JC Master Legal News Issue 888

Key Takeaways for This Issue

Strict review procedures have become the norm; this year, the approval rate for M&A and restructuring applications by listed companies stood at 83%.

Since the beginning of this year, the China Securities Regulatory Commission has tightened its review process for mergers and acquisitions and restructuring. According to data on the CSRC’s official website, as of September 19, the M&A and Restructuring Review Committee had convened 39 meetings, reviewing 65 transactions. Of these, 54 companies received approval, while 11 were rejected, resulting in an approval rate of 83%, which is lower than the level recorded during the same period last year.

COFCO Biochemical plans to launch a restricted stock incentive plan for 31.83 million shares.

 On the evening of September 20, COFCO Biochemical disclosed a draft restricted stock incentive plan, under which the company intends to grant 31.8307 million restricted shares to eligible participants, with the shares to be issued through a targeted offering to those recipients.

Notice on the Comprehensive Implementation of the Transfer of a Portion of State-Owned Capital to Replenish the Social Security Fund

To comprehensively implement the transfer of a portion of state-owned capital from the central and local governments to replenish the social security fund, and with the approval of the State Council, the relevant matters are hereby notified.

The Beijing Higher People’s Court has introduced two measures to promote the deep integration of Party building with judicial work.

To strengthen the political development of the Party within the courts and enhance the organizational capacity of grassroots Party organizations, the Beijing Higher People’s Court recently issued two measures: the “Several Measures on Further Strengthening and Improving Grassroots Party Building in the Capital’s Courts under the Leadership of Political Development” and the “Guiding Opinions on Further Standardizing the Construction of Party Groups in the Capital’s Courts,” thereby promoting the deep integration of Party building with judicial work.

Zhengzhou Elevator Smoking-Prevention Case

The Zhengzhou Intermediate People’s Court held that, although Yang did not file an appeal, the first-instance judgment erred in its application of the law and thereby harmed the public interest; accordingly, it reversed the first-instance judgment and dismissed Tian’s claim.

Table of Contents

Table of Contents

Finance & Capital Markets

Northbound funds have recorded net inflows for 13 consecutive trading days, injecting over RMB 54 billion into A-shares.

Public Notice on the Acceptance and Review of Administrative License Applications by Securities and Fund Management Institutions

Notice on Market Closure Arrangements for the 2019 National Day Holiday

Strict review procedures have become the norm; this year, the approval rate for M&A and restructuring applications by listed companies stood at 83%.

The Shenzhen Stock Exchange and Harbin Electric Group have signed a strategic cooperation framework agreement to provide multi-channel, comprehensive support for state-owned enterprise reform.

Corporate & Commercial

COFCO Biochemical plans to launch a restricted stock incentive plan for 31.83 million shares.

Beilu Pharmaceutical has launched an equity incentive plan, aiming to push its 2020 revenue toward RMB 1 billion.

A super “giant” enterprise has been born: China Baowu restructures Maanshan Iron & Steel Group.

“Small Bread” Fuels “Big Business”: Taoli Bread Raises Another RMB 1 Billion to Strengthen Its Market Presence

Next, a formal investigation will be launched into the “pre‑penalty notice”; Jiajia Food’s 4.7‑billion‑yuan acquisition deal remains pending recovery.

Taxation

Notice on the Comprehensive Implementation of the Transfer of a Portion of State-Owned Capital to Replenish the Social Security Fund

Q&A by a responsible official of the Ministry of Finance on the “Notice of the Ministry of Finance, the Ministry of Human Resources and Social Security, the State-owned Assets Supervision and Administration Commission, the State Taxation Administration, and the China Securities Regulatory Commission on Fully Launching the Transfer of a Portion of State Capital to Replenish the Social Security Fund”

Tax cuts and increased spending are being intensified, ensuring stable fiscal operations.

Fiscal Revenue and Expenditure in August 2019

Taizhou City, Jiangsu Province, has increased fiscal investment to boost high-quality education development.

Litigation & Arbitration

Deepen judicial exchanges and cooperation, and advance Belt and Road cooperation.

Beijing Internet Court’s First Anniversary: Setting the Rules for Online Litigation

The Beijing Higher People’s Court has introduced two measures to promote the deep integration of Party building with judicial work.

Jiangsu courts have surpassed 1 million live-streamed court hearings.

Making Life Easier for the Public and Enabling Judges to Focus—A Record of the Taizhou Jiangyan District People’s Court’s Reform Toward Centralized and Socialized Judicial Support Services

Other

Zhengzhou Elevator Smoking-Prevention Case

Finance & Capital Markets

Northbound funds have recorded net inflows for 13 consecutive trading days, injecting over RMB 54 billion into A-shares.

　Data show that, as of yesterday’s close, Shanghai Stock Connect recorded a net outflow of RMB 333 million, while Shenzhen Stock Connect saw a net inflow of RMB 423 million, bringing the cumulative net inflow of northbound funds to RMB 90 million for the day. Notably, this marks the 13th consecutive trading day since August 29 this year that northbound funds have posted a net inflow, with total cumulative inflows reaching RMB 54.136 billion.

Guo Yiming, Director of Investment Advisory at Jufeng Investment Consulting, stated that recently, foreign capital has been accelerating its entry into the A-share market, primarily driven by a rebound in market risk appetite amid improving domestic and international conditions. At the same time, as China’s capital markets continue to open up further, new investment demands from international investors have created favorable opportunities for foreign capital to enter the market.

Guo Yiming analyzes that, driven by the inversion of U.S. Treasury yield curves and expectations that the U.S. economy may be peaking, risk-averse sentiment among international investors has intensified. At the same time, A‑share markets have demonstrated attractive valuation levels, which has become a key factor in attracting foreign capital. Furthermore, following MSCI’s increase of the inclusion ratio for A‑shares to 15% in August, both the FTSE Russell Index and the S&P Dow Jones Indices expanded their A‑share coverage in September. Influenced by the “herding effect,” these moves have provided substantial support for foreign investment in A‑shares.

According to the schedule, the inclusion of A-shares in both the FTSE Russell and S&P Dow Jones Indices will take effect simultaneously at the market open on September 23. Industry analysts generally forecast that, following the S&P Dow Jones Indices’ decision to include A-shares with a 25% weighting factor, the index could bring approximately $6.2 billion in additional capital to the market—comprising about $1.1 billion in passive funds (roughly RMB 7.8 billion) and $5.1 billion in active funds (around RMB 36.1 billion). Meanwhile, the FTSE Russell’s move to raise the inclusion ratio for A-shares from 5% to 15% is also expected to inject roughly $4.9 billion in fresh capital, including about $4 billion in passive funds (approximately RMB 28.3 billion) and $900 million in active funds (around RMB 6.4 billion). Taken together, the FTSE Russell and S&P Dow Jones Indices are projected to add nearly RMB 80 billion in new capital to the A-share market.

“Although the additional RMB 80 billion in capital is only a preliminary estimate, based on past market performance when A-shares were added to major indices, we expect northbound funds to continue to perform well on that day, with potentially substantial net inflows,” said Guo Yiming.

Public Notice on the Acceptance and Review of Administrative License Applications by Securities and Fund Management Institutions

In accordance with the requirements for implementing the Administrative Licensing Law of the People’s Republic of China and the Regulations on the Procedures for Implementing Administrative Licenses of the China Securities Regulatory Commission, and with the aim of further standardizing administrative licensing practices, serving investors, and adhering to the principles of openness, fairness, impartiality, and convenience, we hereby make public the acceptance and review status of administrative license applications submitted by securities and fund management institutions.
1. The public notice shall include information on the applicant and the application matter, the receipt and acceptance of application materials, the review process and feedback, the administrative licensing decision, and explanations regarding related matters.
2. The public notice presents the review progress of administrative licenses for securities and fund management institutions in tabular form.
3. The public notice table is updated weekly, with each update superseding the previous week’s progress. With respect to administrative license applications that have been approved as of the date of this notice, they will no longer be published on the next notice date.
4. Regarding acceptance: The date of receipt of the application materials is the date on which the accepting department issues the receipt to the applicant. The date of supplementary submission is the date on which the accepting department issues the notice requiring the applicant to submit supplementary materials. The date of the acceptance decision is the date on which the accepting department renders its acceptance decision. If the supplementary materials submitted by the applicant are not filed within the prescribed time limit, or if the supplementary materials are incomplete or do not conform to the legally prescribed format, the application shall not be accepted.
5. Regarding review: The time limit for administrative licensing review shall be calculated from the date on which the decision to accept the application is made. The period between the date the reviewing authority issues its feedback and the date it receives a written response that meets the requirements shall not be included in the review period. If the reviewing authority conducts an on-site inspection of the application materials or verifies relevant complaint materials, the period from the date the inspection decision is made to the date the inspection is completed shall not be counted toward the review period. The period from the date the reviewing authority, in accordance with the law, notifies experts to attend the review meeting to the date the meeting concludes shall not be included in the review period. Likewise, the period from the date the reviewing authority formally notifies the applicant of the suspension of the review to the date it formally notifies the applicant of the resumption of the review shall not be counted toward the review period.
In the review column of the public notice, “Circumstances Requiring Clarification” shall specify the start and end dates for matters such as the submission of written feedback by the reviewing authority and the suspension of the review; the date on which the applicant withdrew the administrative licensing application; and any new circumstances or issues arising in the application that require further study and clarification of relevant policies.
6. Regarding decisions: Specify the date on which the reviewing authority issued the decision to terminate the review, the decision to grant an administrative license, or the decision to deny an administrative license.

Notice on Market Closure Arrangements for the 2019 National Day Holiday

In accordance with the “Notice on Market Closure Arrangements for Certain Holidays in 2019” (SZSE [2018] No. 569), the Shenzhen Stock Exchange will be closed from Tuesday, October 1, to Monday, October 7, and will resume normal trading starting Tuesday, October 8. In addition, trading will be suspended on Sunday, September 29, and Saturday, October 12, as these are weekend holidays.

In accordance with the “Notice on the Shanghai Stock Exchange’s Year-End Holiday Schedule for 2019” (SSE Announcement [2018] No. 39), the Shanghai Stock Exchange will be closed from Tuesday, October 1, to Monday, October 7, and will resume regular trading on Tuesday, October 8. In addition, trading will be suspended on Sunday, September 29, and Saturday, October 12, as weekend holidays.

To ensure the smooth continuation of trading following the National Day holiday, the Shanghai Stock Exchange will conduct a trading system connectivity test on Monday, October 7, 2019, from 9:15 a.m. to 11:30 a.m.

Matters relating to the settlement will be handled in accordance with the arrangements of China Securities Depository & Clearing Corporation Limited.

Strict review procedures have become the norm; this year, the approval rate for M&A and restructuring applications by listed companies stood at 83%.

Since the beginning of this year, the China Securities Regulatory Commission has tightened its review process for mergers and acquisitions and restructuring. According to data on the CSRC’s official website, as of September 19, the M&A and Restructuring Review Committee had convened 39 meetings, reviewing 65 transactions. Of these, 54 companies received approval, while 11 were rejected, resulting in an approval rate of 83%, which is lower than the level recorded during the same period last year.

In response, Ge Shoujing, a senior researcher at the Rushi Financial Research Institute, stated that the CSRC’s stringent oversight of mergers and acquisitions (M&A) and restructuring stems from two key factors: First, regulators have never relaxed their scrutiny of M&A and restructuring criteria; since the beginning of this year, they have imposed even higher standards on post‑transaction profitability and the synergy between the target company and the acquirer’s existing business. Second, regulators aim to enhance the A‑share market’s standardization and transparency by maintaining rigorous oversight.

