JC Master Legal News Issue 969

Key Takeaways for This Issue
Severely cracking down on illegal off-exchange financing activities and working together to purify the capital market ecosystem — the China Securities Regulatory Commission and the Ministry of Public Security jointly released typical cases of off-exchange financing-related crimes in 2020.
In 2020, the China Securities Regulatory Commission and the Ministry of Public Security, in accordance with the CPC Central Committee’s decisions and arrangements to crack down on securities‑related illegal activities in strict compliance with the law, strictly prohibited off‑exchange margin financing activities that disrupt the normal order of the capital market and infringe upon the legitimate rights and interests of investors. Pursuant to relevant provisions of the Criminal Law, the Securities Law, the Regulations on the Administration of Futures Trading, and other laws and regulations, off‑exchange margin financing constitutes an illegal securities and futures activity; where such conduct amounts to a crime, the perpetrators shall be held criminally liable under charges including illegal business operations and fraud. To safeguard investors’ lawful rights and interests and to strengthen deterrence, we hereby release ten typical cases of off‑exchange margin financing-related criminal offenses uncovered by public security organs in 2020, including the Chongqing “Cuohuo Network” case.
China Development Bank has, for the first time, directly tendered and issued financial bonds to global investors.
On the 28th, the China Development Bank successfully conducted a direct tender issuance of 12 billion yuan in five-year financial bonds to global investors, with an issuance rate of 3.28% and a subscription multiple of 6.39 times. The offering attracted participation from more than 70 high-quality investment institutions, including overseas sovereign entities as well as domestic and international commercial banks, securities offices, and insurance companies. As China’s bond market continues to deepen and evolve, its investor base has become increasingly diversified, dispersed, and internationalized.
Announcement No. 10 of 2021 by the Ministry of Industry and Information Technology of the People’s Republic of China, the National Development and Reform Commission, the Ministry of Finance, and the State Taxation Administration
To implement the spirit of the State Council’s Notice on Issuing Several Policies for Promoting the High-Quality Development of the Integrated Circuit and Software Industries in the New Era (Guofa [2020] No. 8), and in accordance with the Announcement on Corporate Income Tax Policies for Promoting the High-Quality Development of the Integrated Circuit and Software Industries (Ministry of Finance, State Taxation Administration, National Development and Reform Commission, and Ministry of Industry and Information Technology Announcement No. 45 of 2020), the Ministry of Industry and Information Technology, the National Development and Reform Commission, the Ministry of Finance, and the State Taxation Administration have formulated the criteria for software enterprises eligible for national incentives.
Decision of the Standing Committee of the National People’s Congress on Amending the Road Traffic Safety Law of the People’s Republic of China and Seven Other Laws
On April 29, 2021, the 28th Meeting of the Standing Committee of the 13th National People’s Congress adopted amendments to the Road Traffic Safety Law of the People’s Republic of China, the Fire Protection Law of the People’s Republic of China, the Law of the People’s Republic of China on Inspection of Import and Export Commodities, the Advertising Law of the People’s Republic of China, the Grassland Law of the People’s Republic of China, the Civil Aviation Law of the People’s Republic of China, the Customs Law of the People’s Republic of China, and the Food Safety Law of the People’s Republic of China.

Finance & Capital Markets

Severely crack down on illegal off-exchange margin financing activities and work together to purify the capital market ecosystem.
— The China Securities Regulatory Commission and the Ministry of Public Security jointly released typical cases of illegal and criminal activities involving off-exchange margin financing in 2020.
In 2020, the China Securities Regulatory Commission (CSRC) and the Ministry of Public Security resolutely implemented the CPC Central Committee’s decisions and arrangements to crack down on securities‑related illegal activities in accordance with the law and with utmost severity. Maintaining a zero‑tolerance stance toward off‑exchange margin financing, the two authorities launched a targeted special campaign, focusing on rigorously prosecuting off‑exchange margin‑financing institutions and software developers, while intensifying investigations and imposing stringent penalties to purify the market environment. Thanks to the concerted efforts of all parties, throughout the year, the CSRC referred or notified public security organs of 89 leads related to off‑exchange margin‑financing cases, cooperated with them in investigating 19 major criminal cases involving such activities, apprehended more than 700 suspects, and dismantled multiple cross‑regional illicit off‑exchange margin‑financing networks, effectively curbing the spread of these illegal practices.
Off‑exchange margin financing activities seriously disrupt the normal order of the capital market and infringe upon the legitimate rights and interests of investors. In accordance with relevant provisions of the Criminal Law, the Securities Law, the Regulations on the Administration of Futures Trading, and other laws and regulations, such activities constitute illegal securities and futures operations; where they amount to a crime, the perpetrators shall be held criminally liable for offenses including illegal business operations and fraud. To safeguard investors’ lawful rights and interests and strengthen deterrence, we are hereby releasing ten typical cases of off‑exchange margin financing violations uncovered by public security organs in 2020, including the Chongqing “Cuohuo Network” case, to illustrate the law through specific examples. Among these cases, some involved developing, selling, or using margin‑financing sub‑accounting software to open sub‑accounts for investors engaging in stock and futures margin trading and to provide highly leveraged funds, thereby allegedly conducting unauthorized securities and futures business; others are suspected of employing “virtual‑platform” margin‑financing schemes to perpetrate investment fraud involving stocks and futures. Once investors participate in such illegal off‑exchange margin‑financing activities, their interests will not be protected, and they may suffer substantial financial losses. We therefore urge all investors to engage in stock and futures trading only through legal channels and to consciously steer clear of and resist unlawful off‑exchange margin‑financing practices.
