JC Master Legal News Issue 820

Key Takeaways for This Issue
On May 18, the China Securities Regulatory Commission approved IPO applications.
On May 18, the China Securities Regulatory Commission approved, in accordance with statutory procedures, the initial public offering applications of certain companies. These companies and their underwriters will separately coordinate with the Shanghai and Shenzhen stock exchanges to determine the issuance schedule and will successively publish their prospectuses.

The State-owned Assets Supervision and Administration Commission of the State Council, the Ministry of Finance, and the China Securities Regulatory Commission have jointly issued the Measures for the Supervision and Administration of State-owned Equity in Listed Companies.
Recently, the State-owned Assets Supervision and Administration Commission of the State Council, the Ministry of Finance, and the China Securities Regulatory Commission jointly issued the Measures for the Supervision and Administration of State-owned Equity in Listed Companies (Order No. 36 of the SASAC, the Ministry of Finance, and the CSRC), which will come into effect on July 1, 2018.

The Shanghai Stock Exchange places particular emphasis on regulating the conduct of controlling shareholders and actual controllers of listed companies.
Recently, credit risks among controlling shareholders and actual controllers of certain listed companies have intensified. In response, the Shanghai Stock Exchange has conducted proactive risk assessments and implemented a range of measures, adopting targeted regulatory actions to carry out ongoing special rectification campaigns aimed at standardizing the conduct of relevant controlling shareholders and actual controllers.

Tax incentives for venture capital offices and angel investors will be extended nationwide.
On May 16, the Ministry of Finance, in conjunction with the State Taxation Administration, publicly issued the “Notice on Relevant Tax Policies for Venture Capital Enterprises and Angel Investors,” extending nationwide the pilot program launched a year earlier. Accordingly, venture capital offices and individual angel investors across the country who meet the prescribed conditions will be eligible to benefit from these tax incentives. The tax policy targeting individual angel investors will take effect on July 1, 2018, while all other provisions in the notice will be implemented starting January 1, 2018.

The “China Unicorn Enterprise Value Ranking” and the “China Gazelle Enterprise Value Ranking” have been released.
The “2018 Global Unicorn Enterprise Summit” was held in Chengdu on May 19, with the theme “New Era, New Economy, New Future.” During the summit, the “China Unicorn Enterprise Value Ranking” and the “China Gazelle Enterprise Value Ranking” were unveiled, each featuring 60 outstanding companies.

Table of Contents
Table of Contents

Finance & Capital Markets
On May 18, the China Securities Regulatory Commission approved IPO applications.
NDRC: Local governments are strictly prohibited from illegally and indirectly incurring debt under the guise of PPPs or other similar arrangements.
China Banking and Insurance Regulatory Commission: Maintain a high-pressure stance and deepen efforts to rectify market irregularities in the banking and insurance sectors.
The Shanghai Stock Exchange places particular emphasis on regulating the conduct of controlling shareholders and actual controllers of listed companies.
The Shenzhen Stock Exchange has launched the nation’s first asset-backed securities product in the “Internet Plus Tourism” sector, supporting new‑economy enterprises and boosting consumption upgrading.

Corporate & Commercial
The State-owned Assets Supervision and Administration Commission of the State Council, the Ministry of Finance, and the China Securities Regulatory Commission have jointly issued the Measures for the Supervision and Administration of State-owned Equity in Listed Companies.
Vice Chairman of the China Securities Regulatory Commission, Jiang Yang: Implementing Commitments to Open Up the Securities, Fund, and Futures Sectors to Foreign Investors
SSE: Certain companies have abused merger and acquisition and restructuring mechanisms to manipulate their financial statements.
Another step in financial opening-up: The People’s Bank of China has authorized overseas RMB clearing banks and participating banks to engage in interbank lending and other related activities.
The “China Unicorn Enterprise Value Ranking” and the “China Gazelle Enterprise Value Ranking” have been released.

Taxation
Two departments have issued a document strictly prohibiting enterprises from requiring or accepting guarantees from local governments for their market-based financing activities.
Tax incentives for venture capital offices and angel investors will be extended nationwide.

Litigation & Arbitration
The Supreme People’s Procuratorate has announced new standards for state compensation.
The Xuanwu District People’s Court has concluded the nation’s first case in which a welfare institution sought to recover child support from the child’s biological mother.

Other
In 2020, 300,000 industrial Internet apps were developed.
China aims to develop the housing rental market, and publicly offered REITs are an inevitable trend.
Finance & Capital Markets
On May 18, the China Securities Regulatory Commission approved IPO applications.
On May 18, the China Securities Regulatory Commission, in accordance with statutory procedures, approved the initial public offering applications of the following companies: Green Power Environmental Group Co., Ltd. for the main board of the Shanghai Stock Exchange, and Contemporary Amperex Technology Co., Limited (CATL) for the ChiNext board of the Shenzhen Stock Exchange. The aforementioned companies and their underwriters will, in consultation with the Shanghai and Shenzhen stock exchanges, determine their respective issuance schedules and sequentially publish their prospectuses. The total funds to be raised by these companies will not exceed RMB 6 billion.

