MOFCOM Focuses On Competition Impacts of SEPs on The Chinese Market-Review of Nokia's Equity Acquisition of Alcatel-Lucent

 Authored by Michael Gu ( at AnJie Law Firm


On October 19, 2015, the Ministry of Commerce ("MOFCOM") announced the first conditionally approved merger review case in 2015, namely the case of Nokia's acquisition of Alcatel-Lucent's equities. It is the second time that Nokia has become the protagonist in a MOFCOM merger review case due to mobile communications standard essential patents ("SEPs") 18 months after MOFCOM conditionally approved the case of Microsoft's acquisition of Nokia's device and service divisions in April 2014.

In early April 2014, when reviewing the case of Microsoft's acquisition of Nokia's device and service divisions, MOFCOM thought this concentration might have adverse impact of excluding or restricting competition on China's smart phone market after considering that Microsoft owns a number of important patents in the field of smart phones and Nokia holds thousands of SEPs in the field of communication technologies. After several rounds of negotiations, MOFCOM finally accepted the commitments with remedy plans respectively proposed by Microsoft and Nokia, and thereby conditionally approved this concentration. Specifically, Nokia, as the seller, made relevant commitments to strict compliance with the FRAND (fair, reasonable and non-discriminatory) principle in respect of related SEPs. In the recent case of acquisition of Alcatel-Lucent's equities, Nokia, as the acquirer, has made more stringent commitments to a larger extent in respect of its telecommunications SEPs, including telecommunications SEPs owned by Alcatel-Lucent.

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MOFCOM Conditionally Clears Nokia's Acquisition of Alcatel-Lucent with Behavioral Remedies

Authored by Dr. Hao Zhan ( Ying (, and Feng Siduo ( at AnJie Law Firm

On 19 October 2015, the Ministry of Commerce of the P.R.C (“MOFCOM”)   conditionally cleared Nokia Oyi’s (“Nokia”) acquisition of Alcatel Lucent (“Alcatel”) with four behavioral remedies focusing on maintaining fair licensing of standard-essential patents (SEPs).

Brief Introduction of the Case

On 15 April 2015, Nokia signed a Memorandum of Understanding on Acquisition with Alcatel, according to this memorandum, Nokia intends to acquire 100% shares of Alcatel through a tender off.

A notification about this deal was filed on 21 April 2015 and officially accepted by MOFCOM on 15 June 2015. On 14 July 2015, the notification went into the second phase for review of MOFCOM. After MOFCOM expressed its concerns that this deal would lead to anti-competitive effects, Nokia proposed relevant remedies to MOFCOM. Through thorough evaluation, MOFCOM considers the proposals could release its competition concerns and decides to clear this transaction with remedies.

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The SAIC Fined An Enterprise for Refusal to Cooperate with Anti-Trust Investigation for the First Time

 Authored by Michael Gu ( and Sun Sihui ( at AnJie Law Firm


For the last two years, the State Administration for Industry and Commerce (SAIC) has exercised its law enforcement powers in a rather smooth and steady manner. SAIC’s steady hand contrasts starkly with the National Development and Reform Commission (NDRC)’s frequent heavy anti-trust fines and its round after round of anti-trust enforcement actions..With the exceptions of the Microsoft and Tetra Pak cases, none of the SAIC’s cases have become very public. In fact, the SAIC has carried out all its investigations into monopoly behaviors in an orderly manner, unless the conduct directly involves prices. According to SAIC official Mr. Zhao Guobin who addressed the subject at a recent anti-trust seminar , up until October 2015, the SAIC authorized local commerce and industry administrations to open 57 cases, of which 23 cases have been closed and four cases have been suspended. In those cases, the entities were punished for monopoly conduct violating the Anti-Monopoly Law of the PRC (AML) and related regulations; more than half were cases involving monopoly agreements, but the percentage of cases involving an abuse of dominant market position has gradually increased. On 13 October 2015, the Anhui administration for industry and commerce (Anhui AIC) published a case where the party was fined for not cooperating with the investigation conducted by the anti-trust law enforcement agency.   This is the first case published by anti-trust law enforcement agencies which level led a penalty for not cooperating with the investigation.

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Beijing Higher People's Court Recognises "Merchandising Rights" as Tool to Fight Bad-faith Applications

Authored by Mr. Zhao Kefeng ( and Mr. Han Jinwen ( at Anjie Law Firm

In a recent trademark opposition case involving the famous film Kung Fu Panda , the Beijing  Higher  People's Court  has confirmed that DreamWorks Animation SKG Inc had prior "merchandising rights"  in the name  of the film and refused to register  the trademark KUNG  FU PANDA.  DreamWorks' success highlighted the possibility of using merchandising rights to block bad-faith trademark applications in China.
This case is a typical example of pirated trademarks and the facts were simple. A Chinese individual applied for the registration of the trademark KUNG FU PANDA for "car steering wheel covers" in Class 12. DreamWorks filed an opposition against the application as producer of the film Kung Fu Panda. The main ground for the opposition was that the trademark infringed its prior "merchandising rights".
DreamWorks' success did not come easily. In the opposition and following appeals, the China Trademark Office, the Trademark Review and Adjudication Board and the Beijing Number 1 Intermediate People's Court all decided that "merchandising rights" were not among the "Iegitimate rights" pursuant to the Chinese laws and did not uphold the opposition.
However the Beijing Higher People's Court disagreed. The court held that the name of a movie or movie character with a high reputation shall benefit from "merchandising rights" if the following conditions are met:
1. the relevant public identifies the name of the movie or character with a particular business entity;  and
2.   the business entity may derive  additional commercial value  or business opportunities from such identification/affiliation.
The judgment also specified essential factors when determining the scope of protection of Merchandising rights: fame and the likelihood of confusion. It was suggested that the courts should evaluate whether the registration and use of the pirated trademark on the designated goods  or services may cause damage  to the real rights owner by taking away trading opportunities.
The judgment is significant as it is the first time that "merchandising rights" have officially been recognised as a type of "prior rights" that can be used to block bad-faith trademark applications. Article 32 of China's Trademark Law stipulates that a trademark should not infringe any prior rights owned by a third party. The current practice recognises that "prior rights" include trade names copyright, design patents and the names of famous persons, but merchandising rights had never been  included - until now.
In fact, the Kung Fu Panda case is not the first case in which an IP rights owner has fought for the recognition of merchandising rights.  In an earlier similar opposition case against the trademark驯龙高手 ('how to train your dragon' in Chinese) the Beijing Number 1 Intermediate People' s Court  upheld the opposition by confirming that DreamWorks had "Iegal interests" in the movie  name, but insisted that "merchandising rights" were not "prior rights" for the purpose of Article  32. In 2011, in a cancellation action against the trademark CRAYON SHIN-CHAN, the Beijing Higher People's Court confirmed the cancellation of the mark on the grounds of bad faith, without any comments on merchandising rights.  In other earlier cases, the Chinese courts had ruled against infringers who had copied the name of a movie or movie character on the grounds of "unfair competition".
There is no doubt that the present case is a welcome development in the battle against pirated trademarks. The judgment means that rights owners have an additional weapon to crack down on trademarks that copy or imitate the names of famous movies, characters, actors or songs.
What is interesting, though, is that the case itself is still being debated in China.  After the judgment was published, some scholars questioned whether judges were in fact "making" the law, because "merchandising rights" have not been  recognised by the Chinese  laws. The debate is likely to continue for a while, and IP owners should  keep monitoring the issue.

SIPO Shifts on Data Disclosure Requirement

Authored by Mr. He Jing ( and Mr. Mr. Wu Li( at Anjie Law Firm

Article 26.3 of the Chinese Patent Law specifies a sufficient disclosure requirement: “the description shall set forth the invention or utility model in a manner sufficiently clear and complete so as to enable a person skilled in the relevant field of technology to carry it out.” How- ever, there was a great deal of controversy in Chinese patent practices concerning whether or not the State Intellectual Property Office (SIPO) had correctly interpreted this provision for medical inventions, especially the so-called “compound invention”, which is an invention simply directed to a compound itself, not to the potential pharmaceutical usage of the compound.

SIPO had been heavily criticized for insisting that, for all medical inventions including compound inventions, some rather specific experimental data demonstrating the pharmaceutical usage of the invention must be included in the specification, and that no post-filing data is allowed to address the sufficient disclosure rejection under this circumstance. Given the difficulties in selecting the right pharmaceutical compound(s) among thousands of potential candidates during the early R&D stage, and the unavoidable delay in obtaining experimental data on the biological effects of the selected com- pounds, such a unique experimental data requirement substantially impeded applicants  in the pharmaceutical  industry from timely filing new applications.

According to the criticisms, this unique data requirement of SIPO for medical inventions, especially for compound inventions, is not in line with the patent practices in other major jurisdictions. Several comparative studies, including studies made from the pharmaceutical industry association INTERPAT, were conducted and showed that, for many compound inventions, national stage applications derived from the same PCT. application can be granted in all other major jurisdictions but China, with the rejection merely based on this exact ground – lack of specific experimental data in the specification to demonstrate the pharmaceutical use of the claimed compound.

Although SIPO had long taken a defensive position to address these criticisms, recently there are clear signs that SIPO started to soften its attitude in this regard. On December 4 2013, SIPO held a short news briefing to clarify its official examination standard on disclosure issue, assuring that its examination of disclosure on medical inventions would not simply be based on whether or not the specification contains any experimental data and that post-filing data would not be flatly rejected under this circumstance. More than one and half years have passed and, according to our observation, SIPO’s practices indeed have undergone certain changes.

For example, we recently conducted an empirical study based on the published re-examination decisions after January 1, 2014, and found out that, to our surprise, for all those cases concerning pharmaceutical compounds that were rejected under Article 26.3 for allegedly lacking experimental data, the Patent Re-examination Board reversed the rejections and resumed the prosecution procedures in over 90% of the cases, as opposed to a mere 20% reversal rate we observed be- fore 2014.

This is certainly a very promising move, although further concerns also arise. For example, many practitioners have observed that, for medical inventions, rejections based on the inventiveness issue (under Article 22.3 of the Chinese Patent Law) now become outstanding. Some start to worry whether or not this shift on rejection grounds may merely indicate a strategy change in making rejections by SIPO: the application formerly rejected on one ground is now to be rejected on another ground, and the applicant does not really get benefit in protecting his/her invention.

Ironically, under the Chinese Patent Law, an applicant has to fight hard to show that his/her invention is obvious to the skilled artisan during the Article 26.3 battle (for disclosure issue) so as to convince the examiner that certain experimental data should not be required; now, at this battlefield concerning Article 22.3 (for inventiveness issue), those arguments the applicant has so diligently made during the Article 26.3 battle can be handily turned over to use against the applicant himself/herself. This then make the following question even more prominent: will the inventiveness standard be upheld correctly? For the pharmaceutical industry, this kind of doubt better be clarified

Chinese Internet Insurance Business: Where to Go? - Understanding towards the "Interim Measures for the Regulation of Internet Insurance Business" issued by CIRC

 Authored by Dr. Zhan Hao ( and Ms. Yu Dan( at Anjie Law Firm

Internet finance is a hot issue in nowadays China, accompanying with more and more corresponding regulations coming up. In the early July of 2015, the Bank of China and ten other regulators published the “Guiding Opinions on Promoting the Healthy Development of Internet Finance” (hereinafter referring to Guiding Opinion). Following the principles of "legitimate regulation, appropriate regulation, classified regulation, collaborative regulation and innovative regulation",the Guiding Opinion specified the division of responsibilitiesfor Internet payment, online lending, equity crowd-funding, Internet fund sales, Internet insurance, Internet trust and Internet consumer, established regulatory responsibilities, defined business boundaries. It also specified the China Insurance Regulatory Commission’s (hereinafter referring to CIRC) responsibility for Internet insurance business regulation.

On 23rd of July 2015, the CIRC published the “Interim Measures for the Regulation of Internet Insurance Business” (hereinafter referring to Interim Measure), which was the first established regulatory rule under the Guiding Opinion. The Interim Measure provided rules for the operating entity, types of insurance products, geographic range and operating conducts, and would be implemented for three years from October 1, 2015.

The implementation of the Interim Measure demonstrates the insurance regulation institution’s interest in the innovation of Internet insurance and its seriousness about the development of corresponding regulations. In fact, Internet insurance has already been tested before the release of the Interim Measure, but could not have gone too far because of the vacancy of regulation.

With respect to the operating entity of Internet insurance, the Interim Measure makes it crystal clear that insurance companies and insurance institutions are the only approved entities in this business. CIRC had once sought comments from the whole industry in 2014 regarding its “Interim Measure for the Regulation of Internet Insurance Business (Draft for Comments)” (hereinafterreferringto Draft for Comments). Comparing with the Draft for Comments, the Interim Measure specified the definition of professional insurance intermediaries, which refers to a professional insurance agency company, insurance brokerage company or insurance loss adjustor institution whose operating regions are not limited to the province, autonomous region or municipality directly under the Central Government where it is registered.  

Regarding the issue of whether third-party network platforms could operate Internet insurance, in accordance with Article 1, Section 4 of the Interim Measure, third-party network platforms refers to the network platforms, other than proprietary network platforms, that provide network technology supporting and auxiliary services for insurance consumers and insurance institutions during Internet insurance business activities. From this provision, one could conclude that the Interim Measure defines third-party network platform as providing network technology supporting and auxiliary services for insurance consumers and insurance institutions. Pursuant to Article 3 of the Interim Measure, third-party network platforms that intend to carry out the above-mentioned insurance business shall obtain insurance business qualifications. From the above provisions, article 1 and 3 seem to be contradictory. However, our interpretation is that third-party network platform needs to abide by the provision of Article 6; whereas qualification under Article 3 would be required if it aims to conduct insurance businesses. Judging from the unofficial information we have acquired, the qualification under Article 3 refers specifically to the Internet sale, which is different from the qualification for concurrent business agency.From this perspective, there would be no contradiction between Article 1 and 3.

To conclude, the approved Internet insurance operating entities include insurance companies, third-party network platforms with qualification for conducting Internet insurance businesses, and professional insurance agency company, insurance brokerage company or insurance loss adjustor institution whose operating regions are not limited to the province, autonomous region or municipality directly under the Central Government where it is registered.

With respect to the types of Internet insurance products, the Interim Measure does not provide particular rules for the types of Internet insurance products, but instead applied the same rules as for offline insurance products, without the need of separate record-filing. Insurance companies could decide according to their conditions, and would be monitored by the insurance regulatory institutions during the sale and after-sale process accompanying with withdrawal mechanisms to enhance the institutions’ regulation over Internet insurance business.

Considering Internet sale’s particular nature of convenience, efficiency and cross-region, to control risks more effectively, Article 7 of the Interim Measure provided for the range of types of insurance products if one insurance entity aims toexpand the regions of Internet insurance business to provinces, autonomous regions and municipalities directly under the Central Government where it has not set up any branch. The Interim Measure did not provide any standard for the “internal control and management capabilities” as prescribed in this article.

Regarding the operations of Internet insurance business, the Interim Measure provided specific rules for the operations of business with respect to the conditions for operation, information disclosure and rules for operation. The Interim Measure specified the conditions for insurance institutions carrying out Internet insurance business through a third-party network platform. As to the major channel for Internet insurance in future, it needs to be tested by the market after the implementation of the Interim Measure.

According to the Interim Measure, making false statements, advertising past performance in a one-sided or exaggerated manner, promising returns or undertake to bear losses in violation of relevant provisions, and giving other misleading descriptions, are strictly regulated. An insurance institution shall, in eye-catching locations on the relevant network platform for carrying out Internet insurance business, list insurance products, services and other information in clear wording that is easy to understand. With respect to the business rules, a third-party network platform shall, in an eye-catching location, disclose its record-filing information and the information of its partner insurance institution, and issue reminders that insurance services are provided by the insurance institution. To make sure the safety of funds, the Interim Measure provided that an insurance institution shall require an insurance applicant to, in principle, use his/her own account to pay insurance premiums.Insurance premiums paid by insurance applicants shall be paid directly to the special accounts for premium incomes of the relevant insurance institution by way of bank transfer, and the relevant third-party network platform may not collect insurance premiums on behalf of the insurance institution for subsequent transfer. With respect to this provision, certain practices in bancassurance business need to be altered in urgency.

The current rules for Internet insurance is a significant part for the implementation of the “Opinions on the Reform and Development of the Insurance Industry under the State Council”, and also an important innovation. However, the combination of the rules of the “Insurance Law” and virtual network, the innovation and stable operation would be huge challenges for the development of Internet insurance.

Rational, Scientific and Rigorous Anti-monopoly Analyses Needed for Judicial Judgments - Several Thoughts about the Case of Yunnan YingDing Bio-energy Co., Ltd v. Sinopec Corp. for Refusal to Deal

Authored by Dr. Zhan Hao ( at AnJie Law Firm


The year 2014 was an important year for implementation of China's Anti-monopoly Law. Against this background, the anti-monopoly civil action case of Yunnan YingDing Bio-energy Co., Ltd (hereinafter referred to as "Yunnan YingDing") v. Sinopec Chemical Commercial Holding Company Limited Yunnan Petroleum Branch (hereinafter referred to as "Sinopec Yunnan Branch") and China Petroleum and Chemical Corporation (hereinafter referred to as "Sinopec Corp.") for refusal to deal has attracted much attention due to many spotlights.

This case is the first anti-monopoly civil action against a State-owned petroleum company of China due to refusal to deal, is among a few cases involving "abuse of market dominant position" in China, and is also one of few cases worldwide which are brought by a "seller" against "potential buyers" for refusal to deal. This case involves both the Anti-monopoly Law and the Law on Renewable Energies, which are gilt-edged laws at present. Under the great background of sluggish international crude oil prices, domestic environmental pollution control and the mixed ownership reform of the State-owned enterprises, this case deserves wide attention.

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Warning from MOFCOM: Second Wave of Penalties Imposed for Breaches of Concentration Notification Rules

 Authored by Dr. Zhan Hao ( at Anjie Law Firm and Ms. Li Xiang(

On September 29th 2015, the Ministry of Commerce of the P.R.C (“MOFCOM”) published four administrative decisions on penalties for illegal activities involved in the concentration of undertakings on its official website. This is the second time that China’s authority responsible for merger control released its penalty decisions on undertakings which failed to abide by laws and regulations relevant to anti-monopoly notification obligation.

Brief Introduction of the Cases

According to the penalty decisions issued against Fujian Electronics & Information (Group) Co., Ltd (“FJEI”) by the MOFCOM, FJEI was imposed a fine of RMB 150,000 for failure to file a pre-notification to the authority with respect to acquisition of 35 percent of shares of Shenzhen Chino Communication Co., Ltd (“SCC”). The decision suggests that the investigation was trigged by complaint of third parties during the period of MOFCOM’s public notification for the concentration between SCC and FJEI’s holding company, namely Fujian Furi Electronics Co., Ltd.

In the Shanghai Fosun Pharmaceutical Industry Development Co., Ltd. (“FPID”) case, FPID’s parent company, Shanghai Fosun Pharmaceutical (Group) Co., Ltd notified and applied for consultation with MOFCOM about the proposed purchase of 65 percent shares of a target company through FPID and an off-shore subsidiary. Within the period of negotiation, FPID completed the transfer of shares without MOFCOM’s approval. Therefore, FPID was fined RMB 200,000 for violating relevant laws and regulations. 

The third case is also relevant to implementing the concentration before obtaining MOFCOM’s approval. In accordance with MOFCOM’s decision, on November 3 2014, CSR Nanjing Puzhen Co., Ltd (“Nanjing Puzhen”) and Bombardier Transportation Group Sweden Co., Ltd (“Bombardier Sweden”) concluded an agreement to establish a joint venture where each party owns 50 percent shares. In December, the transaction parties notified the MOFCOM about the potential transaction. However, before the notification, both parties have already appointed directors and management to the joint venture, and the joint venture has gained the business license. Considering that the parties actively filed the concentration notification and showed the cooperative attitude towards MOFCOM’s investigation, Nanjing Puzhen and Bombardier Sweden were separately fined RMB 150,000 by the MOFCOM in the end.

In the last case, Bestv New Media Co., Ltd and Microsoft Corporation were each fined RMB 200,000 for unnotified establishment of joint venture. This case is also triggered by complainants.

Concentrations Subject to Anti-monopoly Notification

The Anti-Monopoly Law (the “AML”) stipulates where a "concentration" between undertakings reaches certain turnover thresholds, the concentration should be notified to the MOFCOM for anti-monopoly review before the concentration is  implemented.

A “concentration” is (i) a merger of undertakings; (ii) an undertaking's acquisition of a controlling right in another undertaking through the acquisition of equity or assets (including establishment of joint ventures); or (iii) an undertaking's acquisition of a controlling right in another undertaking or its ability to exercise decisive influence over another undertaking by contract or other means.

The “turnover thresholds” are met if (i) the collective global turnover of the concentration undertakings in the previous fiscal year exceeds RMB 10 billion with at least two undertakings each achieving a turnover of more than RMB 400 million within China; or (ii) the collective turnover of all the concentration undertakings within China in the previous fiscal year exceeds RMB 2 billion with at least two undertakings each achieving a turnover of more than RMB 400 million within China.

For the purpose of the AML, “control” means controlling or exercising decisive influence over a company. Chinese regulators would identify “Control” based on multiple legal and factual elements, such as (i) the purpose of the concentration transaction and future plans; (ii) the equity structure of other undertakings both before and after the concentration transaction; (iii) the matters for voting by the general meeting of other undertakings, and the voting mechanisms; (iv) the composition and voting mechanisms of the board of directors or the board of supervisors of the other undertakings; (v) the appointment and removal of the senior management personnel of the other undertakings; (vi) the shareholder-director relationship of other undertakings; and (iiv) whether there is a significant business relationship between the undertaking and other undertakings, etc.

It is worth noting that in the FJEI case, MOFCOM identified that the transfer of 35% shares which is below 50% constituted “control” under the AML and therefore the transaction parties should perform the notification obligation.

Failure to Notify a Concentration

According to the currently released cases, failure to notify a concentration refers to the following conditions:

a.      Reaching the turnover thresholds but fail to notify MOFCOM;

b.      Filing a notification to MOFCOM after implementing the concentration; and

c.       Conducting implementation behaviors before obtaining the official approval.

All the above-mentioned acts may be considered as fail to perform the notification obligation under the AML by the authority. Under some certain circumstances the transaction has been notified to MOFCOM, if the concentration parties engage in any implementation behavior prior to the official approval, they may still be considered as violation of the AML.

Implementation Behaviors Prior to Official Approval

The second and the third case suggests that behaviors such as transfer of the equities, receipt of business license and appointment of directors or managements before getting the approval of MOFCOM could be viewed as failure to notify the concentration by the authority. Besides, according to our experiences, behaviors such as transferring ownership of property and asset, relocating important staffs, exchanging competitively sensitive information including but not limited to the prices and planned output of commodities and so on might breach the AML as well.

Penalties for Failure to Notify

Pursuant to the AML and the Interim Measures for Investigating and Handling Failure to Notify Concentrations of Undertakings (the “Interim Measures”),  MOFCOM may impose a fine of up to RMB 500,000 if it finds the undertakings implemented the concentration without legal notification and approval. MOFCOM may also reinstate the concentration, order a disposition of shares or assets within a specified time limit, transfer of business within a specified time limit and/or other necessary measures.


In brief, we considered the following issues should be noted with respect to the cases.

First, it is quite obvious that MOFCOM has paid great efforts on the concentration enforcement these years. The procedural transparency with the publication of information on penalties for failure to notify concentrations and failure to comply with restrictive conditions imposed by MOFCOM has been significantly improved. We can expect more normative and stricter enforcement in the future.

Second, with respect to sources of case, complaints from the third party are still the main channel of triggering investigation which reminds the undertakings the importance of the antitrust compliance during merger and acquisition activities.

Third, after assessing the competitive effects of the transactions, MOFCOM concluded that all the concentrations would not eliminate or restrict competition in the relevant market. Therefore, whether the transaction will eliminate or restrict competition in relevant market will not affect the notification obligation of the undertakings

Fourth, the undertakings were fined up to RMB 200,000 which is less than the imposed penalty (RMB 300,000) in the last year and the maximum penalty (RMB 500,000) for violations of concentration control rules. It is not clear how the amount is determined.

Considering the negative influence might be trigged by unnotified concentration, it is advisable to pay attention to and seek professional advice from antitrust counselors to provide guidance for mergers and acquisitions.

Important Amendments to the Insurance Law - Understanding towards the "Decision on Revising the Insurance Law of the People's Republic of China (Draft for Comments)"

 Authored by Dr. Zhan Hao ( at Anjie Law Firm

As a full-ledged industry in most western countries, the insurance business is in rapid growth in nowadays China accompanying with transformation going on in the environment and regulation mechanisms of the insurance industry during recent years. Since the enactment of the Insurance Law of the People’s Republic of China (hereinafter referred to as Insurance Law) in 1995, though it has experienced several amendments, the Insurance Law is crippled to some degree facing with the growing needs of the developing insurance industry. Under these circumstances, the China Insurance Regulatory Commission (hereinafter referred to as CIRC) had started working on the amendment from last year, which was six years after the last large-scale amendment towards Insurance Law.

On the 14th of October 2015, the Legislative Affairs Office of the State Council published the “Decision on Revising the Insurance Law of the People’s Republic of China (Draft for Comments)” (hereinafter referred to as Draft for Comments), seeking public opinions towards the amendments.

Pursuant to the Draft for Comments, the amendment added 24 articles, deleted 1 article and amended 54 articles in total. There are 9 chapters with 208 articles after the amendment. The amendment focuses on the regulation over insurance business, including the business scope of insurance companies, the scope of insurance assets utilization and a new insurance regulation system. With respect to the contents of insurance contract law, the Supreme Court would publish judicial interpretations, instead of enacting amendments to the law.

Following the principle of “let the front, rear the end”, the amendments aim to deregulate, promote innovation and release energy of the insurance market, and will provide with the more complete regulation mechanisms and more severe punishments for wrong-doings at the meantime. The highlights of the amendments are as follows:

1. Expansion of insurance business and consumer protection.

Apart from adding the annuity product to the insurance business, the amendments included the Internet insurance, catastrophe insurance and insurance trading platforms. The amendments are significant in encouraging insurance innovation, enhancing insurance business platform, promoting standard products and the sustainability of the whole insurance industry.

While encouraging the expansion of insurance business, the Draft for Comments includes consumer protection mechanisms as one of its focus. Apart from the concept of consumer protection, adding rules such as personal information protection and cooling-off period for life insurance, the Draft for Comments provides for administrative punishments for “misleading solicitation” and “unreasonable refusal to claim”, which are headaches to the insurance business in China. Pursuant to the Draft for Comments, insurance companies would be subject to a fine between the range of RMB 200,000 and RMB 1,000,000, should they engage in misleading solicitation and misrepresentation, or refuse to pay indemnities or insurance benefits in accordance with the time limit as set out in the insurance policy.If the violations are serious, their insurance business license would be revoked, which is the most stringent regulation than ever before.

