JC Master Legal News Issue 836

Key Takeaways for This Issue

The China Securities Regulatory Commission will formulate detailed rules on share repurchases to improve the treasury stock system.

Recently, the draft amendment to the Company Law (hereinafter referred to as the “draft amendment”) has been made public for public consultation, signaling that the revision of the Company Law has entered the legislative process. Following the conclusion of the one-month consultation period, the relevant authorities will refine the draft based on the feedback received, after which the State Council will submit it to the National People’s Congress. On September 7, a relevant department of the China Securities Regulatory Commission stated that, once the amendment to the Company Law is completed and put into effect, the Commission will formulate corresponding implementing rules. At present, the relevant departments of the CSRC are studying supplementary measures to prevent the treasury‑stock system from being exploited as a tool for market manipulation or insider trading.

The State Council executive meeting approved supporting measures to implement the newly revised Individual Income Tax Law, ensuring that the transition of social security contributions to taxation does not impose additional burdens on enterprises. Venture capital tax rates will remain at the previous levels, and individual income tax will be exempted on secondary-market trading of shares listed on the New Third Board.

On September 6, Premier Li Keqiang of the State Council presided over an executive meeting of the State Council, which adopted measures to implement the newly revised Individual Income Tax Law and reduce the tax burden on the general public; decided to refine policies to ensure that the overall tax burden on venture capital funds does not increase; outlined plans to upgrade the “mass entrepreneurship and innovation” initiative, enhancing its capacity to create jobs, drive scientific and technological innovation, and invigorate industrial development; and approved the Regulations on Patent Agency (Draft Amendment).

The Ministry of Finance has clarified the application of personal income tax deductions and tax rates for the fourth quarter.

On September 7, the Ministry of Finance and the State Taxation Administration issued the “Notice on Issues Concerning the Application of Personal Income Tax Deductions and Tax Rates for the Fourth Quarter of 2018,” clarifying matters related to the application of personal income tax deductions and tax rates for taxpayers in the fourth quarter of 2018.

The Supreme People’s Court has issued regulations on the adjudication of cases by Internet Courts, thereby improving and refining online litigation rules and advancing the rule of law in cyberspace governance.

To standardize litigation activities in Internet courts and safeguard the legitimate rights and interests of parties and other participants in proceedings, on September 6, the Supreme People’s Court issued the “Provisions of the Supreme People’s Court on Several Issues Concerning the Adjudication of Cases by Internet Courts” (hereinafter referred to as the “Provisions”), which took effect on September 7.

In addition to Meituan and Haidilao, Hong Kong stocks will see three star companies go public in September.

Hong Kong stocks will welcome three more star companies to the market in September. According to the relevant plans, Meituan, Haidilao, and China Renaissance are set to list on the Hong Kong Stock Exchange this month.

Table of Contents

Table of Contents

Finance & Capital Markets

The China Securities Regulatory Commission will formulate detailed rules on share repurchases to improve the treasury stock system.

CSRC: The issue price in major asset restructurings may be adjusted in both directions.

The Shanghai and Shenzhen stock exchanges have refined their regulatory frameworks, and the Northbound “look-through” mechanism has been implemented.

The IPO “dammed‑up” backlog is rapidly shrinking, and by year’s end the number of companies waiting in line could fall below 200.

The China Securities Regulatory Commission has proposed introducing legal provisions to permit the issuance of ordinary shares with different voting rights.

1,032 New Third Board companies completed private placements, raising an average of approximately RMB 43.22 million per company.

Corporate & Commercial

The State Council executive meeting approved supporting measures to implement the newly revised Individual Income Tax Law, ensuring that the transition of social security contributions to taxation does not impose additional burdens on enterprises. Venture capital tax rates will remain at the previous levels, and individual income tax will be exempted on secondary-market trading of shares listed on the New Third Board.

The National Development and Reform Commission has unveiled four major measures, further strengthening policies to encourage private capital participation in PPP projects.

Over a thousand New Third Board companies have delisted, with the National Equities Exchange and Quotations attributing this to five main reasons.

The investment appeal of local government bonds is becoming increasingly evident, with their issuance volume expected to exceed RMB 3 trillion this year.

Two departments have issued a document encouraging non‑grid‑enterprise capital to take equity stakes in power trading institutions.

Taxation

The Ministry of Finance has clarified the application of personal income tax deductions and tax rates for the fourth quarter.

Fiscal and monetary policies are working in tandem to provide preferential treatment to small and micro enterprises in terms of tax relief and credit access.

Litigation & Arbitration

The Supreme People’s Court has issued regulations on the adjudication of cases by Internet Courts, thereby improving and refining online litigation rules and advancing the rule of law in cyberspace governance.

Draft Civil Code Released; Experts Say It Improves the System of Marital Joint Debt

China’s first Law on the Prevention and Control of Soil Pollution will come into effect in 2019, ensuring that the public can eat with confidence and live in peace.

Other

In addition to Meituan and Haidilao, Hong Kong stocks will see three star companies go public in September.

Opinions on ensuring stable natural gas supply have been released, with a production target of 200 billion cubic meters.

Finance & Capital Markets

The China Securities Regulatory Commission will formulate detailed rules on share repurchases to improve the treasury stock system.

Recently, the draft amendment to the Company Law (hereinafter referred to as the “draft amendment”) has been made public for public consultation, signaling that the revision of the Company Law has entered the legislative process. Following the conclusion of the one-month consultation period, the relevant authorities will refine the draft based on the feedback received, after which the State Council will submit it to the National People’s Congress.

On September 7, relevant departments of the China Securities Regulatory Commission stated that, following the completion and implementation of the amendment to the Company Law, the CSRC will formulate corresponding implementing rules. At present, these departments are working on drafting supplementary measures to prevent the treasury‑stock system from being exploited as a tool for market manipulation or insider trading.

This amendment to the Company Law introduces additional circumstances under which share repurchases are permitted, particularly with respect to listed companies, such as repurchases deemed necessary to safeguard the company’s credit and the rights and interests of its shareholders. According to a responsible official from the relevant department of the China Securities Regulatory Commission, under the draft amendment, with the exception of provisions explicitly applicable only to listed companies, the other circumstances apply broadly to all joint-stock companies, including non-listed public companies on the New Third Board market.

It is reported that the National Equities Exchange and Quotations System has completed drafting the business rules governing share repurchases in the New Third Board market. These rules will be promulgated and implemented once they have been further refined and approved through the requisite procedures.

Industry experts contend that, based on the legislation and practices of mature overseas markets, share repurchase mechanisms—particularly those employed by listed companies—have become a fundamental institutional framework in capital markets. They play a crucial role in optimizing capital structures, stabilizing corporate control, enhancing corporate investment value, and establishing sound investor‑return mechanisms. In particular, when markets experience short‑term irrational declines and stock prices are broadly undervalued, implementing share‑repurchase programs can boost per‑share value, attract incremental capital into the market, provide robust support for price stability, send positive signals to investors, mitigate market panic, and help ensure the market’s stable and healthy development.

Compared with mature overseas markets, domestic listed companies have shown relatively low enthusiasm for share repurchases, and the existing share‑repurchase regime has not been fully effective. According to a responsible official from the relevant department of the China Securities Regulatory Commission, Chinese listed companies rarely engage in share buybacks, and the system’s role in stabilizing the market and rewarding investors has yet to be adequately realized. Several factors contribute to this situation; from a systemic perspective, the main ones are threefold: first, the provisions governing repurchase scenarios are inadequate; second, the procedural requirements are unreasonable; and third, there is no established framework for treasury shares.

The market generally views the establishment of a treasury‑stock system as a major highlight of this legislative amendment aimed at refining the share‑repurchase regime.

The aforementioned official stated that treasury shares do not confer the same shareholder rights as ordinary outstanding shares, a principle that has become an international consensus. Holders of treasury shares are not entitled to exercise voting rights, the right to claim dividends, the right to claim a share of residual assets, or the right to subscribe for new shares, among other shareholder rights.

It is reported that, at present, the principal approaches adopted by major global capital markets following share repurchases include cancellation, holding, and time‑limited transfer. With the aim of maintaining a company’s capital adequacy and safeguarding creditors’ interests, with the exception of the United States, other countries and regions exercise considerable caution in holding treasury shares and impose strict time limits on the sale, transfer, or cancellation of shares acquired through buybacks. For instance, Germany’s Stock Corporation Act stipulates that shares repurchased for the purpose of implementing an employee stock ownership plan must be transferred to employees within one year; shares repurchased for other reasons may be held, cancelled, or used as treasury shares in the issuance of new shares.

