JC Master Legal News Issue 846

Key Takeaways for This Issue

China Securities Regulatory Commission: Accelerate the Digital Transformation and Development of the Capital Market

On November 21, the Shenzhen Stock Exchange hosted its 2018 Technology Conference in Shenzhen. The event was themed “Technology-Driven: Toward a New Digital Era,” marking the second consecutive year that the exchange has organized an industry‑wide technology conference. In his address at the conference, Vice Chairman Li Chao of the China Securities Regulatory Commission emphasized the need to accelerate the digital transformation and development of the capital market.

State-owned enterprise mixed-ownership reform is accelerating, with nearly 200 mixed-ownership enterprises launching employee stock ownership pilot programs.

Weng Jieming, Deputy Director of the State-owned Assets Supervision and Administration Commission, recently wrote that since the 18th National Congress of the Communist Party of China, the reform of state-owned enterprises toward a mixed‑ownership structure has entered a new phase, characterized by accelerated progress and broader scope. This has yielded a number of replicable and scalable best practices, delivering positive advances and notable results. In August 2016, a pilot program for employee stock ownership in mixed‑ownership enterprises was officially launched, and to date nearly 200 companies nationwide have undertaken this initiative.

The State Taxation Administration has finalized 26 “tough measures” to cut taxes and reduce burdens for private enterprises.

To effectively leverage the tax authorities’ role in supporting and serving the development of the private sector, the State Taxation Administration recently issued the “Notice on Implementing Several Measures to Further Support and Serve the Development of the Private Economy” (hereinafter referred to as the “Notice”), following in-depth research and consultation with all stakeholders.

A Ministry of Finance official stated that work is being expedited on PPP legislation, with the aim of issuing it within the year.

At the Fourth PPP Financing Forum held in Shanghai, Zhou Jinsong, Deputy Director-General of the Department of Laws and Regulations of the Ministry of Finance, stated that PPP legislation is currently a matter of great concern. According to the established work plan and in line with the requirements set forth in State Council documents, efforts are being made to promulgate the legislation before the end of the year. Relevant departments are expediting the legislative process to ensure timely completion of this task. PPP legislation will play a catalytic role in advancing PPP reform.

Evergrande Health Responds to FF Employees’ Lawsuit, Stating It Will Take Action to Protect the Company’s Rights and Interests.

On the evening of November 18, Evergrande Health announced that, on November 17, it learned that certain FF employees, who claim to be shareholders of Faraday Future (FF), had filed a class-action lawsuit in a Los Angeles court, making baseless allegations that Evergrande Health, Shi Ying, and Shi Ying’s representative director had breached their fiduciary duties. The company stated that it will take all necessary measures to safeguard the rights of Evergrande Health and Shi Ying, thereby protecting the interests of the company and its shareholders.

Table of Contents

Table of Contents

Finance & Capital Markets

China Securities Regulatory Commission: Accelerate the Digital Transformation and Development of the Capital Market

CSRC: Share repurchases shall not be used to engage in insider trading.

The China Securities Regulatory Commission has set forth four requirements for the audit of listed companies’ annual reports.

New Third Board companies may find it difficult to list on the STAR Market; hopes rest on incremental reforms.

Corporate & Commercial

State-owned enterprise mixed-ownership reform is accelerating, with nearly 200 mixed-ownership enterprises launching employee stock ownership pilot programs.

The pilot reform of state-owned capital investment and operation companies is entering deeper waters.

The Ministry of Finance is preparing several PPP-related documents, and opinions on standardizing development are expected to be released soon.

The largest pharmaceutical merger in history is set to take place: Shanghai RAAS plans to acquire two companies for nearly 40 billion yuan.

The People’s Bank of China: We must earnestly improve financial services for small and micro enterprises.

Taxation

The State Taxation Administration has finalized 26 “tough measures” to cut taxes and reduce burdens for private enterprises.

Sharp increases in handling fees are eroding insurers’ profits, and the tax‑adjustment plan is expected to take effect next year.

Three departments have issued a document to adjust the preferential tax policy for natural gas imports.

Litigation & Arbitration

A Ministry of Finance official stated that work is being expedited on PPP legislation, with the aim of issuing it within the year.

The Ministry of Finance has issued the Measures for the Administration of Central Financial Funds Supporting the Development of Preschool Education, expanding inclusive educational resources.

Wenzhou will enact a dedicated “Regulations on Dog Ownership,” and legislative research has now been launched.

Other

Evergrande Health Responds to FF Employees’ Lawsuit, Stating It Will Take Action to Protect the Company’s Rights and Interests.

Beilu Pharmaceutical’s announcement of a planned listing on the STAR Market sent its shares surging to the daily limit, prompting an inquiry from the Shenzhen Stock Exchange and raising suspicions of stock-price manipulation.

Finance & Capital Markets

China Securities Regulatory Commission: Accelerate the Digital Transformation and Development of the Capital Market

On November 21, the Shenzhen Stock Exchange hosted its 2018 Technology Conference in Shenzhen. The event was themed “Technology-Driven: Toward a New Digital Era,” marking the second consecutive year that the exchange has organized an industry‑wide technology conference. In his address at the conference, Vice Chairman Li Chao of the China Securities Regulatory Commission emphasized the need to accelerate the digital transformation and development of the capital market.

Li Chao stated that it is essential to deeply recognize the strategic opportunities presented by today’s digital transformation. In recent years, a new wave of scientific and technological revolution and industrial transformation has been taking shape worldwide, driven by modern information technologies such as mobile internet, big data, cloud computing, and artificial intelligence. This digital tide is propelling human society into a new phase of information‑based development. Digitalization and the digital economy are increasingly becoming the commanding heights for countries seeking competitive advantage, while also opening up fresh opportunities for the financial sector and capital markets. First, digitalization is injecting new momentum into economic growth. Second, it is reshaping the competitive landscape of the financial industry. Third, it is ushering in profound changes in the capital markets.

Li Chao pointed out that the China Securities Regulatory Commission (CSRC) is vigorously advancing the digital transformation of the capital market. In recent years, the CSRC has resolutely implemented the decisions and arrangements of the CPC Central Committee and the State Council, proactively adapted to the requirements of the digital economy, and continuously promoted the digitalization of the securities and futures industries. It has earnestly worked to leverage the capital market in supporting the broader digital economy, thereby steadily enhancing the efficiency of resource allocation and the ability of the capital market to serve the real economy. Specifically: first, it has strengthened inter‑agency coordination to facilitate standardized and efficient financing for entities in the digital economy; second, it has advanced the development of industry‑wide infrastructure, laying a solid foundation for digital growth; third, it has encouraged the industry to increase investment in technology, fostering innovative digital applications; and fourth, it has significantly bolstered technology‑driven regulation, elevating the level of technological sophistication and intelligence in regulatory oversight.

Li Chao stated that efforts should be accelerated to advance the digital transformation of the capital market. China’s economy has shifted from a phase of high-speed growth to one of high-quality development and is currently in a critical period of transforming its development model, optimizing its economic structure, and shifting its growth drivers. The entire industry must deeply seize the opportunities presented by the convergence of digitalization, networking, and intelligence, officely strengthen its sense of responsibility and urgency, proactively embrace the concept of digital development, and make concerted efforts to address shortcomings and reinforce weak areas, thereby driving the sector’s digital transformation.

First, it is essential to further strengthen industry-wide strategic planning. At present, the securities and futures sector still lacks an effective top-level blueprint for digital transformation, with issues such as information silos and data gaps remaining particularly acute. The Securities and Futures Commission and industry associations should assume their roles in organization, coordination, and promotion, meticulously devising plans, proactively laying out initiatives, and enhancing integrated planning and resource allocation. We must accelerate data governance, promptly refine industry‑specific digital standards, facilitate data exchange and sharing, and build an open, collaborative ecosystem for digital transformation across the sector.

Second, we must accelerate the research, development, and application of core technologies. Critical core technologies cannot be obtained through requests, purchases, or negotiations. Exchanges and industry organizations should increase R&D investment in the digital sphere, focus on the sector’s pain points and challenges, strengthen technological breakthroughs in key areas and critical links, and swiftly achieve independent control over core and critical technologies.

Third, we must effectively enhance our ability to serve the real economy and investors. Industry institutions should proactively leverage digital technologies to broaden and deepen financial services. In particular, in response to the widespread concerns about financing challenges faced by private enterprises, they should undertake strategic transformation, innovate products, and reengineer processes to deliver more precise, efficient, and cost‑effective financing solutions, enabling a greater number of companies to reap the benefits and conveniences of digitalization. At the same time, by harnessing digital tools, they can better serve clients and strengthen investors’ sense of gain in capital market investments.

