Interpretation of the Anti-Monopoly Guidelines for Pharmaceutical Sector: Key Risk Considerations

By Hao Zhan, Ying Song & Ruichen Liu on April 7, 2025

Posted in Competition Law/ Anti-Monopoly Law

On January 23, 2025, the Anti-Monopoly and Anti-Unfair Competition Commission under China’s State Council officially released the PRC Anti-Monopoly Guidelines for the Pharmaceutical Sector (“the Pharmaceutical Guidelines”). From release of the draft for public comments on August 9, 2024, to its formal issuance on January 23, 2025, it took only around six months. The Pharmaceutical Guidelines is composed of 7 chapters including 55 articles, fully encompassing traditional Chinese medicine, chemical drugs, and biological products, and addressing various parts of the value chain such as manufacturing and commercial practices.

This article interprets key provisions of the Pharmaceutical Guidelines and analyzes frequent anti-monopoly risks in China for pharmaceutical companies, with the view to share some insights based on the real-life enforcement and judicial cases.

I. More Tolerant Approach to Joint R&D Agreements Does Not Mean Absence of Risks

Compared to the draft, the final version of the Pharmaceutical Guidelines adopts a more permissive stance toward reasonable restrictions in joint R&D agreements. Article 11 of the Pharmaceutical Guidelines deletes the third and fourth sub-paragraphs in the draft, which stated “restricting R&D activities in fields unrelated to the joint R&D agreement” and “restricting R&D activities in fields related to the joint R&D agreement after its completion”. These changes exclude such conducts from per se illegal horizontal monopoly agreements, signaling enforcement authorities’ tolerant stance to some extent. Additionally, Article 18 clarifies that joint R&D activities suspected of constituting monopoly agreements may seek exemption under Article 20 (1) of the Anti-Monopoly Law (“AML”), e.g., technical improvement and new product development.

These amendments indicate that joint R&D agreements are not automatically exempt from anti-monopoly regulation. However, anti-monopoly enforcement authorities tend to conduct a case-by-case analysis when scrutinizing such agreements. If an agreement embodies restrictions on members’ R&D activities beyond its scope, the authorities may examine whether such restrictions are necessary to achieve efficiency or other legitimate objectives, whether the duration and scope of the restrictions are reasonable, and whether less restrictive alternatives exist that would have a lesser impact on competition, in order to determine whether the agreement constitutes a monopolistic agreement.

That said, we recommend pharmaceutical companies to proceed with caution when entering into joint R&D agreements. When drafting agreements that include R&D restrictions, it is crucial to carefully assess whether such restrictions are indispensable for the joint R&D, whether their duration and conditions exceed reasonable limits, and to rigorously evaluate their actual impact on market competition in the specific context.

II. Special Provisions and Considerations for Pay-for-delay

In the Saxagliptin Tablets case, the Supreme People’s Court (“SPC”) ruled on the application for withdrawal of appeal and made the first preliminary anti-monopoly review of reverse payment agreements for pharmaceutical patents. The SPC affirmed that courts have the authority to assess whether agreements resembling reverse payment agreements violate the AML and clarified the scope and methodology for such reviews.

The Pharmaceutical Guidelines explicitly states in Article 13 that reverse payment agreements may constitute horizontal monopoly agreements. First, Article 13 establishes that there is an actual or potential competitive relationship between the originator drug patent holder and the generic drug applicant. It defines a reverse payment agreement as an arrangement in which “the originator drug patent holder, without justifiable reasons, provides or promises to provide direct or indirect financial compensation to the generic drug applicant, who in turn makes non-competitive commitments, such as refraining from challenging the validity of the originator drug’s patent rights, delaying entry into the relevant market, or refraining from selling generic drugs in specific regions”. Furthermore, Article 13(2) of the Pharmaceutical Guidelines outlines the factors to be considered when determining whether a reverse payment agreement constitutes a monopoly agreement, including: (1) whether the financial compensation provided or promised by the originator drug patent holder to the generic drug applicant is significantly higher than the costs associated with resolving the originator drug patent disputes and lacks a reasonable justification; (2)whether the agreement effectively extends the market exclusivity period of the originator drug patent holder or hinders or impedes or delays the entry of generic drugs into the relevant market; (3) other factors that exclude or restrict competition in the relevant market. Compared with the draft, the final version of the Pharmaceutical Guidelines removes the consideration of “the likelihood of the originator drug patent being declared invalid if the generic drug applicant files a patent invalidation request”.

Regarding reverse payment agreements, Article 20 of the Explanations of the Supreme People’s Court on Several Issues Concerning the Application of Law in the Trial of Civil Disputes Involving Monopolies (“the Anti-Monopoly Law Judicial Interpretation”) clarifies that an agreement between a generic drug applicant and an originator drug patent holder constitutes a horizontal monopoly agreement if it meets the following conditions: (1) the originator drug patent holder provides or promises to provide unjustifiable financial or other forms of compensation to the generic drug applicant; and (2) the generic drug applicant commits to refraining from challenging the validity of the originator drug patent or delaying entry into the relevant market. Compared with the Anti-Monopoly Law Judicial Interpretation, the Pharmaceutical Guidelines further refines the criteria for determining whether the compensation is “unjustifiable”, specifically, “whether it is significantly higher than the costs reasonably associated with resolving the originator drug patent disputes and lacks a reasonable justification”. Meanwhile, the Pharmaceutical Guidelines adopts a more general description of the effects of reverse payment agreements, rather than specifying specific behavioral manifestations such as “committing not to challenge” as listed in the Anti-Monopoly Law Judicial Interpretation. These distinctions indicate that the Pharmaceutical Guidelines places greater emphasis on the substance and competitive effects of reverse payment agreements.

In light of this, we recommend pharmaceutical companies to proceed with caution when entering into settlement agreements between originator drug companies and generic drug companies in the context of patent infringement disputes. Particular attention should be given to assessing the likelihood of the originator drug patent being declared invalid, the presence of financial compensation, the existence of justifiable reasons, whether the compensation is significantly higher than dispute resolution costs, whether the generic drug applicant is required to refrain from challenging the patent, and whether the agreement effectively extends the market exclusivity period of the originator drug company or impedes market entry.

III. Risks of Price Maintenance in the Pharmaceutical Distribution Sector

The pharmaceutical distribution sector has consistently been a focal point for anti-monopoly enforcement and judicial scrutiny in China. Typical cases, such as the Yangtze River Pharmaceutical Case, Zizhu Pharmaceutical Case, and Hainan Yishun Case, all involve such practices.

The Pharmaceutical Guidelines specifically stipulates fixed resale prices and minimum resale price restrictions (Resale Price Maintenance) in Articles 14 and 15, clarifying the risks of “unfair price manipulation” that may arise in pharmaceutical distribution practices. First, Article 14(1) stipulates the general circumstances under which a vertical price monopoly agreement is established, including: (1) Fixing price levels, price fluctuation ranges, or setting a minimum resale price for drugs through written agreements, oral agreements, price adjustment letters, price maintenance notices, or other means; (2)Indirectly fixing resale prices or establishing minimum resale prices by fixing or limiting profit margins or other transaction-related fees such as discounts, rebates, or handling fees.

Second, Article 14(2) clarifies the specific ways in which price-fixing agreements are implemented, including:

Punitive measures, such as reducing rebates or discounts, imposing penalties or requiring deposits for breach of contract, refusing to supply goods, or terminating agreements;
Incentive measures, such as providing rebates or discounts, prioritizing supply, or offering additional support;
Monitoring and supervision, such as examining the sales records and invoices of transaction counterparts, engaging third-party monitors, or utilizing data analytics and algorithms.

Third, Article 14(3) establishes the presumption rule for determining whether a pharmaceutical company and its transaction counterpart have reached an RPM arrangement. The anti-monopoly enforcement authorities presume that such agreements exclude or restrict competition and thus constitute a monopoly agreement, unless the pharmaceutical companies can present evidence demonstrating that the agreement does not have such effects. The Pharmaceutical Guidelines also provides guidance on the types of evidence pharmaceutical companies may collect, including:

The agreement does not restrict intra-brand competition or create cumulative adverse competitive effects;
The agreement does not restrict inter-brand competition or create cumulative adverse competitive effects;
The agreement does not lead to higher drug prices, reduced drug supply, or increased market entry barriers.

These provisions align with Article 22 of the Anti-Monopoly Law Judicial Interpretation, which outlines the SPC’s approach in assessing whether RPM arrangements exclude or restrict competition. Specifically, the following factors are considered:

The market power of the defendant in the relevant market and the cumulative adverse competitive effects of the agreement;
Whether the agreement increases market entry barriers, hinders more efficient business models, or restricts intra-brand or inter-brand competition;
Whether the agreement has pro-competitive effects, such as preventing free-riding, promoting inter-brand competition, maintaining brand image, improving pre-sales or after-sales services, or fostering innovation, and whether these effects are necessary to achieve.

Based on the above provisions, Article 22 of the Anti-Monopoly Law Judicial Interpretation takes pro-competitive effects into account when evaluating RPM arrangements. Combined with the Pharmaceutical Guidelines, this framework provides pharmaceutical companies with clearer direction in collecting both defensive and countervailing evidence.

Finally, Article 15 of the Pharmaceutical Guidelines further clarifies circumstances that do not constitute vertical price monopoly agreements, including: (1) where a pharmaceutical company entrusts an agent to sell drugs and determines the sales price or other transaction conditions related to the agency business; (2) where a pharmaceutical company bids or negotiates prices under centralized drug procurement rules, and its transaction counterpart sells drugs to terminal medical institutions at the agreed-upon price within the procurement framework; (3) where a pharmaceutical company retains control over the sales and promotion of drugs and sets the sales price, while its transaction counterpart provides only auxiliary services such as importation, delivery, invoicing, and technical support.

With regard to the risks of RPM in the pharmaceutical distribution sector, we believe that the risk is relatively low in cases involving agency relationships, centralized procurement, and intermediary services. However, RPM is kindly of presumed illegal in practice, whether implemented directly or indirectly, and thus carries significant legal risks.

Given the relatively strict standard of burden of proof required for pharmaceutical companies to demonstrate that an agreement does not exclude or restrict competition, we recommend that companies continuously collect and retain favorable evidence in their daily operations in accordance with the Pharmaceutical Guidelines and the Anti-Monopoly Law Judicial Interpretation.

IV. “Organization” and “Substantial Assistance” in Monopoly Behaviors in the Pharmaceutical Sector

Based on the new provisions regarding the illegality and legal liability of “organization” and “provision of substantial assistance” in monopoly agreements, introduced in the 2022 revision of the AML, the Pharmaceutical Guidelines delineates and refines provisions addressing behaviors that may constitute “organization” and “substantial assistance” in the pharmaceutical sector.

Online trading platforms or third-party operators that exercise decisive control over the scope, primary content, or implementation conditions of monopoly agreements formed or executed by pharmaceutical entities;
Organizing, coordinating, or facilitating the acquisition or exchange of competitively sensitive information among competing pharmaceutical companies, thereby enabling the conclusion or execution of Monopoly Agreements;
Providing material support, establishing critical facilitative mechanisms, or delivering other substantive assistance for the conclusion or execution of monopoly agreements via price-monitoring services or the strategic use of platform rules, data analytics, and algorithmic tools.

In light of these provisions, we strongly advise operators of online pharmaceutical trading platforms and price-monitoring service providers to exercise heightened caution regarding the sharing of competitively sensitive information with other market participants.

V. Determination of Excessive pricing in the Pharmaceutical Sector

Unfairly high pricing (excessive pricing) is the most-frequent-fined abusive behavior in the pharmaceutical sector. Among the 15 cases of abuse of market dominance in the pharmaceutical sector from 2015 to date, 9 cases involve excessive pricing.

No.	Case Name	Relevant Market	Parties Involved	Type of Behavior	Penalty
1	Abuse of market dominance by Jiangxi Xiangyu Pharmaceutical Co., Ltd. (2024)	China-wide Iodized Oil Active Pharmaceutical Ingredient (API) Market	Distributor	Unfairly High Price	Fines: 4% of 2019 sales of the party involved
2	Abuse of market dominance by Shanghai No.1 Biochemical & Pharmaceutical and Others (2023)	China-wide Injectable Polymyxin B Sulphat Market	Wuhan Huihai, Wuhan Kede and Minkang: API distributors Shanghai B&P: Formulation Manufacturer	Unfairly High Price	Confiscation of illegal gains; Fines: 8% of 2022 sales of Wuhan Huihai and Wuhan Kede; 3% of 2022 sales of Minkang Pharmaceutical and Shanghai B&P
3	Abuse of market dominance by Tianjin Jinyao Pharmaceuticals Co., Ltd. (2023)	China-wide Carmustine Injection Market	Manufacturer	Unfairly High Price	Confiscation of illegal gains; Fines: 2% of 2019 sales
4	Abuse of market dominance by Northeast Pharmaceutical Group Co., Ltd. (2023)	China-wide Levocarnitine API Market	Manufacturer	Unfairly High Price	Fines: 2% of 2018 sales
5	Abuse of market dominance by Nanjing Ningwei Pharmaceutical Co., Ltd. (2021)	China-wide Chlorpyrifos API Market	Distributor	Unfairly High Price, Imposing Unreasonable Conditions	Confiscation of illegal gains; Fines: 4% of 2019 sales
6	Abuse of market dominance by Shangqiu Xinxianfeng Pharmaceutical Co., Ltd. (2021)	China-wide Phenol API Market	Distributor	Unfairly High Price	Confiscation of illegal gains; Fines: 1% of 2016 sales
7	Abuse of market dominance by Shandong Kanghui Pharmaceutical Co., Ltd. et al. (2020)	China-wide Injectable Calcium Gluconate API Market	Distributor	Unfair High Price, Imposing Unreasonable Conditions	Confiscation of illegal gains; Fines:10%, 9%, and 7% of 2018 sales respectively
8	Abuse of market dominance by Hunan Erkang Pharmaceutical Management Co., Ltd. and Others (2018)	China-wide Chlorpheniramine API Market	Hunan Erkang: Distributor Henan Jiushi: Manufacturer	Unfairly High Price, Tying, Refusal to Trade	Confiscation of illegal gains; Fines: 8%, 4% of 2017 sales of the respective parties involved
9	Abuse of market dominance by Tianjin Handwei Pharmaceutical Co., Ltd. and Others (2017)	China-wide Pharmaceutical Grade Isoniazid API Market	Manufacturer	Unfairly High Price, Refusal to Trade	Fines: 2% of 2016 sales in the relevant market

The Pharmaceutical Guidelines further refines the factors for determining unfair high-priced sales of drugs, including:

The sales price of the drug is significantly higher than that of other companies selling the same or comparable drugs under the same or similar market conditions;
The sales price of the drug is significantly higher than the price charged by the same company for the same or comparable drugs in different regions under identical or similar market conditions;
The sales price of the drug is significantly higher than the price charged by the same company for the same or comparable drugs at different times under identical or similar market conditions;
The sales price of the drug is increased beyond the normal range while the cost remains stable;
The price increase of the drug is significantly higher than the cost increase when the cost rises;
The sales price of the drug is improperly inflated through fictitious transactions or layer-by-layer price increases.

