JC Master Legal News Issue 851

Key Takeaways for This Issue

Two departments have issued the “Internal Control Guidelines for Bond Investment and Trading Activities of Securities and Fund Management Institutions.”

On December 25, the Securities Association of China and the Asset Management Association of China issued the “Internal Control Guidelines for Bond Investment and Trading Activities of Securities and Fund Management Institutions” (hereinafter referred to as the “Guidelines”).

China has fully implemented the market access negative list system.

On December 25, with the approval of the CPC Central Committee and the State Council, the National Development and Reform Commission and the Ministry of Commerce jointly released the “Negative List for Market Access (2018 Edition).” This marks the full implementation of China’s market access negative-list system, under which all types of market entities may, in accordance with the law, enter any industries, sectors, or business activities not listed on the negative list on an equal footing.

The National Financial Work Conference was held in Beijing: Deepening the reform of the fiscal and tax systems.

From December 27 to 28, the National Financial Work Conference was held in Beijing. The conference emphasized that ten key tasks should be prioritized in 2019, including deepening fiscal and tax system reform and improving the management of state-owned assets and accounting practices.

The State Administration for Market Regulation has released typical cases of curbing the abuse of administrative power to exclude or restrict competition.

On December 29, the State Administration for Market Regulation issued the “Announcement on the Publication of Typical Cases in 2018 Involving the Prevention of Abuse of Administrative Power to Exclude or Restrict Competition” (hereinafter referred to as the “Announcement”), which disclosed 16 typical cases concerning the prevention of such abuses.

National Medical Products Administration: Strengthening Drug Supervision During the Pilot Program for Centralized Procurement and Use of Medicines

On December 27, the National Medical Products Administration issued the “Notice on Strengthening Drug Regulatory Oversight During the Pilot Phase of Centralized Drug Procurement and Use” (hereinafter referred to as the “Notice”), mandating enhanced oversight of drug manufacturing.

Table of Contents

Table of Contents

Finance & Capital Markets

Two departments have issued the “Internal Control Guidelines for Bond Investment and Trading Activities of Securities and Fund Management Institutions.”

The China Securities Regulatory Commission and the Cayman Islands Monetary Authority have signed a Memorandum of Understanding on Cooperation in Securities and Futures Regulation.

The China Securities Regulatory Commission has released an update on the implementation of the “travel and flight restrictions” imposed on individuals with particularly serious breaches of trust in the securities and futures markets in 2018.

National Equities Exchange and Quotations: Amendments to the Share Repurchase Rules Remove the Requirement for Prior Approval for Listed Companies’ Share Repurchases.

The Shanghai and Shenzhen stock exchanges have issued new regulations on the suspension and resumption of trading for listed companies, shortening the duration of trading suspensions.

The Shenzhen Stock Exchange has revised the Implementation Rules for Convertible Corporate Bond Business and the Business Processing Guidelines.

Corporate & Commercial

China has fully implemented the market access negative list system.

The China Securities Association and other bodies have released a master agreement for credit protection contracts, helping private enterprises issue bonds and alleviate financial distress.

The China Banking and Insurance Regulatory Commission has formally approved the applications of the Industrial and Commercial Bank of China and the Bank of China to establish wealth management subsidiaries.

The General Office of the State Council: Within five years after for-profit cultural institutions are restructured into enterprises, they shall be exempt from corporate income tax.

Jiangsu: The maximum loan amount for small and micro enterprises has been raised to RMB 3 million.

Draft Foreign Investment Law: Foreign-invested enterprises may raise capital through equity and other means.

Taxation

The National Financial Work Conference was held in Beijing: Deepening the reform of the fiscal and tax systems.

The two departments have clarified the issue of aligning preferential policies following the amendment to the Individual Income Tax Law.

The State Council Taiwan Affairs Office: Compatriots in Taiwan are eligible for preferential tax arrangements under the new Individual Income Tax Law.

General Administration of Customs: The 2019 Tariff Adjustment Plan Has Been Released.

Litigation & Arbitration

The State Administration for Market Regulation has released typical cases of curbing the abuse of administrative power to exclude or restrict competition.

Tianjin’s market regulation authorities have initiated an investigation into Quanjian for suspected false advertising.

Beijing Honghuanglan Kindergarten Child Abuse Case Verdict: Defendant Sentenced to One and a Half Years in Prison

Other

National Medical Products Administration: Strengthening Drug Supervision During the Pilot Program for Centralized Procurement and Use of Medicines

The market regulation movable‑property pledge registration system will be launched nationwide.

Finance & Capital Markets

Two departments have issued the “Internal Control Guidelines for Bond Investment and Trading Activities of Securities and Fund Management Institutions.”

On December 25, the Securities Association of China and the Asset Management Association of China issued the “Internal Control Guidelines for Bond Investment and Trading Activities of Securities and Fund Management Institutions” (hereinafter referred to as the “Guidelines”).

The Guidelines stipulate that securities and fund management institutions shall retain and archive all relevant records pertaining to bond investment and trading activities, with such records to be preserved for no less than 20 years from the date of their effective implementation.

Relevant materials include, but are not limited to, the following:

(1) Records of business approval and workflow;

(2) Written business agreement;

(3) Data related to the business management system;

(4) Other relevant materials.

Attachment: Internal Control Guidelines for Bond Investment and Trading Activities of Securities and Fund Management Institutions

The China Securities Regulatory Commission and the Cayman Islands Monetary Authority have signed a Memorandum of Understanding on Cooperation in Securities and Futures Regulation.

Recently, the China Securities Regulatory Commission and the Cayman Islands Monetary Authority formally signed the Memorandum of Understanding on Cooperation in Securities and Futures Regulation (hereinafter referred to as the “Memorandum”). The signing of the Memorandum will help strengthen information sharing and enforcement cooperation between the two regulators in the securities and futures sectors, marking a new stage in their regulatory collaboration.

At present, numerous Chinese companies registered in the Cayman Islands are leveraging global capital markets for fundraising or public listings. The China Securities Regulatory Commission has consistently attached great importance to exchanges and cooperation with overseas securities and futures regulators. To date, it has established cross-border regulatory enforcement cooperation mechanisms with the securities and futures regulators of 63 countries and regions, working jointly to combat illegal and non‑compliant activities and safeguard the legitimate rights and interests of investors.

The China Securities Regulatory Commission has released an update on the implementation of the “travel and flight restrictions” imposed on individuals with particularly serious breaches of trust in the securities and futures markets in 2018.

In 2018, the China Securities Regulatory Commission (CSRC) earnestly implemented the CPC Central Committee and the State Council’s directives on building a social credit system, continued to deepen comprehensive, law-based, and stringent regulatory oversight, and actively explored new mechanisms and channels for joint punitive measures against those who lose trust. In response to widespread public concern over the failure to honor publicly made commitments on time and the delayed payment of administrative fines and confiscations in the securities and futures sectors, the CSRC, in coordination with China Railway Corporation and the Civil Aviation Administration of China, imposed one-year restrictions on the relevant parties and responsible individuals, prohibiting them from using high‑class train seats and civil aircraft—commonly referred to as “travel and flight restrictions.” These measures effectively enhanced regulatory credibility, strengthened the deterrent effect of enforcement, and improved market integrity.

Since June 2018, in accordance with the “Opinions on Appropriately Restricting Certain Seriously Dishonest Persons from Taking Trains for a Specified Period to Promote the Development of the Social Credit System,” the “Opinions on Appropriately Restricting Certain Seriously Dishonest Persons from Taking Civil Aircraft for a Specified Period to Promote the Development of the Social Credit System,” and the “Detailed Rules for Implementing the Restrictions on Certain Seriously Dishonest Persons from Taking Trains and Civil Aircraft for a Specified Period,” the China Securities Regulatory Commission has submitted to the China Railway Corporation and the Civil Aviation Administration of China a list of 95 individuals who have committed particularly serious breaches of trust in the securities and futures markets. These individuals have been publicly disclosed in seven batches on the “Credit China” website. Among them are parties involved in mergers and reorganizations of listed companies who have failed to fulfill their performance‑guarantee compensation obligations on time; major shareholders of listed companies who have defaulted on their public commitments to repay related‑party loans; and actual controllers of listed companies who have failed to honor their public pledges to provide interest‑free loans. In addition, several individuals who have violated securities and futures laws by failing to pay administrative fines and confiscations on time have been placed on the “travel and flight restriction” list.

