CHINA (PRC FIRMS): An Introduction
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China Overview: An Introduction
Banking & Finance in China
China’s financial industry aimed to improve the real economy, pushed forward supply-side structural reform of finance, and gradually expanded opening-up to a higher level in the past year. In November 2021, the Beijing Stock Exchange, the primary platform serving innovation-oriented small and medium-sized enterprises (SMEs), started trading. The China Securities Regulatory Commission (CSRC) formulated Provisions of the State Council on the Administration of Overseas Securities Offering and Listing by Domestic Companies (Draft for Comments) and the related rules in December 2021, enhancing the compliance level of Chinese companies listing overseas and protecting the legitimate rights and interests of investors. BlackRock, DBS Securities (China) and Daiwa Securities (China), which are financial institutions wholly foreign-owned or foreign-controlled have been approved to operate their business in China. The domestic financial institutions started to compete with foreign institutions in the Chinese financial market. To promote the high-quality development of the real economy with green finance, the People’s Bank of China (PBOC) formulated and promulgated the first batch of green financial standards, earmarked a RMB200 billion special refinancing to support clean and efficient utilisation of coal, and announced The Green Bond Endorsed Projects Catalogue (2021 Edition). In the face of the accelerating rate of population ageing, the China Banking and Insurance Regulatory Commission (CBIRC) approved the preparation for the establishment of Guomin Pension & Insurance Company Limited (Guomin Pension). Guomin Pension will make full use of the advantages of its bank shareholders in customer resources and brand reputation to enrich the supply of pension insurance products in the future. Under the global pandemic of COVID-19, PBOC flexibly adjusted monetary policies to accurately support the real economy, creating a climate for financial institutions to moderately benefit the real economy and increase support for private micro and small companies and key areas of manufacturing.
Corporate and M&A in China
In 2021, China has entered into the post-epidemic era, with the national economy stabilised and the M&A market gradually recovered, but the scale of transactions dropped. The M&A market played a key role in companies' investment activities in the science and innovation field.
Increased penalties for anti-monopoly violations, and a centralised review and suspension system for operators, were the latest antitrust developments in key sectors such as the Internet and finance. The data security protection legislation and the Personal Information Protection Law have taken into account the protection and utilisation of data and personal information, and have laid the legal foundation for China's network society and digital economy. The Beijing Stock Exchange was registered and established, which is tailor-made for small and medium-sized enterprises/issuers. The Ministry of Commerce issued the Fourteenth Five-Year Plan for Utilisation of Foreign Investment Development, proposing to relax on entry barriers in a few key areas. The Central Economic Work Conference laid out the economic work priorities for 2022 and clarified the policy's tendency to stabilise growth.
In the near future, national anti-monopoly supervision will become the theme of the market. Domestic internet supervision will become more stringent. Future mergers and acquisitions will be based on the fundamental goal of increasing capital growth. More high-quality industrial mergers and acquisitions will emerge. Internet platforms will assume more responsibility for information protection during use and storage. The Data Security Law coordinates development and security, guarantees development with security, and boosts the construction of Digital China. The Central Economic Work Conference pointed out to give priority to stability. The year of 2022 will be a crucial year for the full implementation of the registration system of securities. The full implementation of the registration system for stock issuance is a matter of foreseeing.
Dispute Resolution in China
China protects the legitimate rights and interests of Chinese and foreign parties equally and is trying to create a fairer, more transparent and more predictable business environment under the rule of law. China's new developments in the area of dispute resolution include the following four areas that deserve readers' attention:
The Civil Code came into force on January 1, 2021. As a newly enacted law, its content still needs to be tested and improved in judicial practice, and it also needs to further solve the problems of understanding and application of relevant provisions by judicial interpretations and guiding precedents to be issued.
Regarding the jurisdiction of litigation in China, it can be predicted that the number of cases heard by the Primary People's Court will increase significantly in 2022, and the first, second and retrial procedures of most civil cases have no chance to cross the provincial administrative region. As a result, the parties concerned about potential local protectionism may prefer arbitration.
Though China is not a case law jurisdiction, a series of guiding opinions issued by the Supreme People's Court make China like a quasi-case law country in essence. Those guiding opinions aim to reduce the phenomenon of different judgments in fact-similar cases. The law application standards determined by the effective judgments of the Supreme People’s Court come to play an increasingly important role.
In the previous practice, the court's support for claims of attorney fees is usually limited to certain types of cases or the circumstances where the parties have clear contract terms on who bears the attorney fees. Of late, there has been a trend of relaxation of this strict rule. The rule that the losing party bears the attorney fees reduces the cost of safeguarding the rights of the parties.
Trade Remedy Investigations against China
Non-functioning of the Appellate Body of the WTO, coupled with the outbreak of COVID-19, has created uncertainties as to the multilateral trading system. Meanwhile, some countries or regions have tried hard to make new legislations in order to balance their interests and competition. Such changes and developments may sometimes pose challenges to exporters from WTO Members in the context of global trade environment. We will say that opportunities and challenges coexist.
Certain developments have been witnessed in trade remedy investigations:
- Anti-dumping investigation is the most frequently used instrument to deal with the competition from Chinese exporters, who very often face rather high (or unreasonable) anti-dumping duties, or a lack of consistency and coherence in conducting the investigations.
- Anti-subsidy investigations are mostly used by the EU and the US. In anti-subsidy investigations, a certain practice is not legally supported.
- Safeguard investigation sometimes achieves similar protective effects precisely like anti-dumping investigations, which are frequently used by some developing countries.
- The event of Brexit has brought about, to some extent, development of trade remedy investigations. Transitional review has been used by the UK as an instrument to assess if certain measures in force while the UK was within the EU should be maintained, revised or revoked.
Recent developments in terms of trade remedy investigations have witnessed a trend of serious challenges to the Chinese exporters. Chinese exporters are facing a variety of measures that are mostly bearing a political background.
In the current international situation, a fair rule-based trading system should be advocated. It's my view that WTO Members should return to the negotiation table to identify all the issues and concerns in order to seek a proper solution.