Notably, a recent spokesperson for the China Securities Regulatory Commission (CSRC) stated that the M&A and restructuring sector of listed companies is a hotbed for insider trading and a key focus of the CSRC’s efforts to regulate and crack down on such illegal activities. The CSRC will continue to take stringent measures against insider trading, officely safeguarding a fair and impartial market order and protecting the legitimate rights and interests of the broad base of small and medium-sized investors.

“Mergers and acquisitions, as well as corporate restructuring, often involve complex scenarios such as major asset restructurings, related-party transactions, and equity acquisitions. Their flexibility, specificity, and intricacy significantly increase the difficulty of assessing and discerning the true nature of these transactions, making them a hotbed for insider trading by listed companies,” said Pan Helin, a senior researcher at Pangoal Institute.

Pan Helin stated that regulatory authorities have intensified penalties for false disclosures and insider trading, innovated enforcement mechanisms, and enhanced deterrence against illegal activities in the M&A and restructuring process through measures such as unscheduled on-site inspections, public warning lists, and capital market credit ratings.

Industry insiders note that the China Securities Regulatory Commission has tightened its review of mergers and acquisitions and restructuring, ensuring a high‑quality gatekeeping process. At the same time, institutional benefits are gradually being realized, effectively boosting market dynamism in the M&A and restructuring space.

From September 16 to 17, Yi Huiman, Chairman of the China Securities Regulatory Commission, stated during a field visit to Shanxi that the CSRC will continue to support Shanxi in areas such as the listing of high-quality companies, mergers and acquisitions, and comprehensive pilot reforms related to the energy revolution, thereby better serving the development of the local real economy.

On June 20 this year, the China Securities Regulatory Commission (CSRC) launched a public consultation on amendments to the Measures for the Administration of Major Asset Restructurings of Listed Companies. The proposed changes—including a narrowing of the criteria for determining restructuring transactions, a shortening of the review period, allowing companies listed on the ChiNext Board to be acquired through backdoor listings, and the resumption of accompanying financing—have further fueled market optimism about the restructuring landscape.

 In Ge Shoujing’s view, mergers and reorganizations can swiftly help listed companies grow in scale and strength, enhance the quality of existing listed offices, attract more investors, and invigorate the A-share market. At the same time, such consolidations can channel more capital into the real economy, improve the structure of the financial system, and reduce risks in the A-share market.

Mergers and acquisitions (M&A) and corporate restructuring have increasingly become key mechanisms for enhancing the quality of listed companies. Pan Helin argues that, against the backdrop of economic transformation and upgrading, supply-side structural reforms in the capital market are steadily advancing. Leveraging their flexibility and unique characteristics, M&A and restructuring are likely to emerge as the primary arena for unlocking and revitalizing existing resources within the capital market. By integrating industrial resources through M&A and restructuring, these initiatives can help enterprises reduce excess capacity and deleverage, while fostering the growth and development of industry-leading offices—thereby effectively supporting the high-quality development of the real economy.

The Shenzhen Stock Exchange and Harbin Electric Group have signed a strategic cooperation framework agreement to provide multi-channel, comprehensive support for state-owned enterprise reform.

On September 17, the Shenzhen Stock Exchange and Harbin Electric Corporation (hereinafter referred to as Harbin Electric Group) signed a strategic cooperation framework agreement. Wang Jianjun, Deputy Secretary of the Party Committee and General Manager of the Shenzhen Stock Exchange, and Wu Weizhang, Deputy Secretary of the Party Committee and General Manager of Harbin Electric Group, among others, attended the symposium and the signing ceremony.

The signing of this strategic cooperation framework agreement represents a milestone achievement resulting from the two parties’ pragmatic collaboration to date, and marks another significant step taken by the Shenzhen Stock Exchange in proactively supporting the deepening of strategic partnerships with central state-owned enterprises, fostering their high-quality development, and contributing to the national strategy for revitalizing Northeast China. Under the agreement, the two sides will intensify their cooperation in areas such as standardizing and developing listed‑company platforms, jointly cultivating IPO candidates, issuing fixed‑income products, connecting industry‑finance platforms, and conducting regular specialized training sessions, thereby further broadening the scope of collaboration and elevating its overall level.

As a pioneer of the Republic’s equipment manufacturing industry, Harbin Electric Group has, for more than six decades, been committed to revitalizing and advancing China’s equipment manufacturing sector. It has forged a distinctive path of success—“introduction, digestion, absorption, and re‑innovation”—and made outstanding contributions to the nation’s power‑generation infrastructure.

As a core institution and a key platform in the capital markets, the Shenzhen Stock Exchange provides multi‑channel, comprehensive support for state‑owned enterprise reform. To date, it has established diversified partnerships with 61 central state‑owned enterprise groups, facilitated the issuance of fixed‑income products totaling over RMB 660 billion, and collaborated on developing a series of innovative products, including ETFs focused on the structural adjustment of central SOEs. These efforts have helped state‑owned enterprises leverage the capital markets to enhance their competitiveness and strengthen their operations, yielding positive results in preserving and increasing the value of state assets, broadening financing channels, and advancing mixed‑ownership reform.

Commercial & Corporate

COFCO Biochemical plans to launch a restricted stock incentive plan for 31.83 million shares.

 On the evening of September 20, COFCO Biochemical disclosed a draft restricted stock incentive plan, under which the company intends to grant 31.8307 million restricted shares to eligible participants, with the shares to be issued through a targeted offering to those recipients.

The draft indicates that the shares granted under this restricted stock incentive plan represent approximately 1.723% of COFCO Bio’s total share capital. The eligible participants include the company’s directors, senior management, and key managerial, technical, and business personnel who have a direct impact on the company’s operating performance and sustainable development. A total of 645 individuals were granted shares in the initial round, accounting for 5.26% of the company’s total workforce, including six directors and senior executives, 149 managers, and 490 core business professionals.

The incentive plan shall be valid for a period of 10 years from the date it is approved by the shareholders’ meeting. The restricted shares granted for the first time shall have a validity period of 6 years, with a lock-up period of 2 years and an unlock period not exceeding 4 years. With September 21, 2019—the date the draft was published—designated as the base date, the grant price of the shares under the incentive plan will be set at 70% of the average trading price on the pricing base date, resulting in a final grant price of RMB 4.92 per share. The lock-up period will last 24 months, after which the shares will be unlocked in four tranches, each representing 25% of the total.

The performance‑based vesting criteria for the incentive plan are as follows: within each of the following four periods—24 to 36 months, 36 to 48 months, 48 to 60 months, and 60 to 72 months after grant—the return on equity must be no less than 4.2%, 4.4%, 4.6%, and 4.8%, respectively, and must also meet or exceed the 75th percentile of the benchmark companies; the compound annual growth rate of net profit, using 2018 net profit as the base, must be no less than 1.8%, 2.0%, 2.7%, and 4.9%, respectively, and must likewise meet or exceed the 75th percentile of the benchmark companies; and the total asset turnover ratio must be no less than 80% in each period, with a minimum threshold equal to the 75th percentile of the benchmark companies. In addition, for the most recent year, the company’s return on equity must be no less than 4% and must not fall below either the average of the prior three years or the average of the benchmark companies; net profit for the most recent year must be no less than RMB 380 million and must not be lower than either the average of the prior three years or the average of the benchmark companies; and the total asset turnover ratio for the most recent year must be no less than 80% and must not be below the average of the prior three years or the average of the benchmark companies.

Currently, COFCO Biochemical is facing downward pressure on its profitability. In 2018, the company reported operating revenue of RMB 17.704 billion, up 11.40% year over year, while net profit stood at RMB 483 million, down 48.02% from the prior year. According to the interim report, for the period January–June this year, operating revenue reached RMB 8.895 billion, a 0.18% increase year over year, while net profit totaled RMB 186 million, down 48.99% compared with the same period last year.

Beilu Pharmaceutical has launched an equity incentive plan, aiming to push its 2020 revenue toward RMB 1 billion.

Recently, Beilu Pharmaceutical officially released the “2019 Restricted Stock Incentive Plan (Draft),” proposing to grant restricted shares to a total of 44 individuals—directors, senior management, mid-level managers, and core technical (business) personnel—who have a direct impact on the company’s operating performance and future development. The plan covers 5.7 million shares, representing 1.166% of the company’s total share capital, at an exercise price of RMB 4.65 per share.

The draft equity incentive plan indicates that the restricted shares to be granted will vest in three tranches, with performance‑based vesting periods spanning 2019, 2020, and 2021. The assessment criteria comprise both corporate‑level and individual‑level metrics.

According to the 2018 annual report, Beilu Pharmaceutical recorded operating revenue of RMB 608 million in 2018, a year-on-year increase of 16.37%. Based on this, the company has set performance targets of at least RMB 790 million in 2019, at least RMB 991 million in 2020, and at least RMB 1.167 billion in 2021.

This equity‑based incentive plan is the first performance‑linked compensation scheme launched by the company since its new chairman, Wang Xu, assumed office in August. Mr. Wang stated that talent is the cornerstone of corporate competitiveness, and that equity incentives help listed companies align the interests of their core management team, thereby enabling them to pursue more ambitious performance targets. According to the list of eligible participants disclosed in the company’s announcement, four members of the board of directors are included, three of whom also hold senior executive positions; the shares proposed for grant account for 42.11% of the total incentive pool. This underscores the senior management team’s strong confidence in the company’s sustained, rapid growth going forward.

The announcement indicates that this equity incentive plan will be submitted to the Second Extraordinary Shareholders’ Meeting of Beilu Pharmaceutical for 2019, scheduled for October 10, for deliberation.

As the first private enterprise in China to launch contrast‑agent products and successfully break the foreign monopoly, Beilu Pharmaceutical will, in the future, pursue the goal of “grounding itself in precision diagnostics and striving for physical and mental well‑being.” While ensuring the steady growth of its existing businesses, the company will keep pace with the times, continuously seeking opportunities for industrial integration in the fields of medical imaging, the central nervous system, endocrinology, and precision medicine. It will expand its product portfolio, cultivate new sources of profit growth, and strive to become a leading pharmaceutical enterprise in China’s health‑care sector.

A super “giant” enterprise has been born: China Baowu restructures Maanshan Iron & Steel Group.

On the afternoon of September 19, the signing ceremony for the restructuring implementation agreement between China Baowu and Maanshan Iron & Steel Group was held in Hefei. Li Jinbin, Secretary of the Anhui Provincial Party Committee and Director of the Standing Committee of the Anhui Provincial People’s Congress; Hao Peng, Secretary of the Party Committee and Director of the State-owned Assets Supervision and Administration Commission of the State Council; Li Guoying, Deputy Secretary of the Anhui Provincial Party Committee and Governor of Anhui Province; Chen Derong, Secretary of the Party Committee and Chairman of China Baowu; and other relevant leaders witnessed the signing.

In his address, Deng Xiangyang, Member of the Standing Committee of the Anhui Provincial Party Committee and Executive Vice Governor, pointed out that the joint restructuring of China Baowu and Maanshan Iron & Steel Group is a pragmatic step to deepen the implementation of the national strategy for integrated development in the Yangtze River Delta and to strengthen coordinated regional economic growth. It will further advance the strategic realignment of the state‑owned economy and foster strong‑to‑strong partnerships that leverage complementary strengths.

In his address, Chen Derong stated that the joint restructuring of China Baowu and Maanshan Iron & Steel Group represents a continuation of their long-standing cooperation and a key step in advancing supply-side structural reform in the steel industry. This move will help raise the level of industrial concentration in China’s steel sector and foster a world-class steel enterprise with global competitiveness. Following the restructuring, China Baowu will leverage its own strengths alongside Maanshan’s distinctive product portfolio, increase investment and resource allocation within the Maanshan Group, optimize its product mix, enhance product quality, and develop a green, smart urban steel plant, thereby achieving synergistic development between a central state-owned enterprise and the regional economy.

