JC Master Legal News Issue 873

Key Takeaways for This Issue

The first Self-Regulatory Committee issued industry‑wide advocacy recommendations to promote the smooth issuance of companies in the early stages on the STAR Market.

Since the establishment of the First Self‑Regulatory Committee for Public Offerings on the STAR Market of the Shanghai Stock Exchange (hereinafter referred to as the “Self‑Regulatory Committee”), its institutional members have actively engaged in related work and earnestly fulfilled their duties and responsibilities. At the first two working meetings, the Committee discussed and adopted the “Rules of Procedure of the Self‑Regulatory Committee,” deliberated and proposed a series of measures to optimize the rational pricing of new share offerings, and offered recommendations on the formulation of rules governing issuance and underwriting activities.

Focusing on the Quality of Listed Companies: The SSE Prioritizes Key Tasks in Annual Report Review

Following the completion of 2018 annual report disclosures by Shanghai‑listed companies, the SSE has launched a comprehensive review of these reports. In this round of reviews, the SSE has earnestly implemented the CSRC’s work plan, focusing on the quality of listed companies and striving to deliver to investors a market that is truthful, transparent, and compliant. Overall, despite a relatively complex market and economic environment, the vast majority of Shanghai‑listed offices have delivered strong financial results: 90% reported profits, and nearly 80% posted positive net profits after excluding non‑recurring items for three consecutive years. For the full year, aggregate operating revenue reached RMB 33.50 trillion, and net profit totaled RMB 2.80 trillion, up 11% and 4%, respectively, year over year.

Tax and fee cuts inject new momentum, as businesses enjoy a “mini spring” of growth.

Since the beginning of this year, the state has introduced a series of tax and fee reduction measures, providing strong support for business development and injecting new momentum into enterprises. As the benefits of these policies gradually take effect, taxpayers have widely reported that tax and fee cuts have ushered in a new era of growth for their businesses.

The Supreme People’s Court, the Ministry of Public Security, and other authorities have clarified that, in 2019, private loan contracts entered into for the purpose of engaging in lending as a business are invalid.

At present, China’s informal lending sector employs a large number of practitioners, yet few individuals lend out their own funds; instead, the prevailing practice is to borrow at low rates and lend at high ones. The year 2018 marked an unusually intensive crackdown on informal lending: the Ministry of Public Security, the China Banking and Insurance Regulatory Commission, the State Administration for Market Regulation, and the People’s Bank of China jointly issued the “Notice on Regulating Informal Lending Activities and Safeguarding Economic and Financial Order,” followed by the Supreme People’s Court’s “Notice on Lawfully and Properly Adjudicating Cases Involving Informal Lending” (Fa [2018] No. 215), together addressing irregularities in the informal lending market.

Ten Major Challenges in Adjudicating Private Lending Cases

With the rapid socio-economic development and the increasing complexity and diversity of social conflicts, coupled with the deep integration of “Internet Plus” into everyday life, despite continuous improvements in legislation and the ongoing accumulation of judicial experience, certain issues inherent in private lending and those that persist in the process of social governance are reflected in judicial practice, posing numerous challenges to the adjudication of private‑lending cases.

Table of Contents

Table of Contents

Finance & Capital Markets

The first Self-Regulatory Committee issued industry‑wide advocacy recommendations to promote the smooth issuance of companies in the early stages on the STAR Market.

A Study on Valuation Methods for the Electronics Sector on the STAR Market

The Belt and Road Initiative and the Opening-Up of the Interest-Rate Bond Market

China’s first research outcome on the risks of liability insurance for work-related accidents has been put into practice.

The Joys and Sorrows of European Economy and Integration

Corporate & Commercial

Focusing on the Quality of Listed Companies: The SSE Prioritizes Key Tasks in Annual Report Review

The Top 50 Chinese Automotive Technology Companies Have Been Announced—These Offices Make the List for the First Time!

Official Announcement | China Will Establish Another Important List-Based System

5G is really here—this time, don’t get left behind at the starting line.

Behind the sky-high-priced apples, they raked in a fortune.

Taxation

Reducing the tax burden on taxpayers! The documentation for “six taxes and one fee” preferential measures will be managed through a record‑keeping and filing system.

Opinions on Strengthening Tax Culture Construction in the New Era

Duanwu Festival–themed enterprises are invited to share their fresh impressions of tax and fee reductions.

Tax and fee cuts inject new momentum, as businesses enjoy a “mini spring” of growth.

On June 5, the State Council Executive Meeting approved these three major initiatives.

Litigation & Arbitration

No need to repay usury? The Supreme People’s Court has issued a definitive ruling—eight criminal charges have sent professional loan sharks into a panic!

How can the bride’s name be added to the property deed of a house purchased by the groom’s family?

Supreme Court Ruling: Where a promissory note stipulates that “the attorney’s fees shall be borne by the defendant,” the court shall uphold such provision.

The Supreme People’s Court, the Ministry of Public Security, and other authorities have clarified that, in 2019, private loan contracts entered into for the purpose of engaging in lending as a business are invalid.

Ten Major Challenges in Adjudicating Private Lending Cases

Other

Draft amendment to the Law on Administrative Penalties: Proposed reduction of the age for administrative detention from 16 to 14 years old.

Finance & Capital Markets

The first Self-Regulatory Committee issued industry‑wide advocacy recommendations to promote the smooth issuance of companies in the early stages on the STAR Market.

Since the establishment of the First Self‑Regulatory Committee for Public Offerings on the STAR Market of the Shanghai Stock Exchange (hereinafter referred to as the “Self‑Regulatory Committee”), its institutional members have actively engaged in related work and earnestly fulfilled their duties and responsibilities. At the first two working meetings, the Committee discussed and adopted the “Rules of Procedure of the Self‑Regulatory Committee,” deliberated and proposed a series of measures to optimize the rational pricing of new share offerings, and offered recommendations on the formulation of rules governing issuance and underwriting activities.

Recently, the Self-Regulatory Committee convened its third working meeting of 2019, during which it analyzed and assessed the potential difficulties and challenges that companies seeking to list on the STAR Market may face in the early stages of its launch—ranging from domestic and international market conditions and concentrated IPO activity to insufficient business and technical preparedness among participating stakeholders. The meeting also discussed and deliberated targeted measures to facilitate smooth IPOs for companies in this initial phase, including leveraging medium- and long-term investment capital, strengthening constraints on investor pricing, streamlining issuance and listing procedures, and appropriately setting brokerage commission rates for new share allocations. In addition, the Committee put forward industry‑wide advocacy recommendations and, following collective deliberation, adopted a formal resolution.

The Self‑Regulatory Committee is an advisory and deliberative body composed of the principal participants in the primary market for STAR Market stock offerings. It provides expert advice on the formulation of policies related to STAR Market equity issuances and puts forward industry‑wide recommendations on matters such as share issuance and underwriting. The specific measures outlined in this round of industry‑wide recommendations constitute a phased arrangement for the early stage of the STAR Market’s launch, and the Committee will promptly review and adjust them in light of market conditions. In recognition of the Self‑Regulatory Committee’s efforts and the industry’s initiatives, the Shanghai Stock Exchange expresses its respect and support, and calls on companies planning to list on the STAR Market, together with their sponsoring institutions, underwriters, and other relevant stakeholders, to jointly adhere to these industry‑wide recommendations during the initial phase of the market’s launch. By doing so, they can help foster a sound market environment and ensure the STAR Market’s healthy and stable development. Furthermore, in the course of filing and registering offering plans, the Shanghai Stock Exchange will pay close attention to whether issuers and lead underwriters comply with these industry‑wide recommendations during the market’s early stages.

A Study on Valuation Methods for the Electronics Sector on the STAR Market

1. Common Valuation Methods

Electronic companies listed on the STAR Market differ from those on the A-share market, so their valuation approaches are also diversified.

A-share electronics companies often rely on the P/E ratio method for valuation. However, given that the STAR Market has relaxed requirements for short-term profitability and that offices vary significantly in market capitalization and growth prospects, it is advisable to adopt a flexible, multi‑method approach tailored to each company’s specific circumstances—incorporating metrics such as P/E, P/B, P/S, EV/EBITDA, discounted free cash flow, and dividend discount models.

Price-to-Earnings (P/E) Valuation: This method is highly applicable across industries, straightforward, and readily illustrates the relationship between a company’s operating performance and its stock price. However, it is not well suited for offices with volatile earnings. One‑time gains or losses in the current period, as well as industry‑specific cyclical fluctuations, can lead to significant earnings swings. Moreover, the P/E approach is less appropriate for start-ups and fast‑growing internet companies characterized by high uncertainty and rapid growth potential.

Price-to-Book (P/B) Valuation: Because a company’s net assets typically do not fluctuate significantly, the P/B valuation method is relatively stable. It is particularly suited to offices with highly volatile earnings, such as those in cyclical industries or the securities sector. However, the P/B approach can be subject to substantial variation due to differences in how depreciation and amortization are calculated.

Price-to-Sales (P/S) Valuation: This method is particularly suited to growth-oriented companies that, in their early stages of development, may exhibit weak profitability and even operate at a loss, making P/E‑based valuation impractical. In such cases, the P/S ratio provides a more reliable valuation approach. Because the P/S ratio cannot yield negative values, it can still produce a meaningful valuation multiple even for loss‑making or insolvent offices. Moreover, the P/S ratio directly reflects a company’s operational performance, offering the advantage of being less susceptible to manipulation.

Discounted Cash Flow (DCF) Method: The DCF method assesses a company’s intrinsic value by discounting its future cash flows to their present value.

Dividend Discount Model (DDM): The DDM posits that a stock’s intrinsic value is equal to the present value of its expected future dividend payments. Typically, this approach begins by making assumptions about the stock’s future dividend growth rate and then discounts those future dividends back to the present to arrive at the stock’s intrinsic value.

Enterprise Value Multiple (EV/EBITDA): The enterprise value multiple is the ratio of a company’s enterprise value to its earnings before interest, taxes, depreciation, and amortization. Like the price-to-earnings ratio, it is a valuation metric; however, it is particularly well-suited for companies with low net profits or those that are not yet profitable. Moreover, the EV/EBITDA ratio is unaffected by tax rates, depreciation, and amortization—non‑cash expenses—making it a more accurate reflection of a company’s operating value.

2. Corporate Life Cycle

During different stages of a company’s life cycle, it typically employs valuation methods that are appropriate for each phase.

The corporate life-cycle theory posits that offices typically progress through stages of inception, growth, maturity, and decline. Companies at different stages of their life cycles face distinct challenges; accordingly, valuation approaches must be tailored to the specific industry and stage of each office, rather than applying a one-size-fits-all methodology.

3. Business Operating Model

Different valuation approaches should be adopted for companies operating under light-asset and heavy-asset models.

Companies with different asset‑management models often exhibit substantial differences in their financial metrics. Offices with a high proportion of intangible assets are typically classified as light‑asset companies, while those with a dominant share of tangible assets are referred to as heavy‑asset companies.

1. Due to relatively stable downstream demand, heavy‑asset companies typically do not experience explosive growth in revenue or profits; therefore, the price‑earnings ratio and the price‑sales ratio are appropriate valuation metrics. In the electronics sector, IC equipment manufacturers are quintessential examples of heavy‑asset companies.

2. In the early stages of development, light‑asset companies typically incur substantial R&D expenditures and acquire a large number of patents, which may result in relatively weak profitability. However, they possess significant growth potential. Consequently, valuing such offices using the price‑earnings (PE) ratio can lead to bias; alternative valuation approaches, such as enterprise value multiples or the price‑to‑sales (PS) ratio, are more appropriate. In the electronics sector, IC design companies are quintessential examples of light‑asset offices.

4. Analysis of Valuation Methods for Electronic Stocks on the STAR Market

Based on the valuation levels of leading companies in the A-share market, Taiwan, and overseas markets, an appropriate growth premium should be applied.

At present, the majority of electronic‑sector IPOs on the STAR Market that have been accepted by the Shanghai Stock Exchange are concentrated in areas such as semiconductors, lasers, optics, and end‑user electronic products, with semiconductor‑related offerings accounting for over 60% of the total. Given that the semiconductor industry requires substantial upfront capital investment and features long payback periods, early‑stage companies typically exhibit weak profitability and may even report net losses. Consequently, valuation methods based on the price‑earnings ratio or absolute valuation approaches—such as the dividend discount model or discounted cash flow—are less appropriate. Instead, it is advisable to consider the company’s market segment, life cycle stage, and asset profile, and to flexibly apply metrics like the price‑to‑book ratio, price‑to‑sales ratio, and enterprise value multiples, benchmarking against comparable offices listed on the A‑share market and in overseas markets. Moreover, since many STAR Market electronics‑focused issuers are still in their nascent stages, a growth premium should be appropriately applied based on their specific operating conditions. Using the IC design, manufacturing, and IC equipment sectors as examples, we analyze the most suitable valuation methodologies for companies in each industry and delineate reasonable valuation ranges for relevant STAR Market listings.

1. IC design industry: With a low proportion of tangible assets, it is appropriate to use the price-to-earnings ratio and the price-to-sales ratio for valuation.

The IC design industry features a low proportion of tangible assets and a high proportion of intangible assets such as technology and patents, whose true value is difficult to quantify. Consequently, the asset‑based valuation approach is not suitable. Given the industry’s robust market activity and the availability of mature, comparable companies, valuation is conducted using the price‑earnings (P/E) and price‑sales (P/S) multiples; key comparables include Qualcomm, Broadcom, and Advanced Micro Devices.

2. IC manufacturing industry: With a high proportion of fixed assets, the price-to-book ratio is an appropriate valuation metric.

The IC manufacturing industry requires substantial investment in production equipment, with a high proportion of fixed assets and significant annual depreciation and amortization expenses. Consequently, valuation methods such as the price-to-earnings ratio or the price-to-book ratio are not well suited; instead, the price-to-book ratio should be employed for valuation.

3. IC Equipment Industry: Short-term profitability is relatively weak, but the future market potential is substantial; therefore, valuation using the price-to-sales ratio and enterprise value methods is advisable.

The IC equipment industry is characterized by high technological and capital barriers, and most domestic offices are still in the stage of overcoming technical challenges. Consequently, these companies allocate a substantial portion of their operating revenue to R&D, resulting in elevated R&D spending and significant capital expenditures. As a result, traditional price‑earnings (PE) valuation methods are less applicable in this sector; instead, valuation should rely on the price‑to‑sales ratio and the enterprise value‑to‑EBITDA (EV/EBITDA) approach.

The Belt and Road Initiative and the Opening-Up of the Interest-Rate Bond Market

Since General Secretary Xi Jinping unveiled a new round of financial opening-up at the Boao Forum for Asia in April 2018, China’s financial markets have entered a period of fresh development opportunities. This paper focuses on the issue of “financial connectivity” under the Belt and Road Initiative, examines key areas for advancing the internationalization of the bond market, and proposes a roadmap for steadily promoting RMB internationalization by channeling capital flows back into the government bond market.

The internationalization of the renminbi requires the establishment of a repatriation mechanism.

There are significant constraints on the use of currencies for pricing and settlement in international trade. Consequently, the role of the renminbi in furthering its own internationalization remains limited: First, only about 5% of global foreign‑exchange transactions are linked to international trade and direct investment, with the vast majority serving financial‑investment purposes. Second, as the renminbi’s unilateral appreciation has come to an end, its performance in trade‑related pricing and settlement has in fact weakened; moreover, the month of the “811 exchange‑rate reform” marked the currency’s historical peak, highlighting that a currency’s internationalization—so heavily dependent on exchange‑rate dynamics—is clearly unsustainable. Third, the global private sector predominantly settles in hegemonic currencies such as the U.S. dollar, generating externalities in currency usage and steadily reinforcing the dollar’s international standing. As the renminbi emerges as the currency of a major economy, it will be difficult to break this “currency inertia” in the short term.

Only by establishing channels for capital repatriation and achieving financial market integration can we break through existing bottlenecks. From the perspective of international finance, the degree of a currency’s internationalization is the outcome of market forces; a country must ensure smooth cross-border flows of its currency to effectively support—and even advance—its internationalization. If RMB “goes out” but cannot readily “flow back”—that is, if, under the Belt and Road Initiative, emphasis is placed solely on outward financing while neglecting the return of investments to the domestic market—the impact on currency internationalization will be severely limited, and the process of “going global” will become increasingly difficult. Therefore, it is essential to provide a relatively secure and profit‑generating haven for RMB that has been deployed overseas and to establish an effective liquidity‑management framework. Only then will RMB used in trade or financing gain broader acceptance and favor. Under the Belt and Road Initiative, RMB has made significant strides as an investment currency in recent years, with A‑shares and interest‑rate bonds (government and policy bank bonds) successively included in major international indices; however, substantial room for further development remains.

Development Approaches for Assessing the Potential of the Return Mechanism of China’s Interest-Rate Bonds

Benchmark instruments such as government bonds and policy bank bonds have achieved substantial scale and enjoy excellent liquidity. As of the end of 2018, the outstanding balance of China’s bond market stood at RMB 86 trillion (approximately USD 12 trillion), making it the third-largest bond market globally. Both onshore and offshore bond markets are playing an increasingly pivotal role in serving the real economy, boosting the share of direct financing, and supporting supply-side structural reform. Government bonds and policy bank bonds have established a comprehensive yield‑curve benchmark; in particular, cumulative issuance of policy bank bonds has reached RMB 17.8 trillion, with an outstanding balance exceeding RMB 8.9 trillion, and by the end of 2018, policy bank bonds accounted for more than 44% of the total outstanding securities traded through CCDC custody.

The advancement of Bond Connect and the implementation of preferential policies have ensured smooth capital repatriation. The launch of the northbound leg of Bond Connect in 2017 marked the opening of a direct channel for Hong Kong‑based investors to access China’s interbank bond market. At the same time, there is good reason to believe that, going forward, China’s onshore bond market will deepen and broaden its cooperation with major global RMB‑denominated financial centers. China has progressively refined a range of policy measures to facilitate overseas investors, covering investment channels, foreign‑exchange settlement, tax and accounting frameworks, and risk‑hedging mechanisms.

The increase in foreign-exchange reserves and the ongoing development of infrastructure projects are boosting demand for interest-rate‑linked bonds. On the one hand, the trend toward RMB internationalization is prompting central banks worldwide to steadily expand their holdings of the currency as a reserve asset. Meanwhile, since the 2008 financial crisis, an ever-growing number of countries and regions have entered into bilateral local‑currency swap agreements with China. On the other hand, under the Belt and Road Initiative, various infrastructure projects along the initiative’s corridors are advancing in an orderly manner, with the RMB—through loans, panda bonds, and trade and investment—gradually accumulating as a circulating currency within these economies.

Strengthen the public‑good nature of international financial instruments, develop robust risk‑management plans, and act in concert with prevailing trends. The opening of China’s bond market to foreign investors signifies the country’s proactive effort to safeguard the value of offshore renminbi and to provide a global public good: as the use of the renminbi for trade‑related pricing and settlement continues to expand, greater emphasis should be placed on leveraging interest‑rate bonds as tools for preserving the value of renminbi holdings and managing liquidity among overseas entities. In today’s complex and rapidly evolving international political and economic environment, bond‑market liberalization will inevitably face external shocks. Provided that risks remain measurable and manageable, the process of opening the interest‑rate bond market to foreign participation and delivering international public goods should proceed in an orderly, gradual manner—allowing developments to unfold naturally and in step with the broader context.

Pilot an “additional issuance” mechanism to establish a prudent, orderly framework for foreign investors’ bond holdings. Drawing on the gradual opening-up of U.S. Treasury bonds, this approach would phase in access to the interest-rate‑linked bond market through an “additional issuance” scheme, encompassing two components: first, special additional issuances, in which issuance prices are set at the primary‑market level for sensitive instruments and specific jurisdictions, with country‑specific allocations executed by buyer‑side agents at those predetermined prices; second, standard additional issuances, offering tailored allocation quotas, with full transparency of issuance and trading data.

Telling China’s story, adhering to international norms, and developing innovative products to forge a Chinese solution. First, we will intensify international roadshows for Chinese bond issuances, share China’s narrative, contribute Chinese expertise, and put forward a Chinese approach. Second, we will diversify hedging instruments to manage exchange-rate and interest-rate risks, boost the liquidity of existing interest-rate‑linked bond futures and standardized forward contracts, and launch new index‑based products such as bond ETFs. Third, we will pilot dual‑currency bonds—drawing on the U.S. CAT bonds—by structuring them with principal and coupon denominated in U.S. dollars, while settling in RMB at either a pre‑agreed or real‑time exchange rate.

China’s first research outcome on the risks of liability insurance for work-related accidents has been put into practice.

On March 21, 2019, a chemical storage tank at Tianjiayi Chemical Co., Ltd. in Chenjiagang Town, Xiangshui County, Yancheng City, Jiangsu Province, exploded, affecting 16 nearby enterprises and resulting in 78 fatalities. On April 25, 2019, a construction elevator fell at the Feicui Huating project in Taocheng District, Hengshui City, Hebei Province, causing 11 deaths and 2 serious injuries.

There are no small matters when it comes to workplace safety. In recent years, serious accidents in sectors such as construction, hazardous chemicals, and coal mining have resulted in casualties and property damage of varying degrees. Against this backdrop, occupational safety liability insurance—hereinafter referred to as “safety liability insurance”—has once again come into the public spotlight as one of the measures for addressing public‑sector safety incidents, sparking high expectations across all sectors of society for the further development of liability insurance.

Recently, China’s first “Risk Research Report on Work Safety Liability Insurance (2019)” (hereinafter referred to as the “Report”) was officially released. Industry observers note that the publication of the Report marks the practical application of research findings on work safety liability insurance risk, under the theme of “leveraging the risk management functions of insurance to enhance comprehensive governance of workplace safety.” This development is expected to further strengthen the insurance sector’s expertise in risk identification and prevention, thereby actively supporting the growth of the real economy.

Enterprises show low participation, and big data models remain to be developed.

Work‑related liability insurance is an important tool through which the insurance industry actively participates in strengthening comprehensive governance of workplace safety, and it will fulfill its functions in pre‑event risk prevention, in‑process risk control, and post‑event claims settlement.

