On March 21, 2022, the Ministry of Science and Technology of the People’s Republic of China published the Implementing Rules for Human Genetic Resource Management (draft comment) (the “draft rules”) in order to obtain public comments. The comment period opens until April 21, 2022.
Earlier, on 28 May 2019, the Government of China of the People’s Republic of China issued rules on the management of human genetic resources (中华人民共和国 人类 遗传 资源 管理 条例, which entered into force on 1 July 2019). The Biosafety Act of the People’s Republic of China (生物 安全 法) entered into force on 15 April 2021. These laws and regulations have provided the regulatory framework for the protection of human genetic resources in China, but additional implementing rules and guidelines, such as listed in the draft rules are necessary to supplement such laws and regulations.
The draft rule consists of 122 articles, which are organized into 7 chapters. The 7 chapters are (1) General principles, (2) General requirements, (3) Investigations, registration and backup of data, (4) Administrative permission, archiving and security review, (5) Supervision and inspection, (6) Administrative punishment, and (7) Auxiliary provisions. In this and subsequent blog posts, we will discuss a few highlights in the draft rules.
Field of application
Article 2 of the draft rules sets out the scope of the draft rules. According to this article, the draft rules shall apply to the collection, conservation, use and delivery abroad of China’s human genetic resources (the “Activities”). Article 2 further explains that “human genetic resources” includes “human genetic resource materials” and “information on human genetic resources”; the former refers to organs, tissues, cells and other genetic materials that contain the human genome, genes and other genetic materials, and the latter refers to the human genes, genomic data and other information materials generated using human genetic resources.
Chapter 2 of the draft rules has imposed a number of general requirements on the activities. In particular, Article 11 requires that the activities be carried out only by China’s scientific research institutes, higher education institutions, medical institutions and companies, and that organizations, individuals and institutions established or actually controlled by foreign organizations, individuals and institutions may not carry out the activities.
Article 12 further defines what constitutes “actual control” in Article 11; i.e. a device where
foreign organizations or individuals own or indirectly own more than fifty percent of the shares, shares, voting rights, real estate interests or other similar interests;
even if foreign organizations or individuals hold or indirectly hold less than fifty percent of the shares, holdings, voting rights, real estate interests or other similar interests, but the voting rights or other interests they have are sufficient to have a significant influence on the decision-making and internal management of the institution.
foreign organizations or individuals through agreements or other arrangements can have a significant impact on the institution’s decision-making, corporate governance and other major matters.
other matters as determined by the Ministry of Science and Technology.
The above subsection (iii) may be construed to mean that variable rate entities registered in China and controlled by a series of agreements of foreign parent companies (the “VIEs”) may be treated as being actually controlled by foreign institutions. , and is thus prohibited from carrying out the activities. It is possible that this is the legislative intention here, as the Chinese government has in the past in other circumstances treated VIEs as foreign entities that would have to seek approval, which domestic entities are not required to seek. However, it remains to be seen whether this will actually be the case in practice.
Based on subsections (i) and (ii) above, an entity in which foreign institutions or individuals own less than 50% of the shares, shares or other similar interests and which has no voting rights or other rights or interests that would do so enabling them to influence the decision-making, management or operation of such entity (the “Authorized Entity”) may be authorized to carry out the activities. This exception is good news for many.
However, Article 11 states that any entity established by foreign entities or individuals is prohibited from carrying out the activities – it must still be confirmed that if an entity was established in this way but through share transfers or share issues, it has subsequently become a Permitted Entity , whether such an entity would have been authorized or prohibited from carrying out the activities – the draft rules may be construed to mean that the answer is the last one here, which seems unreasonable. Hopefully, the officially announced rules will clarify this issue.
Article 48 of the draft rules provides that if information on human genetic resources is provided to or made available for use by foreign organizations, individuals and institutions established or effectively controlled by them, which may affect public health, national security and social public interests in China, this must pass the security review organized by the Ministry of Science and Technology.
Article 49 of the draft rules also specifically stipulates that security screening must be carried out when the following information has been provided or made available for use by foreign organizations, individuals and institutions established or actually controlled by them:
human genetic resources information on important genetic family lineage;
information on human genetic resources for a specific region;
Exam sequencing and genome sequencing information resources for more than 500 individuals; and
Other information that may affect our public health, national security and social public interests.
The fact that Article 49 sets out detailed requirements may be an indication of the Ministry of Science and Technology’s growing willingness to enforce such security review requirements in practice, but it is still unknown how aggressive the enforcement effort will be.
Copyright © 2022, Sheppard Mullin Richter & Hampton LLP.National Law Review, Volume XII, Number 108