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

Imported Games VS Domestic Games

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

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

In contrast, the difficulties include:

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

 ISBNs for Domestic GamesISBNs for Imported Games
20241,306110
202397898
202246844
202167976
Average85882

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

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

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

Implications of the New Policy

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

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

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

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

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

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

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

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

1. Qualification Criteria

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

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

2. Material List

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

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

3. Application Procedure

The registration process involves the following steps:

  • Submission of Reference Letter:

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

  • Temporary Account Creation:

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

  • Submission of Application Materials:

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

  • System Review:

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

4. Ongoing Compliance Obligations

Registered reinsurers have the following ongoing compliance obligations:

  • Registrations must be renewed every three months.

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

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

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

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

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

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

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

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

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

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

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

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

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

  • Hierarchical Supervision: Livestream e-commerce platforms must classify live streams by influence level, applying appropriate scrutiny.[5]
  • Information Sharing: Mandatory data reporting enables coordinated enforcement across domains.[6]
  • Joint Investigations: Both agencies can require platforms to act against violators.[7]

II. Framework and Key Components of the Draft Measures

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

(i) Main Regulatory Targets and Their Compliance Obligations

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

(ii)  Supervision Approaches and Penalty Mechanisms

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

(a)  Incorporation of existing laws

The Draft Measures explicitly reference multiple established statutes:

  • E-commerce Law: For platform responsibilities regarding merchant vetting and transaction record-keeping.[21]
  • Price Law: Prohibiting deceptive pricing strategies like artificial price inflation before discounts.[22]
  • Advertising Law: Governing host endorsements and product claims, albeit with adaptations for livestream’s dynamic nature.[23]
  • Anti-Unfair Competition Law: Addressing false transactions, fabricated reputation, and misleading commercial promotions.[24]

(b)  Innovative penalty provisions

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

  • Platform liability for failure to cooperate with investigations, with penalties up to 100,000 yuan.[25]
  • Fines ranging from 5,000 to 50,000 yuan for violations like inadequate product vetting by livestream room operator.[26]
  • Fines ranging from 5,000 to 50,000 yuan for failure to establish rigorous commodity selection mechanism, pre-review mechanism for hosts’ information or livestream error correction mechanism by livestream marketing service agencies.[27]
  • Cross-platform enforcement through blacklist systems to prevent violators from simply migrating to other platforms.

III. Special Provisions Dealing with Novel Challenges

(i) High-Impact Livestreams

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

  • Enhanced Monitoring Requirements: Platforms must implement “dynamic technical monitoring, manual live monitoring, real-time inspections, and extended content preservation periods” for streams with large audiences, high transaction volumes, or influential hosts.[28]
  • Stricter Compliance Standards: Major hosts may have to face more rigorous oversight, including potential “human/manual monitoring” during broadcasts.[29]
  • Accountability Escalation: Violations by high-profile hosts may trigger cross-platform blacklisting, significantly increasing compliance risks.[30]

(ii)  AI[31] Applications in Livestreaming Sales

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

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

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

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

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

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

  • Real-Time Monitoring Over Pre-Approval: Shifting from front-loaded content reviews to dynamic oversight during broadcasts.
  • Application of Information Tools: Leveraging data disclosure requirements and credibility indicators to empower consumer choice.
  • Platform-Mediated Governance: Assigning platforms central roles in enforcing standards through technical means like AI monitoring.

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

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

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

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

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

[3] See article 50 of Hangzhou Guidelines.

[4] See article 4 of the Draft Measures. 

[5] See article 7 of the Draft Measures. 

[6] See article 13 of the Draft Measures.

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

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

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

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

[11] See article 11 of the Draft Measures.

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

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

[14] See article 24 of the Draft Measures.

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

[16] See article 29 of the Draft Measures.

[17] See article 33 of the Draft Measures.

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

[19] See article 36 of the Draft Measures.

[20] See article 37 of the Draft Measures.

[21] See article 48 of the Draft Measures.

[22] See article 52 of the Draft Measures.