Since China introduced liability insurance for workplace safety in 2006, it has been implemented across numerous industries and has yielded tangible results. In particular, the government’s decision to mandate this insurance in high-risk sectors has provided a significant safeguard for workplace safety among Chinese enterprises. However, according to observations by reporters, several provinces have encountered the following issues during its rollout:

First, enterprises exhibit low enthusiasm for purchasing insurance. They fail to view and embrace liability insurance for workplace safety from the perspective of proactive risk prevention and safeguarding employees’ rights, instead perceiving it as an additional burden on their safety‑production expenditures. In particular, many business owners mistakenly equate such insurance with conventional insurance products, failing to fully grasp its true purpose and significance as mandated by the state. Moreover, when promoting this type of insurance, relevant agencies often rely on traditional insurance‑sales approaches, without adequately communicating its underlying principles to enterprises, thereby deviating from the original intent of implementing liability insurance for workplace safety.

Second, insurance companies lack sufficient enthusiasm. The government has mandated that insurers offer liability insurance for workplace safety on a “low-profit” basis. Unlike other types of liability insurance, workplace safety liability insurance is closely tied to enterprises’ safe production practices and places greater emphasis on proactive prevention rather than the post‑incident compensation typical of conventional insurance. This, in turn, requires insurers to have specialized expertise and technical personnel with knowledge of occupational safety and health. However, in reality, insurers often lack industry‑specific risk‑management professionals, resulting in inadequate technical support and, consequently, a corresponding lack of motivation among insurers.

Third, the implementation of hazard‑identification services has been inadequate. Such services, provided free of charge by insurance companies to help enterprises prevent accidents, are a key feature of liability insurance that emphasizes proactive risk prevention. However, on-site inspections have revealed that the hazard‑identification services offered by these agencies suffer from shortcomings, including incomplete work, insufficient qualifications, and a lack of rigor in their approach.

Fourth, risk management and control in the context of big data. At present, some pilot entities—such as Beijing—have established effective integration between work‑related liability insurance data and safety‑regulation data. However, our survey reveals that in many provinces, the promotion of work‑related liability insurance still lacks robust database platform development and sophisticated analytical capabilities, thereby hindering the realization of online policy issuance, performance evaluation and oversight, data integration, and resource sharing. In particular, big‑data models for assessing and forecasting workplace safety risks remain under development.

Enhance risk prevention capabilities and improve the social governance system.

Liability insurance has been playing an increasingly important role in the modernization of the national governance system and governance capacity. According to data, in 2018, the insurance industry’s original premium income from liability insurance reached RMB 58.899 billion, up 31.14% year on year, providing insurance coverage totaling RMB 866.06 trillion.

Guo Hong, Deputy Secretary-General of the China Insurance Industry Association, stated that the release of the Report holds significant practical value. First, it can serve as a tool for insurers to conduct pre‑underwriting inspections and assess risk premiums when underwriting clients in the construction, hazardous chemicals, and coal mining sectors. Second, it can function as a technical standard and instrument for insurers to provide production safety‑related services—such as safety risk assessments and identification of potential hazards—thereby supporting their own underwriting and pricing processes and enabling them to offer standardized, professional risk‑control services under the liability insurance for production safety. Third, the research findings amount to a comprehensive “health check” for the construction, hazardous chemicals, and coal mining industries, conducted in accordance with international risk‑management standards. This helps these sectors and their constituent enterprises better understand their own risk profiles, make informed choices about risk‑mitigation measures, enhance their production safety management capabilities and performance, and ultimately prevent and reduce the occurrence of accidents.

According to available information, the Report comprises a “Research Guidelines” section and three subsidiary reports—namely, the “Risk Control Guidelines for Construction Safety Production Liability Insurance,” the “Risk Control Guidelines for Hazardous Chemicals Safety Production Liability Insurance,” and the “Risk Control Guidelines for Coal Mine Safety Production Liability Insurance”—focusing on risk assessment in safety production liability insurance across the construction, hazardous chemicals, and coal mining sectors.

“Led by the China Insurance Industry Association, a risk‑assessment study on liability insurance for workplace safety has been conducted with the participation of relevant member institutions and experts, including China Taiping Insurance Group, the Information Research Institute of the Ministry of Emergency Management, and the China Association for Safety Production. This initiative will help further enhance the insurance sector’s professional capacity in risk identification and prevention, thereby actively supporting the development of the real economy,” said Guo Hong. Looking ahead, the Insurance Industry Association, in conjunction with the implementation of the Measures for the Administration of Work‑Safety Liability Insurance, will continue to mobilize industry experts to advance research on liability‑insurance risks, while also promoting the application and implementation of research findings. This effort will leverage the risk‑management functions of insurance, strengthen comprehensive governance of work safety, improve the quality and efficiency of the insurance sector’s services to the real economy, and provide robust support for the real economy.

Lack of unified service standards and industry risk-control guidelines.

During interviews, it was learned that, in the current process of promoting and implementing liability insurance for workplace safety, gaining a clear understanding of the key risks to production safety is of paramount importance. Based on claims data from the insurance industry, the project team conducted a study into the root causes of accidents.

According to the project team’s lead official, at present, during the implementation of liability insurance for workplace safety in China, companies face several challenges in risk prevention, assessment, and management: First, there is still no industry‑wide set of norms and standards for workplace safety accident prevention services, which undermines service quality and reduces enterprises’ willingness to adopt such insurance. Second, insurance institutions themselves lack sufficient expertise in risk management; constrained by low premium rates, they are also unable to commission third‑party professional offices on a large scale to deliver these services, thereby limiting both the professionalism and the scope of coverage of workplace safety accident prevention programs.

Notably, the Report examines the scope of insurance liability under occupational safety liability insurance. Focusing on the three major industries—construction, hazardous chemicals, and coal mining—which account for the largest premium volumes, employ the greatest number of workers, and wield significant social influence among the nine mandatory sectors, it conducts a risk assessment—aligned with international risk management standards—of potential personal injury or death to employees, third-party bodily harm, and property damage arising from workplace accidents. This includes establishing frameworks for environmental considerations, risk identification, risk analysis, risk evaluation, and risk mitigation, as well as developing risk-control guidelines for occupational safety liability insurance in these three key industries. The three sub‑reports were respectively prepared by Taiping Property & Casualty Insurance, Fubon Property & Casualty Insurance, and China Coal Insurance, while other core participating entities include Ping An Property & Casualty Insurance, China Re Property & Casualty Insurance, Sunshine Property & Casualty Insurance, China United Insurance, Huatai Property & Casualty Insurance, Jintai Insurance, Bank of China Insurance, Bohai Property & Casualty Insurance, Yongcheng Insurance, and Yong’an Insurance.

Furthermore, the causes of claims in occupational liability insurance serve as a critical basis for risk identification and risk analysis. To this end, the lead institution of the project included a standardized “Claim Cause Statistics Table” in the Project Research Guidelines—categorizing claim data by major risk types to capture the number of cases, claim amounts, and other relevant information. Based on this, each participating unit provided statistical data on claim causes across three key industries covered by occupational liability insurance (or related lines of coverage). On this foundation, the sub‑project leaders conducted consolidated analyses and examined the underlying causes of claims. For example, a consolidated analysis of claim‑cause statistics for construction‑site safety production liability insurance—provided by the participating units—revealed that the three most frequent causes were collisions, falls, and other incidents; meanwhile, when examining average claim amounts, the top three causes associated with significant casualties were electric shock, explosions, and structural collapses. These findings were further supplemented by industry accident statistics and expert insights to inform risk identification and risk analysis.

The Joys and Sorrows of European Economy and Integration

In December 1991, the European Community, the predecessor of the European Union, adopted the Maastricht Treaty. On November 1, 1993, the Maastricht Treaty officially entered into force, marking the formal establishment of the European Union.

From a historical perspective, after enduring prolonged turmoil and fragmentation, the European continent came to yearn ever more deeply for peace and unity, and it was against this broader historical backdrop that the European Union was established. From a temporal standpoint, the EU remains relatively young, still in a phase of ongoing growth. Meanwhile, the introduction of the euro marked a further step toward European unity and integration. Initially, only 11 countries adopted the euro; today, the eurozone has expanded to encompass 19 member states.

In 2019, the euro celebrated its 20th anniversary, a year that also saw the European Union, the eurozone, and the euro itself grappling with significant challenges. A sluggish eurozone economy, lingering aftereffects of the sovereign debt crisis, and the rise of populism across Europe—all these developments have further underscored the institutional contradictions and divergences between fiscal and monetary policies in Europe, making reform of the European economic framework an urgent priority.

Europe’s economy has been severely weakened.

Compared with the rapid growth of the U.S. economy, the economic expansion of the European Union and the eurozone pales in comparison. After an optimistic performance in 2017, the eurozone’s growth reverted to a low‑growth trajectory in 2018, and even Germany—the engine of the European economy—experienced a slowdown. The persistent weakness across the region has heightened market concerns about the eurozone’s and Europe’s economic outlook.

In the third quarter of 2018, seasonally adjusted GDP in the euro area grew by 0.1% quarter-on-quarter. By the fourth quarter of the same year, quarterly GDP growth had edged up to 0.2%, yet remained at a relatively low level. Meanwhile, data released by Eurostat on May 15 showed that in the first quarter of 2019, the euro area’s GDP posted a preliminary quarter-on-quarter increase of 0.4% and a preliminary year-on-year rise of 1.2%, matching the year-on-year growth rate recorded in the fourth quarter of 2018.

Judging solely by the eurozone’s economic growth in the first quarter of 2019, the region’s overall performance did not appear particularly bleak. However, compared with the United States’ year-on-year GDP growth of 3.1% over the same period, the eurozone’s lack of momentum is an undeniable fact. Moreover, the three largest economies in the eurozone—Germany, France, and Italy—each face rather subdued growth prospects.

In its World Economic Outlook released in April this year, the International Monetary Fund (IMF) lowered its 2019 growth forecast for the euro area by 0.3 percentage points, to 1.3%. Meanwhile, the 2019 growth projections for Germany, France, and Italy were also revised downward to varying degrees. Germany and Italy saw the largest cuts, with their forecasts reduced by 0.5 percentage points each, to 0.8% and 0.1%, respectively.

Notably, Germany—long the “engine” driving Europe’s economy—began to show signs of fatigue at the end of 2018. As 2019 unfolded, the German economy may face the risk of a sharp slowdown. In the first quarter of 2019, seasonally adjusted GDP grew by a preliminary year-on-year rate of just 0.7%, below market expectations. Earlier, Germany’s Federal Ministry for Economic Affairs and Energy sharply cut its 2019 GDP growth forecast to 0.5%, half of the 1% projection made in January.

In addition, Germany’s manufacturing sector has experienced a marked downturn. Data show that the final reading for Germany’s March manufacturing Purchasing Managers’ Index (PMI) came in at 44.1, the lowest level since July 2012. Although the preliminary April manufacturing PMI edged up slightly to 44.5, it remains below the 50‑point threshold that separates expansion from contraction, leaving the outlook for German manufacturing still cause for concern.

Meanwhile, the deteriorating external trade environment is also weighing on Germany’s and the eurozone’s economic performance. U.S. trade protectionism and the trade dispute with the European Union have become major risks that Europe must contend with. In 2018, the United States imposed steep tariffs on steel and aluminum imports from the EU, prompting retaliatory measures. Subsequently, European Commission President Jean-Claude Juncker and U.S. President Donald Trump reached a temporary “ceasefire” agreement to launch trade negotiations. However, to date, U.S.–EU trade talks remain at an early stage. Although the Trump administration has postponed its decision to impose additional high tariffs on automobiles and auto parts from the EU, the United States still holds the card of automobile tariffs. Should negotiations stall or even collapse, the U.S. could swiftly wield this tariff weapon once again.

For this very reason, since last year the European Central Bank has repeatedly underscored at its monetary policy meetings the threat that trade protectionism poses to the eurozone’s economic outlook. Faced with both domestic and external headwinds and pronounced downside risks to growth, the ECB, after winding down its large-scale asset-purchase program in December 2018, abruptly adopted a more dovish stance at its March monetary policy meeting, revising its forward guidance on interest rates to indicate that “it expects to keep the current key interest rates unchanged at least through the end of 2019,” thereby pushing back the timeline for the first rate hike. At the same time, the ECB announced the launch of a new series of quarterly targeted longer-term refinancing operations (TLTRO‑III), signaling a renewed commitment to accommodative monetary policy.

However, misfortune seems to come in waves. Political risks and turmoil within the European Union and the eurozone have only compounded an already fragile economy. Populist sentiment has flared up across Europe, and rising Euroscepticism, coupled with diverging national interests among member states, has dealt a severe blow to European integration.

Internal political risks are emerging one after another.

At present, the eurozone and the broader European economy are unlikely to see any significant improvement. Politically, Europe is also grappling with mounting challenges. The intertwined and reinforcing nature of political and economic risks poses substantial difficulties for the continent. The lingering aftereffects of the sovereign debt crisis have yet to be fully resolved, leaving Europe still saddled with massive public‑debt burdens. Meanwhile, sluggish economic growth has eroded living standards, allowing social problems to accumulate; public discontent is widespread, populist movements are regaining momentum, and Euroscepticism has risen markedly.

In recent years, the most emblematic case of Euroscepticism and populism has been Brexit. No one anticipated that, in the 2016 referendum, the United Kingdom would actually choose to leave the European Union. Yet, to this day, the Brexit process has largely stalled, with the departure deadline repeatedly postponed. For the EU, the UK’s decision to exit could have far‑reaching, long‑term consequences. Although the myriad challenges confronting Brexit may prompt other countries with similar aspirations to think twice, it is nonetheless undeniable that the “demonstration effect” of Brexit will hinder the advancement of European integration.

At present, several countries—including Italy, Austria, France, Germany, Sweden, and Spain—have witnessed the rise of far-right political forces. In France, the “Yellow Vest” protests have ignited social tensions, while the National Rally party previously enjoyed a strong showing in the presidential election, garnering broad public support. In Italy, two major anti-establishment parties—the League and the Five Star Movement—have seen their influence surge. Meanwhile, in Germany, Chancellor Angela Merkel has announced she will not seek re-election, a development that to some extent reflects the declining authority and popular support for mainstream political parties. Notably, economic growth in Germany, France, Italy, and other nations has continued to slow this year, with some even slipping into recession—conditions that could fuel the resurgence of populist movements, further amplifying the interplay between political and economic risks.

According to an analysis by the Bank of China Institute of International Finance, the rise of anti-establishment forces in Europe can be attributed primarily to three underlying factors. First, the European debt crisis sowed the seeds of Euroscepticism: a unified monetary policy left member states largely reliant on fiscal measures to address external shocks, thereby exacerbating the debt burdens of some countries. Second, an uneven distribution of powers and responsibilities has nurtured Eurosceptic sentiment; Brexit serves as a clear example of how certain member states’ contributions do not correspond to their share of decision-making power. Finally, the influx of migrants and refugees, coupled with unresolved issues in the refugee‑allocation mechanism, has intensified Eurosceptic attitudes and heightened internal tensions within the EU. The growing influence of anti‑establishment forces may further diversify the interests of EU member states, potentially leading to greater divisions and higher costs in the course of European reform and development.

Resolving the Deep-Rooted Contradictions Between Monetary and Fiscal Policies

The outbreak of the European debt crisis plunged the European economy into a deep downturn and simultaneously laid bare structural flaws within both the European Union and the eurozone. The crisis called into question the eurozone’s institutional framework of “monetary union with fiscal autonomy.” Today, monetary policy across the eurozone is centralized under the European Central Bank, and the creation of the euro itself marked a milestone in the European integration process. However, given the diverse economic conditions of member states, a one-size-fits-all monetary policy struggles to accommodate country‑specific circumstances, leaving member states largely reliant on limited fiscal tools. This has exacerbated debt burdens in some countries, pushing them into a vicious cycle.

The divergence between a unified monetary policy and a fragmented fiscal policy has hindered effective policy coordination, highlighting the inflexibility and inherent shortcomings of the eurozone’s current economic framework. A recent illustrative example is the conflict over Italy’s budget proposal, which pitted the Italian government against the European Union. The Italian government had initially proposed a 2019 budget target for a fiscal deficit of 2.4% of GDP, but this plan was rejected by the EU. After protracted negotiations, the Italian government pledged to revise its budget, lowering the deficit target to 2.04%, thereby bringing the dispute to a close.

However, this does not mean that the underlying tensions have vanished. At present, Italy’s economic performance remains rather weak, and under the constraints of a unified monetary policy, it can only seek to stimulate the economy through fiscal measures. In mid-May this year, Italian Deputy Prime Minister Matteo Salvini stated that, if it would help boost employment, Italy was prepared to breach EU fiscal rules—such as exceeding limits on the budget deficit and the debt-to-GDP ratio.

Within the European Union and the eurozone—a “big family”—there are both deficit‑running countries and surplus‑generating ones. This means that member states may adopt divergent approaches and policy frameworks, making it difficult to achieve uniformity under the current circumstances. At the IMF and World Bank spring meetings held earlier in Washington, D.C., the IMF indicated that it has been pressing countries with budget surpluses, including Germany, to cut taxes or boost spending in order to support economic growth. However, German Finance Minister Olaf Scholz argued that Germany’s sound fiscal position enables it to better weather the next recession. For now, the risks facing the global economy do not stem from Germany’s fiscal situation but rather from “man-made” uncertainties, such as Brexit and trade disputes.

In summary, the eurozone is currently grappling with a structural dilemma: monetary policy is unified, while fiscal policy remains fragmented, and the adverse consequences of this imbalance are becoming increasingly pronounced. However, the absence of a unified currency could impede deeper advances in European integration and the single market. Therefore, amid mounting challenges, the EU must demonstrate unwavering resolve to undertake reforms, promptly recalibrate its existing monetary and fiscal policy frameworks, strengthen consensus, and jointly advance the process of European integration.

Commercial & Corporate

Focusing on the Quality of Listed Companies: The SSE Prioritizes Key Tasks in Annual Report Review

Following the completion of 2018 annual report disclosures by Shanghai‑listed companies, the SSE has launched a comprehensive review of these reports. In this round of reviews, the SSE has earnestly implemented the CSRC’s work plan, focusing on the quality of listed companies and striving to deliver to investors a market that is truthful, transparent, and compliant. Overall, despite a relatively complex market and economic environment, the vast majority of Shanghai‑listed offices have delivered strong financial results: 90% reported profits, and nearly 80% posted positive net profits after excluding non‑recurring items for three consecutive years. For the full year, aggregate operating revenue reached RMB 33.50 trillion, and net profit totaled RMB 2.80 trillion, up 11% and 4%, respectively, year over year.

To date, the Corporate Supervision Department of the Shanghai Stock Exchange has conducted a comprehensive review of all annual reports filed by companies listed on the Shanghai market and has carried out targeted audits of selected reports. This review process follows the approach of “focusing on both ends while guiding the middle,” with particular attention paid to issues that have come to light as certain listed companies undergo economic restructuring.

I. Conduct thorough review and inquiry of annual reports to fully safeguard investors’ right to information.

Annual report review inquiries are a routine and fundamental component of the exchange’s day-to-day regulatory oversight. Primarily from the perspectives of the market and investors, and centered on information disclosure, these inquiries target instances where listed companies’ annual reports contain insufficient or incomplete disclosures, or raise certain concerns, requiring the companies to provide supplementary disclosures and explanations. The purpose of these inquiries is to enhance the transparency of listed companies’ information disclosure, enabling investors to gain a more comprehensive and objective understanding of the company’s circumstances and make better investment decisions. Importantly, such inquiries are a relatively neutral form of regulatory oversight and do not, in themselves, indicate that the company has engaged in any illegal or non-compliant conduct.

Since last year, under the influence of multiple factors, risks among listed companies have become more apparent. In the course of reviewing annual reports, the corporate supervision department of the Shanghai Stock Exchange has conducted necessary inquiries, which have drawn considerable attention from all market participants. Overall, the intensity and approach of the Exchange’s information-disclosure oversight have remained largely unchanged. From 2019 to the present, a total of 389 regulatory inquiry letters—covering both periodic reports and ad hoc announcements—have been issued, compared with 358 in the same period of 2018 and 407 in 2017, indicating that the number of inquiries has remained broadly stable. This year’s annual‑report inquiries are primarily issue‑oriented, aimed at urging listed companies to provide comprehensive disclosures and clearly highlight potential risks. In practice, the Exchange’s corporate supervision department places great emphasis on standardizing the review and inquiry process. Each annual‑report inquiry must undergo a dedicated departmental deliberation and pass through four layers of internal review before being issued. Such procedural safeguards are designed to ensure the rigor of the annual‑report review and the consistency of regulatory standards. At the same time, all annual‑report inquiry letters are made public, subjecting them to market scrutiny; this transparent market‑based accountability mechanism further enhances the normative quality and professional integrity of regulatory oversight.

II. Closely monitor the authenticity of financial performance and strengthen the foundation for annual report information disclosure.

Speaking truthfully and preparing accurate financial statements are the foundation of annual report disclosure for listed companies and also the issues that investors care about most. If a listed company’s financial performance is misrepresented, it can easily erode investor confidence. During this year’s review process, the stock exchanges have mobilized specialized teams to focus precisely on the authenticity of listed companies’ financial information, with particular emphasis on the veracity of their reported results. Cases where annual reports reveal inflated or even fabricated earnings—such as fictitious transactions or artificially boosted revenues—are subject to heightened scrutiny. In practice, this involves integrating financial analysis with industry‑specific regulatory oversight, emphasizing cross‑validation between financial and non‑financial data, examining the consistency among financial metrics, and conducting comparative analyses across peer companies and products. By conducting a comprehensive review of companies’ financial disclosures, regulators identify red flags, issue targeted inquiries, and urge offices to provide full and accurate reporting of their operating performance.

