JC Master Legal News Issue 798

Release Date:

2017-12-04 14:57

Key Takeaways for This Issue

Table of Contents
Table of Contents

Finance & Capital Markets

The People’s Bank of China and the China Banking Regulatory Commission have issued the “Notice on Regulating and Rectifying ‘Cash Loan’ Business.”
The Shenzhen Stock Exchange has launched the nation’s first asset-backed securities product backed by mortgage loans on long-term rental apartments.
The China Securities Regulatory Commission has issued the “Notice on Soliciting Public Opinions on the Measures for the Supervision and Administration of Integrity in the Securities and Futures Markets (Draft for Comments).”
The Shanghai Stock Exchange, the Shenzhen Stock Exchange, and China Securities Depository & Clearing Corporation Limited have issued rules related to front-end risk control of securities trading funds.
The number of companies awaiting IPO approval has decreased by 119 since the end of June.

Corporate & Commercial

The National Development and Reform Commission has issued the “Guiding Opinions on Encouraging Private Capital to Participate in Public-Private Partnership (PPP) Projects.”
Notice of the General Office of the Ministry of Transport on Issuing the “Operational Guidelines for Public-Private Partnerships in Toll Roads”
The Ministry of Finance has outlined the policy direction for PPPs: proceed with caution in government‑funded projects.
The Ministry of Finance has released the “Joint Statement on the Fifth China–France High-Level Economic and Financial Dialogue.”
The National Energy Group announced its official establishment.

Taxation

Litigation & Arbitration

The second-instance court upheld the original verdict in the “e-Zubao” case.
The Supreme People’s Court has released the 17th batch of guiding cases.

Other

The U.S. Senate has passed the tax reform bill.
Twelve ministries and commissions have jointly issued the “Notice on Conducting a Special Inspection of Wage Payments to Rural Migrant Workers.”

Finance & Capital Markets

The People’s Bank of China and the China Banking Regulatory Commission have issued the “Notice on Regulating and Rectifying ‘Cash Loan’ Business.”
On December 1, 2017, the Office of the Leading Group for the Special Rectification of Internet Finance Risks and the Special Rectification of P2P Online Lending Risks officially issued the “Notice on Regulating and Rectifying ‘Cash Loan’ Business” (hereinafter referred to as the “Notice”). The Notice pointed out that “cash loan” products—characterized by the absence of specific usage scenarios, designated purposes, defined customer segments, and collateral—exhibit particularly serious issues such as excessive borrowing, duplicate credit granting, improper debt collection, excessively high interest rates, and violations of personal privacy, posing significant financial and social risks.
In response to the aforementioned risks, the notice sets forth six guiding principles: First, enhance awareness and accurately grasp the principles governing the operation of “cash‑loan” services; second, coordinate regulatory efforts and carry out a cleanup and rectification campaign targeting online micro‑lending activities; third, intensify measures to further standardize the participation of banking financial institutions in “cash‑loan” business; fourth, continue to advance and improve the business management of P2P online lending information intermediaries; fifth, adopt a categorized approach and strengthen enforcement against all types of institutions engaging in illegal or non‑compliant practices; and sixth, ensure effective implementation, emphasize long-term sustainability, and guarantee the desired outcomes of the regulatory and rectification efforts.
Meanwhile, Feng Yan, Deputy Director of the Inclusive Finance Department of the China Banking Regulatory Commission, stated at a briefing on “Recent Key Work” held by the Commission that, given the complexity of cash‑loan operations and the large number of participating institutions, the relevant authorities will, building on the earlier crackdown on P2P cash‑loan businesses, adopt a comprehensive approach—combining deregulation with regulation and addressing both symptoms and root causes—to implement multi‑pronged, integrated governance. According to Feng Yan, the rectification of cash‑loan activities will be guided by the following seven principles:
First, entities seeking to issue loans must hold the requisite licenses for lending activities; unauthorized, illegal lending operations and institutions must be rigorously cracked down upon and shut down. Second, all types of institutions must ensure that the total cost of funds charged to borrowers—whether in the form of interest rates or various fees—strictly complies with the Supreme People’s Court’s regulations on interest rates for private lending, and the issuance of loans that violate these rate limits is prohibited. Third, no institution, nor any third-party agent acting on its behalf, may employ violence, intimidation, humiliation, defamation, harassment, or other such methods to collect outstanding debts. Fourth, local regulatory authorities overseeing micro‑finance companies shall not approve the establishment of new online micro‑finance offices, nor authorize additional micro‑finance companies to conduct cross‑provincial micro‑lending activities; moreover, existing institutions and their operations must undergo comprehensive standardization and rectification. Relevant departments are currently drafting an implementation plan for addressing risks associated with online micro‑finance companies, further refining operational requirements. Fifth, all institutions must adhere to the “know your customer” principle, fully safeguard the rights and interests of financial consumers, and refrain from inducing borrowers, by any means, to over‑borrow and fall into debt distress. Sixth, all institutions should uphold the principle of prudent management, comprehensively assess the impact of factors such as lack of credit history, joint indebtedness, and fraud, and strengthen risk‑prevention measures. Seventh, institutions must enhance the protection of customer information, prohibiting the misuse of personal data, as well as the unlawful trading or disclosure of such information.