[23] See article 53 of the Draft Measures.

[24] See article 55 of the Draft Measures.

[25] See article 49 of the Draft Measures.

[26] See article 51 of the Draft Measures.

[27] See article 54 of the Draft Measures.

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

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

[30] See article 14 of the Draft Measures. 

[31] AI stands for artificial intelligence.

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

[33] See article 18 of the Draft Measures.

[34] See article 28 of the Draft Measures.

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

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

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

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

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

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

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

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

II. The Definition of Gross Negligence in Insurance Terms

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

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

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

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

III. Scenarios Constituting Gross Negligence in Judicial Practice

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

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

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

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

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

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

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

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

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

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

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

IV. Conclusion

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

Focusing on Accidental Injury Insurance

I. Introduction of the Issue to Be Discussed

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


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

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

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

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

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

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

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

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

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

Data Ownership

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

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

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

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

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

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

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

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

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

Intellectual Property Rights

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

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

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

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

Protecting Trade Secrets: Safeguarding Data Value

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

Key protections include:

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

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

Data Assets on the Balance Sheet

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

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

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

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

Data Pledge Financing: Using Data as Collateral

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

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

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

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

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

Data Licensing: Monetising Through Contracts

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

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

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

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

Compliance Hurdles: PIPL and Data Privacy

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

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

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

Global Challenges

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

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

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

Conclusion

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


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

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

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

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

Introduction                                              

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

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

I. The Practice and Exploration of Chinas Early Cross-Border Bankruptcy System

A. Initial Attempts: Cooperation between Mainland and Hong Kong

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

A. Universalism vs. Territorialism

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

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

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

B. Whether China should adopt the UNCITRAL Model Law

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

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

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

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

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

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

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

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

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

Conclusion

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


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

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

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

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

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

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

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

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

The newly revised Company Law (“New Company Law”) was adopted at the 7th Session of the Standing Committee of the 14th National People’s Congress on December 29, 2023, and has come into effect on July 1, 2024. This article provides a concise analysis of the implications of the New Company Law for corporate governance in insurance companies, offering insights for readers’ reference.

I. Further Emphasizing Corporate Social Responsibility

The concept of corporate governance has long been debated in narrow and broad terms. The narrow interpretation, based on the separation of ownership and management of companies, focuses primarily on shareholders’ checks and oversight over corporate management. In contrast, the broader concept encompasses a wide range of stakeholders—including not only shareholders and management but also creditors, employees, governments, and other internal and external parties—emphasizing the establishment of appropriate governance entities. Companies establish proper corporate governance system to harmonize and balance the interests of all relevant parties.

The New Company Law explicitly addresses this broader concept in its standalone Article 20, stipulating:Companies engaging in business activities shall fully consider the interests of stakeholders such as employees and consumers, as well as social public interests including ecological and environmental protection, and shall bear social responsibilities. The State encourages companies to participate in public welfare activities and publish social responsibility reports.

This provision underscores that companies must not only safeguard shareholders’ interests but also fully consider the rights of other stakeholders—such as employees and consumers—as well as broader social obligations, including environmental sustainability, further emphasize the social responsibilities that should be borne by companies.

As financial institutions, insurance companies operate in a liability-driven business model. Beyond protecting shareholders’ interests, they bear inherent responsibilities toward policyholders, financial market stability, and ecological conservation. This aligns with the insurance regulatory authorities’ recent emphasis on insurance consumers protection and green finance initiatives.

Consequently, in the process of establishing corporate governance mechanisms, insurance companies may need to pay attention not only to protecting the interests of shareholders and the company but also to considering and balancing the interests of other stakeholders, consistently integrating the fulfillment of social responsibilities throughout.