Going forward, the China Securities Regulatory Commission will resolutely implement the “zero tolerance” policy, work closely with the Ministry of Public Security and other relevant authorities to crack down on off‑exchange margin financing on a regular basis, rigorously investigate and prosecute illegal and criminal cases involving such activities, effectively safeguard investors’ legitimate rights and interests, and do its utmost to ensure the sound and stable development of the capital market.
Appendix: Typical Cases of Illegal and Criminal Activities Involving Off‑Exchange Margin Financing in 2020
I. The Chongqing “Cuohewan” Stock Margin‑Trading Case. From 2018 to 2019, Chongqing Rongxinhui Information Technology Co., Ltd. established the “Cuohewan” website and app—margin‑trading platforms—connecting with capital providers (commonly referred to as “financiers,” hereinafter the same) to obtain margin funds and securities accounts. Using margin‑trading sub‑accounting software developed by a certain software company, the company opened trading sub‑accounts for margin clients and provided margin financing with leverage ratios of up to 8:1 for stock trading. The companies involved did not possess the requisite licenses to conduct securities‑related business; they recruited agents who solicited more than 40,000 margin‑trading clients across 16 provinces and municipalities nationwide, with total transaction amounts reaching RMB 55 billion, raising suspicions of the crime of illegal business operations. In January 2020, the Chongqing public security authorities completed a coordinated crackdown, shutting down one margin‑trading office and 25 agent outlets, arresting 153 individuals, and imposing criminal coercive measures on 52 of them. At present, the procuratorial organs have legally instituted public prosecution in the case before the court.
II. The Shenzhen Juniuhuiyou Stock Margin‑Trading Case. From 2017 to 2020, several margin‑trading offices, including Shenzhen Juniuhuiyou Network Technology Co., Ltd. and Shenzhen Tongshengjin Information Technology Co., Ltd., purchased margin‑trading sub‑accounting software from Shanghai Fenghu Mingchuang Software Technology Co., Ltd. They then established multiple margin‑trading websites and mobile apps to solicit clients, coordinated with “capital providers” to supply margin funds and securities accounts, and used the margin‑trading software to open numerous trading sub‑accounts, allocating them to clients for leveraged stock trading while charging service fees. In June 2020, public security organs in Shenzhen launched a coordinated operation in both Shenzhen and Shanghai, dismantling 10 criminal dens, detaining over 50 suspects, placing 17 suspects under criminal detention, and implicating more than 4,500 margin‑trading clients. The total transaction value involved reached RMB 7 billion, resulting in a full‑chain crackdown on margin‑trading companies, software developers, and capital providers. This case represents the largest-ever real‑time, over‑the‑counter margin‑trading illegal‑business operation uncovered in Guangdong Province to date. The case has now been transferred to the procuratorial authorities for review and prosecution.
III. The Shanghai Houcheng Stock Margin‑Trading Case. From October 2018 to September 2020, Zhang, Niu, and others, operating under the names of six companies—including the Shanghai Houcheng Network Technology Center, Shanghai Houbu Network Technology Co., Ltd., and Hefei Zhijie Information Technology Service Co., Ltd.—developed four margin‑trading sub‑account systems—namely “Niu Qianwan,” “Mancanghong,” “Niu Lai Strategy,” and “Niu Ling Strategy”—without obtaining the requisite securities‑business operating licenses. They then recruited margin‑trading clients via the internet and telephone, provided margin‑financing stock‑trading services, and collected over RMB 90 million in margin deposits from more than 2,000 clients, while earning over RMB 4 million in transaction fees. Their actions are suspected of constituting the crime of illegal business operations. In September 2020, the Shanghai public security authorities conducted a coordinated operation across Shanghai, Anhui, and Shenzhen, arresting more than 30 members of the criminal group and seizing on the spot nine computers, 22 mobile phones, four bank cards, and 21 sets of financial records. The case has now been transferred to the procuratorial organs for review and prosecution.
IV. The “Gurongbao” Stock Margin‑Trading Case in Shanghai. From January 2016 to July 2020, An, Zang, and others operated margin‑trading platforms under the names of Shanghai Mozun Network Technology Co., Ltd., Shanghai Kuaiwu Network Technology Co., Ltd., Shanghai Zhankui Investment Management Co., Ltd., and Shanghai Biso Network Technology Co., Ltd. Without obtaining the requisite licenses to conduct securities‑related business, they solicited margin‑trading clients via the internet and other channels, using the “Gurongbao” margin‑trading sub‑account system software to act as agents for clients engaging in leveraged stock trading. They collected over RMB 35 million in margin deposits from more than 700 clients and earned over RMB 2.5 million in transaction fees, thereby allegedly committing the crime of illegal business operations. In August 2020, the Shanghai public security authorities conducted a coordinated operation in Shanghai and Shanxi, arresting 10 suspects and seizing 68 mobile phones and four hard drives used in the commission of the crime. The case has now been transferred to the procuratorial organs for review and prosecution.