Since the implementation of the “travel and flight restrictions” six months ago, 37 individuals who committed administrative violations in the securities and futures sectors have paid fines and confiscated proceeds totaling nearly RMB 150 million and, having duly borne the legal consequences of their misconduct, have been removed from the restricted‑travel and restricted‑flight list. In addition, seven other parties raised objections during the public notice period; upon verification of the validity of these objections, they were promptly delisted without the imposition of any restrictive measures. Meanwhile, listed companies and their relevant responsible entities that failed to fulfill their publicly made commitments within the prescribed time frame have been subject to public disclosure and disciplinary action, thereby encouraging listed companies, their controlling shareholders, actual controllers, legal representatives, senior management, and restructuring counterparties to make solemn commitments and honor them in good faith. Over the past six months, the awareness among the relevant parties regarding the timely fulfillment of statutory or contractual obligations has markedly increased.

Going forward, the China Securities Regulatory Commission will closely monitor illegal and untrustworthy conduct that has drawn strong public concern, severely undermined market order, and gravely eroded the integrity of the capital market. It will enhance the precision and effectiveness of credit‑based sanctions against specific individuals with serious breaches of trust, continue to impose lawful penalties on persistent defaulters in the capital market, and vigorously strengthen the foundation of integrity underpinning the long-term, stable, and sound development of the capital market.

National Equities Exchange and Quotations: Amendments to the Share Repurchase Rules Remove the Requirement for Prior Approval for Listed Companies’ Share Repurchases.

On December 28, in accordance with the spirit of the amendments to the Company Law and the relevant requirements of the China Securities Regulatory Commission, the National Equities Exchange and Quotations Co., Ltd. formulated the “Measures for the Implementation of Share Repurchases by Companies Listed on the National SME Share Transfer System” (NEEQ Announcement [2018] No. 1503, hereinafter referred to as the “Repurchase Measures”), which were promulgated and came into effect on December 28, 2018.

The “Repurchase Measures” set forth key provisions regarding the basic conditions, implementation procedures, information disclosure, and related operational requirements for repurchases conducted through competitive bidding or market-making—methods that address market demand most urgently—and clearly define the requirements for listed companies undertaking tender‑offer repurchases and private‑placement repurchases. To prevent illegal and non‑compliant practices such as insider trading, market manipulation, and the transfer of benefits that harm the interests of the company and its investors during the repurchase process, the Measures stipulate: first, to strengthen market surveillance of repurchase activities, with focused monitoring of dedicated repurchase accounts and share‑repurchase transactions, ensuring the timely identification and handling of violations.

The Shanghai and Shenzhen stock exchanges have issued new regulations on the suspension and resumption of trading for listed companies, shortening the duration of trading suspensions.

The Shanghai Stock Exchange recently issued a newly revised “Shanghai Stock Exchange Guidelines on Suspension and Resumption of Trading for Listed Companies Planning Material Matters.” The new Guidelines introduce five key amendments to the rules governing suspension and resumption of trading in connection with major asset restructurings.

These measures include: first, shortening the suspension period for restructuring to no more than 10 trading days; second, narrowing the circumstances under which a suspension is permitted, allowing suspensions only for restructurings involving the issuance of shares or the issuance of targeted convertible bonds to acquire assets; third, mandating the disclosure of a preliminary plan upon expiration of the suspension period; fourth, clarifying the time window for filing suspension requests and the associated disclosure requirements; and fifth, in principle, abolishing suspensions during the review of restructuring-related information disclosures and the response period to inquiries.

The Shenzhen Stock Exchange recently issued the “Shenzhen Stock Exchange Guidelines on Information Disclosure by Listed Companies No. 2—Suspension and Resumption of Trading,” stipulating that when a listed company is planning a material event, it must disclose, in stages and without suspending trading of its shares or related derivatives, the specific details of the planned matter. Furthermore, it may not arbitrarily request a trading suspension on the grounds that the outcome of the relevant matter remains uncertain.

The Shenzhen Stock Exchange has revised the Implementation Rules for Convertible Corporate Bond Business and the Business Processing Guidelines.

The Shenzhen Stock Exchange recently revised the “Detailed Rules for the Implementation of Convertible Corporate Bond Business” and the “Guidelines for the Issuance and Listing of Convertible Corporate Bonds by Listed Companies,” which are hereby promulgated and shall take effect from the date of promulgation.

The main revisions are as follows: First, the scope of circumstances under which investors may waive their subscription has been expanded. Second, multi‑account subscriptions have been replaced with single‑account subscriptions. Third, the issuance process has been streamlined to facilitate offline offerings. Fourth, the time interval between the conclusion of the offering and the listing has been shortened.

Attachment: 1. Detailed Rules for the Implementation of Convertible Corporate Bond Business of the Shenzhen Stock Exchange (Revised in December 2018)

2. Guidelines for the Issuance and Listing of Convertible Corporate Bonds by Listed Companies on the Shenzhen Stock Exchange (Revised December 2018)

3. Explanation Regarding the Revision of the “Detailed Rules for the Implementation of Convertible Corporate Bond Business of the Shenzhen Stock Exchange” and the “Guidelines for the Issuance and Listing of Convertible Corporate Bonds by Listed Companies on the Shenzhen Stock Exchange”

Commercial & Corporate

China has fully implemented the market access negative list system.

On December 25, with the approval of the CPC Central Committee and the State Council, the National Development and Reform Commission and the Ministry of Commerce jointly released the “Negative List for Market Access (2018 Edition).” This marks the full implementation of China’s market access negative-list system, under which all types of market entities may, in accordance with the law, enter any industries, sectors, or business activities not listed on the negative list on an equal footing.

Fully implementing the market access negative list system is a major decision and deployment made by the CPC Central Committee to accelerate the improvement of the socialist market economy. According to a responsible official from the National Development and Reform Commission, this significant institutional innovation will help give full play to the decisive role of the market in resource allocation, truly achieving “no prohibition means permission”; it will invigorate market entities, treat all types of market players equally, and ensure equal rules, equal rights, and equal opportunities; it will enable the government to strengthen ongoing and ex post regulation; and it will facilitate reforms of related approval systems, investment mechanisms, regulatory frameworks, the social credit system, and incentive‑and‑penalty mechanisms, thereby advancing the modernization of the national governance system and governance capacity.

The list comprises two main categories—“prohibited access” and “permitted access”—encompassing a total of 151 items and 581 specific regulatory measures. Compared with the previous pilot version of the negative list, the number of items has been reduced by 177, and the number of specific regulatory measures has been cut by 288.

Among these, there are four categories of prohibited entry. Specifically, they include: (1) explicit prohibitions on market access as stipulated by laws and regulations; (2) projects that are prohibited from investment or new construction under the “Guidance Catalogue for Industrial Structure Adjustment”; and (3) “prohibitions on engaging in financial‑related business activities in violation of regulations” and “prohibitions on engaging in Internet‑related business activities in violation of regulations.” For matters falling under the prohibition category, market entities may not enter, and administrative authorities shall not grant approval.

