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JC Master Legal News Issue 889

Release Date:

2019-09-29 17:04

Key Takeaways for This Issue

The STAR Market Listing Committee has rejected initial public offering applications twice in three weeks, and Titan Technology’s review has been terminated.

The 25th Review Meeting of the STAR Market Listing Committee of the Shanghai Stock Exchange was held on September 26. The meeting approved the issuance and listing application of Ningbo Changyang Technology Co., Ltd. and rejected the initial public offering of Shanghai Titan Technology Co., Ltd.

Deepening Bank–Enterprise Cooperation: Huada Technology Plans to Acquire a 4.76% Stake in Changshang Bank for RMB 79.85 Million

On the evening of September 27, Huada Technology issued an announcement stating that on the same day, it signed a Share Transfer Agreement with Zhangjiagang Free Trade Zone Yuefan Trading Co., Ltd. (hereinafter referred to as “Yuefan Trading”). The company intends to acquire 25.35 million shares of Jiangsu Changjiang Commercial Bank Co., Ltd. (hereinafter referred to as “Changjiang Bank”) held by Yuefan Trading, representing 4.76% of the bank’s total share capital, at a price of RMB 3.15 per share, for a total transaction value of RMB 79.8525 million. Upon completion of this share transfer, the company will hold a 4.76% stake in Changjiang Bank.

Announcement of the State Taxation Administration on Value-Added Tax Administration Issues, Including the Deduction of Input VAT on Domestic Passenger Transport Services

An announcement has been issued regarding VAT administration issues, including the input tax credit for domestic passenger transport services.

The Supreme People’s Court has issued Opinions on Improving and Perfecting the Working Mechanism of the Judicial Committee, clearly defining its organizational structure, functional positioning, operational procedures, and mechanisms for safeguards and oversight.

Typical Cases of the People’s Courts in Supporting the Reform of the System for Compensation for Damage to the Ecological Environment

The People’s Courts have released a set of typical cases illustrating the reform of the ecological and environmental damage compensation system.

Table of Contents

Finance & Capital Markets

Trading on the STAR Market has returned to rationality: market capital remains dormant, patiently awaiting new stock listings.

The STAR Market Listing Committee has rejected initial public offering applications twice in three weeks, and Titan Technology’s review has been terminated.

The first equity incentive plan on the STAR Market has been unveiled, featuring significant innovations in key provisions.

The Shenzhen Stock Exchange has adjusted its ETF trading and settlement model to align with the A-share model.

Standardizing the valuation framework to support financing and investment for companies listed on the Fourth Board.

Corporate & Commercial

Public Notice on the Administrative Approval Review of Mergers and Reorganizations of Listed Companies

Institutional Optimization: A Solid Foundation Is Taking Shape, and the M&A and Restructuring Market Is Expected to Accelerate Its Recovery.

Deepening Bank–Enterprise Cooperation: Huada Technology Plans to Acquire a 4.76% Stake in Changshang Bank for RMB 79.85 Million

Expanding the scope of its testing services, Suzhi Testing plans to acquire Yite Testing for RMB 280 million.

The merger and acquisition was officially announced, with the equity transfer swiftly completed—Carrefour China has officially entered its “Suning moment.”

Taxation

Announcement of the State Taxation Administration on Revising the Declaration Forms for Urban Land Use Tax and Property Tax

Announcement of the State Taxation Administration on Value-Added Tax Administration Issues, Including the Deduction of Input VAT on Domestic Passenger Transport Services

The State Taxation Administration is piloting a notification-and-commitment system for tax-related certification matters.

Shanghai University of Finance and Economics has released the “Quarterly Analysis Report on the Effects of China’s VAT Reduction Policy.”

The Yunnan Provincial Government has called for the full and effective implementation of tax and fee reduction policies.

Litigation & Arbitration

Defining Specific Steps to Improve the Notarization System: Jilin Promotes Notaries’ Participation in Court‑Related Judicial Support Services.

Ten major system platforms have been launched and are now in operation, with Liaoning’s digitalization supporting the development of a diversified dispute-resolution mechanism.

Fully advancing the implementation and institutionalization of all reforms related to the business environment, Hebei is bolstering the development of a world-class, rule-of-law-based business climate.

Hainan’s First and Second Foreign-related Civil and Commercial Courts, along with the Haikou Intellectual Property Court, were officially inaugurated.

Other

Typical Cases of the People’s Courts in Supporting the Reform of the System for Compensation for Damage to the Ecological Environment

Finance & Capital Markets

Trading on the STAR Market has returned to rationality: market capital remains dormant, patiently awaiting new stock listings.

As investment in the STAR Market gradually becomes more rational, the previous frenzy of new‑issue capital has subsided, and trading within the existing‑share market has come to dominate. Two months ago, the STAR Market enjoyed an unprecedented boom: on their debut days, listed companies posted an average gain of 140%, with an average turnover ratio of about 77% and total trading volume exceeding RMB 48.5 billion. As of September 20, data from Eastmoney Choice show that among the 29 STAR‑Market‑listed offices, 12 rose, 16 fell, and one remained unchanged; the average turnover ratio stood at 8.05%, with total trading value around RMB 5.221 billion—accounting for just 1% of A‑share market turnover, down from 11.7%.

During its first week of trading, the STAR Market posted an average daily turnover of RMB 28.6 billion, peaking at RMB 34.6 billion in the third week. However, as the STAR Market entered its second month, market activity cooled, with average daily turnover settling around RMB 15 billion. Since September, the STAR Market’s daily turnover has repeatedly fallen below RMB 10 billion. Moreover, volatility metrics further underscore the market’s return to rationality: while the average intraday price swing on the first day of listing reached 156.9%, by September 20, the average daily price swing had narrowed to just 2.73%.

Fu Lichun, Research Director at Northeast Securities, stated that the cooling of enthusiasm in the STAR Market is attributable, on the one hand, to a more rational assessment of listed companies’ intrinsic value, and, on the other, to a decline in market liquidity caused by the outflow of speculative capital—such as funds chasing new‑issue subscriptions. He added: “The STAR Market will enter a relatively stable phase of value‑based competition. The investment appeal of STAR‑listed companies remains intact; however, the prevailing investment approach has shifted from the past short‑term speculative frenzy aimed at capturing attention to a strategy of carefully selecting individual stocks and embracing value investing.”

Fu Lichun believes that, at this stage, the STAR Market represents a sign of maturity in China’s capital market. Although listed companies on the STAR Market are exempt from daily price‑limit restrictions during their first five trading days—after which the limit is set at 20%, a notably more lenient regime than on the main board—since its launch, there has been no sharp, volatile price swings in individual stocks. Instead, many issuers have gradually established their own valuation ranges. This pricing behavior enables the STAR Market to attract higher‑quality enterprises, further reinforcing its role as a catalyst for innovative and technology‑driven offices, while also offering fresh perspectives for comprehensively deepening capital‑market reform.

Dong Dengxin, director of the Institute of Finance and Securities at Wuhan University of Science and Technology, stated that after two months of trading, speculative fervor on the STAR Market has subsided, the “everything new is hot” mentality is waning, and the number of newly listed companies has fallen short of market expectations.

“At present, the expansion of the STAR Market is relatively slow, and the stock prices of already listed companies do not yet offer any significant undervaluation, failing to meet investors’ needs. This has, to some extent, dampened investment enthusiasm. We hope that going forward, the STAR Market can accelerate its expansion and improve the efficiency of IPO reviews, thereby fully demonstrating its inclusive nature,” said Dong Dengxin.

At present, the overall valuation of the STAR Market has risen sharply, with many stocks now trading at price-to-earnings ratios exceeding 100 times. Among them, MicroPort Bio tops the list with a P/E ratio of 907; based on its IPO price, its share price has surged 233% since listing. China Railway Signal & Communication Co., Ltd., currently the STAR Market’s largest company by market capitalization, has also seen its stock price climb 61.7% since its debut. As of September 20, 22 companies have posted gains of more than 100%, with six even surging by over 200%.

Dong Dengxin stated that, at present, the valuations and share prices of STAR Market‑listed companies are relatively high. From an investment perspective, the upward momentum has begun to wane; however, these companies’ strong market performance will serve as a benchmark for the next wave of STAR Market listings. Beyond liquidity considerations, the growing lack of investment rationality and diminishing opportunities is another key factor behind the STAR Market’s gradual cooling. As new companies continue to list on the STAR Market, market enthusiasm is likely to pick up again.

Xu Yang, Chairman of Shanghai Maike Rong Information Consulting Co., Ltd., believes that the first batch of STAR Market‑listed companies has already demonstrated a clear wealth‑creation effect, with their investment value fully realized. As a result, individual STAR Market stocks are now expected to see a return to more reasonable valuations, prompting some capital to remain on the sidelines and wait for new listings. “At present, STAR Market offices generally command relatively high price‑to‑earnings ratios and have been listed only recently, leaving insufficient time to validate their valuations. Investors tend to adopt a cautious stance, with short‑term funds holding back until new shares debut and long‑term investors waiting for annual reports, which has dampened overall market sentiment toward the STAR Market,” Xu Yang noted.

Cao Zhinan, a senior researcher at the Evergrande Research Institute, stated that the shift of the STAR Market from a period of intense activity to greater stability is a normal market phenomenon. Although the STAR Market’s turnover ratio has declined, it remains higher than that of the ChiNext (2.7%), the SME Board (1.8%), and the Main Board (0.6%), indicating relatively robust trading activity.

“The return of STAR Market valuations to a more rational range will help stabilize expectations in both the primary and secondary markets, steer investment toward value, and truly fulfill its role in supporting the national strategy of building a science-and‑technology‑driven powerhouse,” said Cao Zhinan. He added that, going forward, the STAR Market’s investment appeal will rest on two pillars: first, the strength of high‑quality listed companies—some of which have already piloted spin‑offs on the STAR Market, paving the way for an expanded pool of premium securities; and second, the influx of long‑term capital. Currently, such capital is primarily channeled through strategic allocations, public mutual funds, and securities offices’ co‑investments. Moving ahead, further integration of institutional investors—including QFII, RQFII, social security funds, pension funds, insurance capital, and bank wealth‑management subsidiaries—could bring in sustained, stable incremental funding.

The STAR Market Listing Committee has rejected initial public offering applications twice in three weeks, and Titan Technology’s review has been terminated.

From September 5 to September 26, over a period of nearly three weeks, the STAR Market Listing Committee exercised its “veto power” on two occasions.

The Shanghai Stock Exchange stated that, during its review and inquiry of Titan Technology, the STAR Market Listing Review Center focused on the following matters:

First, the issuer’s disclosure of its business model and the substance of its operations. During the review, it was noted that the issuer positions itself as a “specialized technical integration service provider based on proprietary core products,” yet it has failed to clearly disclose the meaning of “specialized technical integration,” the differences between this concept and the commonly understood notion of “technical integration,” or whether it constitutes a form of one-stop online sales.

During the reporting period, more than 93% of the issuer’s main‑business revenue was generated from the sale of research reagents, research instruments, and consumables. Moreover, over 50% of this revenue stemmed from the direct purchase of third‑party branded products followed by their immediate resale to customers. The issuer has not adequately disclosed how its “specialized technical integration” is reflected in its operating results.

With respect to its own-brand products, the issuer manufactures entirely through an OEM arrangement. In the OEM production process, the issuer currently assigns only two personnel to provide on-site process guidance and quality control at the OEM facilities. For certain products, the issuer supplies raw materials and then commissions the OEM to perform secondary packaging and processing; for other products, it directly purchases finished goods from the OEM, applies its own brand label, and sells them externally. The issuer has not adequately explained how “specialized technical integration” is reflected in the aforementioned business model.

Second, the issuer’s core technologies, their advanced nature, and the extent to which its production and operations rely on these core technologies. During the review, it was noted that the prospectus discloses that the issuer’s core technologies comprise both production‑related core technologies and core technologies related to technology integration services. With respect to the production‑related core technologies, the issuer maintains that these do not correspond to any single, specific product. As for the technology integration service‑related core technologies, compared with typical Internet companies and logistics enterprises, the issuer does not possess any clear competitive advantages in areas such as network construction and platform development, the variety and quantity of products offered on its platforms, platform traffic levels, or warehousing, logistics, and delivery methods.

The issuer outsources its production processes and markets both its own branded products and third-party branded products purchased directly. However, the prospectus fails to adequately disclose the specific applications of the issuer’s listed core manufacturing technologies and core technologies related to technology integration services in its principal products and services, nor does it clearly articulate the relative standing of these technologies within the domestic and international industry, or provide concrete indicators of their advanced nature and innovativeness.

From 2016 to 2018, the issuer reported “revenue from products and services related to core technologies” of RMB 243.2064 million, RMB 404.2097 million, and RMB 593.1327 million, respectively. Among these, sales revenue from specialty chemicals—covering both proprietary and third-party brands—amounted to RMB 150.07 million, RMB 272.42 million, and RMB 394.40 million, accounting for over 60% of the total. However, the issuer failed to adequately disclose the rationale and justification for classifying revenue derived from “specialty chemicals sold to manufacturers” under third-party brands as “revenue from products and services related to core technologies.” Furthermore, the gross profit margins of specialty chemicals—both proprietary and third-party brands, which constitute the issuer’s primary core‑technology products—were 10.72%, 13.09%, and 11.74% during the reporting period, significantly lower than the issuer’s overall gross margin for its principal business. As a result, the issuer did not sufficiently demonstrate the advanced nature of its core technologies.

The STAR Market Listing Committee deliberated and concluded that the issuer failed to accurately disclose its business model and the substance of its operations, nor did it adequately disclose its core technologies, their advanced nature, or the extent to which its production and business activities rely on such core technologies. Consequently, the information disclosed in the issuer’s application for this public offering does not comply with Articles 5, 34, and 39 of the Measures for the Registration Administration of Initial Public Offerings on the STAR Market, nor with Articles 15 and 19 of the Rules for the Review of Stock Issuance and Listing on the STAR Market of the Shanghai Stock Exchange.

In accordance with the relevant provisions of the Measures for the Registration Administration of Initial Public Offerings on the STAR Market and the Rules for the Review of Stock Issuance and Listing on the STAR Market of the Shanghai Stock Exchange, and taking into account the deliberations of the STAR Market Listing Committee, the Shanghai Stock Exchange has decided to terminate the review of Titan Technology’s application for an initial public offering and listing on the STAR Market.

On September 5, the STAR Market Listing Committee held its 21st review meeting to deliberate on the issuance and listing application of Beijing Guoke Huanyu Technology Co., Ltd. Following deliberation, the committee issued a negative opinion, rejecting the company’s application for an IPO. Guoke Huanyu also marks the first case since the establishment of the STAR Market and the implementation of the pilot registration system in which an IPO review was terminated due to the Listing Committee’s disapproval.