According to data from the China Iron and Steel Association in 2018, China Baowu and Maanshan Iron & Steel Group produced 67.4294 million tons and 19.6419 million tons of crude steel, respectively, for a combined total of 87.0713 million tons. Meanwhile, ArcelorMittal, currently the world’s largest steelmaker, reported in its 2018 annual report that its crude steel output that year was 92.50 million tons. This suggests that, if the integration proceeds smoothly, the production gap between the restructured China Baowu and ArcelorMittal will narrow further.

In addition to the aforementioned restructuring signing ceremony, a symposium on central enterprises’ support for Anhui Province’s implementation of the Yangtze River Delta regional integration development strategy was also held in Hefei on the afternoon of September 19. During the symposium, representatives from five central enterprises—China Electronics Technology Group, China Energy Investment Corporation, China Baowu Steel Group, China General Technology Group, and China National Chemical Engineering Group—spoke in turn, and Anhui Province signed a series of cooperative projects with these central enterprises.

“Small Bread” Fuels “Big Business”: Taoli Bread Raises Another RMB 1 Billion to Strengthen Its Market Presence

Recently, Taoli Bread announced that it will raise up to RMB 1 billion through the issuance of convertible bonds. After deducting issuance expenses, the proceeds will be entirely allocated to the “Phase I Investment Project of Jiangsu Taoli Bread Co., Ltd.,” the “Bakery Products Production Project of Sichuan Taoli Bread Co., Ltd.,” the “Qingdao Taoli Food Bakery Products Production Base Project,” and the “Zhejiang Taoli Bread Co., Ltd. Production Base Construction Project.” During an online roadshow, Zhang Yin’an, the company’s board secretary, stated that this convertible bond offering will serve as a crucial pillar and a new starting point for Taoli Bread’s continued growth in the future.

Raising RMB 1 billion to enhance market deployment.

According to publicly disclosed information, the four projects that Taoli Bread plans to invest in—located in Jiangsu, Sichuan, Zhejiang, and Shandong—are all situated in densely populated regions. Building on its existing production capacity, the company intends to focus on expanding into the East China and Southwest China markets by establishing and upgrading production bases for its subsidiaries in Jurong, Chengdu, Qingdao, Jiaxing, and other locations. This strategy aims to broaden the sales radius of its baked goods, increase sales volume, and meet the growing, increasingly diversified needs of customers in surrounding baking markets.

A market professional familiar with the food industry stated, “For fast-moving consumer goods with short shelf lives, constraints imposed by their expiration dates and delivery frequency typically result in very limited sales radii. As a result, Taoli Bread’s ongoing efforts to refine its regional footprint represent an essential strategy for expanding its market share and solidifying its position as an industry leader.”

“As a staple food item, bread consumption has been steadily expanding in tandem with evolving lifestyles, presenting the industry with promising growth opportunities. Industry consolidation is also expected to continue, and in this context, companies will compete not only on quality and price but also on brand strength, market influence, and financial resources,” said the aforementioned market analyst. “By seizing early opportunities, refining strategic positioning, and scaling up, offices can both increase their market share and reduce distribution costs, while leveraging economies of scale to lower per-unit production costs and enhance profitability.”

In a relevant announcement, Taoli Bread stated that the funds raised will be primarily used to build production facilities and expand manufacturing capacity, thereby helping to further increase the company’s market share. Looking ahead, the company will continue to tap into the growth potential of mature markets in Northeast China, consolidating and expanding its market presence. At the same time, it will prioritize South China, East China, Central China, Northwest China, and Southwest China as key regions for future expansion, establishing a comprehensive and well‑structured retail distribution network that is more strategically aligned, better controlled, and more operationally efficient.

During an online roadshow, Sun Ying stated that, once the raised funds are in place, the company’s industrial footprint will be further refined as its development strategy advances and the funded projects are implemented. In the long term, the execution of the company’s strategy will strengthen its overall competitiveness and risk resilience, facilitate the optimization of key profitability metrics, and drive a further enhancement of its consolidated earnings capacity.

Securities offices have issued positive recommendations.

Many brokerage offices have issued positive assessments of Taoli Bread’s recent convertible bond offering. According to an investment‑value analysis report by Huatai Securities, the issuance size is moderate, the bond rating stands at AA, and the conversion premium is relatively high, providing a solid margin of safety for subscribers; the office recommends active subscription in the primary market. In its analysis, China Merchants Securities, after weighing the bond’s terms, the underlying stock’s price, and the company’s fundamentals, also advises subscribing. Meanwhile, Guojin Securities notes that Taoli’s convertible bonds offer a certain degree of downside protection, with a respectable conversion premium and standard‑issue features. As the leading short‑shelf‑life bread producer, Taoli Bread enjoys a degree of scarcity in the convertible‑bond market, prompting the office to recommend investors participate actively in the subscription.

Regarding Taoli Bakery’s recent project financing, Northeast Securities released a research report stating that the company has maintained steady growth in recent years. With continued strong demand for bakery products, both the parent company and its subsidiaries are operating at near‑full capacity, and existing production capacity can no longer keep pace with the company’s expansion needs. Issuing convertible bonds to build a new production base will address the current capacity bottleneck, helping the company broaden its sales reach, extend its distribution network, further increase its market share, and consolidate its leading position in the short‑shelf‑life baked goods market. Northeast Securities notes that Taoli Bakery has been deeply rooted in the baking industry for more than two decades; through channel penetration into lower‑tier markets and meticulous management, it has established a robust sales network. The office remains optimistic about the company’s core strengths—high cost‑effectiveness combined with strong distribution channels—and anticipates significant long‑term earnings upside.

Next, a formal investigation will be launched into the “pre‑penalty notice”; Jiajia Food’s 4.7‑billion‑yuan acquisition deal remains pending recovery.

On September 18, Jiajia Food announced that it had received a “Pre‑Administrative Penalty Notice” from the Hunan Securities Regulatory Bureau. The issuance of this “pre‑penalty notice” signals that the investigation into the matter has entered its final stage.

“If no defense is submitted, the relevant authorities will impose a formal administrative penalty based on the facts, grounds, and legal basis set forth in the notice,” a spokesperson for Jiajia Food stated on September 19. The company added that its operations remain normal and that it will promptly disclose any relevant information upon receipt of the official penalty decision.

 If the formal investigation is concluded, the obstacles to Jiajia Food’s continued pursuit of its restructuring will be removed.

In June this year, Jiajia Food stated in its response to an inquiry that, pending the conclusion of the official investigation, it would not meet the conditions for issuing shares to acquire assets or for a non‑public offering of shares. At the same time, however, Jiajia Food indicated that it would fully cooperate with the ongoing investigation and that its planned restructuring—acquiring 100% equity in a tuna‑fishing company for RMB 4.71 billion—remains under active progress.

“Pre‑penalty notice” issued

 In early June this year, Jiajia Food and its controlling shareholder, Hunan Zhuoyue Investment Co., Ltd. (hereinafter referred to as “Hunan Zhuoyue”), received an “Investigation Notice” from the China Securities Regulatory Commission, with the case initiated on suspicion of violations of information disclosure laws and regulations.

 According to the latest “Pre‑Notice of Administrative Penalty” issued by the Hunan Securities Regulatory Bureau, the investigation into the case involving Jiajia Food and Hunan Zhuoyue for alleged violations of information disclosure laws and regulations has been completed. In accordance with applicable laws and regulations, the Hunan Securities Regulatory Bureau proposes to issue warnings to both Jiajia Food and Hunan Zhuoyue and impose a fine of RMB 400,000 on each.

 The notice indicates that Jiajia Food and Hunan Zhuoyue were suspected of three violations, but all such violations were fully resolved last year.

First, Jiajia Food failed to promptly disclose the non‑operational misappropriation of funds by its controlling shareholder. In February 2018, under pressure from external debt obligations, Yang Zhen, the actual controller and chairman of Jiajia Food and Hunan Zhuoyue, instructed the company to transfer funds to related parties. The two transfers totaled RMB 54 million and were made without prior review by the board of directors, the supervisory board, or the management office meeting. At the time the transactions occurred, they were not disclosed in a timely manner through a temporary announcement. As of May 28, 2018, all of the aforementioned misappropriated funds had been fully repaid.

Secondly, Jiajia Food failed to disclose, as required, its related-party transactions with its controlling shareholder. According to the notice, from March 2017 to January 2018, at the direction of certain individuals within Jiajia Food, the company issued commercial acceptance bills totaling RMB 698.8 million to related parties in order to secure financing from external factoring institutions or to facilitate external borrowings by Hunan Zhuoyue, and also issued commercial acceptance bills amounting to RMB 20 million to a party designated by Yang Zhen.

Finally, Jiajia Food failed to disclose in a timely manner that it had provided guarantees for its controlling shareholder. In November 2017, Yang Zhen used Jiajia Food’s official seal to issue guarantees, in the name of Jiajia Food, for external borrowings undertaken by Hunan Zhuoyue, totaling RMB 295 million.

The announcement indicates that, as of September 28, 2018, all of the aforementioned commercial acceptance bills have been fully settled, and all of the aforementioned unauthorized guarantees have been completely released.

Reorganization pending recovery

“According to the notice, the listed company and relevant parties are entitled to make statements, present defenses, and request a hearing. However, it is certain that the final penalty will not exceed the scope set forth in the notice,” said an attorney.

Based on the findings set forth in the “Notice of Administrative Penalty,” Jiajia Food has determined that the aforementioned violations do not constitute grounds for mandatory delisting due to material violations as prescribed by the relevant authorities.

Notably, Jiajia Food still has one pending merger and acquisition. According to the draft disclosed in December 2018, Jiajia Food planned to issue shares and pay cash to acquire 100% of Tuna Fishing’s equity at a transaction value of RMB 4.71 billion. Dalian Jinmu and Li Zhenyu committed that Tuna Fishing’s audited net profits attributable to the parent company, excluding non-recurring items, would be no less than RMB 350 million, RMB 400 million, and RMB 463 million for the years 2018, 2019, and 2020, respectively.

In early June this year, Jiajia Food stated that the matters subject to an official investigation had rendered the company non‑compliant with relevant regulations, and therefore, until the conclusion of the investigation, the company would not meet the conditions for issuing shares to acquire assets or for a non‑public offering of shares.

In a June announcement responding to the Shenzhen Stock Exchange, Jiajia Food stated that the company is actively cooperating with the regulatory authorities’ investigation into the case. Taking into account both the progress of the restructuring and the impact of the ongoing investigation, the parties involved in the transaction continue to demonstrate a strong willingness to collaborate, and the company, together with the relevant stakeholders, remains committed to advancing this restructuring.

Taxation TAXATATION

Notice on the Comprehensive Implementation of the Transfer of a Portion of State-Owned Capital to Replenish the Social Security Fund

To the People’s Governments of all provinces, autonomous regions, and municipalities directly under the central government; to all ministries and commissions of the State Council and all institutions directly affiliated with it; to the Xinjiang Production and Construction Corps; to all centrally administered enterprises; and to China Securities Depository & Clearing Corporation Limited:

In order to comprehensively implement the transfer of a portion of state-owned capital from both the central and local governments to replenish the social security fund, and with the approval of the State Council, the following matters are hereby notified:

I. The transfer of a portion of state-owned capital from the central and local governments to replenish the social security fund was fully launched in 2019. Specifically: at the central level, enterprises meeting the requisite conditions were to complete the transfer by the end of 2019; those facing substantial difficulties could do so by the end of 2020; and enterprises operated by central administrative institutions and public service units would be transferred after the completion of the centralized, unified regulatory reform. At the local level, the transfer was to be substantially completed by the end of 2020.