There are a total of 147 items subject to licensing‑based market access, covering 128 specific matters across 18 of the 20 industrial categories in the national economy. These include 10 items listed in the “Catalogue of Investment Projects Subject to Government Approval” and 6 items in the “Catalogue of Prohibited and Licensed Items for Internet Market Access,” along with 3 additional matters such as credit‑based sanctions. For these licensing‑based access items, market entities submit applications, and administrative authorities make decisions on whether to grant access in accordance with applicable laws and regulations; alternatively, market entities may enter the market in compliance with the government‑prescribed access conditions and procedures.

In March 2016, China formulated the “Draft Negative List for Market Access (Pilot Version)” and launched a pilot program in the four provinces and municipalities of Tianjin, Shanghai, Fujian, and Guangdong. In 2017, the pilot scope was expanded to 15 provinces and municipalities. Based on a thorough review of the pilot experience, the 2018 edition of the negative list was subsequently finalized.

The China Securities Association and other bodies have released a master agreement for credit protection contracts, helping private enterprises issue bonds and alleviate financial distress.

The China Securities Industry Association recently announced that, in order to implement the decisions and arrangements of the CPC Central Committee and the State Council to broaden financing channels for private enterprises and alleviate their financing difficulties, and in accordance with the China Securities Regulatory Commission’s work plan on bond‑financing support tools for private enterprises in the exchange market, the China Securities Industry Association, together with the Asset Management Association of China, the Futures Association of China, the Shanghai Stock Exchange, and the Shenzhen Stock Exchange, issued on December 26, 2018, the “Master Agreement for Derivatives Transactions in the Chinese Securities and Futures Markets (Special Version for Credit Protection Contracts)” (hereinafter referred to as the “Master Agreement [Contract Version]”). By leveraging market‑based derivative financial instruments, this agreement aims to enhance the creditworthiness of private enterprises, reduce their financing costs, and provide support to help them overcome financing challenges.

According to the China Securities Industry Association, credit protection contracts are innovative financial derivatives negotiated on a bilateral basis between two parties. During the contract’s term, the seller assumes the credit risk associated with the reference entity, specified types of debt, and other debt‑like instruments, while charging the buyer periodic protection fees as agreed. In the event of a credit event or default, the seller compensates the buyer in accordance with the contract terms. Private enterprises may serve as the reference entities under such contracts, and bonds issued by them can also be designated as the underlying debt. Investors who wish to participate in the bond market but seek to mitigate default risk can engage with reputable contract‑issuing institutions that possess strong capital resources and sophisticated risk‑management practices, enabling the product design of credit protection contracts to align with their specific risk preferences. The introduction of credit protection contracts will become an important tool for enhancing credit support in corporate debt financing, benefiting all stakeholders: first, it addresses the diversified needs of contract buyers—namely, bond investors—for risk diversification and management; second, it facilitates direct financing channels for private enterprises, bolstering their ability to raise funds through bond issuance; and third, it expands the range of services offered by securities offices and other issuers, strengthening their capacity to serve the real economy.

The China Securities Association stated that the newly released “Master Agreement (Contractual Version)” has been specifically drafted, within the framework of the original SAC Master Agreement, to regulate the conduct of participants in credit protection contract transactions, taking into account the distinctive characteristics of such contracts. The Master Agreement comprises fourteen articles, establishing standardized provisions on matters including the agreement’s structure, the status of individual agreements and their hierarchy of legal effect, netting, events of default and their handling, termination events and their treatment, the calculation of termination net amounts, as well as the computation of interest, damages, and expenses. In addition, it introduces innovative design elements concerning bankruptcy scenarios, the resolution of termination‑related issues, the adjudication of credit‑event disputes, and the currency of payment, thereby further clarifying the rights and obligations of both parties to credit protection contract transactions and safeguarding their legitimate rights and interests.

Going forward, the Securities Association of China will, in line with the China Securities Regulatory Commission’s initiatives to support bond financing for private enterprises, encourage the securities industry to leverage derivative financial instruments such as credit protection contracts to facilitate bond issuance by private offices that are temporarily facing challenges but remain market‑driven, promising, and technologically competitive. At the same time, it will strengthen prudent self‑regulatory oversight of entities participating in credit protection contracts and actively guide the securities sector in serving the high‑quality development of the private economy.

The China Banking and Insurance Regulatory Commission has formally approved the applications of the Industrial and Commercial Bank of China and the Bank of China to establish wealth management subsidiaries.

On December 26, the China Banking and Insurance Regulatory Commission formally approved the applications of China Construction Bank and Bank of China to establish wealth management subsidiaries. Meanwhile, several other commercial banks are also expediting the process of applying to set up their own wealth management subsidiaries.

Previously, the China Banking and Insurance Regulatory Commission officially promulgated and implemented the Measures for the Administration of Wealth Management Subsidiaries of Commercial Banks, aiming to steer bank wealth management back to its core asset‑management function, foster and strengthen the ranks of institutional investors, and guide wealth‑management funds to support the real economy and invest in financial markets in a lawful and compliant manner.

The General Office of the State Council: Within five years after for-profit cultural institutions are restructured into enterprises, they shall be exempt from corporate income tax.

The General Office of the State Council recently issued the “Notice on Printing and Distributing Two Regulations—‘On the Conversion of Profit‑Making Cultural Institutions into Enterprises in the Course of Cultural System Reform’ and ‘On Further Supporting the Development of Cultural Enterprises’” (Guobanfa [2018] No. 124). The regulations stipulate that, following their conversion into enterprises, profit‑making cultural institutions shall be exempt from corporate income tax for a period of five years. Enterprises that had completed their conversion prior to December 31, 2018, may continue to enjoy a five‑year exemption from corporate income tax starting January 1, 2019.

Among these, business-oriented cultural institutions that receive operational funding from the fiscal authorities and have been restructured into enterprises shall be exempt from property tax on their self‑used properties for a period of five years. For enterprises that completed their restructuring prior to December 31, 2018, the exemption from property tax on their self‑used properties shall continue for an additional five years, effective January 1, 2019.

Jiangsu: The maximum loan amount for small and micro enterprises has been raised to RMB 3 million.

Recently, the provincial government issued the “Implementation Opinions on Promoting Employment in the Current and Next Period,” introducing a series of major policies that directly affect the vital interests of enterprises and workers. On December 24, the Provincial Department of Human Resources and Social Security held a press briefing to provide an interpretation of these measures.

Xue Yong, Deputy Director of the Employment Division of the Provincial Department of Human Resources and Social Security, stated that since the beginning of this year, Jiangsu’s employment situation has remained generally stable. It is projected that over 1.5 million new urban jobs will be created for the full year, with the registered urban unemployment rate kept below 3%, falling short of the targeted threshold of 4%. Employment among key groups—including college graduates, rural migrant workers, low-income farming households registered under the poverty‑alleviation program, and workers in industries undergoing capacity‑reduction—has remained steady. Economic growth serves as the “locomotive” driving employment; however, with the macroeconomy currently characterized by overall stability amid evolving conditions, the uncertainties and instabilities facing the labor market have increased markedly. On July 31, the Central Political Bureau meeting adopted a series of decisions and arrangements under the “Six Stabilities” framework, placing “stable employment” at the top of the agenda. On November 16, the State Council issued the “Several Opinions on Doing a Good Job in Promoting Employment in the Current Period and in the Coming Period,” outlining 15 policy measures across five areas, including support for the stable development of enterprises. Building on the implementation of these central directives, the provincial government, in light of Jiangsu’s specific circumstances, has promulgated the aforementioned “Implementation Opinions.”

