JC Master Legal News Issue 856

Key Takeaways for This Issue

The China Securities Regulatory Commission has issued the “Implementation Opinions on Establishing the STAR Market at the Shanghai Stock Exchange and Piloting the Registration-Based System.”

With the approval of the CPC Central Committee and the State Council, the China Securities Regulatory Commission (CSRC) issued on January 30, 2019 the “Implementation Opinions on Establishing the STAR Market at the Shanghai Stock Exchange and Piloting the Registration-Based System” (hereinafter referred to as the “Implementation Opinions”). The CSRC and the Shanghai Stock Exchange (hereinafter referred to as the SSE) are, in accordance with the requirements of the Implementation Opinions, steadily advancing all tasks related to the establishment of the STAR Market and the pilot registration-based system.

Wuliangye has repeatedly been implicated in corruption cases; senior officials from the State-owned Assets Supervision and Administration Commission were expelled from the Party and dismissed from their posts for interfering with distribution rights.

On February 1, Sichuan publicly disclosed four typical cases involving Party members and cadres who exploited high‑priced local specialties and regional products for personal gain. Among these four cases, three involved Wuliangye, a renowned baijiu from Yibin, Sichuan, while one concerned Moutai liquor.

Government work reports from many localities have focused on implementing universal tax and fee reduction policies.

Recently, in their respective government work reports, provinces have all emphasized that implementing the central government’s policy of larger‑scale tax and fee reductions will be a key priority for 2019. This will be achieved by combining universal tax cuts with targeted structural reforms, extending broad‑based tax relief to small and micro enterprises as well as start‑up technology offices, and streamlining and standardizing local charges, so that businesses can experience tangible benefits.

Two Supreme Courts and the Ministry of Public Security: When state functionaries, by leveraging their official positions, condone illegal fundraising, such conduct constitutes a crime.

The Supreme People’s Court, the Supreme People’s Procuratorate, and the Ministry of Public Security have jointly issued the “Opinions on Several Issues Concerning the Handling of Criminal Cases Involving Illegal Fundraising” (hereinafter referred to as the “Opinions”). The Opinions clarify the salient issues that have emerged in law enforcement and judicial practice from four perspectives: the application of substantive law, litigation procedures, policy interpretation, and working mechanisms.

The Supreme People’s Court and the Supreme People’s Procuratorate have issued a judicial interpretation that clarifies the criteria for determining the illegal trading of foreign exchange.

The Supreme People’s Court and the Supreme People’s Procuratorate recently jointly issued the “Interpretation on Several Issues Concerning the Application of Law in Handling Criminal Cases Involving Illegally Engaging in Fund Payment and Settlement Services and Illegally Trading Foreign Exchange,” stipulating that acts such as reselling foreign exchange or engaging in disguised foreign‑exchange trading—thereby disrupting the order of the financial market—and if the circumstances are serious, shall be prosecuted and punished as the crime of illegal business operations.

Table of Contents

Table of Contents

Finance & Capital Markets

The China Securities Regulatory Commission has issued the “Implementation Opinions on Establishing the STAR Market at the Shanghai Stock Exchange and Piloting the Registration-Based System.”

The China Securities Regulatory Commission is soliciting public comments on the Interim Provisions on the Management of External Access to Securities Offices’ Trading Information Systems.

The China Securities Regulatory Commission is soliciting public comments on the “Administrative Measures for Domestic Securities and Futures Investments by Qualified Foreign Institutional Investors and Renminbi‑Qualified Foreign Institutional Investors (Draft for Comments)” and its accompanying rules.

The China Securities Regulatory Commission has guided stock exchanges to refine the margin trading and short-selling mechanisms, thereby meeting investors’ diversified needs.

Wanda Cinema has adjusted its restructuring plan and will issue shares to acquire a 95.77% stake in Wanda Film & TV.

Corporate & Commercial

Wuliangye has repeatedly been implicated in corruption cases; senior officials from the State-owned Assets Supervision and Administration Commission were expelled from the Party and dismissed from their posts for interfering with distribution rights.

Six centrally managed officials have been dealt with in the Changchun Changsheng problematic vaccine case.

A Watsons sales associate’s promotion of products under the “cosmeceutical” concept may constitute a violation of the law.

Last year, the national software industry’s revenue exceeded 6.3 trillion yuan.

The Ministry of Housing and Urban-Rural Development is eliminating unequal restrictions on private enterprises.

Taxation

Government work reports from many localities have focused on implementing universal tax and fee reduction policies.

Jiangsu Taxation: Heartwarming Outreach and Engagement Along the Way Home

Litigation & Arbitration

Two Supreme Courts and the Ministry of Public Security: When state functionaries, by leveraging their official positions, condone illegal fundraising, such conduct constitutes a crime.

The Supreme People’s Court and the Supreme People’s Procuratorate have issued a judicial interpretation: crimes involving “underground money houses” shall be severely punished in accordance with the law.

Other

The Supreme People’s Court and the Supreme People’s Procuratorate have issued a judicial interpretation that clarifies the criteria for determining the illegal trading of foreign exchange.

The number of illegal fundraising criminal cases handled by the procuratorial organs has been increasing year after year.

Finance & Capital Markets

The China Securities Regulatory Commission has issued the “Implementation Opinions on Establishing the STAR Market at the Shanghai Stock Exchange and Piloting the Registration-Based System.”

With the approval of the CPC Central Committee and the State Council, the China Securities Regulatory Commission (CSRC) issued on January 30, 2019 the “Implementation Opinions on Establishing the STAR Market at the Shanghai Stock Exchange and Piloting the Registration-Based System” (hereinafter referred to as the “Implementation Opinions”). The CSRC and the Shanghai Stock Exchange (hereinafter referred to as the SSE) are, in accordance with the requirements of the Implementation Opinions, steadily advancing all tasks related to the establishment of the STAR Market and the pilot registration-based system.

The establishment of the STAR Market and the pilot implementation of the registration-based system represent a major initiative by the China Securities Regulatory Commission to thoroughly implement Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era and the spirit of the 19th National Congress of the Communist Party of China. In line with the decisions and arrangements of the CPC Central Committee and the State Council, this move further advances the innovation-driven development strategy, enhances the capital market’s capacity to support the enhancement of China’s capabilities in developing critical core technologies, supports the development of Shanghai as an international financial center and a center for scientific and technological innovation, improves the fundamental systems of the capital market, adheres to the overarching principle of seeking progress while maintaining stability, upholds the new development philosophy, and deepens supply-side structural reform.