In anti-monopoly enforcement practice, authorities typically comprehensively assess these factors to determine whether a pharmaceutical company has engaged in excessive pricing. For example, in the case of abuse of market dominance by Shanghai No.1 Biochemical & Pharmaceutical and Others, the Shanghai Municipal Administration for Market Regulation identified unfair pricing practices including: (1) The price-to-cost ratio of Polymyxin B Sulfate for Injection was significantly higher than that of other formulations on the same production line; (2) Unjustified price escalation through layered price increases in API sales transfers; (3)Domestic prices for Polymyxin B Sulfate for Injection were substantially higher than those in other countries/regions during the same period.

In light of this, we recommend that pharmaceutical companies continuously monitor market competition dynamics, their own market power, and shifts in market share; rigorously evaluate pricing and price adjustment strategies to avoid unfairly high-priced conduct.

VI. Patent Hopping May Also Constitute Abuse of Market Dominance

Patent hopping, also known as product hopping, refers to a strategy whereby a company secures new patent protections through modifications or updates to an existing product as its original patent nears expiration, thereby extending market exclusivity and blocking generic competition. Patent hopping is categorized into two forms: “hard hopping” and “soft hopping”. Hard hopping occurs when the originator pharmaceutical company discontinues sales of the original patented drug shortly after launching the new patented product, typically before generics enter the market. Soft hopping involves maintaining the original patented drug on the market while introducing a new patented version. Patients and physicians retain the freedom to choose the original drug, though the new version may offer optimized efficacy, reduced side effects, or other enhancements that incentivize preference for the updated product.

The Pharmaceutical Guidelines explicitly stipulates that a pharmaceutical patent holder with a dominant market position may engage in abusive conduct if it obtains a new drug patent by modifying existing patented technical solutions (e.g., reformulating a drug) and implements product hopping (e.g., discontinuing sales or repurchasing original patented drugs) to transition to the new patented drug, thereby obstructing effective competition from generic drug operators. Key factors for analyzing product hopping include:

Whether the new patented drug fails to substantially enhance therapeutic use, efficacy, or safety compared to the original;
Whether generic operators had planned to launch competing drugs during the transition from the original to the new patented product;
Whether the transition hinders or delays generic market entry or effective competition;
Whether the transition substantially limits options for patients and physicians;
Whether legitimate reasons exist for the transition (e.g., public health benefits).

There have been no anti-monopoly enforcement cases involving patent hopping in China. However, the EU and the US have had multiple practices regarding the illegality of patent hopping. For example, in the US cases of Abbott Labs v. Teva Pharms, Walgreen Co. v. AstraZeneca Pharmaceuticals L.P., Mylan Pharma Inc. v. Warner Chilcott Pub. Ltd.. Especially in New York ex rel. Schneiderman v. Actavis PLC, the distinction between hard and soft hopping behaviors was proposed. In the EU, there are cases such as Omeprazole and Gaviscon. For example, in the Omeprazole case, the European Commission found that AstraZeneca’s abusive patent behavior included:

Securing a Supplementary Protection Certificate for Losec (Omeprazole) by submitting “misleading information” to patent offices in Germany, Belgium, Denmark, and other jurisdictions prior to the expiration of the drug’s patent term;
Revoking the marketing authorization for Losec capsules in Denmark, Norway, and Sweden, while concurrently filing for new patent rights on Losec tablets.

Regarding patent hopping, we recommend that operators exercise vigilance against high-risk practices during patent strategy planning, such as: (1) directly discontinuing sales of the legacy patented drug from the market; or (2) extending patent exclusivity through non-substantive modifications to hinder generic drug entry. Key factors for assessing substantive modifications include whether the new drug patent changes its use, efficacy, or safety profile of the drug. Non-substantial modifications may include formulation changes, combination drugs, dosage adjustments, marginal expansion of indications, non-critical manufacturing process adjustment and minor route-of-administration modifications. In addition, operators should continuously monitor the enforcement activities of market supervision authorities regarding patent hopping behaviors.

VII. Collective Abuse of Dominance Requires Caution

One of the key innovations in the Pharmaceutical Guidelines is the introduction of the concept of “collective abuse of dominance”, which is worthy of the attention of pharmaceutical companies. Article 29 of the Pharmaceutical Guidelines stipulates that “where two or more pharmaceutical companies engage in drug production or distribution activities in a collaborative manner and abuse their dominant market position through coordinated conduct, anti-monopoly enforcement authorities may, based on case-specific circumstances, deem such pharmaceutical companies as joint perpetrators of abuse of dominant market position.” The existence of such collaboration can be assessed from multiple perspectives: (1) whether the companies participate in or control the same or different segments of the pharmaceutical supply chain; (2) whether they divide roles in drug procurement, production, or sales; (3) whether their respective actions are indispensable to the implementation of monopolistic conduct; (4) whether they jointly obtain and distribute monopoly profits.

It should be noted that the concept of “collective abuse of dominance” introduced in the Pharmaceutical Guidelines represents a departure from traditional anti-monopoly enforcement theories such as the “single economic entity” doctrine and “abuse of collective dominance”. The “single economic entity” theory treats multiple entities as a unified entity with a common intent. The “abuse of collective dominance” theory applies when multiple entities collectively holding dominant positions in the same relevant market engage in abusive conduct, with all entities operating within the same segment of the pharmaceutical supply chain. However, the Pharmaceutical Guidelines explicitly defines “collective abuse of dominance” to apply even when the involved entities operate in different segments of the supply chain.

The analysis and application of “collective abuse of dominance” have been observed in the case of Abuse of Market Dominance by Shanghai No.1 Biochemical & Pharmaceutical and Others. In this case, Wuhan Huihai controlled the supply of the API for injectable polymyxin B sulfate by establishing agency relationships and offering benefits to other companies to prevent them from selling the API. Shanghai No.1 Biochemical & Pharmaceutical (“Shanghai B&P”) reached an agreement with Wuhan Huihai, whereby Wuhan Huihai would supply the API, Shanghai B&P would manufacture the formulation, and Wuhan Huihai would be granted exclusive distribution rights for the formulation. Shanghai B&P charged a processing fee, while both parties jointly determined bidding strategies. Through their close collaboration, Shanghai B&P and Wuhan Huihai sold injectable polymyxin B sulfate at inflated prices and shared monopoly profits. In this case, although Wuhan Huihai was both the API supplier and the formulation distributor, while Shanghai B&P was the formulation manufacturer, the two entities operated in different segments of the industry chain. Nevertheless, anti-monopoly enforcement authorities applied the concept of “collective abuse of dominance” and ultimately determined that Wuhan Huihai and Shanghai B&P were joint perpetrators of the abuse of dominant market position.

In light of this, we suggest pharmaceutical companies to closely monitor market competition dynamics, shifts in market power, and changes in market share. Even when cooperating with upstream or downstream operators, they should carefully assess whether their conduct could be deemed an abuse of dominant market position to mitigate legal risks.

*Thanks to intern Zhao Jiawen for her contribution to this article.

China and the U.S. – Different Approaches to Regulating AI

By Tracey TANG on April 3, 2025

Posted in Digital Economy & AI

Tracey Tang and Art Dicker

Artificial intelligence has become a central pillar of China in its drive to become an advanced economy. The development of AI has enjoyed tremendous government support, benefitting from a large population and data collected in China through various digital platforms. As such, China has been at the forefront of adopting national legislation governing AI to give guidance to companies and to create a safe environment for its adoption. In addition to imposing restrictions on the development and use of AI in China, these regulations aim to present the government’s pro-growth attitude towards AI and delineate the roles and responsibilities of various stakeholders in AI governance.

The United States has relied more on existing agencies expanding their existing scope to cover AI use and development, by and large encouraging its dynamic private sector to develop AI through entrepreneurship.

In this article, we look deeper and compare the approaches to regulation and law enforcement activities in both countries.

Transparency and Fair Competition when Using Algorithms

China has been proactive in looking at the design and deployment of algorithms. The focus in particular has been on the application of algorithm-powered recommendation technologies, including AIGC, personalized push, automated decision-making, and other relevant online services.

One of the key regulations has been the Administrative Provisions on Algorithm Recommendations for Internet Information Services promulgated in 2021 (Algorithm Regulation). It enables the Cyberspace Administration of China (CAC) to require platforms to be more open and transparent about the recommendation systems they use and publicize the basic principles, purpose and major mechanisms of the algorithm in use. In addition, it allows users to be able to opt-out of the algorithm to avoid profiling. In case the algorithm may have a significant impact on a user’s rights or interests, the service provider must provide reasonable explanations and will be held liable for any misuse. Details of the algorithms have to be filed with the CAC if the services can shape public opinions, so that (in theory), they can be looked at for potential biases and abuse.

On the protection of public interests, the Algorithm Regulation specifically empathizes the importance of protecting vulnerable groups. In particular, businesses shall tailor the algorithm-powered recommendations for minors and elders according to their specific needs as well as their mental and physical conditions, and shall avoid using algorithms to make minors addictive to online services (e.g. video games or video streaming) or expose elders to telecommunication frauds. When using algorithms to assign tasks to contract workers, workers’ rights to obtain compensation and rest must be protected.

On the promotion of fair competition in online services, the Algorithm Regulation prohibits businesses from using algorithms to interfere, undermine or impose unreasonable restrictions on other businesses.

The U.S. does not have a law focused on algorithms. Certain government agencies instead use their existing authority to try to protect the public. For example, the Federal Trade Commission (FTC) can police “unfair or deceptive practices” that might be related to misleading claims about the capabilities of AI, or how use of AI can lead to discriminatory outcomes.

There have also been some attempts to legislate directly on AI. For example, a bill called the Algorithmic Accountability Act has been introduced in Congress which would mandate developers to audit AI systems for bias and privacy risks. But to date, this legislation has not been adopted. Finally, there have also been voluntary guidelines proposed, for example, by the National Institute of Standards and Technology (NIST) and its proposed AI Risk Management System which would have developers adopt best practices for managing risk and promoting transparency in their algorithms.

Data Protection and Privacy

AI and personal data go hand in hand. China has developed a comprehensive set of regulations governing data, and this has been useful to adapt to the need for oversight of AI as well. The data regulation framework consists of the Cybersecurity Law, which mandates network operators to store certain data within China, the Data Security Law which lays out how data related to national security should be protected, and the Personal Information Protection Law, which is similar to Europe’s GDPR and sets forth the need for obtaining user consent and limiting use of individual’s data. When using data to develop or apply AI technologies, businesses must comply with all applicable data protection regulations. Businesses that offer AI-powered tools to edit biometric information of a person (such as face or voice) must remind users to notify and seek separate consent from that person.

The U.S., by contrast, does not have an overarching set of data regulations. There is merely a mix of laws which govern how different types of data should be handled by industry. For example, certain medical data is regulated by the Health Insurance Portability and Accountability Act (HIPAA). Certain financial records data is governed by the Gramm-Leach-Bliley Act (GLBA).

States have also stepped into the void – the California Consumer Privacy Act (CCPA) provides some protection to California residents on how AI systems can collect and manage personal data. Virgina and Colorado have their own unique data privacy laws and requirements as well.

Copyrights

One point where China and the U.S. differ is on whether works generating using AI can be copyrighted. The U.S. has consistently taken the position that copyrights are for original works of authorship. Authorship has been interpreted by courts and the U.S. Copyright Office to mean having a human creator. This traces back to the Naruto v. Slater case in which it was determined that a work made by a non-human (monkey) cannot be copyrighted. This has been extrapolated by courts and the U.S. Copyright Office to mean works without meaningful human authorship, such as AI generated content, are not able to enjoy copyright protection.

One relatively recent decision was “Zarya of the Dawn” in 2023 in which the Copyright Office ultimately determined that a graphic novel which had contained images using an AI image generator distinguished between the text arrangement that went along with the images (which was copyrightable) and the images themselves where were not. Notably though, substantial editing of content originally generated by AI may turn the content into a work that can be copyrighted.

Unlike in the US where consensus has almost been reached on the copyrightability of AI generated content, in China it remains very controversial when it comes to whether the courts may grant copyright protection to content generated by AI. This is especially true when a plaintiff claims it has put substantial efforts to cause the creation of the AI generated content in dispute. On the one hand, there is no authority in China like the U.S. Copyright Office that has power and responsibility to issue its authoritative opinions on the copyrightability of certain works; on the other hand, Chinese courts seem to take different views in different cases when deciding whether a specific work generated by AI is copyrightable. A few court judgements recognized the AI generated images at issue are entitled to copyright protection because they meet the statutory standards of a work under China Copyright Law—the process of inputting quite complicated prompts and using AI tools to generate, modify and polish the images can be regarded as human’s intellectual activities while AI software is equivalent to a tool (e.g. a camera) which assists human authors to create works. However, these cases are likely to have very limited influence on future ones, as China does not follow a case law system; moreover, some judgements became final without review by higher courts, and the courts’ controversial reasoning has drawn significant criticism.

Enforcement and Penalties

While some might argue the more relaxed approach the U.S. takes is important to foster innovation using AI, one might also argue that having a comprehensive set of regulations governing AI at a national level would provide needed clarity to businesses engaged in developing and using AI.

In reality, in both the U.S. and China, multiple government agencies are involved in regulating the space and in particular, enforcement. In China, the mix of enforcement agencies includes the CAC and the Ministry of Public Security, among others. Under the Personal Information Protection Law, violations can include up to RMB 50 million (approx.. US$7 million) or 5% of the previous year’s revenue. The Data Security Law can also include penalties, and may lead to businesses being forced to temporarily or permanently shut down.

Enforcement in the U.S. is, as expected, a combination of efforts at the state and federal levels. The FTC can impose fines against companies found to be engaging in unfair or deceptive practices. It can also enforce consent orders that place long-term restrictions on how organizations use data. The Food and Drug Administration (FDA) enforces special rules for AI powered medial devices, for example. Developers must demonstrate efficacy and safety through approval pathways such as premarket submissions or De Novo classifications. The Securities and Exchange Commission (SEC) and the Commodity Futuers Trading Commission (CFTC) also watch over robo advisory and AI use in trading.

States often have their own enforcement, for example, the Illinois Biometric Information Privacy Act (BIPA), which allows private lawsuits to police AI data policies.

Going Forward

Rules on AI for both China and the US continue to evolve. For example, in both China and the U.S., Chinese cities and provinces and U.S. states are adopting biometric privacy laws (for example, on facial recognition) to address AI-related data collection.

More regulation on fairness of algorithms vis-à-vis consumers is also expected. Chinese regulators have been out ahead on this front, and the US FTC has also made prominent warnings against biased AI. Expect fairness audits and transparent reporting to eventually become the norm.

It is becoming clear that even though China and the United States have their own distinctive legal structures, both recognize that AI calls for robust oversight for use of personal data and algorithms in particular. It would not be surprising if in fact, the two approaches even started to converge a bit over time.

Art Dicker is Managing Partner of Parkwyn Legal, a boutique U.S. law firm focused on helping Chinese companies expand in the U.S. Art lived and worked in China for 16 years and is fluent in Mandarin.