Greater support for struggling enterprises

Enterprises are the primary employers, and struggling offices—typically characterized by large workforces and significant challenges in maintaining employment—require even greater government support. The Implementation Opinions stipulate that, building on the universal policy of refunding 50% of an enterprise’s actual unemployment insurance contributions from the previous year for those that maintain or minimally reduce their workforce, the level of such refunds will be increased for enterprises facing severe difficulties. From January 1 to December 31, 2019, the refund amount will be calculated based on six months’ worth of the local per capita monthly unemployment benefit and the number of insured employees. Furthermore, if these struggling enterprises organize on-the-job training for their employees, any shortfall in employee education expenses may be appropriately covered by employment subsidy funds. Enterprises are also permitted, through collective bargaining with their workers, to adopt measures such as negotiated wages, flexible working hours, and job rotation or staggered shifts, thereby stabilizing employment positions and labor relations. Additionally, enterprises are encouraged to broaden internal channels for workforce reallocation and reemployment through transformation and product diversification, diversified operations, asset restructuring, skills‑training‑based job transitions, and initiatives to promote “mass entrepreneurship and innovation.”

Compared with previous regulations, the Implementation Opinions have shortened the threshold for identifying struggling enterprises from three consecutive years of losses to either six months or more than eight months of losses within a one-year period.

The maximum loan amount for small and micro enterprise startup loans has been increased to RMB 3 million.

Difficulty and high cost of financing are the most significant challenges faced by start-up entrepreneurs. The Implementation Opinions stipulate that the entrepreneurship guarantee loan will be restructured as the Fumin Entrepreneurship Guarantee Loan, with eligibility expanded to all urban and rural entrepreneurs within the administrative boundaries of our province—including those with non‑local household registration who are starting businesses in Jiangsu. Based on employment‑creation performance, the maximum individual loan amount will be increased from RMB 300,000 to RMB 500,000, and the maximum micro‑and small‑enterprise loan amount will be raised from RMB 2 million to RMB 3 million. The maximum term for individual loans is three years, and for micro‑and small enterprises, two years; borrowers may access such loans up to three times, with interest subsidies provided by the fiscal authorities in accordance with applicable regulations.

With regard to the tax and fee reductions that businesses have been eagerly seeking, the Implementation Opinions stipulate that the existing policy—reducing the combined employer‑and‑employee unemployment insurance contribution rate from 3% to 1% on a temporary basis—will be extended beyond its April 2019 expiration. In pooled areas where the accumulated surplus of the employee medical insurance pooled fund is excessively high, the employer contribution rate may be temporarily and appropriately lowered, while the individual contribution rate remains unchanged. Eligible enterprises facing financial difficulties may, upon approval, defer payment of social insurance contributions other than basic medical insurance premiums, with a deferral period of up to six months.

Unemployed youth may receive an employment internship subsidy.

College graduates and other young people, individuals facing employment difficulties, and laborers from registered low-income farming households are key target groups for employment. The Implementation Opinions stipulate that, effective January 1, 2019, a “Three-Year, 100,000 Youth Employment Internship Program” will be launched, expanding the scope of internship subsidies from college graduates who have left school but remain unemployed to include unemployed youth aged 16 to 24, while also appropriately raising the subsidy rates. A system of unemployment registration based on permanent residence will be implemented; in particular, older workers, persons with disabilities, recipients of minimum living allowances, and laborers from registered low-income farming households may apply at their place of permanent residence to be recognized as facing employment difficulties and receive employment assistance. From January 1, 2019, to December 31, 2020, during participation in vocational training, individuals with employment difficulties, members of zero‑employment households, and laborers from registered low-income farming households will receive a monthly living allowance equal to the local urban residents’ minimum subsistence standard. Additionally, laid-off or unemployed individuals who neither receive minimum living allowances nor unemployment insurance will be provided with temporary living assistance.

According to estimates, the issuance of this Implementation Opinions will deliver benefits exceeding RMB 30 billion to enterprises and employees within the province.

Draft Foreign Investment Law: Foreign-invested enterprises may raise capital through equity and other means.

On December 23, the seventh session of the Standing Committee of the 13th National People’s Congress was held in Beijing. The draft Foreign Investment Law of the People’s Republic of China was submitted for deliberation for the first time. The draft stipulates that foreign-invested enterprises may, in accordance with the law, raise funds through public offerings of stocks, corporate bonds, and other securities, as well as through other means.

With regard to investment promotion, the draft clarifies four additional aspects beyond financing mechanisms: it establishes a pre-establishment national treatment regime coupled with a negative list system for foreign investment; all policies supporting enterprise development adopted by the state shall apply equally to foreign-invested enterprises; foreign-invested enterprises shall participate on an equal footing in standardization efforts and government procurement activities; and people’s governments at all local levels may, within their statutory powers, formulate policies to promote foreign investment, while governments at all levels and their relevant departments are required to further enhance the quality of services provided to foreign investors.

With regard to investment protection, the draft encourages technology cooperation based on voluntary principles and commercial norms, with the terms of such cooperation to be determined through consultation among the investing parties, and prohibits the use of administrative measures to compel technology transfer. It stipulates that the government and its relevant departments, when formulating normative documents pertaining to foreign investment, must ensure compliance with laws and regulations; they may not unlawfully impair the legitimate rights and interests of foreign-invested enterprises or impose additional obligations on them, nor may they unlawfully establish market access or exit conditions or unlawfully interfere with or affect the normal production and business activities of foreign-invested enterprises. Furthermore, the draft provides for the establishment by the state of a mechanism for handling complaints from foreign-invested enterprises, aimed at coordinating and improving major policies and measures related to the resolution of such complaints, and at promptly addressing issues raised by these enterprises.

In addition, with respect to the administration of foreign investment, the draft includes corresponding provisions: First, to implement the pre-establishment national treatment plus negative list regime, it stipulates that in sectors prohibited by the negative list, foreign investors may not invest; in sectors subject to restrictions, foreign investment must comply with prescribed conditions; and in sectors outside the negative list, management shall be conducted in accordance with the principle of equal treatment for domestic and foreign investors. Second, in alignment with relevant laws and regulations, it provides that the approval and filing of foreign-invested projects shall be carried out in accordance with applicable state provisions; where foreign investment in a particular industry or sector requires a license under the law, the requisite licensing procedures must be obtained; and the registration of foreign-invested enterprises, as well as matters related to taxation, accounting, foreign exchange, and other areas, shall be handled in compliance with relevant laws, administrative regulations, and pertinent state provisions. Third, it establishes a national information‑reporting system for foreign investment, with the content and scope of such reporting determined on the principles of necessity and strict control; foreign investors or foreign‑invested enterprises shall submit investment information through the enterprise registration system and the enterprise credit information disclosure system to the competent commerce authorities, and no further reporting shall be required for information already obtainable through inter‑agency data sharing. Fourth, to safeguard national security, it sets out general principles governing the security review of foreign investment and clarifies that the decision of the security review is final.

Taxation TAXATATION

The National Financial Work Conference was held in Beijing: Deepening the reform of the fiscal and tax systems.

From December 27 to 28, the National Financial Work Conference was held in Beijing. The conference emphasized that ten key tasks should be prioritized in 2019, including deepening fiscal and tax system reform and improving the management of state-owned assets and accounting practices.

Among these, the seventh item is to deepen reform of the fiscal and tax systems. In line with the goal of boosting the vitality of market entities and mobilizing local initiative, we will accelerate fiscal system reform, improve the budget management system, refine the tax system, and make further breakthroughs in key reform tasks. The ninth item is to continuously enhance the effectiveness of fiscal management. We will comprehensively implement performance-based budgeting, strengthen the management of state-owned assets and accounting practices, rigorously advance institutional development and enforcement, and ensure that fiscal funds and state-owned assets are managed and utilized effectively.

The two departments have clarified the issue of aligning preferential policies following the amendment to the Individual Income Tax Law.

The Ministry of Finance and the State Taxation Administration have issued the “Notice on the Coordination of Preferential Policies Following the Amendment to the Individual Income Tax Law” (Cai Shui [2018] No. 164), which shall take effect as of January 1, 2019.

