China Brief: 16-22 April 2019

A2 Global's China Brief contains assessments of events and policies that may impact commercial interests, personnel, and assets throughout Greater China. This edition includes the impact of African swine fever in China, Chinese regulators' opening of the second-ever antitrust probe against a foreign company, and a German carmaker's recall of 360,000 cars over faulty airbags, among other subjects. 

China - Political risk: Medium - Biotechnology regulations submitted to legislature for review 

China - Political risk: Medium - German camera maker censored from Chinese social media 

China & India - Chinese app TikTok removed from online stores following ban 

China - Road safety risk: Low - German carmaker recalls 360,000 cars over faulty airbags 

China - Political risk: Medium -Regulators open only second-ever antitrust probe against a foreign company 

China - Health risk: Elevated - Authorities urge large farms to conduct own tests for African swine fever

China – Biotechnology regulations submitted to legislature for review

CHINA – Political risk: Medium 

20 April: On 20 April, draft regulations unveiled by the Chinese government on 26 February were submitted to China’s legislative body for review, according to local media. Under the new regulations, China’s cabinet would be responsible for supervision and health authorities for the management of research that would be classified as ‘high risk’. This includes various forms of genetics research, such as gene-editing. Depending on the severity of infractions, scientists performing unauthorised research would face a range of penalties. These include: fines of between RMB50,000 (USD7,500) and RMB100,000 (USD15,000); a forced halting of their work; fines amounting 10 to 20 times the income earned from the research; a ban on working for six months to a year; and a lifetime ban.

Why it matters: The proposed regulations follow a controversial, allegedly state-funded, gene-editing experiment on babies carried out by a rogue Chinese scientist in November 2018. Although the scientist has since been placed under investigation, dismissed from his university, and halted from carrying out further work, the incident drew attention to China’s lax oversight of scientific research. In China as well as most other countries, it is illegal to carry out gene-editing for reproductive purposes, though China has allowed it for non-reproductive purposes. A2 Global advises companies in the biotechnology sector to ensure that they are compliant with both the existing and the proposed research regulations and carry out third-party due diligence in the sourcing of their products from business partners and vendors.

China – German camera maker censored from Chinese social media

CHINA – Political risk: Medium

19 April: Searches for German camera maker Leica Camera AG (Leica) and its Chinese equivalent have been censored from Chinese social media platform Weibo as of 19 April following the publication of a video advertisement created by Brazilian advertising firm F/Nazca Saatchi & Saatchi that sparked outrage by Chinese netizens, according to media reporting on 19 April. Netizens flooded Leica’s Weibo account with criticism of the video, which includes a photojournalist using a Leica camera to capture footage of the Tiananmen Square protests.  

Why it matters: Despite the fact that Leica’s sanctioning of the ad is disputed by both parties, the ad was published ahead of politically sensitive anniversaries in China including the centenary of the May Fourth Movement – the 70th anniversary of which inspired the Tiananmen Square protests – as well as the 30th anniversary military crackdown on 4 June. As Leica produces smartphone lenses for Chinese telecommunications firm Huawei Technologies Co. Ltd. (Huawei), the ad may pressure Huawei into reconsidering its partnership with the company. A2 Global advises companies to avoid the publishing and posting of any politically sensitive material, as well as conduct due diligence when commissioning third parties to promote marketing campaigns that represents the company, as failing to do so may result in censorship and scrutiny.

China & India – Chinese app TikTok removed from online stores following ban

19 April: Media outlets reported on 18 April that app stores Google and Apple have removed TikTok, a video-sharing app created by Chinese company Beijing ByteDance Technology, from their online stores in India. A high court in Chennai on April 3 ruled to ban the app over concerns it facilitates the spread of pornography, attracts sexual predators targeting children, and leads to more cyberbullying. TikTok disputes the ruling, and on 22 April the case was redirected by India’s Supreme Court to the Madurai Bench of the Madras High Court for a hearing on 24 April.

Why it matters: The forced removal of the app follows a hefty fine imposed by the US government on 27 February over violations relating to children’s data privacy. As India is the app’s largest market outside of China, with 120 million active monthly users, the ruling comes amid a broader trend internet censorship in India, which appears to be modelling itself after the more enclosed Chinese infrastructure.

A2 Global warns that social media companies in India are facing heightened pressure to police their content. Social media companies are advised to factor this increased scrutiny of their content into their planning, and ensure they are compliant with local regulations.

China – German carmaker recalls 360,000 cars over faulty airbags

CHINA – Road safety risk: Low

17 April: On 16 April, Chinese regulators announced that German automaker BMW will recall 360,000 of its vehicles – spanning two dozen models from 2000 until 2018 – due to concerns over faulty airbags supplied by now-defunct Japanese company Takata. The affected vehicles include 273,000 built as part of a joint venture with Chinese manufacturer Brilliance Automotive, as well as 87,000 imported cars.

Why it matters: Multiple manufacturers have participated in the worldwide recall of at least 100 million cars since 2013. These were prompted by concerns relating to around 20 deaths caused by the airbags, which could eject debris at passengers if deployed, since 2013. A2 Global advises businesses using BMW vehicles – especially those in the I, M, and X series – to make contingency plans and monitor developments. They should also liaise with the automaker or responsible vendor to ensure that their vehicles do not pose a safety risk to their staff.

China – Regulators open only second-ever antitrust probe against a foreign company

CHINA – Political risk: Medium

16 April: On 15 April, Swedish telecommunications firm Ericsson confirmed that Chinese regulators have opened an antitrust investigation against the company. Several Chinese smartphone manufacturers had filed complaints against the company over alleged antitrust violations in its 3G and 4G patent licensing practice, according to Chinese media.

Why it matters: Ericsson is only the second-foreign company to face such an investigation. In 2015, US telecommunications firm Qualcomm was fined RMB6.08 billion (USD975 million) for antitrust violations. The probe comes against the backdrop of Chinese firms such as Huawei attempting to dominate 5G telecoms infrastructure provision. Ericsson surpassed Huawei in 2018 as the world’s largest telecoms infrastructure provider, while Huawei has faced bans in countries – mostly linked to the five eyes intelligence network – such as Australia and New Zealand, over national security concerns. A2 Global advises businesses, especially in the technology sector, to ensure they comply with local antitrust regulations, as failure to do so can result in a hefty fine.

China – Authorities urge large farms to conduct own tests for African swine fever

CHINA – Health risk: Elevated

16 April: On 16 April, Chinese authorities lifted a ban on large pig and breeding farms using their own equipment to test for African swine fever, encouraging them to do so as an early detection measure.

Why it matters: China is one of several countries to be significantly impacted by outbreaks of the contagious disease, which is not harmful to humans. Although the country is the world’s largest pork producer, around 200 million pigs will die or be culled this year because of the infection, according to some sources. If farms conduct tests for the disease, this is likely to uncover more cases of infection. In a bid to mitigate these losses, US pork exporters have seen a recent surge in Chinese demand, despite the ongoing trade war. However, US soya farmers will be adversely impacted through a lower number of livestock to consume their product. Although the Chinese government stated that the disease is under control, it noted that ‘the overall level of epidemic prevention is low’. A2 Global advises businesses sourcing their pork from China to monitor the situation for updates, consider alternatives, and adjust their supply chain accordingly. Businesses exporting pork or soya to China should also monitor for updates.