Sensitive Personal Information in China

By Samuel Yang, Chris Fung & Helen Zhao on March 31, 2025

Posted in Data Protection & Privacy

Abstract

This article analyses the definition, regulatory framework, and compliance challenges surrounding Sensitive Personal Information (SPI) under China’s Personal Information Protection Law (PIPL) and related standards. For enterprises, accurately identifying SPI within their data ecosystems is critical to the PIPL compliance efforts. Organisations must continually assess risks tied to data practices, particularly amid challenges posed by big data and algorithmic profiling.

The definition of SPI

Sensitive personal information (SPI) in China is defined by Article 28 of the Personal Information Protection Law (PIPL) as:

Sensitive personal information refers to personal information that, once leaked or illegally used, will easily lead to infringement of the human dignity or harm to the personal or property safety of a natural person, including biometric recognition, religious belief, specific identity, medical and health, financial account, personal location tracking and other information of a natural person, as well as any personal information of a minor under the age of 14.

It can be observed from this definition that the core definition of SPI is risk-based and involves assessing whether a hypothetical leak or the illegal use of such information will “easily lead to the infringement of human dignity or harm” to a person or property.

The definition also contains some very high-level examples of categories of personal information (PI) that legislators believe are included within the scope of SPI. Such examples do not appear to function as a limitation on the scope of SPI and seem to merely serve an illustrative function.

The implications of processing SPI

The intended or actual processing of SPI creates various compliance obligations that a PI processor must fulfil to comply with the PIPL. Those compliance obligations include:

Being transparent (PIPL, Article 7).
Implementing strict protection measures (PIPL, Article 28).
Seeking separate consent (PIPL, Article 29).
Explaining the necessity of processing (PIPL, Article 30).
Explaining the impact of processing (PIPL, Article 30).
Providing adequate notices (PIPL, Articles 17 and 30).
Making regulatory filings (PIPL, Article 38; Provisions on Promoting and Regulating Cross-border Data Flows)
Conducting Personal Information Protection Impact Assessments (PIPL, Article 55).

Please note that any failure to comply with the PIPL can result in regulators demanding a third-party audit of processing activities or issuing penalties.

In an age of big data and algorithms that can identify whether someone is pregnant from their online browsing activities, the definition of SPI creates major practical problems with significant knock-on effects.

GB/T 35273-2020

Since SPI entails stricter processing obligations, identifying SPI has long been a key concern for enterprises.

Even before the release of the PIPL, GB/T 35273-2020 “Information security technology— Personal information security specification” had already provided definitions for PI and SPI, along with examples of relevant scenarios.

It is commonly considered that the PIPL is supplemented by the recommended national standard GB/T 35273-2020, which provides a classification table in Annex B that identifies data elements that are considered SPI as follows:

Category	Typical Examples
Personal property information	Bank account, authentication information (password), bank deposit information (including amount of funds, payment and collection records), real estate information, credit records, credit information, transaction and consumption records, bank statements, etc., and virtual property information such as virtual currency, virtual transaction and game CD Keys.
Physiological and health information	The records generated in connection with medical treatment, including pathological information, hospitalisation records, physician’s instructions, test reports, surgical and anaesthesia records, nursing records, medicine administration records, drug and food allergy, fertility information, medical history, diagnosis and treatment, family illness history, history of present illness, history of infection.
Personal biometric information	Personal genes, fingerprint, voice print, palm print, auricle, iris, facial recognition features, etc.
Personal identity information	ID card, military officer certificate, passport, driver’s license, employee ID, social security card, resident certificate, etc.
Other information	Sexual orientation, marriage history, religious preference, undisclosed criminal records, communications records and content, contacts, friends list, list of chat groups, records of whereabouts, web browsing history, precise location information, accommodation information, etc.

While GB/T 35273-2020 is merely a recommended national standard without legal force, it is highly respected and referred to in the Standard Contract for Outbound Transfer of Personal Information issued by the Cyberspace Administration of China (CAC) in Schedule 1 as follows:

“(V) Types of exported sensitive personal information (refer to the Information Security Technology — Personal Information Security Specification of GB/T 35273 and relevant standards, if applicable)…”

While the Annex B table can be considered more comprehensive than Article 28 of the PIPL, it is certainly not exhaustive.

Practice Guide to Identifying SPI

In September 2024, the National Technical Committee 260 on Cybersecurity of Standardisation Administration of China (TC260) issued the normative standards document TC260-PG-20244A, “Cyber Security Standards Practice Guide – A Guide to Identifying Sensitive Personal Information” (SPI Guide). The SPI Guide provides additional guidance concerning SPI and common examples of SPI.

Key criteria for identifying SPI under the SPI Guide

The SPI Guide elaborates on the risk assessment criteria that should be considered to identify SPI. According to Article 3 a) of the SPI Guide, if any of the following criteria can be met in the event PI is leaked or illegally used, such PI should be considered SPI:

PI is likely to cause a natural person’s human dignity to be infringed;
PI is likely to cause a natural person’s personal safety to be jeopardised; and
PI is likely to cause a natural person’s property safety to be jeopardised.

PI is likely to cause a natural person’s human dignity to be infringed

It seems that an infringement of human dignity needs to be probable (as opposed to possible), as indicated by the word “likely”, for this criterion to apply.

Human dignity is a very high-level concept not defined within the PIPL. The notes within the SPI Guide suggest that:

Note 1: Situations that likely lead to the infringement of an individual’s personal dignity include “doxxing,” illegal intrusion into online accounts, telecom fraud, damage to personal reputation, and discriminatory differential treatment. Discriminatory differential treatment may result from the leakage of information related to an individual’s specific identity, religious beliefs, sexual orientation, particular diseases, or health conditions.

It is worth noting that human dignity appears to be an umbrella concept within the SPI Guide that includes other rights with their own characteristics. For instance, the right to privacy is protected within Chapter 6 of the Civil Code and is described within Article 1032 as follows:

Privacy is the undisturbed private life of a natural person and his private space, private activities, and private information that he does not want to be known to others.

Given the use of cross-references within the SPI Guide’s concept of human dignity, the scope of SPI may be more uncertain and wider than many previously thought.

PI is likely to cause a natural person’s personal safety to be jeopardised

The word “likely” is used once more for this criterion. It seems that an infringement of personal safety needs to be probable (as opposed to possible), as indicated by the word “likely”, for this criterion to apply.

Given that human dignity includes “the right to life, body, [and] health”, it seems that this criterion overlaps somewhat with “PI is likely to cause a natural persons’ human dignity to be infringed”.

The note within the SPI Guide suggests that:

Note 2: For example, the leakage or illegal use of personal whereabouts and track information may pose a threat to their personal safety.

The note within the SPI Guide is somewhat limited in scope and may be of limited practical use.

In practice, PI processors will need to identify all possible risks arising from the leakage or illegal use of PI. If any of those risks likely lead to an individual being physically harmed, then the PI should be classified as SPI.

PI is likely to cause a natural person’s property safety to be jeopardised

The word “likely” is used for this criterion as well. As such, the probability of harm to property appears to be all that is required for this criterion to apply.

The note within the SPI Guide suggests that:

Note 3: For example, disclosure or illegal use of financial account information may cause property losses to the personal information subject.

While clear, this example is rather narrow. In such circumstances, we believe that assessing this criterion would, in practice, require an understanding of property and the connection between such property and PI.

Highest protection standard for data combinations

The SPI Guide suggests that it is necessary to consider whether PI is SPI on both an item-by-item basis and as a whole after combination. It then states that if a combination of PI is identified as SPI, that combination of data should be protected as SPI.

Article 3 c): It is necessary to consider both the identification of individual sensitive personal information and the overall attributes of multiple general personal information elements when aggregated or combined. An analysis should be conducted to assess the potential impact on personal rights if such information is leaked or misused. If the conditions described in 3 a) are met, the aggregated or combined personal information should be identified and protected as sensitive personal information.

Commonly used SPI

The SPI Guide describes and provides examples of the following categories of SPI:

Category	Description	Typical examples
Biometric Information	This refers to PI about biometric identification information and PI about the physical, biological or behavioural characteristics of a natural person obtained through technical processing, which can identify a natural person alone or in combination with other PI.	Personal gene, face, voice print, gait, fingerprint, palmprint, eye print, auricle, iris and other biometric information.
Information on Religious Beliefs	This refers to PI about an individual’s religion, religious organisation and religious activities.	PI about the religion you believe in, the religious organisations you join, your position in the religious organisations, the religious activities you participate in, and special religious practices.
Specific Identifying Information	This refers to PI that significantly impacts the human dignity or social evaluation of an individual or PI that is otherwise inappropriate to disclose, especially PI that may lead to social discrimination.	PI such as the identity of persons with disabilities, occupational identity information unsuitable for disclosure, etc.
Medical and Health Information	This refers to PI about an individual’s medical visits and physical or mental health status.	Health status information related to personal physical or psychological injury, illness, disability, disease risk or privacy, such as symptoms, past medical history, family history, infectious disease history, medical examination reports, fertility information, etc. PI collected and generated during medical services such as disease prevention, diagnosis, treatment, nursing, and rehabilitation, such as medical visit records (such as medical opinions, hospitalisation records, medical orders, surgical and anaesthesia records, nursing records, medication records), inspection data (such as inspection reports, examination reports), etc.
Financial Account Information	This refers to PI about personal bank, securities, and other accounts, as well as account capital transactions.	Personal account number and password of a bank, securities, fund, insurance, provident fund and other accounts, joint provident fund account, payment account, bank card track data (or chip equivalent information), payment marking information based on account information, personal income details and other PI.
Whereabouts and Tracking Information	This refers to continuous trajectory information formed by an individual’s changes in geographic location, activity locations, and movement patterns over a specific period. (Except for specific professions (such as food delivery workers and couriers) where such information is necessary for fulfilling service obligations.)	Continuous accurate location trajectory data, vehicle driving trajectory data, and individual activity trajectory data.
PI of Minors under the Age of 14	PI of minors under 14 years of age.	PI of minors under the age of 14
Other Sensitive PI	In addition to the above, other common PI that meet the above criteria should be treated as SPI.	Precise positioning information, ID photos, sexual orientation, sexual life, credit information, criminal record information, photos or video information showing private parts of the individual’s body, etc.

The descriptions and examples of SPI in the SPI Guide provide some additional guidance that should help PI processors better understand the nature of SPI. However, the SPI Guide also emphasises that if there is sufficient justification and evidence demonstrating that the processed PI does not meet the conditions outlined in 3 a) (See above.), it may not be classified as SPI.

Special Lists Issued by Free Trade Zones and Industry Regulators

The Beijing Free Trade Zone, Shanghai Free Trade Zone, and Hainan Free Trade Zone have issued negative lists applicable to data export activities, which include some examples of PI and SPI. These negative lists reflect the official stance of the relevant regulatory authorities, particularly the local CAC in each free trade zone.

We believe these examples can serve as useful references for enterprises in determining what qualifies as SPI.

Conclusion

As mentioned above, various regulations provide examples of SPI, including GB/T 35273-2020, the SPI Guide, and other lists issued by Free Trade Zones and industry regulators. However, since these regulations are issued by different authorities, discrepancies in the samples of SPI sometimes occur. For example, GB/T 35273-2020 classifies an ‘ID card’ as SPI, whereas the SPI Guide only considers ‘ID card photos’ as SPI; GB/T 35273-2020 includes ‘web browsing history’ as SPI, while the SPI Guide does not.

To minimise the impact of such discrepancies on the identification of SPI, enterprises need to systematically analyse their PI business context and processing methods to accurately analyse the risk associated with human dignity, personal safety, and property safety.

The identification of SPI is a basic PIPL compliance activity that all organisations must undertake on an ongoing basis to better understand their PIPL obligations. A failure to identify SPI may suggest the compliance framework of an organisation is inadequate and can result in an organisation failing to comply with its obligations under the PIPL, which generally include:

Being transparent.
Implementing strict protection measures.
Seeking separate consent.
Explaining the necessity of processing.
Explaining the impact of processing.
Providing adequate notices.
Making regulatory filings.
Conducting Personal Information Protection Impact Assessments.

A failure to implement any of the above compliance obligations can result in the regulator taking enforcement action or demanding a third-party audit of all PI processing activities.

Brief Analysis on 18-article Regulation for Handling Foreign-related IP Cases

By Xiangxiang MA on March 27, 2025

Posted in Intellectual Property

On March 13, 2025, a set of regulations on tackling foreign-related intellectual property (“IP”) cases were issued by the State Council (the “New IP Regulations”)[1]. The New IP Regulations will take effect on May 1, 2025.

The New IP Regulations include 18 articles, which clarify that relevant government departments should (i) strengthen overseas IP information inquiry and warning services, (ii) offer guidance and IP right protection assistance to individuals and organizations in key areas of foreign-related IP disputes, and (iii) share experiences and practices through typical case studies.[2]

In addition, the New IP Regulations emphasize the role of enterprises, calling for enterprises to (i) enhance their awareness of the rule of law, (ii) establish their internal rules, and (iii) step up efforts on educating IP talent and building the IP talent pool, so as to reinforce their IP application and give stronger protection to their own IP rights.[3]

Furthermore, the New IP Regulations underscore the importance of easy and efficient services in handling such cases, encouraging commercial mediation organizations, arbitration institutions and law firms to join the effort to expand the channels for dispute resolution.[4]

Background & Purposes

In recent years, China has witnessed a significant surge in foreign-related IP disputes, which also reflects its growing integration into the global economy and the increasing complexity of international trade. According to a 2024 survey by the China Intellectual Property Research Society, by the end of 2023, Chinese enterprises, as the defendant, were involved in 364 overseas IP litigation cases, affecting 2,452 companies. Notably, Guangdong Province led with 896 cases, followed by Zhejiang, Fujian, and Jiangsu, highlighting the challenges faced by China’s most economically active regions.[5] For instance, one of the key trends is the rise of non-practicing entities (NPEs), which have become major plaintiffs in patent infringement cases against Chinese companies. These entities often exploit legal loopholes to file lawsuits, putting pressure on Chinese enterprises to settle out of court.[6]

To address ongoing risks posed by the increasing complexity of international IP litigation like the rise of NPEs, China has taken proactive measures to strengthen its IP protection framework. On July 29, 2024, the Ministry of Justice issued a circular to solicit public opinions on the Provisions of the State Council on the Handling of Foreign-related IP Disputes (Draft for Public Consultation) (the “Draft Version”). The New IP Regulations were finalized upon the Draft Version, regarded as China’s first administrative document that systematically standardizes the handling of foreign-related IP disputes, which reflect China’s continuous efforts in handling foreign-related IP disputes, which will serve as a robust backbone for domestic enterprises going global.