NDRC: Local governments are strictly prohibited from illegally and indirectly incurring debt under the guise of PPPs or other similar arrangements.
On May 16, at a press conference on macroeconomic performance hosted by the National Development and Reform Commission (NDRC), Meng Wei, Deputy Director of the NDRC’s Policy Research Office and its spokesperson, addressed existing issues in the development and construction of areas surrounding high-speed rail stations. She stated that the NDRC will guide relevant local authorities to advance such projects in a well‑planned, standardized manner, tailored to local conditions and aligned with the requirements of high‑quality development. The key is to uphold the eight-character principle of “guidance, standardization, intensification, and integration.” At the same time, during the implementation process, attention should be paid to guarding against risks associated with local government debt.
“Guidance” means adhering to planning‑driven development. Development and construction around railway stations shall be systematically laid out in strict accordance with relevant plans, including the land‑use plan, the urban master plan, and the regulatory detailed plan, with their functional positioning, scale, and boundaries carefully defined to ensure orderly progress.
“Standardization” refers to regulating the siting and scale of high-speed railway stations. It entails striking an appropriate balance between the accessibility of high-speed rail services and the development and construction surrounding station areas, while adhering to the principle of convenience for the public. New high-speed railway stations should, wherever possible, be located in central urban areas or close to established urban districts, thereby ensuring convenient travel for residents. At the same time, in line with the principle of cost-effectiveness, the scale of high-speed railway station construction should be determined in a rational and appropriate manner.
“Intensification” means fostering and implementing the principle of economical and intensive land use. The development and construction of areas surrounding high-speed railway stations should be advanced in phases and steps: for large cities, the initial focus should be on the area within 2 kilometers of newly built stations, with appropriate constraints on long-term development space; for medium- and small-sized cities, it is essential to avoid “blind urbanization.” At the same time, efforts should be made to actively promote land-saving technologies and best practices, such as the development and utilization of underground space.
“Integration” refers to fostering the coordinated and integrated development of railway stations and their surrounding urban areas. When advancing development and construction around high-speed rail stations, it is essential to simultaneously plan and implement urban functional zoning, build a comprehensive transportation system, and promote the joint construction and shared use of infrastructure, thereby creating an environment that is both livable and conducive to business.
During the development process, how can local government debt risks be effectively mitigated? Meng Wei believes that this requires a two-pronged approach: First, reinforce the principal responsibility of local governments. Relevant local authorities should further improve project and fund management, strengthen cost–benefit analysis and assessment, and appropriately control the scale and pace of construction to prevent development projects from proceeding in ways that exceed local fiscal capacity. Second, ensure debt‑raising is conducted in accordance with the law. This entails strict compliance with the Budget Law and the Guarantee Law, full implementation of the local government debt‑limit management and budgeting systems, a rigorous ban on illegal or disguised borrowing through mechanisms such as PPPs, and resolute containment of any increase in implicit debt. For high‑risk regions designated under the local government debt‑risk early‑warning framework, borrowing for new construction projects should, in principle, be prohibited.

China Banking and Insurance Regulatory Commission: Maintain a high-pressure stance and deepen efforts to rectify market irregularities in the banking and insurance sectors.
On May 14, the China Banking and Insurance Regulatory Commission convened a meeting to advance efforts to deepen the rectification of market irregularities in the banking and insurance sectors. The meeting briefed participants on progress made in the previous phase of this work, summarized and analyzed lessons learned and outstanding issues, and outlined priorities and requirements for the next stage. It was noted that the 19th National Congress of the Communist Party of China and the Central Economic Work Conference designated preventing and defusing financial risks as the top priority among the “three critical battles.” General Secretary Xi Jinping has explicitly emphasized that safeguarding against and resolving financial risks bears on national security, the overall development agenda, and the safety of people’s property, and represents a major hurdle that must be overcome to achieve high-quality development. Deepening the crackdown on market irregularities in the banking and insurance sectors is not only an essential component of winning the battle to prevent and defuse financial risks, but also a crucial precondition for guiding the banking and insurance industries back to their core functions and fundamentals and toward high‑quality development. Moreover, it constitutes an important element in implementing the requirements for strengthened, stringent, and in-depth regulation, making it of paramount significance.