V. The Guangdong “Shisheng Network” Stock Margin‑Trading Case. From 2019 to 2020, a number of companies—including Guangdong Shisheng Information Technology Co., Ltd., Guangdong Yisheng Information Technology Consulting Co., Ltd., Guangdong Tongsheng Information Technology Consulting Co., Ltd., and Foshan Beiying Technology Co., Ltd.—established a series of margin‑trading platforms such as “Shisheng Network,” “Yisheng Network,” “Tongsheng Network,” “Beiying Network,” “Yuanchuan Network,” and “Jinniu Network.” They solicited funding from so‑called “capital providers” to obtain margin‑trading capital and securities accounts, then used proprietary sub‑account allocation software to provide clients with trading sub‑accounts and leverage ranging from 5 to 10 times, enabling them to engage in leveraged stock trading while charging commission fees or sharing profits. In July 2020, public security organs in Foshan City, Guangdong Province, launched a coordinated crackdown, carrying out a unified operation across six locations including Guangdong and Sichuan. As a result, six margin‑trading platforms were dismantled, and a total of 38 individuals—members of the “capital provider” syndicates and the platform operators—were apprehended, with the amount involved exceeding RMB 200 million. The case has now been transferred to the procuratorial authorities for review and prosecution.
VI. The Anhui Haoxin Stock Margin‑Trading Case. From 2019 to 2020, Hangzhou Wangzhou Qingquan Enterprise Management Co., Ltd. solicited clients for stock margin‑trading services and entered into a cooperation agreement with Tongling Haoxin Information Technology Service Co., Ltd., authorizing it as the regional agent in Tongling, Anhui. The two parties developed margin‑trading clients through leaflet distribution, WeChat, telephone calls, and word‑of‑mouth marketing, using the “Yi Guanjia” margin‑trading sub‑account system software to open trading sub‑accounts for clients and provide margin‑trading services. Profits from margin interest were shared between the two parties according to an agreed ratio. The total transaction value involved in this case exceeded RMB 1.9 billion; since March 2020, margin‑trading amounts approached RMB 50 million, with nearly RMB 20 million in margin deposits collected, involving a total of 21 “capital providers” and their securities accounts. None of the companies implicated held the requisite licenses to conduct securities‑related business, raising suspicions of the crime of illegal business operations. In September 2020, public security authorities in Tongling City, Anhui Province, arrested seven suspects in Hangzhou and Tongling. At present, the court has issued a first‑instance judgment convicting the defendants of illegal business operations.
VII. The Xiamen Blue Elephant Technology Futures Margin‑Trading Case. Since 2012, Xiamen Blue Elephant Network Technology Co., Ltd. has developed and operated an asset‑management system software. This software features account‑segmentation functionality and has been utilized by numerous margin‑trading offices to conduct futures‑margin activities. The company in question charged these offices monthly, quarterly, semi‑annually, and annually for software usage and related services, based on the number of master accounts and their subordinate sub‑accounts. Furthermore, the company itself employed the same software to engage in margin‑trading operations, thereby allegedly committing the crime of illegal business operations. In September 2020, the Xiamen public security authorities launched a crackdown, uncovering more than 600 master futures accounts and over 80,000 sub‑accounts within the software, and arresting three suspects. The case has now been transferred to the procuratorial organs for review and prosecution.
VIII. The Jiangxi Oxygen Technology Futures Margin‑Trading Case. In August 2020, public security authorities in Jiangxi discovered during their investigations that Nanchang Oxygen Technology Co., Ltd. was suspected of illegally engaging in futures trading. The investigation revealed that the company had not obtained the requisite licenses to conduct futures‑related business; instead, it solicited margin‑trading clients through its website and via referrals, borrowed other individuals’ futures accounts as master accounts, and used the “Zhifu Tong” margin‑trading sub‑accounting software to split these accounts into multiple virtual sub‑accounts. These sub‑accounts were then provided to clients for futures margin trading, enabling them to engage in futures transactions without holding the necessary qualifications or committing substantial capital, while the company charged commissions far exceeding those set by the futures exchanges, thereby reaping illicit profits. In August 2020, the public security organs of Nanchang City, Jiangxi Province, initiated a criminal investigation into the case, apprehended 59 suspects, and seized funds totaling RMB 26.98 million. At present, the procuratorial authorities have legally instituted public prosecution before the court.
9. The “Ma Shang Zhang” virtual‑trading margin‑financing case in Sichuan. From 2019 to 2020, Wu and Yang, among others, jointly developed a margin‑financing sub‑account system software and established virtual‑trading platforms such as “Ma Shang Zhang.” They recruited numerous companies—including Chengdu Ma Shang Zhang Technology Co., Ltd. and Chongqing Wushi Xian Cultural Communication Co., Ltd.—as platform operators and agents. Using WeChat stock‑trading groups, they advertised high‑limit, high‑leverage margin‑financing services to attract clients, luring them into trading stocks on the platforms. In reality, however, the clients’ buy and sell orders never entered the actual securities market; all transactions were recorded solely on the margin‑financing platform. The platform calculated profits and losses based on stock‑market quotations, thereby convincing clients that they were engaging in genuine securities trading. In May 2020, public security organs in Chengdu, Sichuan, and Chongqing carried out a coordinated operation, arresting 132 suspects, dismantling nine criminal dens, and seizing 150 computers, 325 mobile phones, more than 1,590 bank cards, along with extensive ledgers, receipts, contracts, and script materials. The total amount involved exceeded RMB 30 million, and over 2,000 victims were identified. The case has now been transferred to the procuratorial authorities for review and prosecution.