Main Contents
Various Parties’ Role & Responsibility

As noted in part 1 of this article, the New IP Regulations focus on specifying the roles and responsibilities of both governmental authorities and private parties such as enterprises and individuals. The details on this front are presented below:

Parties	Role	Responsibilities
IP administrative departments	Coordinate and manage the IP matters nationwide; offer guidance and relevant services to enterprises and citizens involved in foreign-related IP disputes	collect and release information regarding overseas IP legal systems in a timely fashion, improve the public service system for IP information and provide the services of overseas IP information inquiry for the public[7]
		optimize the services of overseas IP information inquiry by keeping track on changes of foreign IP legal systems as well as conducting analyze and study on typical cases, so as to offer early warning for the public[8]
		streamline the workflow of handling such cases and provide guidance for dispute settlement[9]
Enterprises, organizations & Individuals	actively or passively involved in foreign-related IP disputes when conducting business overseas	Enterprises: (i) strengthen awareness of rule of law, (ii) set up and improve internal rules and regulations, (iii) strengthen the reserve of IP talent, (iv) intensify the IP protection and application[10] and (v) set up overseas IP dispute funds to protect foreign-related IP rights and reduce enterprises’ costs for maintaining IP rights[11]
		Other organizations: encouraged to conduct public services like establishing foreign-related IP right protection and assistance platforms and service hotlines and offering consulting and training services[12]
		Enterprises, other organizations and individuals: making efforts to resolve foreign-related IP disputes through expedient and efficient channels like reconciliation, meditation, and arbitration[13]

Newly added provisions

As mentioned in part 1 of this article, compared to the Draft Version, several articles in relation to technical issues on handling foreign-related IP cases have been added in the finalized version of the New IP Regulation, details of which are summarized below:

Service of documents and collection of evidence: pursuant to the New IP Regulation, the service of documents, as well as investigation and evidence collection in China, should be carried out in accordance with (i) the international treaties to which China is a party or has acceded and (ii) the Civil Procedure Law of the PRC and the Law of the PRC on International Judicial Assistance in Criminal Matters.[14]
Offering evidence/materials to foreign parties: where organizations or individuals in China are (i) engaged in overseas IP-related litigation, or (ii) subject to relevant investigations by foreign judicial or law enforcement authorities, needing to provide evidence or relevant materials to foreign parties, such party shall comply with laws and administrative regulations on the protection of state secrets, data security, personal information protection, technology export control, and judicial assistance. Where an approval from the competent authorities is required by law, the relevant legal procedures shall be followed.[15]
Investigation by commerce department: The competent commerce department may initiate investigation into and take necessary measures against the following matters: (i) where any import of goods infringes upon IP rights and disrupts the order of foreign trade, (ii) where an IP rights holder prevents the licensee from challenging the validity of the IP right in a license agreement, or imposes mandatory package licensing, or includes an exclusive grant-back clause in the license agreement, thereby disrupting the fair competition order of foreign trade, and/or (iii) where other countries or regions fail to grant national treatment to Chinese citizens or organizations in IP protection, or fail to provide adequate and effective IP protection for goods, technology, or services originating from China.[16]
Countermeasures against unfair treatment: If any foreign entities fail to grant national treatment to Chinese citizens and organizations or fail to provide adequate and effective IP protection, the commercial departments under the State Council can conduct investigations and take necessary measures in accordance with the relevant laws such as the Law on Foreign Relations of the PRC, the Law of the PRC on Countering Foreign Sanctions and so forth. Also, when foreign countries use IP disputes as a pretext to (i) constrain or suppress China, or (ii) impose discriminatory and restrictive measures on Chinese citizens and organizations, the relevant departments of the State Council can take appropriate countermeasures and restrictive measures in response.[17]
Discriminatory restrictive measures forbidden: No organization or individual can implement or assist in implementing any discriminatory restrictive measures imposed by foreign countries against Chinese citizens or organizations on the pretext of IP disputes. Where an organization or individual violates the preceding paragraph and infringes upon the legitimate rights and interests of Chinese citizens or organizations, the said Chinese citizens or organizations may file a lawsuit with the people’s court to request cessation of such infringement as well as compensation for losses.[18]
Other measures for protection of national interests: Relevant governmental departments under the State Council shall (i) strengthen coordination and cooperation, and (ii) take corresponding measures against those who utilize IP disputes to endanger China’s sovereignty, security, or development interests in accordance with relevant laws such as the National Security Law of the PRC, the Law on Foreign Relations of the PRC, the Law of the PRC on Countering Foreign Sanctions and so forth. Any party abusing IP rights to exclude or restrict competition or engage in unfair competition shall be subject to measures in accordance with relevant laws such as the Anti-Monopoly Law of the PRC, the Anti-Unfair Competition Law of the PRC, and so forth.[19]

Based upon the summary above, it is noted that the New IP Regulation will be conducive to safeguarding national security and development interests, particularly reflected by the countermeasures to be taken by relevant governmental authorities when foreign countries use IP disputes as a pretext to constrain or suppress China or impose discriminatory and restrictive measures on Chinese citizens or organizations.

Prospects & Suggestions

Notably, the Chinese government unveiled the New IP Regulations aiming to handle cases for protection of IP rights related to foreign matters in a move to provide efficient and convenient resolution mechanisms and services for citizens and organizations involved in such disputes. Meanwhile, China is building up its international image and the credibility of its judicial system through dealing with high-profile foreign-related IP cases and by upholding equal protections while hearing foreign-related IP disputes no matter where litigants are from.

As more and more Chinese enterprises are expanding their business abroad, it is critically important to proactively adjust their IP application plans, so as to mitigate potential dispute risks when competing with foreign business partners and reduce losses they may have to suffer from overseas IP disputes. F acing challenges brought by the current global IP landscape and governance, to avoid potential risks posed by foreign-related IP disputes and to further reduce costs associated with cross-border IP rights protection, the domestic enterprises could consider:

formulate compliance plans in relation to technology exports and cross-border data transfer,
keep track of local IP laws in real time by directly cooperating with overseas partners or with the assistance from legal expertise,
put efforts into IP talent education while working with relevant authorities in providing legal training for and introducing IP laws to enterprises going global by sharing experiences and practices through case studies, and
work with law firms and legal expertise having a deep understanding of the technical background and commercial demands of domestic enterprises as well as capacity of drawing on the resources of overseas cooperation platforms to avoid strategic mistakes caused by cultural or judicial differences.

Looking ahead, while foreign-related IP disputes remain a significant hurdle for Chinese enterprises when they operate business worldwide, the country’s evolving legal and strategic responses are trying to offer a promising path forward. By continuing to enhance its IP protection mechanisms and fostering international cooperation, China is well-positioned to navigate the complexities of the global IP landscape and will continue to secure its place as a leader in innovation and trade. The enterprises, individuals and related organizations, on the one hand, shall pay attention to the updated requirements in newly issued regulations when dealing with foreign-related IP cases. On the other hand, each of them shall keep track of IP regimes and policies in various jurisdictions through information platforms established by relevant governmental authorities and organizations in accordance with the New IP Regulations.

[1] The full name of the New IP Regulations is the Provisions of the State Council on the Handling of Foreign-related IP Disputes.

[2] See article 2, 4, 5 and 6 of the New IP Regulations.

[3] See article 11 of the New IP Regulations.

[4] See article 7 and 8 of the New IP Regulations.

[5] See China Intellectual Property Society, National Center for Guidance on Overseas Intellectual Property Dispute Resolution: 2024 Investigation of Overseas Intellectual Property Disputes involving Chinese Enterprises, June 2024.

[6] See supra note 5.

[7] See article 4 of the New IP Regulations.

[8] See article 5 of the New IP Regulations.

[9] See article 6 of the New IP Regulations.

[10] See paragraph 1 of article 11 of the New IP Regulations.

[11] See article 9 of the New IP Regulations.

[12] See article 10 of the New IP Regulations.

[13] See article 7 of the New IP Regulations.

[14] See article 12 of the New IP Regulations.

[15] See article 13 of the New IP Regulations.

[16] See article 14 of the New IP Regulations.

[17] See article 15 of the New IP Regulations.

[18] See article 16 of the New IP Regulations.

[19] See article 17 of the New IP Regulations.

Navigating China’s Personal Data Export Compliance: Insights from MNC’s Successful Application for Security Assessment

By Albert TSUI on March 18, 2025

Posted in Data Protection & Privacy

China’s Personal Information Protection Law (“PIPL”), enacted in 2021, establishes a structured regulatory framework for cross-border transfers of personal information (“PI”). Depending on the volume, sensitivity and context of PI being exported, exporters may face varying levels of compliance obligations. For instance, small-scale exports of non-sensitive PI may be exempt from formal applications to the Cyberspace Administration of China (“CAC”), while larger or more sensitive transfers may require a CAC-prepared standard PI transfer contract (“Standard Contract”) or a CAC-organized data security assessment (“Data Security Assessment”).

For multinational corporations (“MNCs”) operating in China, navigating these requirements can seem daunting. However, with the right approach, compliance is achievable and manageable.

We recently supported an MNC in successfully securing an approval for a Data Security Assessment. Through the application process, we gained firsthand experience in engaging with both provincial and national levels of CAC. This was a valuable opportunity to better understand CAC’s approach to exercising its authority under the PIPL and its interpretation of relevant regulations.

Notably, the number of successfully completed Data Security Assessments remains relatively low (only 285 as of December 2024), making this experience particularly rare and insightful.

This article summarizes our experience and provides a guide to key aspects of cross-border PI compliance, focusing on:

Understanding the key regulatory requirements for PI export
Identifying the appropriate level of compliance through a data audit
Preparing for the impact assessment and application with CAC
Maintaining post-approval compliance

1. Understanding the Regulatory Landscape: A Moving Target

PIPL provides the legal foundation for cross-border PI transfers, but the regulatory environment continues to evolve. Key requirements under PIPL Article 38 include:

Passing a CAC-organized Data Security Assessment.
Signing a CAC-Standard Data Transfer Contract with the overseas recipient.
Obtaining PI protection certification from a professional institution.

Condition 3 (certification) is a less commonly used. Our focus is on Conditions 1 (Data Security Assessment) and 2 (Standard Contract).

When Standard Contracts are Required

The Measures for Personal Information Export Standard Contract (2022) (“Standard Contract Measures”) (Article 4) outline scenarios requiring a Standard Contract with foreign recipients and its filing with CAC, including:

The exporter is not a Critical Information Infrastructure (CII) operators.
Handling PI of fewer than 1 million individuals in China.
Exporting sensitive PI of fewer than 10,000 individuals within a calendar year.
Exporting non-sensitive PI of fewer than 100,000 individuals within a calendar year.

When Security Assessments Are Required

The Measures for Security Assessment of Data Exports (2022) (“Security Assessment Measures”) (Article 4) specify scenarios requiring mandatory CAC risk assessments, including:

Exporting important data.
CII operators or processors handling PI of over 1 million individuals.
Exporting sensitive PI of 10,000 individuals or non-sensitive PI of 100,000 individuals within a calendar year.

Regulatory Relaxations Under the 2024 Provisions

The Provisions on Promoting and Standardizing Cross-Border Data Flows (2024) (“the Provisions”) introduce exemptions to ease compliance burdens for certain categories of data transfers. Businesses falling under these categories are exempt from Security Assessments or Standard Contracts:

Contractual necessity: For activities like cross-border shopping, payment processing, shipping, or services such as hotel bookings and visa applications.
Employment management: For cross-border human resource management, such as processing employee information for global payroll or benefits.
Emergency situations: To protect an individual’s life, health, or property in emergencies.
Low-volume, non-sensitive transfers: Non-sensitive PI of fewer than 100,000 individuals annually.

These changes are consolidated in the Regulations on the Management of Network Data Security, enacted shortly after the Provisions. The table below summarizes the regulatory requirements before and after the relaxation:

Level of Compliance	Before the Relaxation	After the Relaxation
Exemption applies (internal compliance is still required)	No exemption	Satisfying the necessity requirements in the three stipulated scenarios; orLow-volume, non-sensitive transfer
Standard Contract	Exporting sensitive PI < 10,000 individuals or non-sensitive PI < 100,000 individuals within a calendar year	Exporting sensitive PI < 10,000 individuals or non-sensitive PI < 1 million individuals within a calendar year
Data Security Assessment	Handling PI of over 1 million individuals; or Exporting sensitive PI ≥ 10,000 individuals or non-sensitive PI ≥ 100,000 individuals within a calendar year.	Handling PI of over 1 million individuals; or Exporting sensitive PI ≥ 10,000 individuals or non-sensitive PI ≥ 1 million individuals within a calendar year.

2. Conducting a Comprehensive Data Audit: The Cornerstone of Compliance

A successful compliance strategy begins with a detailed data audit, which involves:

Evaluating the purpose, volume, and sensitivity of PI exports.
Assessing the security capabilities of both the exporter and the foreign recipient.
Reviewing legal agreements to ensure alignment with regulatory requirements.

The first point is critical, as the three elements correspond to the three key determinants of compliance obligations imposed on MNCs:

Purpose – The necessity of the PI export must be justified. Unnecessary PI cannot be exported.
Volume – Higher volumes of PI exports trigger stricter compliance requirements. For example, an MNC handling PI of over 1 million individuals must undergo a Data Security Assessment, even if exporting just one piece of PI.
Sensitivity – MNCs can now benefit from the Provisions and export more PI. But sensitive PI exports are subject to stricter rules. Even a very small volume of sensitive PI export may require a Standard Contract.

If PI is deemed sensitive and the export volume reaches certain thresholds, the MNC must arrange a corresponding Security Assessment or Standard Contract to be filed with CAC. The MNC must also justify the necessity of the PI export, often by demonstrating how the transfer is essential to its business operations. Common justifications include:

Global customer relationship management (e.g., membership systems).
Cross-border analytics to improve customer experiences.
Compliance with international legal or contractual obligations.

3. Preparing PIPIA and CAC application: Building a Strong Justification

Even if an exemption under the Provisions applies, MNCs are not waived from preparing Personal Information Protection Impact Assessment (“PIPIA”) to document compliance efforts. After the data audit, if an MNC determines that a CAC application is not required, it is advisable to engage a reputable, independent and domestic third party to prepare a PIPIA. This serves as a critical record in case of future regulatory challenges.

If no exemption applies, the next step is determining whether to pursue a Standard Contract or a Security Assessment. Under the Provisions, non-sensitive PI benefits from relaxed thresholds, allowing annual exports of up to 1 million individuals’ data under a Standard Contract. In contrast, sensitive PI exports remain strictly regulated. Exporting sensitive PI of even one individual requires a Standard Contract, while exports exceeding 10,000 individuals annually trigger a mandatory Data Security Assessment.

Accurate classification PI is therefore pivotal. Misclassification could lead to unnecessary assessments or, worse, regulatory non-compliance.

According to PIPL Article 28, sensitive PI is defined as data that, if leaked or misused, could harm an individual’s dignity, personal safety, or property. This includes:

Biometric data

Religious beliefs
Political opinions
Health and medical information
Financial account details
Location tracking data
Information about minors under 14 years old

If an MNC exports sensitive PI of between 1-9999 individuals in a calendar year, a Standard Contract must be signed with its overseas recipient, usually its headquarters outside China. Since the terms are standard, the application process is straightforward, requiring submission of the signed contract and a PIPIA to the provincial CAC. Approval typically takes 10 working days.