Fourth, we must resolutely safeguard the risk bottom line. As the benefits of digitalization continue to unfold, risks such as data security, business continuity, and cyberattacks are becoming increasingly pronounced. Exchanges and industry institutions must strengthen their awareness of the need to stay ahead of emerging risks, enhance their emergency response capabilities for security incidents, and ensure the safety and reliability of trading and production systems. Securities and futures offices should reinforce their data‑security frameworks and internal risk‑control mechanisms, ensuring compliance and controllable risks, thereby promoting the safe and efficient functioning of the capital market.

Li Chao emphasized that the digital wave is surging forward. He expressed the hope that, taking this technology conference as an opportunity, all stakeholders will deepen intellectual exchanges, build broader consensus, proactively align with and implement the national digital development strategy, vigorously advance the digital transformation of the securities and futures industry, and foster high-quality development of the capital market.

CSRC: Share repurchases shall not be used to engage in insider trading.

Recently, the China Securities Regulatory Commission issued a notice on earnestly studying and implementing the “Decision of the Standing Committee of the National People’s Congress on Amending the Company Law of the People’s Republic of China.”

Notice on the Decision, which requires controlling shareholders and actual controllers to actively support listed companies in improving their share‑repurchase mechanisms, and stipulates that all directors shall commit that share repurchases will not impair the listed company’s ability to meet its debt obligations or sustain its ongoing operations.

The Decision of the Standing Committee of the National People’s Congress on Amending the Company Law of the People’s Republic of China (hereinafter referred to as the “Amendment Decision”) was adopted at the Sixth Meeting of the 13th Standing Committee of the National People’s Congress on October 26, 2018. The Amendment further refines the rules governing share repurchases by companies and is of great significance for enhancing the quality of listed companies, strengthening the endogenous stability mechanisms of the capital market, and promoting the sustained and sound development of the capital market. In issuing this notice, the China Securities Regulatory Commission aims to ensure the smooth implementation of the Amendment Decision and to support and regulate the lawful repurchase of shares by listed companies.

The notice clarifies that controlling shareholders and actual controllers of listed companies shall actively support the company in refining its share‑repurchase mechanism and carry out share repurchases in accordance with the law. All directors are required to fulfill their duties and responsibilities, ensuring that share repurchases do not impair the listed company’s ability to meet its debt obligations or sustain its ongoing operations, and that, in principle, the post‑repurchase equity distribution continues to satisfy the listing requirements.

The Amendment Decision sets forth regulatory requirements regarding the decision-making procedures, information disclosure, and methods of share repurchases by listed companies. In carrying out share repurchases, listed companies must comply with the Amendment Decision. The CSRC’s notice outlines relevant considerations, including strict adherence to the conditions for share repurchases and the proper conduct of information disclosure and decision-making procedures.

The notice specifically emphasizes that no one may use share repurchases to engage in insider trading, market manipulation, or other securities‑related violations, nor may they undermine the legitimate rights and interests of the company and its investors through practices such as “transfer of benefits” or “deceptive repurchases.” Prior to the lawful public disclosure of information regarding share repurchases and related matters, listed companies and all relevant parties must ensure proper management of inside information. Unless authorized or approved in accordance with statutory requirements or the company’s articles of association, listed companies and major shareholders shall not disclose any information concerning share repurchases to the public. During the period in which a listed company is conducting a share repurchase, any related shareholders, directors, supervisors, or senior management who reduce their holdings must comply with the relevant regulations on share disposals issued by the China Securities Regulatory Commission and the stock exchanges.

The China Securities Regulatory Commission has set forth four requirements for the audit of listed companies’ annual reports.

Recently, the Shanghai Stock Exchange held its inaugural training session on enhancing the sense of diligence and accountability among intermediary institutions. Attendees included Jia Wenqin, Chief Accountant of the China Securities Regulatory Commission, Que Bo, Deputy General Manager of the Shanghai Stock Exchange, and other senior officials. The training was attended by 75 certified public accountants from 38 accounting offices.

Jia Wenqin stated that the development of the capital market and the growth of securities‑qualified accounting offices are inextricably linked and mutually reinforcing. The expansion and institutional innovation of the certified public accountant profession have significantly enhanced the quality of accounting information in the capital market, playing a foundational role in safeguarding its healthy and stable development; meanwhile, the robust growth of the capital market has, in turn, propelled the prosperity and advancement of the CPA profession.

She also stated that the China Securities Regulatory Commission attaches great importance to the regulation and support of accounting offices qualified to audit securities, noting that these offices have continuously strengthened their internal governance and quality‑control systems, thereby steadily enhancing their capacity to serve the capital market. At the same time, however, accounting offices still face certain challenges in areas such as quality control, risk assessment, and the implementation of specific professional procedures.

Jia Wenqin set forth four key requirements for the upcoming 2018 annual audit of listed companies: First, fully recognize the impact of one’s own role on investor protection and earnestly assume the responsibility of gatekeeper for the quality of accounting information; second, thoroughly understand the professional risks inherent in the capital market and strengthen the quality‑control system; third, reinforce the execution of critical audit procedures and conduct audits in key areas, maintaining professional skepticism and the requisite degree of professional care; and fourth, ensure that audit work is carried out effectively in connection with the implementation of the new enterprise accounting standards.

Que Bo stated that accounting offices qualified to audit securities are key participants in the capital market and play a vital role in upholding the principles of fairness, justice, and openness. He set forth specific requirements for these offices: First, they must elevate their political awareness and strictly adhere to professional ethics. Second, they should clearly define their objectives and functions and proactively accept oversight. Each office is urged to thoroughly review and reflect on past penalties, draw lessons from them, and take heed; they must willingly submit to supervision, strengthen their risk‑prevention awareness, reduce violations, and work together to foster a clean and upright market environment. Third, they must uphold ethical standards and reinforce their sense of responsibility. As the Shanghai Stock Exchange launches the STAR Market and pilots the registration‑based IPO system—among other capital‑market reforms—accounting offices should fully fulfill their role as gatekeepers of financial information and enhance their capacity to serve the capital market.

The steady development of the capital market hinges on the concerted efforts of intermediary institutions, including accounting offices. The Shanghai Stock Exchange will proactively fulfill its frontline regulatory responsibilities, leveraging information disclosure as a key lever, balancing oversight with service, and working hand in hand with all market participants to jointly shoulder the era‑defining mission of reform and innovation in the capital market.

New Third Board companies may find it difficult to list on the STAR Market; hopes rest on incremental reforms.

The conofficeation of the STAR Market’s establishment has struck a nerve among companies on the New Third Board that are considering an IPO, signaling that, in addition to traditional A-share listings and Hong Kong‑listed offerings, high‑quality, technology‑driven offices on the NEEQ now have yet another route to go public. However, industry insiders remain skeptical about NEEQ‑listed companies making the leap to the STAR Market. Peng Hai, chief analyst for the New Third Board at LX Securities, notes that next year the STAR Market is expected to focus on technology‑ and innovation‑oriented enterprises, with stringent listing requirements—making it difficult for NEEQ‑listed offices to qualify under the pilot registration‑based system.

Another market participant stated bluntly: “The STAR Market is positioned to support technological innovation and serves as a pilot for the exchange‑based registration system. Its primary focus is on fostering tech innovation and implementing the registration regime; however, it is highly unlikely that the registration system will be rolled out on a large scale. Consequently, under this pilot framework, navigating the STAR Market’s listing process is no less challenging than pursuing a conventional IPO—and may even be more difficult.”

At present, as the backlog of IPO applications in the A-share market is gradually easing, expectations for companies planning to go public are strengthening, and the waiting period is being significantly shortened. Consequently, the conventional IPO route will continue to be the primary pathway for New Third Board‑listed companies seeking an IPO.

According to Wind data, there are currently 39 companies listed on the New Third Board awaiting IPO approval, accounting for 16.8% of the total number of companies in line. From the beginning of this year through November 21, a total of 37 New Third Board‑listed companies have submitted their IPO applications for review, with 19 receiving approval, resulting in an approval rate of 51.35%.

Beyond the conventional IPO route in the A-share market, regarding companies listed on the New Third Board seeking a listing on the Hong Kong Stock Exchange, Peng Hai acknowledged, “The HKEX anticipates that there will be cases of ‘New Third Board + H,’ but such listings must still meet the mainboard listing requirements. Although listing costs on the HKEX are lower than those for A-shares, they remain substantial. Moreover, the overall price‑earnings ratio at issuance is not particularly high, and the overall scale is unlikely to expand significantly.”

