China: China's New State Market Regulatory Administration: What To Know And What To Expect

On March 17, China's highest legislative body, the National People's Congress, approved a sweeping government restructuring plan.1 This is generally considered to be the most comprehensive government restructuring that China has undertaken since the country implemented its "Open Door" policy in the late 1970s. As part of the new plan, China has established a State Market Regulatory Administration (SMRA),2 which will merge and undertake the responsibilities previously held by the State Administration for Industry and Commerce (SAIC),3 General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ),4 the Certification and Accreditation Administration (CAC),5 the Standardization Administration of China (SAC)6 and the China Food and Drug Administration (CFDA).7

The restructuring will also assimilate the antitrust and price supervision functions of certain regulators, including the Anti-monopoly and Anti-unfair Competition Enforcement Bureau of the SAIC8 (as part of the aforementioned broader absorption of the SAIC into the SMRA), Price Supervision and Anti-monopoly Bureau of the National Development and Reform Commission,9 the Anti-monopoly Bureau of the Ministry of Commerce (MOFCOM),10 and the Anti-monopoly Commission of the State Council.11 Finally, it will govern a newly formed State Intellectual Property Office (SIPO)12 to regulate intellectual property rights.

With the change, the Chinese leadership has tapped the SMRA as the single most powerful market regulator to address the public's ever-mounting concerns, including drug and food safety, protection of intellectual property and product quality issues in general. As such, the SMRA will have a broad mandate, overseeing everything from drug safety supervision, quality inspection, fair competition and commercial bribery, issuance of business registrations, certifications and accreditations, management of intellectual property rights and comprehensive supervision and management of the market order.

For regulating the life sciences and healthcare space in particular, the restructuring also establishes a new State Drug Administration (SDA),13 which will be supervised by the SMRA. This move appears to acknowledge that the regulation of drugs, medical devices and cosmetics products still requires a highly specialized and dedicated government agency (which was the purpose of the former CFDA). The new SDA will maintain its own branches at the provincial level and leave the post-approval enforcement duties at the lower municipal and county levels to the consolidated SMRA branches.

Before Status After
SAIC Dismantled SMRA
AQSIQ Dismantled
CFDA Dismantled; reformed as new SDA to operate under SMRA
Anti-monopoly and Anti-unfair Competition Bureau (SAIC) Functions merged into SMRA
Price Supervision and Anti-monopoly Bureau (NDRC) Functions merged into SMRA
Anti-monopoly Bureau (MOFCOM) Functions merged into SMRA
Anti-monopoly Commission (State Council) Office will be kept; functions merged into SMRA
CAC Office will be kept; functions merged into SMRA
SAC Office will be kept; functions merged into SMRA
SIPO Merged into SMRA  

The SMRA and SDA will be led by powerful figures from the PRC government. The SMRA will be led by the administration's Communist Party Secretary and Deputy Director, Jingquan Bi14 (formerly Director of the CFDA), and the administration's Deputy Communist Party Secretary and Director Mao Zhang15 (formerly Director of the SAIC). The SDA will be led by Communist Party Secretary Li Li16 (formerly deputy governor of Jiangxi Province), and Director Hong Jiao17 (formerly Deputy Director of the CFDA). Despite the appointments of key leadership positions at the SMRA, the new agency is not expected to start operation until mid-April, and probably would not move into full swing until after June 2018. Its predecessor agencies will continue their work during the transition period.18

As the restructuring continues to unfold, how would these broad institutional reforms affect multi-national companies doing business in China? It will depend on the answers to several questions:

  • Smooth Transition and New Policy Agendas? Merging several large bureaucratic institutions is challenging. Former officials will need to be assigned new roles and responsibilities that carry different priorities from their former positions. New leadership often means new policy goals, and new teams will need to be formed to execute those policies. It will be important to watch how quickly new policies will be released and how functions within the SMRA will be organized. An equally important question is how efficiently personnel and staffing decisions will be made in order for those functions to get up to speed.

    Of course, what the SMRA intends to achieve is a different question. Companies may wish to closely monitor the policy announcements by the new SMRA leadership to assess its new priorities.

  • Coordinated Enforcement Across Functions? A key policy objective for establishing the SMRA is to enhance enforcement efficiency and consistency. It is likely that SMRA officials might have access to databases and enforcement records that previously were "silo-ed" at respective regulatory bodies. After the merger, it may become easier for different enforcement teams to share information and coordinate enforcement efforts more efficiently, leading to more streamlined and effective enforcement actions.

