JC Master Legal News Issue 957

Key Takeaways for This Issue

The Shenzhen Stock Exchange has launched the merger of its Main Board and the SME Board.

On February 5, the Shenzhen Stock Exchange announced that it will commence preparatory work today to merge the Main Board and the SME Board, and issued a related business notice. This merger is an important measure under the China Securities Regulatory Commission’s comprehensive efforts to deepen capital market reform. Under the guidance of the CSRC, the SZSE will make adaptive adjustments to relevant business rules, market products, technical systems, and issuance and listing procedures to ensure the safe and stable operation of the market. From the date of the business notice’s release until the merger is fully implemented, listed companies on the Shenzhen Main Board and the SME Board will continue to abide by existing regulations, and corporate issuance and listing arrangements will remain unchanged. Following the merger, the SZSE will adopt a market structure centered on the Main Board and the ChiNext Board.

New IPO regulations target speculative share acquisitions, imposing a three-year lock-up period for investments made within one year.

On February 5, the China Securities Regulatory Commission issued new IPO regulatory rules—the “Guidance on the Application of Regulatory Rules: Disclosure of Shareholder Information for Companies Applying for an Initial Public Offering”—which stipulate a 36-month lock-up period for new shareholders who acquired stakes in the 12 months preceding the IPO. The rules also impose strict oversight on common IPO-related irregularities, including illegal nominee shareholding, shadow shareholders, abnormally priced share acquisitions, and multi-layered nested structures.

The Shanghai and Shenzhen Stock Exchanges have established a reporting mechanism for algorithmic trading of convertible bonds.

On February 5, the Shanghai and Shenzhen Stock Exchanges, in order to strengthen the regulation of algorithmic trading in convertible corporate bonds, maintain market order, and protect the legitimate rights and interests of investors, issued the “Notice on Matters Relating to Reporting of Algorithmic Trading in Convertible Corporate Bonds” (hereinafter referred to as the “Notice”) in accordance with the Securities Law and other relevant laws and regulations, as well as the Measures for the Administration of Convertible Corporate Bonds. The Notice establishes a reporting system for algorithmic trading in convertible bonds.

Yurun Group’s bankruptcy reorganization

On February 1, Yurun Group, the parent company of Yurun Real Estate and once led by Jiangsu’s former richest man Zhu Yicai, officially initiated bankruptcy reorganization. Beijing Putuo Investment Fund Management Co., Ltd. (hereinafter referred to as “Putuo Investment”) has already submitted a restructuring plan. According to media reports, the seven companies within the Yurun group that have filed claims involve nearly a hundred banks, trust institutions, and corporate creditors, with the total amount of claims filed to date exceeding RMB 70 billion.

Interpretation of the Supreme People’s Court on Issues Concerning the Application of Law in the Adjudication of Labor Dispute Cases (I)

In order to ensure the proper adjudication of labor dispute cases, this Interpretation is formulated in accordance with the relevant provisions of the Civil Code of the People’s Republic of China, the Labor Law of the People’s Republic of China, the Labor Contract Law of the People’s Republic of China, the Mediation and Arbitration Law on Labor Disputes of the People’s Republic of China, the Civil Procedure Law of the People’s Republic of China, and other applicable laws, and in light of judicial practice.

Table of Contents

Table of Contents

Finance & Capital Markets

The Shenzhen Stock Exchange has launched the merger of its Main Board and the SME Board.

New IPO regulations target speculative share acquisitions, imposing a three-year lock-up period for investments made within one year.

The China Securities Regulatory Commission has issued the “Regulations on the Registration and Management System for Persons with Access to Inside Information of Listed Companies.”

The Shanghai and Shenzhen Stock Exchanges have established a reporting mechanism for algorithmic trading of convertible bonds.

The People’s Bank of China’s “No. 1 penalty notice” of 2021: CITIC Bank was fined RMB 28.9 million for four violations.

Corporate & Commercial

Yurun Group’s bankruptcy reorganization

Half a month after Shanghai’s new real estate regulations took effect, the secondhand housing market has been the first to cool down.

Ping An Good Doctor has posted nearly 4.7 billion yuan in losses over six years; the timeline for turning a profit may be further extended, and the app has been renamed following a trademark defeat.

Kuaishou surged more than 160% on its first day of trading.

Taxation

Announcement of the Ministry of Finance, the General Administration of Customs, and the State Taxation Administration on Adding Collection Methods for Duty-Free Purchases by Outbound Travelers in Hainan

Xiamen: Big Data “Safeguards” Major Enterprises

Beijing: Releases the “Memorandum on Reforming and Optimizing the Capital’s Tax-Related Business Environment”

Shanghai: Focusing on Industry–Education Integration with Targeted Policies

Litigation & Arbitration

Several Provisions of the Supreme People’s Court on Providing Online Filing Services for Parties in Cross-Border Litigation

Interpretation of the Supreme People’s Court on the Application of the Security System under the Civil Code of the People’s Republic of China

Interpretation of the Supreme People’s Court on Issues Concerning the Application of Law in the Adjudication of Labor Dispute Cases (I)

Notice on Urging Suspects Involved in Cross-Border Gambling to Surrender Themselves to the Authorities

Other

Finance & Capital Markets

The Shenzhen Stock Exchange has launched the merger of its Main Board and the SME Board.

On February 5, the Shenzhen Stock Exchange announced that it will soon launch preparatory work to merge the Main Board and the SME Board, and issued relevant business notices.

This merger represents a key initiative by the China Securities Regulatory Commission to comprehensively deepen capital market reform. Following the merger, the Shenzhen Stock Exchange will adopt a market structure centered on the Main Board and the ChiNext Board, characterized by a more streamlined architecture, distinct features, and clearer positioning. This will help clarify the functional roles of each board, strengthen the market’s foundations, enhance its quality and efficiency, and overall boost the vitality and resilience of the capital market. It will also further highlight the ChiNext Board’s market positioning and ensure the thorough implementation of the innovation-driven development strategy. Moreover, it will enable the Shenzhen market to fully leverage its functions, promote the improvement of market-based mechanisms for the allocation of capital factors, and better support the development of the Guangdong–Hong Kong–Macao Greater Bay Area, the construction of pilot demonstration zones for socialism with Chinese characteristics, and the broader national strategic agenda.

In May 2004, the Shenzhen Stock Exchange established the SME Board within the main board of the Shenzhen market as an important step in the phased rollout of the ChiNext Board. This move helped create favorable conditions and accumulate valuable experience for the smooth launch of the ChiNext Board, while opening up a new channel for small and medium-sized enterprises and private offices to access the capital markets. Over 16 years of development, companies listed on the SME Board have steadily grown stronger, increasingly converging with the main board in terms of market capitalization, financial performance, and trading characteristics. Merging the Shenzhen Stock Exchange’s main board and the SME Board is a natural choice that aligns with market‑driven trends, and it also reflects the intrinsic need to build a streamlined and transparent market structure.

The key issues that require close attention in this merger are as follows:

First, the overall arrangement for this merger.

This merger is structured in accordance with the principle of “two unifications and four invariances”: unified business rules, a unified regulatory framework, and unchanged conditions for issuance and listing, investor eligibility thresholds, trading mechanisms, and security codes and abbreviations, thereby minimizing any impact on market operations and investor trading. Under the guidance of the China Securities Regulatory Commission, the Shenzhen Stock Exchange will make adaptive adjustments to relevant business rules, market products, technical systems, and issuance and listing procedures to ensure the safe and stable functioning of the market. From the date of issuance of this business notice until the completion of the merger, main‑board and SME‑board listed companies in Shenzhen will continue to operate under the existing regulations, and the current arrangements for corporate issuance and listing will remain in place.

Second, the impact of the merger on listed companies’ business rules, regulatory mechanisms, and other aspects.

Since its inception, the SME Board has adhered to laws, regulations, and departmental rules that are broadly consistent with those governing the Main Board. This merger does not entail any substantive revisions to these legal and regulatory frameworks. In early 2019, the Shenzhen Stock Exchange launched a comprehensive review and optimization of its self-regulatory framework for listed companies, subsequently revising and issuing multiple industry‑specific and specialized information disclosure guidelines. In February 2020, it consolidated and streamlined the “Guidelines for Standardized Operations of Listed Companies” applicable to both the Main Board and the SME Board; in June 2020, it released an integrated and revised “Guide to Procedures for Listed Company Affairs.” Following the latest round of delisting‑system reforms at the end of 2020, the provisions distinguishing between the Main Board and the SME Board in the Stock Listing Rules have been eliminated. Overall, the Shenzhen Stock Exchange has achieved basic convergence of business rules across the Main Board and the SME Board, preliminarily establishing a concise and efficient self‑regulatory framework for listed companies—centered on listing rules, underpinned by standardized‑operations guidelines and industry‑ and specialty‑specific information disclosure guidelines, and supplemented by procedural guides. This merger requires only minor adaptive adjustments to a handful of differentiated provisions between the two boards—for example, the standardization of the definition of high‑ratio stock dividends and share transfers—resulting in limited impact on listed companies. Going forward, the Shenzhen Stock Exchange will continue to refine rule integration and ensure seamless regulatory coordination. In terms of the regulatory mechanism, the Exchange will maintain industry‑based oversight, guided by the principle of reasonable balance, categorizing listed companies into two major sectors and assigning regulatory responsibilities to two separate corporate management departments.

Third, the principal impacts of this merger on market products, as well as the Shenzhen Stock Exchange’s subsequent targeted measures.

This merger will have virtually no impact on fixed-income products, futures and options products, or the Shenzhen–Hong Kong Stock Connect business. However, indices related to the SME Board will require adaptive adjustments. In accordance with the “Business Notice” and the relevant index‑adjustment announcements, this merger entails only minor revisions to the full names, abbreviations, and sample‑space descriptions of the affected indices—specifically, the removal of the term “Board” from both the full name and abbreviation, along with certain targeted adaptations. Accordingly, the phrase “SME Board” in the sample‑space descriptions will be replaced with “the original SME Board.” These index‑adjustment measures do not constitute any material changes to the index‑construction methodology, nor will they necessitate adjustments to the investment constituents of funds that track these indices. As such, they help preserve the stability and continuity of the indices and ensure the smooth operation of related fund products.

Going forward, the Shenzhen Stock Exchange will, in light of market demand and actual conditions, collaborate with relevant stakeholders to refine its index‑construction methodology, further developing a suite of SME indices that are more influential and competitive in the market.

Fourth, the specific details of the technological upgrades involved in this merger.

This merger primarily involves technical upgrades to the Shenzhen Stock Exchange’s internal systems, as well as to the systems of market participants such as securities offices and market data providers. At present, the internal technical upgrades at the Shenzhen Stock Exchange have been largely completed. Market participants are only required to carry out adaptive modifications related to market data display and data interfaces, a process expected to take approximately two months. Overall, the core trading system remains largely unaffected, and the scope and resources devoted to the technical upgrade project are relatively modest, resulting in only a limited impact on the market‑wide technology infrastructure.

Fifth, the principal adjustments made to the company’s issuance and listing procedures in this merger, as well as their implications for investors’ trading activities.

In accordance with relevant regulations, during the transitional period from the issuance of the “Business Notice” to the completion of the merger, companies’ issuance and listing will continue to follow the existing arrangements. Following the merger, the listing requirements for the Main Board will remain unchanged and be aligned with those previously applicable to the former SME Board; securities originally listed on the SME Board will be reclassified as “Main Board A‑shares,” with their corresponding stock code ranges incorporated into the Main Board’s allocation. The issuance review procedures will also remain unchanged, and companies currently undergoing review are not required to resubmit their application materials, ensuring that no material impact will be imposed on their issuance and listing.

This merger only changes the securities classification of the original SME Board companies; the stock codes and abbreviated names remain unchanged, and it will not affect investors’ trading methods or habits. The main board and the SME Board share identical trading mechanisms and investor eligibility requirements, with no significant differences in the investor base. Moreover, since the merger does not alter either the trading rules or the investor thresholds, it will not have any material impact on investors’ trading behavior.

Following the completion of the merger, the Shenzhen Stock Exchange’s Main Board will continue to focus on supporting the financing and development of relatively mature enterprises, with efforts aimed at enhancing their quality and competitiveness, while maintaining the existing listing thresholds. The ChiNext Board will primarily serve growth‑stage innovative and entrepreneurial companies, emphasizing “three innovations” and “four new” areas. With the Shenzhen market structured around the Main Board and the ChiNext Board, it will provide tailored financing solutions for enterprises at different stages of development and of varying types, thereby further strengthening the capital market’s ability to support the real economy.

New IPO regulations target speculative share acquisitions, imposing a three-year lock-up period for investments made within one year.

On February 5, the China Securities Regulatory Commission issued the “Guidance on the Application of Regulatory Rules—Information Disclosure by Shareholders of Companies Applying for an Initial Public Offering” (hereinafter referred to as the “Guidance”).

This Guidance primarily addresses situations in practice where certain investors, through mechanisms such as nominee shareholding and indirect shareholding via multi-layered nested institutional shareholders, conceal themselves behind the nominal shareholders of companies seeking an IPO, thereby creating “shadow shareholders.” These investors may acquire shares shortly before the company’s listing or obtain them at a discount, only to reap substantial profits after the IPO—behind which there may lie a range of issues, including transactions between power and money and the transfer of benefits. The key areas that this Guidance requires particular attention to are:

First, the principle requiring issuers to meet shareholder eligibility criteria is reafofficeed. Issuers are required, prior to filing their applications, to legally resolve any share‑holding nominee arrangements and to disclose that their shareholders’ qualifications comply with relevant national regulations and that no illegal shareholdings exist.

Second, regulatory oversight of pre-IPO share acquisitions will be strengthened. New shareholders who acquire equity within 12 months prior to filing the application are required to lock up their shares for 36 months, and intermediary institutions are mandated to conduct comprehensive disclosure and verification of the relevant circumstances of these new shareholders.

Third, strengthen the information‑level due diligence on natural person shareholders and multi‑tiered nested institutional shareholders whose shareholding transaction prices are conspicuously abnormal. Intermediary institutions are required to conduct穿透核查 (penetrative verification) of the basic information, shareholding rationale, and sources of funds for these two categories of shareholders, and to determine whether there are any violations of shareholder eligibility requirements or instances of nominee shareholding. Issuers are also required to disclose relevant information, including the basic details of the natural person shareholders in question and the ultimate natural person shareholders in the multi‑tiered nested structure.

Fourth, we will further strengthen the accountability of intermediary institutions. Intermediary institutions are required not to rely solely on institutional or individual commitments; instead, they must conduct thorough due diligence, with a particular focus on shareholders whose share‑purchase prices are unusually high and on those who acquired shares shortly before the company’s listing.

Fifth, emphasis is placed on fostering coordinated regulatory efforts. When an issuer’s shareholders are suspected of engaging in improper shareholding or when the transaction prices of such shareholdings are conspicuously abnormal, relevant authorities may be consulted on matters such as anti‑money laundering and anti‑corruption requirements, thereby jointly strengthening oversight.

The full text is attached below.

“Guidance on the Application of Regulatory Rules—Information Disclosure by Shareholders of Companies Applying for an Initial Public Offering”

Issuers applying for an initial public offering of shares or depositary receipts shall, in accordance with this Guidance, fully carry out shareholder information disclosure and other related tasks.

I. The issuer shall disclose shareholder information in a truthful, accurate, and complete manner. Where shareholding arrangements such as nominee holding have existed throughout the issuer’s historical development, they must be legally terminated prior to filing the application, and the prospectus shall disclose the underlying reasons for their formation, their evolution, the termination process, and whether any disputes or potential disputes exist.

II. When submitting the filing materials, the issuer shall provide a specific commitment stating whether any of its shareholders are subject to any of the following circumstances, and shall disclose such commitment publicly: (1) Entities prohibited by laws and regulations from holding shares directly or indirectly hold shares in the issuer; (2) The underwriting institutions for this offering, or their principals, senior management, or handling personnel, directly or indirectly hold shares in the issuer; (3) Improper transfer of benefits is conducted through the issuer’s equity.

III. If the issuer has admitted new shareholders within the 12 months preceding the submission of the application, it shall fully disclose in the prospectus the new shareholders’ basic information, the reasons for their investment, the subscription price and the basis for determining that price; whether the new shareholders have any affiliations with other shareholders, directors, supervisors, or senior management of the issuer; whether they have any affiliations with the underwriting institutions for this offering, as well as with the heads, senior management, and handling personnel of such institutions; and whether there are any arrangements for nominee shareholding involving the new shareholders.

The aforementioned new shareholders shall undertake that the newly acquired shares shall not be transferred within 36 months from the date of acquisition.

IV. Where the transaction price at which a natural person shareholder of the issuer acquires shares is significantly abnormal, the intermediary institution shall verify the shareholder’s basic information and the background of the investment, and determine whether any of the circumstances set forth in Items 1 and 2 of this Guidance apply. The issuer shall disclose the basic information of such natural person shareholder.

V. Where the issuer’s shareholders are organized in a multi-tiered equity structure involving companies or limited partnerships that do not engage in any substantive business operations, and where the transaction price at which such shareholders acquired their equity interests is manifestly abnormal, the intermediary institutions shall conduct a step‑by‑step穿透 (penetration) review to identify the ultimate beneficial owner(s), and determine whether any of the circumstances set forth in Items 1 and 2 of this Guidance apply. If the ultimate beneficial owner is an individual, the issuer shall disclose the individual’s basic information.

VI. If private equity investment funds or other financial products hold shares of the issuer, the issuer shall disclose the regulatory oversight applicable to such financial products.

VII. The issuer and its shareholders shall promptly provide the intermediary institutions with true, accurate, and complete information, actively and comprehensively cooperate with them in conducting due diligence, and fulfill their information disclosure obligations in accordance with the law.

VIII. Sponsor institutions, securities service providers, and other intermediary institutions shall exercise due diligence and, in accordance with the requirements of this Guidance, verify the shareholder information disclosed by the issuer. The verification opinions issued by such intermediaries may not be based solely on commitments made by relevant institutions or individuals; rather, they must conduct a comprehensive and thorough review of objective evidence, including but not limited to shareholders’ subscription agreements, transaction consideration, sources of funds, and payment methods, to ensure that the documents they issue are true, accurate, and complete.

9. Shareholders who acquired shares through call auction or continuous auction trading during the issuer’s listing on the National Equities Exchange and Quotations for Small and Medium-sized Enterprises or on an overseas stock exchange, as well as shareholders who obtained shares in the issuer by inheritance, pursuant to court judgments or arbitration awards, in compliance with national laws and policies, or under the direction of a people’s government at or above the provincial level, may apply for an exemption from the verification and share‑lockup requirements set forth in this Guidance.

X. Where an issuer’s shareholders are suspected of engaging in illegal shareholding or where the transaction prices of their share acquisitions are conspicuously abnormal, the China Securities Regulatory Commission and the stock exchanges may require such shareholders to disclose their basic information and the background of their share acquisitions, and seek opinions from relevant authorities on anti‑money laundering and anti‑corruption requirements, thereby jointly strengthening regulatory oversight.

XI. This Guidance shall take effect as of the date of its promulgation. Enterprises that had their applications accepted prior to the date of promulgation shall not be subject to the share‑lockup requirements set forth in Item 3 of this Guidance.

The China Securities Regulatory Commission has issued the “Regulations on the Registration and Management System for Persons with Access to Inside Information of Listed Companies.”

On February 3, the China Securities Regulatory Commission issued the “Regulations on the Registration and Management System for Persons with Access to Inside Information of Listed Companies,” which took effect upon its promulgation.

The primary purpose of this revision is to implement the new Securities Law, which came into effect on March 1, 2020, further standardize the registration and reporting practices of insiders with access to material nonpublic information at listed companies, and strengthen comprehensive measures for preventing and controlling insider trading. The key revisions to the Registration Management System are as follows:

First, implement the provisions of the new Securities Law. In accordance with the new Securities Law, further clarify the definitions and scope of insiders and insider information.

Second, the principal responsibility of listed companies for preventing and controlling insider trading has been officely established. The regulations stipulate that the chairman, the board secretary, and other relevant persons shall sign written conofficeation statements on the insider‑information‑holder register; moreover, listed companies are required to promptly update and resubmit the relevant insider‑information‑holder registers and memoranda documenting the progress of material matters in response to any changes thereto.

Third, the responsibilities of stock exchanges in preventing and controlling insider trading have been strengthened. Stock exchanges are authorized to specify the scope of material matters subject to filing in the insider‑information‑holder records of listed companies, the specific content to be reported, and the categories of personnel required to file; they are also tasked with establishing detailed rules regarding the matters that necessitate the preparation of progress memoranda on material events, as well as the content to be included therein. At the same time, stock exchanges are required to promptly share information such as insider‑information‑holder records and progress memoranda on material events with the China Securities Regulatory Commission and its local branches.

Fourth, the obligation of intermediary institutions to cooperate is clearly defined. Securities offices, law offices, and other securities service providers are required to assist listed companies in promptly submitting dossiers of insiders with access to material nonpublic information and memoranda on the progress of significant matters, and to verify the relevant information in accordance with applicable professional standards.

The Shanghai and Shenzhen Stock Exchanges have established a reporting mechanism for algorithmic trading of convertible bonds.

On February 5, the Shanghai and Shenzhen Stock Exchanges, in order to strengthen the regulation of algorithmic trading in convertible corporate bonds, maintain market order, and protect the legitimate rights and interests of investors, issued the “Notice on Matters Relating to Reporting of Algorithmic Trading in Convertible Corporate Bonds” (hereinafter referred to as the “Notice”) in accordance with the Securities Law and other relevant laws and regulations, as well as the Measures for the Administration of Convertible Corporate Bonds. The Notice establishes a reporting system for algorithmic trading in convertible bonds, effective March 29, 2021.

The key issues that require particular attention in this Notice are as follows:

　First, the types of investors required to file reports.

From a typological perspective, the investors required to file reports fall into the following categories: first, member clients; second, members and other investors—such as securities investment fund management companies and insurance institutions—that trade directly through trading units; and third, other investors as specified by the Shanghai and Shenzhen Stock Exchanges. Member clients shall report to the member that accepts their trading instructions, while members and other institutions shall report directly to the Shanghai and Shenzhen Stock Exchanges. In practice, investors meeting any of the following conditions are obligated to submit reports: (1) programmatic traders whose orders exhibit a high degree of automation, with key order parameters—including security codes, buy/sell direction, order quantity, and order price—as well as the timing of order submission, all determined automatically by computer; (2) programmatic traders characterized by an exceptionally rapid order‑submission rate, placing ten or more orders within one second on ten or more occasions in a single day; (3) programmatic traders utilizing self‑developed or other customized software; and (4) other circumstances deemed by the Shanghai Stock Exchange to warrant reporting. Investors who use client‑side software provided by their broker that incorporates certain automated features, but do not meet the aforementioned criteria, are exempt from reporting obligations.

Second, the Notice sets out specific requirements regarding the reporting deadline and addresses whether entities that had already engaged in algorithmic trading of convertible bonds prior to the Notice’s entry into force are required to file a report.

Before conducting algorithmic trading for the first time, member clients shall submit a report to the member that accepts their trading instructions; upon submission, they may proceed with algorithmic trading. Members shall verify the information provided by their clients and report to the Shanghai and Shenzhen Stock Exchanges within three trading days. Members and other institutions engaging in algorithmic trading of convertible bonds for the first time shall submit a report to the Shanghai and Shenzhen Stock Exchanges at least three trading days in advance. Investors who had already commenced algorithmic trading of convertible bonds prior to the effective date of this Notice shall, within thirty trading days after its entry into force, complete the required information reporting in accordance with the provisions set forth herein.

Third, the specific report content and requirements.

The report shall include the following: first, information on the investor’s identity, securities account, and member institution; second, details regarding the source of funds; third, information on the trading strategy, software name, and developer; and fourth, contact person and contact details. Members and other institutions shall submit, via the relevant sections of the Shanghai and Shenzhen Stock Exchanges, information pertaining to their clients’ and their own convertible bond algorithmic trading activities.

Fourth, if delayed reporting or failure to report as required occurs, it will have an impact on investors.

In accordance with their self-regulatory requirements, the Shanghai and Shenzhen Stock Exchanges conduct on-site and off-site inspections of members and other institutions to monitor their reporting on programmatic trading of convertible bonds. For entities that refuse to fulfill their reporting obligations or submit reports that do not comply with applicable regulations, the exchanges will impose regulatory measures or disciplinary sanctions in line with relevant rules.

The People’s Bank of China’s “No. 1 penalty notice” of 2021: CITIC Bank was fined RMB 28.9 million for four violations.

On February 5, the People’s Bank of China (PBOC) website disclosed the “No. 1 penalty notice” for 2021: CITIC Bank was fined RMB 28.9 million for four violations. Meanwhile, 14 individuals, including Zhao Tongwei, then Executive Deputy General Manager of CITIC Bank’s Retail Banking Division, were each issued fines ranging from RMB 25,000 to RMB 80,000 for their responsibility in certain of these illegal and non-compliant practices, totaling RMB 615,000. This decision reflects the outcome of the PBOC’s inspection of CITIC Bank in 2019, which identified a number of issues. To date, the specific problems have largely been rectified.

According to the public disclosure of administrative penalties, China CITIC Bank was found to have committed four types of violations: failing to fulfill customer identification obligations as required; failing to retain customer identification documents and transaction records as prescribed; failing to submit reports on large-value transactions and suspicious transactions as required; and conducting transactions with customers whose identities are unknown.

In recent years, the People’s Bank of China has steadily intensified its regulatory oversight in the anti‑money laundering (AML) domain. According to reports, at the beginning of last year, China Minsheng Bank and Everbright Bank were each slapped with hefty fines—23.6 million yuan and 18.2 million yuan, respectively—for violations in AML compliance. Data from the central bank’s official website show that in 2020, the PBOC and its branch offices imposed administrative penalties on a total of 417 AML‑obligated institutions and relevant individuals, issuing 733 penalty notices amounting to approximately 628 million yuan in fines. Of this sum, about 608 million yuan was levied against institutions, while roughly 20 million yuan was imposed on individuals. The total number of AML enforcement actions rose by nearly 25% compared with 2019, and the aggregate fine amount was roughly three times that of 2019.

As 2021 began, anti‑money‑laundering oversight continued to tighten. On January 12 this year, the Fuzhou Central Branch of the People’s Bank of China published a list of administrative penalties, revealing that the payment institution Fujian Guotong Xingyi Network Technology Co., Ltd. was fined approximately RMB 67.1002 million and had its illegal gains—about RMB 2.6102 million—confiscated for 12 violations, including conducting transactions with customers whose identities were unknown.

Commercial & Corporate

Yurun Group’s bankruptcy reorganization

On February 1, Yurun Group, the parent company of Yurun Real Estate and once led by Jiangsu’s former richest man Zhu Yicai, officially initiated bankruptcy reorganization. Beijing Putuo Investment Fund Management Co., Ltd. (hereinafter referred to as “Putuo Investment”) has already submitted a restructuring plan. According to media reports, the seven companies within the Yurun group that have filed claims involve nearly a hundred banks, trust institutions, and corporate creditors, with the total amount of claims filed to date exceeding RMB 70 billion.
For the future restructuring party, reorganizing Yurun Group will be no easy task. With its sizable balance sheet, it is unlikely that a single entity could take on the entire operation. While Putuo Investment is leading the effort, other companies are also involved. In Yurun Group’s restructuring, Putuo Investment assumes the role of a “restructuring investor,” tasked with stepping in as a new shareholder to take over and rescue the bankrupt company, reviving it and restoring production and operations. At the same time as Yurun Group undergoes bankruptcy restructuring, the fate of its subsidiary, Yurun Real Estate, has once again become uncertain.
In fact, as early as 2016, Putuo Investment had already played a role in the restructuring of Yurun Group. Public records show that Putuo was founded in 2008, and its fund management arm is among the first batch of specialized investment management offices primarily focused on private equity fund management. Since its inception, Putuo Investment has predominantly completed and executed mixed‑ownership reform projects involving central state-owned enterprises and large local SOEs, such as a RMB 3 billion capital injection into China Huadian Xinjiang Power Generation Co., Ltd., as well as a RMB 2 billion equity investment fund and a second‑phase capital increase for AVIC International. In April 2016, Putuo Investment, together with several major central SOEs, conducted an in-depth due diligence on Yurun Group and submitted a “industrial capital plus financial capital” restructuring plan, formally joining the group’s restructuring process. In September of the same year, following a vote by the ten member institutions of the Yurun Financial Debt Committee’s presidium, Putuo Investment was selected as the restructuring partner. However, given that stakeholders still held expectations for Yurun Group’s future development, creditors and relevant authorities opted instead for debt rescheduling. Moreover, at the time, Yurun Group’s founder, Zhu Yicai, was under residential surveillance, making detailed communication with him impossible, which ultimately led to the postponement of the restructuring.
Yurun Group is a large‑scale enterprise, making it unlikely that a single company could take it on. There are three reasons: First, individual offices typically have limited internal capital, and raising additional funds is challenging; second, bankruptcy‑restructuring operations carry substantial risks, and involvement by just one company would make it difficult to diversify its own investment risks; third, such restructurings require the integration of resources from multiple stakeholders, and a single company’s resources are often insufficient to turn around a struggling enterprise.
Puto Investment assumes the role of “restructuring investor” in Yurun Group’s reorganization. Its mission is to act as a “new shareholder,” take over and rehabilitate the bankrupt enterprise, and breathe new life into Yurun by resuming production and operations.

Investment and M&A transactions under bankruptcy reorganization differ significantly from ordinary ones. First, the outcome of bankruptcy reorganization is highly uncertain, making such investments far riskier than typical investments. Second, assets in bankruptcy reorganization are typically sold at substantial discounts, resulting in valuations much lower than those in standard M&A deals—providing opportunities to acquire assets at a bargain. Third, the procedural requirements are more stringent: any restructuring plan must be approved by creditors or the court.
When “Yurun” is mentioned, most people immediately think of its food and related industries. However, Zhu Yicai himself is not content with this; his business empire also encompasses real estate, commerce, logistics, tourism, finance, and construction. Yurun Group operates two primary real estate platforms: one is the commercial and real estate arm under the listed company Central Department Store, and the other is a real estate group controlled by Zhu Yicai, offering a diverse portfolio that includes residential properties, tourism‑oriented real estate, commercial real estate, and logistics‑focused developments.
In May 2002, Yurun established Jiangsu Dihua Real Estate Development Co., Ltd. (the predecessor of Yurun Real Estate), officially entering the real estate sector. At its peak, Yurun Real Estate’s projects spanned East China, Central China, South China, Northeast China, North China, and Northwest China, covering more than 60 cities of various sizes, including Shanghai, Qingdao, and Huangshan, and establishing a three‑pronged brand portfolio centered on commodity residential properties, urban mixed‑use complexes, and tourism‑oriented real estate. A pivotal moment in Yurun Real Estate’s development came in 2009, when the company gained controlling interest in the A‑share listed platform “Central Department Store,” thereby expanding into the commercial real estate arena. Subsequently, the Yurun Group gradually injected several of its real estate assets into Central Department Store.
Yurun Real Estate reached its peak in 2014. According to the CRIC rankings, the company posted annual sales of RMB 15.5 billion, placing it at No. 49 on the list. That same year, Zhu Yicai and his wife made it onto the Hurun Rich List, becoming Jiangsu’s wealthiest individuals.
Crises began to surface as well. With its real‑estate operations heavily concentrated in third- and fourth‑tier cities—particularly in northern Jiangsu, where housing markets are relatively weak—Yurun Real Estate failed to achieve large‑scale expansion through self‑funding from property sales. In 2015, following his involvement in a corruption investigation and the imposition of residential surveillance by the procuratorial authorities, Yurun Group and its listed subsidiaries posted consecutive years of losses, at one point facing a severe debt crisis. Meanwhile, Yurun Real Estate repeatedly faced negative headlines, including land seizures, asset disposals, and construction site shutdowns. It was only after Zhu Yicai’s return in 2019 that the company’s real‑estate business began to show signs of revival: first by partnering with China Railway Construction Corporation, and then by launching a large‑scale recruitment drive in an effort to re‑enter its core business. However, performance data reveal that these moves yielded less than satisfactory results. According to ST Zhongshang’s annual report, the company recorded operating revenue of RMB 8.103 billion in 2019, down 1.78% year over year, while net profit attributable to shareholders stood at a loss of RMB 588 million, a 72.85% decline compared with the previous year.
In November 2020, one month after stepping down from Cedar Holdings, former Wanda executive Wang Xinqi joined Yurun Group as chairman of Yurun Real Estate. Industry observers view this move as evidence that Zhu Yicai remains optimistic about the real estate business. By January 26 of this year, *ST Zhongshang issued a preliminary announcement forecasting a profit for 2020, projecting that net profit attributable to shareholders of the listed company would turn positive compared with the same period last year (based on statutory disclosure data). Meanwhile, several companies within the Yurun group have filed for bankruptcy reorganization in court. Among the known debts totaling RMB 70 billion associated with the Yurun group, the core real estate entities—Jiangsu Dihua Industrial and Huangshan Yurun Dihua Property—have each conofficeed claims of RMB 16.6 billion and RMB 3.88 billion, respectively. While it is still too early to predict the outcome of Yurun Group’s restructuring, the participation of restructuring investors suggests that its assets and operations retain some appeal and at least offer a chance for recovery.

Half a month after Shanghai’s new real estate regulations took effect, the secondhand housing market has been the first to cool down.

Looking back at Shanghai’s real estate market in 2020, analysts had predicted a sustained downward trend; however, actual performance exceeded those expectations.

According to the latest data released by the Shanghai Municipal Bureau of Statistics, in 2020, the sales area of newly built residential properties in Shanghai reached 17.8916 million square meters, up 5.5% year on year. Residential sales accounted for 14.3407 million square meters, an increase of 5.9%. Meanwhile, the existing-home market also remained robust. According to the Municipal Real Estate Transaction Center, the city’s total online-signed area of existing homes totaled 24.9543 million square meters, a 19.9% rise from the previous year. Of this, the online‑signed area of existing residential properties reached 22.4623 million square meters, up 24.4%. Following the pandemic, pent-up housing demand was unleashed, driving a surge in existing‑home transactions—the highest level in nearly four years.

Yang Kewei, deputy general manager of the CRIC Research Center, told a reporter from the Securities Daily that in 2020, the Shanghai housing market’s robust performance was driven primarily by four key factors: First, starting in March 2020, Shanghai implemented a comprehensive “unified enrollment for both local and non-local residents” policy and introduced lottery‑based admissions for private schools. Under this new regime, prices for secondhand homes in prime school districts surged, boosting overall market activity. Second, accelerated urban renewal projects in older neighborhoods generated substantial additional demand for home purchases, backed by strong purchasing power. Third, amid a relatively accommodative monetary policy environment, market expectations remained that asset prices in core cities would continue to rise, sustaining the release of upgrade‑oriented demand. Fourth, the price inversion between new and existing homes kept the “new‑home‑hunting” market exceptionally active.

According to data from the CRIC Real Estate Research Center, in 2020, more than 40% of newly launched projects in Shanghai recorded subscription rates exceeding 100%. In core districts such as Xuhui, Changning, and Jing’an, the frenzy for new-home launches has become widespread, with over 70% of projects posting subscription rates above 100%; at Huicheng Nanjie Li, the winning rate was as low as 7.8%. Against this backdrop, on January 21 this year, the Shanghai Municipal Commission of Housing and Urban–Rural Development, along with seven other departments, jointly issued the “Opinions on Promoting the Stable and Healthy Development of the City’s Real Estate Market,” upgrading housing-market regulation measures by plugging loopholes related to “sham divorces” used to circumvent purchase restrictions, adjusting the threshold for VAT exemption, increasing land supply while reshaping its allocation, granting priority lottery access to “homeless households,” and tightening oversight of credit‑funding flows. Moreover, just four days after the new policy was unveiled, Shanghai further brought judicially auctioned properties under the purview of home‑purchase restrictions.

In fact, according to Jiang Zhenghe, Investment Director at Yide Capital, the new real‑estate‑market‑regulation measures recently introduced in Shanghai represent some of the strictest demand‑side policies nationwide. Under the new rules, Shanghai will rigorously enforce its home‑purchase‑restriction policy: for couples who divorce, if either party purchases a commercial residential property within three years from the date of divorce, the number of homes they own will be counted based on the family’s total housing holdings prior to the divorce. At the same time, the threshold for VAT exemption on secondhand home sales has been extended, raising the period from two years to five years.