“Corporate IPOs will likely follow this year’s trajectory, but if the New Third Board were to introduce public offerings of its own, given this year’s approval rate, many listed companies could continue to grow on the board,” said Peng Hai.

Some market participants expect that the New Third Board will inevitably introduce further incremental reforms, with particular anticipation for measures such as refining the tiered structure to establish a Select Tier and introducing complementary policies on equity issuance.

Commercial & Corporate

State-owned enterprise mixed-ownership reform is accelerating, with nearly 200 mixed-ownership enterprises launching employee stock ownership pilot programs.

Weng Jieming, Deputy Director of the State-owned Assets Supervision and Administration Commission, recently wrote that since the 18th National Congress of the Communist Party of China, the reform of state-owned enterprises toward a mixed‑ownership structure has entered a new phase, characterized by accelerated progress and broader scope. This has yielded a number of replicable and scalable best practices, delivering positive advances and notable results. In August 2016, a pilot program for employee stock ownership in mixed‑ownership enterprises was officially launched, and to date nearly 200 companies nationwide have undertaken this initiative.

Weng Jieming also noted that, at present, the majority of high-quality assets held by state-owned enterprises have been subject to mixed‑ownership reform. By the end of 2017, among the total assets of 54.5 trillion yuan held by central SOEs under the supervision of the State-owned Assets Supervision and Administration Commission of the State Council, roughly 65% had been listed on stock exchanges, a significant increase from 54% at the end of 2012. At the local level, in some provinces, more than 45% of the total assets of state-owned enterprises have been incorporated into listed companies. In addition to broadening the scope of mixed‑ownership reform, SOEs have also sought to better align with market realities by substantially increasing the degree of mixed ownership among frontline, highly competitive enterprises.

Meanwhile, Wang Jeming stated that, in light of the distinct circumstances of Category I and Category II commercial enterprises, the pace, progress, and approaches to mixed‑ownership reform should be determined appropriately. State‑owned commercial enterprises whose core businesses operate in highly competitive industries and sectors should vigorously advance mixed‑ownership reform, aligning with the requirements for optimizing the layout and structure of state capital to ensure prudent entry and exit. Pilot programs for mixed‑ownership reform in key areas should be further deepened, with full and effective utilization of supporting policies. Local state‑owned enterprises, in accordance with the directives set forth in central policy documents, should differentiate among various situations and, based on actual conditions, move forward with mixed‑ownership reform.

Mixed‑ownership reform should be advanced at different levels of enterprises: prioritizing the orderly implementation of such reform at the subsidiary level, exploring the prudent rollout at the group‑company level for enterprises that meet the requisite conditions, and ensuring coordinated planning to prevent the layered diversification of equity within an enterprise from unduly complicating management.

With the “1+N” framework for state‑owned asset and enterprise reform now largely finalized, both the reform pathways and the overall structure have been clearly defined. While each reform initiative has its own priorities, they are also interconnected; therefore, it is essential to coordinate their intrinsic linkages and pacing, draw on one another’s strengths, and foster mutual reinforcement, advancing them in a systematic and well‑aligned manner. This will help maximize the multiplier effect of SOE reform and ensure that reforms are effectively implemented.

It is necessary to coordinate and implement various reform pilot programs. In enterprises undergoing mixed‑ownership reform, pilots should be carried out to institutionalize board powers, adopt market‑based recruitment of management personnel, introduce differentiated compensation systems, and implement employee stock ownership schemes, thereby ensuring the effective implementation of mixed‑ownership reform mechanisms. Pilot state‑owned capital investment and operation companies should also prioritize advancing mixed‑ownership reform among their subsidiaries, enhance capital liquidity, and continuously refine organizational structures and operational models.

Enterprises participating in the “Double Hundred Initiative” are expected to proactively advance mixed‑ownership reform, attract diverse forms of capital to drive corporate growth, make full and effective use of the reform toolkit and policy package, deliver a coordinated set of reform measures, and cultivate leading enterprises that serve as vanguards of state‑owned enterprise reform.

Pilot programs for comprehensive reform of regional state-owned assets and enterprises should prioritize mixed‑ownership reform, strengthen coordination across foundational and critical sectors, and adopt integrated measures to advance the reform of regional SOEs. Concrete policies that support mixed‑ownership reform should be introduced to establish “regional hubs” for SOE reform. In pilot initiatives such as building world‑class model enterprises and carrying out comprehensive reforms of central SOEs in Northeast China, mixed‑ownership reform must also be systematically planned and given high priority, ensuring the timely and high‑quality rollout of a number of leading examples of mixed‑ownership reform.

It is necessary to further intensify opening-up in key sectors, systematically expanding the scope and areas open to non‑state capital and deepening both the breadth and depth of such openness. Moreover, the number of pilot enterprises undertaking mixed‑ownership reform in these priority sectors should be substantially increased, with more offices selected to participate in pilot programs. At the same time, the scale and hierarchical level of pilot enterprises should be expanded by choosing a group of higher‑tier, larger‑scale entities in key sectors to carry out mixed‑ownership reforms, thereby strengthening the momentum of reform, achieving more tangible results, and generating more far‑reaching impacts.

The pilot reform of state-owned capital investment and operation companies is entering deeper waters.

On November 19, the Office of the State Council Leading Group for State-Owned Enterprise Reform convened a symposium on state‑owned capital investment and operation companies to thoroughly study and implement Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era, carry out the decisions and arrangements of the CPC Central Committee and the State Council, summarize and share experiences from the pilot reforms of these companies, and deliberate and outline the next phase of reform tasks.

Xiao Yaqing, Director of the State-owned Assets Supervision and Administration Commission, pointed out that launching pilot programs for state‑owned capital investment and operation companies is a key measure to implement the decisions and arrangements of the CPC Central Committee and the State Council, a crucial step in reforming the authorized‑management system for state‑owned capital, an important component of deepening state‑owned enterprise reform, an effective means of promoting structural adjustments in the layout of the state‑owned economy, and a vital initiative for strengthening oversight of state assets with a focus on capital management. These efforts are of major significance to the overall reform of state‑owned enterprises. Since the Third Plenary Session of the 18th CPC Central Committee, central enterprises and local state‑owned enterprises have each carried out pilot projects for state‑owned capital investment and operation companies, conducting extensive explorations and practical experiments in areas such as institutional frameworks, mechanisms, and business models. They have achieved positive results in areas including delegation of authority, organizational structure, operational modes, management mechanisms, and Party building, thereby accumulating valuable experience.

Xiao Yaqing emphasized the need to earnestly implement General Secretary Xi Jinping’s important expositions on state‑owned enterprise reform throughout every stage and aspect of the pilot program, and to unswervingly advance the pilot work on state‑capital investment and operation companies, ensuring that it continues to deepen. In accordance with the requirements of the State Council symposium on SOE reform, it is essential to keep the pilot project on the right track, further strengthen the sense of responsibility and urgency in carrying out the pilot, and use concrete actions to solidly push forward all aspects of the work. We must further expand the scope of the pilot, promote comprehensive reforms, and more effectively stimulate the internal vitality and development momentum of enterprises. We should intensify efforts to delegate authority and empower enterprises, truly uphold their status as market entities, while at the same time ensuring the standardized and efficient operation of state capital. We need to build more market‑oriented, professional platforms to better serve the real economy and fully leverage their leading and driving role in deepening supply‑side structural reform and promoting high‑quality economic development. Moreover, we must refine supporting policies to provide robust safeguards for the pilot program, and strengthen efforts to summarize and distill lessons learned, so as to promptly develop replicable and scalable experiences and models.

At the meeting, relevant departments and bureaus of the State-owned Assets Supervision and Administration Commission of the State Council reported on the progress of the pilot program for state‑owned capital investment and operation companies. Representatives from COFCO Group, SDIC, China Chengtong, Shanghai Guosheng (Group), Shandong Guotou, Guangdong Yuehai Group, Chongqing Yufu Group, Shanxi Guotou, and other enterprises shared updates on their pilot initiatives. Members of the Leading Group for State‑Owned Enterprise Reform under the State Council, selected pilot enterprises engaged in state‑owned capital investment and operation, as well as responsible officials from the Ministry of Finance, relevant departments and bureaus of the SASAC, and the SASACs of provinces, autonomous regions, municipalities directly under the central government, separately listed cities, and the Xinjiang Production and Construction Corps, attended the meeting.

The Ministry of Finance is preparing several PPP-related documents, and opinions on standardizing development are expected to be released soon.

