Emerging Trends in Criminal Cases Involving Internet Companies: Analysis of High-Frequency Crimes and Risk Control Suggestions

By Min Ding on October 11, 2025

I. Introduction

In recent years, following a period of explosive growth, China’s internet industry has gradually entered a stage of stock competition. Driven by intense internal performance metrics and the lure of substantial financial gain, cases of employees exploiting their positions, system vulnerabilities, or management deficiencies to commit crimes to seek illicit profits have become increasingly common. Such incidents not only inflict significant economic losses on companies but also severely erode corporate culture and business credibility. For internet enterprises, establishing a compliance framework capable of effectively identifying, preventing, and addressing internal criminal risks has shifted from being an “option” to a “necessity.”

Against this backdrop, this article aims to analyze the most common criminal charges and emerging trends in cases involving internet companies and to provide professional suggestions for corporate criminal risk mitigation. It is intended as a reference for readers, particularly practitioners within the internet industry.

II. Current Status and Trends of Criminal Cases Involving Internet Companies

Multiple Internet Companies Issue “Anti-Corruption Announcements”

To strengthen the internal governance of corruption and fraud, several leading internet companies have established dedicated oversight bodies, such as Anti-Corruption Investigation Departments, Corporate Discipline and Ethics Committees, or Internal Control and Compliance Divisions. Upon identifying employee misconduct through these channels and reporting mechanisms, companies typically publicize the details through “Anti-Corruption Announcements” to demonstrate their zero-tolerance stance.

In January 2025, a prominent internet company publicly disclosed its anti-corruption governance results for 2024. The report indicated that the company had investigated over 100 integrity policy violations during the reporting period, leading to the dismissal of more than 100 employees involved. Of these, over 20 individuals suspected of criminal offenses were referred to judicial authorities for investigation. The report also detailed the handling of several serious cases involving commercial bribery and misappropriation of company funds.

In June 2025, a leading e-commerce group’s 2024 ESG report disclosed that the company had completed internal investigations into 221 corruption cases during the reporting cycle, comprising 191 cases of commercial bribery and 30 cases of misappropriation; it also addressed 12 conflict-of-interest incidents. Furthermore, 20 employee corruption cases (including those referred in previous years) that the company had referred to judicial authorities were concluded within this period.

In September 2025, a renowned internet technology company, through its Ethics and Discipline Committee, announced the outcomes of employee disciplinary actions for the second quarter of that year. The announcement stated that 100 employees had been dismissed for serious violations of company policies. Among them, 18 were publicly named due to suspected criminal activity or intentional harm to company interests; an additional eight individuals, suspected of criminal offenses, had been transferred by the company to judicial authorities.

These announcements from leading internet companies indicate that the domestic internet industry faces significant risks of internal fraud and criminal conduct, with corruption cases occurring frequently. Some implicated personnel have been transferred to judicial authorities on suspicion of criminal offenses. Simultaneously, “Anti-Corruption Announcements” have become a crucial method for companies to respond to public concerns and showcase their commitment to compliance governance.

Distribution of Corruption Case Charges Involving Internet Companies from 2020 to 2024: – A Study Based on Judicial Data from Haidian District Court

In May 2025, the Beijing Haidian District People’s Court, in conjunction with the Internet Society of China, released the White Paper on Corruption Crimes Committed by Internal Personnel of Internet Companies[1], disclosing trial data and trend analysis for related cases within its jurisdiction over the previous five years.

The White Paper data reveals that the internet industry has become a high-incidence area and key risk zone for internal corruption crimes. From 2020 to 2024, Haidian District Court concluded 350 cases of corruption crimes involving non-state functionaries, of which 127 cases involved internal personnel of internet companies, accounting for 36.28% of the total. The total amount involved reached approximately RMB 305 million.

In terms of specific charges, corrupt practices within internet companies primarily manifested in the following forms:

Judicial data from the Haidian District Court over the past five years clearly indicates that internal corruption crimes in internet companies not only represent a high proportion of cases and involve substantial sums but also exhibit distinct characteristics, being predominantly bribery by non-state functionaries and misappropriation. These figures highlight the prominent contradiction between new forms of rent-seeking power under the platform economy model and lagging internal governance.

Emerging Crime Pattern: “Platform Power Rent-Seeking”

With the deepening development of the “Internet Plus” model, corrupt practices within internet companies have acquired new characteristics marked by deep integration with technology, rendering criminal methods more diverse and concealed. Beyond traditional forms of bribery and misappropriation, the exploitation of unique internet platform resources for “power rent-seeking” has become a breeding ground for new types of crime.

In the realm of bribery, aside from traditional practices like accepting kickbacks, a growing number of cases involve the abuse of platform operational privileges to secure concealed benefits for others. This includes providing improper assistance in areas such as traffic allocation, search ranking, account permission management, and content recommendation, in return for illicit gains. In the “Case of Guo for Accepting Bribes by Non-state Functionaries”[2] , Guo, an e-commerce live-stream operations employee at an internet company, exploited his duties in live-stream management and account maintenance. Under the pretext of loans, home purchases, or car acquisitions, he solicited or illegally accepted property from several e-commerce hosts under his supervision, providing them with favors such as expediting account reinstatement and prioritized “whitelisting”.

In cases of misappropriation, beyond misappropriating company assets through traditional methods like fabricating expenses or siphoning funds, perpetrators now also employ novel tactics such as creating fictitious transactions, tampering with data, and fraudulently obtaining subsidies or coupons. These methods directly exploit platform rules and technical vulnerabilities for illegal profit. Owing to their technical sophistication and stealth, such schemes often evade detection by conventional auditing methods. For instance, in the “Case of Li for Duty-Related Embezzlement “[3] , the defendant Li, during his tenure in the e-commerce department of an internet social platform company, utilized his position to facilitate false transactions on the company’s platform through a third-party company controlled by Zhang, thereby defrauding the victim company of subsidies totaling over RMB 1.5 million.

‌III. Analysis of Commonly Occurring Offenses

As previously mentioned, corruption risks within internet companies exhibit trends of high frequency and concealment, primarily involving the crimes of Accepting Bribes by Non-state Functionaries, Duty-Related Embezzlement, and Misappropriation of Funds. These criminal acts increasingly demonstrate distinct industry characteristics in judicial practice. Drawing on typical cases, this article briefly analyzes the criteria for identifying and the manifestations of common offenses in the anti-corruption domain of internet enterprises.

Crime of Accepting Bribes by Non-state Functionaries

According to Article 163 of the Criminal Law, the Crime of Accepting Bribes by Non-state Functionaries is defined as follows: it refers to an act where a staff member of a company, enterprise, or any other entity, by taking advantage of their duties, either 1) demands or illegally accepts money or property from another person to seek benefits for that person; or 2) in the course of economic exchanges, violates state provisions by accepting rebates or service charges in various forms and taking them for their own personal ownership, provided that the amount involved is relatively large. The core of this crime lies in the act of a non-state functionary leveraging their position for benefit exchange, infringing upon the normal management activities of the company/enterprise and the order of fair competition.

Within internet companies, this crime may manifest in various forms, such as accepting kickbacks from suppliers, demanding bribes from partners by exploiting traffic allocation authority, or seeking illegal gains through unauthorized data access or algorithm manipulation. If these acts constitute a crime, offenders shall be punished based on the amount involved and the severity of the circumstances, facing penalties ranging from criminal detention to fixed-term imprisonment to life imprisonment, along with fines.

Typical Case: In the case of “Liu et al. for Acceptance of Bribes by Non-state Functionaries”[4] tried by the Shanghai Qingpu District People’s Court, the defendant Liu, while serving as Senior Director of the Big Data R&D Center (later the Big Data and New Technology R&D Center) from November 2017, exploited his positional authority in recommending and selecting IT service suppliers to secure improper benefits for Company B by helping it obtain project orders. He repeatedly accepted bribes totaling over RMB 6.67 million from Luo, the actual operator of Company B, who acted in collusion with Wang and others. The court ruled that Liu had committed the crime of Accepting Bribes by Non-state Functionaries, sentencing him to four years’ imprisonment and a fine of RMB 500,000.

Analysis: In this case, defendant Liu, serving as a Senior Director of the company’s Big Data Center, held authority over supplier referrals and decision-making. His act of exploiting this position to secure project orders for Company B and accepting substantial benefits fulfills the constitutive elements of “illegally accepting any money or property from any other person and seeks benefits for any other person by taking advantage of duty”. This conduct severely undermined the fair competition environment and management order within the IT procurement field. In internet companies, technical decision-making roles often directly control substantial procurement and collaboration resources, rendering such positions high-risk areas for the Crime of Acceptance of Bribes by Non-State Functionaries.

Crime of Duty-Related Embezzlement

According to Article 271 of the Criminal Law, the Crime of Duty-Related Embezzlement is defined as follows: it refers to an act where an employee of any company, enterprise or any other organization unlawfully takes possession of the money or property of the organization by taking advantage of duty, provided that the amount involved is relatively large. The core of this crime lies in the perpetrator exploiting the convenient conditions afforded by their position within the organization to unlawfully appropriate property that rightfully belongs to the organization, thereby infringing upon the organization’s ownership rights over such property.

Within internet companies, potential manifestations of this crime include falsifying records to embezzle company funds; exploiting access privileges to steal or resell company virtual assets or platform subsidies; or tampering with backend data to misappropriate company funds. Where such acts constitute crimes, offenders will face penalties ranging from criminal detention to fixed-term imprisonment or even life imprisonment, along with fines, based on the amount embezzled and the severity of the circumstances.

Typical Case: In the case of “Zhang for Crime of Duty-Related Embezzlement”[5] concluded by the Shanghai Xuhui District People’s Court, the defendant Zhang joined a Shanghai-based technology company as a Direct Sales Manager in January 2018. Between December 2019 and August 2021, he exploited his position in direct client development by falsely designating the direct client “Adam” as a channel client. Through a company in Shanghai where his girlfriend, Zuo, was employed, he thereby siphoned off over RMB 600,000 in rebates that the technology company had intended for agents. The court found Zhang guilty of Duty-Related Embezzlement and sentenced him to ten months’ imprisonment, suspended for one year, and a fine of RMB 8,000.

Analysis: In this case, the defendant Zhang exploited his position as a Direct Sales Manager by creating a fictitious channel agent and fabricating transaction layers. He thereby illegally diverted sales profits, which should have accrued directly to the company, by channeling them into non-existent “channel rebates.” The essence of his actions constituted the illegal appropriation of the company’s property, thereby satisfying all elements of the crime of Duty-Related Embezzlement. This case exposes potential internal control weaknesses within internet companies, particularly in sales channel management, agent qualification verification, and the disbursement of incentive funds.

Crime of Misappropriation of Funds

According to Article 272 of the Criminal Law, the Crime of Misappropriation of Funds is defined as follows: it refers to an act where an employee of any company, enterprise or any other organization, by taking advantage of duty, misappropriates the funds of the organization for personal use or for lending to others, if the amount is relatively large and the funds are not repaid after three months, or if the amount is relatively large and the funds are used for profit-making activities or illegal activities even though the period is less than three months. The core of this crime lies in the perpetrator’s unauthorized placement of organizational funds under personal control, thereby infringing upon the organization’s rights to possession, use, and beneficial interest in such funds.

Within internet companies, this crime may manifest in several forms, including diverting marketing funds for personal investment or wealth management purposes; lending company advances intended for cooperative projects to third parties for their temporary liquidity needs; or making short-term personal use of platform revenue. Where such an act constitutes a crime, the punishment is determined by the amount misappropriated, the duration of the misappropriation, and the purpose for which the funds were used—ranges from fixed-term imprisonment to criminal detention.

Typical Case: In the case of “Zhao for Crime of Misappropriation of Funds”[6] concluded by the Beijing Haidian District People’s Court, the defendant Zhao served as an operations staff member in the BPO Business Department of a Beijing technology company commencing in May 2019. In this role, he was responsible for cash settlement and used a personal bank card to handle company operational funds. Between August and October 2022, Zhao exploited this position to embezzle over RMB 1.2 million belonging to the victim company from this bank card for personal use and failed to repay it for more than three months. The court ruled that Zhao committed the crime of Misappropriation of Funds, sentencing him to one year imprisonment, suspended for one year and six months.

Analysis: In this case, defendant Zhao exploited his position to misappropriate over RMB 1.2 million of company funds for personal use, failing to return the amount for more than three months. This conduct satisfied the key statutory elements of misappropriation of funds: “a relatively large amount” and “failure to return for over three months.” A critical point is that the defendant, who was responsible for the company’s cash settlement operations, used his personal bank account to hold company funds for operational convenience. This practice exposed significant flaws in the company’s fund management system. The case serves as a critical warning to all enterprises: they must strictly implement the principle of separating public and private funds to prevent large company sums from being placed under unsupervised personal control.

Crime of Infringing upon Trade Secrets

According to Article 219 of the Criminal Law, the Crime of Infringing upon Trade Secrets is defined as follows: it refers to (1) obtaining a right holder’s trade secrets by theft, bribery, fraud, coercion, electronic intrusion or other improper means; (2) disclosing, using or permitting others to use a right holder’s trade secrets obtained by the means mentioned in the preceding item; or (3) violating the confidentiality obligation or the right holder’s demand for keeping trade secrets, disclosing, using or permitting others to use the trade secrets he has controlled, if the circumstances are serious. The core of this crime lies in the infringement upon the right holder’s exclusive rights to trade secrets through improper means, thereby damaging the market competition order.

Within internet companies, potential manifestations of this crime include copying source code, algorithm models, or key technical documents before leaving employment; illegally providing customer lists or core operational data to competitors; or disclosing sensitive business strategies or project plans in breach of confidentiality agreements. If the act constitutes a crime, the punishment ranges from fixed-term imprisonment to criminal detention and may also include the imposition of a fine.

