China Laws and Regulations Update in July 2020

1.Instructions (Given on an Experimental Basis) by the Supreme Court on Application of Law and Case Searches

Promulgated by the Supreme People’s Court

Promulgation date: 27 July 2020

Implementation date: 1 August 2020

Document number: F.[2020] 185

Case searches help judges make correct judgement. If a dispute arises from application of law or no clear or uniform decision-making rules exist, judges need to study the application of law more carefully and decide more prudently. To standardize the exercise of the decision making right and cause uniform rules on application of law to be implemented, the Instructions states that in one of the following events, case searches are required: 1. to propose to submit to the qualified (presiding) judge meeting or trial committee for deliberation; 2. in the absence of clear or uniform decision making rules; 3. the president or chairman requires case searches within their power to monitor and administer trials; 4. other event in which case searches are necessary to standardize the case search report mechanism. (Source: Website of the Supreme Court)  

2.Minutes of the National Court Meeting on Hearings of Bond Cases

Promulgated by the Supreme People’s Court

Promulgation date: 15 July 2020

Document number: F.[2020] No.185

The Minutes is the first official document for legal authorities that systematically deals with issues connected with hearings of bond cases. The Minutes consists of 34 articles, including basic principles, eligibility of plaintiffs and defendants, jurisdiction and ways of actions, special provisions on protecting rights of bond holders, issuer’s civil liability and responsibilities of other responsible persons and issuer’s insolvency manager, dealing with issues relating to application of law in hearings of bond cases in all respects. The Minutes helps to make legal remedies more easily available in bond cases, give uniform ways of deciding bond cases and increase openness, transparency and predictability of hearings of bond cases and is important to improve basic policies for bond markets, increase marketization and legalization of the bond risk handling mechanism, fully implement the “no” capital market related offense and misconduct requirement and maintain the soundness, stability and good conditions of the capital market. (Source: Website of the Supreme People’s Court)

3.Rules on Custodian Services forSecurities Investment Funds 

Promulgated by China Securities Regulatory Commission

Document number: No.127 Order of China Securities Regulatory Commission

Promulgation date: 10 July 2020

Implementation date: 10 July 2020

The main contents of the Rules are:

Entry arrangements intended to accept fund custodian service permit applications from eligible China-based branches of foreign banks, (1) giving support to China-based branches of foreign banks applying for the fund custodian service permit, (2) setting entry conditions for China-based branches of foreign banks by taking their assets and experience into account, (3) further improving entry arrangements for net assets of fund custodians by supporting successful businesses and restricting unsuccessful ones; 2. regulatory arrangements intended to prevent risks in fund custodian activities, (1) clarifying duties of parent companies, establishing a responsibility pursuit system and further clarifying duties and regulatory arrangements for headquarters of foreign banks; (2) setting out arrangements for cross-border information systems and requirements about cross-border data exchange that China-based branches of foreign banks should comply with when doing fund custodian activities, which may involve cross-border data exchange; (3) post-regulatory measures included in a variety of administrative and regulatory measures, stating that CSRC and its designated person can give an order to make corrections, hold a regulatory meeting with, issue a warning letter, give an order to submit regular reports, refuse to accept administrative permit related documents from or take other regulatory measures against fund custodians violating this Rules and other persons involved; and 3. approval procedures under which“approval for the permit may be obtained without making preparations for activities to be permitted”, making good changes in application documents and places where applications are filed. (Source: Website of China Securities Regulatory Commission)

4.Provisional Rules on Loans from Commercial Banks through the Internet

Promulgated by the China Banking and Insurance Regulatory Commission

Promulgation date: 12 July 2020

Implementation date: 12 July 2020

Document number: No. 9 Order in 2020 of the China Banking and Insurance Regulatory Commission

As internet loans are highly related to risk models using big data and granted very quickly by following an entirely internet-based process, problems may arise from unauthorized credit lines, debts owed by one person to different creditors at the same time, inappropriate use of funds, etc. Main clauses in this Rules intended to effectively control and prevent risks in internet loans are as follows.