“From a policy standpoint, measures such as counting home purchases made within three years of divorce against the pre-divorce household’s total housing stock and extending the VAT exemption period from two to five years not only directly address recent irregularities in Shanghai’s housing market but also significantly dampen investors’ speculative enthusiasm,” Lu Wenxi, a market analyst at Centaline Property in Shanghai, told a reporter from the Securities Daily. “For speculative buyers, holding periods typically range from two to five years. By raising the VAT exemption threshold to five years, Shanghai’s new policy substantially narrows the profit margin for flipping properties. Moreover, given the ongoing uncertainty surrounding the real estate market over the next two to three years, risks are likely to keep mounting. As a result, this move carries considerable bite for property speculators.”

Specifically, consider a non‑standard residential property purchased for 9 million yuan and sold for 10 million yuan, with the ownership having been held for more than two but less than five years. Under the previous VAT calculation method, the VAT liability would have been only 50,000 yuan, yielding a profit of 950,000 yuan. However, under the new VAT calculation method, the VAT payable has surged to 500,000 yuan, leaving a profit of just 500,000 yuan.

“Comparing the tax rates on 50,000 yuan and 500,000 yuan reveals a tenfold disparity. This means that most of the profits investors earn from flipping properties would be wiped out, thereby significantly dampening—or even discouraging—their enthusiasm for real‑estate speculation,” said Lu Wenxi. He added that, judging from developments since the new policy took effect, while the new‑home market has shown a somewhat sluggish response, Shanghai’s secondhand housing market has indeed cooled down.

According to data from Centaline Property in Shanghai, last week (January 25–31), the number of newly listed secondhand homes in the city plummeted, falling below 10,000 to 9,543 units—a 26.7% drop from the previous week. Notably, in the past, fluctuations in new listings typically stayed within a narrow range of around ±5%, with sharp declines like last week’s rarely observed. At the same time, asking prices also softened, declining by roughly 4 percentage points compared with the prior week.

Some banks have reported tight credit quotas. Notably, following the recent tightening of Shanghai’s real‑estate regulatory measures, a new set of mortgage‑lending rules has been introduced, further tightening the reins on the local housing market. On January 29, the Shanghai Banking and Insurance Regulatory Bureau issued the “Notice of the Shanghai Banking and Insurance Regulatory Bureau on Further Strengthening the Management of Personal Housing Credit,” setting out requirements for commercial banks operating in Shanghai regarding the implementation of differentiated housing‑credit policies and overall housing‑loan management. Key provisions cover areas such as the concentration‑risk management of real‑estate loans, verification of down‑payment sources and borrowers’ debt‑servicing capacity, borrower eligibility assessments and credit‑risk management, the disbursement of personal housing loans, oversight of the use of loan proceeds, regulation of business partnerships with real‑estate agencies, and risk‑assessment and remediation efforts.

“In the past, domestic mortgage lending largely relied on income verification provided by homebuyers. However, to be frank, falsified income documentation has long been a persistent problem, and it has proven difficult for credit‑risk controls to achieve truly rigorous and comprehensive enforcement,” said Zhang Dawei. He added that if Shanghai were to implement stringent scrutiny of individual housing‑loan applications this time around, the property market could cool down fairly quickly. Consequently, how banks enforce this policy will have a significant impact on the future trajectory of Shanghai’s real estate market.

Of course, in addition to banks’ self‑inspections, the regulatory measures introduced late last year—namely, the People’s Bank of China and the China Banking and Insurance Regulatory Commission’s “Notice on Establishing a Concentration Management System for Real Estate Loans at Banking Financial Institutions”—have also prompted banks to tighten mortgage‑loan quotas.

According to reports, some banks have already suspended processing second-hand home mortgage applications for individuals, while continuing to accept new individual mortgage applications. However, the overall loan‑disbursement timeline has lengthened compared with the past, owing to factors such as extended property‑inspection and credit‑report verification periods, slower underwriting processes, and a more protracted transaction sequence when handling second‑hand home mortgages—particularly the time required to settle the previous borrower’s outstanding balance before disbursing funds to the current applicant.

Ping An Good Doctor has posted nearly 4.7 billion yuan in losses over six years; the timeline for turning a profit may be further extended, and the app has been renamed following a trademark defeat.

Recently, Ping An Good Doctor released its full-year 2020 results. According to the financial report, the company’s total revenue for 2020 reached RMB 6.866 billion, up 35.5% year over year, while its net loss stood at RMB 949 million, a 27% increase compared with 2019. Adjusted net loss was RMB 516 million, down 25.8% from the previous year. In the report, Ping An Good Doctor attributed the losses primarily to “a significant appreciation of the RMB, which led to higher foreign‑exchange losses on the company’s overseas foreign‑currency assets, as well as increased losses at its overseas joint ventures due to scale expansion.”

With nearly RMB 4.7 billion in losses over six years, the turnaround period may be prolonged. Established less than six years ago, Ping An Good Doctor has grown at a rapid pace. In April 2015, the “Ping An Good Doctor App” was officially launched, and on May 4, 2018, the company listed on the Hong Kong Stock Exchange under the stock code 1833.HK, earning the title of the world’s first healthcare‑tech IPO. Yet this rapid expansion has been accompanied by persistent losses: since its inception, the company has posted annual deficits for six consecutive years.

According to Ping An Good Doctor’s past financial reports, its net losses from 2015 to 2020 were RMB 324 million, RMB 758 million, RMB 1.002 billion, RMB 912 million, RMB 747 million, and RMB 948 million, respectively. Over the past six years, Ping An Good Doctor has accumulated total losses of approximately RMB 4.7 billion.

“We hope to achieve breakeven by 2021,” former CEO Wang Tao of Ping An Good Doctor said at the 2019 earnings conference. However, as things stand, meeting this target remains under significant pressure.

Notably, Ping An Good Doctor’s online healthcare business posted rapid revenue growth, generating RMB 1.566 billion in 2020, up 82.4% year over year. This expansion was primarily driven by the strong performance of membership‑based offerings—such as “Medical Care 360” and “Ping An Good Doctor Private Doctor”—as well as ancillary services like electronic prescription‑driven medication purchases that accompany its online consultation services.

As of December 31, 2020, Ping An Good Doctor had 372.8 million registered users, an increase of 57.6 million from the end of 2019, representing a growth rate of 18.3%. In December 2020, monthly active users reached 72.6 million, up 8.5% year over year. The average daily consultation volume in 2020 totaled 903,000, a year-on-year increase of 23.9%, with a compound annual growth rate of 90.5% over the past six years.

Executive reshuffles spark personnel turmoil; the app was renamed after a trademark defeat. With persistent annual losses on one hand and frequent leadership changes on the other, Ping An Good Doctor also faced significant personnel upheaval in 2020. In May last year, the company’s board of directors removed Wang Tao from his roles as chairman of the board, executive director, and chief executive officer, appointing Fang Weihao as an executive director, interim chairman of the board, and chief executive officer for a three-year term. At the same time, other senior executives—including the company secretary, chief operating officer, chief product officer, and chief technology officer—who had previously worked alongside Wang Tao, also departed one after another.

In addition, Ping An Good Doctor has concurrently relieved Lin Yuan of his duties as Co‑Company Secretary; thereafter, Chen Chun has become the company’s sole Company Secretary.

In its announcement, Ping An Good Doctor stated that the reason for the dismissal was that Wang Tao’s performance of his managerial duties failed to meet the Board’s expectations. The company also noted that it maintains a robust corporate governance framework and a well‑established decision‑making mechanism for operations and management. Accordingly, this change in senior management is not expected to affect the company’s normal business operations or management.

Public records show that in 2013, Wang Tao joined Ping An Group. From March 2014 to June 2016, he served as Chairman and Chief Executive Officer of Ping An Health Insurance Co., Ltd., laying the groundwork for internet‑based mobile healthcare. In August 2014, leading a team of internet‑savvy professionals, Wang Tao founded Ping An Good Doctor Internet Co., Ltd., assuming the roles of Chairman and CEO, and within one year successfully developed “Ping An Good Doctor,” China’s largest mobile healthcare app.

Notably, on January 27 this year, Ping An Good Doctor officially announced that the “Ping An Good Doctor” app has been renamed “Ping An Health.” The company stated that this rebranding is a direct reflection of its strategic upgrade.

Previously, Ping An Good Doctor was involved in a nearly three-year trademark infringement dispute with the Good Doctor Pharmaceutical Group and lost the case. On April 24, 2018, Good Doctor Pharmaceutical issued a statement asserting that “Ping An Good Doctor” had, without authorization, unlawfully used the well-known “Good Doctor” trademark and demanded that the other party cease its infringing activities.

In June 2020, the Beijing Higher People’s Court issued a final judgment in accordance with the law, declaring invalid seven “Ping An Good Doctor” series trademarks that China Ping An Insurance (Group) Co., Ltd. had registered in the healthcare and wellness industry.

Kuaishou surged more than 160% on its first day of trading.

On February 5, Kuaishou (01024.HK), known as the “first short-video stock,” officially listed on the Hong Kong Stock Exchange, opening at HK$333 per share—up 193.91% from its IPO price of HK$115. According to its prospectus, from June 2014 to February 2020, Kuaishou completed six rounds of financing, raising a total of over US$4.8 billion. Investors included Tencent Investment, Yunfeng Fund, Baidu, Boyu Capital, Temasek, Sequoia Capital China, Wuyuan Capital, DST Global, and others. Notably, Tencent Investment participated in multiple funding rounds; by the time of Kuaishou’s IPO, it had become the largest institutional shareholder, holding a 21.567% stake.

It is worth noting that Kuaishou did not become a darling of investors from the outset. According to Tianyancha, in April 2012, Kuaishou raised $300,000 in its angel round; in April 2013, it secured $1.3 million in Series A; and in June 2014, it obtained $21.75 million in Series B. Since then, Kuaishou’s fundraising has steadily surged.

According to the prospectus, Kuaishou’s revenue for the first three quarters of 2017–2020 was RMB 8.3 billion, RMB 20.3 billion, RMB 39.1 billion, and RMB 40.7 billion, respectively. In terms of revenue sources, Kuaishou’s business is primarily divided into live streaming, online marketing services, and other businesses (including e‑commerce). Specifically, live streaming accounted for 95.3%, 91.7%, 80.4%, and 62.2% of total revenue in the first three quarters of 2017–2020, respectively; online marketing services contributed 4.7%, 8.2%, 19.0%, and 32.8% during the same period; and other businesses (including e‑commerce) represented 0%, 0.1%, 0.6%, and 5.0% of revenue, respectively.

It is clear that Kuaishou is moving away from its previous business model, which relied heavily on monetizing live streaming, and gradually shifting toward online marketing and e‑commerce. According to a report by iResearch, China’s mobile advertising market has been growing rapidly in recent years, with its size projected to reach RMB 1.7 trillion by 2025. Meanwhile, short videos and live streaming have increasingly become popular mobile advertising channels, accounting for 15.0% of the mobile advertising market in 2019 and expected to rise to 27.3% by 2025.

According to the prospectus, prior to the IPO, Kuaishou’s co‑founders and executives—Chairman and CEO Su Hua, Chief Product Officer Cheng Yixiao, Yin Xin, Yang Yuanxi, and others—collectively held 25.093% of the company’s shares. Following the IPO, Su Hua and Cheng Yixiao hold 484 million and 384 million shares, respectively, representing approximately 11.79% and 9.36% of the total issued share capital. Based on today’s closing price, their respective net worths stand at HK$145.2 billion (about RMB 121.4 billion) and HK$115.2 billion (about RMB 96.4 billion).

In addition, Kuaishou employees are also on the path to financial freedom. According to the prospectus, as of the latest practicable date, the company’s employee stock‑ownership plan included 626 million share options held by employees, including executives, allocated to 7,020 individuals—averaging 89,000 shares per person. Of these, 363 million share options have already been exercised, representing 8.89% of the company’s total share capital. Excluding executives, as of the same date, 7,015 regular employees were granted a total of 423.6 million share options, with 257 million still unexercised, benefiting 6,947 employees.

Based on the aforementioned data, each ordinary Kuaishou employee holds an average of 60,400 shares. At today’s closing price of HK$300 per share, the average employee’s net worth amounts to HK$18.12 million (approximately RMB 15.16 million). Public records show that Kuaishou was founded in 2011, originally under the name “GIF Kuaishou,” a GIF‑creation tool. By the end of 2012, GIF Kuaishou had pivoted from a utility‑focused app to a short‑video community platform.

Taxation TAXATATION

Announcement of the Ministry of Finance, the General Administration of Customs, and the State Taxation Administration on Adding Collection Methods for Duty-Free Purchases by Outbound Travelers in Hainan

To support the development of the Hainan Free Trade Port, accelerate the building of an international tourism and consumption center, and further facilitate shopping for travelers, the following announcement is hereby issued regarding matters related to the pickup of duty-free goods by outbound travelers:

I. When off-island travelers purchase duty‑free goods at off‑island duty‑free shops (including approved online sales channels) using valid identification and proof of departure, they may opt for mail delivery in addition to picking up their purchases at designated areas at airports, railway stations, or ports. If choosing mail delivery, the consignee, payer, and purchaser must be the traveler themselves, and the delivery address must be located outside Hainan Province. Off‑island duty‑free stores shall verify that the traveler meets the aforementioned requirements and has actually departed the island before shipping the purchased duty‑free items in a single shipment.

II. Before departing the island, residents may choose to collect their duty‑free purchases upon return. Upon returning to the island, they must present valid identification and provide proof of their actual departure itinerary. Duty‑free shops shall verify that the collector’s identity and departure itinerary meet the required criteria before releasing the duty‑free goods.

Residents of the island include Chinese citizens holding a Hainan Province ID card, a Hainan Province residence permit, or a social security card, as well as foreign nationals who work and live in Hainan Province and hold a residence permit.

Relevant departments of Hainan Province shall provide customs and tax authorities with information pertaining to the verification of on‑island resident qualifications, outbound passenger travel, ticket purchases, and other related matters, as well as the necessary network connectivity.

III. The specific regulatory requirements for delivery by mail and for collection of goods upon return to the island shall be promulgated separately by the General Administration of Customs.

IV. This Announcement shall take effect from the date of its promulgation. The remaining provisions of the “Announcement of the Ministry of Finance, the General Administration of Customs, and the State Taxation Administration on the Duty-Free Shopping Policy for Outbound Travelers to Hainan” (Ministry of Finance, General Administration of Customs, and State Taxation Administration Announcement No. 33 of 2020) shall remain in force.

Xiamen: Big Data “Safeguards” Major Enterprises

The Xiamen Municipal Tax Service of the State Taxation Administration has fully tapped the latent value of big‑enterprise data, providing robust support for their growth. Recently, the bureau was recognized by the State Taxation Administration as a “Provincial Demonstration Base for Big‑Enterprise Tax Data Management.”

The bureau has directly participated in the development of corporate financial internal control platforms and, in collaboration with Fila Sports Co., Ltd., jointly developed the “Fila Sports Financial and Tax Risk Prevention Information System.” This system helps enterprises proactively identify and mitigate tax risks, further fostering mutual trust between tax authorities and businesses while reducing costs for both parties.

The system officially went live on January 3, 2020. Leveraging three core modules—invoice issuance, tax filing, and tax‑related risk management—it integrates business data, financial data, invoicing data, and filing data, ensuring end-to-end traceability and achieving seamless integration of financial and tax information. After more than a year of operational deployment, the system has delivered tangible results: automated integration of invoicing data, automatic splitting and merging, and batch issuance have significantly boosted invoicing efficiency; the tax filing module automatically generates tax‑type‑specific filing tasks, helping to prevent underreporting and omissions; and the tax‑related risk management module conducts self‑initiated risk assessments, issues early warnings, and refines internal controls, effectively mitigating tax‑related risks.

Efficient services have helped large enterprises open up, and the “tax‑enterprise co‑governance” model is enabling them to achieve even stronger growth. When the Siming District Taxation Bureau of Xiamen City signed a Tax Service and Tax Compliance Agreement with Xiamen Hengxing Group, it leveraged the group’s tax data to conduct a detailed analysis of potential tax risks in its asset‑restructuring report, offering constructive recommendations from a tax perspective and providing a comprehensive tax‑compliance guide for the restructuring process. With the tax authorities’ support, the restructuring of Hengxing Group’s subsidiaries was successfully completed, marking an important step forward in the development of the cultural‑tourism industry.

The vitality of tax data lies in its application. The Xiamen Municipal Tax Service Bureau has continuously expanded the scope of data utilization, effectively enhancing the value of its data. In 2020, the bureau collected enterprise procurement and sales needs through multiple channels, compiling a “one‑to‑one” supply‑demand roster that matched 70 large enterprises with 292 suppliers, resulting in transactions totaling RMB 134 million. At the same time, by leveraging tax‑related big data, the bureau provided tailored services to businesses, earning high praise from major enterprises.

Beijing: Releases the “Memorandum on Reforming and Optimizing the Capital’s Tax-Related Business Environment”

The Beijing Municipal Tax Service has released the latest 2020 edition of the “Memorandum on Reforming and Optimizing the Capital’s Tax‑Related Business Environment” (hereinafter referred to as the “Memorandum”). This marks the third consecutive year that the Beijing Municipal Tax Service has issued such a memorandum. Building on the five World Bank Doing Business assessment dimensions—“Starting a Business,” “Getting a Permit,” “Getting Credit,” “Enforcing Contracts,” and “Resolving Insolvency”—the Memorandum also incorporates, where appropriate, tax‑related indicators from China’s business environment evaluation framework. It systematically reviews the achievements and key highlights of Beijing’s efforts to optimize its tax‑related business environment in 2020, while providing a concise summary and retrospective overview of major milestones in this area over the three-year period from 2018 to 2020.

2020 marked the final year of the “Action Plan of the Beijing Municipal Tax Service of the State Taxation Administration for Further Optimizing the Tax‑Related Business Environment (2018–2020).” Amid the severe challenges posed by the pandemic, the Beijing Municipal Tax Service leveraged “non‑contact” tax services as a key pillar, vigorously expanding online tax‑handling capabilities and enabling online processing for 313 tax‑related matters. It also refined its invoice service platform and management approaches, implementing tiered and categorized administration, and, in collaboration with twelve departments, introduced the “Several Measures to Promote Reform on Facilitating Tax and Fee Payments and Optimizing the Tax‑Related Business Environment,” thereby shortening tax‑processing times and launching integrated filing to reduce the number of tax submissions. Meanwhile, it ensured the thorough and meticulous implementation of tax‑reduction and fee‑cutting policies, streamlined the application process for VAT credit refunds, and alleviated financial pressures on market entities—particularly small and micro enterprises—thereby supporting the resumption of production and business operations.

At every stage of the corporate lifecycle, the Beijing Municipal Tax Service has introduced a series of optimization measures, including online and instant processing for invoice applications during business establishment, enhanced bank‑tax collaboration, intelligent tax assessment for real estate transactions, and streamlined procedures for bankruptcy proceedings, thereby fostering a favorable environment for enterprise development. In addition, Beijing has vigorously advanced smart taxation, leveraging new technologies such as blockchain, artificial intelligence, and big data to roll out blockchain‑based electronic standard invoices, optimize the online “blockchain + real estate registration” process, establish a tax‑and‑economy big data research platform, and launch the “Jing Xiaoni” intelligent consultation service, thus strengthening interdepartmental business coordination and data‑sharing capabilities.

Shanghai: Focusing on Industry–Education Integration with Targeted Policies

Industry–education integration refers to the deep collaboration between industry and education, closely aligning industrial needs with academic curricula, strengthening school–enterprise partnerships, and establishing a new educational model that integrates talent development, scientific research, and technology services. In Shanghai, one of the first cities nationwide to pilot the development of industry–education‑integrated urban areas, tax authorities have actively implemented tax incentives to support such integration, fostering in-depth synergy between industry and education and nurturing skilled professionals in key sectors and industries, thereby driving industrial innovation and high‑quality economic growth.

According to tax policy, effective January 1, 2019, pilot enterprises included in the scope of fostering and developing industry–education integration enterprises may, for investments made in establishing vocational education that meet the prescribed criteria, offset 30% of their annual payable education surcharge and local education surcharge. For pilot enterprises that are part of a corporate group, any subordinate member unit that makes actual contributions to vocational education is also eligible, under the relevant regulations, to offset its education surcharge and local education surcharge. According to statistics from the Shanghai Municipal Tax Authority, by the end of 2020, pilot enterprises in Shanghai had benefited from nearly RMB 100 million in offsets of education surcharge and local education surcharge on their educational investment expenditures.

According to the head of the Social Security and Non-Tax Revenue Division of the Shanghai Municipal Tax Service of the State Taxation Administration, pilot enterprises in the industry–education integration program are concentrated in key sectors such as strategic emerging industries, advanced manufacturing, modern services, and cultural‑creative industries. The first batch of 32 pilot enterprises in Shanghai includes several industry leaders, including the Lingang Group and satellite navigation technology offices, demonstrating a high degree of enterprise concentration and a strong industrial demonstration effect.

Litigation & Arbitration

Several Provisions of the Supreme People’s Court on Providing Online Filing Services for Parties in Cross-Border Litigation
In order to ensure that domestic and foreign parties enjoy equally convenient and efficient case filing services, this Regulation is formulated in accordance with the Civil Procedure Law of the People’s Republic of China, the Provisions of the Supreme People’s Court on Several Issues Concerning Case Registration and Filing by the People’s Courts, and other relevant laws and judicial interpretations, taking into account the actual practices of the people’s courts.
Article 1. People’s Courts shall provide cross-border litigation parties with online case filing guidance, inquiry services, video‑based witnessing for the appointment of legal representatives, and registration‑for‑filing services.
For the purposes of these Provisions, “cross-border litigants” include foreign nationals; residents of the Hong Kong Special Administrative Region and the Macao Special Administrative Region (hereinafter referred to as the Hong Kong and Macao SARs) and of the Taiwan region; mainland Chinese citizens whose habitual residence is located abroad or in the Hong Kong, Macao, or Taiwan regions; as well as enterprises and organizations registered and incorporated abroad or in the Hong Kong, Macao, or Taiwan regions.
Article 2 The scope of cases for which online filing services are provided to parties in cross-border litigation includes first-instance civil and commercial actions.
Article 3. People’s Courts shall, through the China Mobile Micro-Court platform, provide online case filing services to parties in cross-border litigation.
Article 4: When a party to a cross-border litigation applies for online case filing for the first time, the court having jurisdiction shall first conduct identity verification. Such verification shall primarily be carried out online through platforms such as the National Immigration Administration’s Entry-Exit Document Identity Authentication Platform; where online verification is not feasible, the court having jurisdiction shall perform manual verification of the party’s identification documents and other identity‑proofing materials, including notarized, authenticated, transmitted, or mailed documents.
The results of identity verification shall be communicated online to the parties in cross-border litigation within three business days.
Article 5. Cross-border litigants shall, for the purpose of identity verification, submit the following materials online to the court having jurisdiction:
(1) Foreign nationals shall submit their passports or other documents proving their identity; enterprises and organizations shall submit documents establishing their legal status, together with evidence demonstrating that the person representing such enterprise or organization is duly authorized to act as its representative in litigation. Such documents must be notarized by a competent authority in the country of origin and authenticated by the Chinese embassy or consulate in that country. If the country of residence of a foreign national, foreign enterprise, or foreign organization does not maintain diplomatic relations with China, the documents may be notarized by a competent authority in that country, then authenticated by the embassy or consulate of a third country that maintains diplomatic relations with China, and finally authenticated by the Chinese embassy or consulate in that third country. Where international treaties or conventions concluded, ratified, or acceded to by China contain specific provisions regarding evidentiary formalities, those provisions shall prevail, except for any clauses to which China has made reservations.
(2) Residents of the Hong Kong and Macao Special Administrative Regions shall submit identity documents issued by the respective regions, such as the Hong Kong or Macao Identity Card, the Residence Permit for Hong Kong and Macao Residents, or the Mainland Travel Permit for Hong Kong and Macao Residents, to establish their identity. Enterprises and organizations shall submit documents proving their legal status, together with documentation demonstrating that the person representing the enterprise or organization in litigation is duly authorized to act as its representative. Such supporting documents must be notarized by a notary public recognized in the mainland and forwarded with an official seal affixed by China Legal Service (Hong Kong) Co., Ltd. or China Legal Service (Macao) Co., Ltd.
(3) Residents of the Taiwan region shall submit identity documents issued in the Taiwan region, such as a Taiwan Resident Identity Card, a Taiwan Resident Residence Permit, or a Mainland Travel Permit for Taiwan Residents, to verify their identity; enterprises and organizations shall submit proof of their legal status and documentation demonstrating that the person representing the enterprise or organization is duly authorized to act as its representative in litigation. Such supporting documents shall be processed through the cross‑strait notarization verification channel.
(4) Chinese nationals residing permanently overseas or in Hong Kong, Macao, or Taiwan shall submit identity documents issued by the public security authorities of the People’s Republic of China, such as a resident identity card, household registration book, or ordinary passport, to verify their identity, and provide supporting documentation—such as a work visa or permanent residence permit—demonstrating that they have legally and continuously resided abroad or in Hong Kong, Macao, or Taiwan for more than one year.
Article 6: Cross-border litigants who have undergone identity verification may, when entrusting a mainland Chinese lawyer to represent them in litigation, apply to the court hearing the case for online video notarization.
Online video notarization is initiated by the judge, with the judge, the cross-border litigant, and the appointed attorney participating simultaneously via video. The cross-border litigant shall use the standard Chinese language of the People’s Republic of China or be accompanied by an interpreter. The judge shall verify that the appointed attorney, the law office to which the attorney belongs, and the act of appointment all reflect the genuine intent of the cross-border litigant. Under the judge’s video notarization, the cross-border litigant and the appointed attorney sign the relevant power-of-attorney documents, eliminating the need for additional notarization, authentication, or transmission procedures. Following the online video notarization, the appointed attorney may, on behalf of the litigant, file a case online, pay court fees online, and perform other related matters.
The online video witnessing process will be automatically saved by the system.
Article 7. Parties to cross-border litigation applying for online case filing shall submit the following materials online:
(1) Complaint;
(2) The parties’ identity documents and the corresponding notarized, authenticated, transmitted, and mailed materials for verification;
(3) Evidentiary materials.
The aforementioned materials shall be submitted in the standard written Chinese of the People’s Republic of China or in a translation certified by a qualified translation agency.
Article 8: The authorization documents for a party in cross-border litigation who appoints an agent to conduct the proceedings shall include:
(1) When representatives of foreign nationals, foreign enterprises, or foreign organizations execute a power of attorney outside the territory of the People’s Republic of China, such document shall be notarized by a competent notary public in the country of origin and authenticated by the Chinese embassy or consulate in that country. If no diplomatic relations exist between the country of origin and the People’s Republic of China, the document may be notarized by a notary public in that country, then authenticated by the embassy or consulate of a third country that maintains diplomatic relations with the People’s Republic of China, and finally authenticated by the Chinese embassy or consulate in that third country. When a power of attorney is executed within the territory of the People’s Republic of China, it shall be signed in the presence of a judge or notarized by a mainland notary public. Where international treaties or conventions concluded, entered into, or to which the People’s Republic of China is a party contain specific provisions regarding certification procedures, such provisions shall prevail, except for those clauses to which the People’s Republic of China has made reservations.
(2) When representatives of residents, enterprises, and organizations of the Hong Kong and Macao Special Administrative Regions sign powers of attorney outside mainland China, such documents shall be notarized by a notary public recognized in mainland China and subsequently authenticated and transmitted by China Legal Service (Hong Kong) Limited or China Legal Service (Macao) Limited. When signing powers of attorney within mainland China, such documents shall be executed in the presence of a judge or notarized by a notary institution in mainland China.
(3) Residents of the Taiwan region who execute powers of attorney outside mainland China shall do so through the cross-strait notarization verification and authentication channels; if such powers of attorney are executed within mainland China, they must be signed in the presence of a judge or notarized by a mainland notary public.
(4) For Chinese nationals residing permanently abroad, any power of attorney submitted or entrusted for submission from overseas must be authenticated by the Chinese embassy or consulate in that country. If no such embassy or consulate exists, authentication shall be provided by the embassy or consulate of a third country that maintains diplomatic relations with China in that country, followed by authentication by the Chinese embassy or consulate in that third country, or by certification from a local patriotic overseas Chinese organization.
Article 9: Upon receipt of an online case filing application, the court having jurisdiction shall take the following actions:
(1) Where the requirements of the law are met, the case shall be promptly registered and filed.
(2) If the complaint and supporting materials do not comply with the requirements, the court shall notify the parties in a single instance to rectify the deficiencies within 15 days. If the parties are unable to complete the rectification within that 15-day period, they may apply to the court having jurisdiction for an extension of the rectification deadline to 30 days. If the parties fail to rectify the deficiencies as required within the prescribed time limit and do not request an extension, the case‑filing materials shall be returned.
(3) If the materials do not comply with legal requirements, they may be returned online, with a clear explanation of the specific reasons.
(4) If it is impossible to determine immediately whether the case complies with legal requirements, a decision on whether to institute proceedings shall be made within seven working days.
Parties to cross-border litigation may access online information on the progress of proceedings and the outcome of case filing.
Article 10: If the case‑filing materials submitted by a party to cross‑border litigation contain any of the following, the court having jurisdiction shall refuse to register and accept the case:
(1) Endangering national sovereignty, territorial integrity, and security;
(2) Undermining national unity, ethnic solidarity, and religious policies;
(3) Violating laws and regulations, disclosing state secrets, or harming national interests;
(4) Insulting or defaming others, engaging in personal attacks, abusive language, or slander, and refusing to make corrections despite being notified by the court;
(5) The matters complained of fall outside the jurisdiction of the people’s courts;
(6) Other lawsuits that do not comply with legal provisions.
Article 11. Other procedural matters shall be handled in accordance with the provisions of the Civil Procedure Law of the People’s Republic of China.
Article 12: These Provisions shall enter into force as of February 3, 2021.