X. The “Kaimenhong” virtual margin‑financing case in Shaanxi. From September 2019 to April 2020, Xi’an Yimei Xingchen Network Technology Co., Ltd. and four other companies promoted the “Kaimenhong” margin‑financing platform via telephone, WeChat, and other channels, luring clients to register and deposit funds. They enabled clients to open positions with tenfold leverage and charged a 0.3% position‑opening fee. When the value of the traded stocks fell by 5%, sales representatives would persuade clients to inject additional capital; when the decline reached 7%, the platform would forcibly liquidate the positions. Upon selling shares that had appreciated, the platform retained 10% of the investment gains as its share. All funds deposited on the margin‑financing platform were funneled into the personal accounts of the suspects, never actually entering the securities market, raising suspicions of stock‑investment fraud. By the time the case was uncovered, the platform had registered 623 users, involving more than RMB 39 million. In April 2020, public security authorities in Xi’an, Shaanxi Province, simultaneously launched coordinated operations across five cities—Xi’an, Hefei, Fuyang, Hangzhou, and Suzhou—arresting 120 individuals and placing 52 under criminal detention. The case has now been transferred to the procuratorial organs for review and prosecution.

Commercial & Corporate
China Development Bank has, for the first time, directly tendered and issued financial bonds to global investors.
BEIJING, April 30 (Xinhua) — By reporter Zhang Qianqian: According to the China Development Bank, on the 28th the bank successfully conducted a direct global tender for the issuance of 12 billion yuan in five-year financial bonds, with an issuance rate of 3.28% and a subscription multiple of 6.39 times.
According to reports, this bond issuance attracted participation from overseas sovereign entities as well as more than 70 high-quality investment institutions, including domestic and international commercial banks, securities offices, and insurance companies. Among them, the overseas investors hail from multiple countries across Hong Kong, Macao, Taiwan, Southeast Asia, West Asia, the Middle East, Europe, Oceania, and other regions.
As China’s bond market continues to deepen and evolve, investors have become increasingly diversified, dispersed, and international. The China Development Bank stated that conducting direct tender issuances open to global investors enables a direct link between issuers and investors, effectively addressing investors’ customized needs—such as specific bond types and large‑scale allocations—thereby enhancing the efficiency of bond financing and further refining and enriching the bond market’s mechanisms. Moving forward, the China Development Bank will continue to leverage its strengths as a “bond bank” to support innovation and development in the bond market.
Yiling Pharmaceutical reported year-on-year growth of over 50% in both revenue and net profit for the first quarter.
China News Service, April 29 — On the evening of April 28, Yiling Pharmaceutical released its first-quarter report for 2021. The report showed that in the first quarter of this year, the company recorded operating revenue of RMB 3.668 billion, up 57.2% year on year, and net profit attributable to shareholders of the listed company reached RMB 675 million, an increase of 54.05% compared with the same period last year.
These operating results followed Yiling Pharmaceutical’s record-breaking 2020 performance in both revenue and net profit, indicating that the company maintained its rapid growth trajectory into 2021.
Meanwhile, Yiling Pharmaceutical also announced a proposal to adjust the intended use of its share repurchases and to cancel the repurchased shares. The company has decided to legally cancel 80% of the shares repurchased during the 2018–2019 period, thereby reducing the company’s registered capital. If approved by the shareholders’ meeting, this measure is expected to boost Yiling Pharmaceutical’s earnings per share and return on equity, thereby enhancing shareholder returns.
Yiling Pharmaceutical posted its best-ever quarterly results, a performance that was shaped by an earlier development: in January this year, a small-scale outbreak struck Shijiazhuang, prompting citywide lockdown measures that significantly impacted the company’s production base in the city.

Notably, Yiling Pharmaceutical’s flagship product, Lianhua Qingwen, is a critical anti‑epidemic supply. In response to the pandemic, the company swiftly implemented stringent measures: it raised the level of epidemic prevention at its facilities, instituted fully enclosed management, arranged centralized accommodation for all employees, and provided ample protective supplies, ensuring both safety and uninterrupted production.
From a financial perspective, stricter pandemic‑control measures have led to higher operating costs. Consequently, the more impressive 50%+ year‑over‑year growth in both revenue and net profit for the first quarter is all the more noteworthy and carries greater substance.
Selling and R&D expenses have risen sharply, ensuring strong momentum for future earnings growth.
Yiling Pharmaceutical’s first-quarter report shows that in the first quarter of this year, the company’s sales expenses increased by 60.3%, while R&D expenses rose by 68.32%.
Yiling Pharmaceutical stated that the increase in sales expenses was primarily attributable to higher compensation for sales personnel, as well as increased marketing and promotional expenditures during the reporting period compared with the same period last year; meanwhile, the rise in R&D expenses was mainly due to higher R&D personnel salaries.
The growth in sales expenses is consistent with trends: in its 2020 annual report, Yiling Pharmaceutical disclosed a workforce of 10,734 sales personnel, an increase of 85.2% over the course of one year. Market analysts expect this substantial rise in headcount to translate into higher revenue, suggesting that Yiling Pharmaceutical’s revenues will continue to expand.