II. State-owned shareholders shall properly carry out the transfer of equity interests in the relevant enterprises and urge these enterprises to promptly complete the requisite formalities. The receiving entities shall diligently undertake the acceptance of such equity, ensuring centralized holding and separate accounting of the transferred shares, and subjecting themselves to performance assessment and oversight. With respect to state-owned equity in local enterprises that is being transferred, it shall be uniformly held, managed, and operated by a wholly state‑owned company established by each provincial people’s government, or entrusted to a specialized account managed by a company with functions for investing in and operating state capital.

III. The people’s governments of all provinces, autonomous regions, and municipalities directly under the central government shall assume overall responsibility for the transfer work in their respective jurisdictions, strengthen organizational leadership, formulate specific implementation measures tailored to local conditions, and ensure that the transfer tasks are completed as required. At the same time, they shall intensify oversight and management of the receiving entities to ensure that the transferred state-owned capital is used exclusively to address the shortfall in the basic old-age insurance fund for enterprise employees. Relevant departments at all levels, including finance, human resources and social security, and state‑owned asset supervision, shall enhance coordination and collaboration and earnestly fulfill their respective duties.

IV. To ensure the transfer process is carried out in a proactive, prudent, standardized, and orderly manner, and in light of the pilot program’s experience, the “Operational Measures on Transferring a Portion of State‑Owned Capital to Replenish the Social Security Fund” have been formulated. These measures shall take effect from the date of issuance of this notice and must be strictly observed.

Attachment: Operational Procedures Regarding the Transfer of a Portion of State-Owned Capital to Replenish the Social Security Fund

Q&A by a responsible official of the Ministry of Finance on the “Notice of the Ministry of Finance, the Ministry of Human Resources and Social Security, the State-owned Assets Supervision and Administration Commission, the State Taxation Administration, and the China Securities Regulatory Commission on Fully Launching the Transfer of a Portion of State Capital to Replenish the Social Security Fund”

On September 10, the Ministry of Finance, the Ministry of Human Resources and Social Security, the State-owned Assets Supervision and Administration Commission, the State Taxation Administration, and the China Securities Regulatory Commission jointly issued the “Notice on Fully Launching the Transfer of a Portion of State Capital to Replenish the Social Security Fund” (Cai Zi [2019] No. 49, hereinafter referred to as the “Notice”). Recently, a responsible official from the Ministry of Finance provided responses to relevant questions raised in the Notice.

I. Background to the Issuance of the Notice

Answer: The CPC Central Committee and the State Council attach great importance to building the social security system. In his report to the 19th National Congress of the CPC, General Secretary Xi Jinping emphasized that, in accordance with the requirements of ensuring a basic safety net, weaving a comprehensive social security network, and establishing sound mechanisms, we should comprehensively establish a multi-tiered social security system that covers all people, integrates urban and rural areas, clarifies rights and responsibilities, provides adequate benefits, and is sustainable. Premier Li Keqiang has repeatedly included arrangements for transferring a portion of state-owned capital to replenish the social security fund in his reports on the work of the government. In November 2017, the State Council issued the “Implementation Plan for Transferring a Portion of State-Owned Capital to Replenish the Social Security Fund” (Document No. 49 [2017] of the State Council, hereinafter referred to as the “Implementation Plan”), deciding to transfer a portion of state-owned capital to address the shortfall in the basic old-age insurance fund for enterprise employees. The entities subject to the transfer are large and medium-sized state-owned and state-controlled enterprises and financial institutions at both the central and local levels, with a uniform transfer ratio of 10% of the enterprises’ state-owned equity.

The Implementation Plan specifies that the transfer process shall be carried out in accordance with the principles of “pilot first, tiered organization, and steady progress.” In line with these requirements, in 2018, with the approval of the State Council, pilot programs were launched initially at three central enterprises, including China Unicom; two central financial institutions, including China Reinsurance; as well as in Zhejiang Province and Yunnan Province. Following the near completion of the pilot phase, the central government subsequently implemented transfers for an additional 50 central enterprises and 12 central financial institutions. At the local level, apart from the pilot provinces, other provinces also undertook preparatory work, laying the groundwork for the formal implementation of the transfer.

Given that the pilot program for the transfer of state-owned capital has been largely completed and valuable experience has been accumulated, the conditions are now in place to roll out the initiative nationwide. To further accelerate the transfer process and enhance the sustainability of the social security system, on July 10, 2019, the State Council Executive Meeting decided to comprehensively launch this year the transfer of a portion of state-owned capital to replenish the social security fund. In order to implement the spirit of the State Council Executive Meeting and ensure the smooth execution of the transfer, with the approval of the State Council, the Ministry of Finance, the Ministry of Human Resources and Social Security, the State-owned Assets Supervision and Administration Commission, the State Taxation Administration, and the China Securities Regulatory Commission jointly issued a Notice.

II. On the Significance of the “Notice” and Its Operational Requirements

Answer: The issuance of the Notice will help implement the decisions and arrangements of the CPC Central Committee and the State Council, ensuring that the transfer policy is effectively put into practice; it will accelerate the transfer process and further strengthen the sustainability of the social security system; it will clarify the responsibilities of all parties, providing robust support for policy implementation; and it will enhance the operational feasibility of the transfer, enabling the work to proceed in an active yet prudent, standardized, and orderly manner. The Notice sets forth four key requirements for the nationwide transfer effort:

First, regarding the timeline: The transfer of a portion of state-owned capital from both the central and local governments to replenish the social security fund was fully launched in 2019. Specifically: at the central level, enterprises meeting the requisite conditions were expected to complete the transfer by the end of 2019; those facing significant challenges could do so by the end of 2020. Enterprises affiliated with central administrative institutions and public institutions would be transferred after the completion of the centralized, unified regulatory reform. At the local level, the transfer process was to be substantially completed by the end of 2020.

Second, the obligations of both the transferring and receiving parties regarding equity transfers. State-owned shareholders shall properly carry out the transfer of equity in the relevant enterprises and ensure that the enterprises promptly complete the necessary formalities. The receiving entity shall diligently undertake the acceptance of the transferred equity, ensuring its centralized holding and separate accounting, and subjecting it to performance assessment and oversight. With respect to state‑owned equity in local enterprises that is transferred, such equity shall be uniformly held, managed, and operated by a single wholly state‑owned company established by each provincial people’s government, or entrusted to a specialized account managed by a company with functions for investing in and operating state capital.

Third, requirements for the entities responsible for the transfer. The people’s governments of all provinces, autonomous regions, and municipalities directly under the central government shall assume overall responsibility for the transfer within their respective jurisdictions, strengthen organizational leadership, formulate specific implementation measures tailored to local conditions, and ensure that the transfer tasks are completed as required. At the same time, they must enhance oversight and management of the receiving entities to ensure that the transferred state‑owned capital is used exclusively to address the shortfall in the basic old‑age insurance fund for enterprise employees. Relevant departments at all levels, including finance, human resources and social security, and state‑asset supervision, shall strengthen coordination and collaboration and earnestly fulfill their respective duties.

Fourth, the requirements for standardizing transfer procedures. The Notice includes the “Operational Measures on Matters Relating to the Transfer of a Portion of State‑Owned Capital to Replenish the Social Security Fund” (hereinafter referred to as the “Operational Measures”) as an annex, mandating that the nationwide transfer process be carried out in strict accordance with these Measures to ensure standardized and compliant operations.

On the Main Contents of the “Operational Measures” Attached to the “Notice”
A: The pilot program for the transfer of state-owned equity has accumulated valuable experience and yielded tangible results. At the same time, given the broad scope of the transfer and the complex circumstances of enterprises involved, certain issues have emerged that require further clarification and standardization. To address these matters, the Ministry of Finance, in collaboration with the Ministry of Human Resources and Social Security, the State-owned Assets Supervision and Administration Commission, the State Taxation Administration, the China Securities Regulatory Commission, and other relevant departments, has collected and organized feedback from the pilot phase, conducted a case-by-case review, and formulated corresponding solutions, resulting in the issuance of the “Operational Measures.” The “Operational Measures” comprise six key components: First, they define the scope and eligible entities for the transfer, clarifying the criteria for identifying relevant enterprises and standardizing the transfer procedures for state‑capital investment and operation companies and similar entities. Second, they specify the modalities for transferring equity in multi‑shareholder enterprises, detailing the designation of the lead implementing entity and the specific transfer procedures. Third, they set out the administrative requirements for carrying out the transfer, including deadlines for completing registration of changes in state‑owned property rights, the determination of the base date for the transfer, and the accounting standards for restricted state‑owned shares and the receiving entities. Fourth, they establish guidelines for managing the transferred state capital, addressing issues such as the rights, obligations, and responsibilities of the receiving entity vis‑à‑vis the original state shareholders, the permissible investment channels for cash proceeds derived from the transferred capital, and the management expenses of the receiving entity. Fifth, they clarify tax treatment, stipulating that stamp duty, transfer fees, and other related taxes are exempted during the transfer and receipt of state‑owned equity, while also setting forth the applicable income‑tax treatment. Finally, they delineate how the transfer process dovetails with existing policies on the reduction or disposal of previously held state‑owned shares.

IV. Management and Use of Proceeds from the Transfer of State-Owned Equity

Answer: According to the Implementation Plan, following the transfer of state-owned capital to replenish the social security fund, the receiving entities will derive returns primarily through dividends, with asset management playing a secondary role. In other words, the income generated by state-owned capital will mainly come from equity dividends. Going forward, the fiscal departments at the same level as each receiving entity will comprehensively assess both the expenditure needs of the basic old-age insurance fund and the performance of state‑owned capital returns, and will collect these returns in a timely manner for the specific purpose of closing the funding gap in the enterprise employee basic old-age insurance fund; such funds will not be included in the management of the state‑owned capital operation budget. At the same time, with approval, the Social Security Fund and other receiving entities may also generate returns through state‑owned capital operations. These operations primarily involve structural adjustments and orderly entry and exit of state‑owned capital, with the goal of preserving and enhancing the value of state‑owned capital and generating additional returns—rather than simply liquidating such capital. During the period of capital operations, the Social Security Fund and other receiving entities must observe a lock‑up period of no less than three years and shall assume any additional share‑holding restrictions previously imposed on the original shareholders. If, during the lock‑up period, any of the enterprises involved in the transfer are listed, the receiving entities must also honor the original shareholders’ lock‑up obligations. Separate regulations will be formulated to govern the administration of state‑owned capital operations and the specific procedures for the use of collected funds by the central government finance department.

At this stage, in view of the fact that state‑owned equity transferred under the scheme will begin to generate returns, and with the aim of preserving and enhancing the value of these funds while ensuring their safety, the Measures stipulate that, pending the issuance of the Administrative Measures for the Operation of Transferred State Capital, any cash income derived from such transfers may be invested by the receiving entities. The investment scope is limited to bank deposits, purchases of government bonds in the primary market, and capital increases in the entities receiving the transferred shares. This provision applies equally to local receiving entities. By the end of June each year, the National Council for Social Security Fund and the provincial receiving entities are also required to report to their respective fiscal and human resources and social security authorities the previous year’s income and dividend distributions from state capital, thereby ensuring that fund security remains subject to rigorous oversight.