Industry insiders note that, owing to its inherent drawbacks, the treasury‑stock regime can readily create opportunities for market arbitrage by listed companies. If oversight is inadequate, it may give rise to systemic risks and adverse consequences. Market manipulation and insider trading stand at the heart of these concerns. Countries and regions that have adopted treasury‑stock arrangements have consistently worked to strengthen their regulatory frameworks, aiming to prevent such schemes from being exploited for market manipulation or insider trading, thereby ensuring equal opportunities among the company and its shareholders and upholding the integrity of capital‑market transactions.

CSRC: The issue price in major asset restructurings may be adjusted in both directions.

On September 7, in response to Article 45, Paragraph 4 of the Measures for the Administration of Major Asset Restructurings of Listed Companies, which stipulates that “the issuance price adjustment plan shall be clear, specific, and operable,” the Listed Companies Supervision Department of the China Securities Regulatory Commission clarified that the formulation of such a plan must comply with five requirements.

Specifically, the document titled “Questions and Answers on the Mechanism for Adjusting the Issue Price in Share‑Issuance Transactions for Asset Acquisitions” clarifies that when a listed company issues shares to acquire assets, it may, in accordance with Article 45 of the Measures for the Administration of Major Asset Restructurings of Listed Companies, establish an issue‑price adjustment mechanism to safeguard the interests of the company’s shareholders. The design of such an adjustment scheme shall comply with the following requirements:

First, the issuance price adjustment plan shall be based on market conditions and changes in the industry index, and the listed company’s stock price must have undergone a significant change relative to the originally determined issuance price.

Second, the issuance price adjustment plan should be designed to safeguard shareholders’ rights and interests and incorporate a two-way adjustment mechanism. If only a one-way adjustment is contemplated, the rationale must be clearly set out, along with an assessment of whether such an approach effectively protects the interests of minority shareholders.

Third, the benchmark date for price adjustments shall be clearly and specifically defined. Where the shareholders’ meeting has authorized the board of directors to make decisions on adjusting the issue price, upon the triggering of the adjustment conditions, the board shall perform its duties prudently and in a timely manner.

Fourth, when the board of directors decides to include a price‑adjustment mechanism in the restructuring plan, it shall conduct a thorough assessment and analysis of the potential impacts of such a mechanism and determine whether it is conducive to protecting shareholders’ interests, and disclose this information accordingly.

Fifth, upon the triggering of price‑adjustment conditions, the board of directors shall, pursuant to the authorization granted by the shareholders’ meeting, resolve whether to adjust the offering price. If a decision is made to adjust the offering price, the board must conduct a thorough assessment and provide adequate justification regarding the potential impacts of such an adjustment, its reasonableness, and its implications for shareholder protection, and disclose this information. At the same time, the board shall also disclose the diligence and due care it exercised in reaching this decision. If no adjustment is made, the board shall disclose the reasons therefor, the potential impacts, and whether the decision serves to protect shareholders, and likewise disclose the diligence and due care it exercised in arriving at that decision.

In addition, independent financial advisors and legal counsel are required to verify the aforementioned circumstances and provide clear opinions.

The Shanghai and Shenzhen stock exchanges have refined their regulatory frameworks, and the Northbound “look-through” mechanism has been implemented.

Recently, the China Securities Regulatory Commission and the Securities and Futures Commission of Hong Kong, after reaching a consensus, announced that the Northbound Stock Connect “look-through” mechanism (the investor identification code system) will be officially implemented on September 17, 2018. To implement the decisions and arrangements of the CSRC, the Shanghai Stock Exchange and the Shenzhen Stock Exchange have recently revised and issued, respectively, the “Shanghai Stock Exchange Measures for the Implementation of the Shanghai–Hong Kong Stock Connect” and the “Shenzhen Stock Exchange Measures for the Implementation of the Shenzhen–Hong Kong Stock Connect (Revised in 2018).”

The Shanghai Stock Exchange stated that the establishment of the northbound look-through mechanism under the Shanghai–Hong Kong Stock Connect will help the Exchange fully exercise its frontline regulatory functions, enhance cross-border regulatory cooperation, and ensure the stable operation of the A-share market.

The Shenzhen Stock Exchange stated that, following the implementation of the northbound look-through mechanism under the Shenzhen–Hong Kong Stock Connect, it will conduct real-time look‑through monitoring of northbound trading submissions based on investor identification codes and other relevant information. This measure will help the exchange fully exercise its frontline regulatory functions, enhance cross‑border and cross‑market regulatory cooperation, improve regulatory effectiveness, and safeguard market order.

According to reports, since the launch of the Shanghai–Shenzhen–Hong Kong Stock Connect, all related operations—including securities trading, registration and settlement, foreign exchange conversion, and corporate actions—have been conducted smoothly, with market activity remaining stable and well-organized.

Data show that as of August 31, 2018, the cumulative trading value under the Shanghai–Hong Kong Stock Connect had approached RMB 10 trillion, with an average daily turnover exceeding RMB 10 billion. Specifically, the Shanghai Stock Connect covered 830 eligible stocks, with a cumulative trading value of approximately RMB 5.5 trillion and an average daily turnover of RMB 6.2 billion; meanwhile, the Hong Kong Stock Connect included 411 eligible stocks, totaling about RMB 4.1 trillion in cumulative trading value and averaging RMB 4.6 billion per day.

As of August 31, 2018, the cumulative transaction value under the Shenzhen–Hong Kong Stock Connect reached RMB 3.46 trillion, with a net inflow of cross-border funds totaling RMB 89.927 billion. Specifically, the Shenzhen Stock Connect covered 1,126 stocks, with a cumulative transaction value of approximately RMB 2.33 trillion and an average daily turnover of RMB 5.696 billion; the Hong Kong Stock Connect included 526 stocks, with a cumulative transaction value of about RMB 1.13 trillion and an average daily turnover of RMB 2.810 billion.

The Shanghai Stock Exchange stated that, going forward, it will remain committed to serving investors in Mainland China, Hong Kong, and around the world, continue to refine the Shanghai–Hong Kong Stock Connect mechanism, ensure the stable and efficient operation of the system, and safeguard investors’ rights and interests.

The Shenzhen Stock Exchange stated that, going forward, it will continue to refine the mutual market access mechanisms, further strengthen cross-border regulatory cooperation, and rigorously crack down on illegal and non-compliant activities such as cross-border market manipulation. In doing so, it will effectively safeguard the legitimate rights and interests of investors in Mainland China, Hong Kong, and around the world, contribute to forging a new paradigm of mutually beneficial international cooperation, and accelerate the development of a world‑leading center for innovative capital formation.

The IPO “dammed‑up” backlog is rapidly shrinking, and by year’s end the number of companies waiting in line could fall below 200.

After more than two years, the backlog of IPO applications on the A-share market has shrunk from nearly 700 companies awaiting review in June 2016 to 244.

According to statistics, as of the end of August, the China Securities Regulatory Commission has reviewed applications from 136 companies seeking an initial public offering this year (excluding those whose reviews were canceled), with 75 approvals granted, resulting in an approval rate of 55.15%.

Prior to November 2016, the slow pace of IPO reviews kept the monthly number of newly pre-disclosed companies steady, leading to a continuous buildup of pending IPO applications and creating an “IPO backlog.” By June 2016, this backlog had reached its peak, with the number of companies awaiting review approaching nearly 700.

Since November 2016, when the pace of IPO reviews accelerated, the number of companies awaiting review has steadily declined, easing the pressure on the “IPO backlog.” The figure fell from 665 in November 2016 to 484 in December 2017, an average monthly reduction of 34 offices—less than the period’s average monthly number of companies scheduled for review, which stood at 42.5. Over the 13-month span from November 2016 to December 2017, there were only two months in which the IPO backlog saw a net inflow (calculated as the number of pre-disclosure filings minus the number of companies that reached the review stage), with a total net addition of 75 companies.

Since the beginning of 2018, the number of companies awaiting review has continued to decline, and the backlog of IPO applications has been partially alleviated. As of August 30, the China Securities Regulatory Commission had accepted initial public offering (IPO) applications and depositary receipt issuance filings from 289 companies, of which 29 have already passed the review committee and 260 remain pending. Among the pending applications, 244 are undergoing normal review, while 16 have had their reviews suspended.

In the first eight months of this year, the IPO Review Committee reviewed initial public offering applications from a total of 136 companies, averaging 17 reviews per month. Based on this monthly average, it is expected that by year-end the committee will have reviewed 68 IPO applicants, and the number of IPO applications currently pending review is likely to fall below 200.

