June 26, 2022

Volume XII, Number 177

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China Proposed Draft Implementing Rules for Human Genetic Resources Management

On March 21, 2022, the Ministry of Science and Technology of the People’s Republic of China published the Implementing Rules for Human Genetic Resources Management (draft for comment) (人类遗传资源管理条例实施细则(征求意见稿))(the “Draft Rules”) to solicit public comments therefor. The comment period will open until April 21, 2022.

Previously, on May 28, 2019, the State Council of China promulgated the Regulations of the People’s Republic of China on Human Genetic Resources Management (中华人民共和国人类遗传资源管理条例), which became effective on July 1, 2019. Subsequently, the Biosecurity Law of the People’s Republic of China (生物安全法) became effective on April 15, 2021. These laws and regulations have formed the regulatory framework for the protection of human genetic resources in China, but additional implementing rules and guidelines, such as those set forth in the Draft Rules, are needed to supplement such laws and regulations.

The Draft Rules consist of 122 articles that are organized in 7 chapters.  The 7 chapters are (1) General Principles, (2) Overall Requirements, (3) Investigations, Registration and Data Backup, (4) Administrative Permit, Filing and Security Review, (5) Supervision and Inspection, (6) Administrative Penalty, and (7) Ancillary Provisions. In this and subsequent blog post, we will discuss a few highlights of the Draft Rules.

Scope of Application

Article 2 of the Draft Rules sets forth the scope of application for the Draft Rules. Pursuant to this article, the Draft Rules shall apply to the collection, conservation, use, and provision abroad of China’s human genetic resources (the “Activities”). Article 2 further explains that, “human genetic resources” include “human genetic resource materials” and “human genetic resource information”; the former refers to organs, tissues, cells and other genetic materials containing human genome, genes and other genetic materials, and the latter refers to the human genes, genomic data and other information materials generated by the use of human genetic resources materials.

Permitted Entities

Chapter 2 of the Draft Rules has imposed a number of general requirements on the Activities. Notably, Article 11 requires that the Activities shall only be conducted by China’s scientific research institutions, higher education institutions, medical institutions and enterprises, and that organizations, individuals and institutions established or actually controlled by foreign organizations, individuals and institutions shall not conduct the Activities.

Article 12 further defines what constitutes “actual control” in Article 11; i.e. an entity in which,

  1. foreign organizations or individuals hold or indirectly hold more than fifty percent of the shares, equity, voting rights, property interests or other similar interests;

  2. although foreign organizations or individuals hold or indirectly hold less than fifty percent of the shares, equity, voting rights, property interests or other similar interests, but the voting rights or other interests they have are sufficient to have a significant impact on the decision-making and internal management of the institution.

  3. foreign organizations or individuals, through agreements or other arrangements, can exert significant influence on the institution’s decision-making, business management and other major matters.

  4. other circumstances as determined by the Ministry of Science and Technology.

The above subsection (iii) can be interpreted to mean that variable interest entities incorporated in China that are controlled, through a suite of agreements, by foreign parent companies (the “VIE Entities”) may be treated as being actually controlled by foreign institutions, and are thus prohibited from conducting the Activities. It is possible that this is the legislative intent here, as the PRC government has previously in other circumstances treated VIE Entities as foreign entities that would need to seek approval that domestic entities are not required to seek. However it remains to be seen whether this will actually be the case in practice.

Based on above subsections (i) and (ii), an entity in which foreign institutions or individuals hold less than 50% of the shares, equity or other similar interests, and do not have any voting power or other rights or interests that would enable them to influence the decision-making, management, or operations of such entity (the “Permitted Entity”), may be permitted to conduct the Activities. This exception is good news for many.

However, Article 11 indicates that any entity that is established by foreign entities or individuals are prohibited from conducting the Activities – it remains to be confirmed that, if an entity was so established, but through share transfers or share issuances, has subsequently become a Permitted Entity, whether such entity would be permitted or prohibited from conducting the Activities – the Draft Rules can be interpreted to mean the answer is the latter here, which seems unreasonable. Hopefully the officially promulgated rules would clarify this issue.

Security Review

Article 48 of the Draft Rules stipulates that, if any human genetic resources information is provided to or made available for use by foreign organizations, individuals and institutions established or actually controlled by them, which may affect the public health, national security and social public interests of China, this shall pass the security review organized by the Ministry of Science and Technology.

Article 49 of the Draft Rules further specifically provides that security review shall be conducted when the following information is provided or made available for use by foreign organizations, individuals and institutions established or actually controlled by them:

  • human genetic resources information of important genetic family lineage;

  • the human genetic resources information of a specific region;

  • The exome sequencing and genome sequencing information resources of more than 500 individuals; and

  • Other information that may affect our public health, national security and social public interest.

The fact that Article 49 sets forth detailed requirements may be an indication of the Ministry of Science and Technology’s increasing willingness to enforce such security review requirement in practice, however it remains to be seen how aggressive the enforcement efforts would be.

Copyright © 2022, Sheppard Mullin Richter & Hampton LLP.National Law Review, Volume XII, Number 108
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About this Author

Yuanmei Lu Corporate Attorney Sheppard Mullin Shanghai, China
Associate

Yuanmei Lu is an associate in the Corporate Practice Group in the firm’s Shanghai office. 

Areas of Practice

Yuanmei practices equity financing and fund formation.  Her experience includes representing institutional investors in connection with their acquisition and financing of technology, media and telecommunications companies, as well as advising emerging companies and venture-backed companies through multiple rounds of financing.  Yuanmei also focuses her practice in the formation and operation of domestic and international...

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