By Mark Schaub and Atticus Zhao, Corporate & Commercial Group, King & Wood Mallesons

The pandemic does not seem to have slowed down the rapid development in autonomous cars in 2021. Autonomous driving is seeing a boom in investment.  In China alone, there have been 24 financings related to autonomous cars in the first two months of 2021. The total amount of financing involved exceeded RMB 17 billion.[1]

The successful commercialization of autonomous cars faces challenges not only in respect of automated driving technology but also in dealing with current legal regulations. Although there is still a long road to realizing fully autonomous driving, the legal regulations for the commercial operation of autonomous cars has been advancing in development in tandem with road testing of autonomous cars. Progress is being made around the world.

On January 11, 2021, the U.S. Department of Transportation released the Comprehensive Plan for Automated Vehicles, which is an extension of the Automated Vehicles 4.0 – Ensuring U.S. Leadership in Automated Vehicles Technology. The Plan further clarifies the direction of development of autonomous cars in the U.S.

On February 8, 2021, Germany issued the Draft Act Amending the Road Traffic Act and the Compulsory Insurance Act – Autonomous Driving Act (the “New German Draft”). The New German Draft provides a measure of legal certainty for the use of autonomous vehicles and will give confidence to companies investing in such technology. The German Federal Transport Minister expects vehicles with autonomous driving functions to start operating in 2022.[2]

In China, on March 24, 2021, the Ministry of Public Security of China issued the Draft Proposed Amendments of the Road Traffic Safety Law (the “MPS Proposed Amendments”). The MPS Proposed Amendments clarify the requirements related to road testing of, and access by, vehicles equipped with automated driving functions, as well as regulating how liability for traffic violations and accidents will be allocated.[3] This marks the first time China has proposed specific legislation for autonomous cars at the level of the Road Traffic Safety Act. This is a significant milestone.

In addition, on March 23, 2021, the Standing Committee of the Shenzhen Municipal People’s Congress issued the Draft for Comments of the Regulations of Shenzhen Special Economic Zone on the Administration of Intelligent and Connected Vehicles (the “Shenzhen Draft Regulations”) on its website for public comment.[4] The Shenzhen Draft Regulations legislates the whole chain of autonomous cars[5] development from road testing, access registration, use management, road transport, traffic accidents, handling of accidents and violations and dealing with legal liability. Shenzhen is clearly vying to be the first location in China where autonomous cars may realize commercialization. We expect other regions in China to rise to Shenzhen’s challenge.

Taken together the MPS Proposed Amendments and Shenzhen Draft Regulations can be seen as the beginning of China specifically legislating in respect of autonomous cars.

This article will provide an introduction and brief commentary on the main provisions of the MPS Proposed Amendments and the Shenzhen Draft Regulations.

1. The MPS Proposed Amendments

(1) Requirements for road-testing of, and access by, autonomous cars

The MPS Proposed Amendments stipulate that road testing of vehicles equipped with automated driving functions should be conducted at designated times, areas and routes in accordance with the law. Further such test vehicles must first pass tests in closed roads and venues and obtain temporary licence plates before embarking on road testing. After passing the road test, vehicles equipped with automated driving functions can be manufactured, imported and sold in accordance with the relevant laws and regulations, and those needing access to the road must apply for motor vehicle number plates.[6]

Although the MPS Proposed Amendments only briefly mentions requirements for testing of, and access by, autonomous cars, it has explicitly incorporated autonomous cars into China’s transportation regulatory system. If the provisions on autonomous cars in the MPS Proposed Amendments are passed, it will be the first time that China has specifically legislated in respect of autonomous cars.

(2) Allocation of liability for violations and accidents

The MPS Proposed Amendments provide that when vehicles equipped with automated driving functions and manual operation modes are involved in road traffic violations or accidents, the responsibility of the driver or the automated driving system developer shall be determined in accordance with laws, as well as the liability for damage. For vehicles on the road that are equipped with automated driving functions without manual operation modes, this liability issue be separately dealt with by relevant departments of the State Council.