  1. As a principle, internet loans are small and short term loans. There are limits on credit lines for personal credit loans used to buy goods to avoid a surge in leverage ratio for residents as individuals.
  2. Greater efforts should be made to regulate credit lines according to uniform rules to prevent excessive credit lines. Commercial banks should be fully informed of borrower’s credit and monitor and evaluate it by using risk monitoring and alert models.
  3. Greater efforts should be made to regulate grant and use of loans. Commercial banks should grant eligible loans through trustees and accurately limit amounts of loans granted through trustees. Loans should be used for explicitly stated and legal purposes and cannot be used to invest in houses, stocks, bonds, futures, derivative financial products, assets management products, fixed assets, equity ownership, etc.

In addition, the Rules includes requirements about administrative matters of bank partners to prevent their risks from passing to banks. The Rules requires commercial banks maintain a system for regulating their partners in the whole process from the entry to the exit stages to improve their accurate regulation ability, choose partners from a fairly wide range of candidates to avoid being too dependant on partners, limit the total amount of loans contributed by banks and their partners together and determine the percentage of contributions to a single loan in a range. (Source: Website of the China Banking and Insurance Regulatory Commission)

5.Instructions bythe Supreme People’s Procuratorate on Ensuring “Security in Six Areas” and “Stability in Six Areas” by Fully Performing Job Duties of Public Prosecutors

Promulgated by the Supreme People’s Procuratorate

Promulgation date: 24 July 2020                             

The Instructions requires that legal protection should be given to ensure businesses can continue regular production and operation and legal authorities should make greater efforts to protect intellectual property rights. Gao Jingfeng said that criminal cases relating to money borrowings should be dealt with legally and prudently by fully considering factors that make it difficult and expensive for businesses to raise money and making a reasonable judgement of the damaging effect of money borrowing activities and criminal cases relating to payment of salaries should be dealt with legally and prudently by identifying the boundaries between a delay in payment of salaries due to a lack of money for business operation and a malicious delay in payment of salaries.

The instructions require that crimes that violate financial management rules should be legally punished and a business environment that is governed by law and beneficial to implementing the opening-up policy. The requirement of “no” capital market related offenses and crimes should be fully implemented. Gao Jingfeng said that severe punishment would be given for doing, organizing or leading illegal activities of illegally accepting savings from the public, raising funds in a dishonest way, etc. by falsely alleging that they are performed by using internet finance.

The Instructions notes that legal authorities should work hard to help with the battle for poverty and be active in improving legal governance of primary-level communities and groups. Severe punishment should be legally given for corruption that harms the interests of the general public. The legal return of property in dispute that is used to support the poor should be quickened. (Source: Website of the Supreme People’s Procuratorate)

6.Notice on Legally and Appropriately Dealing with Tourism Contract Cases Relating to the Pandemic

Promulgated by the Supreme People’s Court, the Ministry of Justice and the Ministry of Culture and Tourism

Promulgation date: 29 July 2020

Document number: F.[2020] No.182   

The Notice notes the importance of the mechanism for dispute resolution through no action, the governance of action sources, various ways of governance and establishment of a united mediation system by using advantages of and smoothly connecting mediation by non-government organizations and administrative or legal authorities, ensuring smooth connections between different channels for dispute resolution and causing different departments to share information, support and cooperate with each other and work together to achieve the same aim.

Cultural and tourism departments should give more support to tourism businesses and deal with complaints appropriately. Legal and administrative authorities should teach non-government organizations how to cause more people to resolve disputes through non-government mediation and help lawyers actively participate and fully use their expertise in mediating tourism contract disputes. Courts should give assistance in dispute resolution through no action by giving priority to tourism contract actions and using online litigation platforms and simplified process for small cases to file, hear and close tourism contract cases arising from the pandemic quickly.

The Notice gives instructions on typical tourism contract cases. Departments concerned should actively teach parties involved to amend or assign their contracts and help tourism businesses resume work, legally and appropriately allocate actual losses arising from the pandemic or measures taken to prevent and control it, appropriately determine the duties of notification and loss control and balance interests of parties involved. (Source: Website of the Supreme People’s Court)


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