“At present, the pace of IPO reviews has slowed but remains relatively stable. Taking into account developments across the upstream and downstream sectors, the size of the IPO backlog has declined significantly,” said Lu Binbin, an analyst at Guangzheng Hengsheng. “Based on the current rate of filing and the review process, the number of companies awaiting IPO approval is expected to fall to around 200 by year-end, and further drop to roughly 100 by August 2019.”

“The slowing and tightening of review processes have led to a decline in the number of companies submitting IPO applications and a rise in the number of offices voluntarily withdrawing their filings, resulting in a sluggish inflow into the upstream segment of the IPO ‘dammed lake,’” said Lu Binbin.

In August, the Issuance Review Committee reviewed applications from 10 companies seeking their initial public offerings, with 6 of them receiving approval. Over the longer term, since October 2017, the monthly number of companies brought before the committee has steadily declined, with a sharp drop in February 2018, further underscoring a slowdown in the IPO review process. So far this year, a total of 136 companies have had their IPO applications reviewed, compared with 352 during the same period in 2017—more than double the figure for 2018.

Lu Binbin believes that the trend of increasingly stringent yet gradually easing IPO reviews remains unchanged. At the same time, the quality of companies approved at review meetings has improved, and the waiting time to appear before the committee continues to shorten. For high-quality companies planning to go public, this is actually positive news, as it significantly reduces the time and cost associated with an IPO. Consequently, in the medium to short term, the IPO environment will be conducive to enabling high‑quality, innovative enterprises to list on the A‑share market.

Taking into account the short- to medium-term rebound in cross‑market premiums driven by a slowdown in review speeds, as well as the long-term downward trend in such premiums amid expectations of a registration‑based IPO system, Lu Binbin advises high‑quality innovative companies on the New Third Board that are considering a transfer to another exchange to carefully plan their capital structure, seize the favorable window, and leverage the capital markets to advance their growth.

The China Securities Regulatory Commission has proposed introducing legal provisions to permit the issuance of ordinary shares with different voting rights.

Under the impetus of the China Securities Regulatory Commission, China’s capital market is fully embracing the new economy. In addition to stepping up support for innovative companies seeking IPOs, regulators are now laying the institutional groundwork to foster the growth of such enterprises. Recently, in response to a proposal submitted at the First Session of the 13th National Committee of the Chinese People’s Political Consultative Conference, the CSRC stated: “In conjunction with the ongoing revision of the Securities Law, the Commission is advancing complementary amendments to the Company Law. It is considering proposing, while continuing to uphold the principle of ‘one share, one vote,’ an amendment that would allow companies to issue ordinary shares with differing voting rights, thereby addressing the needs of start-ups to maintain control.”

In 2017, the China Securities Regulatory Commission maintained a normalized pace of new share issuances and actively supported innovative enterprises in raising capital through IPOs. Throughout the year, a total of 419 companies completed IPOs, raising RMB 218.6 billion; among the newly listed offices, nearly 80% were high-tech enterprises. The capital market’s role in supporting national strategies—such as innovation-driven development, state‑owned enterprise reform, building a manufacturing powerhouse, and developing a cyber power—continued to strengthen.

On March 30, 2018, the General Office of the State Council forwarded the “Several Opinions of the China Securities Regulatory Commission on Piloting the Issuance of Stocks or Depositary Receipts by Innovative Enterprises within China” (hereinafter referred to as the “Several Opinions”), which permits pilot red-chip enterprises incorporated overseas to issue stocks or depositary receipts in China. The “Several Opinions” establish a comprehensive institutional framework to support innovative enterprises seeking to list and raise capital domestically. First, it introduces depositary receipts as a new type of security, allowing pilot red-chip enterprises to issue and list depositary receipts on the domestic capital market in accordance with prescribed procedures, while also setting out the underlying regulatory framework for such issuances. Second, it further streamlines the conditions for securities issuance, permitting innovative enterprises that demonstrate sustained profitability but may still be unprofitable or have accumulated losses to pursue an IPO. Third, it allows pilot red-chip enterprises to adopt special corporate governance arrangements, such as dual-class share structures, and establishes targeted regulatory measures to address these arrangements.

As China’s economic structure undergoes orderly transformation and upgrading, and the shift from old to new growth drivers accelerates, the new economy—characterized by emerging industries, new business forms, and novel business models—is expanding rapidly, giving rise to a large number of start-ups. These enterprises often exhibit a pronounced “personal‑based” nature and place strong emphasis on balancing equity financing with the preservation of control. Dual‑class share structures, in addition to ordinary shares each carrying one vote, incorporate special classes such as super‑voting shares that confer multiple votes per share or non‑voting common shares, thereby mitigating dilution of control after an IPO and aligning with the listing aspirations of new‑economy offices.

The China Securities Regulatory Commission stated that the issue of “dual-class share structures” is quite complex, with different companies adopting varying arrangements for voting rights. Some arrangements are specific to board nomination rights, others differentiate voting rights among shares of the same class, and still others involve different classes of shares. In essence, all these constitute special governance mechanisms tailored to individual corporate needs. Article 126 of China’s Company Law establishes the principle of “one share, one vote,” but this principle applies only to shares of the same class; different classes of shares may be granted distinct rights. Accordingly, Article 131 of the Company Law provides: “The State Council may, by separate regulations, authorize the issuance of other classes of shares not covered by this Law.” Pursuant to this provision, in 2013 the State Council issued the “Guiding Opinions on Piloting Preferred Shares,” which set out the relevant framework for the issuance and trading of preferred shares. For joint-stock companies incorporated within China, their corporate governance and equity structure must comply with the provisions of the current Company Law and other applicable laws and regulations.

According to reports, the draft amendment to the Securities Law has already undergone two reviews by the Standing Committee of the National People’s Congress and has been included in the Committee’s 2018 legislative work plan. The China Securities Regulatory Commission stated: “With regard to proposals to amend provisions in the Company Law—such as ‘one share, one vote’ and ‘one share, one voting right’—to provide market entities with more flexible institutional frameworks while safeguarding the rights and interests of relevant investors, we will, in the next phase of revising the Company Law, collaborate with relevant parties to strengthen research and deliberation and give these proposals careful consideration.”

1,032 New Third Board companies completed private placements, raising an average of approximately RMB 43.22 million per company.

In August, companies listed on the New Third Board completed a total of 104 equity offerings, raising RMB 4.215 billion. Among these, large and medium-sized enterprises accounted for 46 offerings, while small and micro enterprises conducted 58 offerings. From January to August this year, 1,032 listed companies carried out 1,059 equity offerings, raising a combined RMB 44.605 billion. This translates to an average of approximately RMB 43.22 million per company.

From the perspective of the use of proceeds, in August, 59 equity offerings—accounting for 56.73%—were used to replenish working capital; 20 offerings—19.23%—were for project financing; 18 offerings—17.38%—were for repaying bank loans and other debts; 4 offerings—3.85%—were for equity‑based incentive plans; and 3 offerings—2.88%—were for asset acquisitions.

In August, there were six instances of equity offerings by listed companies raising over RMB 100 million each; the largest single offering was by Jianmen Tourism, a public‑facility management company, which raised RMB 480 million, primarily for project financing.

In August, a total of 30 companies disclosed acquisition reports, with aggregate transaction values amounting to RMB 2.683 billion. Additionally, three companies disclosed major asset restructuring reports, involving transaction amounts totaling RMB 189 million.

Commercial & Corporate

The State Council executive meeting approved supporting measures to implement the newly revised Individual Income Tax Law, ensuring that the transition of social security contributions to taxation does not impose additional burdens on enterprises. Venture capital tax rates will remain at the previous levels, and individual income tax will be exempted on secondary-market trading of shares listed on the New Third Board.

On September 6, Premier Li Keqiang of the State Council presided over an executive meeting of the State Council, which adopted measures to implement the newly revised Individual Income Tax Law and reduce the tax burden on the general public; decided to refine policies to ensure that the overall tax burden on venture capital funds does not increase; outlined plans to upgrade the “mass entrepreneurship and innovation” initiative, enhancing its capacity to create jobs, drive scientific and technological innovation, and invigorate industrial development; and approved the Regulations on Patent Agency (Draft Amendment).

