JC Master Legal News Issue 835

Key Takeaways for This Issue

The China Securities Regulatory Commission has sought public comments on the rules governing the Shanghai–London Stock Connect, clarifying the ongoing regulatory requirements for CDRs.

On August 31, China Securities Regulatory Commission spokesperson Chang Depeng stated that, in order to implement the outcomes of President Xi Jinping’s October 2015 visit to the United Kingdom and the China–UK Economic and Financial Dialogue, China and the UK, following consultations, will establish a cross‑border market connectivity mechanism—known as the Shanghai–London Stock Connect—through which listed companies on the Shanghai Stock Exchange and the London Stock Exchange can issue depositary receipts to list on each other’s markets. This marks that the Shanghai–London Stock Connect is poised to take concrete shape, with related preparatory work now officially entering its full‑scale launch phase.

The State Council Executive Meeting heard a report on the implementation of tax and fee reduction policies and measures and decided to introduce additional new initiatives to support the development of the real economy, among other matters.

On August 30, Premier Li Keqiang of the State Council presided over an executive meeting of the State Council, heard a report on the implementation of this year’s tax and fee reduction policies and measures, and decided to introduce additional new initiatives to support the development of the real economy. The meeting also outlined plans to improve the national essential medicines system, ensuring that the public’s basic medication needs are met and reducing their pharmaceutical expenses.

The new individual income tax law has been adopted, with a monthly threshold of 5,000 yuan, and will take effect on October 1.

On the afternoon of August 31, 2018, the General Office of the Standing Committee of the National People’s Congress held a press conference at the Great Hall of the People. The highly anticipated Decision on Amending the Individual Income Tax Law was adopted by vote at the Fifth Meeting of the 13th Standing Committee of the National People’s Congress. With this, the new Individual Income Tax Law—following seven major revisions—was officially unveiled.

The Supreme People’s Court has established the International Commercial Experts Committee.

In accordance with the “Opinions on Establishing an International Mechanism and Institutions for the Resolution of Commercial Disputes under the Belt and Road Initiative” issued by the General Offices of the CPC Central Committee and the State Council, the Supreme People’s Court’s International Commercial Experts Committee was established on August 26, with 32 Chinese and foreign experts specially appointed as its inaugural members. Chief Justice of the People’s Republic of China and President of the Supreme People’s Court, Zhou Qiang, presented appointment letters to the representatives of the expert committee members.

The 2018 Top 500 Chinese Private Enterprises were announced, with Huawei, Suning, and Zhengwei ranking first, second, and third, respectively.

The 2018 China Top 500 Private Enterprises Summit, co-hosted by the All-China Federation of Industry and Commerce and the People’s Government of Liaoning Province, was held in Shenyang on the 29th. During the event, the 2018 China Top 500 Private Enterprises list and the “2018 Research and Analysis Report on China’s Top 500 Private Enterprises” were released. Huawei Investment & Holding Co., Ltd., Suning Holdings Group Co., Ltd., and Zhengwei International Group Co., Ltd. ranked first, second, and third, respectively, on the 2018 list.

Table of Contents

Table of Contents

Finance & Capital Markets

The China Securities Regulatory Commission has sought public comments on the rules governing the Shanghai–London Stock Connect, clarifying the ongoing regulatory requirements for CDRs.

The China Securities Regulatory Commission is exploring the use of artificial intelligence to strengthen regulatory oversight.

CSRC: Recently, priority has been given to advancing cooperation and connectivity for the transfer of listings among regional markets.

The China Securities Regulatory Commission is advancing two reforms involving the New Third Board.

The China Securities Regulatory Commission has approved the Shanghai Futures Exchange to launch copper options trading.

New measures for the reform of the New Third Board are “on the way,” aiming to expand financing channels and improve liquidity.

Corporate & Commercial

The State Council Executive Meeting heard a report on the implementation of tax and fee reduction policies and measures and decided to introduce additional new initiatives to support the development of the real economy, among other matters.

This month, the Ministry of Finance issued three consecutive documents to provide support, accelerating the issuance of trillions of yuan in local special-purpose bonds.

Nearly 70% of companies on the New Third Board reported profits in the first half of the year.

The State Administration of Foreign Exchange has cracked down hard on individuals who illegally transfer funds abroad to purchase overseas property.

The farcical debt restructuring of Zhonghong Shares has come to an end: due to the false disclosure of Jiaduobao’s financial information.

Taxation

The new individual income tax law has been adopted, with a monthly threshold of 5,000 yuan, and will take effect on October 1.

The State Taxation Administration held a press conference to explain the third-quarter tax policies, unveiling 10 measures to optimize the tax-related business environment.

Litigation & Arbitration

The Supreme People’s Court has established the International Commercial Experts Committee.

The Supreme People’s Court has issued a judicial interpretation to standardize the work of people’s courts in determining reference prices for property disposal.

The draft of the Civil Code’s separate sections has been submitted for deliberation for the first time, codifying the existing civil legal norms into six parts comprising 1,034 articles.

In the “Kunshan Counter-Killing Case,” Yu Hai-ming acted in legitimate self-defense; the Kunshan Public Security Bureau has withdrawn the case in accordance with the law. The Jiangsu Provincial People’s Procuratorate has provided an interpretation of the legal basis for determining legitimate self-defense.

Other

The 2018 Top 500 Chinese Private Enterprises were announced, with Huawei, Suning, and Zhengwei ranking first, second, and third, respectively.

Multiple ministries have issued statements to accelerate the establishment of a long-term mechanism for the real estate market, with experts calling the property tax the centerpiece.

Finance & Capital Markets

The China Securities Regulatory Commission has sought public comments on the rules governing the Shanghai–London Stock Connect, clarifying the ongoing regulatory requirements for CDRs.

On August 31, China Securities Regulatory Commission spokesperson Chang Depeng stated that, in order to implement the outcomes of President Xi Jinping’s October 2015 visit to the United Kingdom and the China–UK Economic and Financial Dialogue, China and the UK, following consultations, will establish a mechanism for mutual listing on each other’s markets via depositary receipts, thereby achieving connectivity between the two markets—known as the Shanghai–London Stock Connect.

This marks that the Shanghai–London Stock Connect is poised to take effect, with related preparatory work for its international rollout officially entering the full‑scale launch phase.

Chang Depeng stated that, in order to standardize activities related to the Shanghai–London Stock Connect depositary receipt business—including issuance and listing, trading, information disclosure, and cross-border conversion—the China Securities Regulatory Commission has, pursuant to the Measures for the Administration of the Issuance and Trading of Depositary Receipts (Trial) (CSRC Order No. 143, hereinafter referred to as the “Measures”), drafted the Regulations on the Supervision of Depositary Receipt Business under the Market Interconnectivity between the Shanghai Stock Exchange and the London Stock Exchange (Trial) (hereinafter referred to as the “Regulations”). Guided by the principles of safeguarding investors’ legitimate rights and interests, upholding fair market order, and preventing financial risks, the Regulations set forth specific regulatory requirements for all market participants and related activities involved in the Shanghai–London Stock Connect, and are now open to public consultation effective immediately.

The “Regulatory Provisions” comprise thirty articles and primarily cover the following: First, they clarify the issuance‑review regime for China Depositary Receipts (CDRs) under the Shanghai–London Stock Connect. The provisions stipulate that CDRs issued under the Shanghai–London Stock Connect must comply with the relevant rules on public offerings of CDRs set forth in the Administrative Measures, and specify requirements regarding submission documents, approval procedures, sponsor‑led due diligence, accounting and auditing arrangements, as well as a cap on the number of CDRs.

Second, the framework for cross-border CDR conversion has been clarified. In alignment with the Administrative Measures, it specifies the types of cross-border conversion activities—creation and redemption—and sets out the basic eligibility criteria and filing requirements for domestic securities offices engaging in such business, as well as the regulatory standards governing asset custody, overseas investment management, and other related practices by cross-border conversion institutions.

Third, the ongoing regulatory requirements for CDRs have been clarified. In principle, the provisions applicable to red-chip companies already listed overseas under the “Measures for the Ongoing Supervision of Stocks or Depositary Receipts Issued by Innovative Enterprises in China (Trial)” shall be invoked. Quarterly reports are no longer mandatorily required to be disclosed by the underlying securities issuers; moreover, if a major asset restructuring undertaken by such issuers does not involve the issuance of CDRs within China, they may disclose relevant information to domestic investors in accordance with overseas regulations.

Fourth, the regulatory framework for domestic listed companies issuing GDRs overseas has been clarified. Such issuances are brought under the purview of the overseas listing regime; given that GDRs can be converted into A-shares and traded on the domestic market, in order to prevent regulatory arbitrage while ensuring commercial feasibility, provisions have been established regarding the issuance conditions, issue price, lock-up period for redemption, as well as the requirements for overseas securities offices and depositary institutions participating in cross-border GDR conversions.

Fifth, strengthen regulatory oversight and enforcement, and clarify legal liabilities. In alignment with the Administrative Measures, the regulations place particular emphasis on the supervision of cross-border conversion institutions. Within the framework of the Securities Law, provisions have been established to define the legal responsibilities of relevant market participants.

Meanwhile, it is understood that, under the guidance of the China Securities Regulatory Commission, the Shanghai Stock Exchange has completed the formulation of the Shanghai–London Stock Connect business plan, and the relevant business rules and operational arrangements are being systematically prepared.

The Shanghai Stock Exchange stated that, in the next phase, it will promptly issue relevant business rules and take the lead in carrying out market‑readiness preparations. At the same time, it will continue to maintain close communication with the London Stock Exchange and domestic and overseas market participants, jointly facilitating the listing and trading of non‑equity‑raising depositary receipts issued by high‑quality LSE‑listed companies on the SSE. Furthermore, the SSE will vigorously support domestic blue-chip enterprises in leveraging the Shanghai–London Stock Connect to fully capitalize on the London Stock Exchange’s status as an international financial center, issuing global depositary receipts, expanding their international operations, and enhancing their global visibility.

The China Securities Regulatory Commission is exploring the use of artificial intelligence to strengthen regulatory oversight.

Recently, the China Securities Regulatory Commission (CSRC) officially issued the “Overall Construction Plan for Regulatory Technology of the CSRC” (hereinafter referred to as the “Overall Construction Plan”), marking the completion of the CSRC’s top-level design for regulatory technology development and the transition to the phase of full-scale implementation.

The “Overall Construction Plan” provides a detailed analysis of the current state of regulatory informationization at the China Securities Regulatory Commission, identifies existing problems and challenges, and outlines the significance, guiding principles, and objectives of regulatory technology development. It also clarifies the requirements and specific tasks for each phase—Regulatory Technology 1.0, 2.0, and 3.0—of informationization efforts.

The CSRC’s regulatory technology development adheres to the overarching principles of “technology‑driven, demand‑oriented; co‑construction and sharing, multi‑stakeholder collaboration; unified planning and sustained advancement; capability enhancement and mechanism innovation.” Grounded in the realities of China’s capital market, and building on enhanced electronic and network‑based supervision, it leverages big data, cloud computing, artificial intelligence, and other cutting‑edge technologies to provide the CSRC with comprehensive, precision‑driven data and analytical services, striving to achieve three key objectives. First, it seeks to refine various infrastructure components and the central regulatory information platform, enabling seamless interconnection across business processes and full‑scale data sharing, thereby offering end‑to‑end, all‑encompassing support for regulatory operations. Second, it actively deploys big data, cloud computing, and related technologies to conduct real‑time data collection, computation, and analysis, enabling continuous monitoring of market conditions, strengthening the capacity to detect market risks and identify abnormal trading activities, and ensuring the early identification and timely handling of securities and futures violations. Third, it explores the application of artificial intelligence—such as machine learning and data mining—to deliver intelligent tools and services for regulatory purposes, optimizing pre‑emptive review, ongoing monitoring, and post‑event inspection and enforcement, enhancing the ability to proactively uncover issues and elevating the level of regulatory intelligence, thus fostering innovation in regulatory approaches.

The “Overall Construction Plan” outlines five core data‑analysis capabilities and 32 regulatory‑business analysis scenarios across seven categories, while also setting forth the principles for building a big‑data analytics center, the guiding framework for data‑resource management, and twelve key mechanisms for the operation and governance of regulatory technology.

CSRC: Recently, priority has been given to advancing cooperation and connectivity for the transfer of listings among regional markets.