The “Implementation Opinions” emphasize that the newly established STAR Market on the Shanghai Stock Exchange will remain committed to addressing the forefront of global science and technology, serving the main battlefields of the economy, and meeting the nation’s major strategic needs. It will primarily support science and technology innovation enterprises that align with national strategies, achieve breakthroughs in critical core technologies, and enjoy high market recognition. Priority will be given to high‑tech industries and strategic emerging sectors such as next‑generation information technology, high‑end equipment, new materials, new energy, energy conservation and environmental protection, and biopharmaceuticals. The initiative will also promote the deep integration of the internet, big data, cloud computing, artificial intelligence, and manufacturing, lead the development of mid‑to‑high‑end consumption, and drive transformations in quality, efficiency, and growth drivers.

The Implementation Opinions state that, in line with the STAR Market’s positioning and the characteristics of science-and‑technology‑innovation enterprises, the market has established diversified and inclusive listing criteria. It permits companies that align with the STAR Market’s mission—whether they are not yet profitable or have accumulated uncompensated losses—to list on the STAR Market, and it also allows special‑equity‑structure entities and red‑chip companies that meet the relevant requirements to do so. In addition, the STAR Market has put in place corresponding investor suitability requirements to effectively manage and mitigate various risks.

The Implementation Opinions stipulate that the registration-based system will be piloted on the STAR Market, with appropriately formulated issuance criteria for STAR Market stocks and a more comprehensive, in-depth, and precise information disclosure framework. The Shanghai Stock Exchange is responsible for reviewing applications for issuance and listing on the STAR Market, while the China Securities Regulatory Commission (CSRC) oversees the registration of STAR Market stock offerings. The CSRC will strengthen its oversight of the SSE’s review process and enhance full‑process supervision—before, during, and after—the issuance and listing of new shares.

The “Implementation Opinions” stipulate that, to ensure the successful piloting of the registration-based system on the STAR Market, five key areas of capital market infrastructure will be refined: first, establishing a market‑oriented issuance and underwriting mechanism for STAR Market stocks; second, further strengthening information disclosure oversight; third, developing a more market‑driven trading regime tailored to the characteristics of STAR Market listed companies and investor suitability requirements; fourth, instituting a more efficient merger and acquisition and restructuring framework; and fifth, rigorously enforcing the delisting regime.

The Implementation Opinions emphasize that, in establishing the STAR Market and piloting the registration-based system, it is essential to strengthen ongoing supervision of listed companies on the STAR Market, further hold intermediary institutions accountable, and rigorously crack down on illegal practices such as fraudulent issuance and false disclosures, thereby safeguarding the legitimate rights and interests of investors. The China Securities Regulatory Commission will enhance coordination between administrative enforcement and judicial proceedings; promote the improvement of relevant laws and judicial interpretations; establish and refine a model judgment mechanism for securities‑related support litigation; and, based on the pilot experience, explore ways to improve the legal framework for civil securities litigation in line with the registration‑based system.

At present, the China Securities Regulatory Commission has drafted the “Administrative Measures for the Registration of Initial Public Offerings on the STAR Market (Trial)” and the “Administrative Measures for the Ongoing Supervision of Listed Companies on the STAR Market (Trial),” while the Shanghai Stock Exchange has prepared the “Shanghai Stock Exchange Rules for the Review of Issuance and Listing of STAR Market Stocks” and other supporting regulations. These rules are currently being publicly consulted in accordance with established procedures.

The China Securities Regulatory Commission is soliciting public comments on the Interim Provisions on the Management of External Access to Securities Offices’ Trading Information Systems.

To strengthen the management of external access to securities offices’ trading information systems, protect the legitimate rights and interests of investors, and uphold the order of the securities market, the China Securities Regulatory Commission recently released the Interim Provisions on the Management of External Access to Securities Offices’ Trading Information Systems (hereinafter referred to as the “Provisions”) for public consultation.

In recent years, as the securities market has grown, the share of trading conducted by institutional investors—such as public fund managers and insurance companies—has risen steadily. Consequently, traditional, labor‑intensive operational approaches can no longer meet their needs for segregated account management, unified risk control, and other requirements. The Regulations take into account the risks and issues previously associated with unauthorized external access to trading information systems, draw on the experience of mature markets, and guide securities offices, under conditions of security and compliance, to provide external access services that cater to the legitimate needs of institutional investors.

According to the Regulations, securities offices are the entities responsible for providing external access services to trading information systems and shall prudently conduct related business activities while maintaining strict risk controls. They must thoroughly assess the reasonableness of access requests, comprehensively verify investors’ eligibility, and fully validate the functionality of the relevant systems. During the access process, they are required to diligently fulfill their management obligations, rigorously manage risks, and ensure that external access remains compliant, secure, and stable at all times.

It should be noted that the external access activities of trading information systems regulated under these Provisions must strictly adhere to the existing trading mechanisms of the securities market. With respect to regulatory and self-regulatory requirements pertaining to new trading practices such as algorithmic trading, once the relevant rules are promulgated, external access systems shall comply with them in their entirety.

The China Securities Regulatory Commission is soliciting public comments on the “Administrative Measures for Domestic Securities and Futures Investments by Qualified Foreign Institutional Investors and Renminbi‑Qualified Foreign Institutional Investors (Draft for Comments)” and its accompanying rules.

In 2002 and 2011, China launched pilot programs for the Qualified Foreign Institutional Investor (QFII) and Renminbi Qualified Foreign Institutional Investor (RQFII) schemes, respectively. By the end of 2018, the QFII quota had been set at US$150 billion—later increased to US$300 billion—and a total of 309 overseas institutions had obtained QFII eligibility, with approved quotas totaling US$101.1 billion. Meanwhile, the RQFII program expanded from Hong Kong to 19 countries and regions, with an aggregate quota of RMB 1.94 trillion; 233 overseas institutions were granted RQFII eligibility, receiving approved quotas amounting to RMB 646.7 billion. Overall, both schemes have operated smoothly, playing a positive role in attracting long-term foreign capital, optimizing the investor base, promoting value‑oriented investing, enhancing corporate governance of listed companies, and fostering the sound development of the capital market.