The meeting noted that the full implementation of the newly revised Individual Income Tax Law, as adopted by the Standing Committee of the National People’s Congress, and the establishment of an individual income tax system that combines comprehensive and classified approaches represent a major tax reform unprecedented in China. While ensuring that, effective October 1, the basic deduction for individual income tax is raised from RMB 3,500 to RMB 5,000 and the new tax rate schedule is applied as scheduled, it is imperative to promptly clarify, in line with the goal of delivering greater benefits to the general public, the specific scope and standards for six special additional deductions: expenses for children’s education, continuing education, major illness medical treatment, interest on ordinary housing loans, housing rent, and expenses for supporting elderly parents. This will allow taxpayers, after deducting the basic standard, to further benefit from additional deductions covering education, medical care, elderly care, and other areas, thereby ensuring that the taxable income threshold after deductions is significantly higher than RMB 5,000, thus further alleviating the tax burden on the people, increasing their real disposable income, and boosting their consumption capacity. The scope and standards for these special additional deductions will be implemented, following public consultation and in accordance with the law, starting January 1 next year. Going forward, as the economy and society develop and living standards rise, the scope and standards of these special additional deductions will continue to be adjusted dynamically.

Interpretation: This means that clear timelines have been set for the six major special deductions, which will be finalized by January 1 of next year and subject to ongoing adjustments. The extent of tax relief under the individual income tax system will go beyond simply raising the threshold and widening the tax brackets.

The meeting emphasized that, at present, the nationwide pension fund has substantial accumulated surpluses, ensuring timely and full disbursement. Until the reform of social security collection agencies is fully implemented, all localities must maintain their existing collection policies unchanged, while simultaneously expediting studies to appropriately reduce social security contribution rates, so as to ensure that the overall burden on enterprises does not increase, thereby boosting market vitality and fostering positive public expectations.

Interpretation: Previously, the transfer of social security administration to the tax authorities drew widespread public attention. The market believes that, once social security contributions are collected and managed centrally by the tax authorities, the “grey‑area practices” of paying at the minimum rate will no longer be viable, which would significantly raise labor costs for businesses, particularly those that are labor‑intensive. In line with the spirit of the meeting, the policy will include a transitional period, and future contribution rates are expected to be lowered, so overall it will not impose an additional burden on enterprises. Regarding concerns in some regions about pension funds running deficits, it was clarified that current pension reserves remain substantial, ensuring timely and full disbursement without resorting to overdrafts.

To foster entrepreneurship and innovation, the meeting decided to maintain the stability of existing tax‑support policies for venture capital funds at the local level. Relevant departments will, in conjunction with the revision of the Regulations for the Implementation of the Individual Income Tax Law, promptly refine tax policies to further support the development of venture capital funds, adhering to the principles of non-retroactivity and ensuring that the overall tax burden does not increase.

Interpretation: Earlier, reports indicated that the income tax rate for the venture capital and private equity sector had been raised from 20% to 35%, with some localities even applying the new rate retroactively, sparking widespread concern and anxiety within the industry. Critics argued that such a move would severely dampen the sector’s enthusiasm and effectively eliminate the incentive to engage in venture capital and private equity investing. Industry associations and fund‑management bodies had already begun voicing their concerns to the relevant authorities. At this meeting, it was clarified that the preferential tax treatment for venture capital will remain unchanged, with no retroactive application and no overall increase in the tax burden—effectively providing the industry with much‑needed reassurance.

The meeting noted that deeply implementing the innovation-driven development strategy and creating an upgraded version of mass entrepreneurship and innovation will help facilitate the transition from old to new growth drivers and expand employment. First, we must deepen the “delegation, regulation, and service” reform, further streamline business registration procedures, and accelerate the comprehensive rollout of simplified business deregistration reforms. We will also refine labor‑employment and social security systems to better accommodate new forms of employment. Second, we will issue detailed rules to encourage researchers to leave their posts and start businesses, and improve policies and support services for rural migrant workers returning home to start businesses and for demobilized military personnel engaging in self‑employment. Third, we will upgrade “mass entrepreneurship and innovation” platforms, leverage market forces more effectively, and speed up the development of the industrial internet, integrating it closely with smart manufacturing and e‑commerce to achieve mutual reinforcement and shared progress. We will also promote “Internet Plus Public Services,” ensuring that more high‑quality resources benefit the public. Fourth, we will strengthen fiscal, tax, and financial support. Specifically, individual trading of New Third Board stocks on the secondary market will be treated similarly to listed‑company shares, with capital gains exempt from personal income tax. The scope of preferential policies—such as exemptions from property tax and value‑added tax—currently enjoyed by national‑level science and technology incubators and university science parks will be extended to provincial‑level entities, and eligible maker spaces will also qualify. We will support promising yet unprofitable innovative enterprises in accessing public markets for financing. Fifth, we will launch pilot programs to grant researchers ownership or long‑term usage rights over their official scientific and technological achievements, as well as pilot schemes for risk compensation on loans tied to the commercialization of such成果. Sixth, we will innovate credit‑based regulatory approaches, requiring sharing‑economy platform enterprises to strictly fulfill their principal responsibilities and officely uphold safety and quality standards.

Interpretation: Previously, some localities imposed a capital gains tax on equity transfers in the New Third Board, taxing only the profit portion, which sent shockwaves through the market. Currently, A‑shares are exempt from such a tax; if a separate capital gains tax were levied on New Third Board stocks, it would clearly violate the principle of fairness. This policy would severely dampen investors’ enthusiasm for participating in the New Third Board and undermine its healthy development. The recent clarification that the tax treatment will align with that of A‑shares helps bolster market confidence. At the same time, the significantly enhanced support for “mass entrepreneurship and innovation” is expected to further stimulate public engagement in entrepreneurial and innovative activities.

The meeting adopted the “Regulations on Patent Agency (Revised Draft).” Other matters were also deliberated.

The National Development and Reform Commission has unveiled four major measures, further strengthening policies to encourage private capital participation in PPP projects.

On September 6, Han Zhifeng, Deputy Director-General of the Fixed Asset Investment Department of the National Development and Reform Commission, stated that going forward, we will fully implement the State Council’s work plan, further remove the difficulties and obstacles hindering private capital’s participation in PPP projects, and effectively stimulate private investors’ enthusiasm to engage in such projects.

Han Zhifeng outlined four key measures to encourage private capital to participate in PPP projects. First, continue to standardize and advance the PPP model in an orderly manner, prioritizing projects that meet the needs of economic and social development, feature sound and rational decision-making, have clear and well-defined return mechanisms, adhere to standardized contracts, and rely primarily on user fees, thereby attracting private investment. Second, adopt tailored policies to support private capital’s involvement in PPP projects. Third, consistently promote PPP projects to private enterprises. Fourth, strengthen the integrity‑building framework and resolutely prevent the practice of “new officials ignoring past commitments.”

Driven by a series of policy measures, private capital’s participation in PPP projects has yielded positive results, with outcomes exceeding public expectations. According to statistics, as of the end of August this year, among all PPP projects awarded nationwide, approximately 3,800 were led or won solely by private enterprises, accounting for nearly 47 percent. The Hangzhou–Shaoxing–Taizhou Railway is one of eight demonstration railway projects launched by the National Development and Reform Commission, the National Railway Administration, and other authorities to attract private investment, and it has become the first high-speed rail PPP project with absolute controlling interest held by private capital. From January to July this year, private investment in infrastructure grew by 7.3 percent, outpacing overall infrastructure investment growth by 1.6 percentage points, underscoring the continued strong momentum of private capital’s involvement in PPP projects.

Tang Chuan, Research Director at the 360 Finance PPP Research Center, stated that although in the fourth batch of PPP demonstration projects recently announced by the Ministry of Finance, private and state-owned enterprises were roughly evenly matched in terms of participation, when policy incentives are set aside, state-owned enterprises remain the primary private‑sector investors in PPP projects. In particular, for large‑scale projects, private offices continue to face significant hurdles—such as insufficient equity capital and relatively weaker overall qualifications—making it difficult for them to participate. Moreover, private companies are encountering financing challenges in PPP projects, which has substantially dampened their enthusiasm to engage.

Tang Chuan stated that, since last year, the state has introduced a series of policies to encourage and support the further stable development of the private sector, which will undoubtedly enable private enterprises to access greater market resources and financial support. He expressed confidence that, once these policies are fully implemented at both the financial institutions and market levels, they will effectively foster the steady growth of the private sector and private enterprises.

Tang Chuan suggests that, given the current environment in which private enterprises face financing difficulties and limited risk‑bearing capacity, approaches to engaging them in infrastructure and public‑service projects could be more diversified and open. Rather than restricting participation to having private offices serve as equity holders in project companies, it would also be feasible to bring private enterprises into projects after the company is established—through mechanisms such as construction outsourcing or service procurement. This approach not only helps alleviate the heavy debt and financing burdens borne by private offices but also leverages their technological expertise and service capabilities, while enabling profit‑sharing with these enterprises.

“One of the key advantages of private capital’s participation in PPP projects is that private enterprises bring robust market‑oriented operational expertise, which can effectively enhance the quality and efficiency of public services,” said Tang Chuan. He added that, in China’s market environment, the PPP model works best when state-owned and private enterprises collaborate and each fulfills its respective role.