At the time, the SSE stated that it would continue to advance along the paths of marketization and rule of law, steadfastly uphold the STAR Market’s positioning, place information disclosure at the core, and effectively implement the inclusive institutional arrangements governing issuance and listing on the STAR Market. At the same time, it would fully leverage the role of its transparent, inquiry‑based review process in enhancing both issuers’ information‑disclosure quality and the professional standards of intermediary institutions, thereby rigorously safeguarding the market’s “entry gate.” This is a practical requirement for the SSE to fulfill its statutory duties of reviewing and approving issuances and listings under the registration‑based system.

The first equity incentive plan on the STAR Market has been unveiled, featuring significant innovations in key provisions.

The first equity incentive plan on the STAR Market has been unveiled. On the evening of September 23, Espressif Systems (688018), one of the inaugural STAR Market companies, released a draft restricted stock incentive plan. Under the plan, the company intends to grant 292,800 restricted shares to eligible participants, representing 0.366% of the company’s total share capital of 80 million shares.

The draft indicates that the total number of incentive recipients is 21 (including some foreign employees), accounting for 6.56% of the company’s total workforce, and encompasses senior executives, core technical personnel, and other individuals deemed by the board of directors to merit incentives. The plan has a maximum term of 72 months, and the grant price is set at RMB 65 per share, exceeding the 50% price cap.

Investment banking professionals believe that, following the significant relaxation of equity‑incentive policies on the STAR Market, science and technology companies now enjoy greater flexibility in designing their equity‑incentive plans. The revised rules are more agile and market‑oriented, enabling these offices to tailor solutions to their specific needs and helping them craft compelling incentive packages.

Grant price exceeds the 50% threshold.

Specifically, the grant price for these restricted shares is RMB 65 per share. Upon satisfying both the vesting and attribution conditions, eligible participants may purchase the Company’s newly issued A‑share common stock at this price.

From the perspective of the pricing methodology, the grant price under the incentive plan is set at no less than 50% of the closing price on the first trading day following the company’s initial public offering, and has been determined to be RMB 65 per share. This price corresponds to 39.61% of the average trading price over the preceding trading day and 41.95% of the average trading price over the preceding 20 trading days.

According to a reporter from the Securities Times·eCompany, the Rules for the Listing of Stocks on the STAR Market stipulate that if the price at which a listed company grants restricted shares to incentive recipients is less than 50% of the average trading price of the company’s shares over the one, twenty, sixty, or one hundred and twenty trading days preceding the date of public disclosure of the equity‑incentive plan draft, the company must disclose the rationale and methodology underlying the pricing.

In this regard, investment bankers note that, compared with the main board, the STAR Market’s rules effectively relax the “50%” requirement, granting companies greater discretion in setting share prices. Given the treatment of share‑based compensation, the difference between the fair value of restricted shares and the grant price is recognized as an expense, thereby eroding corporate profits. Companies must therefore strike a balance between presenting attractive financial metrics and offering grant prices that are sufficiently appealing; the new rules simply provide greater flexibility and a broader range of options.

With respect to the lock-up period, the STAR Market listing rules stipulate: “Where the vesting conditions include a minimum tenure of 12 months or more, once the granted equity interests have been registered, no further lock-up period shall apply.” In this case, the company has explicitly established a tenure requirement that meets the aforementioned criteria; accordingly, the shares in question may be freely traded upon vesting, subject only to the statutory lock-up obligations applicable to directors and senior executives. Specifically, directors and senior executives may not transfer more than 25% of their total holdings each year during their tenure, and they are prohibited from transferring any shares they hold in the company for six months following their departure.

The incentive recipients are divided into two categories.

Espressif Systems has undertaken a rather bold exploration of equity‑based incentive plans, going beyond mere compliance with regulatory requirements and introducing several constructive innovations. For instance, the company categorizes eligible participants into two groups based on their length of service: the first group comprises employees who have served continuously for at least one year, totaling 19 individuals; the second group includes those with less than one year of service, numbering two. The company has established distinct vesting arrangements for each category. Specifically, the first group is subject to performance assessments for the years 2019 through 2022, while the second group is assessed over the period 2020 to 2023.

The performance metrics used to determine eligibility are revenue or gross profit. Industry insiders note that, for main‑board companies, net profit is typically the preferred measure of profitability. However, given that science‑and‑technology‑innovation offices are heavily influenced by selling, general and administrative expenses as well as interest and taxes, net profit may be somewhat distorted. By contrast, gross profit better reflects and highlights a company’s core business capabilities, demonstrating that the company has carefully selected performance indicators tailored to its specific circumstances. Moreover, looking at the trend of these metrics, taking the first category of incentive recipients as an example, the company has set corresponding growth targets for revenue or gross profit of 30%, 69%, 119%, and 185% relative to 2018 (for A‑level recipients), implying that each relevant metric must sustain a year‑over‑year growth rate of at least 30%. This sets a relatively high threshold for achieving the incentive objectives.

According to available data, Espressif Systems is a specialized integrated circuit design company that operates under a fabless business model. Its flagship product, the Wi‑Fi MCU, serves as a core communication chip in IoT applications such as smart homes, smart lighting, and smart wearables. Recognizing early on the market potential of IoT chips, the company began building up its technological expertise at an early stage; by 2014, it had launched its signature product, the ESP8266, followed in 2016 by the ESP32 series, which now forms the backbone of its revenue. Thanks to its superior hardware performance—boasting advantages in integration, form factor, computational power, RF capabilities, and memory—and competitive pricing, the company has been hailed as a “low‑cost disruptor” in the sector, rapidly capturing market share.

Industry insiders in chip design point out that, as a fabless company, its core competitive edge lies in its chip‑design capabilities. Maintaining technological leadership is critical to the company’s success, driving strong demand for top‑tier talent and making an attractive equity‑incentive program an urgent priority. In recent years, the company has rapidly expanded its R&D workforce; reportedly, overseas employees place particular emphasis on such incentives, which further underscores the rationale behind the company’s decision to swiftly roll out an equity‑based compensation plan.

On the same day, Espressif Systems also issued an announcement regarding the addition of a core technical personnel: Benjamin Lei Mung was appointed Vice President of System Engineering at the company’s subsidiary, Espressif Star Information, where he will oversee chip system‑level R&D and has been designated as a core technical employee. Mr. Mung is a U.S. citizen and is also among the recipients of this incentive program.

The Shenzhen Stock Exchange has adjusted its ETF trading and settlement model to align with the A-share model.

On September 27, the Shenzhen Stock Exchange officially released the “Detailed Rules for the Trading and Subscription/Redemption of Securities Investment Funds of the Shenzhen Stock Exchange (Revised in 2019),” which will take effect on October 21. This revision of the rules has optimized the trading and settlement framework for ETFs listed on the Shenzhen market and adjusted the subscription and redemption procedures for cross‑market equity ETFs, better aligning with actual market needs, enhancing the efficiency of subscription and redemption, and thereby contributing positively to the long-term, healthy development of the Shenzhen ETF market.

This revision of the rules primarily encompasses two key aspects: First, the trading and settlement regime for Shenzhen‑listed ETFs has been adjusted from T+1 with delivery versus payment (DVP) to the A‑share model. Under this change, the settlement date for ETF shares is advanced from T+1 to T, while cash settlement remains on T+1, aligning with the A‑share settlement schedule. Second, the subscription and redemption framework for cross‑market equity ETFs listed in Shenzhen has been modified. While the off‑exchange physical‑delivery subscription and redemption option is retained, the on‑exchange mode for these ETFs has been shifted from “full‑cash substitution” to a “Shenzhen‑listed stock physical delivery, Shanghai‑listed stock cash substitution” arrangement, with guaranteed settlement implemented by China Securities Depository & Clearing Corporation.

An official from the Shenzhen Stock Exchange stated that the adjustment to the ETF trading and settlement model in the Shenzhen market serves two key purposes: first, it streamlines the ETF operating framework, reducing operational costs and mitigating execution risks for all market participants, thereby helping to ensure the safe and stable functioning of the ETF market; second, it enhances ETF market liquidity and further strengthens the instrument‑like characteristics of ETF products, encouraging medium- to long-term capital—particularly institutional investors—to engage more broadly in the A‑share market through ETF allocations. Notably, following the reform of the in‑exchange subscription and redemption mechanism for cross‑market equity ETFs, ETF shares subscribed on the same day can be sold on that very day, and the underlying stocks received upon redemption can also be sold immediately. As a result, both investors and liquidity providers have seen a marked improvement in the efficiency of utilizing their holdings and funds.

In recent years, Shenzhen‑listed ETFs have gained increasing market recognition, with both their number and scale continuing to expand. As of now, the Shenzhen Stock Exchange lists 63 ETFs, with aggregate net asset value of approximately RMB 106.1 billion—up 17% and 45%, respectively, from year‑end last year. The Shenzhen Stock Exchange places great emphasis on innovation and development in the ETF market. In addition to optimizing ETF trading and settlement procedures, it has recently prioritized three key initiatives: First, reducing market costs by issuing a notice on September 12 to temporarily waive listing initiation fees, monthly fees, and traffic‑fee charges for liquidity‑provider trading units associated with ETFs. Second, continuously expanding the ETF product lineup, supporting the launch of ETFs focused on the Guangdong–Hong Kong–Macao Greater Bay Area and local state‑owned enterprise reforms, introducing the first batch of commodity futures ETFs, and actively promoting the development of innovative products such as interbank bond ETFs and crude oil ETFs. Third, strengthening investor education and services by regularly organizing events like the ETF Masterclass series and symposiums for institutional investors. To date, the Shenzhen Stock Exchange’s ETF Masterclass series has held a total of 57 sessions, attracting 14,000 participants.

A relevant official from the Shenzhen Stock Exchange stated that the Exchange will deeply understand and implement the spirit of the “Opinions of the CPC Central Committee and the State Council on Supporting Shenzhen in Building a Pilot Demonstration Zone for Socialism with Chinese Characteristics,” earnestly carry out the arrangements set forth at the China Securities Regulatory Commission’s symposium on comprehensively deepening capital market reform, further advance market reforms, proactively improve fundamental institutional frameworks, continuously expand the range of financial products, and consistently enhance the quality of market services, thereby making an even greater contribution to China’s high-quality economic development.

Standardizing the valuation framework to support financing and investment for companies listed on the Fourth Board.

A roadmap for comprehensively deepening capital market reform was recently unveiled, outlining 12 key reform tasks that will guide the capital market’s priorities over the coming period. In addition to reforms targeting the STAR Market and the ChiNext Board, regional equity markets—commonly known as the “fourth-board markets”—have also been designated as a focal point of the reform agenda. According to officials at the China Securities Regulatory Commission, efforts will be made to address gaps in the multi-tiered capital market system, including selecting several regional equity markets to conduct pilot programs for institutional and business innovation, and permitting high-quality securities offices to expand their over-the-counter trading activities.

It has been learned that the Regional Equity Market Committee of the China Securities Industry Association recently took the lead in drafting the “Guidelines on Valuation for Regional Equity Markets (Draft)” (hereinafter referred to as the “Valuation Guidelines”), which will establish standardized procedures for valuation in the fourth‑board market. Industry insiders believe that a well‑defined valuation framework for the fourth‑board market will facilitate the financing and investment activities of listed companies.

Valuation standardization is a crucial step.

The reform of the New Third Board is no longer the first time it has been incorporated into China’s capital market’s top-level design.

To standardize the fourth‑board market, relevant regulatory authorities have undertaken practical measures. Recently, the Regional Equity Market Committee of the China Securities Industry Association took the lead in drafting the “Valuation Guidelines.”

“Valuation is an extremely important step in the entire investment and financing process, serving as a common language of capital that both investors and financers can readily understand,” said Zhang Xinghui, Chairman of Beijing Xinliu Huigu Technology Co., Ltd., which participated in drafting the aforementioned proposal. He added that only a unified valuation framework can facilitate collaboration between investors and financiers, making the standardization of valuation a crucial milestone in the development of the fourth‑board market.

It helps enterprises achieve long-term, standardized development.

Liu Suyi, Chairman of the Regional Equity Market Committee of the China Securities Industry Association, Head of the Valuation and Pricing Working Group, and General Manager of the Tianfu Equity Exchange Center, stated that, based on industry research and exchanges, valuing the fourth‑board market requires addressing the valuation and pricing of non‑listed company equity from three perspectives: “authoritativeness,” “professionalism,” and “industry‑specificity.”

In Zhang Xinghui’s view, establishing a standardized valuation framework for the New Fourth Board market would facilitate the investment and financing activities of listed companies, while also helping them improve financial compliance, implement equity‑based incentive plans, pledge shares, and issue convertible bonds—actions that all contribute to the market’s long-term, orderly development. “Valuation will inevitably provide enterprises with fair, reference‑based pricing for investment and financing, thereby enhancing the liquidity of their equity. Moreover, a comprehensive valuation report serves as a tool for uncovering intrinsic value. For small and micro enterprises, traditional metrics such as registered capital and net assets—used to gauge their strength—are replaced by growth‑oriented projections embedded in the valuation report. Companies can also conduct horizontal benchmarking against peers within the same industry, identifying their strengths and areas for improvement.”

Commercial & Corporate

Public Notice on the Administrative Approval Review of Mergers and Reorganizations of Listed Companies

In accordance with the requirements of 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 in order to further standardize administrative licensing practices, enhance the transparency of regulatory work, and serve investors, this notice hereby discloses the review procedures for administrative licenses related to mergers and reorganizations of listed companies, as well as the basic information contained in administrative license applications and the status of the review process, in compliance with the principles of openness, fairness, impartiality, and convenience.

Among them:

1. The public notice lists administrative licensing applications in tabular form and is updated weekly. Applications for which an administrative licensing decision has been made as of the date of this notice will no longer be published on the next notice date.

2. Basic information on the administrative licensing application, including: the listed company, stock code, applicant, name of the proposed project, independent financial advisor and lead sponsor, law office and signing attorney, accounting office and signing accountant, appraisal agency and signing appraiser.

3. Information on the results of the review‑by‑channel system. Pursuant to the review‑by‑channel system for the approval of mergers and reorganizations of listed companies, which came into effect on October 8, 2013, the Commission categorizes applications for major asset restructurings—including share issuances to acquire assets, major asset acquisitions or disposals, and mergers or spin-offs—into three review channels: exempt/accelerated, standard, and prudent. Information on the channel assignment is publicly disclosed in the “Review Type” column upon acceptance of the application. The review‑by‑channel system does not apply to administrative licensing matters involving the review of acquisition reports and exemptions from tender offer obligations, nor to applications for major asset restructurings that were accepted prior to October 8.

4. Application receipt and review progress. This includes seven key stages: receipt, request for supplementary materials, acceptance, feedback, response to feedback, the M&A Review Committee meeting, and case closure, with specific dates for each stage publicly disclosed. The acceptance stage encompasses cases of acceptance, applicant withdrawal of submitted materials, and non-acceptance; the case‑closure stage covers approvals, denials of approval, and termination of review. Specific circumstances are detailed in the remarks section.