The review findings indicate that the quality of financial information disclosure among the vast majority of listed companies in the Shanghai market is generally reliable; however, several notable issues remain. First, some companies’ reported performance may be inflated, with figures that fail to align with their business models and the broader industry landscape—manifesting, for example, in abnormally high gross margins or unusually rapid growth in sales expenses compared with peers. Second, the book value of fixed assets at certain offices may be overstated, diverging from their actual utilization and productive capacity—for instance, when asset‑base expansion outpaces capacity additions or when per‑unit capital investment for similar products significantly exceeds industry averages. Third, some companies exhibit a tendency to treat asset impairments as a “sweetener” for future earnings, with discretionary changes to allowance‑for‑doubtful‑accounts policies and, in some cases, even leveraging goodwill impairments to stage large‑scale write‑offs. Fourth, there are still instances of certain companies engaging in improper earnings management through accounting standards—for example, altering the scope of consolidation without changing their shareholding ratios by means of voting‑right delegation or contractual arrangements. In response to these issues, the Exchange’s corporate supervision department has adopted a pragmatic, priority‑focused approach: for matters primarily involving disclosure, it requires timely supplementation and correction; for cases involving substantial red flags or suspected fraud, it conducts thorough investigations and mandates detailed verification by the companies concerned.

III. Focus on the key few and rigorously investigate controlling shareholders’ misappropriation of funds and unauthorized guarantees.

Regulatory experience shows that problems at listed companies are often attributable to inadequate corporate governance and non‑standard internal operations. In particular, whether the company’s key decision‑makers act with integrity, honesty, and due diligence plays a pivotal role in ensuring the sound operation of listed offices. During this year‑end report review, close attention has been paid to transactions between controlling shareholders or actual controllers and the listed company, with rigorous scrutiny applied to potential instances of fund misappropriation, unauthorized guarantees, and other improper transfers of benefits.

The review found that in 2018, the misuse of listed‑company funds by controlling shareholders and unauthorized guarantees increased, manifesting primarily in two forms. First, controlling shareholders either directly appropriated substantial funds from the listed company or unilaterally demanded that the company provide unlawful guarantees on their behalf. In some cases, during the reporting period, controlling shareholders and their affiliates made large, non‑operational fund withdrawals from the listed company, leaving significant outstanding balances at year‑end; additionally, certain companies, bypassing standard approval and decision‑making procedures, arbitrarily extended sizable guarantees to their controlling shareholders and related parties. Second, seemingly routine transactions were used to conceal the underlying transfer of benefits to major shareholders and their affiliates. For instance, some companies purchased trust‑based wealth‑management products, effectively channeling funds to major shareholders with overdue receivables that proved difficult to recover; others transferred funds to major shareholders through large prepayments or by disguising related‑party transactions as arm’s‑length arrangements. In response to such issues, the SSE’s corporate supervision department, after thoroughly verifying the facts, has required the affected companies and relevant shareholders to implement corrective measures within a specified timeframe. Where timely resolution was not achieved, the exchange has, in accordance with applicable laws and regulations, imposed additional risk alerts—namely, ST treatment—on the companies concerned.

IV. Strengthen the accountability of intermediary institutions and foster market-based mechanisms for ensuring the quality of annual report disclosures.

In the context of annual report disclosure, whether intermediary institutions—particularly auditing offices—exhibit due diligence and effectively fulfill their role as “gatekeepers” of the capital market is a critical test of the adequacy and effectiveness of the market‑based oversight mechanism. Based on this year’s annual report disclosures, the vast majority of intermediaries have continuously enhanced their professional standards and strengthened their compliance awareness, issuing audit opinions and valuation reports that are relatively objective and impartial, thereby ensuring the quality of companies’ annual information disclosure.

At the same time, some intermediary institutions have demonstrated a lack of professional integrity and have failed to exercise due diligence, turning a blind eye to significant issues and material risks at companies and casting doubt on the reasonableness of their professional opinions. Such cases fall into several categories, including: audit opinions exhibiting a tendency to downgrade, thereby facilitating companies’ avoidance of regulatory designations; issuing unqualified audit opinions for multiple consecutive years in respect of companies suspected of serious financial fraud; and providing valuations with highly inflated premiums for target assets that have been loss‑making over an extended period or even insolvent. In response, the exchange’s corporate supervision department has requested the relevant intermediaries to provide detailed explanations of their specific efforts to fulfill their duties diligently; where substantial doubts remain, further investigations will be initiated as warranted.

In summary, the annual report review has long served as a comprehensive “health check” of listed companies’ quality conducted by the SSE’s corporate supervision division. With respect to the circumstances reflected in and the issues identified in annual reports, the Exchange adopts a fact-based approach, carefully assessing the severity and significance of each matter and handling them accordingly. For the vast majority of cases involving inadequate, insufficient, or inaccurate information disclosure, the Exchange urges companies to provide supplementary disclosures and make necessary corrections, thereby helping investors gain a thorough and objective understanding of the company’s situation. As for instances of financial fraud and serious violations of laws and regulations, the Exchange will maintain strict regulatory oversight, rigorously investigate and impose appropriate sanctions, and safeguard the sound ecosystem of the capital market and the legitimate rights and interests of investors.

The Top 50 Chinese Automotive Technology Companies Have Been Announced—These Offices Make the List for the First Time!

On June 6, KPMG held an awards ceremony for the 2018 China Top 50 Automotive Technology Companies, as selected earlier. Compared with the 2018 list, the 2019 ranking places greater emphasis on high‑quality, innovative enterprises across a broader spectrum of sectors, including new energy, intelligent connected vehicles, automotive aftermarket services, manufacturing technologies, and mobility solutions.

Some companies whose scale and technological capabilities have already been recognized by the market—such as Didi Chuxing, SenseTime, and Cambricon Technologies—remain on the list. At the same time, several promising newcomers have emerged, including Shouqi Car‑Hailing, Pony.ai, Che300, and Kangzhong Auto Parts. Meanwhile, a number of offices that garnered significant attention in 2018 failed to make the cut in 2019, including Uxin Group, Renrenche, Pandada Car‑Sharing, and START, a platform for shared car‑ownership services.

Notably, the list also highlights a cohort of smaller, yet technologically distinctive companies founded within the past five years, introducing a supplementary ranking of 10 emerging enterprises. Among them are well‑known startups such as Tago Intelligent Mobility, Mainline Technology, and Ji’ao Technology.

Tao Kuangchun, Chairman of KPMG Asia Pacific and China, stated that the trend in 2019 was the further deep integration and transformation of digital technologies across all segments of the automotive industry—whether in autonomous driving, mobility services, or new‑energy vehicles. In addition to intense competition in traditional markets, established automakers and Tier‑1 suppliers have increasingly engaged in collaborations in areas requiring substantial investment or technological expertise, such as emerging technologies, mobility solutions, and infrastructure. Following several years of innovation and entrepreneurship, leading Chinese automakers now possess more practical experience in partnering with start-ups.

KPMG stated that the review committee for China’s Top 50 Automotive Technology Companies comprises more than 50 expert partners from KPMG’s global and China practices, each with many years of professional experience. The selection process focuses on six core dimensions: innovation in technology and business models; financial health and growth prospects; team capabilities and corporate innovation mechanisms; transformative impact and value‑creation for the traditional automotive industry; market recognition and potential for development within specific segments; as well as valuation and capital‑market endorsement. These assessments are complemented by KPMG’s proprietary Corporate Insight Model (SIP), which enables quantitative analysis and evaluation of companies. Through surveys, interviews, data analysis, and deliberations, the committee identifies the final cohort of the top 50 automotive technology enterprises.

Official Announcement | China Will Establish Another Important List-Based System

According to reports, in accordance with the National Security Law and other relevant laws and regulations, the National Development and Reform Commission is leading efforts to study and establish a national technical security management list system, aimed at more effectively preventing and mitigating national security risks. Specific measures are expected to be unveiled in the near future.

In response, an editorial in the Global Times pointed out that China’s relevant legislation is far from a blank slate, with provisions already enshrined in laws such as the National Security Law. In the past, enforcement of these regulations has been relatively weak; establishing a national technical security management list system will not only help refine existing legal frameworks and strengthen their deterrent effect but will also undoubtedly bolster implementation.

An editorial in the Global Times argues that today’s global industrial landscape is a complex supply-chain system. While the United States holds the high end of many technological sectors, China remains the world’s largest manufacturing hub, mastering and innovating numerous practical technologies. No global supply chain can afford to do without China as a critical link, and China has the capacity to disrupt the integrity of U.S. offices’ supply chains through targeted technology controls. Should the United States continue to escalate tensions over supply chains, the resulting conflict would likely turn into a full‑blown, all‑out struggle, with consequences and a future configuration that are difficult to foresee at this stage.

An editorial in the Global Times stated that China’s establishment of an Unreliable Entities List and a National Technology Security Management List does not mean that these mechanisms will ever be abused to arbitrarily suppress foreign companies engaged in normal cooperation with China. China has always cherished the broader environment of reform and opening-up and safeguards the interests of all enterprises that cooperate with China on a regular basis. The newly instituted mechanisms will be strictly confined to the protection of China’s national security; only those foreign companies whose actions have, in practice, jeopardized the security of China’s high‑tech enterprises and national security will be targeted.

5G is really here—this time, don’t get left behind at the starting line.

A new survey by Accenture of nearly 2,000 technology and business executives across 10 countries and regions reveals that public confidence in the next-generation mobile communications technology—5G—is remarkably low. For instance, almost none of the respondents believe the industry’s widespread expectation that 5G networks will deliver dramatic speed increases, and more than half do not think the technology will enable them to accomplish many tasks that remain beyond their current capabilities. Furthermore, nearly three-quarters of respondents say they would need help envisioning concrete use cases for 5G.

These circumstances indicate that many business leaders neither understand this technology nor appreciate its disruptive potential. Once fully deployed, 5G will play an exceptionally vital role, transforming mobile technology in ways that far surpass any previous generational upgrade. Its unprecedented speed, massive capacity, and dramatically reduced energy consumption and communication latency—often referred to as “latency”—will enable a wave of innovative products and services, the sheer number of which will be staggering. This, in turn, could generate substantial economic and social benefits.

The antennas used in 5G networks are much smaller, but they will be deployed at a much higher density, with most of them mounted not on towering base stations, but rather on existing buildings, streetlight poles, and other infrastructure. By adopting this kind of clustered—or densified—network architecture, signal transmission will become faster and more reliable, and bandwidth will no longer be measured in megabits per second, but in gigabits. Early tests indicate that 5G networks could achieve speeds up to 100 times faster than today’s mobile technologies.

There is no doubt that the disconnect in corporate leadership’s vision is, to some extent, a legacy of early marketing efforts. Some telecom companies launched “5G” products even before the relevant technical standards had been fully established. Wall Street and other stakeholders have remained skeptical, uncertain about where 5G’s value will come from and who will benefit—issues I will address shortly.

In fact, these remarkable technical features will enable next-generation networks to directly compete with wired broadband, including today’s fastest fiber-optic technologies.

Moreover, this revolutionary 5G technology could enable disruptive applications that both investors and users are eagerly anticipating. Despite these possibilities, the executives of the companies surveyed lack a sense of urgency and awareness—why does such a gap exist?

We believe this is because the most significant impacts of 5G will largely unfold across a wide range of industries and user segments, making its future value both difficult to anticipate and challenging to quantify.

Our forthcoming book, “Pivot to the Future,” argues that, as with artificial intelligence and quantum computing, there is a significant gap between the potential of new technologies and the actual benefits they deliver—and that this gap is widening. Most of the executives we interviewed approach these technologies with the aim of making modest improvements to their current operations, rather than envisioning how they might be used to reshape their industries or, even more ambitiously, to develop solutions for pressing societal challenges such as environmental sustainability, poverty, and healthcare.

This is primarily constrained by conventional business thinking. When innovation disrupts multiple industries or enables applications that serve new consumer segments—including those currently underserved or inadequately served—traditional strategies and planning approaches tend to underestimate their true impact, leading to delayed investments and missed opportunities.

Collectively, these failures translate into foregone gains for offices, industries, consumers, and society—what we term “stranded value.”

To illustrate, 5G networks will serve as a “turbocharger” for the nascent Internet of Things, which will connect everyday devices, enabling them to exchange data with highly localized networks and, via these local networks, securely transmit data across the cloud—data that includes information from both service providers and device manufacturers.

Today, the IoT offerings—ranging from smart doorbells to thermostats—are often quite basic, sometimes even little more than gimmicks. In contrast, a fully connected home delivers numerous benefits, especially for the baby-boom generation, whose members are growing older and prefer to stay at home as much as possible.

With the support of sensor monitoring and smart devices, the proportion of elderly individuals choosing to age in place will increase significantly, and the duration of such arrangements will also extend. Accordingly, connected robots, 3D‑printed prosthetics, and telemedicine services will all become integral components of future homes. To ensure these technologies function effectively, truly intelligent homes will require 5G’s capacity, reliability, energy efficiency, and low latency—while concerns about the collection and use of user data continue to grow, we will also need more robust solutions.

Practical 5G use cases are expected to unlock substantial “stranded value” for sharing, including potential reductions in healthcare costs, improved quality of life, and more diverse, inclusive communities. However, because the industries affected by these applications—and the users who stand to benefit most—are so fragmented, virtually no company today can yet perceive this widening value gap, not even network operators.

Let’s consider another example: think about the far-reaching implications of smart vehicles, connected roads, and other infrastructure. In 2017, a study by Accenture Strategy estimated that smart-city applications enabled by 5G networks could create 3 million jobs in the United States over the next seven years and contribute $500 billion to U.S. GDP—by unlocking previously untapped value, such as the productivity lost today due to time spent commuting, and by reducing pollution through more efficient “platooning” of vehicles.

Although these benefits are substantial, they are difficult to quantify using conventional strategic approaches. Even more challenging is translating one of the most ambitious expectations for intelligent transportation—namely, a dramatic reduction in traffic‑related fatalities and injuries—into tangible outcomes. In the United States alone, a mere 10% decline in traffic‑related deaths would equate to saving 4,000 lives each year. While we still have a long way to go before autonomous driving technologies achieve widespread adoption, such transformative changes could ripple across every aspect of the system—from insurance to vehicle design—unlocking immeasurable latent value.

Beyond smart homes and smart cities, the speed, capacity, and reliability of 5G networks will revolutionize innovation across industries. For instance, by leveraging ground‑based connected sensors, drones that monitor farmland from above, and integrated weather‑tracking technologies, agriculture can boost efficiency in a sustainable manner. Mobile entertainment will also benefit from 5G’s blazing speeds—particularly in reducing latency, delivering higher‑quality video, and enabling new interactive experiences such as augmented reality and virtual reality.

Predictions about the potential of 5G networks abound. Yet, as with many technologies, numerous questions remain—about when, how, where, and by whom—something our survey clearly demonstrates. Full-scale 5G deployment may still take five years, or even longer, depending on how regulators and local governments respond to the opportunities and challenges that arise simultaneously. The 5G applications we’ve discussed will likely materialize sooner or later, accompanied by a host of developments that today remain unforeseen.

However, if incumbent companies fail to accelerate their preparations for 5G, the resulting market vacuum will inevitably attract new entrants and startups, triggering sudden disruption—disrupting established industries such as entertainment (e.g., iTunes and Netflix), transportation (e.g., Uber and Lyft), and manufacturing (e.g., 3D printing), among others.

Therefore, we recommend proactively and systematically planning for and investing in 5G today. It makes little sense for companies in affected industries—and, more broadly, for all offices—to engage in a race to the bottom over any particular technology or application. At the same time, the traditional “fast follower” approach of waiting until the new markets enabled by 5G have already emerged before entering them will no longer be viable.

This is because, although disruptors rise slowly at first, once they gain momentum, the race for profits can often be over in an instant. If you haven’t even warmed up and taken your place at the starting line, your chances of winning are virtually zero.

Moreover, many new applications enabled by 5G will be nurtured by interconnected ecosystems that transcend traditional supply chains and industry boundaries. To capture even a fraction of the value that 5G ultimately unlocks, it is essential to act early and maintain sustained engagement—potentially through industry‑wide consortia that distribute corporate venture capital risks more evenly. It is time to begin identifying partners and piloting novel collaboration and co‑investment models.

Everyone needs to continuously improve our current business while closely and consistently monitoring the evolution of the 5G market. As unknown challenges are gradually brought to light, this is the only way to prepare for launching new products and scaling rapidly.

Behind the sky-high-priced apples, they raked in a fortune.

Are rising fruit prices driven by the wild swings in futures markets for apples and other agricultural commodities?

Recently, a report by CCTV Finance revealed one of the reasons behind the recent surge in apple prices: some distributors are driving up prices through futures trading. The program “Economic Half Hour” pointed out that certain large-scale apple traders operate across two arenas: they buy apples at low prices and store them without selling, then speculate on futures contracts to turn a profit—while simultaneously pushing up the spot price of the apples they hold. In effect, they engage in financial speculation on one hand and hoard supplies to manipulate prices on the other. So far this year, apple prices have risen by more than 100% compared with the same period last year.

Apple futures contracts were launched on December 20, 2017, at the Zhengzhou Commodity Exchange, becoming the world’s first listed fresh‑fruit futures product. As China is a major apple producer with a long history of cultivation—accounting for nearly half of global output—it holds significant pricing power. Apple futures prices have surged since last year; from April 2018 onward, they rose by more than 40% in less than a month and a half. Under the trading rules, one contract represents ten metric tons, with a quoted price of RMB 105,000. With a margin requirement of 10%, an investor can enter a position by posting just RMB 10,500. In essence, with a margin of RMB 10,500, investors can control a futures contract worth RMB 105,000. If the futures price climbs to RMB 14,500 per ton—equating to a total contract value of RMB 145,000—an investor could realize a profit of RMB 40,000, effectively earning four times their initial investment.

The performance of the apple futures market has triggered a substantial influx of capital, further fueling price increases in the spot market. In response, CCTV commented: “The original intention behind launching apple futures was to leverage financial instruments to ensure high‑quality apples fetch fair prices, boost farmers’ incomes, and advance targeted poverty alleviation. Yet today, what should be a wholesome commodity has been turned into a tool for speculative trading. We look forward to the collective wisdom of apple producers, marketers, and futures‑market regulators, and we hope for a stable and healthy agricultural‑commodity market.”

Should futures trading be held responsible for the sharp surge in apple prices? Production cuts have been the primary driver behind this round of apple futures price movements. Over the past year, unprecedented frost events—occurring only once every 50 years—in Shaanxi, Ningxia, Shanxi, and other regions have damaged fruit trees, leading to a substantial decline in apple output.

Some futures investors have defended apple futures, noting that a key function of futures contracts is price discovery. The price information provided by apple futures enables numerous industrial enterprises to better plan their production and operations while hedging against the risks of price volatility.

An investor told the Jinling Evening News: “No official figures have yet been released on exactly how much Apple production has been cut or what impact this will have on the broader market—rumors are merely circulating within industry circles. Combined with panic and speculative hype, this has driven an unusual surge in the futures market.” Furthermore, some analysts point out: “Apple futures are still in their infancy, and it will be difficult for them to effectively serve the real economy in the short term. For now, they are mainly providing opportunities for investors who have a deeper understanding of the deliverable grades to turn a profit. If Apple futures continue to face significant delivery bottlenecks, they will lose their ability to support the real economy, leaving behind nothing but empty promises after the initial frenzy—and failing to deliver any meaningful benefits for industrial upgrading or increased incomes among farmers.”

In the past, Chinese financial regulators intervened on multiple occasions to overhaul the futures market. In November 1993, the government issued the “Notice on Resolutely Curbing the Blind Expansion of the Futures Market,” initiating unified regulatory oversight of the fledgling industry. According to the recollections of Zhang Banghui, former chairman of the Zhengzhou Commodity Exchange, from 1993 to 2002, China’s futures market underwent a nine-year phase of comprehensive cleanup and restructuring. Throughout the history of China’s reform and opening-up, no other sector has experienced such an extended, economy-wide period of rectification and consolidation. Zhang Banghui noted that between 1993 and 1998, several high‑profile risk events involving commodities such as palm oil, rubber, and adzuki beans still surfaced, underscoring lingering shortcomings in regulatory expertise and persistent market irregularities. To foster the market’s sound development, the state launched another round of intensive reforms and reorganization of the futures sector in 1998.

To mitigate market risks associated with apple futures, the Zhengzhou Commodity Exchange has already implemented measures to raise trading thresholds. On June 4, the exchange announced that, effective June 6, 2019, the intraday closing‑position transaction fee for the apple futures contract 1910 will be adjusted to RMB 7 per contract.

Taxation TAXATATION

Reducing the tax burden on taxpayers! The documentation for “six taxes and one fee” preferential measures will be managed through a record‑keeping and filing system.

Announcement on the Retention of Supporting Documentation for Preferential Measures Related to the Urban Land Use Tax and Other “Six Taxes and One Fee” Items

State Taxation Administration Announcement No. 21 of 2019

In order to implement the decisions and arrangements of the CPC Central Committee and the State Council on optimizing tax enforcement, deepening the “delegation, regulation, and service” reform, and improving the business environment, and to effectively reduce the burden on taxpayers and payers (hereinafter collectively referred to as “taxpayers”), the State Taxation Administration has decided to adopt a record‑keeping and filing management approach for documentation related to preferential treatment under the Urban Land Use Tax, Property Tax, Cultivated Land Occupation Tax, Vehicle and Vessel Tax, Stamp Tax, Urban Maintenance and Construction Tax, and the Education Surcharge (hereinafter referred to as the “six taxes and one fee”). The relevant matters are hereby announced as follows:

I. Taxpayers may avail themselves of the “six taxes and one fee” preferential policies under a streamlined procedure characterized by self-assessment, declaration for entitlement, and retention of relevant documentation for record‑keeping purposes. No additional submission of supporting documents to the tax authorities is required at the time of filing. Taxpayers shall independently determine, in accordance with the applicable policy provisions, whether they meet the eligibility criteria. If eligible, taxpayers shall declare their intention to claim the tax benefits and retain the relevant documentation for inspection upon request.

II. Taxpayers shall bear legal responsibility for the authenticity and legality of the supporting documentation retained for record‑keeping purposes in connection with the “six taxes and one fee” preferential measures.

III. Tax authorities at all levels shall, in accordance with the provisions of national tax laws, regulations, rules, and normative documents, carry out follow-up administration of tax reductions and exemptions for the “six taxes and one fee.” Where a taxpayer is not entitled to such reductions or exemptions, the amounts already granted shall be recovered in accordance with the law, and appropriate measures shall be taken.

IV. The above provisions shall not apply to tax relief or exemptions for urban land use tax and property tax; such matters shall continue to be handled in accordance with the existing regulations.