Typical Case: In the case of “Wu et al. for Crime of Infringing upon Trade Secrets, Crime of Infringement of Copyright”[7] tried by the Beijing Haidian District People’s Court, the defendant Wu, while serving as a Senior Development Manager at a Zhuhai software company in 2010, violated his confidentiality agreement. In exchange for other game engines from defendant Li, Wu unlawfully transmitted the source code for the company’s copyrighted online game “Sword World” to Li via QQ email. Between June and October 2011, Li arranged for the compilation of the illicitly obtained source code into the server-terminal program for the game “Qing Yuan Jian Xia”. He then conspired with the defendants Sun and Song to rent overseas servers, privately set up the game infrastructure, and create and operate a website for “Qing Yuan Jian Xia”. They solicited customers to register and log in to this private server game website as players or members, profiting by collecting recharge fees through in-game top-up features via third-party payment platforms. The court ruled that Wu committed the crime of Infringing upon Trade Secrets, sentencing him to two years imprisonment and a fine of RMB 200,000.

Analysis: In this case, defendant Wu, a senior manager at a software development company, knowingly breached his confidentiality obligations by disclosing core company software source code to others for personal gain. This act satisfied the constitutive element of “violating the confidentiality obligation and disclosing the trade secrets he has controlled.” His actions infringed upon the right holder’s technical secrets, which ultimately led to the source code being used to operate unauthorized game servers. This severely disrupted the legitimate game market’s operational order and resulted in significant economic losses. The case underscores the high risk of trade secret leakage in key technical positions, such as R&D and operations, within internet companies. Consequently, beyond executing confidentiality agreements, enterprises should enhance the tiered and categorized management of digital assets like source code, improve operational log auditing, and systematically block leakage channels through a combination of technical and managerial measures.

Ⅳ. Corporate Risk Control and Compliance Response Suggestions

Given the current prevalence of internal corruption cases within internet companies, enterprises should shift from reactive investigations to proactive prevention and control, establishing a systematic compliance risk management framework integrating “policies, technology, and investigations” to effectively identify, prevent, and address internal criminal risks.

Strengthening the Internal Compliance Framework

Companies should formulate and continuously refine internal regulations such as the Anti-Corruption and Business Conduct Guidelines, clearly defining behavioral boundaries and accountability for violations to ensure all operations are conducted according to established rules. Concurrently, regular compliance training and awareness programs should be organized for employees at all levels. Beyond covering senior management and key positions in procurement, operations, and sales, these initiatives should extend to all frontline roles to comprehensively prevent corruption “explosions” at the grassroots level of the organization. Companies may also integrate compliance performance into their performance evaluation systems to strengthen employees’ compliance awareness. Furthermore, independent and confidential reporting channels must be established, accompanied by robust whistleblower protection and incentive mechanisms to effectively encourage internal oversight and eliminate employees’ concerns about reporting misconduct.

Enhance Technical Prevention and Control Measures

Enterprises should establish strict hierarchical permission management and access audit mechanisms. Implement the principle of least privilege and dynamic adjustments for core data, financial systems, and backend operations to ensure all actions are traceable and auditable. Simultaneously, leverage financial process automation and big data analytics to establish risk rules and anomaly detection models for transaction logs, expense claims, and supplier payments. This enables automatic identification and real-time alerts for suspicious or related-party transactions. Additionally, enhance background checks on partners and suppliers while conducting dynamic evaluations of their performance to mitigate fraud risks arising from external collaborations.

Optimize the Internal Investigation System

Enterprises should establish internal investigation teams comprising members from multiple departments such as compliance, legal affairs, internal audit, and information security to ensure investigations are conducted professionally, compliantly, and efficiently. During investigations, emphasis should be placed on comprehensively and systematically collecting and preserving evidence, encompassing not only electronic data but also written documents, physical evidence, and testimonial evidence. For electronic evidence, specialized tools should be used to perform complete extraction and backup, with detailed documentation of the evidence collection process and key operational information. This ensures the authenticity, integrity, and continuity of evidence, meeting the review requirements of judicial authorities. After obtaining preliminary evidence, cases should be promptly transferred to public security organs or other judicial authorities in accordance with the law, and the company should actively cooperate with subsequent investigative work. This achieves effective coordination between internal risk management and external judicial procedures.

Conclusion

Internal criminal risk prevention and control within internet companies constitutes a long-term and systematic management endeavor. Currently, crimes such as Accepting Bribes by Non-state Functionaries, Duty-Related Embezzlement, Misappropriation of Funds and Infringing upon Trade Secrets remain prevalent, with perpetrators continually evolving their methods to exhibit new characteristics of concealment and technological sophistication. Companies should systematically build compliance frameworks across multiple dimensions—including institutional development, technological safeguards, and investigative response—to embed risk prevention within business processes. This enables effective coordination among preemptive prevention, real-time control, and post-incident resolution. Only by establishing routine compliance management mechanisms can enterprises effectively mitigate criminal risks within complex and dynamic commercial and legal environments, thereby ensuring healthy and stable development.

[1] See https://mp.weixin.qq.com/s/5xF9VnzTrUGCP2z30OI_IA?scene=25&sessionid=#wechat_redirect

[2] See https://mp.weixin.qq.com/s/BnilwHP48vJs7Hm6uwJ2Pg

[3] See https://mp.weixin.qq.com/s/5xF9VnzTrUGCP2z30OI_IA?scene=25&sessionid=#wechat_redirect

[4] See Criminal Judgment No. 820, First Instance, (2022) of the Shanghai Qingpu District People’s Court.

[5] See Criminal Judgment No. 857, First Instance, (2023) of the Shanghai Xuhui District People’s Court.

[6] See https://mp.weixin.qq.com/s/W1LEAvuPXbCBnk_NAVn_nQ

[7] See Criminal Judgment No. 3240, First Instance, (2012) of the Beijing Haidian District People’s Court; Criminal Ruling No. 5321, Final Instance, (2012) of the Supreme People’s Court.

China’s New Cyber Incident Reporting Rules

By Samuel Yang, Chris Fung & Bill Zhou on September 24, 2025

Posted in Data Protection & Privacy

Introduction

Protecting the integrity of networks and data has become a global imperative. China, recognising this, has promulgated the “Administrative Measures for the Reporting of National Cybersecurity Incidents ” (“Measures“; effective 1 November 2025). The Measures outline a comprehensive approach to reporting cybersecurity incidents, aiming to minimise losses, incentivise legal compliance, protect national cybersecurity, and align with existing legal frameworks. This article provides an analysis of the Measures’ key provisions and offers insights into China’s rapidly evolving cybersecurity framework.

Purpose

Article 1 of the draft describes the rationale behind these Measures. It emphasises the Measures’ alignment with foundational privacy, data, and cyber security laws in China, such as the Cybersecurity Law, Data Security Law, Personal Information Protection Law, and Regulations on the Protection of the Security of Critical Information Infrastructure.

Scope

Article 2 sets the Measures’ scope of application to entities involved in development (Note: The meaning of the Chinese also captures planning, deployment and putting-into-service.), operating, or providing services through networks within the PRC (“Network Operators“).

Defining Cybersecurity Incidents

Article 12 of the Measures clarifies that cybersecurity incidents are events that causes harm to a network, information system, or its data and business application due to human factors, cyberattacks, vulnerabilities, software or hardware defects or malfunctions, force majeure, or other causes, resulting in adverse impacts on the State, society, or the economy.

Regulators

Under Article 3, the national cyberspace authorities coordinate and supervise national cybersecurity incident reporting. In contrast, local cyberspace administrations coordinate and supervise cybersecurity incident reporting within their administrative regions.

Incident Classification

Article 4 contains requirements for reporting incidents categorised as significant or higher, namely: (1) incidents impacting critical information infrastructure, (2) incidents impacting central or state authorities, and (3) incidents impacting other Network Operators.

The sole Annexe to the Measures provides granular guidelines for incident classification based on severity, impact and extent, as described below, in descending order of severity:

Particularly Major Cybersecurity Incidents: These can be identified by important networks and systems facing widespread failure, causing large scale paralysis and loss of functionality, core data, important data or a massive amount of personal information being lost, stolen, tampered with or counterfeited, posing a particularly serious threat to national security and social stability, and the occurrence of other particularly serious threats such as:

Party and government websites at the provincial level or above or enterprises and public institutions or news platforms at the central level are inaccessible 24 hours or more.
Critical infrastructure failure for over 6 hours or main function disruption for 24 hours or more.
Impact felt by over 50% of a province’s populace.
Impact on transport, amenities and utilities affecting over 10 million individuals.
Leakage, theft, tampering or counterfeiting of important data posing a particularly serious threat to national security and social stability.
Leakage of personal information affecting 100 million individuals or more.
Impact on Party and government information systems at the provincial level or above or key news websites at the central-level resulting in the extensive dissemination of illegal or harmful information (i) for six hours or more on a homepage or 24 hours or more on other pages, (ii) involving 100,000 or more reposts on social platforms, (iii) involving 1 million clicks or views, or (iv) the CAC determines large scale dissemination to have occurred.
Direct economic losses exceeding CNY100 million.
Other particularly serious threats.

Major Cybersecurity Incidents: These can be identified by important networks and systems facing partial failure or prolonged functionality interruptions, core data, important data and a large amount of personal information being lost, stolen, tampered with or counterfeited, posing a serious threat to national security and social stability, and the occurrence of other serious threats, such as:

Party and government websites at the prefectural level or above or enterprises and public institutions or news platforms at the provincial level are inaccessible for 6 hours or more.
Critical infrastructure failure for over 1 hours or main function disruption for over 3 hours.
Impact felt by over 50% of a prefecture’s populace.
Impact on transport, amenities, and utilities affecting over 1 million individuals.
Leakage, theft, tampering or counterfeiting of important data posing a relatively serious threat to national security and social stability.
Leakage of personal information affecting over 10 million individuals.
Impact on Party and government information systems at the prefectural level or above or key news websites at the provincial-level or above resulting in the relatively large scale dissemination of harmful information (i) for 2 hours or more on a homepage or 12 hours or more on other pages, (ii) involving 10,000 or more reposts on social platforms, (iii) involving 100,000 clicks or views, or (iv) the CAC determines large scale dissemination to have occurred.
Direct economic losses exceeding CNY20 million.
Other serious threats.

Significant Cybersecurity Incidents: These can be identified by important networks and systems facing significant system losses, impacting operational capabilities, important data and a large amount of personal information being lost, stolen, tampered with or counterfeited posing a relatively serious threat to national security and social stability, and the occurrence of other significant threats, such as:

Disruption to Party and government websites at the prefectural level or above or enterprises and public institutions or major news platforms at the provincial level for 2 hours or more.
Critical infrastructure failure for over 10 minutes or main function disruption for over 30 min.
Impact felt by over 30% of a prefecture’s populace.
Impact on transport, amenities and utilities affecting over 100,000 individuals.
Leakage or theft of important data posing a significant threat to national security and social stability.
Leakage of personal information affecting over 1 million individuals.
Impact on Party and government information systems at the prefectural level or above or key news websites at the provincial-level or above resulting in the relatively large scale dissemination of harmful information (i) for 30 min or more on a homepage or 2 hours or more on other pages, (ii) involving 1,000 or more reposts on social platforms, (iii) involving 10,000 clicks or views, or (iv) the CAC determines relatively large scale dissemination to have occurred
Direct economic losses exceeding CNY5 million.
Other particularly serious threats.

General Cybersecurity Incidents: These can be understood as not meeting the criteria of any of the above categories. This is, in essence, a residual category.

Reporting Deadlines

Cybersecurity Incidents involving critical information infrastructure should be reported to the relevant regulator and the public security authorities within one hour.

Network Operators who are central or state authorities or their direct affiliates must report incidents within 2 hours.

Other Network Operators must report incidents categorised as significant or above to the provincial-level cyberspace authorities of their locality within 4 hours.

We note that 12387.cert.org.cn, the official cybersecurity incident reporting platform, only provides the following categorisation options: Particularly Major, Major, and Significant. This appears to suggest that General Cybersecurity Incidents might not be subject to reporting obligations. However, as there is currently no explicit exemption provided under Measures, organisations may wish to report General Cybersecurity Incidents until the CAC provides further guidance if they wish to take a more cautious approach to handling Cybersecurity Incidents.

Industry Specific Requirements

Where industry specific reporting requirements apply, they apply in addition to the Measures.

Crime Reports

The Measures clarify that where illegal or criminal activities occur, reports must also be promptly made to the public security authorities.

Entrusted Processing

Article 5 of the Measures requires Network Operators to require their entrusted processors providing network security, system operation, maintenance or other services to promptly report any incidents they detect and assist Network Operators in making reports.

Detailed Reporting Requirements

Article 7 of the Measures outlines the information Network Operators must include in their reports as follows:

The name of the entity involved and basic information about the relevant systems or facilities;
The time and place of discovery or occurrence of the cybersecurity incident, type and level of the incident, as well as the impact and harm caused, and the measures taken and their effectiveness; for ransomware attacks, information such as the demanded ransom amount, payment method, and date shall also be included;
Trends in the development of the situation and potential further impact and harm;
A preliminary analysis of the cause of the cybersecurity incident;
Clues for traceability investigations, including but not limited to possible attacker information, attack paths, and existing vulnerabilities;
Proposed further response measures and any support requested;
The preservation of the scene of the cybersecurity incident; and
Any other circumstances that should be reported.

Where the cause, impact, or development trend of a cybersecurity incident cannot be determined within the prescribed time limits, Network Operators should make an initial report containing the information outlined in (1) and (2) and may report other matters later and in a timely manner.

Where important new circumstances arise after a report is made, a supplementary report should be submitted.

We note that the official cybersecurity incident reporting platform provides a reporting form. A translated version of that form is shown below.