The provisions in the MPS Proposed Amendments on the liability for autonomous cars are relatively short. Essentially, high-level regulations as to the principles of liability for conditionally autonomous cars and leaving room for dealing with the liability issues for fully autonomous cars at a further date by the relevant department of the State Council. The provisions of the MPS Proposed Amendments are unclear as to how the liability in respect of highly automated cars will be dealt with. It can be expected that the legislation in such respect shall develop as autonomous technology develops.

Liability is a core legal issue to be considered as autonomous cars continue to develop. At present, there are major differences across the world as to how liability is allocated in respect of autonomous cars.

The MPS Proposed Amendments have placed liability on the driver or the automated driving system developer for vehicles that are equipped with automated driving functions but which also retain manual operation modes. One issue that may be controversial is the specific meaning of automated driving system developer – does this term refer to the supplier of the automated driving system? If this is correct, does this mean that carmakers that have not developed automated driving systems will not be held liable?

In addition, the MPS Proposed Amendments further stipulate that the automated driving function must pass a test conducted by third-party testing agencies with relevant qualifications engaging in the automotive sector.

2. The Shenzhen Draft Regulations

The main issues that the Shenzhen Draft Regulations cover include:

(1) Road testing and demonstration application

The Shenzhen Draft Regulations have incorporated the relevant provisions of the Draft for Comments of the Administrative Measures for Road Testing and Demonstration Application (for Trial Implementation) (the “MIIT Draft Administrative Measures”) issued by the Ministry of Industry and Information Technology on January 11, 2021. The Shenzhen Draft Regulations allow for autonomous cars to carry out road testing and demonstration applications on highways and urban expressways within the Shenzhen Special Administrative Region, and also recognize road testing results from other provinces and cities in China. This will greatly reduce the burden of multiple and repetitive testing.

In addition, the Shenzhen Draft Regulations provide that highly automated cars and fully automated cars may be operated driverlessly following a safety assessment, review and approval by the relevant authorities in Shenzhen and adoption of appropriate safety measures. It should be noted that prior to the issuance of the Shenzhen Draft Regulations, Guangzhou and Beijing have already permitted driverless (or safety officer-less) testing of autonomous cars in their regions.

(2) Access and registration

China has an access management system in respect of motor vehicle products wishing to gain market entry. The MIIT is responsible for the access management of motor vehicle products and companies. Autonomous cars “do not have access standards and thus cannot be included in the motor vehicle products catalogue, cannot be sold and registered, and therefore cannot be driven on the roads in the same way as traditional cars”.[7]

In 2017, the MIIT and the Standardization Administration of the PRC jointly promulgated the Guide for the Construction of the National Internet of Vehicles Industry Standards and System. The Guide proposed the formulating of approximately 269 standards for autonomous cars and related products. At present, there are 50 standards that have either been issued or are at the stage of public comment. Most standards relate to intelligent vehicles. The standards that relate to automated driving are still at a relatively preliminary research stage. As such, it is unlikely that any national or industry standard of autonomous car products will be issued in the foreseeable future.[8]

In response to this situation, the Shenzhen Draft Regulations provide for local standards, group standards and an exemption for autonomous cars from the normal system of access conditions. In short, autonomous cars that meet local or group standards will be enrolled in the Shenzhen autonomous car products catalogue and will therefore be eligible to be sold, registered and licensed within the area of the Shenzhen Special Administrative Region. In addition, the Shenzhen Draft Regulations provide if the autonomous cars cannot meet access conditions for road motor vehicle products before relevant local and group standards for autonomous car products have been issued and that this failure is due to reasons such as adoption of new technologies, new techniques or new materials, then a system which does allow for an exemption from access conditions must be implemented.