The Shenzhen Stock Exchange has launched the nation’s first asset-backed securities product backed by mortgage loans on long-term rental apartments.
On December 1, 2017, the “China Merchants Chuangrong–China Merchants Shekou Long-Term Rental Apartment Asset-Backed Special Plan” (hereinafter referred to as the “China Merchants Shekou Special Plan”) received approval from the Shenzhen Stock Exchange and is slated for issuance in the near future. The China Merchants Shekou Special Plan represents the nation’s first asset-backed securities product backed by mortgage loans secured against long-term rental apartments (hereinafter referred to as “CMBS”), and it currently boasts the largest shelf‑registration‑based issuance scale among housing‑rental‑related asset‑backed securities. The approval of this special plan marks another milestone in the development of the housing‑rental market through asset securitization, and it also constitutes a further innovative initiative by the Shenzhen Stock Exchange in the long‑term rental apartment sector—following the launch of the country’s first housing‑rental‑focused real estate investment trust fund (REITs), “Xinpai Apartments.” This achievement signals that high‑quality housing‑rental enterprises can leverage shelf‑registered CMBS to efficiently broaden their financing channels, with a highly positive demonstration effect.

The China Securities Regulatory Commission has issued the “Notice on Soliciting Public Opinions on the Measures for the Supervision and Administration of Integrity in the Securities and Futures Markets (Draft for Comments).”
On December 1, 2017, the China Securities Regulatory Commission issued the “Notice on Soliciting Public Comments on the Measures for the Supervision and Administration of Integrity in the Securities and Futures Markets (Draft for Comments).”
This revision focuses on seven key areas: First, it expands both the scope of entities covered by integrity information and the range of information included, achieving “full coverage” of integrity‑based regulation in the capital market. Second, it establishes a “blacklist” system for publicly disclosing serious violations and acts of dishonesty, making public administrative penalties, market bans, securities and futures‑related crimes, refusal to cooperate with inspections or investigations, failure to comply with final enforcement decisions, as well as other violations and breaches that gravely infringe upon investors’ legitimate rights and interests and have drawn strong public concern. Third, it introduces an integrity‑commitment mechanism at the market‑access stage: parties involved in applications for administrative licenses must submit written commitments attesting that the application materials are true, accurate, and complete, and that they will participate in securities and futures market activities in good faith and in compliance with the law. Fourth, it institutes an integrity‑points management system for major market participants, enabling classified supervision based on their integrity profiles. Fifth, it establishes an “express lane” for administrative licensing, incentivizing trustworthy behavior by granting priority review to applicants with excellent integrity records. Sixth, it creates a mutual‑verification mechanism among market participants, strengthening self‑imposed integrity constraints in market transactions. Seventh, it reinforces post‑regulatory integrity‑based oversight by mandating that integrity records be consulted at every stage and step of the regulatory process, treating such information as a critical factor in determining appropriate regulatory and enforcement measures.