V. Implementation of the “Notice”

A: The Ministry of Finance, the Ministry of Human Resources and Social Security, the State-owned Assets Supervision and Administration Commission, and the relevant departments of all provinces will establish a responsibility chain characterized by clear delineation of duties, well-defined tasks, and seamless coordination among all levels, as well as a working framework featuring vertical linkage and concerted efforts. At the central level, guidance to local authorities will be strengthened, with tasks and divisions of labor carefully defined; regular oversight and inspections will be conducted to monitor the progress and effectiveness of the transfer process among the relevant entities in each region, and any difficulties encountered in implementation will be promptly addressed to ensure steady and effective advancement. Meanwhile, the people’s governments at the provincial level are expected to continuously innovate their approaches, reinforce accountability, leverage performance assessments as a guiding mechanism, intensify research and supervision, and strive to achieve tangible results in carrying out the transfer work.

Tax cuts and increased spending are being intensified, ensuring stable fiscal operations.

On September 17, data released by the Ministry of Finance showed that, in the first eight months of the year, national general public budget revenue totaled RMB 13.7061 trillion, up 3.2% year on year. Among this, tax revenue amounted to RMB 11.7134 trillion, down 0.1% year on year, reflecting the continued impact of tax and fee reductions. Meanwhile, fiscal spending remained robust, with funding needs in key areas well secured. In the same period, national general public budget expenditures reached RMB 15.3069 trillion, an increase of 8.8% year on year.

Fiscal revenue remained generally stable.

Statistics show that from January to August, national general public budget revenue increased by 3.2%, a year-on-year decline of 6.2 percentage points, primarily due to the continued impact of tax and fee reduction policies and growing downward pressure on the economy.

With the implementation of a series of tax‑reduction policies, related tax revenues either declined year on year or saw a marked deceleration in growth. From January to August, national tax revenue fell by 0.1%, with the growth rate dropping by 13.5 percentage points; non‑tax revenue totaled RMB 1.9927 trillion, up RMB 427.6 billion, or 27.3% year on year.

“Fiscal revenue remained broadly stable over the first eight months, which is consistent with the economy’s steady and improving trajectory. Although tax revenue saw a slight decline, this was due to the implementation of robust tax-cutting measures and was entirely within expectations,” said Bai Jingming, Vice President of the Chinese Academy of Fiscal Sciences.

According to reports, the substantial increase in non-tax revenue is primarily attributable to the proactive efforts of both central and local governments to tap untapped potential and boost revenues by leveraging state-owned resources and assets through multiple channels.

The primary driver of increased revenue from the revitalization of state-owned resources and assets was a year-on-year rise of RMB 288 billion in state‑owned capital operation income, representing a 5.7‑fold increase, coupled with a year-on-year increase of RMB 94.5 billion in revenue from the paid use of state‑owned resources (assets), up 21.3%. Together, these two items accounted for an additional RMB 382.5 billion in revenue, or 89% of the nationwide increase in non‑tax revenue, boosting the overall growth rate of non‑tax revenue by 24.4 percentage points.

From the central government’s perspective, increased profit remittances from certain state-owned financial institutions and central SOEs, coupled with a year-on-year rise in dividend income from some central financial enterprises, together accounted for 63.7% of the nationwide increase in non-tax revenue, boosting the national growth rate of non-tax revenue by 17.4 percentage points.

“Increasing state‑owned capital operating income and other non‑tax revenues is a special measure adopted this year by the central government to close the fiscal deficit, which will help maintain fiscal balance and promote sustainable fiscal development,” said Li Xuhong, Director of the Institute of Fiscal and Taxation and Applied Research at the National Accounting Institute in Beijing.

The scale of tax and fee reductions has exceeded expectations.

Since the beginning of this year, China has implemented a larger‑scale package of tax and fee reductions, including deepening VAT reform, introducing universal tax and fee relief for small and micro enterprises, introducing special additional deductions for individual income tax, and adjusting certain government‑funded policies, with tangible results gradually emerging.

By tax type, from January to August, domestic value-added tax (VAT) increased by 4.7%, with the growth rate down 8.9 percentage points year on year, primarily due to the carryover effect of last year’s VAT rate reduction and the further amplification this year of new VAT‑related tax cuts. Corporate income tax rose by 3.6%, a year‑on‑year decline of 9.3 percentage points, largely reflecting the higher pre‑tax additional deduction rate for R&D expenses, universal tax relief measures for small and micro enterprises, and a year‑on‑year drop in corporate profits.

VAT and consumption tax on imported goods fell by 6.9%, primarily due to the reduction in the VAT rate for imports. Personal income tax declined by 30.1%, largely reflecting the combined effects of last year’s policy measures—raising the basic deduction threshold and adjusting tax rates—and this year’s introduction of six new special additional deductions, which together have boosted tax relief.

“Tax and fee reductions are a major measure of supply-side structural reform, helping to invigorate the market, optimize resource allocation, and improve the tax system. At the same time, they have played a positive role in stabilizing growth, promoting employment, and adjusting the economic structure, thereby effectively advancing high-quality economic development,” said Li Xuhong.

Bai Jingming argues that, although high‑intensity tax cuts lead to a certain short‑term decline in fiscal revenue, their more significant effect is to stimulate economic growth and broaden the tax base; in turn, this economic expansion helps sustain fiscal stability.

Funding for key areas is secured.

“The gradually increasing力度 of tax cuts and spending increases is a salient feature of the proactive fiscal policy,” said Bai Jingming. Since the beginning of this year, while the growth rate of fiscal revenue has slowed, fiscal expenditures have continued to expand at a relatively rapid pace, ensuring adequate funding for key priority areas. According to statistics, from January to August, nationwide general public budget expenditures rose by 8.8%, 2.3 percentage points higher than the full-year budget target of 6.5%; the expenditure execution rate stood at 65.1%, broadly in line with the scheduled progress.

Statistics show that budget execution for key expenditures was strong: spending on education and science and technology increased by 9.2% and 15.2%, respectively; spending on social security and employment, as well as on health, rose by 8.5% and 8.2%, respectively; energy‑conservation and environmental protection outlays grew by 13%; and spending on agriculture, forestry, and water affairs expanded by 8.6%. Bai Jingming believes that this year’s fiscal spending fully reflects a focus on improving people’s livelihoods and stabilizing economic growth.

This year, the proactive fiscal policy has been strengthened and made more efficient, with expanded tax cuts and increased spending, putting pressure on the fiscal balance. “The pressure on the fiscal balance is within expectations and is both manageable and resolvable,” said Bai Jingming.

The central government has taken proactive measures to achieve fiscal balance, primarily by mobilizing funds through multiple channels to offset revenue shortfalls, vigorously cutting non‑essential expenditures, increasing transfer payments to local governments, strengthening the rigor and enforceability of the budget, and enhancing guidance on local budgetary management.

According to reports, in 2019 the central government allocated a budget of 7.5399 trillion yuan for transfer payments to local governments, an increase of 9%. During budget implementation, the central finance accelerated the disbursement of these transfer payments; all funds under the equalization transfer payments and the transfer payments for old revolutionary base areas, ethnic minority regions, border areas, and impoverished areas have now been fully distributed to local authorities. These measures promptly bolstered local fiscal capacity and helped alleviate the imbalance between revenues and expenditures.

“Tax cuts and increased spending not only inject liquidity into the market, but more importantly, they bolster confidence and stabilize expectations. As tax and fee reductions are fully implemented, the fiscal spending multiplier effect is becoming evident, fostering a virtuous cycle between tax cuts, increased spending, and macroeconomic performance. Consequently, fiscal operations will remain stable and improve, further driving sustained, healthy economic growth,” said Bai Jingming.

Fiscal Revenue and Expenditure in August 2019

I. National General Public Budget Revenues and Expenditures

(1) General Public Budget Revenue Situation.

From January to August, nationwide general public budget revenue totaled RMB 13.7061 trillion, up 3.2% year on year. Specifically, central government general public budget revenue reached RMB 6.5901 trillion, an increase of 3.5% year on year, while local governments’ own‑level general public budget revenue stood at RMB 7.1160 trillion, up 2.8% year on year. National tax revenue amounted to RMB 11.7134 trillion, down 0.1% year on year, while non‑tax revenue totaled RMB 1.9927 trillion, up 27.3% year on year.

For the cumulative period from January to August, the performance of major tax revenue items is as follows:

1. Domestic value-added tax totaled RMB 4.4908 trillion, up 4.7% year on year.

2. Domestic consumption tax totaled RMB 1041.4 billion, up 18.5% year on year.

3. Corporate income tax totaled RMB 310.3 billion, up 3.6% year on year.

4. Individual income tax totaled RMB 721.2 billion, down 30.1% year on year.

5. Value-added tax and consumption tax on imported goods totaled RMB 1079.4 billion, down 6.9% year on year. Customs duties amounted to RMB 189.6 billion, a decrease of 3.3% compared with the same period last year.

6. Export tax rebates totaled RMB 1.1644 trillion, up 16.7% year on year.

7. Urban Maintenance and Construction Tax amounted to RMB 335.3 billion, up 0.6% year on year.

8. Vehicle acquisition tax totaled RMB 239.2 billion, up 0.3% year on year.

9. Stamp tax totaled RMB 178 billion, up 6.7% year on year. Of this amount, stamp tax on securities transactions reached RMB 96 billion, an increase of 15.8% year on year.

10. Resource tax amounted to RMB 126.7 billion, up 12.4% year on year.

11. Among taxes related to land and real estate, deed tax totaled RMB 422.6 billion, up 7.6% year on year; land value-added tax reached RMB 448.7 billion, up 8.8% year on year; property tax stood at RMB 182.4 billion, down 1.3% year on year; farmland occupation tax amounted to RMB 93.5 billion, up 3% year on year; and urban land use tax was RMB 140.9 billion, down 14% year on year.

12. Environmental protection tax: RMB 16.7 billion, up 69.8% year on year.

13. Revenue from other taxes, including vehicle and vessel tax, ship tonnage tax, and tobacco leaf tax, totaled RMB 68.3 billion, up 10.2% year on year.

(II) Overview of General Public Budget Expenditures.

From January to August, national general public budget expenditures totaled RMB 15.3069 trillion, up 8.8% year on year. Of this amount, central government general public budget expenditures at the central level stood at RMB 2.2185 trillion, an increase of 8.6%, while local general public budget expenditures amounted to RMB 13.0884 trillion, up 8.8%.

For the cumulative period from January to August, the breakdown of major expenditure items is as follows:

1. Education expenditure totaled 2.196 trillion yuan, up 9.2% year on year.

2. Expenditures on science and technology totaled 505.2 billion yuan, up 15.2% year on year.

3. Expenditures on cultural tourism, sports, and media totaled RMB 219.8 billion, up 4.1% year on year.

4. Social security and employment expenditures totaled 2.0907 trillion yuan, up 8.5% year on year.

5. Health and sanitation expenditures totaled 1.1852 trillion yuan, up 8.2% year on year.

6. Expenditures on energy conservation and environmental protection totaled 384.9 billion yuan, up 13% year on year.

7. Expenditures on urban and rural communities totaled 1.6157 trillion yuan, up 9.3% year on year.

8. Expenditures on agriculture, forestry, and water affairs totaled RMB 1.3053 trillion, up 8.6% year on year.

9. Transportation expenditures totaled 841.3 billion yuan, up 16.1% year on year.

10. Interest payments on debt totaled RMB 575.6 billion, up 13.8% year on year.

II. National Government Fund Budget Revenues and Expenditures

(1) Government Fund Budget Revenue Situation.

From January to August, nationwide government‑fund budget revenue totaled RMB 4.5987 trillion, up 6.4% year on year. By level of government, central government‑fund budget revenue stood at RMB 281.3 billion, an increase of 1.1%; local government‑fund budget revenue at the local level reached RMB 4.3174 trillion, up 6.7%, with land‑sale revenue rising 4.2% year on year.