The Shanghai Stock Exchange places particular emphasis on regulating the conduct of controlling shareholders and actual controllers of listed companies.
Recently, credit risks among controlling shareholders and actual controllers of certain listed companies have intensified, with frequent occurrences—both overt and covert—of improper practices such as misappropriation of funds and unauthorized guarantees. These issues have even disrupted the operations of listed offices, triggering sharp declines in stock prices and seriously harming the interests of small and medium-sized investors, thereby eliciting strong market reactions. In response, the Shanghai Stock Exchange has conducted proactive risk assessments and implemented a range of measures, adopting targeted regulatory actions. In particular, it has launched sustained special campaigns to address behaviors that are especially prevalent among controlling shareholders, including high‑ratio share pledges, asset transactions at substantial premiums, fund misappropriation, and unauthorized guarantees, with the aim of standardizing the conduct of relevant controlling shareholders and actual controllers, strengthening corporate governance safeguards, and effectively upholding securities market order and the rights and interests of small and medium‑sized investors.
Effectively guard against the risk of high‑ratio pledge by controlling shareholders.
Since last year, a trend of increasingly stringent financial regulation has largely taken shape. The central government and relevant financial regulators have repeatedly stressed the need to rigorously oversee such financial irregularities as leveraged financing, nested funding structures, and guaranteed principal‑and‑interest repayment, in order to effectively guard against systemic risks. Against this backdrop, market liquidity has gradually returned to normal, and some market participants that had previously relied on credit‑driven expansion to stay afloat are now facing difficulties. Among Shanghai‑listed companies, certain offices have revealed that their controlling shareholders hold a high proportion of shares pledged as collateral; when stock prices fluctuate, these companies may lack the funds to meet their obligations, giving rise to margin‑call risks. Earlier, the SSE has already handled a number of cases involving companies with significant share pledges by their controlling shareholders in a stable and orderly manner.
When controlling shareholders pledge a high proportion of their shares, the risk of forced liquidation can easily spill over to the listed company, directly undermining its operations and the stability of its control. Share prices often plunge sharply, severely harming the interests of small and medium investors. To address this, early forecasting and swift action are essential to prevent risk contagion and avoid turning such situations into systemic threats to market stability. In response, the Shanghai Stock Exchange has mandated that listed companies require relevant controlling shareholders to provide detailed disclosures on their creditworthiness and to proactively implement measures to defuse credit crises. It also urges companies to maintain stable operations, identify potential risk exposures, and prevent secondary crises. On the front of risk resolution, the Exchange requires offices that have been suspended for extended periods to promptly resume trading after verifying the situation, gradually unwinding risks through market transactions to prevent their further accumulation. In practice, even when controlling shareholders’ pledged shares are liquidated, they must comply with the new regulations on share reductions and fulfill pre‑disclosure obligations, thereby avoiding excessive disruption to the secondary market. Moreover, no cases have resulted in spillover risks; while a handful of stocks experienced consecutive trading halts, overall market order remained intact.
In response to the concentrated risk of share pledges by controlling shareholders over a period of time, the Shanghai Stock Exchange has conducted a special review to proactively identify companies with high‑ratio pledged shares that pose elevated risks. Recently, the Exchange has initiated disciplinary proceedings against a number of relevant parties for violations. Furthermore, in terms of institutional arrangements, the Shanghai Stock Exchange is revising the relevant guidelines on disclosure formats, with a particular focus on strengthening and refining information disclosure requirements for high‑ratio share pledges by controlling shareholders, mandating comprehensive disclosure of their creditworthiness, and urging prudent assessment of the impact of such high‑ratio pledges on listed companies.
Strictly regulate improper trading activities where shareholders’ motives for cashing out are clearly evident.
In regulatory practice, another scenario has emerged: controlling shareholders and actual controllers engage in improper asset transactions to extract substantial cash from listed companies. Overall, these transactions exhibit distinct characteristics and have a significant impact on the listed offices. Typically, such deals are settled with large cash payments, with the counterparty being either the listed company’s controlling shareholder or a potential related party of the controlling shareholder—entities that are themselves cash‑strapped or otherwise in financial distress, thus harboring a clear motive to cash out. At the same time, the underlying assets involved are generally of poor quality and often bear little relevance to the listed company’s core business, yet they are valued at excessively high multiples. Even when the counterparty provides performance guarantees, the compensation mechanisms fail to offset the transaction price, making the deal virtually risk‑free and highly profitable for the controlling shareholder.
For such transactions, the Shanghai Stock Exchange maintains a high level of vigilance, intensifies its scrutiny of the underlying motives, and conducts in-depth, “root‑cause‑investigating” inquiries. Regulatory focus is on assessing the quality of the target assets and the controlling shareholder’s cash‑out intentions, while requiring intermediary institutions to further verify the facts and urging companies to proceed with caution until any ambiguities are clarified. Where significant red flags emerge, the Exchange refers the matter to the China Securities Regulatory Commission for investigation and, when necessary, conducts on-site inspections jointly with the CSRC. The SSE will accelerate the refinement of relevant rules and regulations, adopt multiple measures to boost participation in shareholders’ meetings, strengthen the voice of minority shareholders, reinforce independent directors’ sense of duty and accountability, and ensure that intermediary institutions faithfully fulfill their role as gatekeepers.
Severely crack down on practices such as misappropriation of funds and unauthorized guarantees.
Following liquidity crises among controlling shareholders, it has become all too common for them to seek to exploit their listed‑company platforms by misappropriating corporate resources through practices such as fund occupation and unauthorized guarantees—issues that were a key focus of the CSRC’s targeted rectification campaigns in previous years. Thanks to concerted efforts over the past few years, significant progress has been made. However, amid tightening market liquidity and increasingly stringent financial regulation, these malpractices are once again on the rise. Such egregious violations inflict severe harm on listed companies, often signaling breakdowns in internal controls and disorderly corporate governance, thereby exposing operations and production to substantial risks. Once such risks materialize, share prices frequently plunge sharply, inflicting heavy losses on investors and undermining the ongoing efforts to improve the market ecosystem.
It must be emphasized that the misappropriation of funds and unauthorized guarantees are red lines that controlling shareholders and actual controllers of listed companies must never cross. The Shanghai Stock Exchange will continue to implement the requirements of comprehensive, stringent, and law-based regulation, resolutely cracking down on such illegal acts that encroach upon the interests of listed companies—investigating and addressing each case as it is discovered, with zero tolerance.
Controlling shareholders and actual controllers are a critical component of corporate governance for listed companies. Misconduct by controlling shareholders can undermine the company’s operations and production internally, disrupt internal governance, and harm investor interests externally, thereby undermining the healthy functioning of the capital market. In light of these issues, the Shanghai Stock Exchange has made the oversight of the conduct of controlling shareholders and actual controllers one of its key priorities in self-regulatory supervision, with the aim of enhancing the quality of listed companies and fostering a favorable external governance environment for their business development. Going forward, the Exchange will pursue this agenda on two fronts. In day-to-day regulatory work, it will continue to closely monitor risks associated with high‑ratio share pledges by controlling shareholders, as well as improper trading, misappropriation of funds, and unauthorized external guarantees—actions that infringe upon the interests of listed companies—ensuring timely identification, prompt inquiries, thorough investigations, and swift remediation, thus effectively mitigating systemic risks. On the institutional front, the Exchange will draw on its regulatory experience and case studies to strengthen the fiduciary duties of controlling shareholders and actual controllers, revise relevant business rules, and establish appropriate and necessary standards governing their conduct, thereby creating a sound external governance framework that supports the high‑quality development of listed companies.