In recent years, China’s economy has entered a stage of high-quality development, and the two-way opening-up of the capital market has been steadily expanded. The existing QFII and RQFII regimes no longer align with the new market environment in terms of eligibility criteria, investment operations, and ongoing supervision. To address the shortcomings of the QFII and RQFII systems and to advance the high-standard opening-up of the capital market while attracting more long-term overseas capital, the China Securities Regulatory Commission has revised and consolidated the Measures for the Administration of Domestic Securities Investments by Qualified Foreign Institutional Investors and their accompanying rules, as well as the Pilot Measures for Domestic Securities Investments by Renminbi‑Qualified Foreign Institutional Investors and their accompanying rules. This resulted in the formulation of the Measures for the Administration of Domestic Securities and Futures Investments by Qualified Foreign Institutional Investors and Renminbi‑Qualified Foreign Institutional Investors (Draft for Public Comment) (hereinafter referred to as the “Measures”) and the Provisions on Matters Concerning the Implementation of the Measures for the Administration of Domestic Securities and Futures Investments by Qualified Foreign Institutional Investors and Renminbi‑Qualified Foreign Institutional Investors (Draft for Public Comment) (hereinafter referred to as the “Implementation Provisions”). The main revisions are set out below:

First, the two systems have been merged. The QFII and RQFII regimes have been consolidated into a single framework, with relevant ancillary regulatory provisions integrated to form unified Measures for Administration and Implementing Provisions. Overseas institutional investors need only apply for qualification once; institutions from countries and regions that have not yet obtained RQFII quotas may continue to raise funds in foreign currency for investment purposes.

Second, we have relaxed market access requirements by abolishing quantitative performance targets while retaining the criteria for institutional classification and compliance. At the same time, we have streamlined the application documentation and shortened the review and approval timelines.

Third, the scope of eligible investments has been expanded. In addition to the previously permitted instruments, QFII and RQFII may now invest in: (1) shares listed on the National Equities Exchange and Quotation System for Small and Medium-sized Enterprises (NEEQ, also known as the “New Third Board”); (2) bond repurchase agreements; (3) private equity investment funds; (4) financial futures; (5) commodity futures; and (6) options, among others. Furthermore, they are permitted to participate in securities exchange–based margin trading and short selling. The specific types of bond repurchase agreements, financial futures, commodity futures, and options that may be traded shall be proposed by the relevant trading venues, submitted to the regulatory authorities for approval, and then publicly announced.

Fourth, optimize the management of custodians. Clarify the transitional requirements following the shift from a licensing‑based approval regime to a filing‑based system for QFII custodian qualifications, and remove any restrictions on the number of custodians that QFIIs may appoint.

Fifth, strengthen ongoing supervision. Enhance account management, improve monitoring and analytical mechanisms, increase requirements for the provision of relevant cross-border transaction information, and impose stricter penalties for violations.

We welcome comments and suggestions from all sectors of society on the Measures and the Implementing Provisions. The CSRC will carefully review and fully incorporate feedback from all stakeholders, and will issue and implement the revised documents after making necessary amendments and improvements.

The China Securities Regulatory Commission has guided stock exchanges to refine the margin trading and short-selling mechanisms, thereby meeting investors’ diversified needs.

To further optimize the margin trading and short‑selling framework and enhance securities offices’ independent management capabilities, the Shanghai and Shenzhen Stock Exchanges are expediting revisions to the Detailed Rules for Margin Trading and Short‑Selling. The proposed changes would eliminate the uniform requirement that the liquidation threshold not fall below 130%, allowing securities offices to independently determine the minimum maintenance margin ratio in consultation with clients, based on the clients’ creditworthiness, the quality of collateral, and the office’s risk‑tolerance. At the same time, the scope of eligible collateral will be broadened, further increasing the flexibility for clients to provide additional collateral. In addition, to meet investors’ diversified demand for underlying securities, the exchanges are exploring an expansion of the range of eligible securities.

Wanda Cinema has adjusted its restructuring plan and will issue shares to acquire a 95.77% stake in Wanda Film & TV.

Wanda Cinema has disclosed an announcement regarding adjustments to its plan for issuing shares to acquire assets and related-party transactions. As Qingdao West Coast Cultural Industry Investment Co., Ltd. has failed to obtain approval from the competent state‑owned assets supervision and administration authority for its participation in this transaction, the company intends to revise the transaction plan. Accordingly, Qingdao West Coast Cultural Industry Investment Co., Ltd. and its 1.0579% equity interest in Wanda Film & TV will no longer be included among the counterparties or the target assets in this transaction. The company will issue shares to acquire a total of 95.7683% of the equity interest in Wanda Film & TV.

Commercial & Corporate

Wuliangye has repeatedly been implicated in corruption cases; senior officials from the State-owned Assets Supervision and Administration Commission were expelled from the Party and dismissed from their posts for interfering with distribution rights.

As the Spring Festival approaches, Sichuan publicly disclosed on February 1 four typical cases involving Party members and cadres who exploited high‑priced local specialties and regional products for personal gain. Among these four cases, three involved Wuliangye, a renowned baijiu from Yibin, Sichuan, while one concerned Moutai liquor.

The first case publicized by the Sichuan Provincial Commission for Discipline Inspection and Supervision involves Zhang Hui, the former chairman of Yibin State-owned Assets Management Co., Ltd., who allegedly improperly intervened in matters related to the distribution rights for Wuliangye series liquors.

In 2013, Gu, the person in charge of a trading company in Hangzhou, asked Zhang Hui to assist his company in establishing a cooperative relationship with Wuliangye Co., Ltd. Subsequently, Zhang Hui helped the company successfully obtain approval to become the national general distributor for a specific series of Wuliangye products. In return, Zhang Hui repeatedly accepted cash totaling RMB 700,000 from Gu. Between 2013 and 2018, taking advantage of his official position, Zhang Hui accepted two cases of Wuliangye liquor, one bottle of Wuliangye “Little Zodiac” liquor, fourteen bottles of standard Wuliangye liquor, and one case of Moutai liquor, among other items. An investigation further revealed that Zhang Hui was also involved in other violations of discipline and law. In January 2019, Zhang Hui was expelled from the Communist Party and dismissed from public office; his suspected criminal offenses have been referred to the judicial authorities for legal handling. The illicit funds and property have been confiscated.

The second case involves Shen Jianfei, a former member of the Party Leadership Group and deputy director of the Suining Municipal Environmental Protection Bureau, who improperly accepted Moutai liquor that could potentially compromise the impartiality of his official duties.

In the lead-up to the Spring Festivals of 2017 and 2018, Huang, the chairman of a certain environmental protection company, presented Shen Jianfei with six bottles of Moutai liquor on each occasion, totaling 12 bottles. An investigation revealed that Shen Jianfei was also involved in other disciplinary and legal violations. In August 2018, Shen Jianfei was expelled from the Communist Party and dismissed from public office, and his suspected criminal offenses have been referred to the judicial authorities for lawful handling. The illegally accepted Moutai liquor has been confiscated.

The third case involves Li Dong, the former acting chairman and general manager of Chengdu University of Technology Asset Management Co., Ltd., and others, who improperly decided to use public funds to purchase Wuliangye and other high-end baijiu.

