JC Master Legal News Issue 868

Key Takeaways for This Issue

The STAR Market’s margin trading and short‑selling rules have been released! The pool of eligible securities has expanded, and it now specifies who may act as a lender…

On the evening of April 30, the Shanghai Stock Exchange, China Securities Finance Corporation, and China Securities Depository & Clearing Corporation jointly issued the “Detailed Rules for the Implementation of Securities Lending and Borrowing on the STAR Market,” thereby clarifying the rules governing securities lending and borrowing activities on the STAR Market.

Provisions of the Supreme People’s Court on Several Issues Concerning the Application of the Company Law of the People’s Republic of China (V)

Adopted at the 1766th Meeting of the Judicial Committee of the Supreme People’s Court on April 22, 2019, and effective as of April 29, 2019.

Social security fee reductions officially take effect today; there are three major changes to social security this year.

Effective May 1, the new policy to reduce social security contributions has officially taken effect. How much will these reductions amount to? What impact will they have on businesses and employees? Will pension payments be affected? And what other major changes are coming to the social security system this year?

An Analysis of the 2019 Judicial Interpretation on the Crime of Illegal Fundraising

The Supreme People’s Court has issued multiple judicial interpretations on the crime of illegal fundraising, which have provided guidance for addressing such offenses. However, as the methods employed in illegal‑fundraising crimes continue to evolve and each case presents unique circumstances, the earlier interpretations no longer adequately meet the needs of practical law enforcement. On January 30, 2019, the Supreme People’s Court, the Supreme People’s Procuratorate, and the Ministry of Public Security jointly promulgated a new judicial interpretation to guide case handling.

The Supreme People’s Court has issued four criteria for identifying “professional loan sharks,” with a focus on cracking down on such activities in 2019.

Supreme People’s Court: Private loan contracts entered into as a regular business are invalid. Where a lender provides funds to an indefinite group of persons in society with the intent of earning exorbitant interest, such lending activity is repetitive and habitual, and the purpose of the loans is commercial. Engaging in regular lending activities without authorization constitutes illegal financial business operations, and any private loan contract so entered into is void for violating mandatory legal provisions.

Table of Contents

Table of Contents

Finance & Capital Markets

STAR Market | The Approach to Information Disclosure Urgently Needs Transformation

The STAR Market’s margin trading and short‑selling rules have been released! The pool of eligible securities has expanded, and it now specifies who may act as a lender…

Corporate & Commercial

The first-quarter GDP reports for Beijing, Shanghai, Guangzhou, and Shenzhen reveal these real estate signals.

Provisions of the Supreme People’s Court on Several Issues Concerning the Application of the Company Law of the People’s Republic of China (V)

Taxation

Social security fee reductions officially take effect today; there are three major changes to social security this year.

New Adjustments to the Personal Bank Account Monitoring Policy

Litigation & Arbitration

An Analysis of the 2019 Judicial Interpretation on the Crime of Illegal Fundraising

The Supreme People’s Court has issued four criteria for identifying “professional loan sharks,” with a focus on cracking down on such activities in 2019.

Other

The rule of law is the best business environment.

Finance & Capital Markets

STAR Market | The Approach to Information Disclosure Urgently Needs Transformation

The fundamental purpose of establishing the STAR Market is to advance institutional reforms in the capital market’s infrastructure—shifting, for example, from a review‑centric system under the former approval regime to an information‑disclosure and market‑supervision framework under the registration system. The China Securities Regulatory Commission has also publicly stated that the introduction of the registration system on the STAR Market is a pilot program, designed precisely to facilitate broader adoption. In this sense, the registration system represents the future direction of stock market development—provided, however, that information disclosure and market oversight are effective; otherwise, it could give rise to market disorder. Yet, as evidenced by the Shanghai Stock Exchange’s recent responses to inquiries about the STAR Market’s progress, market participants remain inadequately prepared for this shift, still clinging to the traditional mindset of disclosing only to ensure compliance.

On April 23, 2019, during a press briefing on the outcomes of the first round of inquiries and responses, the Shanghai Stock Exchange identified five common issues in the prospectuses of companies it has accepted for review: insufficient disclosure of matters related to technological innovation; unclear descriptions of business models; inadequate identification of operational, production, and technological risks; overly technical or non‑user‑friendly language in information disclosure; and non‑standardized document formats and content arrangements. These five shortcomings highlight existing deficiencies in information disclosure in China’s stock market and underscore the need to better safeguard investors’ right to know.

To achieve effective information disclosure and market oversight, thereby ensuring the long-term development of the STAR Market, concerted efforts from all stakeholders are essential—aligning with the STAR Market’s core objectives and the original intent behind implementing the registration-based system.

First, issuers should provide thorough and targeted disclosures regarding the company’s core technologies, industry position, and risk factors. For example, they should fully disclose the origins of their core technologies, details of the R&D team, the level of technological advancement, their standing in both domestic and international markets along with their competitive strengths and weaknesses, as well as their business and profit models. Issuers should recognize that the purpose of information disclosure is to equip investors with sufficient information to form their own judgments about the company’s development, rather than merely complying with the requirements of a small group of reviewers or mechanically meeting certain quantitative metrics.

Secondly, sponsoring institutions, as well as professional advisors such as lawyers and accountants, should diligently verify that the relevant information disclosed is true, accurate, complete, and readable. For example, the prospectus should, in light of the issuer’s specific business characteristics, clearly set out the criteria and rationale for determining materiality levels. Moreover, the specific implementation standards for accounting policies and estimates must not merely replicate accounting standards; instead, the language used should be straightforward and easy to understand, concise and to the point, and logically coherent. Relevant institutions should refrain from piling up quantitative details or, as in the past, resorting to overly obscure, excessively embellished “word games” solely to pass regulatory reviews, and instead ensure the substantive quality of their disclosure materials.

Finally, regulatory authorities must also disclose, through public channels, all relevant review standards, procedures, outcomes, and even the lessons learned during the review process, while ensuring that issuers and related institutions faithfully fulfill their information‑disclosure obligations. For example, they should continue to adhere to the principles of “comprehensive inquiry, emphasis on key issues, reasonable skepticism, and robust accountability.” Any material matters that are pertinent to investors’ decision‑making but remain inadequately addressed in the prospectus—covering areas such as business operations, technology, financials, corporate governance, and the clarity of disclosure language—must be supplemented and refined by the issuer. At the same time, focus should be placed on critical issues related to listing eligibility, the issuer’s core technologies, its business and operating model, and its ability to operate independently and sustainably. Furthermore, for any issues identified during the review, regulators should promptly summon the relevant parties for discussions and require corrective action, and conduct targeted assessments of the professional quality of sponsoring institutions and other intermediaries.

The STAR Market’s margin trading and short‑selling rules have been released! The pool of eligible securities has expanded, and it now specifies who may act as a lender…

On the evening of April 30, the Shanghai Stock Exchange, China Securities Finance Corporation, and China Securities Depository & Clearing Corporation jointly issued the “Detailed Rules for the Implementation of Securities Lending and Borrowing on the STAR Market,” thereby clarifying the rules governing securities lending and borrowing activities on the STAR Market.

The so‑called securities lending under the STAR Market’s Stock Lending and Borrowing Program refers to a transaction in which a securities lender, at a specified rate, lends STAR Market securities to China Securities Finance Corporation through the SSE Comprehensive Business Platform, with the latter returning the borrowed securities together with corresponding entitlements and compensations, and paying the agreed‑upon fees upon maturity.

The STAR Market securities lending business refers to the practice whereby China Securities Finance Corporation lends its own or legally raised STAR Market securities to STAR Market securities borrowers for the purpose of short‑selling.

Let’s take a look at the details—

Three departments jointly issued margin trading rules for the STAR Market.

To refine the short‑long balance mechanism of the STAR Market and to promote the development of securities lending and borrowing under the Stock Transfer and Securities Lending Program on the STAR Market, with the approval of the China Securities Regulatory Commission, the Shanghai Stock Exchange, China Securities Finance Corporation, and China Securities Depository & Clearing Corporation Limited jointly issued, on April 30, 2019, the “Detailed Rules for the Implementation of Securities Lending and Borrowing under the Stock Transfer and Securities Lending Program on the Shanghai Stock Exchange,” which took effect upon its publication.

The Detailed Rules are based on the “Shanghai Stock Exchange Measures for the Implementation of Securities Lending Transactions under the Margin Trading and Securities Lending System (Trial)”、“China Securities Finance Corporation Limited Rules on Margin Trading and Securities Lending Business (Trial)” and “China Securities Depository & Clearing Corporation Limited Rules on Securities Lending and Margin Trading and Securities Lending Registration and Settlement Business (Trial)”, among other relevant regulations. They set forth differentiated arrangements specifically for the securities lending and short‑selling segments of the STAR Market. In the event of any inconsistency between these Detailed Rules and the aforementioned rules, the Detailed Rules shall prevail; for matters not addressed in the Detailed Rules, the aforementioned rules shall continue to apply.

The relevant institutional arrangements mainly include:

First, the scope of eligible securities for securities lending and stock borrowing on the STAR Market has been clearly defined. The list of eligible securities for securities lending on the STAR Market is consistent with the list of securities available for short selling published by the Shanghai Stock Exchange. The list of eligible securities for stock borrowing on the STAR Market is determined and publicly announced by China Securities Finance Corporation.

Second, expand the supply of securities available for lending. On the one hand, we will promote the participation of public mutual funds, social security funds, and other institutional investors as lenders in the STAR Market’s securities‑lending program. On the other hand, in accordance with the relevant provisions of the Measures for the Administration of Registration of Initial Public Offerings on the STAR Market (Trial), shares allocated to strategic investors may be lent out during the committed holding period.