The Shenzhen Stock Exchange has launched the nation’s first asset-backed securities product in the “Internet Plus Tourism” sector, supporting new‑economy enterprises and boosting consumption upgrading.
Recently, the Huatai-Ctrip Financial “Naiquhua” Phase I Asset-Backed Special Plan, Tranche 1–10 (hereinafter referred to as the Ctrip Naiquhua Special Plan), has received approval from the Shenzhen Stock Exchange. The Ctrip Naiquhua Special Plan is the nation’s first asset-securitization product in the “Internet Plus Tourism” sector. Its launch represents a significant financial innovation by the Shenzhen Stock Exchange to support new‑economy enterprises, foster the development of the real economy, and drive the consumption upgrade in the “Internet Plus Tourism” space. It also constitutes an important measure in response to the State Council General Office’s “Several Opinions on Further Promoting Tourism Investment and Consumption.”
The Ctrip “Na Qu Hua” Special Purpose Plan is managed by Huatai Securities (Shanghai) Asset Management Co., Ltd. It employs a shelf‑registration issuance structure, with an aggregate size of RMB 3 billion and no more than 10 tranches. The plan uses the factoring‑contract receivables arising from consumers’ installment payments for travel purchases made through the Ctrip and Qunar platforms as its underlying assets. The inaugural tranche has a size of RMB 500 million and a term of two years—comprising a revolving period in the first year and an amortization period in the second year. This product does not rely on the issuer’s creditworthiness; instead, leveraging the quality and structured tiering of its underlying assets, it has secured a AAA rating for its senior asset‑backed securities.
The report of the 19th National Congress of the Communist Party of China emphasized the need to improve the institutional mechanisms that promote consumption and strengthen consumption’s fundamental role in economic development. Ctrip’s “Take It to Spend” special program has revitalized existing assets and helped enterprises lower the barriers to travel through consumer finance, thereby further enhancing the “Internet + Tourism” consumption experience, stimulating tourism‑related spending, and driving an upgrade in residents’ consumption patterns. As another fixed‑income product innovation in the tourism sector following the Shenzhen Stock Exchange’s “Happy Valley ABS,” “Guangzhou Chimelong ABS,” and “Yunnan Balagezong ABS,” this initiative not only supports new‑economy enterprises in upgrading residents’ tourism consumption but also provides valuable guidance for high‑quality tourism companies seeking to leverage securitization instruments for financing.
Going forward, the Shenzhen Stock Exchange will continue to thoroughly study and implement the spirit of the 19th National Congress of the Communist Party of China, earnestly carry out the policies and guidelines of the CPC Central Committee and the State Council, and, in accordance with the unified deployment of the China Securities Regulatory Commission, steadily advance innovation in fixed-income products. It will also actively leverage a variety of innovative financing instruments to support the development of new‑economy enterprises, promote the sound growth of the tourism and consumption sectors, and provide multi‑channel support for upgrading consumer spending among residents.
Commercial & Corporate
The State-owned Assets Supervision and Administration Commission of the State Council, the Ministry of Finance, and the China Securities Regulatory Commission have jointly issued the Measures for the Supervision and Administration of State-owned Equity in Listed Companies.
Recently, the State-owned Assets Supervision and Administration Commission of the State Council, the Ministry of Finance, and the China Securities Regulatory Commission jointly issued the Measures for the Supervision and Administration of State-owned Equity in Listed Companies (Order No. 36 of the SASAC, the Ministry of Finance, and the CSRC). Order No. 36 will come into effect on July 1, 2018.
Order No. 36, together with the Measures for the Supervision and Administration of State‑Owned Asset Transactions in Enterprises (Order No. 32 of the SASAC and the Ministry of Finance) issued in 2016, constitutes a relatively comprehensive regulatory framework for state‑owned asset transactions, covering both listed companies’ state‑owned equity and non‑listed companies’ state‑owned property rights. This framework is bound to play a crucial role in ensuring the standardized operation of state‑owned assets, promoting the market‑based allocation of state resources, safeguarding and enhancing the value of state assets, and preventing the loss of state‑owned assets.
First, the system and rules have been unified. In 2007, the State-owned Assets Supervision and Administration Commission of the State Council (SASAC) and the China Securities Regulatory Commission (CSRC) jointly issued the Interim Measures for the Administration of State Shareholders’ Transfer of Shares in Listed Companies (Order No. 19 of SASAC and CSRC), which standardized the transfer of shares in listed companies by state shareholders. Subsequently, a series of additional normative documents were promulgated to regulate matters such as asset restructuring between state shareholders and listed companies, as well as the issuance of securities by state‑controlled listed companies. This time, relevant provisions previously scattered across departmental regulations and normative documents have been consolidated into a single framework, with supplementary refinements made to the categories of transactions involving changes in state equity in listed companies. The result is a unified departmental regulation that enhances both the coherence and authority of the regulatory regime while facilitating compliance by enterprises. Overall, the issuance of Order No. 36 has strengthened the regulation of transactions involving changes in state equity in listed companies.
