New ‘Draft Rules for the Regulations on the Management of Human Genetic Resources’ (Draft Rules) were issued by the Ministry of Science and Technology of the PRC (MOST) on 14 March 2022.
Issued pursuant to the Biosecurity Law and the Data Security Law, the Draft Rules are a response from the government to the growing needs for usage of biological materials and personal information of Chinese individuals.
The Draft Rules intend to provide operational details and clarify questions that have emerged since the Regulations on the Management of Human Genetic Resources (HGR Regulations) came into effect in 2019.
Narrowing HGR Definition
Human genetic resources (HGR) are broadly defined in the HGR Regulations to include HGR materials1 and HGR information.2 Under these, HGR information refers to “data and other information generated from the utilization of materials of human genetic resources”.3
The Draft Rules now narrowed the scope of HGR information to “human genes or genome information derived from HGR materials”.4 This means data that is not derived from human genes or genome (e.g., clinical trials data, patient demographic data, lab tests and medical images) does not fall within the scope of HGR information.
Foreign Entities Recognition
The HGR Regulations prohibit foreign entities from collecting or preserving HGR within the People’s Republic of China (PRC)5 or providing HGR abroad.6 Foreign entities include PRC-domiciled entities established or under the “actual control” of a foreign organisation or individual.7
However, the HGR Regulations do not elaborate on the requirements of “actual control”, which has led to speculation as to whether the commonly used Variable Interest Entity (VIE) would be defined as a foreign entity.
The Draft Rules attempt to provide clarity by specifying scenarios of “actual control”, including:
- where foreign entities or individuals, either directly or indirectly, hold more than 50% of equity, voting power or similar rights;8
- where foreign entities or individuals may have major influence over the decision making or internal management of an entity although the foreign shareholding percentage falls below 50%;9
- where foreign entities or individuals may have major influence via contractual or other arrangement;10 and
- other scenarios that MOST may determine.11
These requirements are consistent with the provisions of “actual control” in PRC Company Laws,12 and may mean that foreign entities or individuals cannot use a VIE to circumvent the application of HGR Regulations – even though such an entity may be regarded as a domestic company from a corporate registry perspective.
International Cooperation Guidance
The Draft Rules also provide clearer guidance on ownership of intellectual property (IP) derived from international cooperative research utilising Chinese HGR.
While the resulting patent(s) must be at least co-owned by a PRC entity,13 parties may agree by contract on the ownership and profit-sharing of other IP covering the work, data, standards and process.14 Pursuant to the HGR Regulations,15 the Draft Rules also impose an obligation on foreign entities to provide PRC partners with access to all data generated from their research collaboration.16
Filing and Approval for International Collaboration
International collaboration for clinical studies, conducted for the purpose of obtaining marketing authorisation for drugs and medical devices in the PRC, will not require MOST approval if it does not involve any export of HGR --but is nevertheless subject to prior filing with the ministry.17
The Draft HGR Rules further specify these scenarios:
- collection, detection, analysis and residual sample processing of HGR involved are carried out in clinical institutions;18
- HGR are collected in clinical institutions and tested, analysed and the remaining samples are processed by domestic units designated by the clinical trial scheme of the market authorities of relevant drugs and medical devices.19
They also provide a mechanism to streamline and simplify approval procedures for international collaboration for scientific research.
Under the HGR Regulations20 and Draft Rules21, the collection, preservation, use or provision of HGR outside the PRC is subject to anethics review.22 But a foreign party may apply for a waiver of the ethics review requirement if the international collaboration does not involve substantial ethics issues – and it is truly impossible to provide a foreign ethics review.23
However, a foreign party’s waiver application must also demonstrate:24
- all collaborative research subject to the permit or filing is to be carried out in the PRC;
- waiving of the foreign party’s ethics review does not pose a risk to the subjects, or the risk is very small.
In addition, the HGR Regulations also require that any substantial changes to the international collaboration -- such as changes to the identity of parties or purpose, contents or term of the collaboration – must be subject to MOST approval.25
Instead of specifying what these “substantial changes” are, the Draft Rules identify several scenarios where approval is not required (but notification to MOST is still required).
