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Chapter V: Standardised Operations

Article 41 [Original Text]

Article 41 Support private economic organisations in enabling employees to share in development outcomes through enhanced skills training, expanded employment opportunities, and improved wage distribution systems.

[Interpretation]

Legislative Background and Purpose: Employees are participants and contributors to enterprise development; the fruits of such development should also benefit employees. This provision aims to guide private enterprises in establishing profit-sharing mechanisms with employees, fostering harmonious labour relations and stimulating workforce motivation.

Interpretation:

a. ‘Strengthening skills training’: Investing resources in vocational skills development to enhance employees' human capital value while cultivating talent reserves for enterprise growth.

b. ‘Expanding employment opportunities’: Creating additional job positions alongside business expansion to fulfil social responsibilities.

c. ‘Refine wage distribution systems’: Establish fair, reasonable and incentive-driven remuneration frameworks, such as linking wage increases to corporate performance and labour productivity, implementing performance-related pay, project bonuses, and equity/option incentives.

d. ‘Enable employees to share in development outcomes’: This constitutes the objective—ensuring employees derive tangible benefits from the enterprise's growth, including income increases, improved welfare provisions, and career advancement opportunities.

【Relevant Legislation】

● Labour Law of the People's Republic of China, Labour Contract Law of the People's Republic of China: Outline principles governing wage payments, remuneration, and vocational training.

● Company Law of the People's Republic of China: Permits companies to implement equity incentive schemes.

● National policy documents concerning harmonious labour relations, collective wage bargaining, and vocational skills enhancement initiatives.

【Practical Guidance】

a. Innovation in Corporate Human Resource Management:

● Treat employees as the organisation's most valuable asset, establishing a people-centred management philosophy.

● Design diversified incentive mechanisms encompassing not only wages and bonuses but also exploring medium-to-long-term incentives such as share options, employee share ownership schemes, and pension plans.

● Facilitate clear career progression pathways, providing employees with opportunities for learning and development.

b. Fostering Harmonious Labour Relations:

● Enhance employee belonging and loyalty by sharing development outcomes, thereby reducing labour disputes.

● Safeguard all lawful rights and interests of employees in accordance with the law.

c. Enhancing Corporate Competitiveness: A highly skilled and dynamic workforce constitutes the core competitive advantage for sustained enterprise development.

d. Manifesting Social Responsibility: Facilitating employee participation in development outcomes also represents a crucial aspect of corporate social responsibility fulfilment.

Article 42 [Original Text]

Article 42. Explore the establishment of a social responsibility evaluation system and incentive mechanism for private economic organisations, encouraging and guiding them to actively fulfil their social responsibilities and voluntarily participate in public welfare, charitable causes, emergency relief, and similar activities.

[Interpretation]

Legislative Background and Purpose: Corporate Social Responsibility (CSR) has become a key indicator for assessing a company's sustainable development capabilities and brand image. This provision aims to guide private enterprises towards more conscious and proactive fulfilment of their social responsibilities through the establishment of evaluation and incentive mechanisms.

Interpretation of the Provision:

a. ‘Explore the establishment of a social responsibility evaluation system for private economic organisations’: This refers to researching and formulating a set of scientific, objective, and operational standards and methodologies to assess private enterprises' performance in fulfilling their social responsibilities. Evaluation criteria may encompass: lawful and compliant operations, safeguarding employee rights, environmental protection, community engagement, product/service quality, and contributions to public welfare and philanthropy.

b. ‘Incentive mechanisms’: Recognise outstanding private enterprises in fulfilling social responsibilities through non-material rewards (e.g., commendations, publicity) or material incentives (e.g., policy preferences, financing facilitation, tax concessions).

c. ‘Encouraging and guiding private economic organisations to actively fulfil social responsibilities’: This constitutes the overarching direction.

d. ‘Voluntary participation in public welfare, charitable causes, emergency relief, and similar activities’: This enumerates partial manifestations of social responsibility, emphasising the principle of ‘voluntariness’ without compulsory allocation.

【Relevant Legislation】

● Charity Law of the People's Republic of China: Regulates charitable activities and encourages corporate donations.

● Company Law of the People's Republic of China: Article 5 stipulates corporate social responsibility obligations.

● National and local laws, regulations, and policies concerning voluntary services and emergency management.

● International corporate social responsibility guidelines, such as the ISO 26000 Guidance on Social Responsibility.