From June 2014 to September 2016, in order to promote tenant recruitment, marketing, and hospitality for the “Litong Dongyuan” commercial premises, as well as to entertain business partners and major clients, the leadership team of Chengdu University of Technology Asset Management Co., Ltd. (hereinafter referred to as the Company) deliberated and decided to use public funds to purchase 24 bottles of Feitian Moutai liquor at a total cost of RMB 20,400; additionally, over five installments, public funds were used to buy 90 bottles of Wuliangye liquor for a total of RMB 58,000. Wan Zhiqiang, then Deputy Secretary of the Party General Branch and Deputy General Manager of the Company (who assumed the post of Party General Branch Secretary in December 2016), participated in the decision-making and consumed the liquor; Li Dong approved the purchases and also partook; Zhu Kai, then Director of the Office (who was appointed Deputy General Manager in April 2017), was responsible for arranging the purchases and joined in consuming the liquor. The investigation further revealed that Li Dong, Wan Zhiqiang, and Zhu Kai were also found to have committed other disciplinary violations. In May 2018, Li Dong received a serious warning within the Party, was removed from his positions as Acting Chairman and General Manager, and was demoted; Wan Zhiqiang was stripped of his Party posts, relieved of his duties as Party General Branch Secretary, and demoted; Zhu Kai was given a serious warning within the Party, dismissed from his post as Deputy General Manager, and demoted. The illegally purchased baijiu has been disposed of in accordance with relevant regulations.

The fourth case involves Zou Hao, then head of the Police Logistics Department of the Leshan Municipal Public Security Bureau, who improperly accepted Wuliangye liquor and other gifts from suppliers.

From 2015 to 2017, Zou Hao accepted three cases—totaling 18 bottles—of Wuliangye liquor valued at RMB 12,000 from Yang, the de facto operator of a certain trading company that served as a supplier for material procurement by the Leshan Municipal Public Security Bureau. The investigation also revealed that Zou Hao had engaged in other disciplinary and legal violations. In September 2018, he was expelled from the Communist Party and dismissed from public office; his suspected criminal and unlawful conduct has been referred to the judicial authorities for lawful handling. The illegally received baijiu has been confiscated and appraised at its market value.

In the four cases mentioned above, there were instances of leaders directly interfering with the distribution rights for Wuliangye‑branded baijiu, as well as violations involving the use of public funds to purchase and accept baijiu.

Six centrally managed officials have been dealt with in the Changchun Changsheng problematic vaccine case.

Accountability in the “Changchun Changsheng substandard vaccine case” continues. On February 2, the website of the Central Commission for Discipline Inspection and the National Supervisory Commission announced that those held responsible for the problematic vaccines have been severely disciplined, and Wu Zhen, former member of the Party Leadership Group and Deputy Director-General of the former State Food and Drug Administration, was expelled from the Communist Party for serious violations of discipline and law.

Following the vaccine‑related incident, the CPC Central Committee attached great importance to the matter. The State Council dispatched a special investigation team to conduct a comprehensive inquiry, while the Central Commission for Discipline Inspection and the National Supervisory Commission carried out investigations into regulatory accountability and disciplinary reviews. As a result, six centrally managed officials were removed from their posts, ordered to resign, or required to step down in accordance with their responsibilities; moreover, Wu Zhen, former member of the Party Leadership Group and Deputy Director of the former State Food and Drug Administration, who was suspected of official misconduct, was expelled from the Communist Party and referred to the procuratorial organs for legal review and prosecution.

Meanwhile, the relevant authorities and local governments, based on the facts established through investigation, have imposed strict disciplinary and legal sanctions—consistent with applicable regulations and procedures—on 42 non‑central government‑managed officials involved, including those from the former State Food and Drug Administration, the National Medical Products Administration, drug regulatory agencies at all levels in Jilin Province, the Changchun Municipal People’s Government, and the Management Committee of the Changchun High‑Tech Industrial Development Zone.

Among them, 13 were department- or bureau-level officials, 23 were county- or division-level officials, and 6 were township- or section-level officials. Three former responsible persons from the Jilin Provincial Food and Drug Administration, suspected of official misconduct, were expelled from the Party and referred to the procuratorial organs for legal review and prosecution. Six other responsible persons, including one former deputy director-general of the Drug and Cosmetic Supervision Department of the former State Food and Drug Administration and two former deputy directors of the Jilin Provincial Food and Drug Administration, were given disciplinary measures ranging from probation within the Party to removal from Party posts or administrative demotion. In addition, 29 other responsible persons received various other Party‑related and administrative disciplinary sanctions.

Wu Zhen, former member of the Party Leadership Group and Deputy Director-General of the former State Food and Drug Administration, has been expelled from the Communist Party for serious disciplinary and legal violations.

A Watsons sales associate’s promotion of products under the “cosmeceutical” concept may constitute a violation of the law.

In recent years, cosmeceuticals have grown increasingly popular among consumers, particularly women. The inclusion of the word “pharmaceutical” in their name has significantly elevated both their perceived value and status.

Recently, the National Medical Products Administration has poured cold water on the “cosmeceutical” concept. In its “Frequently Asked Questions on the Supervision and Administration of Cosmetics (I),” the agency stated: It must be made clear that, not only in China but in most countries worldwide, the regulatory framework does not recognize the category of “cosmeceuticals.”

Notably, the cosmeceutical sector has also attracted attention from relevant listed companies. Previously, offices such as Yunnan Baiyao (000538) have all stepped up their investments in this field.

However, these companies no longer package their products as “cosmeceuticals.” A board secretary at a publicly listed company that once focused on the cosmeceutical market told a reporter from the Securities Daily that the company’s products have long since been rebranded as functional skincare. “‘Cosmeceutical’ has always been an improper term; industry regulations never recognized such a category. This time, regulatory authorities have simply reiterated that point.”

Regarding the NMPA’s response, a representative from a cosmetics company believes it will have an impact on the industry, though not a substantial one. “Companies always find ways to skirt the rules,” they said.

Many companies, including Watsons, still have sales associates presenting cosmetics to consumers as “cosmeceuticals.” However, the reporter found no mention of “cosmeceuticals” or “medical skincare products” on the packaging of several items.

The National Medical Products Administration has clarified that, under Articles 12 and 14 of China’s current Regulations on the Hygienic Supervision of Cosmetics, cosmetic labels, small packages, or instruction manuals shall not indicate indications, promote therapeutic effects, or use medical terminology; furthermore, advertising must not tout any medical functions. Any product registered or filed under the cosmetics category that claims to be a “cosmeceutical,” “medical skincare product,” or otherwise employs such “cosmeceutical” terminology constitutes an illegal act.

Last year, the national software industry’s revenue exceeded 6.3 trillion yuan.