Second, state‑owned asset management will be subject to a tiered regulatory framework. Previously, matters related to the management of state‑owned equity in listed companies were generally reviewed separately by the State Council’s State‑Owned Assets Supervision and Administration Commission and local state‑owned assets supervision and administration authorities, in accordance with the principle of tiered regulation. Only transactions involving the transfer of shares in listed companies by state‑owned shareholders were uniformly reviewed by the State Council’s State‑Owned Assets Supervision and Administration Commission. Following this adjustment, all matters concerning the management of state‑owned equity in locally listed companies will henceforth fall under the purview of the respective local state‑owned assets supervision and administration authorities.
Third, management authorities should be rationally defined. To further enhance regulatory effectiveness and improve the efficiency of state‑capital allocation and operations, certain internal corporate matters, as well as specific categories of transactions—such as public solicitations for transfers and securities issuances—within prescribed proportions or quantitative thresholds, will be entrusted to state‑invested enterprises. In line with the principle of combining deregulation with effective oversight, it is clarified that the state‑asset supervision and administration authorities will strengthen regulation through information‑technology tools, and that matters reviewed and approved by state‑invested enterprises must be subject to record‑keeping via a management information system.
Fourth, certain rules have been revised and refined. To ensure consistency with securities‑regulation frameworks and eliminate redundant provisions, matters already clearly regulated by securities‑regulatory authorities are no longer addressed in Order No. 36. Specific clarifications have been provided regarding the solicitation period for public transfers and the selection of transferees, while operational procedures have been further detailed to enhance the practical applicability of the regime. In particular, it is stipulated that information disclosed in public solicitations must not include eligibility criteria that are discriminatory or contravene fair‑competition principles, thereby ensuring that entities of all forms of ownership can participate equitably in the reform of state‑owned enterprises.
It should be emphasized that Order No. 36 governs changes in state‑owned equity of listed companies, covering both reductions and increases in shareholdings. The CSRC has already established clear regulations on share disposals by shareholders, directors, supervisors, and senior management of listed companies; any changes in state‑owned equity must strictly comply with these disposal rules. The issuance of Order No. 36 will not lead to a significant increase in the reduction of state‑owned shares held by listed companies. State‑asset supervision and administration authorities can monitor the entire process of state‑owned equity changes through the Listed Company State‑Owned Equity Management Information System, thereby facilitating coordinated control over the pace and scale of such transactions and mitigating potential market disruptions caused by concentrated shifts in state‑owned holdings.
Vice Chairman of the China Securities Regulatory Commission, Jiang Yang: Implementing Commitments to Open Up the Securities, Fund, and Futures Sectors to Foreign Investors
On May 19, Jiang Yang, Vice Chairman of the China Securities Regulatory Commission, delivered a speech at the Guangdong-Hong Kong-Macao Greater Bay Area Economic and Development Forum. In his address, he emphasized the need to proactively implement the securities, fund, and futures industries’ commitments to opening up to the outside world—including easing foreign‑ownership caps—and to coordinate and effectively carry out follow-up measures related to the inclusion of A‑shares in the MSCI Emerging Markets Index.
Jiang Yang also noted that the China Securities Regulatory Commission (CSRC) officely upholds its fundamental mission of serving the real economy and the overarching principle of supply-side structural reform, earnestly implements the development philosophy of innovation, coordination, green development, openness, and shared benefits, accelerates the development of a multi-tiered capital market, continuously deepens capital market reform and opening-up, and effectively leverages the various functions of the capital market to provide robust support for fostering innovative development and speeding up the transformation of growth drivers. Moving forward, the CSRC will conscientiously implement the decisions and arrangements of the CPC Central Committee and the State Council, align with the requirements of the Guangdong–Hong Kong–Macao Greater Bay Area Development Plan, seize the opportunity presented by a new round of high-standard opening-up, accelerate reform and innovation in the capital market, fully harness its diverse functions, and actively support the joint prosperity and development of the capital markets in Guangdong, Hong Kong, and Macao, thereby better serving the construction of the Greater Bay Area.
In his speech, Jiang Yang also emphasized that, going forward, the CSRC will proactively integrate capital market stability into the broader framework of financial stability and security, ensuring the smooth functioning of the capital markets and fostering a favorable market environment for high-quality development. First, it will deepen reforms of fundamental systems related to issuance and listing, mergers and acquisitions, dividend distribution, and delisting. Second, it will strengthen market supervision in a comprehensive, rigorous, and law-based manner, stepping up enforcement against illegal and non-compliant practices such as fraudulent issuance and false disclosures. Third, it will adopt a proactive and constructive approach to implementing its commitments to opening up the securities, fund, and futures sectors, including measures to relax shareholding‑ratio restrictions.