*Cybersecurity Incident Report Form*
I. Basic information of the entity where the incident occurred
* Name of the unit
* The location where the incident occurred
Head of cybersecurity
Cybersecurity lead phone number
Fax
2. Initial assessment of cyber security incidents
* Type of initial incident
* Initial event level
Criteria for judgment
* Basic information about the entity where the incident occurred and the facility where the cyber security incident occurred
* Time, location and brief course of events
* The impact and harm caused by the incident
* Measures taken and effects
3. Further assessment of the cyber security incident (if it cannot be determined within 4 hours of the incident, a supplementary report must be made within 72 hours after the first report.)
Initial determination of the cause of the incident
The development of the situation and the possible further impact and harm
Other additions
4. Basic information of the reporter
* The organization to which the presenter belongs
* Name of the reporter
* The reporter’s mobile phone number
Reporter’s landline phone

Incident Disposal Reports

Article 8 mandates Network Operators to conduct a thorough analysis and summary within 30 days of the incident, covering incident causes, emergency response measures, harm caused, liability, rectification status, lessons learned, and other relevant matters (“Incident Disposal Reports”). Incident Disposal Reports should be submitted through the original reporting channel.

Reporting Channel

Article 9 states that the cyberspace authorities should establish the 12387 hotline, as well as websites, email, fax, and other channels, to uniformly receive reports of cybersecurity incidents. Based on a press release by the Cyberspace Administration of China, the following reporting channels now exist:

Tel: 12387

URL: 12387.cert.org.cn

WeChat Mini Program: Search for “12387”

Email: 12387@cert.org.cn

Fax: 010-82992387

Enforcement and Consequences

Article 10 state that Network Operators who fail to report cybersecurity incidents shall be subject to penalties in accordance with applicable law and regulations, while any delay, omission, false report, or withholding of information about cybersecurity incidents which leads to major adverse consequences will result in severe penalties for Network Operators and relevant responsible persons.

The Personal Information Protection Law (“2021 PIPL”) is the applicable law with the highest penalties. It states the following:

If the illegal activity… is of a grave nature, the violator will be ordered to make a correction, confiscated of any illegal again, and fined up to [the higher of] CNY50 million, or 5% of last year’s annual revenue… and may also be ordered to suspend any related activity or to suspend business for rectification, and/or be reported to the relevant authority for the revocation of the related business permit or the business license; and any person in charge or any other individual directly liable for the violation will be fined [and banned from certain roles for a time].

The above should be read with the Provisions on the Application of Discretionary Criteria for Administrative Penalties by Cyberspace Authorities (“Discretionary Criteria”), which describes the factors that the CAC will consider when issuing penalties. Due to the nature of the reporting requirements under the Measures, it seems that there might be less scope for mitigating penalties and more scope for aggravating them under the Discretionary Criteria.

Safe Harbour

Article 11 provides for discretionary liability exemptions and reductions for Network Operators who have implemented reasonable and necessary protective measures, handled incidents in accordance with contingency plans, effectively mitigated the incident’s impact, and reported the incident per the Measures. Article 11 can be viewed as an incentive for actively developing and documenting a robust internal compliance framework.

Conclusion

China has finalised the Administrative Measures for the Reporting of National Cybersecurity Incidents, which enter into force on 1 November 2025. These Measures oblige any organisation that develops, operates or supplies network services in the PRC to notify significant-or-higher level incidents within 1 to 4 hours, depending on the entity’s status, and to file a full Incident Disposal Report within 30 days.

Failure to report on time can trigger penalties that, in principle, can reach up to 5 % of annual turnover under the 2021 PIPL, while prompt disclosure and documented mitigation steps may result in exemption or leniency.

A unified 12387 hotline, portal and e-mail address have been set up to receive filings. These contact details should be saved by DPOs and IT managers.

Exploring Optimal Solutions to Protect Trade Secrets —Based on Analysis of the New Guidelines on Trade Secrets Protection

By Xiangxiang MA on September 3, 2025

Posted in Intellectual Property

Trade secrets have become a critical component of intellectual property (“IP”) rights in China, recognized as a key driver of innovation and market competition. Over the years, China has strengthened its legal framework to protect trade secrets, addressing challenges such as determining the infringement of trade secrets, difficulty in evidence collection, the need for greater deterrents against infringement, etc. On August 12, 2025, Beijing Municipal People’s Procuratorate (“Beijing Procuratorate”) has issued the Guidelines on Trade Secrets Protection and Risk Prevention (the “New Guidelines”), which, based on their daily experience, demonstrates common problems regarding trade secret protection and risk prevention reflected in cases of infringement of trade secrets, aiming to foster a better legal environment for technological innovation and industrial upgrading. This article presents challenges and solutions in protecting trade secrets in China by analyzing the New Guidelines, aiming to offer feasible risk measurements for business parties when needing to protect trade secrets in their operation process.

Challenges regarding Trade Secrets Protection

Nowadays, businesses in China need to grapple with legal ambiguities in defining protectable subject matters and ownership of trade secret under the Chinese law. Furthermore, with the rapid advancement of digital technologies, they must face and manage growing risks associated with infringement of trade secrets in complicated methods.

Determining the Scope of Trade Secrets

According to the Chinese legal system, trade secrets are defined in the Anti-Unfair Competition Law of the PRC (Revised in 2025) (the “Anti-Unfair Competition Law”) as technical or business information consisting of the following features:[1]

Secrecy: is not known to the public
Commercial value: has commercial value
Confidentiality measures: has been subject to reasonable confidentiality measures

In addition, pursuant to the Interpretation on Several Issues Concerning the Application of Law in Civil Cases Involving Trade Secret Infringement, issued by the Supreme People’s Court on September 10, 2020, business information is further categorized as below:

Technical information: information on technique-related structure, raw materials, components, formulas, materials, samples, styles, new plant variety breeding materials, processes, methods or steps, algorithms, data, computer programs and relevant documents, etc.
Business information: business activity-related creativity, management, sale, finance, planning, sampling, bidding and tendering materials, customer information and data, etc.
Customer information: encompassing information like customer name, address, contact, trading habit, intention and content.

In the New Guidelines, Beijing Procuratorate displays several typical cases in relation to defining and determining the scope of trade secrets. We summarize the key take-aways reflected in those cases in the following table.

New Infringements Demanding Effective Measures

In the digital economy era, infringements have evolved beyond physical theft to include cyber-based tactics, making detection and enforcement notoriously difficult. New types of infringement methods have emerged, which includes but not limited to (a) infringers use malware, remote access tools, and web crawlers to infiltrate cloud storage systems, and (b) employees or partners, so-named “internal ghost”, exploit their access to leak secrets.

For instance, a case stated in the New Guidelines involves a technology group company which has taken the following measures for managing its confidential information, (a) formulating the overall confidentiality system, (b) require relevant employees to sign confidentiality agreements, and (c) managing information by developing a special data management system, configuring corresponding permissions, and marking corresponding documents. However, the infringer, a former employee of this company still took advantage of the loopholes in the company’s data management system and further downloaded files from the company’s server database, copied files from personal office computers to public computers by means of network sharing and transmission, and then stole the downloaded files with USB flash drives, mobile hard disks and other devices, causing enormous loss of such company.

Certainly, Beijing Procuratorate claims that the existence of system loopholes is not an exemption of the infringer. So long as the measures taken by the right holder for purposes of preventing the information from leaking under normal circumstances are sufficient to do the same, it reflects its confidentiality intention and fulfills its confidentiality management responsibility.

Individual Behaviors Causing Infringements

From the standpoint of individuals, raising awareness of IP protection is critically significant. Some actions may be guided by our habitual thinking or behaviors that may result from a momentary lapse in our judgements could constitute an infringement of the right holders’ trade secrets.

In the New Guidelines, Beijing Procuratorate underscores that redlines should not be crossed and presents two cases in this regard. Those cases clarify that the following acts also constitute infringement: (a) the “iterative” use of the company’s technical information without permission, and (b) employees arbitrarily releasing business secrets to the public platform even if they delete such information then.

In addition, there are other challenges and difficulties when right holders initiate and proceed with a trade secret infringement litigation. For example, right holders often struggle to prove the existence of trade secrets and the fact of infringement, especially in cases involving employees or sophisticated technologies.

Feasible Solutions to Protect Trade Secrets

The New Guidelines, in general, suggest the following solutions for enterprises and entrepreneurs to better manage and protect their trade secrets during the ordinary course of business:

Attend to the scope of confidential information, especially the commercial value of relevant information, as well as the pertinent ownership of rights.
Employ continuous and targeted confidentiality measures to prevent security risks occurring during the research and development processes.
Promote the awareness and ability of rights safeguarding and make full use of legal channels to protect trade secrets.
Raise awareness of IP protection and clarify the bottom line that should not be crossed.
Practical Measures to Tackle New Challenges

To be more specific, the businesses shall classify and manage trade secrets according to the actual situation, in which trade secrets could be categorized and further managed at core level (top secret), important level (confidential), general level (secret) and other levels, and businesses shall consider whether to configure confidential equipment and software can be determined accordingly. Moreover, Beijing Procuratorate highly recommends that the whole process management of trade secrets from generation to destruction should be implemented, which involves the stages of storage, use and circulation, accurate authorization, allocation of responsibilities and rights, and circulation record traces.

In addition, to address risks associated with the adoption of digital technologies, Beijing Procuratorate offers several practical measures as below:

Enhancing the management of confidential carriers: computer equipment, electronic equipment, network equipment, storage equipment, software and other carriers can be clearly listed as confidential carriers, and the carriers can be marked, classified and indicated.
Making rational use of technological means to restrict the contact subjects and the scope of contact: in confidential files, devices, databases or information systems, abnormal access alerts, operation logs, and digital and physical access restrictions to confidential information can be deployed, and electronic files can be encrypted and backed up regularly.
Strengthening the management of confidential areas: in confidential factories, workshops and other production and business places, access control systems can be set up, eye-catching signs can be pasted, security personnel can be equipped as needed, visitors can be restricted or differentiated management can be carried out, external electronic equipment can be restricted, and security mechanisms such as video surveillance and alarms can be set up.
Actively fixing technical and administrative vulnerabilities: improve the awareness of safety precautions, and pay attention to checking whether there are technical loopholes or management blind spots at key nodes such as system upgrades, equipment updates, management personnel changes, employee transfers, and employee resignations.
Optimizing Employee Management

As most trade secrets-related cases occurring between the enterprises and their (former) employees, it is always pivotal to strengthen the confidentiality management of employees. Enterprises should try their best to clarify the scope of trade secrets and remind employees of the relationship between their own knowledge and corporate trade secrets.

During daily management, employees are urged to strictly abide by the confidentiality system, go through the approval procedures for the use of confidential information, and are not allowed to use, access, store, copy or disclose confidential information without permission. Before employees change jobs or leave their jobs, they should promptly withdraw system access and download permissions, delete or change their account passwords, urge them to hand over, return, clear and destroy trade secrets and their carriers, and prevent them from continuing to contact, use or illegally disclose trade secrets and their carriers as much as possible.

On top of that, enterprises shall always (i) improve employees’ awareness of the concept of infringement of trade secrets, the specific behaviors of infringement of trade secrets and the legal consequences, and (ii) remind employees not to commit infringement crimes.

Conclusion

Notably, China’s legal framework for trade secret protection has evolved significantly. Yet in practice, as the digital economy advances, novel and increasingly covert methods of misappropriating trade secrets have proliferated. Concurrently, heightened risks of trade secret disclosure stemming from frequent workforce mobility further compound this challenge. While obstacles remain, the legislative and judicial trends demonstrate a clear trajectory toward stronger, more effective protection aligned with global standards. Enterprises should proactively implement confidentiality measures and stay informed of legal developments to safeguard their IP rights.

As China continues to integrate into the global economy, further steps may include drafting a specialized trade secret protection law and improving cross-border enforcement mechanisms. In particular, several legal scholars and governmental officials have advocated for accelerated trade secret legislation, arguing that current laws are inadequate for protecting digital assets like algorithms in the fields of cloud computing and AI.[3] Practically speaking, however, several measures stated in the New Guidelines could be deployed for businesses to optimize their management on trade secrets and other IP rights at the current stage and on a continuous basis.

[1] See article 10 of the Anti-Unfair Competition Law.

[2] This ground was not supported by the evidence the company showed to the court.

[3] See Ma Yide, Deputy of National People’s Congress: Promoting Special Legislation on Trade Secrets, Caijing Magazine, March 10, 2025.

Shanghai Is Set to Retain and Attract International Game Developers

By Tracey TANG on July 11, 2025

Posted in Film Industry Promotion Law, Entertainment Law

The Shanghai Municipal Government recently unveiled a series of incentive policies aimed at fostering the growth of software and information service industries. Notably, a pilot policy allowing game products developed by international game studios based in Shanghai to be classified as domestic games has garnered great attention. Although the implementation details and timeline are yet to be disclosed, this proposed rule directly addresses a major challenge faced by international game companies, thereby attracting substantial attention from global game market.

Imported Games VS Domestic Games

Currently, China’s National Press and Publication Administration (“NPPA”) which oversees the gaming industry in China classifies all games into two categories—imported and domestic—when issuing game approvals, also known as ISBNs. Though there is no official definition distinguishing these two categories, imported games are generally understood to be those whose copyright (including game software and content) is held by foreign entities, including foreign-invested companies established in China. While domestic games are those whose copyright is fully owned by Chinese companies or individuals.

In theory, the NPPA applies the same set of content censorship criteria when reviewing all games and granting the ISBNs. However, in practice, international game developers face more difficulties in obtaining approvals compared to the relatively smoother and faster process experienced by Chinese game companies that seek approvals for domestic games.

In contrast, the difficulties include:

-Much less ISBNs for imported titles due to quota control. As indicated below, over the past 4 years, the number of ISBNs for imported titles has averaged less than 10% of the domestic titles, as a result of the quota control implemented by the NPPA. This indicates that obtaining an ISBN for an imported game is considerably more challenging than for a domestic game.

	ISBNs for Domestic Games	ISBNs for Imported Games
2024	1,306	110
2023	978	98
2022	468	44
2021	679	76
Average	858	82

-More complex documentation requirements. While the majority of the required documents and materials for imported and domestic titles are similar, imported titles must include additional information, such as the status of publishing and operation of the game outside of China, as well as the chain of title related to the licensing agreements.

-Extended and unpredictable timelines. Unlike domestic titles tailored for local users, imported titles must be localized to obtain approvals and meet local users’ expectations. It involves not only text translation but also cultural adaptation and content modifications to satisfy the NPPA’s standards, and such features of localized foreign titles significantly extend the review and examination period. Furthermore, the timing for the issuance of an ISBN for an imported game can be influenced by factors beyond the control of game companies, such as the diplomatic relationship between China and the game’s country of origin.

–Ineligible for the faster track approval applicable for qualified casual games. A significant number of domestic casual games can benefit from faster track approval, with ISBNs typically granted within 20 working days. This is designed to accommodate the short lifespan and development cycles of casual games. However, imported casual titles are explicitly excluded from this beneficial treatment according to the NAAP’s current rules, thus it makes little sense to obtain ISBNs for foreign-copyrighted casual or hyper causal games.

Implications of the New Policy

This new policy will significantly accelerate the game approval process for titles developed by Shanghai offices of international game companies, allowing them to compete on equal footing with domestic titles, including simultaneous global launches. This initiative aims to encourage international game studios to establish and expand their development teams in Shanghai, as well as to register their game copyrights under their Shanghai entities. Considering China’s rich talent pool and top-tier mobile game production capabilities, this policy is highly appealing to international game companies., in particular, those focus on mobile games.

Having said the above, it is important to note that the new policy in Shanghai does not fundamentally change China’s game approval regime. International game companies are advised to consider the following factors when deciding whether and when to make new or more investment in development teams in Shanghai:

–The Shanghai branches cannot apply for the ISBN or publish the games directly. Due to the restrictions on market entry, foreign investors and their subsidiaries in China are not allowed to engage in game publishing and operation business. Consequently, the prevailing model—licensing foreign-copyrighted games to Chinese partners who handle ISBN acquisition as well as game publishing and operation—will remain unchanged. Once the new policy is carried out, an international studio’s Shanghai team will be able to work more closely with its Chinese partner to localize the game and assist with the game publishing and operation to the extent permitted by laws.

–It is unknown how to define games developed in Shanghai. Pending the implementation details, the specific standards on games developed in Shanghai remain ambiguous. This includes requirements concerning game copyright registration or the size of the development team based in Shanghai. Furthermore, it is unclear what standards would apply if software development occurred in Shanghai but the game is based on other licensed works, such as internationally renowned TV series or novels.

–It is unknow whether being regarded as domestic titles will ensure the same treatment. As mentioned above, the approval process of an imported game is usually lengthy, untransparent and unpredictable. Beyond quota control, imported titles appear subject to stricter review criteria. Consequently, it is uncertain whether the new policy will place Shanghai-developed games by international companies in an entirely equal position with those from domestic developers, including faster track approval for casual games.

The announcement of the new policy underscores Shanghai’s long-standing ambition to position itself as a leading game production hub globally. Until the implementation details are clarified or the first domestic ISBN is granted for a game produced by Shanghai team of an international developer, it remains to be seen how the new policy will be carried out and the concrete advantage the international game companies will gain from producing their games in Shanghai.

Registration Process for overseas reinsurers in China

By Hao Zhan & Jiawen Luan on July 3, 2025

Posted in Insurance Law

The Reinsurance Registration System (the “System”) was established by the former PRC insurance authority–China Insurance Regulatory Commission, now known as the National Financial Regulatory Administration (NFRA), as an essential financial infrastructure to strengthen supervision over the PRC reinsurance market and enhance regulatory efficiency. Officially launched on January 1, 2016, the System has been managed and technically upgraded by the Shanghai Insurance Exchange (SHIE) since February 2018. All overseas reinsurance counterparties planning to cede from PRC entities, are required to register and maintain up-to-date information in the System as a prerequisite for conducting reinsurance transactions within PRC.

The core objectives of the System are to provide dynamic supervision through the registration of reinsurance counterparties; to ensure robust risk prevention by verifying the qualifications and compliance of counterparties and mitigating risks; and to promote greater transparency in the reinsurance market, advancing alignment with international standards and regulatory practices.

1. Qualification Criteria

To be eligible for registration in the System, overseas reinsurers must meet several key requirements:

Financial Strength: A financial strength rating of at least S&P A- (or equivalent from Moody’s, A.M. Best, or Fitch).
Capital Requirements: Minimum actual capital plus reserves of RMB 200 million (or equivalent in other currencies).
Solvency Compliance: Compliance with solvency requirements in their home jurisdiction.
Regulatory Record: No major legal or regulatory violations in the past two years.

2. Material List

Qualified overseas reinsurers must prepare and submit a set of documents and information, including but not limited to:

Company name, address, and contact details
Business license or equivalent documentation
Operating permit from their home insurance regulator
Audited annual financial reports for the past three years
Information on major shareholders
Financial strength ratings (optional but recommended)
Proof of solvency and regulatory compliance issued by the home regulator
Data related to reinsurance business ceded from China (if any)
Settlement bank account information

3. Application Procedure

The registration process involves the following steps:

Submission of Reference Letter:

A “recommendation institution” (an entity that has, or will have, a reinsurance relationship with the applicant) uploads a Reference Letter to the System. If the applicant has an affiliated enterprise in China, that entity should act as the recommender.

Temporary Account Creation:

The System will automatically send an email containing a temporary username and password to the reinsurer.

Submission of Application Materials:

The reinsurer needs to log into the System and submits all required documents within 15 days of receiving the account credentials.

System Review:

The System will review the materials automatically, and if all requirements are met, the reinsurer will be added to the active list immediately.

4. Ongoing Compliance Obligations

Registered reinsurers have the following ongoing compliance obligations:

Registrations must be renewed every three months.

Key documents, such as audited annual financial reports and proof of regulatory compliance, must be updated annually.

Reinsurance business data must be updated quarterly.
Any significant changes, such as solvency issues, corporate restructuring, or regulatory actions, must be reported within 15 days.

Registering as an overseas reinsurer in China requires not only meeting the initial eligibility criteria but also careful preparation of documentation and ongoing commitment to compliance. While the process is straightforward, regular renewals are essential to maintaining active status within the System. Once the Registration is done, the reinsurer will enter the active list of the System making it eligible to cede from PRC entities.

Chinese New Governance Paradigm for Livestream Sale

By Xiangxiang MA on July 3, 2025

Posted in Technology, Media & Telecommunication

China’s livestream e-commerce industry has experienced explosive growth in recent years, which has revolutionized traditional retail models by combining information dissemination, real-time interaction, instant purchasing and even the entertainment.

In the first three quarters of 2024, total retail sales in China amounted to 35.36 trillion yuan, up 3.3 percent year-on-year. Over the same period, online retail sales in China totaled 10.89 trillion yuan, up 8.6 percent year-on-year. Of that amount, online retail sales of physical goods reached 9.07 trillion yuan, accounting for 25.7 percent of total retail sales, up 7.9 percent year-on-year.^[1] In particular, both the “Double Eleven” (Nov 11) shopping festival and the midyear “618” shopping carnival, mark the continuous rise in online sales revenue each year.

However, this rapid expansion has been accompanied by numerous regulatory challenges, including false advertising, counterfeit goods, and consumer rights violations. In response, China’s State Administration for Market Regulation (“SAMR”) and the Cyberspace Administration of China (“CAC”) jointly issued the Regulations for the Supervision and Administration of Livestream E-commerce (Draft for Comment) (“the Draft Measures”) on June 10, 2025, with public opinion being solicited till July 10, 2025. The Draft Measures employ approaches to addressing unique challenges posed by this emerging business model, representing a significant step toward comprehensive regulation of this dynamic industrial sector.

I. Dual Governance Mechanism Addressing Regulatory Challenges of Livestream E-commerce

The rapid expansion and rise of livestream e-commerce has been accompanied by significant regulatory challenges, such as false advertising and exaggerated claims, sales of counterfeit and substandard products, price manipulation and even the data fraud.

These issues have prompted regulatory responses at both local and national levels. At the national level, relevant provisions in (i) the E-commerce Law of the People’s Republic of China (“PRC”), (ii) the Measures for the Supervision and Administration of Network Transactions and (iii) the Guiding Opinions on Strengthening the Standardized Management of Network Live Broadcasting can be applicable to governance and compliance matters for livestream sales.

Additionally, prior to the Draft Measures, several provinces and municipalities have already implemented local regulations or guiding rules. For instance, Hangzhou’s Livestream E-Commerce Industry Compliance Guidelines (“Hangzhou Guidelines”) have been published on the website of Economy and Information Technology Department of Zhejiang Province on June 24, 2024.^[2] Although it is expressly stated in Hangzhou Guidelines that such guidelines are advocacy and guiding opinions and cannot be directly used as the basis for administrative law enforcement,^[3] detailed provisions in Hangzhou Guidelines can provide relatively clear guidance to livestream e-commerce participants in such vibrant e-commerce region as well as China’s first pilot zone for cross-border e-commerce.

However, with the rise of livestream e-commerce and emergence of new business model in such industrial sector, it is pivotal to stipulate a specific regulation tackling legal risks and navigating compliance guidance in this field.

The Draft Measures establish a coordinated oversight framework involving both SAMR and CAC along with their local counterparts for better implementing the principle of integrating online and offline supervision. To be specific, SAMR and its local counterparts: primarily responsible for transaction integrity, protection of consumers’ legal rights, product quality monitoring, and fair competition. CAC and its local counterparts: focusing on content governance, data security, and online behavior regulation.^[4]

Detailed approaches of such dual governance mechanism are reflected in the following provisions of the Draft Measures:

Hierarchical Supervision: Livestream e-commerce platforms must classify live streams by influence level, applying appropriate scrutiny.^[5]

Information Sharing: Mandatory data reporting enables coordinated enforcement across domains.^[6]

Joint Investigations: Both agencies can require platforms to act against violators.^[7]

II. Framework and Key Components of the Draft Measures

As mentioned above, the Draft Measures represent the first comprehensive national-level regulatory framework specifically targeting livestream e-commerce. The Draft Measures are structured in seven chapters with fifty-seven articles, aiming to establish clear responsibilities and obligations for all participants in the livestream e-commerce ecosystem.

(i) Main Regulatory Targets and Their Compliance Obligations

Distinct responsibilities and obligations of each regulatory targets are set below:

(ii) Supervision Approaches and Penalty Mechanisms

The Draft Measures creatively integrate existing legal frameworks while addressing live streaming-specific issues.

(a) Incorporation of existing laws

The Draft Measures explicitly reference multiple established statutes:

E-commerce Law: For platform responsibilities regarding merchant vetting and transaction record-keeping.^[21]

Price Law: Prohibiting deceptive pricing strategies like artificial price inflation before discounts.^[22]

Advertising Law: Governing host endorsements and product claims, albeit with adaptations for livestream’s dynamic nature.^[23]

Anti-Unfair Competition Law: Addressing false transactions, fabricated reputation, and misleading commercial promotions.^[24]

(b) Innovative penalty provisions

While leveraging existing laws, the Draft Measures introduce tailored penalties:

Platform liability for failure to cooperate with investigations, with penalties up to 100,000 yuan.^[25]

Fines ranging from 5,000 to 50,000 yuan for violations like inadequate product vetting by livestream room operator.^[26]

Fines ranging from 5,000 to 50,000 yuan for failure to establish rigorous commodity selection mechanism, pre-review mechanism for hosts’ information or livestream error correction mechanism by livestream marketing service agencies.^[27]

Cross-platform enforcement through blacklist systems to prevent violators from simply migrating to other platforms.

III. Special Provisions Dealing with Novel Challenges

(i) High-Impact Livestreams

Recognizing the disproportionate influence of top livestream hosts, the Draft Measures introduce differentiated supervision:

Enhanced Monitoring Requirements: Platforms must implement “dynamic technical monitoring, manual live monitoring, real-time inspections, and extended content preservation periods” for streams with large audiences, high transaction volumes, or influential hosts.^[28]

Stricter Compliance Standards: Major hosts may have to face more rigorous oversight, including potential “human/manual monitoring” during broadcasts.^[29]

Accountability Escalation: Violations by high-profile hosts may trigger cross-platform blacklisting, significantly increasing compliance risks.^[30]

(ii) AI^[31]Applications in Livestreaming Sales

In recent years, Chinese retail players have invested heavily in generative AI to increase sales and lower costs, as well as enhance customer services during promotions. Those retailers normally master generative AI in three key areas — deepening customer engagement, turbocharging productivity and cost savings, and finding new growth beyond trade, which can further energize customer retention efforts, enabling e-commerce players to hyper-personalize their engagement with consumers and create bespoke shopping experiences for them.^[32]

Notably, the Draft Measures signify one of China’s first attempts to regulate AI applications in e-commerce industry, specifically addressing the following issues:

These provisions aim to harness AI’s efficiency benefits while mitigating risks of deception brought by the AI application in livestreaming sales.

IV. Prospects and New Trend on Livestream E-commerce Governance

In this year’s Government Work Report, China listed vigorously boosting consumption and expanding domestic demand across the board as key priorities for 2025. The Draft Measures represent a sophisticated attempt to address the unique challenges of this rapidly evolving sector. By clarifying participant responsibilities, introducing differentiated supervision for high-impact streams, creatively incorporating existing laws, and pioneering AI governance, the framework aims to transition the industry from its so-named “wild growth” stage to sustainable and high-quality development.

In addition, the Draft Measures seem to embrace the “regulatory governance” alternative proposed by some legal scholars,^[36]emphasizing the following methods:

Real-Time Monitoring Over Pre-Approval: Shifting from front-loaded content reviews to dynamic oversight during broadcasts.

Application of Information Tools: Leveraging data disclosure requirements and credibility indicators to empower consumer choice.

Platform-Mediated Governance: Assigning platforms central roles in enforcing standards through technical means like AI monitoring.

This transition reflects an understanding that live streaming’s value lies partly in its spontaneity—a quality that excessive pre-approval would stifle. By focusing on ex-post accountability and platform-assisted oversight, the Draft Measures seek to balance innovation with consumer protection.

Ultimately, the Draft Measures’ success will depend on implementation—whether they can reduce deceptive practices without stifling the creativity and accessibility that made livestream e-commerce revolutionary. If properly calibrated, this regulatory framework could establish China as a global leader in digital commerce governance while ensuring the sector’s long-term vitality. However, it’s encouraging to see another significance step being taken to shape a healthy and favorable livestreaming sale environment and there is no doubt that the issuance of the Draft Measures will serve as a good start for guiding the business operators and participants of livestreaming sales about how to behave orderly, which in turn can better safeguard consumers’ legal rights and benefits as well as supporting the healthy and sustained development of Chinese e-commerce ecosystem.

As the deadline soliciting public comment approaches, marketing players in this field should consider how the draft might further refine its balance between innovation facilitation and consumer protection—perhaps by clarifying small business compliance pathways or enhancing provisions against algorithmic manipulation.

[1] See Zhu Wenqian, Strong sales for high quality livestreaming, China Daily (October 19, 2024).

[2] The Chinese version of full text of Hangzhou Guidelines can be referred to the following link: https://zj87.jxt.zj.gov.cn/zlzq/web/views/law/law-guide-detail.html?id=242831.

[3] See article 50 of Hangzhou Guidelines.

[4] See article 4 of the Draft Measures.

[5] See article 7 of the Draft Measures.

[6] See article 13 of the Draft Measures.

[7] See article 40, 41, 43 and 45 of the Draft Measures.

[8] See article 6 and 16 of the Draft Measures.

[9] See article 7 and 14 of the Draft Measures.

[10] See article 8 and 19 of the Draft Measures.

[11] See article 11 of the Draft Measures.

[12] See article 17 and 18 of the Draft Measures.

[13] This can be referred to as agencies of Multi-Channel Network (“MCN”).

[14] See article 24 of the Draft Measures.

[15] See article 27 and 28 of the Draft Measures.

[16] See article 29 of the Draft Measures.

[17] See article 33 of the Draft Measures.

[18] See article 31 and 34 of the Draft Measures.

[19] See article 36 of the Draft Measures.

[20] See article 37 of the Draft Measures.

[21] See article 48 of the Draft Measures.

[22] See article 52 of the Draft Measures.

[23] See article 53 of the Draft Measures.

[24] See article 55 of the Draft Measures.

[25] See article 49 of the Draft Measures.

[26] See article 51 of the Draft Measures.

[27] See article 54 of the Draft Measures.

[28] See paragraph 1 of article 11 of the Draft Measures.

[29] See paragraph 2 of article 11 of the Draft Measures.

[30] See article 14 of the Draft Measures.

[31] AI stands for artificial intelligence.

[32] See Fan Feifei, Tech products, AI services drive Singles Day sales, China Daily (November 12, 2024).

[33] See article 18 of the Draft Measures.

[34] See article 28 of the Draft Measures.

[35] See paragraph 1 of article 30 of the Draft Measures.

[36] See Liu Xiaochun: The Regulating Governance Shift in the Construction of Platform Trust Mechanism — From the Perspective of the Conflict between Livestream Sale and the Application of Advertising Law, Administrative Law Review, no. 2, 2025.

The Application of Gross Negligence in Property Insurance Claims

By Hao Zhan & Shanshan Wu on July 3, 2025

Posted in Insurance Law

In the process of dealing with property insurance claims, the understanding and application of “gross negligence” has always been a critical and delicate issue. When searching online for judicial precedents with the keywords “property insurance dispute” and “gross negligence” in Chinese, there are more than 6,000 relevant cases popping out. Therefore, accurately grasping the connotation and extension of gross negligence is of great significance to the protection of the rights and interests of both insurers and insureds and the rational resolution of insurance claim disputes. This article will briefly analyze the definition of gross negligence in property insurance claims in combination with the relevant provisions of the Chinses Insurance Law, the stipulations of insurance terms, and typical cases in China judicial practice.

I. The Provisions and Interpretations of Gross Negligence in the Chinese Insurance Law

Articles 16, 21, and 61 of the Chinese Insurance Law all involve the concept of gross negligence. For example, Article 16 explicitly states that if the applicant intentionally or due to gross negligence fails to fulfill the obligation to inform truthfully, which is sufficient to affect the insurer’s decision on whether to agree to underwrite or increase the insurance premium, the insurer has the right to rescind the contract. Article 21 stipulates that if the applicant, the insured, or the beneficiary fails to notify the insurer of the occurrence of an insurance accident in a timely manner intentionally or due to gross negligence, resulting in the nature, cause, extent of loss, etc. of the insurance accident being difficult to determine, the insurer shall not bear the responsibility for compensation or payment of the undetermined part.

Although the above-mentioned articles of the Chinese Insurance Law involve gross negligence, they do not provide a clear definition or analysis of what constitutes gross negligence.

The Supreme People’s Court’s “Understanding and Application of the Fourth Judicial Interpretation of the PRC Insurance Law” has expounded on the classification of fault, dividing it into the intentional and the negligent. The Supreme Court believes that gross negligence refers to a subjective mentality where a person, lacking the degree of care that an ordinary person should have, not only fails to meet the higher requirements set by law for a certain behavior but also falls short of the general standards that normal people should and can pay attention to, and thus causes an accident or loss by recklessly believing that it will not happen. This interpretation provides an important legal basis and theoretical foundation for understanding and defining gross negligence.

However, how to apply the above interpretation of the Supreme Court to property insurance claims and how the people’s courts analyze and apply gross negligence in individual cases still need further analysis.

II. The Definition of Gross Negligence in Insurance Terms

The definition of gross negligence in insurance terms also has important reference value. However, according to current research, there are still few insurance terms that define “gross negligence.”

For example, in the all-risk insurance terms of an insurance company, gross negligent behavior is defined as behavior where the actor not only fails to meet the higher requirements set by law but also fails to reach the general standards that normal people should and can pay attention to. This definition is somewhat similar to the determination of the Supreme Court.

In the additional terms for intentional acts and gross negligence in property insurance policy wording , it is further clarified that “gross negligence” refers to behavior that intentionally and extremely violates the usual and reasonable code of conduct, and does not include any unintentional errors, omissions, and oversights.

These provisions of insurance terms have to some extent refined the connotation of gross negligence and provided specific basis for the determination of gross negligence in the process of insurance claims. However, there may still be different understandings in the actual claims cases, and the people’s courts may have the full discretion to interpret.

III. Scenarios Constituting Gross Negligence in Judicial Practice

In order to demonstrate the concrete “gross negligence” applications in the practice of property insurance claims, this article attempts to conduct case searches and tries to summarize the application logic of the People’s Court, as follows:

In the cases where relevant responsible persons of the insured commit criminal offenses, it is generally determined that the insured has committed gross negligence.

In judicial practice, if relevant responsible persons of the insured are found guilty of a criminal offense, the court will usually determine that the insured has committed gross negligence based on a fortiori reasoning.

For example, in case (2016) Su Min Zai No. 32, Kong Shuangbao, the person in charge of the insured company, violated the special hoisting plan, resulting in the death of a third party. Kong Shuangbao was found guilty of Crime of Major Liability Accident. Therefore, the court determined that the insured also had major faults in the occurrence of the case-related accident, and the insurance company was not responsible for compensating for the losses caused by the accident. This case shows that when the responsible persons of the insured violate relevant laws and regulations and commit criminal offenses, their behavior often has a serious nature of fault and meets the standard of gross negligence.

In the cases where the insured is subject to administrative penalties and the violating behavior has a direct impact on the occurrence of the accident, it is generally determined that the insured has committed gross negligence.

When the insured is subject to administrative penalties, the court will analyze the reasons for the administrative penalties and determine whether the behavior has a direct impact on the occurrence of the accident and other related factors, and then determine whether it constitutes the exclusionary liability scenario due to gross negligence.

For example, in case (2019) Hu 74 Min Zhong No. 1098 of the Shanghai Financial Court, the insured, Qi Xinke Company, was administratively penalized for chaotic construction process management, illegal contracting, and inadequate supervision. The court found that these violations had a direct impact on the occurrence of the accident. Therefore, it was determined that this accident was caused by the gross negligence of the insured and was an exclusionary liability scenario stipulated in the insurance contract.

However, in case (2016) Su Min Zai No. 32 of the Jiangsu Provincial Higher People’s Court, although the contractor was administratively penalized for illegal subcontracting, the court found that this behavior did not have a direct impact on the occurrence of the case-related accident. The direct cause of the accident was the actual construction personnel’s violation of safety management regulations. Therefore, it was not determined that the insured had committed gross negligence. This shows that when the insured is subject to administrative penalties, whether it constitutes gross negligence needs to be comprehensively considered in combination with the causality between the violation and the occurrence of the accident, as well as the nature and severity of the violation.

In the cases where the insured should have the corresponding professional knowledge and experience, industry standards, or the contract has agreed on the obligations that should be performed, but the insured not only failed to meet the professional requirements but also failed to reach the general duty of care, the court essentially treats gross negligence as equivalent to intentional wrongdoing under this circumstance.

In case (2024) Ning 01 Min Zhong No. 2567, an environmental protection technology company, as a key fire protection entity specializing in the operation of hazardous waste, had many serious problems in the operation process, such as failing to provide pre-job safety education and training for on-site workers, welders not having special operation certificates for welding and thermal cutting operations, and not isolating during electric welding operations above the flammable material storage pool. Eventually, a fire accident occurred. The court held that as a key fire protection entity specializing in the operation of hazardous waste, the company should have professional knowledge on how to manage hazardous waste and prevent fire accidents. Its outsourcing of projects could not exempt or reduce its responsibilities for fire safety in the factory area and the supervision and management of the operation site and personnel. However, the company failed to fulfill the necessary safety obligations and did not even reach the standards that ordinary people should pay attention to. The company’s behavior fell within the “gross negligence” exemption clause of the insurance terms.

In addition, in case (2019) Su 02 Min Zhong No. 431, the insured knew that the special cleaning oil for the digital printer should be used. The staff of the insured had received professional training on how to clean the printer, but the insured did not strictly follow the operating rules. In order to improve cleaning efficiency, they used car wash water to clean the rubber cloth of the machine, resulting in car wash water mixing into the cleaning oil and eventually causing the digital printer to catch fire due to high temperature during operation. The court determined that this behavior was gross negligence. These cases show that when the insured should have the corresponding professional knowledge and experience, industry standards, or the insurance contract has agreed on the obligations that should be performed, but the insured not only failed to meet the professional requirements but also failed to reach the general degree of care, its behavior can be determined as gross negligence.

IV. Conclusion

The understanding and application of gross negligence in property insurance claims is a complex issue that requires the consideration of multiple factors. The Chinese Insurance Law and relevant judicial interpretations provide a basic legal framework for the determination of gross negligence. In judicial practice, the court will, based on the facts and evidence of a specific case, take into account factors such as the nature of the insured’s actions, the causality between the violation and the occurrence of the accident, and whether the insured has fulfilled the corresponding obligations to determine whether gross negligence exists. For insurers and the insured, an accurate understanding and grasp of the criteria for defining gross negligence helps to better protect their legitimate rights and interests in the signing, performance, and claims process of insurance contracts, and reduces the occurrence of claims disputes.

A Discussion on the Application of Article 25 of the Judicial Interpretation III of the Insurance Law in Judicial Practice

By Hao Zhan & Xuelei Wang on June 19, 2025

Posted in Insurance Law

Focusing on Accidental Injury Insurance

I. Introduction of the Issue to Be Discussed

Article 25 of the Judicial Interpretation III of the Insurance Law stipulates that “Where it is difficult to determine whether the insured’s losses are caused by a covered event, a non-covered event or a disclaimer, if the parties concerned request that the insurer makes insurance payout, the People’s Court may support in accordance with the corresponding ratio.” Through searching by the author, this judicial interpretation is frequently applied, and People’s Courts often rely on this article to order the insurer to bear certain insurance liabilities. However, the contexts in which this article is applied vary significantly. This article aims to explore and analyze the correct conditions for the application of Article 25 to clarify the accurate application conditions of the above judicial interpretation.

Case 1: The Death of Han from Choking[1]

On October 1, 2018, Geng insured his mother Han with an accidental injury insurance policy from M Life Insurance Company. On November 22, 2019, Geng reported that his mother Han died from choking while dining during a trip and applied for accidental injury insurance claims. After investigation by M Life Insurance Company, the pre-hospital examination report issued by the hospital at the scene of death indicated: “No foreign objects in the mouth, suspected Sudden Cardiac Death.” Subsequently, M Life Insurance Company refused to pay the claim on the grounds that Sudden Cardiac Death was caused by illness and did not constitute an accidental injury.

During the litigation, Geng did not provide evidence to prove his claim that “Han died from choking while dining” and only made an oral statement. M Life Insurance Company argued that “There is no evidence to prove that Han was dining, choking, or that it led to her death. Moreover, the pre-hospital examination report indicates Sudden Cardiac Death, and the liability for accidental injury insurance does not arise.” The Beijing Dongcheng Court investigated the hospital that attended the scene, which stated: “When we arrived at the scene, Han was already dead. Based on the husband’s statement, we conducted a surface examination and found no foreign objects in the mouth, so we suspected that the death was caused by a heart disease. Since we did not conduct a thorough examination, we could not be certain of the cause of death, hence the question mark after sudden death from heart disease.” After the trial, the Beijing Dongcheng Court ordered M Life Insurance Company to bear 50% of the insurance liability for the accidental injury insurance amount in accordance with Article 25 of the Judicial Interpretation III of the Insurance Law.