From August 30 to 31, the China Securities Regulatory Commission (CSRC) convened a symposium on the sound development of regional equity markets in Chengdu, Sichuan Province. Yan Qingmin, a member of the CSRC Party Committee and Vice Chairman, attended the event and delivered a speech.

Yan Qingmin pointed out that General Secretary Xi Jinping emphasized at the National Financial Work Conference that developing direct financing must be given a prominent position, with the aim of establishing a multi-tiered capital market system characterized by complete financing functions, sound foundational institutions, effective market regulation, and robust protection of investors’ legitimate rights and interests. The 19th National Congress of the Communist Party of China and the Central Economic Work Conference called for deepening financial system reform, better serving supply-side structural reform and the “three reductions, one lowering, and one supplementation” initiative, enhancing the ability of financial services to support the real economy, increasing the share of direct financing, expanding the proportion of equity financing, promoting the healthy development of a multi-tiered capital market, and safeguarding the bottom line of preventing systemic financial risks. It is imperative to align our thinking and actions fully with the spirit of the 19th National Congress, the Central Economic Work Conference, the National Financial Work Conference, and General Secretary Xi Jinping’s important expositions on the capital market; continuously raise our political awareness and vigilance; achieve ideological unity; deeply recognize the significance of regulating and developing regional equity markets; and ensure that the decisions and arrangements of the CPC Central Committee and the State Council are implemented faithfully and without compromise.

Yan Qingmin stated that, after nearly a decade of development and practical implementation, the regional equity market has grown to a considerable scale, becoming an important component of the multi-tiered capital market. It has initially established a regulatory framework, fostered a systematic and orderly market ecosystem, played a role in supporting small and micro enterprises, and put in place a collaborative regulatory mechanism. At the same time, it is important to recognize clearly that, as a relatively new institutional arrangement, the regional equity market still faces certain challenges and issues. To achieve standardized and sound development, the market must consolidate its foundations, strengthen its internal capabilities, and focus on six key areas, continuously enhancing its capacity and level of service to small and micro enterprises: first, refine equity‑financing services; second, improve professional service capabilities; third, leverage its role in inclusive finance; fourth, elevate the quality of listed companies; fifth, reinforce market infrastructure; and sixth, cultivate a base of qualified investors.

Yan Qingmin emphasized the need to strengthen regulation and effectively prevent and defuse risks in regional equity markets. Preventing and defusing major risks is the top priority among the three critical battles; securities regulatory bureaus must assume full responsibility for overseeing regional equity markets, both by supporting local authorities in their regulatory efforts and by rigorously enforcing all relevant policies. Local financial regulators must earnestly shoulder their primary responsibility for day-to-day supervision, conduct on-site inspections, investigate and prosecute violations in accordance with the law, and assume accountability for risk management and resolution. Securities regulatory bureaus and local financial regulators should heighten their vigilance regarding emerging issues and risks, ensuring early detection, prompt response, and timely warnings; they should also enhance information sharing and communication, strive to improve regulatory effectiveness, and take proactive measures to prevent and mitigate risks.

Yan Qingmin stated that, in the near term, the China Securities Regulatory Commission will prioritize advancing the sound development of regional equity markets by focusing on standardizing information systems, fostering cooperation and connectivity for transfer listings, encouraging participation by professional institutions, and enhancing self-regulatory services. Local governments are urged to earnestly implement the requirements set forth in State Council documents, treating regional equity markets as comprehensive platforms for leveraging support funds for small and micro enterprises, and providing assistance through a variety of measures, including interest subsidies, guarantees, the establishment of guidance funds, or equity investment funds. All stakeholders should create favorable conditions and cultivate a conducive environment that promotes the orderly development of regional equity markets, working together to advance this goal and making greater contributions to supply-side structural reform and to serving the real economy.

Leading officials of Sichuan Province attended the meeting and delivered remarks.

At the meeting, relevant departments of the China Securities Regulatory Commission (CSRC) provided an overview of regulatory policies governing regional equity markets. The Securities Association of China presented its self-regulatory framework and outlined plans for follow-up work. In addition, several participating local financial regulators and operators of regional equity markets engaged in an exchange of best practices.

This symposium marks the first nationwide conference on regional equity markets convened by the China Securities Regulatory Commission. Officials from relevant departments and bureaus of pertinent State Council ministries and commissions, as well as from the CSRC’s related departments and units, attended the meeting, along with officials from the financial regulatory authorities and local securities regulatory bureaus of all provinces, autonomous regions, municipalities directly under the central government, and cities separately listed in the national plan. In addition, heads of the 34 regional equity market operators across the country participated.

The China Securities Regulatory Commission is advancing two reforms involving the New Third Board.

On August 31, the China Securities Regulatory Commission (CSRC) released its responses to 30 proposals submitted at the First Session of the 13th National People’s Congress, as well as to 23 motions presented at the First Session of the 13th National Committee of the Chinese People’s Political Consultative Conference. The relevant proposals and motions address reforms and the development of a multi-tiered capital market, with particular emphasis on advancing reform of the New Third Board, overhauling the new‑stock issuance system, and strengthening support for innovative enterprises.

With regard to the multi-tiered capital market’s embrace of the new economy and its advancement of institutional innovation, relevant deputies to the National People’s Congress have proposed allowing dual-class share structures under special circumstances and refining equity‑based incentive schemes on the New Third Board.

At present, companies listed on the New Third Board typically implement equity‑based incentive plans by issuing shares to eligible participants. The China Securities Regulatory Commission believes that the proposal to refine equity‑based reward mechanisms on the New Third Board would help diversify the methods available to listed companies for granting equity incentives, thereby aligning with current market demand.

To further standardize and improve equity incentive schemes for listed companies, the China Securities Regulatory Commission is currently drafting rules governing equity incentives for non-listed public companies. Once these rules are promulgated, issues such as the establishment of “share repurchase accounts” and the non‑trading transfer of repurchased shares as employee rewards will be clarified.

“Proposal on Adjusting the 200-Shareholder Limit for Listed Joint-Stock Companies and Promoting Mixed‑Ownership Reform of State‑Owned Enterprises,” the CSRC stated that, in accordance with relevant provisions of the Company Law and the Securities Law, issuing shares to a specific group of investors that results in the total number of shareholders exceeding 200 constitutes a public offering and thus requires CSRC approval. During the review process for issuance and listing, with respect to cases where the number of shareholders exceeds 200, we primarily apply the provisions of the Company Law, the Securities Law, the Measures for the Supervision and Administration of Non‑Listed Public Companies (hereinafter referred to as the “Public Company Measures”), and the Regulatory Guidance No. 4 for Non‑Listed Public Companies—Guidance on the Review of Administrative Licensing Applications by Unlisted Joint‑Stock Companies with More Than 200 Shareholders (hereinafter referred to as the “Review Guidance”). The CSRC supports eligible state‑owned enterprises undergoing mixed‑ownership reform, particularly those implementing employee stock ownership schemes, in seeking an IPO to raise capital.

The CSRC stated that, with respect to compliance requirements for companies whose shareholder base exceeds 200, the Review Guidelines clarify that, except for financial products under the CSRC’s supervision, any shareholding arrangements involving nominee holdings—such as those held by trade unions, employee stock ownership associations, entrusted shareholders, or trust‑held shares—or indirect shareholdings through “shareholding platforms” must be unwound to restore shares to their ultimate beneficial owners. If the number of ultimate beneficial shareholders exceeds 200, such arrangements must comply with the provisions of the Securities Law and the Measures on Public Companies. To accommodate the needs of new‑economy enterprises’ employee stock‑ownership schemes and the mixed‑ownership reform of state‑owned enterprises, the CSRC is currently studying relevant issues pertaining to employee shareholding in non‑listed public companies and exploring ways to further diversify the forms of employee stock‑ownership plans to better meet practical demands.

With regard to relaxing the cap on the number of shareholders, this entails amending existing laws and regulations. In the next phase, as part of the revisions to the Company Law and the Securities Law, the China Securities Regulatory Commission will actively propose to the competent authorities that the limit on the number of employees holding shares be relaxed.

The China Securities Regulatory Commission has approved the Shanghai Futures Exchange to launch copper options trading.

The China Securities Regulatory Commission recently approved the Shanghai Futures Exchange to launch copper options trading, with the contracts scheduled to commence official trading on September 21, 2018.

Options are a fundamental risk-management tool that underpins the maturity of international derivatives markets. In March and April 2017, soybean meal options and white sugar options were listed and began trading on the Dalian Commodity Exchange and the Zhengzhou Commodity Exchange, respectively. Over the past year and more since their launch, market operations have remained stable and orderly, with market functions gradually being realized, thereby initially meeting the personalized and sophisticated risk-management needs of relevant agricultural enterprises and reducing hedging costs. Meanwhile, copper‑industry offices have called for the introduction of exchange‑traded copper options. As the copper industry plays a vital role in China’s industrial system and commodity markets, launching copper options would help to refine the commodity derivatives market framework, diversify risk-management tools available to copper enterprises, and enhance their overall risk-management capabilities.

The China Securities Regulatory Commission will urge the Shanghai Futures Exchange to continue making all necessary preparations to ensure the smooth launch and stable operation of copper options.

New measures for the reform of the New Third Board are “on the way,” aiming to expand financing channels and improve liquidity.

Expectations for reform of the New Third Board market have resurfaced. On August 25, Sui Qiang, Deputy General Manager of the National Equities Exchange and Quotations System, stated clearly at the China New Third Board Development Strategy High-Level Forum that “many policies are on the way.” He also added, “Going forward, we are considering supplementing the existing small‑amount financing framework with a larger‑scale financing mechanism.”

More notably, Sui Qiang argues that reforming the financing system alone is insufficient; it must be accompanied by comprehensive measures to address market liquidity. Accordingly, when contemplating reforms to the New Third Board’s financing framework, a holistic adjustment of related supporting mechanisms is essential to enhance market liquidity and leverage the role of market‑based trading and pricing in facilitating financing.

“The initial phase of building scale on the New Third Board has been completed, and both the underlying design principles and the institutional effects have been thoroughly tested, laying a solid foundation and creating favorable conditions for further deepening reform,” said Sui Qiang. He outlined three key factors: First, a robust corporate base—over ten thousand companies exhibit significant diversity, with start-ups coexisting alongside mature enterprises, emerging business models alongside traditional industries, and substantial variations in individual stock liquidity—has provided valuable experience for refining reforms to better meet the diversified needs of small, medium, and micro‑enterprises. Second, a strong institutional framework: established within the broader context of China’s multi‑tiered capital market reform, the New Third Board represents both an experimental endeavor and a tangible outcome of that reform, featuring mechanisms such as small‑amount, rapid, and flexible financing, as well as internal tiered governance. These systems have stood the test of the market and earned widespread recognition. Third, effective risk‑control capabilities: over its five years of operation, the New Third Board has maintained stable performance, officely safeguarding against systemic risks—evidence not only of its risk‑management prowess but also of a solid foundation for advancing further reforms.

At present, market demand in the New Third Board has shifted, placing new requirements on enhancing the market’s functions and calling for deeper reform. There is both market demand and institutional room to advance these reforms. Sui Qiang believes that the next phase of deepening New Third Board reform must remain steadfast in three key areas: unwavering commitment to the mission of serving small and medium-sized enterprises; unwavering focus on improving the market’s financing efficiency; and unwavering reinforcement of the market’s distinctive institutional framework.

Specifically, Sui Qiang argues that the primary objective of the reform of New Third Board companies is to enhance the market’s financing capabilities and improve the efficiency of matching investors with funding opportunities. The New Third Board must advance reforms to its financing system to boost financing effectiveness—both by streamlining and customizing the existing small‑amount, fast‑track, flexible private placement mechanism and by proactively addressing the large‑scale financing needs of high‑quality enterprises as well as the unique institutional requirements of new‑economy offices.

“The New Third Board is, first and foremost, a securities trading market, and its fundamental functions of financing and trading are indispensable,” said Sui Qiang. He added that the next step should be to explore how to expand the supply of large‑scale financing mechanisms on top of the existing small‑amount financing framework, and to offer a broader array of financing instruments—such as preferred shares and convertible bonds—beyond equity financing. “If we can achieve breakthroughs in the issuance regime, different types of securities can be matched with tailored issuance methods and distinct trading mechanisms.”

Commercial & Corporate

The State Council Executive Meeting heard a report on the implementation of tax and fee reduction policies and measures and decided to introduce additional new initiatives to support the development of the real economy, among other matters.