According to the “2018 Statistical Bulletin on the Software and Information Technology Services Industry” released by the Ministry of Industry and Information Technology, in that year, the 37,800 large-scale enterprises in the software and information technology services sector nationwide achieved total software business revenue of RMB 6.3061 trillion, a year-on-year increase of 14.2%.

In 2018, the software and information technology services sector recorded total profits of RMB 807.9 billion, up 9.7% year on year; per‑employee business revenue reached RMB 980,600, a 9.6% increase over the previous year, signaling early signs of high‑quality development.

By sector, software product revenue posted robust growth. In 2018, the industry as a whole generated RMB 1.9353 trillion in software product revenue, up 12.1% year over year, accounting for 30.7% of the industry’s total.

China’s software export sector continued to grow, and its industrial structure was further optimized. In 2018, the software and information technology services industry recorded exports of US$55.45 billion, up 0.8% year on year, accounting for approximately 6% of the industry’s total revenue.

Key cities play a pivotal role in the development of the software industry. In 2018, the four municipalities directly under the central government and 15 sub-provincial-level central cities collectively generated software business revenue totaling RMB 5.1237 trillion, up 14.2% year on year, accounting for 81.2% of the national software sector. Among them, 15 cities recorded software business revenues exceeding RMB 100 billion, with Beijing, Shenzhen, and Shanghai each posting revenues surpassing or nearing RMB 500 billion. Furthermore, nine of these central cities and municipalities posted software revenue growth rates above the national average, with Hangzhou and Ningbo recording growth rates exceeding 20%.

The Ministry of Housing and Urban-Rural Development is eliminating unequal restrictions on private enterprises.

On February 2, the General Office of the Ministry of Housing and Urban–Rural Development issued a notice on supporting the development of private construction enterprises, which explicitly stipulates the launch of a special review and cleanup of local regulations, local government rules, and normative documents governing the construction market.

Housing and urban–rural development authorities at all local levels shall conduct a comprehensive review of local regulations, local government rules, and normative documents governing the construction market. Particular attention shall be given to examining the legality and compliance of provisions related to administrative approvals, market access, tendering and bidding, and construction permits. All unequal restrictions and requirements imposed on the production and business activities of private construction enterprises must be thoroughly eliminated, thereby effectively ensuring that private enterprises enjoy equal competitive status.

The notice states that efforts should be made to advance the development of a unified construction market system. When private‑sector construction enterprises undertake projects in regions other than their place of registration, housing and urban–rural development authorities at all local levels shall afford them the same treatment as local construction enterprises. Tendering entities shall not exclude private‑sector construction enterprises from participating in tendering for building construction and municipal infrastructure projects, nor may they apply different qualification review or evaluation criteria to such enterprises compared with state‑owned construction offices. Except for bid bonds, performance bonds, quality‑guarantee deposits, and wage‑guarantee deposits for migrant workers, it is strictly prohibited to impose any other types of security deposits on private‑sector construction enterprises. Furthermore, when conducting credit assessments of construction enterprises, housing and urban–rural development authorities at all levels shall not establish credit‑evaluation indicators that discriminate against private‑sector offices, nor shall they erect any credit‑related barriers to such enterprises.

Taxation TAXATATION

Government work reports from many localities have focused on implementing universal tax and fee reduction policies.

Recently, in their respective government work reports, provinces have all emphasized that implementing the central government’s policy of larger‑scale tax and fee reductions will be a key priority for 2019. This will be achieved by combining universal tax cuts with targeted structural reforms, extending broad‑based tax relief to small and micro enterprises as well as start‑up technology offices, and streamlining and standardizing local charges, so that businesses can experience tangible benefits.

Beijing

We are vigorously implementing the 2.0 version of the “9+N” policy, driving significant improvements in areas such as obtaining construction permits, accessing water and gas services, and paying taxes.

Build an efficient and unified tax collection and administration system, and accelerate the development of a next-generation electronic tax bureau.

Fully implement the national tax and fee reduction policies to ensure that enterprises’ social security contribution burdens do not increase.

— Excerpted from the “Beijing Municipal Government Work Report 2019”

Heilongjiang

Effectively implement the policy of larger-scale tax and fee reductions, further lower institutional transaction costs, and reasonably reduce costs related to energy, logistics, financing, and other factors, enabling enterprises to operate with a lighter burden.

Vigorously optimize the business environment. Implement measures to facilitate tax administration and enhance taxpayer services.

— Excerpted from the “2019 Government Work Report of Heilongjiang Province”

Jiangsu

This year, the state will continue to pursue an active fiscal policy and a prudent monetary policy, implementing broader tax and fee reductions. We must earnestly carry out these measures, solidly advance the “six stabilizations” work, fully leverage the pivotal role of investment and the fundamental role of consumption, and strive to keep economic performance within an appropriate range.

We will intensify efforts to cut taxes and reduce burdens, fully implement national and provincial policies aimed at lowering business costs, streamline and standardize enterprise‑related fees, and deliver cost reductions exceeding RMB 160 billion for real‑economy enterprises over the course of the year. We will also make solid progress in reforming key areas, including fiscal and tax systems, financial mechanisms, investment and financing frameworks, science and technology, pricing, natural resources, and the ecological environment.

— Excerpted from the “2019 Government Work Report of Jiangsu Province”

Anhui

Improve the government procurement system, increase support for major equipment and critical products, refine policies on first‑of‑its‑kind and first‑batch applications, leverage the role of the provincial science and technology achievement transformation guidance fund, and implement VAT exemption measures for technology‑based services.

Deepen fiscal, tax, and financial reforms. Advance the reform of the division of fiscal powers and expenditure responsibilities in relevant areas below the provincial level, and improve the system of intergovernmental transfer payments from the provincial to lower levels. Steadily implement the transfer of responsibilities for the collection and administration of social insurance contributions and non-tax revenues. Actively develop private banks and community banks, push forward the reform of the management system of rural credit cooperatives, expand and enhance new government‑bank‑guarantee business models, promote the quality improvement, increased scale, and greater efficiency of the “Qiangeng Loan” program, and strengthen financing support for technological innovation, agriculture, rural areas, and farmers, as well as for small, medium, and micro enterprises.

Implement policies for larger-scale tax cuts and more substantial fee reductions, lower the corporate social security contribution rate, streamline and simplify administrative approval procedures and enterprise‑related charges pertaining to private investment management, and accelerate the elimination of all administrative and public‑service fees levied on businesses.

— Excerpted from the “Anhui Province 2019 Government Work Report”

Henan

Activate regional market demand. Seize the opportunities presented by national policies aimed at fostering a robust domestic market, accelerate consumption upgrading, and unlock the latent potential of consumer spending in sectors such as health, childcare, sports, leisure, culture, and information, as well as in traditional service industries. Implement the personal income tax special additional deductions, and cultivate new consumption drivers in areas like household services and modern lifestyle products.