Interpretation of the Supreme People’s Court on the Application of the Security System under the Civil Code of the People’s Republic of China
I. General Provisions
Article 1: Disputes arising from security interests such as mortgages, pledges, liens, and guarantees shall be governed by this Interpretation. Disputes involving security functions in transactions such as retention-of-title sales, financial leasing, and factoring shall be governed by the relevant provisions of this Interpretation.
Article 2: If the parties to a security contract stipulate that the validity of the security contract is independent of the principal contract, or if they agree that the guarantor shall assume liability for the legal consequences arising from the invalidity of the principal contract, such provisions concerning the independence of the security shall be void. Where the principal contract is valid, the invalidity of such provisions on the independence of the security does not affect the validity of the security contract; where the principal contract is invalid, the people’s court shall deem the security contract invalid, unless otherwise provided by law.
Disputes arising from independent guarantees issued by financial institutions shall be governed by the Provisions of the Supreme People’s Court on Several Issues Concerning the Adjudication of Independent Guarantee Dispute Cases.
Article 3: Where the parties have agreed upon specific liability for breach of contract in connection with the guarantee, or where the scope of the guaranteed liability exceeds the liability that the debtor is required to bear, if the guarantor claims to be liable only within the scope of the liability that the debtor is required to bear, the people’s court shall uphold such claim.
If the guarantor’s liability exceeds the scope of liability that the debtor should bear, and the guarantor seeks recourse from the debtor, the people’s court shall uphold the debtor’s claim to be liable only within the scope of its own obligations. Similarly, if the guarantor requests the creditor to return any amount exceeding such scope, the people’s court shall grant such request in accordance with the law.
Article 4: Where any of the following circumstances exists, and a party registers a security interest in another person’s name, and the debtor fails to perform the due debt or any event specified in the agreement between the parties for enforcing the security interest occurs, the people’s court shall, in accordance with law, uphold the creditor’s or its trustee’s claim to priority repayment from such property:
(1) The security interest provided for the bondholders is registered in the name of the bond trustee;
(2) The security interest provided for the entrusted lender is registered in the name of the trustee;
(3) Other circumstances in which the guarantor is aware of a principal‑agent relationship between the creditor and another party.
Article 5: Where a legal person of a government organ provides a guarantee, the people’s court shall deem the guarantee contract invalid, except where such guarantee has been approved by the State Council for the purpose of re-lending funds obtained from foreign governments or international economic organizations.
Where a residents’ committee or a villagers’ committee provides a guarantee, the people’s court shall deem the guarantee contract invalid; however, this does not apply to a villagers’ committee that, in accordance with law, exercises the functions of a village collective economic organization and, pursuant to the deliberation and decision‑making procedures prescribed by the Organic Law of Villagers’ Committees, provides guarantees to third parties.
Article 6: Where a non-profit school, kindergarten, medical institution, elderly care institution, or other organization established for public welfare purposes provides a guarantee, the people’s court shall deem the guarantee contract invalid, unless one of the following circumstances applies:
(1) When acquiring, or leasing under a finance lease, educational facilities, medical and health care facilities, elderly care facilities, and other public-interest facilities, the seller or lessor retains ownership of such facilities as security for the payment of the purchase price or the lease payments.
(2) Establishing a security interest in immovable property, movable property, or property rights other than educational facilities, medical and health facilities, elderly care facilities, and other public-interest facilities.
Where schools, kindergartens, medical institutions, elderly care institutions, and other entities registered as for-profit legal persons provide guarantees, the people’s courts shall not uphold claims by the parties that the guarantee contract is invalid on the ground that such entities lack the requisite qualification to act as guarantors.
Article 7: If the company’s legal representative, in violation of the Company Law’s provisions on the procedures for resolutions regarding external guarantees, exceeds his or her authority and enters into a guarantee contract with the other party on behalf of the company, the people’s court shall handle the matter in accordance with Articles 61 and 504 of the Civil Code, among other relevant provisions.
(1) If the other party acts in good faith, the guarantee contract shall be binding on the company; and if the other party requests the company to assume liability under the guarantee, the people’s court shall uphold such request.
(2) If the other party is not acting in good faith, the guarantee contract shall have no legal effect on the company; if the other party seeks to hold the company liable for damages, the relevant provisions of Article 17 of this Interpretation shall apply by analogy.
Where a legal representative, acting beyond the scope of his or her authority, provides a guarantee resulting in losses to the company, and the company seeks compensation from the legal representative, the people’s court shall uphold such claim.
The “good faith” referred to in paragraph 1 means that the counterparty, at the time of entering into the security agreement, neither knew nor should have known that the legal representative had exceeded his or her authority. If the counterparty can provide evidence demonstrating that it conducted a reasonable review of the company’s resolution, the people’s court shall deem such conduct to constitute good faith, unless the company can prove that the counterparty knew or ought to have known that the resolution was forged or altered.
Article 8: Where any of the following circumstances exists, if a company claims that it should not bear liability for a guarantee on the ground that it failed to adopt a resolution in accordance with the provisions of the Company Law regarding external guarantees, the people’s court shall not uphold such claim:
(1) Financial institutions issue letters of guarantee, or guarantee companies provide guarantees;
(2) The Company provides guarantees for the business operations of its wholly owned subsidiaries;
(3) The guarantee contract shall be signed and approved by shareholders holding, either individually or jointly, more than two-thirds of the voting rights pertaining to the guarantee matter.
When a listed company provides guarantees to third parties, the provisions of subparagraphs (2) and (3) of the preceding paragraph shall not apply.
Article 9: Where a third party enters into a guarantee contract with a listed company based on publicly disclosed information indicating that the guarantee matter has been approved by the board of directors or the shareholders’ meeting, and the third party asserts that the guarantee contract is binding upon the listed company and that the listed company shall assume the guarantee liability, the people’s court shall uphold such claim.
If a counterparty enters into a guarantee contract with a listed company without relying on the information publicly disclosed by the listed company indicating that the guarantee matter has been approved by the board of directors or the shareholders’ meeting, and the listed company contends that the guarantee contract is not binding upon it and that it bears no guarantee liability or indemnity obligation, the people’s court shall uphold such claim.
The provisions of the preceding two paragraphs shall apply to guarantee contracts entered into by a third party with a listed company’s publicly disclosed controlling subsidiary, or with a company whose shares are traded on other nationwide securities trading venues approved by the State Council.
Article 10: Where a single‑member limited liability company provides a guarantee for its shareholder, and the company seeks to avoid liability on the ground that it has violated the Company Law’s provisions governing the procedures for resolutions on external guarantees, the people’s court shall not uphold such a claim. If, as a result of assuming the guarantee liability, the company is unable to pay other debts, and the shareholder who provided the guarantee cannot prove that the company’s assets are separate from his or her personal assets, the people’s court shall support the request of other creditors that the shareholder bear joint and several liability.
Article 11: If a company’s branch, without a resolution of the shareholders’ meeting or the board of directors, provides a guarantee in its own name to a third party, the people’s court shall not support the third party’s claim that the company or its branch assume liability for such guarantee, unless the third party neither knew nor should have known that the branch had provided the guarantee without following the company’s prescribed decision-making procedures.
If a branch of a financial institution issues a guarantee within the scope of business specified in its business license, or with authorization from its superior institution duly empowered to engage in guarantee activities, and the financial institution or its branch seeks to avoid liability on the ground that such issuance violates the Company Law’s provisions governing the procedures for corporate resolutions on external guarantees, the people’s court shall not uphold such claim. However, if a branch of a financial institution provides a guarantee other than a formal guarantee without the institution’s authorization, and the financial institution or its branch asserts that it should not bear liability, the people’s court shall support such assertion—unless the counterparty neither knew nor ought to have known that the branch had provided the external guarantee without the institution’s authorization.
If a branch of a guarantee company provides guarantees to third parties without the authorization of the guarantee company, and the guarantee company or its branch seeks to be exempted from liability, the people’s court shall uphold such claim, unless the counterparty neither knew nor should have known that the branch’s external guarantees were made without the guarantee company’s authorization.
Where a branch of a company provides a guarantee to a third party, and the third party is not acting in good faith, any claim for compensation against the company shall be handled in accordance with the relevant provisions of Article 17 of this Interpretation.
Article 12: Where the legal representative, in accordance with Article 552 of the Civil Code, joins a debt in the name of the company, the people’s court, when determining the validity of such act, may apply by analogy the relevant provisions of this Interpretation concerning corporate guarantees provided for others.
Article 13: Where a single obligation is secured by two or more third parties, and the guarantors have agreed among themselves on mutual recourse and the allocation of shares, a guarantor who has performed the guarantee obligation may request the other guarantors to share the liability in accordance with such agreement; if the guarantors have agreed to assume joint and several liability, or have agreed to mutual recourse but have not specified the allocation of shares, each guarantor shall bear, in proportion to its share, that portion of the obligation which it cannot recover from the debtor.
Where a single obligation is secured by two or more third parties, and the guarantors have neither agreed among themselves on the right of recourse nor stipulated joint and several liability, but each guarantor has nonetheless signed, affixed a seal, or placed a fingerprint on the same contract, a guarantor who has performed its guarantee obligation may request that the other guarantors share, on a proportional basis, the portion of the obligation that remains uncollectible from the debtor; such a claim shall be upheld by the people’s court.
Except in the circumstances specified in the preceding two paragraphs, a guarantor who has assumed liability for guarantee shall not be entitled to seek contribution from other guarantors for the portion that cannot be recovered from the debtor; such a claim shall not be upheld by the people’s court.
Article 14: Where a single obligation is secured by two or more third parties, and a guarantor acquires the creditor’s rights, the people’s court shall deem such act to constitute the assumption of guarantee liability. If the guarantor who has acquired the creditor’s rights brings a claim as a creditor against other guarantors for the assumption of their respective guarantee liabilities, the people’s court shall not grant such claim; however, if that guarantor seeks apportionment of the corresponding share from the other guarantors, such claim shall be handled in accordance with the provisions of Article 13 of these Interpretations.
Article 15. The maximum amount of the secured claim under a maximum‑amount guarantee refers to the total amount of all claims, including the principal claim and its interest, default penalties, damages, expenses for the safekeeping of the secured property, and costs incurred in enforcing the claim or exercising the security interest, unless otherwise agreed by the parties.
Where the registered maximum amount of the secured claim differs from the maximum amount agreed upon by the parties, the people’s court shall determine the scope of the creditor’s priority right to repayment based on the registered maximum amount.
Article 16: Where the parties to the principal contract agree to repay the old debt by means of a new loan, the people’s court shall not support the creditor’s request that the guarantor of the old debt assume guarantee liability; however, if the creditor requests that the guarantor of the new loan assume guarantee liability, such request shall be handled in accordance with the following circumstances:
(1) Where the guarantors for the new loan and the old loan are the same, the people’s court shall uphold such claim.
(2) Where the guarantors for the new loan and the old loan are different, or where the old loan was unsecured while the new loan is secured, the people’s court shall not uphold such a claim, unless the creditor can prove that, at the time the guarantor of the new loan provided the guarantee, the guarantor knew or ought to have known that the new loan was being used to repay the old loan.
Where the parties to the principal contract agree to repay the old loan with a new loan, and the original collateral provider, while the registration of the prior security interest has not yet been cancelled, consents to continue providing security for the new loan, but subsequently establishes another security interest in the same collateral in favor of other creditors prior to the execution of the new loan agreement, the people’s court shall not uphold the claim by such other creditors that their security interest has priority over the creditor’s claim under the new loan.
Article 17: Where the principal contract is valid but the guarantee contract provided by a third party is invalid, the people’s court shall determine the guarantor’s liability for damages by distinguishing among different circumstances.
(1) Where both the creditor and the guarantor are at fault, the guarantor’s liability for damages shall not exceed one-half of the portion of the debt that the debtor is unable to repay.
(2) If the guarantor is at fault and the creditor is not, the guarantor shall bear liability for compensation to the extent that the debtor is unable to satisfy the debt.
(3) If the creditor is at fault but the guarantor is not, the guarantor shall not be liable for damages.
If the principal contract is invalid, rendering the guarantee contract provided by a third party likewise invalid, and the guarantor is not at fault, the guarantor shall not bear liability for damages; if the guarantor is at fault, the amount of damages it is liable for shall not exceed one-third of the portion of the debt that the debtor is unable to repay.
Article 18: Where a guarantor has assumed liability for guarantee or indemnity, the people’s court shall support the guarantor’s right of recourse against the debtor to the extent of the liability it has borne.
Where a single claim is secured both by property provided by the debtor and by a guarantee offered by a third party, a third party who has assumed liability for the security or for damages shall be entitled to enforce the creditor’s security interest against the debtor, and the people’s court shall uphold such claim.
Article 19: Where a guarantee contract is invalid, if the guarantor who has assumed liability for compensation requests the counter‑guarantor to assume guarantee liability within the scope of such compensation in accordance with the terms of the counter‑guarantee contract, the people’s court shall uphold such request.
If the counter‑guarantee contract is invalid, it shall be handled in accordance with the relevant provisions of Article 17 of this Interpretation. Where a party seeks to invalidate the counter‑guarantee contract solely on the ground that the underlying guarantee contract is invalid, the people’s court shall not uphold such claim.
Article 20: When hearing disputes over security interests in property provided by a third party, the people’s courts may apply the provisions of the Civil Code concerning guarantee contracts, including Article 695, paragraph 1; Article 696, paragraph 1; Article 697, paragraph 2; Article 699; Article 700; Article 701; and Article 702.
Article 21: Where the principal contract or the security contract contains an arbitration clause, the people’s court shall have no jurisdiction over disputes between the parties to such contract that are governed by the said arbitration clause.
Where a creditor brings suit against both the debtor and the guarantor, the competent court shall be determined in accordance with the principal contract.
Where a creditor may, in accordance with the law, bring a separate action against the guarantor and sue only the guarantor, the competent court shall be determined pursuant to the guarantee contract.
Article 22: After a people’s court accepts a debtor’s bankruptcy case, if a creditor requests the guarantor to assume guarantee liability and the guarantor claims that interest on the guaranteed debt shall cease accruing from the date the people’s court accepts the bankruptcy application, the people’s court shall uphold the guarantor’s claim.
Article 23: Where a people’s court accepts a bankruptcy case involving a debtor, and a creditor, having filed a claim in the bankruptcy proceedings, subsequently brings an action before the same people’s court seeking to hold a guarantor liable for the guarantee, the people’s court shall, in accordance with the law, grant such claim.
After the guarantor has satisfied the creditor’s entire claim, it may step into the creditor’s shoes and receive payment in the bankruptcy proceedings. However, until the creditor’s claim has been fully satisfied, the guarantor may not substitute for the creditor in obtaining payment in the bankruptcy process; provided that, to the extent of its guarantee liability, the guarantor is entitled to seek reimbursement from the creditor for any amount by which the total proceeds received by the creditor—whether through bankruptcy distribution or by enforcing the secured claim—exceeds the creditor’s outstanding claim.
Where a creditor, having not been fully satisfied in the debtor’s bankruptcy proceedings, seeks to hold the guarantor liable for the remaining obligation, the people’s court shall grant such request. However, if, after assuming its guarantee liability, the guarantor seeks recourse against the debtor following the completion of the execution of a settlement agreement or a reorganization plan, the people’s court shall reject such claim.
Article 24: If a creditor, knowing or reasonably ought to have known of the debtor’s bankruptcy, neither files a claim nor notifies the guarantor, thereby preventing the guarantor from exercising its right of subrogation in advance, the guarantor shall be relieved of its guarantee liability to the extent that it could have been satisfied in the bankruptcy proceedings. However, this exemption shall not apply where the guarantor fails to exercise its right of subrogation due to its own fault.
II. Regarding the Guarantee Contract
Article 25: Where the parties to a guarantee contract stipulate that the guarantor shall assume liability only when the debtor is unable to perform the obligation or lacks the ability to repay the debt, or include similar provisions conveying the intent that the debtor should first bear responsibility, the people’s court shall deem such arrangement to constitute a general guarantee.
Where the parties to a guarantee contract stipulate that the guarantor shall assume liability upon the debtor’s failure to perform or non‑repayment of the debt, or otherwise unconditionally undertake such liability—without any indication that the debtor must first bear responsibility—the people’s court shall deem such arrangement to constitute a joint and several guarantee.
Article 26: In cases of general guarantee, if the creditor brings a lawsuit against the debtor as the defendant, the people’s court shall accept the case. If the creditor has not brought a lawsuit or applied for arbitration concerning the principal contract dispute, but instead sues only the general guarantor, the people’s court shall dismiss the lawsuit.
In the case of a general guarantee, if the creditor brings suit against both the debtor and the guarantor, the people’s court may accept the case. However, when rendering its judgment, except in the circumstances specified in the proviso to Article 687, Paragraph 2 of the Civil Code, the court shall expressly state in the operative part of the judgment that the guarantor shall be liable only for the portion of the debt that remains unpaid after the debtor’s assets have been subject to lawful compulsory enforcement.
If the creditor has not applied for property preservation against the debtor’s assets, or if the preserved assets of the debtor are sufficient to satisfy the debt, the people’s court shall not grant the creditor’s application to preserve the assets of a general guarantor.
Article 27: Where, following the issuance of a notarized debt instrument endowed with enforceability against the debtor, the creditor under a general guarantee applies to the people’s court for compulsory enforcement within the guarantee period, and the guarantor claims that it should not bear guarantee liability on the ground that the creditor failed to institute litigation or apply for arbitration against the debtor within the guarantee period, the people’s court shall reject such claim.
Article 28: In the case of a general guarantee, where the creditor, pursuant to an effective legal document, lawfully applies for compulsory enforcement against the debtor’s property, the commencement of the limitation period for the guaranteed debt shall be determined in accordance with the following rules:
(1) Where the people’s court has issued a ruling terminating the current enforcement proceedings, or has issued a ruling terminating enforcement pursuant to Article 257, Paragraphs 3 and 5 of the Civil Procedure Law, the period shall commence from the date the ruling is served on the creditor.
(2) If the people’s court fails to issue the ruling referred to in the preceding paragraph within one year from the date of receipt of the application for enforcement, the period shall be calculated from the date one year has elapsed since the court received such application, unless the guarantor can provide evidence demonstrating that the debtor still possesses assets that are subject to enforcement.
If, during the guarantee period, the creditor of a general guarantee brings a lawsuit or applies for arbitration against the debtor, and the creditor provides evidence demonstrating the existence of a circumstance falling under the proviso of Article 687, Paragraph 2 of the Civil Code, the statute of limitations for the guaranteed obligation shall commence from the date on which the creditor knew or ought to have known of such circumstance.
Article 29: Where there are two or more guarantors for the same debt, if the creditor claims to have exercised its rights against the other guarantors within the guarantee period on the ground that it has already lawfully exercised its rights against some of the guarantors during that period, the people’s court shall not uphold such claim.
Where there are two or more guarantors for the same obligation, the guarantors have a right of recourse against one another. If the creditor fails to exercise its rights against some of the guarantors within the guarantee period in accordance with the law, thereby causing the other guarantors to lose their right of recourse upon assuming their guarantee liabilities, the people’s court shall uphold the other guarantors’ claim to be relieved of their guarantee liability to the extent that they are unable to seek recourse.
Article 30: Where a contract of maximum‑amount guarantee contains provisions regarding the method for calculating the guarantee period and the commencement thereof, such provisions shall prevail.
If a contract of maximum‑amount guarantee does not specify, or specifies unclearly, the method for calculating the guarantee period and its commencement date, and all maturity dates of the secured claims have already passed, the guarantee period shall commence on the date when the claims are determined. If the maturity dates of the secured claims have not yet passed, the guarantee period shall commence on the date when the maturity date of the last‑due claim expires.
The date on which the creditor’s right is determined, as referred to in the preceding paragraph, shall be determined in accordance with Article 423 of the Civil Code.
Article 31: If, during the guarantee period, a creditor in a general guarantee brings a lawsuit or applies for arbitration against the debtor and subsequently withdraws such lawsuit or arbitration application, and fails to institute another lawsuit or apply for arbitration before the expiration of the guarantee period, the people’s court shall uphold the guarantor’s claim that it is no longer liable under the guarantee.
Where, during the guarantee period, a creditor who has assumed joint and several liability brings an action or applies for arbitration against the guarantor and subsequently withdraws the lawsuit or the arbitration application, and a copy of the complaint or the arbitration request has already been served on the guarantor, the people’s court shall deem that the creditor has, within the guarantee period, exercised its rights against the guarantor.
Article 32: Where a guarantee contract stipulates that the guarantor shall remain liable until the principal debt and interest have been fully repaid, or contains similar provisions, such terms shall be deemed ambiguous; the guarantee period shall be six months from the date on which the term for performance of the principal debt expires.
Article 33: Where the guarantee contract is invalid and the creditor fails to exercise its rights within the agreed or statutory guarantee period in accordance with the law, the people’s court shall uphold the guarantor’s claim of not bearing liability for compensation.
Article 34: When hearing disputes over guarantee contracts, the people’s courts shall ascertain as essential facts of the case whether the guarantee period has expired and whether the creditor has duly exercised its rights within the guarantee period.
If the creditor fails to exercise its rights within the guarantee period in accordance with the law, the guarantor’s liability shall be extinguished. After such liability has been extinguished, if the creditor serves written notice on the guarantor demanding that it assume its guarantee obligations, and the guarantor signs, seals, or affixes a fingerprint to the notice, the people’s court shall not support the creditor’s request that the guarantor continue to bear guarantee liability, unless the creditor can provide evidence demonstrating that a new guarantee contract has been established.
Article 35: If a guarantor, knowing or ought to have known that the statute of limitations for the principal claim has expired, nevertheless provides a guarantee or assumes guarantee liability, and subsequently refuses to assume such liability or seeks restitution on the ground that the statute of limitations has expired, the people’s court shall not uphold such defense. Likewise, if, after assuming guarantee liability, the guarantor seeks recourse against the debtor, the people’s court shall not support such claim, unless the debtor has waived the defense of the statute of limitations.
Article 36: Where a third party provides the creditor with documents containing commitments such as deficiency‑payment guarantees or liquidity support, thereby serving as credit‑enhancing measures, and such documents manifest an intention to provide a guarantee, if the creditor seeks to hold the third party liable under the guarantee, the people’s court shall handle the matter in accordance with the relevant provisions governing guarantees.
Where a third party provides the creditor with a commitment document that expresses an intention to join the debt or to assume liability jointly with the debtor, the people’s court shall deem such document to constitute a “debt assumption” as stipulated in Article 552 of the Civil Code.
Where, in the first two paragraphs, it is difficult to determine whether a commitment document provided by a third party constitutes a guarantee or an accession to debt, the people’s court shall deem it to be a guarantee.
If the commitment document provided by a third party to the creditor does not fall within the circumstances specified in the preceding three paragraphs, the people’s court shall not support the creditor’s request that the third party assume guarantee liability or joint and several liability; however, this shall not preclude the creditor from invoking the commitment document to require the third party to perform the agreed obligations or to bear the corresponding civil liabilities.
III. On Security Interests
(1) The Validity of Guarantee Contracts and Security Interests
Article 37: Where a party pledges property whose ownership or right of use is unclear or subject to dispute, and such pledge is found upon review to constitute disposition without authority, the people’s court shall handle the matter in accordance with the provisions of Article 311 of the Civil Code.
Where a party pledges property that has been lawfully seized or impounded, and the mortgagee seeks to enforce its mortgage right, the people’s court shall grant such request if, upon review, it is found that the seizure or impoundment has been lifted. If the mortgagor contends that the mortgage contract is invalid on the ground that the property was seized or impounded at the time the mortgage was established, the people’s court shall reject such claim.
Where property subject to lawful supervision is mortgaged, the provisions of the preceding paragraph shall apply.
Article 38: Where the principal claim has not been fully satisfied, if the holder of a security interest seeks to enforce such security interest over the entire secured property, the people’s court shall grant such relief; however, where a lienholder exercises its right of retention, it shall do so in accordance with the provisions of Article 450 of the Civil Code.
Where the secured property has been divided or partially transferred, and the secured creditor seeks to enforce its security right against the divided or transferred portion of the secured property, the people’s court shall grant such relief, unless otherwise provided by law or judicial interpretation.
Article 39: Where the principal claim is divided or partially assigned, and each creditor seeks to enforce its security interest in respect of the portion of the claim to which it is entitled, the people’s court shall grant such relief, unless otherwise provided by law or agreed upon by the parties.
Where the principal debt is divided or partially assigned, and the debtor himself provides a security interest in property, if the creditor requests that such secured property be used to secure the performance of the entire debt, the people’s court shall grant such request. Where a third party has provided a security interest in property and asserts that it shall no longer be liable for a debt that has been assigned without its written consent, the people’s court shall uphold such assertion.
Article 40: If an accessory object arises prior to the lawful establishment of the mortgage, and the mortgagee asserts that the effect of the mortgage extends to such accessory object, the people’s court shall uphold such claim, unless the parties have otherwise agreed.
Where a fixture arises after the mortgage has been lawfully established, the people’s court shall not uphold the mortgagee’s claim that the mortgage extends to such fixture; however, upon enforcement of the mortgage, the fixture may be disposed of concurrently.
Article 41: After a mortgage right has been established in accordance with the law, if the mortgaged property is subject to accession and the accession becomes the property of a third party, the people’s court shall uphold the mortgagee’s claim that the mortgage right extends to any compensation received.
After a mortgage is established in accordance with the law, if the mortgaged property is subject to accession, the mortgagor shall acquire ownership of the accession. If the mortgagee asserts that the mortgage extends to the accession, the people’s court shall uphold such claim; however, to the extent that the accession increases the value of the mortgaged property, the mortgage shall not extend to the increased portion of the value.
After a mortgage has been established in accordance with the law, if the mortgagor and a third party become joint owners of an accessionary item through accession, and the mortgagee seeks to assert that the mortgage extends to the mortgagor’s share in the jointly owned property, the people’s court shall uphold such claim.
The term “accession” as used in this article encompasses accession by adhesion, commingling, and processing.
Article 42: After a mortgage right has been lawfully established, if the mortgaged property is damaged, lost, or subject to expropriation, the people’s court shall support the mortgagee’s request to be paid in priority, in accordance with the original priority of the mortgage right, out of any insurance proceeds, compensation, or indemnification.
If the obligor has already paid insurance proceeds, indemnity, or compensation to the mortgagor, the people’s court shall not support the mortgagee’s request that the obligor pay such proceeds, indemnity, or compensation to the mortgagee; provided, however, that this does not apply where the obligor, upon receiving notice from the mortgagee demanding payment to the mortgagee, nevertheless makes such payment to the mortgagor.
When the mortgagee requests the obligor to pay insurance proceeds, indemnity, or compensation, the people’s court may notify the mortgagor to participate in the litigation as a third party.
Article 43: Where the parties have agreed to prohibit or restrict the transfer of mortgaged property but have failed to register such agreement, and the mortgagor transfers the mortgaged property in breach of that agreement, the people’s court shall not support the mortgagee’s request to declare the transfer contract invalid. If the mortgaged property has already been delivered or registered, and the mortgagee seeks a declaration that the transfer produces no real rights effect, the people’s court shall likewise reject such claim, unless the mortgagee can prove that the transferee was aware of the restriction. However, if the mortgagee requests that the mortgagor bear liability for breach of contract, the people’s court shall grant such relief in accordance with the law.
Where the parties have agreed to prohibit or restrict the transfer of mortgaged property and have duly registered such agreement, and the mortgagor nevertheless transfers the mortgaged property in breach of that agreement, a people’s court shall not uphold the mortgagee’s claim to declare the transfer contract invalid. If the mortgaged property has already been delivered or registered, and the mortgagee contends that the transfer produces no real‑rights effect, the people’s court shall grant such relief, except where the transfer results in the extinction of the mortgage right by virtue of the transferee having discharged the debtor’s obligation.
Article 44: Where, after the expiration of the statute of limitations for the principal claim, the mortgagee seeks to enforce its mortgage right, the people’s court shall not grant such relief. If the mortgagor invokes the expiration of the statute of limitations for the principal claim as a defense and contends that it is not liable under the security interest, the people’s court shall uphold such defense. Prior to the expiration of the statute of limitations for the principal claim, if the creditor has brought suit solely against the debtor but, following a judgment or mediation by the people’s court, fails to apply for compulsory enforcement against the debtor within the period for applying for enforcement prescribed in the Civil Procedure Law, any subsequent assertion by the creditor of its mortgage right against the mortgagor shall likewise be rejected by the people’s court.
After the statute of limitations for the principal claim has expired, if the debtor whose property is subject to a lien or a third party who holds ownership of the pledged property requests the creditor to return the pledged property, the people’s court shall not grant such request. However, if the debtor or the third party requests that the pledged property be auctioned or sold and that the proceeds be used to satisfy the debt, the people’s court shall grant such request.
With respect to the legal consequences of the expiration of the statute of limitations for the principal claim, a pledge of rights that is publicly disclosed by registration shall be governed by the provisions of paragraph 1 by analogy; a pledge of movable property and a pledge of rights whose public disclosure is effected by delivery of the relevant certificate shall be governed by the provisions of paragraph 2 by analogy.
Article 45: Where the parties have agreed that, upon the debtor’s failure to perform a due obligation or upon the occurrence of any event specified in the agreement for exercising the security interest, the holder of the security interest shall be entitled to auction or sell the secured property on its own and to be paid in priority from the proceeds, such agreement shall be valid. If, due to reasons attributable to the guarantor, the holder of the security interest is unable to auction or sell the secured property independently, and the holder seeks compensation from the guarantor for any additional expenses incurred as a result, the people’s court shall uphold such claim.
Where a party, in accordance with the provisions of the Civil Procedure Law concerning “cases for the realization of security interests,” applies for the auction or sale of secured property, and the respondent seeks to have the application dismissed on the ground that the security contract contains an arbitration clause, the people’s court, after review, shall handle the matter as follows, depending on the specific circumstances:
(1) Where the parties have no substantial dispute regarding the security interest and the conditions for enforcing such security have been met, the court shall issue an order authorizing the auction or sale of the secured property.
(2) If the parties have a partial substantive dispute regarding the realization of security rights, the court may rule to permit the auction or sale of the secured property with respect to the undisputed portion, and shall inform the parties that they may apply for arbitration concerning the disputed portion.
(3) If the parties have a substantive dispute regarding the realization of the security interest, the application shall be dismissed, and they shall be informed that they may submit the matter to an arbitration institution for arbitration.
When a creditor exercises its security interest through litigation, the debtor and the guarantor shall be named as joint defendants.
(2) Real Estate Mortgage
Article 46: After an immovable property mortgage contract has come into effect but the mortgage registration procedures have not yet been completed, if the creditor requests the mortgagor to carry out such registration, the people’s court shall grant support.
If the mortgaged property is lost or subject to expropriation for reasons not attributable to the mortgagor, rendering it impossible to register the mortgage, a creditor’s claim that the mortgagor bear liability within the agreed‑upon scope of security shall not be upheld by the people’s court; however, if the mortgagor has already received insurance proceeds, compensation, or other indemnification, and the creditor seeks to hold the mortgagor liable for damages up to the amount received, such claim shall be supported by the people’s court in accordance with the law.
Where the mortgagor transfers the mortgaged property or, for other reasons attributable to the mortgagor, it becomes impossible to register the mortgage, and the creditor seeks to hold the mortgagor liable within the agreed scope of security, the people’s court shall, in accordance with the law, uphold such claim; however, the liability shall not exceed the extent of responsibility that the mortgagor would have borne had the mortgage right been validly established.
Article 47: Where the entries in the real estate registration book regarding the mortgaged property, the scope of the secured claims, and other matters are inconsistent with the provisions of the mortgage contract, the people’s court shall determine such matters—namely, the mortgaged property and the scope of the secured claims—in accordance with the records in the registration book.
Article 48: Where, upon a party’s application for the registration of a mortgage, the failure to effect such registration is attributable to the negligence of the registration authority, and the party seeks compensation from that authority, the people’s court shall, in accordance with the law, uphold such claim.
Article 49: Where a mortgage is established on an unlawful building, the mortgage contract shall be void; provided, however, that this shall not apply if the requisite legal procedures have been duly completed prior to the conclusion of the first-instance court debate. The legal consequences of the invalidity of the mortgage contract shall be governed by the relevant provisions set forth in Article 17 of this Interpretation.
Where a party has lawfully established a mortgage over the right to use construction land, and the mortgagor seeks to invalidate the mortgage contract on the ground that an illegal structure exists on the land, the people’s court shall not uphold such claim.
Article 50: Where a mortgagor mortgages a building situated on allocated construction land, and the parties claim that the mortgage contract is invalid or ineffective on the ground that the right to use such construction land cannot be mortgaged or that the requisite approval procedures have not been completed, the people’s court shall not uphold such claims. Upon lawful enforcement of the mortgage right, the proceeds from the auction or sale of the building shall be applied in priority to the payment of any outstanding land-use right transfer fees.
Where a party mortgages the right to use construction land acquired through allocation, and the mortgagor contends that the mortgage contract is invalid or ineffective on the ground that the requisite approval procedures have not been completed, the people’s court shall not uphold such claim. If the mortgage registration has been duly carried out in accordance with the law, and the mortgagee seeks to enforce its mortgage rights, the people’s court shall grant such enforcement. The proceeds obtained upon lawful realization of the mortgage shall be handled in accordance with the provisions set forth in the preceding paragraph.
Article 51: Where a party mortgages only the right to use land for construction purposes, and the creditor claims that the mortgage extends to existing buildings on the land as well as to the completed portions of buildings under construction, the people’s court shall uphold such claim. However, if the creditor seeks to extend the mortgage to the continuation of construction of buildings under construction or to any newly constructed buildings, the people’s court shall not grant such claim.
Where a party mortgages a building under construction, the scope of the mortgage right is limited to the portion for which mortgage registration has been duly completed. If the party, in accordance with the terms of the security agreement, asserts that the mortgage extends to subsequently constructed portions, newly erected buildings, and structures yet to be built as contemplated in the planning, such claim shall not be upheld by the people’s court.
Where a mortgagor mortgages the right to use construction land, buildings on the land, or buildings under construction to different creditors respectively, the people’s court shall determine the order of repayment in accordance with the chronological order of the mortgage registrations.
Article 52: After the parties have registered a preliminary mortgage, if the holder of the preliminary registration requests priority payment from the mortgaged property, the people’s court shall reject such request if, upon review, any of the following circumstances exist: the initial registration of ownership of the building has not yet been completed; the property subject to the preliminary registration is inconsistent with the property at the time of the initial registration of ownership; or the preliminary mortgage registration has already lapsed, thereby rendering the conditions for registering the mortgage unfulfilled. However, if, upon review, the initial registration of ownership of the building has been completed and no circumstance rendering the preliminary registration invalid exists, the people’s court shall grant the request and deem that the mortgage right was established as of the date of the preliminary registration.
Where the parties have registered a preliminary mortgage and the mortgagor subsequently becomes bankrupt, and upon review the mortgaged property is determined to be part of the bankruptcy estate, if the holder of the preliminary registration asserts a priority right to payment from such property, the people’s court shall grant support within the value of the mortgaged property as of the date the bankruptcy petition was filed. However, this does not apply where, within one year prior to the filing of the bankruptcy petition, the debtor established a preliminary mortgage registration on debts that were unsecured.
(3) Chattel and Rights Security
Article 53: Where the parties to a security contract for movable property and rights provide a general description of the secured property that is sufficient to reasonably identify such property, the people’s court shall deem the security to be validly established.
Article 54: Where, after the conclusion of a pledge contract for movable property, the pledge registration has not been completed, the effectiveness of the pledge right over such movable property shall be governed as follows, depending on the specific circumstances:
(1) If the mortgagor transfers the mortgaged property and the transferee takes possession of it, the people’s court shall not support the mortgagee’s request to enforce its mortgage rights against the transferee, unless the mortgagee can prove that the transferee knew or should have known that a mortgage contract had already been concluded.
(2) If the mortgagor leases the mortgaged property to another party and transfers possession thereof, the exercise of the mortgage right by the mortgagee shall not affect the lease relationship, unless the mortgagee can prove that the lessee knew or ought to have known that a mortgage had been established.
(3) If other creditors of the mortgagor apply to the people’s court for preservation or enforcement against the mortgaged property, and the people’s court has already issued a ruling on property preservation or taken enforcement measures, the people’s court shall not support the mortgagee’s claim to priority repayment from the mortgaged property.
(4) If the mortgagor becomes bankrupt and the mortgagee seeks priority repayment from the mortgaged property, the people’s court shall not grant such claim.
Article 55: Where a creditor, a pledgor, and a supervisor enter into a tripartite agreement, and the pledgor provides security for the performance of the debt by delivering goods whose scope can be determined through a general description of quantity, variety, or other such characteristics, if the parties have evidence demonstrating that the supervisor was entrusted by the creditor to supervise and exercise actual control over such goods, the people’s court shall deem that the pledge right is established as of the date when the supervisor obtains actual control over the goods. If the supervisor, in violation of the agreement, releases the goods to the pledgor or any other party, or if the goods are damaged or lost due to inadequate custody, and the creditor seeks to hold the supervisor liable for breach of contract, the people’s court shall uphold such claim in accordance with the law.
In the circumstances set forth in the preceding paragraph, if a party can prove that the supervisor was entrusted by the pledgor to supervise the goods, or, although entrusted by the creditor, failed to actually perform its supervisory duties, resulting in the goods remaining under the pledgor’s actual control, the people’s court shall deem that the pledge has not been established. The creditor may, pursuant to the provisions of the pledge contract, require the pledgor to bear liability for breach of contract; however, such liability shall not exceed the scope of responsibility that the pledgor would have borne had the pledge been validly established. If the supervisor fails to fulfill its supervisory obligations and the creditor seeks to hold the supervisor liable, the people’s court shall, in accordance with the law, uphold the creditor’s claim.
Article 56: If a purchaser acquires movable property that has already been subject to a security interest in the course of the seller’s ordinary business operations by paying reasonable consideration, the people’s court shall not support the security interest holder’s claim for priority repayment with respect to such property, unless one of the following circumstances applies:
(1) The quantity of goods purchased clearly exceeds that of ordinary purchasers;
(2) Purchasing the seller’s production equipment;
(3) The purpose of concluding a sales contract is to secure the performance of the debtor’s obligations by the seller or a third party.
(4) The purchaser and the seller have a direct or indirect controlling relationship;
(5) Other circumstances where the purchaser should have inquired into the mortgage registration but failed to do so.
The “ordinary course of business” of the seller referred to in the preceding paragraph means that the seller’s business activities fall within the scope of business expressly stated on its business license, and that the seller continuously sells similar goods. The “secured creditor” referred to in the preceding paragraph means a mortgagee who has completed registration, a seller under a sale with retention of title, or a lessor under a financial lease agreement.
Article 57: Where, after a security interest holder has established a floating charge over movable property and completed the registration thereof, it subsequently purchases or leases new movable property under a finance lease, any party that, in order to secure the payment of the purchase price or the rental payments, enters into a security agreement and, within ten days of delivery of such movable property, registers its security interest, thereby asserting that its rights shall have priority over the pre-existing floating charge, shall be afforded judicial support.
(1) The seller who has established a pledge on the movable property or retained ownership thereof;
(2) A creditor who has established a security interest in the movable property to finance the payment of the purchase price;
(3) The lessor who leases the movable property under a finance lease.
Where a purchaser has taken possession of movable property but has not paid the full purchase price, or where a lessee is in possession of the leased object under a finance lease but has not paid all the rental payments, and subsequently establishes a security interest in the same object for the benefit of another, if the holder of the rights listed in the preceding paragraph enters into a security agreement to secure the satisfaction of the purchase‑price claim or the rental‑payment obligation, and registers such security within ten days after delivery of the movable property, the people’s court shall uphold the claim that such right has priority over any security interest established by the purchaser in favor of a third party.
Where multiple purchase-money security interests exist in the same movable property, the people’s court shall determine the order of priority for satisfaction in accordance with the chronological order of registration.
Article 58: Where a bill of exchange is pledged, and the parties have endorsed the instrument with the word “pledge” and affixed their signatures or seals, and the bill has been delivered to the pledgee, the people’s court shall deem that the pledge right is established upon such delivery.
Article 59: Where the depositor or the holder of the warehouse receipt records the word “pledge” on the receipt by endorsement and the custodian has affixed its seal, and the receipt has been delivered to the pledgee, the people’s court shall deem that the pledge right is established upon such delivery. In the case of a warehouse receipt lacking a certificate of rights but which, in accordance with law, may be registered as pledged, the pledge right in respect of that receipt shall be deemed established upon completion of the pledge registration.
Where the pledgor has pledged both a warehouse receipt and the goods stored therein, the order of satisfaction shall be determined according to the chronological priority of the public notices; if such priority cannot be ascertained, satisfaction shall be allocated in proportion to the respective claims.
When the custodian issues multiple warehouse receipts for the same goods, and the pledgor establishes multiple pledges on those receipts, the order of priority for satisfaction shall be determined by the chronological sequence of public notice; if the sequence cannot be ascertained, repayment shall be made in proportion to the respective claim amounts.
Where the circumstances set forth in Paragraphs 2 and 3 exist, and the creditor provides evidence demonstrating that its losses were caused by the joint conduct of the pledgor and the bailee, the people’s court shall uphold the creditor’s claim for joint and several liability for damages against both the pledgor and the bailee.
Article 60: In a documentary credit transaction, if the issuing bank and the applicant for the letter of credit agree to use the bill of lading as security, the people’s court shall handle the matter in accordance with the relevant provisions of the Civil Code concerning pledge rights.
In a documentary credit transaction, where the issuing bank holds the bill of lading pursuant to its agreement with the applicant or in accordance with the customary practices governing documentary credits, and the applicant fails to make payment as agreed to take delivery of the documents, the people’s court shall uphold the issuing bank’s claim of priority lien over the goods covered by the bill of lading. However, the people’s court shall not uphold the issuing bank’s claim of ownership over such goods.
In a documentary credit transaction, the issuing bank, pursuant to its agreement with the applicant or in accordance with the customary practices governing documentary credits, obtains payment by transferring the bill of lading or the goods covered by it. If the applicant seeks the return of any amount exceeding the creditor’s claim, the people’s court shall grant such relief.
The provisions of the preceding three paragraphs shall not preclude a issuing bank that is lawfully in possession of the bill of lading from asserting its rights under the contract of carriage in its capacity as the holder of the bill of lading.
Article 61: Where existing accounts receivable are pledged, and the debtor of the accounts receivable, after conofficeing the authenticity of the receivables to the pledgee, subsequently claims that it bears no liability on the ground that the receivables do not exist or have been extinguished, such claim shall not be upheld by the people’s court.
Where an existing accounts receivable is pledged, and the debtor of the receivable has not conofficeed the authenticity of the receivable, if the pledgee brings suit against the debtor seeking priority payment from the receivable, the people’s court shall grant such relief provided the pledgee can furnish evidence demonstrating that the receivable was genuinely existing at the time the pledge registration was effected. However, if the pledgee fails to prove that the receivable was genuinely existing at the time of registration and seeks priority payment solely on the ground that registration has been completed, the people’s court shall reject the claim.
Where an existing accounts receivable is pledged, and the debtor of the accounts receivable has already performed its obligation to the creditor of the accounts receivable, the people’s court shall not support the pledgee’s request that the debtor perform its obligation; provided, however, that this does not apply if, upon receiving notice from the pledgee demanding performance, the debtor nevertheless proceeds to perform its obligation to the creditor of the accounts receivable.
Where receivables arising from the assignment of project revenue rights in infrastructure and public‑utility projects, claims for the provision of services or labor, or other future receivables are pledged, and the parties have established a designated account for such receivables, if, upon the occurrence of a statutory or contractual event triggering enforcement of the pledge, the pledgee seeks priority payment from the funds held in that designated account, the people’s court shall grant such request. If the funds in the designated account are insufficient to satisfy the debt, or if no designated account has been established, and the pledgee requests valuation, auction, or sale of the project revenue rights or other future receivables, with priority payment from the proceeds, the people’s court shall, in accordance with the law, uphold such request.
Article 62: Where a debtor fails to perform a due obligation, and the creditor, on the basis of the same legal relationship, exercises a right of retention over movable property lawfully in the possession of a third party and claims priority in payment from such retained property, the people’s court shall uphold such claim. If the third party seeks the return of the retained property on the ground that it does not belong to the debtor, the people’s court shall reject such request.
The movable property subject to a lien and the creditor’s claim held by one enterprise do not arise from the same legal relationship. If the debtor seeks the return of the pledged property on the ground that the creditor’s claim did not arise in the course of the enterprise’s ongoing business operations, the people’s court shall uphold such request.
The movable property and the creditor’s rights subject to a lien between enterprises do not constitute the same legal relationship. Where a creditor has taken possession of another party’s property, and that third party requests the return of the pledged property, the people’s court shall grant such request.
IV. On Atypical Security Interests
Article 63: Where a creditor and a guarantor enter into a guarantee contract providing for the establishment of a security interest in property rights that, under laws or administrative regulations, have not yet been expressly permitted to be subject to security, the people’s court shall not uphold the claim that such contract is invalid. Likewise, where the parties have failed to effect lawful registration with the statutorily designated registration authority, the people’s court shall not recognize the existence of real‑rights effects in respect of such security.
Article 64: In a sale with retention of title, the seller is entitled by law to reclaim the subject matter; however, if no agreement can be reached with the buyer, and the parties request that the subject matter be auctioned or sold pursuant to the relevant provisions of the Civil Procedure Law governing cases for the realization of security interests, the people’s court shall grant such permission.
If the seller’s request to reclaim the subject matter of the contract complies with the provisions of Article 642 of the Civil Code, the people’s court shall grant such request. If the buyer asserts, by way of defense or counterclaim, that the subject matter should be auctioned or sold and seeks the return of any remaining proceeds after deducting the unpaid purchase price and necessary expenses, the people’s court shall adjudicate such claim in conjunction with the original matter.
Article 65: In a finance lease contract, if the lessee fails to pay the rent as agreed and, after being urged to do so, still fails to pay within a reasonable period, the lessor’s request that the lessee pay all outstanding rent and be satisfied from the proceeds of the auction or sale of the leased asset shall be upheld by the people’s court. If the parties request, in accordance with the relevant provisions of the Civil Procedure Law concerning “cases for the realization of security interests,” that the rent be paid out of the proceeds from the auction or sale of the leased asset, the people’s court shall grant such request.
If the lessor seeks to terminate the finance lease contract and reclaim the leased asset, and the lessee, by way of a defense or a counterclaim, asserts that the value of the leased asset exceeds the outstanding rent and other fees, the people’s court shall adjudicate both claims together. Where the parties dispute the value of the leased asset, such value shall be determined in accordance with the following rules:
(1) If the finance lease contract contains provisions, such provisions shall prevail.
(2) If the finance lease contract does not specify or the provisions are unclear, the determination shall be made based on the depreciation of the leased asset as agreed upon and the residual value of the leased asset at the expiration of the contract.
(3) If the value still cannot be determined using the methods set forth in the preceding two paragraphs, or if a party contends that the value determined by those methods significantly deviates from the actual value of the leased object, an appraisal shall be commissioned, upon the party’s application, from a qualified institution.
Article 66: Where the same accounts receivable is simultaneously subject to factoring, pledge of accounts receivable, and assignment of claims, and a party seeks to have the priority order determined by reference to the provisions of Article 768 of the Civil Code, the people’s court shall grant such support.
In factoring with recourse, if the factor brings an action against either the accounts‑receivable creditor or the accounts‑receivable debtor, the people’s court shall accept the case; if the factor sues both the accounts‑receivable creditor and the accounts‑receivable debtor, the people’s court may also accept the case.
Where a factoring creditor, upon returning the principal and interest of the factoring financing to the factor or repurchasing the accounts receivable claim, seeks performance of the accounts receivable obligation from the accounts receivable debtor, the people’s court shall uphold such claim.
Article 67: In contracts such as sale with retention of title and financial leasing, the scope and legal effect of “bona fide third parties” whose rights may not be asserted against the seller or lessor unless such rights have been registered shall be determined in accordance with the provisions of Article 54 of this Interpretation.
Article 68: Where the debtor or a third party and the creditor agree to transfer ownership of property formally to the creditor’s name, and, upon the debtor’s failure to perform a due obligation, the creditor is entitled to settle the debt by valuing the property at its market value or by using the proceeds from the auction or sale of such property, the people’s court shall deem such agreement valid. If the parties have completed the publicity procedures for the transfer of property rights, and the debtor fails to perform a due obligation, the creditor’s request to be preferentially repaid from such property in accordance with the relevant provisions of the Civil Code on security interests shall be upheld by the people’s court.
Where a debtor or a third party, in agreement with the creditor, effects a formal transfer of property into the creditor’s name, and the creditor acquires ownership of the property upon the debtor’s failure to perform the due obligation, the people’s court shall deem such agreement invalid; however, this does not affect the validity of the parties’ expression of intent to provide security. If the parties have already completed the publicity required for the change in property rights, and the debtor fails to perform the due obligation, the people’s court shall not support the creditor’s claim to ownership of the property. However, if the creditor seeks, by analogy to the provisions of the Civil Code on security interests, to receive priority payment through valuation of the property or from the proceeds of its auction or sale, the people’s court shall grant such relief. Upon the debtor’s performance of the obligation, the court shall also uphold the debtor’s request either to recover the property or to apply the proceeds of its valuation or auction/sale toward satisfaction of the debt.
Where the debtor and the creditor agree to transfer property into the creditor’s name, with the understanding that, after a specified period, the debtor or a third party designated by the debtor will repurchase the property at the original principal amount plus an agreed-upon premium, and the debtor fails to perform the repurchase obligation upon maturity, resulting in the property vesting in the creditor, the people’s court shall handle the matter in accordance with the provisions of paragraph 2. If the object of the repurchase never existed from the outset, the people’s court shall, pursuant to Article 146, paragraph 2, of the Civil Code, adjudicate the case in light of the actual legal relationship established.
Article 69: Where a shareholder provides security for the performance of a debt by transferring his or her equity interest to the creditor’s name, and the company or its creditor seeks to hold the creditor, as the nominal shareholder, jointly and severally liable on the grounds that the shareholder has failed to fulfill or has not fully fulfilled his or her capital contribution obligations, or has withdrawn his or her contributed capital, the people’s court shall not support such a claim.
Article 70: Where a debtor or a third party establishes a dedicated margin account for the purpose of securing the performance of a debt, and such account is under the actual control of the creditor, or where funds are deposited by the debtor into a margin account established by the creditor, the people’s court shall uphold the creditor’s claim to priority repayment from the funds in that account. If a party contends, on the ground of fluctuations in the funds held in the margin account, that the creditor who exercises actual control over the account is not entitled to priority repayment with respect to those funds, the people’s court shall reject such contention.
Margin sub-accounts established under a bank account shall be handled in accordance with the provisions of the preceding paragraph.
If the security deposit agreed upon by the parties is not established to secure the performance of the obligation, or does not fall within the circumstances set forth in the preceding two paragraphs, the people’s court shall not support the creditor’s claim for priority repayment from such deposit; however, this shall not preclude the parties from asserting their rights in accordance with statutory provisions or as otherwise agreed.
V. Supplementary Provisions
Article 71: This Interpretation shall take effect as of January 1, 2021.