On August 30, Premier Li Keqiang of the State Council presided over an executive meeting of the State Council, heard a report on the implementation of this year’s tax and fee reduction policies and measures, and decided to introduce additional new initiatives to support the development of the real economy. The meeting also outlined plans to improve the national essential medicines system, ensuring that the public’s basic medication needs are met and reducing their pharmaceutical expenses.

Several tax and fee reduction measures have been implemented starting this week, including a temporary exemption from corporate income tax and value-added tax on bond interest income earned by overseas institutions investing in the domestic bond market. With these multiple measures rolled out in tandem, it is estimated that corporate tax burdens will be further reduced by more than RMB 45 billion for the year.

Focus Area One: Tax Reductions and Exemptions for the Three Major Categories

The meeting noted that tax and fee reductions are key measures for implementing an active fiscal policy and sustaining steady, positive macroeconomic momentum. Since the beginning of this year, relevant authorities have introduced a series of tax and fee-cutting policies, yielding tangible benefits such as bolstering the development of small and micro enterprises and fostering entrepreneurship and innovation. The meeting decided that, while fully implementing the measures already in place, additional new initiatives will be rolled out to support the real economy.

Among these measures, property tax and urban land use tax exemptions are granted to enterprises that have suspended production or operations due to policy-driven initiatives such as capacity reduction and structural adjustment. This helps alleviate the tax burden on businesses, particularly when policy changes render operations unsustainable. By providing tax incentives in such circumstances, these measures can assist offices in more effectively transforming their growth models, adjusting their profit‑making strategies, and reducing their debt‑service pressures.

Granting tax exemptions and reductions for investment activities related to social security funds and basic old-age insurance funds can encourage long-term investment.

For the Postal Savings Bank, which issues a large volume of agricultural loans, its interest income from such loans may be subject to VAT under the simplified taxation method at a rate of 3%, which will help promote the development of agriculture and agricultural products.

Focus Area Two: Encouraging Increased Lending to Small and Micro Enterprises

The meeting called for an increase in lending to small and micro enterprises. From September 1 of this year through the end of 2020, the VAT exemption on interest income from loans to eligible small and micro enterprises and individual business households will apply, with the credit limit per borrower raised from the previously set RMB 5 million to RMB 10 million.

The difficulty and high cost of financing for small and micro enterprises remain a pressing reality that must be addressed as the economy undergoes structural adjustment. At the national level, there is strong encouragement to expand lending to small and micro businesses, and some banks are stepping up their support to meet these enterprises’ financing needs and reduce borrowing costs—aiming to help small and micro offices secure faster, higher‑quality access to capital.

Focus Area Three: Interest income earned by overseas institutions from investing in the bond market is exempt from corporate income tax and value-added tax.

To advance a higher‑level opening-up, the meeting encouraged and attracted foreign capital to participate in China’s economic development. It also granted a temporary exemption from corporate income tax and value‑added tax on bond interest income earned by overseas institutions investing in the domestic bond market, with the policy set to remain in effect for three years, while further refining and raising the export tax rebate rates for certain products.

By implementing the aforementioned measures, it is expected that corporate tax burdens will be further reduced by more than RMB 45 billion over the course of the year. The meeting called for the swift and effective implementation of both existing and newly introduced tax and fee reduction policies, with the State Council inspection teams and the National Audit Office stepping up oversight and enforcement. All departments are also urged to proactively introduce measures to ease the burden on market entities, ensuring that businesses and the public can tangibly feel the benefits.

Currently, foreign institutions investing in Chinese government bonds and local government bonds are exempt from both value-added tax and income tax on the interest they earn and on capital gains from bond sales. For other types of bonds, capital gains remain untaxed, while interest income is subject to a 10% corporate income tax and a 6% value-added tax. Previously, the lack of detailed implementing rules for tax collection and compliance had prevented these tax measures from being effectively enforced. Such uncertainty in tax policy has slowed the entry of foreign institutions and heightened their compliance risks. By contrast, this development will facilitate the further opening-up of China’s bond market to international investors.

Focus Area Four: Newly Approved Drugs Will Be Accelerated to Market

The meeting also examined ways to improve the national essential medicines system, a key measure for deepening healthcare reform and strengthening basic public health services, which will help meet the public’s fundamental medication needs.

The meeting decided to promptly revise the National Essential Medicines List. Building on coverage of major clinical conditions, this revision places particular emphasis on cancers, pediatric diseases, and chronic illnesses, adding 187 traditional Chinese and Western medicines that demonstrate clear efficacy and safety and offer a favorable cost‑effectiveness profile. These include 12 oncology drugs and 22 urgently needed pediatric medications—both representing substantial increases over the previous list. Following the adjustment, the total number of items on the National Essential Medicines List has been expanded to 685. Going forward, newly approved drugs with markedly improved efficacy and reasonable pricing will be expedited for inclusion.

With the introduction and implementation of a series of policies, not only Chinese patients stand to benefit, but multinational and domestic pharmaceutical companies alike face new opportunities and challenges, prompting the latter to shift their R&D models. At the same time, this will further intensify competition in the domestic market and may spur the development of innovative drugs that benefit China and the world.

Focus Area Five: Promoting Lower Drug Prices

The meeting noted the need to alleviate patients’ medication costs. It called for advancing measures such as centralized bulk procurement by public medical institutions to drive down drug prices. A mechanism will be established to link essential medicines with basic medical insurance and ensure the sustainability of the insurance system, under which eligible therapeutic drugs listed in the National Essential Medicines List will, following due procedures, be given priority for inclusion in the national reimbursement directory, thereby extending greater benefits to insured individuals. Localities are encouraged, in managing chronic diseases such as hypertension, diabetes, and severe mental disorders, to prioritize the use of essential medicines—while ensuring their efficacy—to reduce patients’ pharmaceutical expenses.

Policies aimed at lowering drug prices are revisited every year, yet their impact has been minimal—indeed, in many cases, prices have risen rather than fallen. Under the “two-invoice system,” pharmaceutical companies’ marketing expenses have surged, leading to a sharp decline in profit margins. To date, China still lacks a well‑functioning mechanism for setting drug prices. Currently, health insurance reimburses physicians for consultation and treatment fees, and hospitals then negotiate prices with drug suppliers; only this approach can truly separate prescribing from dispensing. Only by establishing a unified national reimbursement standard for both public hospitals and community pharmacies can prescription drugs be decoupled from hospital pharmacies, allowing prescriptions to be filled outside hospitals and fostering competition between public and private pharmacy channels—thus creating a rational pricing mechanism for medicines.

Focus Area Six: Ensuring Safe Medication Use and Strengthening Pharmaceutical Safety Oversight

The meeting emphasized the need to ensure a continuous supply of essential medicines. For essential drugs that are prone to shortages due to low usage volumes, measures such as designated‑site production and inclusion in national reserves should be implemented to guarantee availability. Public medical institutions are required to give priority to using essential medicines, with their utilization linked to the disbursement of relevant subsidy funds. At the same time, oversight of drug quality and safety must be strengthened to ensure that the public can use medications with confidence and peace of mind.

Beginning with the problematic vaccines from Changsheng Bio, society has become deeply concerned about medication safety. Only by ensuring a steady supply of essential medicines and guaranteeing their safe use can we safeguard the lives and health of the people.

This month, the Ministry of Finance issued three consecutive documents to provide support, accelerating the issuance of trillions of yuan in local special-purpose bonds.

Recently, the issuance of local special-purpose bonds has accelerated. On August 30, the Tianjin Municipal Finance Bureau announced that it would issue 1.796 billion yuan in the third tranche of land‑reserve special bonds, 1.5 billion yuan in the first tranche of ecological‑protection special bonds, and 3.2 billion yuan in the third tranche of shantytown‑redevelopment special bonds.

On August 29, the Anhui Provincial Department of Finance issued the fourth tranche of 2018 Anhui Provincial Government Special Bonds, with a total issuance size of RMB 5.36 billion. On August 28, the Finance Department of the Guangxi Zhuang Autonomous Region issued special bonds totaling RMB 26.3 billion, including RMB 4.8 billion in toll-road special bonds, RMB 20.2 billion in land‑reserve special bonds, and RMB 1.3 billion in shantytown‑redevelopment special bonds.

Analysts believe that, against the backdrop of the central government’s policy orientation to expand domestic demand and address infrastructure shortcomings, trillions of yuan in special-purpose bonds have become a key source of funding for local governments’ infrastructure projects.

According to reports, since August this year, the innovation of special-purpose bond products has accelerated, with 12 categories now available, including land‑reserve bonds, toll‑road bonds, shantytown‑redevelopment bonds, rail‑transit bonds, higher‑education bonds, urban–rural water‑supply bonds, rural‑revitalization bonds, and wastewater‑treatment bonds. In the future, the range of special-purpose bond types is expected to expand further.

The acceleration in the issuance of special-purpose bonds is linked to the Ministry of Finance’s release of three consecutive documents. On August 14, the Ministry of Finance issued the “Opinions on Doing a Good Job in the Issuance of Local Government Special-Purpose Bonds,” calling for an expedited pace in both the issuance and utilization of these bonds. On August 20, it released the “Procedures for the Public Underwriting and Issuance of Local Government Bonds,” aimed at further refining the bond‑issuance mechanism and enhancing issuance efficiency. Finally, on August 24, the Ministry published the “Procedures for the Flexible Tender‑Based Issuance of Local Government Bonds,” introducing a flexible tender system to ensure the smooth and orderly conduct of local government bond issuances.

Jiang Chao, an analyst at Haitong Securities, notes that, based on the disclosed allocation of proceeds from special-purpose bonds issued this year, the funds have been primarily directed toward infrastructure projects such as municipal development, transportation, and affordable housing initiatives under the “Anju” program. They have also been allocated to key strategic campaigns addressing rural revitalization, poverty alleviation, and ecological and environmental protection.

Nearly 70% of companies on the New Third Board reported profits in the first half of the year.

With the release of interim reports now complete, the financial performance of all companies listed on the New Third Board has been disclosed. As of August 30, 2018, a total of 10,483 listed companies had published their first-half 2018 results. Overall, these companies continued to post growth in the first half of this year, with combined operating revenue reaching RMB 956.441 billion, up 16.47% year over year, and combined net profit totaling RMB 41.108 billion, up 4.17% year over year. Nearly 70% of the listed companies reported profits in the first half.

Statistics show that in the first half of this year, non‑financial listed companies recorded total operating revenue of RMB 913.398 billion and net profit of RMB 37.762 billion, up 17.23% and 8.84% year over year, respectively, with a return on equity of 6.15%. Among them, companies in emerging sectors such as information technology and pharmaceuticals & healthcare posted growth rates exceeding the market average. In the information technology sector, listed offices reported revenue of RMB 213.655 billion in the first half, a year‑on‑year increase of 17.40%, and net profit of RMB 5.345 billion, up 9.33% year over year. Meanwhile, companies in the pharmaceuticals and healthcare industry generated RMB 44.212 billion in revenue, up 14.13% year over year, with net profit reaching RMB 3.225 billion, a 9.03% year‑on‑year rise. Manufacturing‑sector listed companies actively pursued transformation and upgrading, extending their industries toward the mid‑to‑high end of the value chain, resulting in overall stable performance in the first half of the year.

Among the 10,483 listed companies, 2,058 reported year-on-year revenue growth of more than 50% in the first half of the year; 891 turned profitable, and 1,659 saw their net profits double. Several listed offices demonstrated particularly strong growth. In the first half of this year, 90 companies posted revenues exceeding RMB 1 billion, while 1,826 recorded revenues between RMB 100 million and RMB 1 billion. The largest by revenue was Gangyin E‑Commerce, with first-half revenues reaching RMB 44.02 billion. Meanwhile, 133 companies reported net profits above RMB 50 million, and 47 exceeded RMB 100 million.

In the first half of 2018, the overall leverage ratio of listed companies stood at 52.67%, up 0.12 percentage points from the same period last year. Among them, non-financial enterprises recorded an average debt-to-asset ratio of 47.27%, a slight year-on-year increase of 0.6 percentage points. Fixed asset turnover and total asset turnover rose by 3% and 5%, respectively, remaining broadly stable. For 4,931 companies, the current ratio remained above 2:1, indicating that most offices face relatively low short-term liquidity pressures.