This possibility already exists in that the MIIT has established an exemption system for access of autonomous vehicles in the Administrative Measures for Access of Road Motor Vehicle Manufacturers and Products (the “MIIT Access Administrative Measures”) which came into effect on June 1, 2019. Article 24 of the MIIT Access Administrative Measures stipulates that “road motor vehicles manufacturers are encouraged to engage in technological innovation.  If the access conditions under these Administrative Measures cannot be met because of reasons such as adoption of new technologies, new techniques or new materials, companies can file an application for exemption from the relevant access conditions when applying for access of road motor vehicle manufacturers and products.”

The Shenzhen Draft Regulations also provide restrictive measures for access of autonomous cars, that is, the relevant authorities can set restrictive measures such as period of validity for access, automation level, application scenarios for autonomous car products. This is also consistent with the provisions of the MIIT Access Administrative Measures.[9]

In addition, the Shenzhen Draft Regulations also provide that autonomous cars can be driven on the roads of Shenzhen Special Administrative Region after being registered with the Public Security Traffic Administrative Bureau and obtaining certificates of registration, special number plates and driving licenses.

(3) Cybersecurity and data protection

The Shenzhen Draft Regulations have included a chapter that specifically regulates cybersecurity and data protection for autonomous cars.

In a connected world, cyberattacks are an ever-present threat. The interconnectivity between autonomous cars and the outside world means cybersecurity is a major challenge. In addition, the development and use of autonomous cars will dramatically increase the collection of personal data, including details of the driver or passenger, location, direction of driving, historical routes, average speed and mileage. This poses challenges to the privacy of drivers, passengers, and even other road traffic participants (e.g. pedestrians).

The Shenzhen Draft Regulations regulate the liability and obligation of companies related to autonomous cars in respect of cybersecurity and data safety. First,  autonomous car related companies must establish a cybersecurity evaluation and management systems to protect internet data from being leaked, stolen or tampered with, and protect accuracy, integrity and usability. Second, these companies will also need to take measures to prevent users’ personal information from being leaked, lost or destroyed in accordance with the law, and formulate a data security and privacy protection system. Third, the illegal collection, processing and use of personal privacy and data is prohibited. This also applies to the illegal collection of data related to national security.

(4) Determination of traffic accidents and violations

An important aspect of the Shenzhen Draft Regulations is the clear stipulation of liability for traffic violations and accidents of autonomous cars.

The Shenzhen Draft Regulations distinguish between liability for autonomous cars with drivers and those without:

  • The liability of an autonomous car with a driver will be dealt with under existing road traffic laws and regulations. This means the driver will bear liability for traffic violations or accidents. However, if the accident is caused by a quality defect of the autonomous car then the driver can recover compensation from the manufacturer or distributor of the vehicle；
  • For an autonomous car without a driver, the Shenzhen Draft Regulations identify the controller or owner of the vehicle will be responsible for any traffic violation or accident. However, if the accident is caused by a defect in the autonomous car then such controller or owner of the vehicle may claim compensation from the manufacturer or distributor of the vehicle.

The Shenzhen Draft Regulations further divides liability of controller or owner for vehicle without a driver as follows:

  • For traffic violations and accidents which occur during the continuous execution of all dynamic driving tasks by the automated driving system and during the time when taking over of the dynamic driving task, then the controller of the vehicle shall bear corresponding liability；
  • In other cases, the owner of the vehicle shall bear corresponding liability for any traffic violations and accidents caused by improper management, use or maintenance of the vehicle.

The Shenzhen Legislative Drafting Department has explained its manner of dividing liability as follows: first, based on the principle of “one who benefits must bear liability”, it is reasonable for the controller or owner of the vehicle to bear liability. Second, given that the right of disposition and the right of use rests in the hands of the driver or controller of the vehicle, then making the driver or controller bear liability will lead the driver or controller to use the vehicle carefully and regularly maintain the vehicle. Third, traffic police officers and traffic monitoring systems generally cannot rule on technical problems of autonomous cars at the scene of traffic violations or accidents. Therefore, such a division of liability would facilitate more timely handling of traffic accidents and violations by the traffic police department and avoid prolonged delays in which the victims’ legitimate interests remain unremedied. In cases where the controller or owner is liable for an accident and it is subsequently proven to have been caused by a technical defect then such party may recover damages from the manufacturer afterwards. [10]

The Shenzhen Draft Regulations is a bold and innovative attempt in determining and dividing liability in respect of traffic violations and accidents involving autonomous cars in a concise and clear manner. However, issues remain that await further clarification and resolution.  A key issue is whether a defect in the automated driving system will be automatically deemed as a quality defect in an autonomous car.