These include circumstances where:
- the research protocol remains unchanged, with only a 10% or less change to the cumulative number of cases compared to the approved quantity;26
- the applicant, leading PRC entity, contract research organisations and third-party laboratories all remain unchanged, and the change is limited to other participating entities, or the name of any of the foregoing;27 and
- the research protocol has been changed, but this does not involve any change to the types, quantity or use of China HGR, or does not exceed the approved scope.28
Under the HGR Regulations, the outbound export of or open access to PRC HGR data is subject to a security review carried out by MOST if it presents a risk of China’s public health, national security, social or public interests.29
The Draft Rules specify circumstances in which a security review must be conducted prior to providing HGR to foreign parties, which include:
- HGR of important genetic families;30
- HGR in specific areas;31
- exome sequencing and genome sequencing of more than 500 individuals;32 and
- other information that may affect PRC public health, national security and social public interests.33
The Draft Rules do not provide any detailed guidance on required materials and proceedings for the review – which means MOST and its local branches may issue more specific guidelines in the future – but in the meantime will exercise wide discretion when conducting security review and assessment.
Enforcement and Penalties
The Draft Rules have introduced many measures to ensure compliance. MOST and its local branches are authorised to conduct periodic inspections34 and for-cause investigations35 to enhance legal enforcement against potential violation of the HGR Regulations.
They also detail penalties for a variety of violations and procedures for administrative penalties. Penalties under the Draft Rules mirror those under the HGR Regulations.
A foreign entity violating the HGR Regulations could be subject to fines of up to RMB 10 million, or five to ten times any illegal gains that exceed RMB 1 million.36 The Draft Rules clarify that illegal gains shall be calculated based on the value of HGR collected or funds invested in the relevant research projects37; which may lead to significant penalties levied on non-compliant companies.
All companies and institutions in the healthcare and life sciences industry and sectors should heed the provisions in the Draft Rules and consider the potential impact on their cross-border research initiatives and handling of HGR in China.
Affected businesses are advised to take steps to ensure compliance with these new regulations by reviewing their on-going cooperation agreements and licence agreements with PRC institutions – and formulating compliance policies for their international cooperation projects involving human genetic information.
The authors would like to thank Roslie Liu, Intellectual Property Officer at Mayer Brown, for her assistance with this legal update.
1 HGR materials includes organs, tissues, and cells that contain the human genome, genes and other genetic materials.
2 Article 2 of the HGR Regulations.
4 Article 2 of the Draft HGR Rules.
5 References to the PRC mean Mainland China, and do not include Macau and Hong Kong SAR.
6 Article 7 of HGR Regulations.
8 Article 12(1) of the Draft Rules.
9 Article 12(2) of the Draft Rules.
10 Article 12(3) of the Draft Rules.
11 Article 12(4) of the Draft Rules.
12 Article 216 of the Company Law.
13 Article 16 of the Draft Rules.
14 Article 17 of the Draft Rules.
15 Article 24 of HGR Regulations.
16 Article 15 of the Draft Rules.
17 Article 22 of HGR Regulations.
18 Article 41(1) of the Draft Rules.
19 Article 41(2) of the Draft Rules.
20 Article 27(5) of HGR Regulations.
21 Article 8 of Draft Rules; See also Draft Measures for the Ethical Review of Life Sciences and Medical Research Involving Humans (《涉及人的生命科学和医学研究伦理审查办法（征求意见稿）》）for more details.
22 The requirements of this ethics review have not been specified in both the HGR Regulations and the Draft Rules.
23 Article 40 of the Draft Rules.
25 Article 23 of HGR Regulations.
26 Article 62(1) of the Draft Rules.
27 Article 62(2) of the Draft Rules.
28 Article 62(3) of the Draft Rules.
29 Article 28 of HGR Regulations.
30 Article 49(1) of the Draft HGR Rules.
31 Article 49(2) of the Draft HGR Rules.
32 Article 49(3) of the Draft HGR Rules.
33 Article 49(4) of the Draft HGR Rules.
34 Article 72 of the Draft HGR Rules.
35 Article 76 of the Draft HGR Rules.
36 Article 41 of HGR Regulations.
37 Article 117 of the Draft HGR Rules.