It is reported that Yiling Pharmaceutical has consistently invested heavily in R&D; in 2020, its R&D spending ranked first among all companies in the traditional Chinese medicine sector, and its R&D expenditure as a percentage of revenue placed it third.
In the first quarter, R&D investment surged once again, underscoring Yiling Pharmaceutical’s commitment to building robust innovation barriers through sustained, long-term investment. On April 13, the project “Research and Application of Traditional Chinese Medicine Lianhua Qingwen in the Treatment of Novel Coronavirus Pneumonia,” led by Professor Jia Zhenhua, Director of the Hebei Yiling Institute of Traditional Chinese Medicine, was awarded the First Prize of the 2020 Hebei Provincial Science and Technology Progress Award.
It is understood that Lianhua Qingwen possesses multiple therapeutic effects, including broad-spectrum antiviral activity, antibacterial and anti-inflammatory properties, effective prevention and treatment of pulmonary infections, and the enhancement of the body’s immune function. Since its launch, Lianhua Qingwen has been included more than 20 times in the clinical management protocols issued by the National Health Commission, the State Administration of Traditional Chinese Medicine, and other authorities as a recommended medication for the prevention and treatment of infectious diseases such as influenza A, influenza B, Middle East Respiratory Syndrome, Ebola, and COVID‑19.
Another major product category of Yiling Pharmaceutical—cardiovascular and cerebrovascular medications—has also received a strong market response. The project “Construction of the Traditional Chinese Medicine Theory of Meridians and Its Guidance for the Prevention and Treatment of Microvascular Disorders,” completed by Hebei Yiling Institute of Traditional Chinese Medicine, a subsidiary of Yiling Pharmaceutical, as the primary research institution, was awarded the First Prize of the 2019 National Science and Technology Progress Award.
Independent financial analyst and industry observer Zhang Sanweng believes that sales expenditures and R&D investments respectively build Yiling Pharmaceutical’s core competitive advantages on the market and product fronts, and the continued growth of these two expense categories will provide strong momentum for expanding the company’s revenue.
Cancel repurchased shares to enhance shareholder returns.
Concurrently with the release of its first-quarter report, Yiling Pharmaceutical also announced a proposal to adjust the purpose of the company’s share repurchases and to cancel the repurchased shares.
In October 2018, Yiling Pharmaceutical announced a share‑repurchase plan, intending to repurchase a portion of its shares through centralized bidding to help bring the company’s secondary‑market stock price back in line with its intrinsic value. The company also planned to use the repurchased shares for equity‑incentive programs, employee stock‑ownership plans, or, where permitted by law, to cancel them and reduce the company’s registered capital.
On April 9, 2019, a notice from Yiling Pharmaceutical announced that the company had decided to allocate 80% of the aforementioned repurchased shares to an equity incentive plan and to cancel the remaining 20% in accordance with the law, thereby reducing the company’s registered capital.
In November 2019, Yiling Pharmaceutical completed the aforementioned share repurchase, acquiring a total of over 12 million shares and canceling 20% of them. The remaining 80%, or more than 10 million shares, were held in the company’s dedicated repurchase securities account; as previously announced, these shares will be used to implement an equity incentive plan.
Under this adjustment, the more than 10 million shares originally earmarked for the equity incentive plan have been reallocated for “cancellation in accordance with the law to reduce the company’s registered capital.”
The aforementioned measures will enhance Yiling Pharmaceutical’s earnings per share, return on equity (ROE), and total asset turnover, thereby improving the company’s financial metrics and boosting shareholder returns.
Previously, Yiling Pharmaceutical disclosed in its annual report the 2020 profit distribution and capital reserve‑to‑share capital conversion plan: it intends to distribute a cash dividend of RMB 10 per 10 shares (inclusive of tax) to all shareholders, while also transferring 4 shares for every 10 held from the capital reserve. The dividend payout ratio for 2020 reached as high as 97.87%.
Following the announcement of a high‑dividend plan, the company has also proposed a share‑cancellation resolution. Zhang Sanweng believes that this series of coordinated moves underscores Yiling Pharmaceutical’s commitment to enhancing shareholder returns and, by extension, signals that management views the current stock price as failing to reflect the company’s intrinsic value. As a result, Yiling Pharmaceutical’s market valuation is expected to experience a noticeable “recovery.”

Taxation TAXATATION

Announcement No. 10 of 2021 by the Ministry of Industry and Information Technology of the People’s Republic of China, the National Development and Reform Commission, the Ministry of Finance, and the State Taxation Administration
In order to implement the spirit of the “Notice of the State Council on Issuing Several Policies for Promoting the High-Quality Development of the Integrated Circuit and Software Industries in the New Era” (Guofa [2020] No. 8), and in accordance with the “Announcement on Corporate Income Tax Policies for Promoting the High-Quality Development of the Integrated Circuit and Software Industries” (Ministry of Finance, State Taxation Administration, National Development and Reform Commission, and Ministry of Industry and Information Technology Announcement No. 45 of 2020), the Ministry of Industry and Information Technology, the National Development and Reform Commission, the Ministry of Finance, and the State Taxation Administration have formulated the criteria for software enterprises encouraged by the state. The relevant criteria are hereby announced as follows:
I. Software enterprises encouraged by the state are those that simultaneously meet the following conditions:
(1) An enterprise legally established within the territory of China (excluding the Hong Kong, Macao, and Taiwan regions), whose principal business is software product development and related information technology services, and which possesses independent legal personality; such enterprise shall have been established for a legitimate commercial purpose and shall not have been established primarily to reduce, exempt, or defer tax payments.