Implement the central government’s policy of larger-scale tax and fee reductions, combining universal tax cuts with targeted structural tax relief. Extend universal tax breaks and exemptions to small and micro enterprises as well as technology‑based start-ups; streamline and standardize local fee‑charging items; fully implement a fee‑item list system; continue to maintain zero administrative and public service fees at the provincial level that affect businesses; and further reduce enterprise social security contribution rates, ensuring that businesses experience tangible benefits.

— Excerpted from the “2019 Government Work Report of Henan Province”

Hubei

Implement policies such as the special additional deductions for individual income tax. Launch the “Peace of Mind Consumption in Hubei” campaign to safeguard consumers’ legitimate rights and interests, ensuring that consumers can afford to spend, are willing to spend, and feel confident about spending.

Fully implement universal tax relief policies and promote structural tax reductions for the manufacturing sector, small and micro enterprises, and innovative offices. Reduce corporate social security contribution rates and strictly prohibit any ad hoc, one-time collection of employers’ historical arrears.

Improve the tax collection and administration system, and strictly prevent the imposition of excessive taxes at each level and the occurrence of sudden, heavy tax collections.

— Excerpted from the Hubei Province 2019 Government Work Report

Sichuan

Deepen supply-side structural reform. Fully implement tax and fee reduction policies, streamline business-related charges, and further lower costs in areas such as financing, logistics, and transactions.

Deepen fiscal and tax system reform, steadily advance the reform of the division of fiscal powers and expenditure responsibilities below the provincial level, improve the mechanism for sharing regional collaborative benefits, and fully implement performance-based budgeting. Strengthen the development of the social credit system and refine the mechanisms for joint incentives for trustworthiness and joint penalties for untrustworthiness.

— Excerpted from the “2019 Government Work Report of Sichuan Province”

Jiangsu Taxation: Heartwarming Outreach and Engagement Along the Way Home

On January 29, a volunteer tax‑promotion team composed of officials from the Nanjing Municipal Tax Service of the State Taxation Administration brought New Year greetings to Nanjing South Railway Station, extending early‑year wishes to waiting passengers. Alongside their festive greetings, the volunteers also briefed travelers on the latest national policies aimed at reducing taxes and fees.

“Starting January 1 this year, the new Individual Income Tax Law has introduced six additional special deductions—covering expenses such as supporting elderly parents and children’s education—along with other tax‑relief measures…” Tax‑education volunteer Wang Yong explained the new individual income tax policies to passengers while displaying the download QR code for the “Individual Income Tax” app, guiding them step by step on how to download it and file their returns.

“I’d already seen the news about the national personal income tax reductions, but I kept putting it off because it seemed too complicated—little did I know I could handle it right from my phone,” said passenger Mr. Ling, who was in Nanjing on a business trip and ended up with an unexpected bonus on his way home. In addition to Mr. Ling, many passengers at the scene pulled out their phones to scan QR codes and download the personal income tax app. “Look, according to the new personal income tax law, you’ll be able to pay over 200 yuan less in individual income tax each month,” explained tax‑education volunteer Bu Lei, carefully running the numbers and making a comparison for Ms. An, who was waiting at the station.

“May I take a photo with you all?” Mr. Gao, an accountant, happened to notice the group‑photo frame in the volunteers’ hands and stepped forward to ask. “Kudos to the government for cutting taxes and easing the burden!” Mr. Gao said.

As the train sped along, passengers set off on their journey home, bringing with them the “tax‑rebate gift” to countless households. “I’m going to share these policies on my social media feed so more people can learn about them,” said Mr. Xiang, who is heading back to his hometown in Guizhou for the Lunar New Year. Every year, he brings plenty of gifts, but this year’s “present” is the most meaningful yet.

Litigation & Arbitration

Two Supreme Courts and the Ministry of Public Security: When state functionaries, by leveraging their official positions, condone illegal fundraising, such conduct constitutes a crime.

The Supreme People’s Court, the Supreme People’s Procuratorate, and the Ministry of Public Security have jointly issued the “Opinions on Several Issues Concerning the Handling of Criminal Cases Involving Illegal Fundraising” (hereinafter referred to as the “Opinions”). The Opinions clarify the salient issues that have emerged in law enforcement and judicial practice from four perspectives: the application of substantive law, litigation procedures, policy interpretation, and working mechanisms.

How do law‑enforcement authorities determine the “illegality” of illegal fundraising? The Opinions clarify the criteria for such determination: they must be based on national financial regulatory laws and regulations. Where these laws and regulations provide only general principles, reference may be made to departmental rules or normative documents—such as provisions, measures, and implementing rules—issued by administrative authorities including the People’s Bank of China, the China Banking and Insurance Regulatory Commission, and the China Securities Regulatory Commission, in accordance with the relevant national financial regulatory laws and regulations.

The “Opinions” clarify the criteria for identifying corporate crimes and subordinate entities implicated in such cases. Where an entity established by an individual for the purpose of engaging in illegal fundraising is found to have committed a crime, or where, after its establishment, the entity’s primary activity consists of carrying out illegal fundraising, such conduct shall not be treated as a corporate offense. Furthermore, in response to the challenges encountered in judicial practice—namely, the large number of subordinate entities within implicated organizations and the complex hierarchical structures that make it difficult to determine and pursue criminal liability—the “Opinions” require case-handling authorities to comprehensively investigate all entities involved, including both parent entities (headquarters, parent companies) and subordinate entities (branches, subsidiaries), to ascertain their legal status, organizational hierarchy, interrelationships, respective roles and positions, and the flow of funds, and to render decisions in accordance with the law based on the specific circumstances.

The Opinions also clarify the legal liabilities of state functionaries and specify five circumstances in which such officials shall be held criminally liable for offenses committed in the course of preventing and handling illegal fundraising: knowingly processing administrative permits or registration procedures for institutions or businesses whose applications are suspected of involving illegal fundraising; knowingly failing to promptly address, or to refer to the competent authorities responsible for handling illegal fundraising, cases involving suspected illegal fundraising within the units under their supervision or regulation; abusing power, neglecting duties, or engaging in favoritism and corruption during the investigation and prosecution of illegal fundraising; deliberately failing to refer criminal cases of illegal fundraising to the judicial authorities out of personal gain or favoritism; and any other acts by virtue of official position or through the influence of one’s office that support, assist, or condone illegal fundraising.