Third, enhance the efficiency of securities lending and stock‑lending‑to‑short‑selling activities on the STAR Market. Market participants may engage in these activities through both agreed‑upon and non‑agreed‑upon order submission methods. Specifically, for transactions executed via the agreed‑upon method, the SSE will make real-time adjustments to the tradable balance in the accounts of the lender, China Securities Finance Corporation, and the borrower, enabling the borrower to borrow securities and conduct related transactions immediately.

Fourth, we will enhance marketization and reduce transaction costs. To boost the willingness of both lenders and borrowers to participate in the STAR Market’s securities lending and borrowing program and to meet the diverse needs of all participants, we have introduced a market‑based, pre‑agreed reporting mechanism for such transactions, adopted market‑driven pricing and tenor‑determination frameworks, and lowered both the margin ratio and the spread between the lending and borrowing rates under this framework.

Fifth, it is clarified that, with the approval of the China Securities Regulatory Commission, China Securities Finance Corporation may lend its own securities or securities raised in accordance with the law to securities offices for use in market making and risk hedging; relevant matters shall be governed by separate regulations. The return of securities lent under the STAR Market and the securities lending‑to‑borrow business on the STAR Market, as well as the processing of procedures such as order submission, trade matching, and clearing and settlement for STAR Market securities lending and securities lending‑to‑borrow transactions conducted through non‑agreed‑upon methods, shall follow the existing arrangements applicable to the Main Board.

In addition, the aforementioned mechanism arrangements pertain solely to enhancing the efficiency of securities lending and stock‑lending‑to‑short‑selling activities on the STAR Market, without altering the existing procedures for repaying borrowed securities. Under the current framework, clients may only begin repaying borrowed securities from the next trading day following a short sale. These mechanisms will take effect upon the launch of the STAR Market. In the near term, the Shanghai Stock Exchange, China Securities Finance Corporation, and China Securities Depository & Clearing Corporation will release the relevant technical interfaces and conduct corresponding technical testing.

Six Key Areas of Focus in the Implementation Rules

Focus Area One: Clarifying the scope of eligible securities and expanding the pool of available securities.

The Implementing Rules stipulate that eligible institutional investors, including public mutual funds, social security funds, and insurance funds, as well as strategic investors participating in the initial public offerings of STAR Market issuers (hereinafter referred to as “strategic investors”), may act as lenders and engage in securities lending on the STAR Market through both scheduled and unscheduled reporting methods.

Among them, the scope of eligible securities for short selling on the STAR Market is consistent with the list of STAR Market securities available for short selling published by the Shanghai Stock Exchange.

The STAR Market has expanded its margin‑financing and securities‑lending offerings, allowing participation through both scheduled and unscheduled reporting. The eligible securities for short selling on the STAR Market fall into three categories: unrestricted tradable shares; shares allocated to strategic investors that remain subject to a holding‑period commitment; and other securities that meet the prescribed criteria.

The three regulatory authorities require that, during the committed holding period, strategic investors shall not, by means such as making pre‑arranged filings with affiliated parties or colluding with other entities, lock in proceeds from allotted shares, engage in the transfer of benefits, or seek any other improper gains. If a strategic investor falls under any of the circumstances specified in the preceding paragraph, the Shanghai Stock Exchange may, depending on the severity of the situation, impose, either individually or in combination, regulatory measures and disciplinary sanctions, including requiring rectification within a specified time limit, issuing verbal or written warnings, issuing public reprimands, or issuing public censure, and shall notify the Securities Association of China.

Point of concern No. 2: The SSE may suspend the lending of one or more STAR Market securities.

The Implementation Rules specify that the SSE conducts real-time order matching for securities lending transactions on the STAR Market, generates trade data, and makes real-time adjustments to the tradable balances in the accounts of China Securities Finance Corporation and the lenders. At the close of trading on the same day, China Securities Depository & Clearing Corporation (CSDC), based on the SSE’s trade data, settles and delivers the securities‑lending transactions executed via the agreed‑upon declaration method on the STAR Market using a multilateral netting settlement process.

Meanwhile, the SSE may, based on market conditions, suspend the securities lending of a single security or all securities listed on the STAR Market. If a major risk event occurs during the course of a securities lender’s securities‑lending activities on the STAR Market, the SSE may suspend or terminate the provision of such services to that lender.

Focus Point Three: Four Types of Securities Offices May Act as Lenders

The Implementing Rules stipulate that securities companies meeting any of the four categories of conditions may, as borrowers, participate in the STAR Market’s securities lending and borrowing business through both scheduled and unscheduled reporting methods.

First, the entity is qualified to conduct securities margin trading and short selling and has already obtained authorization to engage in stock lending and borrowing.

Second, the business management system and risk control system are sound and well-established, with a practical and feasible implementation plan for business operations.

Third, the technical systems are fully prepared;

Fourth, participation in the STAR Market securities lending business shall also meet any other conditions stipulated by China Securities Finance Corporation.

During the committed holding period, strategic investors may borrow the shares allocated to them from China Securities Finance Corporation. In response to market demand, China Securities Finance Corporation may, in turn, lend these borrowed shares to securities offices for use in their short-selling activities.

Upon expiration of the loan period, China Securities Finance Corporation shall return the borrowed shares to the strategic investors. Following such return, these shares shall continue to be managed in accordance with the share‑allocation arrangements applicable to the strategic investors. Based on market conditions, China Securities Finance Corporation shall determine and publish, prior to the opening of each trading day, a list of eligible securities that may participate in the STAR Market’s securities‑lending and borrowing program. Securities offices that borrow securities from China Securities Finance Corporation for margin‑financing and short‑selling activities must use a dedicated securities account designated for short‑selling purposes.

Focus Area Four: Market‑based rates and tenors, with reduced margin ratios.

Under the Detailed Rules, where securities lending and borrowing transactions on the STAR Market are conducted through agreed‑upon reporting, the securities lending rates shall meet two requirements:

First, the rate declared by the borrower equals the rate declared by the lender plus the STAR Market securities lending rate differential.

Second, the rate declared by the borrower shall not be lower than or equal to the STAR Market securities lending rate spread.

The securities lending rate spread on the STAR Market shall be implemented in accordance with the standards published by China Securities Finance Corporation. China Securities Finance Corporation may adjust the securities lending rate spread on the STAR Market based on market supply and demand and other relevant factors.

Meanwhile, China Securities Finance Corporation may, based on the borrower’s creditworthiness and the asset composition of the securities and funds held in the margin‑financing and securities‑lending account, determine the margin requirement for conducting STAR Market securities‑lending transactions with the borrower, applying a specified composite ratio. The required margin ratio may be set below 20%, with cash accounting for no less than 15% of the total margin.

A relevant official from the Shanghai Stock Exchange stated that, in order to boost the willingness of both lenders and borrowers to participate in the STAR Market’s securities lending and borrowing business and to meet the diversified needs of all parties, the exchange has introduced a market‑based designated‑quote mechanism for securities lending and borrowing on the STAR Market, adopted market‑driven pricing for fees and tenors, and lowered both the margin ratio and the fee spread for designated‑quote securities lending and borrowing on the STAR Market.

Focus Area Five: Enhanced Efficiency in STAR Market Securities Lending and Stock Borrowing–Securities Lending Transactions

It is worth noting that, for transactions executed via the agreed‑upon declaration method, the SSE makes real-time adjustments to the tradable balances of the lender’s, China Securities Finance Corporation’s, and the borrower’s accounts, thereby enabling the borrower to borrow securities and conduct related business in real time.

Specifically, China Securities Finance Corporation conducts real-time matched trading for STAR Market securities‑lending agreement‑based orders in accordance with the one‑to‑one matching principle, generating transaction data for such agreements and transmitting it to the SSE in real time. For non‑agreement‑based securities‑lending orders on the STAR Market, existing regulations remain in effect: intraday submissions are processed, and at the close of trading, a single batch of proportionate matches is executed. At the end of the day, China Securities Depository & Clearing Corporation carries out security transfers based on the transaction data directly provided by China Securities Finance Corporation.

For agreed‑upon securities lending transactions, the SSE may make real-time adjustments to conoffice the tradable balance in the accounts of China Securities Finance Corporation and the borrower, and then provide feedback on the adjustment results to China Securities Finance Corporation. The data elements for executed agreed‑upon securities lending transactions on the STAR Market include: the securities account of China Securities Finance Corporation, the trading unit code of China Securities Finance Corporation, the borrower’s securities account, the borrower’s trading unit code, the security code, the transfer direction, and the transfer quantity, among others. Upon accepting the adjustment results, China Securities Finance Corporation promptly transmits to the borrower both the execution details of the agreed‑upon securities lending transaction on the STAR Market and the updated information on the tradable balance of the relevant account.

For securities lending on the STAR Market, the extended quantity, term, and fee rate shall be determined through negotiation between the borrower and the lender in accordance with these Regulations. If the borrower and lender agree to terminate the transaction ahead of schedule, they shall settle the entire outstanding position in a single lump sum. Upon early termination, the parties may negotiate an adjustment to the original fee rate. When a securities‑lending transaction on the STAR Market is terminated early, any associated rights‑compensation obligations shall also be settled concurrently. The calculation of the rights‑compensation date shall be reset, with the original securities‑lending repayment date serving as the agreed‑upon repayment date between the lender and the borrower. For extended securities‑lending transactions, the related rights‑compensation obligations shall not be extended.

Focus Point Six: T+0 was not mentioned; the securities office lends its own securities to brokerage offices.

With the approval of the China Securities Regulatory Commission, China Securities Finance Corporation may lend its own securities or securities raised in accordance with the law to securities offices for use in market making and risk hedging; relevant matters shall be governed by separate regulations.

The market‑anticipated T+0 trading mechanism was not addressed. With respect to securities lending and stock‑lending‑to‑short‑selling on the STAR Market, the procedures for returning borrowed securities and settling trades—covering aspects such as submission, order matching, and clearing and settlement—are aligned with the existing arrangements on the main board.