(2) In the year of final tax settlement, the enterprise must maintain employment contracts or labor dispatch and hiring relationships. Specifically, the proportion of employees with a bachelor’s degree or higher among the enterprise’s average monthly workforce must be no less than 40%, and the proportion of research and development personnel among the enterprise’s average monthly workforce must be no less than 25%.
(3) Possess core, critical technologies and conduct business operations based on such technologies; the total amount of research and development expenses for the tax reconciliation year shall account for no less than 7% of the enterprise’s total sales (operating) revenue, and the portion of R&D expenses incurred within China shall account for no less than 60% of the enterprise’s total R&D expenditures.
(4) In the year of final tax settlement, the proportion of revenue from software product development and sales and related information technology services (operating revenue) to the enterprise’s total revenue shall be no less than 55% [for embedded software products, this proportion shall be no less than 45%]; moreover, the proportion of revenue from independently developed and sold software products and related information technology services (operating revenue) to the enterprise’s total revenue shall be no less than 45% [for embedded software products, this proportion shall be no less than 40%].
(5) The principal business or main products possess intellectual property rights owned by the enterprise, such as patents or computer software copyrights;
(6) Possess production and business premises, software and hardware facilities, and other development environments suitable for software development (such as legally licensed development tools), and establish a quality management system that meets software engineering requirements and maintain its effective operation on an ongoing basis.
(7) During the tax reconciliation and final settlement year, no major safety accidents, major quality incidents, or intellectual property infringements occurred, and the enterprise operated in compliance with the law.
II. The policy definition of research and development expenses referred to in Article 1 of this Announcement shall be applied in accordance with the “Notice of the Ministry of Finance, the State Taxation Administration, and the Ministry of Science and Technology on Improving the Policy for Pre-Tax Additional Deduction of Research and Development Expenses” (Cai Shui [2015] No. 119) and the “Announcement of the State Taxation Administration on Issues Concerning the Scope of Aggregation for the Pre-Tax Additional Deduction of R&D Expenses” (State Taxation Administration Announcement No. 40 of 2017), among other relevant provisions.
III. This Announcement shall take effect as of January 1, 2020, and its interpretation shall be vested in the Ministry of Industry and Information Technology, in conjunction with the National Development and Reform Commission, the Ministry of Finance, and the State Taxation Administration.
Ministry of Industry and Information Technology
National Development and Reform Commission
Ministry of Finance
State Taxation Administration
April 23, 2021

State Taxation Administration: Supports and requires Shanghai and other relevant tax authorities to investigate and handle, in accordance with the law, tax evasion through “yin-yang contracts” and other means.
The State Taxation Administration stated that, in early April, the Shanghai tax authorities legally accepted public reports alleging that Zheng Shuang was suspected of tax evasion. The Administration has attached great importance to this matter and has instructed the Shanghai and other relevant tax authorities to rigorously investigate and prosecute, in accordance with laws and regulations, any suspected tax evasion involving “yin-yang contracts” or other similar practices.
The State Taxation Administration has emphasized that tax authorities at all levels must rigorously investigate and impose strict penalties, in accordance with the law, on malicious tax evasion, resolutely upholding the authority of tax laws and promoting social fairness and justice; at the same time, they must effectively safeguard taxpayers’ legitimate rights and interests in accordance with the law.

Litigation & Arbitration

Decision of the Standing Committee of the National People’s Congress on Amending the Road Traffic Safety Law of the People’s Republic of China and Seven Other Laws
(Adopted at the 28th Meeting of the Standing Committee of the 13th National People’s Congress on April 29, 2021)
The 28th Meeting of the Standing Committee of the 13th National People’s Congress has decided:
I. Amendments to the Road Traffic Safety Law of the People’s Republic of China
Amend Article 20, Paragraph 1 to read: “Driving training for motor vehicles shall be conducted on a socially organized basis. The competent transportation authority shall implement record‑keeping management over driving schools and driving training classes and strengthen oversight of driving training activities; specialized tractor‑driving schools and driving training classes shall be subject to supervision and administration by the competent agricultural (agricultural machinery) authority.”
II. Amendments to the Fire Protection Law of the People’s Republic of China
(1) Article 15 is amended to read as follows: “Prior to the commissioning or commencement of business operations, public gathering places shall be subject to a notification‑and‑commitment system for fire safety inspections. Before such places are put into use or begin operating, the construction entity or the user shall apply to the fire rescue authority of the local people’s government at or above the county level where the premises are located for a fire safety inspection, make a commitment that the premises comply with fire‑technical standards and relevant administrative regulations, submit the prescribed documents, and assume responsibility for the authenticity of both its commitments and the submitted materials.”
“The fire rescue authority shall review the materials submitted by the applicant; if the application materials are complete and conform to the legally prescribed format, a permit shall be granted. The fire rescue authority shall, in accordance with fire‑technical standards and administrative regulations, promptly conduct inspections of public gathering places that have made commitments.”