For exports exceeding 10,000 sensitive PI individuals annually, a Security Assessment is required. The MNC must submit the following documents to the provincial CAC, which will forward them to the national CAC for approval:

Application form
Data Export Risk Self-Assessment Report
Data contract between exporter and foreign recipient
Other supporting materials as required

National CAC is legally required to complete the assessment within 45 working days from a formal acceptance. But prior to it, MNCs should expect to respond to multiple rounds of inquiries from both provincial and national CACs.

4. Embracing Post-approval Compliance: A Continuous Journey

Securing PI export approval is a significant milestone, but the journey doesn’t end there. Both Security Assessment Measures and Standard Contract Measures stipulate that any changes to the conditions recorded in the CAC application require a new application. Additionally, a Security Assessment is valid for only two years, requiring renewal even if no changes occur.

MNCs are encouraged to take the following measures to ensure full and continuous compliance with PIPL:

Implement Ongoing Risk Monitoring: Establish mechanisms for continuously monitoring data security risks and promptly addressing any emerging threats.

Conduct Regular Security Audits: Periodically assess data security posture to identify and rectify vulnerabilities.
Invest in Robust Security Technologies: Leverage encryption, data masking, and access control technologies to safeguard data.
Cultivate a Culture of Security Awareness: Regularly train employees on data security best practices.

Conclusion: MNC’s PI Compliance in China is Achievable and Manageable

While China’s PI export regulations may appear stringent, they are designed to protect individuals’ privacy without unduly burdening businesses. Recent relaxations under the Provisions demonstrate a pragmatic approach to balancing security and business needs.

For MNCs, successful compliance hinges on:

Understanding regulatory requirements and staying updated on changes.

Conducting thorough data audits to determine the appropriate level of compliance.
Engaging proactively with CAC authorities to address inquiries and justify data export activities.

Our experience assisting an MNC through the Data Security Assessment process underscores that compliance is both achievable and manageable with the right preparation and expertise. By adopting a structured approach and leveraging professional guidance, MNCs can confidently navigate China’s data export regulations and ensure their operations remain compliant and secure.

In short, while the process requires effort, it is far from insurmountable. With clear guidelines, practical exemptions, and a collaborative approach, MNCs can successfully meet China’s personal information compliance requirements and continue to thrive in one of the world’s most dynamic markets.

An Overview of ARIAS US Arbitration

By Hao Zhan, Jia Wan & Zitong Li on March 17, 2025

Posted in Arbitration and Litigation

As Chinese insurance companies expand their overseas operations, the frequency of insurance disputes in foreign jurisdictions has also increased. In addition to traditional litigations and institutional arbitrations, there are various alternative dispute resolution methods available for resolving international insurance disputes. One such method is arbitration under relevant rules of insurance industry association.

Recently, AnJie Broad assisted a Chinese P&C insurance company in defending a reinsurance arbitration under the ARIAS US arbitration rules. Throughout the case, we assisted the client navigate multiple reinsurance claims involved in the dispute, engaging in proactive communication with opposing counsel to request a stay of the arbitration proceedings. This effort brought our client valuable time to continue processing the claims. Ultimately, with our assistance, the parties reached an amicable settlement, avoiding the negative consequences of a hasty loss in an overseas trial.

This article draws on our experience handling this case to provide an introduction to the basics of ARIAS US arbitration. We aim to offer guidance to Chinese insurance companies facing potential overseas disputes, helping them avoid the losses that can arise from rushed and disorganized responses to foreign disputes.

I. Introduction to ARIAS US

ARIAS stands for the AIDA Reinsurance and Insurance Arbitration Society, which is the international association for reinsurance and insurance arbitration under the International Insurance Law Association (AIDA).

AIDA (Association Internationale de Droit des Assurances) is a global organization that brings together lawyers, academics, regulators, and others with an interest in comparative insurance law and regulation. Founded in 1960 in Luxembourg, AIDA has since expanded to include approximately 50 national branches. The organization is dedicated to advancing the understanding and practice of international insurance law.

(Logo of AIDA)

ARIAS US is the U.S. branch of ARIAS. Founded in 1994 and based in Chicago, ARIAS US is a non-profit organization committed to improving the arbitration process for both international and domestic insurance and reinsurance markets in the United States. ARIAS US has certified a group of qualified arbitrators, enabling parties involved in disputes to appoint professionals who can resolve disagreements in an efficient and expert manner.

(Logo of ARIAS US)

As of now, ARIAS has a total of seven global branches, including the US branch, as detailed below:

Branch	Time of Foundation
ARIAS-UK	1991
ARIAS-US	1994
CEFAREA ARIAS France	1995
ARIAS Germany	2006
ARIAS LATAM	2011
ARIAS ASIA (Hong Kong)	2017
ARIAS-Ireland	2021

Bylaw of ARIAS US describes the its objectives as follows:

To promote the integrity of the private dispute resolution process, particularly in the insurance and reinsurance industry.
To promote just awards in accordance with industry practices and procedures.
To certify objectively qualified and experienced individuals to serve as arbitrators.
To provide training sessions in the skills needed to be certified as arbitrators.
To propose model rules of arbitration proceedings and model arbitration clauses.
To promote high ethical standards in the conduct of arbitration proceedings.
To foster the development of arbitration law and practice as a means of resolving national and international insurance and reinsurance disputes in an efficient, economical and just manner.

Therefore, we can see that ARIAS US is not a traditional arbitration institution. Instead, it serves as a specialized dispute resolution body under the umbrella of the industry association. In other words, it does not offer arbitration case management services typically provided by arbitration institutions. Rather, its mission and function are to support arbitration activities for the parties involved, enhancing the overall dispute resolution standards within the insurance industry. Its activities include formulating arbitration rules, providing a candidate panel of arbitrators, and offering training for arbitrators. The organization’s objectives strongly reflect its role as a service-oriented industry association.

Since ARIAS US does not manage or intervene in arbitration cases, the arbitration proceedings conducted under the ARIAS US rules fall under the category of “ad hoc arbitration”, which is a common practice in international arbitration. Ad hoc arbitration, in contrast to institutional arbitration, is a system where the parties, in accordance with their arbitration agreement, independently establish the arbitration tribunal. Even when a permanent arbitration institution is involved, the institution does not manage the procedural aspects; instead, the parties agree on a temporary procedure or refer to specific arbitration rules, or they may authorize the tribunal to determine its own procedures. Ad hoc arbitration and institutional arbitration are two different types within the arbitration framework. PRC domestic arbitration bodies like CIETAC and BAC are examples of institutional arbitration.

Compared to institutional arbitration, ad hoc arbitration offers more flexibility to meet the parties’ specific needs. The parties can freely agree on and select the arbitration rules, and they can also design, amend, or supplement the temporary arbitration rules according to their preferences or authorize others to do so. Arbitration conducted under the ARIAS US arbitration rules reflects a strong element of party autonomy, which will be further described below.

II. Introduction to ARIAS US Arbitration Rules

As mentioned earlier, one of the key functions of ARIAS US is to provide arbitration rules for the resolution of insurance and reinsurance industry disputes. The organization has developed the following arbitration rules:

ARIAS US Rules for the Resolution of U.S. Insurance and Reinsurance Disputes
ARIAS US Neutral Panel Rules for the Resolution of U.S. Insurance and Reinsurance Disputes
ARIAS US Streamlined Rules for the Resolution of U.S. Insurance and Reinsurance Disputes
ARIAS US Panel Rules for the Resolution of Insurance and Contract Disputes

The four sets of arbitration rules mentioned above are broadly similar, though each has its own distinct features, offering parties flexibility to choose the most appropriate set for their specific situation.

For example, the ARIAS US Rules for the Resolution of U.S. Insurance and Reinsurance Disputes is the standard set of rules for ARIAS US, characterized by its broad applicability and suitability for most insurance and reinsurance dispute cases. The ARIAS US Neutral Panel Rules for the Resolution of U.S. Insurance and Reinsurance Disputes establishes a more complex procedure for the appointment of arbitrators compared to the standard rules. The ARIAS US Streamlined Rules for the Resolution of U.S. Insurance and Reinsurance Disputes are designed for cases involving disputes under USD 1 million, and under such rules, a sole arbitrator will handle the case. The ARIAS US Panel Rules for the Resolution of Insurance and Contract Disputes introduces ARIAS US’s assistance in the arbitrator appointment process, enabling parties to designate arbitrators smoothly and facilitating the progression of the arbitration process.

It is worth noting that, with the exception of the streamlined rules, the other three sets of ARIAS US arbitration rules contain the following provisions:

“These Rules are not intended to supersede any express contractual agreement between the Parties. Accordingly, the Parties may agree on any rules or procedures not specified herein, or may alter these Rules by written agreement. These Rules shall control any matters not changed by the Party-agreed procedures.”

The Panel shall have all powers and authority not inconsistent with these Rules, the agreement of the Parties, or applicable law.”

It is evident that the intention behind ARIAS US’s arbitration rules is not to compel parties to strictly adhere to its procedural framework. On the contrary, these rules reflect a high degree of respect for party autonomy, allowing parties to modify the arbitration rules as needed to facilitate the arbitration process. At the same time, the tribunal holds significant authority in managing and advancing the arbitration proceedings.

Therefore, we advise insurance companies to be mindful that, in specific cases, even if the parties have selected particular arbitration rules, they should also give due attention to any specific procedural provisions outlined in the disputed agreements or arbitration clauses. In cases where the parties’ agreement conflicts with the arbitration rules, the parties’ agreement should take precedence.

III. Introduction to the ARIAS US Arbitration Process

Taking the ARIAS US Rules for the Resolution of U.S. Insurance and Reinsurance Disputes as an example, the arbitration process under ARIAS US generally consists of the following stages:

Commencement of Arbitration and Respondent’s Reply

The ARIAS US arbitration process is initiated when the claimant sends a Notice of Arbitration to the respondent. Once the respondent or its designated representative receives the claimant’s Notice of Arbitration, the arbitration proceedings officially commence.

The Notice of Arbitration shall include the following details: (1) Petitioner and the name of the contact person to whom all communications are to be addressed (including telephone and e-mail information); (2) Respondent against whom arbitration is sought; (3) contracts at issue; and (4) a short and plain statement of the nature of the claims and/or issues. In addition, the Claimant shall appoint one arbitrator in its Notice of Arbitration.

It is important to note that, unlike traditional institutional arbitration, initiating arbitration under the ARIAS US arbitration rules does not require the claimant to send any notification directly to ARIAS US itself. ARIAS US also typically does not intervene in the arbitration proceedings or send any notifications to the respondent regarding the initiation of the arbitration. This may be unfamiliar to domestic insurance companies that are accustomed to arbitration institutions managing the arbitration process.

In the recent case we have handled, the Notice of Arbitration was sent by the overseas claimant to the brokers handling the reinsurance business disputed, thus completing the service to the domestic respondent and initiating the arbitration. Throughout the entire case, no ARIAS US personnel were involved.

Furthermore, the Arbitration Rules explicitly state that the claims set out in the Notice of Arbitration may be amended prior to the Organizational Meeting. Any amendments made after the Organizational Meeting must be approved by the tribunal.

Once the respondent receives the Notice of Arbitration, they are required to respond within 30 days. The response shall include: (1) identification of the entities on whose behalf the Response is sent and the name of the contact person to whom all communications are to be addressed (including telephone and e-mail information); (2) designation of the Respondent’s Party-appointed arbitrator, in accordance with ¶ 6.3; (3) a short and plain response to the Petitioner’s statement of the nature of its claims and/or issues; and (4) a short and plain statement of any claims of the Respondent. Additionally, the respondent shall appoint one arbitrator in its response.

The respondent’s reply may be amended prior to the Organizational Meeting. Any modifications made after the Organizational Meeting require the tribunal’s consent.

2. Establishment of the Tribunal

According to the Arbitration Rules, both the claimant and respondent must each appoint one arbitrator within 30 days after the arbitration proceedings commence. If no appointment is made within this time, the other party may appoint the second arbitrator.

For the respondent, this 30-day period begins from the date they receive the Notice of Arbitration. As such, the respondent faces a relatively tight timeline, as they must complete a range of tasks within 30 days, including reviewing the arbitrator panel list and candidate arbitrators’ backgrounds, selecting and connecting an arbitrator, and completing the appointment process—all without the assistance of an arbitration institution. This can be a significant challenge for parties unfamiliar with ARIAS US arbitration.

In the recent case we have handled, the domestic insurance company failed to appoint an arbitrator within 30 days of receiving the Notice of Arbitration. The claimant then attempted to appoint the second arbitrator on behalf of the respondent, which would have resulted in a substantial procedural disadvantage to the respondent.

However, after carefully reviewing the relevant reinsurance policy disputed, we discovered that the policy set a 45-day deadline for appointing arbitrators in case of a consolidated arbitration. Since the claimant alleged to file a consolidated arbitration against the respondent and we intervened before the 45-day deadline had expired, we raised an objection to the claimant and successfully completed the respondent’s arbitrator appointment within this timeframe. The claimant ultimately accepted our position and recognized the arbitrator appointed by the respondent.

Regarding arbitrator qualifications, the Arbitration Rules specify that arbitrators must be current or former officers or executives of insurance or reinsurance companies and must be certified by ARIAS. Currently, ARIAS US has certified more than 100 arbitrators for appointment.

Once the parties have appointed one arbitrator each, the two party-appointed arbitrators shall select an Umpire within 30 days of the appointment of the second arbitrator.

As for arbitrator fees, the Arbitration Rules state that the appointing party shall bear the costs of its selected arbitrator, while the fees for the Umpire shall be shared equally between both parties.

3. Pre-Hearing Procedures: Organizational Meeting and Discovery

The arbitrators will convene a pre-hearing Organizational Meeting to confirm key arbitration matters, including reviewing the qualifications of the arbitrators and officially confirming the tribunal’s establishment, determining the arbitration schedule, and clarifying the disputed issues. After the Organizational Meeting, the fundamental process and schedule of the arbitration will be set, and the tribunal’s establishment will be confirmed.

Following the meeting, the parties will proceed with discovery according to the schedule confirmed in the Organizational Meeting. The tribunal will lead the discovery process.

4. Arbitration Hearing

The Arbitration Rules does not provide extensive details on procedures of the hearing. Instead, it grants the tribunal significant discretion. The Arbitration Rules state that “The Panel shall not be obligated to follow the strict rules of law or evidence”. This highlights that decisions regarding the procedures of the hearing will largely depend on the tribunal’s discretion.

Additionally, the Arbitration Rules specifies that the parties may agree on the tribunal’s discretion as follows:

“The Panel Shall interpret this contract as an honorable engagement, and shall not be obligated to follow the strict rules of law or evidence. In making their Decision, the Panel shall apply the custom and practice of the insurance and reinsurance industry, with a view to effecting the general purpose of the this contract.”

We can see that the Arbitration Rules encourage the tribunal to adopt a “substance over form” approach in its rulings, emphasizing that the tribunal should address issues in accordance with the practices and customs of the insurance and reinsurance industry. This aligns with the rule requiring arbitrators to be professionals with industry experience in the insurance sector.

For foreign parties, this rule offers a dual effect. On the one hand, it alleviates concerns about unfamiliarity with U.S. insurance laws, enabling a more confident approach to the proceedings. On the other hand, it places significant demands on the legal counsel’s understanding of insurance industry practices, particularly those specific to the U.S. insurance market.

5. Issuance of the Arbitral Award

The Arbitration Rules specifies that the tribunal should generally render its award within 30 days after the hearing concludes. The tribunal’s decision is made by a majority vote, with the minority in disagreement deferring to the majority’s ruling.

As for the scope of arbitral award, the Arbitration Rules stipulates that: “The Panel is authorized to award any remedy permitted by the Arbitration Agreement or subsequent written agreement of the Parties. In the absence of explicit written agreement to the contrary, it is within the Panel’s power to award any remedy allowed by applicable law, including, but not limited to: monetary damages; equitable relief; pre- or post- award interest; costs of arbitration; attorney fees; and other final or interim relief”.

Therefore, we can see that the tribunal also enjoys considerable autonomy regarding the scope of the arbitral award.

Regarding the form of the award, the tribunal typically issues a simple award that outlines the outcome of the case, usually without including a detailed reasonings. However, the arbitration rules also stipulate that: “If both Parties request a written rationale for the Panel’s final award, the Panel shall provide one. If one Party requests a written rationale but the other party objects, the decision whether to issue one is at the Panel’s discretion.”

In conclusion, based on the above Arbitration Rules, we can observe the following significant characteristics of arbitration under the ARIAS US Arbitration Rules:

Parties’ agreements prevail
Emphasis on Industry Practices
Simple Procedure and Fast Pace
Tribunal-led Process

IV. Enforceability of ARIAS US Awards in Mainland China

For respondents in mainland China, a key concern regarding ARIAS US arbitration cases is whether the arbitral award can be enforced in mainland China.

Since both China and the U.S. are parties to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention), parties can apply to PRC courts to recognize and enforce an arbitral award made in the U.S.

According to the Notice of the Supreme People’s Court on the Enforcement of Foreign Arbitral Awards under the New York Convention, if there are no special circumstances such as invalid arbitration agreement, serious flaws in the arbitration procedure, overstepping jurisdiction, defects in the award’s validity, or violations of China’s public policy, PRC court will generally recognize and enforce foreign arbitral awards. In addition, according to the Supreme People’s Court’s Provisions on the Judicial Review of Arbitration Cases, if a PRC court intends to refuse recognition of a foreign arbitral award, it must report the decision to the higher PRC court and the Supreme People’s Court for approval. Therefore, the likelihood of a PRC court rejecting the recognition and enforcement of a foreign arbitral award is relatively low.

It is worth noting that although the arbitration under the ARIAS US rules is ad hoc arbitration rather than institutional arbitration, according to Article 543 of the Interpretation of the Civil Procedure Law of the People’s Republic of China, arbitration awards made by an ad hoc tribunal outside of China can still be recognized and enforced by PRC courts in accordance with the New York Convention. Therefore, the ad hoc nature of the ARIAS US arbitration does not affect the recognition and enforcement of related arbitral awards by PRC courts.

V. Conclusion and Insights

From the above, it is evident that the arbitration under the ARIAS US rules differs significantly from the arbitration procedures typically encountered by domestic insurance companies. However, this difference does not affect the enforceability of the arbitral award in mainland China. Therefore, insurance companies involved in such arbitration cases should still give these matters due attention.

Furthermore, since the arbitration process is fast-paced, once involved in a dispute, we recommend that insurance companies engage professional lawyers as soon as possible to safeguard their procedural and substantive interests and avoid potential losses resulting from unfamiliarity with international arbitration rules.

Rules on Mainland Asset Disposal and The Practice of Judicial Assistance by Mainland Courts in Hong Kong Company Bankruptcy

By Shouzhi An & Xiaofen Zhang on March 17, 2025

Posted in Bankruptcy & Insolvency

Following the liquidation order from the Hong Kong High Court on January 29, 2024, against China Evergrande Group Corporation, on September 12, 2024, China Evergrande Group filed a liquidation petition for its wholly owned subsidiary, CEG Holdings (BVI) Limited, which has been scheduled a hearing on February 17, 2025. In the liquidation process of a Hong Kong company, the maintenance and realisation of the company’s assets and the return of the value to its creditors and other stakeholders are key concerns. Clarifying the rules and procedures for the disposal of the company’s assets in Mainland of China under the Hong Kong company liquidation order is of great significance for reducing the uncertainty and risks in commercial activities and enhancing the confidence of market entities.

一、Legal Consequences of a Winding-Up Order by the Hong Kong High Court

According to Section 178 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (hereinafter referred to as the “Winding Up Ordinance”), if a company owes an amount equal to or exceeding USD 10,000 in debts to creditors that are due for payment, any one or more creditors, contributories (persons liable to contribute to the company’s assets in the event of liquidation), or the trustee or personal representative of a contributory may jointly or separately file a winding-up petition. The issuance of a winding-up order has the following main legal consequences:

1. Actions stayed on winding-up order

According to Section 186 of the Winding Up Ordinance, once a winding-up order is issued or a provisional liquidator is appointed, no legal actions or proceedings shall be proceeded with or commenced against the company except by leave of the court. Any permitted actions must comply with the terms imposed by the court, except in cases involving national security.

2. Cessation of Business Operations

According to Section 194/228 of the Winding Up Ordinance，Upon the issuance of a winding-up order by the Hong Kong High Court, the company must cease all business activities (unless the liquidator allows continued operations to facilitate the liquidation). All company assets and affairs will be taken over by the court-appointed liquidator, and the directors and shareholders will lose control of the company. However, directors may need to cooperate with the liquidator by providing financial records and other relevant information. All company assets will be frozen, and the liquidator has the authority to dispose of these assets to repay the debts. Any prior disposal of company assets (e.g., transactions before the winding-up order) may be reviewed by the liquidator and potentially reversed if fraud or misconduct is involved.

3. Protection of Employee Rights

According to Section 265 of the Winding Up Ordinance，The employment relationship between the company and its employees will generally terminate upon liquidation, resulting in employee layoffs. The company is required to pay wages, severance compensation, and other entitlements as prescribed by law. Employee wages and social security claims are paid in priority to all other debts. However, if the company’s assets are severely insufficient, employee rights may not be fully protected.

4. Initiation of Debt Repayment Mechanisms

According to Section 199B of the Winding Up Ordinance，After the court appoints a liquidator, the liquidator is responsible for managing the liquidation process, including recovering company assets such as fixed assets, liquid assets, and intangible assets to determine the quantity, value, and ownership of these assets. The liquidator will verity the assets, dispose of them, repay the debts and distribute the assets accordingly.

5. Benefit to All Stakeholders

According to Section 187 of the Winding Up Ordinance，An order for winding up a company shall operate in favour of all the creditors and of all the contributories of the company as if made on the joint petition of a creditor and of a contributory. Once the petition is issued, any creditor has the right to file a claim for the debts owed. However, the priority of claims varies according to statutory rules. Under the Winding-Up Ordinance, liquidation costs and liquidator remuneration are prioritized, followed by employee wages and severance compensation. Then, creditors with mortgages or pledges over company assets have priority in repayment, as do government tax claims. Ordinary creditors are repaid proportionally after satisfying the above priorities, while shareholders’ interests are last in line.

二、The Asset Scope and Judicial Assistance Practice of Hong Kong Liquidated Companies in Mainland of China

According to Article 5 of the the Supreme People’s Court’s Opinion on Taking Forward a Pilot Measure in relation to the Recognition of and Assistance to Insolvency Proceedings in the Hong Kong Special Administrative Region (hereinafter referred to as the “Pilot Opinion”), if the debtor’s principle assets in the Mainland are in pilot area, or it has a place of business or a representative office in a pilot area, the Hong Kong Administrator may apply for recognition of and assistance to the Hong Kong Insolvency proceedings in Mainland courts. Accurately defining the scope of a debtor’s assets in Mainland of China under a Hong Kong winding-up order is essential for ensuring a fair and effective liquidation process. The debtor’s assets is extensive, covering both tangible and intangible assets, which are crucial for repaying debts and protecting creditors’ rights. Based on cases recognized and enforced by Mainland courts, the following provides a preliminary overview of the assets of Hong Kong companies in liquidation in Mainland of China.

1. Shenzhen Intermediate People’s Court Recognizes and Assists Samson Paper Company’s Hong Kong Liquidation Procedure

On August 14, 2020, the A-share shareholders of Samson Paper Company Limited passed a written resolution to voluntarily wind up the company and make the appointment of a liquidator. On August 30, 2021, the liquidator applied to the Shenzhen Intermediate People’s Court for recognition of the liquidator’s status and permission to perform duties in Mainland of China. The application mentioned that Samson Paper’s main assets in Mainland of China included equity investments, property assets, and accounts receivable. The equity investments were primarily in its wholly-owned subsidiaries in Mainland of China, the property asset was an apartment in Beijing, and the accounts receivable were payments due from related parties in Mainland of China. On December 15, 2021, the Shenzhen Intermediate People’s Court issued Civil Ruling (2021) Yue 03 Ren Gang Po No. 1, allowing the liquidator to perform duties in Mainland of China, including taking over, managing, and disposing of Samson Paper’s assets.

2. Shanghai Intermediate People’s Court Recognizes and Assists Hong Kong Ze International Group’s Liquidation Proceedings

On March 17, 2021, following an application by a creditor (a Hong Kong branch of a bank), the Hong Kong High Court issued a winding-up order (HCCW 429/2020), initiating the liquidation procedure for Hong Kong Ze International Group. The liquidator considered the significant value of the company’s direct investments in Mainland of China and thus filed an application with the Hong Kong High Court. Hong Kong Ze International Group had four wholly-owned subsidiaries in Shanghai and held shares in three other companies in Shaanxi Province.

On March 30, 2023, the Shanghai No. 3 Intermediate People’s Court issued Civil Ruling (2022) Hu 03 Ren Gang Po No. 1, allowing the liquidator to perform duties in Mainland of China, including taking over, managing, and disposing of company’s assets and investigating its property. The court consider that the equity of four wholly-owned subsidiaries of Hong Kong’s Ze Company registered in Shanghai is the main property of Hong Kong’s Ze Company in mainland of China.

3. Xiamen Intermediate People’s Court Recognizes and Assists Husk’s Green Technology Holdings’ Liquidation Proceedings

On October 26, 2022, the Hong Kong High Court issued a compulsory winding-up order against Husk’s Green Technology Holdings Co., Ltd. On January 17, 2023, creditors applied to convert the compulsory liquidation into a voluntary liquidation. In the judicial assistance request letter from the Hong Kong High Court, it was stated that Husk’s Green Technology’s main assets in Mainland of China were its wholly-owned subsidiaries, including five subsidiaries, four of which were located in Xiamen.

The Hong Kong High Court requested that the Xiamen Intermediate People’s Court permit the liquidator to take over all assets and properties related to these subsidiaries in Mainland of China, investigate their affairs, and initiate legal proceedings in Mainland courts.

In 2024, the Xiamen Intermediate People’s Court issued Civil Ruling (2024) Min 02 Ren Gang Po No. 1, determining that Husk’s assets in Mainland of China were limited to the equity of its wholly-owned subsidiaries. The Xiamen court did not narrowly define “principal assets” as traditional tangible assets but explored and recognized a broader and more diverse forms of assets. This suggests that Mainland courts may further expand the scope of “principal assets” in the future to include various forms of indispensable corporate assets.

From the above cases, it can be seen that at current stage the scope of assets of Hong Kong liquidated companies in Mainland of China primarily involves equity investments, real estate, and accounts receivable, with wholly-owned subsidiaries being the main assets. After obtaining recognition and assistance from pilot region courts, liquidators have the authority to investigate and manage the company’s assets in Mainland of China. However, pilot region courts retain the right to approve significant asset disposals, such as relinquishing property rights, creating security interests, borrowing, or transferring assets out of Mainland of China. With the development of IP and AI technologies, the scope of corporate asset recognition will continue to expand.

三、Rules for Disposing of Mainland Assets in Hong Kong Company Liquidations

1. Preservation Arrangements Before Allowing Liquidators to Take Over Mainland Assets

After submitting a request for recognition and assistance to a pilot court under the Pilot Opinions, if the Hong Kong liquidator applies for asset preservation, the People’s Court will handle the matter in accordance with Mainland laws. Specifically, the application for preservation measures must be made to the court with jurisdiction over the location of the assets to be preserved, the domicile of the respondent, or the court with jurisdiction over the case, and appropriate guarantees must be provided. Once the People’s Court recognizes the Hong Kong bankruptcy proceedings, preservation measures on the Hong Kong company’s Mainland assets will be lifted.

2. Application of Mainland Bankruptcy Laws to the Disposal of Mainland Assets

According to the Pilot Opinions, after recognizing Hong Kong bankruptcy proceedings, the People’s Court may appoint a Mainland administrator upon application by the Hong Kong liquidator or creditors. After the designation, the Mainland administrator will assume the responsibilities of managing and disposing of the Hong Kong company’s Mainland assets as permitted by the pilot court. The debtor’s affairs and assets in Mainland of China will be governed by the Enterprise Bankruptcy Law of the People’s Republic of China, which the bankrupt enterprise may sell its assets either in whole or in part, with intangible assets and other properties potentially sold separately. Assets that are prohibited from being auctioned or restricted from transfer under national regulations must be handled in accordance with the prescribed legal procedures.

Regarding the Mainland assets of the Hong Kong companies in liquidation, prioritized Mainland debts must be paid first, and the remaining assets will be distributed and repaid under the Hong Kong liquidation process. Therefore, the scope of assets available for debt repayment in Hong Kong liquidation proceedings will be subject to coordination between the liquidators and the administrators of both jurisdictions in practice.

四、Key Points of Collaboration between Hong Kong Administrators and Mainland Administrators Regarding Hong Kong Bankruptcy Procedures

1. Collaboration on the Declaration of Claims by Mainland Creditors

In the liquidation cases of Hong Kong companies, creditors can declare their claims through the website of the Official Receiver’s Office of the Hong Kong Special Administrative Region. After the liquidation order is issued, creditors can submit a claim request by filling out the “Proof of Debt” Form. The Proof of Debt can be submitted by the creditor themselves, or by a person authorized by the creditor or on behalf of the creditor and having knowledge of the facts. There is no distinction made regarding the geographical location of the creditors. In terms of judicial practice, mainland creditors or their authorized representatives can register their claims with the Official Receiver’s Office directly.

According to section 14 of Pilot Opinions, after recognizing the bankruptcy proceedings in Hong Kong, the people’s court may, upon application, rule to allow the Hong Kong administrator to perform duties in mainland of China, including accepting and reviewing claims from mainland creditors. If a mainland administrator is designated upon the request of the Hong Kong administrator or creditors, the relevant duties shall be undertaken by the mainland administrator. That is, in cases where a Hong Kong liquidation is recognized and assisted by a pilot court in the mainland, the relevant creditors may file their claims and be reviewed through the designated mainland administrator.

According to Article 69 of the Hong Kong “Bankruptcy Ordinance”, in the calculation and distribution of a dividend the trustee shall make provision for debts provable in bankruptcy appearing from the bankrupt’s statements, or otherwise, to be due to persons resident in places so distant from Hong Kong that in the ordinary course of communication they have not had sufficient time to tender their proofs or to establish them if disputed, and also for debts provable in bankruptcy the subject of claims not yet determined. This clause also reflects the arrangement for protecting the rights and interests of creditors outside of Hong Kong.