V. This Announcement shall take effect from the date of its issuance. Articles 22 and 23 of the “Administrative Measures for Stamp Tax (Trial)” (issued by State Taxation Administration Announcement No. 77 of 2016, as amended by State Taxation Administration Announcement No. 31 of 2018), Articles 41, 42, and 43 of the “Administrative Measures for Cultivated Land Occupation Tax (Trial)” (issued by State Taxation Administration Announcement No. 2 of 2016, as amended by State Taxation Administration Announcement No. 31 of 2018), and Paragraph 3 of Article 23 of the “Administrative Measures for Vehicle and Vessel Tax (Trial)” (issued by State Taxation Administration Announcement No. 83 of 2015, as amended by State Taxation Administration Announcement No. 31 of 2018) are hereby repealed accordingly.

This is hereby announced.

State Taxation Administration

May 28, 2019

Interpretation of the “Announcement of the State Taxation Administration on Retaining Records for Verification Regarding Preferential Measures for the Urban Land Use Tax and Other ‘Six Taxes and One Fee’”

I. Background for the Issuance of the Announcement

To implement the decisions and arrangements of the CPC Central Committee and the State Council on optimizing tax enforcement, deepening the “delegation, regulation, and service” reform, and improving the business environment, and to effectively reduce the burden on taxpayers and payers (hereinafter collectively referred to as “taxpayers”), the State Taxation Administration has decided to refine the management of tax preferential measures, further streamline the supporting documentation required for filing, and adopt a record‑keeping and verification‑on‑demand approach for preferential treatments under the “six taxes and one fee,” including the urban land use tax. Accordingly, taxpayers will no longer be required to submit relevant documentation to the tax authorities when filing.

II. Main Contents of the Announcement and Relevant Considerations

(1) Tax incentive measures for which documentation is retained for record‑keeping purposes.

The preferential measures subject to record‑keeping and inspection in this round include the urban land use tax, property tax, farmland occupation tax, vehicle and vessel tax, stamp tax, urban maintenance and construction tax, and the education surcharge—collectively referred to as the “six taxes and one fee”—with the exception of tax reductions or exemptions for urban land use tax and property tax granted on grounds of hardship.

(II) Methods for Taxpayers to Declare and Enjoy Tax Preferences and Related Legal Liabilities

To thoroughly implement the requirements of the “delegation, regulation, and service” reform and streamline the application process, the Announcement clarifies that taxpayers may avail themselves of preferential treatments under the Urban Land Use Tax, Property Tax, Cultivated Land Occupation Tax, Vehicle and Vessel Tax, Stamp Tax, Urban Maintenance and Construction Tax, and Education Surcharge by means of “self-assessment, declaration for enjoyment, and retention of relevant documentation for record‑keeping.” Taxpayers shall bear legal responsibility for the authenticity and legality of the supporting documents retained for inspection.

(III) Subsequent Management Measures

Following the implementation of the aforementioned preferential measures under a record‑keeping and filing‑for‑inspection management approach, tax authorities at all levels shall carry out follow‑up administration of tax reductions and exemptions in accordance with relevant national tax laws, regulations, rules, and normative documents, including risk management and tax inspections. Where taxpayers are found not to be entitled to such reductions or exemptions, the amounts already granted shall be recovered in accordance with the law, and appropriate actions shall be taken.

III. Effective Date

To ensure that taxpayers can promptly benefit from tax‑filing conveniences and reduce their administrative burden, this Announcement shall take effect as of the date of its issuance.

Opinions on Strengthening Tax Culture Construction in the New Era

State Taxation Administration

Opinions on Strengthening Tax Culture Construction in the New Era

Tax Administration General Notice [2019] No. 66

To the tax bureaus of all provinces, autonomous regions, municipalities directly under the central government, and cities separately listed in the national plan; to the Commissioner’s Offices of the State Taxation Administration stationed in various localities; and to all units within the Administration:

Tax culture is an integral part of socialist culture with Chinese characteristics; it serves as the carrier of the Chinese tax spirit and embodies the core values and contemporary aspirations of the vast majority of tax officials. In order to earnestly implement the decisions and arrangements of the CPC Central Committee and the State Council on the development of socialist culture, to fully leverage the mission and functions of tax culture—upholding the banner, rallying the people, cultivating new generations, revitalizing culture, and enhancing the image—and to strengthen confidence in tax culture, enhance its soft power, and promote its prosperity and flourishing, these Guidelines are hereby formulated.

I. Guiding Principles and Working Guidelines

Strengthen the development of tax‑related culture in the new era, guided by Marxism–Leninism, Mao Zedong Thought, Deng Xiaoping Theory, the Important Thought of Three Represents, the Scientific Outlook on Development, and Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era. Enhance the “Four Consciousnesses,” officely uphold the “Four Confidences,” and ensure the “Two Upholds.” Actively cultivate and practice the core socialist values, promote China’s fine traditional culture, embody the spirit of Chinese taxation, reinforce professional ethics within the tax system, and deepen the building of spiritual civilization in the tax sector, thereby providing a solid ideological foundation, robust spiritual support, moral nourishment, and cultural assurance for advancing high‑quality modernization of taxation in the new era.

Strengthening tax‑related cultural development in the new era requires upholding the Party’s leadership over publicity, ideological work, and cultural endeavors; consistently using Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era to arm tax officials and employees; recognizing that cultural confidence is a more fundamental, broader, and deeper form of confidence, as well as a more essential, profound, and enduring source of strength; and persisting in unifying thinking and rallying collective strength to cultivate a loyal and responsible tax‑service force capable of advancing the great mission of high‑quality tax modernization.

II. Main Content

(1) Strengthen Political and Cultural Development

1. Strengthen ideological work. Uphold the Party’s leadership, management, and discourse authority over ideological work. Implement the responsibility system for ideological work, reinforce the building and management of ideological frontlines, ensure the correct orientation of public opinion, and officely oppose and resist all erroneous viewpoints. Intensify theoretical education to ensure that Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era takes root in the minds and hearts of all. Enhance education in ideals and convictions, conduct “master switch” education on worldviews, outlooks on life, and values among Party members and cadres, guide them to keep the Party’s fundamental purpose officely in mind, strengthen their faith in Marxism, unite as one, and uphold the spiritual backbone of Communists.

2. Foster a sound political environment. Uphold the Party Constitution, strictly enforce the Several Guidelines on Intra-Party Political Life under New Conditions, strengthen Party spirit cultivation, and cultivate a clean and upright political climate. Safeguard the spiritual home of Communists, promote values such as loyalty and honesty, fairness and impartiality, seeking truth from facts, and integrity and incorruptibility, and conduct education and training on identity awareness for Party members, civil servants, tax officials, and other groups. Resolutely prevent and oppose factionalism, “circle” culture, and “dock” culture, using a healthy political culture to nurture and sustain a sound political ecosystem.

3. Promote revolutionary culture. Vigorously study and carry forward the Red Boat Spirit, the Jinggangshan Spirit, the Long March Spirit, the Yan’an Spirit, the Spirit of the War of Resistance Against Japanese Aggression, the Xibaipo Spirit, and other revolutionary spirits. Give full play to the role of revolutionary cultural resources and red education bases, making effective use of red resources, upholding red traditions, and passing on the red gene. On July 1st (the Party’s Founding Day), August 1st (the PLA Day), October 1st (National Day), and other significant revolutionary anniversaries, organize visits to revolutionary memorial halls, patriotic education bases, and sites commemorating revolutionary martyrs, thereby strengthening education in patriotism, collectivism, and socialism.

(II) Inheriting and Promoting China’s Fine Traditional Culture

4. Promote the Chinese humanistic spirit. Uphold the standpoint of Chinese culture, deeply explore the ideas, humanistic values, and moral principles embedded in China’s fine traditional culture, earnestly inherit and innovate, and integrate these elements into all aspects and throughout the entire process of ideological and moral education and tax‑related cultural development. Vigorously promote the core values of benevolence, people‑centrism, integrity, justice, harmony, and the pursuit of common prosperity; vigorously advance traditional Chinese virtues such as self‑improvement, dedication to one’s work and social harmony, helping those in distress, acting with courage in the face of injustice, and filial piety and love for family; and cultivate both the national spirit and the spirit of our times. Organize culture‑wide reading initiatives and “Book‑Scented Taxation” activities, and employ artistic forms such as Chinese opera, folk music, calligraphy, and traditional painting to enhance tax officials’ sense of cultural participation, fulfillment, and identity.

5. Attach great importance to building civilized families. Emphasize the family, family education, and family traditions, and, under the theme “Harmony in the family brings prosperity in all endeavors,” widely carry out activities to pass down family precepts, establish family rules, and promote positive family values. Study and inherit China’s time-honored family precepts and rules; compile and distill the family precepts and rules of tax‑administration officials’ households; and, through relatable everyday scenarios, routine activities, and tangible platforms, cultivate sound official conduct and professional ethics by fostering a wholesome family ethos. Encourage participation in national initiatives to recognize model civilized families and five‑good civilized families, promote family virtues, and help foster a new trend of socialist family civility characterized by patriotism, love of home, mutual affection, striving for excellence, and joint creation and shared benefits.

6. Promote the culture of traditional festivals. Fully leverage the ideological and cultural educational roles of China’s traditional festivals, focusing on occasions such as the Spring Festival, Lantern Festival, Qingming Festival, Dragon Boat Festival, Mid-Autumn Festival, and Double Ninth Festival. Thoughtfully organize visits, condolences, and commemorative activities to foster new festive customs. Deepen the “Our Festivals” initiative by hosting events such as recitations of classical texts, performances of traditional rituals, traditional sports, and exhibitions of folk culture, thereby cultivating a sense of familial and national devotion as well as humanistic values. Cultivate civilized festival practices through initiatives like “civilized dining,” “civilized transportation,” “civilized travel,” and poverty alleviation and assistance programs, promoting virtues of moral integrity and kindness, frugality and thrift, and courtesy and tolerance, thus enriching the cultural substance of our festivals.

(3) Upholding the Chinese Tax Spirit

7. Building a shared spiritual home. Upholding the Chinese tax spirit of “Loyalty and Responsibility, Upholding the Law and Observing Discipline, Strengthening Taxation to Revitalize the Nation,” we will employ exchanges, seminars, artistic creations, and other approaches to thoroughly elucidate its historical origins, evolutionary trajectory, and core values, thereby boosting the morale and professional ethos of tax officials. We will promote comprehensive, multi‑dimensional publicity and education on the Chinese tax spirit, ensuring it is disseminated across online platforms, physical spaces, and desktops, so that it takes root in minds and hearts, becoming a code of conduct and a cherished value that tax officials consciously uphold and practice, and that garners widespread recognition and acclaim from all sectors of society. In conjunction with local cultural characteristics, we will further refine cultural principles governing work and learning, tax enforcement, taxpayer services, performance management, and digital human resources, thereby enriching the substance and depth of the Chinese tax spirit.

8. Organize activities to promote the tax‑related spirit. Launch themed essay contests, cultural and artistic exhibitions, speech and debate events, and host the Tax Lecture Series. Establish dedicated columns on the Chinese tax spirit in tax‑related newspapers, magazines, and both internal and external websites. Widely promote the “Song of China’s Taxation,” encouraging tax officials to share their insights, exchange experiences, and showcase their professional ethos. Employ popular formats such as animation and short films to engage tax personnel and motivate them to actively participate and disseminate these values. Safeguard and foster the diversity of tax‑related cultural expressions; advance the renewal of organizational culture; encourage innovative cultural initiatives; cultivate regionally distinctive cultural identities; and champion locally rooted cultural characteristics, striving to create a vibrant cultural landscape that is unified yet diverse, with a flourishing array of creative expressions.

9. Conduct tax‑history research and education. Implement the Chinese Tax History Research Project, compile tax histories that illuminate the tax‑related heritage of the Chinese nation, and ensure the timely publication of the China Tax Yearbook to document the evolution of taxation in contemporary China. Undertake the collection and organization of tax‑historical materials, carry out comprehensive surveys and registries, and engage in their preservation and public display. Establish tax‑history exhibition halls and tax‑culture museums to pass down and promote both the material and intangible cultural legacies of the tax administration. Integrate tax‑history education into all stages of training for tax officials, fostering a stronger sense of responsibility, mission, and pride in their work.

(4) Deepen the development of tax-related spiritual civilization.

10. Deepen mass‑based initiatives to promote spiritual civilization. Elevate the standards of national model units within the tax system, launch activities that reflect the unique cultural ethos, professional conduct, and job‑specific characteristics of the tax sector, and convene forums to share best practices in building model units. By increasing both the number and quality of such units, we will continuously raise the overall level of civility in the tax industry. Actively participate in various selection and recognition programs organized at the central and local levels, with a particular focus on service‑oriented units to promote initiatives such as “Workers’ Vanguard” titles, “Youth Civilization” designations, and “Women’s Civilized Posts.” Ensure the delivery of courteous, high‑quality, and convenient services, and strive to cultivate a positive public image for the tax administration.

11. Promote civic moral development. Deeply implement the Civic Morality Development Project, mobilizing grassroots tax officials to actively nominate and recognize role models of morality, exemplars of our times, good people around us, and outstanding workers, among other distinguished individuals. Proactively identify and highlight acts of kindness and exemplary conduct in daily life, commend virtuous deeds and righteous actions, and foster a strong culture of respecting virtue, striving for goodness, and emulating the worthy. Organize on-site exchange events under the “Good Chinese Tax Official” initiative, encourage tax officials to widely participate in the “I Recommend, I Evaluate Good People Around Me” campaign, and establish moral benchmarks. Show care and concern for moral role models, improve mechanisms for recognizing and honoring them, and reinforce a clear orientation that good people are rewarded and those with virtue reap benefits.

12. Cultivate and promote exemplary role models. Establish a database of achievements, honors, and awards within the tax system, and, in conjunction with key tasks and major reforms, actively identify and recognize outstanding individuals and teams. Organize learning and publicity initiatives to vividly showcase their touching stories and noble spirit. Uphold and strengthen mainstream ideological discourse by leveraging diverse formats—such as news reports, grassroots outreach lectures, touring “storytelling” performances, exhibitions of exemplary deeds, and film, television, and animation—to champion the prevailing narrative, spread positive energy, and inspire tax officials to pursue innovation and dedication with renewed vigor.

13. Promote volunteer service in the spirit of Lei Feng. Uphold the spirit of Lei Feng, integrate Lei Feng–inspired volunteerism into tax‑related initiatives for fostering spiritual and cultural civility, and work to institutionalize and normalize volunteer activities, thereby embodying the volunteer ethos of “dedication, friendship, mutual assistance, and progress.” Widely identify, recognize, and publicize model units and exemplary individuals within the tax system who exemplify the spirit of Lei Feng. Strengthen the ranks of tax‑sector volunteers, support mass organizations in serving central work priorities, and organize volunteer programs targeting employees, youth, women, and other groups. Centered on projects such as targeted poverty alleviation, tax law publicity, environmental protection, promoting positive social change, and community service, develop a nationally recognized brand of tax‑related volunteerism.

(5) Strengthen the development of tax professional ethics.

14. Building a culture of the rule of law. Cultivating constitutional awareness and upholding constitutional principles, we will promote the spirit of the Constitution and require tax officials upon appointment and leading cadres upon assuming office to take a constitutional oath. We will advance tax administration in accordance with the law, conduct extensive public education on tax laws and regulations, organize competitions on tax‑related legal knowledge, strengthen publicity about tax enforcement, and foster respect for, study of, compliance with, and application of the law. We will ensure strict, standardized, impartial, and civilized law enforcement; introduce policies to encourage tax officials to obtain lawyer qualifications; effectively implement the public‑lawyer system within the tax administration; and publish a reader for cadres featuring judicial cases involving tax matters.

15. Deepen integrity‑based culture. Widely organize educational activities centered on tax‑related integrity, strengthen the construction, management, and utilization of integrity‑education bases, and innovate “digital integrity‑education platforms,” ensuring that tax‑related integrity culture reaches government agencies, grassroots units, families, and online spaces. Tap into the integrity‑related resources embedded in local historical figures and cultural heritage, and, by officely establishing a robust ideological and moral defense against corruption, ensure that the principles of tax‑related integrity are deeply ingrained in the public consciousness.

16. Promote a culture of service. Issue tax‑related codes of civility and etiquette, with particular emphasis on standardizing courteous conduct at taxpayer service halls and other front‑line service venues, thereby encouraging civility, public-spiritedness, adherence to order, and the cultivation of positive social norms. Widely disseminate and implement codes of civility and etiquette in areas such as work and daily life, social interactions, interpersonal relationships, and public spaces. Focus on strengthening training in service etiquette, professional conduct, reception protocols, telephone etiquette, and social etiquette for tax officials, guiding them to consciously observe public‑order rules and foster harmonious, respectful interpersonal relationships.

17. Prioritize health and well-being. Implement the requirements of the “Healthy China 2030” Plan and the National Fitness Program, promote public health and health‑science literacy, and strive to enhance the overall health of tax officials. Pay close attention to physical health by conducting regular health check-ups, strictly adhering to leave policies, and organizing staff sports events to strengthen employees’ physical fitness. Show care and concern for mental health by providing humane support and psychological counseling, and offering services such as health education, psychological assessments, training, and advisory guidance, thereby fostering a tax administration that is responsible, transparent, and conducive to employee well‑being.

(6) Promoting the Prosperity and Development of Tax-related Arts and Culture

18. Establish a platform for tax‑related literary and artistic creation. Form tax‑specific literature and arts interest groups or teams, organize a wide range of mass cultural activities, and effectively carry out study and discussion, immersive engagement with real life, artistic creation, exhibition of achievements, and talent development, thereby fostering the flourishing of tax‑related arts and culture. Build centralized platforms for the creation and presentation of tax‑related works; set up dedicated columns on tax‑related themes in tax‑focused newspapers and magazines as well as on internal and external tax websites; and collaborate with literary and art federations at all levels to publish outstanding works that reflect tax‑administration efforts in literary journals, thus inspiring tax officials’ enthusiasm for artistic and literary creation.

19. Enrich the content of tax‑related literary and artistic works. Upholding a people‑centered approach, we will draw themes, inspiration, and creative nourishment from grassroots tax practices and from tax officials at the community level, producing a number of outstanding tax‑themed literary and artistic pieces. We will plan special projects focusing on major historical and contemporary tax‑related subjects, and strengthen support for the creation of novels, poems, music, films, television programs, and traditional operas that promote the cause of taxation, thereby telling compelling stories about China’s tax system. We will also produce and promote high‑quality documentaries, animated works, and short films with tax‑culture themes, design and produce public service advertisements for tax awareness, and launch exemplary works that highlight Party and national pride as well as tax reform.

20. Enhance the quality of tax‑related cultural and artistic creation. Implement a high‑quality tax‑culture project, provide support for the creation and production of outstanding cultural works, and launch more exemplary tax‑culture products that are intellectually profound, artistically superb, and meticulously crafted. Organize training programs for cultural and artistic creators, and carry out tax‑culture‑related creative initiatives and cultural activities. Strengthen international exchanges in tax‑culture development, implement a new‑media dissemination initiative for tax culture, promote the most popular tax‑related literary and artistic works, and bolster the creativity, reach, and influence of tax‑related cultural productions.

(7) Strengthening the Foundations of Tax Culture

21. Standardize the tax authority’s visual identity. Establish a systematic, standardized, and richly meaningful tax‑related visual identity system, clearly defining normative standards that reflect the tax system’s mission, management philosophy, and aesthetic values. Regulate the wearing of Party (or League) emblems by Party members (and League members) when on duty or participating in major events. Standardize tax badges and uniforms, and strengthen discipline and professional conduct among tax officials. By standardizing attire and badge‑wearing, enhance the sense of professional pride within the tax service and project a distinct, authoritative image of tax enforcement.

22. Enhance the infrastructure of tax service facilities. Implement the Management Measures for Tax Service Halls, clearly defining systems for tax services, codes of conduct for staff, standards for counter‑service operations, and guidelines for creating a conducive tax‑filing environment, thereby establishing tax service venues that deliver high‑quality service, efficient processing, taxpayer satisfaction, and broad social recognition. These venues should feature clear signage, comprehensive functionality, an aesthetically pleasing and well‑maintained setting, and robust security measures, while providing thorough, standardized, convenient, and cost‑effective services that fully embody human‑centered management and a commitment to integrity. Standardize and unify the formats of tax documents, forms, licenses, and other tax‑related materials to ensure they are simple yet practical.

23. Strengthen cultural development in office spaces. Standardize the names, logos, and symbolic emblems of tax authorities, adhering to the principles of tailoring approaches to local conditions, practicing cost‑effective construction, and leveraging culture as a guiding force. Utilize areas such as offices, meeting rooms, and corridors to display tax‑related signage, the spirit of Chinese taxation, tax‑culture concepts, and works of tax‑culture art, thereby actively cultivating a distinctive cultural environment. Leverage information technology—through electronic display screens, computer screen savers, personalized “one person, one motto” plaques, and internal and external websites—to promote content related to tax‑culture development, ensuring that employees are immersed in and continuously reinforced by tax‑culture values, thus fostering a vibrant tax‑culture atmosphere.

24. Enhance the development of tax‑related cultural facilities. In response to the spiritual and cultural needs of tax officials, we will improve and expand cultural amenities such as libraries, gyms, cultural exhibition halls, and memorial halls dedicated to integrity and tax history, thereby establishing a central hub for tax‑related culture. We will also optimize, beautify, and green our workplaces and living environments, equip them with public fitness equipment and sports facilities, and cultivate a vibrant, health‑focused campus culture. Furthermore, we will extend free access to these cultural facilities to the families and children of tax officials, ensuring their effective utilization. Finally, we will accelerate the development of digital culture by implementing a project to enhance online content, strengthen positive publicity on the internet, and foster a constructive, healthy, and clean cyberspace.

III. Strengthening Organizational Leadership

Tax authorities at all levels must attach great importance to the development of tax‑related culture in the new era and take effective measures to advance it in a solid and systematic manner. Strengthen organizational leadership by placing tax‑culture building high on the agenda, integrating it into the overall planning of tax administration, and establishing a new framework characterized by unified Party committee leadership, clearly defined responsibilities for each accountable department, coordinated efforts by mass organizations, and the active participation of all tax officials. Enhance financial support by including funding for tax‑culture initiatives in the annual budget, thereby providing the necessary resources to drive this endeavor. Intensify publicity and education efforts to fully mobilize the enthusiasm and creativity of tax officials and employees, foster cultural awareness, and cultivate a positive atmosphere that promotes progress, moral integrity, and a spirit of dedication to work and innovation.