5. Notes. These include: withdrawal of the application; refusal to accept the application; implementation by the applicant of corrective measures as recommended; implementation by the applicant of feedback received; implementation by the applicant of the review opinions of the M&A and Restructuring Committee; solicitation of opinions from relevant ministries and commissions; suspension of review due to the initiation of an investigation into alleged violations by concerned parties; termination of review following administrative penalties; resumption of review upon removal of adverse effects; on-site verification; investigation of whistleblower complaints; applicant’s request for an extension to respond to feedback; applicant’s request to withdraw the submitted materials; ongoing updates to financial documentation; rejection of approval; and termination of the review, among others.

6. Investors who wish to obtain further details on the listed company’s mergers and reorganizations are advised to consult the company’s relevant announcements.

Institutional Optimization: A Solid Foundation Is Taking Shape, and the M&A and Restructuring Market Is Expected to Accelerate Its Recovery.

M&A activity remains sluggish this year.

Since the beginning of this year, the M&A market has remained generally sluggish. According to data, as of September 25, the cumulative number of domestically announced M&A deals in the first three quarters totaled 7,840, down 9.9% compared with the same period last year; the aggregate transaction value stood at RMB 1.75 trillion, a year-on-year decline of 28.72%.

The statistics above reflect M&A activity across the entire market, which differs from trends in the A-share market. Sun Jinju, director of the New Era Securities Research Institute, noted that, according to available data, the number of A-share M&A deals involving share issuances for asset acquisitions declined by 26% in the first half of the year, while the total deal value increased by 29%.

Regarding the reasons why the total number and value of M&A deals across the market have fallen short of last year’s levels, Sun Jinju stated: “This represents a modest pullback following a significant rebound in both deal volume and size. From a longer-term perspective, after peaking in 2015, the M&A and restructuring market experienced a sustained decline from 2016 to 2017. In 2018, the market began to bottom out and recover, with 2019 marking a period of stabilization amid that recovery. We believe the M&A and restructuring market will accelerate its recovery going forward.”

Specifically by sector, data show that, in terms of M&A deal value, capital goods, diversified financial services, materials, real estate, retail, and food, beverage, and tobacco rank among the top. In terms of the number of M&A deals, software and services, capital goods, business and professional services, and materials are particularly active.

Private equity deal activity is now in decline.

Regarding the reasons why M&A activity this year has lagged behind the same period last year, Yang Delong, Managing Director and Chief Economist at Qianhai Open Source Fund, analyzes that although economic conditions have improved somewhat since the beginning of the year, overall business sentiment remains weak. Moreover, with liquidity having been relatively tight over the past two years, the various parties involved in M&A transactions have had limited capital available for such deals.

“The primary reason for the relatively lackluster performance of the M&A and restructuring market this year is a subdued overall market environment, coupled with persistently low levels of investor and industry confidence in such transactions. Market sentiment toward M&A and restructuring continued to weaken throughout the first half of the year. Stringent regulatory oversight and limited market acceptance have dampened listed companies’ enthusiasm for pursuing M&A and restructuring activities,” analyzed Sun Jinju.

Additionally, some private equity professionals note that, from the perspective of the entities involved in M&A transactions, private equity‑led deals have declined, contributing to an overall M&A market that is less active than last year.

According to data from ChinaVenture, private equity funds’ support for M&A activity among Chinese companies weakened in August, declining 49.12% month over month. In terms of private equity exits, both the number of deals and the amount of capital raised through M&A fell: a total of 17 private equity funds successfully exited via M&A, raising approximately RMB 2.495 billion.

Looking at the overall picture for this year, from January to August, private equity funds planned to participate in 274 M&A deals, a 19.65% decrease compared with the same period last year. The total value of M&A transactions in which private equity funds were slated to invest amounted to US$14.123 billion, down 17.97% year over year.

Two factors are driving the market’s recovery.

Industry insiders note that, following more than six months of adjustment, the M&A market has gradually bottomed out and is now approaching a window for the release of M&A demand. Coupled with the continued easing of M&A and restructuring policies—and with the STAR Market taking the lead in reforming its M&A and restructuring framework—the M&A and restructuring market is poised to accelerate its recovery.

“From both the policy and market perspectives, the M&A and restructuring market is poised for a faster recovery,” noted Sun Jinju.

Among these developments, the reform of mergers and acquisitions and restructuring on the STAR Market has already taken effect. Industry insiders note that, as a “testing ground” for capital market reform, the STAR Market’s M&A and restructuring reforms are both highly ambitious and strongly market‑oriented.

Sun Jinju stated that the STAR Market’s latest reform of mergers and acquisitions and restructuring is guided by four key directions: first, easing regulatory constraints, including those on pricing and standard requirements; second, raising the quality standards for target companies and emphasizing the substantive integration outcomes of M&A transactions; third, strengthening information disclosure; and fourth, expediting the approval process. To a certain extent, the STAR Market’s reforms in this area can serve as a blueprint for broader A‑share market reforms, with the A‑share M&A and restructuring regime gradually aligning with the STAR Market’s approach.

In addition to policy-driven factors, market sentiment has also begun to improve. “On the A-share M&A and restructuring front, we’ve already observed a rebound in new proposal filings. Recently, the market has started to recognize certain technology sectors—such as semiconductor chips—that offer synergies or align with prevailing market preferences. Market confidence in M&A and restructuring is gradually shifting toward a more optimistic outlook,” said Sun Jinju.

“At present, the M&A and restructuring market has begun to bottom out and stabilize, with prospects for a faster recovery. Two factors are driving this rebound: first, the broader economic outlook has improved; second, increased market liquidity is helping to boost M&A activity,” said Yang Delong.

Deepening Bank–Enterprise Cooperation: Huada Technology Plans to Acquire a 4.76% Stake in Changshang Bank for RMB 79.85 Million

The announcement indicates that Zhangjiagang Free Trade Zone Yuefan Trading Co., Ltd. has no affiliations—nor any relationships involving equity, business operations, assets, receivables and payables, personnel, or other connections that could or have already resulted in a bias toward its interests—with the Company, shareholders holding 5% or more of the Company’s shares, directors, supervisors, or senior management, as defined under the Shanghai Stock Exchange Listing Rules. In accordance with applicable laws and regulations and the relevant provisions of the Company’s Articles of Association, this transaction does not constitute a related-party transaction, nor does it qualify as a major asset restructuring under the Measures for the Administration of Major Asset Restructurings of Listed Companies, and therefore is not required to be submitted to the shareholders’ meeting for deliberation.

According to unaudited financial data, as of June 30, 2019, Changshang Bank reported total assets of RMB 29.959 billion. From January to June, the bank recorded operating income of RMB 593 million and net profit of RMB 126 million.

It is understood that, upon Huada Technology’s payment of the aforementioned share transfer consideration, Yuefan Trading will notify Changshang Bank to effect, on the same day, the registration of the shareholder change for the said shares in the register of shareholders, with Huada Technology as the new registered holder.

Huada Technology stated that, following its acquisition of equity in Changshang Bank, the company will be able to strengthen its banking‑corporate partnership; realize certain investment returns; and enhance both its industrial and revenue structures, thereby boosting its overall competitiveness. This transaction will not result in any changes to the scope of the company’s consolidated financial statements and will not have a material impact on the company.

The announcement indicates that this transaction remains subject to approval by the banking regulatory authority, and there is a risk that it may not proceed if such approval is not obtained. Furthermore, the funds for this transaction will be sourced from the company’s own capital, which could potentially reduce the company’s cash flow and increase its financial risks in the future.

Expanding the scope of its testing services, Suzhi Testing plans to acquire Yite Testing for RMB 280 million.

On September 27, Sushi Testing (300416) announced that, in order to broaden the company’s technical capabilities in the testing field, increase its market share, and enhance its profitability, it plans to acquire 100% of the equity interest in ETT (Shanghai) Testing Technology Co., Ltd. (hereinafter referred to as “ETT Testing”) for cash.

According to the announcement, the Company, as the transferee, has entered into a Share Transfer Agreement with Integrated Service Technology Inc. (registered in the Seychelles), Yite Technology Co., Ltd., and Integrated Service Technology Inc. (registered in Samoa)—collectively referred to as the “Principal Related Parties of the Transferor)—as well as Yite Testing, Shenzhen Yite Testing Technology Co., Ltd., Yite (Beijing) Testing Technology Co., Ltd., Yite (Shanghai) Chip Testing Technology Co., Ltd., and Cui Gewen. Under this agreement, the Company will acquire 100% of the equity interest in Yite Testing for RMB 280 million.

The company stated that the counterparty to this cash equity acquisition, Integrated Service Technology Inc., is an existing shareholder of Yite Testing and has no affiliated relationship with the company; therefore, this cash equity acquisition does not constitute a related-party transaction. Pursuant to the Measures for the Administration of Major Asset Restructuring of Listed Companies, this cash acquisition of 100% equity in Yite Testing does not qualify as a major asset restructuring.

The target of this transaction, Yite Testing, was established in May 2002. Its business scope encompasses technological development, consulting, services, and transfer in the field of testing technologies, as well as the manufacturing of electronic components, the wholesale and import/export of testing equipment parts and electronic components, among other activities.

According to the Asset Valuation Report issued by Beijing Tianjian Xingye Asset Appraisal Co., Ltd., this valuation was conducted using both the asset‑based approach and the income approach. As of the valuation base date, June 30, 2019, the income approach yielded a total equity value of RMB 275 million for Yite Testing. Following negotiation, the transaction price for acquiring 100% of Yite Testing’s equity was set at RMB 280 million.

Regarding this transaction, the company stated that, upon completion of the equity acquisition, it will fully leverage the target company’s strengths in technology, equipment, and talent to expand its business scope in the testing sector, upgrade and develop capabilities in reliability analysis, failure analysis, and materials characterization for electronic components, thereby further increasing its market share and enhancing its overall competitiveness.

The merger and acquisition was officially announced, with the equity transfer swiftly completed—Carrefour China has officially entered its “Suning moment.”

From the official announcement of its plan to invest RMB 4.8 billion to acquire an 80% stake in Carrefour China to the present, a period of 97 days has elapsed, and Suning’s acquisition of Carrefour China has finally been finalized. On September 27, Suning.com (002024.SZ) issued an announcement stating that its subsidiary, Suning International, had completed payment of the full purchase price on September 26. In accordance with the Share Purchase Agreement, both parties have now completed the closing of the transaction for the 80% stake in Carrefour China. This marks the official entry of Carrefour China into the Suning era.

Competing on the Same Stage: The Rise of Local Retailers Over 24 Years

In the mid-1990s, large-scale supermarket chains began to emerge. In 1995, as domestic retail offices were accelerating their regional and nationwide expansion, Carrefour entered China as a foreign‑owned retailer, ushering in an era of direct competition between domestic and foreign‑invested retailers.

Having cultivated the Chinese market for 24 years, Carrefour China has established a strong presence through strategically located stores and a substantial portfolio of high-quality properties acquired via direct ownership and long-term leases. The company operates 210 large-scale hypermarkets and 24 convenience stores across 22 provinces and 51 major and medium-sized cities. According to its financial report, Carrefour China generated approximately RMB 30 billion in revenue in 2018, ranking among the top 10 in the 2018 Top 100 Chain Stores of Fast-Moving Consumer Goods (Supermarkets/Convenience Stores) in China.

After 24 years of development, China’s retail sector has risen to prominence, with domestic retailers and foreign‑owned chains transitioning from confrontation to integration. As a pioneer in smart retail, Suning announced on June 23 this year that its wholly owned subsidiary, Suning International, plans to invest RMB 4.8 billion to acquire an 80% stake in Carrefour China. This move not only secures access to high‑quality, large‑scale hypermarkets in the domestic market but also accelerates the expansion of fast‑moving consumer goods categories and the refinement of specialized, precision‑driven operations, while opening up new avenues for cross‑category innovation across its diverse business formats.

On June 27 this year, Gao Feng, spokesperson for the Ministry of Commerce, addressed the matter of Carrefour China’s 80% stake at a press conference, stating that China’s commercial retail sector is highly competitive, and strategic partnerships, mergers, and restructurings are normal market practices. The integrated development of online e‑commerce platforms and offline supermarkets represents a new trend in the retail industry, enabling complementary advantages across different business formats and expanding the scope of comprehensive supply-chain services.

Another milestone in the company’s omni‑channel retail strategy.

As a landmark event in the integrated online‑offline development of China’s retail sector, Suning’s acquisition of Carrefour China has drawn widespread market attention. Commenting on this high‑profile merger, some financial analysts have noted that, judging by the transaction price, the deal represents excellent value for Suning. Carrefour was among the earliest foreign‑owned retail giants to enter the Chinese market; its extensive store network, robust supply‑chain capabilities, and deep operational expertise are all highly valuable assets for Suning as it expands its footprint in the fast‑moving consumer goods space.

According to the data, Carrefour China generated nearly RMB 30 billion in revenue in 2018, accounting for approximately 12% of Suning.com’s total operating income that year. Analysts note that, following the acquisition, Suning.com’s sales scale is expected to expand.

“This is a pivotal step in Suning’s smart retail strategy,” said Zhang Jindong, Chairman of Suning.com Group, when discussing the synergies this acquisition will unlock. “Carrefour’s expertise in fast-moving consumer goods operations and its robust supply-chain capabilities can be seamlessly integrated with Suning’s omni‑channel retail model, its comprehensive logistics and delivery network, and its cutting‑edge technological solutions. By leveraging its ability to design and implement smart retail experiences, Suning can undertake a full digital transformation of Carrefour stores, creating an integrated online‑offline supermarket shopping experience that better meets evolving consumer demands.”

On September 27, the completion of the equity transfer was officially announced, followed by an internal letter from Zhang Jindong to Carrefour China’s employees. In the letter, Zhang welcomed the 30,000 Carrefour China staff to join Suning and further clarified the shared development mission and strategic direction that will guide their collaboration. Zhang stated that retail transformation has entered a critical phase, and that this partnership represents an inevitable step in the industry’s evolution: “The times demand that companies like Suning and Carrefour—each with a deep understanding of the essence of retail and strong core competencies—come together to boldly explore new pathways for retail development and deliver even better products and services to consumers.”

According to sources close to Suning, Zhang Jindong is also scheduled to hold a meeting that day with Carrefour China’s top executives. These moves signal that Carrefour China has officially entered the Suning era, and the two companies are set to embark on a full‑scale integration process.

Smart retail empowers businesses to seize the opportunity presented by consumption upgrading.

In November 2018, Gome and Carrefour explored cooperation and even reached a strategic partnership. Following Suning’s acquisition of Carrefour China, how will their former collaborative relationship be handled? According to information from Suning, as of the end of August 2019, Gome had opened stores in more than 100 Carrefour locations. Currently, Gome’s branded displays have been fully removed, and Suning.com has comprehensively revamped Carrefour’s home‑appliance and 3C sections, bolstering both product offerings and supply‑chain infrastructure. On September 28, 2019, Suning plans to simultaneously launch over 200 new stores nationwide.