Furthermore, the aforementioned mechanism arrangements pertain solely to enhancing the efficiency of securities lending and stock‑lending‑to‑short‑selling activities on the STAR Market and do not alter the existing procedures for repaying borrowed securities. Specifically, after a client sells securities on margin, they may only begin repaying the borrowed securities starting from the next trading day.

The margin trading and short‑selling mechanisms for the STAR Market will be implemented upon the market’s launch. In the near term, the Shanghai Stock Exchange, China Securities Finance Corporation, and China Securities Depository & Clearing Corporation will release the relevant technical interfaces and conduct technical testing.

Commercial & Corporate

The first-quarter GDP reports for Beijing, Shanghai, Guangzhou, and Shenzhen reveal these real estate signals.

“In the first quarter, China’s GDP reached 21.3433 trillion yuan, up 6.4% year on year in comparable prices.” Following the release of this national economic report by the National Bureau of Statistics on April 17, local statistical bureaus across the country have, over the past half month since mid-April, successively published data on the economic performance of their respective cities. According to a tally by a reporter from China Real Estate News, the four first-tier cities—Beijing, Shanghai, Guangzhou, and Shenzhen—have all posted robust economic results, with GDP growth rates exceeding 5%. Moreover, among these four major cities, real estate development investment recorded varying degrees of increase in the first quarter, while total fixed‑asset investment has been steadily rising, signaling a recovery trend in the property market.

Beijing: First-quarter GDP growth matched the national average, and construction of affordable housing has been accelerated.

According to the first-quarter economic data released by the Beijing Municipal Bureau of Statistics on April 19, Beijing’s regional gross domestic product reached RMB 740.96 billion, up 6.4% year-on-year in comparable prices—matching the national growth rate. However, this pace was 0.2 percentage points lower than the full-year growth rate of the previous year.

In terms of fixed‑asset investment, Beijing’s citywide fixed‑asset investment (excluding rural households) rose 16.9% year on year in the first quarter. Real estate development investment increased by 24%. Reporters observed that, during the same period, both construction and sales of commercial housing in Beijing performed strongly, yielding impressive figures. Specifically, newly started commercial housing area totaled 3.709 million square meters, up 140% year on year (though down 52.7% compared with the same period last year); meanwhile, commercial housing sales reached 1.477 million square meters, a year‑on‑year increase of 87.2% (but still 66.0% lower than the corresponding period last year). By comparing these two sets of data with the same period of the previous year, it is clear that Beijing’s real estate market has undergone a marked turnaround from the sluggish conditions at the beginning of 2018, showing a distinct trend of recovery.

Another noteworthy detail is that Beijing’s Bureau of Statistics devoted considerable attention in its economic report to the city’s achievements in affordable housing development. According to the data, in the first quarter, investment in affordable housing rose by 46.5%, with 1.468 million square meters of new construction commenced—up 150%—accounting for 39.6% of the city’s total new commercial‑housing starts, an increase of 1.3 percentage points year over year. Meanwhile, sales volume reached 630,000 square meters, a 220% surge, representing 42.7% of the city’s total commercial‑housing sales—a rise of 18.0 percentage points compared with the same period last year. In the first three months of 2019, Beijing’s intensified efforts in affordable housing construction have already yielded tangible results. This aligns with the guiding principles and spirit articulated in the Premier’s 2019 Government Work Report, which called for “addressing housing concerns of the people and reforming and improving both the housing market and the social security systems.”

Shanghai: GDP growth of 5.7% fell short of the national average, while real estate development expanded by just 3%.

As an international metropolis, Shanghai is one of the country’s major contributors to GDP; however, over the past three months, its GDP growth rate has lagged behind the national average.

On April 30, the Shanghai Municipal Bureau of Statistics released its report on economic performance for the first quarter. According to the data, Shanghai’s GDP for the quarter reached RMB 830.828 billion, up 5.7% year-on-year at comparable prices—0.7 percentage points below the national GDP growth rate of 6.4%. In the first quarter, total fixed‑asset investment in Shanghai increased by 5% compared with the same period last year. By major sector, urban infrastructure investment rose 3.7%, real estate development investment grew 3%, and industrial investment expanded by 15.8%, a pace 1.9 percentage points faster than in the same period last year.

In the first quarter, Shanghai’s real estate development growth remained moderate, yet it accounted for a substantial share of fixed‑asset investment, reaching 63%. Specifically, from January to March, the city’s real estate development investment totaled RMB 93.711 billion, up 3% year on year, representing 63% of total fixed‑asset investment across the economy.

Commercial housing is a key component of real estate development. In the first quarter, Shanghai saw declines across all major metrics related to commercial housing construction and sales: the area under construction, the area completed, and the sales area. Specifically, the total floor space under construction stood at 117.658 million square meters, down 2.6%; residential construction accounted for 58.6314 million square meters, a decrease of 3.9%. New construction starts totaled 4.154 million square meters, up 58.1%, with residential projects accounting for 2.0348 million square meters, an increase of 56.0%. Completed commercial housing reached 7.3414 million square meters, a drop of 32.5%, of which 4.2566 million square meters were residential, down 27.1%. Sales of commercial housing amounted to 3.175 million square meters, a decline of 10.7%, with residential sales at 2.69 million square meters, down 3.5%. These figures indicate that Shanghai’s real estate market is on a downward trajectory.

Regarding Shanghai’s economic performance in the first quarter, a spokesperson from the Shanghai Municipal Bureau of Statistics stated that, overall, amid a tightening external environment and the emergence of uncertainties and instabilities, Shanghai’s economy got off to a steady start in 2019. Market expectations and confidence have gradually improved, new drivers of economic growth continue to strengthen, positive factors in economic operations have become more pronounced, and the trend toward high-quality development remains evident.

Guangzhou: GDP grew by 7.5%, with a substantial increase in fixed-asset investment.

On April 25, Guangzhou released its economic performance data for the first quarter. In the first quarter, the city’s regional gross domestic product reached RMB 550.771 billion, up 7.5% year on year at comparable prices—a 3.2-percentage-point increase over the same period last year. This also marks the highest year-on-year growth rate of cumulative GDP in nearly seven quarters, since the third quarter of 2017.

A notable feature of Guangzhou’s economic performance in the first quarter is the substantial increase in fixed‑asset investment. Data show that fixed‑asset investment rose by 19.1% in the first quarter, up 16.6 percentage points year on year. By sector, infrastructure investment grew by 30.4%, industrial investment by 44.3%, and real estate development investment by 12.2%.

It is worth noting that state‑owned investment and private investment reversed the year‑on‑year decline seen in the same period last year, posting a robust recovery with year‑on‑year growth rates of 42.4% and 17.5%, respectively. Meanwhile, foreign investment continued its rapid expansion from the previous year, surging by 52%.

Over the past quarter, Guangzhou completed 18 major projects each with investments exceeding RMB 1 billion, an increase of 8 compared with the same period last year. Total investment in these projects reached RMB 37.1 billion, up 75.4% year on year. These large-scale initiatives have spurred development across key sectors, including urban infrastructure, real estate, transportation, and research and development. For example, in Huangpu District, the BeiGene Guangzhou R&D Center—invested in by BeiGene—is drawing significant attention as the company’s second global R&D hub, scheduled for completion in 2021. Meanwhile, in Baiyun District, the Airport Avenue (Baiyun Line 5–Airport) project, with a total investment of RMB 7 billion, will help refine the backbone road network in northern Guangzhou and within Baiyun District, enhancing driving conditions and meeting the demands of rapidly growing traffic volumes.

Shenzhen: Fixed-asset investment growth remained above 20%, while real estate development investment increased by 12.7%.

As a major innovation hub in China, Shenzhen enjoyed a strong start to the year in the first quarter. According to data released by the Shenzhen Municipal Bureau of Statistics on April 29, the city’s GDP for the quarter reached RMB 573.403 billion, up 7.6% year-on-year at comparable prices. By sector, the primary industry added value stood at RMB 582 million, up 1.9%; the secondary industry contributed RMB 229.649 billion, an increase of 8.1%; and the tertiary industry generated RMB 343.171 billion, up 7.2%.

Notably, Shenzhen’s fixed‑asset investment growth remained above 20% in the first quarter. The overall economic stability and improvement have been underpinned by accelerated investment and consumption. In the first quarter, Shenzhen’s fixed‑asset investment rose by 22.7%, up 2.3 percentage points from January–February. Specifically, real estate development investment increased by 12.7%, while non‑real estate development investment grew by 30.4%. Within fixed‑asset investment, infrastructure investment expanded by 45.4%, and industrial investment climbed by 7.6%, with industrial technological upgrading accounting for an 85.7% increase. Private investment surged by 21.7%, now representing 48.8% of total fixed‑asset investment.

In its recently released Q1 2019 overview of the Shenzhen real estate market, Knight Frank reported that the average price of new residential units in Shenzhen stood at RMB 55,996 per square meter, down 2.3% quarter-on-quarter. The residential market remains subdued. The office forecasts that, in Q2 2019, the overarching tone of property‑market regulation in Shenzhen will remain unchanged. However, the broader policy environment is expected to ease somewhat, with reductions in mortgage rates continuing to bolster both owner‑occupier and investment demand in the city’s residential sector.

Provisions of the Supreme People’s Court on Several Issues Concerning the Application of the Company Law of the People’s Republic of China (V)

(Approved at the 1766th Meeting of the Judicial Committee of the Supreme People’s Court on April 22, 2019, and effective as of April 29, 2019)

Interpretation of the Supreme People’s Court No. 7 of 2019

In order to ensure the proper application of the Company Law of the People’s Republic of China and in light of the trial practice of the people’s courts, the following provisions are hereby made regarding the legal issues applicable to disputes involving the protection of shareholders’ rights and interests.

Article 1: Where related-party transactions harm the interests of a company, and the plaintiff company seeks compensation from the controlling shareholder, the actual controller, directors, supervisors, or senior management for the losses incurred pursuant to Article 21 of the Company Law, the people’s court shall not uphold the defendant’s defense solely on the ground that the transaction has complied with the procedures prescribed by laws, administrative regulations, or the company’s articles of association, such as fulfilling information disclosure requirements and obtaining approval from the shareholders’ meeting or general meeting of shareholders.