The Shanghai Stock Exchange, the Shenzhen Stock Exchange, and China Securities Depository & Clearing Corporation Limited have issued rules related to front-end risk control of securities trading funds.
To strengthen risk control and uphold market fairness, the Shanghai Stock Exchange, the Shenzhen Stock Exchange (hereinafter referred to as the SSE and SZSE), and China Securities Depository & Clearing Corporation Limited (hereinafter referred to as ChinaClear) have jointly formulated the “Business Rules on Front-End Risk Control of Securities Trading Funds of the Shanghai Stock Exchange, the Shenzhen Stock Exchange, and China Securities Depository & Clearing Corporation Limited,” along with accompanying detailed rules. Approved by the China Securities Regulatory Commission, these rules were promulgated on December 1, 2017, and came into effect on June 1, 2018. According to relevant officials, the front-end risk control system for securities trading funds (hereinafter referred to as “funds front‑end control”) is implemented in accordance with the deployment of the China Securities Regulatory Commission. Under this system, the SSE, SZSE, and ChinaClear impose front‑end controls on the aggregate net purchase order amounts for a given trading day across all trading units of market participants—including securities offices, fund management companies, and insurance companies—engaged in proprietary trading and asset management activities. The aim is to enhance daily transaction management without disrupting the normal trading operations of these institutions, thereby better safeguarding the order of trade settlement, upholding market fairness, protecting the legitimate rights and interests of investors, particularly small and medium‑sized investors, and ensuring the safe and stable functioning of the securities market. This system has no impact on the ordinary trading activities of retail investors.

The number of companies awaiting IPO approval has decreased by 119 since the end of June.
Data released by the Shanghai Stock Exchange on November 27 shows that, as of November 24, the China Securities Regulatory Commission had announced, on a weekly basis, a total of 518 companies seeking initial public offerings on the Main Board, the SME Board, and the ChiNext Board—237 on the Shanghai Stock Exchange and 281 on the Shenzhen Stock Exchange (76 on the SME Board and 205 on the ChiNext Board). By contrast, as of June 30, the CSRC had reported 637 IPO applicants across these three boards. Over the past five months, the number of companies awaiting review has declined by 119. As of November 27, the IPO Review Committee has rejected the applications of 65 companies so far this year. Since the new committee assumed its duties on October 17, it has reviewed 61 IPO applications: 34 were approved, 22 were rejected, and 5 were deferred, yielding an approval rate of just 55.74%.

Commercial & Corporate

The National Development and Reform Commission has issued the “Guiding Opinions on Encouraging Private Capital to Participate in Public-Private Partnership (PPP) Projects.”
On November 30, 2017, the National Development and Reform Commission issued the “Guiding Opinions on Encouraging Private Capital to Participate in Public–Private Partnership (PPP) Projects” (hereinafter referred to as the “Opinions”), with the aim of encouraging private capital to engage in infrastructure project development in a standardized and orderly manner, fostering the further advancement of the PPP model, enhancing the efficiency of public‑goods provision, accelerating efforts to address infrastructure shortcomings, fully leveraging the pivotal role of investment in optimizing the supply structure, and strengthening the economy’s endogenous growth momentum. The Opinions promote the PPP model across ten key areas: first, creating a favorable environment for private capital participation; second, adopting tailored policies to support private involvement in PPP projects; third, encouraging private enterprises to utilize the PPP model to revitalize existing assets; fourth, continuously advancing the promotion of PPP projects to private enterprises; fifth, establishing scientific and reasonable criteria for selecting private-sector partners; sixth, concluding PPP contracts that are lawful, standardized, effective, and comprehensive; seventh, bolstering financing support for private‑capital‑led PPP projects; eighth, enhancing the capacity of consulting offices in PPP-related services; ninth, identifying and recognizing exemplary cases of private‑capital‑driven PPP projects; and tenth, strengthening the integrity‑building framework for public–private partnerships.