In the first half of this year, listed companies collectively spent RMB 28.52 billion on R&D, with R&D expenses accounting for 2.98% of operating revenue—an increase of 0.31 percentage points compared with the same period last year—underscoring sustained growth in R&D investment. Among them, 417 New Third Board–listed offices reported R&D expenditures exceeding RMB 10 million, and 19 offices exceeded RMB 50 million. Notably, the information technology, materials, and healthcare sectors saw particularly robust increases in R&D spending, with R&D outlays totaling RMB 11.65 billion, RMB 4.10 billion, and RMB 1.80 billion, respectively, up 28.45%, 32.96%, and 35.97% year over year. The top three companies in terms of R&D investment were Zhi Ming Xing Tong, Zhongke Soft, and Junshi Biosciences, with R&D expenditures of RMB 489 million, RMB 234 million, and RMB 218 million, respectively.

Data show that in the first half of this year, the 10,483 listed companies reported combined cash and cash equivalents totaling RMB 330.609 billion at period end, a slight year-on-year decline. Net operating cash flow stood at negative RMB 22.163 billion, down from the same period last year; however, more than half of the listed companies posted positive operating cash flows. In the first half of this year, 6,022 companies—57.48% of the total—recorded positive net operating cash flow.

In terms of cash flows from financing activities, 5,086 companies reported positive net cash inflows from financing in the first half of this year, accounting for 48.54% of all listed companies. During the same period, listed companies generated total cash inflows of RMB 77.102 billion from financing activities, with RMB 35.794 billion raised through equity financing on the New Third Board market.

The State Administration of Foreign Exchange has cracked down hard on individuals who illegally transfer funds abroad to purchase overseas property.

Since 2018, the State Administration of Foreign Exchange has thoroughly implemented the spirit of the 19th National Congress of the Communist Party of China and the work arrangements of the CPC Central Committee and the State Council. Focusing on three key tasks—serving the real economy, preventing and controlling financial risks, and deepening financial reform—the administration has strengthened oversight of the foreign-exchange market, maintained a stringent enforcement stance against all types of foreign-exchange violations, continuously increased penalties, and rigorously cracked down on fictitious and deceptive transactions, thereby safeguarding a sound and healthy foreign-exchange market order. On September 1, the SAFE announced 23 typical cases of violations, involving several banks’ foreign-exchange infractions as well as individuals who illegally remitted funds abroad to purchase overseas real estate.

For example, from February to October 2016, the Ruijing Branch of Ping An Bank in Xiamen failed to conduct due diligence as required to verify the authenticity of re-export trade and processed foreign‑exchange payments for such transactions based on falsified bills of lading submitted by enterprises.

The aforementioned conduct of the bank violated Article 12 of the Regulations on Foreign Exchange Administration. In accordance with Article 47 of the same Regulations, the bank was imposed a penalty and confiscation totaling RMB 2 million, and was ordered to hold the senior management personnel directly responsible, as well as other persons directly liable, accountable.

Case of Zhejiang Commercial Bank’s Shanghai Branch improperly processing re-export trade. From February to September 2017, the Shanghai Branch of Zhejiang Commercial Bank failed to conduct due diligence in accordance with regulations to verify the authenticity of re-export transactions and processed foreign‑exchange payments for such transactions based on falsified bills of lading submitted by enterprises.

The aforementioned conduct of the bank violated Article 12 of the Regulations on Foreign Exchange Administration. In accordance with Article 47 of the same regulations, a penalty and confiscation totaling RMB 1.92 million was imposed.

In addition to reporting foreign exchange violations by banks and enterprises, the State Administration of Foreign Exchange has also publicized several typical cases of individual foreign exchange violations.

For example, from September to December 2016, Wuhan Modern Oriental Sculpture Art Co., Ltd. exploited the annual foreign‑exchange purchase quotas of 93 domestic individuals, splitting funds into smaller amounts for foreign‑exchange purchases and then remitting them to overseas accounts to acquire overseas real estate and other purposes, thereby illegally transferring a total of USD 4.5406 million.

This conduct violates Article 12 of the Regulations on Foreign Exchange Administration and constitutes an act of capital flight. Pursuant to Article 39 of the same Regulations, a fine of RMB 2.183 million is imposed.

Case of illegal foreign exchange trading involving Wang, a native of Zhejiang Province. From November 2012 to February 2015, in order to illegally transfer assets overseas, Wang remitted RMB 14.9728 million into domestic accounts controlled by an underground money exchange, which then converted the funds into foreign currency and transferred them to his overseas account for purposes such as purchasing real estate abroad.

This conduct violates Article 30 of the Measures for the Administration of Individual Foreign Exchange and constitutes an illegal foreign‑exchange transaction. In accordance with Article 45 of the Regulations on Foreign Exchange Administration, a fine of RMB 1.45 million has been imposed.

The case of Tang, a native of Guangdong, involving the fragmentation of foreign‑exchange evasion. From January to October 2016, in order to illegally transfer assets overseas, Tang exploited the annual individual foreign‑exchange purchase quotas of 68 domestic individuals, splitting their funds into smaller amounts for foreign‑exchange purchases and remitting them to overseas accounts to finance the acquisition of overseas real estate and other purposes, thereby illegally transferring a total of £2.4776 million.

This conduct violates Article 7 of the Measures for the Administration of Individual Foreign Exchange and constitutes an act of capital flight. In accordance with Article 39 of the Regulations on Foreign Exchange Administration, a fine of RMB 1.5 million is imposed.

The case of Lu, a native of Anhui Province, involving the fragmentation and evasion of foreign exchange regulations. From September 2016 to June 2017, in order to illegally transfer assets abroad, Lu exploited the annual individual foreign‑exchange purchase quotas of 19 domestic individuals, splitting his personal funds into smaller amounts for foreign‑exchange purchases and then remitting them to overseas accounts, thereby acquiring overseas real estate and other assets. The total amount of illegally transferred funds amounted to CAD 1.8868 million.

This conduct violates Article 7 of the Measures for the Administration of Individual Foreign Exchange and constitutes an act of capital flight. In accordance with Article 39 of the Regulations on Foreign Exchange Administration, a fine of RMB 483,000 is imposed.

The farcical debt restructuring of Zhonghong Shares has come to an end: due to the inaccurate disclosure of Jiaduobao’s financial information.

On the evening of August 30, Zhonghong Shares responded to a notice of concern from the Shenzhen Stock Exchange, stating that an online inquiry with the Hong Kong Companies Registry revealed that Jiaduobao Group Co., Ltd. remains “registered.” According to an oral response from Jiaduobao’s authorized representative, Huang Weiqing, the company contends that Zhonghong’s disclosure of Jiaduobao’s financial information was inaccurate, giving rise to a dispute between the two parties and resulting in the complete termination of the cooperation stipulated in the Debt Restructuring and Operational Trusteeship Agreement.

Zhongyi believes that the “Debt Restructuring and Operational Trusteeship Agreement” has, in substance, been terminated. Upon receipt of the written documentation conofficeing the termination of the agreement, Zhonghong will promptly fulfill its information disclosure obligations.

The company further stated that, owing to the risk of delisting, it has been actively seeking a restructuring partner. Its intention is to use restructuring as a means to fundamentally resolve its current difficulties, and there is no motive or circumstance to manipulate securities market prices through information disclosure.

On the evening of August 27, Zhonghong Shares, mired in a debt crisis, issued an announcement stating that the company and its controlling shareholder, Zhonghong Zhuoye, had jointly signed a “Debt Restructuring and Operational Trusteeship Agreement” with Jiaduobao Group and Qianhai Yinyi Capital. Under the agreement, Jiaduobao and Yinyi Capital will undertake debt restructuring for the company and the group, aiming to resolve liquidity challenges and address operational and developmental difficulties. This marks Zhonghong’s third attempt this year to extricate itself from its debt quagmire.

According to disclosures by Zhonghong, from 2015 to 2017, Jiaduobao’s main business revenues were RMB 10.041 billion, RMB 10.634 billion, and RMB 7.002 billion, respectively—figures that fall far short of the RMB 20 billion cited by the company’s senior executives.

Notably, within three years, Jiaduobao posted losses on two occasions: its net profits for 2015–2017 were –RMB 189 million, RMB 1.489 billion, and –RMB 583 million, respectively. Meanwhile, the company’s liabilities continued to rise annually, climbing from RMB 7.814 billion in 2015 to RMB 13.168 billion last year.

Subsequently, Jiaduobao issued a statement denying that it had signed a debt-restructuring agreement and asserting that the operating conditions and financial data cited in the announcement are seriously at odds with the actual situation.

At the Shenzhen Stock Exchange’s request, Zhonghong Shares issued another clarification announcement on the evening of August 28, officely asserting that the previously disclosed debt restructuring and operational trusteeship agreements are lawful, compliant, genuine, and valid. However, it also stated, “In light of the statements issued by the Jiaduobao Group, the agreement has in fact been terminated or may be terminated at any time.”

With the collapse of this restructuring, Zhonghong Shares’ risk of delisting has further intensified.

Since August 15, Zhonghong Shares’ closing price has remained below its par value (RMB 1) for 12 consecutive trading days. If the stock closes below this threshold for 20 consecutive trading days, Zhonghong could face delisting.

On the evening of August 30, Zhonghong Shares issued its third risk warning announcement regarding the potential delisting of its shares.

Following a 7.29% drop on the 30th, Zhonghong Shares plunged another 8.99% on August 31, closing at RMB 0.81 per share. The gap between its share price and the RMB 1 “shell‑preservation threshold” has widened to RMB 0.19, bringing the company one step closer to delisting. Meanwhile, the battle to stave off delisting for controlling shareholder Wang Yonghong remains daunting.

Taxation TAXATATION

The new individual income tax law has been adopted, with a monthly threshold of 5,000 yuan, and will take effect on October 1.

On the afternoon of August 31, 2018, the General Office of the Standing Committee of the National People’s Congress held a press conference at the Great Hall of the People. The highly anticipated Decision on Amending the Individual Income Tax Law was adopted by vote at the Fifth Meeting of the 13th Standing Committee of the National People’s Congress. With this, the new Individual Income Tax Law—following seven major revisions—was officially unveiled.

The tax threshold is set at RMB 5,000 per month. Under the new Individual Income Tax Law, the taxable income of resident individuals is calculated as the balance remaining after deducting RMB 60,000 in annual expenses, along with special deductions, special additional deductions, and other legally prescribed deductions, from the total income for each tax year.

Tax cuts are tilted toward middle- and lower-income groups. Under the new Individual Income Tax Law, following this revision, certain tax brackets have been further refined: the brackets for the 3%, 10%, and 20% lower rates have been expanded, while the bracket for the 25% rate has been narrowed; the brackets for the higher rates of 30%, 35%, and 45% remain unchanged.

In addition, many types of expenses are tax‑deductible. Going forward, when calculating individual income tax, in addition to the basic deduction and special deductions such as the “three insurances and one housing fund,” new special additional deductions have been introduced. Under the revised Individual Income Tax Law, these special additional deductions cover expenses for children’s education, continuing education, major medical expenses, interest on home mortgages or rent, and support for elderly parents. The specific scope, standards, and implementation procedures will be determined by the State Council and submitted to the Standing Committee of the National People’s Congress for record‑keeping.

The new Individual Income Tax Law came into effect on January 1, 2019, with the latest tax threshold and tax rates taking effect on October 1, 2018. Under the new law, from October 1, 2018, to December 31, 2018, for taxpayers’ wages and salaries, the taxable income is first calculated as the monthly income less a standard deduction of RMB 5,000, plus any special deductions and other legally prescribed deductions. Tax is then computed on a monthly basis by applying the individual income tax rate schedule (applicable to comprehensive income), and no additional deductions are allowed.

The State Taxation Administration held a press conference to explain the third-quarter tax policies, unveiling 10 measures to optimize the tax-related business environment.

On August 30, the State Taxation Administration held a press conference to interpret tax policies for the third quarter of 2018, outlining several newly introduced tax incentives designed to support business development and concrete measures to enhance tax services. The administration also released the results of the first six months of the expanded pilot program for water resource tax reform.

“Thoughtful” policies support corporate innovation.