If the company has not instituted litigation, shareholders who meet the conditions set forth in Article 151, Paragraph 1 of the Company Law may, pursuant to Articles 151, Paragraphs 2 and 3 of the Company Law, bring a lawsuit before the people’s court.

Article 2 Where a related‑transaction contract is invalid or subject to rescission, and the company has not brought suit against the other party to the contract, any shareholder who meets the conditions set forth in Article 151, Paragraph 1 of the Company Law may, pursuant to Articles 151, Paragraphs 2 and 3 of the Company Law, bring an action before the people’s court.

Article 3: If a director is removed from office prior to the expiration of his or her term by a valid resolution of the shareholders’ meeting or the general shareholders’ meeting, and the director’s claim that such removal is invalid is not upheld, the people’s court shall reject it.

Where, following the removal of a director from office, litigation is brought concerning compensation, the people’s court shall, in accordance with the provisions of laws, administrative regulations, the company’s articles of association, or the terms of the contract, and taking into account such factors as the grounds for removal, the remaining term of office, and the director’s remuneration, determine whether compensation is warranted and, if so, the appropriate amount thereof.

Article 4: Following the adoption of a resolution by the shareholders’ meeting or general meeting of shareholders regarding the distribution of profits, the company shall complete such distribution within the time specified in the resolution. If the resolution does not specify a time, the time prescribed in the company’s articles of association shall prevail. If neither the resolution nor the articles of association specifies a time, or if the specified time exceeds one year, the company shall complete the distribution of profits within one year from the date the resolution is adopted.

If the deadline for completing profit distribution specified in a resolution exceeds the period prescribed in the company’s articles of association, shareholders may, pursuant to Article 22, Paragraph 2 of the Company Law, petition the people’s court to set aside the provision in the resolution concerning that deadline.

Article 5. When hearing cases involving significant disputes among shareholders of a limited liability company, the people’s courts shall give priority to mediation. If the parties reach a consensus on resolving the dispute by any of the following methods, and such methods do not violate the mandatory provisions of laws or administrative regulations, the people’s courts shall uphold them:

(1) The company repurchases shares from certain shareholders;

(2) Other shareholders acquire shares from certain shareholders;

(3) Other parties acquire shares from some shareholders;

(4) Reduction of the company’s capital;

(5) Corporate split;

(6) Other methods that can resolve disputes, restore the company’s normal operations, and prevent its dissolution.

Article 6: These Provisions shall come into force as of April 29, 2019.

Cases that have not yet reached final adjudication after the entry into force of these Provisions shall be governed by them; cases that had already attained final adjudication prior to the entry into force of these Provisions, or cases subject to retrial under the trial supervision procedure, shall not be governed by these Provisions.

Where any prior judicial interpretation issued by this Court is inconsistent with these Provisions, these Provisions shall prevail.

Taxation TAXATATION

Social security fee reductions officially take effect today; there are three major changes to social security this year.

Effective May 1, the new policy to reduce social security contributions has officially taken effect. How much will these reductions amount to? What impact will they have on businesses and employees? Will pension payments be affected? And what other major changes are coming to the social security system this year? Let’s take a look.

Social security fee reductions have officially begun.

Following the trillion-yuan VAT tax cut that took effect on April 1, social security contributions will see a substantial reduction starting in May—another major measure in this year’s broader package of tax and fee cuts.

How much exactly can be reduced? According to the Comprehensive Plan for Reducing Social Insurance Contribution Rates issued by the General Office of the State Council, this round of fee reductions primarily covers two aspects: lowering contribution rates and reducing the wage base for contributions.

With regard to premium rate reductions, first, the employer contribution rate for urban employees’ basic pension insurance will be lowered; provinces where the rate exceeds 16% may reduce it to 16%. Second, the temporary reductions in unemployment insurance and work-related injury insurance rates will be extended for an additional year, until April 30, 2020, following the expiration of the current temporary policy.

With regard to the wage base for contributions, each province shall determine the upper and lower limits of the individual social security contribution base by calculating a comprehensive average wage for urban employees, weighted based on the average wages of employees in non‑private urban units and those in private urban units. In doing so, provinces should reasonably reduce the contribution bases for certain insured individuals and enterprises.

Among them, individual business households and those in flexible employment may choose a contribution base ranging from 60% to 300% of the province’s average wage for all urban employees.

What impact will there be?

This reduction in social security contribution rates will significantly ease the burden on enterprises. Specifically, the employer’s share of pension insurance contributions has been lowered to 16%, a one-time cut of 3 to 4 percentage points from the previous rates of 20% or 19%, equivalent to a reduction of one-fifth.

Another policy of considerable significance is the adjustment of the social security contribution base. By adopting the average wage of all urban employees across the board to determine the upper and lower limits of individual contribution bases, this approach more accurately reflects the actual average wages of insured individuals than the previous method, which used the average wage of non‑private sector employees in post. As a result, the contribution bases for some workers and enterprises with lower wage levels can be correspondingly reduced, thereby easing their financial burden.

For example, suppose your monthly salary is 3,000 yuan, while the average wage of employees in non‑private enterprises in your locality is 6,000 yuan. Before the adjustment, you would be required to contribute based on the social security contribution floor of 60%, which amounts to 3,600 yuan, resulting in a monthly contribution of 288 yuan.

Following the adjustment to the calculation methodology, with the average wage of urban employees across all sectors set at RMB 5,000, the lower limit of the individual contribution base is correspondingly reduced to RMB 3,000, bringing the monthly contribution down to RMB 240 and easing the monthly payment burden by RMB 48.

You Jun, Vice Minister of the Ministry of Human Resources and Social Security, stated that, under the current plan, 2019 is expected to see a reduction in pension insurance contribution burdens of roughly RMB 190 billion, along with a cut of more than RMB 110 billion in unemployment and work‑injury insurance contributions. Combined, these three social insurance schemes are projected to lower overall social security contribution burdens by over RMB 300 billion for the year.

Will it affect pension payments?

Many are concerned: after the reduction in the pension insurance contribution rate, will the timely and full payment of pensions be affected?

In response, the Ministry of Human Resources and Social Security offered reassurance: “No, it will not.”

The Ministry of Human Resources and Social Security stated that while reducing the pension insurance contribution rate will effectively ease the social security burden on enterprises, it will also lead to a decline in pension insurance fund revenues and increase pressure on the fund’s income–expenditure balance. However, nationwide, the pension insurance fund as a whole maintains a surplus, with accumulated reserves continuing to grow; therefore, overall, this measure will not pose a risk to pension payments nor affect the timely and full disbursement of pensions.

According to the latest annual report, in 2018, the basic old-age insurance fund for enterprise employees recorded total revenues of RMB 3.7 trillion and expenditures of RMB 3.2 trillion. By year-end 2018, the fund’s accumulated surplus stood at approximately RMB 4.8 trillion, providing robust financial support. Estimates indicate that, even after the fee reductions, the fund is expected to maintain a current‑period surplus over the foreseeable future.

While ensuring timely disbursement, the state will continue to raise pension benefits for retirees. In 2019, pensions were once again increased, with an overall rise of 5% this year, benefiting an estimated 118 million retirees.

This year, there are three major changes to social security.

In addition to the reduction in social security contributions, there will be at least three major changes to the social security system this year—

First, the central pooling ratio for the pension insurance fund has been increased from 3% to 3.5%.

The Ministry of Human Resources and Social Security stated that the annual scale of inter‑provincial fund reallocation is expected to exceed 600 billion yuan, with beneficiary provinces receiving approximately 160 billion yuan. The intensity of this reallocation has been significantly increased compared with 2018, further balancing the pension‑insurance burden across provinces and ensuring the timely and full disbursement of basic pensions to enterprise retirees.

Second, steadily advance the reform of the social security premium collection system.

Under the plan, contributions to the basic old-age insurance for enterprise employees and other employee‑related social insurance schemes will, in principle, continue to be collected under the existing collection system: contributions previously collected by social security agencies will remain under their jurisdiction, and those previously collected by tax authorities will remain under their jurisdiction, thereby ensuring stability in the contribution‑collection process—“transferring one province as it matures.” Meanwhile, the responsibilities for collecting and administering social insurance premiums for government agencies and public institutions, as well as for urban and rural residents, will be transferred to the tax authorities as scheduled.

Third, by the end of 2019, maternity insurance and the basic medical insurance for employees will be merged and implemented.

For employed workers, the most significant change is that enrollment in the employee medical insurance now also includes participation in the maternity insurance. The maternity insurance fund has been merged into the employee basic medical insurance fund, with unified collection and a consistent level of pooled administration. All maternity insurance benefits are now paid from the employee basic medical insurance fund. Maternity insurance benefits during the period of childbirth remain unchanged.

New Adjustments to the Personal Bank Account Monitoring Policy

Everyone is familiar with bank accounts—along with the progress of modern times, most people prefer to keep their money in the bank. Depositing funds there not only ensures the safety of your assets but also earns you some interest. Moreover, all deposits and withdrawals are recorded, and banks may conduct inquiries from time to time. These checks are intended to monitor for any unusual financial transactions. However, it’s impossible for banks to scrutinize every single transaction.

Previously, due to imperfections in the individual account system, issues arose concerning fund management, the creation of “empty accounts” to meet requirements, and the methods used to calculate and disburse benefits. Some enterprises may have exploited these systemic loopholes to engage in unlawful practices. Now that new policies are in place, it is time to put an end to such illegal activities.

In 2019, new regulations governing tax audits were introduced. Previously, audits focused solely on corporate bank accounts; now, the personal accounts of the company’s legal representative, the actual controller, and key responsible officers are all subject to scrutiny—and under strict enforcement. If violations are uncovered, you will be required to pay back any unpaid taxes and face various fines; in severe cases, such conduct may even constitute a criminal offense, resulting in criminal liability.