“If the applicant chooses not to proceed under the notification‑and‑commitment procedure, the fire rescue authority shall, within ten working days from the date of acceptance of the application, conduct an inspection of the premises in accordance with fire safety technical standards and administrative regulations. If the inspection conoffices compliance with fire safety requirements, a permit shall be granted.”
“Public gathering places may not be put into use or commence business without the approval of the fire rescue authority. The specific measures for fire safety inspections shall be formulated by the emergency management department under the State Council.”
(2) Article 34 is amended to read: “Fire protection technical service institutions, including those engaged in the maintenance, upkeep, and inspection of fire-fighting facilities and in fire safety assessments, shall meet the prescribed conditions for practice, and their practitioners shall obtain the relevant qualifications in accordance with the law. Such institutions shall, in compliance with laws, administrative regulations, national standards, industry standards, and professional codes, accept commissions to provide fire protection technical services and shall be responsible for the quality of such services.”
(3) Amend paragraph 1, item 4 of Article 58 to read: “(4) Public gathering places that are put into use or commence business without the permission of the fire rescue authority, or whose actual use and operation are found upon inspection to be inconsistent with the commitments made.”
Add a new paragraph as the second paragraph: “If, upon verification, it is found that the use or operation of a public gathering venue does not conform to the commitments made, and despite being ordered to make corrections within a specified time limit, the entity fails to comply by the deadline or, even after making corrections, still fails to meet the required standards, the relevant permit shall be revoked in accordance with the law.”
(4) Article 69 is amended to read as follows: “Fire protection technical service institutions engaged in the maintenance, upkeep, and inspection of fire-fighting facilities, fire safety assessments, or other such services, which engage in fire‑protection technical service activities without meeting the requisite qualifications or issue false documents, shall be ordered by the fire rescue authorities to make corrections and shall be subject to a fine of no less than RMB 50,000 but no more than RMB 100,000; the directly responsible principal officers and other persons directly liable shall each be fined no less than RMB 10,000 but no more than RMB 50,000. If such institutions fail to carry out fire‑protection technical service activities in accordance with national or industry standards, they shall be ordered to make corrections and shall be subject to a fine of no more than RMB 50,000; the directly responsible principal officers and other persons directly liable shall each be fined no more than RMB 10,000. Where illegal gains have been obtained, such gains shall also be confiscated. If losses are caused to others, the institution shall bear liability for compensation in accordance with law. In cases of serious violations, the institution shall be ordered by law to cease operations or have its relevant qualifications revoked. If substantial losses are incurred, the competent authorities shall revoke the business license and impose a lifetime ban on market participation against the persons concerned.”
“If the institutions specified in the preceding paragraph issue false documents that cause losses to others, they shall bear liability for compensation in accordance with the law; if such actions result in substantial losses, the fire rescue authorities shall, in accordance with the law, order a suspension of practice or revoke the relevant qualifications, while the competent departments shall revoke the business license and impose a lifetime ban from the market on the persons concerned.”
III. Amendments to the Law of the People’s Republic of China on Inspection of Import and Export Commodities
(1) In Article 3, “inspection agencies licensed by the national commodity inspection authorities” is amended to “inspection agencies established in accordance with the law (hereinafter referred to as other inspection agencies).”
(2) Article 6 is amended by adding a paragraph as paragraph 3: “With respect to the inspection of import and export goods prescribed in paragraph 1 of this Article, the commodity inspection authorities may accept the inspection results issued by inspection agencies; the national commodity inspection authority shall maintain a catalog-based management system for the aforementioned inspection agencies.”
(3) In Article 8, “inspection agencies licensed by the national commodity inspection authority” is amended to “other inspection agencies.”
(4) Article 22 is deleted.
(5) Article 23 shall be renumbered as Article 22, and the phrase “inspection agencies authorized by the national commodity inspection authorities” therein shall be amended to “other inspection agencies.”
(6) Article 34 is deleted.
IV. Amendments to the Advertising Law of the People’s Republic of China
(1) Delete the phrase “and file an advertising publication registration with the local market supervision and administration department at or above the county level” from Article 29.
(2) Delete the phrase “revocation of the advertising publication registration certificate” from paragraph 3 of Article 55, Article 57, and paragraph 3 of Article 58.
(3) Delete Article 60.
V. Amendments to the Grassland Law of the People’s Republic of China
(1) Article 52 is amended to read: “The conduct of commercial tourism activities on grasslands shall comply with relevant plans for the protection, development, and utilization of grasslands, and shall not infringe upon the lawful rights and interests of grassland owners, users, or contracted operators, nor shall it damage grassland vegetation.”
(2) Delete the word “without authorization” from Article 69.
VI. Amendments to the Civil Aviation Law of the People’s Republic of China
(1) Amend paragraph 1 of Article 64 to read: “The establishment of an international airport shall be submitted by the people’s government of the province where the airport is located to the State Council for examination and approval.”
(2) Article 147, paragraph 1, is amended to read: “Those engaged in non‑commercial general aviation shall file a record with the civil aviation authority under the State Council.”
(3) Article 211 is amended by adding a second paragraph, which reads as follows: “Anyone engaging in non‑commercial general aviation without filing with the civil aviation authority under the State Council shall be ordered by such authority to make corrections; failure to comply within the prescribed time limit shall result in a fine of no more than RMB 30,000.”