II. Refinement of the Legal Representative System

Article 10(1) of the New Company Law stipulates that a company’s legal representative shall be a director or manager who executes company affairs on behalf of the company. In contrast, the previous Company Law (hereinafter referred to as the “2018 Company Law”) under Article 13 provided that the legal representative of a company shall be the chairman of the board, an executive director, or the manager. The New Company Law expands the scope of individuals eligible to serve as a company’s legal representative, from “chairman of the board, executive director, or manager” to “director or manager who executes company affairs”, while emphasizing that the legal representative must be a director actively engaged in company affairs, thereby prohibiting the practice of “nominee legal representatives.”

Articles 46 and 95 of the New Company Law introduce a requirement that the articles of association of both limited liability companies and joint stock limited companies must specify the procedures for the appointment and change of the legal representative.

Article 10(2) of the New Company Law establishes an automatic resignation mechanism for legal representatives: if the legal representative resigns from their position as a director or manager, they shall be deemed to have automatically resigned as legal representative. Pursuant to Article 10(3), the company shall appoint a new legal representative within thirty days of the resignation of the incumbent.

The New Company Law introduces Article 11, which addresses the fault liability of legal representatives. This provision aligns with Article 61 of the Civil Code (“Definition and Legal Consequences of Acts by Legal Representatives”) and Article 62 (“Liability for Acts Performed in a Representative Capacity”).

Currently, insurance regulatory provisions lack detailed rules regarding the scope of individuals eligible to serve as legal representatives of insurance companies, as well as the resignation and liability of legal representatives. Only Opinions on Regulating the Articles of Association of Insurance Companies, Article 1, Paragraph (3), Item 5, explicitly requires that the articles of association of an insurance company specify the specific authority and performance requirements of the legal representative, as well as the manner in which such authority shall be exercised if the legal representative fails or is unable to perform their duties.

Under these new provisions, insurance companies will have a broader range of options when selecting a legal representative. If an insurance company’s articles of association do not limit the legal representative to a specific individual such as the chairman of the board but instead adopt a more flexible approach—for example, stating that “the legal representative shall be a director of the company, to be specifically elected by [e.g., the board of directors]”—then corresponding amendments must be made to the articles of association and governance rules to clarify the procedures for the appointment and removal of the legal representative. Additionally, care must be taken to ensure that the company can designate a new legal representative within the statutory thirty-day period following the resignation or removal of the incumbent.

III. Revisions to Corporate Organizational Structure

The changes to corporate organizational structure requirements under the New Company Law compared to the 2018 Company Law are summarized in the table below:

Company Type2018 Company Law New Company Law
Limited Liability CompanyShareholders’ Meeting/Shareholder Note: No shareholders’ meeting is required if there is only one shareholder.Shareholders’ Meeting/Shareholder Note: No shareholders’ meeting is required if there is only one shareholder.
Board of Directors /Executive Director Note: A limited liability company with a small number of shareholders or of a small scale may have one executive director instead of board of directors.Board of Directors/ Director Note: A limited liability company with a small scale or a small number of shareholders may not have board of directors, but may appoint a director to exercise the functions and powers of the board of directors as stipulated in the Company Law
Board of Supervisors/Supervisor Note: A limited liability company with a small number of shareholders or of a small scale may appoint one or two supervisors instead of establishing a board of supervisors.Board of Board of Supervisors/Supervisor/ No Board of Supervisors Note: A limited liability company with a relatively small scale or a limited number of shareholders may choose not to establish a board of supervisors, and instead appoint one supervisor to exercise the functions and powers of the board of supervisors as prescribed by the Company Law. Upon unanimous consent of all shareholders, the company may also opt not to appoint any supervisor.A limited liability company may, in accordance with the provisions of its articles of association, establish an audit committee composed of directors within the board of directors to exercise the functions and powers of the board of supervisors as stipulated by the Company Law, thereby dispensing with the establishment of either a board of supervisors or a supervisor.
Joint Stock limited CompanyShareholders’ General Meeting Note: The company shall not have only one shareholder and shall maintain at least two shareholders.Shareholders’ Meeting/Shareholder Note: Where there is only one shareholder, no shareholders’ meeting shall be established. That is, under the New Company Law, it is no longer mandatory to have two or more shareholders to establish a joint stock limited company, a single shareholder may now incorporate such a company.
Board of Directors Note: The company shall establish the board of directors.Board of Directors/Directors Note: A joint stock limited company with a relatively small scale or a limited number of shareholders may choose not to establish the board of directors and instead appoint a single director to exercise the functions and powers of the board of directors as prescribed by the Company Law.
Board of Supervisors Note: The board of supervisors must be established.Board of Supervisors/Supervisor/No Board of Supervisors Note: A joint stock limited company with relatively small scale or fewer shareholders may choose not to establish a board of supervisors, and instead appoint one supervisor to exercise the functions and powers of the board of supervisors as stipulated in the Company Law.A joint stock limited company may, in accordance with its articles of association, establish an audit committee composed of directors within its board of directors to exercise the functions and powers of the board of supervisors under the Company Law, thereby dispensing with the establishment of either a board of supervisors or a supervisor.

