In the news: The NDRC and MOFCOM unveil a new negative list, the CSRC revises securities firms' capital requirements and all officials must take a legal exam

April 12, 2016 | BY

Katherine Jo

This week China passed around a draft negative list for market access, the CSRC proposed a new method of calculating brokerages' risk levels and civil servant candidates were required to be tested on their legal knowledge

Last week China's top economic planner the National Development and Reform Commission (NDRC) and the Ministry of Commerce (MOFCOM) released the Draft Negative List for Market Access (Trial Version), which sets out the “prohibited” and “restricted” industries to investment in the cities of Shanghai and Tianjin and the provinces of Guangdong and Fujian—where the four pilot Free Trade Zones (FTZs) are located. This follows the Opinions issued by the State Council in October 2015 detailing plans to unveil this list. It sets out 96 prohibited (i.e. off limits) and 232 restricted (i.e. subject to approval) items. This is in contrast to the 2015 Foreign Investment Industrial Guidance Catalogue, which contains 38 restricted and 36 prohibited categories, (down from 79 and 38 in the 2011 version, respectively), as well as the 2015 FTZ Negative List, which has 122 items (down from 139 in 2014). According to a copy of the draft list reviewed by China Law & Practice, areas marked prohibited include several coal and steel investments, any new projects that use outdated technology or pollute the environment, such as dye manufacturing. As for restricted industries, the list states that any production, sale, export or import of commercially encrypted products must be approved, as does the sale of products designed for internet information systems' security. Telecom businesses and equipment manufacturing, civil aircrafts and agrichemicals are also listed under this section. The negative list, at the end, also states that any subsequent laws released that impact relevant investments will be binding. We will be following up with an analysis soon—in the meantime, read this story on the plans for the list.

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The China Securities Regulatory Commission (CSRC) released on Friday April 8 a draft plan to change the method of calculating net capital and risk capital requirements of securities firms. It is also adjusting the indicators for leverage and liquidity regulation of the industry. The new calculation will see the industry's net capital increase by around 20% and the risk reserve capital rise by about two times, making the risk coverage indicator more “reasonable,” said the CSRC. The draft is open to public comments. The proposal is among efforts to unwind measures set in place after a stock rout that wiped $5 trillion off Chinese equities last summer, and is probably a reflection that policy makers see sentiment taking a turn for the better. The move is positive for equities because it releases funds into the system. For anyone concerned about a repeat of the turmoil, Chinese authorities have shown time and again that they're willing to use purchases by state-backed firms to steady the mood.

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China's civil servant candidates will be required to take a national recruitment exam that will put more weight on their knowledge of the law. Those seeking jobs in law enforcement agencies will take a special examination and any officials up for promotion will need to be tested as well. Leading party officials and government departments will conduct annual reviews of their knowledge. China Daily also reported that the Supreme People's Court is running an intern project that selects 50 university students to help judges for six months and gain hands-on legal experience by doing tasks similar to that of U.S. law clerks. These moves reflect China's ambitions to implement the rule of law and increase legal awareness—as well as loyalty to the constitution—among officials, as the government continues to crack down on administrative corruption and other violations.

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