Over a thousand New Third Board companies have delisted, with the National Equities Exchange and Quotations attributing this to five main reasons.

On September 7, in response to the delisting of listed companies, a spokesperson for the National Equities Exchange and Quotations System stated that “companies entering and exiting” and “the ability to both enter and exit” are normal phenomena and reflect market‑driven dynamics.

Since the beginning of this year, delistings from the New Third Board have been accelerating, with the cumulative number of delistings exceeding 1,000 in the first eight months. In response, a spokesperson stated that the number of delistings has risen this year. Among them, some companies have chosen to delist voluntarily due to plans for an IPO, mergers and acquisitions, or strategic realignments; others have opted to exit because their market performance or capital‑raising efforts fell short of expectations, weighing cost‑benefit considerations; and still others have been forcibly delisted for failing to disclose their annual or interim reports. This indicates that there are five primary reasons why listed companies either voluntarily or involuntarily delist.

“It is a normal market‑clearing process for companies that have not adequately assessed their stage of development or their needs, hold overly high expectations for listing yet lack sufficient compliance, to delist and exit. This helps ensure survival of the fittest and enhances the overall quality of market operations. At the same time, we recognize that the current NEEQ system still has room for reform and improvement in both its institutional framework and functional capabilities,” said the spokesperson. Looking ahead, the National Equities Exchange and Quotations System will take market stratification as a key lever and focus on strengthening the market’s financing functions, addressing persistent market pain points in areas such as issuance and financing, mergers and acquisitions, restructuring, trading and pricing, and policy coordination, thereby comprehensively enhancing the market’s core functions—including price discovery, resource allocation, and risk management.

Since 2018, there has been a noticeable increase in the number of market makers withdrawing from their market-making activities. In response, the National Equities Exchange and Quotations System has attached great importance to this issue and has conducted ongoing monitoring and assessment. There are two primary reasons for market makers’ withdrawal: first, some market makers have proactively adjusted their market-making strategies. Against the backdrop of a declining market environment since 2017, certain market makers, based on their assessment of market conditions, have begun to revise their strategies and voluntarily exit market-making for stocks with poor performance or those that have been subject to regulatory sanctions. Second, some companies listed under the market-making regime have, due to plans for an IPO, changes in their shareholding structure, or other reasons, voluntarily switched their transfer method or delisted, thereby forcing market makers to withdraw as well.

Regarding equity pledges by companies listed on the New Third Board, a spokesperson stated that the primary purpose of such pledges is to facilitate corporate financing. Light‑asset small and micro enterprises often struggle to secure loans through collateral in the form of fixed assets; therefore, after achieving standardized corporate governance and financial practices through listing, equity pledging has become an effective financing tool for innovative, entrepreneurial, and growth‑oriented SMEs. According to statistics, more than 70% of equity pledges on the New Third Board are undertaken to raise capital for listed companies, aligning with the financing needs and development characteristics of SMEs.

The spokesperson noted that, overall, equity pledges on the New Third Board are relatively limited in scope and account for a small share of total outstanding shares. Equity pledges by listed companies exhibit low correlation with the secondary market, with pledged shares predominantly consisting of restricted shares. Pledgees are mainly traditional credit institutions, which typically set pledge‑related pricing based on the listed company’s operating performance and the provision of additional collateral or joint guarantees, thereby minimizing exposure to fluctuations in secondary‑market valuations. At present, the median number of shareholders holding pledged shares is 28, indicating a limited potential for risk spillovers.

The investment appeal of local government bonds is becoming increasingly evident, with their issuance volume expected to exceed RMB 3 trillion this year.

With policy support, the issuance of local government bonds has accelerated. According to data from Eastmoney, the total value of local government bond issuance in August reached RMB 882.97 billion, and as of September 4, cumulative issuance this year has totaled RMB 3.052037 trillion.

Since the Ministry of Finance issued the “Opinions on Doing a Good Job in the Issuance of Local Government Special Bonds” on August 14, the issuance of local government bonds has accelerated markedly. Data show that in August, a total of RMB 882.97 billion in local government bonds was issued: by purpose, new‑issue bonds accounted for RMB 486.5 billion, while swap or refinancing bonds totaled RMB 396.5 billion; by type of new‑issue bond, general‑purpose bonds amounted to RMB 105.1 billion, and special‑purpose bonds reached RMB 381.4 billion.

HuaChuang Securities analyst Zhou Guannan forecasts that the total issuance of local government bonds from August to December will range between RMB 1.65 trillion and RMB 1.90 trillion. Regarding estimates of net new supply, third-quarter issuance pressure is pronounced. Assuming the full quota is utilized, net issuance in September could approach RMB 600 billion, further intensifying supply pressures compared with August. In October, net issuance is expected to exceed RMB 300 billion, warranting close attention to the impact of this accelerated issuance on market liquidity.

Meng Xiangjuan, an analyst at Sinolink Securities, believes that, given the current environment, money‑market rates remain low and liquidity is still relatively ample. Under the overarching policy stance of maintaining stability, to ensure reasonably ample liquidity in the banking system and to provide targeted support for real‑economy financing, further targeted monetary easing remains both necessary and feasible. It is also possible that the central bank will continue to implement targeted RRR cuts or increase MLF injections to offset the impact of a surge in local government bond issuance. Accordingly, the anticipated increase in local government bond supply is unlikely to be the primary driver of any adjustment in the bond market.

Notably, the China Banking and Insurance Regulatory Commission recently issued the “Notice on Matters Concerning Commercial Banks’ Underwriting of Local Government Bonds,” lifting the cap that limited commercial banks to investing no more than 20% of a bond’s total issuance in bonds they had underwritten. Previously, banks were unable to purchase local government bonds they had underwritten beyond this threshold; with the removal of this restriction, banks’ willingness to underwrite such bonds is expected to increase.

Zhou Guannan believes that, as the investor base for local government bonds becomes more diversified, liquidity improves, and market‑based issuance gains traction, the investment appeal of these bonds will further strengthen. In the second half of the year, given the concentrated surge in local bond supply and the Ministry of Finance’s guidance on yield spreads, the spread between local government bonds and Treasury bonds is expected to remain within a favorable range for allocation.

Two departments have issued a document encouraging non‑grid‑enterprise capital to take equity stakes in power trading institutions.

Recently, in order to further deepen the reform of the power sector and promote the standardized development of electricity trading institutions, thereby providing all types of market participants with standardized, open, and transparent electricity trading services, the National Development and Reform Commission and the National Energy Administration have issued the “Notice on Promoting the Standardized Development of Electricity Trading Institutions” (hereinafter referred to as the “Notice”). The Notice stipulates that shareholding‑based restructuring of electricity trading institutions should be advanced.

The Notice states that State Grid Corporation of China, China Southern Power Grid Company, and all provinces (autonomous regions, municipalities directly under the central government) shall, in accordance with the principle of diversified checks and balances, carry out shareholding reforms of the Beijing Electricity Trading Center, the Guangzhou Electricity Trading Center, and the electricity trading centers of each province (autonomous region, municipality), thereby establishing open, transparent, and fully functional electricity trading platforms for market participants. Electricity trading institutions should reflect broad-based representation, with shareholders drawn from all types of trading entities; the equity stake held by non‑grid‑enterprise capital should be no less than 20%, and efforts are encouraged to refine the equity structure so that non‑grid‑enterprise capital accounts for approximately 50% of the total shares.

Wen Yanbing, Director of the Department of Economics at Zhejiang University of Finance & Economics, stated that the shareholding reform of power trading centers represents a crucial stage and a pivotal step in China’s market-oriented electricity‑system reform. It will help establish a nationwide unified electricity market and develop a sound, market‑based pricing mechanism, thereby playing an important role in fostering robust competition in the electricity sector, expanding the volume of electricity transactions, removing market barriers, enhancing resource allocation efficiency, diversifying trading products, improving overall resource‑allocation effectiveness, promoting the integration of clean energy, and unlocking the benefits of reform.

Liu Xiangdong, an associate researcher at the Economic Research Department of the China Center for International Economic and Trade Exchange, stated that transforming the electricity trading market into a joint-stock system is both a key component of state-owned enterprise reform and an essential element of electricity market‑oriented reform. The cornerstone of this transformation lies in introducing a diversified array of market participants, fostering an electricity trading market characterized by robust supply and demand, enabling it to fulfill its price‑discovery function, and advancing the marketization of electricity prices.