(II) Expenditure under the government fund budget.

From January to August, nationwide government fund budget expenditures totaled RMB 5.2745 trillion, up 30.8% year on year. By level, central government fund budget expenditures at the central level amounted to RMB 161.5 billion, an increase of 18.6%; local government fund budget expenditures reached RMB 5.113 trillion, up 31.2%, with spending allocated from land transfer revenues rising by 4.7%.

Taizhou City, Jiangsu Province, has increased fiscal investment to boost high-quality education development.

Education is a vital cornerstone for national rejuvenation and social progress. In recent years, the financial authorities of Taizhou City, Jiangsu Province, have earnestly implemented the spirit of the city’s Education Conference and the Special Governance Work Meeting on the Education Sector, further strengthening the strategy of prioritizing education, faithfully fulfilling their roles in support, service, and safeguarding, and devoting themselves to delivering high-quality, high-standard education that meets the expectations of the people.

I. Improve the investment mechanism and consolidate the priority status of education development.

At all levels across the city, fiscal authorities have consistently placed education at the forefront of strategic development, ensuring priority funding and resource allocation. A per-student fiscal appropriation system covering the entire education spectrum—from preschool to higher education—has been progressively established, while mechanisms for financial support have been continuously refined. Between 2016 and 2018, the city’s cumulative general public budget expenditure on education reached RMB 22.706 billion, with all per-student spending indicators exceeding provincial standards. Efforts to accelerate the delineation of fiscal responsibilities and expenditure obligations in the education sector have been stepped up, and policies and measures to prioritize educational funding have been effectively implemented, providing robust support for forward-looking planning and prioritized development in the education sector.

II. Optimize the expenditure structure and promote high-quality, balanced development of education.

Further tilt fiscal resources toward underdeveloped regions, underperforming schools, and weak links in the education system, and continue to improve the government‑funded student aid framework that provides comprehensive coverage from preschool through higher education. Strengthen incentive mechanisms that prioritize teachers’ professional development, and encourage and attract top talent to pursue and remain committed to careers in education.

(1) Support efforts to address shortcomings in preschool education. Increase the supply of public and affordable preschool resources through multiple channels, establish a balanced and universally accessible public preschool education system, and comprehensively enhance both the level of support and the quality of preschool education. Starting in 2020, the annual per-student funding standard for preschool education was raised from 450 yuan to the primary school level of 770 yuan, ensuring that per-student public fiscal expenditure on preschool education is no less than 6,000 yuan.

(2) Support the accelerated modernization of compulsory education. In accordance with the requirement that per-student funding shall not be less than 110% of the provincial standard, further strengthen investment in compulsory education and improve the funding guarantee mechanism for compulsory education, which is “unified across urban and rural areas, prioritizing rural areas, and led by counties.”

(3) Support the high-quality universalization of senior secondary education. Allocate budgetary funds for per-student educational expenses in regular senior high schools at a level no lower than RMB 22,000, thereby promoting the continuous expansion and ongoing optimization of resources for regular senior high schools and supporting the development of high‑quality model senior high schools. Strengthen support for secondary vocational education, gradually raising per-student public funding to 1.5 times the level for regular senior high schools, and rigorously implement policies that exempt tuition fees and provide financial aid to students in secondary vocational education.

(4) Support the innovative development of vocational education. Implement the National Vocational Education Reform Implementation Plan, support the expansion of enrollment in higher vocational colleges, the execution of the “Double High” Initiative, and the construction of practical training bases and model institutions; refine the policy framework for industry–education integration; and accelerate the cultivation of high‑quality technical and skilled personnel.

(5) Promote the substantive development of higher education. Building on the substantial increase in per-student funding standards over the past three years, we will continue to scale up investment, centrally allocate special funds for quality‑enhancing initiatives, and support municipal universities in continuously improving their educational quality and institutional standards.

III. Strengthen Performance Management and Enhance the Efficiency of Educational Expenditure

(1) Further strengthen the concept of budget performance management. Work proactively with the education authorities to extend budget performance management to all government-funded education expenditures as soon as possible, integrating it throughout the entire process of budget formulation and execution, ensuring that “every expenditure is subject to accountability for results, and any ineffectiveness will be held accountable.”

(II) Further strengthen fiscal oversight and guidance services. Urge relevant departments and schools to officely establish a performance‑management mindset, innovate approaches to fund management, reinforce accountability for expenditure, and ensure that, by the end of 2022, a comprehensive, full‑process, and fully encompassing budgetary performance‑management system for education funding is essentially in place.

(3) Further intensify efforts to streamline and consolidate special education funds. Prioritize projects with strong performance, adjust those with poor performance in a timely manner, and reduce or eliminate projects that yield no results, ensuring that limited resources are allocated where they can deliver the greatest impact and effectively enhancing the efficiency of education‑fund allocation and utilization.

Litigation & Arbitration

Deepen judicial exchanges and cooperation, and advance Belt and Road cooperation.

From September 16 to 18, Zhou Qiang, Chief Justice of the People’s Republic of China and President of the Supreme People’s Court, paid a friendly visit to Greece at the invitation of the Supreme Court of Greece, leading a Chinese judicial delegation. During his visit, Mr. Zhou met separately with Greek Parliament Speaker Tassoulas, Deputy Prime Minister Bikramenos, Supreme Court President Tsaragkanis, President of the Supreme Administrative Court Sakellaropoulou, President of the Court of Audit Theodorakoudou, Prosecutor General Priotas, and President of the Athens Court of Appeal Stamatiadanos. He also held talks with Greek Parliament Vice Speaker Anastasiou and Minister of Justice Ziavras, and jointly signed with Supreme Court President Tsaragkanis the Memorandum of Understanding on Judicial Exchanges and Cooperation between the Supreme People’s Court of the People’s Republic of China and the Supreme Court of the Hellenic Republic.

Zhou Qiang outlined China’s progress in advancing the rule of law and the work of the courts. He stated that since the 18th National Congress of the Communist Party of China, the CPC Central Committee with Comrade Xi Jinping at its core has comprehensively advanced law-based governance, promoting the coordinated development of a law-based state, a law-based government, and a law-based society in a mutually reinforcing manner, thereby achieving remarkable accomplishments. Guided by Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era, China’s courts have remained committed to serving the people through justice and upholding impartial adjudication, deepened judicial system reform and the development of smart courts, and worked to establish an open, dynamic, transparent, and citizen‑friendly “sunshine” judicial mechanism. These efforts aim to ensure that the public experiences fairness and justice in every judicial case, continuously enhancing their sense of gain and satisfaction.

During his meeting with Greek Parliament Speaker Tassoulas, Zhou Qiang stated that both China and Greece are ancient civilizations with a long history of friendly exchanges. In recent years, bilateral relations have maintained stable and sound development, with growing cooperation across various fields and increasingly deepened judicial exchanges. He expressed the hope that the two countries will further strengthen mutual learning and exchanges in the legal sphere, jointly advance the rule of law, promote in-depth dialogue in economic, trade, cultural, and other areas, and continuously elevate their friendly ties. For his part, Tassoulas welcomed Zhou Qiang’s visit, emphasizing that the rule of law is essential for national development. He pledged to work with China to further enhance cooperation and exchanges in the legal field and other areas, making positive contributions to consolidating and deepening the friendship between the two nations.

During his meeting with Greek Deputy Prime Minister Kostas Vlasis, Zhou Qiang stated that, as Belt and Road cooperation deepens, economic and trade exchanges and people-to-people interactions between the two countries have grown increasingly close, and the demand for judicial cooperation continues to expand. The Supreme People’s Court of China stands ready to further strengthen communication and ties with the Greek legal community, steadily consolidate the friendly and cooperative relations between the two nations, and support the joint development of the Belt and Road Initiative. Mr. Vlasis expressed admiration for the achievements China has made in economic and social development, noting that Greece attaches great importance to fostering friendly relations with China. He indicated Greece’s willingness to enhance exchanges with the Supreme People’s Court of China, actively advance cooperation across a broader range of fields, and promote the growth of bilateral economic and trade ties as well as friendly interactions in various sectors.

During his meetings with Greek Supreme Court President Tsalagani­tis, President of the Supreme Administrative Court Sakellaropoulou, President of the Court of Audit Theodorakadou, Prosecutor General Priotas, and President of the Athens Court of Appeal Stamati­anos, Zhou Qiang stated that Greece boasts a long and illustrious legal tradition and has made significant contributions to the development of the rule of law worldwide. In today’s era of profound economic and social transformation, countries face new opportunities and challenges in advancing the rule of law; judicial institutions should join forces to seize these opportunities, meet these challenges together, and play an active role in building a community with a shared future for mankind. He expressed the hope that China and Greece will continue to broaden and deepen cooperation in areas such as judicial reform, maritime justice, court informatization, judge training, legal culture, and bilateral judicial assistance, thereby fostering a sound rule-of-law environment and advancing Belt and Road cooperation. In turn, Tsalagani­tis and others voiced their high admiration for China’s achievements in rule-of-law development and for the progress made by Chinese courts in judicial reform and information technology, afofficeing their willingness to strengthen exchanges and mutual learning with Chinese courts, engage in pragmatic cooperation, and jointly promote the development of judicial work in both countries, for the benefit of their peoples.

During his meetings with Greek Parliament Vice President Anastasiou and Justice Minister Tsiaras, Zhou Qiang engaged in in-depth exchanges on issues of mutual interest, reaching broad consensus on further advancing judicial cooperation and exchanges between the two countries and on fostering the development of their friendly relations.

Zhou Qiang also visited the University of Athens, held working talks with Vice President Karadimas, and inspected COSCO Shipping’s Piraeus Port project.

Liu Guixiang, a full-time member of the Judicial Committee of the Supreme People’s Court, Wu Xielin, President of the Fujian Provincial Higher People’s Court, Hou Jianjun, President of the Yunnan Provincial Higher People’s Court, and others took part in the visit. Chinese Ambassador to Greece Zhang Qiyue accompanied them at the relevant events.

Beijing Internet Court’s First Anniversary: Setting the Rules for Online Litigation

On September 9 and 28 this year, the Beijing Internet Court and the Guangzhou Internet Court respectively marked the first anniversary of their establishment, while the Hangzhou Internet Court celebrated its second anniversary. To better showcase the achievements of these three courts in adjudicating internet‑related cases and to distill emerging rules governing online litigation, we have selected a number of representative cases and distinctive practices from each court’s work and launched the “Focus on Internet Justice” series. This series offers a glimpse into the efforts undertaken by the internet courts since their inception to foster the development of an innovation‑driven economy.

In recent years, the widespread adoption of new internet technologies, applications, and business models has posed novel issues and challenges for the judicial protection of copyright. The openness and convenience of the internet, while serving as an intrinsic driver of its rapid growth, have also created fertile ground for copyright infringement and unfair competition. Since its establishment on September 9, 2018, the Beijing Internet Court has focused on adjudicating internet‑related copyright cases, many of which involve entirely new categories of disputes.

The plaintiff is the operator of the Douyin platform, and the defendant is the operator of the Houpai platform.

May 12, 2018 marked the tenth anniversary of the Wenchuan earthquake. Party‑affiliated media platforms and People’s Daily Online issued a call on Douyin, inviting users to create commemorative short videos using provided materials and releasing a sample video. Douyin’s verified user “Hei Lian V” responded to this initiative by producing and posting a 13‑second short video titled “I Want to Say to You.” Other Douyin users shared this “I Want to Say to You” video, each bearing a watermark displaying “Douyin” and “ID: 145651081.” The Huopai Xiaovideo mobile app also uploaded the same video, but no watermark was displayed. The plaintiff sent two emails to the defendant as “notice,” yet failed to prove that these emails were successfully delivered or that any response was received.