    The SMRA now also has more enforcement tools and resources at its disposal. For example, absorbing the NDRC's antitrust function has made SMRA the sole enforcement agency against market behaviors that would restrict fair competition. In the past, such behaviors were the target of separate enforcement actions taken respectively by the NDRC and the SAIC.

    With the formation of the SDA, however, drug and medical device companies could still face the challenge of having to answer to multiple regulatory bodies. It is unclear at this point whether local MRAs and the national or provincial SDAs will interpret rules and regulations consistently—this will be a critical question going forward. Given that a large proportion of the local MRA officials were former SAIC and AQSIQ's enforcement personnel, it remains uncertain if they can correctly interpret and enforce the drug and device regulations.19

  • Whom to Call? As inter departmental communication and cooperation will most likely increase within the SMRA, businesses might also need to update their regulator contacts and "windows." The SMRA's broad regulatory, inspection and enforcement responsibilities also mean that it will have extensive touchpoints with businesses. While companies historically may have to interact with SMRA's different predecessor agencies to resolve operational issues in China, the integration hopefully can result in simplified and uniform procedures, and allow company to communicate with one government "window" instead of many.

    At the same time, however, the integration could also complicate existing relationships. The integrated SMRA may be a player and a judge in the same playground. For example, in the context of laboratory and analytical equipment and products, the former General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ) and its regional and local counterparts procured instruments and consumables to conduct quality inspections. Companies that supply products and services to the former AQSIQ may find its client now a regulator of many aspects of its businesses.

Conclusion

Further information about SMRA's restructuring and appointments, as well as any new policy goals and initiatives, are expected to be released in the coming months. Such details can offer helpful insight into assessing how quickly and smoothly the new SMRA is transitioning into a fully functioning organization. It will also be important to see whether the SMRA will change direction from the course set by its predecessor agencies.

For multinational companies operating in the life sciences space, with Deputy Director Bi sitting in a key leadership position, the new SDA body under the SMRA could continue to implement the previous CFDA reform initiatives driven by Deputy Director Bi. However, the personnel reshuffle on the next level of bureaucracy might delay actual implementation of these initiatives.

Hence,  multinational companies may wish to pay close attention to further organizational and policy announcements, and adjust their China strategy in response.

Footnotes

1 For full text of the plan, see Xinhua News Agency, The Reform Plan of the Institutions of the State Council (March 17, 2018), available at
http://www.gov.cn/guowuyuan/2018-03/17/content_5275116.htm.

2 Chinese name: 国家市场监督管理总局.

3 Chinese name: 国家工商行政管理总局.

4 Chinese name: 国家质量监督检验检疫总局.

5 Chinese name: 国家认证认可监督管理委员会.

6 Chinese name: 国家标准化管理委员会.

7 Chinese name: 国家食品药品监督管理总局.

8 Chinese name: 反垄断与反不正当竞争执法局. This is a bureau governed by the SAIC.

9 Chinese name: 国家发展和改革委员会. The NDRC undertakes its antitrust and price regulation duties through the Price Supervision and Anti-monopoly Bureau (Chinese name: 价格监督检查与反垄断局).

10 Chinese name: 商务部. The MOFCOM's Anti-monopoly Bureau (Chinese name: 反垄断局) has been the regulator of potential "concentration of undertakings" as a result of merger and acquisition transactions.

11 Chinese name: 国务院反垄断委员会. The Anti-monopoly Commission of the State Council will be kept, with its functions and duties transferred to SMRA.

12 Chinese name: 国家知识产权局.

13 Chinese name: 国家药品监督管理局.

14 Chinese name: 毕井泉.

15 Chinese name: 张茅.

16 Chinese name: 李利.

17 Chinese name: 焦红.

18 Xinhua News Agency, Han Zheng: To Insist on the Party's Leadership, to Ensure the Good Implementation of the Tasks, to Firmly and Orderly Further the Institutional Reform Work at the State Council (March 31, 2018), available at http://www.xinhuanet.com/politics/2018-03/31/c_1122620209.htm.
According to China's Vice Premier Han Zheng, the State Council has set up a timetable for its newly-formed departments to put up shingles in mid-April and to determine their intra-structures and staffing before the end of June.

19 Since 2014, the Chinese government has piloted an initiative to consolidate market supervision and enforcement resources on the county-level. As of March 13, 2018, 70% of the former SAIC, CFDA and AQSIQ's enforcement powers have already been combined at the municipal and county levels, which are the branches that actually carry out investigations and enforcements actions. Kang Yu & Wen Longxin, The Paper, Experts Interpret the Formation of SMRA, quoting Wang Yukai, Professor at the Chinese Academy of Governance (March 13, 2018), available at https://www.thepaper.cn/newsDetail_forward_2027298.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions