China’s New Mechanism to Handle Complaints by Foreign-Invested Entities

Updates:

• The Ministry of Commerce released the Guidelines for National Complaint Center of Foreign-funded Enterprises on September 30, 2020.
• The Guidelines said complaints would not be accepted under certain circumstances, including complaints that are not filed by foreign-funded firms or foreign investors, applicants seeking to mediate civil or commercial disputes with other natural persons or legal entities, or complaints that are not supposed to be handled by the national complaint center of foreign-funded enterprises.
• The Standing Committee of Shanghai Municipal People’s Congress also recently released the Regulation on Foreign Investment in Shanghai, which will be implemented from November 1, 2020.

On August 25, 2020, China’s Ministry of Commerce (MOFCOM) repealed the Interim Measures for Processing Complaints of Foreign Invested Companies (“Interim Measures”) issued in 2006, and adopted the Measures on Handling Complaints by Foreign-Invested Enterprises (“Measures”), which has become effective from October 1, 2020.

What are the changes to the complaints handling process?

The procedure for handling complaints by foreign-invested enterprises (FIEs) is not new in China – it was previously regulated by the Interim Measures.

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However, this is the first time that China has set up a regime for handling FIEs complaints – at the level of basic law. The Foreign Investment Law (“FIL”) expressly states that “the State shall establish a complaint mechanism for FIEs, timely solve the problems reported by FIEs or their investors, and coordinate and improve relevant policy measures”.

Hence, the Measures will implement this provision of the FIL by introducing new mechanisms to strengthen the government’s capacity to process and supervise FIE complaints.

Key provisions in the Measures

Joint committee

The duties and responsibilities of the national and local agencies competent to handle the FIEs’ complaints are regulated in a precise way and, in addition to the existing national complaint center for FIEs, MOFCOM will establish an inter-ministerial joint committee deputed to coordinate and facilitate the handling of complaints of FIEs at the central level, and guide and supervise the handling of the said complaints at the regional level.

Complaints’ object

FIEs can file a complaint regarding the violation of their rights and interests perpetrated by administrative agencies.

Further, respective chambers of commerce and associations identified under the FIL are entitled to report to the competent agencies the issues faced by their members with respect to the investment environment. The chambers and associations can also submit recommendations in this regard.

Timeline

The competent agency shall issue a notice of acceptance or rejection of the complaint within seven working days from the receipt of the same and after processing the relevant evidence.

In case of acceptance, the case shall be handled within 60 working days – this period can be extended when the case has peculiar complexity or involves multiple departments.

Challenging the decision of the lower-level agency

The complainant who disagrees with the rejection of its complaint or with the result of the complaint handling, can file a complaint with the higher-level agency, challenging the decision taken by the lower agency. In this case, the higher-level agency will decide whether to accept the original complaint or not – in accordance with its own rules.

Methods of handling complaints

The competent agency shall help the involved parties reach a settlement agreement, but it can also submit suggestions regarding improvements of the relevant policies and regulations to the competent authorities.

In addition, the agency can also adopt any other method it deems appropriate to handle the complaints.

Reporting duties

Each local agency is required to submit monthly reports to its higher-level agency providing information, such as the number of complaints received, details on how the complaints were handled and their respective status, and details on how the complaints were resolved.

On the other hand, the National Centre shall collect all the records, recommendations, and suggestions issued by the lower-level agencies and report them to the Joint Committee.

Confidentiality

The competent agencies shall establish and improve internal management systems and take effective measures to protect the commercial secrets, confidential business information, and the privacy of the complainant.

Accountability

If, during the complaint handling process, the competent agencies and their staff members abuse powers, neglect duties, engage in malpractices for personal gain, disclose confidential information, or infringe the confidentiality obligation – they will face legal consequences, including criminal liability.

Other channels to seek redress

The complainant is entitled to file a complaint, without suffering any prejudice towards its rights, to initiate any other administrative reconsideration, administrative litigation, or other procedure provided by the applicable laws and regulations.

Do the Measures indicate any real change for foreign-invested entities in China?

As mentioned above, the Measures seek to implement the principle of protecting FIE rights and improve the existing complaint mechanism.

The changes to procedures and new mechanisms provide some important innovations in the complaint processing system. Indeed, the whole system is expected to function more transparently and offer foreign investors the chance to inform the highest authorities about  the issues they face, thus giving the latter the opportunity to take appropriate actions to make further improvements.

However, there is still the question regarding whether these actions will be taken, and in such cases, how long the competent authorities will take to enforce them. While the Measures is another remarkable point in China’s gradual reforms to further open its market to foreign investors, as always, the significance of the reform will depend on its practical implementation and predictability.

This article was originally published on October 5 and updated October 9, 2020 to include information sources on relevant regulatory guidelines.

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