Based on the aforementioned changes, the revisions are primarily reflected in the following aspects:

First, there are adjustments in certain expressions. For example, the term “shareholders’ general meeting” (股东大会) is no longer used and has been uniformly replaced with “shareholders’ meeting” (股东会). The term “executive director” (执行董事) has also been removed to distinguish it from “executive directors who concurrently hold other positions such as senior management roles.”

Second, the new law introduces provisions for single-shareholder joint stock limited companies while deleting the standalone section on “special provisions for single-shareholder limited liability companies”.

Third, for limited liability companies, the most significant change is that, under statutory conditions, they are no longer required to establish a board of supervisors and may even be exempt from appointing a supervisor.

Fourth, for joint stock limited companies, the new law permits, under statutory conditions, the omission of a board of directors and allows for the appointment of only directors. Similarly, under statutory conditions, such companies may forgo establishing a board of supervisors and appoint only one supervisor, or even dispense with a supervisor altogether. In contrast, the 2018 Company Law did not provide such exemptions, meaning joint stock limited companies were previously required to have both a board of directors and a board of supervisors.

Fifth, the regulatory requirements for the organizational structure of limited liability companies and joint stock limited companies are increasingly converging under the New Company Law. The key distinction is that, for limited liability companies with a small scale or a limited number of shareholders, the unanimous consent of all shareholders may allow the company to operate without a supervisor. However, no such exemption exists for joint stock limited companies.

  • Key Implications of the above changes for Insurance Companies

The Corporate Governance Guidelines for Banking and Insurance Institutions require joint stock insurance companies to establish a governance structure comprising shareholders’ meeting, board of directors, board of supervisors, and senior management, with clear delineation of the powers and responsibilities of these bodies in their articles of association. For limited liability insurance companies, the Guidelines apply mutatis mutandis, unless otherwise stipulated by Company Law, other laws and regulations, or regulatory requirements.

Given the convergence of organizational structure rules for limited liability companies and joint stock limited companies under the New Company Law, insurance regulators may adjust corresponding rules in the future. This could lead to greater flexibility in governance arrangements and lower compliance costs for  joint stock insurance companies with relatively small scale or fewer shareholders. However, due to the unique risks and systemic importance of financial institutions like insurers, regulators may retain strict organizational requirements to ensure robust governance frameworks.