Interpretation of the Supreme People’s Court on Issues Concerning the Application of Law in the Adjudication of Labor Dispute Cases (I)

In order to ensure the proper adjudication of labor dispute cases, this Interpretation is formulated in accordance with the relevant provisions of the Civil Code of the People’s Republic of China, the Labor Law of the People’s Republic of China, the Labor Contract Law of the People’s Republic of China, the Mediation and Arbitration Law on Labor Disputes of the People’s Republic of China, the Civil Procedure Law of the People’s Republic of China, and other applicable laws, and in light of judicial practice.

Article 1: The following disputes arising between laborers and employers shall be deemed labor disputes. Where the parties, dissatisfied with the rulings rendered by labor dispute arbitration institutions, bring suit in accordance with the law, the people’s courts shall accept such cases:

(1) Disputes arising between employees and employers in the course of performing the labor contract;

(2) Disputes arising after a labor relationship has been established between the employee and the employer, despite the absence of a written employment contract.

(3) Disputes between employees and employers concerning whether the employment relationship has been terminated or ended, and whether economic compensation should be paid upon such termination or ending;

(4) Disputes arising after a worker and the employer have terminated or dissolved the employment relationship, including requests by the worker for the employer to return any deposits, security deposits, collateral, or pledged assets collected in connection with the labor contract, as well as disputes concerning the procedures for transferring the worker’s personnel files, social insurance records, and other related matters.

(5) Disputes in which a worker seeks compensation from the employer on the grounds that the employer failed to arrange social insurance procedures for the worker, and that the social insurance administration agency is unable to retroactively process such procedures, thereby preventing the worker from enjoying the corresponding social insurance benefits.

(6) Disputes arising after a worker’s retirement between the worker and the former employer that has not yet participated in the unified social insurance system, concerning the recovery of pension benefits, medical expenses, work‑injury insurance benefits, and other social insurance benefits;

　(7) Disputes arising from a worker’s request for workers’ compensation benefits in accordance with the law due to work-related injury or occupational disease;

(8) Disputes arising from an employee’s request, pursuant to Article 85 of the Labor Contract Law, that the employer pay additional compensation.

(9) Disputes arising from a company’s independent restructuring.

Article 2: The following disputes shall not be deemed labor disputes:

(1) Disputes arising from workers’ requests to social insurance agencies for the disbursement of social insurance benefits;

(2) Disputes over the transfer of publicly owned housing arising between employees and employers in connection with housing system reform;

(3) Disputes arising from a worker’s objection to the disability rating determination rendered by the Labor Capacity Appraisal Committee or to the occupational disease diagnosis and appraisal conclusion issued by the Occupational Disease Diagnosis and Appraisal Committee;

(4) Disputes between households or individuals and domestic service personnel;

　(5) Disputes between individual artisans and their assistants or apprentices;

(6) Disputes between rural contracted households and their employees.

Article 3: Labor dispute cases shall be under the jurisdiction of the basic people’s court at the location of the employer or at the place where the labor contract is performed. If the place of performance of the labor contract is not clearly defined, the case shall be under the jurisdiction of the basic people’s court at the location of the employer. Where otherwise provided by law, such provisions shall prevail.

Article 4: Where both the employee and the employer, dissatisfied with the same decision of a labor dispute arbitration institution, file lawsuits with the same people’s court, the people’s court shall consolidate the cases for trial, treating each party as both plaintiff and defendant. The people’s court shall render a single judgment addressing the claims of both parties. During the litigation, if one party withdraws its claim, the people’s court shall continue to hear the case based on the remaining party’s claims. If both parties separately file lawsuits with competent people’s courts concerning the same arbitration award, the people’s court that accepted the case later shall transfer the case to the people’s court that accepted it first.

Article 5: If a labor dispute arbitration institution refuses to accept a labor dispute case on the ground of lack of jurisdiction, and the parties subsequently file a lawsuit, the people’s court shall handle the matter as follows, depending on the specific circumstances:

(1) If, upon review, it is determined that the labor dispute arbitration institution lacks jurisdiction over the case, it shall notify the parties to submit their application for arbitration to a labor dispute arbitration institution that has jurisdiction.

(2) If, upon review, the labor dispute arbitration institution is found to have jurisdiction, the parties shall be informed to file an arbitration application, and the reviewing authority shall notify the said arbitration institution of its opinion in writing. If the labor dispute arbitration institution still refuses to accept the case, and the parties bring a lawsuit concerning the same labor dispute, the people’s court shall accept the case.

Article 6: If a labor dispute arbitration institution, on the ground that the matters for which the parties have applied for arbitration do not constitute a labor dispute, issues a written ruling, decision, or notice of non-acceptance, and the parties, dissatisfied with such decision, bring a lawsuit in accordance with the law, the people’s court shall handle the matter on a case-by-case basis as follows:

(1) Cases falling within the scope of labor disputes shall be accepted;

(2) Although not classified as a labor dispute case, if the matter falls within the jurisdiction of the people’s courts, it shall be accepted in accordance with the law.

Article 7: If a labor dispute arbitration institution issues a written ruling, decision, or notice rejecting the application on the ground that the party filing the arbitration lacks standing, and the party concerned files a lawsuit in accordance with the law, the people’s court shall refuse to accept the case if, upon review, it is determined that the party indeed lacks standing; if the case has already been accepted, the court shall issue a ruling dismissing the lawsuit.

Article 8: Where a labor dispute arbitration institution, in order to correct errors in the original arbitration award, renders a new award, and a party, dissatisfied with such award, files a lawsuit in accordance with the law, the people’s court shall accept the case.

Article 9: Where the matters subject to arbitration by a labor dispute arbitration institution fall outside the scope of cases that may be accepted by the people’s courts, if a party files a lawsuit in accordance with the law, the people’s court shall not accept the case; if the case has already been accepted, the court shall issue a ruling dismissing the lawsuit.

Article 10: Where a party, dissatisfied with an arbitration award rendered by a labor dispute arbitration institution ordering the advance payment of wages, work‑injury medical expenses, economic compensation, or damages to a worker, brings a lawsuit in accordance with the law, the people’s court shall not accept the case.

If an employer fails to fulfill the payment obligations set forth in the aforementioned arbitration award, and the employee applies for compulsory enforcement in accordance with the law, the people’s court shall accept the application.

Article 11: Where a mediation agreement rendered by a labor dispute arbitration institution has already attained legal effect, if one party reneges and files a lawsuit, the people’s court shall not accept the case; if the case has already been accepted, the court shall issue a ruling dismissing the lawsuit.

Article 12: Where a labor dispute arbitration institution fails to issue a decision on acceptance or an arbitral award within the prescribed time limit, and the parties directly file a lawsuit, the people’s court shall accept the case, except where the arbitration application falls under any of the following circumstances:

Transferred jurisdiction;

(2) Those that are being served or whose service is delayed;

(3) Those awaiting the outcome of another pending lawsuit or the determination of disability rating;

(4) Those who are awaiting the commencement of a hearing before a labor dispute arbitration institution;

(5) Where the appraisal procedure has been initiated or where another department has been entrusted to conduct investigations and gather evidence;

(6) Other justifiable reasons.

Where a party brings an action on the ground that the labor dispute arbitration institution has failed to render an arbitral award within the prescribed time limit, such party shall submit the acceptance notice issued by the arbitration institution or other evidence or proof demonstrating that the arbitration application has been accepted.

Article 13: Where a worker applies to the people’s court for a payment order pursuant to Article 30, Paragraph 2 of the Labor Contract Law and Article 16 of the Mediation and Arbitration Law, and such application complies with the provisions on the summary procedure set forth in Chapter XVII of the Civil Procedure Law, the people’s court shall accept the case.

Where, pursuant to Article 30, Paragraph 2 of the Labor Contract Law, an application for a payment order has been terminated by the people’s court following the conclusion of the summary procedure, and the worker subsequently files a lawsuit directly concerning the labor dispute, the people’s court shall inform the worker that he or she must first submit the matter to a labor dispute arbitration institution for arbitration.

Where, pursuant to Article 16 of the Mediation and Arbitration Law, an application for a payment order has been terminated by the people’s court through the conclusion of the summary procedure, and the worker subsequently files a lawsuit directly based on the mediation agreement, the people’s court shall accept the case.

Article 14: After a people’s court has accepted a labor dispute case, if a party adds additional claims, such claims shall be jointly tried if they are inseparable from the labor dispute at issue; if they constitute an independent labor dispute, the party shall be informed that it must submit the matter to a labor dispute arbitration institution for arbitration.

Article 15: Where a worker brings a lawsuit directly on the strength of an employer’s wage IOU, and the claim does not involve any other disputes relating to the employment relationship, such a dispute shall be deemed a dispute over unpaid wages, and the people’s court shall accept it as an ordinary civil dispute.

Article 16: After an arbitration tribunal has rendered an arbitral award, if a party files a lawsuit in accordance with the law challenging only certain aspects of the award, the arbitral award shall not take legal effect.

Article 17: After an arbitration institution has rendered an arbitral award on labor disputes involving multiple workers, if some of the workers, dissatisfied with the award, file a lawsuit in accordance with the law, the arbitral award shall not have legal effect as to those workers who have brought suit; however, it shall have legal effect as to those workers who have not filed a lawsuit, and the people’s court shall accept their applications for enforcement.

Article 18: The classification of an arbitral award shall be determined by the content of the arbitral award document. If the arbitral award does not specify whether it is a final or non-final award, and the employer files a lawsuit with the basic people’s court challenging such award, the case shall be handled as follows, depending on the specific circumstances:

(1) If, upon review, the arbitral award is deemed to be non-final, the basic-level people’s court shall accept the case.

(2) If, upon review, the arbitration award is deemed to be a final award, the basic-level people’s court shall not accept the case; however, it shall inform the employer that, within thirty days from the date of receipt of the ruling rejecting acceptance, it may apply to the intermediate people’s court at the location of the labor dispute arbitration institution for the annulment of the arbitration award. If the case has already been accepted, the court shall issue a ruling dismissing the lawsuit.

Article 19: If the arbitration award does not specify whether it is a final or non-final award, and the worker, pursuant to Article 47, Paragraph 1 of the Mediation and Arbitration Law, seeks recovery of wages, work‑injury medical expenses, economic compensation, or damages, and if the award covers multiple items, the amount determined for each item…

Article 20: If an arbitration award rendered by a labor dispute arbitration institution simultaneously contains both final and non-final matters, and a party files a lawsuit with the people’s court challenging such award, the case shall be treated as a non-final award.

Article 21: Where a worker brings an action before the basic-level people’s court in accordance with Article 48 of the Mediation and Arbitration Law, and the employer applies to the intermediate people’s court at the location of the labor dispute arbitration institution for the revocation of the arbitration award pursuant to Article 49 of the same law, the intermediate people’s court shall refuse to accept the case; if it has already been accepted, it shall issue a ruling dismissing the application.

Where a lawsuit has been dismissed by the people’s court or withdrawn by the worker, the employer may, within thirty days from the date of receipt of the ruling, apply to the intermediate people’s court at the location of the labor dispute arbitration institution for the revocation of the arbitration award.

Article 22: Where an employer applies to the intermediate people’s court for the revocation of an arbitration award pursuant to Article 49 of the Mediation and Arbitration Law, the ruling rendered by the intermediate people’s court dismissing the application or revoking the arbitration award shall be a final ruling.

Article 23: When a intermediate people’s court hears a case in which an employer applies to set aside a final arbitration award, it shall convene a collegial panel and hold an open court session. After reviewing the case files, conducting investigations, and questioning the parties, if the collegial panel finds that there are no new facts, evidence, or grounds and deems that a court hearing is unnecessary, it may proceed without holding a hearing.

The Intermediate People’s Court may organize mediation between the parties. If a mediation agreement is reached, a mediation statement may be prepared. If one party fails to perform the mediation agreement within the prescribed time limit, the other party may apply to the People’s Court for compulsory enforcement.

Article 24: Where a party applies to the people’s court for enforcement of an arbitral award or mediation agreement rendered by a labor dispute arbitration institution that has taken legal effect, and the respondent submits evidence demonstrating that the arbitral award or mediation agreement falls under any of the following circumstances, and such evidence is verified upon review, the people’s court may, in accordance with Article 237 of the Civil Procedure Law, rule not to enforce it:

The matters subject to the award fall outside the scope of labor dispute arbitration, or the labor dispute arbitration institution lacks jurisdiction to arbitrate them;
Where the applicable laws or regulations are demonstrably erroneous;

(3) In violation of statutory procedures;

(4) The evidence upon which the award was based is forged;

(5) Where the opposing party has concealed evidence that is sufficient to affect the impartiality of the award;

(6) Where an arbitrator, in arbitrating the case, engages in soliciting or accepting bribes, acts with favoritism or malfeasance, or renders an unlawful award;

(7) Where the people’s court determines that enforcing the labor dispute arbitration award would be contrary to the public interest.

In its ruling refusing to enforce the decision, the People’s Court shall notify the parties that, within thirty days from the day following receipt of the ruling, they may file a lawsuit with the People’s Court concerning the labor dispute in question.

Article 25: Where a labor dispute arbitration institution has rendered a final award, and the worker applies to the people’s court for enforcement while the employer applies to the intermediate people’s court in the location of the labor dispute arbitration institution for revocation, the people’s court shall issue a ruling to suspend enforcement.

If the employer withdraws its application for setting aside the final arbitral award, or if such application is rejected, the people’s court shall issue a ruling to resume enforcement. If the arbitral award has been set aside, the people’s court shall issue a ruling to terminate enforcement.

Where an employer, after its application to the people’s court for the revocation of an arbitration award has been rejected, subsequently raises a defense against enforcement on the same grounds in the enforcement proceedings, the people’s court shall not uphold such defense.

Article 26: Where an employer merges with another entity, any labor disputes arising prior to the merger shall be brought by the merged entity as the party concerned. If an employer is divided into several entities, any labor disputes arising prior to the division shall be brought by the actual employer that succeeds to the obligations of the original employer following the division.

Where an employer is divided into several entities and the specific entity that assumes the labor rights and obligations remains unclear, all the entities resulting from the division shall be deemed parties to the proceedings.

Article 27: Where an employer hires a worker whose labor contract has not yet been terminated, any labor dispute arising between the original employer and the worker may include the new employer as a third party.

If the original employer brings a lawsuit on the ground that the new employer has committed a tort, it may join the employee as a third party.

If the original employer brings a lawsuit on the ground that the new employer and the employee have jointly committed a tort, the new employer and the employee shall be named as joint defendants.

Article 28: During the period in which a worker is engaged in contracted management between the employer and another party of equal standing, if a labor dispute arises with either or both the contracting party and the subcontracting party, and the worker files a lawsuit in accordance with the law, both the subcontracting party and the contracting party shall be named as parties to the litigation.

Article 29: Where a dispute arises between a worker and an employer that has not obtained a business license, whose business license has been revoked, or which continues to operate beyond the expiration of its business term, the employer or its investor shall be designated as a party to the proceedings.

Article 30: Where an employer has failed to obtain a business license, has had its business license revoked, or continues to operate after the expiration of its business term, or where it operates by borrowing another party’s business license through methods such as reliance, both the employer and the party that lent the business license shall be designated as parties to the proceedings.

Article 31: Where a party, dissatisfied with an arbitration award rendered by a labor dispute arbitration institution, files a lawsuit in accordance with the law, and the people’s court, upon review, finds that the arbitration award has omitted a party who must jointly participate in the arbitration, the court shall, in accordance with the law, add such omitted party as a party to the litigation.

Where the added party is liable, the people’s court shall adjudicate the matter jointly.

Article 32: Where an employer brings a lawsuit arising from an employment dispute with a person it has hired who is already legally entitled to old-age insurance benefits or a retirement pension, the people’s court shall treat such a dispute as one arising under a labor service relationship.

Where employees who have been placed on unpaid leave, those who have retired early before reaching the statutory retirement age, laid-off or awaiting reassignment workers, and employees of enterprises who have been temporarily laid off for an extended period bring lawsuits arising from employment disputes with a new employer, the people’s courts shall adjudicate such cases as labor relations disputes.

Article 33: Where a foreign national or a stateless person enters into a labor contract with an employer within the territory of the People’s Republic of China without having obtained the requisite employment permit in accordance with the law, the people’s court shall not support the party’s request to conoffice the existence of a labor relationship with such employer.

Foreign nationals who hold a Foreign Expert Certificate and have obtained a Work Permit for Foreigners to Work in China, and who establish an employment relationship with an employer within the territory of the People’s Republic of China, may be deemed to have an employment relationship.

Article 34: Upon the expiration of a labor contract, if the employee continues to work for the original employer and the original employer does not object, it shall be deemed that both parties have agreed to continue performing the labor contract under the original terms. If one party seeks to terminate the employment relationship, the people’s court shall uphold such request.

In accordance with Article 14 of the Labor Contract Law, if an employer fails to conclude an open-ended labor contract with a worker when required to do so, the people’s court may deem that an open-ended labor contract relationship exists between the two parties and shall determine their respective rights and obligations based on the original labor contract.

Article 35: An agreement reached between a worker and an employer regarding the procedures for terminating or ending a labor contract, as well as the payment of wages, overtime pay, economic compensation, or damages, shall be deemed valid if it does not violate any mandatory provisions of laws or administrative regulations and is free from fraud, coercion, or exploitation of another party’s vulnerable situation.

If the agreement referred to in the preceding paragraph involves a material misunderstanding or is manifestly unfair, the people’s court shall uphold the party’s request for its revocation.

Article 36: Where the parties have agreed to a non-competition restriction in the labor contract or a confidentiality agreement, but have failed to provide for economic compensation upon termination or dissolution of the labor contract, and the employee has fulfilled the non-competition obligation, the people’s court shall uphold the employee’s claim for monthly economic compensation equal to 30% of the employee’s average monthly wage over the twelve months preceding the termination or dissolution of the labor contract.

If 30% of the monthly average wage specified in the preceding paragraph is lower than the minimum wage standard applicable at the place where the labor contract is performed, such payment shall be made at the level of the minimum wage standard applicable at that location.

Article 37: Where the parties have agreed in the labor contract or a confidentiality agreement to non-competition restrictions and economic compensation, upon termination of the labor contract, unless otherwise agreed, if the employer requests the employee to fulfill the non-competition obligation, or if the employee, having fulfilled such obligation, seeks payment of the corresponding economic compensation from the employer, the people’s court shall uphold such claim.

Article 38: Where the parties have agreed in the labor contract or a confidentiality agreement to non-competition restrictions and economic compensation, and, following the termination or dissolution of the labor contract, the employer fails to pay such compensation for a period of three months due to reasons attributable to the employer, the people’s court shall support the employee’s request to terminate the non-competition restriction.

Article 39: During the term of the non-competition restriction, if the employer requests to terminate the non-competition agreement, the people’s court shall grant such request.

When terminating a non‑compete agreement, if the employee requests that the employer pay an additional three months’ worth of economic compensation for the non‑compete restriction, the people’s court shall uphold such request.

Article 40: Where a worker breaches an agreement on non-competition and, after paying liquidated damages to the employer, the employer requests that the worker continue to perform the non-competition obligations as agreed, the people’s court shall uphold such request.

Article 41: If a labor contract is declared invalid, and the employee has already performed work, the employer shall, in accordance with Articles 28, 46, and 47 of the Labor Contract Law, pay the employee wages and economic compensation.

If an invalid labor contract is concluded due to the employer’s fault and such invalidity causes damage to the employee, the employer shall compensate the employee for the economic losses incurred as a result of the contract’s invalidity.

Article 42: Where a worker claims overtime pay, the worker shall bear the burden of proof regarding the existence of overtime work. However, if the worker can demonstrate that the employer possesses evidence of the existence of overtime work and fails to produce such evidence, the employer shall bear the adverse consequences.

Article 43: Where an employer and a worker, by mutual agreement, amend the labor contract, and although no written form is used, the orally amended contract has been actually performed for more than one month, and the terms of the amended contract do not violate laws or administrative regulations nor contravene public order and good morals, the people’s court shall not uphold a claim by either party that the amendment to the labor contract is invalid on the ground that no written form was adopted.

Article 44: In labor disputes arising from decisions made by the employer, such as dismissal, removal from the payroll, termination of employment, termination of the labor contract, reduction of wages, or calculation of an employee’s length of service, the employer bears the burden of proof.

Article 45: If an employer engages in any of the following circumstances, thereby compelling a worker to terminate the labor contract, the employer shall pay the worker’s wages and economic compensation, and may also be required to pay damages:

(1) Forcing labor by means of violence, threats, or unlawful deprivation of personal freedom;

(2) Failure to pay wages or provide working conditions as stipulated in the labor contract;

(3) Withholding or unreasonably delaying payment of wages to employees;

(4) Refusing to pay employees wages for overtime work;

(5) Paying wages to employees below the local minimum wage standard.

Article 46: Where a worker is assigned by the original employer to work for a new employer for reasons not attributable to the worker himself or herself, and the original employer has failed to pay economic compensation, if the worker terminates the labor contract with the new employer pursuant to Article 38 of the Labor Contract Law, or if the new employer proposes to terminate or end the labor contract, the people’s court shall support the worker’s request to have the length of service with the original employer included in the calculation of the length of service with the new employer when determining the period for which economic compensation or damages are payable.

Where an employer falls under any of the following circumstances, it shall be deemed that “the employee has been assigned by the original employer to work for a new employer for reasons not attributable to the employee himself/herself”:

(1) The employee continues to work at the original workplace and in the original position, and the party to the labor contract is changed from the original employer to the new employer.

(2) The employer effectuates a job transfer of the employee through organizational assignment or appointment;

(3) Where an employee’s job is transferred due to the merger, division, or other similar circumstances involving the employer;

(4) The employer and its affiliated enterprises alternately enter into labor contracts with the employee;

(5) Other reasonable circumstances.

Article 47: Where an employer that has established a trade union terminates a labor contract in compliance with Articles 39 and 40 of the Labor Contract Law, but fails to give prior notice to the trade union as required by Article 43 of the same law, a people’s court shall uphold the employee’s claim for compensation on the ground that the employer unlawfully terminated the labor contract, unless the employer has subsequently rectified the procedural requirements before the filing of the lawsuit.

Article 48: After the Labor Contract Law comes into effect, if a labor contract cannot continue to be performed because the employer’s business term has expired and the employer has ceased operations, and the employee requests economic compensation from the employer, the people’s court shall grant such request.

Article 49: During the course of litigation, if a worker applies to the people’s court for property preservation measures, and the people’s court, upon review, finds that the applicant is indeed experiencing financial hardship or that there is evidence indicating that the employer may be evading payment of wages by absconding, it shall either reduce or waive the worker’s obligation to provide security and promptly take the necessary preservation measures.

In a property preservation order issued by the people’s court, the parties shall be informed that they must apply for compulsory enforcement within three months after the arbitration award of the labor dispute arbitration institution or the judgment of the people’s court has taken legal effect. If no application is made within this time limit, the people’s court shall issue an order to lift the preservation measures.

Article 50: Rules and regulations formulated by employers in accordance with the provisions of Article 4 of the Labor Contract Law through democratic procedures, which do not contravene national laws, administrative regulations, or policy provisions and have been duly publicized to employees, may serve as the basis for determining the rights and obligations of both parties.

Where the internal rules and regulations formulated by the employer are inconsistent with the provisions of a collective contract or an employment contract, and the employee requests that the contractual provisions be given priority, the people’s court shall uphold such request.

Article 51: A mediation agreement reached by the parties under the auspices of a mediation organization as stipulated in Article 10 of the Mediation and Arbitration Law, which contains provisions regarding labor rights and obligations, shall have the same binding force as a labor contract and may serve as the basis for adjudication by the people’s courts.

Where, under the auspices of a mediation organization as prescribed in Article 10 of the Mediation and Arbitration Law, the parties have reached a mediation agreement solely concerning a dispute over wages, and the employer fails to perform the payment obligations set forth in that agreement, the people’s court may accept the case as an ordinary civil dispute if the employee directly files a lawsuit.

Article 52: Where the parties, under the auspices of a People’s Mediation Committee, have reached a mediation agreement solely concerning an obligation to make payment, and both parties deem it necessary, they may jointly apply to the basic people’s court at the location of the People’s Mediation Committee for judicial conofficeation.

Article 53: Where an employer’s disciplinary measures against a worker, such as dismissal, expulsion, or termination, or the termination of the labor contract for other reasons, are demonstrably erroneous, the people’s court may, in accordance with the law, render a judgment to rescind such measures.

With respect to cases involving claims for wages, pensions, medical expenses, workers’ compensation benefits, economic severance payments, training costs, and other related expenses, the people’s court may modify the amount awarded if it is deemed inappropriate.

Article 54: This Interpretation shall take effect as of January 1, 2021.
 

Notice on Urging Suspects Involved in Cross-Border Gambling to Surrender Themselves to the Authorities

In order to implement the criminal policy of combining leniency with strictness, punish cross-border gambling offenses in accordance with the law, and at the same time afford relevant criminal suspects an opportunity to reform themselves and seek more lenient treatment, in accordance with the relevant provisions of the Criminal Law of the People’s Republic of China and the Criminal Procedure Law of the People’s Republic of China, the following notice is hereby issued:
1. For the purposes of this notice, “criminal suspects involved in cross-border gambling” refers to those suspected of the crimes of gambling and running a casino as stipulated in Article 303 of the Criminal Law of the People’s Republic of China, as well as those suspected of related offenses.
II. From the date of issuance of this notice until April 30, 2021, a criminal suspect who voluntarily surrenders to the public security organs, the people’s procuratorate, or the people’s court and truthfully confesses to his or her crimes shall be deemed to have surrendered themselves. A criminal suspect who voluntarily surrenders may, in accordance with the law, receive a lighter or reduced punishment; in cases where the circumstances are relatively minor, punishment may be exempted in accordance with the law.
3. Where a criminal suspect entrusts another person to surrender on their behalf, or first surrenders by letter, telephone, telegraph, email, or other means and subsequently appears in person, such surrender shall be deemed voluntary. Likewise, where a suspect surrenders upon the persuasion or accompaniment of relatives or friends, or where relatives or friends, having filed a report themselves, escort the suspect to surrender, such surrender shall also be deemed voluntary.
4. After a criminal suspect surrenders, if he or she reports or exposes the criminal acts of others, and such reports are verified as true; or if he or she provides important leads that lead to the solving of other cases; or if he or she actively assists the judicial authorities in apprehending other criminal suspects—such meritorious conduct may, in accordance with the law, result in a lighter or reduced punishment; and if the conduct constitutes a major meritorious service, the punishment may, in accordance with the law, be reduced or exempted.
5. Criminal suspects must recognize the situation, seize this opportunity, and promptly turn themselves in to seek lenient treatment. Those who refuse to surrender within the prescribed time limit will be punished in accordance with the law.
VI. Judicial authorities encourage individuals and relevant organizations to actively report fugitive criminal suspects, and to mobilize and persuade such suspects to turn themselves in. Judicial authorities shall, in accordance with the law, afford protection to whistleblowers and other relevant witnesses. Anyone who threatens or retaliates against whistleblowers or accusers, thereby constituting a crime, shall be held criminally liable in accordance with the law.
This notice shall take effect as of the date of its issuance (January 26, 2021).