(5) Operation permit

The Shenzhen Draft Regulations further specify requirements for the commercial operation of driverless vehicles. According to the Shenzhen Draft Regulations, autonomous cars must first obtain road transport permits and licenses prior to being deployed on roads for transport operations and fees can be charged in such operations.

This resolves the problems that many face of being unable to obtain operation permits for autonomous cars to carry out commercial road transport operations.

3. Impact and outlook

The Ministry of Public Security Draft Proposal and the Shenzhen Draft for Public Comments mark the first step in China’s legalisation specifically for autonomous cars. These regulations will have a significant and positive impact on the development of autonomous cars in China.

Their provisions on liability will directly impact the development of technologies and business models for autonomous cars in China as well as requiring changes in how contractual arrangements between automated driving system developers and carmakers are made.

Despite the positive elements it should be noted that much is left to be clarified and there are already issues in respect of how to ensure consistency between laws. The classification of autonomous cars in the Shenzhen Draft Regulations seems to differ from that outlined in the MPS Proposed Amendments.

The term “autonomous cars equipped with drivers” in the Shenzhen Draft Regulations and the term “autonomous cars equipped with automated driving functions and manual operation modes” in the MPS Proposed Amendments seem to both primarily refer to conditionally automated vehicles (i.e., level 3). However, the two terms are expressed differently and the responsible party for traffic violations and liability also differ. While the MPS Draft Amendments identifies the responsible party to be the driver or the automated driving system developer, the Shenzhen Draft Regulations defines the responsible party to be the driver, manufacturer or distributor. The question of how to maintain consistency on liability for traffic violations or accidents of autonomous cars in the legislations may be an important consideration in the subsequent revision of these pieces of draft legislation.

Although the relevant provisions of the MPS Proposed Amendments and the Shenzhen Draft Regulations are still in draft form (and therefore the final official versions are likely to undergo significant amendment), the two drafts will undoubtedly directly drive China’s legislation in the field of autonomous cars and therefore have a profound impact on the commercialization of autonomous cars in China.

[1] https://finance.sina.com.cn/stock/relnews/hk/2021-03-30/doc-ikkntian1703819.shtml

[2] https://www.chinalawinsight.com/2021/03/articles/foreign-investment/the-future-of-autonomous-driving-in-germany/

[3] https://www.mps.gov.cn/n2254536/n4904355/c7787881/content.html

[4] http://www.szrd.gov.cn/szrd_zyfb/szrd_zyfb_tzgg/202103/t20210323_19416162.htm

[5] In China, the authorities usually refer to self-driving cars as “intelligent and connected vehicles”.

[6] See Article 155 of the MPS Draft Proposed Amendments

[7] See the memorandum on the Draft for Comments of the Regulations of Shenzhen Special Economic Zone on the Administration of Intelligent and Connected Vehicles(http://www.szrd.gov.cn/szrd_zyfb/szrd_zyfb_tzgg/202103/t20210323_19416162.htm)

[8] Ibid.

[9] Article 24 Clause 2 of the MIIT Access Administrative Measures stipulate: the Ministry of Industry and Information Technology shall make the decision as to whether access if granted by assessing its necessity and sufficiency based on the results of technical examination and evaluation. If access is granted, the Ministry of Industry and Information Technology can devise restrictive measures such as period of validity for access and implementation area.

[10] See the memorandum on the Draft for Comments of the Regulations of Shenzhen Special Economic Zone on the Administration of Intelligent and Connected Vehicles (http://www.szrd.gov.cn/szrd_zyfb/szrd_zyfb_tzgg/202103/t20210323_19416162.htm)