Regularly transferring a company’s revenues into the owner’s personal account has long been a common tactic used by businesses to evade taxes. In the past, when cooperation between tax authorities and banks was limited, tax enforcement was relatively weak, allowing companies to exploit loopholes. Today, the state has explicitly mandated that government agencies share information with one another to promptly detect unusual transactions. Previously, it was difficult for tax authorities to track fund movements in private accounts; now, doing so is becoming increasingly straightforward. Under the former provisions of the Tax Collection and Administration Law, while tax authorities could access both personal and corporate bank accounts, the data they obtained was incomplete, thereby undermining the effectiveness of their audits.

Since 2018, cooperation among local authorities has intensified, and frequent fund transfers between personal and corporate accounts have come under scrutiny. Today, when the tax authorities access bank data, any illegal activities undertaken by businesses are readily detected. In the past, companies might have used the personal accounts of individuals not involved in management to evade audits; now, once an investigation is launched, it is conducted comprehensively, leaving no detail overlooked.

In the short term, funds are transferred in a dispersed manner and withdrawn in a concentrated manner. The frequency and amounts of fund receipts and payments are clearly inconsistent with the enterprise’s scale and scope of operations. Accounts that have remained inactive for an extended period suddenly become active, generating numerous fund transfers and securities transactions. Similarly, customers who have not engaged in trading for a long time abruptly begin to transact frequently, with relatively large transaction amounts. Any such series of fund movements exhibiting obvious anomalies are classified as suspicious transactions.

Effective January 1, 2019, in accordance with the People’s Bank of China’s regulations, non‑bank third‑party payment services such as Alipay and WeChat Pay are required to report any cash transactions—whether single or cumulative—that total RMB 50,000 or more per day. Additionally, individual accounts must report any single or cumulative transactions involving RMB 200,000 or more with other bank accounts on the same day. Consequently, if your daily spending exceeds RMB 50,000 or you make transfers totaling RMB 200,000 or more, your transactions may be subject to monitoring and classified as suspicious.

Of course, the primary purpose of this regulation is not to curb consumption, but to monitor tax evasion and combat money laundering. Therefore, businesses should continue to operate in a lawful and compliant manner, reducing their tax liabilities through legitimate channels and refraining from any illegal activities.

LITIGATION & ARBITRATION

An Analysis of the 2019 Judicial Interpretation on the Crime of Illegal Fundraising

A popular saying in legal circles goes: “The keys to getting rich overnight are all enshrined in criminal law!”

As a result, crimes involving illegal fundraising have surged nationwide. The Supreme People’s Court has issued multiple judicial interpretations on such offenses, providing guidance for their prosecution. However, as the methods employed in these crimes continue to evolve and each case presents unique circumstances, previous interpretations no longer adequately address the practical needs of law enforcement. On January 30, 2019, the Supreme People’s Court, the Supreme People’s Procuratorate, and the Ministry of Public Security jointly promulgated a new judicial interpretation to guide case-handling practices.

It is purely an emergency measure.

Starting point

The preamble of this judicial interpretation states: “In order to address the issues that public security organs, people’s procuratorates, and people’s courts have encountered in recent years when handling criminal cases involving illegal fundraising.” On the basis of this premise, the newly promulgated judicial interpretation exhibits two salient features.

1. Practicality. All the content is geared toward addressing the operational challenges encountered in case handling and consists of provisions designed to resolve these issues. It does not offer theoretical summaries or expositions on the prosecution of illegal fundraising‑related crimes.

2. Patchwork nature. The provisions set forth herein constitute solutions for certain specific circumstances, rather than a new interpretation of past judicial interpretations or an overarching new approach to handling cases involving illegal fundraising.

Focal point

I. Determination of Illegality. The 2010 judicial interpretation on illegal fundraising stipulated that the act must “violate the provisions of national financial management laws.” For financial crimes, this means that, in addition to satisfying the four constituent elements under criminal law, there must also be a violation of relevant financial‑management statutes. As for what constitutes “financial‑management legal provisions,” it is unclear whether such provisions encompass administrative regulations, departmental rules, or normative documents. By contrast, the 2019 judicial interpretation defines unlawful financial‑management provisions as “laws and regulations.” However, when the statutory text is relatively general, the determination may be made by reference to the spirit of the law and by taking into account departmental rules or other normative documents—such as regulations, measures, or implementing rules—formulated by administrative authorities like the People’s Bank of China, the China Banking and Insurance Regulatory Commission, and the China Securities Regulatory Commission, in accordance with national financial‑management laws and regulations. In other words, for crimes involving illegal fundraising, the determination of “illegality” is based on laws and regulations; where the statutory provisions are of a principled nature, departmental rules and other normative documents may be consulted. This represents a significant breakthrough, providing additional tools for combating illegal‑fundraising offenses. However, a corresponding question arises: since illegal‑fundraising offenses are classified as financial crimes, and their characterization may rely on departmental rules and normative documents, can the same approach be applied to other financial crimes—such as loan fraud or obtaining loans by deception? From a logical standpoint, no such conclusion can be drawn.

II. The Amount of the Crime. Illicit fundraising involves two distinct offenses: the crime of illegally absorbing public deposits and the crime of fundraising fraud. The former is a violation of market order, while the latter falls under the category of fraud. Given the fundamentally different natures of these two offenses, their respective determinations of the criminal amount exhibit marked differences. In the past, courts across different jurisdictions have reached divergent conclusions regarding the calculation of the criminal amount in cases involving the crime of illegally absorbing public deposits—specifically, whether amounts derived from repeated investments should be included. Some courts have deducted such amounts, while others have not. Moreover, forensic accounting reports in prior cases have adopted varied approaches, resulting in inconsistent treatment even in similar circumstances. This time, a unified rule has been established for cases of illegally absorbing public deposits: funds representing repeated investments are not to be deducted but are instead counted as part of the total criminal amount; however, during sentencing, mitigating factors may be considered to impose a lighter penalty.

Furthermore, with regard to whether funds raised from relatives, friends, and internal employees should be included in the calculation of the criminal amount, such funds shall be counted only under the three circumstances prescribed by law; otherwise, they shall not be taken into account.

III. Scope of Enforcement. Illicit fundraising crimes are typically perpetrated by criminal gangs or corporate entities, involving large numbers of participants with complex identities. Determining which individuals should be brought within the scope of criminal investigation is both critical and highly complex. This judicial interpretation confines enforcement to organizers, leaders, and managerial personnel—specifically, the core leadership, management, and key operatives of the parent company or holding company in cases of corporate crime, as well as the management and key personnel of subordinate units such as branches or subsidiaries—and other individuals who play a principal role. However, given the diversity of illicit fundraising organizations and their varying internal governance structures, the identification of the core leadership, management, and key personnel will differ from case to case, often resulting in significant discrepancies. Crucially, the lack of clear criteria for defining “key personnel” leaves considerable room for variation in practice, potentially leading to widely divergent outcomes.

IV. Other Matters. This judicial interpretation also sets forth provisions on the disposal of assets. It assigns responsibility for asset disposal to the competent authorities tasked with handling illegal fundraising offenses, with the people’s courts responsible for adjudication and the continued recovery of illicit proceeds. The competent authorities are charged with unified coordination. For cases that span broad geographical areas, the principle of jurisdiction based on the principal place of the crime is stipulated. While judicial organs in different jurisdictions may have jurisdiction, they are required to coordinate closely in case handling, ensuring consistency in fact-finding, procedural management, and asset recovery efforts.

The problem still persists.

Overall, the issuance of this judicial interpretation represents a timely measure for handling criminal cases involving illegal fundraising, aligning with current realities and, to a certain extent, meeting the needs of case adjudication. However, it still fails to provide more detailed provisions on certain issues:

1. For example, if an employee’s commission is to be refunded, should the base salary also be refunded? What are the criteria for designating personnel as key members? Can certain case‑related expenses be paid out of the illicit proceeds?

2. As far as the judicial interpretations currently in force are concerned, no legal rationale has been provided to explain why offenses that, under criminal law, belong to two distinct categories are being regulated together. Illegal fundraising essentially involves two offenses: illegally absorbing public deposits and fundraising fraud. The former is a crime against financial administration, while the latter falls under the category of embezzlement‑type offenses. On what legal basis are these two treated as a single regulatory framework? Is it merely because the number of victims is large and there is pressure to maintain social stability?

3. Given that such crimes have now erupted nationwide, local jurisdictions have each enacted their own relevant judicial normative documents. However, these local regulations exhibit certain inconsistencies among themselves and also conflict to some extent with judicial interpretations. In light of this, should these contradictions be retained as positive features, or should the conflicting provisions be revised?

4. With respect to investment funds that were not included in the calculation of the amount involved in the crime of illegal fundraising, how may the rights holders seek redress? Should they initiate civil litigation in advance, or should the competent authorities handle the matter collectively? Is there a question of priority between these two approaches?

It is hoped that the Supreme People’s Court will, from the perspective of fundamentally addressing such issues, issue a systematic guiding document—a judicial interpretation that is both theoretically sound and practically robust—so as to truly provide effective guidance for the proper handling of cases.

The Supreme People’s Court has issued four criteria for identifying “professional loan sharks,” with a focus on cracking down on such activities in 2019.

Supreme Court: Private loan contracts entered into as a regular business are invalid!

[Summary of the Judgment] When a lender provides funds to an indefinite group of persons in society with the intent of earning exorbitant interest, such lending activity is repetitive and habitual, and the purpose of the loans is commercial. Engaging in regular lending activities without authorization constitutes the conduct of illegal financial business, and any private loan contract entered into for such purposes is void due to its violation of mandatory legal provisions.