 
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2021.2.7
Thai and Legal News
Issue No.957
Key Takeaways for This Issue
The Shenzhen Stock Exchange has launched the merger of its Main Board and the SME Board.
On February 5, the Shenzhen Stock Exchange announced that it will commence preparatory work today to merge the Main Board and the SME Board, and issued a related business notice. This merger is an important measure under the China Securities Regulatory Commission’s comprehensive efforts to deepen capital market reform. Under the guidance of the CSRC, the SZSE will make adaptive adjustments to relevant business rules, market products, technical systems, and issuance and listing procedures to ensure the safe and stable operation of the market. From the date of the business notice’s release until the merger is fully implemented, listed companies on the Shenzhen Main Board and the SME Board will continue to abide by existing regulations, and corporate issuance and listing arrangements will remain unchanged. Following the merger, the SZSE will adopt a market structure centered on the Main Board and the ChiNext Board.
New IPO regulations target speculative share acquisitions, imposing a three-year lock-up period for investments made within one year.
On February 5, the China Securities Regulatory Commission issued new IPO regulatory rules—the “Guidance on the Application of Regulatory Rules: Disclosure of Shareholder Information for Companies Applying for an Initial Public Offering”—which stipulate a 36-month lock-up period for new shareholders who acquired stakes in the 12 months preceding the IPO. The rules also impose strict oversight on common IPO-related irregularities, including illegal nominee shareholding, shadow shareholders, abnormally priced share acquisitions, and multi-layered nested structures.
The Shanghai and Shenzhen Stock Exchanges have established a reporting mechanism for algorithmic trading of convertible bonds.
On February 5, the Shanghai and Shenzhen Stock Exchanges, in order to strengthen the regulation of algorithmic trading in convertible corporate bonds, maintain market order, and protect the legitimate rights and interests of investors, issued the “Notice on Matters Relating to Reporting of Algorithmic Trading in Convertible Corporate Bonds” (hereinafter referred to as the “Notice”) in accordance with the Securities Law and other relevant laws and regulations, as well as the Measures for the Administration of Convertible Corporate Bonds. The Notice establishes a reporting system for algorithmic trading in convertible bonds.
Yurun Group’s bankruptcy reorganization
On February 1, Yurun Group, the parent company of Yurun Real Estate and once led by Jiangsu’s former richest man Zhu Yicai, officially initiated bankruptcy reorganization. Beijing Putuo Investment Fund Management Co., Ltd. (hereinafter referred to as “Putuo Investment”) has already submitted a restructuring plan. According to media reports, the seven companies within the Yurun group that have filed claims involve nearly a hundred banks, trust institutions, and corporate creditors, with the total amount of claims filed to date exceeding RMB 70 billion.
Interpretation of the Supreme People’s Court on Issues Concerning the Application of Law in the Adjudication of Labor Dispute Cases (I)
In order to ensure the proper adjudication of labor dispute cases, this Interpretation is formulated in accordance with the relevant provisions of the Civil Code of the People’s Republic of China, the Labor Law of the People’s Republic of China, the Labor Contract Law of the People’s Republic of China, the Mediation and Arbitration Law on Labor Disputes of the People’s Republic of China, the Civil Procedure Law of the People’s Republic of China, and other applicable laws, and in light of judicial practice.

Table of Contents
Table of Contents
Finance & Capital Markets
The Shenzhen Stock Exchange has launched the merger of its Main Board and the SME Board.
New IPO regulations target speculative share acquisitions, imposing a three-year lock-up period for investments made within one year.
The China Securities Regulatory Commission has issued the “Regulations on the Registration and Management System for Persons with Access to Inside Information of Listed Companies.”
The Shanghai and Shenzhen Stock Exchanges have established a reporting mechanism for algorithmic trading of convertible bonds.
The People’s Bank of China’s “No. 1 penalty notice” of 2021: CITIC Bank was fined RMB 28.9 million for four violations.

Corporate & Commercial
Yurun Group’s bankruptcy reorganization
Half a month after Shanghai’s new real estate regulations took effect, the secondhand housing market has been the first to cool down.
Ping An Good Doctor has posted nearly 4.7 billion yuan in losses over six years; the timeline for turning a profit may be further extended, and the app has been renamed following a trademark defeat.
Kuaishou surged more than 160% on its first day of trading.

Taxation
Announcement of the Ministry of Finance, the General Administration of Customs, and the State Taxation Administration on Adding Collection Methods for Duty-Free Purchases by Outbound Travelers in Hainan
Xiamen: Big Data “Safeguards” Major Enterprises
Beijing: Releases the “Memorandum on Reforming and Optimizing the Capital’s Tax-Related Business Environment”
Shanghai: Focusing on Industry–Education Integration with Targeted Policies

Litigation & Arbitration
Several Provisions of the Supreme People’s Court on Providing Online Filing Services for Parties in Cross-Border Litigation
Interpretation of the Supreme People’s Court on the Application of the Security System under the Civil Code of the People’s Republic of China
Interpretation of the Supreme People’s Court on Issues Concerning the Application of Law in the Adjudication of Labor Dispute Cases (I)
Notice on Urging Suspects Involved in Cross-Border Gambling to Surrender Themselves to the Authorities

Other

Finance & Capital Markets
The Shenzhen Stock Exchange has launched the merger of its Main Board and the SME Board.
On February 5, the Shenzhen Stock Exchange announced that it will soon launch preparatory work to merge the Main Board and the SME Board, and issued relevant business notices.
This merger represents a key initiative by the China Securities Regulatory Commission to comprehensively deepen capital market reform. Following the merger, the Shenzhen Stock Exchange will adopt a market structure centered on the Main Board and the ChiNext Board, characterized by a more streamlined architecture, distinct features, and clearer positioning. This will help clarify the functional roles of each board, strengthen the market’s foundations, enhance its quality and efficiency, and overall boost the vitality and resilience of the capital market. It will also further highlight the ChiNext Board’s market positioning and ensure the thorough implementation of the innovation-driven development strategy. Moreover, it will enable the Shenzhen market to fully leverage its functions, promote the improvement of market-based mechanisms for the allocation of capital factors, and better support the development of the Guangdong–Hong Kong–Macao Greater Bay Area, the construction of pilot demonstration zones for socialism with Chinese characteristics, and the broader national strategic agenda.
In May 2004, the Shenzhen Stock Exchange established the SME Board within the main board of the Shenzhen market as an important step in the phased rollout of the ChiNext Board. This move helped create favorable conditions and accumulate valuable experience for the smooth launch of the ChiNext Board, while opening up a new channel for small and medium-sized enterprises and private offices to access the capital markets. Over 16 years of development, companies listed on the SME Board have steadily grown stronger, increasingly converging with the main board in terms of market capitalization, financial performance, and trading characteristics. Merging the Shenzhen Stock Exchange’s main board and the SME Board is a natural choice that aligns with market‑driven trends, and it also reflects the intrinsic need to build a streamlined and transparent market structure.
The key issues that require close attention in this merger are as follows:
First, the overall arrangement for this merger.
This merger is structured in accordance with the principle of “two unifications and four invariances”: unified business rules, a unified regulatory framework, and unchanged conditions for issuance and listing, investor eligibility thresholds, trading mechanisms, and security codes and abbreviations, thereby minimizing any impact on market operations and investor trading. Under the guidance of the China Securities Regulatory Commission, the Shenzhen Stock Exchange will make adaptive adjustments to relevant business rules, market products, technical systems, and issuance and listing procedures to ensure the safe and stable functioning of the market. From the date of issuance of this business notice until the completion of the merger, main‑board and SME‑board listed companies in Shenzhen will continue to operate under the existing regulations, and the current arrangements for corporate issuance and listing will remain in place.
Second, the impact of the merger on listed companies’ business rules, regulatory mechanisms, and other aspects.
Since its inception, the SME Board has adhered to laws, regulations, and departmental rules that are broadly consistent with those governing the Main Board. This merger does not entail any substantive revisions to these legal and regulatory frameworks. In early 2019, the Shenzhen Stock Exchange launched a comprehensive review and optimization of its self-regulatory framework for listed companies, subsequently revising and issuing multiple industry‑specific and specialized information disclosure guidelines. In February 2020, it consolidated and streamlined the “Guidelines for Standardized Operations of Listed Companies” applicable to both the Main Board and the SME Board; in June 2020, it released an integrated and revised “Guide to Procedures for Listed Company Affairs.” Following the latest round of delisting‑system reforms at the end of 2020, the provisions distinguishing between the Main Board and the SME Board in the Stock Listing Rules have been eliminated. Overall, the Shenzhen Stock Exchange has achieved basic convergence of business rules across the Main Board and the SME Board, preliminarily establishing a concise and efficient self‑regulatory framework for listed companies—centered on listing rules, underpinned by standardized‑operations guidelines and industry‑ and specialty‑specific information disclosure guidelines, and supplemented by procedural guides. This merger requires only minor adaptive adjustments to a handful of differentiated provisions between the two boards—for example, the standardization of the definition of high‑ratio stock dividends and share transfers—resulting in limited impact on listed companies. Going forward, the Shenzhen Stock Exchange will continue to refine rule integration and ensure seamless regulatory coordination. In terms of the regulatory mechanism, the Exchange will maintain industry‑based oversight, guided by the principle of reasonable balance, categorizing listed companies into two major sectors and assigning regulatory responsibilities to two separate corporate management departments.
Third, the principal impacts of this merger on market products, as well as the Shenzhen Stock Exchange’s subsequent targeted measures.
This merger will have virtually no impact on fixed-income products, futures and options products, or the Shenzhen–Hong Kong Stock Connect business. However, indices related to the SME Board will require adaptive adjustments. In accordance with the “Business Notice” and the relevant index‑adjustment announcements, this merger entails only minor revisions to the full names, abbreviations, and sample‑space descriptions of the affected indices—specifically, the removal of the term “Board” from both the full name and abbreviation, along with certain targeted adaptations. Accordingly, the phrase “SME Board” in the sample‑space descriptions will be replaced with “the original SME Board.” These index‑adjustment measures do not constitute any material changes to the index‑construction methodology, nor will they necessitate adjustments to the investment constituents of funds that track these indices. As such, they help preserve the stability and continuity of the indices and ensure the smooth operation of related fund products.
Going forward, the Shenzhen Stock Exchange will, in light of market demand and actual conditions, collaborate with relevant stakeholders to refine its index‑construction methodology, further developing a suite of SME indices that are more influential and competitive in the market.
Fourth, the specific details of the technological upgrades involved in this merger.
This merger primarily involves technical upgrades to the Shenzhen Stock Exchange’s internal systems, as well as to the systems of market participants such as securities offices and market data providers. At present, the internal technical upgrades at the Shenzhen Stock Exchange have been largely completed. Market participants are only required to carry out adaptive modifications related to market data display and data interfaces, a process expected to take approximately two months. Overall, the core trading system remains largely unaffected, and the scope and resources devoted to the technical upgrade project are relatively modest, resulting in only a limited impact on the market‑wide technology infrastructure.
Fifth, the principal adjustments made to the company’s issuance and listing procedures in this merger, as well as their implications for investors’ trading activities.
In accordance with relevant regulations, during the transitional period from the issuance of the “Business Notice” to the completion of the merger, companies’ issuance and listing will continue to follow the existing arrangements. Following the merger, the listing requirements for the Main Board will remain unchanged and be aligned with those previously applicable to the former SME Board; securities originally listed on the SME Board will be reclassified as “Main Board A‑shares,” with their corresponding stock code ranges incorporated into the Main Board’s allocation. The issuance review procedures will also remain unchanged, and companies currently undergoing review are not required to resubmit their application materials, ensuring that no material impact will be imposed on their issuance and listing.
This merger only changes the securities classification of the original SME Board companies; the stock codes and abbreviated names remain unchanged, and it will not affect investors’ trading methods or habits. The main board and the SME Board share identical trading mechanisms and investor eligibility requirements, with no significant differences in the investor base. Moreover, since the merger does not alter either the trading rules or the investor thresholds, it will not have any material impact on investors’ trading behavior.
Following the completion of the merger, the Shenzhen Stock Exchange’s Main Board will continue to focus on supporting the financing and development of relatively mature enterprises, with efforts aimed at enhancing their quality and competitiveness, while maintaining the existing listing thresholds. The ChiNext Board will primarily serve growth‑stage innovative and entrepreneurial companies, emphasizing “three innovations” and “four new” areas. With the Shenzhen market structured around the Main Board and the ChiNext Board, it will provide tailored financing solutions for enterprises at different stages of development and of varying types, thereby further strengthening the capital market’s ability to support the real economy.

New IPO regulations target speculative share acquisitions, imposing a three-year lock-up period for investments made within one year.
On February 5, the China Securities Regulatory Commission issued the “Guidance on the Application of Regulatory Rules—Information Disclosure by Shareholders of Companies Applying for an Initial Public Offering” (hereinafter referred to as the “Guidance”).
This Guidance primarily addresses situations in practice where certain investors, through mechanisms such as nominee shareholding and indirect shareholding via multi-layered nested institutional shareholders, conceal themselves behind the nominal shareholders of companies seeking an IPO, thereby creating “shadow shareholders.” These investors may acquire shares shortly before the company’s listing or obtain them at a discount, only to reap substantial profits after the IPO—behind which there may lie a range of issues, including transactions between power and money and the transfer of benefits. The key areas that this Guidance requires particular attention to are:
First, the principle requiring issuers to meet shareholder eligibility criteria is reafofficeed. Issuers are required, prior to filing their applications, to legally resolve any share‑holding nominee arrangements and to disclose that their shareholders’ qualifications comply with relevant national regulations and that no illegal shareholdings exist.
Second, regulatory oversight of pre-IPO share acquisitions will be strengthened. New shareholders who acquire equity within 12 months prior to filing the application are required to lock up their shares for 36 months, and intermediary institutions are mandated to conduct comprehensive disclosure and verification of the relevant circumstances of these new shareholders.
Third, strengthen the information‑level due diligence on natural person shareholders and multi‑tiered nested institutional shareholders whose shareholding transaction prices are conspicuously abnormal. Intermediary institutions are required to conduct穿透核查 (penetrative verification) of the basic information, shareholding rationale, and sources of funds for these two categories of shareholders, and to determine whether there are any violations of shareholder eligibility requirements or instances of nominee shareholding. Issuers are also required to disclose relevant information, including the basic details of the natural person shareholders in question and the ultimate natural person shareholders in the multi‑tiered nested structure.
Fourth, we will further strengthen the accountability of intermediary institutions. Intermediary institutions are required not to rely solely on institutional or individual commitments; instead, they must conduct thorough due diligence, with a particular focus on shareholders whose share‑purchase prices are unusually high and on those who acquired shares shortly before the company’s listing.
Fifth, emphasis is placed on fostering coordinated regulatory efforts. When an issuer’s shareholders are suspected of engaging in improper shareholding or when the transaction prices of such shareholdings are conspicuously abnormal, relevant authorities may be consulted on matters such as anti‑money laundering and anti‑corruption requirements, thereby jointly strengthening oversight.
The full text is attached below.
“Guidance on the Application of Regulatory Rules—Information Disclosure by Shareholders of Companies Applying for an Initial Public Offering”
Issuers applying for an initial public offering of shares or depositary receipts shall, in accordance with this Guidance, fully carry out shareholder information disclosure and other related tasks.
I. The issuer shall disclose shareholder information in a truthful, accurate, and complete manner. Where shareholding arrangements such as nominee holding have existed throughout the issuer’s historical development, they must be legally terminated prior to filing the application, and the prospectus shall disclose the underlying reasons for their formation, their evolution, the termination process, and whether any disputes or potential disputes exist.
II. When submitting the filing materials, the issuer shall provide a specific commitment stating whether any of its shareholders are subject to any of the following circumstances, and shall disclose such commitment publicly: (1) Entities prohibited by laws and regulations from holding shares directly or indirectly hold shares in the issuer; (2) The underwriting institutions for this offering, or their principals, senior management, or handling personnel, directly or indirectly hold shares in the issuer; (3) Improper transfer of benefits is conducted through the issuer’s equity.
III. If the issuer has admitted new shareholders within the 12 months preceding the submission of the application, it shall fully disclose in the prospectus the new shareholders’ basic information, the reasons for their investment, the subscription price and the basis for determining that price; whether the new shareholders have any affiliations with other shareholders, directors, supervisors, or senior management of the issuer; whether they have any affiliations with the underwriting institutions for this offering, as well as with the heads, senior management, and handling personnel of such institutions; and whether there are any arrangements for nominee shareholding involving the new shareholders.
The aforementioned new shareholders shall undertake that the newly acquired shares shall not be transferred within 36 months from the date of acquisition.
IV. Where the transaction price at which a natural person shareholder of the issuer acquires shares is significantly abnormal, the intermediary institution shall verify the shareholder’s basic information and the background of the investment, and determine whether any of the circumstances set forth in Items 1 and 2 of this Guidance apply. The issuer shall disclose the basic information of such natural person shareholder.
V. Where the issuer’s shareholders are organized in a multi-tiered equity structure involving companies or limited partnerships that do not engage in any substantive business operations, and where the transaction price at which such shareholders acquired their equity interests is manifestly abnormal, the intermediary institutions shall conduct a step‑by‑step穿透 (penetration) review to identify the ultimate beneficial owner(s), and determine whether any of the circumstances set forth in Items 1 and 2 of this Guidance apply. If the ultimate beneficial owner is an individual, the issuer shall disclose the individual’s basic information.
VI. If private equity investment funds or other financial products hold shares of the issuer, the issuer shall disclose the regulatory oversight applicable to such financial products.
VII. The issuer and its shareholders shall promptly provide the intermediary institutions with true, accurate, and complete information, actively and comprehensively cooperate with them in conducting due diligence, and fulfill their information disclosure obligations in accordance with the law.
VIII. Sponsor institutions, securities service providers, and other intermediary institutions shall exercise due diligence and, in accordance with the requirements of this Guidance, verify the shareholder information disclosed by the issuer. The verification opinions issued by such intermediaries may not be based solely on commitments made by relevant institutions or individuals; rather, they must conduct a comprehensive and thorough review of objective evidence, including but not limited to shareholders’ subscription agreements, transaction consideration, sources of funds, and payment methods, to ensure that the documents they issue are true, accurate, and complete.
9. Shareholders who acquired shares through call auction or continuous auction trading during the issuer’s listing on the National Equities Exchange and Quotations for Small and Medium-sized Enterprises or on an overseas stock exchange, as well as shareholders who obtained shares in the issuer by inheritance, pursuant to court judgments or arbitration awards, in compliance with national laws and policies, or under the direction of a people’s government at or above the provincial level, may apply for an exemption from the verification and share‑lockup requirements set forth in this Guidance.
X. Where an issuer’s shareholders are suspected of engaging in illegal shareholding or where the transaction prices of their share acquisitions are conspicuously abnormal, the China Securities Regulatory Commission and the stock exchanges may require such shareholders to disclose their basic information and the background of their share acquisitions, and seek opinions from relevant authorities on anti‑money laundering and anti‑corruption requirements, thereby jointly strengthening regulatory oversight.
XI. This Guidance shall take effect as of the date of its promulgation. Enterprises that had their applications accepted prior to the date of promulgation shall not be subject to the share‑lockup requirements set forth in Item 3 of this Guidance.

The China Securities Regulatory Commission has issued the “Regulations on the Registration and Management System for Persons with Access to Inside Information of Listed Companies.”
On February 3, the China Securities Regulatory Commission issued the “Regulations on the Registration and Management System for Persons with Access to Inside Information of Listed Companies,” which took effect upon its promulgation.
The primary purpose of this revision is to implement the new Securities Law, which came into effect on March 1, 2020, further standardize the registration and reporting practices of insiders with access to material nonpublic information at listed companies, and strengthen comprehensive measures for preventing and controlling insider trading. The key revisions to the Registration Management System are as follows:
First, implement the provisions of the new Securities Law. In accordance with the new Securities Law, further clarify the definitions and scope of insiders and insider information.
Second, the principal responsibility of listed companies for preventing and controlling insider trading has been officely established. The regulations stipulate that the chairman, the board secretary, and other relevant persons shall sign written conofficeation statements on the insider‑information‑holder register; moreover, listed companies are required to promptly update and resubmit the relevant insider‑information‑holder registers and memoranda documenting the progress of material matters in response to any changes thereto.
Third, the responsibilities of stock exchanges in preventing and controlling insider trading have been strengthened. Stock exchanges are authorized to specify the scope of material matters subject to filing in the insider‑information‑holder records of listed companies, the specific content to be reported, and the categories of personnel required to file; they are also tasked with establishing detailed rules regarding the matters that necessitate the preparation of progress memoranda on material events, as well as the content to be included therein. At the same time, stock exchanges are required to promptly share information such as insider‑information‑holder records and progress memoranda on material events with the China Securities Regulatory Commission and its local branches.
Fourth, the obligation of intermediary institutions to cooperate is clearly defined. Securities offices, law offices, and other securities service providers are required to assist listed companies in promptly submitting dossiers of insiders with access to material nonpublic information and memoranda on the progress of significant matters, and to verify the relevant information in accordance with applicable professional standards.

The Shanghai and Shenzhen Stock Exchanges have established a reporting mechanism for algorithmic trading of convertible bonds.
On February 5, the Shanghai and Shenzhen Stock Exchanges, in order to strengthen the regulation of algorithmic trading in convertible corporate bonds, maintain market order, and protect the legitimate rights and interests of investors, issued the “Notice on Matters Relating to Reporting of Algorithmic Trading in Convertible Corporate Bonds” (hereinafter referred to as the “Notice”) in accordance with the Securities Law and other relevant laws and regulations, as well as the Measures for the Administration of Convertible Corporate Bonds. The Notice establishes a reporting system for algorithmic trading in convertible bonds, effective March 29, 2021.
The key issues that require particular attention in this Notice are as follows:
　First, the types of investors required to file reports.
From a typological perspective, the investors required to file reports fall into the following categories: first, member clients; second, members and other investors—such as securities investment fund management companies and insurance institutions—that trade directly through trading units; and third, other investors as specified by the Shanghai and Shenzhen Stock Exchanges. Member clients shall report to the member that accepts their trading instructions, while members and other institutions shall report directly to the Shanghai and Shenzhen Stock Exchanges. In practice, investors meeting any of the following conditions are obligated to submit reports: (1) programmatic traders whose orders exhibit a high degree of automation, with key order parameters—including security codes, buy/sell direction, order quantity, and order price—as well as the timing of order submission, all determined automatically by computer; (2) programmatic traders characterized by an exceptionally rapid order‑submission rate, placing ten or more orders within one second on ten or more occasions in a single day; (3) programmatic traders utilizing self‑developed or other customized software; and (4) other circumstances deemed by the Shanghai Stock Exchange to warrant reporting. Investors who use client‑side software provided by their broker that incorporates certain automated features, but do not meet the aforementioned criteria, are exempt from reporting obligations.
Second, the Notice sets out specific requirements regarding the reporting deadline and addresses whether entities that had already engaged in algorithmic trading of convertible bonds prior to the Notice’s entry into force are required to file a report.
Before conducting algorithmic trading for the first time, member clients shall submit a report to the member that accepts their trading instructions; upon submission, they may proceed with algorithmic trading. Members shall verify the information provided by their clients and report to the Shanghai and Shenzhen Stock Exchanges within three trading days. Members and other institutions engaging in algorithmic trading of convertible bonds for the first time shall submit a report to the Shanghai and Shenzhen Stock Exchanges at least three trading days in advance. Investors who had already commenced algorithmic trading of convertible bonds prior to the effective date of this Notice shall, within thirty trading days after its entry into force, complete the required information reporting in accordance with the provisions set forth herein.
Third, the specific report content and requirements.
The report shall include the following: first, information on the investor’s identity, securities account, and member institution; second, details regarding the source of funds; third, information on the trading strategy, software name, and developer; and fourth, contact person and contact details. Members and other institutions shall submit, via the relevant sections of the Shanghai and Shenzhen Stock Exchanges, information pertaining to their clients’ and their own convertible bond algorithmic trading activities.
Fourth, if delayed reporting or failure to report as required occurs, it will have an impact on investors.
In accordance with their self-regulatory requirements, the Shanghai and Shenzhen Stock Exchanges conduct on-site and off-site inspections of members and other institutions to monitor their reporting on programmatic trading of convertible bonds. For entities that refuse to fulfill their reporting obligations or submit reports that do not comply with applicable regulations, the exchanges will impose regulatory measures or disciplinary sanctions in line with relevant rules.

The People’s Bank of China’s “No. 1 penalty notice” of 2021: CITIC Bank was fined RMB 28.9 million for four violations.
On February 5, the People’s Bank of China (PBOC) website disclosed the “No. 1 penalty notice” for 2021: CITIC Bank was fined RMB 28.9 million for four violations. Meanwhile, 14 individuals, including Zhao Tongwei, then Executive Deputy General Manager of CITIC Bank’s Retail Banking Division, were each issued fines ranging from RMB 25,000 to RMB 80,000 for their responsibility in certain of these illegal and non-compliant practices, totaling RMB 615,000. This decision reflects the outcome of the PBOC’s inspection of CITIC Bank in 2019, which identified a number of issues. To date, the specific problems have largely been rectified.
According to the public disclosure of administrative penalties, China CITIC Bank was found to have committed four types of violations: failing to fulfill customer identification obligations as required; failing to retain customer identification documents and transaction records as prescribed; failing to submit reports on large-value transactions and suspicious transactions as required; and conducting transactions with customers whose identities are unknown.
In recent years, the People’s Bank of China has steadily intensified its regulatory oversight in the anti‑money laundering (AML) domain. According to reports, at the beginning of last year, China Minsheng Bank and Everbright Bank were each slapped with hefty fines—23.6 million yuan and 18.2 million yuan, respectively—for violations in AML compliance. Data from the central bank’s official website show that in 2020, the PBOC and its branch offices imposed administrative penalties on a total of 417 AML‑obligated institutions and relevant individuals, issuing 733 penalty notices amounting to approximately 628 million yuan in fines. Of this sum, about 608 million yuan was levied against institutions, while roughly 20 million yuan was imposed on individuals. The total number of AML enforcement actions rose by nearly 25% compared with 2019, and the aggregate fine amount was roughly three times that of 2019.
As 2021 began, anti‑money‑laundering oversight continued to tighten. On January 12 this year, the Fuzhou Central Branch of the People’s Bank of China published a list of administrative penalties, revealing that the payment institution Fujian Guotong Xingyi Network Technology Co., Ltd. was fined approximately RMB 67.1002 million and had its illegal gains—about RMB 2.6102 million—confiscated for 12 violations, including conducting transactions with customers whose identities were unknown.

Commercial & Corporate
Yurun Group’s bankruptcy reorganization
On February 1, Yurun Group, the parent company of Yurun Real Estate and once led by Jiangsu’s former richest man Zhu Yicai, officially initiated bankruptcy reorganization. Beijing Putuo Investment Fund Management Co., Ltd. (hereinafter referred to as “Putuo Investment”) has already submitted a restructuring plan. According to media reports, the seven companies within the Yurun group that have filed claims involve nearly a hundred banks, trust institutions, and corporate creditors, with the total amount of claims filed to date exceeding RMB 70 billion.
For the future restructuring party, reorganizing Yurun Group will be no easy task. With its sizable balance sheet, it is unlikely that a single entity could take on the entire operation. While Putuo Investment is leading the effort, other companies are also involved. In this restructuring process, Putuo Investment assumes the role of “restructuring investor,” tasked with stepping in as a new shareholder to take over and rescue the bankrupt company, reviving Yurun and restoring its production and operations. At the same time, as Yurun Group undergoes bankruptcy restructuring, the fate of its subsidiary, Yurun Real Estate, has once again become uncertain.
In fact, as early as 2016, Putuo Investment had already played a role in the restructuring of Yurun Group. Public records show that Putuo was founded in 2008, and its fund management arm is among the first batch of specialized investment management offices primarily focused on equity‑investment fund management. Since its inception, Putuo Investment has predominantly completed and executed mixed‑ownership reform projects involving central state‑owned enterprises and large local SOEs, such as a RMB 3 billion capital injection into China Huadian Xinjiang Power Generation Co., Ltd., as well as a RMB 2 billion equity‑investment fund and a second‑phase capital increase for AVIC International. In April 2016, Putuo Investment, together with several major central SOEs, conducted an in-depth due diligence on Yurun Group and submitted a “industrial capital plus financial capital” restructuring plan, formally joining the group’s restructuring process. In September of the same year, following a vote by the ten member institutions of the Yurun Financial Debt Committee’s presidium, Putuo Investment was selected as the restructuring partner. However, given that stakeholders still held high expectations for Yurun Group’s development, creditors and relevant authorities opted instead to restructure the debt schedule. Moreover, at the time, Yurun Group’s founder, Zhu Yicai, was under residential surveillance, making it impossible for external parties to engage in detailed discussions with him, ultimately leading to a postponement of the restructuring.
Yurun Group is a large‑scale enterprise, making it unlikely that a single company could take it over. There are three reasons: First, individual offices typically have limited proprietary capital, and raising additional funds can be challenging; second, bankruptcy‑restructuring operations carry substantial risks, and involvement by just one company would make it difficult to diversify its own investment risks; third, such restructurings require the integration of resources from multiple stakeholders, and the resources of a single entity are often insufficient to turn around a struggling business.
In the restructuring of Yurun Group, Putuo Investment assumes the role of a “restructuring investor.” Its mission is to act as a “new shareholder,” taking over and turning around the bankrupt enterprise to revive Yurun and restore its production and operations.
Investment and M&A transactions under bankruptcy reorganization differ significantly from ordinary ones. First, the outcome of bankruptcy reorganization is highly uncertain, making such investments far riskier than typical investments. Second, assets in bankruptcy reorganization are typically sold at substantial discounts, resulting in valuations much lower than those in standard M&A deals—providing opportunities to acquire assets at a bargain. Third, the procedural requirements are more stringent: any restructuring plan must be approved by creditors or the court.
When “Yurun” is mentioned, most people immediately think of its food and related industries. However, Zhu Yicai himself is not content with this; his business empire also encompasses real estate, commerce, logistics, tourism, finance, and construction. Yurun Group operates two primary real estate platforms: one is the commercial and real estate arm under the listed company Central Department Store, and the other is a real estate group controlled by Zhu Yicai, offering a diverse portfolio that includes residential properties, tourism‑oriented real estate, commercial real estate, and logistics‑focused developments.
In May 2002, Yurun established Jiangsu Dihua Real Estate Development Co., Ltd. (the predecessor of Yurun Real Estate), officially entering the real estate sector. At its peak, Yurun Real Estate’s development projects spanned East China, Central China, South China, Northeast China, North China, and Northwest China, covering more than 60 cities of various sizes, including Shanghai, Qingdao, and Huangshan, and establishing a three‑pronged brand portfolio centered on commodity residential properties, urban mixed‑use complexes, and tourism‑oriented real estate. During Yurun Real Estate’s growth, 2009 marked a pivotal milestone: that year, Yurun Real Estate gained controlling interest in the A‑share listed platform “Central Department Store,” thereby expanding into the commercial real estate arena. Subsequently, the Yurun Group also gradually injected several of its real estate assets into Central Department Store.
Yurun Real Estate reached its peak in 2014. According to the CRIC rankings, the company posted annual sales of RMB 15.5 billion, placing it at No. 49 on the list. That same year, Zhu Yicai and his wife made it onto the Hurun Rich List, becoming Jiangsu’s richest individuals.
Crises began to surface as well. With its real‑estate operations heavily concentrated in third- and fourth‑tier cities—particularly in northern Jiangsu, where housing markets are relatively weak—Yurun Real Estate failed to achieve large‑scale expansion through self‑funding from property sales. In 2015, following his involvement in a corruption investigation and the imposition of residential surveillance by the procuratorial authorities, Yurun Group and its listed subsidiaries posted consecutive years of losses, at one point facing a severe debt crisis. Meanwhile, Yurun Real Estate repeatedly faced negative headlines, including land seizures, asset disposals, and construction site shutdowns. It was only after Zhu Yicai’s return in 2019 that the company’s real‑estate business began to show signs of revival: first by partnering with China Railway Construction Corporation, and then by launching a large‑scale recruitment drive in an effort to re‑enter its core business. However, performance data reveal that these moves yielded less than satisfactory results. According to ST Zhongshang’s annual report, the company recorded operating revenue of RMB 8.103 billion in 2019, down 1.78% year over year, while net profit attributable to shareholders stood at a loss of RMB 588 million, a 72.85% decline compared with the previous year.
In November 2020, one month after stepping down from Cedar Holdings, former Wanda executive Wang Xinqi joined Yurun Group as chairman of Yurun Real Estate. Industry observers view this move as evidence that Zhu Yicai remains optimistic about the real estate business. By January 26 of this year, *ST Zhongshang issued a preliminary announcement forecasting a profit for 2020, projecting that net profit attributable to shareholders of the listed company would turn positive compared with the same period last year (based on statutory disclosure data). Meanwhile, several companies within the Yurun group have filed for bankruptcy reorganization in court. Among the known debts totaling RMB 70 billion associated with the Yurun group, the core real estate entities—Jiangsu Dihua Industrial and Huangshan Yurun Dihua Property—have each conofficeed claims of RMB 16.6 billion and RMB 3.88 billion, respectively. As for the future trajectory of Yurun Group following its restructuring, it is still too early to predict the outcome; however, the fact that restructuring investors are willing to step in suggests that Yurun’s assets and operations retain some appeal and at least offer a chance for recovery.