VII. Amendments to the Customs Law of the People’s Republic of China
(1) Delete the phrase “approved for registration by the Customs” from paragraph 1 of Article 9.
(2) Article 11 is amended to read: “Importers and exporters, as well as customs brokerage enterprises, shall, in accordance with law, file with the Customs when handling customs clearance procedures.”
“Customs brokerage enterprises and customs brokers shall not illegally act as agents for others in filing customs declarations.”
(3) Article 88 is amended to read: “Where a person engages in customs declaration services without filing with the Customs, the Customs may impose a fine.”
(4) Article 89 is amended to read: “If a customs brokerage enterprise illegally acts as an agent for another party in filing customs declarations, the customs authority shall order it to make corrections and impose a fine; in cases of serious violations, it shall be prohibited from engaging in customs brokerage activities.”
“Where a customs declarant illegally acts as an agent for another party in filing a customs declaration, the customs authority shall order rectification and impose a fine.”
(5) Article 90, paragraph 1, is amended to read: “If consignors or consignees of import and export goods, or customs brokerage enterprises, offer bribes to customs officers, the customs authorities shall prohibit them from engaging in customs brokerage activities and impose a fine; if their conduct constitutes a crime, they shall be prosecuted for criminal liability in accordance with the law.”
VIII. Amendments to the Food Safety Law of the People’s Republic of China
Amend Article 35, paragraph 1 to read: “The State shall implement a licensing system for the production and operation of food. Any entity engaged in food production, food sales, or catering services shall obtain a license in accordance with the law. However, no license is required for the sale of edible agricultural products or for the sale of prepackaged foods only. Entities that sell only prepackaged foods shall file a record with the food safety supervision and administration department of the local people’s government at or above the county level.”
This Decision shall enter into force on the date of its promulgation.
The Road Traffic Safety Law of the People’s Republic of China, the Fire Protection Law of the People’s Republic of China, the Law of the People’s Republic of China on Inspection of Import and Export Commodities, the Advertising Law of the People’s Republic of China, the Grassland Law of the People’s Republic of China, the Civil Aviation Law of the People’s Republic of China, the Customs Law of the People’s Republic of China, and the Food Safety Law of the People’s Republic of China shall be amended accordingly and their provisions rearranged in accordance with this Decision, and shall be republished.

China Amends the Education Law to Strengthen Legal Accountability for Impersonation in University Admissions
BEIJING, April 29 (China News Service) — Reporters Xing Chong and Liang Xiaohui: The 28th session of the Standing Committee of the 13th National People’s Congress adopted the revised Education Law on the 29th, which will take effect on April 30. One of the key highlights of this amendment is the enhancement of legal liability for impersonation in admissions.
According to the newly amended Education Law, anyone who steals or impersonates another person’s identity to fraudulently obtain admission eligibility shall be ordered by the education administrative department or other relevant administrative departments to have their admission revoked and to be prohibited from taking the relevant national educational examinations for a period of no less than two years but no more than five years.
For those who have obtained a degree certificate, an academic diploma, or other academic credentials, the issuing institution shall revoke the relevant certificate; if the individual has already assumed public office, they shall be dismissed in accordance with the law; if their conduct constitutes a violation of public order administration, the public security organ shall impose administrative penalties in accordance with the law; and if their conduct constitutes a crime, criminal liability shall be pursued in accordance with the law.
Furthermore, anyone who colludes with others to permit another person to impersonate them and fraudulently obtain admission eligibility shall be ordered by the education administrative department or other relevant administrative departments to cease participating in the relevant national educational examinations for a period of no less than one year but no more than three years; any illegal gains shall be confiscated; if the person is already a public official, disciplinary action shall be imposed in accordance with the law; if the conduct constitutes a violation of public order administration, the public security organ shall impose administrative penalties in accordance with the law; and if the conduct constitutes a crime, criminal liability shall be pursued in accordance with the law.
 
The newly amended Education Law stipulates that, in the process of student admissions, any abuse of power, dereliction of duty, or corruption motivated by personal gain shall be subject to an order from the education administrative department or other relevant administrative departments to return those admitted who do not meet the admission requirements; the directly responsible supervisors and other persons directly liable shall be disciplined in accordance with the law; and if the conduct constitutes a crime, criminal liability shall be pursued in accordance with the law.
The newly amended Education Law also stipulates that anyone who organizes or directs the theft or impersonation of another person’s identity to fraudulently obtain enrollment eligibility, and who has derived illegal gains, shall have such gains confiscated; if the offender is a public official, disciplinary measures shall be imposed in accordance with the law; if the conduct constitutes a violation of public order administration, the public security authorities shall impose administrative penalties in accordance with the law; and if the conduct amounts to a crime, criminal liability shall be pursued in accordance with the law. Where one’s right to enrollment eligibility has been infringed upon by being unlawfully replaced, the affected party may request restoration of their enrollment status.
In January this year, the 25th Meeting of the Standing Committee of the 13th National People’s Congress conducted a first reading of the draft amendment to the Education Law. On April 26, the second‑reading draft of the amendment was submitted to the 28th Meeting of the Standing Committee of the 13th National People’s Congress for deliberation.

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