Specifically, for resident individuals who receive a one-time annual bonus that meets the prescribed conditions, such bonuses shall, prior to December 31, 2021, not be included in the individual’s annual comprehensive income. Instead, the applicable tax rate and quick deduction amount shall be determined by referring to the monthly‑converted comprehensive income tax rate schedule attached to this notice, based on the quotient obtained by dividing the total one-time annual bonus by 12 months, and the tax shall be calculated separately.

Attachment: “Notice on the Coordination of Relevant Preferential Policies Following the Amendment to the Individual Income Tax Law” (Cai Shui [2018] No. 164)

To the Finance Departments (Bureaus) of all provinces, autonomous regions, municipalities directly under the central government, and cities separately listed in the national plan; to the Tax Bureaus of all provinces, autonomous regions, municipalities directly under the central government, and cities separately listed in the national plan of the State Taxation Administration; and to the Finance Bureau of the Xinjiang Production and Construction Corps:

In order to implement the amended Individual Income Tax Law of the People’s Republic of China, the following matters concerning the alignment of individual income tax preferential policies are hereby notified:

I. Policies Regarding Year-End One-Time Bonuses, Deferred Payment of Annual Performance-Based Salaries for Leaders of Central Enterprises, and Tenure-Based Awards

(1) For individual residents who receive a one-time year-end bonus that meets the requirements set forth in the “Notice of the State Administration of Taxation on Adjusting the Method for Calculating and Collecting Individual Income Tax on One-Time Year-End Bonuses, etc.” (Guo Shui Fa [2005] No. 9), such bonuses shall, prior to December 31, 2021, not be included in the annual comprehensive income. Instead, the applicable tax rate and quick deduction amount shall be determined by dividing the total one-time year-end bonus by 12 months and then applying the monthly converted comprehensive income tax rate table attached to this notice (hereinafter referred to as the “monthly tax rate table”), with the tax being calculated separately. The calculation formula is:

Tax payable = Annual one-time bonus income × Applicable tax rate − Quick deduction amount

Individual residents who receive a one-time annual bonus may also elect to include it in their annual comprehensive income for tax calculation.

Effective January 1, 2022, any one-time annual bonus received by individual residents shall be included in their annual comprehensive income for the purpose of calculating and paying personal income tax.

(2) With respect to deferred‑payment annual performance‑based remuneration and tenure awards received by heads of central enterprises, where such income meets the requirements set forth in the “Notice of the State Administration of Taxation on the Collection of Individual Income Tax on Deferred‑Payment Annual Performance‑Based Remuneration and Tenure Awards of Heads of Central Enterprises” (Guo Shui Fa [2007] No. 118), it shall be governed, prior to December 31, 2021, in accordance with Paragraph (1) of Article 1 of this Notice; policies applicable from January 1, 2022, will be specified separately.

II. Policies on Equity Incentives for Listed Companies

(1) Where an individual resident receives equity incentives such as stock options, stock appreciation rights, restricted stocks, or equity awards (hereinafter referred to as “equity incentives”), and such incentives meet the relevant conditions set forth in Article 4 of the “Notice of the Ministry of Finance and the State Taxation Administration on the Collection of Individual Income Tax on Income from Individual Stock Options” (Cai Shui [2005] No. 35), the “Notice of the Ministry of Finance and the State Taxation Administration on Relevant Issues Concerning the Collection of Individual Income Tax on Income from Stock Appreciation Rights and Restricted Stocks” (Cai Shui [2009] No. 5), the “Notice of the Ministry of Finance and the State Taxation Administration on Extending the Application of Certain Tax Pilot Policies for National Independent Innovation Demonstration Zones Nationwide” (Cai Shui [2015] No. 116), and Paragraph (1) of Article 4 of the “Notice of the Ministry of Finance and the State Taxation Administration on Improving the Income Tax Policies Related to Equity Incentives and Technology‑Based Equity Contributions” (Cai Shui [2016] No. 101), then, prior to December 31, 2021, such income shall not be included in the individual’s annual comprehensive income; instead, it shall be taxed separately at the full amount according to the applicable comprehensive income tax rate schedule. The calculation formula is:

Tax payable = Equity incentive income × Applicable tax rate − Quick deduction amount

(2) If an individual resident receives equity incentives two or more times (including two times) within a tax year, the taxable income shall be computed on a consolidated basis in accordance with Paragraph (1) of Article 2 of this Notice.

(3) Equity incentive policies effective after January 1, 2022, shall be specified separately.

III. Policies Regarding Commission Income of Insurance Agents and Securities Brokers

Commission income earned by insurance marketers and securities brokers is classified as labor‑service income. The taxable income is calculated as the gross income (excluding VAT) less a 20% deduction for expenses. After deducting business‑development costs and applicable surcharges and taxes, this amount is included in the taxpayer’s annual comprehensive income for the purpose of calculating and paying individual income tax. For insurance marketers and securities brokers, business‑development costs are determined at 25% of the gross income.

When a withholding agent pays commission income to insurance marketers and securities brokers, it shall calculate the withheld tax using the cumulative withholding method as prescribed in the Measures for the Administration of Withholding and Declaration of Individual Income Tax (Trial) (State Taxation Administration Announcement No. 61 of 2018).

IV. Policies Regarding Individual Receipt of Enterprise Annuities and Occupational Annuities

When an individual reaches the nationally prescribed retirement age, enterprise annuities and occupational annuities received in accordance with the provisions of the “Notice of the Ministry of Finance, the Ministry of Human Resources and Social Security, and the State Taxation Administration on Relevant Issues Concerning Individual Income Tax on Enterprise Annuities and Occupational Annuities” (Cai Shui [2013] No. 103) shall not be included in comprehensive income and shall be taxed in full on a separate basis. Specifically, for benefits paid on a monthly basis, tax shall be calculated using the monthly tax rate schedule; for benefits paid quarterly, the total amount shall be prorated across the months, and tax shall be calculated using the monthly tax rate schedule based on the monthly payment; for benefits paid annually, tax shall be calculated using the comprehensive income tax rate schedule.

Individuals who receive a lump-sum payment from their annuity personal account upon emigrating for permanent residence, or, following the individual’s death, their designated beneficiaries or legal heirs who receive a lump-sum payment of the remaining balance in the annuity personal account, shall have their tax liability calculated using the comprehensive income tax rate schedule. For all other cases where an individual receives a lump-sum payment from their annuity personal account or its balance—except for the aforementioned special circumstances—the tax shall be computed using the monthly tax rate schedule.

V. Policies Regarding One-Time Compensation Payments for Termination of Employment, Early Retirement, and Internal Retirement with Reduced Benefits

(1) For individuals who terminate their employment relationship with an employer and receive a one-time compensation payment (including economic compensation, living allowances, and other subsidies), the portion not exceeding three times the local average annual salary of employees in the preceding year is exempt from personal income tax. Any amount exceeding three times that threshold shall not be included in the individual’s annual comprehensive income; instead, it shall be taxed separately according to the applicable comprehensive income tax rate schedule.

(2) A one-time subsidy received by an individual upon completing the procedures for early retirement shall be allocated evenly over the actual number of years between the date of such procedures and the statutory retirement age, in order to determine the applicable tax rate and the corresponding quick‑deduction amount. The subsidy shall be taxed separately using the comprehensive income tax rate schedule. Calculation formula:
Tax payable = {[(One-time subsidy income ÷ Number of actual years from the date of applying for early retirement to the statutory retirement age) − Standard deduction] × Applicable tax rate − Quick‑calculation deduction} × Number of actual years from the date of applying for early retirement to the statutory retirement age

(3) One-time lump-sum allowances received by individuals upon completing internal retirement procedures shall be taxed in accordance with the provisions of the “Notice of the State Administration of Taxation on Relevant Policy Issues Concerning Individual Income Tax” (Guo Shui Fa [1999] No. 58).