As part of Suning’s fast-moving consumer goods ecosystem, Carrefour China will maintain its independent brand and operations. On the business front, Suning’s omnichannel strategy will further provide Carrefour with vast customer traffic, diverse retail formats, and a robust closed-loop ecosystem. Platforms and channels such as Suning.com’s main site, the Suning.com Tmall flagship store, Suning Pinhuo, Suning Xiaodian, and Retail Cloud will all serve as bridges to integrate Carrefour’s products and services. By expanding B2C e‑commerce, O2O home‑delivery services, and Retail Cloud channels, these initiatives will help Carrefour complete its digital transformation. Technologically, Carrefour will progressively achieve O2O integration and IT upgrades, driving its operations toward greater systemization, digitalization, and intelligence, while also facilitating the implementation and application of cutting-edge retail technologies across Carrefour’s front‑, middle‑, and back‑office functions.

A company official revealed that Carrefour China plans to open 300 new, digitally‑enabled stores in first- to third‑tier cities and renovate its existing outlets. At the same time, it will partner with Suning Xiaodian to roll out comprehensive home‑delivery services, aiming to establish itself as a leading community‑focused lifestyle hub in China. Leveraging Suning Retail Cloud, Carrefour China will also empower small and medium‑sized FMCG retailers in fourth‑ and sixth‑tier markets by sharing its supply chain, logistics, and technology capabilities, thereby boosting distribution efficiency across China’s lower‑tier FMCG market.

Taxation TAXATATION

Announcement of the State Taxation Administration on Revising the Declaration Forms for Urban Land Use Tax and Property Tax

To reduce the number of tax returns filed, facilitate taxpayers’ compliance, and further optimize the business environment, the State Taxation Administration has decided to revise the declaration forms for Urban Land Use Tax and Property Tax. The relevant matters are hereby announced as follows:

I. Adjust certain data items in the declaration forms for urban land use tax and property tax, and standardize the names of individual data items.

II. The tax return forms for Urban Land Use Tax and Property Tax, the detailed declaration forms for tax reductions and exemptions, and the tax‑source detail forms shall each be consolidated into the following: “Urban Land Use Tax and Property Tax Return Form,” “Urban Land Use Tax and Property Tax Detailed Declaration Form for Tax Reductions and Exemptions,” and “Urban Land Use Tax and Property Tax Tax‑Source Detail Form.”

III. This Announcement shall take effect as of October 1, 2019. The tax return forms for Urban Land Use Tax and Property Tax issued in the “Announcement of the State Taxation Administration on Relevant Administration Issues Concerning the Reduction and Exemption Policies for Local Taxes and Related Surcharges Applicable to Small-Scale VAT Payers” (State Taxation Administration Announcement No. 5 of 2019) shall be concurrently discontinued.

This is hereby announced.

Attachment: 1. Urban Land Use Tax and Property Tax Tax Return Form

2. Detailed Declaration Form for Exemptions and Reductions of Urban Land Use Tax and Property Tax

3. Urban Land Use Tax – Detailed Tax Base Report for Property Tax

Announcement of the State Taxation Administration on Value-Added Tax Administration Issues, Including the Deduction of Input VAT on Domestic Passenger Transport Services

The following announcement is hereby issued regarding VAT administration issues, including the input tax credit for domestic passenger transport services:

I. Regarding the Input VAT Credit for Domestic Passenger Transport Services

(1) The “domestic passenger transport services” referred to in Article 6 of the Announcement of the Ministry of Finance, the State Taxation Administration, and the General Administration of Customs on Policies Pertaining to the Deepening of VAT Reform (Ministry of Finance, State Taxation Administration, and General Administration of Customs Announcement No. 39 of 2019) are limited to domestic passenger transport services incurred by employees who have entered into labor contracts with this entity, as well as by dispatched workers accepted by this entity as the employing unit.

(2) Where a taxpayer purchases domestic passenger transport services and claims the tax amount indicated on the electronic standard VAT invoice as input tax, the “name” and “taxpayer identification number” of the purchaser listed on the invoice must match those of the taxpayer actually claiming the deduction; otherwise, the deduction shall not be allowed.

(3) The input VAT amount for domestic passenger transport services that a taxpayer is permitted to credit refers to the VAT amount actually incurred on or after April 1, 2019, and indicated on, or calculated in accordance with, a valid and legally recognized VAT credit note. Where the VAT credit note is a special VAT invoice or an electronic standard VAT invoice, such documents must have been issued on or after April 1, 2019.

II. Regarding the Additional Deduction

(1) Article 7 of the “Announcement of the Ministry of Finance, the State Taxation Administration, and the General Administration of Customs on Policies Related to the Deepening of VAT Reform” (Ministry of Finance, State Taxation Administration, and General Administration of Customs Announcement No. 39 of 2019) defines “sales revenue” for purposes of applying the additional deduction policy as encompassing tax return‑reported sales revenue, sales revenue supplemented through tax inspections, and sales revenue adjusted following tax assessments. Specifically, tax return‑reported sales revenue includes sales revenue under the general taxation method, the simplified taxation method, exempt sales, sales for which invoices are issued on behalf of taxpayers by the tax authorities, export sales subject to the exemption‑credit‑refund scheme, and sales under the immediate‑collection‑immediate‑refund program.

The sales revenue supplemented through tax inspections and the sales revenue adjusted through tax assessments shall be included in the current period’s sales revenue for purposes of determining eligibility for the additional deduction policy; where the value-added tax is levied on a differential basis, eligibility for the additional deduction policy shall be determined based on the sales revenue after the differential adjustment.

(2) Taxpayers established on or before March 31, 2019, and whose sales revenue was zero for the period from April 2018 to March 2019 shall have their eligibility for the additional tax credit policy determined based on their sales revenue for the three consecutive months beginning with the month in which they first generate sales.

Taxpayers established after April 1, 2019, whose sales revenue has been zero for the three months following their establishment, shall have their eligibility for the additional tax credit policy determined based on their sales revenue for the three consecutive months beginning with the month in which they first generate sales.

(3) Where a head office and its branches, approved by the Ministry of Finance and the State Taxation Administration or by their authorized financial and tax authorities, adopt consolidated VAT payment, the aggregate sales revenue of the head office at its own level and its branches shall be used to determine whether the head office and its branches are eligible for the additional deduction policy.

III. Regarding the End-of-Period Input VAT Refund for Certain Advanced Manufacturing Industries

Effective June 1, 2019, taxpayers who meet the requirements set forth in the “Announcement of the Ministry of Finance and the State Taxation Administration on Clarifying the Value-Added Tax End-of-Period Credit Refund Policy for Certain Advanced Manufacturing Industries” (Ministry of Finance and State Taxation Administration Announcement No. 84 of 2019) shall apply for a refund of their incremental input VAT credit in accordance with the provisions of the “Announcement of the State Taxation Administration on Matters Relating to the Processing of Value-Added Tax End-of-Period Credit Refunds” (State Taxation Administration Announcement No. 20 of 2019). The “Tax Refund (Credit) Application Form” (Attachment to State Taxation Administration Announcement No. 20 of 2019) has been revised and reissued (Attachment 1).

IV. Application of the Tax-Exempt Policy for Small-Scale Taxpayers Whose Operating Period Is Shorter Than a Full Tax Period

Effective January 1, 2019, small-scale VAT taxpayers whose tax period is one quarter shall be exempt from VAT if their actual operating period for the quarter is less than one full quarter due to establishment or deregistration occurring mid-quarter, and their sales revenue for that quarter does not exceed RMB 300,000. Article 6, Item (3) of the “Announcement of the State Taxation Administration on Matters Related to the Collection and Administration of Taxes in Connection with the Comprehensive Pilot Program to Replace Business Tax with Value-Added Tax” (issued as SAT Announcement No. 23 of 2016 and amended by SAT Announcement No. 31 of 2018) is hereby repealed.

V. Regarding the Application by Small-Scale Taxpayers in the Freight Transport Industry for Agency Issuance of Special Value-Added Tax Invoices

Value-added tax taxpayers subject to the “Administrative Measures for Small-Scale Taxpayers in the Freight Transport Industry Applying for Agency Issuance of Special Value-Added Tax Invoices” (issued by State Administration of Taxation Announcement No. 55 of 2017, and amended and reissued by State Administration of Taxation Announcement No. 31 of 2018), as well as small-scale taxpayers in the freight transport industry whose special value-added tax invoices are issued on their behalf and related tax matters are handled by internet logistics platform enterprises pursuant to the “Notice of the State Administration of Taxation on Launching a Pilot Program for Internet Logistics Platform Enterprises to Issue Special Value-Added Tax Invoices on Behalf of Others” (Tax General Letter [2017] No. 579), shall meet the following conditions:

Those providing road freight transportation services (except for operators using ordinary freight vehicles of 4.5 tons or less) shall obtain the “People’s Republic of China Road Transport Business License” and the “People’s Republic of China Road Transport Certificate”; those providing inland waterway freight transportation services shall obtain the “Domestic Inland Waterway Transport Business License” and the “Vessel Commercial Transport Certificate.”

VI. Tax Treatment Applicable to the Business of Chartering and Space Exchange for Transport Vehicles

(1) In the business of contracting space on transport vehicles, the contracting party shall take the total consideration and any charges levied in addition to the price received from the contractor as its taxable sales amount and pay value-added tax under the “transportation services” category. The contractor shall take the total consideration and any charges levied in addition to the price received from the shipper as its taxable sales amount and pay value-added tax under the “transportation services” category.

The transport‑space contracting business refers to an operational activity in which the contractor, acting as a carrier, enters into a transportation service contract with the shipper, collects freight charges, and assumes the responsibilities of a carrier, then, by contracting for space on another party’s transport vehicle, entrusts the contracting party to actually perform the relevant transportation services.

(2) In the business of exchanging transport‑space capacity, both parties to the exchange shall treat the total consideration and any non‑price charges conofficeed for their respective exchanged transport‑space capacity as their sales revenue and shall pay value‑added tax under the “transportation services” category.

The transport‑space‑exchange business refers to an operational activity in which taxpayers enter into transportation agreements and, in the course of their respective transport operations as carriers, mutually utilize each other’s transport‑vehicle space to provide the relevant transportation services.

VII. Deduction of the Difference in Subcontract Payments for Construction Services

Where a taxpayer provides construction services, the subcontracting payments that may, in accordance with applicable regulations, be deducted from the total consideration and any charges levied in addition to the price refer to the aggregate of all payments and ancillary charges made to the subcontractor.

VIII. Regarding the Cancellation of Filing for the Simplified Tax Calculation Scheme for Construction Services

For general taxpayers providing construction services who, in accordance with the relevant regulations, apply or elect to apply the simplified tax calculation method, the filing requirement is hereby abolished. The following supporting documents are no longer required to be submitted to the tax authorities; instead, they shall be retained by the taxpayer for record‑keeping purposes:

(1) For construction services provided for existing construction projects, retain the Construction Project Construction Permit or the construction project contracting agreement.

(2) For construction services provided for projects supplied by Party A and for construction services rendered on a “labor-only” basis, retain the construction contract.

IX. Application of the Simplified Tax Calculation Method to Real Estate Projects Developed through Land Reclamation

For real estate development enterprises, if a general taxpayer acquires land through land reclamation and develops real estate projects, and the commencement date of the reclamation work—as indicated on the Construction Project Construction Permit or in the construction contract—falls on or before April 30, 2016, such projects shall be classified as “old” real estate projects. In this case, the taxpayer may elect to apply the simplified tax calculation method, with VAT payable at a rate of 5%.

X. Determination of the Purchase Price for Restricted Shares

(1) Where a taxpayer transfers restricted shares acquired through an initial public offering and listing that resulted from the concurrent implementation of share‑splitting reform and a major asset restructuring, as well as any bonus or capitalization shares issued during the period from the listing date to the date when such restrictions are lifted, the purchase price shall be deemed to be the opening price on the listing day of the listed company’s stock, and value‑added tax shall be levied under the “transfer of financial products” category.

(2) Where a listed company has been suspended from trading on multiple occasions due to the implementation of a major asset restructuring, the “stock suspension” referred to in Article 5, Paragraph (3) of the State Administration of Taxation’s Announcement No. 53 of 2016 on Certain Administration and Collection Issues Related to the Pilot Program for Replacing Business Tax with Value-Added Tax, as amended by Announcement No. 31 of 2018, means the last suspension prior to the China Securities Regulatory Commission’s issuance of an approval decision on the listed company’s application for a major asset restructuring.

XI. Regarding the Input VAT Credit for Insurance Services

(1) Where a taxpayer providing insurance services assumes liability under motor vehicle insurance by way of in-kind indemnification, the input tax incurred on vehicle repair services purchased directly from the service provider may, in accordance with applicable regulations, be credited against the output tax payable to the insurance company.

(2) Where a taxpayer providing insurance services assumes motor vehicle insurance liabilities through cash indemnity payments and remits the compensation payable to the insured directly to the provider of vehicle repair services, such payments do not constitute the insurer’s purchase of vehicle repair services, and the input tax incurred thereon may not be deducted from the insurer’s output tax.

(3) Other property insurance services provided by taxpayers shall be governed in accordance with the aforementioned provisions.

XII. Application of the Tax Category for Catering Services

Taxpayers who prepare food on-site and sell it directly to consumers shall pay value-added tax under the “catering services” category.

Thirteen. Regarding the Issuance of Invoices at the Previously Applicable Tax Rate

(1) Effective September 20, 2019, taxpayers who need to issue blue‑color invoices at the 17%, 16%, 11%, or 10% tax rates through the Value‑Added Tax Invoice Management System shall submit the “Commitment Letter for Issuing Invoices at the Previously Applicable Tax Rate” (Attachment 2) to the competent tax authority to obtain temporary invoicing authorization. The temporary invoicing authorization is valid for 24 hours, and taxpayers must issue invoices at the previously applicable tax rate within the prescribed time limit after obtaining such authorization.

(2) When applying for temporary invoicing authority, taxpayers shall retain relevant documents, such as the transaction contract, credit‑note invoices, and proof of receipt of payment, for inspection purposes.

(3) If a taxpayer fails to issue invoices at the originally applicable tax rate as required, the competent tax authority shall handle the matter in accordance with the relevant current regulations.

XIV. Regarding the Effective Date of This Announcement

Articles 1 and 2 of this Announcement shall take effect from the date of its issuance; Articles 5 through 12 shall take effect as of October 1, 2019. Matters that have already occurred but remain unresolved shall be handled in accordance with this Announcement; matters that have already been resolved shall not be subject to further adjustment. Article 2, paragraph (2) of the “Administrative Measures for Small-Scale Taxpayers in the Freight Transport Industry Applying for Agency Issuance of Special Value-Added Tax Invoices” (issued by State Taxation Administration Announcement No. 55 of 2017 and amended and reissued by State Taxation Administration Announcement No. 31 of 2018), Article 1, paragraph (2) of the “Notice of the State Taxation Administration on Launching a Pilot Program for Internet Logistics Platform Enterprises to Issue Special Value-Added Tax Invoices on Behalf of Others” (Tax General Letter [2017] No. 579), and the “Announcement of the State Taxation Administration on Simplifying the Filing Procedures for the Simplified VAT Calculation Method for Construction Services” (issued by State Taxation Administration Announcement No. 43 of 2017 and amended by State Taxation Administration Announcement No. 31 of 2018) are hereby repealed as of October 1, 2019.

