China Unveils a Blacklist System for Recording Bad Conduct and Foul Play in the Field of Outbound Investment and Foreign Trading

October 01, 2013

On September 23, 2013, China’s Ministry of Commerce published a new trial measure jointly issued by it and eight other ministries that aims to collect and publish a list of Chinese and non-Chinese enterprises, organizations and individuals who have committed bad acts or engaged in foul play in connection with outbound investments or other commercial activities. The initiative is an effort by the government to provide effective red flags to interested parties.

The Trial Measure for Recording Bad Conduct and Foul Play in the Field of Offshore Investment and Foreign Trading (the “Trial Measures”) became effective on August 5, 2013, and was issued jointly by the Ministry of Commerce; the Ministry of Foreign Affairs; the Ministry of Public Security; the Ministry of Housing and Urban-Rural Development; the General Administration of Customs; the State Administration of Taxation; the State Administration for Industry and Commerce; the General Administration of Quality Supervision, Inspection and Quarantine; and the State Administration of Foreign Exchange.

The Trial Measures set out a number of specific bad acts and foul play that will warrant inclusion on the blacklist, including: (i) failures by Chinese enterprises approved to conduct outbound investments to comply with applicable foreign industrial, technical and hygiene standards resulting in injuries or accidents, to comply with outbound-investment-related Chinese foreign exchange regulations, or to obtain relevant working permits for its employees located outside of China; (ii), acquisitions of offshore projects by Chinese contractors through bribery or any other unfair-competition method; (iii) infringement of intellectual property by Chinese companies; and (iv) the use of fraudulent practices by foreign companies in their interactions with Chinese entities.

The relevant local departments of the agencies issuing the Trial Measures, Chinese embassies and consulates, and relevant Chinese trade associations will be responsible to collect information about the bad acts and foul play for inclusion on a master blacklist that will be published on the Ministry of Commerce’s website accessible by the general public. As of the date of this Alert the master blacklist platform has not been launched on the Ministry of Commerce website and it is unclear what, if anything, beyond the names of the bad actors will be included on the website.

Whatever else may prove to be among the ramifications of this program after it is launched, surely it will be an important first step in the diligence process for transactions involving Chinese parties.

This article was originally published by Bingham McCutchen LLP.