On November 22, Jiao Xiaoping, Director of the Ministry of Finance’s PPP Center, revealed that the Ministry of Finance, in coordination with the Ministry of Justice, will expedite the issuance of a PPP regulation to standardize top-level design and accelerate the development of a unified market. At the same time, the Ministry of Finance is set to release a series of policy guidelines to regulate PPP development, along with additional measures aimed at increasing the share of private enterprises’ participation in PPP projects through PPP funds. He made these remarks at the “2018 Fourth China PPP Financing Forum,” co-hosted that day by the Ministry of Finance’s PPP Center and the Shanghai Financial Industry Association.

Jiao Xiaoping stated that the relevant guidelines convey several key signals: first, PPP expenditure obligations within the legally compliant 10% cap do not constitute hidden debt; second, to facilitate oversight, public scrutiny, and the smooth operation of projects, the Ministry of Finance will, based on the current situation, endeavor to draw up a clear list of both permitted and prohibited practices, ensuring that all parties have concrete, actionable guidance; third, PPPs will be given priority in development, with specific priority sectors clearly identified; and fourth, the 10% threshold must absolutely not be breached.

PPP reform represents a systemic and institutional transformation aimed at modernizing national governance, with notable results. According to data from the National PPP Information Platform, as of the end of October 2018, over the past five years, 4,302 projects nationwide have been signed and implemented, mobilizing RMB 6.6 trillion in investment and covering 19 sectors, including municipal works, transportation, and environmental protection.

PPP reform has opened up new opportunities and broadened horizons for private enterprises. As of the end of October, among the 7,029 social capital entities participating in PPP projects, private, Hong Kong, Macao, Taiwan‑based, and foreign‑invested offices accounted for 48% of the total. In sectors such as wastewater and waste treatment—where market access was liberalized early and return mechanisms are well defined—private, Hong Kong, Macao, Taiwan‑based, and foreign‑invested offices represented 82% of all investments.

Jiao Xiaoping stated that, in the next phase, policy efforts will be intensified to bolster the confidence of social capital investors. Specifically: First, the mechanisms for utilizing central special funds will be refined, with greater coordination and consolidation of fiscal resources to guide local governments in optimizing their investment structures. Second, insurance funds and China’s PPP funds will step up equity investments in projects, broadening sources of project equity capital and encouraging the revitalization of existing assets through equity transfers, asset transactions, and asset securitization, thereby diversifying channels for social capital to enter and exit. Third, a level playing field will be fostered for private enterprises, with increased efforts to recommend high‑quality projects to them. Moving forward, the Ministry of Finance will introduce a series of policies to raise the share of PPP fund investments allocated to projects involving private-sector participation. Fourth, government oversight and service capabilities will be enhanced, with a focus on improving market efficiency; the Ministry’s information platform will undergo a comprehensive overhaul to strengthen regulatory functions, information disclosure, and market‑oriented services, ensuring that PPP project investments are both liberalized and effectively managed, thus breaking the vicious cycle of “liberalization leads to disorder, regulation stifles growth.” Fifth, international cooperation will be deepened to promote investment in Belt and Road Initiative projects.

The largest pharmaceutical merger in history is set to take place: Shanghai RAAS plans to acquire two companies for nearly 40 billion yuan.

On the evening of November 22, Shanghai RAAS announced its plan to acquire GDS, the undisputed global leader in blood‑testing, for approximately US$5 billion through a share‑swap transaction. As part of the deal, the company will bring GDS’s original shareholders—namely the international blood‑products giant Grifols—on board as strategic investors. At the same time, Shanghai RAAS also intends to acquire Biotest, a German multinational blood‑products office with a 70‑year history and a fully integrated value chain, for roughly €589 million. Together, these two transactions are valued at nearly RMB 40 billion; if completed, they would constitute the largest pharmaceutical M&A deal in history.

According to the announcement, the target assets in this major asset restructuring were originally 100% of the equity interest in Tiancheng International, whose core subsidiaries include the United Kingdom‑based Bio Products Laboratory Holdings Limited (“BPL”) and Biotest AG, a wholly owned subsidiary of Tiancheng (Germany) Pharmaceutical Holdings AG (“Tiancheng Germany”). Both BPL and Biotest are manufacturers and distributors of blood‑derived products, primarily offering three major product categories: human serum albumin, immunoglobulins, and coagulation factors.

However, all of BPL’s plasma collection facilities are located in the United States. Given the recent escalation in U.S.-China trade tensions, the review by the Committee on Foreign Investment in the United States (CFIUS) that BPL has submitted remains unresolved, and the likelihood of passing such a review remains uncertain.

Accordingly, Shanghai RAAS has announced its intention to temporarily abandon the acquisition of BPL and instead proceed with the acquisition of Biotest. At the same time, it plans to issue shares to Spain’s Grifols, S.A. (hereinafter referred to as “Grifols”) in exchange for 100% of the equity interest in its wholly owned subsidiary, Grifols Diagnostic Solutions Inc. (hereinafter referred to as “GDS”), thereby bringing Grifols, a leading global player in the blood products industry, on board as a key strategic shareholder of Shanghai RAAS.

Shanghai RAAS believes that this acquisition of Biotest will facilitate deeper collaboration between the two companies, leveraging synergies in areas such as R&D, manufacturing and sales, and operational management. On the one hand, by acquiring Biotest’s blood‑product‑related operating assets, the company will expand its market scale; on the other hand, by obtaining shares in GDS, it will enter the blood‑testing market and strengthen its industrial‑chain coverage.

Another acquisition target, GDS, is a wholly owned subsidiary of QiLiFu and a blood‑testing company specializing in the production of immunoassay instruments and reagents. GDS’s core business encompasses nucleic acid testing, immunological antigen assays, and blood‑group typing in transfusion medicine. Shanghai Laishi stated that restructuring with GDS will significantly strengthen the company’s capabilities and industry standing in the blood‑testing market, while also addressing the domestic market’s shortcomings—namely, a limited product portfolio and relatively low technological sophistication.

According to management’s financial statements, as of September 30, 2018, GDS and its subsidiaries reported total consolidated assets of approximately US$4.0 billion (equivalent to roughly RMB 27.5 billion). For the first three quarters of 2018, main business revenue totaled approximately US$570 million (about RMB 3.8 billion), while EBITDA for the same period was approximately US$270 million (around RMB 1.8 billion).

In 2017, Shanghai RAAS reported a net profit of RMB 832 million. However, in the first three quarters of 2018, it posted a massive loss of RMB 1.295 billion due to stock‑market investments. The company now forecasts a full‑year 2018 net loss of approximately RMB 1.212 billion to RMB 961 million. As of the third quarter, its net increase in cash and cash equivalents stood at a negative RMB 518 million. With this bold move—announcing an acquisition worth nearly RMB 40 billion—where will the funds come from?

With respect to the transaction structure, Shanghai RAAS stated that the listed company intends to acquire 100% of the target assets’ equity through the issuance of shares and/or cash payments, with the specific price to be determined through separate negotiations among the relevant parties.

According to preliminary negotiations between the listed company and the counterparty, the 100% equity interest in Tiancheng Germany is expected to be valued at approximately EUR 589 million (equivalent to roughly RMB 4.8 billion), while the 100% equity interest in GDS is expected to be valued at approximately USD 5 billion (equivalent to roughly RMB 34.3 billion).

Notably, this overseas acquisition comes against the backdrop of the China Securities Regulatory Commission’s introduction of its strictest-ever suspension-and-resumption regime. Shanghai Laishi has been under a prolonged trading halt since the market opened on February 23, 2018. The company stated that, as the proposed major asset restructuring is still undergoing ongoing deliberations and due diligence and has not yet been finalized, its shares will resume trading no later than December 7, 2018. “Should the company fail to convene a board meeting to review and disclose the restructuring plan before the suspension period expires, it will terminate this major asset restructuring.”

On November 6, the China Securities Regulatory Commission introduced its strictest-ever suspension-and-resumption regime, explicitly stipulating that the duration of trading suspensions for material matters will be shortened. For listed companies whose shares remain suspended beyond the prescribed period, a mandatory resumption of trading shall, in principle, be imposed; “no arbitrary applications for suspension may be granted on the grounds of uncertainty regarding the relevant matters.”

The People’s Bank of China: We must earnestly improve financial services for small and micro enterprises.

On November 20, Fan Yifei, a member of the Party Committee and Vice Governor of the People’s Bank of China, attended and addressed the launch event for the China UnionPay Small and Micro Enterprise Card held in Beijing. Fan Yifei stated that the joint introduction of this small and micro enterprise card by the banking sector marks the first-ever dedicated bankcard product designed to serve small and micro businesses, representing an important step toward deepening financial services for this segment and filling a critical gap in the payment industry’s offerings to small and micro enterprises.