The Notice on Regulating Private Lending Activities and Maintaining Economic and Financial Order, jointly issued by the China Banking and Insurance Regulatory Commission, the Ministry of Public Security of the People’s Republic of China, the State Administration for Market Regulation, and the People’s Bank of China (CBIRC Document No. 10 [2018]), stipulates that no entity or individual may establish an institution engaged in, or primarily engaged in, the business of granting loans, nor may they conduct loan‑granting as a regular business activity, without lawful approval from the competent authorities.

Zhejiang Provincial Higher People’s Court, Zhejiang Provincial People’s Procuratorate, Zhejiang Provincial Public Security Department

Zhejiang Provincial Department of Justice, Zhejiang Provincial Tax Service Bureau of the State Taxation Administration

Zhejiang Provincial Local Financial Supervision and Administration Bureau on Lawful…

Severely crack down on criminal offenses related to private lending.

Minutes of the Meeting on Strengthening Collaborative Governance of Private Lending

In order to severely crack down on criminal offenses related to private lending, achieve both symptomatic and root‑cause solutions through coordinated governance, effectively curb the rising trend of disputes in this area, earnestly safeguard the legitimate rights and interests of the people, and promote social fairness and justice, the Provincial Higher People’s Court, the Provincial People’s Procuratorate, the Provincial Public Security Department, the Provincial Department of Justice, the Provincial Tax Service Bureau, the Provincial Local Financial Supervision and Administration Bureau, and other relevant authorities have conducted a special study on the coordinated governance of private lending and reached a consensus. The minutes are as follows:

I. Effectively enhance awareness and attach great importance to the coordinated governance of private lending.

Private lending, to a certain extent, meets society’s diversified financing needs and has helped foster the development and refinement of a multi-tiered credit market. However, due to its characteristics—such as non‑public and unregulated transactions—it is prone to giving rise to illegal fundraising, usury‑driven relending, sham litigation, “loan‑trap” schemes, and violent debt collection, all of which seriously undermine financial order and social stability, make it more difficult to resolve private‑lending disputes in an orderly manner, and further exacerbate challenges in enforcement.

All relevant entities must, from the perspective of deepening the practice of governing the country according to law, fully recognize the necessity and urgency of rigorously cracking down, in accordance with the law, on illegal and criminal activities related to private lending and of strengthening coordinated governance. Closely aligned with the overarching priorities of the Party and the state, and relying on the leadership of Party committees and the support of governments, they should, guided by the principles of law-based governance, differentiated handling, and comprehensive policy measures, proactively establish cross‑departmental mechanisms for coordinated governance, thereby jointly curbing the rising trend of private‑lending cases.

II. Establish a “Register of Professional Lenders” system and strictly regulate the litigation conduct of professional lenders.

In light of the current prevalence of professional lending, people’s courts should, based on such factors as the number of private‑lending cases involving the same plaintiff or related plaintiffs over a given period, the interest rates charged, and the degree of standardization in contract terms, and in consideration of local conditions, establish a “Directory of Professional Lenders” for targeted oversight, and report relevant information quarterly to collaborative governance bodies, including public security and procuratorial organs.

If the register of professional loan sharks includes public officials, a copy shall be sent to the local discipline inspection and supervision authorities as well as to the official’s employing unit.

Inclusion in the “List of Professional Lenders” shall generally meet the following conditions:

1. Based on the number of cases concluded over three consecutive years, where the same or related plaintiffs have been involved in 20 or more private lending cases (including pre-litigation mediation; the same applies to all subsequent items) in civil proceedings before the same primary-level people’s court, or in 30 or more such cases across a single intermediate people’s court and its subordinate primary-level people’s courts;

2. Within the same calendar year, where the same or an affiliated plaintiff is involved in more than ten private lending cases in civil proceedings before the same primary-level people’s court, or in more than fifteen such cases across both the same intermediate people’s court and the primary-level people’s courts within its jurisdiction;

3. Within the same calendar year, where the same or related plaintiffs have brought five or more civil lending cases in a single intermediate people’s court and its subordinate primary people’s courts, with a total amount involved of RMB 1 million or more; or where they have brought three or more such cases with a total amount involved of RMB 10 million or more;

4. Where a person meets two or more of the following conditions and the number of cases involving such person exceeds half of the thresholds set forth in items 1 and 2, that person may also be deemed a professional lender:

(1) The promissory note is in a standardized format;

(2) Where the defendant contends that the plaintiff is not the actual lender, or where the plaintiff requests that the principal and interest be paid to a third party;

(3) Where the principal of the loan is alleged to have been delivered in cash but no other evidence corroborates such claim;

(4) Where interest on the loan is withheld at the time of principal repayment, or where the interest actually paid by the defendant is significantly higher than the agreed-upon rate;

(5) The plaintiff, without justifiable reason, fails to appear in court or, upon appearing, makes false statements regarding the facts of the case.

Within three consecutive years from the date of publication of the Register of Professional Lenders, if the number of civil lending dispute cases involving any person listed therein is less than one-half of the threshold set forth in items 1, 2, and 4 of the preceding paragraph for determining professional lenders, such person may be removed from the Register of Professional Lenders.

During the adjudication of cases involving professional loan sharks, greater scrutiny should be applied to evidence and facts. With respect to enforcement proceedings in which individuals listed on the roster of professional loan sharks are the applicants, people’s courts should exercise extreme caution in resorting to measures such as detention, fines, surveillance, or pursuing criminal liability for refusal to comply with judgments or rulings. Furthermore, where the principal and interest have already been fully enforced, the enforcement division of the people’s court shall notify the tax authorities, which shall then levy taxes in accordance with the law.

Cases involving professional loan sharks should first be subject to mediation, with efforts made to bring both parties together to ascertain the true facts of the creditor‑debtor relationship, promptly uncover any illegal or criminal conduct, and ensure that such offenses are prosecuted in a targeted and effective manner. Where a lender assigns its claim to another party and the assignee subsequently brings suit, enhanced scrutiny is required to prevent circumvention of regulatory oversight through the assignment of claims.

III. Strengthen scrutiny of the facts and evidence underlying loan transactions, and strictly delineate the boundaries between private lending and criminal activities such as “routine loan” fraud and illegal fundraising.

In light of the reality that perpetrators of “routine loan” fraud and illegal fundraising schemes exploit civil litigation procedures to achieve illicit objectives, public security organs, people’s procuratorates, and people’s courts at all levels throughout the province must remain highly vigilant when handling cases involving private lending. They should comprehensively assess the authenticity of loans by considering factors such as the source of funds, transaction practices, financial capacity, changes in assets, the relationships among the parties, and their respective statements. Furthermore, they should strengthen scrutiny of the facts and evidence underlying the loans, enhance efforts to distinguish between legitimate private lending and criminal activities such as fraud, and effectively prevent criminals from legitimizing unlawful conduct and using civil judgments to appropriate victims’ property.

Where loans are extended using funds illegally absorbed from the public or disguised forms of such deposits, and where debts are forcibly collected through unlawful means such as intentional homicide, intentional injury, illegal detention, intentional destruction of property, or provoking trouble, the case shall be investigated, prosecuted, and adjudicated in accordance with the specific crimes allegedly committed. If no crime is established, the public security organs shall impose administrative penalties in accordance with the law.

During the adjudication of civil cases, if the people’s court discovers evidence suggesting criminal offenses such as “artificially inflating debts,” “fabricating evidence,” “maliciously creating defaults,” “illegally absorbing public deposits,” or “fund‑raising fraud,” it shall dismiss the lawsuit and refer any leads or materials pertaining to such suspected crimes to the public security authorities or the procuratorial organs. With respect to final judgments rendered in ordinary private loan disputes, the people’s court shall, in accordance with the law, promptly rectify them through the trial supervision procedure.

IV. Strengthen penalties for fraudulent litigation and usury‑driven loan‑flipping, thereby effectively curbing the rampant and frequent occurrence of these two types of cases.

According to the Criminal Law and relevant judicial interpretations, the crime of filing a false lawsuit refers to the act of bringing a civil action based on fabricated facts, thereby disrupting the judicial order or seriously infringing upon the legitimate rights and interests of others. Such conduct may manifest either as “unilateral fraud” or as “malicious collusion.” Where the commission of a false‑litigation offense also constitutes another crime—such as unlawfully appropriating another’s property or evading lawful debts—the offender shall be convicted and punished more severely in accordance with the provisions prescribing the heavier penalty. If a judicial officer, abusing his or her official position, jointly commits a false‑litigation offense with others, he or she shall be subject to enhanced punishment; if such conduct likewise amounts to another crime, the offender shall be convicted and punished more severely pursuant to the provisions prescribing the heavier penalty.

Where the purpose is to obtain credit funds from financial institutions by means of fraudulent lending and then re‑lend them to others at interest rates exceeding bank loan rates, and where the illegal gains amount to RMB 100,000 or more, or, even if such threshold is not met, where the offender has been subject to administrative penalties for usury‑based re‑lending on two or more occasions within a two‑year period and subsequently engages in such conduct again, criminal liability shall be pursued in accordance with the law for the crime of usury‑based re‑lending. Public security organs, people’s procuratorates, and people’s courts at all levels throughout the province, upon discovering that companies or enterprises are suspected of engaging in usury‑based re‑lending, shall promptly, through measures such as submitting judicial recommendations to the relevant competent authorities, sever their access to credit and guide them back to the real economy.

In the course of adjudicating civil lending cases, people’s courts shall, in accordance with the law, conduct a comprehensive and objective review of all evidence submitted by both parties. Where there are indications of fraudulent litigation or criminal suspicion of usury‑driven loan‑sharking, the court shall, pursuant to the relevant provisions on preventing and combating fraudulent litigation, promptly initiate investigations ex officio or refer the matter to the competent authorities for evidence collection, so as to ascertain the true facts. Any conduct that obstructs civil proceedings—such as impersonating another party to file a lawsuit, tampering with or fabricating evidence, making false statements after signing an affidavit, or instructing witnesses to give false testimony—shall be investigated and punished strictly in accordance with the law. If, upon verification, a case is found to constitute fraudulent litigation or usury‑driven loan‑sharking, the court shall dismiss the plaintiff’s claim and, in accordance with the relevant provisions of the Civil Procedure Law, impose fines or detention on those who have engaged in such obstruction; where criminal liability is suspected, the case materials shall be promptly transferred to the public security organs for handling.