Attachment: 1. Tax Refund (Credit) Application Form

2. Undertaking to Issue Invoices at the Original Applicable Tax Rate

The State Taxation Administration is piloting a notification-and-commitment system for tax-related certification matters.

Recently, building on the earlier phased elimination of 60 tax‑related certification requirements in three batches, the State Taxation Administration has issued the “Work Plan for Piloting the Notification‑and‑Commitment System for Tax‑Related Certification Matters,” designating the tax authorities of five provinces and municipalities—Hebei, Jiangsu, Zhejiang, Dalian, and Xiamen—to carry out a pilot program under this system.

Presumption of Integrity: Building a New Regulatory and Service Mechanism

In recent years, the State Taxation Administration has continuously strengthened taxpayer credit management, creating favorable conditions for innovating regulatory approaches and enhancing the quality and efficiency of services. By piloting a notification-and-commitment system for tax-related certification requirements, the Administration aims to develop a governance model characterized by transparent standards, fair rules, reasonable expectations, clear accountability, and credit-based regulation. This effort seeks to establish a new taxpayer‑administration relationship grounded in the presumption of good faith, making integrity a “pass” for law-abiding taxpayers and payers, while imposing stricter oversight on those who fail to uphold their commitments.

For matters requiring proof that are subject to the notification‑and‑commitment system, the tax authorities shall, in writing (including electronic form), inform the applicant in a single notice of the statutory obligations and content of proof stipulated by laws and regulations. The applicant shall make a written commitment stating that they meet the notified conditions, standards, and requirements and undertake legal liability for any false commitments. In such cases, the tax authorities shall refrain from requesting the relevant proof and process the matter based on the applicant’s written (including electronic) commitment. However, this notification‑and‑commitment system shall not apply to applicants with a tax credit rating of Grade D. If an applicant is unwilling or unable to make the commitment, they must submit the proof required by laws and regulations. Should an applicant intentionally conceal the true facts or provide false commitments to handle related matters, they shall be subject to lawful penalties, their tax credit shall be recorded in accordance with applicable provisions, and the notification‑and‑commitment system shall no longer be applied to that applicant.

Pioneering and piloting to address the pain points, bottlenecks, and challenges in tax administration.

A total of 14 tax‑related certification items have been included in this pilot program for the notification‑and‑commitment system, primarily covering documents required for tax reductions, exemptions, and refunds. Among these, six pertain to the documentation needed for personal real estate transaction tax relief measures. For example, when a taxpayer seeks exemption from individual income tax on the transfer of a sole residence held for more than five years, they must submit proof that the property is the family’s only residential dwelling. Similarly, when claiming a statutory reduction or exemption from deed tax on a home purchase, taxpayers are required to provide a written inquiry report on their household’s housing situation, issued by the local real estate authority where the property is located. These measures aim to address the difficulties, complexities, and bureaucratic hurdles reported by taxpayers, thereby substantially enhancing the convenience of tax administration in real estate transactions.

The remaining eight pilot initiatives cover the qualification and credential certificates, property‑rights documents, identity proofs, test reports, and other materials required for handling tax‑related matters. Through these pilots, the aim is to gain experience and explore viable approaches to further streamline the issuance of such documents.

Strengthen verification and advance the standardization and regularization of the notification-and-commitment system.

One of the key tasks of this pilot program is to strengthen verification through measures such as inter‑departmental data and information sharing, thereby creating the conditions and providing the safeguards necessary to further reduce the submission of pre‑submission supporting documents. To this end, the Work Plan requires the pilot implementing agencies, in light of the specific characteristics of the tax‑related certification matters under the pilot, to categorize and determine appropriate verification methods, clearly specifying the timing, criteria, and procedures for verification. Verification of applicants’ commitments will be conducted via the National Integrated Online Government Services Platform, the National Data Sharing and Exchange Platform, the National Credit Information Sharing Platform, internal government departmental checks, and inter‑departmental administrative assistance. For issues of public concern, the plan also calls for exploring the establishment of a public disclosure system for commitment letters, encouraging applicants to proactively make such commitments public and subject them to social oversight.

Chen Li, a researcher at the Tax Science Research Institute of the State Taxation Administration, believes that the system of notification and commitment for tax‑related certification matters can reduce, at the source, the need for taxpayers to submit supporting documents in advance, thereby further enhancing taxpayers’ sense of gain. Following the implementation of this system, tax authorities will strengthen post‑event oversight; should any taxpayer be found to have engaged in fraudulent or deceptive practices, they will be subject to penalties for breaches of trust.

A relevant official from the State Taxation Administration stated that, in the next phase, the tax authorities will meticulously organize pilot programs, vigorously advance the standardization and regularization of the notification-and-commitment system for certification matters, broadly solicit feedback from the public and market entities on the pilot initiatives and their outcomes, and strive to develop replicable and scalable best practices to better support high-quality economic development.

Shanghai University of Finance and Economics has released the “Quarterly Analysis Report on the Effects of China’s VAT Reduction Policy.”

As the centerpiece of the 2019 package of large-scale tax and fee reductions, the deepened VAT reform took effect on April 1, effectively boosting the vitality of market entities and supporting China’s high-quality economic development. Recently, the Institute of Public Policy and Governance at Shanghai University of Finance and Economics released the “Quarterly Analysis Report on the Effects of China’s VAT Reduction Policies” (hereinafter referred to as the “Analysis Report”). Based on extensive preparatory work and statistical analysis, and after broadly soliciting opinions and suggestions from all sectors of society, the assessment team finalized this report. The report comprises four sections: an analysis of the scale of VAT reductions, an evaluation of their current‑stage effects, an examination of their long-term impacts, and recommendations for further improvement. It seeks to provide an objective assessment and a comprehensive overview of the outcomes of the VAT cuts, while offering constructive proposals for refining VAT policies and institutional frameworks.

The scale and magnitude of tax cuts are unprecedented: tax reductions totaling 318.5 billion yuan were implemented in the first quarter.

The Analysis Report indicates that, during April–June 2019, the deepening of VAT reform yielded significant results, with tax reductions totaling RMB 111.3 billion, RMB 110.5 billion, and RMB 96.7 billion, respectively—amounting to a combined reduction of RMB 318.5 billion. Overall, the reform successfully achieved its intended objectives: markedly reducing the tax burden on key industries, slightly easing the tax burden in certain sectors, and ensuring that the tax burden across all industries would only decrease, not increase.

Driven by the combined effects of industry‑level sales, tax liabilities, and tax‑rate reductions, tax cuts exhibit a high degree of sectoral concentration: the manufacturing and wholesale‑retail sectors account for 78.54% of total tax relief, underscoring the VAT reform’s supportive impact on manufacturing. Regionally, the share of tax reductions is positively correlated with economic size and tax‑paying scale, while also reflecting regional economic structures; more developed regions tend to have a higher proportion of tax relief, with the top five provinces all located in such areas, collectively accounting for over 40% of the overall tax‑cut volume.

The tax-cut effect is beginning to emerge, boosting economic growth and enhancing corporate profitability.

The tax‑cut benefits stemming from the deepened VAT reform have effectively reduced business operating costs, boosted market vitality, and helped offset downward economic pressures. According to the Analysis Report, the VAT reductions already exerted a significant positive impact on economic growth during April–June 2019.

In terms of operating revenue, the VAT tax cut significantly boosted the revenue levels of key tax‑paying enterprises—those with annual tax liabilities exceeding RMB 5 million—by approximately 3.27%. Moreover, its positive impact on the private sector was stronger than the average, driving a 4.54% increase in private‑sector revenue, or 1.39 times the overall average. Regarding operating profit, the VAT reduction markedly enhanced corporate profitability, raising the average profit margin of key tax‑paying offices by 1.58 percentage points and enabling 2.4% of loss‑making enterprises to turn profitable. As for R&D spending, the VAT cut substantially increased offices’ R&D expenditures, with the most pronounced effect observed among private enterprises.

Meanwhile, the VAT reduction has also significantly bolstered business confidence, as evidenced by a substantial increase in the value of purchase and sales contracts and electricity consumption among key tax‑paying enterprises. Research indicates that the VAT cut raised the total value of such contracts by as much as 7% and boosted electricity usage by approximately 6.07% among these offices.

In addition, the increase in the VAT threshold has significantly improved the operating performance of offices with revenues between RMB 30,000 and RMB 100,000. The study shows that raising the threshold substantially boosted these offices’ revenue by as much as 8.7%; their profitability rose by approximately 1.5%, and it enabled 0.8% of them to turn losses into profits.

The tax-cut effect continues to unfold, providing a boost to China’s economic development over the next three years.

The Analysis Report indicates that the 2019 VAT reform not only boosted economic growth in the second quarter but will continue to drive China’s economic expansion over the next three years or so. Specifically, this is reflected in:

On the macroeconomic front, the VAT reform has delivered a significant boost to China’s key macroeconomic indicators, cumulatively contributing 0.362% to GDP growth. Extrapolating from 2018 data, this translates into an additional GDP increase of RMB 301.4 billion, with the reform accounting for approximately 0.181% of 2019 GDP growth. In terms of employment, the reform has generated a cumulative increase of 0.028%, equivalent to 217,400 new jobs. Meanwhile, tax reductions also exert indirect effects on household income and consumption by boosting corporate profits and employment; in 2019, the VAT reform is expected to raise household consumption by 1.413%.

In terms of income distribution, because value-added tax is an indirect tax that is easily passed on to consumers, consumers bear a substantial share of the tax burden; consequently, when taxes are cut, consumers reap relatively greater benefits. Moreover, in line with the law of diminishing marginal propensity to consume, low-income households allocate a larger share of their income to consumption than high-income households. As a result, the gains from tax reductions disproportionately benefit lower-income groups, potentially reducing China’s Gini coefficient by 0.181 percentage points and improving income distribution among residents. Regarding industrial structure, the 2019 VAT reform had the strongest positive impact on the industrial sector; the decline in government spending on services following the tax cuts was a key factor behind the more modest growth rate observed in the service sector.

The tax‑reduction effect still has room for improvement: an objective analysis of the underlying mechanisms can help forge a concerted effort among all stakeholders to achieve greater tax relief.

The Analysis Report points out that, as the largest and most significant tax in China, VAT’s tax cuts have both direct impacts and effects: on the one hand, they reduce the tax burden on enterprises; on the other, they lead to a decline in government revenue. Given the substantial scale of these reductions, the short-term drop in VAT receipts is pronounced, posing a serious challenge to public finances. To address the fiscal challenges posed by VAT cuts, it is necessary to adopt measures such as curbing government expenditures and adjusting the fiscal budget, thereby accepting temporary revenue shortfalls in exchange for long-term fiscal and economic sustainability.

The Analysis Report argues that society should adopt a rational perspective on expectations of VAT cuts. Although the scale of the VAT reduction is unprecedented, since tax relief operates through market mechanisms, lowering the tax rate—while reducing the overall tax burden—may still result in varying impacts across industries and offices at different stages of the value chain. Differences in pricing power mean that applicable tax rates can diverge, leading to uneven benefits from the VAT cut. Consequently, enterprises in weaker positions may experience a greater gap between their perceived gains and their initial expectations regarding the tax reduction.

The Analysis Report concludes that deepening VAT reform is characterized by strong policy implications, broad scope, tight timelines, heavy workloads, high intensity, and significant challenges. It requires not only the diligent efforts of tax authorities but also the concerted support of relevant departments, as well as close cooperation from the vast majority of taxpayers.

To this end, the tax authorities have meticulously planned and coordinated efforts, establishing a unified command system that ensures seamless implementation from top to bottom. They have also formulated roadmaps, timetables, and task lists for carrying out tax and fee reduction measures, ensuring the smooth rollout and efficient advancement of the VAT reform. In particular, recently, taking the thematic education campaign on “Staying True to Our Original Aspiration and Keeping Our Mission Officely in Mind” as an opportunity, the State Taxation Administration has conducted a comprehensive review of common issues across regions and introduced additional measures to enhance taxpayers’ and payers’ sense of gain from these tax and fee reductions.

The Analysis Report recommends that, going forward, tax authorities should continue to strengthen coordination and collaboration with other government departments and enterprises, effectively address new challenges and issues arising in the course of implementing the VAT reform, and ensure the thorough and meticulous execution of tax and fee reduction policies. This will enable the full realization of the benefits of these measures and transform the resulting gains into an endogenous driving force for high-quality economic development.

The Yunnan Provincial Government has called for the full and effective implementation of tax and fee reduction policies.

Recently, Yunnan Province Governor Ruan Chengfa presided over the 48th executive meeting of the 13th Provincial People’s Government, at which a report was heard on the province’s implementation of tax and fee reduction policies.

The meeting noted that implementing a larger‑scale package of tax and fee reductions is a major decision and deployment made by the CPC Central Committee and the State Council. Under the high attention and strong leadership of the Yunnan Provincial Party Committee and the Provincial Government, the province has achieved phased results in this work. Moving forward, all localities and departments across the province must elevate their political awareness and regard the effectiveness of tax and fee reductions as an important test of officely upholding the “Four Consciousnesses,” strengthening the “Four Confidences,” and ensuring the “Two Upholds.” They should earnestly advance efforts to improve working mechanisms and deepen reforms of the social security system, fully and faithfully implement the central government’s policies and measures on tax and fee reductions, and ensure that taxpayers and payers experience tangible benefits. In light of issues identified during the State Council’s sixth major inspection, it is essential to strengthen oversight and enforcement, enforce rigorous management, hold those accountable with strict discipline, and resolutely prevent any failure to adequately implement the policies and measures for tax and fee reductions.

According to reports, the Yunnan Provincial Tax Authorities have consistently taken enhancing taxpayers’ and payers’ sense of gain as both the starting point and the ultimate goal of implementing tax and fee reduction measures, ensuring that all policies are thoroughly and meticulously put into practice. From January to July this year, the province recorded an additional RMB 24.88 billion in tax and fee reductions, including RMB 21 billion in tax cuts and RMB 3.88 billion in fee reductions. A total of 7.2656 million taxpayer‑payer instances across the province benefited from these policy incentives.