Half a month after Shanghai’s new real estate regulations took effect, the secondhand housing market has been the first to cool down.
Looking back at Shanghai’s real estate market in 2020, analysts had predicted a sustained downward trend; however, actual performance exceeded those expectations.
According to the latest data released by the Shanghai Municipal Bureau of Statistics, in 2020, the sales area of newly built residential properties in Shanghai reached 17.8916 million square meters, up 5.5% year on year. Residential sales accounted for 14.3407 million square meters, an increase of 5.9%. Meanwhile, the existing-home market also remained robust. According to the Municipal Real Estate Transaction Center, the city’s total online-signed area of existing homes totaled 24.9543 million square meters, a 19.9% rise from the previous year. Of this, the online‑signed area of existing residential properties reached 22.4623 million square meters, up 24.4%. Following the pandemic, pent-up housing demand was unleashed, driving a surge in existing‑home transactions—the highest level in nearly four years.
Yang Kewei, deputy general manager of the CRIC Research Center, told a reporter from the Securities Daily that in 2020, the Shanghai housing market’s robust performance was driven primarily by four key factors: First, starting in March 2020, Shanghai implemented a comprehensive “unified enrollment for both local and non-local residents” policy and introduced lottery‑based admissions for private schools. Under this new regime, prices for secondhand homes in prime school districts surged, boosting overall market activity. Second, accelerated urban renewal projects in older neighborhoods generated substantial additional demand for home purchases, backed by strong purchasing power. Third, amid a relatively accommodative monetary policy environment, market expectations remained that asset prices in core cities would continue to rise, sustaining the release of upgrade‑oriented demand. Fourth, the price inversion between new and existing homes kept the “new‑home‑hunting” market exceptionally active.
According to data from the CRIC Real Estate Research Center, in 2020, more than 40% of newly launched projects in Shanghai recorded subscription rates exceeding 100%. In core districts such as Xuhui, Changning, and Jing’an, the frenzy for new-home launches has become widespread, with over 70% of projects posting subscription rates above 100%; at Huicheng Nanjie Li, the winning rate was as low as 7.8%. Against this backdrop, on January 21 this year, the Shanghai Municipal Commission of Housing and Urban–Rural Development, along with seven other departments, jointly issued the “Opinions on Promoting the Stable and Healthy Development of the City’s Real Estate Market,” upgrading housing-market regulation measures by plugging loopholes related to “sham divorces” used to circumvent purchase restrictions, adjusting the threshold for VAT exemption, increasing land supply while reshaping its allocation, granting priority lottery access to “homeless households,” and tightening oversight of credit‑funding flows. Moreover, just four days after the new policy was unveiled, Shanghai further brought judicially auctioned properties under the purview of home‑purchase restrictions.
In fact, according to Jiang Zhenghe, Investment Director at Yide Capital, the new real‑estate‑market‑regulation measures recently introduced in Shanghai represent some of the strictest demand‑side policies nationwide. Under the new rules, Shanghai will rigorously enforce its home‑purchase‑restriction policy: for couples who divorce, if either party purchases a commercial residential property within three years from the date of divorce, the number of homes they own will be counted based on the family’s total housing holdings prior to the divorce. At the same time, the threshold for VAT exemption on secondhand home sales has been extended, raising the period from two years to five years.
“From a policy standpoint, measures such as counting home purchases made within three years of divorce against the pre-divorce household’s total housing stock and extending the VAT exemption period from two to five years not only directly address recent irregularities in Shanghai’s housing market but also significantly dampen investors’ speculative enthusiasm,” Lu Wenxi, a market analyst at Centaline Property in Shanghai, told a reporter from the Securities Daily. “For speculative buyers, holding periods typically range from two to five years. By raising the VAT exemption threshold to five years, Shanghai’s new policy substantially narrows the profit margin for flipping properties. Moreover, given the ongoing uncertainty surrounding the real estate market over the next two to three years, risks are likely to keep mounting. As a result, this move carries considerable bite for property speculators.”
Specifically, consider a non‑standard residential property purchased for 9 million yuan and sold for 10 million yuan, with the ownership having been held for more than two but less than five years. Under the previous VAT calculation method, the VAT liability would have been only 50,000 yuan, yielding a profit of 950,000 yuan. However, under the new VAT calculation method, the VAT payable has surged to 500,000 yuan, leaving a profit of just 500,000 yuan.
“Comparing the tax rates on 50,000 yuan and 500,000 yuan reveals a tenfold disparity. This means that most of the profits investors earn from flipping properties would be wiped out, thereby significantly dampening—or even discouraging—their enthusiasm for real‑estate speculation,” said Lu Wenxi. He added that, judging from developments since the new policy took effect, while the new‑home market has shown a somewhat sluggish response, Shanghai’s secondhand housing market has indeed cooled down.
According to data from Centaline Property in Shanghai, last week (January 25–31), the number of newly listed secondhand homes in the city plummeted, falling below 10,000 to 9,543 units—a 26.7% drop from the previous week. Notably, in the past, fluctuations in new listings typically stayed within a narrow range of around ±5%, with sharp declines like last week’s rarely observed. At the same time, asking prices also softened, declining by roughly 4 percentage points compared with the prior week.
Some banks have reported tight credit quotas. Notably, following the recent tightening of Shanghai’s real‑estate regulatory measures, a new set of mortgage‑lending rules has been introduced, further tightening the reins on the local housing market. On January 29, the Shanghai Banking and Insurance Regulatory Bureau issued the “Notice of the Shanghai Banking and Insurance Regulatory Bureau on Further Strengthening the Management of Personal Housing Credit,” setting out requirements for commercial banks operating in Shanghai regarding the implementation of differentiated housing‑credit policies and overall housing‑loan management. Key provisions cover areas such as the concentration‑risk management of real‑estate loans, verification of down‑payment sources and borrowers’ debt‑servicing capacity, borrower eligibility assessments and credit‑risk management, the disbursement of personal housing loans, oversight of the use of loan proceeds, regulation of business partnerships with real‑estate agencies, and risk‑assessment and remediation efforts.
“In the past, domestic mortgage lending largely relied on income verification provided by homebuyers. However, to be frank, falsified income documentation has long been a persistent problem, and it has proven difficult for credit‑risk controls to achieve truly rigorous and comprehensive enforcement,” said Zhang Dawei. He added that if Shanghai were to implement stringent scrutiny of individual housing‑loan applications this time around, the property market could cool down fairly quickly. Consequently, how banks enforce this policy will have a significant impact on the future trajectory of Shanghai’s real estate market.
Of course, in addition to banks’ self‑inspections, the regulatory measures introduced late last year—namely, the People’s Bank of China and the China Banking and Insurance Regulatory Commission’s “Notice on Establishing a Concentration Management System for Real Estate Loans at Banking Financial Institutions”—have also prompted banks to tighten mortgage‑loan quotas.
According to reports, some banks have already suspended processing second-hand home mortgage applications for individuals, while continuing to accept new individual mortgage applications. However, the overall loan‑disbursement timeline has lengthened compared with the past, owing to factors such as extended property‑inspection and credit‑report verification periods, slower underwriting processes, and a more protracted transaction sequence when handling second‑hand home mortgages—particularly the time required to settle the previous borrower’s outstanding balance before disbursing funds to the current applicant.

Ping An Good Doctor has posted nearly 4.7 billion yuan in losses over six years; the timeline for turning a profit may be further extended, and the app has been renamed following a trademark defeat.
Recently, Ping An Good Doctor released its full-year 2020 results. According to the financial report, the company’s total revenue for 2020 reached RMB 6.866 billion, up 35.5% year over year, while its net loss stood at RMB 949 million, a 27% increase compared with 2019. Adjusted net loss was RMB 516 million, down 25.8% from the previous year. In the report, Ping An Good Doctor attributed the losses primarily to “a significant appreciation of the RMB, which led to higher foreign‑exchange losses on the company’s overseas foreign‑currency assets, as well as increased losses at its overseas joint ventures due to scale expansion.”
With nearly RMB 4.7 billion in losses over six years, the turnaround period may be prolonged. Established less than six years ago, Ping An Good Doctor has grown at a rapid pace. In April 2015, the “Ping An Good Doctor App” was officially launched, and on May 4, 2018, the company listed on the Hong Kong Stock Exchange under the stock code 1833.HK, earning the title of the world’s first healthcare‑tech IPO. Yet this rapid expansion has been accompanied by persistent losses: since its inception, the company has posted annual deficits for six consecutive years.
According to Ping An Good Doctor’s past financial reports, its net losses from 2015 to 2020 were RMB 324 million, RMB 758 million, RMB 1.002 billion, RMB 912 million, RMB 747 million, and RMB 948 million, respectively. Over the past six years, Ping An Good Doctor has accumulated total losses of approximately RMB 4.7 billion.
“We hope to achieve breakeven by 2021,” former CEO Wang Tao of Ping An Good Doctor said at the 2019 earnings conference. However, as things stand, meeting this target remains under significant pressure.
Notably, Ping An Good Doctor’s online healthcare business posted rapid revenue growth, generating RMB 1.566 billion in 2020, up 82.4% year over year. This expansion was primarily driven by the strong performance of membership‑based offerings—such as “Medical Care 360” and “Ping An Good Doctor Private Doctor”—as well as ancillary services like electronic prescription‑driven medication purchases that accompany its online consultation services.
As of December 31, 2020, Ping An Good Doctor had 372.8 million registered users, an increase of 57.6 million from the end of 2019, representing a growth rate of 18.3%. In December 2020, monthly active users reached 72.6 million, up 8.5% year over year. The average daily consultation volume in 2020 totaled 903,000, a year-on-year increase of 23.9%, with a compound annual growth rate of 90.5% over the past six years.
Executive reshuffles spark personnel turmoil; the app was renamed after a trademark defeat. With persistent annual losses on one hand and frequent leadership changes on the other, Ping An Good Doctor also faced significant personnel upheaval in 2020. In May last year, the company’s board of directors removed Wang Tao from his roles as chairman of the board, executive director, and chief executive officer, appointing Fang Weihao as an executive director, interim chairman of the board, and chief executive officer for a three-year term. At the same time, other senior executives—including the company secretary, chief operating officer, chief product officer, and chief technology officer—who had previously worked alongside Wang Tao, also departed one after another.
In addition, Ping An Good Doctor has concurrently relieved Lin Yuan of his duties as Co‑Company Secretary; thereafter, Chen Chun has become the company’s sole Company Secretary.
In its announcement, Ping An Good Doctor stated that the reason for the dismissal was that Wang Tao’s performance of his managerial duties failed to meet the Board’s expectations. The company also noted that it maintains a robust corporate governance framework and a well‑established decision‑making mechanism for operations and management. Accordingly, this change in senior management is not expected to affect the company’s normal business operations or management.
Public records show that in 2013, Wang Tao joined Ping An Group. From March 2014 to June 2016, he served as Chairman and Chief Executive Officer of Ping An Health Insurance Co., Ltd., laying the groundwork for internet‑based mobile healthcare. In August 2014, leading a team of internet‑savvy professionals, Wang Tao founded Ping An Good Doctor Internet Co., Ltd., assuming the roles of Chairman and CEO, and within one year successfully developed “Ping An Good Doctor,” China’s largest mobile healthcare app.
Notably, on January 27 this year, Ping An Good Doctor officially announced that the “Ping An Good Doctor” app has been renamed “Ping An Health.” The company stated that this rebranding is a direct reflection of its strategic upgrade.
Previously, Ping An Good Doctor was involved in a nearly three-year trademark infringement dispute with the Good Doctor Pharmaceutical Group and lost the case. On April 24, 2018, Good Doctor Pharmaceutical issued a statement asserting that “Ping An Good Doctor” had, without authorization, unlawfully used the well-known “Good Doctor” trademark and demanded that the other party cease its infringing activities.
In June 2020, the Beijing Higher People’s Court issued a final judgment in accordance with the law, declaring invalid seven “Ping An Good Doctor” series trademarks that China Ping An Insurance (Group) Co., Ltd. had registered in the healthcare and wellness industry.

Kuaishou surged more than 160% on its first day of trading.
On February 5, Kuaishou (01024.HK), known as the “first short-video stock,” officially listed on the Hong Kong Stock Exchange, opening at HK$333 per share—up 193.91% from its IPO price of HK$115. According to its prospectus, from June 2014 to February 2020, Kuaishou completed six rounds of financing, raising a total of over US$4.8 billion. Investors included Tencent Investment, Yunfeng Fund, Baidu, Boyu Capital, Temasek, Sequoia Capital China, Wuyuan Capital, DST Global, and others. Notably, Tencent Investment participated in multiple funding rounds; by the time of Kuaishou’s IPO, it had become the largest institutional shareholder, holding a 21.567% stake.
It is worth noting that Kuaishou did not become a darling of investors from the outset. According to Tianyancha, in April 2012, Kuaishou raised $300,000 in its angel round; in April 2013, it secured $1.3 million in Series A; and in June 2014, it obtained $21.75 million in Series B. Since then, Kuaishou’s fundraising has steadily surged.
According to the prospectus, Kuaishou’s revenue for the first three quarters of 2017–2020 was RMB 8.3 billion, RMB 20.3 billion, RMB 39.1 billion, and RMB 40.7 billion, respectively. In terms of revenue sources, Kuaishou’s business is primarily divided into live streaming, online marketing services, and other businesses (including e‑commerce). Specifically, live streaming accounted for 95.3%, 91.7%, 80.4%, and 62.2% of total revenue in the first three quarters of 2017–2020, respectively; online marketing services contributed 4.7%, 8.2%, 19.0%, and 32.8% during the same period; and other businesses (including e‑commerce) represented 0%, 0.1%, 0.6%, and 5.0% of revenue, respectively.
It is clear that Kuaishou is moving away from its previous business model, which relied heavily on monetizing live streaming, and gradually shifting toward online marketing and e‑commerce. According to a report by iResearch, China’s mobile advertising market has been growing rapidly in recent years, with its size projected to reach RMB 1.7 trillion by 2025. Meanwhile, short videos and live streaming have increasingly become popular mobile advertising channels, accounting for 15.0% of the mobile advertising market in 2019 and expected to rise to 27.3% by 2025.
According to the prospectus, prior to the IPO, Kuaishou’s co‑founders and executives—Chairman and CEO Su Hua, Chief Product Officer Cheng Yixiao, Yin Xin, Yang Yuanxi, and others—collectively held 25.093% of the company’s shares. Following the IPO, Su Hua and Cheng Yixiao hold 484 million and 384 million shares, respectively, representing approximately 11.79% and 9.36% of the total issued share capital. Based on today’s closing price, their respective net worths stand at HK$145.2 billion (about RMB 121.4 billion) and HK$115.2 billion (about RMB 96.4 billion).
In addition, Kuaishou employees are also on the path to financial freedom. According to the prospectus, as of the latest practicable date, the company’s employee stock‑ownership plan included 626 million share options held by employees, including executives, allocated to 7,020 individuals—averaging 89,000 shares per person. Of these, 363 million share options have already been exercised, representing 8.89% of the company’s total share capital. Excluding executives, as of the same date, 7,015 regular employees were granted a total of 423.6 million share options, with 257 million still unexercised, benefiting 6,947 employees.
Based on the aforementioned data, each ordinary Kuaishou employee holds an average of 60,400 shares. At today’s closing price of HK$300 per share, the average employee’s net worth amounts to HK$18.12 million (approximately RMB 15.16 million). Public records show that Kuaishou was founded in 2011, originally under the name “GIF Kuaishou,” a GIF‑creation tool. By the end of 2012, GIF Kuaishou had pivoted from a utility‑focused app to a short‑video community platform.

Taxation TAXATATION
Announcement of the Ministry of Finance, the General Administration of Customs, and the State Taxation Administration on Adding Collection Methods for Duty-Free Purchases by Outbound Travelers in Hainan
To support the development of the Hainan Free Trade Port, accelerate the building of an international tourism and consumption center, and further facilitate shopping for travelers, the following announcement is hereby issued regarding matters related to the pickup of duty-free goods by outbound travelers:
I. When off-island travelers purchase duty‑free goods at off‑island duty‑free shops (including approved online sales channels) using valid identification and proof of departure, they may opt for mail delivery in addition to picking up their purchases at designated areas at airports, railway stations, or ports. If choosing mail delivery, the consignee, payer, and purchaser must be the traveler themselves, and the delivery address must be located outside Hainan Province. Off‑island duty‑free stores shall verify that the traveler meets the aforementioned requirements and has actually departed the island before shipping the purchased duty‑free items in a single shipment.
II. Before departing the island, residents may choose to collect their duty‑free purchases upon return. Upon returning to the island, they must present valid identification and provide proof of their actual departure itinerary. Duty‑free shops shall verify that the collector’s identity and departure itinerary meet the required criteria before releasing the duty‑free goods.
Residents of the island include Chinese citizens holding a Hainan Province ID card, a Hainan Province residence permit, or a social security card, as well as foreign nationals who work and live in Hainan Province and hold a residence permit.
Relevant departments of Hainan Province shall provide customs and tax authorities with information pertaining to the verification of on‑island resident qualifications, outbound passenger travel, ticket purchases, and other related matters, as well as the necessary network connectivity.
III. The specific regulatory requirements for delivery by mail and for collection of goods upon return to the island shall be promulgated separately by the General Administration of Customs.
IV. This Announcement shall take effect from the date of its promulgation. The remaining provisions of the “Announcement of the Ministry of Finance, the General Administration of Customs, and the State Taxation Administration on the Duty-Free Shopping Policy for Outbound Travelers to Hainan” (Ministry of Finance, General Administration of Customs, and State Taxation Administration Announcement No. 33 of 2020) shall remain in force.

Xiamen: Big Data “Safeguards” Major Enterprises
The Xiamen Municipal Tax Service of the State Taxation Administration has fully tapped the latent value of big‑enterprise data, providing robust support for their growth. Recently, the bureau was recognized by the State Taxation Administration as a “Provincial Demonstration Base for Big‑Enterprise Tax Data Management.”
The bureau has directly participated in the development of corporate financial internal control platforms and, in collaboration with Fila Sports Co., Ltd., jointly developed the “Fila Sports Financial and Tax Risk Prevention Information System.” This system helps enterprises proactively identify and mitigate tax risks, further fostering mutual trust between tax authorities and businesses while reducing costs for both parties.
The system officially went live on January 3, 2020. Leveraging three core modules—invoice issuance, tax filing, and tax‑related risk management—it integrates business data, financial data, invoicing data, and filing data, ensuring end-to-end traceability and achieving seamless integration of financial and tax information. After more than a year of operational deployment, the system has delivered tangible results: automated integration of invoicing data, automatic splitting and merging, and batch issuance have significantly boosted invoicing efficiency; the tax filing module automatically generates tax‑type‑specific filing tasks, helping to prevent underreporting and omissions; and the tax‑related risk management module conducts self‑initiated risk assessments, issues early warnings, and refines internal controls, effectively mitigating tax‑related risks.
Efficient services have helped large enterprises open up, and the “tax‑enterprise co‑governance” model is enabling them to achieve even stronger growth. When the Siming District Taxation Bureau of Xiamen City signed a Tax Service and Tax Compliance Agreement with Xiamen Hengxing Group, it leveraged the group’s tax data to conduct a detailed analysis of potential tax risks in its asset‑restructuring report, offering constructive recommendations from a tax perspective and providing a comprehensive tax‑compliance guide for the restructuring process. With the tax authorities’ support, the restructuring of Hengxing Group’s subsidiaries was successfully completed, marking an important step forward in the development of the cultural‑tourism industry.
The vitality of tax data lies in its application. The Xiamen Municipal Tax Service Bureau has continuously expanded the scope of data utilization, effectively enhancing the value of its data. In 2020, the bureau collected enterprise procurement and sales needs through multiple channels, compiling a “one‑to‑one” supply‑demand roster that matched 70 large enterprises with 292 suppliers, resulting in transactions totaling RMB 134 million. At the same time, by leveraging tax‑related big data, the bureau provided tailored services to businesses, earning high praise from major enterprises.

Beijing: Releases the “Memorandum on Reforming and Optimizing the Capital’s Tax-Related Business Environment”
The Beijing Municipal Tax Service has released the latest 2020 edition of the “Memorandum on Reforming and Optimizing the Capital’s Tax‑Related Business Environment” (hereinafter referred to as the “Memorandum”). This marks the third consecutive year that the Beijing Municipal Tax Service has issued such a memorandum. Building on the five World Bank Doing Business assessment dimensions—“Starting a Business,” “Getting a Permit,” “Getting Credit,” “Enforcing Contracts,” and “Resolving Insolvency”—the Memorandum also incorporates, where appropriate, tax‑related indicators from China’s business environment evaluation framework. It systematically reviews the achievements and key highlights of Beijing’s efforts to optimize its tax‑related business environment in 2020, while providing a concise summary and retrospective overview of major milestones in this area over the three-year period from 2018 to 2020.
2020 marked the final year of the “Action Plan of the Beijing Municipal Tax Service of the State Taxation Administration for Further Optimizing the Tax‑Related Business Environment (2018–2020).” Amid the severe challenges posed by the pandemic, the Beijing Municipal Tax Service leveraged “non‑contact” tax services as a key pillar, vigorously expanding online tax‑handling capabilities and enabling online processing for 313 tax‑related matters. It also refined its invoice service platform and management approaches, implementing tiered and categorized administration, and, in collaboration with twelve departments, introduced the “Several Measures to Promote Reform on Facilitating Tax and Fee Payments and Optimizing the Tax‑Related Business Environment,” thereby shortening tax‑processing times and launching integrated filing to reduce the number of tax submissions. Meanwhile, it ensured the thorough and meticulous implementation of tax‑reduction and fee‑cutting policies, streamlined the application process for VAT credit refunds, and alleviated financial pressures on market entities—particularly small and micro enterprises—thereby supporting the resumption of production and business operations.
At every stage of the corporate lifecycle, the Beijing Municipal Tax Service has introduced a series of optimization measures, including online and instant processing for invoice applications during business establishment, enhanced bank‑tax collaboration, intelligent tax assessment for real estate transactions, and streamlined procedures for bankruptcy proceedings, thereby fostering a favorable environment for enterprise development. In addition, Beijing has vigorously advanced smart taxation, leveraging new technologies such as blockchain, artificial intelligence, and big data to roll out blockchain‑based electronic standard invoices, optimize the online “blockchain + real estate registration” process, establish a tax‑and‑economy big data research platform, and launch the “Jing Xiaoni” intelligent consultation service, thus strengthening interdepartmental business coordination and data‑sharing capabilities.

Shanghai: Focusing on Industry–Education Integration with Targeted Policies
  
Industry–education integration refers to the deep collaboration between industry and education, closely aligning industrial needs with academic curricula, strengthening school–enterprise partnerships, and establishing a new educational model that integrates talent development, scientific research, and technology services. In Shanghai, one of the first cities nationwide to pilot the development of industry–education‑integrated urban areas, tax authorities have actively implemented tax incentives to support such integration, fostering in-depth synergy between industry and education and nurturing skilled professionals in key sectors and industries, thereby driving industrial innovation and high‑quality economic growth.
According to tax policy, effective January 1, 2019, pilot enterprises included in the scope of fostering and developing industry–education integration enterprises may, for investments made in establishing vocational education that meet the prescribed criteria, offset 30% of their annual payable education surcharge and local education surcharge. For pilot enterprises that are part of a corporate group, any subordinate member unit that makes actual contributions to vocational education is also eligible, under the relevant regulations, to offset its education surcharge and local education surcharge. According to statistics from the Shanghai Municipal Tax Authority, by the end of 2020, pilot enterprises in Shanghai had benefited from nearly RMB 100 million in offsets of education surcharge and local education surcharge on their educational investment expenditures.
According to the head of the Social Security and Non-Tax Revenue Division of the Shanghai Municipal Tax Service of the State Taxation Administration, pilot enterprises in the industry–education integration program are concentrated in key sectors such as strategic emerging industries, advanced manufacturing, modern services, and cultural‑creative industries. The first batch of 32 pilot enterprises in Shanghai includes several industry leaders, including the Lingang Group and satellite navigation technology offices, demonstrating a high degree of enterprise concentration and a strong industrial demonstration effect.

Litigation & Arbitration
Several Provisions of the Supreme People’s Court on Providing Online Filing Services for Parties in Cross-Border Litigation
In order to ensure that parties from both China and abroad enjoy equally convenient and efficient case filing services, this Regulation is formulated in accordance with the Civil Procedure Law of the People’s Republic of China, the Provisions of the Supreme People’s Court on Several Issues Concerning Case Registration and Filing by People’s Courts, and other relevant laws and judicial interpretations, taking into account the actual practices of the people’s courts.
Article 1. People’s Courts shall provide cross-border litigation parties with online case filing guidance, inquiry services, video‑based witnessing for the appointment of legal representatives, and registration‑for‑filing services.
For the purposes of these Provisions, “cross-border litigants” include foreign nationals; residents of the Hong Kong Special Administrative Region and the Macao Special Administrative Region (hereinafter referred to as the Hong Kong and Macao SARs) and of the Taiwan region; mainland Chinese citizens whose habitual residence is located abroad or in the Hong Kong, Macao, or Taiwan regions; and enterprises and organizations registered abroad or in the Hong Kong, Macao, or Taiwan regions.
Article 2 The scope of cases for which online filing services are provided to parties in cross-border litigation includes first-instance civil and commercial actions.
Article 3. People’s Courts shall provide online case filing services to cross-border litigation parties through China Mobile Micro-Court.
Article 4: When a party to a cross-border litigation applies for online case filing for the first time, the court having jurisdiction shall first conduct identity verification. Such verification shall primarily be carried out online through platforms such as the National Immigration Administration’s Exit-Entry Document Identity Authentication Platform; where online verification is not feasible, the court having jurisdiction shall perform manual verification of the party’s identification documents and other identity‑proofing materials, including notarized, authenticated, transmitted, or mailed documents.
The results of identity verification shall be communicated online to the parties in cross-border litigation within three business days.
Article 5. Cross-border litigants shall, for the purpose of identity verification, submit the following materials online to the court hearing the case:
(1) Foreign nationals shall submit their passports or other documents proving their identity; enterprises and organizations shall submit documents establishing their legal status, together with proof that the person representing such enterprise or organization is duly authorized to act as its representative in litigation. Such documents shall be notarized by a competent authority of the country of origin and authenticated by the Chinese embassy or consulate in that country. If the country of origin of a foreign national, enterprise, or organization does not maintain diplomatic relations with China, the documents may be notarized by a competent authority of that country, then authenticated by the embassy or consulate of a third country that maintains diplomatic relations with China, and finally authenticated by the Chinese embassy or consulate in that third country. Where international treaties or conventions concluded, ratified, or acceded to by China contain specific provisions regarding evidentiary formalities, those provisions shall prevail, except for any clauses from which China has made reservations.
(2) Residents of the Hong Kong and Macao Special Administrative Regions shall submit identity documents issued by the respective regions, such as the Hong Kong or Macao Identity Card, the Residence Permit for Hong Kong and Macao Residents, or the Mainland Travel Permit for Hong Kong and Macao Residents, to verify their identity. Enterprises and organizations shall submit proof of their legal status, together with documentation demonstrating that the person representing the enterprise or organization is duly authorized to act as its representative in litigation. Such supporting documents must be notarized by a notary public recognized in the mainland and subsequently authenticated and forwarded by China Legal Service (Hong Kong) Co., Ltd. or China Legal Service (Macao) Co., Ltd.
(3) Residents of the Taiwan region shall submit identity documents issued in the Taiwan region, such as a Taiwan Resident Identity Card, a Taiwan Resident Residence Permit, or a Mainland Travel Permit for Taiwan Residents, to verify their identity; enterprises and organizations shall submit proof of their legal status and documentation demonstrating that the person representing the enterprise or organization is duly authorized to act as its representative in litigation. Such supporting documents shall be processed through the cross‑strait notarization verification channel.
(4) Chinese nationals residing permanently overseas or in Hong Kong, Macao, or Taiwan shall submit identity documents issued by the public security authorities of the People’s Republic of China, such as a resident identity card, household registration book, or ordinary passport, and provide supporting documentation—such as a work visa or permanent residence permit—demonstrating lawful and continuous residence in the foreign country or in Hong Kong, Macao, or Taiwan for a period exceeding one year.
Article 6: Cross-border litigants who have undergone identity verification may, when entrusting a mainland Chinese lawyer to represent them in litigation, apply to the court hearing the case for online video notarization.
Online video notarization is initiated by the judge via an online platform, with the judge, the cross-border litigant, and the appointed attorney participating simultaneously in a video conference. The cross-border litigant shall use the standard Chinese language of the People’s Republic of China or be accompanied by an interpreter. The judge shall verify that the appointed attorney, the law office to which the attorney belongs, and the act of appointment all reflect the genuine intent of the cross-border litigant. Under the judge’s video‑assisted notarization, the cross-border litigant and the appointed attorney sign the relevant power‑of‑attorney documents, thereby obviating the need for notarization, legalization, or transmission procedures. Following the online video notarization, the appointed attorney may, on behalf of the litigant, file a case online, pay court fees online, and perform other related matters.
The online video witnessing process will be automatically saved by the system.
Article 7. Parties to cross-border litigation applying for online case filing shall submit the following materials online:
(1) Complaint;
(2) The parties’ identity documents, together with the corresponding notarization, authentication, transmission, and mailing‑for‑verification materials;
(3) Evidentiary materials.
The aforementioned materials shall be submitted in the standard written Chinese language of the People’s Republic of China, or in a translation certified by a qualified translation agency.
Article 8: The authorization documents for a party in cross-border litigation who appoints an agent to conduct the proceedings shall include:
(1) Where a representative of a foreign national, foreign enterprise, or foreign organization executes a power of attorney outside the territory of the People’s Republic of China, such document shall be notarized by a competent notary public in the country of origin and authenticated by the Chinese embassy or consulate in that country. If no diplomatic relations exist between the country of origin and the People’s Republic of China, the document may be notarized by a notary public in that country, then authenticated by the embassy or consulate of a third country that maintains diplomatic relations with the People’s Republic of China, and finally authenticated by the Chinese embassy or consulate in that third country. Where a power of attorney is executed within the territory of the People’s Republic of China, it shall be signed in the presence of a judge or notarized by a notary institution on the mainland. If any international treaty or convention to which the People’s Republic of China is a party, has concluded, or has acceded contains specific provisions regarding certification procedures, such provisions shall prevail, except for those clauses to which the People’s Republic of China has made reservations.
(2) When representatives of residents, enterprises, and organizations of the Hong Kong and Macao Special Administrative Regions sign powers of attorney outside mainland China, such documents shall be notarized by a notary public recognized in mainland China and subsequently authenticated and transmitted by China Legal Service (Hong Kong) Co., Ltd. or China Legal Service (Macao) Co., Ltd.; when signing powers of attorney within mainland China, such documents shall be executed in the presence of a judge or notarized by a notary institution in mainland China.
(3) Residents of the Taiwan region who execute powers of attorney outside mainland China shall do so through the cross-Strait notarization verification and authentication channels; if such powers of attorney are executed within mainland China, they must be signed in the presence of a judge or notarized by a notary public institution on the mainland.
(4) For Chinese nationals residing permanently abroad, any power of attorney submitted or entrusted for submission from overseas must be authenticated by the Chinese embassy or consulate in that country. If no such embassy or consulate exists, the document shall be authenticated by the embassy or consulate of a third country that maintains diplomatic relations with China in that country, and then forwarded to the Chinese embassy or consulate in that third country for further authentication, or alternatively, it may be certified by a local patriotic overseas Chinese organization.
Article 9: Upon receipt of an online case filing application, the court having jurisdiction shall take the following actions:
(1) Where the requirements of the law are met, the case shall be promptly registered and filed.
(2) If the complaint and supporting documents do not comply with the requirements, the court shall notify the parties in a single notice to rectify the deficiencies within 15 days. If the parties are unable to complete the rectification within that 15-day period, they may apply to the court having jurisdiction for an extension of the rectification deadline to 30 days. If the parties fail to rectify the deficiencies as required within the prescribed time limit and do not request an extension, the case‑filing materials shall be returned.
(3) If the materials do not comply with legal requirements, they may be returned online, with a clear explanation of the specific reasons.
(4) If it is not possible to determine immediately whether the case complies with legal requirements, a decision on whether to institute proceedings shall be made within seven working days.
Parties to cross-border litigation may access online information on the progress of proceedings and the outcome of case filing.
Article 10: If the case‑filing materials submitted by a party to cross-border litigation contain any of the following, the court having jurisdiction shall refuse to register and accept the case:
(1) Endangering national sovereignty, territorial integrity, and security;
(2) Undermining national unity, ethnic solidarity, and religious policies;
(3) Violating laws and regulations, disclosing state secrets, or harming national interests;
(4) Insulting or defaming others, engaging in personal attacks, abusive language, or slander, and refusing to make corrections despite being notified by the court;
(5) The matters complained of fall outside the jurisdiction of the people’s courts;
(6) Other lawsuits that do not comply with legal provisions.
Article 11. Other procedural matters shall be handled in accordance with the provisions of the Civil Procedure Law of the People’s Republic of China.
Article 12: These Provisions shall come into force as of February 3, 2021.