VI. Policy on Low‑Price Housing Sales by Employers to Employees

When an employer sells housing to its employees at a price lower than the acquisition or construction cost, the difference in price that the employee thereby saves, if it meets the conditions set forth in Article 2 of the “Notice of the Ministry of Finance and the State Taxation Administration on Relevant Individual Income Tax Issues Concerning the Sale of Housing by Employers to Employees at Reduced Prices” (Cai Shui [2007] No. 13), shall not be included in the individual’s annual comprehensive income. Instead, the applicable tax rate and quick‑deduction amount shall be determined based on the monthly tax rate schedule, using the quotient obtained by dividing the difference in price by 12 months, and the tax shall be calculated separately. The calculation formula is:

Tax payable = (The difference between the employee’s actual housing purchase price and the acquisition or construction cost of the property) × Applicable tax rate − Quick‑calculation deduction.

VII. Policies Regarding Allowances and Subsidies for Foreign Nationals

(1) From January 1, 2019, to December 31, 2021, foreign individuals who meet the criteria for resident individuals may either elect to claim the individual income tax special additional deductions or opt to avail themselves of the tax‑exempt preferential policies applicable to housing allowances, language‑training expenses, children’s education expenses, and other similar subsidies, in accordance with the “Notice of the Ministry of Finance and the State Administration of Taxation on Several Policy Issues Concerning Individual Income Tax” (Cai Shui [1994] No. 20), the “Notice of the State Administration of Taxation on the Implementation of Exemption from Individual Income Tax on Certain Subsidies Received by Foreign Individuals” (Guo Shui Fa [1997] No. 54), and the “Notice of the Ministry of Finance and the State Administration of Taxation on the Exemption from Individual Income Tax on Housing and Other Subsidies Received by Foreign Individuals in Hong Kong and Macao” (Cai Shui [2004] No. 29). However, these two options cannot be exercised concurrently. Once a foreign individual has made an election, it may not be changed within the same tax year.

(2) Effective January 1, 2022, foreign nationals will no longer be eligible for the tax‑exempt preferential policies on housing allowances, language training expenses, and children’s education expenses; instead, they shall claim the relevant special additional deductions in accordance with applicable regulations.

VIII. Except for the aforementioned transitional arrangements, all other individual income tax preferential policies shall continue to be implemented in accordance with the provisions of the original documents.

IX. This Notice shall take effect as of January 1, 2019. The following documents or provisions thereof are hereby repealed:

(1) Article 1 of the “Notice of the Ministry of Finance and the State Administration of Taxation on the Exemption from Individual Income Tax on One-time Compensation Received by Individuals upon Termination of Employment Relationships with Employers” (Cai Shui [2001] No. 157);

(2) Paragraph (1) of Article 4 of the “Notice of the Ministry of Finance and the State Administration of Taxation on the Collection of Individual Income Tax on Personal Stock Option Income” (Cai Shui [2005] No. 35);

(3) Article 3 of the “Notice of the Ministry of Finance and the State Administration of Taxation on Individual Income Tax Issues Related to the Sale of Housing at Below-Market Prices by Employers to Employees” (Cai Shui [2007] No. 13);

(4) Paragraph 1 and Paragraph 3 of Article 3 of the “Notice of the Ministry of Finance, the Ministry of Human Resources and Social Security, and the State Taxation Administration on Relevant Issues Concerning Individual Income Tax on Enterprise Annuities and Occupational Annuities” (Cai Shui [2013] No. 103);

(5) “Notice of the State Administration of Taxation on Issues Concerning the Collection of Individual Income Tax on Discount or Subsidy Income Received by Individuals from Their Employers for Purchasing Stocks and Other Securities” (Guo Shui Fa [1998] No. 9);

(6) Notice of the State Administration of Taxation on the Issue of Levying Individual Income Tax on Income Earned by Insurance Sales Agents (Non-Employees) (Guo Shui Fa [1998] No. 13);

(7) “Notice of the State Administration of Taxation on the Collection of Individual Income Tax on Economic Compensation Received by Individuals upon Termination of Labor Contracts” (Guo Shui Fa [1999] No. 178);

(8) “Notice of the State Administration of Taxation on the Exemption from Individual Income Tax on One-time Compensation Received by Employees of State-owned Enterprises upon Termination of Labor Contracts” (Guo Shui Fa [2000] No. 77);

(9) Article 2 of the “Notice of the State Administration of Taxation on Adjusting the Method for Calculating and Collecting Individual Income Tax on One-Time Year-End Bonuses and Other Such Income” (Guo Shui Fa [2005] No. 9);

(10) Notice of the State Administration of Taxation on the Exemption from Individual Income Tax on Commission Income Earned by Insurance Sales Agents (Guo Shui Han [2006] No. 454);

(11) Articles 7 and 8 of the “Supplementary Notice of the State Administration of Taxation on Issues Concerning the Payment of Individual Income Tax on Personal Stock Option Income” (Guo Shui Han [2006] No. 902);

(12) Article 1 of the “Notice of the State Administration of Taxation on the Collection of Individual Income Tax on Deferred Payment of Annual Performance‑Based Salaries and Tenure Awards for Heads of Central Enterprises” (Guo Shui Fa [2007] No. 118);

(13) Article 2 of the “Announcement of the State Taxation Administration on Individual Income Tax Issues Related to Subsidy Income Received by Individuals upon Early Retirement” (State Taxation Administration Announcement No. 6 of 2011);

(14) “Announcement of the State Administration of Taxation on the Collection of Individual Income Tax on Commission Income of Securities Brokers” (State Administration of Taxation Announcement No. 45 of 2012).

Attachment: Comprehensive Income Tax Rate Schedule Converted to a Monthly Basis

The State Council Taiwan Affairs Office: Compatriots in Taiwan are eligible for preferential tax arrangements under the new Individual Income Tax Law.

At the Taiwan Affairs Office’s regular press conference on December 26, spokesperson Ma Xiaoguang stated in response to a question that the Regulations for the Implementation of the Individual Income Tax Law, which will officially take effect on January 1, 2019, introduces further favorable measures to ease the taxation of overseas income for non-residents, including Taiwanese nationals. Compatriots from Taiwan are eligible to benefit from these new provisions.

Ma Xiaoguang pointed out that, prior to the revision of the Individual Income Tax Law, overseas individuals—including compatriots from Taiwan—were eligible for a five-year tax exemption on foreign-source income paid from abroad. Specifically, those who did not have a domicile in mainland China but resided there for more than one year and less than five years were required to pay individual income tax only on income sourced within mainland China and on foreign-source income paid within mainland China. Under the newly promulgated implementing regulations, this five-year exemption period has been extended to six years, and a new provision has been added: if such a non-domiciled individual leaves China for more than 30 days in a single trip, the six-year residency requirement will be recalculated from the date of their return. In essence, these measures provide more favorable treatment with respect to the calculation of cumulative time spent residing in mainland China.

General Administration of Customs: The 2019 Tariff Adjustment Plan Has Been Released.

The “2019 Plan for Adjustments to Provisional Import and Export Tariff Rates, etc.” has been approved by the State Council and will take effect on January 1, 2019 (for details, please refer to the website of the Ministry of Finance). To ensure the accurate implementation of the “2019 Plan for Adjustments to Provisional Import and Export Tariff Rates, etc.,” the relevant matters are hereby announced as follows:

I. Main Features of the 2019 Tariff Adjustment Plan

(1) Adjust import tariff rates.

1. Most-Favored-Nation tariff rate.

(1) Effective January 1, 2019, provisional import tariff rates will be applied to 706 items; effective July 1, 2019, the provisional import tariff rates for 14 information technology products will be abolished, and the scope of application of the provisional import tariff rate for one item will be narrowed.

(2) Effective July 1, 2019, the fourth round of tariff reductions shall be applied to the most-favored-nation rates for information technology products listed in the Schedule to the Amendment to the Tariff Concession Schedule of the People’s Republic of China upon its accession to the World Trade Organization.