People’s Procuratorates shall promptly review reports or complaints, as well as any leads, submitted by parties, their authorized litigation agents, third parties, and others concerning false litigation or usury‑lending; if there are grounds to suspect unlawful or criminal conduct, the case materials shall be transferred to the public security organs for handling.

Competent public security organs, upon discovering or receiving referrals of cases involving alleged false litigation or usury‑lending, shall, as a general rule, render a decision to either institute or decline to institute criminal proceedings within thirty days and notify the referring authority. If no case is instituted, the organ shall, within seven days from the date of such decision, provide the referring authority with a written explanation of the reasons for non‑instituting the case.

V. Uphold the criminal policy of combining leniency with strictness, and, in accordance with the law, severely crack down on crimes in key areas related to private lending.

All public security organs, people’s procuratorates, and people’s courts at every level throughout the province, when handling criminal cases related to private lending, shall adhere to a criminal policy that balances leniency with severity; they shall, in accordance with the law, prevent, sanction, and punish all types of criminal acts associated with private lending, and resolutely crack down on illegal lending and debt-collection activities that constitute unlawful or criminal conduct, thereby effectively safeguarding financial order and social harmony and stability. They must strictly implement the requirements set forth in the “Notice of the CPC Central Committee and the State Council on Launching a Special Campaign to Eliminate Organized Crime and Evil Forces” and the “Guiding Opinions of the Supreme People’s Court, the Supreme People’s Procuratorate, the Ministry of Public Security, and the Ministry of Justice on Several Issues Concerning the Handling of Cases Involving Criminal Organizations and Evil Forces,” and, in accordance with the law, combat organized crime and evil forces involved in private‑lending cases, as well as their “protective umbrellas.” In accordance with legal provisions and taking into account actual circumstances, where any of the following circumstances exist, such cases shall be subject to targeted crackdowns as specific offenses:

(1) Lending funds obtained through illegal acceptance of public deposits, disguised acceptance of public deposits, or other similar means;

(2) Those who use unlawful means such as intentional homicide, intentional injury, illegal detention, intentional destruction of property, or provoking trouble to forcibly collect debts;

(3) Obtaining credit funds from financial institutions through fraudulent means and then re-lending them to others at usurious interest rates;

(4) Illegally extending loans to current students, issuing loans without a specified purpose, or, under the guise of providing services or selling goods, effectively charging exorbitant interest rates or fees to surreptitiously extend loans;

(5) Banking financial institutions’ employees, acting as principal members or de facto controllers, engage in organized private lending activities.

VI. Establish a collaborative case-handling mechanism to effectively pool resources and enhance synergy in our work.

In preventing and mitigating various risks associated with private lending, relevant departments should strengthen coordination and explore the establishment of a collaborative governance mechanism involving the people’s courts, people’s procuratorates, public security organs, judicial administrative authorities, tax authorities, and local financial regulatory agencies, aimed at regulating private lending activities. Each participating entity shall establish and improve a joint‑meeting system, conduct regular exchanges on the status of efforts to standardize private lending, enhance early warning and risk assessment, and refine preventive measures. Where necessary for specific tasks, disciplinary inspection and supervision bodies may be invited to participate in the study and consultation of relevant matters or cases.

Upon filing a case, the people’s court shall, in accordance with the law, forward the case to the public security organ and simultaneously send a copy of the referral letter to the people’s procuratorate. If the public security organ fails to initiate an investigation into a private lending case suspected of constituting a crime when it is required to do so, the people’s procuratorate shall, in accordance with the law, notify the public security organ to file the case and shall report the outcome of its oversight to the referring authority.

The basic facts of private lending cases must be determined on the basis of the outcome of the criminal proceedings; if such criminal proceedings have not yet been concluded, the people’s court shall rule to suspend the trial. During the handling of criminal cases, if the public security organs discover that a related private lending case has already been subject to an effective civil judgment or has been fully enforced, they shall promptly notify the relevant people’s court of the status of the criminal proceedings, and the people’s court shall, in accordance with the law, take timely action.

If, upon review, the People’s Procuratorate finds that a private lending case involves suspected criminal conduct that may have resulted in errors in the original judgment, mediation, or enforcement, it shall, in accordance with the law, either file a protest with the higher-level People’s Procuratorate or submit a prosecutorial recommendation to the people’s court at the same level. With respect to private lending cases in which the People’s Procuratorate has filed a protest, the people’s court shall promptly hear the case in accordance with the law; as for cases in which the People’s Procuratorate has submitted a prosecutorial recommendation, they shall be handled pursuant to Article 419 of the Interpretations of the Civil Procedure Law.

All public security organs, people’s procuratorates, and people’s courts at every level throughout the province, when handling civil lending cases suspected of criminal offenses, shall, upon discovering any unlawful involvement by lawyers, legal professionals, forensic experts, notaries, or other relevant personnel, submit recommendations for disciplinary action to the judicial administrative authorities in accordance with the law; where such conduct constitutes a crime, criminal liability shall be pursued in accordance with the law. The judicial administrative authorities shall, within three months from the date of receipt of the recommendation, render a decision on the matter and provide written feedback to the recommending department. Furthermore, the judicial administrative authorities shall strengthen education and oversight of law offices, legal service agencies, forensic institutions, notary offices, and their respective practitioners; if any of these entities or individuals are found to have engaged in practices such as “routine loan” schemes or fraudulent litigation, they shall be held legally accountable in accordance with applicable regulations.

VII. Establish an information-sharing platform to enhance the informatization and intelligentization of case handling.

Public security organs, people’s procuratorates, and people’s courts shall, leveraging the integrated political‑legal case-handling system, explore the establishment of a province‑wide information-sharing platform for private lending cases to facilitate online data exchange.

By leveraging information technology and employing methods such as case‑data matching and cross‑validation, we have strengthened risk forecasting for private lending cases, thereby effectively mitigating potential risks.

Actively explore the deep integration of social credit system development with judicial work, promote the establishment and improvement of mechanisms for the collection, sharing, and utilization of judicial big data related to market entities, foster social integrity, and achieve long-term governance.

VIII. Establish a coordinated financial regulatory mechanism to promote the healthy and orderly development of private lending.

Public security organs, people’s procuratorates, and people’s courts at all levels throughout the province shall strengthen coordination with financial regulatory authorities and financial institutions, and establish mechanisms for information sharing and joint consultations on financial risks. In accordance with existing laws and regulations on financial administration, they shall conduct thorough legal analyses of the substantive nature of informal financial activities, accurately determine the legal status of various financial operations and business models, and clearly delineate the boundaries between financial innovation and financial crimes and illegal activities.

The investigating authorities shall promptly forward to the banking regulatory authorities all relevant materials pertaining to the illegal issuance of private loans. Staff members of financial regulatory agencies and employees of banking financial institutions who engage in illegal financial activities shall be subject to disciplinary or administrative sanctions; if their conduct constitutes a crime, they shall be held criminally liable in accordance with the law and with strict adherence to statutory requirements.

All participating agencies shall employ effective measures to publicize national financial laws and regulations to the general public, promptly release typical cases to the public, enhance risk awareness, and consciously resist illegal private lending activities.

This memorandum shall take effect from the date of its issuance. In the event of any inconsistency between the provisions of this memorandum and applicable laws, judicial interpretations, or relevant regulations issued by higher authorities, the laws, judicial interpretations, and such higher‑level regulations shall prevail. Should new provisions be promulgated, they shall govern.

Other

The rule of law is the best business environment.

The rule of law can, in accordance with the law, afford equal protection to the property rights and legitimate rights and interests of all types of market entities; protecting property rights is, in essence, protecting productivity.

The rule of law can delineate the boundaries between government and the market, respect the principles of the market economy, and, within a legal framework, regulate the interests of various market entities.

Only by improving institutional frameworks and strengthening regulatory oversight can we establish a unified, open market system characterized by orderly competition and foster a fair and equitable competitive environment.

“The rule of law is the best business environment”—on February 25, General Secretary Xi Jinping presided over the second meeting of the Central Commission for Comprehensive Law-Based Governance, where this important proposition was profoundly expounded. Since the 18th National Congress of the Communist Party of China, the Party Central Committee with Comrade Xi Jinping at its core has advanced the comprehensive governance of the country according to law, adopting more robust legal measures to continuously improve the business environment, thereby enabling China’s economy to unlock new institutional dividends.

On March 15, the Second Session of the 13th National People’s Congress adopted the Foreign Investment Law. Upon learning of this news promptly through the media, Yin Xudong, President of Novartis Group (China), expressed great excitement: “This law will further foster a business environment that is rule-of-law based, internationalized, and streamlined, enabling us to operate more efficiently in China and significantly bolstering multinational corporations’ confidence in developing here.”

The rule of law has erected a “protective net,” ensuring equal protection of the property rights and legitimate rights and interests of all types of market entities.

A key highlight of the Foreign Investment Law is its stronger emphasis on providing equal protection to both domestic and foreign-invested enterprises. “In sectors not listed on the Negative List for Foreign Investment Access, management shall be implemented in accordance with the principle of national treatment,” “Mandatory standards promulgated by the state shall apply equally to foreign-invested enterprises,” and “Government procurement shall, in accordance with the law, treat products manufactured and services provided by foreign-invested enterprises within China on an equal footing”... These provisions convey a clear commitment to the principle of treating all investors alike and ensuring equal treatment.

Both domestic and foreign-invested enterprises require equal protection, and both public‑sector and non‑public‑sector enterprises likewise deserve equal protection.

