Beijing Promotes the Application of Electronic Seals

On December 3, the Beijing Municipal Bureau of Economy and Information Technology, along with two other authorities, jointly issued the Beijing Electronic Seal Promotion and Application Action Plan (Trial).

The trial will see Beijing encourage the use of electronic seals for the signing of online certificates, approvals, contracts, and other electronic materials.

In China, seals (otherwise referred to as a chop or a stamp) are a form of legal representation and tangible authorization of a company’s business activity that replaces the signature commonly used in Western countries.

Since the release of the Electronic Signature Law of the PRC, which was last revised in 2019, electronic signatures, including electronic chops, have enjoyed the same legal status as physical seals. However, despite this, many simple business administrative processes in China still required the submission of paper documents and the use of physical chops.

This is until recently, when “Internet + services” have become a focal point for government – partly spurred on by the COVID-19 outbreak – and to improve government service capabilities and reduce overall transaction costs.

The trial in Beijing marks a significant step in China’s endeavors to make electronic seals ubiquitous across the country and is likely a precursor of developments to come.

Details of the Beijing Electronic Seal Action Plan

The Action Plan aims to create and promote the use of electronic seals (also referred to as cloud seals) for the purposes of:

• Government services: Key high-frequency services, such as tax-related matters, employment insurance, and provident funds to be completed online.

Before the end of 2020, government departments will use electronic seals to sign documents in process or acceptance or approval. The cloud seal will be used as an electronic signature tool, and login will rely on various methods relating to the electronic business license information.
Those wishing to avail the e-government services must ensure that all electronic materials submitted should comply with online formatting standards.

• Online bidding: Government procurement, public resource transactions, and bidding.

During the government procurement process, suppliers can confirm a bid with an electronic seal, without submitting any paper documents. After which, the government procurement department can publish the letter to the successful bidder using an electronic seal. The whole process can be completed without the need to be physically present.

• Contract signing: Commercial contracts, confidentiality agreements, and labor contracts.

Private enterprises can avail of the digitized approval system by completing the signing, inspection, and verification process entirely online. This also applies to activity on SME financial services platforms, including using electronic seals to apply for online credit services.

• Pilot industry: Business logistics, medical and health, and enterprise operations.

Electronic seals will be carried out in business logistics, medical industry, and enterprise operations among other settings. Pilot applications will be trialed for electronic evidence deposits, digital copyright protection, article anti-counterfeiting, product traceability, electronic medical records, drug traceability, corporate loans, and credit guarantees.

What is the expected implementation timeline?

The Action Plan demarcates three stages of the electronic chop’s expansion with requisite goals discussed below.

Stage 1: Before 2020, government affairs department will take the lead in making the switch to using electronic chops for key high-frequency services before the year’s end.

Stage 2: In 2021, electronic cloud badges will be expanded and promoted in the commercial field. It is expected that once the process has been explored and properly mapped out, commercial banks, financing guarantee agencies, credit reporting agencies, and other social and commercial institutions are to lead the commercial sector in the use of electronic chops, and are expected to give priority to the use of electronic materials in their transactions.

Stage 3: After 2021, the final step is to realize the full application of the electronic seals in various industries – such as electronic seals in digital copyright protection, anti-counterfeiting, product traceability, electronic invoices, financial electronic bills, electronic medical records, electronic prescriptions, drug traceability, cross-border payments, supply chain finance, and asset digitalization, among others.

The transition as promoted by the document is to be made in accordance with the Electronic Signature Law and Beijing’s Regulations on Optimizing the business Environment, as well as other relevant policies and regulations.

The broader context: Impact on doing business in China

If the trial proves to be successful, and the transition is replicated in other cities in China, businesses should expect more changes ahead.

Once we see electronic seals used at a greater scale, there will inevitably be changes to the business processes as electronic chops cannot function in isolation and need to be supported by an aptly designed digital business environment.

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This means revising the way that seals are produced, managed, and verified. In addition, changes to the surrounding business environment could be expected through measures, such as modifications to government service e-portals, increasing technical support channels, and using blockchain for the purpose of verification and traceability of the chops, among others.

The move towards electronic seals is by no means an outlier in China. It should be seen as part of the government’s broader efforts streamline regional administrative processes and promote digitalization within businesses.

The latest plan comes in the backdrop of a myriad of similar business reform measures to integrate, simplify, or digitalize administrative processes. These include:

• The electronic special VAT invoice trials gradually expanded across Zhejiang, and now to Hebei province;
• The introduction of the Pudong New Area “One Integrated License” for market access to specific sectors; and
• The Yangtze River Delta Economic Zone cross-regional integration of tax-related services in Shanghai (Qingpu, Shanghai), Suzhou (Wujiang, Jiangsu), and Jiaxing City (Jiashan, Zhejiang)

On a broader scale, it also aligns with the digitalization of traditional systems, such as the recognition of electronic financial bills for accounting and reimbursement purposes, and indeed the trial implementation of China’s digital yuan (DCEP).

Businesses should stay abreast of these new developments and pay attention to how particular changes or digitization can impact their business process management as well as legal compliance. For more personalized information on how these electronic chops may affect your business, please feel free to email us at china@dezshira.com

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