2. Tariff-rate quota rate.

Tariff quota administration will continue to apply to eight categories of goods, including wheat, with no change in tariff rates. Specifically, a provisional import tariff rate of 1% will remain in effect for the three fertilizer products—urea, compound fertilizer, and diammonium phosphate—under the tariff quota regime. In addition, a sliding-scale tariff will continue to be applied to a specified quantity of cotton imported beyond the quota, with appropriate adjustments made as necessary.

3. Agreed tariff rate.

(1) In accordance with the trade or preferential tariff agreements signed between China and relevant countries or regions, in addition to the continuation of previously approved tariff reduction schedules already submitted to the State Council for approval, effective January 1, 2019, further reductions will be applied to the agreed‑upon tariff rates with New Zealand, Peru, Costa Rica, Switzerland, Iceland, the Republic of Korea, Australia, Georgia, and the member countries of the Asia-Pacific Trade Agreement. Furthermore, pursuant to the Goods Trade Agreement under the Arrangement on Closer Economic Partnership between the Mainland and Hong Kong and Macao (hereinafter referred to as the “Agreement”), with effect from the date of its entry into force, except for products for which the Mainland has made specific commitments in relevant international agreements, zero tariffs will be fully applied to products originating in Hong Kong and Macao.

(2) When the most-favored-nation tariff rate is lower than or equal to the treaty tariff rate, the provisions of the relevant agreement shall apply.

4. Preferential tariff rates.

In accordance with the provisions of the Asia-Pacific Trade Agreement, preferential tariff rates under the Agreement have been further reduced.

(2) Export tariff rates.

Effective January 1, 2019, export tariffs will continue to be imposed on 108 export commodities, including ferrochrome, or provisional export tax rates will remain in place; the applicable rates will stay unchanged. Meanwhile, the provisional export tax rates for 94 items will be abolished.

II. Other Matters for Clarification

To support import and export enterprises and ensure the smooth implementation of the “2019 Adjustments to Provisional Import and Export Tariff Rates,” and to enable consignors, consignees, operators, and their agents to cross‑check and make accurate declarations, the General Administration of Customs has prepared the 2019 “Provisional Tariff Schedule for Import and Export Goods” and the “Catalogue of Standardized Declaration Items for Import and Export Goods of the People’s Republic of China,” which are available for customs clearance reference (see the General Administration of Customs portal website).

LITIGATION & ARBITRATION

The State Administration for Market Regulation has released typical cases of curbing the abuse of administrative power to exclude or restrict competition.

On December 29, the State Administration for Market Regulation issued the “Announcement on the Publication of Typical Cases in 2018 Involving the Prevention of Abuse of Administrative Power to Exclude or Restrict Competition” (hereinafter referred to as the “Announcement”), which disclosed 16 typical cases concerning the prevention of such abuses.

Case One: Beijing Municipality Rectifies Administrative Monopolistic Practices by the Fangshan District Gas Development Center

In February 2018, based on relevant leads, the Beijing Municipal Commission of Development and Reform launched an investigation into the Fangshan District Gas Development Center for suspected abuse of administrative power to exclude or restrict competition.

Upon investigation, it was found that the Fangshan District Gas Development Center is responsible for the planning, construction, management, and operation of natural gas projects in Fangshan District, and also exercises regulatory functions over the district’s gas industry. In the course of processing applications for gas‑related project installation and approvals, the Center has, through direct entrustment or designated arrangements, required developers to sign standard contracts provided by the Center itself and mandated that developers engage only enterprises affiliated with the Fangshan District Gas Development Center to carry out construction work. According to the findings, the vast majority of gas projects within Fangshan District have been implemented without any competitive bidding process, with construction undertaken directly by subsidiaries of the Fangshan District Gas Development Center. Such practices have, to a certain extent, restricted developers’ freedom of choice and undermined the fair competition rights of other qualified construction offices, thereby violating Article 32 of the Anti‑Monopoly Law, which stipulates: “Administrative organs and organizations authorized by laws and regulations to perform public‑affairs management shall not abuse their administrative power to restrict, or indirectly restrict, entities or individuals from operating, purchasing, or using goods supplied by operators they designate.” Consequently, these actions constitute an abuse of administrative power and amount to conduct that excludes or restricts competition.

In response to the aforementioned circumstances, the Beijing Municipal Development and Reform Commission notified the Fangshan District Government Office, the District State-owned Assets Supervision and Administration Commission, the District Urban Management Committee, the District Gas Development Center, and other relevant departments of the facts pertaining to exclusionary and restrictive competitive practices, and recommended that they promptly undertake comprehensive corrective measures. The Fangshan District Gas Development Center cooperated fully with the enforcement investigation and implemented effective remedial measures, proactively rectifying any exclusionary or restrictive competitive conduct in the exercise of its gas‑industry regulatory functions delegated by the district government. In April 2018, it publicly disclosed the details of these proactive corrections on its website.

Case No. 2: Shanxi Province Rectifies Administrative Monopolistic Practices by the Jinzhong Municipal Housing Security and Urban–Rural Construction Bureau

In early 2018, the Shanxi Provincial Development and Reform Commission launched an investigation into the Jinzhong Municipal Housing Security and Urban–Rural Construction Bureau for alleged abuse of administrative power to exclude or restrict competition.

Upon investigation, it was found that in September 2014, the Jinzhong Municipal Housing Security and Urban–Rural Development Bureau convened a special meeting to deliberate on preparatory matters related to the construction of a new public rental housing project in the urban area of Jinzhong. The meeting resulted in the “Minutes of the Special Meeting of the Jinzhong Municipal Housing and Urban–Rural Development Bureau” (Document No. [2014]33), which designated Shanxi Henglong Construction Drawing Review Co., Ltd. to undertake the review of the project’s construction drawing design documents. Furthermore, without any legal or regulatory basis, the Administrative Approval Hall of the Jinzhong Municipal Housing Security and Urban–Rural Development Bureau imposed filing requirements for construction drawing reviews, thereby restricting fair competition between out-of‑region and local construction drawing review agencies. These actions contravene Article 32 of the Anti‑Monopoly Law, which stipulates that “administrative organs and organizations authorized by laws and regulations to perform public administration functions shall not abuse their administrative power to restrict or indirectly restrict entities or individuals from operating, purchasing, or using goods provided by operators they designate,” as well as Article 37, which provides that “administrative organs shall not abuse their administrative power to formulate provisions containing content that excludes or restricts competition.” Accordingly, such conduct constitutes an abuse of administrative power and amounts to behavior that excludes or restricts competition.

During the course of its investigation, the Shanxi Provincial Development and Reform Commission brought the aforementioned issues to the attention of the Jinzhong Municipal Housing Security and Urban–Rural Construction Bureau. Subsequently, the Bureau addressed these problems by issuing, in April 2018, two official notices: “Notice of the Jinzhong Municipal Housing Security and Urban–Rural Construction Bureau on Revoking Shanxi Henglong Construction Drawing Review Co., Ltd.’s Authorization to Undertake Construction Drawing Review Services for Public Rental Housing Projects in the Urban District” (Document No. [2018] 99) and “Notice of the Jinzhong Municipal Housing Security and Urban–Rural Construction Bureau on Adjusting the Time Limits for Filing and Processing Construction Drawing Reviews” (Document No. [2018] 119).

Case Three: Shanghai Municipality Rectifies Administrative Monopolistic Practices by the Shanghai Municipal Commission of Commerce

In November 2017, the Shanghai Municipal Development and Reform Commission launched an investigation into alleged abuse of administrative power by the Shanghai Municipal Commission of Commerce to exclude or restrict competition.