Fan Yifei pointed out that providing financial services to small and micro enterprises is a systemic undertaking that requires coordinated efforts across the financial sector. Going forward, he expressed the hope that commercial banks and China UnionPay, in collaboration with all stakeholders in the industry, will fully implement General Secretary Xi Jinping’s directive to “prioritize addressing the difficulties—indeed, the inability—to secure financing faced by private enterprises, particularly small and medium-sized ones, while gradually reducing financing costs.” To this end, they should make full and effective use of policy measures, stay on the right track of development, clarify key tasks, and earnestly improve and enhance financial services for small and micro enterprises. At the same time, by taking into account the distinct stages of growth that these enterprises experience, they should work together with all relevant parties to establish a financing service system that covers the entire lifecycle of small and micro businesses, thereby genuinely lowering their financing costs, continuously elevating the quality of financial services, and ensuring that financial support reaches more small and micro entities and benefits the broader public.

Taxation TAXATATION

The State Taxation Administration has finalized 26 “tough measures” to cut taxes and reduce burdens for private enterprises.

To effectively leverage the tax authorities’ role in supporting and serving the development of the private sector, the State Taxation Administration recently issued the “Notice on Implementing Several Measures to Further Support and Serve the Development of the Private Economy” (hereinafter referred to as the “Notice”), following in-depth research and extensive consultation with all stakeholders. Addressing the tax-related bottlenecks and challenges faced by private enterprises, the Notice sets forth 26 specific measures across five key areas, including “diligently implementing and refining policies to help reduce taxes and burdens for private enterprises,” thereby providing targeted support to enable these businesses to achieve faster and more robust growth.

Professor Xu Zhengzhong of the National Academy of Administration believes that the Notice conscientiously implements the spirit of General Secretary Xi Jinping’s important speech at the symposium on private enterprises, fully leveraging the crucial role of tax policies in supporting the development of the private sector. By squarely addressing the difficulties and challenges confronting the private economy and adopting more robust measures, more favorable policies, and higher‑quality services, the Notice has bolstered businesses’ confidence in innovation and growth, thereby effectively promoting the expansion and strengthening of the private sector.

To ensure the full and effective implementation of tax preferential policies, the Notice places “further reducing the tax burden on private enterprises” at the top of its priorities. It requires tax authorities at all levels to resolutely uphold the principle of revenue collection in accordance with the law, strictly refrain from levying excessive taxes, and faithfully implement tax reduction and exemption measures. Furthermore, private enterprises that meet the eligibility criteria for such tax incentives shall be treated on an equal footing with all other taxpayers.

“Throughout, the tax authorities have consistently treated private enterprises on an equal footing. In the first three quarters of this year, small and micro businesses—predominantly private—benefited from tax reductions totaling 143.7 billion yuan, a year-on-year increase of 41.3%,” said Huang Yun, head of the Policy and Regulations Department of the State Taxation Administration. He added that the newly issued Notice explicitly stipulates that tax authorities at all levels must rigorously and in accordance with the law implement key preferential policies—such as exempting small and micro enterprises from value-added tax and halving corporate income tax for small and low-profit enterprises—to ensure that private enterprises fully enjoy the benefits to which they are entitled.

With regard to the issue of social security contribution burdens—of widespread concern among private enterprises—the Notice further clarifies that the State Taxation Administration will actively collaborate with relevant departments to formulate proposals, including measures to reduce social security contribution rates, thereby ensuring that the overall burden on enterprises does not increase and that the actual social security payment burden borne by enterprises is substantially reduced.

The Notice emphasizes that, throughout the reform of the social security premium collection and administration mechanism, tax authorities at all levels must ensure the stability of payment methods, proactively coordinate with relevant departments to prepare social security premium revenue budgets that appropriately reflect fee reduction measures, and collect premiums strictly in accordance with the budgets approved by the People’s Congress. With respect to arrears from previous years owed by payers, including private enterprises, no self-initiated, centralized clearance campaigns shall be conducted under any circumstances.

The Notice clarifies that the State Taxation Administration will, in coordination with relevant departments, promptly conduct research and put forward proposals to advance substantive tax reductions, including value-added tax cuts, as well as universal tax exemptions for small and micro enterprises and technology‑based start-ups. It will also comprehensively propose measures to address issues arising during tax system reform and its implementation. Furthermore, based on public feedback, it will work with the relevant authorities to swiftly refine the policy on the six special additional deductions under the individual income tax system.

“We will further intensify efforts to publicize and provide guidance on tax policies, combining systematic training with specialized briefings. We will also dynamically compile, revise, and issue the ‘Compendium of Tax Preferential Policies’ and category-specific tax‑benefit guidelines, helping taxpayers—including private enterprises—fully understand, master, and effectively leverage the relevant preferential measures,” said Sun Yushan, Director-General of the Taxpayer Services Department of the State Taxation Administration.

In response to private enterprises’ expectations for more convenient tax administration, the Notice introduces a series of practical and effective measures aimed at further elevating the quality of tax services and delivering new improvements to the tax-related business environment.

It is reported that, in the early stages of the reform of the national and local tax administration systems, the nationwide tax authorities launched a large-scale survey and outreach campaign, directly engaging with businesses to understand their needs, conducting one‑on‑one tax‑policy briefings, and addressing enterprise concerns on a case‑by‑case basis, thereby earning widespread praise from the business community.

“We will, in accordance with the requirements of the Notice, launch a new round of extensive surveys and on-site visits targeting private enterprises, broadly gather tax-related concerns, meticulously collate and analyze them, and issue unified measures to address these issues, thereby continuously optimizing and upgrading tax administration and services to better align with the needs of private enterprises and respond more effectively to their key concerns,” said Sun Yushan.

Sharp increases in handling fees are eroding insurers’ profits, and the tax‑adjustment plan is expected to take effect next year.

The sharp rise in income tax rates, driven by continuously escalating commission expenses, has markedly eroded insurers’ net profits, with the property‑and‑casualty sector particularly hard hit. As commissions keep climbing, the amount of commission and brokerage expenses that the property‑and‑casualty industry can deduct before tax has far exceeded the limits set under current regulations, leading to a substantial increase in the effective tax rate. However, in recent interviews, industry insiders have pointed to two favorable factors that could improve insurers’ future net profitability: first, the upward trend in motor‑insurance commissions is expected to be curbed or even reversed; second, adjustments to the pre‑tax deduction policy for commission and brokerage expenses in the property‑and‑casualty sector are likely to take effect next year, which would substantially reduce insurers’ tax burden.

Rising service fees are driving up tax rates.

According to the third-quarter solvency reports released by insurance companies, more than half of property insurers saw their net profits decline quarter-on-quarter. (For details, see this newspaper’s report on November 1: “Survey of Property Insurers’ Third-Quarter Performance: Half in the Red; Net Profits Fell Quarter-on-Quarter at 26 Offices.”) Among listed property insurers, net profits all fell compared with the previous quarter, and the year-on-year decline in third-quarter net profits has widened relative to the first half of the year. Specifically, PICC Property & Casualty reported third-quarter net profit of approximately RMB 1.482 billion, down RMB 4.82 billion from the prior quarter and 73.2% year over year; Taiping Property & Casualty posted third-quarter net profit of about RMB 379 million, a drop of roughly RMB 965 million quarter over quarter and 61.3% year over year; while Ping An Property & Casualty recorded third-quarter net profit of around RMB 2.08 billion, down approximately RMB 1.39 billion from the previous quarter and 39% year over year.

Industry insiders note that the sharp year-on-year decline in net profit is not unique to listed property and casualty insurers but rather a widespread trend across the sector. In this regard, several analysts point to a key factor: the continued rise in commission expenses has driven up the effective income tax rate, thereby weighing on insurers’ net profits.

In China, the insurance industry benefits from a pre‑tax deduction policy for handling fees and commissions, subject to certain limits. The current applicable standard is the “Notice on the Pre‑Tax Deduction Policy for Enterprise Handling Fees and Commissions,” issued in 2009. For expenses related to business operations, only the portion that does not exceed the prescribed calculation limit may be deducted; any amount exceeding this limit is disallowed. Specifically, property insurance companies may deduct up to 15% of the balance remaining after subtracting surrender values and other similar items from their total premium income for the year, while life insurance companies may deduct up to 10% of the same balance.

However, as the industry has evolved and market competition intensified, property insurers’ handling fees and commissions have continued to rise, with spending now far exceeding the pre‑tax deduction limits. For example, in the first half of the year, Ping An Property & Casualty Insurance recorded total handling fee expenses of RMB 25.74 billion, up 61.6% year over year; such expenses accounted for 21.7% of its original insurance premium income, an increase of 6.3 percentage points compared with the same period last year. During the same period, its business tax liability rose by 130.0% year over year, “primarily due to a year‑on‑year decline in tax‑exempt income and higher taxable income resulting from handling fee overruns driven by business growth,” according to Ping An Property & Casualty Insurance.