With respect to procedural matters, the Opinions clarify the jurisdictional principles for handling cross‑regional criminal cases involving illegal fundraising. As a general rule, the public security organ in the principal place of the crime shall serve as the lead investigating authority, initiating a case, conducting investigations, and referring the matter to the procuratorate for review and prosecution. For major, difficult, or complex cross‑regional criminal cases of illegal fundraising, the people’s procuratorates and people’s courts shall, by analogy with the investigative jurisdiction of the public security organs, designate the people’s procuratorate and people’s court in the principal place of the crime, as well as those in other places of the crime, to assume responsibility for prosecution and trial.

With regard to the recovery and disposition of property involved in criminal cases, the Opinions stipulate that the case-handling authority at the place where the case is initiated shall promptly collect such property and clearly document its origin, destination, intended use, and movement. The case-handling authority must, in strict accordance with the Criminal Procedure Law and relevant judicial interpretations, lawfully transfer, review, and dispose of property that has been seized, impounded, or frozen. Following a lawful judgment by the people’s court on the property involved in the case, the relevant local authorities and departments shall, under the unified coordination of the competent department responsible for handling illegal fundraising matters, carry out tasks such as the removal of the property, the realization of its value, the collection of funds, and the return of funds to victims.

With regard to the application of policy, the Opinions clarify the proper implementation of the criminal policy of combining leniency with strictness, requiring case-handling authorities to comprehensively assess the gravity of an offender’s liability and the necessity of criminal prosecution by taking into account the offender’s objective conduct, subjective malice, the circumstances of the crime, as well as their status, role, hierarchical position, and official duties. In accordance with the principle of differentiated treatment, such authorities are to categorize and handle all persons involved in the case.

The Supreme People’s Court and the Supreme People’s Procuratorate have issued a judicial interpretation to impose strict legal penalties on crimes involving underground money exchange operations.

To punish, in accordance with the law, criminal activities involving the unauthorized provision of fund payment and settlement services and the illegal trading of foreign exchange, and to safeguard financial market order, on January 31, the Supreme People’s Court and the Supreme People’s Procuratorate jointly issued the “Interpretation on Several Issues Concerning the Application of Law in Handling Criminal Cases Involving the Unauthorized Provision of Fund Payment and Settlement Services and the Illegal Trading of Foreign Exchange” (hereinafter referred to as the “Interpretation”). The Interpretation comprises 12 articles and shall enter into force on February 1, 2019.

Criminal offenses involving underground money‑laundering operations are on the rise, and the Interpretation clearly sets out the criteria for conviction and sentencing.

In recent years, amid shifting domestic and international economic conditions, terrorist crimes have become increasingly transnational, smuggling and cross-border drug offenses have surged, and China has intensified its crackdown on corruption and bribery. Consequently, criminal activities involving underground money‑laundering networks—such as illicit fund‑payment and settlement services and unauthorized foreign‑exchange transactions—have grown rampant, leading to a steady rise in related criminal cases. Underground banks have emerged as the primary conduit for illicit actors to engage in money laundering and asset transfers; they are no longer confined to economic crimes but have increasingly been exploited to funnel proceeds from telecom fraud, online gambling, and other illegal schemes. These networks have become “money‑laundering tools” and accomplices to corrupt officials and terrorist organizations, severely disrupting financial market order and posing grave threats to national financial security and social stability.

The Supreme People’s Court and the Supreme People’s Procuratorate conducted an in-depth study on the application of relevant laws to crimes involving underground money‑laundering operations, comprehensively gathered pertinent information and case materials, systematically identified existing problems, and, in light of the realities of judicial practice, formulated this Interpretation.

The main contents of the Interpretation include: first, the criteria for determining the illegal engagement in fund payment and settlement services and the illegal trading of foreign exchange, as well as the standards for identifying “serious circumstances” and “particularly serious circumstances”; second, the principles governing concurrent sentencing for the crimes of illegal business operations, money laundering, and aiding terrorist activities; third, the standards for determining the amount involved in illegal business operations and the amount of unlawful gains, the principles for imposing penalties, and the criteria for imposing fines; fourth, the standards for conviction and sentencing in cases involving corporate criminal liability; fifth, the conditions and standards for granting lenient punishment; sixth, the determination of the place where a crime is committed in criminal cases involving the illegal engagement in fund payment and settlement services or the illegal trading of foreign exchange; and seventh, the temporal effect of the Interpretation.

It stipulates three circumstances constituting “illegally engaging in fund payment and settlement business.”

In recent years, with the rapid growth of internet finance, payment and settlement methods have undergone significant changes. However, since the Criminal Law amendments have not explicitly defined the specific circumstances of fund payment and settlement, judicial practice has seen ongoing disputes over the characterization of illegal engagement in such activities. Examining criminal cases involving underground money‑laundering networks investigated in recent years, it is evident that unlawful fund payment and settlement typically involves illicit actors establishing shell companies and using online banking transfers to help others illegally move corporate funds into personal accounts or withdraw cash, thereby conducting unauthorized payment and settlement operations.

Drawing on judicial practice and relevant case law, the Interpretation sets forth three scenarios that constitute “illegally engaging in fund payment and settlement services”: First, fictitious payment and settlement—namely, using acceptance terminals or online payment interfaces to disburse monetary funds to designated payees through unlawful means such as fabricating transactions, falsely inflating prices, or processing transaction refunds. Second, transferring public funds to private accounts and cash extraction—i.e., illegally providing services that enable others to withdraw cash from corporate bank settlement accounts or to transfer funds from corporate accounts to personal accounts. Third, check‑cashing—commonly referred to as “converting checks into cash”—that is, illegally offering check‑cashing services to others. In addition, a catch‑all provision under a fourth category enumerates other instances of illegally engaging in fund payment and settlement activities, thereby accommodating the evolving landscape of payment and settlement methods.

Clarifying the criteria for determining illegal foreign exchange trading

According to officials from the relevant departments of the Supreme People’s Court and the Supreme People’s Procuratorate, in practice, underground money exchange operations engage in illegal foreign‑exchange transactions primarily through two main methods: the more traditional form of speculative reselling of foreign currency conducted via direct on‑shore transactions, and the now‑common, disguised form of cross‑border (or cross‑jurisdictional) fund settlement carried out through “matched trades” between domestic and overseas entities. Speculative reselling involves illicit actors buying low and selling high in the domestic and international black markets to pocket the exchange‑rate spread; such operations are colloquially known as “currency‑exchange scalping.” Disguised foreign‑exchange trading, by contrast, does not involve direct exchanges between RMB and foreign currency; instead, it takes the form of repaying RMB with foreign currency or vice versa, or effecting currency‑value conversions through mutual swaps of foreign and RMB. Cross‑border (or cross‑jurisdictional) fund settlement is a quintessential example of this disguised activity. In cross‑border settlement‑type underground money exchanges, unlawful actors collude with overseas individuals, enterprises, or institutions, or exploit bank accounts opened abroad, to facilitate cross‑border remittances and fund transfers. These operations are also referred to as cross‑border settlement‑type underground money exchanges, in which funds circulate unidirectionally between domestic and overseas locations without any physical movement, typically achieving “two‑location balance” through reconciliation procedures. Today, the primary business of most underground money exchanges consists of cross‑border fund settlement, resulting in massive capital outflows and posing significant social harm, making them key targets for crackdowns. Accordingly, the Interpretation stipulates that engaging in illegal foreign‑exchange transactions—whether through speculative reselling or disguised trading—that disrupt financial market order and constitute serious offenses shall be prosecuted and punished as the crime of illegal business operations. (Reporter Zheng Henan)

Severely crack down on money laundering and crimes aiding terrorist activities.