At present, entrusting overseas institutions to conduct R&D and innovation activities has become an important approach for enterprises. Recently, the fiscal and tax authorities jointly issued the “Notice on Relevant Policy Issues Concerning the Pre-Tax Additional Deduction for Expenses Incurred by Enterprises in Commissioning Overseas Research and Development,” clarifying that, effective January 1, 2018, expenses incurred by enterprises when commissioning overseas entities to carry out R&D activities shall be included in the commissioning party’s overseas R&D expenses at 80% of the actual amount. Furthermore, the portion of overseas R&D expenses that does not exceed two-thirds of the eligible domestic R&D expenses may, in accordance with applicable regulations, be subject to an additional pre‑tax deduction.

“The Notice has lifted the previous restriction that expenses incurred by enterprises when commissioning overseas institutions or individuals to conduct R&D could not be subject to an additional pre‑tax deduction,” said Liu Baozhu, Deputy Director of the Income Tax Department of the State Taxation Administration. He added that the implementation of this new policy will: first, help domestic enterprises benchmark against the international technology market and bring in advanced R&D capabilities and technologies from abroad; second, enable enterprises to establish R&D centers overseas, thereby better leveraging the talent pool and research infrastructure of developed countries; and third, further facilitate the full utilization of both domestic and international cutting‑edge technological resources, thus driving the transformation and upgrading of China’s industries.

As tax administration requirements continue to tighten—particularly with the increasing digitalization of invoice management—the State Taxation Administration has recently formulated and issued the Measures for the Administration of Pre-Tax Deduction Vouchers for Enterprise Income Tax, further enhancing the systematic nature and targeted approach of pre-tax deduction voucher management, thereby better standardizing tax enforcement and safeguarding taxpayers’ legitimate rights and interests.

Liu Baozhu stated that the Measures have explored ways to strengthen corporate income tax administration, reduce taxpayers’ compliance burdens, lower the costs of tax law compliance, and safeguard taxpayers’ legitimate rights and interests. For example, with respect to non‑VAT‑registered taxpayers and non‑VAT‑taxable items, documents such as payment receipts, internal vouchers, and split invoices may also serve as pre‑tax deduction evidence, thereby alleviating the administrative burden on both taxpayers and grassroots tax authorities.

The “delegation, regulation, and service” reform continues to deepen.

To further advance tax‑administration facilitation reforms and foster a stable, fair, and transparent tax‑business environment, the State Taxation Administration recently issued the “Notice on Implementing the Spirit of the National Teleconference on Deepening the ‘Delegation, Regulation, and Service’ Reform and Transforming Government Functions to Optimize the Tax‑Business Environment,” introducing 10 concrete measures to improve the tax‑business climate and address taxpayers’ most pressing concerns.

For example, localities are encouraged to take the lead in piloting and exploring ways to optimize the business environment. By the end of September this year, building on the earlier pilot programs in five provinces and municipalities, the State Taxation Administration has designated the tax authorities of 12 additional provinces, autonomous regions, and municipalities—namely Zhejiang, Jiangxi, Hubei, Guangxi, Hainan, Chongqing, Shaanxi, Xinjiang, Dalian, Ningbo, Xiamen, and Qingdao—as the second batch of pilot units for optimizing the tax-related business environment. These pilot units are required to be bold in innovation, set exemplary standards, and introduce a series of replicable and scalable measures to facilitate tax administration, thereby continuously improving the tax‑related business environment.

To precisely address pressing challenges and enhance tax‑administration convenience, leveraging the “Internet Plus Taxation” initiative, a series of innovative measures have been rolled out focusing on issues that taxpayers find most burdensome, further improving the ease of tax compliance. For example, by the end of October this year, the time required for eligible newly established enterprises to obtain their first set of invoices will be reduced to one day, with regions meeting the necessary conditions encouraged to offer instant processing for first‑time invoice applications. By the end of 2018, a standardized, unified electronic tax bureau will be in place nationwide, providing an online tax‑filing system with more comprehensive functionality and greater convenience.

Water Resources Tax Unleashes Green Momentum

Effective December 1, 2017, the tax authorities launched an expanded pilot program for water resource taxation in nine provinces, autonomous regions, and municipalities, including Beijing, Shanxi, and Inner Mongolia. In the first half of this year, taxpayers in these nine pilot jurisdictions paid approximately RMB 8.8 billion in water resource taxes.

The green momentum of the water resources tax is accelerating. For instance, groundwater withdrawals in over-extraction areas have begun to decline. The reform has widened the tax differential between groundwater and surface water, as well as the tax gap between over-extraction and non‑over‑extraction zones, prompting enterprises to adjust their water‑use patterns. Under the combined impact of various water‑saving and extraction‑reduction measures, in the first half of the year, groundwater withdrawals in over‑extraction areas across the nine expanded pilot provinces, autonomous regions, and municipalities fell by 9.28% year on year.

The total water consumption of high‑water‑use industries has been brought under control. Reform measures impose a doubled rate of the water resources tax on water use exceeding allocated quotas, encouraging high‑water‑use enterprises to strengthen internal water management, increase investment in water‑saving technologies, and strictly cap overall water consumption.

The rate of industrial water reuse has further increased. The reform stipulates that unconventional water sources, such as reclaimed water, are exempt from the water resources tax, which helps encourage enterprises to invest more in wastewater treatment facilities and actively utilize non-conventional water resources.

Water-use practices in special‑purpose industries are also undergoing gradual transformation. The reform has raised the tax rates on water withdrawals by such sectors as golf courses, thereby incentivizing them to adopt more efficient water‑use methods and conserve water.

“The water resources tax, by implementing a differentiated tax policy and related tax relief measures, both curbs unreasonable water use and ensures that the society’s basic, normal, and reasonable water‑use needs are not compromised,” said Sun Qun, Deputy Director-General of the Property and Behavioral Tax Department of the State Taxation Administration.

LITIGATION & ARBITRATION

The Supreme People’s Court has established the International Commercial Experts Committee.

In accordance with the “Opinions on Establishing an International Mechanism and Institutions for the Resolution of Commercial Disputes under the Belt and Road Initiative” issued by the General Offices of the CPC Central Committee and the State Council, the Supreme People’s Court’s International Commercial Experts Committee was established on August 26, with 32 Chinese and foreign experts specially appointed as its inaugural members. Chief Justice of the People’s Republic of China and President of the Supreme People’s Court, Zhou Qiang, presented appointment letters to the representatives of the expert committee members.

The establishment of this expert committee aims to strengthen international exchange and cooperation, ensure the smooth conduct of adjudication at the International Commercial Court, and support the use of diverse mechanisms—such as mediation, arbitration, and litigation—to resolve international commercial disputes. The inaugural cohort of expert members hails from various legal systems, countries, and regions, comprising heads of prominent international institutions, legal scholars, renowned academics, seasoned judges, and distinguished lawyers, thereby achieving broad geographic and professional representation.

Following its establishment, the International Commercial Experts Committee, on a voluntary basis and upon the parties’ consent, undertakes mediation of international commercial disputes entrusted by the International Commercial Court; provides advisory opinions on specialized legal issues arising in the adjudication of such cases by the people’s courts; and offers recommendations on the revision of the International Commercial Court’s rules and development plans, as well as on the formulation of relevant judicial interpretations and judicial policies by the Supreme People’s Court.

Zhou Qiang pointed out that the establishment of the Supreme People’s Court International Commercial Experts Committee marks new progress in the development of mechanisms and institutions for resolving international commercial disputes under the Belt and Road Initiative, opening a new chapter in the people’s courts’ efforts to support the implementation of the Initiative. This will undoubtedly further advance the Belt and Road Initiative and provide stronger legal safeguards for implementing policies that promote high-standard trade and investment liberalization and facilitation, as well as for fostering an open world economy.

Zhou Qiang stated that China is currently accelerating the establishment of a new open economic system and promoting the development of an open world economy. Chinese courts should further strengthen judicial cooperation, draw extensively on outstanding rule-of-law achievements both at home and abroad, and establish dispute-resolution mechanisms that fully respect parties’ autonomy of will and provide “one-stop” services, thereby making active contributions to the development of international commercial dispute-resolution frameworks and the formulation of relevant rules.

Zhou Qiang also set forth three expectations for further enhancing the work of the Supreme People’s Court’s International Commercial Experts Committee: first, to ensure that the Committee fully plays its vital role; second, to provide robust support for its efficient operation; and third, to continuously strengthen its capacity in foreign-related judicial work.

The Supreme People’s Court has issued a judicial interpretation to standardize the work of people’s courts in determining reference prices for property disposal.

In recent years, the people’s courts have implemented a series of significant measures to “basically resolve the difficulties in enforcement within two to three years,” particularly by leveraging modern information technology to establish a networked enforcement inquiry and control system, which has largely addressed the challenges of locating persons and assets. They have also introduced an online auction system and platform, effectively overcoming obstacles in the disposal and monetization of seized property. However, with the widespread adoption of online auctions, determining the reference price for auctioned assets has emerged as a bottleneck that undermines both efficiency and transparency, thereby limiting the full realization of the advantages of online auctions. Under previous judicial interpretations, setting the reference price for auctioned property relied primarily on traditional commissioned appraisals, a process that is often time‑consuming, costly, and imposes a heavy burden on the parties involved. In practice, when the parties voluntarily agree on a reference price or solicit targeted quotations from relevant authorities, the procedure is both swift and free of charge. Moreover, with the advancement of big data technologies, using big‑data analytics to determine the reference price has become even more convenient, rapid, and cost‑effective. To address this bottleneck—namely, the determination of the reference price for asset disposal, which affects the efficiency and transparency of online auctions—and to respond proactively to the public’s new expectations and demands, the Supreme People’s Court, after thorough research, rigorous deliberation, and drawing on practical experience from across the country, has drafted the “Provisions of the Supreme People’s Court on Several Issues Concerning the Determination of Reference Prices for Property Disposal by the People’s Courts” (hereinafter referred to as the “Provisions”). The Provisions have been reviewed and approved by the Judicial Committee and were promulgated on August 28, 2018, entering into force on September 1, 2018.

The Regulations comprise 35 articles, primarily addressing the most salient issues currently encountered by people’s courts in the process of disposing of property—issues for which existing laws and judicial interpretations provide insufficient guidance. Guided by the principles of enhancing the efficiency of property disposal, alleviating the burden on parties, and respecting the parties’ autonomy, the Regulations standardize the procedures by which people’s courts determine reference prices for property disposal. Compared with previous judicial interpretations, the Regulations emphasize five key aspects: First, while retaining the traditional method of determining reference prices through commissioned appraisal, they introduce three additional approaches—party‑negotiated pricing, targeted price inquiries, and online price inquiries—thereby establishing a new framework for setting reference prices and significantly broadening the channels available. Moreover, these three newly added methods are all characterized by openness, transparency, and efficiency; except for online inquiries, which entail relatively low costs, both party‑negotiated pricing and targeted inquiries are entirely free of charge. This development is of great significance in addressing longstanding problems such as lengthy appraisal cycles, high appraisal fees, and low efficiency in property disposal. Second, the Regulations re‑define and refine the rules governing commissioned appraisals, making them more transparent. In practice, many properties still require reference prices to be determined through commissioned appraisal; accordingly, this method remains an indispensable and vital tool for people’s courts in setting reference prices. The Regulations lay out detailed provisions covering the procedural steps for commissioning appraisals, the criteria for selecting appraisal institutions, appraisal time limits, the delivery of appraisal reports, and the review and resolution of objections, thereby injecting fresh vitality into the commissioning process. Third, the Regulations establish a national roster of judicial online inquiry platforms and a roster of judicial appraisal institutions, and develop a nationwide court‑wide system for online price inquiries and appraisals. By shifting the determination of reference prices from offline to online, standardizing procedures through a unified system, regulating conduct via systematic oversight, and implementing systematic supervision, the Regulations substantially enhance the openness and transparency of the courts’ work in setting reference prices. This is of paramount importance in addressing public concerns about “backroom dealings” and rent‑seeking that have long plagued traditional appraisal practices. Fourth, the Regulations set forth clear rules regarding the allocation and payment of online inquiry and commissioned appraisal fees, introducing an insurance mechanism to address the issue of applicants advancing funds for online inquiries and appraisals. This effectively resolves the problem—frequently encountered in practice—of delayed or unpaid appraisal fees hindering the efficiency of commissioned appraisals, and even preventing appraisals from being commissioned altogether. Fifth, the Regulations comprehensively and meticulously regulate all aspects of the courts’ work in determining reference prices, covering the applicable conditions, procedural steps, reporting of results, and handling of objections for each of the four methods of setting reference prices. These measures further standardize the courts’ practices, ensuring greater fairness and impartiality, thereby maximizing protection of the lawful rights and interests of applicants and enhancing the sense of gain among the general public.