LITIGATION & ARBITRATION

To implement the central government’s strategic plan for deepening the comprehensive and coordinated reform of the judicial system and to fully enforce the judicial accountability system, the Supreme People’s Court recently issued the “Opinions on Improving and Perfecting the Working Mechanism of the Judicial Committee of the People’s Courts” (hereinafter referred to as the “Opinions”). The Opinions clearly define the Judicial Committee’s organizational structure, functional positioning, operating procedures, and mechanisms for safeguards and oversight.
The Opinions stipulate that people’s courts at all levels shall establish adjudication committees, which shall be composed of the president, vice presidents, and a number of senior judges. Adjudication committee meetings are divided into plenary sessions and specialized committee meetings; people’s courts at or above the intermediate level may convene specialized committee meetings on criminal adjudication, civil and administrative adjudication, and other areas, as required by judicial work.
The “Opinions” clearly stipulate that the primary functions of the Adjudication Committee are to summarize experience in judicial work, deliberate and decide on the application of law in major, difficult, or complex cases, and review whether judgments, rulings, or mediation agreements that have already attained legal effect in this court should be retried. The Adjudication Committee of the Supreme People’s Court ensures uniform application of the law by formulating judicial interpretations and normative documents and issuing guiding cases. The “Opinions” further specify that cases handled by people’s courts at all levels that involve sensitive issues such as national security, diplomacy, or social stability, as well as major, difficult, or complex cases; cases in which judgments, rulings, or mediation agreements that have already become legally effective are found to contain errors requiring retrial; criminal cases in which the people’s procuratorate at the same level files a protest pursuant to the trial supervision procedure; new types of cases where the rules for applying the law are unclear; cases in which the defendant is proposed to be acquitted; and cases in which a sentence below the statutory minimum or exemption from criminal punishment is proposed—shall all be submitted to the Adjudication Committee for deliberation and decision. For cases in which higher people’s courts or intermediate people’s courts propose imposing the death penalty, such cases must likewise be submitted to the court’s Adjudication Committee for deliberation and decision. Additionally, cases in which the collegiate bench holds significantly divergent views on questions of legal application and, after discussion at a specialized (presiding) judges’ conference, still cannot reach a decision, may also be referred to the Adjudication Committee for deliberation and decision.
The Opinions stipulate that if a collegial panel or a single judge deems it necessary to submit a case to the Adjudication Committee for deliberation and decision, they shall file an application, which shall be submitted through hierarchical channels for the President’s approval. If no such application is filed, the President may, upon determining that it is warranted, refer the case to the Adjudication Committee for deliberation and decision. Cases proposed for submission to the Adjudication Committee must be accompanied by the opinions reached at a specialized (presiding) judges’ conference. Decisions of the Adjudication Committee on cases or matters shall be implemented by the collegial panel, the single judge, or the relevant department. People’s Congress deputies, members of the Chinese People’s Political Consultative Conference, experts and scholars, as well as the Chief Prosecutor of the people’s procuratorate at the same level or a deputy chief prosecutor authorized by the Chief Prosecutor, may attend meetings of the Adjudication Committee as non-voting observers.
The Opinions emphasize that the lawful performance of duties by members of the Adjudication Committee is protected by law. Any unlawful interference, inquiry, or involvement by leading cadres or internal personnel of judicial organs in the deliberations and decisions of the Adjudication Committee shall be documented and reported, and appropriate disciplinary and legal accountability shall be pursued in accordance with relevant regulations.

Defining Specific Steps to Improve the Notarization System: Jilin Promotes Notaries’ Participation in Court‑Related Judicial Support Services.

Recently, the Higher People’s Court of Jilin Province and the Provincial Department of Justice jointly issued the “Implementation Plan for the Pilot Program on Notarization’s Participation in Judicial Assistance Affairs of the People’s Courts.” Centered on notarization’s key roles in judicial assistance tasks such as service of process, mediation, evidence preservation, evidence collection, and enforcement, the plan sets out specific implementation steps to steadily advance the province-wide effort to integrate notarization into the judicial assistance functions of the people’s courts.

The Implementation Plan emphasizes that the pilot program is guided by Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era, adheres to a people-centered development philosophy, and seeks to establish a diversified mechanism for resolving social conflicts and disputes, advance litigation system reform centered on adjudication, improve the notarization system, innovate social governance, and comprehensively promote law-based governance. The pilot work will be established and refined within the framework of the spirit set forth in the “Notice on Expanding the Pilot Program for Notarization’s Participation in Judicial Assistance Affairs of the People’s Courts” and the “Notice on Launching the Pilot Program for Notarization’s Participation in Judicial Assistance Affairs of the People’s Courts,” issued by the Supreme People’s Court and the Ministry of Justice.

The Implementation Plan specifies that, on a time‑based schedule, pilot projects will be advanced in four phases: coordination and consultation, research and feasibility assessment, standardization of procedures, and full-scale launch. On the basis of completing coordination and consultation between local people’s courts and judicial administrative organs, as well as conducting feasibility studies on the matters to be addressed, specific operational guidelines—covering work processes, service modalities, service standards, and liability for breach of contract—shall be formulated for the identified local notarization‑participated judicial assistance tasks of the people’s courts. Efforts should also be made to explore the application of an information platform to support notarization‑involved judicial assistance activities, gradually enabling online acceptance, mediation, statistical reporting, supervision, feedback, and data analysis of disputes, as well as the online assignment of tasks such as service of process, evidence collection, preservation of evidence, and enforcement; facilitating the electronic transmission of relevant legal documents; and promoting mutual access to and sharing of pertinent business data. Furthermore, the Implementation Plan stipulates that, effective December 20 of this year, all levels of people’s courts in Jilin Province, together with 65 practicing notary offices, will fully commence work involving notarization in supporting the judicial assistance functions of the people’s courts.

Ten major system platforms have been launched and are now in operation, with Liaoning’s digitalization supporting the development of a diversified dispute-resolution mechanism.

Recently, the Higher People’s Court of Liaoning Province issued the “Implementation Plan for Promoting the Development of a Diversified Dispute Resolution Mechanism Across the Province,” which explicitly sets forth ten systematic platforms for building such a mechanism.

The Plan sets forth the construction standards, content and functions, and completion deadlines for each platform. It specifies that a litigation service guidance center information platform will be established to achieve big‑data integration and centralized management of litigation services; a unified online mediation platform will be built and deployed, with online case processing accounting for at least 30% of all mediated cases; a standardized case‑sorting and triage management system will be developed and implemented, enabling real-time aggregation of data on case identification, triage, handling, and return, thereby ensuring the rational allocation of judicial resources; a centralized preservation‑of‑evidence platform will be constructed and put into use, providing one‑stop online processing for applications, surety bonds, and court orders related to preservation measures; a judicial appraisal platform will be established, integrating functions such as tracking and managing case‑process milestones, submitting requests, uploading reports online, and conducting institutional assessments and evaluations; a management platform for the 12368 litigation service hotline will be developed and deployed, enhancing capabilities for information inquiries, litigation advice, complaints and reports, petition handling, and feedback collection, thus further streamlining channels of communication with the public; Liaoning Mobile Micro‑Court will be built and operated, achieving an organic integration of in‑person and online litigation services; a unified road‑traffic dispute resolution platform will be established, accelerating data interconnection and sharing among courts, traffic police, insurance providers, and judicial authorities, and offering end‑to‑end mediation and processing of road‑traffic cases; and the Liaoning Courts Litigation Service Website will be developed and utilized to provide litigants, lawyers, and the general public with a range of online services, realizing “one‑stop online access,” internal–external coordination, and cross‑departmental collaboration.

According to reports, systems such as the Litigation Service Network, the Mobile Micro-Court, the 12368 Litigation Service Hotline, and the Integrated Road Traffic Accident Handling Platform have already been put into operation at some courts. Under the timetable set forth in the Plan, the vast majority of these platforms are expected to go live within the year, thereby driving a leap‑forward transformation in litigation services across Liaoning’s courts.

Recently, the Hebei Provincial Higher People’s Court issued the “Guiding Opinions on Fully Leveraging the Role of Judicial Functions to Further Advance the Development of a Law-Based Business Environment,” requiring courts at all levels across the province to focus squarely on the goal of fostering a world-class, law-based business environment. The court is tasked with impartially and efficiently performing its adjudicatory duties in accordance with the law, vigorously ensuring the effective implementation and institutionalization of all reform measures related to the business environment, and thereby creating for Hebei a legal framework that is fairer, more transparent, more stable, and more predictable.

The “Guiding Opinions” comprise 36 provisions, covering such areas as strengthening judicial protection of property rights, improving the bankruptcy adjudication mechanism, enhancing the quality and efficiency of financial adjudication, comprehensively deepening reform and innovation, and accelerating the development of a high-caliber workforce.

The Guiding Opinions stipulate that the judicial protection mechanism for property rights should be innovated and strengthened. All types of market entities shall be afforded equal legal protection, ensuring that economies of all forms of ownership may, in accordance with the law, equally access production factors, participate in market competition in an open, fair, and impartial manner, and enjoy equal legal protection. Comprehensive implementation of specific measures for reform and innovation in intellectual property adjudication is required, while efforts to adjudicate cases involving free trade pilot zones and foreign-related civil and commercial matters must be intensified, thereby providing robust judicial support for the province’s opening-up.

The Guiding Opinions clearly stipulate that judicial adjudication and enforcement must be strictly standardized to foster a fair and orderly business environment. The boundary between economic disputes and criminal offenses must be rigorously delineated, and the use of criminal measures to interfere with economic disputes must be officely prevented. Property preservation measures such as seizure and freezing shall be regulated in accordance with the law, with any overreach or excess beyond statutory limits prohibited, so as to minimize the impact of such measures on enterprises’ production and operations.

The Guiding Opinions also set forth clear requirements for improving the coordination and cooperation mechanism among case filing, adjudication, and enforcement; for strengthening and refining the social credit system; and for perfecting working mechanisms such as “enforcement-to-bankruptcy conversion.”

Hainan’s First and Second Foreign-related Civil and Commercial Courts, along with the Haikou Intellectual Property Court, were officially inaugurated.

On September 26, the First and Second Hainan Courts for Foreign-related Civil and Commercial Matters, along with the Haikou Intellectual Property Court, were officially inaugurated in Haikou and Sanya, Hainan. Luo Dongchuan, a member of the Party Leadership Group and Vice President of the Supreme People’s Court, attended the unveiling ceremony and unveiled the plaque for the First Hainan Court for Foreign-related Civil and Commercial Matters.

Tong Daochi, Member of the Standing Committee of the Hainan Provincial Party Committee and Secretary of the Sanya Municipal Party Committee; Liu Xingtai, Member of the Standing Committee of the Hainan Provincial Party Committee and Secretary of the Political and Legal Affairs Commission; and Feng Zhonghua, Vice Governor of the Hainan Provincial Government, attended the ceremony. Chen Fengchao, Secretary of the Party Leadership Group and President of the Hainan Provincial Higher People’s Court, presided over the event.

Luo Dongchuan pointed out that the approval to establish Hainan’s First and Second Foreign-related Civil and Commercial Courts, as well as the Haikou Intellectual Property Court, fully demonstrates the CPC Central Committee’s high regard for Hainan’s comprehensive deepening of reform and opening-up, and the Supreme People’s Court’s strong support for the development of the Hainan Free Trade Zone (Port). He expressed the hope that courts at all levels in Hainan will uphold the leadership of the Party, ensuring that all work of the people’s courts remains officely aligned with the correct political direction; serve national strategies by providing robust judicial services and safeguards for the rule of law in Hainan; cultivate a commitment to high‑quality adjudication, communicate clear and consistent judicial values, foster stable expectations among investors, and guide the healthy and orderly development of market competition; and strengthen coordination with international commercial arbitration and mediation institutions, build an international center for resolving commercial disputes, and create a new high ground for the rule of law.

The Haikou Intellectual Property Court is the 20th specialized intellectual property court established with the approval of the Supreme People’s Court. The Hainan First and Second Foreign-related Civil and Commercial Courts are the first provincial-level, cross‑regional specialized courts in China to exercise centralized jurisdiction over foreign-related civil and commercial cases, exercising such jurisdiction over first-instance civil and commercial cases involving foreign parties or Hong Kong, Macao, and Taiwan, with a litigation value not exceeding RMB 5 billion. The establishment of these two types of specialized courts holds landmark significance for the development of the Hainan Free Trade Zone (Port).

Other

Typical Cases of the People’s Courts in Supporting the Reform of the System for Compensation for Damage to the Ecological Environment

Directory of Typical Cases

I. The case of ecological and environmental damage compensation brought by the Shandong Provincial Department of Ecology and Environment against Shandong Jincheng Heavy Oil Chemical Co., Ltd. and Shandong Hongju New Energy Co., Ltd.

II. Case of Environmental Damage Compensation Litigation Brought by the Chongqing Municipal People’s Government and the Chongqing Liangjiang Volunteer Service Development Center Against Chongqing Zangjingge Property Management Co., Ltd. and Chongqing Shouxu Environmental Protection Technology Co., Ltd.

III. Case of Judicial Conofficeation of the Ecological and Environmental Damage Compensation Agreement among the People’s Government of Guizhou Province, Xifeng Chengcheng Labor Service Co., Ltd., and Guiyang Kaipeng Fertilizer Co., Ltd.

IV. Case of Judicial Conofficeation of the Ecological and Environmental Damage Compensation Agreement among the Shaoxing Municipal Environmental Protection Bureau, Zhejiang Shangfeng Building Materials Co., Ltd., and the People’s Government of Ciwu Town, Zhuji City

V. The case of ecological and environmental damage compensation brought by the Guiyang Municipal Bureau of Ecology and Environment against Liupanshui Shuangyuan Aluminum Industry Co., Ltd. of Guizhou Province, Ruan Zhenghua, and Tian Jinfang.

[Basic Facts of the Case]

In August 2015, Hongju Company entrusted individuals without the requisite qualifications for hazardous waste management to dump 640 tons of its waste acid into an abandoned coal mine located in Shanggao Village, Pujie Subdistrict, Zhangqiu District, Jinan City. On October 20, 2015, Jincheng Company employed the same method to discharge 23.7 tons of its waste alkaline solution into the same coal mine. The ensuing vigorous chemical reaction between the waste acid and waste alkali resulted in the on-the-spot poisoning and death of four individuals suspected of illegally disposing of hazardous waste. Monitoring revealed that the waste liquids had contaminated the mine shaft walls, the soil at the bottom of the shaft, and the groundwater. Following the incident, the former Zhangqiu Municipal People’s Government implemented emergency response measures and initiated ecological and environmental restoration efforts. The Shandong Provincial People’s Government designated the Shandong Provincial Department of Ecology and Environment as the competent authority to pursue claims for compensation for ecological and environmental damage. After unsuccessful consultations with Jincheng Company and Hongju Company, the Shandong Provincial Department of Ecology and Environment, relying on the “Environmental Damage Assessment Report” prepared by the Shandong Provincial Institute of Environmental Protection Science and Design, filed a lawsuit with the Jinan Intermediate People’s Court, seeking a judgment ordering the defendants to bear total liabilities exceeding RMB 230 million, including emergency response costs, losses of ecosystem service functions, and compensation for ecological and environmental damage. The two defendants were also held jointly and severally liable for all such expenses, and the court was requested to order them to issue a public apology through media outlets at or above the provincial level.