IV. Regarding the Authority of the Shareholders’ Meeting, Board of Directors, Board of Supervisors

1.Changes to the Statutory Authority of the Shareholders’ Meeting

company type2018 Company Law New Company Law
Limited Liability CompanyArticle 37 The shareholders’ meeting shall exercise the following powers and functions: (1)determine the company’s business policies and investment plans; (2)Electing and replacing directors and supervisors who are not representatives of the employees, and deciding on matters concerning their remunerations; (3)Reviewing and approving the reports of the board of directors; (4)Reviewing and approving the reports of the board of supervisors or the supervisors; (5)Reviewing and approving the company’s annual financial budget plan and final accounts plan; (6)Reviewing and approving the company’s profit distribution plan and loss recovery plan; (7)Adopting resolutions on increases or reductions in the company’s registered capital; (8)Adopting resolutions on the issuance of corporate bonds; (9)Adopting resolutions on the merger, division, dissolution, liquidation, or change of corporate form of the company; (10)Amending the company’s articles of association; (11)Other powers and functions stipulated in the company’s articles of association. If all shareholders unanimously consent in writing to any matter listed in the preceding paragraph, a shareholders’ meeting may be dispensed with, and a decision may be made directly, provided that such decision is signed, sealed by all shareholders on the relevant document.Article 59 The shareholders’ meeting shall exercise the following powers and functions: (1) Electing and replacing directors and supervisors, and deciding on matters concerning their remuneration; (2) Reviewing and approving the report of the board of directors; (3) Reviewing and approving the report of the board of supervisors; (4) Reviewing and approving the company’s profit distribution plan and loss recovery plan; (5) Adopting resolutions on increases or reductions in the company’s registered capital; (6) Adopting resolutions on the issuance of corporate bonds; (7) Adopting resolutions on the merger, division, dissolution, liquidation, or change of corporate form of the company; (8) Amending the company’s articles of association; (9) Other powers and functions stipulated in the company’s articles of association. The shareholders’ meeting may authorize the board of directors to adopt resolutions on the issuance of corporate bonds. If all shareholders unanimously consent in writing to any matter listed in Paragraph 1 of this Article, a shareholders’ meeting may be dispensed with, and a decision may be made directly, provided that such decision is signed or sealed by all shareholders on the relevant document.
Joint Stock limited CompanyArticle 99 The provisions of Paragraph 1 of Article 37 of this Law regarding the powers and functions of the shareholders’ meeting of a limited liability company shall apply mutatis mutandis to the shareholders’ general meeting of a joint stock limited company.Article 112 The provisions of Paragraph 1 and Paragraph 2 of Article 59 of this Law regarding the powers and functions of the shareholders’ meeting of a limited liability company shall apply mutatis mutandis to the shareholders’ meeting of a joint stock limited company. The provisions of Article 60 of this Law regarding the exemption from establishing a shareholders’ meeting for a single-shareholder limited liability company shall apply mutatis mutandis to a single-shareholder joint stock limited company.
NoneArticle 153 Where the issuance of new shares is authorized to be decided by the board of directors pursuant to the company’s articles of association or a resolution of the shareholders’ meeting, such resolution of the board of directors shall be adopted by an affirmative vote of not less than two-thirds of all directors.
Article 161, Paragraph 1 A listed company may issue corporate bonds convertible into shares upon resolution by the shareholders’ general meeting, and shall specify the detailed conversion measures in the corporate bond offering plan. The issuance of corporate bonds convertible into shares by a listed company shall be subject to and approved by the securities regulatory authority under the State Council.Article 202, Paragraph 1 A joint stock limited company may issue corporate bonds convertible into shares upon resolution by the shareholders’ meeting, or upon authorization by the company’s articles of association or the shareholders’ meeting authorizing the board of directors, and shall specify the detailed conversion measures. The issuance of corporate bonds convertible into shares by a listed company shall be subject to registration with the securities regulatory authority under the State Council.

From the comparative analysis above, the principal amendments and their legal implications are summarized as follows:

(1) Removal of Certain Statutory Powers and Functions of the Shareholders’ Meeting

The authority to “determine the company’s business policies and investment plans” and to “reviewing and approving the company’s annual financial budget plan and final accounts plan has been removed from the statutory authority of the shareholders’ meeting. Insurance companies may, based on their actual circumstances and in compliance with the provisions of the New Company Law, independently determine whether to retain the abovementioned authorities as matters to be resolved by the shareholders’ meeting.

(2) Delegation Certain Powers and Functions of Shareholders’ Meeting Authority to the Board of Directors

Under the 2018 Company Law, the issuance of corporate bonds and new shares fell within the exclusive statutory authority of the shareholders’ (or shareholders’ general) meeting. Pursuant to Article 22 of the Guidelines for the Articles of Association of Insurance Companies, shareholders’ general meetings were expressly prohibited from delegating such statutory powers to the board of directors or any other entity or individual.