【Practical Guidance】

a. Proactive corporate social responsibility fulfilment:

● Private enterprises should integrate social responsibility principles into corporate strategy and daily operations, extending beyond monetary or material donations.

● Select appropriate areas and methods for participating in public welfare, philanthropy, and emergency relief based on their capabilities and characteristics.

● Companies may publish corporate social responsibility reports to proactively disclose their fulfilment of responsibilities to society.

b. Government and Social Organisation Promotion:

● Relevant government departments (e.g., civil affairs, chambers of commerce, industry regulators) may lead or support third-party institutions in researching and establishing social responsibility evaluation standards and indices.

● Incorporate social responsibility performance as a reference factor for corporate commendations and eligibility for certain policy incentives.

● Industry associations may develop sector-specific social responsibility guidelines to steer member enterprises in fulfilling their obligations.

c. Avoiding formalism: The implementation of social responsibility should prioritise tangible outcomes, steering clear of token gestures and blind emulation.

d. Enhancing brand value: Exemplary social responsibility performance helps enterprises cultivate a responsible brand image, thereby earning the trust of consumers, investors, and society at large.

Article 43 [Original Text]

Article 43 Private economic organisations and their operators shall comply with the laws of the host country or region when investing and operating overseas, respect local customs and cultural traditions, uphold the nation's image, and shall not engage in activities detrimental to national security or national interests.

[Interpretation]

Legislative Background and Purpose: As Chinese enterprises accelerate their global expansion, regulating the overseas operations of private enterprises to safeguard the nation's overall image and interests has become increasingly vital. This provision establishes compliance and accountability requirements for private enterprises operating abroad.

Interpretation of the Provision:

a. ‘Comply with the laws of the host country or region’: This constitutes the fundamental compliance requirement, encompassing all relevant laws of the host country, including those pertaining to labour, environmental protection, taxation, foreign exchange, anti-corruption, and data protection.

b. ‘Respect local customs and cultural traditions’: Enterprises must be mindful of cultural differences in their management practices, honour local customs and religious beliefs, and foster cross-cultural integration.

c. ‘Uphold the national image’: Enterprises' conduct overseas represents China's image and should project a positive demeanour.

d. ‘Refrain from activities detrimental to national security and interests’: This constitutes a fundamental requirement; overseas operations must not jeopardise China's national sovereignty, security, or developmental interests. For instance, they must not violate national export control regulations or data outbound security provisions.

【Relevant Legislation】

● Foreign Trade Law of the People's Republic of China.

● Administrative Measures for Enterprise Overseas Investment (National Development and Reform Commission) and Administrative Measures for Overseas Investment (Ministry of Commerce), among other departmental regulations.

● Provisions concerning overseas interests and national security within the National Security Law of the People's Republic of China, the Counter-Espionage Law of the People's Republic of China, the Export Control Law of the People's Republic of China, and the Data Security Law of the People's Republic of China.

● International investment agreements and trade agreements signed by China.

● Relevant laws and regulations of the target investment country.

【Practical Guidance】

a. Establishing an overseas compliance framework for enterprises:

● Conduct thorough research on the target country's legal environment, political risks, and cultural context prior to ‘going global’.

● Establish robust overseas compliance management systems, with particular focus on high-risk areas such as anti-corruption, anti-monopoly, labour, environmental protection, and data protection.

● Engage local solicitors and specialist consultants for legal support.

b. Cross-Cultural Management: Enhance cross-cultural training for expatriate staff and demonstrate respect for local employees and communities.

c. Fulfilling Social Responsibility: Actively undertake social responsibilities in host countries, such as promoting local employment, participating in community welfare initiatives, and protecting the environment to cultivate a positive corporate image.

d. National Security Risk Prevention:

● Strictly comply with Chinese laws and regulations concerning national security and the protection of overseas interests.

● Prudently assess national security risks when investing in sensitive technologies, data, or regions.

e. Seeking Government Support: When encountering difficulties or unfair treatment overseas, enterprises may seek assistance and guidance from Chinese embassies/consulates abroad and competent commerce authorities.

(To be continued)

Special Notice:

This article is an original work by a solicitor of JAVY Law Firm and represents solely the author's personal views. It shall not be construed as formal legal advice or recommendations issued by JAVY Law Firm or its solicitors. Should any part of this content be reproduced or referenced, the source must be duly acknowledged.