Notice of the General Office of the Ministry of Transport on Issuing the “Operational Guidelines for Public-Private Partnerships in Toll Roads”
On November 29, 2017, in order to further standardize the operational procedures for public‑private partnership (PPP) projects in the toll‑road sector and in light of the PPP‑related normative documents issued since 2016 by the Ministry of Finance, the National Development and Reform Commission, and other departments, the Ministry of Transport formulated the “Operational Guidelines for Public‑Private Partnerships in Toll Roads” (hereinafter referred to as the “Operational Guidelines”).
The Operational Guidelines stipulate that transportation authorities at all levels shall, based on the characteristics of each project and the relevant requirements of the PPP model, determine whether a project is suitable for attracting private-sector participation. Potential projects identified for adoption of the PPP model shall be included in the PPP project database. Transportation authorities at all levels shall coordinate with the finance and development‑and‑reform departments to conduct assessment and screening of such potential projects listed in the database. The government may provide support to toll‑road PPP projects through one or more of the following measures: construction‑phase investment subsidies, capital injections, operational subsidies, and interest‑rate subsidies on loans. Among these, construction‑phase investment subsidies, operational subsidies, and loan interest subsidies are classified as feasibility gap subsidies and do not constitute project equity; for PPP projects supported by government capital injections, a designated representative of the government investor must be clearly appointed. Toll‑road PPP projects in which the government participates via construction‑phase investment subsidies, operational subsidies, or loan interest subsidies shall be managed under the approval system; whereas those in which the government contributes through capital injections, or combines capital injections with one or more of the aforementioned instruments—construction‑phase investment subsidies, operational subsidies, and loan interest subsidies—shall be managed under the examination‑and‑approval system. Transportation authorities at all levels may serve as the project implementation agency themselves or designate relevant entities to assume this role, responsible for managing the entire PPP lifecycle, including project identification and preparation, selection of private‑sector partners, execution, and handover.

The Ministry of Finance has outlined the policy direction for PPPs: proceed with caution in government‑funded projects.
On December 1, a responsible official from the Ministry of Finance stated that the next phase of PPP policy will prioritize leveraging existing public assets through the PPP model, proceed with caution in government‑paying projects, and prevent excessively rapid growth in fiscal spending that could exceed the government’s fiscal capacity. The key measures to be implemented are as follows: First, link government payments to project performance‑assessment outcomes, thereby strengthening the incentive‑and‑constraint effects of project output performance on returns for private capital and preventing the government from assuming unconditional payment obligations for all project expenditures, which could otherwise turn PPP into an extended version of BT. Second, require that both construction and operational costs borne by the government be paid based on performance‑assessment results, with at least 30% of construction costs subject to such assessments, thus averting the practice—observed in some projects—of “engineering availability payments” that effectively lock in the government’s unconditional commitment to cover construction costs upon project completion, thereby undermining the binding force of operational performance evaluations. Third, ensure that government payments are scheduled continuously and smoothly throughout the project cooperation period, preventing the premature deferral of fiscal expenditure responsibilities in order to undertake more projects, which would exacerbate future fiscal pressures and create intergenerational imbalances; at the same time, this measure also avoids concentrating fiscal expenditure obligations too far ahead, enabling private capital to recover most of its investment quickly and facilitating early exit.

The Ministry of Finance has released the “Joint Statement on the Fifth China–France High-Level Economic and Financial Dialogue.”
The Fifth China–France High-Level Economic and Financial Dialogue was held in Beijing on December 1, 2017. Senior officials from both sides engaged in in-depth discussions on advancing cooperation in macroeconomic policy and global economic governance, strengthening trade, investment, and industrial collaboration, deepening financial cooperation, and addressing global challenges related to climate change and infrastructure financing and investment, thereby leveraging innovative approaches to further reinforce the close and enduring China–France strategic partnership in the economic and financial spheres. During the dialogue, the two sides reached 71 areas of consensus covering macroeconomic policy and global economic governance, trade, investment, and industrial cooperation, enhanced China–France financial cooperation, and joint efforts to tackle global challenges in climate‑change finance and infrastructure investment and financing.