Meanwhile, in the first half of the year, Taiping Property & Casualty Insurance’s commission and handling fee expenses totaled RMB 13.041 billion, up 57% year on year; the share of commissions and handling fees in insurance revenue rose from 15.8% in the same period last year to 21.5%.

“Tax expenses have had a significant impact, weighing on profit growth,” Huatai Securities noted in its research report. Rising property‑insurance commissions, coupled with the implementation of the “reporting‑and‑pricing‑integration” policy in August this year, have prompted property insurers to refine the maximum and average commission rates for different distribution channels and vehicle types, while also fully provisioning for actual commission expenses incurred. As a result, taxable income has risen sharply. In the first three quarters of this year, Ping An Property & Casualty and PICC Property & Casualty saw their combined tax rates increase by 20.7 and 14.9 percentage points year over year, to 43.2% and 37.3%, respectively, thereby dragging down profits considerably.

Changjiang Securities noted that property insurers’ commission and handling expenses have risen sharply, exceeding the deductible threshold, leading to a substantial increase in income tax provisions and a marked erosion of underlying profitability. Prior to 2016, these expenses at listed insurers remained below the income tax deduction limit, with the income tax-to-pre-tax‑profit ratio typically staying under 25%. However, starting in 2017, as the commercial vehicle insurance premium reform was rolled out nationwide, handling and administrative expenses at listed property insurers surged, with the ratio of such expenses to (premium income minus policy surrender values) surpassing 18%—exceeding the income tax deduction threshold. Consequently, the income tax‑to‑pre‑tax‑profit ratio has climbed to between 30% and 50%.

Two major favorable factors are expected to emerge.

In the third quarter of this year, property and casualty insurers saw a sharp drop in net profits, making for a rather challenging period. However, industry insiders remain bullish on prospects for the fourth quarter and next year.

On the one hand, the decline in property insurers’ net profits has been largely driven by a sharp rise in commission expenses, which has led to a substantial increase in the combined ratio. However, this trend is likely to change markedly. “As fee‑self‑regulation and the ‘reporting‑and‑pricing‑alignment’ policy gain traction, motor‑insurance commission rates are expected to fall significantly in the fourth quarter of this year,” according to an analysis by CICC. This view is also shared by industry insiders. A senior executive at a property insurer noted that different companies may adopt varying strategies: some may pursue low‑cost, low‑price approaches, while others might opt for high‑cost, high‑price models. Nevertheless, given the widespread underwriting losses and the impact of stricter regulatory measures, insurers can no longer afford to keep raising commissions; a broad decline in commission levels is therefore highly probable.

On the other hand, regarding the current policy on expense‑deduction allowances, calls within the insurance industry to adjust the pre‑tax deduction rates for handling fees and commissions are growing louder. Meanwhile, several brokerage offices have noted in their research reports that a major overhaul of property‑insurance income‑tax policies is expected to take effect next year. “Insurance companies have already coordinated with regulators, and we anticipate that specific measures will be implemented next year,” Huatai Securities said. “The adjustment to property‑insurance income‑tax policies is highly likely to be rolled out next year, which would substantially lower the effective tax rate,” CICC added.

Industry insiders note that the current policy has been in place for nearly a decade and has become somewhat out of step with the industry’s present realities. While it is unlikely that expenses for handling fees and commissions will be deductible on a factual, pre‑tax basis, it is quite possible that the pre‑tax deduction rate for such expenses will be increased.

“The vehicle insurance tax rate is expected to ease in the fourth quarter, and tax policies are likely to be adjusted next year. The sharp increase in the overall tax rate in the third quarter, driven by concentrated provisions for commissions, has provided some relief to the tax burden in the fourth quarter, and commission rates are set to decline to a certain extent,” Huatai Securities said. The office added that the current situation—where income‑tax policies are weighing on the profitability of the entire property‑insurance sector—is unlikely to persist for long; insurers have already coordinated with regulators, and concrete measures are expected to be implemented next year.

Three departments have issued a document to adjust the preferential tax policy for natural gas imports.

Recently, the Ministry of Finance, the General Administration of Customs, and the State Taxation Administration issued the “Notice on Adjusting Relevant Issues Concerning Preferential Tax Policies for Natural Gas Imports,” stating that, effective July 1, 2018, the pricing for liquefied natural gas sales will be adjusted to RMB 28.06 per GJ, and the pricing for piped natural gas sales will be adjusted to RMB 0.99 per cubic meter.

From April to June 2018, the sales price for liquefied natural gas was set at RMB 27.35 per GJ, while the sales price for piped natural gas was RMB 0.97 per cubic meter.

Meanwhile, the three departments issued the “Notice on Adjusting Natural Gas Import Projects Eligible for Tax Preferential Policies,” which stipulates that the Zhejiang Zhoushan LNG project has been newly added to the list of projects benefiting from these preferential measures. The project’s annual import volume is 3 million tonnes, and the importing entity is ENN (Zhoushan) Natural Gas Sales Co., Ltd.; the preferential policy takes effect as of August 7, 2018.

Effective January 1, 2017, the import quota eligible for preferential policies under the Shandong Liquefied Natural Gas Project has been increased from 3 million tons per year to 6 million tons per year. In addition, to further standardize and strengthen the administration of import tax policies, the Ministry of Finance has issued a notice supplementing seven import tax measures, including unified management of duty‑free operations. Should the Ministry of Finance, relevant departments, or their staff, in the course of implementing these seven import tax policies—such as the unified management of duty‑free operations—engage in conduct that violates the provisions governing the application of duty‑free treatment, or commit unlawful or disciplinary offenses such as abuse of power, dereliction of duty, or favoritism and fraud, they shall be held accountable in accordance with applicable regulations; cases suspected of constituting a crime shall be referred to the judicial authorities for prosecution in accordance with the law.

Litigation & Arbitration

A Ministry of Finance official stated that work is being expedited on PPP legislation, with the aim of issuing it within the year.

At the Fourth PPP Financing Forum held in Shanghai, Zhou Jinsong, Deputy Director-General of the Department of Laws and Regulations of the Ministry of Finance, stated that PPP legislation is currently a matter of great concern. According to the established work plan and in line with the requirements set forth in State Council documents, authorities are striving to promulgate the legislation by year’s end. Relevant departments are expediting the legislative process to ensure timely completion. PPP legislation will serve to advance PPP reform. As the highest‑level legal framework governing the PPP sector—where investments now exceed tens of trillions of yuan—it is of paramount importance for the orderly development of PPPs and has therefore attracted close attention from industry stakeholders.

During the aforementioned forum, several executives from private‑sector PPP companies expressed hope that the PPP Regulations would be promulgated promptly, enabling enterprises to gain clear guidance on PPP frameworks and reduce uncertainty. Likewise, numerous local finance officials voiced their anticipation for the swift issuance of these regulations, which would also help inform and streamline their work.

On August 14 this year, the General Office of the State Council issued the “Notice on the Division of Key Tasks for the National Teleconference on Deepening the ‘Delegation, Regulation, and Service’ Reform and Transforming Government Functions” (hereinafter referred to as the “Notice”). Among the measures aimed at resolutely addressing such practices as some local governments failing to honor their commitments and new officials ignoring past obligations, the Notice stipulated that a regulation on public‑private partnerships (PPPs) would be formulated and promulgated by the end of 2018, with the Ministry of Justice, the National Development and Reform Commission, and the Ministry of Finance assuming responsibility.

In fact, as early as July 2017, the Legislative Affairs Office of the State Council publicly released the “Regulations on Government–Social Capital Cooperation in the Infrastructure and Public Services Sectors (Draft for Comments)” (hereinafter referred to as the “PPP Regulations Draft”) to solicit opinions from all sectors. Unlike previous PPP regulatory documents issued by various ministries and commissions, this is currently the highest‑level PPP regulation in China, comprising seven chapters and over 6,000 characters, with the aim of standardizing PPP development and addressing certain existing issues.

Article 1 of the draft PPP Regulations states that, in order to standardize public‑private partnerships in the infrastructure and public services sectors, enhance the quality and efficiency of public service provision, safeguard the legitimate rights and interests of the public interest and private capital entities, and promote sustained and sound economic and social development, this Regulation is hereby formulated.