Case 2: The Death of Xu While in Bed[2]

On March 1, 2019, Xu insured himself with an accidental injury insurance policy from P Life Insurance Company. On August 15, 2020, Xu’s wife, Sun, reported that her husband Xu died from an accident and applied for accidental injury insurance claims. After investigation by P Life Insurance Company, Xu was found dead in a rental apartment in Zhuozhou City on August 2, 2020. His body was highly decomposed and could not be subjected to an autopsy. The public security authorities, after investigation, determined that “Xu’s death was neither suicide nor homicide.” Subsequently, P Life Insurance Company refused to pay the claim on the grounds that Xu’s death did not constitute an accidental injury insurance liability.

During the litigation, Sun argued that “Xu’s death was completely unexpected and was an accident.” P Life Insurance Company argued that “There is no evidence to prove that an accidental injury as stipulated in the insurance contract occurred and that this accident caused Xu’s death. Therefore, the liability for accidental injury insurance does not arise.” During the trial, the presiding judge asked P Life Insurance Company, “Since Xu’s death was neither suicide nor homicide, isn’t it an accident?” P Life Insurance Company replied, “According to the insurance contract, an accidental event should have four elements: sudden, external, non-intentional, and non-disease. This event acts on the insured’s body, causing bodily harm and death. The result of death is not equivalent to the nature of the accident, and whether it is an accident is not determined by the family’s subjective perception or whether it is beyond the family’s anticipation.” During the litigation, P Life Insurance Company provided evidence that Xu had been hospitalized for illness several times before his death. After the trial, the Beijing Fangshan Court ordered P Life Insurance Company to bear 50% of the insurance liability for the accidental injury insurance amount in accordance with Article 25 of the Judicial Interpretation III of the Insurance Law.

The above two cases are just one of the application scenarios of Article 25 in judicial practice, and the frequency of occurrence in practice is very high. So, is it correct for the court of first instance to apply the principle of proportional compensation in accordance with Article 25 based on the case circumstances?

After further searching, the author found that in many People’s Courts, when it is impossible to determine whether the accident falls within the scope of insurance liability, they habitually apply Article 25 to order the insurer to bear a certain proportion of insurance liability, mostly concluding the case by ordering the insurer to bear 50% of the insurance liability.

Returning to the core issue of this article, how should the principle of proportional compensation stipulated in Article 25 be applied, how to apply it correctly, and how to prevent the wrong application of the law to avoid the insurer improperly bearing insurance liability?

II. Understanding and Application of Article 25 of the Judicial Interpretation III of the Insurance Law

The principle of Proximate Cause is one of the four basic principles of insurance law. In insurance claims practice, the principle of proximate cause should also be followed, that is, only when the “Proximate Cause” is an insurable risk, the insurance liability may arise. As defined in insurance law, the principle of Proximate Cause[3] means that only when a cause has a decisive significance for the occurrence of the damage result, and this cause is the risk covered by the insurance contract, will the insurer bear the insurance liability. Although the principle of Proximate Cause has not been explicitly stipulated in China’s Insurance Law, it has consistently been observed in judicial practice and is universally recognized as a basic principle of insurance law globally. Its fundamental purpose in insurance law is to exclude other non-insurable risks or exempted risks, ensuring that the insurer makes the most correct and accurate compensation. Otherwise, improper compensation will seriously damage the interests of other insured persons in the risk pool.

In claims practice, it is relatively easy to determine the relationship between a single cause and the damage result. If the cause is an insurable risk, the insurance liability arises. Conversely, it does not arise. If a damage result is caused by multiple causes (insurable risks, non-insurable risks, exempted reasons) (that is, there is a so-called net or belt state of causality), and each cause may lead to the damage result, how should the insurance liability be determined in this case? In this situation, the traditional Proximate Cause theories (e.g., the condition theory, adequate causation theory, proportional causation theory, and nearest causation theory) may prove insufficient or one-sided in such cases, or simply adopting any one of these methods to determine insurance liability may not be comprehensive and cannot effectively protect the interests of the insured to the greatest extent. Therefore, it is necessary to provide a method for determining insurance liability for the People’s Courts to apply in hearing cases, to solve the problem of “difficulty in judicial practice,” and to balance the interests of the insurer and the insured to the greatest extent, instead of simply ordering “full compensation” or “no compensation”..

Therefore, Article 25 solves the issue of how the People’s Courts should determine the insurance liability when there are multiple causes and one result. From the content of Article 25, when it is difficult to determine whether the damage result is caused by a covered accident or a non-covered accident or an exempted reason, the People’s Courts shall determine the insurance liability that the insurer should bear in whole, in part, or not at all, based on the size of the causative force of each of the three circumstances.

III. Correct Conditions for the Application of Article 25 of the Judicial Interpretation III of the Insurance Law

Pursuant to Article 22 of the Insurance Law[4], when the claimant requests the insurer to compensate or pay the insurance monies in accordance with the insurance contract, he shall provide the insurer with all the evidence and materials that he can provide to confirm the nature, cause, and extent of the insurance accident. That is, the burden of proof for the nature and cause of the accident lies with the claimant, which is consistent with the spirit of Article 67, Paragraph 1 of the Civil Procedure Law[5]. If the insurer claims to refuse compensation based on an exempted reason, it shall bear the burden of proof for the existence of the exempted reason (including causality). In summary, according to Article 90[6] of the Explanations of the Application of the Civil Procedure Law, “he who asserts must prove.”

Since Article 25 is a rule for determining the liability of the insurer in cases of multiple causes and one result, it does not exempt the insurance contract parties from the burden of proving the covered accident or non-covered accident or exempted reason[7]. On this basis, the application of Article 25 should be based on the premise that the insurance contract parties have completed the burden of proof for the covered accident or non-covered accident or exempted reason in the litigation. After completing the burden of proof, if both the covered accident and the non-covered accident or exempted reason form a possible causal relationship, causing the people’s court to have difficulty in determining the true causative force of the accident, the People’s Court shall determine the insurance liability based on the ascertained case circumstances, in accordance with the size of the causative force of the covered accident or non-covered accident or exempted reason for the occurrence of the damage result.

If only the claimant proves that a covered accident has occurred, but the insurer fails to provide evidence that the exempted reason is established, the People’s Court only needs to determine the insurance liability based on the claimant’s completion of the burden of proof, and there is no need to apply Article 25 to make a judgment. Conversely, if only the insurer proves that a non-covered accident or exempted reason is established, but the claimant fails to prove that a covered accident has occurred, the people’s court only needs to determine that the insurance liability does not arise based on the insurer’s completion of the burden of proof for the defense. In this case, there is also no need to apply Article 25 to make a judgment.

It should be noted that if the claimant has not proved that a covered accident has occurred, even if the insurer proves that a non-covered accident or exempted reason does not exist, it cannot be ordered that the insurer loses the case or that Article 25 is applied to make a judgment. After all, when the claimant has not completed the burden of proof, the burden of proof does not shift to the insurer, and the insurer does not therefore bear the burden of proof, nor does it need to bear the adverse consequences of “failure to prove.”

Returning to the two aforementioned cases, regarding “death from choking,” Geng, as the claimant, did not complete the burden of proof, and even the “choking” was not proved. On the contrary, the pre-hospital examination showed that there were no foreign objects in Han’s mouth. Regarding the case of death in bed, although the investigation concluded that Xu’s death was neither suicide nor homicide, it does not mean that Xu’s death was caused by an accidental injury. As for what kind of sudden, external, non-intentional, and non-disease event caused Xu’s death, Sun did not complete the burden of proof. Therefore, the two cases mentioned earlier do not meet the conditions for the application of Article 25. The court of first instance applied Article 25 to make a judgment in the case where the claimant had not completed the basic burden of proof. That is, the court of first instance applied Article 25 on the grounds that the cause of death could not be determined, without paying attention to the fact that both the covered accident and the non-covered accident or exempted reason should have evidence to prove in a case.

IV. Practical Suggestions for the Insurer’s Defense in Litigation

Regarding the correct application of the law, the insurer should first develop a clear and accurate understanding of the relevant legal provisions and correctly and actively inform the court of first instance and the presiding judge to guide them, so that the involved case can be correctly applied to the law and avoid improperly bearing insurance liability. When the insurer defends in the litigation, if the claimant claims to apply Article 25 for proportional compensation, the insurer should first examine whether the claimant has completed the basic burden of proof for the occurrence of the insurance accident (whether the agreed insurable risk has occurred and whether this risk has caused the insured to suffer injury or death). If not, it should clearly inform the court of first instance that the case does not meet the conditions for the application of the proportional compensation principle stipulated in Article 25 and that the claimant’s entire litigation request should be dismissed.

If during the defense process, it is found that the court hearing the case has a tendency to apply Article 25 actively, it should also actively and clearly inform the court of first instance, based on the claimant’s failure to complete the basic burden of proof for the occurrence of the insurance accident (whether the agreed insurable risk has occurred and whether this risk has caused the insured to suffer injury or death), that the case does not meet the conditions for the application of Article 25 and that the claimant’s entire litigation request should be dismissed.

[1] (2020) Jing 02 Min Zhong No. 6145

[2] (2022) Jing 0106 Min Chu No. 13657

[3] The proximate cause is the decisive, effective, and direct reason for the loss covered by the insurance. See Wang Weiguo (ed.), Insurance Law, China Financial and Economic Publishing House, 2003, p. 46.

[4] Article 22, Paragraph 1: Upon occurrence of an insured event, the policyholder, the insured party or the beneficiary shall, at the time of making a claim for compensation or payment of insurance monies pursuant to the insurance contract, endeavour to provide the relevant proof and materials for ascertaining the nature, reason, extent of damages, etc, of the insured event to the insurer.

[5] Article 67, Paragraph 1:Litigants have the burden of proof for the claims they make.

[6] Article 90: Each party concerned shall provide evidence to prove the facts based on which such party concerned makes a claim or contradicts the claim of the other party, unless otherwise provided by the law.

Where any party concerned fails to provide evidence or provides insufficient evidence to prove the facts before a judgment is made, the party with the burden of proof shall bear adverse consequences.

[7] Understanding and Application of the Judicial Interpretation III of the Insurance Law, edited by the Civil Division No. 2 of the Supreme People’s Court, edited by Du Wanhua, People’s Court Press, p. 589.

Monetising Data: Legal Frameworks and Strategic Considerations

By Samuel Yang, Chris Fung & Bill Zhou on June 19, 2025

Posted in Data Protection & Privacy

In today’s digital era, data is an invaluable asset for businesses, offering opportunities for innovation and competitive advantages. However, effectively monetising data involves navigating complex legal frameworks that govern ownership, protection, and commercialisation. This Article examines key legal provisions under Chinese law that facilitate and regulate data monetisation, focusing on intellectual property (“IP”) rights, trade secret protections, data pledge financing, licensing mechanisms, and compliance challenges.

Data Ownership

The Chinese government recognised the economic attributes and value of large data sets by at least 2019 (if not much sooner), and recognised data as the fifth factor of production, alongside traditional factors, such as land, labour, capital, and technology.

On 10 April 2022, the Chinese government released the Opinions on Building Basic Systems for Data to Better Play the Role of Data Elements (“Twenty Data Measures”; 关于构建数据基础制度更好发挥数据要素作用的意见), which for the first time clearly established a data property rights system, which included ownership rights, usage rights, and management rights.

On 25 December 2024, the National Data Bureau issued the Opinions on Promoting the Development and Utilisation of Enterprise Data Resources (关于推动企业数据资源开发利用的意见), building on the framework established in the Twenty Data Measures. This document affirmed that enterprises could hold a range of data rights over data generated or legally obtained and held during their production and operational activities.

Under the guidance of these regulatory documents, many Chinese cities, such as Shanghai, Beijing, and Shenzhen, have established data exchanges that (i) allow enterprises or government departments (“Listing Entities”) to list data products that can legally circulate for trading and (ii) offer data right registration services for the data to be traded. The procedures for listing data products on different exchanges may vary slightly. For example, at the Shanghai Data Exchange, before data products can be listed for trading, Listing Entities must:

clearly define the data to be traded;
conduct a compliance assessment; and
conduct a quality assessment.

Once Listing Entities complete the above, the Exchange reviews the materials before allowing data to be traded.

Although China has established the groundwork for a data rights system centred around ownership, usage rights and management rights, the specific content and supporting systems for data rights have yet to be determined consistently at a national level. As a result, different regions have explored and established various ways of registering data rights, including:

Data asset registration (e.g., Guangdong Province, Beijing)
Data product registration (e.g., Shanghai Data Exchange)
Data resource notarization (e.g., Jiangxi Province)
Data element registration (e.g., Guizhou Province)
Data intellectual property registration

It is important to note that these registrations do not have the legal effect of creating or altering data rights in the sense of property law. The registration certificates issued by relevant institutions serve primarily as proof for enterprises to demonstrate their legal ownership of the related data.

Intellectual Property Rights

Under Article 123 of China’s Civil Code, IP rights grant exclusive control over subject matters such as works, inventions, trademarks, and trade secrets. These rights form the legal foundation for treating data as a proprietary asset. For instance, proprietary datasets—such as customer analytics or operational insights—can, in principle, qualify as trade secrets or works, enabling businesses to monetise them through licensing or sale agreements.

Moreover, the China National Intellectual Property Administration (“CNIPA“) released a list of pilot areas for data intellectual property work in November 2022 and December 2023. Enterprises can apply for data intellectual property registration in 17 cities, including Beijing, Shanghai, and Jiangsu Province. In general, the following requirements must be met for data to be protected as intellectual property:

It must be legally and compliantly obtained;
It must be the result of intellectual labour and innovation, possessing creativity;
It must have practical value; and
It must not have been publicly disclosed at the time of data intellectual property registration.