SSE: Certain companies have abused merger and acquisition and restructuring mechanisms to manipulate their financial statements.
At the end of April this year, the annual report disclosure season for Shanghai‑listed companies concluded, and the SSE’s review of these reports entered its peak phase. To date, the review process is essentially complete. The SSE conducted a comprehensive examination of the 2017 annual reports filed by 1,419 Shanghai‑listed companies, with a focused review of more than 560 companies. Over 170 inquiry letters were issued, raising more than 4,000 questions of various types, and all such inquiry letters have been made publicly available.
During this review, the Shanghai Stock Exchange placed the quality of listed companies at its core, mobilizing dedicated resources to establish an integrated “accounting–legal–industry” review mechanism, thereby conducting a comprehensive assessment of all Shanghai‑listed offices. The review findings indicate that the vast majority of Shanghai‑listed companies demonstrate sound operations, strong financial performance, and compliant governance. Blue-chip enterprises are deeply engaged in the real economy, pursuing transformation and upgrading, while new‑economy offices are experiencing rapid growth and leading innovation—truly serving as the mainstay of economic development in the new era and delivering substantial returns to investors. At the same time, this review placed particular emphasis on thoroughly scrutinizing high‑risk companies; issues identified in their annual reports were more concentrated, risk factors were disclosed more comprehensively, and market confidence in the exchange’s annual report‑review process has further strengthened.
As the mainstay of national economic development, Shanghai‑listed companies should play an even more pivotal role in China’s transition from a phase of rapid growth to one of high‑quality development, serving as pioneers in this transformation. To achieve this goal, the SSE has placed particular emphasis, in its review of annual reports, on issues related to the quality of listed companies, urging them to disclose their true operating conditions through information disclosure. For any production and operational challenges or significant risk factors revealed in the annual reports, the Exchange requires companies to provide comprehensive disclosures, thereby fully safeguarding investors’ right to know.
With respect to issues identified in annual reports, the Shanghai Stock Exchange has adopted a categorized approach and responded swiftly, issuing review inquiry letters at the earliest opportunity. Depending on the nature of the issues and their potential impact, appropriate measures have already been taken. For individual companies with particularly serious problems or unclear responses, follow-up inquiries have been promptly initiated; for those that have provided insufficient or incomplete disclosures or deliberately concealed material information, the Exchange has urged them to supplement their disclosures and fully disclose associated risks; and for companies involving sudden reversals in earnings, misappropriation of funds, or unauthorized guarantees, disciplinary proceedings have been launched. At present, based on the review of annual reports, the Exchange plans to refer more than 40 companies with significant risks to the China Securities Regulatory Commission for heightened oversight or on-site inspections.
Another step in financial opening-up: The People’s Bank of China has authorized overseas RMB clearing banks and participating banks to engage in interbank lending and other related activities.
On May 18, the General Office of the People’s Bank of China issued the “Notice on Further Improving the Management of Cross-Border Capital Flows and Supporting Financial Market Opening,” stating that offshore RMB clearing banks and participating institutions may, within the existing policy framework, engage in interbank lending, cross-border account financing, and bond repurchase transactions in the interbank bond market, thereby providing liquidity support for the development of offshore RMB business.
Based on past practice, offshore RMB clearing banks are typically established by the overseas branches of major state-owned commercial banks. Offshore RMB participating banks comprise all eligible foreign banks that have been approved to take part. In mid-April, PBOC Governor Yi Gang stated that, in accordance with the directives of the CPC Central Committee and the State Council, the People’s Bank of China and the relevant financial regulatory authorities are expediting efforts to significantly open up the financial sector to foreign participation and enhance its international competitiveness.
The aforementioned notice further stipulates that, effective from the date of its issuance, the reserve requirement ratio for RMB deposits held by the RMB clearing banks in Hong Kong and Macao in their clearing accounts with the Shenzhen Central Branch and the Zhuhai Central Branch of the People’s Bank of China shall be set at zero. The RMB clearing banks in Hong Kong and Macao are respectively the Bank of China (Hong Kong) Limited and the Bank of China (Macau) Limited.