On May 31, 2018, as the gavel fell in the hands of Presiding Judge Sun Huapu, Zhang Wenzhong, the founder of Wumart Group, finally saw justice prevail.

“I am moved, I am grateful, and I am deeply thankful. The Supreme People’s Court’s retrial of this case signifies not only the restoration of my innocence, but also the Party and the state’s profound attention to the entrepreneurial community—marking yet another new starting point in the 40-year journey of advancing the rule of law since the reform and opening-up,” said Zhang Wenzhong.

Treating enterprises of different ownership types without bias helps reassure owners of all kinds of property rights. The retrial that acquitted Zhang Wenzhong underscores China’s unwavering commitment to advancing the rule of law across the board and to protecting property rights and the legitimate rights and interests of entrepreneurs in accordance with the law. Laying the groundwork for this “correction” was a landmark document on improving the property‑rights protection system—the “Opinions on Improving the Property‑Rights Protection System and Protecting Property Rights in Accordance with the Law.” “The Opinions call for the effective legal protection of the property rights of economic entities of all forms of ownership and of all citizens, which will help bolster public confidence in the security of their assets and strengthen the motivation of all economic actors to start businesses, innovate, and create,” said Chang Xiuzhe, a professor at the Macroeconomic Research Institute of the National Development and Reform Commission.

The rule of law is the best business environment—because it provides equal legal protection for the property rights and legitimate rights and interests of all types of market entities, and the property‑rights system is the cornerstone of the socialist market economy; safeguarding property rights means safeguarding productive forces.

Equality of rights, equality of opportunity, equality of rules… Since the 18th National Congress of the Communist Party of China, China has integrated equal protection into every stage—legislation, law enforcement, judicial proceedings, and compliance with the law—using the rule of law to establish a robust “safety net” for all types of market entities, thereby making the business environment more conducive and giving enterprises greater confidence in their operations. In October 2014, the Fourth Plenary Session of the 18th CPC Central Committee called for “improving the property‑rights protection system with fairness as its core principle, strengthening the protection of property rights of economic entities of all forms of ownership and of natural persons, and revising laws and regulations that are inconsistent with fairness.” In March 2017, the General Provisions of the Civil Law were adopted, stipulating that “all civil subjects shall enjoy equal legal status in civil activities” and that “the property rights of civil subjects shall be equally protected by law.”

The rule of law in property‑rights protection has made market competition fairer and invigorated market dynamism: China’s first high‑speed railway with private‑sector majority ownership has begun construction, China Unicom fired the first shot in the mixed‑ownership reform of central state‑owned enterprises, and the oil and gas sales sector is stepping up its efforts to advance such reforms… Statistics show that from 2013 to 2017, private capital invested more than RMB 1.1 trillion in the mixed‑ownership reforms of central SOEs; provincial‑level SOEs attracted over RMB 500 billion in non‑state capital, while their investments in, or equity stakes in, non‑state‑owned enterprises exceeded RMB 600 billion.

The rule of law has drawn a “boundary line,” making the demarcation between government and market even more distinct.

“The greatest surprise to the world”—in June 2018, the “Special Management Measures for Foreign Investment Access in Pilot Free Trade Zones (Negative List) (2018 Edition)” was released, once again demonstrating to the world this largest market—home to nearly 1.4 billion people—the unwavering commitment to further opening up.

Half a year later, another “surprise” arrived: the release of the Negative List for Market Access (2018 Edition), marking the full implementation of China’s market access negative list system. The number of items subject to prohibition or licensing under this list was reduced by approximately 54% compared with the pilot version.

Influenced by the traditional planned economy, China has historically managed the market according to a “positive‑list” approach, with an abundance of entry‑related documents and cumbersome approval procedures. It was all too common for enterprises to exhaust themselves—literally “wearing out their tongues” and “running themselves ragged”—just to get projects off the ground. Particularly in today’s climate of rapid innovation, the positive list can hardly keep pace, leaving new growth drivers vulnerable to various problems arising from vague regulations that neither encourage nor prohibit certain activities. The key to addressing these issues lies in striking the right balance between government and market and clearly delineating the boundaries between the “visible hand” and the “invisible hand.” “The negative‑list effectively curtails the government’s discretionary power over market access, preventing local governments and relevant authorities from imposing arbitrary restrictions,” says Shen Haiping of the School of Law at Shanghai University of International Business and Economics. By referring to the negative list, market entities can readily identify what is prohibited, what requires approval, and what they may decide on their own, leading to clearer, more stable expectations and greater room for entrepreneurship, innovation, and creativity.

One checklist, one giant step. Shifting from the “positive list” approach—focusing on what can be done—to the “negative list” model—clarifying what cannot be done—has enshrined the boundaries between government and market in law, marking a fundamental transformation of the governance paradigm and representing a significant advance in the modernization of the national governance system and governance capacity.

The rule of law is the best business environment—because it delineates the boundaries between government and the market, respects the principles of the market economy, and, through market‑based mechanisms, adjusts the interests of all market participants within a legal framework.

Since the 18th National Congress of the Communist Party of China, in response to changes in the principal social contradiction and the need to comprehensively deepen reform and opening-up, we have accelerated the enactment, amendment, repeal, and interpretation of laws and regulations in the field of the market economy, thereby clarifying the boundaries between government and market and ensuring that socio-economic relations are governed by law. In 2013, amendments were made to the Company Law, replacing the system of registered capital payment with a system of subscribed capital registration, abolishing the minimum threshold for registered capital, and relaxing market access restrictions, thus significantly lowering the barriers to starting a business. In 2017, the Measures for the Supervision and Administration of Investment by Central Enterprises and the Measures for the Supervision and Administration of Overseas Investment by Central Enterprises were promulgated, setting clear red lines for investor oversight and delineating prohibited conduct in the investment activities of central enterprises. As of June 2017, lists of powers and responsibilities at the provincial, municipal, and county levels had all been publicly released.

The rule of law upholds the “scale of fairness,” improving systems and strengthening oversight to foster a fair and just competitive environment.

In December 2018, a fine of 12.83 million yuan sent shockwaves through the industry.

Last year, the prices of commonly used medications such as chlorpheniramine, licorice tablets, and roxithromycin surged sharply, bringing to light underlying issues like insufficient supply of upstream active pharmaceutical ingredients, rapid price hikes, and even supply disruptions. Investigations revealed that three acetic acid‑based API manufacturers exchanged production and sales data and ultimately reached a collusive agreement to raise prices jointly.

The State Administration for Market Regulation has taken decisive action, imposing lawful penalties totaling RMB 12.83 million on three API manufacturers of glacial acetic acid. “Monopolistic price hikes in the API sector can drive up the prices of commonly used medicines, thereby affecting public access to essential drugs; such practices must be met with strong and resolute measures,” said Liu Jian, Director of the Abuse Investigation Division of the Anti-Monopoly Bureau of the State Administration for Market Regulation.

This is the largest fine ever imposed in China’s API sector since the Anti-Monopoly Law was enacted. “The rule of law helps to optimize the institutional environment, ensuring that law-abiding enterprises are not at a disadvantage and accelerating market-driven survival of the fittest,” said Tong Feng, General Manager of the R&D Department at Beijing Chengji Pharmaceutical.

The rule of law is the best business environment—because only by improving institutions and strengthening oversight can we establish a unified, open market system characterized by orderly competition, foster a fair and equitable competitive landscape, and minimize irregular practices such as fraud, breach of contract, counterfeiting and the sale of counterfeit goods, and opportunistic behavior, thereby guiding the socialist market economy onto a path of healthy development.

Since the 18th National Congress of the Communist Party of China, while accelerating the formulation of unified regulatory rules and standards, government departments at all levels have focused their efforts on strengthening ongoing and post‑event supervision, holding up a “fair scale” above the market to ensure a more orderly business environment and foster a greater sense of fairness in enterprise operations.

Regulators are establishing clear rules, and selective enforcement is becoming increasingly rare. The annual enterprise inspection has been abolished, and the Provisional Regulations on the Public Disclosure of Enterprise Information have been introduced, with the rate of enterprises filing annual reports rising from 85.12% in 2014 to 91.81% in 2017. “Annual inspections often fall short of their stated purpose, leaving regulatory authorities with insufficient resources to conduct substantive reviews one by one. Transparency is the best antidote to corruption; now that enterprises publicly disclose their information, regulators can devote more attention to spot checks and other oversight activities, thereby fostering corporate self‑discipline and collaborative governance,” said Liu Junhai, Director of the Institute of Commercial Law at Renmin University of China.

A platform for social credit has been established, leading to steadily improving regulatory efficiency. The Outline of the Plan for Building a Social Credit System (2014–2020) was released, and local social credit regulations have been promulgated one after another. Over the past three-plus years since the national credit information sharing platform was launched, it has achieved interconnectedness with 44 ministries and commissions, all provinces, autonomous regions, and municipalities directly under the central government, as well as more than 70 market institutions, aggregating over 31.6 billion pieces of credit information and laying a solid foundation for joint incentives for trustworthiness and joint penalties for untrustworthiness.

Severe penalties will be imposed on offenders, and the rule of law will be used to safeguard the lives and health of the people. In 2014, the “Interpretation on Several Issues Concerning the Application of Law in Handling Criminal Cases Involving Harm to Pharmaceutical Safety” was issued, which no longer confines the determination of production activities to the manufacture of pharmaceuticals themselves. Instead, it clarifies the scope of accomplices involved in the production and sale of counterfeit or substandard drugs, thereby tightening the criminal legal net and providing a clear statutory basis for prosecuting crimes that endanger pharmaceutical safety in accordance with the law.

The rule of law is both an intrinsic requirement of the market economy and the fundamental guarantee for its sound functioning. As long as we continue to strengthen the rule of law and consistently advance social equity and justice, we can create the “best business environment,” fostering fertile ground for market entities to compete on a level playing field and thrive, thereby providing inexhaustible momentum for China’s economy to move toward high-quality development.

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