Interpretation of the Supreme People’s Court on the Application of the Security System under the Civil Code of the People’s Republic of China
I. General Provisions
Article 1: This Interpretation shall apply to disputes arising from security interests such as mortgages, pledges, liens, and guarantees. Disputes involving security functions in transactions such as retention-of-title sales, financial leases, and factoring shall be governed by the relevant provisions of this Interpretation.
Article 2: If the parties to a security contract stipulate that the validity of the security contract is independent of the principal contract, or if they agree that the guarantor shall assume liability for the legal consequences arising from the invalidity of the principal contract, such provisions concerning the independence of the security shall be void. Where the principal contract is valid, the invalidity of such provisions on the independence of the security shall not affect the validity of the security contract; where the principal contract is invalid, the people’s court shall deem the security contract invalid, unless otherwise provided by law.
Disputes arising from independent guarantees issued by financial institutions shall be governed by the Provisions of the Supreme People’s Court on Several Issues Concerning the Adjudication of Independent Guarantee Dispute Cases.
Article 3: Where the parties have expressly stipulated contractual liability for breach of the guarantee obligation, or where the scope of the guaranteed liability exceeds the liability that the debtor is required to bear, if the guarantor claims to be liable only within the scope of the liability that the debtor is required to bear, the people’s court shall uphold such claim.
If the guarantor’s liability exceeds the scope of liability that the debtor is required to bear, and the guarantor seeks recourse from the debtor, the people’s court shall uphold the debtor’s claim to be liable only within the scope of his or her own obligations. Similarly, if the guarantor requests the creditor to return any amount exceeding such scope, the people’s court shall grant such request in accordance with the law.
Article 4: Where any of the following circumstances exists, and the parties have registered the security interest in another person’s name, if the debtor fails to perform the due debt or if the event triggering the realization of the security interest as agreed by the parties occurs, the people’s court shall, in accordance with law, uphold the creditor’s or its trustee’s claim for priority repayment from such property:
(1) The security interest provided for the bondholders is registered in the name of the bond trustee;
(2) The security interest provided for the entrusted lender is registered in the name of the trustee;
(3) Other circumstances in which the guarantor is aware of a principal‑agent relationship between the creditor and another party.
Article 5: Where a legal person of a government organ provides a guarantee, the people’s court shall deem the guarantee contract invalid, except where such guarantee has been approved by the State Council for the purpose of re-lending funds obtained from foreign governments or international economic organizations.
Where a residents’ committee or a villagers’ committee provides a guarantee, the people’s court shall deem the guarantee contract invalid; however, this does not apply to a villagers’ committee that, in accordance with law, exercises the functions of a village collective economic organization and, pursuant to the deliberation and decision‑making procedures prescribed by the Organic Law of Villagers’ Committees, provides guarantees to third parties.
Article 6: Where a non-profit school, kindergarten, medical institution, elderly care institution, or other organization established for public welfare purposes provides a guarantee, the people’s court shall deem the guarantee contract invalid, except in any of the following circumstances:
(1) When acquiring, or leasing under a finance lease, educational facilities, medical and health care facilities, elderly care facilities, and other public-interest facilities, the seller or lessor retains ownership of such facilities as security for the payment of the purchase price or the rental payments.
(2) Establishing a security interest in immovable property, movable property, or property rights other than educational facilities, medical and health facilities, elderly care facilities, and other public-interest facilities.
Where schools, kindergartens, medical institutions, elderly care institutions, and other entities registered as for-profit legal persons provide guarantees, the people’s courts shall not uphold claims by the parties that the guarantee contract is invalid on the ground that such entities lack the requisite capacity to act as guarantors.
Article 7: If the company’s legal representative, in violation of the Company Law’s provisions on the procedures for resolutions regarding external guarantees, exceeds his or her authority and enters into a guarantee contract with the other party on behalf of the company, the people’s court shall handle the matter in accordance with Articles 61 and 504 of the Civil Code, among others.
(1) If the other party acts in good faith, the guarantee contract shall be effective against the company; if the other party requests the company to assume liability under the guarantee, the people’s court shall uphold such request.
(2) If the other party is not acting in good faith, the guarantee contract shall have no legal effect on the company; if the other party seeks to hold the company liable for damages, the relevant provisions of Article 17 of this Interpretation shall apply by analogy.
Where the legal representative, by exceeding his or her authority in providing a guarantee, causes losses to the company, and the company seeks compensation from the legal representative, the people’s court shall uphold such claim.
The “good faith” referred to in paragraph 1 means that the counterparty, at the time of entering into the security agreement, neither knew nor should have known that the legal representative had exceeded his or her authority. If the counterparty can provide evidence demonstrating that it conducted a reasonable review of the company’s resolution, the people’s court shall deem such conduct to constitute good faith, unless the company can prove that the counterparty knew or ought to have known that the resolution was forged or altered.
Article 8: Where any of the following circumstances exists, if a company claims that it should not bear liability for a guarantee on the ground that it failed to adopt a resolution in accordance with the provisions of the Company Law regarding external guarantees, the people’s court shall not uphold such claim:
(1) Financial institutions issue letters of guarantee, or guarantee companies provide guarantees;
(2) The Company provides guarantees for the business operations of its wholly owned subsidiaries;
(3) The guarantee contract shall be signed and approved by shareholders holding, either individually or jointly, more than two-thirds of the voting rights pertaining to the guarantee matter.
When a listed company provides guarantees to external parties, the provisions of subparagraphs (2) and (3) of the preceding paragraph shall not apply.
Article 9: Where a third party enters into a guarantee contract with a listed company based on publicly disclosed information indicating that the guarantee matter has been approved by the board of directors or the shareholders’ meeting, and the third party asserts that the guarantee contract is binding upon the listed company and that the listed company shall assume the guarantee liability, the people’s court shall uphold such claim.
If the counterparty enters into a guarantee contract with a listed company without relying on the information publicly disclosed by the listed company indicating that the guarantee matter has been approved by the board of directors or the shareholders’ meeting, and the listed company contends that the guarantee contract is not binding upon it and that it bears no liability for the guarantee or any indemnity, the people’s court shall uphold such claim.
The provisions of the preceding two paragraphs shall apply to guarantee contracts entered into by a third party with a listed company’s publicly disclosed controlling subsidiary, or to guarantee contracts entered into by a third party with a company whose shares are traded on other nationwide securities trading venues approved by the State Council.
Article 10: Where a single‑member limited liability company provides a guarantee for its shareholder, and the company seeks to avoid liability on the ground that it has violated the Company Law’s provisions regarding the procedures for resolutions on external guarantees, the people’s court shall not uphold such a claim. If, as a result of assuming the guarantee liability, the company is unable to pay other debts, and the shareholder who provided the guarantee cannot prove that the company’s assets are separate from his or her personal assets, the people’s court shall support the request of other creditors for that shareholder to bear joint and several liability.
Article 11: If a company’s branch, without a resolution of the shareholders’ meeting or the board of directors, provides a guarantee in its own name to a third party, the people’s court shall not support the third party’s claim that the company or its branch assume liability for such guarantee, unless the third party neither knew nor should have known that the branch’s provision of the guarantee was made without the requisite corporate resolution.
If a branch of a financial institution issues a guarantee within the scope of business specified in its business license, or with authorization from its superior institution duly empowered to engage in guarantee business, and the financial institution or its branch seeks to avoid liability on the ground that such issuance violates the Company Law’s provisions governing the procedures for resolutions on external guarantees, the people’s court shall not uphold such claim. However, if a branch of a financial institution provides a guarantee other than a formal guarantee without the authorization of the financial institution, and the financial institution or its branch asserts that it should not bear liability, the people’s court shall support such assertion—unless the counterparty neither knew nor ought to have known that the branch had provided the external guarantee without the financial institution’s authorization.
If a branch of a guarantee company provides guarantees to third parties without the authorization of the guarantee company, and the guarantee company or its branch seeks to be exempted from liability for such guarantees, the people’s court shall uphold such claim, unless the counterparty neither knew nor should have known that the branch had provided the guarantee without the guarantee company’s authorization.
Where a branch of a company provides a guarantee to a third party, and the third party is not acting in good faith, any claim for compensation against the company shall be handled in accordance with the relevant provisions of Article 17 of this Interpretation.
Article 12: Where the legal representative, in accordance with Article 552 of the Civil Code, joins a debt in the name of the company, the people’s court, when determining the validity of such act, may apply by analogy the relevant provisions of this Interpretation concerning the company’s provision of guarantees for others.
Article 13. Where a single obligation is secured by two or more third parties, and the guarantors have agreed among themselves on mutual recourse and the allocation of shares, a guarantor who has performed the guarantee obligation may request the other guarantors to share the liability in accordance with such agreement; if the guarantors have agreed to assume joint and several liability, or have agreed to mutual recourse but have not specified the allocation of shares, each guarantor shall bear, in proportion to its share, that portion of the obligation which it is unable to recover from the debtor.
Where a single obligation is secured by two or more third parties, and the guarantors have neither agreed among themselves on the right of recourse nor stipulated joint and several liability, yet each guarantor has signed, sealed, or affixed a fingerprint to the same contract, if a guarantor who has performed its guarantee obligations seeks from the other guarantors proportional apportionment of the portion that cannot be recovered from the debtor, the people’s court shall uphold such claim.
Except in the circumstances specified in the preceding two paragraphs, a guarantor who has assumed liability for guarantee shall not be entitled to seek contribution from other guarantors for the portion that cannot be recovered from the debtor; such a claim shall not be upheld by the people’s court.
Article 14: Where a single obligation is secured by two or more third parties, and a guarantor acquires the creditor’s rights, the people’s court shall deem such act to constitute the assumption of guarantee liability. If the guarantor who has acquired the creditor’s rights brings a claim as a creditor against other guarantors for the assumption of their respective guarantee liabilities, the people’s court shall not grant such claim; however, if that guarantor seeks apportionment of the corresponding share from the other guarantors, such claim shall be handled in accordance with the provisions of Article 13 of these Interpretations.
Article 15. The maximum amount of claims under a maximum‑amount guarantee refers to the aggregate of all claims, including the principal claim and its interest, default penalties, damages, expenses for the safekeeping of the secured property, and costs incurred in enforcing the claim or exercising the security interest, unless otherwise agreed by the parties.
Where the registered maximum amount of the secured claim differs from the maximum amount agreed upon by the parties, the people’s court shall determine the scope of the creditor’s priority right to repayment based on the registered maximum amount.
Article 16: Where the parties to the principal contract agree to repay the old debt with a new loan, the people’s court shall not support the creditor’s request that the guarantor of the old debt assume guarantee liability; however, if the creditor requests that the guarantor of the new loan assume guarantee liability, such request shall be handled in accordance with the following circumstances:
(1) Where the guarantors for the new loan and the old loan are the same, the people’s court shall uphold such arrangement.
(2) Where the guarantors for the new loan and the old loan are different, or where the old loan was unsecured while the new loan is secured, the people’s court shall not uphold such a claim, unless the creditor can prove that, at the time the guarantor of the new loan provided the guarantee, the guarantor knew or should have known that the new loan was being used to repay the old loan.
Where the parties to the principal contract agree to repay the old loan with a new loan, and the original collateral provider, while the registration of the prior security interest has not yet been cancelled, consents to continue providing security for the new loan, but subsequently establishes another security interest in the same collateral in favor of other creditors before the new loan agreement is concluded, the people’s court shall not uphold the claim by those other creditors that their security interest has priority over the creditor’s claim under the new loan.
Article 17: Where the principal contract is valid but the guarantee contract provided by a third party is invalid, the people’s court shall determine the guarantor’s liability for damages by distinguishing among different circumstances:
(1) Where both the creditor and the guarantor are at fault, the guarantor’s liability for damages shall not exceed one-half of the portion of the debt that the debtor is unable to repay.
(2) If the guarantor is at fault and the creditor is not, the guarantor shall bear liability for compensation to the extent that the debtor is unable to satisfy the debt.
(3) If the creditor is at fault but the guarantor is not, the guarantor shall not be liable for damages.
If the principal contract is invalid, rendering the guarantee contract provided by a third party likewise invalid, and the guarantor is not at fault, the guarantor shall not bear liability for damages; if the guarantor is at fault, its liability for damages shall not exceed one-third of the portion of the debt that the debtor is unable to repay.
Article 18: Where a guarantor has assumed liability for guarantee or indemnification, the people’s court shall support the guarantor’s right of recourse against the debtor to the extent of the liability it has borne.
Where a single claim is secured both by property provided by the debtor himself and by security provided by a third party, a third party who has assumed liability for the security or for damages shall be entitled to enforce the creditor’s security interest in the debtor’s property; such claim shall be upheld by the people’s court.
Article 19: Where a guarantee contract is invalid, if the guarantor who has assumed liability for compensation seeks, in accordance with the terms of the counter‑guarantee contract, that the counter‑guarantor assume the guarantee liability within the scope of such compensation, the people’s court shall uphold such claim.
Where a counter‑guarantee contract is invalid, it shall be handled in accordance with the relevant provisions of Article 17 of this Interpretation. If a party seeks to invalidate the counter‑guarantee contract solely on the ground that the underlying guarantee contract is invalid, the people’s court shall not uphold such claim.
Article 20: When hearing disputes over security interests in property provided by a third party, the people’s courts may apply the provisions of the Civil Code concerning guarantee contracts, including Article 695, paragraph 1; Article 696, paragraph 1; Article 697, paragraph 2; Article 699; Article 700; Article 701; and Article 702.
Article 21: Where the principal contract or the security contract contains an arbitration clause, the people’s court shall have no jurisdiction over disputes between the parties to such contract that are governed by the said arbitration clause.
Where a creditor brings suit against both the debtor and the guarantor, the competent court shall be determined in accordance with the principal contract.
Where a creditor may, in accordance with the law, bring a separate action against the guarantor and sue only the guarantor, the competent court shall be determined pursuant to the guarantee contract.
Article 22: After a people’s court accepts a debtor’s bankruptcy case, if a creditor requests the guarantor to assume guarantee liability and the guarantor claims that interest on the guaranteed debt shall cease accruing from the date the people’s court accepts the bankruptcy application, the people’s court shall uphold the guarantor’s claim.
Article 23: Where a people’s court accepts a bankruptcy case involving a debtor, and a creditor, having filed a claim in the bankruptcy proceedings, subsequently brings an action before the same people’s court seeking to hold a guarantor liable for the guarantee, the people’s court shall, in accordance with law, grant such claim.
After the guarantor has satisfied the creditor’s entire claim, it may step into the creditor’s shoes and receive payment in the bankruptcy proceedings. However, until the creditor’s claim has been fully satisfied, the guarantor may not substitute for the creditor in obtaining payment in the bankruptcy process; provided that, to the extent of its guarantee liability, the guarantor is entitled to seek reimbursement from the creditor for any amount by which the total sum recovered—whether through bankruptcy distribution or by enforcing the secured claim—exceeds the creditor’s original claim.
Where a creditor, having not been fully satisfied in the debtor’s bankruptcy proceedings, seeks to hold the guarantor liable for the remaining obligation, the people’s court shall grant such request. However, if, after assuming the guarantee liability, the guarantor seeks recourse against the debtor following the completion of the execution of a settlement agreement or a reorganization plan, the people’s court shall reject such claim.
Article 24: If a creditor, knowing or ought to have known of the debtor’s bankruptcy, neither files a claim nor notifies the guarantor, thereby preventing the guarantor from exercising its right of subrogation in advance, the guarantor shall be relieved of its guarantee liability to the extent that it could have been satisfied in the bankruptcy proceedings. However, this exemption shall not apply where the guarantor fails to exercise its right of subrogation due to its own fault.
II. Regarding the Guarantee Contract
Article 25: Where the parties to a guarantee contract stipulate that the guarantor shall assume liability only when the debtor is unable to perform the obligation or lacks the ability to repay the debt, or include similar provisions conveying the intent that the debtor should first bear responsibility, the people’s court shall deem such arrangement to constitute a general guarantee.
Where the parties to a guarantee contract stipulate that the guarantor shall assume liability upon the debtor’s failure to perform or non‑repayment of the debt, or otherwise undertake unconditional liability, and such provisions do not indicate an intention that the debtor must first bear responsibility, the people’s court shall deem such arrangement to constitute a joint and several guarantee.
Article 26: In cases of general guarantee, if the creditor brings a lawsuit against the debtor as the defendant, the people’s court shall accept the case. If the creditor has not brought a lawsuit or applied for arbitration concerning the principal contract dispute, but instead sues only the general guarantor, the people’s court shall dismiss the lawsuit.
In cases of general guarantee, if the creditor brings a joint action against both the debtor and the guarantor, the people’s court may accept the case. However, when rendering its judgment, except in the circumstances specified in the proviso to Article 687, Paragraph 2 of the Civil Code, the court shall expressly state in the operative part of the judgment that the guarantor shall be liable only for the portion of the obligation that remains unpaid after the debtor’s assets have been subject to lawful compulsory enforcement.
If the creditor has not applied for property preservation against the debtor’s assets, or if the preserved assets of the debtor are sufficient to satisfy the debt, the people’s court shall not grant the creditor’s application for property preservation against the general guarantor’s assets.
Article 27: Where, after obtaining a notarized debt instrument that confers enforceability upon the debtor, a creditor under a general guarantee applies to the people’s court for compulsory enforcement within the guarantee period, and the guarantor claims that it should not bear guarantee liability on the ground that the creditor failed to institute litigation or apply for arbitration against the debtor within the guarantee period, the people’s court shall reject such claim.
Article 28: In the case of a general guarantee, where the creditor, pursuant to an effective legal document, lawfully applies for compulsory enforcement against the debtor’s property, the commencement of the limitation period for the guaranteed debt shall be determined in accordance with the following rules:
(1) Where the people’s court has issued a ruling terminating the current enforcement proceedings, or has issued a ruling terminating enforcement pursuant to Article 257, Items (3) and (5) of the Civil Procedure Law, the period shall commence from the date the ruling is served on the creditor.
(2) If the people’s court fails to issue the ruling referred to in the preceding paragraph within one year from the date of receipt of the application for enforcement, the period shall be calculated from the date one year has elapsed since the court received such application, unless the guarantor can provide evidence demonstrating that the debtor still possesses assets that are subject to enforcement.
If, during the guarantee period, the creditor of a general guarantee brings a lawsuit or applies for arbitration against the debtor, and the creditor provides evidence demonstrating the existence of a circumstance falling under the proviso of Article 687, Paragraph 2 of the Civil Code, the statute of limitations for the guaranteed obligation shall commence from the date on which the creditor knew or ought to have known of such circumstance.
Article 29: Where there are two or more guarantors for the same debt, if the creditor claims to have exercised its rights against other guarantors within the guarantee period on the ground that it has already lawfully exercised its rights against some of the guarantors during that period, the people’s court shall not uphold such claim.
Where there are two or more guarantors for the same debt, the guarantors have a right of recourse against one another. If the creditor fails to exercise its rights against some of the guarantors within the guarantee period in accordance with the law, thereby causing the other guarantors to lose their right of recourse after they have assumed their guarantee liabilities, the people’s court shall uphold the other guarantors’ claim to be relieved of their guarantee liability to the extent that they are unable to seek recourse.
Article 30: Where a contract of maximum‑amount guarantee contains provisions regarding the method for calculating the guarantee period and its commencement, such provisions shall prevail.
If the maximum‑amount guarantee contract does not specify, or specifies unclearly, the method for calculating the guarantee period and its commencement date, and all maturity dates of the secured claims have already elapsed, the guarantee period shall commence on the date when the claims are determined. If the maturity dates of the secured claims have not yet elapsed, the guarantee period shall commence on the date when the maturity date of the last‑due claim expires.
The date on which the creditor’s rights are determined, as referred to in the preceding paragraph, shall be determined in accordance with Article 423 of the Civil Code.
Article 31: If, during the guarantee period, a creditor in a general guarantee brings a lawsuit or applies for arbitration against the debtor and subsequently withdraws such lawsuit or arbitration application, and fails to institute another lawsuit or apply for arbitration before the expiration of the guarantee period, the people’s court shall uphold the guarantor’s claim that it is no longer liable under the guarantee.
Where, during the guarantee period, a creditor who has assumed joint and several liability brings an action or applies for arbitration against the guarantor and subsequently withdraws the lawsuit or the arbitration application, and a copy of the complaint or the arbitration request has already been served on the guarantor, the people’s court shall deem that the creditor has, within the guarantee period, exercised its rights against the guarantor.
Article 32: Where a guarantee contract stipulates that the guarantor shall remain liable until the principal debt and interest have been fully repaid, or contains similar provisions, such terms shall be deemed ambiguous; the guarantee period shall be six months from the date on which the term for performance of the principal debt expires.
Article 33: Where the guarantee contract is invalid, and the creditor fails to exercise its rights within the agreed or statutory guarantee period in accordance with the law, the people’s court shall uphold the guarantor’s claim of not bearing liability for compensation.
Article 34: When hearing disputes over guarantee contracts, the people’s courts shall ascertain as essential facts of the case whether the guarantee period has expired and whether the creditor has duly exercised its rights within the guarantee period.
If the creditor fails to exercise its rights within the guarantee period in accordance with the law, the guarantor’s liability shall be extinguished. After such liability has been extinguished, if the creditor serves written notice on the guarantor demanding that it assume its guarantee obligations, and the guarantor signs, seals, or affixes a fingerprint to the notice, the people’s court shall not support the creditor’s request that the guarantor continue to bear guarantee liability, unless the creditor can provide evidence demonstrating that a new guarantee contract has been established.
Article 35: If a guarantor, knowing or ought to have known that the statute of limitations for the principal claim has expired, nevertheless provides a guarantee or assumes guarantee liability, and subsequently invokes the expiration of the statute of limitations as a defense to refuse to assume such liability or to seek restitution of property, the people’s court shall not uphold such defense. Similarly, if, after assuming guarantee liability, the guarantor seeks recourse against the debtor, the people’s court shall not support such claim, unless the debtor has expressly waived the defense of the statute of limitations.
Article 36: Where a third party provides the creditor with documents such as deficiency‑supplement commitments or liquidity‑support arrangements, which constitute an expression of intent to provide a guarantee, and the creditor seeks to hold the third party liable under a guarantee, the people’s court shall handle the matter in accordance with the relevant provisions governing guarantees.
Where a third party provides the creditor with a commitment document that expresses an intention to join the debt or to assume liability jointly with the debtor, the people’s court shall deem such document to constitute a “debt assumption” as stipulated in Article 552 of the Civil Code.
Where, in the first two paragraphs, it is difficult to determine whether a commitment document provided by a third party constitutes a guarantee or an accession to debt, the people’s court shall deem it to be a guarantee.
If the commitment document provided by a third party to the creditor does not fall within the circumstances specified in the preceding three paragraphs, the people’s court shall not support the creditor’s request that the third party assume guarantee liability or joint and several liability; however, this shall not preclude the creditor from invoking the commitment document to require the third party to perform the agreed obligations or to bear the corresponding civil liabilities.
III. On Security Interests
(1) The Validity of Guarantee Contracts and Security Interests
Article 37: Where a party pledges property whose ownership or right of use is unclear or subject to dispute, and such pledge is found upon review to constitute disposition without authority, the people’s court shall handle the matter in accordance with Article 311 of the Civil Code.
Where a party pledges property that has been lawfully seized or impounded, and the mortgagee seeks to enforce its mortgage right, the people’s court shall grant such request if, upon review, it is found that the seizure or impoundment has been lifted. If the mortgagor contends that the mortgage contract is invalid on the ground that the property was seized or impounded at the time the mortgage was established, the people’s court shall reject such claim.
Where property subject to lawful supervision is mortgaged, the provisions of the preceding paragraph shall apply.
Article 38: Where the principal claim has not been fully satisfied, if the holder of a security interest seeks to enforce such security interest over the entire secured property, the people’s court shall grant such relief; however, where a lienholder exercises its right of retention, it shall do so in accordance with the provisions of Article 450 of the Civil Code.
Where the secured property has been divided or partially transferred, and the secured creditor seeks to enforce its security interest over the divided or transferred portion of the secured property, the people’s court shall grant such relief, unless otherwise provided by law or judicial interpretation.
Article 39: Where the principal claim is divided or partially assigned, if each creditor seeks to enforce its security interest in respect of the portion of the claim to which it is entitled, the people’s court shall grant such relief, unless otherwise provided by law or agreed upon by the parties.
Where the principal debt has been divided or partially assigned, and the debtor himself provides a security interest in property, if the creditor requests that such secured property be used to secure the performance of the entire debt, the people’s court shall grant such request. Where a third party has provided a security interest in property and asserts that it shall no longer bear liability for a debt that has been assigned without its written consent, the people’s court shall uphold such assertion.
Article 40: If a accessory object arises prior to the lawful establishment of the mortgage, and the mortgagee asserts that the effect of the mortgage extends to such accessory object, the people’s court shall uphold such claim, unless the parties have otherwise agreed.
Where a fixture arises after the mortgage right has been lawfully established, the people’s court shall not uphold the mortgagee’s claim that the mortgage extends to such fixture; however, upon enforcement of the mortgage, the fixture may be disposed of concurrently.
Article 41: After a mortgage right has been established in accordance with the law, if the mortgaged property is subject to accession and the accession becomes the property of a third party, the people’s court shall uphold the mortgagee’s claim that the effect of the mortgage extends to any compensation received.
After a mortgage is established in accordance with the law, if the mortgaged property is subject to accession, the mortgagor shall acquire ownership of the accession. If the mortgagee asserts that the mortgage extends to the accession, the people’s court shall uphold such claim; however, to the extent that the accession increases the value of the mortgaged property, the mortgage shall not extend to the portion of the increased value.
After a mortgage is established in accordance with the law, if the mortgagor and a third party become joint owners of an accessionary item through accession, the people’s court shall uphold the mortgagee’s claim that the mortgage extends to the mortgagor’s share in the jointly owned property.
The term “accession” as used in this article encompasses accession, commingling, and processing.
Article 42: After a mortgage right has been established in accordance with the law, if the mortgaged property is damaged, lost, or subject to expropriation, the people’s court shall support the mortgagee’s request to be paid in priority, in the same order as the original mortgage, from insurance proceeds, compensation, or indemnification.
If the obligor has already paid insurance proceeds, indemnity, or compensation to the mortgagor, the people’s court shall not support the mortgagee’s request that the obligor pay such proceeds, indemnity, or compensation to the mortgagee; provided, however, that this does not apply where the obligor, upon receiving notice from the mortgagee demanding payment to the mortgagee, nevertheless makes such payment to the mortgagor.
When the mortgagee requests that the obligor make payment of insurance proceeds, indemnity, or compensation to the mortgagee, the people’s court may notify the mortgagor to participate in the litigation as a third party.
Article 43: Where the parties have agreed to prohibit or restrict the transfer of mortgaged property but have failed to register such agreement, and the mortgagor transfers the mortgaged property in breach of that agreement, the people’s court shall not support the mortgagee’s request to declare the transfer contract invalid. If the mortgaged property has already been delivered or registered, and the mortgagee seeks a declaration that the transfer has no real‑rights effect, the people’s court shall likewise reject such a claim, unless the mortgagee can prove that the transferee was aware of the restriction. However, if the mortgagee requests that the mortgagor bear liability for breach of contract, the people’s court shall grant such relief in accordance with the law.
Where the parties have agreed to prohibit or restrict the transfer of mortgaged property and have duly registered such agreement, and the mortgagor nevertheless transfers the mortgaged property in breach of that agreement, the people’s court shall not uphold the mortgagee’s claim for a declaration that the transfer contract is void. If the mortgaged property has already been delivered or registered, and the mortgagee asserts that the transfer produces no real‑rights effect, the people’s court shall grant such assertion, except where the mortgage right has been extinguished because the transferee has discharged the debtor’s obligation.
Article 44: Where, after the expiration of the statute of limitations for the principal claim, the mortgagee seeks to enforce its mortgage right, the people’s court shall not grant such relief. If the mortgagor invokes the expiration of the statute of limitations for the principal claim as a defense and contends that it is not liable under the security interest, the people’s court shall uphold such defense. Prior to the expiration of the statute of limitations for the principal claim, if the creditor has instituted litigation solely against the debtor and, following a judgment or mediation by the people’s court, fails to apply for compulsory enforcement against the debtor within the period for applying for enforcement prescribed in the Civil Procedure Law, any subsequent assertion by the creditor of its mortgage right against the mortgagor shall likewise be rejected by the people’s court.
Where, after the expiration of the statute of limitations for the principal claim, a debtor whose property is subject to a lien or a third party who holds ownership of the pledged property requests the creditor to return the pledged property, the people’s court shall not grant such request. However, if the debtor or the third party requests that the pledged property be auctioned or sold and that the proceeds be applied to discharge the debt, the people’s court shall grant such request.
With respect to the legal consequences of the expiration of the statute of limitations for the principal claim, a pledge of rights whose publicity is effected by registration shall be governed by the provisions of paragraph 1 by analogy; a pledge of movable property and a pledge of rights whose publicity is effected by delivery of the relevant certificate shall be governed by the provisions of paragraph 2 by analogy.
Article 45: Where the parties have agreed that, upon the debtor’s failure to perform a due obligation or upon the occurrence of any event specified in the agreement for exercising the security interest, the holder of the security interest shall be entitled to auction or sell the secured property on its own and to be paid in priority from the proceeds, such agreement shall be valid. If, due to reasons attributable to the guarantor, the holder of the security interest is unable to auction or sell the secured property on its own, and the holder seeks compensation from the guarantor for any additional expenses incurred as a result, the people’s court shall uphold such claim.
Where a party, in accordance with the provisions of the Civil Procedure Law concerning “cases for the realization of security interests,” applies for the auction or sale of secured property, and the respondent seeks to have the application dismissed on the ground that the security contract contains an arbitration clause, the people’s court, after review, shall handle the matter as follows, depending on the specific circumstances:
(1) Where the parties have no substantial dispute regarding the security interest and the conditions for enforcing such security interest have been met, the court shall issue an order authorizing the auction or sale of the secured property.
(2) If the parties have a partial substantive dispute regarding the realization of security rights, the court may issue an order authorizing the auction or sale of the secured property with respect to the undisputed portion, and shall inform the parties that they may apply for arbitration concerning the disputed portion.
(3) If the parties have a substantive dispute regarding the realization of the security interest, the application shall be dismissed, and they shall be informed that they may apply for arbitration to an arbitration institution.
Where a creditor exercises its security interest through litigation, the debtor and the guarantor shall be named as joint defendants.
(2) Real Estate Mortgage
Article 46: After an immovable property mortgage contract has come into effect but the mortgage registration procedures have not yet been completed, if the creditor requests the mortgagor to carry out such registration, the people’s court shall grant support.
If the mortgaged property is lost or subject to expropriation for reasons not attributable to the mortgagor, rendering it impossible to register the mortgage, a creditor’s request that the mortgagor assume liability within the agreed‑upon scope of security shall not be upheld by the people’s court; however, if the mortgagor has already received insurance proceeds, compensation, or other indemnification, the people’s court shall, in accordance with the law, uphold the creditor’s claim that the mortgagor bear liability up to the amount actually received.
Where the mortgagor’s transfer of the mortgaged property or other reasons attributable to the mortgagor itself prevents the registration of the mortgage, and the creditor seeks to hold the mortgagor liable within the agreed scope of security, the people’s court shall uphold such claim in accordance with the law; however, the liability shall not exceed the extent that the mortgagor would have been required to bear had the mortgage right been validly established at the time.
Article 47: Where the entries in the real estate registration book regarding the mortgaged property, the scope of the secured claims, and other matters are inconsistent with the provisions of the mortgage contract, the people’s court shall determine such matters— including the mortgaged property and the scope of the secured claims—based on the records in the registration book.
Article 48: When a party applies for the registration of a mortgage, if, due to the fault of the registration authority, the mortgage registration cannot be completed, and the party requests that the registration authority bear liability for damages, the people’s court shall, in accordance with the law, uphold such claim.
Article 49: Where a mortgage is established on an unlawful building, the mortgage contract shall be void; provided, however, that this shall not apply if the requisite legal formalities have been completed prior to the conclusion of the first-instance court debate. The legal consequences of the invalidity of the mortgage contract shall be governed by the relevant provisions of Article 17 of this Interpretation.
Where a party has lawfully established a mortgage over the right to use construction land, and the mortgagor seeks to have the mortgage contract declared invalid on the ground that there are illegal structures on the land, the people’s court shall not uphold such claim.
Article 50: Where a mortgagor mortgages a building situated on allocated construction land, and the parties contend that the mortgage contract is invalid or ineffective on the ground that the land-use right for such construction land may not be mortgaged or that the requisite approval procedures have not been completed, the people’s court shall not uphold such claims. Upon lawful enforcement of the mortgage right, the proceeds from the auction or sale of the building shall be applied in priority to the payment of any outstanding land‑use right transfer fees.
Where a party mortgages the right to use construction land acquired through allocation, and the mortgagor contends that the mortgage contract is invalid or ineffective on the ground that the requisite approval procedures have not been completed, the people’s court shall not uphold such claim. If the mortgage registration has been duly effected in accordance with the law and the mortgagee seeks to enforce its mortgage rights, the people’s court shall grant such relief. The proceeds obtained upon lawful enforcement of the mortgage shall be handled in accordance with the provisions set forth in the preceding paragraph.
Article 51: Where a party mortgages only the right to use land for construction, if the creditor claims that the mortgage extends to existing buildings on the land as well as to the completed portions of buildings under construction, the people’s court shall uphold such claim. However, if the creditor seeks to extend the mortgage to the continuation of construction of buildings under construction or to any newly constructed buildings, the people’s court shall not grant such claim.
Where a party mortgages a building under construction, the scope of the mortgage right is limited to the portion for which mortgage registration has been duly completed. If a party, pursuant to the terms of the security agreement, seeks to extend the effect of the mortgage to include subsequently constructed portions, newly erected buildings, or structures yet to be built as contemplated in the planning, such claim shall not be upheld by the people’s court.
Where a mortgagor mortgages the right to use construction land, buildings on the land, or buildings under construction to different creditors respectively, the people’s court shall determine the order of repayment in accordance with the chronological order of the mortgage registrations.
Article 52: After the parties have registered a preliminary mortgage, if the holder of the preliminary registration requests priority payment from the mortgaged property, the people’s court shall reject such request if, upon review, any of the following circumstances exist: the initial registration of ownership of the building has not yet been completed; the property subject to the preliminary registration is inconsistent with the property at the time of the initial registration of ownership; or the preliminary mortgage registration has already lapsed, thereby rendering the conditions for registering the mortgage unfulfilled. However, if, upon review, the initial registration of ownership of the building has been completed and no circumstance rendering the preliminary registration invalid exists, the people’s court shall grant the request and deem that the mortgage right was established as of the date of the preliminary registration.
Where a party has registered a preliminary mortgage and the mortgagor subsequently becomes bankrupt, and upon review the mortgaged property is determined to be part of the bankruptcy estate, if the holder of the preliminary registration asserts a priority right to payment from such property, the people’s court shall grant such claim to the extent of the value of the mortgaged property at the time the bankruptcy petition was filed. However, this does not apply where, within one year prior to the filing of the bankruptcy petition, the debtor established a preliminary mortgage registration on debts that were unsecured.
(3) Chattel and Rights-Based Security
Article 53: Where the parties to a security contract for movable property and rights provide a general description of the secured property that is sufficient to reasonably identify such property, the people’s court shall deem the security to be valid.
Article 54: Where, after the conclusion of a pledge contract for movable property, the pledge registration has not been effected, the validity of the pledge right over such movable property shall be governed as follows, depending on the specific circumstances:
(1) If the mortgagor transfers the mortgaged property and the transferee takes possession of it, the people’s court shall not support the mortgagee’s request to enforce its mortgage right against the transferee, unless the mortgagee can prove that the transferee knew or ought to have known that a mortgage contract had already been concluded.
(2) If the mortgagor leases the mortgaged property to another party and transfers possession thereof, the exercise of the mortgage right by the mortgagee shall not affect the lease relationship; provided, however, that this shall not apply where the mortgagee can prove that the lessee knew or ought to have known that a mortgage had been established.
(3) If other creditors of the mortgagor apply to the people’s court for preservation or enforcement of the mortgaged property, and the people’s court has already issued a ruling on property preservation or taken enforcement measures, the people’s court shall not support the mortgagee’s claim to priority repayment from the mortgaged property.
(4) If the mortgagor becomes bankrupt and the mortgagee seeks priority repayment from the mortgaged property, the people’s court shall not grant such claim.
Article 55: Where a creditor, a pledgor, and a supervisor enter into a tripartite agreement, and the pledgor provides security for the performance of the debt by delivering goods whose scope can be determined through a general description of quantity, variety, and other relevant characteristics, if the parties have evidence demonstrating that the supervisor is entrusted by the creditor to supervise and exercise actual control over such goods, the people’s court shall deem that the pledge right is established as of the date when the supervisor obtains actual control over the goods. If the supervisor, in violation of the agreed terms, releases the goods to the pledgor or any other party, or if the goods are damaged or lost due to inadequate custody, and the creditor seeks to hold the supervisor liable for breach of contract, the people’s court shall uphold such claim in accordance with the law.
In the circumstances set forth in the preceding paragraph, if a party can prove that the supervisor was entrusted by the pledgor to supervise the goods, or, although entrusted by the creditor, failed to actually perform its supervisory duties, resulting in the goods remaining under the pledgor’s actual control, the people’s court shall deem that the pledge has not been established. The creditor may, pursuant to the provisions of the pledge contract, require the pledgor to bear liability for breach of contract; however, such liability shall not exceed the scope of responsibility that the pledgor would have borne had the pledge been validly established. If the supervisor fails to perform its supervisory duties and the creditor seeks to hold the supervisor liable, the people’s court shall, in accordance with the law, uphold the creditor’s claim.
Article 56: If a purchaser acquires movable property that has already been subject to a security interest in the course of the seller’s ordinary business operations by paying reasonable consideration, the people’s court shall not support the security interest holder’s claim for priority repayment with respect to such property, unless one of the following circumstances applies:
(1) The quantity of goods purchased clearly exceeds that of ordinary purchasers;
(2) Purchasing the seller’s production equipment;
(3) The purpose of entering into a sales contract is to secure the performance of the debtor’s obligations by the seller or a third party;
(4) The purchaser and the seller have a direct or indirect controlling relationship;
(5) Other circumstances in which the purchaser should have conducted a search of the mortgage registration but failed to do so.
The “ordinary course of business” of the seller referred to in the preceding paragraph means that the seller’s business activities fall within the scope of business expressly stated in its business license, and that the seller continuously sells similar goods. The “secured creditor” referred to in the preceding paragraph means a mortgagee who has completed registration, a seller under a sale with retention of title, or a lessor under a financial lease agreement.
Article 57: Where, after a security provider has established a floating charge over movable property and registered such charge, it subsequently acquires or leases new movable property under a finance lease, any party that, in order to secure the payment of the purchase price or the rental payments, enters into a security agreement and, within ten days of delivery of such movable property, registers that agreement, thereby asserting that its rights shall have priority over the pre-existing floating charge, shall have its claim upheld by the people’s court.
(1) The seller who has established a security interest in the movable property or retained ownership thereof;
(2) A creditor who has established a security interest in the movable property to secure payment of the purchase price;
(3) The lessor who leases the movable property under a finance lease.
If a purchaser acquires movable property without paying the full purchase price, or if a lessee takes possession of the leased object under a finance lease but has not paid all the rental payments, and subsequently establishes a security interest in the same object for another party, then, provided that the holder of the rights listed in the preceding paragraph enters into a security agreement to secure the satisfaction of the purchase price claim or the rental debt and registers such security within ten days after delivery of the movable property, the people’s court shall uphold the claim that such right has priority over the security interest established by the purchaser for another party.
Where multiple purchase-money security interests exist in the same movable property, the people’s court shall determine the order of priority for satisfaction in accordance with the chronological order of registration.
Article 58: Where a bill of exchange is pledged, and the parties have endorsed it with the word “pledge” and affixed their signatures or seals, and the bill has been delivered to the pledgee, the people’s court shall deem that the pledge right is established upon such delivery.
Article 59: Where the depositor or the holder of the warehouse receipt records the word “pledge” on the receipt by endorsement and the custodian has affixed its seal, and the receipt has been delivered to the pledgee, the people’s court shall deem that the pledge right is established upon such delivery. If a warehouse receipt lacks a certificate of rights but may, in accordance with law, be registered for pledge, the pledge right in respect of that receipt shall be deemed established upon completion of such registration.
Where the pledgor has pledged both a warehouse receipt and the goods stored therein, the order of satisfaction shall be determined according to the chronological priority of the public notices; if the order cannot be ascertained, satisfaction shall be allocated in proportion to the respective claims.
When the custodian issues multiple warehouse receipts for the same goods, and the pledgor establishes multiple pledges on those receipts, the order of priority for satisfaction shall be determined by the chronological sequence of public notice; if the sequence cannot be ascertained, repayment shall be made in proportion to the respective claim amounts.
Where the circumstances set forth in Paragraphs 2 and 3 exist, and the creditor provides evidence demonstrating that the loss was caused by the joint conduct of the pledgor and the bailee, the people’s court shall uphold the creditor’s claim for joint and several liability for damages against both the pledgor and the bailee.
Article 60: In a documentary credit transaction, where the issuing bank and the applicant for the letter of credit have agreed that the bill of lading shall serve as security, the people’s court shall handle the matter in accordance with the relevant provisions of the Civil Code concerning pledge.
In a documentary credit transaction, where the issuing bank holds the bill of lading pursuant to its agreement with the applicant or in accordance with the customary practices governing documentary credits, if the applicant fails to make payment and redeem the documents as agreed, the people’s court shall uphold the issuing bank’s claim to priority satisfaction of its claims against the goods covered by the bill of lading. However, the people’s court shall not uphold the issuing bank’s claim to ownership of such goods.
In a documentary credit transaction, the issuing bank, pursuant to its agreement with the applicant or in accordance with the customary practices of documentary credits, obtains payment by transferring the bill of lading or the goods covered by the bill of lading. If the applicant seeks the return of any amount exceeding the creditor’s claim, the people’s court shall grant such relief.
The provisions of the preceding three paragraphs shall not preclude a issuing bank that is lawfully in possession of the bill of lading from asserting its rights under the contract of carriage in its capacity as the holder of the bill of lading.
Article 61: Where existing accounts receivable are pledged, if the debtor of the accounts receivable, after having conofficeed the authenticity of the receivables to the pledgee, subsequently claims that it bears no liability on the ground that the receivables do not exist or have been extinguished, such claim shall not be upheld by the people’s court.
Where an existing accounts receivable is pledged, and the debtor of the receivable has not conofficeed the authenticity of the receivable, if the pledgee brings suit against the debtor seeking priority payment from the receivable, the people’s court shall grant such relief if the pledgee can furnish evidence demonstrating that the receivable was indeed in existence at the time the pledge registration was effected. However, if the pledgee fails to prove that the receivable existed at the time of registration and seeks priority payment solely on the ground that registration has been completed, the people’s court shall reject the claim.
Where an existing accounts receivable is pledged, and the debtor of the accounts receivable has already performed its obligation to the creditor of the accounts receivable, the people’s court shall not support the pledgee’s request that the debtor perform its obligation; provided, however, that this does not apply if, upon receiving notice from the pledgee demanding performance, the debtor nevertheless proceeds to perform its obligation to the creditor of the accounts receivable.
Where receivables arising from the assignment of project revenue rights in infrastructure and public‑utility projects, claims for services or labor, or other future receivables are pledged, and the parties have established a dedicated account for such receivables, if, upon the occurrence of a statutory or contractual event triggering enforcement of the pledge, the pledgee seeks priority payment from the funds held in that designated account, the people’s court shall grant such relief. If the funds in the designated account are insufficient to satisfy the debt, or if no such designated account has been established, and the pledgee requests valuation, auction, or sale of the project revenue rights or other future receivables, with priority payment from the proceeds, the people’s court shall, in accordance with the law, uphold such request.
Article 62: Where a debtor fails to perform a due obligation, and the creditor, on the basis of the same legal relationship, exercises a right of retention over movable property lawfully in the possession of a third party and claims priority in satisfaction from such retained property, the people’s court shall uphold such claim. If the third party seeks the return of the retained property on the ground that it does not belong to the debtor, the people’s court shall reject such request.
The movable property subject to a lien and the creditor’s claim held by one enterprise do not arise from the same legal relationship. If the debtor seeks the return of the pledged property on the ground that the creditor’s claim does not constitute a debt incurred in the course of the enterprise’s ongoing business operations, the people’s court shall uphold such request.
The movable property and the creditor’s rights subject to a lien between enterprises do not constitute the same legal relationship. Where a creditor has taken possession of another party’s property by way of a lien, and that third party requests the return of the pledged property, the people’s court shall grant such request.
IV. On Atypical Security Interests
Article 63: Where a creditor and a guarantor enter into a guarantee contract providing for the establishment of a security interest in property rights that, under laws or administrative regulations, have not yet been expressly permitted to be subject to security, the people’s court shall not uphold the claim that such contract is invalid. Likewise, if the parties have failed to effect lawful registration with the statutorily designated registration authority, the people’s court shall not recognize the existence of real‑rights effects in respect of such security.
Article 64: In a sale with retention of title, the seller is entitled by law to reclaim the subject matter; however, if no agreement can be reached with the buyer, and the parties request that the subject matter be auctioned or sold pursuant to the relevant provisions of the Civil Procedure Law governing cases for the realization of security interests, the people’s court shall grant such request.
If the seller’s request to reclaim the subject matter of the contract complies with the provisions of Article 642 of the Civil Code, the people’s court shall grant such request. If the buyer asserts, by way of a defense or a counterclaim, that the subject matter should be auctioned or sold and that any remaining proceeds, after deducting the unpaid purchase price and necessary expenses, be returned to the buyer, the people’s court shall adjudicate such claim in conjunction with the original action.
Article 65: In a finance lease contract, if the lessee fails to pay the rent as agreed and, after being urged to do so, still fails to pay within a reasonable period, the lessor’s request that the lessee pay all outstanding rent and be compensated from the proceeds of the auction or sale of the leased asset shall be upheld by the people’s court. If the parties request, in accordance with the relevant provisions of the Civil Procedure Law governing cases for the realization of security interests, that the rent be paid out of the proceeds from the auction or sale of the leased asset, the people’s court shall grant such request.
If the lessor seeks to terminate the finance lease contract and reclaim the leased asset, and the lessee, by way of a defense or a counterclaim, asserts that the value of the leased asset exceeds the outstanding rent and other fees, the people’s court shall adjudicate both claims together. Where the parties dispute the value of the leased asset, such value shall be determined in accordance with the following rules:
(1) If the finance lease contract contains provisions, such provisions shall prevail.
(2) If the finance lease contract does not specify or the provisions are unclear, the determination shall be made based on the depreciation of the leased asset as agreed upon and the residual value of the leased asset at the expiration of the contract.
(3) If the value still cannot be determined using the methods set forth in the preceding two paragraphs, or if a party contends that the value determined by those methods significantly deviates from the actual value of the leased object, an appraisal shall be commissioned, upon the party’s application, from a qualified institution.
Article 66: Where the same accounts receivable is simultaneously subject to factoring, pledge of accounts receivable, and assignment of claims, and a party seeks to have the priority order determined in accordance with Article 768 of the Civil Code, the people’s court shall grant such request.
In factoring with recourse, if the factor brings an action against either the accounts‑receivable creditor or the accounts‑receivable debtor, the people’s court shall accept the case; if the factor sues both the accounts‑receivable creditor and the accounts‑receivable debtor, the people’s court may also accept the case.
Where the receivables creditor, upon returning the principal and interest of the factoring financing to the factor or repurchasing the receivables claim, seeks performance of the receivables obligation from the receivables debtor, the people’s court shall uphold such claim.
Article 67: In contracts such as sale with retention of title and financial leasing, the scope and legal effect of “bona fide third parties” whose rights may not be asserted against the seller or lessor unless such rights have been registered shall be determined in accordance with the provisions of Article 54 of this Interpretation.
Article 68: Where the debtor or a third party and the creditor agree to transfer ownership of property formally to the creditor’s name, and, upon the debtor’s failure to perform a due obligation, the creditor is entitled to settle the debt by valuing the property at its market value or by using the proceeds from the auction or sale of such property, the people’s court shall deem such agreement valid. If the parties have completed the publicity procedures for the transfer of property rights, and the debtor fails to perform a due obligation, the creditor’s request to be preferentially repaid from such property in accordance with the relevant provisions of the Civil Code concerning security interests shall be upheld by the people’s court.
Where a debtor or a third party, in agreement with the creditor, formally transfers property into the creditor’s name, and the creditor acquires ownership of such property upon the debtor’s failure to perform a due obligation, the people’s court shall deem such agreement invalid; however, this does not affect the validity of the parties’ expressions of intent to provide security. If the parties have already completed the publicity procedures for the transfer of property rights, and the debtor fails to perform a due obligation, the people’s court shall reject the creditor’s claim to ownership of the property. However, if the creditor seeks, by analogy to the provisions of the Civil Code on security interests, to receive priority payment through valuation of the property or from the proceeds of its auction or sale, the people’s court shall grant such relief. Upon the debtor’s performance of the obligation, the people’s court shall support the debtor’s request for the return of the property, or for payment of the debt by way of valuation of the property or by using the proceeds from its auction or sale.
Where the debtor and the creditor agree to transfer property into the creditor’s name, with the understanding that, after a specified period, the debtor or a third party designated by the debtor will repurchase the property at the original principal plus an agreed-upon premium, and the debtor fails to perform the repurchase obligation upon maturity, resulting in the property vesting in the creditor, the people’s court shall handle the matter in accordance with the provisions of paragraph 2. If the object of the repurchase never existed from the outset, the people’s court shall, pursuant to Article 146, paragraph 2, of the Civil Code, adjudicate the case in light of the actual legal relationship established.
Article 69: Where a shareholder provides security for the performance of a debt by transferring his or her equity interest to the creditor’s name, and the company or its creditor seeks to hold the creditor, as the nominal shareholder, jointly and severally liable on the grounds that the shareholder has failed to fulfill or has not fully fulfilled his or her capital contribution obligations, or has withdrawn his or her contributed capital, the people’s court shall not support such a claim.
Article 70: Where the debtor or a third party establishes a dedicated margin account for the purpose of securing the performance of a debt, and such account is under the actual control of the creditor, or where funds are deposited by the debtor into a margin account established by the creditor, the people’s court shall uphold the creditor’s claim to priority repayment from the funds in that account. If a party contends, on the ground of fluctuations in the funds held in the margin account, that the creditor who exercises actual control over the account is not entitled to priority repayment with respect to those funds, the people’s court shall reject such contention.
Margin sub-accounts established under a bank account shall be handled in accordance with the provisions of the preceding paragraph.
If the security deposit agreed upon by the parties was not established to secure the performance of the debt, or does not fall within the circumstances set forth in the preceding two paragraphs, the people’s court shall not support the creditor’s claim for priority payment from such deposit; however, this shall not preclude the parties from asserting their rights in accordance with the provisions of law or as otherwise agreed.
V. Supplementary Provisions
Article 71: This Interpretation shall take effect as of January 1, 2021.