The New Company Law now permits shareholders’ meetings to authorize the board of directors to adopt resolutions regarding the issuance of corporate bonds. As for the issuance of convertible bonds and new shares, a company may either: expressly vest such decision-making authority in the board of directors through its articles of association; or retain such authority with the shareholders’ meeting, which may then delegate it to the board by resolution.

Although Article 22 of the Guidelines for the Articles of Association of Insurance Companies stipulates that the shareholders’ general meeting shall not delegate its statutory powers to the board of directors, other institutions or individuals, the term “statutory authority” herein should be construed to refer only to those powers that laws mandatorily require to be exercised by the shareholders’ (or shareholders’ general) meeting. Under the New Company Law, which expressly permits the shareholders’ meeting to authorize the board of directors to exercise certain powers, insurance companies should accordingly be permitted to allow such delegation of the aforementioned authorities by the shareholders’ meeting in accordance with law.

2. Special Circumstances Exempting Shareholders’ Meeting Resolutions

Article 152 of the New Company Law: The articles of association or the shareholders’ meeting may authorize the board of directors to decide, within three years, the issuance of new shares not exceeding 50% of the already issued shares. However, if non-monetary assets are contributed as capital, a shareholders’ meeting resolution shall still be required.

Where the board of directors’ decision on share issuance pursuant to the preceding paragraph results in changes to the company’s registered capital or the number of issued shares, the corresponding amendment to the articles of association shall not require further approval by the shareholders’ meeting.

Article 219: A merger between a company and another company in which it holds more than 90% of the equity does not require a resolution by the shareholders’ meeting of the merged company, provided that other shareholders are duly notified and retain the right to demand the company to repurchase their equity or shares at a fair price.

A merger involving payment not exceeding 10% of the company’s net assets does not require a shareholders’ meeting resolution, unless otherwise stipulated in the articles of association.

For mergers exempt from shareholders’ meeting resolutions under the preceding two paragraphs, a board resolution shall still be required.
Given these provisions, certain special circumstances, such as registered capital adjustments and mergers of a joint stock limited company, may proceed without a shareholders’ meeting resolution. Therefore, insurance companies should accordingly revise their articles of association to reflect these exceptions in defining the scope of shareholders’ meeting authority.

3. New Requirements for Related-Party Transactions and Competing Businesses (Non-Competition) Involving directors, supervisors, senior management personnel and their close relatives. Accordingly, the matters requiring deliberation by the shareholders’ meeting and the board of directors, and the reports to be heard, need to be correspondingly adjusted.

The New Company Law establishes detailed rules governing related-party transactions and competing business activities conducted by directors, supervisors, senior management and their close relatives. These requirements are primarily stipulated under the following provisions:

Article 182 of the New Company Law: Directors, supervisors, and senior management personnel who directly or indirectly enter into contracts or engage in transactions with the company shall report to the board of directors or the shareholders’ meeting on matters related to the execution of such contracts or transactions, and shall obtain approval through resolutions of the board of directors or the shareholders’ meeting in accordance with the provisions of the company’s articles of association.
The preceding paragraph shall apply to contracts or transactions entered into by the company with close relatives of directors, supervisors, or senior management personnel; enterprises directly or indirectly controlled by such directors, supervisors, senior management personnel, or their close relatives; or other connected parties having an associative relationship with such directors, supervisors, or senior management personnel.

Article 183: Directors, supervisors, and senior management personnel shall not exploit their positions to appropriate commercial opportunities belonging to the company for their own benefit or the benefit of others. Exceptions apply under the following circumstances:
(1) The matter is reported to the board of directors or the shareholders’ meeting and approved through resolutions of the board of directors or the shareholders’ meeting in accordance with the provisions of the company’s articles of association;
(2) The company is unable to utilize the commercial opportunity under applicable laws, administrative regulations, or the company’s articles of association.