Many PPP experts have stated that the purpose of the PPP Regulations is to standardize and promote the development of the PPP model, fully leveraging the guiding and regulatory functions of legislation. The regulations place particular emphasis on clarifying policy direction, stabilizing market expectations, regulating conduct, and managing risks, thereby ensuring that public‑private partnerships advance in a proactive yet prudent manner and achieve sustained, sound development. The draft of these Regulations has drawn significant attention for several key provisions, including measures to safeguard the performance of PPP contracts, ensure fair participation by private enterprises in PPP projects, and curb the use of PPP arrangements as a disguised form of borrowing.

For example, the draft PPP Regulations stipulates that the state shall ensure that social capital entities of all forms of ownership may participate in PPP projects on an equal footing in accordance with the law; no organization or individual may exclude or restrict non‑public‑sector social capital entities from participating in cooperative projects in compliance with the law.

A PPP executive from a private enterprise stated that, in the context of PPP legislation, private offices do not require any special support measures; rather, they simply need to be assured of fair, impartial, and transparent participation in project competitions, with the government obligated to honor its contractual commitments. As long as the relevant rules are clearly set out in the PPP laws and regulations, private enterprises can proceed with confidence. Jin Yongxiang, a PPP expert and chairman of Dayue Consulting, has noted that while previous departmental regulations already emphasized safeguarding the legitimate rights and interests of private capital, this newly enacted PPP regulation—carrying higher legal authority—reiterates these principles. Failure by local authorities to comply with the regulation would constitute a violation of the law, thereby encouraging greater private-sector involvement in PPP projects.

Jiao Xiaoping of the Ministry of Finance’s PPP Center stated that, according to data from the National PPP Comprehensive Information Platform, as of the end of October 2018, over the past five years, 4,302 projects nationwide had been signed and implemented, mobilizing approximately RMB 6.6 trillion in investment and covering 19 sectors, including municipal engineering, transportation, and environmental protection.

As of the end of October this year, among the 7,029 private-sector entities participating in PPP projects, those from the private sector, Hong Kong, Macao, Taiwan, and foreign-invested enterprises accounted for 48% of the total. In the wastewater and waste‑management sectors—where market access was liberalized early and remuneration mechanisms are well defined—projects involving private‑sector, Hong Kong, Macao, Taiwan, and foreign‑invested offices represented 82% of the total investment.

The Ministry of Finance has issued the Measures for the Administration of Central Financial Funds Supporting the Development of Preschool Education, expanding inclusive educational resources.

On November 20, the Ministry of Finance issued the “Notice on the Early Allocation of the 2019 Budget for Funds Supporting the Development of Preschool Education.” According to the revised “Administrative Measures for Central Financial Funds Supporting the Development of Preschool Education” included in the notice, these funds will be prioritized to support local efforts to develop both public and private preschools, expand inclusive preschool education resources through diverse models, deepen institutional and mechanism reforms, and improve the student financial aid system for young children.

The Measures stipulate that funds for the development of preschool education shall be allocated using a factor‑based approach. First, the total allocation is determined by regional factors, with 90% assigned to the central and western regions and 10% to the eastern region (with appropriate adjustments to favor particularly disadvantaged provinces in the east). Subsequently, the funds are distributed to individual provinces based on three sets of factors: basic factors, input factors, and management‑innovation factors. Basic factors account for 60% of the allocation and include such sub‑factors as the number of children enrolled in preschools, the coverage rate of inclusive kindergartens (the proportion of children attending public and affordable private kindergartens relative to the total number of children enrolled), and per‑capita available fiscal resources. Input factors comprise 20% of the allocation and encompass sub‑factors such as per‑child general public budget expenditures on preschool education, local government financial support for child‑care assistance, and the total amount of contributions from social entities—primarily investments by private school sponsors and charitable donations. Finally, management‑innovation factors account for the remaining 20% and are assessed comprehensively based on each locality’s policies and regulations regarding the construction and management of community‑built kindergartens, as well as the criteria for recognizing affordable private kindergartens.

In addition, the Measures stipulate that provincial finance and education authorities, when allocating funds for preschool education development, should give priority to revolutionary old‑base areas, border regions, ethnic minority areas, and poverty‑stricken areas. At the same time, provincial education authorities are required to guide their subordinate education departments at all levels to promptly improve and refine preschool education management information systems, make full use of idle school facilities in rural areas and other available resources, and expand preschool education capacity in a manner tailored to local conditions.

Wenzhou will enact a dedicated “Regulations on Dog Ownership,” and legislative research has now been launched.

At present, Wenzhou has adopted the “Regulations of Wenzhou Municipality on Promoting Civilized Conduct,” which addresses the issue of civilized dog ownership. The regulations will come into effect after being submitted to the Standing Committee of the Provincial People’s Congress for approval. Meanwhile, the Standing Committee of the Wenzhou Municipal People’s Congress has also approved the inclusion of the drafting of the “Wenzhou Municipal Regulations on Dog Ownership” in the city’s short-term legislative agenda, with plans to initiate the local legislative process at an appropriate time.

So, how did the issue of “civilized dog ownership” make its way into the Wenzhou Regulations on Promoting Civilized Behavior? And what will be the future legislative direction of the Wenzhou Dog Ownership Management Regulations?

Sixty percent of residents call for responsible dog ownership.

Earlier this year, the Wenzhou Municipal Civilization Office conducted a three-month legislative survey on the Regulations of Wenzhou Municipality on Promoting Civilized Conduct, distributing over 300,000 questionnaires and identifying 35 types of uncivilized behaviors, including “dog ownership causing public nuisance, failing to leash dogs when taking them outdoors, and neglecting to promptly clean up canine waste.”

A responsible official from the Wenzhou Municipal Civilization Office stated that uncivilized dog‑keeping practices were included in the survey because, even at the very outset of Wenzhou’s efforts to become a national model city of civility, it was common for dog owners to keep dogs in restricted or prohibited areas, fail to take safety precautions when walking their pets, and allow their dogs to defecate indiscriminately in public spaces. Such behaviors have seriously undermined the city’s image and hindered progress in building a civilized city, making legislative regulation urgently necessary.

The survey results show that, among the 253,000 valid questionnaires returned, 152,000—representing 60.8%—identified “dog‑related public nuisance, failure to leash dogs when outdoors, and failure to promptly clean up dog waste” as one of the most unpopular and uncivilized behaviors.

Accordingly, when drafting the Wenzhou Municipal Regulations on Promoting Civilized Conduct, the Wenzhou Municipal Civilization Office incorporated provisions related to “civilized dog ownership.” Subsequently, nearly 30 symposiums were held to discuss the draft’s content, with the issue of “civilized dog ownership” continuing to be a focal point of heated debate.

The Regulations Address Public Concerns

Wang Xudong, Director of the Legislative Affairs Commission of the Standing Committee of the Wenzhou Municipal People’s Congress, stated that during deliberations, members of the Standing Committee identified “civilized dog ownership” as one of the most pressing issues currently drawing strong public concern, and recommended that it be codified in the Regulations of Wenzhou Municipality on Promoting Civilized Conduct, thereby addressing citizens’ concerns.

However, the issue of “civilized dog ownership” is broad in scope. The Wenzhou Municipal Regulations on Promoting Civilized Conduct is a comprehensive piece of legislation addressing various uncivilized behaviors; therefore, it can only prioritize those dog‑related practices that have been widely reported by citizens and are of universal concern, such as prohibiting the keeping of vicious or large‑breed dogs in restricted‑breeding zones and banning the public outing of dogs without leashes.

According to the Regulations, anyone who keeps vicious or large‑sized dogs in a restricted‑breeding zone shall be ordered to make corrections; failure to comply shall result in a fine of no less than RMB 2,000 and no more than RMB 5,000. Anyone who takes a dog outdoors without taking appropriate safety measures, such as using a leash or harness, shall be ordered to make corrections; failure to comply shall result in a fine of no less than RMB 100 and no more than RMB 500.

Wang Xudong stated that this punitive measure is both appropriate and practicable. First, it conveys the principle of “governance through both virtue and law,” as severe penalties alone cannot eradicate uncivilized behavior. By imposing proportionate sanctions, the policy not only deters such conduct but, more importantly, seeks to promote a culture of social civility.

However, excessively lenient penalties fail to impose effective, binding constraints on uncivilized behavior; therefore, the Regulations must also provide for appropriate monetary fines.

A regulation on dog ownership will be introduced.

Zhang Jianmin, Director of the Internal and Judicial Affairs Committee of the Standing Committee of the Wenzhou Municipal People’s Congress, stated that relevant departments have already initiated legislative research on the “Wenzhou Dog‑Keeping Management Regulations.” The forthcoming regulations will be a specialized statute addressing the issue of “civilized dog ownership,” and, compared with the “civilized dog‑keeping” provisions in the “Wenzhou Regulations on Promoting Civilized Conduct,” they will be more systematic and detailed.