Upon investigation, it was found that in January 2017, the Shanghai Municipal Commission of Commerce issued the “Notice of the Shanghai Municipal Commission of Commerce on Conducting the 2016 Annual Review of Pledge Enterprises,” which directly designated the accounting office responsible for the annual review. This practice restricted competition among accounting offices in the pledge‑enterprise annual‑review market, thereby violating Article 32 of the Anti‑Monopoly Law, which stipulates: “Administrative organs and organizations authorized by laws and regulations to perform public‑affairs management functions shall not abuse their administrative power to impose or indirectly impose restrictions on entities or individuals regarding the operation, purchase, or use of goods provided by operators they designate.” Such conduct constitutes an abuse of administrative power and amounts to conduct that excludes or restricts competition.

During the investigation, the Shanghai Municipal Commission of Commerce recognized that the aforementioned practices were inconsistent with the relevant requirements of the Anti-Monopoly Law and proactively submitted a remediation plan. In January 2018, the Shanghai Municipal Development and Reform Commission held a meeting with the Shanghai Municipal Commission of Commerce and approved the commission’s proposed remediation plan. Also in January 2018, the Shanghai Municipal Commission of Commerce published on its official website information regarding the rectification of anti-competitive conduct.

Case Four: Jiangsu Province Rectifies Administrative Monopolistic Practices by the Suzhou Road Transport Administration Agency

In December 2017, based on a tip-off, the former Jiangsu Provincial Administration for Industry and Commerce launched an investigation into the Suzhou Road Transport Administration for suspected abuse of administrative power to exclude or restrict competition.

Upon investigation, in February 2017, the Suzhou Municipal Transportation Bureau issued the “Reply on Approving the 2017 Suzhou Driver Training Market Development Plan” (Sujiao [2017] No. 22), approving the Suzhou Transportation Management Office’s “2017 Suzhou Driver Training Market Development Plan.” The plan stipulated that, in 2017, a total of 400 new C1 (C2) training vehicles would be added—60 in the urban area (including Wuzhong and Xiangcheng), 60 in Wujiang District, 80 in Kunshan City, 60 in Taicang City, 60 in Changshu City, and 80 in Zhangjiagang City. All newly allocated vehicle quotas were to be deployed under the “Smart Driving Training” model and publicly assigned through a service‑quality bidding process based on merit. On February 14, the Suzhou Transportation Management Office issued the “Notice on Implementing the 2017 Suzhou Driver Training Market Development Plan” (Suyunzi [2017] No. 7), requiring that all newly allocated vehicle quotas be managed under the “Smart Driving Training” model and allocated publicly via a service‑quality bidding procedure.

Article 39 of the Regulations of the People’s Republic of China on Road Transport sets out clear conditions for applications to engage in motor vehicle driver training; Article 40 provides that, for eligible driver‑training applications, “the road transport administrative authority at the county level shall complete its review within 15 days from the date of acceptance of the application and issue a decision granting or denying permission, notifying the applicant in writing.” However, the road transport administrative authorities of Suzhou City failed to strictly enforce the Regulations, instead introducing additional entry requirements through a tendering process in the management of the driver‑training market, thereby raising the threshold for market access. Such conduct violates Article 37 of the Anti‑Monopoly Law, which stipulates that “administrative organs shall not abuse their administrative power by formulating provisions containing content that excludes or restricts competition,” thus constituting an abuse of administrative power and a practice that excludes or restricts competition. In January 2018, the former Jiangsu Provincial Administration for Industry and Commerce issued an administrative recommendation to the Suzhou Municipal People’s Government, urging it to order the Suzhou Municipal Transportation Bureau to rectify the aforementioned abusive practices that exclude or restrict competition, and to establish and improve a sound mechanism for reviewing and safeguarding fair competition, promptly correcting any such abuses. At present, the Suzhou Municipal People’s Government has instructed transportation authorities at all levels to fully open up the driver‑training market and refrain from imposing any additional conditions. Concurrently, it has issued the “Notice on Properly Carrying Out the Licensing of Motor Vehicle Driver Training Operations,” requiring road transport administrative authorities throughout the region to enforce these measures rigorously.

Tianjin’s market regulation authorities have initiated an investigation into Quanjian for suspected false advertising.

Recently, the joint investigation team into the “Quanjian incident” stated that certain products of Tianjin Quanjian Company are suspected of engaging in exaggerated advertising. In accordance with Article 8 of the Anti-Unfair Competition Law of the People’s Republic of China, the Market Supervision Administration of Wuqing District, Tianjin, has initiated an administrative investigation into the company’s alleged illegal acts of false advertising.

In addition, with regard to public concerns about “Zhou Yang’s medical treatment” and whether there are allegations of illegal pyramid-scheme activities, the joint investigation team is still conducting its inquiry and verification. The findings will be promptly made public.

Beijing Honghuanglan Kindergarten Child Abuse Case Verdict: Defendant Sentenced to One and a Half Years in Prison

On December 28, the People’s Court of Chaoyang District, Beijing, handed down a public verdict in accordance with the law in the case of defendant Liu Yanan for abuse of a person under care. Liu Yanan was sentenced to one year and six months’ imprisonment for the crime of abusing a person under care, and was also prohibited from engaging in any work involving the care or education of minors for a period of five years, commencing from the date her sentence is fully served or from the date of her parole, whichever is later.

The Yang County Court held that young children are the future of the nation and the hope of the people, a group deserving special protection, whose legitimate rights and interests must not be infringed. The defendant, Liu Yanan, as a preschool teacher, was obligated to supervise, care for, protect, and educate the children under her care; however, she violated professional ethics and her duties of care by using needle-like objects to inflict harm on multiple young children, in circumstances of grave severity. Her conduct has seriously impaired the physical and mental health of minors and constitutes the crime of maltreating persons under one’s care, for which she should be punished in accordance with the law. In view of the nature of her offense and the need to prevent recidivism, a ban on engaging in related professions is required by law.

Other

National Medical Products Administration: Strengthening Drug Supervision During the Pilot Program for Centralized Procurement and Use of Medicines

On December 27, the National Medical Products Administration issued the “Notice on Strengthening Drug Regulatory Oversight During the Pilot Phase of Centralized Drug Procurement and Use” (hereinafter referred to as the “Notice”), mandating enhanced oversight of drug manufacturing.

The Notice requires that all provincial drug regulatory authorities adhere to a problem‑oriented approach, strengthen routine supervision, and urge enterprises to fulfill their principal responsibilities. They are to intensify on‑site inspections of products that have passed the bioequivalence evaluation for generic drugs, particularly those manufactured by winning‑bid pharmaceutical companies, with a focus on verifying the implementation of enterprises’ obligations to identify and address potential risks, the compliance with Good Manufacturing Practices, and the accuracy and reliability of data. Furthermore, they must rigorously enforce quality control over raw materials and excipients, strictly manage source‑level quality risks, and ensure that production is conducted in strict accordance with the approved formulation and manufacturing processes. Where contract manufacturing is involved, the quality management of such contracted production must also be fully implemented.

The market regulation movable‑property pledge registration system will be launched nationwide.

To deepen reforms of the business registration system and further promote the informatization, standardization, and facilitation of movable‑property pledge registration, in accordance with the guiding principles set forth in the State Council’s “Guiding Opinions on Accelerating the Advancement of ‘Internet Plus Government Services,’” the State Administration for Market Regulation has developed and launched the National Market Regulation Movable‑Property Pledge Registration System, which went live nationwide on December 28.

After the system goes live, applicants may submit applications for movable‑property mortgage registration upon registering and logging in; registration information processed through this system will be promptly made public. The general public may access relevant information without registering or logging in.

Following the system’s launch, all newly filed movable‑property mortgage registrations processed by the market regulatory authorities shall be handled exclusively through the system. For registrations originally processed via the previous procedures, as well as for applications to amend or cancel such registrations, the existing methods will continue to apply. All relevant forms and documents shall adhere to the new standardized format. Registrations processed through the system shall carry the same legal effect as those processed on-site. While the online system is in use, on-site registration will remain available, and parties may choose to submit their applications directly at the registration authority.

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