Article 184: Directors, supervisors, and senior management shall not, without reporting to the board of directors or the shareholders’ meeting and obtaining approval through resolutions of the board of directors or the shareholders’ meeting in accordance with the provisions of the company’s articles of association, engage in or assist others in conducting business activities that compete with the company’s operations.

Article 185: When the board of directors deliberates on matters falling under Articles 182 to 184 of this Law, relevant directors shall abstain from voting, and their voting rights shall not be counted. If the number of disinterested directors present at the board meeting falls below three, the matter shall be submitted to the shareholders’ meeting for deliberation.

Under the above provisions, the New  Company Law  requires directors, supervisors, senior management and their close relatives to report to the board of directors or shareholders’ meeting and obtain approval through corresponding resolutions as stipulated in the articles of association when engaging in related-party transactions and competing businesses (non-competition).

Regarding the interpretation of “in accordance with the provisions of the company’s articles of association”, divergent views exist. One interpretation holds that the articles of association must explicitly designate whether such matters require board of directors or shareholders’ meeting approval, that is, such matters must not only be reported, but also submitted to the board of directors or the shareholders’ meeting for deliberation. Conversely, others argue that board or shareholder approval is required only if  the articles of association expressly impose such a requirement; if not, only the reporting obligation needs to be fulfilled. The author favors the first interpretation, concluding that both reporting and approval are obligatory. If this interpretation prevails, insurance companies must specify in their articles of association the reporting obligations of relevant parties regarding the above-mentioned matters, and whether the board of directors or shareholders’ meeting holds decision-making authority over such matters.

4. The appointment or dismissal of an accounting firm engaged for the company’s audit services may be determined by the board of supervisors.
Under  Article 169 of the 2018 Company Law, the appointment or dismissal of an accounting firm responsible for auditing services was required to be determined by the shareholders’(general) meeting or the board of directors in accordance with the company’s articles of association. The new Company Law now revises the rule to allow the decision to be made by the shareholders’ meeting, the board of directors, or the board of supervisors. That is, for companies with board of supervisors, they may opt to delegate such decisions to the board of supervisors.

Insurance companies may, based on their actual circumstances, independently choose whether the appointment or dismissal of the accounting firms engaged for the company’s audit services is to be decided by the shareholders’ meeting, board of directors, or board of supervisors.

V. Refinement of Deliberation Rules for Shareholders’ Meetings and Board Meetings

1. Requirements for Shareholders’ Meeting Resolution Thresholds
For limited liability companies:
Article 66 of the New Company Law introduces a requirement that “resolutions of the shareholders’ meeting shall be adopted by shareholders representing more than half of the voting rights.” The 2018 Company Law imposed no such requirement, instead deferring to the articles of association for general matters except as otherwise stipulated in the Company Law (For example, special matters such as amendments to the articles of association, which required approval by shareholders representing two-thirds or more of the voting rights).

For joint stock limited companies:
Article 116(2) of the New Company Law retains the 2018 Company Law provision that “resolutions of the shareholders’ meeting shall be adopted by more than half of the voting rights held by shareholders present at the meeting.”

2. Provisions on the Removal of Directors

Article 71 of the New Company Law stipulates: “A shareholders’ meeting may resolve to remove a director, and the removal shall take effect on the date the resolution is adopted. Where a director is removed without proper cause prior to the expiration of their term, such director may claim compensation from the company.” Article 120 stipulates that the provisions of Article 71 shall also apply to joint stock limited companies.

The New Company Law clarifies the effective date of director removal and establishes the right of directors to claim compensation for removal without proper cause during their term. These principles align with the spirit of Article 3 of the Supreme People’s Court’s Interpretation on Several Issues Concerning the Application of the Company Lawof the People’s Republic of China (No. 5) (2020 Amendment).