[Judgment Result]

After trial, the Intermediate People’s Court of Jinan City held that the waste acid generated during Hongju Company’s production process and the waste alkali produced by Jincheng Company had caused ecological and environmental damage to the site in question, for which both companies should bear liability for compensation in accordance with the law. With respect to the amount of compensation sought by the Shandong Provincial Department of Ecology and Environment, the Department submitted an Environmental Damage Assessment Report; the experts who participated in its preparation and review appeared in court to answer questions from the parties, and specialists from the Environmental Planning Institute of the Ministry of Environmental Protection also testified to provide clarifications. As neither Jincheng Company nor Hongju Company presented sufficient evidence to rebut the Environmental Damage Assessment Report, the court duly accepted the findings and conclusions contained therein. The losses in ecological service functions claimed by the Shandong Provincial Department of Ecology and Environment, together with the costs of remediating contaminated soil and groundwater within the curtain grouting area, as well as the fees for expert appraisal and legal representation, all arose directly from the ecological and environmental harm caused by Hongju Company’s waste acid and Jincheng Company’s waste alkali; accordingly, these liabilities should be borne by the two companies. Given that the waste acid and waste alkali constitute distinct types of hazardous waste, and that their respective discharge volumes at the site differ, there remain significant disagreements among the Shandong Provincial Department of Ecology and Environment, Hongju Company, Jincheng Company, expert assistants, and consulting specialists regarding the extent of contamination, the degree of pollution, the nature and consequences of the damage, the causal link between the pollutants and the resulting harm, and the costs of remediation. The Environmental Damage Assessment Report likewise fails to clearly distinguish among these factors. Taking into account the opinions of the expert assistants and consulting specialists, the court determined that Hongju Company shall bear 80 percent of the compensation liability, while Jincheng Company shall bear 20 percent, and accordingly set forth the specific items of damages that each defendant is required to pay. The hazardous waste generated during the production processes of Hongju Company and Jincheng Company has resulted in environmental pollution, seriously harming national interests and the public interest. In order to deter and educate those responsible for environmental pollution and to raise public awareness of environmental protection, the court, in accordance with the law, upholds the Shandong Provincial Department of Ecology and Environment’s request that Hongju Company and Jincheng Company issue a public apology through media outlets at or above the provincial level.

[Typical Significance]

This case is an ecological and environmental damage compensation action arising from a major, sudden environmental incident. Following the pollution event, it attracted widespread public attention. Given that the two defendants discharged pollutants at different times, of different types, and in varying quantities, determining the scope of contamination, the extent of harm, and the corresponding remediation costs attributable to each defendant proved highly challenging. In response, the people’s court leveraged the specialized expertise of external experts, undertaking proactive efforts to establish the relevant technical facts, quantify the amount of ecological and environmental damage, and allocate liability among the polluters. Specifically: first, both the plaintiff and the defendant separately appointed expert assistants to appear in court and offer detailed expert opinions on the technical issues at stake; second, the professionals who prepared the Environmental Damage Assessment Report testified in court and underwent cross-examination; third, the court independently engaged three consulting experts to participate in the proceedings and, following the trial, issued an Expert Advisory Opinion on the Allocation of Liability for Damages; and fourth, building upon the assessment report and synthesizing the views of both expert assistants and consulting experts, the court reasonably apportioned the respective compensation liabilities of the two defendants, taking into account factors such as subjective fault and business conditions. Furthermore, with respect to the compensation payable by Jincheng Company, the court permitted installment payments, thereby encouraging the enterprise to conduct its operations in compliance with the law. This approach not only ensured the timely restoration of the ecological environment but also safeguarded the company’s normal business activities, effectively balancing economic and social development with ecological protection. At the same time, after accepting both an ecological and environmental damage compensation suit and an environmental public interest civil action arising from the same polluting act, the court initially stayed proceedings in the public interest case, resuming them only after the damage compensation case had been concluded. It then rendered a judgment on those claims in the public interest action that had not been addressed in the earlier case, thus conducting a constructive exploration of how to appropriately coordinate the adjudication of these two types of cases.

[Commentary]

Damage to the ecological environment caused by a major sudden environmental incident constitutes a relatively typical case of ecological and environmental damage compensation as defined in the “Reform Plan for the Ecological and Environmental Damage Compensation System.” After accepting the case, the court undertook valuable explorations with respect to fact-finding and the allocation of legal liability.

First, in this case, the ascertainment of technical facts was notably facilitated by the participation of multiple experts, providing robust technical support for fact-finding. In this matter, the two defendants successively discharged hazardous wastes that differed in type, quantity, and concentration; the interaction among these substances ultimately resulted in ecological and environmental damage. In response, the plaintiff, the Shandong Provincial Department of Ecology and Environment, and the defendant, Jincheng Company, each submitted to the court two distinct expert opinions. How the court evaluates and accepts these opinions, and accordingly allocates liability between the two defendants, constitutes the crux of the case. The court of first instance fully leveraged the role of technical experts in ascertaining specialized factual issues: in addition to summoning the parties to designate expert witnesses and auxiliary experts to appear and provide explanations, it also, on its own initiative, appointed three consulting experts to attend the proceedings and render advisory opinions. This approach enabled a comprehensive examination of the technical issues at stake, thereby furnishing technical support for the admissibility of the expert reports. It is important to note, however, that the technical facts established through expert appraisal do not necessarily coincide with the legal facts determined by the judiciary. Accordingly, the court should apply the rule of evidence‑based fact‑finding, thoroughly articulating the rationale for accepting or rejecting the expert opinions, and, in the transition from technical assessment to legal determination, strengthen its explanatory reasoning. Furthermore, it should draft standardized environmental judicial judgments that are uniformly formatted, comprehensively itemized, structurally sound, appropriately concise yet detailed, logically rigorous, and linguistically precise.

Second, the case demonstrates a degree of reasonableness in both the determination of liability and the method of apportioning responsibility. Relying on the principle of joint tortfeasance without concerted intent, the court, after comprehensively evaluating all evidence, allocated the respective compensation liabilities of the two defendants based on factors such as their subjective fault and business conditions. In assigning liability, given that Jincheng Company remains in normal operation, the court allowed it to seek installment payments, a prudent approach that seeks to balance ecological protection with economic and social development and strives for a win-win outcome—thus holding certain demonstrative value. However, the specific modalities for installment payments and the mechanisms for ensuring that each installment is paid in full remain largely unresolved, leaving significant uncertainties for subsequent enforcement. It is worth noting that, because the manner of allocating liability in ecological and environmental damage‑compensation litigation is directly linked to the technical, systemic, and long‑term nature of ecological restoration, it is of paramount importance—when determining the allocation of liability in the judgment—to concurrently formulate an ecological restoration plan and specify the means of performance, thereby advancing the goals of environmental protection. Drawing on the valuable experience from environmental public‑interest litigation, it would be advisable to adopt a practice of issuing judgments that include an attached ecological restoration plan in cases involving ecological and environmental damage compensation.

Furthermore, this case has also undertaken a constructive exploration of procedural matters. Following the occurrence of the ecological and environmental damage, a social organization and the plaintiff in this case successively filed an environmental public interest civil action and an action for compensation for ecological and environmental damage. The court duly accepted both cases and suspended the proceedings in the environmental public interest civil action, pending the adjudication of the present case. Once the present case is concluded, the court will render a judgment on the environmental public interest civil action in accordance with the law—thus representing a novel approach to harmonizing the procedures and rules governing these two types of litigation.

II. The People’s Government of Chongqing Municipality and the Chongqing Liangjiang Volunteer Service Development Center v. Chongqing Zangjingge Property Management Co., Ltd. and Chongqing Shouxu Environmental Protection Technology Co., Ltd.

Limited Company Environmental Damage Compensation Litigation Case

[Basic Facts of the Case]

The wastewater treatment facility of Zangjingge Company is responsible for treating the effluent generated by enterprises located within the Chongqing Zangjingge Electroplating Industrial Park. In December 2013, Zangjingge entered into a four-year Entrusted Operation Agreement with Shouxu Company, under which Shouxu undertook the wastewater treatment project and utilized Zangjingge’s treatment equipment to process the wastewater. In August 2014, Zangjingge converted its original waste‑acid collection tank into a wastewater equalization basin; during this conversion, it left a 120‑mm‑diameter pipeline network exposed on the tank wall, which constituted an underground concealed pipe. Starting in September 2014, despite being fully aware that the pipeline network connected to the external environment, Shouxu used this network to discharge untreated heavy‑metal‑contaminated wastewater directly into the surrounding environment. During two on-site inspections of Zangjingge’s wastewater treatment station conducted in April and May 2016, enforcement officers discovered that production wastewater exceeding heavy‑metal limits was being discharged into the external environment without prior treatment. Calculations indicate that from September 1, 2014, to May 5, 2016, the total volume of illegally discharged wastewater amounted to 145,624 tons. Acting on behalf of the Chongqing Municipal People’s Government, the Chongqing Institute of Environmental Sciences employed the virtual remediation cost method to quantify the ecological and environmental damage, determining that the defendants’ pollution had caused damages totaling RMB 14.416776 million.

On June 30, 2016, the Chongqing Environmental Inspection Corps issued an administrative penalty against Zangjingge Company, citing its practice of discharging heavy-metal‑contaminated wastewater directly into the municipal sewage network of the Gangcheng Industrial Park and ultimately into the Yangtze River from September 1, 2014, to May 5, 2016. On December 29, 2016, the Yubei District People’s Court of Chongqing rendered a criminal judgment, finding that Shouxu Company, its legal representative, and the relevant persons in charge had committed the crime of environmental pollution.

Following the Chongqing Liangjiang Volunteer Service Development Center’s filing of an environmental public-interest civil lawsuit against the two defendants, which was accepted by the First Intermediate People’s Court of Chongqing, the Chongqing Municipal People’s Government instituted a separate action for compensation for ecological and environmental damage arising from the same polluting conduct. The people’s courts assigned separate case numbers to each proceeding and, with the consent of all parties, proceeded to hear the two cases jointly.

[Judgment Outcome]

The Chongqing No. 1 Intermediate People’s Court held that the Chongqing Municipal People’s Government is entitled to bring an action for compensation for ecological and environmental damage, and that the Chongqing Liangjiang Volunteer Service Development Center possesses lawful standing to bring an environmental public-interest lawsuit. The two plaintiffs each enjoy their respective rights of action based on different legal provisions, and there was no impropriety in separately filing and accepting the two cases. The fact that the two defendants engaged in illegal discharge has been established by final criminal and administrative judgments; this case is, in nature, a civil matter involving environmental torts, which differs from criminal offenses and administrative violations in terms of the standards of proof and liability. Accordingly, provided that the factual findings are free from contradiction, the facts ascertained in this case may differ from those established in the criminal and administrative proceedings. In view of the evidence demonstrating that Zangjingge Company and Shouxu Company jointly committed environmental pollution to a high degree of probability, it should be determined that both companies acted with subjective common intent and engaged in concerted conduct regarding the illegal discharge. Thus, the two defendants have committed joint tortious acts and must bear joint and several liability. The court accordingly ordered the two defendants to jointly compensate RMB 14,416,776 for ecological and environmental restoration costs, to be used by the two plaintiffs, in light of the specific conditions of ecological and environmental damage in the relevant area, for alternative restoration and related measures.

[Typical Significance]

This case is an ecological and environmental damage compensation matter arising under the third-party governance model. Zangjingge Company, as the legal entity responsible for wastewater treatment within the Zangjingge Electroplating Industrial Park where it is located, also serves as the applicant for the pollutant discharge permit. Shouxu Company, by entering into a “Commissioned Operation Agreement” with Zangjingge Company, assumed responsibility for the day-to-day operation and maintenance of the aforementioned wastewater treatment facility. Relying on a comprehensive assessment that takes into account the statutory liability of the polluting entity, the unlawful nature of its conduct, and the objective mutual cooperation between the parties, the People’s Court determined that Zangjingge Company and Shouxu Company acted with common intent and thus bear joint and several liability for the ecological and environmental damage caused. This ruling helps to educate and regulate enterprises, ensuring their strict compliance with environmental protection laws and regulations and their fulfillment of obligations to protect the ecological environment. At the same time, this case clarifies that litigation for ecological and environmental damage compensation must apply distinct standards of proof and elements of liability, separate from those governing administrative and criminal proceedings. The absence of criminal or administrative liability does not automatically exempt one from liability for ecological and environmental damage. Accordingly, this judgment holds significant guiding value for the People’s Courts in implementing General Secretary Xi Jinping’s vision of “protecting the ecological environment with the strictest systems and the most rigorous rule of law,” and in appropriately coordinating among the three types of litigation in accordance with the law.

[Commentary]

This case is the first of its kind in Chongqing and the second nationwide involving an ecological and environmental damage compensation lawsuit, and it holds great significance for the comprehensive implementation of the ecological and environmental damage compensation system, providing valuable institutional experience.

First, this case has effectively bridged ecological and environmental damage compensation litigation with environmental public-interest litigation. These two types of proceedings differ in terms of standing and scope of application, and achieving their seamless integration has long posed a significant challenge for both scholars and practitioners. By consolidating the cases for joint adjudication, the No. 1 Intermediate People’s Court of Chongqing City not only upheld the government’s right to bring ecological and environmental damage compensation actions but also encouraged social organizations to file civil public-interest lawsuits concerning the environment. This approach underscores the people’s courts’ commitment to safeguarding environmental public interests and achieves a harmonious balance between legal and social outcomes.

Secondly, this case clarifies how liability for ecological and environmental damage should be determined under the third-party governance model. After obtaining a pollutant discharge permit, the discharging entity may entrust a third party to carry out pollutant discharge; however, the discharging entity’s legal obligation to supervise the third party is not discharged by virtue of contractual agreements. If the discharging entity fails to fulfill its statutory supervisory duties, it shall still bear the corresponding legal liabilities.

Finally, this case also clarifies that the standards of proof and liability in ecological and environmental damage compensation litigation differ from those in criminal and administrative proceedings. The absence of criminal or administrative liability does not automatically preclude liability for ecological and environmental damage; further judicial exploration, informed by the specific circumstances of each case, is warranted.

[Basic Facts of the Case]

In June 2012, Kailin Fertilizer Company commissioned Xifeng Labor Service Company to undertake the removal and transportation of waste gypsum sludge. According to regulations, such sludge was required to be transported to a designated phosphogypsum disposal site for centralized treatment. However, starting at the end of 2012, Xifeng Labor Service Company began illegally dumping the sludge on the Dayingtian plot, creating a dump measuring 360 meters long, 100 meters wide, with a maximum fill height of 50 meters, covering approximately 100 mu of land and containing roughly 80,000 cubic meters of waste. During an inspection, the environmental protection authorities discovered this situation. The Guizhou Provincial Department of Environmental Protection commissioned relevant institutions to conduct an assessment, resulting in an “Environmental Pollution Damage Assessment Report” that indicated initial emergency response costs of RMB 1.342 million, followed by approximately RMB 7.5742 million for subsequent excavation, transportation of the waste, and ecological restoration. In January 2017, the People’s Government of Guizhou Province designated the Guizhou Provincial Department of Environmental Protection as the representative; under the supervision of lawyers appointed by the Guizhou Lawyers Association, it engaged in consultations with Xifeng Labor Service Company and Kailin Fertilizer Company regarding ecological damage caused by the illegal dumping of waste at Dayingtian, ultimately reaching an “Ecological Environment Damage Compensation Agreement.” On January 22, 2017, all parties involved submitted an application to the Qingzhen City People’s Court seeking judicial conofficeation of the agreement.