Although data intellectual property registration cannot directly confirm the ownership of the data, some courts have recognised it as strong evidence of an enterprise’s legal ownership of the data in practice. For example, in June 2024, a Beijing company was able to rely on such rights to sue a Shanghai company for copyright infringement and unfair competition over illegally obtained Mandarin voice data. The Beijing Internet Court and Intellectual Property Court ruled in favour of the plaintiff, recognising their “Data Intellectual Property Registration Certificate” as evidence of lawful data ownership. The defendant was ordered to pay RMB 102,300 in damages.[1]

Protecting Trade Secrets: Safeguarding Data Value

Trade secrets are defined as confidential technical, operational, or commercial information with economic value (Anti-unfair Competition Law (“AUCL”), Article 9). To monetise data as a trade secret, businesses must implement stringent measures to ensure its confidentiality, as unauthorised acquisition, disclosure, or use constitutes infringement.

Key protections include:

Prohibited Acts: Theft, bribery, electronic intrusion, or breaches of confidentiality obligations are strictly forbidden (AUCL, Article 9).
Liability: Infringers face civil penalties, fines of up to CNY 5 million, and punitive damages for bad-faith violations (AUCL, Articles 17 and 21).
Third-Party Accountability: Even third parties who knowingly benefit from breaches can be held liable (AUCL, Article 9).

These protections enable businesses to monetise their data while deterring misappropriation through severe consequences for infringement. However, due to the unregistered nature of trade secrets, they are perhaps more suitable for businesses to use internally or in exchange for lump-sum payments rather than using a royalty model.

Data Assets on the Balance Sheet

On 1 August 2023, the Ministry of Finance issued the Interim Regulations on the Accounting Treatment of Enterprise Data Resources, which clarified that data resources meeting certain requirements could be recognised as assets for accounting purposes and included on an enterprise’s balance sheet. This process is referred to as “Include Data Assets on the Balance Sheet.” On 8 September 2023, the China Asset Appraisal Association released the Guidelines for Data Asset Valuation, which suggests approaches for valuing data.

The inclusion of Data Assets on the Balance Sheet can bring numerous benefits to enterprises at the financial level, including:

An increase in net assets on the enterprise’s balance sheet.
Improved credit ratings from some financial institutions.
Expanded financing channels, as the related data can be used for pledge financing, issuing notes, and other methods to secure additional funding.

According to statistics from third-party agencies, as of the end of September 2024, 53 A-share listed companies had completed the process of including Data Assets on their Balance Sheets.[2] In practice, enterprises typically cooperate with law firms and accounting firms to inventory and organise their data assets, assess the compliance and value of the data, and ultimately select the appropriate data to be included on the balance sheet. Additionally, to verify the authenticity of these data assets, enterprises often register data rights through data exchanges or other platforms.

Data Pledge Financing: Using Data as Collateral

Article 440 of the Civil Code allows certain rights—such as patents, copyrights, and accounts receivable—to be pledged as collateral. While data is not explicitly listed, businesses can potentially pledge proprietary datasets as IP assets if they have a “Data Intellectual Property Registration Certificate”.

GU Wenhai, Deputy Director of the Zhejiang Intellectual Property Office, has been quoted as saying: “So far, 14 enterprises in the province have obtained RMB 97 million ($13.6 million) through financing of IPR in data” in an article on Data Intellectual Property Registration Certificates.[3]

Many banks have also started offering financing and credit services for data assets, including large state-owned banks, such as the Industrial and Commercial Bank of China (“ICBC”) and China Construction Bank, as well as regional banks like Shanghai Bank and Beijing Bank. For example, in December 2024, under the guidance of the Shanghai Intellectual Property Bureau, the Shanghai Data Exchange, in collaboration with ICBC’s Shanghai and Wuhan branches, completed the first data product intellectual property pledge financing case in Shanghai. The core asset pledged was a data platform developed by a Wuhan company, which provides book information queries and visual analyses. After obtaining a data intellectual property registration certificate, the Wuhan company utilised the Shanghai Data Exchange for data product intellectual property valuation, asset trading, pledge registration and other services, and secured a loan of RMB 100 million from ICBC.[4]

In principle, pledge financing allows businesses to unlock liquidity without relinquishing ownership. This is a positive development in a world with an increasingly knowledge-based economy. However, Data Intellectual Property Registration Certificates will more often than not have the following features, which could make them less than ideal forms of security:

Intangibles can be challenging to value.
Data can be copied and disseminated, which could suddenly reduce its value.
The shelf-life of data can be short, which could make it unsuitable for long-term financing.
The use of data is not always obvious in the real world, which could make enforcement rather impractical.

Data Licensing: Monetising Through Contracts

Technology contracts (Civil Code, Articles 843–877) provide a framework for data licensing and transfer. Key considerations include:

Contract Essentials: Agreements should specify the scope of use, payment terms (e.g., lump sums or royalties), confidentiality clauses, and ownership of derived innovations (Civil Code, Articles 845–846).
Licensor Obligations: Data providers must ensure the reliability, accuracy, and confidentiality of the data (Civil Code, Articles 868–870).
Compliance: Licensing contracts must not restrict technological competition or development (Civil Code, Article 864).

For example, a company licensing customer behaviour data must outline clear terms for usage limits, royalties, and penalties for breaches. Failure to comply may result in contract invalidation (Civil Code, Article 850).

On April 18, 2025, the National Data Bureau issued draft model contracts for data transactions — including the Data Provision Agreement, Data Processing Entrustment Agreement, Data Integration and Development Agreement, and Data Intermediary Agreement. The drafts are intended to serve as references for parties involved in data transaction activities and have been released for public consultation.

Compliance Hurdles: PIPL and Data Privacy

China’s Personal Information Protection Law (“PIPL”) contains stringent rules for processing personal data. Key requirements include:

Separate Consent: Individuals must provide separate consent for data sharing, including details of the recipient and intended processing (PIPL, Article 23).
Anonymisation: Only anonymised data is exempt from PIPL restrictions (Article 4). However, the legal standard for anonymisation is currently high and essentially requires irreversible de-identification. In practice, true anonymisation can significantly damage the practical value of a data set.

Non-compliance with the PIPL can result in significant fines and reputational damage. Businesses must implement robust consent mechanisms and should attempt to adopt effective data anonymisation strategies (where possible) to mitigate these risks.

Global Challenges

The EU Data Act, which governs the use of and access to certain types of data generated by products or services in the EU, mandates FRAND (fair, reasonable, and non-discriminatory) contract terms for the mandatory sharing of specific data types. Its approach to unlocking the overall value of data is very different to the approach in China (which is arguably more incentive base). This might be a result of the context in both regions. Namely, a lot of Chinese data is being processed by Chinese companies, while a lot of EU data is being processed by non-EU companies.

The EU Data Act can impact Chinese companies, such as those with IoT products or services in the EU, by requiring them to share data within the EU on FRAND terms. This could arguably affect the overall value of their data.

While this article focuses on Chinese law, it is worth noting that FRAND issues have led to significant amounts of forum shopping and litigation in relation to Standards Essential Patents. Although the interaction between EU and Chinese data laws is beyond the scope of this discussion, businesses operating globally must be aware of these evolving frameworks.

Conclusion

Successfully monetising data requires balancing value creation with adherence to legal frameworks. By securing intellectual property rights, crafting compliant licensing agreements, and prioritising privacy protections, businesses can unlock revenue opportunities while mitigating risks.

[1] https://mp.weixin.qq.com/s/PBm_QvLr72JwEzFwzR2DuA

[2] https://mp.weixin.qq.com/s/2mW6zk3n2w7nf7BVNn31fQ

[3] https://www.chinadaily.com.cn/a/202306/05/WS647dd237a31033ad3f7ba90b.html

[4] https://mp.weixin.qq.com/s/YAt0pP3nqBvHFHKqTJefVA

The Practice and Prospects of China’s Cross-Border Bankruptcy System

By Xueping Wei on June 13, 2025

Posted in Bankruptcy

Introduction

In recent years, China has actively engaged in international investment and regional cooperation. According to data from the official website of the Ministry of Commerce, PRC, from January to April 2025, Chinese domestic investors conducted non-financial outward foreign direct investments in 5,116 enterprises across 145 countries and regions worldwide, with a total investment amount of USD 51.04 billion, marking a 6.8% increase. With the rapid development of China’s cross-border investments, the issue of breaking through the relatively lagging and conservative state of cross-border bankruptcy systems has been prioritized to effectively protect Chinese enterprises investing overseas.

Against the backdrop of global economic cyclical adjustments and industrial optimization and upgrading, cross-border bankruptcy has become a new norm in transnational economic activities. As cross-border bankruptcy cases continue to rise, seeking judicial cooperation in cross-border bankruptcy becomes inevitable. The primary objective of cross-border bankruptcy judicial cooperation is to better safeguard the legitimate rights of all parties involved, avoid overlap and conflicts between cross-border bankruptcy procedures, provide timely and effective judicial remedies, and maximize the value of bankrupt assets. How to effectively promote international economic exchanges while striking a balance between protecting creditors’ interests and fostering judicial cooperation in cross-border bankruptcy proceedings is a practical challenge faced by national bankruptcy legal systems and judicial practices.

I. The Practice and Exploration of China‘s Early Cross-Border Bankruptcy System

A. Initial Attempts: Cooperation between Mainland and Hong Kong

In the late 1970s, China initiated its reform and opening-up policy, fostering significant conditions for the cross-border movement of investments and trade, thereby impacting cross-border bankruptcy.

In 1984, the Millie’s Group in Hong Kong declared bankruptcy due to mismanagement. This group had previously collaborated with a real estate company in Shenzhen, and its assets from the earliest residential development project in Shenzhen’s Luohu District needed liquidation by the Hong Kong court. After negotiations with the Shenzhen municipal government, the bankruptcy liquidator in Hong Kong reclaimed the Millie’s Group’s investment in the joint venture through a share transfer. A similar case occurred in 1983 when the Hong Kong holding company of South Ocean Textile Trading Co., Ltd. declared bankruptcy due to poor management. The bankruptcy liquidator, following negotiations with the Shenzhen government, recovered the company’s investment in Shenzhen through a share transfer. In response to such practices, the Standing Committee of Guangdong Provincial People’s Congress enacted the Regulations on Foreign-Related Companies in Guangdong Province Special Economic Zone^[1]and the Shenzhen Special Economic Zone Bankruptcy Regulations for Foreign-Related Companies^_[2]in 1986. These regulations allowed foreign investors, with administrative approval, to realize domestic assets through share transfers. After clearing domestic debts with the proceeds, foreign investors could retrieve their investments in China. While these regulations addressed urgent issues in the field of cross-border bankruptcy at the time, they did not recognize the effectiveness of foreign bankruptcy procedures and the rights of their representatives. Notably, Article 5^[3] of the Shenzhen Special Economic Zone Bankruptcy Regulations for Foreign-Related Companies explicitly denied extraterritorial effectiveness of foreign bankruptcy procedures in China.

On August 27, 2006, China’s legislative body passed the Business Bankruptcy Law of the PRC (hereinafter referred to as the “Bankruptcy Law“), marking the first legislative regulation of cross-border bankruptcy issues.

Article 5, Section 1^[4], of the Bankruptcy Law addressed the issue of the extraterritorial effectiveness of domestic bankruptcy procedures in cross-border bankruptcy. Section 2^[5]addressed the recognition and enforcement of foreign bankruptcy procedures. According to Section 2, a bankruptcy judgment made by a foreign court could be recognized and enforced by Chinese courts after examination. This established a legislative position of modified universalism under the reciprocity principle in China. This legislative milestone is considered a breakthrough in the history of China’s cross-border bankruptcy legislation.

B. Breakthrough Progress in Mainland China and Hong Kong Cross-Border Bankruptcy Cooperation

In response to industry expectations, the Supreme People’s Court of the PRC has actively promoted exploration into the recognition and assistance of cross-border bankruptcies in recent years. Multiple rounds of negotiations have been conducted with Hong Kong regarding cross-border bankruptcy cooperation between the two regions. Given the absence of a widespread cross-border bankruptcy cooperation system and limited judicial experience in Mainland China, leveraging cooperation between Mainland China and Hong Kong serves as a practical and feasible breakthrough point.

In recent years, several cross-border bankruptcy cases from Mainland China have gained recognition in the Hong Kong jurisdiction, allowing for cross-border collaboration. Examples include the bankruptcy cases of China CEFC Energy Co., Ltd and Shenzhen Nianfu Supply Chain Co., Ltd.

On May 14, 2021, after extensive negotiations, the two regions finally reached a phased agreement, signing the Minutes of the Meeting between the Supreme People’s Court and the Government of Hong Kong Special Administrative Region on Mutual Recognition and Assistance in Bankruptcy Proceedings by Courts of the Mainland and Hong Kong Special Administrative Region^[6] in Shenzhen. On the same day, the Supreme People’s Court issued the Opinions of Supreme People’s Court on the Pilot Program for Recognition and Assistance in Bankruptcy Proceedings of Hong Kong Special Administrative Region^[7](hereinafter referred to as the “Opinions on Pilot Program“), initiating a landmark cooperative journey in cross-border bankruptcy systems between the two regions. Considering that Article 5^[8] of the Bankruptcy Law only provides a principled framework for cross-border bankruptcy, the Opinions on Pilot Program represent the first detailed regulations in Mainland China regarding cross-border bankruptcy procedures.

Following the promulgation of the Bankruptcy Law and the Opinions on Pilot Program, the first case processed under the collaborative mechanism between Mainland China and Hong Kong was the Samson Paper Co. Ltd bankruptcy case in Hong Kong. The significance of this case lies in its response to internationally acclaimed issues in cross-border bankruptcy recognition and assistance, addressing the legitimacy of foreign bankruptcy procedures, the rule of the debtor’s main interest center, the complex legal relationships intertwining substantive and procedural content in cross-border bankruptcy procedures, and the core rules of recognition and relief in cross-border bankruptcies.