2. The utilization of insurance funds.The amendments with respect to the utilization of insurance funds are as follows:

First, the Draft for Comments further deregulates the operation of insurance registered capital, and provides with more channels for financing. It specifies that insurance companies need not set aside more capital, if their guarantee funds reach the level of RMB 200 million. At the meanwhile, it allows the insurance companies to offer equity instruments, debt instruments and other financing instruments approved by the CIRC. These provisions take into account the insurance companies’ capital need in their business operation, and solve the common problem of insufficient funds.

Second, the Draft for Comments broadens the methods for the utilization of insurance funds, allows the investment of insurance funds in equity, asset management business and derivatives for the purpose of risk assessment. In fact, the regulations and other documents published by the CIRC had already broadened the scope of insurance funds investment in practice. The amendment this time brings those activities tested in practice to the level of law regulation and specifies the direction of promoting insurance innovation and deregulation.

At last, the Draft for Comments provides more requirements for the risk assessment in the utilization of insurance funds. Apart from this, it added the regulatory measures the CIRC could take if insurance companies or insurance asset management institutions, in the utilization of insurance funds, fail to conform to the decision-making process, or fail to implement the requirements of risk assessment. The fine would be 5 times in maximum of the illegal gains. These rules are in conformity with the State Council’s regulation instruction, and put finance innovation and strict supervision in good combination.

3. Bringing in the “Second Generation of Solvency Supervision System”, enhancing corporate governance.

The “Second Generation of Solvency Supervision System” (hereinafter referred to as the System) is a system developed by the CIRC representing the risk orientation in PRC. The System has passed the interim period, and would be fully implemented within the whole industry next year.

Unexpectedly, the Draft for Comments included the principle of “forming the insurance company solvency supervision system directed by risk”, which clarifies the status of the System in PRC insurance law. The Draft for Comments provides for the capital classification regime, testing and assessment standards and capital replenishment mechanism, which are the core issues of the System. It enhances the insurance companies’ responsibility in corporate governance, provides for a more stringent rule for shareholder and actual controller, and specifies that changing the actual controller of insurer representing more than 5% of capital or equity shall obtain approval from the CIRC in order to prevent unqualified investors in insurance companies through purchasing equities. Now transactions and investments regarding equities of insurance companies are quite dynamic accompanying with quite a lot mergers and acquisitions in this sector. The law provides for a more stringent rule regarding the identity of shareholders conforms to the past practice of CIRC.

Correspondingly, the Draft for Comments provides for measures the insurance regulation institutions could take if there are huge potential of risks, insolvency and non-conforming corporate governance. It states that regulatory institution could inspect shareholders and actual controllers of insurer, and their bank account and account information. The Draft for Comments specifies the rule for rectification and taking-over of insurers by insurance regulatory institutions, and enhances the connection between the administrative exit and judicial bankruptcy.

Regretfully, the amendments did not touch the connection of Chinese insurance market and international market, or the insurance funds overseas investment, with no provision with respect to foreign insurers’ domestic cooperation, which is a flaw in the amendments of insurance law.

To conclude, the Draft for Comments demonstrates substantially the instruction of “oriented by the market, completing regulation and preventing risks” established by the “Opinions on the Reform and Development of the Insurance Industry under the State Council” in 2015. Should the amendments be enacted and implemented, the insurance industry would be largely boosted and promoted under the guidance of the new Insurance Law.

First published by LexisNexis.

Abuse of Process and Regulation in Commercial Arbitration - A Chinese Perspective

Authored by Arthor X, Dong ( at Anjie Law Firm


This paper discusses the problem of extraordinary delay in the commercial arbitration process, increased arbitration fees, and denial of the benefits of arbitration to other parties due to the abuse of procedural rights by relevant parties in commercial arbitration process. This paper proposes measures to reduce abuse of process in commercial arbitration, such as statutory mocification, judicial supervision, amendment of arbitration rules and intervention of disciplinary bodies. 

Key Words: Commercial Arbitration, Abuse of Process, Regulation

First published by Journal of Arbitration Studies (Korea)

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