[Judgment Result]

After legally accepting the case, the People’s Court of Qingzhen City published on the Guizhou Provincial Courts’ official website the parties’ Ecological and Environmental Damage Compensation Agreement, the remediation plan, and other relevant details. Upon expiration of the public notice period, the court reviewed the agreement’s contents and, in accordance with the law, issued a ruling conofficeing the validity of the Ecological and Environmental Damage Compensation Agreement reached on January 13, 2017, under the auspices of the Guizhou Lawyers Association, between the Guizhou Provincial Department of Environmental Protection, Xifeng Labor Service Company, and Kailin Fertilizer Company. If one party refuses to perform or fails to fully perform its obligations, the other party may apply to the People’s Court for compulsory enforcement.

[Typical Significance]

This case is the first nationwide instance of judicial conofficeation of an ecological and environmental damage compensation agreement initiated by a provincial people’s government following the launch of the pilot reform of the ecological and environmental damage compensation system. The case has undertaken proactive exploration into the procedures and rules governing the judicial conofficeation of settlement agreements, yielding valuable experience that can serve as a reference. Upon accepting an application for judicial conofficeation of a settlement agreement, the people’s court promptly made public, via the internet, the Ecological and Environmental Damage Compensation Agreement, the remediation plan, and other relevant materials, thereby subjecting these documents to public oversight and safeguarding the public’s rights to information and participation. By granting judicial conofficeation to such agreements, the people’s court endows them with enforceability. Should one party refuse to perform or fail to fully comply with the compensation agreement, the other party may apply to the people’s court for compulsory enforcement, thus effectively ensuring the agreement’s proper implementation and the substantive advancement of ecological and environmental restoration efforts. The practical explorations embodied in this case have been recognized and incorporated into the Reform Plan for the Ecological and Environmental Damage Compensation System, while the Supreme People’s Court’s Provisional Regulations on the Trial of Ecological and Environmental Damage Compensation Cases likewise provide clear provisions regarding the judicial conofficeation of such agreements.

[Commentary]

The highlight of this case lies in its exploration of the rules governing judicial conofficeation of ecological and environmental damage compensation agreements, thereby resolving several legal challenges associated with the conclusion and judicial conofficeation of such agreements during the pilot phase and providing practical groundwork for the Supreme People’s Court to issue relevant judicial interpretations. This exemplary practice by the Guizhou courts demonstrates the judiciary’s wisdom. On the one hand, it pioneered a system in which third-party mediation—specifically, mediation conducted by the provincial bar association—facilitates negotiations between the claimant and the obligor, ultimately leading to the conclusion of a compensation agreement. The involvement of a neutral third party in the negotiation process helps maintain procedural impartiality, fosters communication between the parties, and assists them in identifying their respective interests and needs. On the other hand, it introduced, for the first time, a procedure requiring public notice of ecological and environmental damage compensation agreements prior to the court’s issuance of a judicial conofficeation order. Given that such agreements address matters including the facts and extent of the damage, the methods and timelines for assuming liability, as well as the timing and duration for initiating restoration efforts, they not only involve the adjustment of interests between the claimant and the obligor but also implicate the protection of the environmental rights of the general public. Accordingly, the public announcement of the agreement’s contents by the people’s courts carries significant importance.

IV. Environmental Damage Compensation Agreement among the Shaoxing Municipal Environmental Protection Bureau, Zhejiang Shangfeng Building Materials Co., Ltd., and the People’s Government of Ciwu Town, Zhuji City

Judicial Conofficeation Case

[Basic Facts of the Case]

On April 11, 2017, the Zhuji Municipal Environmental Protection Bureau, in coordination with the Zhuji Municipal Public Security Bureau, conducted a joint surprise inspection of Shangfeng Building Materials Co., Ltd. and found that the company had employed methods such as installing additional tubing onto the sampling lines of its online atmospheric pollutant monitoring system and injecting lime‑neutralized gases to interfere with automated monitoring data. Furthermore, Shangfeng Building Materials Co., Ltd. exceeded emission limits for nitrogen oxides, sulfur dioxide, and other atmospheric pollutants, thereby causing damage to the surrounding atmospheric ecological environment. According to an appraisal conducted by the Shaoxing Environmental Protection Science and Technology Service Center, the total amount of ecological and environmental damage was RMB 1,104,143, with appraisal fees totaling RMB 120,000, for a combined sum of RMB 1,224,143. The atmospheric pollutants illegally emitted by Shangfeng Building Materials Co., Ltd. have been naturally diluted and self‑purified through the atmospheric ecosystem of Cibu Town, rendering on-site remediation unnecessary.

After consultations with Shangfeng Building Materials Co., Ltd. and the Cibu Town People’s Government, the Shaoxing Municipal Environmental Protection Bureau has reached an “Ecological and Environmental Damage Restoration Agreement.” The main provisions are as follows: 1. All parties agree that Shangfeng Building Materials Co., Ltd. shall assume liability for compensating ecological and environmental damage through alternative restoration. In addition to the compensation amount of RMB 1,104,143, the company voluntarily commits to an additional investment of RMB 1,755,857, bringing the total to RMB 2,860,000 for ecological engineering restoration, with the project to be completed no later than October 31, 2018. 2. The Cibu Town People’s Government shall organize, supervise, and manage the restoration work, conduct financial final‑account audits, and transfer the restored site to Dayuanli Village upon completion. 3. Upon completion of the restoration, the Shaoxing Municipal Environmental Protection Bureau shall commission a third‑party assessment agency to carry out acceptance inspection and evaluation, and submit its findings. 4. The costs of ecological and environmental damage appraisal and assessment, as well as the acceptance‑inspection and evaluation fees, shall be borne by Shangfeng Building Materials Co., Ltd. and paid to the relevant appraisal and assessment entities within seven days following successful project acceptance. 5. Should Shangfeng Building Materials Co., Ltd. suspend the restoration work or fail to complete it in accordance with the agreed schedule and scope, the Shaoxing Municipal Environmental Protection Bureau shall have the right to recover the full amount of ecological and environmental damage compensation from the company.

[Judgment Result]

After accepting the application for judicial conofficeation, the Intermediate People’s Court of Shaoxing City published the contents of the “Ecological and Environmental Damage Restoration Agreement.” During the public notice period, no objections or comments were received. Following a review of the agreement’s terms, the Intermediate People’s Court of Shaoxing City determined that the agreement reached by the parties met the requirements for judicial conofficeation and accordingly ruled to conoffice its validity. If one party refuses to perform or fails to perform in full, the other party may apply to the people’s court for compulsory enforcement.

[Typical Significance]

This case is an ecological and environmental damage compensation matter involving air pollution. Air pollution is the environmental issue most directly perceived and most strongly felt by the public, and winning the battle to protect blue skies is of paramount importance in the broader fight against pollution. This year, World Environment Day focused on air pollution prevention and control, with the slogan “In the Battle to Protect Blue Skies, I Am an Actor,” underscoring the Chinese government’s determination to press ahead with this critical campaign. In this case, Shangfeng Building Materials Company interfered with automated monitoring data by installing additional tubing on the sampling lines of its online air pollutant monitoring system and by injecting lime‑neutralized gases, thereby discharging nitrogen oxides, sulfur dioxide, and other air pollutants at levels exceeding legal limits. Although the pollutants were diluted and naturally purified by the surrounding atmospheric environment, obviating the need for on-site remediation, atmospheric diffusion and other pathways can still lead to ecological damage in other areas. Consequently, the polluter cannot be absolved of its liability to compensate for such ecological harm. The People’s Court granted judicial conofficeation to the settlement agreement, explicitly assigning Shangfeng Building Materials Company the obligation to bear ecological and environmental damage compensation through alternative measures. This represents a proactive exploration of diversified approaches to liability. The case demonstrates the judiciary’s zero‑tolerance stance toward air pollution, helping to encourage enterprises to actively fulfill their primary responsibility for ecological protection, voluntarily comply with environmental laws and regulations, and adopt green production practices. Furthermore, following consultations, in addition to legally bearing RMB 1.104143 million in ecological and environmental damage compensation, Shangfeng Building Materials Company voluntarily committed an additional RMB 1.755857 million to alternative ecological restoration, highlighting the positive role of the ecological and environmental damage compensation system in motivating enterprises to proactively assume social responsibility.

[Commentary]

In cases involving ecological and environmental damage caused by air pollution, two common issues invariably arise: First, the pollutants discharged into the atmosphere typically become undetectable—or no measurable harm can be ascertained—after the incident due to atmospheric circulation. How, then, should one determine whether the polluter has inflicted environmental harm and whether remediation is required? Second, if remediation is warranted, how should it be carried out, and must it necessarily take place at the site of the incident? This case provides a satisfactory answer to both questions and thus holds significant illustrative value. To begin with, although the atmospheric pollutants emitted by Shangfeng Company were diluted and dispersed through the self‑purification processes of the surrounding Cihu Town’s air environment, this does not mean that no environmental damage occurred. The harm was indeed present; it simply did not manifest itself at the time or in the immediate vicinity. Once these pollutants have spread to other areas, they will inevitably cause ecological and environmental damage elsewhere. Accordingly, Shangfeng Company must bear liability for compensating such ecological and environmental harm. Furthermore, given the distinctive nature of cases involving ecological and environmental damage caused by air pollution, liability for such harm is often satisfied through ecological restoration. However, in this instance, the pollutants discharged by Shangfeng Company had already been naturally diluted and dispersed after the event, rendering any further on‑site remediation essentially futile. This raises the question of whether Shangfeng Company may fulfill its obligation to compensate for ecological and environmental damage by undertaking alternative forms of remediation. The handling of this type of case sets an important precedent and offers valuable guidance for addressing similar matters.

V. The case of ecological and environmental damage compensation brought by the Guiyang Municipal Ecology and Environment Bureau against Liupanshui Shuangyuan Aluminum Industry Co., Ltd. of Guizhou Province, Ruan Zhenghua, and Tian Jinfang.

[Basic Facts of the Case]

The Guiyang Municipal Ecology and Environment Bureau alleges that, since 2017, Shuangyuan Aluminum Industry Co., Ltd., Tian Jinfang, and Ruan Zhenghua have transported solid waste generated during the aluminum electrolysis process to a site adjacent to Tangbianzhai Village, Xidongjiayan, Huaxi District, Guiyang City, where they illegally dumped it without implementing any measures to prevent rain or leakage. On April 10, 2018, it was further discovered that suspected hazardous waste seized in Huaxi District had been relocated by the defendants to an abandoned coal‑washing plant in Yingguan Village, Longchang Town, Xiuwen County, for illegal landfilling. Following the incident, the environmental protection authorities promptly collected samples of the solid waste and surrounding water bodies for testing. The test results revealed that the samples contained high concentrations of water‑soluble fluorides, posing a severe risk of contaminating soil and groundwater; accordingly, the waste was classified as suspected hazardous waste. An expert appraisal commissioned to assess environmental damage determined that the total costs associated with disposing of the hazardous waste, restoring the affected site, conducting laboratory analyses, evaluating the environmental harm, carrying out follow‑up monitoring, and overseeing and assessing the comprehensive remediation and ecological restoration project amounted to RMB 4.1378 million. After multiple rounds of unsuccessful negotiations with the three parties liable for compensation, the Guiyang Municipal Ecology and Environment Bureau filed an environmental damage compensation lawsuit with the Intermediate People’s Court of Guiyang City.

[Judgment Result]

During the course of the proceedings, the Intermediate People’s Court of Guiyang City facilitated mediation on multiple occasions, and the parties voluntarily reached a settlement agreement. The main provisions are as follows: First, the three defendants shall bear the costs of hazardous waste disposal, sample‑testing and laboratory analysis, expert appraisal, ecological restoration of the contaminated site, and subsequent monitoring and follow‑up. Second, with respect to the abandoned coal‑washing plant in Yingguan Village, Longchang Town, Xiuwen County, the three defendants shall likewise bear the costs of hazardous waste disposal, sample‑testing and laboratory analysis, expert appraisal, ecological restoration of the site, and subsequent monitoring and follow‑up. Third, the representative of the compensation claimant, the Guiyang Municipal Bureau of Ecology and Environment, shall take the lead in organizing, by June 1, 2019, the commencement of post‑remediation and ongoing monitoring activities for the two contaminated sites involved in this case. Upon payment of the amounts stipulated in the agreement, the three defendants shall, within ten days from the date of such payment, submit the relevant receipts and supporting documents to the court. The Intermediate People’s Court of Guiyang City published the mediation agreement; no objections were received during the public notice period. Following review, the court duly issued a civil mediation statement and served it on all parties. To date, Shuangyuan Aluminum Industry Co., Ltd., Ruan Zhenghua, and Tian Jinfang have fulfilled their payment obligations in accordance with the terms of the mediation statement.

[Typical Significance]

This case is an ecological and environmental damage compensation lawsuit brought directly by the competent authority for ecological and environmental protection. During the proceedings, the people’s court strictly adhered to a damage‑remedy framework centered on ecological and environmental restoration, presided over mediation on multiple occasions, and actively facilitated the parties’ reaching a settlement based on thorough consideration of the restoration of the damaged ecosystem. The mediation agreement explicitly designated the lead entity responsible for remediating the contaminated site and set forth specific deadlines for initiating remediation, thereby ensuring the effective implementation of ecological restoration efforts. At the same time, recognizing the long‑term nature of ecological restoration, the court stipulated in the mediation agreement that the actual progress of subsequent remediation would remain under judicial oversight, requiring the three defendants to promptly submit relevant documentation of performance, thus maximizing the likelihood of achieving the ecological restoration objectives.

[Commentary]

This case is an ecological and environmental damage compensation lawsuit that was concluded through mediation by the people’s court. The establishment of an ecological and environmental damage compensation system aims to reflect the ecological functional value of environmental resources. To this end, the system articulates the principles of proactive consultation and judicial safeguards, with the goal of enabling the parties entitled to compensation and those obligated to compensate to reach agreement on compensation matters at an early stage, thereby expediting the initiation of ecological and environmental restoration efforts. Against this backdrop, the people’s courts, within the scope of their statutory authority, have actively explored diversified dispute‑resolution mechanisms and exercised proactive judicial functions. Such efforts not only accommodate the parties’ fundamental desire to reach a swift settlement on ecological and environmental damage compensation but also enhance the efficiency of resolving such disputes and safeguard the ecological environment, which urgently requires restoration.

Moreover, the successful resolution of ecological and environmental damage compensation disputes also hinges on the effective implementation of ecological restoration measures, the outcomes of which often unfold over a considerable period. To this end, while presiding over mediation, the people’s courts have established specific arrangements addressing both substantive and procedural issues related to the actual performance of mediation agreements—such as funding for implementation, oversight of restoration activities and financial management, and mechanisms to ensure the effectiveness of remediation—and have mobilized all stakeholders involved in ecological restoration to conscientiously fulfill their obligations, thereby fully demonstrating the advantages of the mediation approach.

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