Senior practitioners say compliance is the windvane for regulatory trends in the past year and the foreseeable future, leading fundamental operational changes for some companies while also offering a high-altitude airstream of unprecedented opportunities. Luna Jin reports
An undeniable truth since the onset of covid-19 is that the whole world is heading in the same regulatory direction – towards greater government control or intervention – and China is no exception. This, however, has more to do with the new drivers that have ultimately transformed our way of life than ideologies, especially when one zooms into China’s legal sphere. The great mass of regulatory updates directly addresses concurrent issues brought to Chinese society by technology, ever more complicated financial instruments, and the pandemic.
Although laissez-faire “deregulation” has been an underlying theme of the globalisation process in the past few decades, “the emerging tendency of dirigisme [tighter state control] is worldwide,” observes Anthony Zhao, director of the management committee of Zhong Lun Law Firm in Shanghai.
Behind the shift, Zhao believes, are not only geopolitical factors, but also an implied game between sovereign governments and multinational companies. “This is a global phenomenon and it will take some time to reach a new balance and form a ‘new regulatory framework’,” he says.
With escalating global trade tensions, increasingly stringent sanctions, and strengthened regulations at home and abroad, “the trend of establishing a compliance management system within enterprises is sweeping through Chinese companies, and ‘big compliance’ has become a new hot spot of the legal industry,” adds Yu Yongqiang, a Beijing-based partner at JunHe.
Significantly, the current compliance requirements for different types of companies actually have their own focus. Mao Yu, an equity partner of Globe-law Law Firm in Shanghai, says that for the past year the firm’s compliance businesses have been subdivided into three categories – cross-border compliance for Chinese companies that are mostly state-owned enterprises (SOEs), criminal compliance for private companies, and compliance practice in China for foreign-invested companies.
For central enterprises engaged with foreign entities or in cross-border businesses, the series of guidances from the central government on setting up compliance systems, which started in 2016, has become the main basis for the compliance work of their legal departments.
Wang Zheng, a Shanghai-based partner at Zhenghan Law Firm, says that SOEs often overlook “inconsistencies between the terms of external signings and the regulatory requirements of the state assets”.