On 31 August 2020, the Ministry of Commerce of the PRC ("MOFCOM") released the Rules on Handling Complaints of Foreign-Invested Enterprises (《外商投資企業投訴工作辦法》) ("Rules"), which came into effect on 1 October 2020. The Rules incorporated some important improvements on the complaint mechanism for foreign-invested enterprises ("FIEs") first introduced by MOFCOM in 2006 under the Interim Measures of the Ministry of Commerce for the Work Relating to the Complaints of Foreign-funded Enterprises (《商務部外商投資企業投訴工作暫行辦法》)(" Interim Measures"). Effectively, the Rules are one of measures to implement the Foreign Investment Law (《中華人民共和國外商投資法》) ("FIL") in which Article 26 expressly states that the State shall establish a complaint mechanism for FIEs, timely solve the problems reported by the FIEs and their investors, and coordinate, and improve relevant policy measures.

Key features of the complaint mechanism

Who can file complaints, and against whom?

Under the new complaint mechanism, foreign investors as defined under Article 2 of the FIL, which covers all foreign natural persons, enterprises and organizations that conduct investing activities within China directly or indirectly may file complaints. The Rules allow complainants to entrust agents or third parties to file complaints on their behalf.

The possible respondents include administrative agencies (including organisations authorised with the function of public affairs administration by laws and regulations) and their staff members responsible for the actual implementation.

Types of complaints

The scope of acceptable complaints is expressly provided in the Rules. FIEs and foreign investors can file complaints regarding (i) violation or infringement of their legitimate rights and interests the administrative agencies; (ii) issues concerning the investment environment of FIEs and foreign investors; or (iii) make suggestions on improvements of relevant policies and measures. However, a complaint will not be accepted if the same matter has already been referred to, or settled by, administrative reconsideration or administrative litigation.

Filing of complaints

At the central level, the National Center for Complaints of Foreign-Invested Enterprises ("National Complaint Center") is established by MOFCOM to handle complaints of national or international significance, or matters related to ministries of the State Council or provincial governments or their staff members. At local levels, local people's governments of the county level and above shall designate a department or institution responsible as agencies for handling complaints filed pursuant to the Rules ("Local Agencies"). Each of the National Complaint Center or Local Agencies shall formulate and abide by their own working rules to implement the Rules efficiently. An inter-ministerial joint committee between MOFCOM and other relevant departments under the State Council is established to coordinate and facilitate the handling of complaints, and to supervise and provide guidance to the Local Agencies.

The required information and materials for submitting a complaint are listed in Article 11 of the Rules, and sample forms are provided in the Guidance for National Complaint Center for Foreign-invested Enterprises (《全國外商投資企業投訴中心辦事指南》). FIEs and foreign investors may submit evidence written in foreign languages with Chinese translation to support their complaints.

Timeline of handling complaints

Upon receiving a complaint, the relevant agency shall within 7 working days decide whether to accept or reject the same, and issue a notice of its decision to the complainant. If accepted, the case shall be settled within 60 working days, to be extended if the case is particularly complex.

In case a complainant is dissatisfied with any rejection or results of complaint given by the lower agency, he/she/it can challenge such decision by taking the matter to a higher level agency. The matter will then be decided in accordance with the working rules of that higher level agency.

Principles of handling complaints

In respect of complaints on infringement of rights and interest, the agencies will try to promote mutual understanding between the complainant and respondent, possibly by reaching a full and final settlement subject to the wishes of parties involved. A settlement agreement so entered is binding on the parties and they shall be held legally liable for failure to observe the same.

Besides, Local Agencies will submit reports every two months to the higher level agency regarding the complaints-handling situation and give recommendations on improving policies and measures to the relevant government departments at higher levels.

Major improvements from the Interim Measures

As compared to the Interim Measures, the Rules set out a more detailed and structured mechanism to accept and handle complaints from FIEs and foreign investors. A clear coordination and supervision system is established between the local and central levels. The major improvements in the Rules are set forth below:-

  1. Control on complaint handling process: Under the Rules, after a complaint is filed and accepted, the complainant's consent is generally required for terminating the process, except for cases where termination is attributable to the complainant's conduct. Besides, where the handling process of a complaint is not concluded within 1 year, such complaint shall be reported to government of the same level. The added requirement of consent and mandatory reporting can ensure due performance of responsibility by the Local Agencies and facilitate timely resolution of complex issues.
  2. Protection for confidential information: Under the Rules, complainants can enjoy better information security as officers and agencies are required to keep all trade secrets, confidential information and personal data obtained during the handling of complaints absolutely confidential. Any person engaging in unauthorised disclosure or abuse of power may face penalties or even criminal liabilities.
  3. Closer supervision of complaint-handling work: Under the Interim Measures, agencies handling complaints were only required to report on "important sensitive cases". However, under the Rules, Local Agencies have to submit statistics on the total number of complaints received during the two-month reporting period, the reasons for decisions, the handling progress and relevant policies recommendations in bi-monthly reports.
  4. Fine-tuning of the complaint mechanism: Subject to the framework laid down by the Rules, Local Agencies are expected to further improve their own working rules by which they should abide when handling complaints, expand the channels available to receive complaints as well as the scope and performance pledge of their services to better suit the respective local circumstances. Officers of the Local Agencies are also held to a higher standard of accountability as they are under regular reporting duties. As such, they are expected to administer and carry out the working rules in a manner more effective and efficient than before.
  5. Appeal of decisions: The new regime under the Rules also provides for an appeal mechanism if the complainant disagrees with the Local Agencies' decisions.
  6. No prejudice to other redress: The Rules clearly states that even if FIEs or foreign investors are unable to resolve their disputes under the complaint mechanism, their lawful rights to seek redress through alternative and traditional methods such as commencing administrative litigation or requesting for administrative reconsideration etc. are not prejudiced.

Implications for investors

In general, the Rules aim to build a better mechanism to protect the lawful rights and interests of FIEs and foreign investors, as well as to serve as an effective platform for them to put forward suggestions from the industry's perspective to improve the investment environment.

Amidst the challenges resulting from unstable global economy conditions and various tightened regulations over foreign investment activities implemented by the Chinese government, the Rules may offer a "safety net" for investors who are interested in participating in the Chinese market. The new complaint regime facilitates and encourages more transparent and amicable dispute resolution between FIEs/foreign investors and Chinese administrative bodies, which may help save significant time and resources. In addition, market participants being able to contribute to the policy-making process by submitting recommendations may help create a more friendly business environment in attracting foreign funds and further strengthening the Chinese economy.

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.