State Taxation Administration

May 23, 2019

Duanwu Festival–themed enterprises are invited to share their fresh impressions of tax and fee reductions.

Placing mugwort and calamus, eating newly harvested zongzi, racing dragon boats, wearing fragrant sachets… As the Dragon Boat Festival returns, people celebrate this millennia‑old tradition with time‑honored customs, basking in a serene and peaceful festive atmosphere. This year, riding on the momentum of tax‑cut and fee‑reduction policies, businesses tied to Dragon Boat Festival folkways have capitalized on these fiscal incentives—this generous holiday gift—injecting fresh impetus into their efforts to preserve heritage, innovate, and transform and upgrade.

Race to the Sea: An Innovative Vessel Sailing Overseas

Hangzhou Qiandao Lake Peisheng Boats Co., Ltd. is a specialized manufacturer dedicated to the design and production of yachts, dragon boats, and water-sports equipment. The company’s chairman, Zhu Peiwen, is a native of Qiandao Lake in Hangzhou. In 2005, he returned to his hometown to start his own business. After more than a decade of relentless effort, Peisheng Boats has become an industry leader, with its products sold in over 30 countries and regions across North America, Europe, Asia, and Oceania. These days, thousands of miles away in Sydney, Australia, the annual Sydney Dragon Boat Race is underway—featuring classic Chinese‑style dragon boats manufactured by Peisheng Boats Co., Ltd.

Speaking about the company’s outlook, Zhu Peiwen expressed full confidence: “Since the beginning of this year, the state has steadily increased its support for traditional manufacturing. Starting in April, the VAT rate for the manufacturing sector was reduced from 16% to 13%, a cut of three percentage points—truly tangible relief. The company expects to pay RMB 800,000 less in taxes. This also represents a significant boost for exports, enhancing our product competitiveness, and we project that this year’s export sales will exceed RMB 10 million. Riding on the momentum of these tax and fee reductions, we will continue to ramp up investment in R&D, drive growth through product innovation, and accelerate the industrialization of dragon boat manufacturing, paving the way for the company to pursue high‑tech, sustainable development.”

Since the beginning of this year, a series of tax and fee reduction policies—particularly the deepening reform of the value-added tax—have come as a much‑needed boon to the manufacturing sector, which is at a critical juncture of transformation, upgrading, and innovative development. These measures will directly boost corporate profitability and provide ample room for offices to pursue technological innovation and expand their market reach.

Heritage: An Intangible Cultural Heritage Calling Card That Fragrances Across the Seas

Zhang Tongtai Pharmaceutical was founded in 1805. It is not only a “Time-Honored Brand of China” recognized by the Ministry of Commerce, but also a renowned medicinal‑herb enterprise listed on Zhejiang Province’s Intangible Cultural Heritage Register. The company’s “Authentic Herbal Medicine Culture” has become a celebrated hallmark throughout Zhejiang and across the nation, while its fully preserved historic building complex in downtown Hangzhou has become a must‑visit “check‑in” spot for tourists. As the Dragon Boat Festival approaches, Zhang Tongtai’s themed sachets—ranging from traditional Dragon Boat Festival pouches to mosquito‑repellent and flu‑preventive varieties—have won widespread acclaim from both locals and visitors.

In early June, the tax‑reduction and fee‑cutting expert team of the Xiacheng District Tax Bureau in Hangzhou visited Zhangtongtai Pharmaceutical to gain an in-depth understanding of the production and operations of its signature Duanwu Festival products. The team tailored precise policy‑promotion and advisory services, highlighting applicable tax‑reduction and fee‑cutting measures and addressing key tax‑related issues, thereby providing policy guidance and practical recommendations to support the inheritance and sustainable development of this time-honored enterprise. According to estimates, the tax‑reduction and fee‑cutting policies implemented since the beginning of the year will save this century-old pharmaceutical company approximately RMB 150,000 in taxes and fees. The hands‑on guidance provided by tax officials has left a lasting impression on the company’s finance staff. “The tax experts’ meticulous and comprehensive explanations have been immensely beneficial,” said Zhu Jingbo, Zhangtongtai’s financial manager. “We plan to channel the benefits of these new tax‑reduction measures into public‑welfare initiatives and the training of inheritors of intangible cultural heritage, fostering greater synergy between traditional Chinese medicine and creative design, and further promoting the company’s long-term, stable growth.”

Takeoff: The Mom’s Flavor That’s All the Rage in the City

When it comes to eating zongzi during the Dragon Boat Festival, are you on the “savory” team or the “sweet” team? At Qiu Lian’s mother’s shop by the shores of Qiandao Lake in Hangzhou and at Zhou Ping’s zongzi stall at the foot of Gulou, long lines of customers have already cast their votes with their feet.

“Mom Qiu Lian’s meat zongzi is my absolute favorite,” the young man at the back of the line told us, proudly touting the shop’s signature dish. “They come in a variety of flavors—some are stuffed with high‑altitude chestnuts, others with salted egg yolks. Of course, they’re made with local pork, wrapped in wild bamboo leaves, and cooked over a traditional earthen stove—entirely handmade, just like the ones Mom used to make herself.”

Qiu Lian Mama is part of Hangzhou Qiudianhu Qiu Lian Catering Management Co., Ltd. Established less than two years ago, it is a small eatery specializing in rural‑style delicacies such as zongzi and rice cakes. In 2018 and 2019, Qiu Lian Mama successively opened locations in Fuyang District of Hangzhou and the city’s main urban area, bringing the distinctive flavors of Qiandao Lake to the metropolis and winning over more diners with the comforting taste of home.

“Speaking of which, I really have to thank the government for its excellent policies—tax cuts, fee reductions, and a host of tax incentives; there are so many that I can hardly keep them all straight. Just a few years ago, I was paying several thousand yuan in taxes every quarter. Now, the threshold for small-scale taxpayers has been raised from 30,000 yuan to 100,000 yuan per quarter—so even if I sell ten thousand zongzi, I still don’t have to pay a dime in taxes. With all that money saved, I’ve got more capital to open additional branches, and it really gives me extra energy to get to work,” said Mr. Zheng, his face lighting up with a cheerful smile as he spoke about this year’s benefits from tax and fee reductions.

Small and micro enterprises like Qiu Lian’s mother’s business number in the tens of millions, carrying the entrepreneurial dreams of hundreds of millions of families. They are a vital engine of economic growth, the primary channel for employment, and an important source of innovation. The latest round of tax and fee reductions has been steadily intensified, effectively lowering operating costs, boosting corporate profits, and providing strong impetus for the upward trajectory of small and medium-sized enterprises.

Tax and fee cuts inject new momentum, as businesses enjoy a “mini spring” of growth.

Since the beginning of this year, the state has introduced a series of tax and fee reduction measures, providing strong support for business development and injecting new momentum into enterprises. As the benefits of these policies gradually take effect, taxpayers have widely reported that tax and fee cuts have ushered in a new era of growth for their businesses.

Gansu: Tax and Fee Cuts Deliver Tangible Benefits, Boosting Public Confidence in Real Economic Gains

Tax and fee reduction policies are what the people hope for and what the government strives to deliver. The Lanzhou Municipal Tax Service of the State Taxation Administration has united its efforts and aligned its understanding, implementing comprehensive publicity, full‑coverage training, and end‑to‑end guidance to ensure the thorough and accurate implementation of these preferential measures. This has translated tax‑cut benefits into tangible gains, providing small and micro‑enterprise taxpayers in Lanzhou with a concrete sense of reward.

“The new policies have brought new incentives, and these incentives are driving fresh growth for businesses.” When officials from the Chengguan District Tax Bureau visited the company to provide feedback on tax and fee reductions, Yu Xiaowen, the legal representative of Lanzhou Kaiserhaus Property Management Co., Ltd., could hardly contain her delight. “This year, the implementation of a series of national tax and fee reduction measures has provided powerful encouragement and momentum for the innovative development of small and micro enterprises like ours, significantly easing our operational burdens and enabling us to allocate our limited resources more effectively toward business expansion.”

According to Gao Zhengzheng, the company’s financial manager, under the previous 25% corporate income tax rate, the company was required to pay RMB 606,800 in income taxes for the quarter. Under the new tax‑reduction policy, the quarterly tax liability has been reduced to RMB 192,700. This single measure alone has saved the company over RMB 400,000, representing a tax cut of 68%.

Moreover, what impressed Gao Zhengzheng most was the simplicity and ease of implementing this round of universal tax relief measures for small and micro enterprises. Eligible taxpayers can benefit from these policies without undergoing any approval procedures, verification formalities, or submitting supporting documentation—simply by accurately completing their tax returns. This has saved taxpayers considerable time and effort.

Gansu Guangrun Electronic Technology Co., Ltd. is a privately owned enterprise dedicated to the wholesale of electronic products and medical equipment. It ranks among the top performers in the electronics sector within Gansu Province. Since its registration nearly four years ago, the company has experienced rapid growth, making it one of the fastest‑expanding private enterprises in the region.

“In 2019, the criteria for identifying small and low‑profit enterprises were no longer differentiated between industrial and other sectors, and the threshold for annual taxable income was raised to no more than RMB 3 million. In the first quarter of this year, our taxable income stood at RMB 1.387 million; under the previous rules, we would have owed RMB 346,700 in taxes. Thanks to the new tax‑reduction policy, we now owe only RMB 88,700—a reduction of unprecedented magnitude, allowing us to truly benefit from the policy’s advantages,” said Jing Bingli, the company’s legal representative.

The head of the Qilihe District Tax Bureau stated: “In our jurisdiction, more than 95% of private enterprises—such as Gansu Guangrun Electronic Technology Co., Ltd.—are dedicated to improving people’s livelihoods and boosting employment. With the effective implementation of universal tax‑reduction policies, businesses have repeatedly experienced an unprecedented level of tax relief. These substantive tax cuts have given enterprises a stronger sense of gain, and they have all expressed that they have bolstered their internal momentum for development and invigorated market vitality.”

The Heping CNG Station of Gansu Jinhuoyan Industrial Gas Co., Ltd. is a coal-to-syngas production enterprise located within Yuzhong County. He Xiaoyan, the company’s financial director, said: “Before the expansion of the small and micro‑enterprise tax policy, our total assets significantly exceeded the threshold, so we did not qualify for the preferential treatment. Under the previous rules, we would have had to pay taxes amounting to RMB 116,956.64 this quarter. Since the policy was broadened, with our total assets now below RMB 50 million, we are eligible for the small‑and‑micro‑enterprise tax benefits. This has saved us RMB 93,565.31—truly a timely relief that has eased our cash‑flow pressures and ushered in another period of favorable conditions for our business.”

Qingdao: Tax and fee reductions inject new momentum into enterprise development.

Since the beginning of this year, the state has rolled out a series of robust, substantive, and wide-ranging tax‑reduction and fee‑cutting policies and measures. In response, the Qingdao Municipal Tax Service of the State Taxation Administration has focused on the theme of tax and fee reductions, rolling out a “spring breeze” of convenient tax services to ensure the effective implementation of preferential policies.

Qingdao Bailan Group Co., Ltd. is a privately owned enterprise based in Jiaozhou. After 40 years of dedicated effort, it has grown into an international agricultural conglomerate that integrates six key pillars: large-scale agricultural production, deep processing and manufacturing of agricultural products, standardized operations and management, an international service network, and specialized, targeted partnerships. Speaking about the benefits brought by tax incentives, General Manager Guo Lei said, “Tax reductions provide us with the most tangible support—every saving translates directly into real cash, boosting our bottom line. The tax authorities have rigorously implemented all preferential policies, enabling companies with genuine innovation capabilities to gain greater strategic leverage in industry development.” She added that since 2018, Bailan Group has benefited from policies such as the additional deduction for R&D expenses and corporate income tax preferences for high-tech enterprises, resulting in cumulative tax reductions exceeding RMB 1.8 million and export tax rebates totaling over RMB 17 million. These measures have provided robust financial backing for the company’s reinvestment, expanded production, and continued growth.

“Tax and fee reductions have brought substantial benefits to our company. This year, the state has continuously introduced new tax‑related policies, enabling us to operate with a lighter burden. Thanks to this comprehensive ‘tax‑and‑fee relief package,’ we have collectively enjoyed tax incentives totaling RMB 11.58 million, providing strong support for our future growth,” said Jin Lili, Director of Human Resources at Qingdao Dongruan Carrier Technology Co., Ltd., reflecting on the national tax‑and‑fee reduction measures. Founded in 1993, Dongruan Carrier is a private enterprise based in the Shibei District of Qingdao, specializing in integrated circuit design and the R&D of converged communication technologies. The company focuses on two strategic emerging sectors—energy internet and intelligentization—and was named among the “Top 30 Chinese Private Listed Companies for High‑Quality Development” in 2018. Director Jin also noted that in recent years, the company has benefited from increasingly robust tax‑incentive policies: in 2018, it claimed an additional deduction of RMB 4.58 million for R&D expenses; in 2019, it expects to see at least RMB 5 million in VAT reductions, a RMB 1 million cut in social security contributions, and another RMB 1 million in tax savings under the new individual income tax regime, bringing its total tax benefits to RMB 11.58 million. These measures have significantly eased the company’s tax burden while injecting fresh momentum into its market expansion and R&D initiatives, driving high‑quality development.

Tax incentives are delivering tangible benefits, bolstering business confidence. In Qingdao, there are many enterprises—such as Bolan Group and Dongruan Carrier—that are fully reaping the rewards of tax cuts and fee reductions. By rigorously implementing all preferential measures, these policies have given businesses the wings to achieve sound and sustainable growth.

Zhejiang: Tax and fee reductions help businesses embrace development with peace of mind.

With the comprehensive package of tax and fee reductions now fully implemented, the successive reduction in burdens has generated a “additive” effect on corporate profitability and a “multiplicative” effect on market vitality. The Anji County Tax Service Bureau of the State Taxation Administration, grounded in the local economic and social realities, is ensuring that taxpayers receive the full benefits of these tax and fee cuts right down to the “last mile.”

“Our store primarily sells furniture, with monthly sales exceeding 80,000 yuan. Under the policy that exempts VAT and surcharges for monthly sales below 100,000 yuan, we can save more than 30,000 yuan annually. For individual business owners like us, this truly lightens our tax burden,” said Lu Weixin, an individual entrepreneur, visibly pleased after attending a training session on the local tax authorities’ inclusive tax relief measures for small and micro enterprises.

Starting in April this year, the 3-percentage-point reduction in the value-added tax rate has provided long-awaited relief to traditional manufacturing enterprises. Anji Southern Cement Co., Ltd. is one of them. The company primarily produces cement products; in 2018, its sales revenue reached RMB 680 million, making it a major taxpayer in Anji County. “Although VAT is an indirect tax and tax cuts are also applied on a non‑price basis—so they do not directly affect profits—the recent rate reduction will trigger a ripple effect throughout the entire supply chain, including limestone, clay, and other inputs, benefiting us as midstream players,” said Dai Liang, the company’s chief financial officer, who promptly ran the numbers. Assuming last year’s sales levels remain unchanged, the reduced tax rate is expected to cut this year’s VAT liability by RMB 10.4891 million, bringing it down to RMB 44.1359 million compared with last year.

In addition to the reduction in tax burdens, the benefits of tax and fee cuts are a timely lifeline for companies undergoing transformation. “Process upgrades and industrial restructuring are inevitable trends in development. Thanks to these measures, we will have more funds this year to close the gap in R&D investment,” said Fang Junyun, chairman of Zhejiang Jiemei Electronic Technology Co., Ltd., a rapidly growing manufacturer of electronic components. He noted that with growing uncertainties in the global economy, local foreign‑trade offices in Anji are facing severe challenges. The newly introduced policies will particularly benefit the company’s export operations: its specialized electronic paper tape products will see the VAT rate reduced by 3 percentage points, while the export rebate rate remains unchanged, narrowing the difference between the levy and refund rates from 3% to zero. This is expected to cut annual production costs by RMB 10.44 million. Fang Junyun added that the robust support provided by these tax policies gives him considerable reassurance.

The bureau has also established a “task force” dedicated to tax and fee reductions, bringing together a team of experts to jointly review and interpret relevant policies and develop detailed implementation plans, ensuring that issues are resolved promptly without lingering overnight or recurring. For key high-tech enterprises, major R&D projects, companies operating in priority sectors, and critical tax-related matters, the bureau has instituted a designated liaison system, conducting one‑on‑one engagement with each entity to enhance the precision of policy outreach. At the same time, a dedicated hotline has been launched, staffed with specialists to address taxpayers’ inquiries, and a ledger for recording and tracking feedback has been set up, guaranteeing that all tax‑related concerns are duly raised, questions are answered, and matters are handled effectively.

On June 5, the State Council Executive Meeting approved these three major initiatives.

The State Council Executive Meeting on June 5 adopted measures to deepen the drive for mass entrepreneurship and innovation in line with the requirements of the innovation‑driven development strategy; made arrangements to ensure robust agricultural production and an adequate supply of agricultural products, while calling for comprehensive efforts to prevent and mitigate floods and droughts; and approved the draft amendment to the Law of the People’s Republic of China on the Prevention and Control of Environmental Pollution by Solid Waste.

Identify measures to further advance mass entrepreneurship and innovation in line with the requirements of the innovation-driven development strategy.

In accordance with the arrangements of the CPC Central Committee and the State Council, and in order to further implement the innovation-driven development strategy and further stimulate the vitality of market entities, the meeting adopted measures to deepen the “mass entrepreneurship and innovation” initiative.

1. Leverage the vital role of “mass entrepreneurship and innovation” in supporting employment, and create more job opportunities that meet the needs of key groups such as college graduates and retired military personnel. Deepen the “delegation, regulation, and service” reform, promulgate the Regulations on Optimizing the Business Environment, and reduce the costs of starting businesses and innovating.

2. Leverage the unique role of “mass entrepreneurship and innovation” in advancing scientific and technological innovation. Support demonstration bases for “mass entrepreneurship and innovation” to take the lead in piloting initiatives related to research project approval and implementation, intellectual property rights conofficeation, and technology transfer. Accelerate the implementation of the policy that allows a 75% pre‑tax additional deduction for R&D expenses, and explore ways to further strengthen this policy.

3. Support the development of “mass entrepreneurship and innovation” platforms, and promote integrated development among large, medium, and small enterprises. Improve incentive mechanisms such as equity and compensation schemes to foster collaborative innovation across all types of enterprises.

4. Promote the upgrading of “Internet Plus.” Accelerate the development of the industrial internet and expand the application of “Internet Plus” in social sectors such as healthcare, elderly care, and education.

5. Guide financial institutions to lower the effective interest rates and overall financing costs for small and micro enterprises, and raise the tolerance threshold for non‑performing loans among such enterprises from no more than 2 percentage points above the average non‑performing loan ratio for all types of loans to 3 percentage points. Encourage venture capital and private equity offices to increase their support for “mass entrepreneurship and innovation.” Support business incubators and venture capital offices in raising funds through bond issuance.

Deploy efforts to strengthen agricultural production and ensure an adequate supply of agricultural products, while calling for comprehensive measures to prevent and mitigate flooding and drought.

The meeting noted that ensuring robust agricultural production and an ample supply of agricultural products is a crucial foundation for stabilizing prices, anchoring market expectations, and safeguarding people’s livelihoods. It also holds significant importance for addressing the current complex situation, boosting consumption, and maintaining steady economic performance.

1. Ensure the smooth completion of summer grain harvesting and procurement, strengthen summer sowing and field management, and lay a solid foundation for autumn grain production. In response to the severe damage caused this year by pests such as the fall armyworm, implement robust measures to enhance pest and disease control.

2. Strengthen efforts to prevent and control African swine fever and to restore hog production, while encouraging farmers to replenish and expand their herds. Enhance the production of poultry, beef, and mutton, and implement multiple measures to increase meat supplies.

3. Strengthen the production of soybeans and other oilseed crops, ensure the supply of fresh agricultural products such as fruits and vegetables, and keep price levels stable.

The meeting heard a report on the current flood‑control and drought‑relief efforts and emphasized that these endeavors are of paramount importance to the overall economic and social development as well as to the safety of people’s lives and property.

We have now entered the peak flood season, and the tasks of flood prevention and drought relief are formidable.

1. Grounded in preparedness for major floods and severe droughts, we must strengthen the unified national command and coordination system. All localities are required to officely assign and enforce clearly defined responsibilities at every level, fully implement the administrative head responsibility system, and ensure seamless interagency coordination to pool efforts and achieve synergy.

2. Strengthen monitoring, forecasting, and early warning; ensure adequate preparedness of funds, supplies, and emergency response teams; implement scientific scheduling of flood-control projects to guarantee the safe passage of major rivers and key reservoirs through the flood season; and rigorously guard against flash floods, debris flows, landslides, typhoons, and urban flooding. Conduct thorough inspections to identify potential risks in aging or structurally unsound reservoirs and at sites prone to geological hazards, and develop comprehensive evacuation and hazard‑avoidance plans.

3. Provide guidance to drought-affected areas in developing response plans, implementing drought‑mitigation measures, and ensuring water supplies for both production and daily life.

Through the “People’s Republic of China Law on the Prevention and Control of Environmental Pollution by Solid Waste (Draft Amendment)”

The meeting adopted the Draft Amendment to the Law of the People’s Republic of China on the Prevention and Control of Environmental Pollution by Solid Waste.

The draft strengthens the responsibilities of producers of industrial solid waste, refines the pollutant discharge permitting system, and calls for accelerating the establishment of a system for the separate disposal, collection, transportation, and treatment of household waste.

The meeting decided to submit the draft for deliberation by the Standing Committee of the National People’s Congress.

Litigation & Arbitration

No need to repay usury? The Supreme People’s Court has issued a definitive ruling—eight criminal charges have sent professional loan sharks into a panic!