While drafting the Regulations, the Supreme People’s Court simultaneously initiated the design and development of a nationwide court‑based price‑inquiry and appraisal system. Embedded within the case‑handling system, this platform interfaces with the judicial online price‑inquiry platform, national appraisal industry associations, the China Enforcement Information Disclosure Website, the online judicial auction system, and the enforcement command‑and‑management platform. Case handlers can use the system to complete all tasks related to determining the reference value of assets, with a full audit trail throughout the process. It also enables one‑click inquiries to all judicial online price‑inquiry platforms, automatic random selection of three appraisal institutions, and automated transmission of appraisal‑commissioning documents to those institutions. Furthermore, it allows for one‑click public disclosure—on the China Enforcement Information Disclosure Website—of results from targeted inquiries, online price inquiries, and commissioned appraisals, thereby ensuring convenience, speed, and efficiency. At present, the price‑inquiry and appraisal system is nearing deployment and debugging; partial functionalities are expected to enter trial operation in October this year. Once fully operational, the system will integrate with other core platforms—including case management, online asset inquiry, disqualification‑based sanctions, online auctions, consumption restrictions, and command‑and‑management systems—forming a comprehensive, end‑to‑end information‑technology framework for people’s courts’ enforcement work. Its launch will enable full‑process traceability, transparency, and oversight across the entire enforcement lifecycle: from case registration and filing to asset inquiry, from setting the reference value to conducting online auctions, and from disbursement of funds and property to case closure. The implementation of the Regulations and the commissioning of the price‑inquiry and appraisal system will undoubtedly make the enforcement work of the people’s courts more standardized, more transparent, more efficient, and more impartial.

The draft of the Civil Code’s separate sections has been submitted for deliberation for the first time, codifying the existing civil legal norms into six parts comprising 1,034 articles.

On August 27, the highly anticipated legislation of China’s Civil Code took its “second step,” as the draft separate parts of the Civil Code were submitted for deliberation at the Fifth Session of the Standing Committee of the 13th National People’s Congress held that afternoon. The separate parts comprise the Property Law Section, the Contract Section, the Personality Rights Section, the Marriage and Family Section, the Inheritance Section, and the Tort Liability Section, totaling 1,034 articles.

According to Shen Chunyao, Director of the Legislative Affairs Commission of the Standing Committee of the National People’s Congress, the compilation of the separate parts of the Civil Code represents a comprehensive and systematic revision and codification of China’s existing civil laws, including the General Provisions of the Civil Law, the Property Law, the Contract Law, the Security Law, the Marriage Law, the Adoption Law, the Inheritance Law, the Tort Liability Law, and the provisions on personality rights. This effort will further refine the property‑rights protection system centered on the principle of fairness, improve the fair‑trade regime that facilitates the free flow of property and production factors, enhance the marriage, family, and inheritance systems to promote harmonious family relations, and strengthen the mechanisms for protecting and providing remedies for the personal rights, property rights, and personality rights of natural persons and other civil subjects.

In March 2017, the Fifth Session of the 12th National People’s Congress deliberated and adopted the General Provisions of the Civil Law, marking the first step in the legislative process of the Civil Code. Following successive rounds of review, the individual parts of the Civil Code, together with the General Provisions, are expected to form China’s unified Civil Code around 2020.

Key Focus Areas of the Revision to the Section on Property Rights—

Management of revenues from common areas in residential communities; addition of provisions on the right of abode; automatic renewal of land use rights for residential construction.

In 2007, the Fifth Session of the Tenth National People’s Congress adopted the Property Law. Over the past decade and more, legal practice has demonstrated that the Property Law has played a crucial role in clarifying ownership and ensuring equal protection of property rights, with its prescribed property‑rights system proving to be highly dynamic. Compared with the current Property Law, the draft Property Chapter primarily revises the following provisions:

In practice, some property service enterprises have unilaterally altered the intended use of common areas or engaged in profit‑making activities—such as placing advertisements on exterior walls or elevators—without seeking the consent of the owners. To strengthen owners’ rights to jointly manage common areas, the draft introduces a provision stipulating that any change in the use of common areas or the undertaking of commercial activities therein must be decided upon by all owners collectively. It also lowers the threshold for adopting such resolutions and clarifies that any income generated from common areas belongs to the owners.

To meet the housing needs of specific groups, the draft recognizes and protects flexible arrangements for housing security undertaken by civil subjects, and expressly establishes the right of abode. Under this right, a resident is entitled, in accordance with the terms of the contract and upon registration, to occupy and use another person’s residential property, thereby satisfying their need for stable living conditions.

With regard to the issue of renewing the land-use right for residential construction, which has attracted widespread public attention, the draft Property Law, in line with Article 149 of the current Property Law and Article 22 of the Urban Real Estate Management Law, establishes a principle: when the term of the land-use right for residential construction expires, it shall be automatically renewed. The payment or exemption of renewal fees shall be governed by laws and administrative regulations.

In response to the reform of the “separation of three rights” for rural contracted land, the draft Property Law has made corresponding amendments to the systems of usufructuary rights and security interests under the existing Property Law, stipulating that holders of land contract management rights are entitled to transfer their land‑use rights. As for the “separation of three rights” concerning residential land and the issue of mortgaging farmers’ housing property, the draft currently does not provide any provisions.

Key Focus Areas in the Revision of the Contract Section—

Rules governing the conclusion and performance of electronic contracts; enhanced protection of creditors’ rights; protection of the weaker party in contractual relationships.

In 1999, the Second Session of the Ninth National People’s Congress adopted the Contract Law. The implementation of the Contract Law has played a crucial role in safeguarding the legitimate rights and interests of the parties involved, promoting the free flow of goods and production factors, ensuring fair transactions, and maintaining economic order. Compared with the current Contract Law, the draft Contract Section primarily revises the following provisions:

To meet the needs of the rapid development of e‑commerce and the digital economy and to regulate electronic transaction practices, the draft sets forth special rules governing the conclusion and performance of electronic contracts. In response to pressing issues in practice—such as parties’ failure to honor contractual obligations and their refusal to repay debts—and in order to ensure the smooth realization of creditors’ rights, mitigate debt risks arising from breaches, and foster a society based on integrity, the draft refines the provisions on contract preservation, loan contracts, and finance lease contracts, and adds a dedicated chapter on guarantee contracts.

To strengthen protection for the weaker party in contractual relationships, the draft stipulates that suppliers of electricity, water, gas, and heating, as well as public carriers, are subject to a mandatory obligation to enter into contracts with the general public, and it refines the rules governing standard-form clauses. Meanwhile, to safeguard tenants’ interests and promote the sound development of the housing rental market, the draft introduces a system granting tenants a right of first refusal to renew their leases.

In addition, the draft has refined the specific rules governing 15 typical contracts, including sales contracts, lease contracts, and construction project contracts, and has added provisions on property management and partnership contracts. Building upon the existing Contract Law, the draft has further developed the general rules of obligation law, establishing specific rules for two types of obligations: management without mandate and unjust enrichment.

Key Focus Areas in the Revision of the Personality Rights Chapter —

General rules on personality rights; prohibition of sexual harassment; the relationship between protection of the right to reputation and public oversight

Building on existing laws, regulations, and judicial interpretations, the draft Personality Rights Chapter sets forth relatively detailed provisions for various specific personality rights, thereby establishing and providing a robust legal foundation of civil claims for the protection of personality rights.

With respect to the general rules governing personality rights, the draft provides as follows: Personality rights of civil subjects are protected by law; such rights may not be waived, assigned, or inherited, nor may they be unlawfully restricted. Civil subjects may grant others permission to use their name, corporate name, likeness, and other related identifiers; and remedies are available when personality rights are infringed.

The draft specifies the concrete content of the rights to life, bodily integrity, and health, and also addresses issues such as statutory obligations to provide assistance, the donation of human tissues and organs, and the prohibition of sexual harassment. It explicitly stipulates that employers shall adopt reasonable measures in the workplace—such as prevention, complaint handling, and response—to prevent and stop acts of sexual harassment.

When defining the content of the rights to reputation and honor, the draft seeks to strike a balance between protecting individual rights and interests and the functions of news reporting and public oversight by stipulating that where a person, in order to uphold public order and good morals, engages in activities such as news reporting or public oversight that nonetheless harm another’s reputation, no civil liability shall be imposed. However, this exemption does not apply in cases of fabricating facts, distorting facts, failing to exercise reasonable diligence in reviewing facts provided by others, or including content that excessively disparages another’s reputation.

In response to the salient issues in the areas of privacy and personal information protection, the draft further strengthens safeguards for privacy and personal information, building on existing legal provisions and leaving room for alignment with the forthcoming Personal Information Protection Law.

Key Focus Areas in the Revision of the Marriage and Family Chapter —

Illness is no longer a ground for prohibiting marriage; grounds for declaring a marriage invalid have been expanded; a one-month cooling-off period has been introduced for divorce; and provisions regarding the repayment of marital debts have been established.

In 1980, the Third Session of the Fifth National People’s Congress adopted the Marriage Law, which was subsequently amended in 2001; in 1991, the Standing Committee of the National People’s Congress adopted the Adoption Law, which was amended in 1998. The draft Civil Code’s section on marriage and family is based on the existing Marriage Law and Adoption Law. While upholding fundamental principles such as freedom of marriage and monogamy, it revises certain provisions in light of social development and introduces several new rules.

Under the current Marriage Law, individuals suffering from conditions deemed medically unfit for marriage are prohibited from marrying. However, this provision has proven difficult to enforce in practice. To respect the parties’ right to marital autonomy, the draft stipulates that if one party suffers from a serious illness, they must truthfully disclose this fact to the other party prior to marriage registration; failure to do so entitles the other party to seek annulment of the marriage.

To curb the practice of fraudulently obtaining marriage registration by means of forging, fabricating, or impersonating another person’s identity card, household registration book, or certificate of single status, the draft adds a ground for invalidity of marriage, stipulating that any marriage obtained through such fraudulent means shall be deemed void.

In practice, the overly simplified procedures for divorce registration have led to a rise in hasty divorces, undermining family stability. To address this, the draft bill establishes a one-month cooling-off period, during which either party may withdraw their divorce application from the marriage registration authority.

Both the current Marriage Law and the Adoption Law contain provisions on family planning; in order to adapt to the new developments in China’s demographic situation, the draft no longer includes such provisions.

With regard to marital debt, the current Marriage Law does not specify how individual debts and joint debts incurred during the marriage are determined or allocated. In January 2018, the Supreme People’s Court issued a judicial interpretation that amended the relevant provisions of the previous judicial interpretation of the Marriage Law, which was widely welcomed by the public. However, in order to further monitor and assess the implementation effects of this judicial interpretation, the draft legislation has temporarily refrained from incorporating these provisions into law.

Key Focus Areas in the Revision of the Succession Chapter —

Estate administrator; video will

In 1985, the Third Session of the Sixth National People’s Congress adopted the Inheritance Law. In light of evolving social and family structures and changing attitudes toward inheritance in China, the draft revision of the Inheritance Chapter has refined and improved the inheritance system to meet people’s needs in managing their estates and to promote family harmony. Compared with the current Inheritance Law, the main amendments include the following:

To ensure the proper administration and smooth division of an estate, safeguard the interests of heirs and creditors, and prevent or minimize disputes, the draft stipulates the methods for appointing estate administrators, as well as their duties and rights.

The draft introduces new forms of wills, such as typewritten and video‑recorded wills, to keep pace with advances in science and technology; it also abolishes the provision in the former Inheritance Law that accorded priority to notarized wills, thereby genuinely respecting the testator’s true intentions.

Key Focus Areas in the Revision of the Section on Tort Liability—

Scope of application of the doctrine of equitable liability; compensation for damages arising from “free carriage”

In 2009, the Standing Committee of the National People’s Congress adopted the Tort Liability Law. The draft on tort liability, in response to new developments in the field of torts and drawing on the beneficial practices of judicial interpretations, made necessary amendments and improvements to the tort liability system, resulting in the following revisions to the existing Tort Liability Law:

The draft has refined the rules on equitable liability. Under the Tort Liability Law, when neither the victim nor the tortfeasor is at fault for the damage, the loss may be shared by both parties in light of the specific circumstances. In practice, however, this provision has been applied too broadly due to unclear adjudicatory standards, resulting in adverse social outcomes. To further clarify the scope of application of this rule and ensure uniformity in judicial practice, the draft replaces the phrase “in light of the specific circumstances” in the Tort Liability Law with “in accordance with statutory provisions.”

