regulatory developments in Q4 2015 continue to reflect attempts by the Chinese government to respond to the significant challenges presented by the slowing market economy and other domestic crises, while the country aspires to transition into a more consumption-driven, innovative, and diversified economy.

For example, the Shanghai Stock Exchange, which crashed in Q3 and made a small recovery in Q4, collapsed to a 52-week low in the first week of 2016. The government implemented a number of reforms aimed at preventing future crashes which, ironically, may have in some cases compounded the problem. One such reform was the introduction of a “circuit breaker system” which halted the trading of Chinese stocks that made gains or losses of more than seven percent on any given trading day. The circuit breaker system may have contributed to the crash as anxious investors looked to quick sell when markets began to tumble. The China Securities Regulatory Commission (CSRC) suspended the system within three trading days, having publicly admitted that the measure was unsuccessful in achieving its aim.

Furthermore, the central government’s stance against corruption remains steadfast as evidenced in its propensity to investigate, arrest, and prosecute individuals responsible for such crimes. Disaster struck in Shenzhen on December 20 when a dumpsite of construction debris collapsed toppling dozens of buildings and apartments. Official reports state that 69 people were killed while eight remain missing. Ongoing investigations revealed that the dumpsite was known to be unstable and had been reported to government officials who declined to act. According to Chinese media reports, Chinese authorities charged 42 people in connection with the collapse, among whom 12 were government officials. A former official whose office had overseen approvals for the dumpsite reportedly jumped to his death.

China’s legal and regulatory landscape continues to adapt to these macro-economic shifts and crisis management issues, having unexpected consequences for multinational companies operating in China. Companies have reacted by looking to mitigate critical risks to business and infrastructure by, for example, the implementation of robust compliance programs, strengthening internal controls, and increasing the visibility of the legal team on issues such as cyber security, data protection, and data transfer.

This newsletter also considers new anti-terrorism laws, regulatory reforms in the healthcare sector as well as other major enforcement highlights of Q4 2015. We wish you a Happy Chinese New Year and much luck and well-being in the Year of the Monkey!