The “China Unicorn Enterprise Value Ranking” and the “China Gazelle Enterprise Value Ranking” have been released.
The “2018 Global Unicorn Enterprises Summit” was held in Chengdu on May 19, under the theme “New Era, New Economy, New Future.” Government agencies, investment institutions, and representatives from numerous domestic and international unicorn companies gathered at this major industry event. At the summit, People’s Venture Capital, the People’s Daily Online Public Opinion Data Center, and the Chengdu Management Committee of Sichuan Tianfu New Area jointly released the “China Unicorn Enterprise Value Ranking” and the “China Gazelle Enterprise Value Ranking,” each featuring 60 outstanding companies.
The following are the companies selected for the “China Unicorn Enterprise Value Ranking”:

The following are the companies selected for the “China Gazelle Enterprise Value Ranking”:

Taxation TAXATATION
Two departments have issued a document strictly prohibiting enterprises from requiring or accepting guarantees from local governments for their market-based financing activities.
On the 17th, the National Development and Reform Commission stated that enterprises are strictly prohibited from requesting or accepting, under any pretext, guarantees or debt‑repayment commitments from local governments or their subordinate departments for their market‑based financing activities, and must earnestly ensure that “those who use the funds borrow, those who borrow repay, decisions are made prudently, and risks are borne by the parties concerned.”
The National Development and Reform Commission and the Ministry of Finance recently issued a notice calling for the improvement of market‑based risk‑management mechanisms and the stringent prevention of both external‑debt risks and local‑government debt risks. The notice stipulates that enterprises planning to raise medium- and long-term foreign debt must operate as genuine, stand‑alone entities and conduct market‑oriented financing in full compliance with laws and regulations. Furthermore, such financing should be closely aligned with the goals of supply‑side structural reform, with priority given to supporting large enterprises that possess strong overall economic strength, high levels of internationalization, and robust risk‑control frameworks in accessing overseas markets. Proceeds from these issuances are to be directed primarily toward fostering innovation, promoting green development, advancing strategic emerging industries, upgrading high‑end manufacturing, and underpinning the Belt and Road Initiative and international capacity‑cooperation efforts.
The notice stipulates that the assets held by applicant enterprises must be of high quality and have clear ownership. It is strictly prohibited to include public‑sector assets—such as public schools, public hospitals, public cultural facilities, parks, public squares, office buildings of government agencies and institutions, municipal roads, non‑toll bridges, non‑commercial water‑conservation facilities, and non‑toll utility networks—as well as land‑use rights for reserved land, in the enterprises’ asset base. For investment projects financed through foreign‑debt proceeds, a market‑oriented mechanism for generating investment returns must be established. If such projects receive fiscal support—including investment subsidies, operational subsidies, or interest‑rate subsidies—the relevant decision‑making procedures must comply with applicable laws and regulations, and local fiscal affordability and medium‑ to long‑term fiscal sustainability must be treated as key constraints. Any practice of providing fiscal support that exceeds the local government’s financial capacity must be officely prohibited.
The notice states that enterprises planning to raise medium- and long-term foreign debt must comprehensively consider factors such as exchange rates, interest rates, currency composition, and their own asset–liability structure, in order to effectively manage and mitigate foreign‑debt risks. They are required to standardize information disclosure, refraining from releasing data on local fiscal revenues and expenditures or government‑debt levels that might suggest implicit government credit support, and are strictly prohibited from engaging in misleading marketing that ties their creditworthiness to government credit. Credit rating agencies must not link corporate credit ratings to the creditworthiness of local governments. The notice further emphasizes that development and reform authorities should substantially strengthen ongoing and post‑event oversight, while fiscal authorities, for enterprises that legally and compliantly undertake government‑funded projects, must disburse funds promptly in accordance with applicable regulations and approved budgets, and must not allow any delays in payment.

Tax incentives for venture capital offices and angel investors will be extended nationwide.
On May 16, the Ministry of Finance, in conjunction with the State Taxation Administration, publicly issued the “Notice on Relevant Tax Policies for Venture Capital Enterprises and Angel Investors,” extending nationwide the pilot program launched a year earlier. Accordingly, venture capital offices and individual angel investors across the country who meet the prescribed conditions will be eligible to benefit from these tax incentives. The tax policy targeting individual angel investors will take effect on July 1, 2018, while all other provisions in the notice will be implemented starting January 1, 2018.
However, despite nationwide implementation, the policy continues to be subject to specific eligibility criteria. For example, for venture capital offices, within two years of investment, the combined equity holdings of the venture capital office and its affiliates in the invested early-stage technology enterprise must remain below 50%. Furthermore, only equity investments acquired through direct cash payments to the target early-stage technology enterprise qualify for this tax benefit; acquisitions of existing equity from other shareholders are excluded.
The aforementioned notice stipulates that, for corporate‑type venture capital enterprises that directly invest in seed‑stage and early‑stage technology offices (hereinafter referred to as “early‑stage technology offices”) through equity investments for a period of at least two years (24 months, the same applies hereinafter), 70% of the investment amount may be deducted from the enterprise’s taxable income in the year the equity is held for two years. Any portion of the deduction that cannot be fully utilized in the current year may be carried forward and applied in subsequent tax years.
Where a limited partnership venture capital enterprise (hereinafter referred to as the “partnership venture capital enterprise”) has directly invested in an early-stage technology enterprise through equity investment for a period of no less than two years, the partners of such partnership venture capital enterprise shall be treated in accordance with the following provisions:
1. Corporate partners may deduct 70% of their investment in early-stage technology enterprises from the income allocated to them by the venture capital partnership; any deduction not utilized in the current year may be carried forward and applied in subsequent tax years.
2. Individual partners may deduct 70% of their investment in early-stage technology enterprises from the business income allocated to them by the venture capital partnership; any deduction not utilized in the current year may be carried forward and applied in subsequent tax years.
Individual angel investors who directly invest in early-stage technology enterprises through equity participation for a period of at least two years may deduct 70% of their investment amount from the taxable income derived from the transfer of such equity. Any portion of the deduction that cannot be fully utilized in the current tax year may be carried forward and applied against future taxable income arising from the transfer of equity in the same early-stage technology enterprise.
In addition to imposing restrictions on investors, certain conditions are also stipulated with respect to the investee. The aforementioned early-stage technology enterprises shall simultaneously meet the following criteria:
1. Resident enterprises registered and established within the territory of China (excluding Hong Kong, Macao, and Taiwan) that are subject to account-based tax collection;
2. At the time of receiving investment, the number of employees shall not exceed 200, with at least 30% holding a bachelor’s degree or higher; total assets and annual sales revenue shall each not exceed RMB 30 million.
3. The enterprise must have been established no more than 5 years (60 months) prior to receiving the investment;
4. Not listed on any domestic or overseas stock exchange at the time of investment and within two years thereafter;
5. In the year of receiving investment and the following tax year, the total R&D expenses shall account for no less than 20% of the total cost and expense expenditures.