Wen Yanbing stated that this round of reform should foster a diversified array of market players, encouraging private capital and non‑power‑sector enterprises to participate openly, equitably, and on a level playing field. Specifically, the shareholding ratio of non‑grid‑enterprise capital should be no less than 20%, and it is advisable to refine the equity structure and complete shareholding‑system reforms by aligning non‑grid‑enterprise ownership at around 50%. In turn, leveraging market flexibility and liquidity will help accelerate the refinement of market‑based mechanisms for determining electricity‑trading prices and further expand the scale of electricity‑market transactions, thereby effectively bridging the supply and demand sides of the power sector.

Taxation TAXATATION

The Ministry of Finance has clarified the application of personal income tax deductions and tax rates for the fourth quarter.

On September 7, the Ministry of Finance and the State Taxation Administration issued the “Notice on Issues Concerning the Application of Personal Income Tax Deductions and Tax Rates for the Fourth Quarter of 2018,” clarifying matters related to the application of personal income tax deductions and tax rates for taxpayers in the fourth quarter of 2018.

The Notice states that, for wages and salaries actually received by taxpayers on or after October 1, 2018, the standard deduction will uniformly be set at RMB 5,000 per month, and the taxable amount shall be calculated in accordance with the new individual income tax rate schedule. For wages and salaries actually received by taxpayers on or before September 30, 2018, the standard deduction shall be applied in accordance with the provisions in effect prior to the amendment of the tax law.

For individual business operators, natural person investors in sole proprietorships and partnerships, and contractors or lessees of enterprises and public institutions, the standard deduction for income from production and business operations earned in the fourth quarter of 2018 shall be RMB 5,000 per month, while for the first three quarters it shall be RMB 3,500 per month.

For individual business owners, natural person investors in sole proprietorships and partnerships, and operators who have contracted or leased enterprises or institutions, the income from production and business operations earned in 2018 shall be subject to separate calculations of the tax liability for the first three quarters and for the fourth quarter, based on the annual taxable income. The tax liability for the first three quarters shall be computed using the tax rates in effect prior to the amendment of the tax law and the weighted average of the actual months of operation during those quarters, while the tax liability for the fourth quarter shall be calculated using the tax rates prescribed after the amendment and the weighted average of the actual months of operation in that quarter.

Fiscal and monetary policies are working in tandem to provide preferential treatment to small and micro enterprises in terms of tax relief and credit access.

Small and micro enterprises are set to benefit once again from favorable policy measures. From September 1 this year through the end of 2020, interest income from loans to eligible small and micro businesses and individual business households will be exempt from value-added tax, with the cap on the credit line per borrower raised from the previously established RMB 5 million to RMB 10 million. Analysts believe that the targeted tax relief for small and micro enterprises will boost market dynamism and generate positive economic effects.

Zhang Yiqun, Director of the Jilin Provincial Institute of Fiscal Science, stated that this is another concrete measure to support the development of small and micro enterprises and to alleviate their difficulties in accessing affordable financing. Complementing a series of previous tax and fee reduction policies—such as raising the VAT credit threshold to RMB 5 million—it leverages both fiscal and monetary policies and instruments to create synergistic effects, thereby jointly bolstering the growth of small and micro businesses.

Zhang Yiqun stated that small and micro enterprises possess strong innovation capabilities and significant growth potential, making them one of the most dynamic drivers of economic expansion. They not only serve as a vital force for economic development but also play a crucial role in creating jobs, maintaining social stability, ensuring basic living standards for the public, and fostering innovation. Accordingly, the state has decided to double the credit limits for loans to small and micro enterprises. By supporting their development and alleviating the imbalance between supply and demand for financing, this measure addresses the key constraints hindering their growth. It will help bolster the innovative momentum of these enterprises—particularly technology‑driven ones—generate a policy effect that spreads from individual cases to broader sectors, and stimulate the intrinsic vitality of China’s economy, thereby accelerating its transformation and upgrading.

According to data from the State Taxation Administration, from January to May this year, tax preferential policies supporting the development of small and micro enterprises have resulted in tax reductions totaling RMB 94.3 billion, an increase of 25% year on year.

According to Report 9, since the beginning of this year, policies supporting the development of small and micro enterprises have been continuously strengthened, with a series of tax‑related preferential measures introduced. For example, in July this year, the Ministry of Finance and the State Taxation Administration issued the “Notice on Further Expanding the Scope of the Preferential Corporate Income Tax Policy for Small and Low‑Profit Enterprises,” which, from January 1, 2018, to December 31, 2020, raised the annual taxable income threshold for such enterprises from RMB 500,000 to RMB 1 million. Under this policy, small and low‑profit enterprises with an annual taxable income of RMB 1 million or less (inclusive) will have 50% of their income counted as taxable income and will pay corporate income tax at a rate of 20%. This means that a greater number of small and micro enterprises are now eligible for tax benefits.

Wang Jianfan, Director-General of the Tax Policy Department of the Ministry of Finance, recently stated that a series of tax and fee reduction measures have been primarily focused on supporting the development of small and micro enterprises, encouraging innovation and entrepreneurship, and lowering business costs. These policies are both targeted and comprehensive, playing a crucial role in boosting market vitality, alleviating the burden on businesses, and promoting high-quality economic growth.

LITIGATION & ARBITRATION

The Supreme People’s Court has issued regulations on the adjudication of cases by Internet Courts, thereby improving and refining online litigation rules and advancing the rule of law in cyberspace governance.

To standardize litigation activities in Internet courts and safeguard the legitimate rights and interests of parties and other participants in proceedings, on September 6, the Supreme People’s Court issued the “Provisions of the Supreme People’s Court on Several Issues Concerning the Adjudication of Cases by Internet Courts” (hereinafter referred to as the “Provisions”), which took effect on September 7.

In accordance with the “Plan on Establishing Additional Internet Courts in Beijing and Guangzhou,” which was reviewed and approved at the third meeting of the Central Commission for Comprehensively Deepening Reform, following the establishment last August of the world’s first Internet Court in Hangzhou, Zhejiang Province, China will set up two additional Internet Courts in Beijing and Guangzhou, Guangdong Province, and officially commence case acceptance this month. To ensure that these three Internet Courts adjudicate cases fairly and efficiently, the Supreme People’s Court, after conducting thorough research and extensively soliciting opinions, has drafted the relevant Regulations.

The Regulations comprise 23 articles, setting forth the jurisdictional scope of Internet courts, the appellate mechanism, and requirements for the development of litigation platforms. They also clarify online litigation procedures, including identity authentication, case filing, response to lawsuits, evidence submission, court hearings, service of process, electronic signatures, and case archiving. These provisions are of great significance for realizing “online dispute resolution through online adjudication” and advancing the rule of law in cyberspace governance. The Regulations primarily cover four key areas:

First, the scope of jurisdiction for such cases is clearly defined. Internet courts exercise centralized jurisdiction over specific types of internet-related cases that, under the law, would ordinarily fall within the purview of basic people’s courts in the relevant city. These primarily include: disputes arising from online shopping and service contracts; disputes over internet‑based financial loans and small‑amount loan contracts; disputes concerning ownership and infringement of internet‑related copyright; domain name disputes; tort liability disputes involving the internet; product liability disputes related to online purchases; public interest litigation brought by the procuratorial organs that pertains to the internet; administrative disputes arising from the administration of internet affairs; and other civil and administrative internet‑related cases designated for jurisdiction by higher people’s courts. These cases are characterized by distinct internet‑specific features, with evidence predominantly generated and stored online, making them well suited for online adjudication—thereby facilitating litigation while also contributing to the development of rules governing internet governance through judicial decision‑making.

Second, an online adjudication mechanism has been established. The Regulations draw extensively on the Hangzhou Internet Court’s experience in conducting online proceedings, stipulating that online adjudication shall be the fundamental principle for internet courts. Accordingly, procedural stages—including case filing, service of process, mediation, exchange of evidence, pre-trial preparation, court hearings, and judgment—should, as a general rule, be conducted entirely online. This provision helps foster the deep integration of judicial practices, litigation rules, and internet technologies, thereby maximizing convenience for parties and enhancing judicial efficiency, and meeting the new demands and expectations of the public in the internet era.

Third, an online litigation platform has been established. The Regulations stipulate that Internet courts shall build a litigation platform to serve as a dedicated portal for handling cases and for parties and other participants in the proceedings to carry out their litigation activities. Leveraging this platform, Internet courts provide open data interfaces, enabling the orderly integration of case-related data from relevant e‑commerce platform operators, network service providers, and pertinent state agencies. On the basis of robust system security and technological neutrality, the platform facilitates online identity verification, online evidence collection, and online information exchange, thereby fostering a networked, multi‑dimensional, and intelligent model of internet‑based adjudication.