Supreme People's Court

Supreme People’s Court Civil Final Judgment No. 647

(Excerpt) According to the facts ascertained in this case, Gaojin Company extended loans to a large number of entities. In addition to the debtor in this case, Dexiang Company, between 2009 and 2011, Gaojin Company lent funds to Xijinyuan Company, Jinhua Company, Huiming Company, Dingfeng Company, Shuntian Haichuan Company, and others. By providing funds to an indefinite group of members of the public in order to earn substantial interest, its lending activities were repetitive and frequent, and the purpose of such lending was commercial in nature. Without obtaining the requisite approval, Gaojin Company engaged in regular lending activities, thereby constituting the conduct of illegal financial business.

Article 19 of the Banking Supervision and Administration Law provides: “No entity or individual may establish a banking financial institution or engage in the business activities of such an institution without the approval of the banking supervision and administration authority under the State Council.” This mandatory provision is directly related to the state’s financial regulatory order and the safety of social funds, concerns the public interest, and thus constitutes a normative provision of binding effect.

In accordance with Article 52 of the Contract Law, which provides that “a contract is void if any of the following circumstances exists: … (5) it violates mandatory provisions of laws or administrative regulations,” and with Article 14 of Interpretation II of the Contract Law, which stipulates that “the ‘mandatory provisions’ referred to in Paragraph (5) of Article 52 of the Contract Law mean provisions of a binding nature,” the loan contract at issue should be deemed invalid.

The business scope of Gaojin Company encompasses project investment (excluding matters subject to special approval), financial consulting, and corporate management consulting. However, the regular lending activities undertaken by Gaojin Company have exceeded its stated business scope. Article 10 of the “Interpretation of the Supreme People’s Court on Several Issues Concerning the Application of the Contract Law of the People’s Republic of China (I)” (hereinafter referred to as Interpretation No. 1 of the Contract Law) provides: “Where a party enters into a contract beyond the scope of its business operations, the people’s court shall not deem such contract invalid on that ground, except where the contract violates state regulations on restricted or franchised businesses, or provisions of laws and administrative regulations prohibiting certain types of business.” Since financial business activities constitute a state‑licensed undertaking, in accordance with the aforementioned provision, the loan contract at issue should likewise be deemed invalid.

Accordingly, the original judgment holding the loan contract at issue to be invalid is factually well‑founded and legally sound, and should be upheld. The High‑Gold Company’s appeal contending that the loan contract is valid lacks both factual and legal basis and is therefore rejected.

The book “Interpretation and Application of the Supreme People’s Court’s Judicial Interpretation on Private Lending” once commented as follows: The Provisions of the Supreme People’s Court on Several Issues Concerning the Application of Law in the Trial of Private Lending Cases (Fa Shi [2015] No. 18) does not address the validity of private lending contracts entered into by enterprises engaged in regular lending activities. Enterprises that take borrowing and lending as their business exhibit characteristics such as regularity, commercial nature, and non‑specificity of counterparties. By contrast, ordinary inter‑enterprise lending is typically undertaken on an ad hoc basis to alleviate financial difficulties or meet urgent production needs, and it cannot be regarded as a sustained business activity.

Because, for a production‑and‑operation‑oriented enterprise, if it makes frequent lending its primary business or its main source of income, this could fundamentally alter the nature of the entity, transforming it into a financial institution that engages in specialized lending without approval from the financial regulatory authorities. Such a development would severely disrupt China’s financial market, undermine financial order, and create chaos in financial supervision.

Accordingly, if an enterprise engages in the regular provision of loans, in accordance with the Banking Supervision and Administration Law, the Commercial Bank Law, and other relevant laws and regulations, no entity or individual may establish a banking financial institution or conduct banking financial business activities without the approval of the banking regulatory authority under the State Council; otherwise, such activity shall be deemed an “illegal financial business activity.” Such conduct harms the public interest and must therefore be subject to a negative legal assessment as regards its validity.

The Supreme People’s Procuratorate requires:

In accordance with the law, severely punish criminal acts that seriously endanger financial security and undermine social stability, including the unauthorized establishment of financial institutions, illegal acceptance of public deposits, fundraising fraud, pyramid schemes conducted online, usury‑lending, as well as “campus loans” and “scheme‑based loans,” and the use of unlawful methods such as intentional injury, illegal detention, and humiliation to collect private debts.

Severely punish financial professionals who engage in quid pro quo, illicit transfer of interests, and collusion between insiders and outsiders—so‑called “insiders”—as well as those who commit insider trading or manipulate the market—so‑called “financial predators”—to fortify the judicial safeguards for financial security.

Severely crack down, in accordance with the law, on crimes such as falsely reporting and fraudulently claiming poverty‑alleviation funds, misappropriating and embezzling them, diverting and privately dividing them, encroaching upon and misusing them, as well as theft and fraud targeting these funds; on “micro‑corruption” offenses—such as petty corruption and small‑scale embezzlement that occur close to the people and harm their interests; and on criminal activities by organized crime syndicates, including “village tyrants,” along with the “protective umbrellas” behind them, so as to ensure that the Party and the state’s targeted poverty‑alleviation policies benefiting the people are effectively implemented…

On Regulating Private Lending Activities

Notice on Matters Pertaining to the Maintenance of Economic and Financial Order

CBIRC Document No. 10 [2018]

To all Banking Regulatory Bureaus; to the Public Security Departments (Bureaus) and Administration for Industry and Commerce (Market Supervision Authorities) of all provinces, autonomous regions, and municipalities directly under the central government, as well as to the Public Security Bureau of the Xinjiang Production and Construction Corps; to the Shanghai Headquarters of the People’s Bank of China, its branches and business administration departments, the central sub-branches in provincial capitals (provincial governments), and the central sub-branches in vice-provincial-level cities; to all policy banks, large commercial banks, joint-stock banks, Postal Savings Bank of China, foreign-funded banks, and financial asset management companies:

In order to standardize private lending activities, safeguard economic and financial order, prevent financial risks, effectively protect the legitimate rights and interests of the people, and crack down on financial crimes and illegal activities, in accordance with the Banking Supervision and Administration Law of the People’s Republic of China, the Commercial Bank Law of the People’s Republic of China, the Criminal Law of the People’s Republic of China, and the Measures for the Prohibition of Illegal Financial Institutions and Illegal Financial Business Activities, among other relevant laws and regulations, the following matters are hereby notified:

I. Effectively Enhance Awareness

In recent years, informal lending has expanded rapidly, and illegal activities—characterized primarily by violent debt collection—have grown increasingly rampant, seriously disrupting economic and financial order as well as social stability. All relevant parties must fully recognize the necessity of regulating informal lending and the grave social harm posed by violent debt collection. From the standpoint of implementing the fundamental strategy of governing the country according to law in all respects, safeguarding economic and financial order, and maintaining economic and social stability, they should earnestly carry out the pertinent work.

II. Adhering to the Principles of Work

Adhering to the principles of law-based governance, addressing both symptoms and root causes, adopting a multi-pronged approach, and balancing regulation with facilitation, we will further standardize private lending activities, guide the healthy and orderly flow of private capital, crack down rigorously on related illegal practices, purify the social environment, and safeguard economic and financial order as well as social stability.

III. Clarifying Credit Guidelines

Strictly enforce the Banking Supervision and Administration Law of the People’s Republic of China, the Commercial Bank Law of the People’s Republic of China, and the Measures for the Prohibition of Illegal Financial Institutions and Illegal Financial Business Activities, among other relevant laws and regulations. No entity or individual may establish an institution that engages in, or primarily engages in, the business of granting loans, nor may they conduct loan‑granting as a regular business activity, without lawful approval from the competent authorities.

IV. Regulating Private Lending

Private lending activities must strictly comply with the relevant provisions of national laws and regulations and adhere to the principles of voluntariness, mutual assistance, and good faith. In private lending, the lender’s funds must be their own lawful income; it is prohibited to solicit or indirectly solicit funds from others for the purpose of lending. Any disputes arising from private lending shall be handled in accordance with the “Provisions of the Supreme People’s Court on Several Issues Concerning the Application of Law in the Trial of Private Lending Cases” (Fa Shi [2015] No. 18).

V. Illegal Activities Are Strictly Prohibited

Severely crack down on the issuance of private loans using funds raised through illegal means, such as illegally soliciting public deposits or engaging in disguised forms of public deposit‑taking. Strictly prohibit the use of unlawful methods—including intentional injury, illegal detention, humiliation, intimidation, threats, and harassment—to collect loan repayments. Rigorously suppress the practice of siphoning off credit funds from financial institutions for the purpose of re‑lending at exorbitant interest rates. Officely prohibit the illegal extension of loans to current students, the granting of loans without a specified purpose, or the disguised provision of loans under the guise of services or product sales while in fact charging excessively high interest (or fees). It is strictly forbidden for employees of banking and financial institutions to engage in organized private lending as key participants or de facto controllers.

VI. Improving Financial Services

All banking and financial institutions, as well as micro‑loan companies authorized by the competent authorities, shall conduct their operations in full compliance with the law, strengthen their service orientation, and implement concrete measures to develop credit products tailored to diverse customer segments. They should enhance financial services, increase financial support for the real economy, foster a favorable financial environment for its growth, effectively unblock channels through which financial services reach the real economy, and contribute to supply‑side structural reform.

VII. Strengthen Coordination and Cooperation

Private lending activities are complex and involve numerous stakeholders. In accordance with the provisions of the Banking Supervision and Administration Law of the People’s Republic of China, the Commercial Bank Law of the People’s Republic of China, and the Measures for the Prohibition of Illegal Financial Institutions and Illegal Financial Business Activities, local people’s governments and relevant departments shall strengthen coordination and cooperation and perform their duties in compliance with the law.

VIII. Investigate and Handle in Accordance with the Law

(1) With respect to acts that violate public security administration regulations or are suspected of constituting crimes—such as issuing private loans using illegally raised funds, including illegally absorbed deposits and disguised forms of public deposit‑taking; collecting private loan debts through unlawful means, including intentional injury, illegal detention, insult, intimidation, threats, and harassment; and obtaining credit funds from banking financial institutions only to re‑lend them at usurious interest rates—public security organs shall, in accordance with the law, conduct investigations and take appropriate measures, and shall forward all relevant materials pertaining to such illegal private‑loan activities to the banking regulatory authorities.

(2) With respect to banking financial institution employees who engage in illegal financial activities, the banking financial institutions shall impose disciplinary sanctions; where such conduct constitutes a crime, criminal liability shall be pursued strictly in accordance with the law.

(3) With respect to intermediary agencies engaged in businesses such as private lending consulting, the administration for industry and commerce and market supervision authorities shall strengthen oversight in accordance with the law.

IX. Strengthen Public Awareness and Guidance

Banking regulatory authorities, public security organs, industrial and commercial administration and market supervision departments, the People’s Bank of China, and other relevant agencies have adopted a variety of effective measures to disseminate national financial laws and regulations as well as credit‑related rules to the general public. They promptly release typical cases to the public, intensify publicity and education efforts, strengthen risk warnings, enhance the public’s awareness of risk prevention, and guide citizens to consciously resist illegal private lending activities.

April 16, 2018

Eight Crimes of Illegal Lenders

I. Crime of Organizing a Triad-like Organization

The crime of organizing, leading, or participating in a triad‑like organization refers to the act of organizing, leading, or joining an organized criminal group that, by means of violence, threats, or other methods, systematically engages in unlawful and criminal activities, seeks to dominate a particular area, commits egregious offenses, oppresses and harms the public, and seriously disrupts economic and social order. Organizers and leaders shall be sentenced to fixed-term imprisonment of no less than three years but no more than ten years, and shall bear criminal responsibility for all acts committed by their members. If such conduct results in injury or death to others and also constitutes other crimes, cumulative sentencing may lead to the death penalty. Other participants shall be sentenced to fixed-term imprisonment of no more than three years.

Loan‑sharking offenses are not necessarily linked to the crime of organizing, leading, or participating in a triad‑type organization. However, some loan sharks, in order to safeguard their illicit gains, may nonetheless exhibit the characteristics of such an organization. Once a relatively tight organizational structure has been established, and through violence, coercion, harassment, and other means, they systematically engage in repeated illegal and criminal activities—committing wrongdoing, oppressing the public, and enforcing debt collection—to obtain unlawful economic benefits, thereby seriously disrupting economic and social order. Moreover, if they possess sufficient financial resources to sustain the organization’s operations and bribe or corrupt state functionaries to secure illegal protection, they may be deemed to constitute a triad‑type organization.

In last year’s widely publicized “Liaocheng mother‑insulting case,” the usurious lenders involved were classified as a triad‑type criminal organization. Thanks to the police’s efforts, the perpetrators who had allegedly insulted and assaulted Su Yinxia and her son Yu Huan were gradually apprehended and brought to justice. This criminal gang has now been held accountable under the law. Wu Xuezhan’s group was charged with nine offenses, including leading or participating in a triad‑type organization, forced trading, intentional destruction of property, sabotage of public telecommunications facilities, intentional injury, illegal intrusion into a residence, and unlawful detention. Although Wu Xuezhan denied the charges in court, prison awaits them.

II. Various Crimes Related to Debt Collection Through Usury

Various crimes arise from usury‑driven debt collection. Because the interest exceeding the legally prescribed cap is not protected by law, usury inevitably becomes intertwined with a wide array of coercive debt‑collection practices, giving rise to numerous offenses. For example, lenders may insert hidden ambiguous clauses into loan agreements or set contractual traps to conceal exorbitant interest rates. Subsequently, beyond the scope of legitimate claims, they may resort to violence, threats, deception, and other means to extract illicit gains, potentially constituting offenses such as extortion, robbery, kidnapping, or fraud.

Another example is the crime of forced trading, which involves compelling borrowers to settle debts by mortgaging their properties or using goods as collateral at undervalued prices.

The crime of intentional injury against the borrower and their relatives;

The crime of unlawful detention, which illegally restricts the personal freedom of a borrower;

The crime of intentional destruction of property, involving the deliberate destruction or damage of all items belonging to the borrower;

The crime of disrupting production and business operations, such as damaging equipment or destroying crops;

The crime of forcibly entering a residence or refusing to leave, thereby disrupting the borrower’s normal life.

III. The Crime of Lending at Excessive Interest Rates

The crime of lending at usurious interest rates refers to the act of obtaining credit funds from financial institutions with the intent of re-lending them at exorbitant interest rates to others, where the illegal gains are substantial. If the illegal gains are substantial, the offender shall be sentenced to fixed-term imprisonment of no more than three years; if the gains are enormous, the maximum sentence may be seven years’ imprisonment, with a concurrent fine in either case. Where the illegal gains exceed RMB 100,000, or where the offender has been subject to administrative penalties for usurious lending two or more times within two years and then engages in such conduct again, the case shall meet the criteria for initiating criminal proceedings.

At present, usury is rampant; yet in practice, few individuals engage in the usury business using their own funds. Instead, banks often serve as the primary source of capital for many usurious operations. Consequently, the practice of lending at exorbitant interest rates—commonly referred to as “high‑interest relending”—is widespread. However, it typically disguises itself as legitimate lending while secretly being used to extend high‑interest loans, making it difficult to detect. Such conduct seriously undermines financial order, poses significant risks, and constitutes a clear criminal offense. The crime of high‑interest relending is the most direct legal tool for cracking down on illegal usury, and judicial authorities should intensify efforts to investigate and prosecute this offense.

Although such cases are not uncommon, they are still inadequately prosecuted:

Zhou, a resident of Shuyang, mortgaged his personal property to a bank and, under the pretext of funding construction projects, obtained three loans from the bank. He then lent the borrowed funds at usurious interest rates to Kang, thereby pocketing illicit profits exceeding RMB 288,000. The court convicted him of the crime of lending at usurious rates, sentencing him to six months’ imprisonment with a one-year suspended sentence and imposing a fine of RMB 320,000.

IV. Crime of Obtaining Loans by Deception

The crime of fraudulently obtaining loans refers to the act of acquiring loans from banks or other financial institutions by deceptive means, thereby causing substantial losses to such institutions or involving other serious circumstances. For cases involving serious circumstances, the penalty is imprisonment for up to three years; for particularly serious cases, the maximum penalty is seven years’ imprisonment, with a concurrent fine in both instances. A case shall be instituted if the direct economic loss to the bank amounts to RMB 200,000 or more, or if the offense involves repeated fraudulent loan applications.

Although fraudulent acquisition of loans does not necessarily involve the issuance of usurious loans, in practice it is quite common for usurers to obtain bank loans through deception. Unlike the crime of lending at exorbitant interest rates, in such cases not only are the loan applications fictitious, but even the submitted documentation is false, and the applicants do not actually meet the eligibility requirements. Moreover, the key element for establishing this offense is that it must result in substantial losses to the bank. This crime often involves collusion between insiders and bank employees, and as a consequence, it is frequently intertwined with offenses such as bribery and the unlawful granting of loans.

Due to factors such as banks seeking to evade their own management shortcomings and liabilities, pinning their hopes on borrowers ultimately repaying the loans, and the difficulty of readily establishing substantial losses, this offense has long been subject to lax enforcement. Nevertheless, isolated cases have occasionally come to light:

Chen, by forging false bank cash‑flow records and product purchase‑sale contracts, and with guarantees provided by a certain trading company and other individuals, obtained a loan of RMB 1.5 million from a bank. Upon receipt of the funds, Chen used the majority of the loan to engage in usury. After the loan matured, the defendant Chen absconded, leaving the bank unable to recover the principal on schedule. The court convicted him of the crime of obtaining a loan by fraudulent means, sentencing him to one year of imprisonment and imposing a fine of RMB 50,000.

V. Crime of Illegally Absorbing Public Deposits

The crime of illegally absorbing public deposits refers to the act of, in violation of the state’s financial regulatory laws, illegally soliciting or surreptitiously soliciting public deposits, thereby disrupting the financial order. For less serious cases, the penalty is imprisonment for up to three years; if the amount involved is particularly large or other serious circumstances exist, the maximum penalty may be ten years’ imprisonment, with a concurrent fine in all instances. An individual who has solicited 200,000 yuan, or an entity that has solicited 1 million yuan, meets the threshold for initiating criminal proceedings.

Illegally soliciting public deposits constitutes illegal fundraising, serving as another major source of funding for usury operators and amounting to a clear-cut criminal offense. Striking hard at such activities in accordance with the law can sever the funding channels of illegal high‑interest lending and help purify the private lending market.

There are also numerous examples in judicial practice:

In Jurong City, Zhang, without approval from the People’s Bank of China, illegally raised nearly RMB 10 million from the public under the guise of high interest rates and then re-lent the funds at even higher rates. As the loans he extended were not recovered in a timely manner, his cash flow collapsed, leaving outstanding debts totaling nearly RMB 7 million at the time of the case’s discovery. The court convicted him of the crime of illegally absorbing public deposits, along with other offenses, and sentenced him to eight years and nine months’ imprisonment, together with a fine of RMB 100,000.

VI. Crime of Fund-Raising Fraud

The crime of fundraising fraud refers to the act, committed with the intent of illegal appropriation and in violation of relevant financial laws and regulations, of using fraudulent methods to illegally raise funds, thereby disrupting the normal financial order of the state and infringing upon the ownership of public and private property, where the amount involved is substantial. For cases involving a substantial amount, the penalty is imprisonment for up to five years; for cases involving an enormous amount or other serious circumstances, the maximum penalty is imprisonment for up to ten years; and for cases involving an especially enormous amount or other particularly grave circumstances, the penalty is imprisonment for ten years or more, or life imprisonment, together with a fine. An individual who commits fundraising fraud involving RMB 100,000, or an entity that commits such fraud involving RMB 500,000, meets the threshold for initiating criminal proceedings.

Alongside the illegal solicitation of public deposits, fundraising fraud—also a form of illegal fundraising—is another source of funds for usury. Unlike the act of soliciting public deposits, perpetrators of this crime conceal the true purpose of the funds raised and fail to use them as agreed; instead, they squander or misuse the proceeds at will. In some cases, they flee when their high‑interest lending ventures result in total losses and they are unable to repay investors. Moreover, usury is often linked to criminal activities, and those who raise funds typically promise exceptionally high returns—features that all align with the defining characteristics of the crime of fundraising fraud.

Relevant cases:

In Wuhu City, a woman named Ma Liya ran a high-interest‑lending operation linked to a casino. Luring victims with exorbitant monthly interest rates ranging from 6% to 60%, she fabricated false claims that investments in construction projects—such as three already‑awarded highway contracts—required financing, thereby defrauding her lover and his relatives and friends of 13.28 million yuan. Throughout the scheme, Ma Liya duly paid them monthly interest; later, she vanished without a trace. Ultimately, the court convicted her of fundraising fraud, sentencing her to 14 years in prison and imposing a fine of 300,000 yuan.

VII. Crime of Illegally Establishing a Financial Institution

The crime of illegally establishing a financial institution refers to the act of setting up, without approval from the People’s Bank of China, commercial banks, stock exchanges, futures exchanges, securities companies, futures brokerage offices, insurance companies, or other financial institutions. Offenders may be sentenced to fixed-term imprisonment of no more than three years; in cases involving serious circumstances, the maximum penalty is ten years’ imprisonment, with a concurrent fine in both instances.

In practice, some usurers seeking to expand their operations attempt to operate in a formalized manner; however, this may constitute the crime of illegally establishing a financial institution. Unlike the crimes of accepting public deposits and illegally engaging in fund‑payment and settlement activities, this offense encompasses a broader range of financial services, involves more formal organizational structures, and does not require a specific monetary threshold for criminal liability. According to Article 3 of the Regulations on Prohibition, any entity that, without approval from the People’s Bank of China, establishes itself to engage in, or primarily engages in, financial activities such as accepting deposits, granting loans, processing settlements, discounting bills, conducting interbank lending, undertaking trust investments, providing financial leasing, offering financing guarantees, or trading foreign exchange shall be deemed an illegal financial institution.

Relevant cases:

In Dongshan County, Chen established a financial information consulting company. Without approval from the relevant state authorities, he organized the company into eight departments—finance, credit, operations, investment, and others—operating in a manner similar to a financial institution. The company primarily engaged in banking activities such as accepting deposits and granting loans, attracting 15 personal wealth-management deposits totaling RMB 2.042 million and extending loans amounting to RMB 1.9556 million to individuals including Lin Mouwu and Chen Moubin. For these offenses, the court convicted him of the crime of illegally establishing a financial institution, sentencing him to one year of imprisonment and imposing a fine of RMB 80,000.