The plaintiff contends that the short video titled “I Want to Tell You” qualifies as a work and is thus protected under copyright law. The defendant’s act of disseminating the video while removing its watermark infringes upon the plaintiff’s right of information network dissemination, and the plaintiff requests that the court order the defendant to cease the infringement, mitigate the adverse effects, and compensate for losses in the amount of RMB 1.05 million.

After trial, the Beijing Internet Court held that, given the specific theme and source materials, the creative scope of short videos is subject to certain limitations, reflecting a relatively high degree of creative difficulty. Although the short video at issue was created based on pre-existing materials, its arrangement, selection, and the overall effect it conveys to viewers differ markedly from those of other users’ short videos, thereby demonstrating the creator’s individualized expression. The short video in question provides viewers with solace in moments of rebirth and inspires them to move forward; the spiritual enjoyment it offers likewise constitutes a concrete manifestation of its creative nature. Accordingly, the short video qualifies as a work created by a method analogous to film production. As a network service provider offering information storage space, the defendant did not act with subjective fault regarding the “I Want to Tell You” short-video submissions made by users of the Hupai Xiaovideo mobile application, and, having fulfilled its obligation to “notify and remove,” does not constitute an infringement. The Beijing Internet Court therefore dismissed all of the plaintiff’s claims.

“The WeChat Red Packet Chat Bubble” is both a work of fine art and a form of decorative design.

Tencent Technology Co., Ltd. holds the copyright in the “WeChat” application and in the “WeChat Red Packet Chat Bubbles and Launch Page,” and subsequently licensed Tencent Computer Co., Ltd. (collectively referred to as Tencent) to operate the software and to use the artistic works contained therein. The defendant is the copyright holder and operator of the “Chuiniu” application.

The plaintiff, Tencent, contends that the chat bubbles and splash screens of three electronic red‑envelope features in the “Chuiniu” application are substantially similar to its prior works of art, thereby infringing the plaintiff’s right of information network dissemination. Furthermore, the pages associated with “WeChat Red Envelopes” and the overall design of the “WeChat” interface constitute well‑known trade dress; the “Chuiniu” application has engaged in wholesale copying, which is highly likely to cause confusion or misidentification among the relevant public. The plaintiff requests that the court order the defendant to cease its acts of copyright infringement and unfair competition, to eliminate the adverse effects, and to compensate the plaintiff for economic losses and reasonable expenses totaling RMB 4.5 million.

After trial, the Beijing Internet Court held that the color and line combinations, proportions, and the arrangement and composition of graphics and text in the “WeChat Red Packet Chat Bubble and Launch Page” reflect the creator’s choices, judgments, and trade-offs, and exhibit a certain degree of aesthetic appeal, thereby possessing originality and constituting an artistic work. The defendant’s “Chuiniu” application’s interface is substantially similar to the aforementioned artistic work, thus infringing upon the plaintiff’s right of information network dissemination.

The court held that the Copyright Law protects the exclusive rights arising from the creation and dissemination of works, whereas the Anti-Unfair Competition Law safeguards the competitive interests generated in the course of business; since the interests protected by these two laws do not overlap, they may be applied concurrently. The plaintiff’s “WeChat Red Packet”‑related pages, as a holistic image of the relevant services, with their text, graphics, colors, and their arrangements, serve to enhance the aesthetic appeal of the services and thus qualify as trade dress. Through extensive use, these pages have acquired the capacity to identify the source of the services, thereby constituting “trade dress with a certain degree of influence,” which may, in addition to copyright protection, also seek protection under the Anti‑Unfair Competition Law. By copying the plaintiff’s relevant page designs and making only minor modifications before applying them to its own software, the defendant has improperly appropriated the fruits of others’ labor to gain a competitive advantage. This conduct not only risks causing confusion and misidentification among the relevant public but also undermines the normal order of market competition, thus constituting unfair competition.

In its first-instance judgment, the Beijing Internet Court ordered the defendant to cease the infringing conduct and awarded the plaintiff compensation for economic losses in the amount of RMB 500,000, together with reasonable expenses totaling over RMB 94,000.

　“The sharing economy” is not about reaping benefits without effort.

The plaintiff is the operator of the Youku website, through which online users can access popular and exclusively licensed films and television programs by subscribing to a VIP membership. The defendant operates the “Manman Kan” app; it purchased 13 VIP memberships from Youku, logged into these accounts to obtain legitimate video content from Youku, and then provided paid streaming services to its app users. The plaintiff contends that the defendant has infringed upon its right of information network dissemination and engaged in unfair competition, requesting the court to order the defendant to cease the infringement and compensate for economic losses and reasonable expenses totaling RMB 2 million. The defendant counters that it employs a “shared membership” business model, which does not affect the plaintiff’s platform revenue or commercial value, and therefore does not constitute infringement.

After trial, the Beijing Internet Court held that both the plaintiff and the defendant are operators of online video services. The defendant’s so‑called “shared membership” service, undertaken with full knowledge of the business model and profit‑making mechanisms of online video platforms, involves obtaining licensed film content by purchasing VIP memberships on the plaintiff’s website and then providing such content, for a fee, to users of its own app. This practice exceeds the scope of the VIP membership rights and exhibits a clear “free‑riding” character, demonstrating manifest subjective malice. Sharing should be predicated on mutual benefit and win‑win outcomes, with the boundary being the prohibition of infringing upon the legitimate rights and interests of others. The defendant’s alleged “shared membership” business model is founded on appropriating the plaintiff’s lawful commercial resources, exploiting the plaintiff’s competitive advantages, and undermining the plaintiff’s legitimate rights and interests—actions that contravene the principle of good faith and the commercial ethics of the internet industry, thereby constituting unfair competition.

The Beijing Internet Court, in its first-instance judgment, ordered the defendant to compensate the plaintiff for economic losses and reasonable expenses in the amount of RMB 2 million.

　“Movie‑style summaries” that exceed reasonable limits also constitute infringement.

The plaintiff, Youku Company, holds the right of information network dissemination for the film and television series “Eternal Love.” The defendant, Shushu Technology Company, operates the “TuJie Dianying” app and website, which is an online图文 (text-and-image) movie‑review platform. Its homepage states, “Savor a great film in ten minutes.” The website features a photo gallery for the first episode of “Eternal Love,” comprising 382 images, all captured from that episode and depicting its key scenes, with accompanying text added by the gallery’s creator. Using the “TuJie Dianying” app, users can choose automatic playback speeds—such as five seconds per image or eight seconds per image—or manually advance to the next image by clicking.

The plaintiff contends that the image collection at issue substantially reproduces the principal scenes and the entirety of the plot of the series in question, thereby infringing the plaintiff’s right of information network dissemination. Accordingly, the plaintiff requests the court to order the defendant to compensate the plaintiff for economic losses and reasonable expenses in the total amount of RMB 500,000. The defendant counters that the image collection in question employs still frames rather than video clips and falls within the scope of fair use, thus not constituting infringement.

After trial, the Beijing Internet Court held that the “making a work available to the public” as stipulated in the right of information network dissemination should not be narrowly construed as requiring the entire work. Copyright law protects original expression; thus, any use of portions of a work that embody original expression falls within the scope of control under the right of information network dissemination. In this case, the image collection at issue excerpts 382 frames from the disputed television series. These frames do not consist of creative elements that have entered the public domain but rather comprise original expressions inherent in the original series. Accordingly, the act of making the image collection available constitutes an act of making the work available to the public. The standard for determining fair use does not hinge on the proportion of the excerpted material, but rather on whether such use is reasonably necessary for purposes of introduction, commentary, or explanation. As to the primary function of the image collection in question, it does not merely provide promotional or informational content designed to preserve narrative suspense; instead, it encompasses the series’ principal plot points and key scenes, thereby substantially affecting and substituting for the original work’s market value, undermining its normal exploitation, and exceeding the limits of what is reasonably required for fair use, thus constituting infringement.

The Beijing Internet Court ruled in the first instance that the defendant shall compensate the plaintiff for economic losses in the amount of RMB 30,000.

The Beijing Higher People’s Court has introduced two measures to promote the deep integration of Party building with judicial work.

To strengthen the political development of the Party within the courts and enhance the organizational capacity of grassroots Party organizations, the Beijing Higher People’s Court recently issued two measures: the “Several Measures on Further Strengthening and Improving Grassroots Party Building in the Capital’s Courts under the Leadership of Political Development” and the “Guiding Opinions on Further Standardizing the Construction of Party Groups in the Capital’s Courts,” thereby promoting the deep integration of Party building with judicial work.

The “Several Measures” refine the principled and directional provisions of the Party Constitution and Party regulations by implementing initiatives such as launching a program to enhance theoretical study among young judicial officers, compiling and publishing the “Work Manual for Party Branch Secretaries,” establishing citywide working‑exchange groups for grassroots Party affairs cadres in the courts, hosting forums on Party branch building, and appointing part-time lecturers on Party education. These measures ensure that all aspects of grassroots Party building are guided by clear rules, carried out in an orderly manner, and yield tangible results. The “Guiding Opinions” comprehensively set forth the status and role of Party subgroups, their establishment criteria, responsibilities and tasks, and working mechanisms, thereby effectively filling the institutional gap in the standardized development of Party subgroups. By leveraging the advantages of Party subgroups—such as their flexibility and efficiency, organizational convenience, and centralized management—the guidelines strengthen the reach and influence of Party building, enable “refined” management of Party members, and further bolster the organizational strength, creativity, cohesion, and combat effectiveness of grassroots Party organizations.

In recent years, under the strong leadership of the Municipal Party Committee, the Beijing Higher People’s Court has guided and advanced grassroots Party building with the highest standards, the strictest requirements, and the best possible outcomes. The two newly introduced systems represent an innovative effort by the Beijing Higher People’s Court to align with the capital’s unique role, address practical needs, draw on grassroots experience, and implement Party regulations. To date, courts across the city have established 482 Party branches and 1,022 Party groups, and have launched a series of distinctive Party‑building initiatives—such as “open‑style Party building” and “integrated Party building”—that reflect the characteristics of the capital’s judicial system. These efforts have also given rise to exemplary figures like Zhao Xin, a “civil servant who has won the satisfaction of the people nationwide,” thereby effectively invigorating grassroots Party organizations and driving new achievements in law enforcement and case handling.

Jiangsu courts have surpassed 1 million live-streamed court hearings.

On the morning of September 18, the certificate‑awarding ceremony marking the 1 millionth live court session broadcast on China’s Court Trial Publicity Website was held at the Jiangsu Provincial Higher People’s Court. National People’s Congress deputies, Jiangsu Provincial People’s Congress deputies, and members of the Jiangsu Provincial Committee of the Chinese People’s Political Consultative Conference, who were invited to attend, presented plaques commemorating “One Million Live Court Sessions in Jiangsu Courts” as well as certificates of honor for “Outstanding Live‑Broadcasting Court” and “Outstanding Live‑Broadcasting Judge” to the winning courts and judges.

This event was jointly hosted by the Judicial Administration Office of the Supreme People’s Court, the News and Media Center of the People’s Courts, and China Court Network. In his address, Xie Guowei, Inspector of the Jiangsu High People’s Court, stated that the court adheres to the principle of “live streaming as the norm and non‑live streaming as the exception,” comprehensively advancing courtroom livestreaming in an effort to promote judicial fairness and safeguard judicial integrity through timely, comprehensive, transparent, and objective judicial openness. Taking this event as an opportunity, courts across the province will remain problem‑oriented, strive to address existing shortcomings, innovate approaches and methods, further enhance channels for judicial transparency, and ensure that the people can feel fairness and justice in every judicial case.