With the rapid development of the Internet, online infringement has become increasingly complex. To better safeguard the interests of rights holders while striking a fair balance between online users and online service providers, the draft further refines the specific rules governing liability for online infringement, building upon the existing Tort Liability Law.

The draft also refines the rules on liability for motor vehicle traffic accidents. In practice, there has been considerable controversy over compensation for damages arising from gratuitous rides. To both safeguard the rights and interests of victims and encourage acts of goodwill, the draft stipulates that if a passenger riding without charge suffers harm in a traffic accident, the motor vehicle driver’s liability for compensation shall be reduced or exempted.

During the drafting of the separate parts of the Civil Code, both the legal academic community and the general public held differing views on whether to establish a section on personality rights, a section on intellectual property, and a section on the law applicable to foreign-related civil legal relationships. In response, Shen Chunyao provided detailed explanations and addressed each of these issues. He stated that safeguarding personality rights and upholding personal dignity are key tasks in China’s rule-of-law development. In recent years, there has been growing public demand and expectation for stronger protection of personality rights. To implement the spirit of the 19th National Congress of the Communist Party of China and the Second Plenary Session of the 19th CPC Central Committee—namely, “protecting the people’s rights to person, property, and personality”—as well as the constitutional requirement that “the personal dignity of citizens shall be inviolable,” a separate section on personality rights was added to the Civil Code. China’s intellectual‑property legislation encompasses both civil‑rights provisions and administrative‑management provisions. However, since the Civil Code is designed to regulate civil legal relationships among equal civil subjects, it is difficult to incorporate administrative‑management matters or to distill general rules applicable to the various types of intellectual property. Moreover, China’s intellectual‑property system remains in a phase of rapid evolution, requiring continuous adjustments in domestic legislation, law enforcement, and judicial practice. For these reasons, intellectual‑property provisions were not included in the Civil Code. Furthermore, the rules governing the application of law to foreign‑related civil relations differ significantly from the Civil Code in terms of scope, legislative objectives, and specific provisions; accordingly, it would be inappropriate to establish a separate section on the law applicable to foreign‑related civil legal relationships within the Civil Code.

In the “Kunshan Counter-Killing Case,” Yu Hai-ming acted in legitimate self-defense; the Kunshan Public Security Bureau has withdrawn the case in accordance with the law. The Jiangsu Provincial People’s Procuratorate has provided an interpretation of the legal basis for determining legitimate self-defense.

On the evening of August 27, a knife attack occurred on Zhenchuan Road in Kunshan City, Jiangsu Province, leaving one person dead and another injured. Footage from the scene shows that the dispute stemmed from a collision between a BMW and a bicycle over right-of-way. After the altercation broke out, Liu Hailong, who was driving the BMW, pulled a machete from his vehicle and repeatedly struck Yu Haiming, the cyclist. During the struggle, the machete fell to the ground; Yu Haiming seized it and inflicted serious injuries, ultimately resulting in Liu Hailong’s death.

The “Kunshan self‑defense case” has sparked intense public debate, with the central question—whether Yu Haiming’s actions constituted intentional injury or legitimate self‑defense—drawing widespread attention from all sectors of society. On September 1, the Kunshan Municipal Public Security Bureau issued a statement clarifying that Yu Haiming’s conduct amounted to legitimate self‑defense and that the case was accordingly dropped in accordance with the law. Subsequently, the Jiangsu Provincial People’s Procuratorate provided an interpretation of the case, concluding that Liu Hailong had provoked the conflict and bore primary responsibility for the incident. It further held that, when confronted with an imminent and serious threat to his personal safety, Yu Haiming’s act of seizing a knife to counterattack was a reasonable response, emphasizing that “the lawful need not yield to the unlawful.” Accordingly, the police’s decision to close the case was deemed consistent with legal provisions.

Five days after the “Kunshan self-defense case” occurred, a resolution has been reached. On the afternoon of September 1, the Kunshan Public Security Bureau of Jiangsu Province issued a notice stating that, following a thorough investigation by the public security authorities and with the procuratorial organs’ early involvement, it was determined that Yu Haiming’s act of defending himself against the man on the bicycle constituted legitimate self-defense, and he bears no criminal liability. Accordingly, the public security authorities have legally dropped the case against Yu Haiming.

In addition to the outcome of the case, the official notice disclosed further details: on the day of the incident, Liu Hailong was driving under the influence; despite attempts to mediate the altercation, he continued to strike Hai Ming repeatedly, escalating the unlawful assault; after the machete fell to the ground, Liu Hailong even moved forward to seize it; and even after sustaining injuries, he showed no sign of ceasing his aggression.

Facts of the case

Police disclose details of the “Kunshan self-defense case”

According to the police report, prior to the incident, Liu Hailong was employed at a company in LuJia Town, Kunshan City, while Yu Haiming worked in the engineering department of a hotel in Kunshan City.

At approximately 9:30 p.m. on August 27, 2018, Liu Hailong, driving a BMW sedan, was traveling westbound on Zhenchuan Road in Kunshan City when he reached the intersection with Shunfan Road and got into an altercation with Yu Haiming, who was riding a bicycle in the same direction. Liu Hailong then drew a machete from his vehicle and repeatedly struck Yu Haiming. Yu Haiming subsequently wrested the machete from Liu Hailong and stabbed and slashed him several times. Liu Hailong sustained severe injuries and died despite emergency medical efforts.

Upon receiving the report, the Kunshan Municipal Public Security Bureau promptly dispatched officers to handle the situation and initiated a criminal investigation. Given the high level of public attention surrounding the case, the Jiangsu Provincial Public Security Department and the Suzhou Municipal Public Security Bureau immediately deployed personnel to Kunshan to provide guidance on the investigation. Following on-site inspections, field inquiries, interviews, video analysis, and forensic examinations, the facts of the case have been fully established.

At the time of the incident, Liu Moumou (male), Liu Mou (female), and Tang Moumou (female) were in the same vehicle as Liu Hailong. Liu Moumou took part in assaulting Yu Haiming and was placed under administrative detention for ten days in accordance with the law; Liu Mou and Tang Moumou exited the vehicle to mediate and did not participate in the incident. Yuan Moumou, who was traveling with Yu Haiming, also did not take part in the incident.

Police investigations revealed that, on the night of the incident, Liu Hailong was driving a BMW while intoxicated—his blood alcohol concentration was measured at 87 mg/100 ml—and was carrying Liu Moumou, Liu Mou, and Tang Moumou. As they traveled westbound along Zhenchuan Road in Kunshan City toward the intersection with Shunfan Road, Liu forcibly swerved into the non-motorized vehicle lane, narrowly colliding with Yu Haiming, who was riding a bicycle. A dispute subsequently ensued between the two parties.

Liu, a certain individual, first exited the vehicle and engaged in an altercation with Yu Haiming. After being persuaded by those accompanying him to return to the car, Liu Hailong suddenly stepped out and proceeded to shove and kick Yu Haiming. Despite efforts to intervene, Liu Hailong continued to pursue and attack Yu Haiming. He then returned to the BMW, retrieved a machete—identified as a double-edged blade with a pointed tip, measuring 59 centimeters in total length, including a 43-centimeter blade that is 5 centimeters wide, classified as a controlled weapon—and repeatedly struck Yu Haiming on the neck, waist, and legs. During the assault, the machete slipped from his grasp; Yu Haiming seized it and, in the ensuing struggle, stabbed Liu Hailong in the abdomen and buttocks, while also slashing at his right chest, left shoulder, and left elbow. The stabbing and slashing lasted for approximately seven seconds. After sustaining injuries, Liu Hailong fled toward the BMW. Yu Haiming pursued him and delivered two additional strikes, neither of which connected; one of these blows struck the vehicle—investigation revealed a 7-centimeter-long cut along the lower edge of the car’s rear‑left window. Liu Hailong ran to the northeast side of the BMW, whereupon Yu Haiming returned to the vehicle and removed Liu Hailong’s mobile phone, placing it in his own pocket. Upon the arrival of police officers, Yu Haiming voluntarily handed over both the phone and the machete to the responding officers. Yu Haiming stated that he had taken Liu Hailong’s phone to prevent him from making calls to summon reinforcements for retaliation.

After fleeing, Liu Hailong collapsed in a green strip more than 30 meters northeast of the BMW sedan and was pronounced dead later that day despite emergency medical efforts. Forensic examination, corroborated by surveillance video, established that over a period of seven seconds, Liu Hailong sustained five consecutive stab and slash wounds. The first wound was a penetrating injury to the left abdomen, resulting in rupture of the abdominal great vein, intestinal tract, and mesentery. The remaining four wounds sequentially inflicted five open lacerations—on the left buttock, right chest and upper arm, left shoulder, and left elbow—and three fractures. The cause of death was hemorrhagic shock.

During a physical examination, Yu Haiming was found to have one linear contusion on the left neck and one linear contusion in the left subcostal region.

Conclusion

Yu Haiming’s actions constituted legitimate self-defense; the police have dropped the case.

According to a police announcement, under the Criminal Law, if defensive actions taken against ongoing violent crimes—such as assault, homicide, robbery, rape, kidnapping, or other acts that seriously endanger personal safety—result in injury or death to the unlawful aggressor, such actions do not constitute excessive self‑defense and incur no criminal liability. The Kunshan police stated that, based on the facts established through their investigation and after considering the opinions and recommendations of the procuratorial authorities, they have determined that Yu Haiming’s conduct constituted legitimate self‑defense, for which he bears no criminal responsibility. Accordingly, the public security organs have, in accordance with the law, dropped the case against Yu Haiming.

Police contend that Liu Hailong’s conduct constitutes “aggression” within the meaning of criminal law. The key criterion for determining “aggression” is whether it poses a serious threat to personal safety. In judicial practice, when assessing whether an act qualifies as “aggression,” it is inappropriate to demand that the defender make a rational judgment under conditions of immediate emergency response, nor should such determination be contingent upon the defender having already sustained actual harm. Rather, the assessment must be based on the specific circumstances at the scene and the level of understanding generally held by ordinary members of society. In this case, Liu Hailong first launched unarmed attacks and then repeatedly struck with a knife; his conduct clearly posed a grave threat to Yu Haiming’s personal safety, and his unlawful infringement should therefore be characterized as “aggression.”

Liu Hailong’s unlawful aggression constituted a continuous course of conduct. Throughout this case, even after the altercation between the passengers in the vehicle and Yu Haiming had largely subsided, Liu Hailong, in a drunken state, first stepped out of the car to assault Yu Haiming with fists and kicks, then returned to the vehicle to retrieve a machete and repeatedly struck Yu Haiming, thereby escalating his unlawful attack. After the machete slipped from his hand and fell to the ground, Liu Hailong further advanced to seize it. Even after sustaining injuries, Liu Hailong showed no sign of abandoning his assault. Yu Haiming’s personal safety remained under constant threat of violence from Liu Hailong.

Yu Haiming’s conduct was motivated by self‑defense. In this case, after seizing the knife, Yu Haiming inflicted five stab and slash wounds on Liu Hailong within seven seconds, in addition to two strikes—delivered during his pursuit—that missed their target. Although these actions were separated by time and space, they constitute a single, continuous act. Furthermore, Yu Haiming ceased his pursuit and returned to the BMW to search for Liu Hailong’s mobile phone with the intent of preventing the latter from rallying others in retaliation and safeguarding his own personal safety, thereby satisfying the requisite intent for legitimate self‑defense.

Investigation

No evidence has been found of Liu Hailong’s involvement in organized crime.

In its September 1 announcement, the Kunshan police also provided updates on several high-profile aspects of the case.

Kunshan police stated that, following an investigation, it has been conofficeed that Liu Hailong has no connection to the “Tian’an Society,” and no activities by the group have been detected in Kunshan City. Liu Hailong came to Kunshan to work in August 2006 and, prior to the incident, rented a 49.1-square-meter apartment with his girlfriend in a residential community in LuJia Town, Kunshan. During his time in Kunshan, he was subjected to one administrative detention and three prison sentences ranging from nine months to three years for offenses including assault, intentional property damage, and intentional injury. At present, public security authorities have found no evidence indicating that Liu Hailong engaged in organized‑crime activities.