Litigation & Arbitration
The Supreme People’s Procuratorate has announced new standards for state compensation.
On May 16, the Criminal Appeals Prosecution Department of the Supreme People’s Procuratorate issued a notice requiring criminal appeals prosecution departments at all levels to apply the new daily compensation standard of RMB 284.74 when handling state compensation cases in which they themselves serve as the compensating authorities. This standard represents an increase of RMB 25.85 compared with the previous year.
An official from the Criminal Appeals Procuratorial Department of the Supreme People’s Procuratorate stated that Article 33 of the State Compensation Law provides: “Where a citizen’s personal freedom is infringed, the daily compensation shall be calculated based on the national average daily wage of employees for the preceding year.” On May 15, the National Bureau of Statistics announced that in 2017, the annual average wage of employed persons in non‑private urban units nationwide was RMB 74,318. In accordance with the aforementioned legal provisions, statistical data, and the formula for calculating the national average daily wage of employees provided by the Ministry of Human Resources and Social Security, the Criminal Appeals Procuratorial Department of the Supreme People’s Procuratorate has established a new daily compensation standard of RMB 284.74 for cases involving state compensation for infringement of personal freedom. Furthermore, pursuant to Paragraph 2 of Article 21 of the Interpretation by the Supreme People’s Court and the Supreme People’s Procuratorate on Several Issues Concerning the Application of Law in Handling Criminal Compensation Cases, all levels of procuratorial organs, effective May 16, shall apply this new daily compensation standard when making decisions on state compensation for infringements of personal freedom.

The Xuanwu District People’s Court has concluded the nation’s first case in which a welfare institution sought to recover child support from the child’s biological mother.
On July 15, 2014, Ms. Wang gave birth to a premature baby girl via cesarean section at a hospital. Approximately one week later, she abandoned the infant at the hospital and left without settling her medical bills. Following receipt of the report, the local police station conducted an extensive search but was unable to locate Ms. Wang. On September 26, 2014, the hospital placed the infant in the care of the Nanjing Social Children’s Welfare Institute. The institute named the child Qiqi. In 2017, upon the institute’s application, the Xuanwu District People’s Court revoked Ms. Wang’s parental guardianship and appointed the welfare institute as Qiqi’s legal guardian. Qiqi has been residing at the welfare institute for more than three years. The institute now seeks reimbursement from Ms. Wang for the 41 months during which it provided care, totaling RMB 75,270 in child support expenses.
The Xuanwu District People’s Court, after trial, held that parents have a duty to support and educate their children. Article 37 of the General Provisions of the Civil Law of the People’s Republic of China stipulates: “Parents, children, spouses, and other persons who are legally obligated to pay child support, alimony, or maintenance shall continue to perform such obligations even after their guardianship qualifications have been revoked by the people’s court.” Article 122 provides: “Where a person suffers loss because another has obtained an undue benefit without legal basis, the injured party has the right to demand the return of such undue benefit.”

In this case, Wang, the biological mother of Qiqi, had her parental custody revoked by the court due to abandoning her daughter. However, even after the revocation of her guardianship, Wang remains legally obligated to pay child support. As Wang’s whereabouts are unknown, the plaintiff, a public-interest relief organization, has assumed the responsibility for Qiqi’s care and education that should have been borne by her biological parents. Having advanced the child support payments, the plaintiff is entitled, on the basis of unjust enrichment, to seek reimbursement from Wang.
Prior to the determination of Qiqi’s biological father through a paternity test, and out of an abundance of caution, the plaintiff brought suit solely against Wang, which does not contravene legal provisions, and the court has granted such leave. After assuming responsibility for child support, Wang may, in accordance with the law, seek reimbursement from the child’s biological father for the portion of support that the latter is obligated to bear. As Wang failed to appear in court, he is deemed to have waived his rights to file a defense and to present or challenge evidence, and shall bear the adverse consequences thereof. At the time of case filing, the cause of action was characterized as a child support dispute; however, since the plaintiff brought suit not in the child’s name but in her own name to recover child support from the child’s mother, the underlying legal relationship between the parties constitutes unjust enrichment. Accordingly, the cause of action should be reclassified as a dispute over unjust enrichment.
In summary, the Xuanwu District People’s Court finds that the plaintiff’s claims are legally grounded. Accordingly, in accordance with Article 37 and Article 122 of the General Provisions of the Civil Law of the People’s Republic of China, and Article 144 of the Civil Procedure Law of the People’s Republic of China, the court hereby rules that Wang shall, within ten days from the date this judgment takes effect, pay the sum of RMB 75,270—representing the advance payment for child support for Qiqi, a ward of the Nanjing Municipal Social Children’s Welfare Institute.
Other
In 2020, 300,000 industrial Internet apps were developed.
On May 14, the website of the Ministry of Industry and Information Technology disclosed that the ministry had recently issued the “Implementation Plan for the Industrial Internet APP Cultivation Project (2018–2020)” (hereinafter referred to as the “Plan”), which sets out to cultivate 300,000 industrial Internet apps tailored to specific industries and scenarios by 2020, comprehensively addressing key needs across critical manufacturing business functions such as research and development, design, production and manufacturing, operations and maintenance, and business management.

China aims to develop the housing rental market, and publicly offered REITs are an inevitable trend.
In the long term, developing the housing‑rental market in China will inevitably hinge on public REITs. At present, the most significant hurdle to their implementation remains their relatively low yields. Internationally, REIT yields typically range from 6% to 8%, whereas in Beijing and Shanghai they stand at only 1% to 2%. Moreover, tax policies and related legal frameworks still require further refinement; relevant authorities are currently advancing policy formulation, and detailed supporting measures are yet to be released.

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