Fourth, the online litigation rules have been refined. Within the framework of the current Civil Procedure Law and grounded in the latest advances in internet technology and the fundamental characteristics of electronic litigation, the Regulations seek to establish a set of online litigation rules that both uphold judicial principles and keep pace with contemporary trends. They introduce numerous significant innovations in areas such as online trial procedures and electronic service of process, thereby providing institutional support for Internet courts to deepen reform and innovation.

Draft Civil Code Released; Experts Say It Improves the System of Marital Joint Debt

On September 5, the draft provisions of the Civil Code’s various sub‑sections were published on the website of the National People’s Congress of China, inviting public comments. The deadline for submitting feedback is November 3, 2018.

“The issue of marital joint debt has sparked considerable controversy in recent years, yet the current draft does not yet introduce any substantive changes to the existing provisions on marital joint debt under the Marriage Law. In January this year, the Supreme People’s Court issued a judicial interpretation on matters related to marital debt, which has yielded positive results in practice,” said Li Shigang, a professor at the School of Law of Fudan University. “I suggest incorporating the experience gained from this judicial interpretation into the draft Civil Code to further refine the system governing marital joint debt.”

At the Fifth Session of the Standing Committee of the 13th National People’s Congress held recently, draft provisions of the various parts of the Civil Code were deliberated. During the group deliberations, many members of the Standing Committee likewise proposed incorporating relevant judicial interpretations of the Supreme People’s Court into the draft, thereby clarifying the principle of “joint debt and joint signature” for marital debts.

“‘Joint debt, joint signature’ is in line with the fundamental principles of equality and mutual respect in Chinese families and between spouses. For large‑scale debts incurred outside the scope of daily family life, both spouses should consult one another and obtain their joint consent before such debts can be recognized as joint liabilities,” said Tan Lin, a member of the National People’s Congress Environmental Protection and Resource Conservation Committee who attended the meeting as an observer.

The draft separate sections of the Civil Code, which are open for public comment, comprise six parts: Property Rights, Contracts, Personality Rights, Marriage and Family, Inheritance, and Tort Liability, totaling 1,034 articles. These drafts represent a comprehensive and systematic codification and revision of China’s existing civil laws, including the General Provisions of the Civil Law, the Property Law, and the Marriage Law. The submission of these draft sections to the Standing Committee of the National People’s Congress for deliberation marks the second stage in the compilation of China’s Civil Code.

It is reported that the general public may submit their comments directly by logging onto the website of the National People’s Congress of China (www.npc.gov.cn), or by mailing their views to the Legislative Affairs Commission of the Standing Committee of the National People’s Congress (No. 1, Qianmen West Street, Xicheng District, Beijing, Postal Code: 100805), with “Solicitation of Comments on the Draft Sub‑sections of the Civil Code” clearly marked on the envelope.

In addition, the draft Regulations on Fire Service Ranks for Comprehensive Fire and Rescue Teams, the draft Law on Vehicle Acquisition Tax, the second‑reading draft amendment to the Criminal Procedure Law, and the draft Law on Cultivated Land Occupation Tax were all published on the website of the National People’s Congress of China starting on the 5th, with public comments solicited. The deadline for submitting comments on these four drafts is October 4, 2018.

China’s first Law on the Prevention and Control of Soil Pollution will come into effect in 2019, ensuring that the public can eat with confidence and live in peace.

The Fifth Session of the Standing Committee of the 13th National People’s Congress adopted the Soil Pollution Prevention and Control Law of the People’s Republic of China. This marks the first time China has enacted a dedicated law to regulate soil pollution prevention and control, and the law will come into effect on January 1, 2019.

Enacting the Soil Pollution Prevention and Control Law and safeguarding the soil environment in accordance with the law is a vital public‑welfare initiative that ensures the people can “eat with confidence and live in peace.” At a press conference held by the General Office of the Standing Committee of the National People’s Congress, Zhang Guilong, Deputy Director of the Administrative Law Division of the Legislative Affairs Commission of the NPC Standing Committee, stated that this law was specifically designed to guarantee and realize the people’s right to safe food and secure housing.

He explained that soil pollution differs significantly from air and water pollution: first, it is more insidious—while air and water pollution are readily apparent and can be detected by human senses, soil contamination requires sampling and laboratory analysis to be identified; second, it exhibits a lag effect—contaminants in the soil do not become evident immediately; international experience shows that such effects typically emerge only after a decade or even longer; and third, it is cumulative—over time, pollutants accumulate to levels at which they begin to exert their harmful impacts.

Zhang Guilong stated that China’s Environmental Protection Law and other relevant statutes set forth certain requirements for preventing and controlling soil pollution; however, these provisions are relatively general and fragmented, with a strong emphasis on prevention. As for how to remediate existing soil contamination, further regulatory frameworks are still needed. Therefore, it is imperative for China to enact dedicated legislation to standardize the prevention and control of soil pollution.

The Law on the Prevention and Control of Soil Pollution comprises seven chapters and ninety-nine articles. The law stipulates that soil pollution prevention and control shall adhere to the principles of prioritizing prevention, giving precedence to protection, implementing categorized management, exercising risk-based control, holding polluters accountable, and ensuring public participation.

With regard to the prevention and protection of soil pollution, the law stipulates that the ecological and environmental authorities of local people’s governments at or above the prefectural level shall, in accordance with the regulations of the State Council’s ecological and environmental authority and based on factors such as the discharge of toxic and hazardous substances, compile a list of key supervised entities for soil pollution within their administrative areas, make it publicly available, and update it as appropriate. The law also strengthens the management of agricultural inputs to reduce non-point source pollution in agriculture and enhances the protection of uncontaminated soils and unused land.

To ensure safe food and secure housing, the law sets out distinct requirements for the risk management and remediation of soil contamination on agricultural land and construction land.

The law stipulates that the State shall establish a classified management system for agricultural land. Based on the degree of soil contamination and relevant standards, agricultural land shall be categorized into priority protection, safe utilization, and strict control classes. For each category, the law prescribes distinct management measures and sets out corresponding requirements for risk control and remediation.

The law stipulates that the State shall implement a catalog system for the risk control and remediation of soil contamination on construction land. It sets forth the conditions and procedures for entering and exiting sites subject to catalog management, as well as the risk control and remediation measures that must be adopted. Furthermore, in accordance with the law, any site listed in the catalog for the risk control and remediation of soil contamination on construction land may not be used for residential purposes or for public administration and public service uses.

In addition, the law prescribes detailed penalties for unlawful acts.

Zhang Guilong stated that the promulgation and implementation of the Soil Pollution Prevention and Control Law represent a concrete step in carrying out the CPC Central Committee’s decisions and arrangements on soil pollution prevention and control. It also helps to further improve China’s distinctive legal system, particularly the legal framework for ecological and environmental protection and pollution prevention and control, while providing robust legal safeguards for advancing soil pollution prevention and control efforts and steadily winning the battle to protect clean land.

Other

In addition to Meituan and Haidilao, Hong Kong stocks will see three star companies go public in September.

Hong Kong stocks will welcome three more star companies to the market in September. According to the relevant plans, Meituan, Haidilao, and China Renaissance are set to list on the Hong Kong Stock Exchange this month.

Meituan went public at a massive loss—will it repeat Meitu’s fate?

Following Xiaomi, the Hong Kong Stock Exchange is set to welcome its second “unicorn” company with a dual-class share structure. According to information obtained by this reporter, Meituan Dianping, which is slated to list on the HKEX this month, has finalized five cornerstone investors—including Tencent, Oppenheimer, Lansdowne, Darsana, and Chengtong Fund—totaling US$1.5 billion in commitments. Tencent is expected to subscribe for approximately US$400 million. The IPO pricing range has also been set at HK$60–HK$72 per share, corresponding to a valuation of HK$357.5 billion–HK$429 billion (roughly US$45.5 billion–US$54.7 billion). The company is scheduled to debut on the Hong Kong Stock Exchange on September 20, 2018.

The prospectus shows that Meituan generates revenue through commissions, online marketing services, and other services and sales. Total operating revenue increased from RMB 4.0 billion in 2015 to RMB 13.0 billion in 2016, a growth rate of 223.2%. In fiscal year 2017, total revenue reached RMB 33.9 billion, up 161.2% year over year.

However, despite a substantial increase in revenue, losses persisted. From 2015 to 2017, the adjusted net losses amounted to RMB 5.9 billion, RMB 5.35 billion, and RMB 2.85 billion, respectively, with cumulative losses totaling RMB 14.1 billion.