2. Collaboration on the Investigation, Management, and Disposal of the Debtor’s Assets in the Mainland

Upon request from the Hong Kong liquidator or provisional liquidator, a mainland administrator may be appointed to investigate the asset status of the debtor, and manage and dispose of the debtor’s property in mainland. If the debtor’s assets in the Mainland mainly involve wholly-owned subsidiaries, generally, the mainland administrator can obtain information on the financial status and relevant assets of the subsidiaries through the local administration for market regulation, taxation bureau, and banks where the subsidiaries are located. Additionally, information about the employees may be obtained through the company’s internal channels or the human resources and social security departments.

The mainland administrator can also examine the intellectual property assets under the company’s name through platforms such as the Ministry of Industry and Information Technology’s government service platform, the Trademark database of the China National Intellectual Property Administration, the China Copyright Protection Center, and the Patent Search and Analysis Website of the China National Intellectual Property Administration. Furthermore, by consulting platforms like the China Judgments Online, the mainland administrator can review the litigation status of the debtor’s mainland subsidiaries to assess whether there are any accounts receivables or other disposable assets.

3. Collaboration in Representing the Debtor in Litigation, Arbitration and other Judicial Proceedings

The mainland administrator appointed upon the application of the Hong Kong liquidator or provisional liquidator can represent the debtor in litigation, arbitration, preservation measures and enforcement procedures related to the debtor’s property in the mainland. In such Judicial cooperation, the mainland administrator should promptly communicate and record in a timely manner with the Hong Kong liquidator regarding the judicial procedures of the case and legal issues under Chinese law, so as to properly promote the management and disposal of the debtor’s assets.

五、Conclusion

The Evergrande Group liquidation case highlights the challenges posed by the massive scale of debt and the legal and judicial cooperation barriers between Mainland of China and Hong Kong, leading to slow progress in asset disposal. The Samson Paper case, where the Shenzhen Intermediate People’s Court recognized Hong Kong bankruptcy proceedings and the liquidator’s status, setting a precedent for cross-border bankruptcy assistance. However, during the execution process, issues such as inadequate information sharing and difficulties in procedural coordination were revealed. The disposal of Mainland assets of Hong Kong companies in liquidation will continue to be a key issue for the liquidators in both jurisdictions to jointly explore and cooperate on.

AnJie Broad Partners at ABA Asia-Pacific Forum in Singapore

By Hao Zhan & Ying Song on March 17, 2025

Posted in Competition Law/ Anti-Monopoly Law

From 26 to 28 February 2025, Dr Zhan Hao and Ms Song Ying, partners at AnJie Broad Law Firm, participated in the ABA Asia-Pacific Conference held in Singapore Management University.

Bringing together over 200 legal professionals from around the world, the conference served as a platform for in-depth discussions on key legal and regulatory developments in the Asia-Pacific region. Covering topics such as AI, Competition Law, Corporate Transactions, Dispute Resolution, Legal Ethics, Restructuring and Technology, and Trade and Sanctions, the forum facilitated valuable exchanges on emerging trends and practical challenges.

Dr Zhan Hao contributed as a speaker in the panel discussion “Convergence or Conflict: Decoding the New Balance Between Antitrust and Intellectual Property in Asia.” In this session, the experts from various jurisdictions deeply explored the evolving intersection of antitrust and intellectual property rights across jurisdictions such as China, South Korea, Japan, Singapore, and Australia. Discussions highlighted recent precedents and legislative changes, focusing on the challenges faced by innovation-intensive industries like high-tech and pharmaceuticals amid increasing antitrust scrutiny in global mergers, governmental investigations, and antitrust litigations.

Dr Zhan Hao shared insights on the evolving relationship between intellectual property (IP) and competition law and emphasized the importance of balancing innovation incentives with fair competition principles. Particularly, he stressed China’s Supreme People’s Court’s (SPC) constant efforts to refine the application rules of antitrust law in IP matters, highlighted the landmark cases such as Hitachi Metal and Huaming. Dr Zhan also addressed the increasing focus on standard essential patents (SEPs) and the potential rise in private antitrust litigation in China. Also, he advised stakeholders in the pharmaceutical and technology sectors to closely follow upcoming antitrust guidelines and heightened scrutiny in merger reviews. The attendees highly appreciated Dr Zhan Hao’s presentation and applauded for his in-depth analysis and practical perspectives, which added valuable insights to the forum.

The event also provided opportunities to strengthen professional exchanges and communications through various networking sessions and evening gatherings at the Singapore Supreme Court and the Singapore Cricket Club.

We appreciate the opportunity to exchange insights with our global peers and look forward to continuing these conversations. Let’s stay connected!

Deep Synthesis Not Deepfake: How AI Compliance Works in China

By Xiangxiang MA on February 27, 2025

Posted in Digital Economy & AI

Text：

Deep synthesis (“DS”) technology is a widely used application in the field of artificial intelligence (“AI”) and a variety of scenarios, particularly in audio and video production, media communication and information services. For instance, using AI technology to “resurrect” dead people on digital gadgets is becoming a business as shown during the Qingming Festival in 2024.[1] But whether the technology and related business infringe upon the rights and interests of others or public interests is open to question. To address legal and ethical risks and harm posed by DS techniques, China has promulgated a series of laws, regulations and standards, aiming to implement the adaptable and agile governance approach, mitigate AI-related risks and ultimately ensure responsible AI development.

1. Key Regulatory Authorities and Fundamental Principles

On November 25, 2022, the Cyberspace Administration of China (“CAC”), the Ministry of Industry and Information Technology (“MIIT”) and the Ministry of Public Security (“MPS”) have jointly issued the Administrative Provisions on Deep Synthesis of Internet Information Services (the “DS Administrative Provisions”), which takes effect on January 10, 2023.

According to the DS Administrative Provisions, the regulatory authorities include: (i) the national cyberspace authority, which is responsible for the overall organization and coordination of the governance and the related supervision and regulation of DS services nationwide, (ii) the telecommunications authority and public security authority under the State Council, which are responsible for the supervision and regulation of DS services. The local counterparts of each regulatory authority are responsible for the overall organization and coordination of the governance or supervision and regulation of DS services within their respective administrative regions.[2]

The DS Administrative Provisions is promulgated based upon the following laws and regulations: (i) the Cybersecurity Law of the People’s Republic of China (the “PRC”), (ii) the Data Security Law of the PRC, (iii) the Personal Information Protection Law of the PRC, (iv) the Administrative Measures on Internet Information Services and other laws and administrative regulations, It can not only be regarded as one of the key components in guaranteeing the healthy and orderly development of the digital economy, but also is in response to the rapid development of AI technology in the new digital era.

For purposes of curbing “deepfake” risks and the risk of violating people’s rights, or even committing crimes, the DS Administrative Provisions require DS service providers (i) to operate their business in accordance with relevant laws and regulations, (ii) to respect social morality and ethics, (iii) to maintain correct political direction, right direction of public opinion as well as correct value orientation, so as to promote the growth of DS services for good.[3]

Chapter II of the DS Administrative Provisions sets out the general rules DS service provides shall comply with, details of which are summarized in the following table:

No.	What a DS service provider Should Do	What a DS service provider Should Not Do
1.	establish and improve management mechanisms and systems in terms of user registration, algorithm review, scientific and technological ethics review, information release review, data security, personal information protection, anti-telecom and online fraud, emergency response;[4] formulate and disclose management rules, platform conventions, user/service agreements [5]	use DS services to produce, reproduce, release or distribute information or engage in activities prohibited by laws or administrative regulations [6]
2.	verify the identity information of DS service users based on mobile phone number, ID card number, unified social credit code or national online identity authentication services [7]	use DS services to produce, reproduce, release or distribute fake news information [8]
3.	strengthen management of DS-produced and employee technical or manual methods to review the data input and synthesis results generated by DS services users [9]
4.	establish the rumor refutation mechanism [10] as well as convenient access for users to file complaints and the public to submit complaints; deal with complaints and provide feedback in a timely manner [11]

2. Basic Requirements of Legal Safeguard

(1) Data and information process

Massive data and rich application scenarios serve as the strong advantages of AI development in China. The application data generated by massive users continuously optimizes model performance, forming a positive cycle of “data-algorithm-scenario”.[12]

China has established a sound system of laws to protect people’s rights and interests in cyberspace and built a line of defense in law for protecting personal information rights and interests, which is reflected in (i) the Civil Code, (ii) the Criminal Law (adding provisions on the crime of infringing upon citizens’ personal information), (iii) the Cybersecurity Law, (iv) the Data Security Law, and (v) the Personal Information Protection Law. The DS Administrative Provisions consist of a specific chapter to regulate data-related activities,[13] requiring DS service providers to take necessary measures to ensure the safety of training data [14] and strength the technical management, reviewing, assessing and verifying algorithm mechanism on a regular basis.[15]

In particular, the heart of DS technology lies the application of generative AI to process sensitive personal data, including biometric features, which raises several compliance concerns. Key issues include the sourcing of training data, the risk of generating misleading or false information, and ensuring the security of the data.[16] If AI-generated content misrepresents a target object, like the deceased in the business of “resurrecting” dead people on digital gadgets or is used to deceive others, it could lead to widespread misinformation and potential harm.

Overall, the entire process of collecting, processing, and using data must adhere to the principles of legality, necessity, fairness, and transparency as outlined in the Personal Information Protection Law. The DS Administrative Provisions stipulates that (i) providers of DS services and functions such as editing biometric information should prompt users to inform and obtain consent from individuals whose data is being tampered with,[17] and (ii) the application of DS technology must not infringe on citizens’ rights. In addition, providers of the DS services, such as face-swapping, must provide “prominent identification functions”, which should be able to identify the virtual synthesized “persons”, if the service is “likely to cause public confusion or misidentification”.[18]

(2) AI-generated content labeling

On September 14, 2024, CAC has released a draft regulation, named the Measures for Labeling AI-generated Synthetic Content (Draft for Comment) (the “Draft Regulations on Labeling AIGC”), aiming to standardize the labeling of AI-generated synthetic content to protect national security and public interests.

AI-generated synthetic content (“AIGC”), as defined by the Draft Regulations on Labeling AIGC, is any text, image, audio or video created using AI technologies.[19] According to the Draft Regulations on Labeling AIGC, (i) internet information service providers shall adhere to mandatory national standards when labeling AIGC. Providers offering functions like downloading, copying or exporting AI-generated materials that may cause confusion or misidentification of the public must ensure that explicit labels are embedded in the files;[20] and (ii) platforms that distribute content are also required to regulate the spread of AI-generated materials by offering identification functions and reminding users to disclose whether their posts contain AIGC.[21]

As a practical matter, requiring service providers to label products is a good way of regulating the DS technique. AIGC-related products should adhere to technical management norms. Relevant industry standards have been published and may be officially introduced to require technology service providers to unify the code when labeling AIGC [22] or even add watermarks to generative content.

(3) Mandatory algorithm filing

It is well known that personal information security, fake information and algorithm discrimination are problems that have emerged in the development of AI technology. In response to problems raised by algorithm, China has issued laws and regulations, like the Administrative Provisions on Recommendation Algorithms of Internet Information Service (the “Algorithms Administrative Provisions”),[23] to improve and optimize the legality of AI applications.

According to the Algorithms Administrative Provisions, algorithm-based service providers shall comply with relevant laws and regulations, respect social morality and ethics, observe commercial and professional ethics, and follow the principles of fairness and equity, openness and transparency, scientific reasonableness, as well as honesty and credibility.[24]

In addition to (i) information management standards such as adopting measures to ensure information security and (ii) specific rules for protecting users’ rights and interests,[25] the recommendation algorithm-based service providers with public opinion attributes or social mobilization capabilities shall complete the filing procedures within ten business days since it starts offering such services.[26]

Pursuant to the DS Administrative Provisions, the DS service providers with public opinion attributes or social mobilization capabilities shall complete the filing procedures in accordance with the Algorithms Administrative Provisions.[27] CAC has also published a guide to proceeding with such online filing. To date, CAC has released nine batches of algorithms filing Information of DS service providers and over 2,800 algorithms have been filed at CAC.

3. Rules to Address Ethical Challenge

AI not only presents enormous opportunities for humanity but also creates unpredictable risks and challenges. Both legal rules and ethical standards are needed to ensure that AI does not pose a threat to humanity. As AI continues to evolve, the ethical implications are becoming an increasingly significant aspect of its regulation. In this process, ethics are increasingly becoming the foundation for legislation, and AI governance is evolving to address these ethical challenges directly. Laws are beginning to shift from focusing solely on technical concerns to addressing broader ethical questions.

First of all, the improvement of ethical reviews is a way to boost the healthy development of DS technology, which is one of DS service providers’ obligations.[28] Pursuant to the DS Administrative provisions, service providers should demonstrate the value, morality and safety of their DS technology in accordance with relevant laws and regulations as well as industrial standards.[29]

In the meanwhile, relying on DS techniques, AI may be used to generate false information for illicit activities, as exemplified by prevalent face-swapping scams. The large-scale dissemination of AI-generated false information has the potential to not only infringe upon individuals’ legal rights, but also to worsen the online ecosystem and pose risks of misleading the public. For example, the abuse of AI face-swap technology, one the one hand, constitutes a universal threat to the rights related to personal dignity, such as reputation and image rights, and may further seriously infringe on people’s property right. On the other hand, such technology can also cause a crisis of trust in society, as the effectiveness of some civil actions will be disputed. For example, it is now somewhat difficult to prove that the person signing the contract is a real person, when the whole process happens on video links. To address these unintended harms, both legal requirements and ethical principles are reflected in the DS Administrative Provisions.[30]

On a separate note, in the development process of AI technology, challenges remain in terms of algorithm improvement, privacy protection and data security both domestically and globally. There were similar cases occurring in the United States, which involves OpenAI and Scarlet Johansson, alleging OpenAI engaged in misappropriation of her voice.[31] The world has reached the consensus that technological innovation knows no bounds, but its application should be within legal and ethical boundaries.[32] The application of DS technology, therefore, should adhere to the principle from both legal and ethical fronts, which has been raised in the evolving legal landscapes and further addressed in relevant Chinese laws, regulations, guides, standards, norms and so forth.

[1] See Xinhua News Agency, AI ‘resurrection’ can’t be outside law’s purview, China Daily (April 9, 2024).

[2] See article 3 of the DS Administrative Provisions.

[3] See article 4 of the DS Administrative Provisions.

[4] See article 7 of the DS Administrative Provisions.

[5] See article 8 of the DS Administrative Provisions.

[6] See paragraph 1 of article 6 of the DS Administrative Provisions.

[7] See article 9 of the DS Administrative Provisions.

[8] See paragraph 2 of article 6 of the DS Administrative Provisions.

[9] See article 10 of the DS Administrative Provisions.

[10] See article 11 of the DS Administrative Provisions.

[11] See article 12 of the DS Administrative Provisions.

[12] See 21ST CENTURY BUSINESS HERALD, Rise of DeepSeek sheds light on Chinese AI path, China Daily (February 10, 2025).