As China actively participates in international investment and regional cooperation, the demand for institutional safeguards has become more urgent in the context of the high-quality development of the domestic and international dual-circulation economy. Against this backdrop, establishing a cross-border bankruptcy cooperation mechanism has become a pressing institutional need. The close economic and trade ties and mature regional judicial cooperation between Mainland China and Hong Kong naturally become a breakthrough in the exploration of cross-border bankruptcy systems. The Samson case, as China’s first cross-border bankruptcy recognition and assistance case, not only responds positively to the investment and trade needs between the two regions but also provides practical support for breaking the ice in the institutional cooperation of cross-border bankruptcies. From a national perspective, it signifies collaborative progress in the integration of the Guangdong-Hong Kong-Macao Greater Bay Area, promoting asset circulation, and reducing institutional costs within the region. From an international standpoint, it reflects China’s efforts to build a more inclusive and open business environment, emphasizing market-oriented, rule-of-law, and internationalized business practices.

II.The Impact of the Hanjin Shipping Bankruptcy Case on China’s Cross-Border Insolvency Legal Framework

On August 31, 2016, Hanjin Shipping Co. applied for bankruptcy reorganization to the Seoul Central District Court in South Korea, and on September 2 of the same year, the Korean court decided to initiate a reorganization procedure for Hanjin Shipping.

At that time, more than 4,000 creditors worldwide filed claims against Hanjin Shipping Co. in the bankruptcy court—the Seoul Central District Court in South Korea, including over 300 Chinese creditors. Hanjin’s bankruptcy administrators also sought bankruptcy protection from courts in several countries, including the United States, Japan, and the United Kingdom, and received varying degrees of relief and protection from these courts. The cooperation among countries in cross-border bankruptcy cases best reflects their policies regarding cross-border bankruptcy jurisdiction. After Hanjin Shipping’s bankruptcy administrators applied for bankruptcy protection from courts in the United States, Singapore, Japan, Canada, and other countries, each country, based on its foreign policy and national interests, took different measures to assist in the Hanjin Shipping bankruptcy cooperation case. These measures included actions like ship arrests, termination of maritime cargo transport contracts, or withdrawal of leased ships by overseas creditors. This not only caused significant losses to the debtor and other creditors but also posed challenges to the bankruptcy liquidation proceedings of the Hanjin Shipping bankruptcy court. To minimize the expansion of losses, safeguard the integrity of the debtor’s assets, ensure the continuity of operations, and facilitate the smooth progress of Hanjin Shipping’s bankruptcy liquidation proceedings, it is crucial for the bankruptcy court to obtain recognition of the bankruptcy protection applications made by the bankruptcy administrators from foreign courts.

Unfortunately, Hanjin Shipping Co. (China) had previously filed for bankruptcy with the Shanghai Pudong Intermediate People’s Court but withdrew the application before the court officially accepted it.

The practical implications of the Hanjin bankruptcy case illustrate that the complex legal relationships arising from cross-border bankruptcy cases have long transcended the scope of individual jurisdictions and entered the era of global cooperation. Concerning the extraterritorial effects of bankruptcy proceedings, pure territorialism and universalism are not suitable for the complex international economic environment due to being either too conservative or too open. With further development in international trade, the number of cross-border bankruptcy cases will continue to rise. Allowing the initiation of a territorial bankruptcy proceeding in the debtor’s place of business, corresponding to the bankruptcy proceeding initiated in the main interest center, should be the path for China’s cross-border bankruptcy practice to choose in order to protect the interests of more creditors as much as possible.

III. Reflection and Prospects for China’s Cross-Border Insolvency System

The essence of cross-border bankruptcy cooperation lies in transnational collaboration among courts of different countries, striving to balance the uniformity of bankruptcy proceedings with the protection of domestic creditors, thereby achieving mutually beneficial outcomes. This necessitates more flexible and universal standards for cross-border bankruptcy.

A. Universalism vs. Territorialism

Both universalism and territorialism fail to effectively address the obstacles in cross-border bankruptcy proceedings. From the perspective of jurisdiction and the extraterritorial effects of bankruptcy proceedings, both approaches are too extreme. They advocate for the non-interference of parallel bankruptcy proceedings for the same debtor in different countries and the application of only one court’s bankruptcy proceedings globally, which does not meet the needs of the increasingly complex international environment. With the deepening of economic and trade relations between countries and the rapid growth of multinational corporations, the jurisdiction and application of cross-border bankruptcies are bound to face different judicial situations in various countries.

China’s current cross-border bankruptcy system tends to favor territorialism in terms of extraterritorial effects. With the increasing frequency of international economic exchanges and cooperation, adhering entirely to territorialism would sever the inherent connections between domestic and foreign creditors and debtors, fundamentally harming both. China could learn from the EU’s modified territorialism to improve its system. Thoroughly practicing universalism would to some extent ignore national sovereignty. Therefore, China could adopt a limited form of universalism, generally advocating for the extraterritorial effects of its own bankruptcy proceedings while also recognizing and assisting foreign bankruptcy proceedings that meet legal conditions, such as having jurisdiction in foreign courts, treating all creditors fairly, and not violating domestic social interests and public order.

In summary, past practices in cross-border bankruptcy demonstrate that pure universalism could affect China’s judicial sovereignty. Unconditionally recognizing and enforcing foreign bankruptcy court judgments would weaken China’s judicial authority and not benefit the protection of Chinese creditors’ rights in foreign bankruptcy proceedings. On the other hand, pure territorialism conveys a value of refusing cooperation, conflicting with China’s advocacy of diverse cooperation. Territorialism does not necessarily ensure that creditors receive more compensation. Balancing judicial sovereignty with international cooperation is crucial for the development of international cooperation in cross-border bankruptcy.

B. Whether China should adopt the UNCITRAL Model Law

Whether China should adopt the UNCITRAL Model Law on Cross-Border Insolvency should be based on its national conditions, especially the international competitiveness of Chinese enterprises under the existing economic system and China’s position in the international trade landscape, as well as the status of its cross-border bankruptcy laws.

Adopting the Model Law is in line with the trend of global economic integration. It would help domestic enterprises to expand their investments overseas and contribute to the improvement of China’s domestic legislation. Article 5 of the Bankruptcy Law provides general principles for cross-border bankruptcy issues but lacks specific procedures and remedies, making it difficult to implement the most-favored-nation treatment for foreign civil subjects in Chinese civil litigation in specific cross-border bankruptcy cases. The Model Law ensures the effectiveness of the issuing state in safeguarding its own interests, respecting its public policies, and specific systems, when necessary, by providing for the coordination of parallel bankruptcy proceedings. If China adopts the Model Law, it will provide an important basis for Chinese courts to handle cross-border bankruptcy cases and address the shortcomings of the Bankruptcy Law.

However, there may be some potential issues if China adopts the Model Law. Most of the Chinese enterprises engaged in multinational operations are strong state-owned enterprises (SOEs). For example, in the shipping industry, Chinese state-owned shipping enterprises such as China COSCO Shipping Corporation and China Merchants Energy Shipping Co., Ltd. occupy over 80% of China’s shipping market share. The government has strong control over SOEs, with significant regulatory capacity and clear guidance. Combined with China’s specific historical background and state-dominated economic system, when a single SOE encounters financial difficulties and is unable to withstand an economic crisis, the state often provides certain economic assistance through administrative or economic means to ensure the survival and normal operation of the SOE. As a result, it is rare for SOEs, especially large ones, to face bankruptcy, or if they do, they are often restructured through mergers and acquisitions to promote scale and professional management, enhance risk resistance, and international competitiveness. China’s adoption of the Model Law to protect these enterprises in cross-border bankruptcies may lack practical necessity. Additionally, the majority of non-SOE enterprises in China are small and medium-sized enterprises (SMEs) with limited operational capabilities and limited cross-border business operations. The bankruptcy of non-SOE SMEs rarely involves cross-border issues and can be addressed through the Bankruptcy Law without the need for the Model Law.

Overall, adopting the Model Law to improve the cross-border bankruptcy mechanism and resolve legal conflicts and contradictions in cross-border bankruptcies would be more in line with China’s interests.

C. Current Issues and Adjustment Ideas in China’s Bankruptcy Law

Although Article 5 of China’s Bankruptcy Law provides a principled provision on cross-border bankruptcy issues, its simplicity and generality make it challenging to apply and operate in actual cases. Specifically, the scope definition of bankruptcy procedures and judgments, as well as the understanding and application of the reciprocity principle, can be discussed.

Different countries have diverse understandings of the systems for resolving debtors’ inability to repay debts outside of bankruptcy liquidation procedures, and there are significant differences in legislative systems. When discussing cross-border bankruptcy cooperation with a country, two aspects can be considered: first, whether the mechanism is a special system designed for debt adjustment, and second, whether the mechanism has the characteristics of bankruptcy or restructuring under China’s bankruptcy legal system, thereby being incorporated into a special cooperation mechanism or arrangement for recognizing and enforcing foreign bankruptcy proceedings. For example, under English law, in addition to winding-up procedures, there are different mechanisms used by companies that need debt clearance and restructuring, including administration procedures, arrangement plans, voluntary arrangements under contract law, and receivership procedures. The first three types of procedures are conducted under court supervision and involve collective debt processing using a majority decision-making process, making them eligible for recognition in the context of cross-border bankruptcy. Solutions under contract law are out-of-court procedures reached by debtors and creditors based on autonomy and do not require court approval. Receivership procedures are initiated by individual creditors and are aimed at realizing the interests of individual creditors (such as floating charge holders or equity pledgees) rather than the overall interests of creditors, so the latter two procedures should not be recognized as the main subject of cross-border bankruptcy.

The recognition and enforcement of “judgments, rulings, and orders” in bankruptcy cases under Article 5 of the Bankruptcy Law do not entirely coincide with the general understanding of recognizing foreign bankruptcy proceedings. Unlike the recognition and enforcement of ordinary civil and commercial judgments, a bankruptcy proceeding may produce multiple judgments, rulings, or orders, such as the judgment to initiate the bankruptcy proceeding, the judgment to confirm the creditor’s rights, the judgment to appoint a bankruptcy trustee, the judgment to approve a settlement or reorganization plan, the judgment to declare bankruptcy, and judgments related to bankruptcy-related litigation. In international cross-border bankruptcy practice, recognizing another country’s bankruptcy proceedings does not necessarily mean recognizing all judgments or rulings related to the foreign bankruptcy proceedings. In some cases, recognizing and enforcing judgments and rulings made by a foreign court in a bankruptcy case does not necessarily require the recognition of the entire foreign bankruptcy proceeding. To address this issue, the UNCITRAL adopted the Model Law in 2018, providing some references and directions for supplementing and interpreting the legislative content of Article 5 of China’s Bankruptcy Law.

Seventeen years have passed since the implementation of China’s Bankruptcy Law, and internationally, the presumption of reciprocity is generally accepted and recognized. In current judicial practice, many cases involving the recognition of foreign bankruptcy proceedings by Chinese courts have been rejected on the grounds of the absence of reciprocity. Previously, Chinese judicial practice generally considered reciprocity in the recognition and assistance of foreign bankruptcy proceedings to involve legal reciprocity or factual reciprocity. However, in recent years, in the recognition and enforcement of civil and commercial judgments, Chinese courts’ attitudes have gradually shifted towards a presumption of reciprocity, which means that reciprocity is presumed unless there is a precedent of a country rejecting the recognition and enforcement of Chinese civil and commercial judgments on the grounds of the absence of reciprocity, and there is a possibility of the country recognizing and enforcing Chinese judgments in its legislation. China should consider gradually relaxing the reciprocity principle’s restrictions on recognizing cross-border bankruptcy proceedings. At least under the conditions of presumed reciprocity, China can consider moving to the next step of review instead of being stuck at the initial stage and making a decision not to recognize.

Conclusion

Cross-border bankruptcy cooperation is essential for international economic relations and the effective resolution of complex financial matters. The willingness of nations to recognize and assist each other’s bankruptcy proceedings directly impacts global economic stability and investor confidence. China’s adoption of the UNCITRAL Model Law and its implementation of a more flexible and comprehensive approach to cross-border bankruptcy cooperation could significantly benefit both domestic and international stakeholders.

[1] Promulgated on 1986.10.20, effective on 1987.01.01, ineffective on 1993.08.01.

[2] Promulgated on 1986.11.29, effective on 1987.07.01, ineffective on 1993.08.01.

[3] Article 5: Bankruptcy declared in accordance with foreign bankruptcy laws shall not have any effect on the property of the bankrupt in the special economic zone.

[4] Article 5, Section 1: Any bankruptcy proceeding that originates under this Law shall be binding on all assets that are held outside the territory of the People’s Republic of China by the debtor.

[5] Article 5, Section 2: Where a foreign court’s judgment or ruling on a bankruptcy case that has taken effect involves assets in the territories of the People’s Republic of China held by a debtor, and an application or request for judicial recognition and enforcement of the judgment is made to the People’s Court, the People’s Court shall, pursuant to the international treaty that the People’s Republic of China has concluded or is a member of, or pursuant to the principle of reciprocity, examine the application or request; where the People’s Court deems that the application or request will not violate the basic principles of law of the People’s Republic of China, threaten national sovereignty, security and public interest, and will not impair the lawful rights and interests of the creditors within the territory of the People’s Republic of China, the People’s Court shall make a ruling on recognition and enforcement.

[6] Promulgated b on 2021.05.14, effective on 2021.05.14.

[7] Fa Fa [2021] No.15, Promulgated on 2021.05.11, effective on 2021.05.11.

[8] Article 5.
Any bankruptcy proceeding that originates under this Law shall be binding on all assets that are held outside the territory of the People’s Republic of China by the debtor.
Where a foreign court’s judgment or ruling on a bankruptcy case that has taken effect involves assets in the territories of the People’s Republic of China held by a debtor, and an application or request for judicial recognition and enforcement of the judgment is made to the People’s Court, the People’s Court shall, pursuant to the international treaty that the People’s Republic of China has concluded or is a member of, or pursuant to the principle of reciprocity, examine the application or request; where the People’s Court deems that the application or request will not violate the basic principles of law of the People’s Republic of China, threaten national sovereignty, security and public interest, and will not impair the lawful rights and interests of the creditors within the territory of the People’s Republic of China, the People’s Court shall make a ruling on recognition and enforcement.