CHINA (PRC FIRMS): An Introduction

Following the pilot run of China’s publicly offered infrastructure real estate investment trusts (REITs) which commenced in 2021, in 2022 the China Securities Regulatory Commission (CSRC) and the National Development and Reform Commission (NDRC) jointly rolled out multiple measures to speed up the development of REITs. In the second half of 2022, the pilot scheme of REITs covered a variety of infrastructure projects, and it will be expanded to cover new energy, water conservation and new types of infrastructure facilities. Meanwhile, the NDRC issued notices and policies to spur and facilitate the development of REIT projects. With the gradual development of the REIT market and improvement of government policies, REITs may become another powerful engine of the country’s infrastructure construction and economic development.

In relation to the management of financial holding companies, the People's Bank of China (PBC) approved the first two financial holding company licences in the first half of 2022 and is expected to grant more licences in 2023. In addition, the PBC has promulgated and will promulgate more rules on financial holding companies with a view to building a regulatory framework to better ensure steady economic and financial operation.

At the beginning of 2023, the China Banking and Insurance Regulatory Commission (CSIRC) announced its proposed amendments to the current rules on fixed asset loans, working capital loans, personal loans and guidelines, and project finance, all of which have been observed by commercial banks for a decade. It is expected that the amended rules on fixed asset loans, working capital loans and personal loans and management rules on project financing will be promulgated when the CSIRC has finalised these rules based on the feedback from the industry on the proposed drafts.

In relation to the approval proceedings for the issuance of financial bonds, as of 2022 the PBC no longer reviews and approves the issuance of single/single-period financial bonds, but it will grant an annual bond quota to a commercial bank at the beginning of the year. Meanwhile, the issuance of non-capital bonds no longer requires prior approval from the CSIRC.

Corporate and M&A 

China’s M&A market in 2022 

In 2022, Chinese enterprises’ outbound M&A transactions and foreign capital’s inbound M&A transactions showed a significant downward trend compared with previous years. The reform and industrial upgrading of China’s state-owned enterprises continued to advance, and the M&A transactions of domestic state-owned enterprises were more active than those of previous years.

Legal events worthy of notice in 2022 

On 1 January 2022, the newly amended Civil Procedure Law of the People’s Republic of China officially came into force. On 1 March 2022, the Regulations of the People’s Republic of China on the Administration of the Registration of Market Entities officially came into force. On 18 July 2022, 27 ministries and departments, including the Ministry of Commerce and the Publicity Department of the CPC Central Committee, jointly issued the Opinions on Promoting the High Quality Development of Foreign Cultural Trade. On 1 August 2022, the newly amended Anti-monopoly Law of the People’s Republic of China officially came into force. The 20th National Congress of the Communist Party of China was held in Beijing from 16-22 October 2022.

Market outlook in 2023 

The anti-monopoly in internet industry is becoming stricter. The Regulations of the People’s Republic of China on the Administration of the Registration of Market Entities will play an important role. The government report to the 20th National Congress of the Communist Party of China reiterates the two unswerving principles once again, indicating the policies to support and encourage the development of the private sector.

Dispute Resolution 

After nearly 30 years of development, the international influence of China’s arbitration has increased significantly. Looking ahead to 2023, in terms of legislation and practice, many positive factors will promote the development of China’s business and legal environment in an arbitration-friendly direction. China’s arbitration is further connected with international practice, and efforts are being made to solve the existing problems in China’s arbitration practice. China intends to make major amendments to the Arbitration Law of 1994.

The NPC will deliberate and adopt the highly anticipated new Arbitration Law in 2023. Some important mutual assistance mechanisms on enforcement of arbitral awards and applying for preservation in arbitration procedure between the Mainland and Hong Kong have been fully implemented. Many Chinese arbitration institutions are actively adapting to international commercial arbitration practices. The courts adhere to the principle of supporting arbitration. The World Bank's new business environment score also increases the research on arbitration. China’s arbitration is expected to enter a new stage of development in 2023.

International Trade 

The impact of COVID-19 is currently low relative to 2021. The development of the economy and trade in various countries is slowly returning to normal. However, a complete economic recovery has not been achieved; for example, supply chains have not been restored, and the global shipping costs have substantially increased. This has, to some extent, reduced a number of trade remedy investigations worldwide. Nevertheless, China is still the primary target country of trade remedy investigations.

Certain developments have been witnessed in trade remedy investigations. The trade environment is becoming more uncertain. Not only is trade protectionism rising, but the trade remedy instrument is being used controversially. In addition, the outbreak of Russia-Ukraine military conflicts has led to numerous sanctions imposed on Russia by the US, the EU and other countries, impacting trade flows. The trade barrier is growing. Firstly, new trade barriers are being introduced in relation to imports from China, such as the “Uyghur Forced Labor Prevention Act” issued by the US. Secondly, in some subsidy investigations, the scope of subsidies is being extended to a contentious degree, in light of WTO rules. Thirdly, in certain new exporter reviews, the qualification of new exporters is being controversially denied.

In the face of the changing world and growing uncertainty, it is of no doubt that Chinese companies will encounter significant challenges, mainly with the US and the EU. The US is not focused on the multilateral trading system, while the EU is trying to safeguard the multilateral trading system but is concerned that some rules cannot properly resolve current economic and competition structures.

In conclusion, not only is China facing challenges, but other countries are too. Disorder affects all.