At present, Meituan’s narrative still revolves around user traffic. For instance, as of the end of 2017, it had 310 million annual transacting users, 4.4 million annual active merchants, a total transaction value of RMB 357 billion, and 289 million monthly active users—metrics that are central to valuing companies in the new economy.

However, Meituan did not choose what would have been the optimal timing for its IPO. Similar to Meituan, Meitu—once hailed as the second-largest “internet” company to list on the Hong Kong stock exchange after Tencent—reported adjusted net losses of RMB 2.3 million, RMB 112.3 million, and RMB 710.5 million for the fiscal years 2013–2015. Without a compelling narrative around user traffic, even its ability to successfully go public would have remained in doubt.

However, Meitu’s “key metrics” look impressive: its six core apps have amassed a total of 1.1 billion users, with 465 million monthly active users. Yet, according to the company’s 2018 interim report, its key metrics began to show a month-over-month decline in monthly active users, falling 15.9% to 350 million—a loss of 66 million users over six months. Monthly active users across all major apps, including Meitu Xiuxiu, Meipai, and MeituCam, dropped, with the short‑video app Meipai experiencing a 56% plunge.

Meitu’s market capitalization has plummeted from a peak of nearly HK$100 billion to just HK$18 billion today, a decline of nearly 82%.

Meanwhile, the narrative that Meituan has built around its traffic is playing out as its businesses—whether in mobility, food delivery, or hotel and travel—are all grappling with intense competition in their respective sectors.

For example, the hotel and travel sector is under intense pressure from Ctrip; in the dining space, Ele.me—wholly acquired by Alibaba—along with Baidu Nuomi and its food-delivery service, and Didi, which has entered the market as a disruptor with Didi Food Delivery, are all pouring massive investments into vying for market share. Meanwhile, in the mobility sector, Meituan Taxi has yet to gain significant traction, while Didi Taxi continues to hold the dominant position.

Haidilao has abandoned the “greenshoe option” to support its share price and is expected to list on September 27.

Unlike Meituan, which went public while still posting losses, Haidilao has relied on its strong financial performance to justify its valuation. According to its prospectus, as of the end of 2017, Haidilao’s revenue exceeded RMB 10.6 billion, with a compound annual growth rate of 35.9%, and its net profit reached RMB 1.194 billion. The restaurant chain boasts a table turnover rate of roughly five times per day and serves more than 100 million customers annually. As of June 30, 2018, its revenue stood at RMB 7.243 billion, with net profit climbing to RMB 647 million.

Haidilao launched an analyst roadshow on September 3 and officially listed on the Hong Kong Stock Exchange on September 27. According to market sources, the company’s IPO pricing range is set at US$9 billion to US$12 billion, corresponding to a price-to-earnings ratio of 22 to 28 times its projected 2019 net profit.

As the first domestic catering company to post annual revenues exceeding RMB 10 billion, Haidilao Chairman Zhang Yong has decided to forgo the “greenshoe option” in its IPO. The greenshoe option, a common market‑stabilization mechanism, helps maintain share price stability after a large‑cap stock’s listing and prevents sharp volatility; Xiaomi and Meituan both employed the greenshoe to support their stock prices.

In a peer comparison, Xipubuxibu, which went public four years before Haidilao, has seen its share price steadily climb—from an IPO price of HK$4.7 to the current level of HK$12.3, representing an increase of approximately 161.7%. Its current market capitalization stands at HK$13.2 billion.

According to the prospectus, Haidilao plans to open 180 to 220 new restaurants in 2018, with 60% of the proceeds from this IPO earmarked for expansion. Moving forward, the company’s primary focus will remain on strategically broadening its restaurant network. As its operations continue to grow, management and food-safety concerns have also begun to surface. In the past, Haidilao has faced negative publicity, including reports of rats scurrying through back kitchens and staff using customers’ hot-pot ladles to clear clogged drains. This year, a self‑inspection announcement on Haidilao’s official website revealed that another 30 outlets had engaged in practices that fell short of food‑safety standards, such as serving expired ingredients, harboring flying insects in multiple kitchen areas, and allowing rodents to frequent ventilation ducts.

In fact, Haidilao itself is acutely aware of the critical importance of food safety. As stated on its official website: “Haidilao could face one of two fates—either a management crisis, which, if it occurs, might drag on for months or even longer; or a food-safety breach, in which case the restaurant could be forced to close as early as tomorrow, with its very survival at stake.”

China Renaissance: The Story of Building “Unicorns”

According to media reports, China Renaissance will set its pricing on September 21, with an IPO valuation range of US$3.0 billion to US$3.5 billion, and is scheduled to officially list on the Hong Kong Stock Exchange on September 28.

On June 25, China Renaissance formally filed its IPO application with the Hong Kong Stock Exchange. According to the prospectus, the office’s adjusted revenue reached US$212 million in 2017, up 47.6% year over year, while adjusted revenue for the first quarter of 2018 stood at US$92.92 million, a sharp 175% increase compared with the same period last year. In terms of net profit, driven by rapid growth in its investment banking and investment management businesses, adjusted net profit for the first quarter of this year surged to US$35.67 million, a 322% year-over-year jump. Both the company’s 2017 revenue and its first-quarter 2018 revenue posted record year-over-year growth rates.

China Renaissance’s platform comprises three core business lines: investment banking, investment management, and Huajing Securities, a domestically‑licensed securities joint venture.

According to the prospectus, as of March 31, China Renaissance had provided advisory services for approximately 700 transactions totaling over US$100 billion. Its investment management business oversees assets of roughly US$4.1 billion, and its clients include iQIYI, Jumei, Baidu, Alibaba, JD.com, Didi, Meituan, and others.

The company stated in its prospectus, “As of December 31, 2017, among the top 20 Chinese new‑economy companies by market capitalization or valuation, 15 were our clients, and our unicorn clients accounted for 56% of the total market value of all Chinese unicorns.”

Opinions on ensuring stable natural gas supply have been released, with a production target of 200 billion cubic meters.

On September 5, in order to accelerate the development of a comprehensive natural gas production‑supply‑storage‑sales system and promote the coordinated and stable growth of the natural gas sector, the State Council issued the “Several Opinions on Promoting the Coordinated and Stable Development of Natural Gas” (hereinafter referred to as the “Opinions”). The Opinions stipulate that all oil and gas enterprises shall substantially increase investment in domestic exploration and development and expand their operational efforts, ensuring the successful completion of all targets and tasks set forth in the national plan, with the goal of raising domestic natural gas production to over 200 billion cubic meters by the end of 2020.

The Notice states that a multi-tiered gas storage system should be established, with underground gas storage facilities and coastal liquefied natural gas (LNG) receiving terminals as the main components, supplemented by intensive, large-scale inland LNG storage tanks in key regions, and supported by an interconnected pipeline network. By 2020, gas supply companies are required to develop gas storage capacity of no less than 10% of their annual contracted sales volume.

Wang Wei, a public utilities and environmental analyst at Everbright Securities, stated that the rapid growth in natural gas consumption is putting pressure on peak‑season demand‑side balancing. Against this backdrop, proactively advancing the development of a comprehensive natural gas production‑supply‑storage‑sales system, increasing LNG imports, and accelerating domestic offshore natural gas and onshore unconventional oil and gas exploration and development will remain the industry’s primary priorities going forward. Along this value chain, upstream gas suppliers, equipment manufacturers, and city‑gas companies with access to gas supplies are likely to benefit.

The Opinions state that the natural gas pricing mechanism must be streamlined. The plan to rationalize residential gas gate‑station prices should be fully implemented, and residential gas sales prices should be set appropriately. All regions are required to adopt measures to provide appropriate subsidies to low-income households in both urban and rural areas.

On September 5, Sun Lei, a natural gas analyst at JLC, stated that if residential gas prices are to be adjusted in 2018, such adjustments should, in principle, be completed by the end of August. Against this backdrop, numerous provinces have successively revised and announced the latest benchmark gate‑station prices for natural gas. The timing of these price hikes—occurring just before the end of August—is linked to China’s ongoing natural gas reform: following the shift from maximum gate‑station price controls to benchmark gate‑station price management, the procurement costs faced by residential gas suppliers have risen to some extent, and the resulting increase in residential gas prices reflects the passing on of these higher costs to consumers.

Sun Lei stated that, following the intensified push to replace coal with gas, residential gas supplies have faced a certain shortfall during winter in recent years. Price mechanisms can help rebalance supply and demand, but adjustments to residential gas prices follow a set timetable and require adherence to prescribed procedures. Given that the National Development and Reform Commission previously indicated that any adjustments to residential gas prices this year should, in principle, be completed by the end of August, it is expected that this round of price hikes will soon come to an end.

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