[13] See chapter III Data and Technology Management Standards of the DS Administrative Provisions.

[14] See article 14 of the DS Administrative Provisions.

[15] See article 15 of the DS Administrative Provisions.

[16] See Zhang Linghan, AI ‘resurrection’? Let bygones be bygones, China Daily (January 3, 2025).

[17] See supra note 14.

[18] See article 17 of the DS Administrative Provisions.

[19] See article 3 of the Draft Regulations on Labeling AIGC.

[20] See article 4 of the Draft Regulations on Labeling AIGC and article 17 of the DS Administrative Provisions.

[21] See article 6 of the Draft Regulations on Labeling AIGC.

[22] See Standard Practice Guide: Coding Rule for Service Providers of Network Security Artificial Intelligence Generated Synthetic Content Label (Draft for Comment), published on January 22, 2025.

[23] The Algorithms Administrative Provisions is jointly issued by CAC, MIIT, MPS and the State Administration for Market Regulation on December 31, 2021, taking effect on March 1, 2022.

[24] See article 4 of the Algorithms Administrative Provisions.

[25] See chapter II and chapter III of the Algorithms Administrative Provisions.

[26] See article 24 of the Algorithms Administrative Provisions.

[27] See article 19 of the DS Administrative Provisions.

[28] See supra note 4.

[29] See article 4 and article 5 of the DS Administrative Provisions.

[30] See article 4, article 7 and article 17 of the DS Administrative Provisions.

[31] See Todd Spangler, Scarlett Johansson Says She Was ‘Shocked’ and ‘Angered’ Over OpenAI’s Use of a Voice That Was ‘Eerily Similar to Mine’, Variety (May 20, 2024).

[32] See supra note 1.

Application of the Principle of Reasonable Expectations in Insurance Law:A Comparative Analysis of U.S. and PRC Jurisdictions

By Jia Wan & Guangrui Cheng on February 19, 2025

Posted in Insurance Law

Introduction

The primary objective of insurance law across jurisdictions is to balance the interests of policyholders, insureds, and insurers. However, the inherent complexity and standardization of insurance contracts, often drafted unilaterally by insurers, pose challenges for policyholders who may lack the expertise to fully comprehend their terms.

Insurance contracts are typically contracts of adhesion, where the policyholders are left with little choice beyond electing among standardized provisions offered by insurers. Despite regulatory efforts to mandate certain provisions and prohibit others, insurers retain significant drafting autonomy. This imbalance often leads to unfair outcomes, even when insurers fulfill their disclosure obligations, it also underscores the necessity of a legal mechanism to protect policyholders from unjust exclusions and limitations embedded in insurance policies.

The principle of Reasonable Expectations addresses this issue by prioritizing the objectively reasonable understanding of the policyholders, ensuring that insurance contracts are interpreted in a manner that aligns with what an average policyholder would reasonably expect, even if strict policy wording might suggest otherwise. This principle is crucial in mitigating the imbalance of power between insurers and insureds and promoting fairness in contractual interpretations. While not explicitly codified in Chinese law, Chinese courts have increasingly applied this principle in judicial practice. This article explores the development, judicial application, and comparative analysis of PRE in U.S. and PRC jurisdictions.

Definition and Development of the Principle

The Principle of Reasonable Expectations was formally articulated by Judge Robert E. Keeton in his seminal 1970 article, Insurance Law Rights at Variance with Policy Provision, published in the Harvard Law Review:

“The objectively reasonable expectations of applicants and intended beneficiaries regarding the terms of insurance contracts will be honored even though painstaking study of the policy provisions would have negated those expectations.”

This principle ensures that policyholders are not bound by unexpected exclusions or limitations hidden within complex insurance contracts. Keeton emphasized that “An important corollary of the expectations principle is that insurers ought not to be allowed to use qualifications and exceptions from coverage that are inconsistent with the reasonable expectations of a policyholder having an ordinary degree of familiarity with the type of coverage involved.” Over time, this principle has been adopted in various forms by jurisdictions in the United States and other common law countries, gradually evolving into a brand-new principle for interpreting insurance contracts.

While various doctrines share common goals with the principle of Reasonable Expectations, it is distinct. Contra Proferentem dictates that ambiguities in a contract should be interpreted against the drafter – typically the insurer. While both principles address protection mainly for insurers amid the ambiguities, the Reasonable Expectations extends further by protecting insureds even in the absence of ambiguity, focusing on their understanding of the policy. The Doctrine of Utmost Good Faith emphasizes the mutual duty of honesty and full disclosure between the insurer and the insured. Unlike Contra Proferentem, Utmost Good Faith is an ongoing obligation that applies from the pre-contractual stage throughout the life of the policy.

Development of the Principle in U.S. Judicial Practice

According to Roger C. Henderson the Principle of Reasonable Expectations has been influential[1], while its adoption across U.S. jurisdiction has been inconsistent. Some jurisdictions have embraced the principle broadly, prioritizing policyholders’ expectations over strict policy wordings while others have limited its application to cases involving ambiguous terms or misleading practices by insurers. Critics argue that overly liberal application of the principle could undermine contractual freedom and create uncertainty in contract enforcement.

In the U.S., courts have adopted varied approaches to the Principle of Reasonable Expectations, falling into three main categories:

Position One: Interpreting Ambiguous Terms in Favor of the Insured
Case	Background Facts & Key Issues	Judgment
Eli Lilly& Co. V. Home Ins. Co (Indiana Supreme Court)[2]	Eli Lilly & Co., a prominent pharmaceutical company, faced environmental contamination liabilities related to diethylstilbestrol (DES), a drug later found to cause long-term health issues in the daughters of women who had taken it during pregnancy. Eli Lilly had purchased various Commercial General Liability (CGL) policies from Home Insurance Company. When the company sought compensation, the insurers denied coverage, arguing that the pollution incidents did not constitute an “occurrence” under the policy terms. A key issue was the determination of when the “occurrence” of injury took place under the terms of the policies—whether at the time of drug ingestion (policy coverage at the time of exposure or first sold, insurers’ position) or at the time when injuries manifested (policy coverage at the time of discovery, Eli Lilly’s position).	The Indiana Supreme Court ruled in favor of Eli Lilly, determining that the policy wording was ambiguous concerning when an “occurrence” should be recognized in cases of long-latency injuries. Applying the multiple trigger interpretation, the court held that each insurer on the risk between ingestion of DES and the manifestation of a DES-related illness would be liable for indemnification, ensuring broader protection for policyholders facing delayed injury consequences.
Position Two: Rejecting Contract Terms That Conflict with Reasonable Expectations, usually referring to additional clauses
Case	Background Facts & Key Issues	Judgment
Woodson v. Manhattan Life Insurance Co. of New York (Kentucky Supreme Court)[3]	On February 8, 1982, the policyholder, Woodson, was called before the Executive Committee of Kentucky Finance Company and was told to resign from his position. He signed a resignation letter on February 26, resigning from all officer and director positions but not from his employment or other duties as an employee. The company continued to pay his regular salary, including deductions for taxes and life insurance premiums, for six months following his resignation. Woodson was killed by his estranged wife on May 19, 1982. At the time of his death, the company was still remitting his life insurance premiums to Manhattan Life Insurance Company. After his death, the company ceased salary payments. Woodson’s estate filed a claim for life insurance benefits under the group policy, arguing that the policy had already been approved before his death, however, the insurer denied the claim, asserting that Woodson’s coverage had terminated upon his resignation. The core issue was whether Woodson was still a covered individual under the group life insurance policy at the time of his death. Specifically, the phrase “leave of absence” in the policy was key to whether Davis was covered at the time of his death.	The Kentucky Supreme Court held that the policy wording was ambiguous. The phrase “leave of absence” was not qualified as “temporary” and the court found that the policy did not clearly exclude terminal leave. Therefore, the ambiguity should be resolved in favor of the insured. The court also applied the doctrine of reasonable expectations, finding that both Woodson and the company officials had treated him as a covered employee on leave until his death. The continuation of salary payments and life insurance premiums made it reasonable for Woodson to expect that his life insurance coverage remained in effect during the leave period.
Position three: Overriding Explicit Policy Terms Based on Reasonable Expectations
Case	Background Facts & Key Issues	Judgment
C&J Fertilizer, Inc. v. Allied Mutual Insurance Co. (Iowa Supreme Court)[4]	C&J Fertilizer, Inc. purchased a burglary insurance policy from Allied Mutual Insurance Co. to protect its property. The policy defined “burglary” as requiring visible signs of forcible entry into a locked building. C&J Fertilizer experienced a theft where the burglars entered without visible signs of forced entry but stole property from inside the building. Allied Mutual denied the claim, citing the policy’s definition of burglary and the lack of visible marks indicating forced entry. C&J Fertilizer sued, arguing the policy terms were ambiguous and that the denial contradicted its reasonable expectations of coverage. The key issue was whether the insured’s reasonable expectations of coverage should override the policy’s explicit terms, especially when those terms were not clearly communicated or understood.	The Iowa Supreme Court held that the policy’s definition of “burglary” was not consistent with the reasonable expectations of the insured, and a layperson purchasing burglary insurance would reasonably expect coverage for theft, regardless of visible signs of forced entry. Insurance contracts, especially adhesion contracts, should be interpreted in line with what an average policyholder would reasonably expect. The court applied the doctrine of reasonable expectations, holding that an insured’s reasonable understanding of the policy terms should prevail, even when the wording might technically limit coverage.

The Principle’s Application in China

Although the Principle of Reasonable Expectations is not formally codified in PRC Law, courts have already consciously applied this principle in judicial decisions. Two cases are presented hereby for reference.

Case	Background Facts & Key Issues	Judgment
(2019) Xiang 13 Minzhong No. 986	There is a health insurance dispute between the insureds, Zeng and his husband Zou, and the insurer. Zeng purchased a “360 Family Happiness Card Insurance” which provides coverage over accidental injury and hospitalization. Zeng claimed insurance compensation after her husband was injured by falling from a makeshift staircase, suffered severe injuries, and was later diagnosed with an 8th-grade disability. The insurer denied coverage by arguing that the insurance card was not activated and therefore the policy was not valid. The plaintiffs sued for the insurance payout. The main issue lies over the effectiveness of the clause in the insurance contract stating, “It is necessary to insure (activate) before the last insurance (activation) date stipulated on this card, in the manner provided by this card, and the insurance contract will only take effect after which the insured can enjoy insurance coverage.”	The court determined the “activation” as a condition precedent for the policy’s effectiveness. Although such a condition is not an absolute exemption or limitation of the insurer’s liability, it creates a gap between the formation of the contract and the activation of coverage, effectively delaying the insurer’s liability. This delay, the court found, imposed additional obligations on the insured and was inconsistent with the insured’s reasonable expectations. The court emphasized that the insurer had a duty to clearly explain the activation requirement to the insured. Since the insurer failed to fulfill this obligation, the activation clause was deemed invalid. As a result, the court ruled that the policy became effective upon the purchase and payment of the premium, and the insurer was obligated to provide coverage for Zou’s injuries.
(2020) Su Minzhong No. 372	There is an accident insurance dispute between the insureds, Wang and her son, and the insurer. Wang’s husband purchased an “Anxin Card H” insurance policy, which covered accidental death and accidental medical expenses. On October 13, 2017, Wang’s husband was involved in a traffic accident and died on May 25, 2018, due to complications from the injuries. The insurer denied paying the insurance indemnities, arguing that Wang’s husband died more than 180 days after the accident, which was outside the policy’s coverage period. The plaintiffs sued for insurance indemnities. The main issue was the effectiveness of the standard clause, stating, “If the insured dies within 180 days from the date of the accidental injury due to the same cause, the company shall pay the death benefit according to the insurance amount of this contract”.	The court ruled in favor of the insured, holding that the 180-day time limitation clause violated the Principle of Reasonable Expectations. The court reasoned that, from the perspective of a layperson, the insurer should pay death benefits if the insured dies as a result of an accidental injury, regardless of the time elapsed between the accident and the death. The 180-day limitation, the court found, was inconsistent with the reasonable expectations of the general public and contravened the principle of good faith. Furthermore, the court highlighted that the clause violated the principle of public policy and good morals, which could lead to moral hazards, such as incentivizing the insured’s relatives to hasten death to ensure coverage within the 180-day window or discouraging them from providing timely medical treatment.

In addition, in certain circumstances, PRC courts also attempt to meet the insured’s reasonable expectations of the insurance contract by denying the effectiveness of exclusion clauses. According to Article 17 of the PRC Insurance Law, when entering into an insurance contract using standard terms provided by the insurer, the proposal form provided by the insurer to the policyholder shall be accompanied by the standard terms, and the insurer shall explain the content of the contract to the policyholder. For any clauses in the insurance contract that exempt the insurer from liability, the insurer shall, at the time of contract conclusion, provide a clear prompt on the proposal form, insurance policy, or other insurance vouchers that is sufficient to draw the policyholder’s attention, and shall clearly explain the content of such clauses in writing or orally to the policyholder; if no prompt or clear explanation is given, such clauses shall not be effective.

In practice, if an insurer cannot provide sufficient and compelling evidence to demonstrate that it has given clear and explicit explanations regarding the standard clauses that exclude its liabilities, the PRC courts are inclined to reject the validity of such exclusion clauses. This ensures that the policy coverage meets the expectations of the policyholders.

Conclusion

The principle of Reasonable Expectations plays a critical role in addressing the inherent complexities and imbalances in insurance contracts. In the U.S., its application has been influential, though inconsistent, with courts prioritizing the reasonable understanding of policyholders in cases involving ambiguous terms or misleading practices. PRC courts are aligning insurance practices with the needs and expectations of policyholders. This judicial approach continues to serve as a vital tool for balancing the interests of insurers and insured parties, promoting fairness, and ensuring the integrity of insurance contracts. As the principle continues to evolve in Chinese jurisprudence, the Principle of Reasonable Expectations will likely remain a cornerstone of judicial reasoning, adapting to new challenges and contexts in the global insurance landscape.

*The contribution of our intern, Chen Mengjun, to this article is also acknowledged with thanks.

[1] Roger C. Henderson, The Doctrine of Reasonable Expectations in Insurance Law after Two decades, 51 OHIO ST. L.J

[2] Eli Lilly & Co. v. Home Insurance Co., 482 N.E.2d 467 (Ind. 1985). https://law.justia.com/cases/indiana/supreme-court/1985/685s243-2.html

[3] Woodson v. Manhattan Life Insurance Co. of New York, 743 S.W.2d 835 (Ky. 1987). https://law.justia.com/cases/kentucky/supreme-court/1987/87-sc-247-dg-1.html

[4] C&J Fertilizer, Inc. v. Allied Mutual Insurance Co., 227 N.W.2d 169 (Iowa 1975). https://law.justia.com/cases/iowa/supreme-court/1975/2-56355-0.html

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Application of the Principle of Reasonable Expectations in Insurance Law:A Comparative Analysis of U.S. and PRC Jurisdictions

Introduction

Definition and Development of the Principle

Development of the Principle in U.S. Judicial Practice

The Principle’s Application in China

Conclusion

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