According to reports, as of September 17, the province’s 123 courts had conducted more than 1.047 million live-streamed court hearings through the China Court Trial Information Website, accounting for 22.1% of the national total. Not only is the volume of livestreamed proceedings substantial, but their quality is also high: in last year’s inaugural national “100 Outstanding Court Hearings” selection, four hearings from Jiangsu courts were recognized as outstanding, placing the province first nationwide in the number of awards received.

A responsible official from the Supreme People’s Court’s Judicial Administration Office stated that Jiangsu courts have demonstrated courage in exploration and innovation in practice, achieving their current accomplishments through a spirit of leaving tangible results and making lasting impacts. This embodies the essence of the “Jiangsu Experience.” It is hoped that courts at all levels nationwide, inspired and guided by the “Jiangsu Experience,” will embrace a sense of responsibility—“if not me, who?”—and a keen sense of urgency—“time waits for no one”—to continuously update their thinking, strengthen their measures, and comprehensively build an open, dynamic, transparent, and citizen‑friendly judicial system characterized by transparency and accountability.

A responsible official from the People’s Court News and Media Group stated that, as the official developer and operator of the China Court Trial Publicity Website, China Court Network will, with the support and guidance of the Supreme People’s Court’s Judicial Administration Office, further strengthen its cooperation with Jiangsu Xinshiyun Company to build a more intelligent, secure, and dynamic platform. By closely tracking the trends in internet development and implementing a mobile-first strategy, the platform will continue to be optimized and upgraded to meet the evolving needs of the public and make an even greater contribution to the cause of judicial transparency.

China Court Trial Publicity Network is the People’s Courts’ fourth-largest platform for judicial transparency. Since its official launch in September 2016, it has achieved full access and nationwide coverage, connecting 3,521 courts across the country. More than 120,000 rostered judges have conducted live broadcasts of court hearings online, with an average of 17,000 sessions streamed daily, and total website visits exceeding 19 billion. China Court Trial Publicity Network has become the world’s largest government‑run video‑streaming platform.

National People’s Congress deputies Nie Yongping and Ouyang Hua attended the award‑presentation ceremony. Representatives from the Supreme People’s Court’s Judicial Administration Office, the People’s Courts News and Media Group, and the three levels of courts in Jiangsu Province—both winning units and individuals—as well as specially invited provincial People’s Congress deputies, members of the Provincial Political Consultative Conference, and the executives and staff of Jiangsu Xinshiyun Company also took part in the event.

Making Life Easier for the Public and Enabling Judges to Focus—A Record of the Taizhou Jiangyan District People’s Court’s Reform Toward Centralized and Socialized Judicial Support Services

“As the imbalance between caseloads and judicial resources has grown increasingly acute, a large volume of ancillary tasks has siphoned off judges’ time and energy, severely undermining the efficiency of trial and enforcement work. To address this, we have vigorously advanced reforms to centralize and socialize judicial support functions, outsourcing these ancillary tasks. This reform was included by the Jiangsu Provincial Higher People’s Court as a key priority for case filing in 2019,” said Lu Aihua, President of the People’s Court of Jiangyan District, Taizhou City, speaking with great familiarity about the outsourcing of judicial support services. She added, “Outsourcing is not simply a matter of handing things over; it requires accurately identifying bottlenecks, formulating concrete measures, and establishing rigorous standards—only then can we ensure both safety and tangible benefits, truly alleviating the burdens on judges and litigants.”

Putting the people first—save yourself the hassle as soon as you walk in.

“A few years ago, one of my clients told me that procedures such as court filing registration, forensic appraisal, and property preservation often left them at a loss. Now, all these processes can be handled in a one-stop service at the litigation service center, which has indeed eased the burden on litigants,” said Chen Liang, an attorney at Qingyue Law Office, at the Jiangyan District Court’s litigation service center.

The litigation service team of the outsourcing company at the Jiangyan District People’s Court is located within the Litigation Service Center. As soon as you enter, you can see the outsourced staff smilingly assisting parties at the information desk. Of the center’s 10 employees, 7 are from the outsourcing office.

“To make it easier for the public to handle matters in a one-stop manner, the court has put in considerable effort,” said Chen Liang. Take litigation preservation as an example: under the standard procedure, such measures require multiple steps—application, review, payment of fees, verification, issuance of a ruling, and enforcement—all of which are assigned to different departments within the court. This arrangement often leads to inefficiencies due to unclear delineation of responsibilities. Now, the court has established a dedicated service window at its litigation service center to review and process preservation cases. When the case‑filing judge discovers, during the examination of filing documents, that a party has submitted an application for property preservation, the case can be immediately referred to the preservation judge for review of the relevant materials, enabling on-the-spot filing, immediate review of preservation documentation, and prompt issuance of the ruling.

Zhou Jianguo, Secretary of the Commission for Discipline Inspection of the Jiangyan District People’s Court, stated that one-stop services not only facilitate the public but also reduce off‑court interactions between parties and judges, thereby mitigating risks to judicial integrity.

With the judges in mind, they can focus on handling cases with peace of mind as soon as they start work.

“Paper case files must be passed back and forth among court staff, and the previous practice of manually signing to conoffice handovers was both cumbersome and insecure,” said Lin Chengcai, a judicial assistant with the Case Management Office.

“In the past, when serving documents, some recipients either refused to sign or signed carelessly, leaving us overwhelmed and frustrated,” said Xu Jun, Deputy Chief Judge of the Second Civil Division.

At a symposium held at the Jiangyan District People’s Court, the judges in attendance all recounted their past experiences of being bogged down by miscellaneous and trivial matters. They resolved to pursue reform by tackling the most challenging issues. To this end, the Jiangyan District People’s Court, in collaboration with an outsourcing office, developed three systems—

— Case File Workflow Management System. This system generates a unique QR code for each case upon filing, enabling seamless handover via QR‑code scanning. It automatically records the holder and duration of custody at each stage, ensuring end-to-end traceability and seamless integration across all processes.

— Court Resource Management System. This system enables intelligent allocation of courtrooms. This year, the Jiangyan District People’s Court has held an average of 644 hearings per month, a year-on-year increase of 19.34%.

— Delivery to the regulatory system. This system records the time and outcome of each delivery. For deliveries by mail, the “three attempts within five days” requirement is strictly enforced: EMS delivery personnel promptly upload, via a mobile app, the location data, on-site images, and proof of signature for every delivery, thereby ensuring that deliveries are conducted in a standardized, authentic, and effective manner. At present, legally valid documents can be delivered in an average of just 12 days.

Lin Chengcai stated that the three systems have successfully freed judges from routine and trivial tasks.

Qian Hong, project manager for the outsourcing of judicial support services at the Jiangyan District People’s Court, led reporters to review the court’s outsourced enforcement‑related tasks. More than a dozen functions—ranging from initial client intake and online asset inquiries to drafting relevant documents—are now handled by an external service provider. This allows the court’s enforcement team to devote greater resources to locating individuals and tracing assets. Since the outsourcing initiative was launched, the average time required to close an enforcement case has been reduced by 50 days. As of the end of August this year, the outsourced team has facilitated online asset freezes totaling over RMB 247.6 million.

Designed for outsourced employees: they must commit to their work from day one.

The Jiangyan District People’s Court’s comprehensive reform initiative encompasses three key areas—litigation services, adjudication, and enforcement support—organized into three teams with a total of 20 positions, staffed by 46 personnel.

Faced with such a large workforce and an enormous workload, and with the court not directly involved in managing the outsourced company’s personnel, how can the quality of the outsourced services be ensured under a “separation of use and management” framework?

Cao Shiping, a full-time member of the Judicial Committee of the Jiangyan District People’s Court, stated that the court’s leadership has led delegations on three occasions to study and benchmark the outsourcing practices of other institutions. The court has actively sought support from higher-level courts as well as from the local Party committee and government, and has rigorously followed public procurement regulations by conducting open tenders to select specific service providers. It has subsequently entered into project contracts with Guangdong Hanpu Human Resources Co., Ltd. and Shanghai Yineng Technology Co., Ltd. In addition, the court, in collaboration with these outsourcing offices, has developed a 70,000-word “Legal Outsourcing Service Standards and Operations Manual,” which clearly defines the responsibilities and detailed operating procedures for each position.

To prevent information leaks, the Jiangyan District People’s Court has installed surveillance equipment at its outsourced work site to ensure that all activities are monitored and traceable. Each employee is assigned a specific task, much like on an assembly line, thereby preventing operators from gaining insight into the full scope of any case. In addition, the court has entered into confidentiality agreements with the outsourcing company and required employees to sign confidentiality undertakings. Since the outsourcing arrangement was implemented, not a single information‑leakage incident has occurred.

Since outsourcing its services, the Jiangyan District People’s Court, despite maintaining a consistently high caseload and the departure of six contract-based court clerks, failed to submit recruitment plans for contract clerks in 2018 and 2019; meanwhile, several key judicial performance indicators have continued to improve.

Other

Zhengzhou Elevator Smoking-Prevention Case

On May 2, 2017, Duan and Yang entered an elevator one after the other. Because Duan was smoking inside the elevator, Yang attempted to dissuade him, leading to a verbal altercation. After exiting the elevator, the two continued to argue; following intervention by property management staff, Yang departed, while Duan accompanied the staff into the property management office. Subsequently, Duan suffered a sudden cardiac episode and died. Thereafter, Duan’s wife, Tian, filed a lawsuit against Yang. The court of first instance ruled that Yang should compensate Tian 15,000 yuan and dismissed all other claims brought by Tian. Dissatisfied with this decision, Tian appealed to the Intermediate People’s Court of Zhengzhou City, Henan Province.

The Zhengzhou Intermediate People’s Court held that Mr. Yang’s act of dissuading Mr. Duan from smoking in the elevator did not exceed the bounds of necessity and constituted a legitimate act of intervention. During the course of discouraging Mr. Duan from smoking, Mr. Yang remained rational and calm, and no physical altercation or forceful tugging occurred between the two. Nor is there any evidence indicating that Mr. Yang verbally reprimanded Mr. Duan or engaged in any other improper conduct. Consequently, Mr. Yang neither acted with intent nor negligence to infringe upon Mr. Duan’s right to life, and his act of dissuading Mr. Duan from smoking, by itself, could not have caused Mr. Duan’s death. Moreover, Mr. Duan suffered from pre-existing heart disease; in a state of emotional instability, he experienced a cardiac episode that tragically resulted in his death. Although, temporally speaking, Mr. Yang’s intervention and Mr. Duan’s death occurred sequentially, no legal causal link exists between the two. Therefore, Mr. Yang should not be held liable for tort.

The Zhengzhou Intermediate People’s Court held that, although Yang did not file an appeal, the first-instance judgment erred in its application of the law and thereby harmed the public interest; accordingly, it reversed the first-instance judgment and dismissed Tian’s claim.

JC Master Law Office

Address: 9th Floor, National Water Resources Building, No. 70 Qingjiang South Road, Nanjing City

Postal code: 210036

Phone: 025-84503333

Fax: 025-84505533

Website: www.jcmaster.com

This legal notice is provided solely for informational purposes and does not constitute legal advice or a legal analysis of any specific case. The transmission of this legal notice does not establish an attorney–client relationship between JC Master Law Office and the user or viewer. JC Master Law Office assumes no responsibility for any third-party content accessible via the internet. If you do not wish to receive this legal notice, please notify us by email at jcm@jcmaster.com.

The copyright in this legal information is owned by JC Master Law Office ©. Without written permission, no organization or individual may reproduce, publish, or cite it in any form.