Interpretation of the Supreme People’s Court on Issues Concerning the Application of Law in the Adjudication of Labor Dispute Cases (I)
In order to ensure the proper adjudication of labor dispute cases, this Interpretation is formulated in accordance with the relevant provisions of the Civil Code of the People’s Republic of China, the Labor Law of the People’s Republic of China, the Labor Contract Law of the People’s Republic of China, the Mediation and Arbitration Law on Labor Disputes of the People’s Republic of China, the Civil Procedure Law of the People’s Republic of China, and other applicable laws, and in light of judicial practice.
Article 1: The following disputes arising between laborers and employers shall be deemed labor disputes. Where the parties, dissatisfied with the rulings rendered by labor dispute arbitration institutions, bring suit in accordance with the law, the people’s courts shall accept such cases:
(1) Disputes arising between employees and employers in the course of performing the labor contract;
(2) Disputes arising after a labor relationship has been established between the employee and the employer, despite the absence of a written employment contract.
(3) Disputes between employees and employers concerning whether the employment relationship has been terminated or ended, and whether economic compensation should be paid upon such termination or ending;
(4) Disputes arising after a worker and the employer have terminated or dissolved the employment relationship, including requests by the worker for the employer to return any deposits, security deposits, collateral, or pledged assets collected in connection with the labor contract, as well as disputes concerning the procedures for transferring the worker’s personnel files, social insurance records, and other related matters.
(5) Disputes in which a worker seeks compensation from the employer on the grounds that the employer failed to arrange social insurance procedures for the worker, and that the social insurance administration agency is unable to retroactively process such procedures, thereby preventing the worker from enjoying the corresponding social insurance benefits.
(6) Disputes arising after a worker’s retirement between the worker and the former employer that has not yet participated in the unified social insurance system, concerning the recovery of pension benefits, medical expenses, work‑injury insurance benefits, and other social insurance benefits;
　(7) Disputes arising from a worker’s request for workers’ compensation benefits in accordance with the law due to work-related injury or occupational disease;
(8) Disputes arising from an employee’s request, pursuant to Article 85 of the Labor Contract Law, that the employer pay additional compensation.
(9) Disputes arising from a company’s independent restructuring.
Article 2: The following disputes shall not be deemed labor disputes:
(1) Disputes arising from workers’ requests to social insurance agencies for the disbursement of social insurance benefits;
(2) Disputes over the transfer of publicly owned housing arising between employees and employers in connection with housing system reform;
(3) Disputes arising from a worker’s objection to the disability rating determination rendered by the Labor Capacity Appraisal Committee or to the occupational disease diagnosis and appraisal conclusion issued by the Occupational Disease Diagnosis and Appraisal Committee;
(4) Disputes between households or individuals and domestic service personnel;
　(5) Disputes between individual artisans and their assistants or apprentices;
(6) Disputes between rural contracted households and their employees.
Article 3: Labor dispute cases shall be under the jurisdiction of the basic people’s court at the location of the employer or at the place where the labor contract is performed. If the place of performance of the labor contract is not clearly defined, the case shall be under the jurisdiction of the basic people’s court at the location of the employer. Where otherwise provided by law, such provisions shall prevail.
Article 4: Where both the employee and the employer, dissatisfied with the same decision of a labor dispute arbitration institution, file lawsuits with the same people’s court, the people’s court shall consolidate the cases for trial, treating each party as both plaintiff and defendant. The people’s court shall render a single judgment addressing the claims of both parties. During the litigation, if one party withdraws its claim, the people’s court shall continue to hear the case based on the remaining party’s claims. If both parties separately file lawsuits with competent people’s courts concerning the same arbitration award, the people’s court that accepted the case later shall transfer the case to the people’s court that accepted it first.
Article 5: If a labor dispute arbitration institution refuses to accept a labor dispute case on the ground of lack of jurisdiction, and the parties subsequently file a lawsuit, the people’s court shall handle the matter as follows, depending on the specific circumstances:
(1) If, upon review, it is determined that the labor dispute arbitration institution lacks jurisdiction over the case, it shall notify the parties to submit their application for arbitration to a labor dispute arbitration institution that has jurisdiction.
(2) If, upon review, the labor dispute arbitration institution is found to have jurisdiction, the parties shall be informed to file an arbitration application, and the reviewing authority shall notify the said arbitration institution of its opinion in writing. If the labor dispute arbitration institution still refuses to accept the case, and the parties bring a lawsuit concerning the same labor dispute, the people’s court shall accept the case.
Article 6: If a labor dispute arbitration institution, on the ground that the matters for which the parties have applied for arbitration do not constitute a labor dispute, issues a written ruling, decision, or notice of non-acceptance, and the parties, dissatisfied with such decision, bring a lawsuit in accordance with the law, the people’s court shall handle the matter on a case-by-case basis as follows:
(1) Cases falling within the scope of labor disputes shall be accepted;
(2) Although not classified as a labor dispute case, if the matter falls within the jurisdiction of the people’s courts, it shall be accepted in accordance with the law.
Article 7: If a labor dispute arbitration institution issues a written ruling, decision, or notice rejecting the application on the ground that the party filing the arbitration lacks standing, and the party concerned files a lawsuit in accordance with the law, the people’s court shall refuse to accept the case if, upon review, it is determined that the party indeed lacks standing; if the case has already been accepted, the court shall issue a ruling dismissing the lawsuit.
Article 8: Where a labor dispute arbitration institution, in order to correct errors in the original arbitration award, renders a new award, and a party, dissatisfied with such award, files a lawsuit in accordance with the law, the people’s court shall accept the case.
Article 9: Where the matters subject to arbitration by a labor dispute arbitration institution fall outside the scope of cases that may be accepted by the people’s courts, if a party files a lawsuit in accordance with the law, the people’s court shall not accept the case; if the case has already been accepted, the court shall issue a ruling dismissing the lawsuit.
Article 10: Where a party, dissatisfied with an arbitration award rendered by a labor dispute arbitration institution ordering the advance payment of wages, work‑injury medical expenses, economic compensation, or damages to a worker, brings a lawsuit in accordance with the law, the people’s court shall not accept the case.
If an employer fails to fulfill the payment obligations set forth in the aforementioned arbitration award, and the employee applies for compulsory enforcement in accordance with the law, the people’s court shall accept the application.
Article 11: Where a mediation agreement rendered by a labor dispute arbitration institution has already attained legal effect, if one party reneges and files a lawsuit, the people’s court shall not accept the case; if the case has already been accepted, the court shall issue a ruling dismissing the lawsuit.
Article 12: Where a labor dispute arbitration institution fails to issue a decision on acceptance or an arbitral award within the prescribed time limit, and the parties directly file a lawsuit, the people’s court shall accept the case, except where the arbitration application falls under any of the following circumstances:
(1) Cases subject to transfer of jurisdiction;
(2) Those that are being served or whose service is delayed;
(3) Those awaiting the outcome of another pending lawsuit or the determination of disability rating;
(4) Those who are awaiting the commencement of a hearing before a labor dispute arbitration institution;
(5) Where the appraisal procedure has been initiated or where another department has been entrusted to conduct investigations and gather evidence;
(6) Other justifiable reasons.
Where a party brings an action on the ground that the labor dispute arbitration institution has failed to render an arbitral award within the prescribed time limit, such party shall submit the acceptance notice issued by the arbitration institution or other evidence or proof demonstrating that the arbitration application has been accepted.
Article 13: Where a worker applies to the people’s court for a payment order pursuant to Article 30, Paragraph 2 of the Labor Contract Law and Article 16 of the Mediation and Arbitration Law, and such application complies with the provisions on the summary procedure set forth in Chapter XVII of the Civil Procedure Law, the people’s court shall accept the case.
Where, pursuant to Article 30, Paragraph 2 of the Labor Contract Law, an application for a payment order has been terminated by the people’s court following the conclusion of the summary procedure, and the worker subsequently files a lawsuit directly concerning the labor dispute, the people’s court shall inform the worker that he or she must first submit the matter to a labor dispute arbitration institution for arbitration.
Where, pursuant to Article 16 of the Mediation and Arbitration Law, an application for a payment order has been terminated by the people’s court through the conclusion of the summary procedure, and the worker subsequently files a lawsuit directly based on the mediation agreement, the people’s court shall accept the case.
Article 14: After a people’s court has accepted a labor dispute case, if a party adds additional claims, such claims shall be jointly tried if they are inseparable from the labor dispute at issue; if they constitute an independent labor dispute, the party shall be informed that it must submit the matter to a labor dispute arbitration institution for arbitration.
Article 15: Where a worker brings a lawsuit directly on the strength of an employer’s wage IOU, and the claim does not involve any other disputes relating to the employment relationship, such a dispute shall be deemed a dispute over unpaid wages, and the people’s court shall accept it as an ordinary civil dispute.
Article 16: After an arbitration tribunal has rendered an arbitral award, if a party files a lawsuit in accordance with the law challenging only certain aspects of the award, the arbitral award shall not take legal effect.
Article 17: After an arbitration institution has rendered an arbitral award on labor disputes involving multiple workers, if some of the workers, dissatisfied with the award, file a lawsuit in accordance with the law, the arbitral award shall not have legal effect as to those workers who have brought suit; however, it shall have legal effect as to those workers who have not filed a lawsuit, and the people’s court shall accept their applications for enforcement.
Article 18: The classification of an arbitral award shall be determined by the content of the arbitral award document. If the arbitral award does not specify whether it is a final or non-final award, and the employer files a lawsuit with the basic people’s court challenging such award, the case shall be handled as follows, depending on the specific circumstances:
(1) If, upon review, the arbitral award is deemed to be non-final, the basic-level people’s court shall accept the case.
(2) If, upon review, the arbitration award is deemed to be a final award, the basic-level people’s court shall not accept the case; however, it shall inform the employer that, within thirty days from the date of receipt of the ruling rejecting acceptance, it may apply to the intermediate people’s court at the location of the labor dispute arbitration institution for the annulment of the arbitration award. If the case has already been accepted, the court shall issue a ruling dismissing the lawsuit.
Article 19: If the arbitration award does not specify whether it is a final or non-final award, and the worker, pursuant to Article 47, Paragraph 1 of the Mediation and Arbitration Law, seeks recovery of wages, work‑injury medical expenses, economic compensation, or damages, and if the award covers multiple items, the amount determined for each item…
Article 20: If an arbitration award rendered by a labor dispute arbitration institution simultaneously contains both final and non-final matters, and a party files a lawsuit with the people’s court challenging such award, the case shall be treated as a non-final award.
Article 21: Where a worker brings an action before the basic-level people’s court in accordance with Article 48 of the Mediation and Arbitration Law, and the employer applies to the intermediate people’s court at the location of the labor dispute arbitration institution for the revocation of the arbitration award pursuant to Article 49 of the same law, the intermediate people’s court shall refuse to accept the case; if it has already been accepted, it shall issue a ruling dismissing the application.
Where a lawsuit has been dismissed by the people’s court or withdrawn by the worker, the employer may, within thirty days from the date of receipt of the ruling, apply to the intermediate people’s court at the location of the labor dispute arbitration institution for the revocation of the arbitration award.
Article 22: Where an employer applies to the intermediate people’s court for the revocation of an arbitration award pursuant to Article 49 of the Mediation and Arbitration Law, the ruling rendered by the intermediate people’s court dismissing the application or revoking the arbitration award shall be a final ruling.
Article 23: When a intermediate people’s court hears a case in which an employer applies to set aside a final arbitration award, it shall convene a collegial panel and hold an open court session. After reviewing the case files, conducting investigations, and questioning the parties, if the collegial panel finds that there are no new facts, evidence, or grounds and deems that a court hearing is unnecessary, it may proceed without holding a hearing.
The Intermediate People’s Court may organize mediation between the parties. If a mediation agreement is reached, a mediation statement may be prepared. If one party fails to perform the mediation agreement within the prescribed time limit, the other party may apply to the People’s Court for compulsory enforcement.
Article 24: Where a party applies to the people’s court for enforcement of an arbitral award or mediation agreement rendered by a labor dispute arbitration institution that has taken legal effect, and the respondent submits evidence demonstrating that the arbitral award or mediation agreement falls under any of the following circumstances, and such evidence is verified upon review, the people’s court may, in accordance with Article 237 of the Civil Procedure Law, rule not to enforce it:
(1) The matters subject to the award fall outside the scope of labor dispute arbitration, or the labor dispute arbitration institution lacks jurisdiction to arbitrate them;
(2) Where the applicable laws or regulations are demonstrably erroneous;
(3) In violation of statutory procedures;
(4) The evidence upon which the award was based is forged;
(5) Where the opposing party has concealed evidence that is sufficient to affect the impartiality of the award;
(6) Where an arbitrator, in arbitrating the case, engages in soliciting or accepting bribes, acts with favoritism or malfeasance, or renders an unlawful award;
(7) Where the people’s court determines that enforcing the labor dispute arbitration award would be contrary to the public interest.
In its ruling refusing to enforce the decision, the People’s Court shall notify the parties that, within thirty days from the day following receipt of the ruling, they may file a lawsuit with the People’s Court concerning the labor dispute in question.
Article 25: Where a labor dispute arbitration institution has rendered a final award, and the worker applies to the people’s court for enforcement while the employer applies to the intermediate people’s court in the location of the labor dispute arbitration institution for revocation, the people’s court shall issue a ruling to suspend enforcement.
If the employer withdraws its application for setting aside the final arbitral award, or if such application is rejected, the people’s court shall issue a ruling to resume enforcement. If the arbitral award has been set aside, the people’s court shall issue a ruling to terminate enforcement.
Where an employer, after its application to the people’s court for the revocation of an arbitration award has been rejected, subsequently raises a defense against enforcement on the same grounds in the enforcement proceedings, the people’s court shall not uphold such defense.
Article 26: Where an employer merges with another entity, any labor disputes arising prior to the merger shall be brought by the merged entity as the party concerned. If an employer is divided into several entities, any labor disputes arising prior to the division shall be brought by the actual employer that succeeds to the obligations of the original employer following the division.
Where an employer is divided into several entities and the specific entity that assumes the labor rights and obligations remains unclear, all the entities resulting from the division shall be deemed parties to the proceedings.
Article 27: Where an employer hires a worker whose labor contract has not yet been terminated, any labor dispute arising between the original employer and the worker may include the new employer as a third party.
If the original employer brings a lawsuit on the ground that the new employer has committed a tort, it may join the employee as a third party.
If the original employer brings a lawsuit on the ground that the new employer and the employee have jointly committed a tort, the new employer and the employee shall be named as joint defendants.
Article 28: During the period in which a worker is engaged in contracted management between the employer and another party of equal standing, if a labor dispute arises with either or both the contracting party and the subcontracting party, and the worker files a lawsuit in accordance with the law, both the subcontracting party and the contracting party shall be named as parties to the litigation.
Article 29: Where a dispute arises between a worker and an employer that has not obtained a business license, whose business license has been revoked, or which continues to operate beyond the expiration of its business term, the employer or its investor shall be designated as a party to the proceedings.
Article 30: Where an employer has failed to obtain a business license, has had its business license revoked, or continues to operate after the expiration of its business term, or where it operates by borrowing another party’s business license through methods such as reliance, both the employer and the party that lent the business license shall be designated as parties to the proceedings.
Article 31: Where a party, dissatisfied with an arbitration award rendered by a labor dispute arbitration institution, files a lawsuit in accordance with the law, and the people’s court, upon review, finds that the arbitration award has omitted a party who must jointly participate in the arbitration, the court shall, in accordance with the law, add such omitted party as a party to the litigation.
Where the added party is liable, the people’s court shall adjudicate the matter jointly.
Article 32: Where an employer brings a lawsuit arising from an employment dispute with a person it has hired who is already legally entitled to old-age insurance benefits or a retirement pension, the people’s court shall treat such a dispute as one arising under a labor service relationship.
Where employees who have been placed on unpaid leave, those who have retired early before reaching the statutory retirement age, laid-off or awaiting reassignment workers, and employees of enterprises who have been temporarily laid off for an extended period bring lawsuits arising from employment disputes with a new employer, the people’s courts shall adjudicate such cases as labor relations disputes.
Article 33: Where a foreign national or a stateless person enters into a labor contract with an employer within the territory of the People’s Republic of China without having obtained the requisite employment permit in accordance with the law, the people’s court shall not support the party’s request to conoffice the existence of a labor relationship with such employer.
Foreign nationals who hold a Foreign Expert Certificate and have obtained a Work Permit for Foreigners to Work in China, and who establish an employment relationship with an employer within the territory of the People’s Republic of China, may be deemed to have an employment relationship.
Article 34: Upon the expiration of a labor contract, if the employee continues to work for the original employer and the original employer does not object, it shall be deemed that both parties have agreed to continue performing the labor contract under the original terms. If one party seeks to terminate the employment relationship, the people’s court shall uphold such request.
In accordance with Article 14 of the Labor Contract Law, if an employer fails to conclude an open-ended labor contract with a worker when required to do so, the people’s court may deem that an open-ended labor contract relationship exists between the two parties and shall determine their respective rights and obligations based on the original labor contract.
Article 35: An agreement reached between a worker and an employer regarding the procedures for terminating or ending a labor contract, as well as the payment of wages, overtime pay, economic compensation, or damages, shall be deemed valid if it does not violate any mandatory provisions of laws or administrative regulations and is free from fraud, coercion, or exploitation of another party’s vulnerable situation.
If the agreement referred to in the preceding paragraph involves a material misunderstanding or is manifestly unfair, the people’s court shall uphold the party’s request for its revocation.
Article 36: Where the parties have agreed to a non-competition restriction in the labor contract or a confidentiality agreement, but have failed to provide for economic compensation upon termination or dissolution of the labor contract, and the employee has fulfilled the non-competition obligation, the people’s court shall uphold the employee’s claim for monthly economic compensation equal to 30% of the employee’s average monthly wage over the twelve months preceding the termination or dissolution of the labor contract.
If 30% of the monthly average wage specified in the preceding paragraph is lower than the minimum wage standard applicable at the place where the labor contract is performed, such payment shall be made at the level of the minimum wage standard applicable at that location.
Article 37: Where the parties have agreed in the labor contract or a confidentiality agreement to non-competition restrictions and economic compensation, upon termination of the labor contract, unless otherwise agreed, if the employer requests the employee to fulfill the non-competition obligation, or if the employee, having fulfilled such obligation, seeks payment of the corresponding economic compensation from the employer, the people’s court shall uphold such claim.
Article 38: Where the parties have agreed in the labor contract or a confidentiality agreement to non-competition restrictions and economic compensation, and, following the termination or dissolution of the labor contract, the employer fails to pay such compensation for a period of three months due to reasons attributable to the employer, the people’s court shall support the employee’s request to terminate the non-competition restriction.
Article 39: During the term of the non-competition restriction, if the employer requests to terminate the non-competition agreement, the people’s court shall grant such request.
When terminating a non‑compete agreement, if the employee requests that the employer pay an additional three months’ worth of economic compensation for the non‑compete restriction, the people’s court shall uphold such request.
Article 40: Where a worker breaches an agreement on non-competition and, after paying liquidated damages to the employer, the employer requests that the worker continue to perform the non-competition obligations as agreed, the people’s court shall uphold such request.
Article 41: If a labor contract is declared invalid, and the employee has already performed work, the employer shall, in accordance with Articles 28, 46, and 47 of the Labor Contract Law, pay the employee wages and economic compensation.
If an invalid labor contract is concluded due to the employer’s fault and such invalidity causes damage to the employee, the employer shall compensate the employee for the economic losses incurred as a result of the contract’s invalidity.
Article 42: Where a worker claims overtime pay, the worker shall bear the burden of proof regarding the existence of overtime work. However, if the worker can demonstrate that the employer possesses evidence of the existence of overtime work and fails to produce such evidence, the employer shall bear the adverse consequences.
Article 43: Where an employer and a worker, by mutual agreement, amend the labor contract, and although no written form is used, the orally amended contract has been actually performed for more than one month, and the terms of the amended contract do not violate laws or administrative regulations nor contravene public order and good morals, the people’s court shall not uphold a claim by either party that the amendment to the labor contract is invalid on the ground that no written form was adopted.
Article 44: In labor disputes arising from decisions made by the employer, such as dismissal, removal from the payroll, termination of employment, termination of the labor contract, reduction of wages, or calculation of an employee’s length of service, the employer bears the burden of proof.
Article 45: If an employer engages in any of the following circumstances, thereby compelling a worker to terminate the labor contract, the employer shall pay the worker’s wages and economic compensation, and may also be required to pay damages:
(1) Forcing labor by means of violence, threats, or unlawful deprivation of personal freedom;
(2) Failure to pay wages or provide working conditions as stipulated in the labor contract;
(3) Withholding or unreasonably delaying payment of wages to employees;
(4) Refusing to pay employees wages for overtime work;
(5) Paying wages to employees below the local minimum wage standard.
Article 46: Where a worker is assigned by the original employer to work for a new employer for reasons not attributable to the worker himself or herself, and the original employer has failed to pay economic compensation, if the worker terminates the labor contract with the new employer pursuant to Article 38 of the Labor Contract Law, or if the new employer proposes to terminate or end the labor contract, the people’s court shall support the worker’s request to have the length of service with the original employer included in the calculation of the length of service with the new employer when determining the period for which economic compensation or damages are payable.
Where an employer falls under any of the following circumstances, it shall be deemed that “the employee has been assigned by the original employer to work for a new employer for reasons not attributable to the employee himself/herself”:
(1) The employee continues to work at the original workplace and in the original position, and the party to the labor contract is changed from the original employer to the new employer.
(2) The employer effectuates a job transfer of the employee through organizational assignment or appointment;
(3) Where an employee’s job is transferred due to the merger, division, or other similar circumstances involving the employer;
(4) The employer and its affiliated enterprises alternately enter into labor contracts with the employee;
(5) Other reasonable circumstances.
Article 47: Where an employer that has established a trade union terminates a labor contract in compliance with Articles 39 and 40 of the Labor Contract Law, but fails to give prior notice to the trade union as required by Article 43 of the same law, a people’s court shall uphold the employee’s claim for compensation on the ground that the employer unlawfully terminated the labor contract, unless the employer has subsequently rectified the procedural requirements before the filing of the lawsuit.
Article 48: After the Labor Contract Law comes into effect, if a labor contract cannot continue to be performed because the employer’s business term has expired and the employer has ceased operations, and the employee requests economic compensation from the employer, the people’s court shall grant such request.
Article 49: During the course of litigation, if a worker applies to the people’s court for property preservation measures, and the people’s court, upon review, finds that the applicant is indeed experiencing financial hardship or that there is evidence indicating that the employer may be evading payment of wages by absconding, it shall either reduce or waive the worker’s obligation to provide security and promptly take the necessary preservation measures.
In a property preservation order issued by the people’s court, the parties shall be informed that they must apply for compulsory enforcement within three months after the arbitration award of the labor dispute arbitration institution or the judgment of the people’s court has taken legal effect. If no application is made within this time limit, the people’s court shall issue an order to lift the preservation measures.
Article 50: Rules and regulations formulated by employers in accordance with the provisions of Article 4 of the Labor Contract Law through democratic procedures, which do not contravene national laws, administrative regulations, or policy provisions and have been duly publicized to employees, may serve as the basis for determining the rights and obligations of both parties.
Where the internal rules and regulations formulated by the employer are inconsistent with the provisions of a collective contract or an employment contract, and the employee requests that the contractual provisions be given priority, the people’s court shall uphold such request.
Article 51: A mediation agreement reached by the parties under the auspices of a mediation organization as stipulated in Article 10 of the Mediation and Arbitration Law, which contains provisions regarding labor rights and obligations, shall have the same binding force as a labor contract and may serve as the basis for adjudication by the people’s courts.
Where, under the auspices of a mediation organization as prescribed in Article 10 of the Mediation and Arbitration Law, the parties have reached a mediation agreement solely concerning a dispute over wages, and the employer fails to perform the payment obligations set forth in that agreement, the people’s court may accept the case as an ordinary civil dispute if the employee directly files a lawsuit.
Article 52: Where the parties, under the auspices of a People’s Mediation Committee, have reached a mediation agreement solely concerning an obligation to make payment, and both parties deem it necessary, they may jointly apply to the basic people’s court at the location of the People’s Mediation Committee for judicial conofficeation.
Article 53: Where an employer’s disciplinary measures against a worker, such as dismissal, expulsion, or termination, or the termination of the labor contract for other reasons, are demonstrably erroneous, the people’s court may, in accordance with the law, render a judgment to rescind such measures.
With respect to cases involving claims for wages, pensions, medical expenses, workers’ compensation benefits, economic severance payments, training costs, and other related expenses, the people’s court may modify the amount awarded if it is deemed inappropriate.
Article 54: This Interpretation shall take effect as of January 1, 2021.

Notice on Urging Suspects Involved in Cross-Border Gambling to Surrender Themselves to the Authorities
In order to implement the criminal policy of combining leniency with strictness, punish cross-border gambling offenses in accordance with the law, and at the same time afford relevant criminal suspects an opportunity to reform themselves and seek more lenient treatment, in accordance with the relevant provisions of the Criminal Law of the People’s Republic of China and the Criminal Procedure Law of the People’s Republic of China, the following notice is hereby issued:
I. For the purposes of this notice, “suspects involved in cross-border gambling” refers to those suspected of the crimes of gambling and running a casino as stipulated in Article 303 of the Criminal Law of the People’s Republic of China, as well as those suspected of related offenses.
II. From the date of issuance of this notice until April 30, 2021, a criminal suspect who voluntarily surrenders to the public security organs, the people’s procuratorate, or the people’s court and truthfully confesses to his or her crimes shall be deemed to have surrendered themselves. A criminal suspect who surrenders and confesses may, in accordance with the law, receive a lighter or reduced punishment; in cases where the circumstances are relatively minor, punishment may be exempted in accordance with the law.
III. Where a criminal suspect entrusts another person to surrender on their behalf, or first surrenders by letter, telephone, telegraph, email, or other means and subsequently appears in person, such surrender shall be deemed voluntary. Likewise, where a suspect surrenders upon the persuasion or accompaniment of relatives or friends, or where relatives or friends, after filing a report themselves, escort the suspect to surrender, such surrender shall also be deemed voluntary.
IV. After a criminal suspect surrenders, if he or she reports or exposes the criminal acts of others, and such reports are verified as true; or if he or she provides important leads that facilitate the solving of other cases; or if he or she actively assists the judicial authorities in apprehending other criminal suspects—such meritorious conduct may, in accordance with the law, warrant a lighter or reduced punishment; and if the conduct constitutes a major meritorious service, the punishment may, in accordance with the law, be reduced or exempted.
V. Criminal suspects must recognize the situation, seize the opportunity, and promptly turn themselves in to seek lenient treatment. Those who refuse to surrender within the prescribed time limit will be punished in accordance with the law.
VI. Judicial authorities encourage individuals and relevant organizations to actively report fugitive criminal suspects, and to mobilize and persuade such suspects to turn themselves in. Judicial authorities shall, in accordance with the law, provide protection to whistleblowers and other relevant witnesses. Anyone who threatens or retaliates against whistleblowers or accusers, thereby constituting a crime, shall be held criminally liable in accordance with the law.
This notice shall take effect as of the date of its issuance (January 26, 2021).

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Website: www.jcmaster.com
This legal notice is provided solely for informational purposes and does not constitute legal advice or a legal analysis of any specific case. The issuance of this notice does not establish an attorney–client relationship between JC Master Law Office and the user or viewer. JC Master Law Office assumes no responsibility for any third-party content accessible via the internet. If you do not wish to receive this legal notice, please notify us by email at jcm@jcmaster.com.
The copyright of this legal information is owned by JC Master Law Office ©. Without written permission, no organization or individual may reproduce, publish, or cite it in any form. 3

Fax: 025-84505533

Website: www.jcmaster.com

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

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