VIII. Crime of Illegal Business Operations

The crime of illegal business operations refers to… engaging in the unauthorized operation of securities, futures, or insurance businesses without approval from the relevant state authorities; engaging in fund payment and settlement activities without authorization; or engaging in other illegal business activities that seriously disrupt market order. Offenders may be sentenced to fixed-term imprisonment of up to five years, with a maximum term of fifteen years, and shall also be subject to fines. Where the amount involved in fund payment and settlement activities reaches RMB 2 million or more, such conduct meets the threshold for initiating a criminal case.

Whether usury constitutes the crime of illegal business operations has long been a subject of debate in practice. With respect to usurious lending, its grave harms must be recognized: some illegal lenders, in pursuit of maximum profit, resort to semantic sleight‑of‑hand, set interest‑rate traps, or exploit others’ distress, resulting in contract terms that are manifestly unfair—akin to the bonds of servitude in bygone eras. Like gambling, such practices cannot be shielded behind the banner of freedom of contract and autonomy of will, nor can economic considerations alone be allowed to dictate how legal issues are framed and resolved. Moreover, the principle of penal restraint should not apply to conduct of this severity. Accordingly, usury should not be treated as a monolithic category; ordinary private high‑interest lending must be distinguished from illicit, profit‑driven usury. Under the Measures for the Prohibition of Illegal Financial Institutions and Illegal Financial Business Activities, “engaging in financial business without authorization (including issuing loans) that constitutes a crime shall be subject to criminal liability.” The newly issued regulations now explicitly stipulate: “No entity or individual may establish an institution that engages in, or whose principal activity is, the issuance of loans, nor may they conduct loan‑issuance as a regular business activity, unless duly approved by the competent authorities in accordance with the law.” In light of this, the once‑controversial charge of “illegal business operations” is bound to return as a key legal tool for prosecuting unlawful lending.

How can the bride’s name be added to the property deed of a house purchased by the groom’s family?

We’re getting married, and my parents bought the marital home outright, putting it in my name. But now my girlfriend insists I add her name to the property deed, and my parents refuse. What should I do?

By the 21st century, the situation had changed: laws had evolved so that a party’s premarital property no longer becomes marital property simply by virtue of marriage or its duration; and circumstances have also shifted—housing prices continue to rise, and real estate increasingly accounts for a larger share of family assets.

Whether at the time of marriage or divorce, housing invariably becomes a central issue. If both parties jointly contributed to the purchase of a home, there is naturally no dispute. Similarly, if the man’s family bought a property before the marriage and the woman raises no objection, that poses no problem either. However, if the woman requests that her name be added to the title of a property purchased by the man’s family, whether or not to do so becomes a dilemma for the man’s side:

It’s been added—what if, within less than a year, or even just a few days of marriage, the wife files for divorce? Then you’d end up with nothing—neither your spouse nor your assets.

If you don’t add it, and the woman ends up refusing to marry on the grounds that “you don’t love me” or “I feel insecure,” you could very well end up breaking up!

The woman may be making such a request out of greed, or as a test of the man, or perhaps in search of a sense of security. Whether to make this kind of request is up to her; if she does, whether he agrees is up to him. If he refuses, she may begin to reconsider whether marriage is the right path for her.

Everyone has their own rights and perspectives; whether to prioritize face or substance is a decision each person must make for themselves. Even impartial judges may meddle in family matters, but lawyers can offer legal analysis and well‑reasoned advice to help clients make informed decisions:

1. If, prior to marriage, one party purchases a property in full and registers it solely in their own name, then, absent any special circumstances, such property is, of course, considered that party’s premarital personal property.

2. If one party purchased a home with a mortgage before marriage and the loan is to be repaid jointly after marriage, then upon divorce, the spouse is entitled to a share of the post‑marriage repayments and any corresponding increase in value. It is not sufficient to claim, “I used my own salary to repay the mortgage”; absent a special agreement made after marriage, any income—including wages—earned by either spouse is considered marital property. Therefore, taking out a mortgage prior to marriage in an attempt to compel the other spouse to participate in repayment while denying them any right to a share of the property is a deceitful strategy that the law does not recognize.

3. Where the husband purchased a property in full before marriage, if the wife’s name is subsequently added to the property title, the property clearly becomes jointly owned and is treated as a gift.

4. There are different ways to add a name to a property title. If, at the time of adding the name, the respective shares of both parties are explicitly specified, the ownership is legally classified as “tenancy in common,” with rights determined according to the agreed‑upon shares. If no specific shares are designated and the property is held as “joint tenancy,” the parties are presumed to have equal rights; however, in practice, differing shares may be established based on the actual circumstances.

5. There’s a claim circulating online—its origin is unclear—that “if the husband purchases a property with full payment, even adding the wife’s name to the property deed won’t change anything; in the event of divorce, the property will still be deemed entirely owned by the husband.” Unless specific conditions are stipulated, this assertion is essentially a legal myth. Anyone who believes it should stop and think: do you really expect to go to the housing authority just for fun?

6. Of course, this view arises for a reason: under certain circumstances, even if the property title is registered in the wife’s name, she may still have no right to claim a share of the property upon divorce. Typically, this stems from special agreements: as mentioned earlier, when the husband’s premarital personal property is registered in the wife’s name—whether before or after marriage—it is deemed a gift. And under the law, gifts can be subject to conditions—for example, adding the wife’s name prior to marriage as a condition precedent to the marriage, or adding her name after marriage contingent upon the marriage having lasted for a specified period, and so on.

If a gift is subject to a condition, when the condition for its effectiveness fails to be met or the condition for its revocation is satisfied, the situation may arise where “adding one’s name to the deed is for naught.” However, such conditions must be expressed in a sufficiently clear and unambiguous manner.

Finally, to sum up: in fact, if the couple doesn’t get divorced, it doesn’t really matter whether the property is put in both names. From the perspective of the party being asked to add their name, the main concern is that, once their name is on the title, they might end up at a disadvantage in the division of assets if the marriage ends within two years. When faced with such a request, if both parties can be open and honest—setting aside any pretenses—they might as well draw up a written agreement:

It is agreed in advance to add the wife’s name to the property title without specifying her share, and to stipulate that, depending on the length of the marriage, she may be entitled to a varying proportion of the property. Once a certain period or set of conditions is met, the property will be deemed to be held with equal rights by both parties. The specific proportions and timeframes may be negotiated by the couple, and additional relevant conditions may be determined based on the actual circumstances. By clearly setting out these arrangements beforehand, at least some foreseeable and acceptable outcomes can be anticipated should divorce eventually occur.

If you’re worried that negotiating terms will strain relationships, then even a lawyer can’t help—you’ll just have to decide for yourself whether to take the risk.

Supreme Court Ruling: Where a promissory note stipulates that “the attorney’s fees shall be borne by the defendant,” the court shall uphold such provision.

Civil Judgment of the Supreme People’s Court

(2016) Supreme People’s Court Civil Final Judgment No. 613

Appellant (Defendant in the original trial): Li Qiang, male, born December 19, 1964, of the Manchu ethnicity, residing in Qingshanhu District, Nanchang City, Jiangxi Province.

Appellee (Plaintiff in the original trial): Wu Xiaoguang, male, born June 26, 1963, Han ethnicity, residing in Qingyunpu District, Nanchang City, Jiangxi Province.

(Other parties and their authorized litigation agents are omitted.)

Appellant Li Qiang, dissatisfied with the civil judgment No. 12 of 2015 rendered by the Jiangxi Provincial Higher People’s Court in the dispute over private lending involving Appellee Wu Xiaoguang and Original Defendants Yang Juan, Yang Lu, Cao Zhong, Dongguan Guanghui Footwear Co., Ltd. (hereinafter referred to as Guanghui Company), and Dongguan Anming Industrial Development Co., Ltd. (hereinafter referred to as Anming Company), has filed an appeal with this Court.

After this court instituted the case on September 1, 2016, it duly constituted a collegiate panel and conducted a trial. The appellant Li Qiang, the original defendants Yang Juan and Yang Lu, the litigation agent entrusted by Guanghui Company, Cao Xinchun, and the litigation agent entrusted by Wu Xiaoguang, Dai Gaoxiang, appeared in court to participate in the proceedings. Cao Zhong, having been summoned by subpoena, failed to appear without justifiable cause, and Anming Company, having been served with a court summons by public notice, likewise failed to attend. The present case has now concluded its trial.

Appeal Request

1. Set aside Item 2 of the first-instance judgment and render a new judgment ordering Wu Xiaoguang to bear the attorney’s fees of RMB 200,000 that he is required to pay.

2. The second-instance litigation costs shall be borne by Wu Xiaoguang.

Facts and Reasons

1. Existing provisions regarding the allocation of attorney’s fees apply only to certain areas and cannot be automatically construed as a legal basis for requiring the losing party (or the party at fault) to bear such costs.

2. Whether to retain an attorney is a right of the parties, not an obligation; courts should not alter the outcome of a case based on whether the parties have retained counsel. Accordingly, retaining counsel and filing a lawsuit do not necessarily bear a causal relationship.

3. Under current Chinese regulations, there is no uniform standard for attorney fees, and the parties may negotiate fees directly with their counsel; consequently, it is highly challenging for the courts to determine fee accuracy.

In summary, we respectfully request that the second-instance court reverse the judgment and order Wu Xiaoguang to bear the attorney’s fees of RMB 200,000 that he is obligated to pay.

Wu Xiaoguang argued that

The first-instance judgment holding Li Qiang liable for attorney’s fees is lawful and well-founded; we respectfully request that Li Qiang’s appeal be dismissed.

Yang Juan, Yang Lu, Cao Zhong, Guanghui Company, and Anming Company failed to file a defense.

Wu Xiaoguang filed a lawsuit with the court of first instance, stating: On December 9, 2013, at the recommendation of Cao Zhong, Li Qiang and Yang Juan, citing an urgent need for funds for real estate development, requested to borrow from Wu Xiaoguang. Accordingly, Wu Xiaoguang, together with Li Qiang, Yang Juan, Guanghui Company, Anming Company, and Cao Zhong—six parties in total—entered into a Loan Agreement, which stipulated: Li Qiang and Yang Juan would borrow RMB 50 million from Wu Xiaoguang; the loan term would be one year, commencing from the date Wu Xiaoguang actually disbursed the funds; interest would be calculated at an annual rate of 50%, amounting to RMB 25 million per annum (excluding taxes and fees, which shall be borne by Li Qiang and Yang Juan); should Li Qiang and Yang Juan default, all costs incurred by Wu Xiaoguang in taking measures to protect its rights—including, but not limited to, investigation fees, litigation expenses, and attorney’s fees—shall be borne by Li Qiang and Yang Juan; Guanghui Company, Anming Company, and Cao Zhong each provided joint and several guarantees to ensure that Li Qiang and Yang Juan fulfill all obligations under this contract; and any disputes arising during the performance of this contract, if no settlement can be reached through negotiation, shall be adjudicated by the people’s courts within Jiangxi Province.

Following the execution of the contract, in accordance with its terms and pursuant to the payment instructions provided by Li Qiang and Yang Juan, Wu Xiaoguang instructed Jiangxi Dianlian Industrial Development Co., Ltd. to remit the loan amount of RMB 50 million, in four installments, to Guanghui Company’s bank account.

However, upon the loan’s maturity, Li Qiang and Yang Juan failed to repay the principal and interest as stipulated in the contract; likewise, Guanghui Company, Anming Company, and Cao Zhong persistently neglected to fulfill their joint and several liability for repayment. Despite numerous demands by Wu Xiaoguang, no resolution was achieved.

In order to enforce its lawful matured claims, the plaintiff requests the court to render a judgment ordering Li Qiang and Yang Juan to immediately repay Wu Xiaoguang a total of RMB 81.823828 million, comprising: (i) a principal amount of RMB 50 million; (ii) interest totaling RMB 30.6528 million (calculated provisionally from the date of actual loan disbursement through April 8, 2015, with final calculation extending until full repayment of both principal and interest); and (iii) legal fees in the amount of RMB 1.171028 million. Furthermore, Guanghui Company, Anming Company, and Cao Zhong shall jointly and severally bear liability for the aforementioned sums. The litigation costs and preservation fees in this case shall be borne jointly by Li Qiang, Yang Juan, Yang Lu, Guanghui Company, Anming Company, and Cao Zhong.

In the litigation, Wu Xiaoguang has applied to add Yang Lu as a defendant, contending that of the RMB 50 million he remitted to Guanghui Company, RMB 30 million was transferred to the personal account of Yang Lu—controlling shareholder and legal representative of Guanghui Company—and that the remaining RMB 20 million was likewise diverted to the corporate accounts of Li Qiang, Yang Juan, and Yang Lu’s family‑owned company, thereby severely undermining the repayment capacity of Li Qiang, Yang Juan, and Guanghui Company.

In this case, the Loan Agreement was also executed by Yang Lu on behalf of Guanghui Company, and a shareholders’ resolution approving the loan was likewise signed by Yang Lu. Yang Lu appropriated the loan funds transferred by Wu Xiaoguang into the company’s account, thereby seriously harming the interests of the creditors. Accordingly, the plaintiff requests that the court order Yang Lu to bear joint and several liability for settling Wu Xiaoguang’s debt.

The court of first instance held that the central issue in this case is: on what basis should the loan interest be calculated? (omitted) Should Wu Xiaoguang’s legal fees in the amount of RMB 1,171,028 be awarded? And is Yang Lu a proper defendant in this case, and should she bear joint and several liability for the loans owed by Li Qiang and Yang Juan? (omitted)

With regard to the issue of how the loan interest in this case is to be calculated.

Article 26 of the Provisions of the Supreme People’s Court on Several Issues Concerning the Application of Law in the Trial of Private Lending Cases provides: “If the interest rate agreed upon by the lender and the borrower does not exceed 24% per annum, the people’s court shall support the lender’s request that the borrower pay interest at the agreed rate. If the interest rate agreed upon by the parties exceeds 36% per annum, the portion of the interest exceeding that rate shall be deemed invalid. The people’s court shall also support the borrower’s request for the lender to return any interest already paid that exceeds the 36% per annum rate.”

The loan interest stipulated in the Loan Contract is calculated at an annual rate of 50%, which exceeds the maximum limit prescribed by the judicial interpretation; accordingly, the portion of the interest exceeding that limit is invalid.

During the first-instance trial, Wu Xiaoguang argued that the loan interest should be calculated at an annual rate of 36%. Article 26 of the Supreme People’s Court’s Provisions on Several Issues Concerning the Application of Law in the Trial of Private Lending Cases sets the statutory cap on interest rates at 24%; moreover, the 36% annual rate specified in paragraph 2 applies only to situations where the borrower seeks the lender’s refund of interest already paid. In the present case, the borrowers, Li Qiang and Yang Juan, have not yet paid any interest on the loan, and thus do not fall within the circumstances contemplated by paragraph 2 of Article 26 of the aforementioned judicial interpretation.

Accordingly, the interest on the loan in this case shall be calculated at an annual rate of 24%; any amount exceeding this rate shall not be upheld by law.

With regard to the question of whether the attorney’s fees in the amount of RMB 1,171,028 claimed by Wu Xiaoguang should be granted.

The Loan Agreement further stipulates that, in the event of a breach by Li Qiang and Yang Juan, any costs incurred by Wu Xiaoguang in taking enforcement measures—including, but not limited to, investigation fees, litigation expenses, and attorney’s fees—shall be borne by Li Qiang and Yang Juan.

Wu Xiaoguang entered into a Retainer Agreement with Jiangxi Zhongchu Law Office, under which he was obligated to pay RMB 200,000 in first-instance legal fees, but only paid RMB 100,000.

Li Qiang, Yang Juan, and Yang Lu contend that Jiangxi Zhongchu Law Office failed to issue an invoice; therefore, Wu Xiaoguang’s claim in this regard should not be upheld.

The court of first instance held that the Loan Agreement stipulated that, in the event of a breach by Li Qiang or Yang Juan, they were required to reimburse Wu Xiaoguang for attorney’s fees and other expenses incurred in enforcing his rights. The Retainer Agreement entered into between Wu Xiaoguang and Jiangxi Zhongchu Law Office set the first-instance representation fee at RMB 200,000. As the retainer agreement is a consensual contract, it takes legal effect upon execution, and since Jiangxi Zhongchu Law Office has already fulfilled its obligations under the agreement, Wu Xiaoguang is likewise obligated to pay the attorney’s fees as provided in the Retainer Agreement. Accordingly, Wu Xiaoguang’s claim for attorney’s fees in the amount of RMB 1,171,028 lacks factual basis; however, the RMB 200,000 attorney’s fee is supported by the contractual provisions and should be upheld.

Second-instance judgment result

During the second-instance proceedings, the parties did not submit any new evidence. The facts ascertained by this court on review are identical to those found by the court of first instance.

This Court holds that the central issue on appeal in the present case is whether the first-instance court erred in ruling that Li Qiang and Yang Juan shall bear the attorney’s fees.

Pursuant to the provisions of the Loan Agreement among the parties to this case, if Li Qiang and Yang Juan default, they shall bear all costs incurred by Wu Xiaoguang in taking measures to protect his rights, including but not limited to investigation fees, litigation expenses, and attorney’s fees. This agreement reflects the true intentions of all parties, does not contravene any mandatory provisions of laws or administrative regulations, and is therefore valid; all parties are obligated to perform their obligations in good faith.

In order to enforce his creditor’s rights, Wu Xiaoguang entered into a retainer agreement with Jiangxi Zhongchu Law Office. The contract stipulated that Wu Xiaoguang was required to pay attorney’s fees in the amount of RMB 200,000, which constitute a cost he was obligated to bear under the terms of the agreement and has already been partially paid. Accordingly, the first-instance judgment holding Li Qiang and Yang Juan liable for the RMB 200,000 in attorney’s fees is supported by both factual and legal grounds. Li Qiang’s appeal, contending that attorney’s fees do not constitute an inevitable cost of litigation and thus should not be borne by him, lacks merit and is therefore rejected.

In summary, Li Qiang’s appeal is unfounded and shall be dismissed; the findings of fact in the first-instance judgment are clear, and the applicable law is correct, so the judgment should be upheld. In accordance with Article 170, Paragraph 1, Item 1 of the Civil Procedure Law of the People’s Republic of China, the court rules as follows:

The appeal is dismissed, and the original judgment is afofficeed.

The second-instance case filing fee of RMB 4,300 shall be borne by Li Qiang.

This judgment is final.

Presiding Judge Wang Youxiang

Judge Wang Yuying

Judge Wang Dan

March 17, 2017

Clerk: Wang Yongming (also serving as)

Lawyers advise that, going forward, whenever you enter into any contract or issue a promissory note to lend money, be sure to include the following clause in the dispute‑resolution provisions:

In the event of a breach by either party (the borrower or the debtor), all costs incurred by the non-breaching party (the lender or the creditor) in seeking to enforce its rights against the breaching party—including, but not limited to, attorney’s fees, court costs, preservation fees, transportation expenses, travel expenses, appraisal fees, and any other related expenses—shall be borne by the breaching party.

The Supreme People’s Court, the Ministry of Public Security, and other authorities have clarified that, in 2019, private loan contracts entered into for the purpose of engaging in lending as a business are invalid.

At present, China’s informal lending sector employs a large number of practitioners, yet few individuals lend out their own funds; instead, the prevailing practice is to borrow at low rates and lend at high ones. The year 2018 marked an unusually intensive crackdown on informal lending: the Ministry of Public Security, the China Banking and Insurance Regulatory Commission, the State Administration for Market Regulation, and the People’s Bank of China jointly issued the “Notice on Regulating Informal Lending Activities and Safeguarding Economic and Financial Order,” followed by the Supreme People’s Court’s “Notice on Lawfully and Properly Adjudicating Cases Involving Informal Lending” (Fa [2018] No. 215), together addressing irregularities in the informal lending market.

Now, here’s the key takeaway:

1. No one may engage in lending as a business without prior approval.

2. Severely crack down on the issuance of private loans using funds raised through illegal activities such as illegally absorbing public deposits or engaging in disguised forms of public deposit‑taking. Also, rigorously prosecute the use of unlawful methods—including intentional injury, illegal detention, humiliation, intimidation, threats, and harassment—to collect loan repayments.

3. Severely crack down on the practice of siphoning off credit funds from financial institutions and then re-lending them at exorbitant interest rates. Strictly prohibit the illegal issuance of loans to current students, the granting of loans without a specified purpose, or the disguised provision of loans through the nominal offering of services or the sale of goods while in fact charging excessively high interest (fees). It is strictly forbidden for employees of banking and financial institutions to engage in organized private lending as key members or de facto controllers.

4. Private lending must be conducted using one’s own funds derived from lawful sources.

5. Crack down rigorously on “loan-trap” schemes.

6. With respect to any practices that, by means of “interest,” “default penalties,” “service fees,” “brokerage fees,” “security deposits,” “late‑payment charges,” or the like, either directly or indirectly exceed the statutory interest rate cap.

Special Note: When a lender provides funds to an indefinite group of persons in society for the purpose of earning exorbitant interest, and such lending activities are repetitive and frequent, with the borrowing intended for commercial purposes, engaging in regular lending business without approval constitutes illegal financial activity. Consequently, any private loan contract entered into under such circumstances is void due to its violation of mandatory legal provisions. (Excerpted from: Civil Judgment No. 647 of the Supreme People’s Court [2017])

Notice on Matters Concerning the Regulation of Private Lending Activities and the Maintenance of Economic and Financial Order

CBIRC Document No. 10 [2018]

To all Banking Regulatory Bureaus; to the Public Security Departments (Bureaus) and Administration for Industry and Commerce (Market Supervision Authorities) of all provinces, autonomous regions, and municipalities directly under the central government, as well as to the Public Security Bureau of the Xinjiang Production and Construction Corps; to the Shanghai Headquarters of the People’s Bank of China, its branches and business administration departments, the central sub-branches in provincial capitals (provincial governments), and the central sub-branches in vice-provincial-level cities; to all policy banks, large commercial banks, joint-stock banks, Postal Savings Bank of China, foreign-funded banks, and financial asset management companies:

In order to standardize private lending activities, safeguard economic and financial order, prevent financial risks, effectively protect the legitimate rights and interests of the people, and crack down on financial crimes and illegal activities, in accordance with the Banking Supervision and Administration Law of the People’s Republic of China, the Commercial Bank Law of the People’s Republic of China, the Criminal Law of the People’s Republic of China, and the Measures for the Prohibition of Illegal Financial Institutions and Illegal Financial Business Activities, among other relevant laws and regulations, the following matters are hereby notified:

I. Effectively Enhance Awareness

In recent years, informal lending has expanded rapidly, and illegal activities—characterized primarily by violent debt collection—have grown increasingly rampant, seriously disrupting economic and financial order as well as social stability. All relevant parties must fully recognize the necessity of regulating informal lending and the grave social harm posed by violent debt collection. From the standpoint of implementing the fundamental strategy of governing the country according to law in all respects, safeguarding economic and financial order, and maintaining economic and social stability, they should earnestly carry out the pertinent work.