Investigation conofficeed that, at the time of the incident, the BMW sedan driven by Liu Hailong was registered to the Hefei branch of a leasing company in Zhejiang. The vehicle had been purchased by Liu Hailong in June 2018 from a used-car market in Shanghai through a loan, with a down payment of RMB 127,000 and a loan amount of RMB 327,000, under his girlfriend’s name. Following the incident, a site inspection revealed no other prohibited items inside the vehicle.

Kunshan police stated that the online claim that Liu Hailong received a certificate of honor for acts of bravery is true. In March 2018, Liu Hailong was awarded a certificate of honor for acts of bravery and a reward of 500 yuan by the Kunshan Municipal Foundation for Acts of Bravery, in accordance with relevant regulations, after providing crucial leads that helped apprehend a drug‑trafficking suspect. On August 29, the Kunshan Municipal Foundation for Acts of Bravery issued a response to this matter.

Interpretation of the law

Kunshan Procuratorate: The police’s decision to drop the case complies with regulations.

On the afternoon of September 1, the Kunshan Municipal People’s Procuratorate also issued a public statement on the case, stating that Yu Haiming acted in legitimate self-defense and that the public security authorities’ decision to close the case was in compliance with the law.

The Kunshan People’s Procuratorate stated that the case in which Yu Haiming caused the death of Liu Hailong has attracted widespread public attention. On the same day, the public security organs of Kunshan City instituted a criminal investigation into Yu Haiming. The procuratorial organ attached great importance to this case, promptly dispatching personnel to intervene early in the investigative process in accordance with the law, reviewing the case’s evidentiary materials, offering opinions and recommendations on evidence collection and legal application, and fulfilling its statutory duties of legal supervision.

On September 1, 2018, the public security authorities of Kunshan City issued a decision to drop the case, ruling that Yu Haiming’s actions constituted legitimate self-defense and that he bore no criminal liability.

The procuratorial organ holds that, in accordance with the provisions of the Criminal Law and the facts ascertained, in this case, the deceased Liu Hailong attacked with a knife. Yu Haiming, in order to protect his own personal rights from ongoing violent aggression, took measures to stop Liu Hailong’s violent assault, which constitutes legitimate self‑defense. Although his defensive actions resulted in Liu Hailong’s death, he bears no criminal liability. The public security organ’s decision to close the case is in compliance with the law.

Kunshan police are processing the relevant procedures to lift the criminal coercive measures imposed on Yu Haiming.

Interpretation

Jiangsu prosecutors: There is no need to yield to illegality in the name of legality.

On the afternoon of September 1, following the Kunshan police’s announcement of the case’s dismissal, the Jiangsu Provincial People’s Procuratorate promptly issued an explanation—via its official WeChat account, “Jiangsu Procuratorate Online”—as to why Hai Ming’s actions were deemed legitimate self‑defense. According to the Jiangsu Procuratorate, Liu Hailong bore primary fault; his conduct posed a serious threat to Yu Hai Ming’s personal safety, and the unlawful aggression escalated continuously, making it extremely difficult for Yu Hai Ming to accurately assess the harm he might face—key factors in determining that Yu Hai Ming’s actions constituted lawful self‑defense.

Keywords: Escalation of harm

Liu Hailong provoked the conflict and was at fault from the outset.

From the perspective of the case’s origins, Liu Hailong drove under the influence, changed lanes in violation of traffic regulations, provoked a disturbance, and instigated the conflict. As the situation unfolded, he first pushed and shoved, then resorted to punching and kicking, and ultimately wielded a knife, with his unlawful aggression escalating at every stage.

Keywords: Level of danger

Yu Haiming is facing a serious and imminent danger.

This case involves “ongoing violent aggression.” The double-edged, pointed knife wielded by Liu Hailong is a regulated weapon prohibited by the state and qualifies as a deadly weapon under criminal law. He used this weapon to strike vital areas such as the victim’s neck, thereby posing a grave threat to Yu Haiming’s personal safety. After the machete was flung to the ground, he immediately rushed forward to seize it again, showing no sign of desisting. Upon rising after being injured, Liu Hailong promptly ran toward the vehicle where the machete had been left—leaving open the possibility that he might retrieve other “deadly weapons” from inside. Although the machete changed hands, the danger was far from over, and Yu Haiming’s personal safety remained under imminent and real threat.

Keywords: Defense Intensity

Snatching a knife in retaliation is a normal reaction under duress.

After seizing the knife, Yu Haiming repeatedly stabbed and slashed Liu Hailong five times, with all the injuries sustained within seven seconds. Faced with an escalating and urgent threat of unlawful aggression, it is difficult for an ordinary person to accurately assess the extent of potential harm and calmly calibrate a corresponding level of defensive force. The law does not demand the impossible; accordingly, criminal law stipulates that when defending against serious violent crimes such as assault, there is no limit on the degree of self‑defense. The procuratorial authorities hold that, in response to the assailant’s swinging long blade, Yu Haiming’s act of seizing the weapon and counterattacking constituted a reasonable reaction under conditions of extreme urgency, and it would be unreasonable to expect him to precisely control the force and location of his stabs. Although this resulted in the death of the aggressor, the circumstances satisfy the requirements for legitimate self‑defense, and therefore, under the law, he bears no criminal liability.

Keywords: Right of self-defense

Self-defense should prioritize the protection of the defender.

“The law need not yield to illegality.” The essence of legitimate self‑defense lies in “countering wrong with right”—it is a just response to an unlawful attack. Accordingly, the defender should be accorded priority protection under criminal law. In practice, many unlawful attacks are sudden and precipitous; in a state of haste and tension, defenders often find it difficult to accurately assess the nature and intensity of the aggression or to carefully and prudently select appropriate defensive measures. In fact‑finding and legal application, judicial authorities must give full consideration to the emergency faced by the defender, apply the provisions on legitimate self‑defense precisely in accordance with the law, and safeguard the defender’s lawful rights and interests, thereby fostering sound social values. In this case, Liu Hailong first committed a traffic violation, then provoked trouble, and finally launched a knife‑wielding attack. Faced with such unlawful aggression, Yu Haiming was entitled, under the law, to exercise legitimate self‑defense.

The People’s Procuratorate of Jiangsu Province stated that personal safety is the most fundamental right of every citizen. In the face of grave and imminent threats posed by unlawful acts, the law should guide and encourage citizens to courageously seek redress on their own and resolutely combat such unlawful infringements.

Other

The 2018 Top 500 Chinese Private Enterprises were announced, with Huawei, Suning, and Zhengwei ranking first, second, and third, respectively.

The 2018 China Top 500 Private Enterprises Summit, co-hosted by the All-China Federation of Industry and Commerce and the People’s Government of Liaoning Province, was held in Shenyang on the 29th. During the event, the 2018 China Top 500 Private Enterprises list and the “2018 Research and Analysis Report on China’s Top 500 Private Enterprises” were released. Huawei Investment & Holding Co., Ltd., Suning Holdings Group Co., Ltd., and Zhengwei International Group Co., Ltd. ranked first, second, and third, respectively, on the 2018 list.

According to reports, compared with last year, the Top 500 Private Enterprises list has undergone significant changes, with 104 companies newly making the cut. As a result, the entry threshold for the list has continued to rise, reaching RMB 15.684 billion. In 2017, the total operating revenue of the Top 500 Private Enterprises amounted to RMB 24,479.382 billion, or an average of RMB 48.959 billion per company. Furthermore, among the surveyed Top 500 private enterprises in 2017, 17 were also listed on the Global Fortune 500, one more than the previous year.

The conference also released the 2018 Ranking of China’s Top 500 Private Manufacturing Enterprises, with Huawei Investment & Holding Co., Ltd., Zhengwei International Group Co., Ltd., and Shandong Weiqiao Pioneering Group Co., Ltd. ranking first, second, and third, respectively. According to the analysis report, in 2017, the top 500 private enterprises proactively adapted to, grasped, and led the new normal of economic development; thoroughly implemented the new development philosophy; and vigorously advanced supply-side structural reform. They remained focused on their core businesses, robustly developed the real economy, and carried out the five major tasks of “reducing excess capacity, deleveraging, destocking, lowering costs, and补短板” (addressing weaknesses), shouldering their responsibilities and taking effective measures to win the “three critical battles.” They continued to promote the upgrading and optimization of the industrial structure, significantly enhanced their independent innovation capabilities, and concentrated their efforts on improving quality and efficiency. By aligning their corporate development with national strategies, they achieved a favorable situation of steady progress amid stability.

Some of the rankings are shown in the figure below.

Multiple ministries have issued statements to accelerate the establishment of a long-term mechanism for the real estate market, with experts calling the property tax the centerpiece.

Recently, multiple government ministries have issued a series of signals indicating an accelerated effort to establish a long-term mechanism for the real estate sector, with experts noting that property taxation is a key component.

On August 28, He Lifeng, Director of the National Development and Reform Commission, stated that eight priority areas would be addressed in the second half of the year. Among these, he emphasized the need to resolutely curb housing price increases and accelerate the establishment of a long-term mechanism to promote the stable and healthy development of the real estate market. On the same day, Finance Minister Liu Kun outlined four key priorities for the next phase of fiscal work, noting that, in advancing the implementation of major reform measures, efforts would be stepped up to establish a long-term mechanism for ensuring the stable and healthy growth of the real estate market.

Recently, the Ministry of Housing and Urban–Rural Development convened a symposium on real estate work in several cities in Shenyang, Liaoning. A responsible official from the ministry emphasized that local authorities should accelerate the formulation and implementation of housing development plans, promptly adjust the structure of housing and land supply, vigorously develop the rental housing market, refine and enforce differentiated housing credit and tax policies to support rational housing consumption, resolutely curb speculative real estate trading, strengthen public opinion guidance and expectation management, and continue to carry out special campaigns to address disorderly practices in the real estate market. Furthermore, illegal and non-compliant developers and intermediary agencies must be severely punished to safeguard the legitimate rights and interests of the people.

Huang Zhilong, Director of the Macroeconomic Research Center at Suning Institute of Finance, stated that housing price data for 70 major and medium-sized cities in July indicate that upward pressure on national home prices remains substantial, with numerous irregularities plaguing the real estate market. The central government’s principle of “housing is for living, not for speculation” has been only partially implemented at the local level, and policies such as the “five restrictions” or even the “six restrictions” have yet to curb real estate speculation or stem rising home prices. Consequently, establishing a long-term mechanism for the real estate sector will be an effective measure to uphold the principle of “housing is for living, not for speculation” and rein in soaring housing prices.

At a meeting held on July 31, the Political Bureau of the CPC Central Committee called for resolute efforts to address issues in the real estate market, adhering to city-specific policies, promoting a balance between supply and demand, appropriately managing market expectations, rectifying market order, and officely curbing rising housing prices. It also emphasized accelerating the establishment of a long-term mechanism to ensure the stable and sound development of the real estate market.

Huang Zhilong argues that the components of a long-term mechanism for the housing market encompass finance, fiscal and tax policy, investment, land use, and legislation. In the long run, building a durable financial framework would involve establishing a housing bank and supporting the development of the rental market through real estate asset-backed securities (ABS) and real estate investment trusts (REITs). Fiscal and tax policies should focus on refining taxes at various stages of property transactions, such as introducing a property tax. Investment priorities should extend beyond developers to foster a diversified array of investors. On the land front, emphasis should be placed on bolstering the rental market, particularly by allowing collective land to be used for rental‑market development, thereby creating a dual‑track market model that balances renting and home ownership. Legislative efforts should include enacting a Housing Law and a Real Estate Tax Law, among others.

It is worth noting that the networked real estate registration system also serves as the foundation for establishing a long-term mechanism for the real estate sector in China. The Ministry of Natural Resources recently announced that the nationwide unified real estate registration information management platform has been fully connected across the country, marking the entry of China’s real estate registration system into a phase of full-scale operation. Industry insiders indicate that, going forward, with a clearer understanding of actual market conditions, policy adjustments will become more targeted, and efforts to implement long-term mechanisms such as the property tax will proceed smoothly.

Zhang Yiqun, director of the Jilin Provincial Institute of Fiscal Science, recently stated that extensive real estate information has objectively become the foundational infrastructure for introducing a property tax.

Recently, Mao Shengyong, spokesperson for the National Bureau of Statistics, stated during a press conference that efforts to advance policies and measures related to the property tax are being accelerated. This remark has further heightened external expectations regarding the eventual introduction of the property tax.

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