For example, the Wenzhou Regulations on Promoting Civilized Behavior already stipulate that “dogs other than guide dogs and other working dogs are prohibited from entering public places,” while the Wenzhou Dog Ownership Management Regulations will further specify which particular public venues are off-limits to such non‑working dogs.

In addition, the Wenzhou Dog Ownership Management Regulations will also address safety and related issues, such as mandating veterinary rabies vaccinations for dogs and establishing dog shelters.

Other

Evergrande Health Responds to FF Employees’ Lawsuit, Stating It Will Take Action to Protect the Company’s Rights and Interests.

There has been a new development in the ongoing battle over equity between Evergrande and FF. On the evening of November 18, Evergrande Health announced that, as of November 17, it had learned that certain FF employees—purporting to be shareholders of Faraday Future—had filed a class-action lawsuit in a Los Angeles court, making baseless allegations that Evergrande Health, Shi Ying, and Shi Ying’s representative director had breached their fiduciary duties. The company stated that it will take all necessary measures to safeguard the rights of Evergrande Health and Shi Ying, thereby protecting the interests of the company and its shareholders.

On November 14, Los Angeles local time, representatives of FF’s minority shareholders filed a class-action lawsuit in the Los Angeles Superior Court, alleging that Evergrande Health and the directors appointed by Evergrande have engaged in unlawful conduct—seeking to seize control of FF and its core intellectual property through fraudulent means.

According to insiders at FF, the shareholder representatives filing this lawsuit are all long-time employees of the company. FF has stated that the minority shareholders’ decision to bring the suit was entirely voluntary and unrelated to the company.

In the second half of 2017, after FF began defaulting on supplier payments and its cash flow dried up, it was just one step away from bankruptcy. By year’s end, Evergrande stepped in and struck a deal with FF. In early 2018, Evergrande pledged to inject $800 million into FF and agreed to provide an additional $600 million annually in 2019 and 2020. In return, Evergrande acquired a 45% stake in FF.

According to reports, despite Evergrande assigning two finance professionals to oversee FF’s expenditures, by July 2018, FF had nearly exhausted all its funds. With cash reserves depleted, FF still required approximately US$663 million to ensure that the FF91 would enter production in December 2018. Consequently, Jia Yueting requested that Evergrande make an upfront payment of US$700 million as a condition of the deal, while Evergrande, in turn, demanded that Jia Yueting relinquish all his positions at FF and divest his controlling stake in the parent company.

However, Evergrande failed to provide the first installment of US$300 million out of the aforementioned US$700 million as scheduled. According to the earlier litigation, Evergrande contends that Jia Yueting has not submitted sufficiently “satisfactory” evidence demonstrating that he has severed his ties with FF. Evergrande asserts that Jia Yueting remains a “shadow director.”

According to insiders, Jia Yueting, dissatisfied with Evergrande’s demand to “de-Jia-Yuetingize” the company, orchestrated a behind-the-scenes campaign to pressure major shareholders, culminating in the recent farcical “minority shareholder lawsuit.” His aim was to force Evergrande to make concessions, strip it of its asset‑pledge rights, and ultimately hollow out the company.

Recently, after Jia Yueting forcibly removed Evergrande’s cashier and refused to allow Evergrande’s auditors access to conduct an audit, Evergrande has filed a comprehensive counterclaim against Jia Yueting with the Hong Kong International Arbitration Centre and initiated legal proceedings in the Grand Court of the Cayman Islands, seeking a court order compelling Jia Yueting to disclose all financial records and relevant documents pertaining to FF.

Beilu Pharmaceutical’s announcement of a planned listing on the STAR Market sent its shares surging to the daily limit, prompting an inquiry from the Shenzhen Stock Exchange and raising suspicions of stock-price manipulation.

The sudden emergence of the STAR Market has sparked a wave of limit-up rallies among venture-capital‑related stocks that had long been dormant. Even listed companies with only tangential ties to venture capital or the STAR Market often see their share prices soar.

On the afternoon of November 20, Beilu Pharmaceutical stated on an interactive platform that two of its equity‑invested subsidiaries are striving to pursue IPOs and that the company will closely monitor developments related to Shanghai’s STAR Market. Subsequently, the company’s stock price hit the daily upper limit.

On the morning of November 21, the Shenzhen Stock Exchange issued a letter of concern to Beilu Pharmaceutical, requesting the company to clarify the purpose and rationale behind disclosing this information and to address whether there has been any deliberate attempt to capitalize on market trends or manipulate the company’s stock price.

According to the inquiry letter, at noon on November 20, Beilu Pharmaceutical stated on the Interactive Easy platform that its equity‑invested subsidiaries, Nanjing Shihe Gene Biotechnology Co., Ltd. (hereinafter referred to as “Shihe Gene”) and Wuhan Zhiyou Medical Technology Co., Ltd. (hereinafter referred to as “Zhiyou Medical”), are not only steadily advancing their businesses and continuing to expand their market share but are also actively seeking to leverage the capital markets to secure broader growth prospects. The company added that it aims to pursue an IPO at an appropriate time through the most suitable channels, while closely monitoring developments related to Shanghai’s STAR Market. Following this announcement, Beilu Pharmaceutical’s stock price surged to its daily upper limit when trading resumed that afternoon.

In response to Beilu Pharmaceutical’s self-disclosure of its equity stake in a “venture capital‑related concept” company, the Shenzhen Stock Exchange has requested that Beilu Pharmaceutical clarify the purpose and rationale behind disclosing this information on the Interactive Easy platform. The exchange has also asked for specific details, including the percentage of shares held in Shihe Gene and Zhiyou Medical, summaries of the two companies’ financial data over the past three years and an assessment of their financial impact on Beilu Pharmaceutical, as well as updates on the progress of their IPO preparation efforts. However, to date, Beilu Pharmaceutical has yet to respond to the Shenzhen Stock Exchange’s inquiry letter.

Previously, Beilu Pharmaceutical stated that Shihe Gene and Zhiyou Medical, as leading companies in their respective fields, are not only steadily advancing their businesses and expanding their market shares but also actively seeking to leverage the capital markets to unlock broader growth opportunities, aiming to pursue an IPO at the most opportune moment and through the most suitable channels. Given that the relevant detailed rules for Shanghai’s STAR Market have yet to be released, both companies will closely monitor developments in this area.

Beilu Pharmaceutical also stated that, as a shareholder, it will fully support the two companies in seizing opportunities and achieving rapid growth. Currently, the company holds 20% and 25% stakes in Shihe Gene and Zhiyou Medical, respectively.

Regarding the Shenzhen Stock Exchange’s concerns that Beilu Pharmaceutical is catering to market trends and artificially inflating its share price, some industry insiders believe that “such a possibility cannot be ruled out.” According to available data, Wang Daixue, the actual controller of Beilu Pharmaceutical, currently holds 110.6832 million shares, representing 22.64% of the company’s total share capital. As disclosed in Beilu Pharmaceutical’s announcement on July 12, Wang Daixue pledged 47.6026 million shares—equivalent to 14.6% of the total share capital—to Haitong Securities Co., Ltd., with a pledge ratio of 64.51%. In response, the Shenzhen Stock Exchange has requested that Beilu Pharmaceutical provide supplementary details on this pledge, including the number of shares pledged, the pledge ratio, and whether there are any risks of default or forced liquidation. Additionally, the exchange has mandated that Beilu Pharmaceutical submit detailed information for each equity pledge, covering the number of shares pledged, the amount involved, the warning threshold, the liquidation threshold, the intended use and destination of the funds, as well as the conditions and procedures for handling defaults.

On November 14, Beilu Pharmaceutical issued a preliminary announcement regarding the listing and circulation of shares subject to sale restrictions following a non‑public offering. The announcement indicates that the number of shares to be released from restriction is 29,069,764, representing 5.94% of the company’s total share capital; the actual number eligible for trading on the market is 19,476,742 shares, or 3.98% of the total share capital. The issue price of these restricted shares was RMB 12.90 per share, and they are scheduled to become tradable on November 19, 2018.

The aforementioned source stated, “Just one day after the lock-up period expired, Beilu Pharmaceutical disclosed its investment in a ‘venture capital‑themed’ company, raising serious suspicions of opportunistic market‑hunting and stock‑price manipulation. Based on the issue price of RMB 12.90 per share at the time, the cost basis following this unlocking should have been around RMB 8.50–8.60 per share. Meanwhile, using the closing price of RMB 7.82 per share as of November 19, the current share price falls precisely one daily limit below that cost.”

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