II. Adhering to the Principles of Work

Adhering to the principles of law-based governance, addressing both symptoms and root causes, adopting a multi-pronged approach, and balancing regulation with facilitation, we will further standardize private lending activities, guide the healthy and orderly flow of private capital, crack down rigorously on related illegal practices, purify the social environment, and safeguard economic and financial order as well as social stability.

III. Clarifying Credit Guidelines

Strictly enforce the Banking Supervision and Administration Law of the People’s Republic of China, the Commercial Bank Law of the People’s Republic of China, and the Measures for the Prohibition of Illegal Financial Institutions and Illegal Financial Business Activities, among other relevant laws and regulations. No entity or individual may establish an institution that engages in, or primarily engages in, the business of granting loans, nor may they conduct loan‑granting as their regular business activity, without lawful approval from the competent authorities. In other words, engaging in lending as a business is prohibited; moreover, Supreme People’s Court precedents have explicitly held that loan contracts entered into for the purpose of conducting such a business are invalid.

IV. Regulating Private Lending

Private lending activities must strictly comply with the relevant provisions of national laws and regulations and adhere to the principles of voluntariness, mutual assistance, and good faith. In private lending, the lender’s funds must be their own lawful income; it is prohibited to solicit or indirectly solicit funds from others for the purpose of lending. Any disputes arising from private lending shall be handled in accordance with the “Provisions of the Supreme People’s Court on Several Issues Concerning the Application of Law in the Trial of Private Lending Cases” (Fa Shi [2015] No. 18).

V. Illegal Activities Are Strictly Prohibited

Severely crack down on the issuance of private loans using funds raised through illegal means, such as illegally soliciting public deposits or engaging in disguised forms of public deposit‑taking. Strictly prohibit the use of unlawful methods—including intentional injury, illegal detention, humiliation, intimidation, threats, and harassment—to collect loan repayments. Rigorously suppress the practice of siphoning off credit funds from financial institutions for the purpose of re‑lending at exorbitant interest rates. Officely prohibit the illegal extension of loans to current students, the granting of loans without a specified purpose, or the disguised provision of loans under the guise of services or product sales while in fact charging excessively high interest (or fees). It is strictly forbidden for employees of banking and financial institutions to engage in organized private lending as key participants or de facto controllers.

VI. Improving Financial Services

All banking and financial institutions, as well as micro‑loan companies authorized by the competent authorities, shall conduct their operations in full compliance with the law, strengthen their service orientation, and implement concrete measures to develop credit products tailored to diverse customer segments. They should enhance financial services, increase financial support for the real economy, foster a favorable financial environment for its growth, effectively unblock channels through which financial services reach the real economy, and contribute to supply‑side structural reform.

VII. Strengthen Coordination and Cooperation

Private lending activities are complex and involve numerous stakeholders. In accordance with the provisions of the Banking Supervision and Administration Law of the People’s Republic of China, the Commercial Bank Law of the People’s Republic of China, and the Measures for the Prohibition of Illegal Financial Institutions and Illegal Financial Business Activities, local people’s governments and relevant departments shall strengthen coordination and cooperation and perform their duties in compliance with the law.

VIII. Investigate and Handle in Accordance with the Law

(1) With respect to acts that violate public security administration regulations or are suspected of constituting crimes—such as issuing private loans using illegally raised funds, including illegally absorbed deposits and disguised forms of public deposit‑taking; collecting private loan debts through unlawful means, including intentional injury, illegal detention, insult, intimidation, threats, and harassment; and obtaining credit funds from banking financial institutions only to re‑lend them at usurious interest rates—public security organs shall, in accordance with the law, conduct investigations and take appropriate measures, and shall forward all relevant materials pertaining to such illegal private‑loan activities to the banking regulatory authorities.

(2) With respect to banking financial institution employees who engage in illegal financial activities, the banking financial institutions shall impose disciplinary sanctions; where such conduct constitutes a crime, criminal liability shall be pursued strictly in accordance with the law.

(3) With respect to intermediary agencies engaged in businesses such as private lending consulting, the administration for industry and commerce and market supervision authorities shall strengthen oversight in accordance with the law.

IX. Strengthen Public Awareness and Guidance

Banking regulatory authorities, public security organs, industrial and commercial administration and market supervision departments, the People’s Bank of China, and other relevant agencies have adopted a variety of effective measures to disseminate national financial laws and regulations as well as credit‑related rules to the general public. They promptly release typical cases to the public, intensify publicity and education efforts, strengthen risk warnings, enhance the public’s awareness of risk prevention, and guide citizens to consciously resist illegal private lending activities.

Ten Major Challenges in Adjudicating Private Lending Cases

With the rapid socio-economic development and the increasing complexity and diversity of social conflicts, coupled with the deep integration of “Internet Plus” into everyday life, despite continuous improvements in legislation and the ongoing accumulation of judicial experience, certain issues inherent in private lending and those that persist in the process of social governance are reflected in judicial practice, posing numerous challenges to the adjudication of private‑lending cases.

(1) It is difficult to ascertain the objective facts of individual cases.

The distinctive features of private lending—namely, its blind, disorganized, and non‑standardized nature—significantly complicate the ascertainment of the facts. An analysis of cases concluded by the Beijing No. 1 Intermediate People’s Court over an eight‑year period reveals that more than 597 cases involved parties who had entered into no written loan agreement, accounting for approximately 19.92% of all such cases. A substantial portion of litigants, owing to insufficient legal knowledge, a weak awareness of evidentiary requirements, and inadequate evidentiary capabilities, are unable to produce documents such as promissory notes or contracts that would substantiate the existence of a lending relationship. Consequently, judges, in their role as fact‑finders, must rely on logical reasoning and social experience to reconstruct a factual scenario that is both plausible and reasonable. Moreover, in everyday practice, because promissory notes and IOUs are often straightforward and unambiguous, they are frequently used as evidence to settle other types of legal relationships. Parties frequently seek to formalize debts arising from transactions such as sales, partnerships, or gambling under the guise of private loans. The complexity of the underlying legal facts further exacerbates the difficulty of reconstructing the truth. When adjudicating such cases, courts must balance respect for the debt‑creditor agreements reached through settlement or liquidation in economic transactions—thereby easing the burden of proof—with vigilance against situations where some parties use private lending as a façade to conceal illicit activities that contravene public order and good morals, making fact‑finding particularly challenging.

(II) Difficulty in Achieving Uniformity in the Application of Judicial Standards to Similar Cases

In the “Provisions of the Supreme People’s Court on Several Issues Concerning the Application of Law in the Trial of Private Lending Cases,” which came into effect in September 2015, clear and detailed rules were established regarding the determination of private lending cases, evidentiary standards, interest calculation, and other specific matters. However, owing to the large volume of private lending disputes, the complexity and diversity of factual circumstances, disparities in parties’ evidentiary capabilities, the emergence of new social situations and issues, variations in judges’ discretionary standards for ascertaining legal facts, and the ongoing adjustments and evolution of legal norms, there objectively remains a lack of uniformity in the standards applied to similar cases.

(3) It is difficult to identify malicious collusion in fraudulent litigation.

Private lending has long been a hotbed for fraudulent litigation. In a typical civil action, the plaintiff and defendant engage in adversarial proceedings, presenting evidence to substantiate their claims and rebut the other party, thereby clarifying the facts of the case. However, in judicial practice, there are instances where both parties do not dispute the occurrence of the loan; where they provide vague or inconsistent accounts regarding the cause, time, place, source of funds, method of disbursement, and destination of the money; where large sums are allegedly paid in cash in ways that defy common sense; where the lender’s financial situation clearly indicates an inability to extend credit; or where one party deliberately fails to appear in court, seeking a default judgment. Such circumstances often conceal the true intent of fraudulently obtaining a court judgment or mediation agreement. Judges typically dismiss such cases by rendering judgments rejecting the parties’ claims. Nevertheless, identifying conclusive evidence of malicious collusion between the parties to fabricate litigation and imposing appropriate sanctions remains a significant challenge in current adjudication.

(4) Difficulty in Establishing the Criminal Nature of “Loan‑Trap” Practices

“Loan‑sharking schemes” refer to illegal and criminal practices in which perpetrators, under the guise of private lending, maliciously seize borrowers’ property and funds by inflating debts, fabricating evidence, and other means. Criminals first enter into artificially inflated or “yin‑yang” loan contracts that stipulate exorbitant interest rates. Then, exploiting borrowers’ financial desperation, they make false promises—such as claiming that the overblown portion need not be repaid or that a cash security deposit is required—to manufacture evidence of fund disbursement (e.g., bank statements). As a result, the actual amount received by the borrower falls far short of the sum reflected in the ostensibly presented “evidence.” Moreover, they set up various traps to prevent borrowers from repaying early or on schedule, thereby extracting hefty default penalties. Due to the limitations of fact‑finding methods in civil and commercial litigation, judges often face significant challenges in distinguishing suspected “loan‑sharking” schemes—particularly when clear “loan contracts” and detailed “bank statements” create an evidentiary advantage—especially in individual cases.

(5) Difficulties in Resolving Disputes at the Second Instance

Data show that the proportion of cases in which the Beijing No. 1 Intermediate People’s Court reached settlement through mediation and subsequently withdrew the lawsuit fell steadily from 45.36% in 2011 to 21.56% in 2018, reflecting, from one perspective, the growing difficulty of resolving disputes at the second-instance level. The reasons are as follows: First, the vast majority of disputes involving minor controversies and relatively small claims have already been effectively resolved through pre-litigation diversified mediation and first-instance litigation; consequently, the cases that proceed to the second instance are typically those with larger stakes or more intense adversarial conflicts, leaving very little room for de-escalation. Second, with socio‑economic development, private lending has increasingly become a new avenue for investment and wealth management, expanding from traditional close‑knit networks to the broader public. As personal ties within familiar circles weaken and the profit‑driven nature of lending becomes more pronounced, there is an objective tendency toward maximizing returns—over the past eight years, the share of cases with explicit interest agreements rose from 19.29% to 68.08%, while the proportion of cases with interest rates set at the statutory maximum increased from 5.56% to 63.33% by 2018. Third, lenders’ legal awareness and risk‑assessment capabilities continue to improve, and mechanisms for transferring credit rights have diversified, all of which further narrow the scope for mediation and compromise.

(6) Legal Regulation of Inter‑Enterprise Lending Is Difficult

Temporary inter‑company lending conducted with a company’s own funds can enhance the efficiency of idle capital and play a crucial role in alleviating enterprises’ financing difficulties. However, in practice, there are also behaviors that urgently require legal regulation, such as companies fraudulently obtaining bank credit only to re‑lend it at exorbitant interest rates; raising funds from their employees and then re‑lending them for profit; and engaging in commercial lending as a core business, thereby disrupting the financial regulatory order. A key challenge in judicial practice lies in determining the facts of whether a company has engaged in usurious re‑lending or commercial lending, as well as allocating the burden of proof. Such determinations must be made through a comprehensive assessment of factors including the company’s registered capital, working capital, sources of funds, loan amounts, borrowing frequency, interest terms, the relationship between the parties, and the proportion of profits derived. Judges are required not only to possess legal expertise but also to have a solid understanding of finance; this dual demand places high standards on judges’ overall competence and, at the same time, objectively contributes to the current difficulty of judicial oversight.

(7) It is difficult to guide and regulate professional lending activities.

With the continuous development of the private lending market, in recent years there have emerged entities that, without approval from financial regulatory authorities and lacking the requisite qualifications to issue loans, nonetheless lend funds to unspecified members of the public in exchange for exorbitant interest—characterized by commercial and recurrent activity—as well as individuals for whom lending constitutes a major source of income, regularly extending loans to an indefinite pool of borrowers and reaping substantial interest. In cases adjudicated by the Beijing No. 1 Intermediate People’s Court in 2018, six proceedings involved lenders who were parties in ten or more cases; notably, a single individual, surnamed Liu, was a party in as many as ninety such cases. Under the law, no entity or individual may, without lawful approval from the People’s Bank of China, establish a financial institution or engage in financial business activities on its own initiative. A salient feature of professional loan sharks is that they disguise banking‑related operations under the guise of “private lending,” thereby circumventing state regulation. Such conduct objectively results in substantial sums of capital operating outside the national financial regulatory framework, to some extent undermining the stability of the national financial order. However, given the current absence of specific legislative guidance or regulatory provisions governing professional lending activities and the associated group, judicial practice currently confines the treatment of suspected professional lenders’ lending activities within the rubric of private lending. Consequently, determining how to define an individual’s professional lending behavior, whether to deem their loan contracts invalid on the grounds of statutory violation, and how best to strengthen oversight and regulation of professional lenders have all become pressing challenges in contemporary judicial practice.

(8) Difficulties in Handling Online Lending Cases

In the information age, while online lending has surged, it has also given rise to numerous new issues, posing fresh challenges for the judiciary. First, many platforms lack adequate compliance; practices such as accepting debt‑transfer assignments, providing external guarantees, and channeling funds through proprietary pools are commonplace. The line between illegal fundraising and legitimate financing has become increasingly blurred, leading to acute cross‑border legal problems involving both criminal and civil law. Second, online lending involves large numbers of participants and substantial sums of money; when a platform collapses, it can trigger significant social and financial risks. Third, the volume of civil disputes arising from online lending is enormous; once litigation erupts, the limited judicial resources must contend with an overwhelming caseload, making the efficient resolution of these disputes a pressing issue. Fourth, in individual cases, novel questions continue to emerge that demand urgent attention—such as the collection, preservation, and authentication of electronic evidence, and whether online platforms, acting as third‑party intermediaries that charge exorbitant management and service fees, may be circumventing interest‑rate caps in specific circumstances. In sum, balancing legal frameworks and policy objectives, and navigating the interface between criminal and civil law, the judiciary faces the critical challenge of strengthening coordination with administrative authorities, safeguarding the legitimate interests of all stakeholders, and fostering the sound development of the online‑lending market.

(9) It is difficult to distinguish between financial innovation and implicit lending.

Finance is the lifeblood of the real economy. By offering more targeted financial instruments, services, and transaction mechanisms, financial innovation meets society’s financing needs both in quantity and quality, making it of great significance. The 24% cap on interest rates for private lending has attracted substantial public capital; meanwhile, many schemes, cloaked in the banner of financial innovation, circumvent regulatory oversight, blurring the line between legitimate financial products and informal lending. For example, in some finance‑lease arrangements, only cash flows are exchanged without any actual transfer of leased assets; in certain trade transactions, “invoices and documents move, but goods do not,” with funds being lent under the guise of commercial contracts; in some entrusted wealth‑management products, fixed‑return, principal‑and‑interest‑guaranteed structures are blatantly imposed in violation of regulatory rules to lure clients; and some private equity funds, ostensibly structured as partnership investments, effectively promise investors high returns through third‑party guarantees and other means. Similarly, certain trust companies employ various measures to ensure the safe exit of senior‑class beneficiaries while saddling junior‑class investors with all losses, thereby achieving de facto principal‑and‑interest protection. These diverse forms of financial innovation muddle the boundaries between different financial activities and lending, posing significant challenges for government regulators and complicating the resolution of legal disputes.

(10) The intertwined nature of multi‑layered legal issues makes identification and determination difficult.

At present, China’s legal framework governing private lending is primarily set out in the General Provisions of the Civil Law, the Contract Law, and the Supreme People’s Court’s Provisions on Several Issues Concerning the Application of Law in the Trial of Private Lending Cases. In addition, specific cases often involve numerous cross‑disciplinary issues that intersect with other sectoral laws, such as the Property Law, the Security Law, the Marriage Law, and the Criminal Law. Some private‑lending disputes raise questions about whether a debt constitutes a joint obligation of spouses, requiring a reasonable assessment of the family’s daily living needs. Others concern the characterization of novel forms of security, necessitating the treatment of situations such as assignment‑based security. Moreover, many cases are intertwined with offenses like illegally absorbing public deposits, fundraising fraud, and illegal business operations, giving rise to distinct criminal and civil proceedings stemming from the same or overlapping factual circumstances—thus creating civil‑criminal intersection issues. Such intersections entail challenges in coordinating civil and criminal procedural frameworks and in determining substantive liability, making them particularly difficult points of legal application in judicial practice.

Other

Draft amendment to the Law on Administrative Penalties: Proposed reduction of the age for administrative detention from 16 to 14 years old.

In January 2017, the Ministry of Public Security released a draft amendment to the Law on Administrative Penalties for Public Order (hereinafter referred to as the “draft”) for public comment. Compared with the current law, the draft abolishes the provision that exempts minors aged 14 to 16 from administrative detention.

In response, Professor Song Yinghui of Beijing Normal University stated bluntly that administrative detention is an administrative penalty that struggles to fulfill its educational and rehabilitative functions. The most pressing issue today is the lack of effective follow-up mechanisms for supervision and reintegration support.

“To ensure the scientific and effective handling of juvenile offenders, it is recommended that, when amending the Law on Administrative Penalties for Public Security, a formal system of assistance and education be explicitly stipulated,” said Yuan Ningning.

Lowering the minimum age for administrative detention remains controversial.

Under the current Law on Administrative Penalties for Public Security, for minors who are “at least fourteen years old but under sixteen” or “at least sixteen years old but under eighteen and committing a public security violation for the first time,” if administrative detention would otherwise be imposed under this law, such administrative detention shall not be enforced.

Song Yinghui pointed out that, without subsequent supervision and rehabilitation measures, the psychological and behavioral abnormalities of juvenile offenders remain unresolved, which can even lead some minors to reoffend.

To eradicate this persistent problem, the draft for public comment proposes lowering the age of administrative detention from sixteen to fourteen years old.

The draft for public comment stipulates that, with respect to minors who are “at least fourteen years old but under eighteen and committing a violation of public order for the first time,” where administrative detention would otherwise be imposed under this Law for such violations, no administrative detention shall be imposed.

Experts hold differing views on the amendment to this provision.

“Typically, fourteen-year-olds are junior high or first-year high school students—age groups that are at the most active and rebellious stage of adolescence. Lowering the minimum age for administrative detention can serve as a deterrent to school bullying and play a crucial role in safeguarding school safety and social stability,” said Chang Jinfeng, a lecturer at the School of Ethnology and Sociology of Northwest University for Nationalities.

However, Song Yinghui and Yuan Ningning argue that lowering the age of administrative detention may not achieve the original intent of protecting minors.

“Administrative detention is a temporary measure that restricts personal freedom. The transition from freedom of movement to closed‑door confinement can have profound effects on minors’ brains, personalities, and mental health, and may even contribute to the development of an antisocial personality, making future rehabilitation far more challenging,” said Yuan Ningning.

A lack of follow-up educational measures may lead to recidivism.

Zhao Xuegang, head of the Juvenile Prosecution Section of the Huaiyin District People’s Procuratorate in Huai’an City, Jiangsu Province, fully shares the concerns expressed by Song Yinghui and Yuan Ningning.

In early 2017, the Huaiyin District People’s Procuratorate conducted a statistical analysis and survey of 103 criminal cases involving minors handled between 2014 and 2016. Among them, 54 individuals had prior administrative penalties, accounting for 52.4% of all juvenile offenders.

“Administrative detention tops out at 15 days—so what happens after they’re released? Will these young people turn over a new leaf because of a 15‑day stint in detention, or will they simply give up on themselves? Based on our experience handling such cases, the latter scenario is clearly more likely,” said Zhao Xuegang.

Yuan Ningning also believes that imposing administrative detention on minors of school age can easily give rise to a labeling effect, leading to their exclusion or discrimination and creating obstacles to their return to normal academic and daily life.

Zhao Xuegang believes that when minors encounter problems, the root cause is often improper family and social education. In such cases, parents and society should engage in greater self-reflection rather than simply resorting to punishment as a one‑size‑fits‑all solution.

“The lack of follow-up educational and rehabilitative measures is a major factor contributing to juvenile recidivism,” said Zhao Xuegang.

Public security organs shall, when necessary, conduct follow-up assistance and education.

Qi Yanyan, a team leader at the Haidian Branch of the Beijing Municipal Public Security Bureau, underscored the importance of the assistance-and-education mechanism through case studies and statistical data.

Recently, Beijing police uncovered a case of prostitution involving minors. A 16-year-old girl, surnamed Long, and a 15-year-old girl, also surnamed Long, dropped out of school in their hometown and came to Beijing to engage in prostitution. They were subsequently apprehended by officers at their temporary residence. As both girls were first-time offenders, the police imposed administrative detention, with the sentence suspended.

While imposing penalties on the two individuals, police conducted a comprehensive assessment of their personal backgrounds, family circumstances, and psychological well-being, and decided to collaborate with judicial social workers to provide follow-up counseling and support. At present, thanks to the concerted efforts of multiple parties, the two young women have safely returned to their hometowns and resumed stable, secure lives.

At the beginning of this year, the Beijing Municipal Public Security Bureau issued specific regulations on the handling of cases involving minors and on their assistance and education.

“A few years ago, the Haidian Branch pioneered a guidance-and-rehabilitation system nationwide, with the case-handling police officer, a judicial social worker, the juvenile offender, and the offender’s parents jointly overseeing and taking responsibility for the process. From 2013 to the present, we have provided assistance and education to more than 800 minors, and fewer than five of them have reoffended,” said Qi Yanyan.

Yuan Ningning argues that the provisions in Chapter Two (Types and Application of Penalties) pertaining to minors could be consolidated and set forth as a separate article in an appropriate location. The specific provision would read: “Where a minor who has reached the age of twelve but is under the age of eighteen violates public order administration, the public security organ may, depending on the circumstances of the case, refer the matter to the school for admonishment; where necessary, a support-and-education group shall be established and a corrective plan formulated.”

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