The National Energy Group announced its official establishment.
On November 28, 2017, the new company—China Energy Investment Corporation Limited—was officially established in Beijing through the merger of China Guodian Corporation and Shenhua Group Co., Ltd. Following the restructuring, the company’s total assets exceeded RMB 1.8 trillion, and it employs 330,000 people. It is the world’s largest producer of coal, thermal power, and renewable energy, as well as the leading enterprise in coal-to-oil and coal chemical industries.

Taxation TAXATATION

The State Council has promulgated the “Decision of the State Council on Abolishing the Provisional Regulations of the People’s Republic of China on Business Tax and Amending the Provisional Regulations of the People’s Republic of China on Value-Added Tax.”
On November 19, 2017, Premier Li Keqiang of the State Council signed a State Council decree promulgating the “Decision of the State Council on Abolishing the Provisional Regulations of the People’s Republic of China on Business Tax and Amending the Provisional Regulations of the People’s Republic of China on Value-Added Tax” (hereinafter referred to as the “Decision”), which took effect from the date of its promulgation. On December 2, 2017, officials from the Legislative Affairs Office of the State Council, the Ministry of Finance, and the State Taxation Administration answered questions from reporters regarding issues related to the Decision. This amendment comprises four main aspects: First, taxpayers subject to the business tax–to–value-added tax reform—namely, entities and individuals engaged in the sale of services, intangible assets, or real estate—are explicitly designated as value-added tax payers. Accordingly, the scope of value-added tax payers now includes entities and individuals that sell goods or provide processing, repair, and maintenance services within the territory of China, as well as those who sell services, intangible assets, real estate, or import goods. At the same time, relevant provisions in the Provisional Regulations on Value-Added Tax concerning taxable sales, taxable amounts, output tax, input tax, and small-scale taxpayers have been adjusted to align with the revised scope of taxation. Second, the tax rates specified in the Provisional Regulations on Value-Added Tax have been supplemented to include rates applicable to the sale of services, intangible assets, and real estate; moreover, in line with the already implemented simplification of VAT rates, the rate for the sale or import of grain, edible vegetable oil, tap water, books, feed, and other goods has been reduced from 13% to 11%. Third, adjustments have been made to both the input tax deductible from output tax and the input tax that is not deductible. Fourth, to ensure consistency between the Provisional Regulations on Value-Added Tax, the provisions governing the business tax–to–value-added tax reform, and any future reform measures, it is stipulated that, with respect to matters relating to the payment of value-added tax by taxpayers, if the State Council or the competent financial and tax authorities of the State Council, with the approval of the State Council, prescribe otherwise, such alternative provisions shall prevail.

The State Taxation Administration has issued the “Measures for Implementing the Pilot Program to Expand Water Resources Tax Reform.”
On November 28, 2017, the State Taxation Administration issued the “Measures for Expanding the Pilot Program of the Water Resources Tax Reform” (hereinafter referred to as the “Measures”). The Measures stipulate that, in order to fully implement the spirit of the 19th National Congress of the Communist Party of China, promote comprehensive resource conservation and recycling, and foster green development models and lifestyles, and in accordance with the decisions and arrangements of the CPC Central Committee and the State Council, the pilot program for the water resources tax reform will be expanded, effective December 1, 2017, to nine provinces, autonomous regions, and municipalities directly under the central government—namely Beijing, Tianjin, Shanxi, Inner Mongolia, Shandong, Henan, Sichuan, Shaanxi, and Ningxia.

LITIGATION & ARBITRATION

The second-instance court upheld the original verdict in the “e-Zubao” case.
On November 29, 2017, the Beijing Higher People’s Court rendered a public second-instance judgment in the appeal case involving fundraising fraud and illegal absorption of public deposits brought by Anhui Yucheng Holding Group, Yucheng International Holding Group Co., Ltd., and 26 individuals including Ding Ning, Ding Dian, and Zhang Min.
The Beijing Higher People’s Court held that, in the Ezubao case, the amount of funds involved was exceptionally large, resulting in substantial property losses for investors nationwide and severely disrupting the national financial management order; the circumstances and consequences of the crime were particularly grave. The court found that the sentencing imposed by the court of first instance was appropriate and the trial was lawful, and accordingly ruled to dismiss the appeal and uphold the original judgment.