According to officials from the relevant departments of the Supreme People’s Court and the Supreme People’s Procuratorate, underground money exchange operations are inherently linked to money laundering and terrorist financing, having become the primary conduit through which illicit actors engage in money laundering and the transfer of funds. In judicial practice, where such operations illegally conduct fund payment and settlement services or engage in the illegal trading of foreign exchange, and where they assist in the transfer of funds via bank transfers or other settlement methods, or facilitate the remittance of funds abroad—thereby constituting the crime of illegal business operations—and simultaneously constitute the crime of money laundering or the crime of assisting terrorist activities, the principle of concurrent offenses shall apply, and the offender shall be convicted and punished in accordance with the provision prescribing the heavier penalty. Article 5 of the Interpretation clarifies the sentencing principles applicable when the crime of illegal business operations overlaps with the crime of money laundering or the crime of assisting terrorist activities, thereby demonstrating China’s office stance and unwavering determination to combat, in accordance with the law, money laundering and the crime of assisting terrorist activities.

Other

The Supreme People’s Court and the Supreme People’s Procuratorate have issued a judicial interpretation that clarifies the criteria for determining the illegal trading of foreign exchange.

The Supreme People’s Court and the Supreme People’s Procuratorate recently jointly issued the “Interpretation on Several Issues Concerning the Application of Law in Handling Criminal Cases Involving Illegally Engaging in Fund Payment and Settlement Services and Illegally Trading Foreign Exchange,” stipulating that acts such as reselling foreign exchange or engaging in disguised foreign‑exchange trading—thereby disrupting the order of the financial market—and if the circumstances are serious, shall be prosecuted and punished as the crime of illegal business operations.

According to officials from the relevant departments of the Supreme People’s Court and the Supreme People’s Procuratorate, in practice, underground money exchange operations engage in illegal foreign‑exchange transactions primarily through two main methods: the more traditional form of reselling foreign currency via direct on‑shore transactions, and the now‑common, disguised form of cross‑border (or cross‑regional) fund settlement conducted through “matched trades” between domestic and overseas entities. Reselling foreign currency refers to illicit actors buying low and selling high in the domestic and international black markets, pocketing the exchange‑rate spread. Such operations are colloquially known as “currency‑exchange scalping.” Disguised foreign‑exchange trading, by contrast, does not involve direct exchanges between RMB and foreign currencies; instead, it takes the form of repaying RMB with foreign currency or vice versa, or effecting currency‑value conversions through swaps of foreign and RMB. Cross‑border (or cross‑regional) fund settlement is a quintessential example of such disguised foreign‑exchange activity. In cross‑border (or cross‑regional) settlement‑type underground money exchanges, illicit operators collude with overseas individuals, enterprises, or institutions, or leverage bank accounts opened abroad, to facilitate cross‑border remittances and fund transfers. These underground operations are also referred to as cross‑border (or cross‑regional) settlement‑type underground money exchanges, in which funds circulate unidirectionally between domestic and overseas locations without any physical movement, typically achieving “two‑place balance” through reconciliation procedures. Today, the primary business of most underground money exchanges is cross‑border (or cross‑regional) fund settlement, resulting in massive capital outflows and posing significant social risks, making them key targets for crackdowns.

According to the interpretation, engaging in fund payment and settlement services or trading foreign exchange illegally shall be deemed an “illegal business operation of serious circumstances” if any of the following conditions is met: (1) the amount of illegal operations exceeds RMB 5 million; or (2) the amount of illegal gains exceeds RMB 100,000. Furthermore, such activities shall be deemed an “illegal business operation of particularly serious circumstances” if any of the following conditions is met: (1) the amount of illegal operations exceeds RMB 25 million; or (2) the amount of illegal gains exceeds RMB 500,000.

The number of illegal fundraising criminal cases handled by the procuratorial organs has been increasing year after year.

From 2016 to 2018, the number of cases handled by procuratorial organs nationwide involving the crimes of illegally absorbing public deposits and fundraising fraud showed a year-on-year increase. In 2018 alone, 15,302 defendants were prosecuted for the crime of illegally absorbing public deposits, and 1,962 defendants were prosecuted for the crime of fundraising fraud.

It is understood that procuratorial organs nationwide have resolutely implemented the major decisions and arrangements of the CPC Central Committee, fully leveraged their prosecutorial functions, and actively participated in special campaigns to address risks in the internet finance sector and to crack down on illegal fundraising. They have continuously intensified efforts to combat criminal activities such as illegally absorbing public deposits and fundraising fraud. In handling cases involving the crime of illegally absorbing public deposits, 14,745 individuals were prosecuted in 2016, 15,282 in 2017, and 15,302 in 2018; in handling cases involving the crime of fundraising fraud, 1,661 individuals were prosecuted in 2016, 1,862 in 2017, and 1,962 in 2018.

According to a responsible official from the relevant department of the Supreme People’s Procuratorate, based on cases of illegal fundraising handled by procuratorial organs, such criminal activities are occurring with alarming frequency and in large numbers, with an increasing number of exceptionally large-scale cases. Criminal methods are constantly evolving, becoming more deceptive and sophisticated; some offenders exploit the banner of financial innovation to carry out unlawful acts, while the organizations involved have shifted from simple, “workshop‑style” operations to modern corporate structures, with a marked rise in the number of individuals possessing financial expertise. The use of the internet to commit illegal fundraising crimes is widespread, leading to increasingly severe harm, and the difficulty of recovering stolen funds and mitigating losses has further intensified.

According to reports, in recent years, procuratorial organs at all levels nationwide have focused on handling criminal cases involving illegal fundraising, strengthening organizational leadership, intensifying oversight and guidance of such cases, promptly formulating relevant documents of a judicial‑interpretive nature and normative instruments, refining specialized case‑handling mechanisms, enhancing legal education and publicity through case‑based interpretation, and bolstering interagency collaboration to forge a concerted effort to combat these offenses.

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