The Supreme People’s Court has released the 17th batch of guiding cases.
Recently, the Supreme People’s Court released the 17th batch of five guiding cases—four administrative cases and one intellectual property case—for reference by people’s courts at all levels when adjudicating similar matters. These are: Guiding Case No. 88, “Zhang Daowen, Tao Ren, et al. v. the People’s Government of Jianyang City, Sichuan Province, concerning infringement of the operating rights of passenger‑carrying human‑powered tricycles”; Guiding Case No. 89, “Bei Yanyunyi v. the Yanshan Police Station of the Lixia District Branch of the Jinan Municipal Public Security Bureau, regarding administrative registration in public security matters”; Guiding Case No. 90, “Bei Huifeng v. the Traffic Police Brigade of the Haining Municipal Public Security Bureau, concerning an administrative penalty for road traffic management”; Guiding Case No. 91, “Sha Mingbao et al. v. the People’s Government of Huashan District, Ma’anshan City, concerning administrative compensation for the forcible demolition of a house”; and Guiding Case No. 92, “Laizhou Jinhai Seed Industry Co., Ltd. v. Zhangye Fukai Agricultural Science and Technology Co., Ltd., concerning a dispute over infringement of plant variety rights.”

Other

The U.S. Senate has passed the tax reform bill.
On December 1, 2017, local time, the U.S. Senate passed the tax reform bill by a vote of 51 to 49, marking the first overhaul of the tax code in Congress in 31 years. The legislation broadly cuts taxes for businesses while delivering modest relief to households and individuals.
Among other provisions, the bill would reduce the corporate income tax rate from 35% to 20% and allow business owners to deduct 20% of their business income. It would also double the standard deduction for married couples, raising it from $12,000 to $24,000. However, the individual tax cuts would expire in 2026, while the corporate tax reductions would become permanent.

Twelve ministries and commissions have jointly issued the “Notice on Conducting a Special Inspection of Wage Payments to Rural Migrant Workers.”
Recently, 12 departments including the Ministry of Human Resources and Social Security, the National Development and Reform Commission, and the Ministry of Public Security issued a notice deciding to conduct a special nationwide inspection on the payment of wages to rural migrant workers from December 1, 2017, until before the 2018 Spring Festival. Specifically, for government‑invested construction projects where wage arrears result from unpaid project payments, all outstanding wages must be fully settled by the end of 2017, thereby effectively safeguarding the wage rights and interests of the vast majority of rural migrant workers. 1. Key inspection areas: Focus will be placed on the construction sector as well as labor‑intensive industries such as processing and manufacturing, and catering services. The main items to be examined include: whether employers pay rural migrant workers’ wages in full and on time; compliance with minimum wage regulations; the signing of labor contracts between employers and rural migrant workers; and the implementation of systems and measures—such as wage deposit guarantees, real‑name management of migrant workers, and dedicated wage accounts—for ongoing construction projects. 2. Enhanced oversight for enterprises and regions with prior records of wage arrears: From December 15, 2017, through the period leading up to the 2018 Spring Festival, joint enforcement inspection teams will be established to conduct targeted checks on enterprises that have previously experienced wage arrears, requiring them to submit regular reports on wage‑payment status and ensuring that any instances of unpaid wages are promptly addressed in accordance with the law. To tackle persistent wage arrears, the Inter‑Ministerial Joint Conference on Addressing Enterprise Wage Arrears will dispatch joint supervisory teams to carry out inspections in regions where wage arrears occur frequently and where the number of complaints is particularly high, drawing on relevant case leads. 3. Multi‑agency collaboration to crack down on wage arrears: The housing and urban–rural development, transportation, and water resources (water affairs) authorities shall earnestly fulfill their industry‑specific regulatory responsibilities, standardize market order in the construction sector, and oversee cases of wage arrears arising from subcontracting under false names, illegal sub‑contracting, re‑subcontracting, or unpaid project payments. Meanwhile, the finance, development and reform, and other relevant departments will further strengthen financial oversight and approval procedures for government‑funded projects, resolutely preventing the emergence of new wage‑arrear issues in such projects.

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