  • Introduction of Class Shareholders’ Meetings

The New Company Law introduces fundamental rules for class shares, including: Article 146 establishes class shareholders’ meetings; Article 144 provides that voting rights for the election or removal of supervisors or audit committee membersshall be the same for class shares and ordinary shares; Article 145 mandates that companies issuing class shares explicitly specify relevant matters in their articles of association.

4. Requirements for Board Meeting Attendance and Resolution Thresholds

For limited liability companies :
Article 73 of the New Company Law introduces a requirement that “A board meeting shall be held only if more than half of the directors are present, and resolutions shall be adopted by more than half of all directors.” This establishes minimum attendance and resolution thresholds for board meeting. The 2018 Company Law did not include this requirement; it only provided that, except as otherwise stipulated by the Company Law, other matters shall be governed by the company’s articles of association.

For joint stock limited companies :
Article 124(1) of the New Company Law retains the 2018  Company Law  provision that  “A board meeting shall be held only if more than half of the directors are present, and resolutions shall be adopted by more than half of all directors.”

  • Key Implications of the above changes for Insurance Companies

From the above changes in the New Company Law, the main focus is on limited liability companies.

Article 22 of the Guidelines on Corporate Governance of Banking and Insurance Institutions provides: “Resolutions passed by the shareholders’ meeting must be approved by more than half of the voting rights held by the shareholders attending the meeting. However, the following matters must be approved by more than two-thirds of the voting rights held by the shareholders attending the meeting: …” Paragraph 1 of Article 115 stipulates: “Banking and insurance institutions organized as limited liability companies shall apply this Guideline by reference. If there are other provisions in laws such as Company Law, regulations, or regulatory rules, such provisions shall prevail.”

Insurance companies need to correspondingly adjust the deliberation rules for the shareholders’ meeting and the board of directors in their articles of association in accordance with the provisions of the New Company Law. Specifically:

Regarding the voting thresholds for shareholders’ resolutions, the New Company Law introduces a requirement for limited liability companies that “resolutions of the shareholders’ meeting shall be approved by shareholders representing more than half of the voting rights.” Therefore, limited liability insurance companies need to make corresponding adjustments. It should be noted that the New Company Law distinguishes between limited liability companies and joint stock limited companies on this issue. For limited liability companies, “the approval requires shareholders representing more than half of all voting rights”, that is, more than half of all shareholders’ voting rights; whereas for joint stock limited companies, “the approval requires more than half of the voting rights held by shareholders attending the meeting”, limited to more than half of the voting rights held by shareholders present at the shareholders’ meeting.

Additionally, joint stock insurance companies issuing class shares need to correspondingly adjust the mandatory provisions in their articles of association as well as the deliberation rules governing shareholders’ meetings and other related matters.

Regarding the requirements for board meeting attendance and resolution thresholds, the New Company Law applies the same standards to both limited liability companies and joint stock limited companies. Previously, no such requirements were imposed on limited liability companies. The New Company Law adds provisions stating thata board meeting shall be held only if more than half of the directors are present, and resolutions shall be adopted by more than half of all directors”, limited liability insurance companies also need to make corresponding adjustments accordingly.

VI. Expansion of the Scope of Convertible Bond Issuers

Article 202 of the New Company Law provides: A joint stock limited company may issue corporate bonds convertible into shares upon resolution by the shareholders’ meeting or, if authorized by its articles of association or the shareholders’ meeting, by resolution of the board of directors. Specific conversion procedures shall be prescribed. Listed companies issuing convertible corporate bonds shall obtain registration with the securities regulatory authority under the State Council.

Convertible corporate bonds shall be labeled as such on the bond certificates, and the total amount of convertible bonds shall be recorded in the register of corporate bondholders.

Compared to the 2018 Company Law, the New Company Law expands the scope of issuers of convertible bonds beyond listed companies to all joint stock companies. However, public issuance of convertible bonds remains restricted to listed companies.

While the New Company Law broadens convertible bond issuance eligibility to all joint stock companies, insurance companies, as part of a stringently regulated industry, remain subject to additional constraints. For non-listed joint stock limited company structured insurance companies to issue convertible bonds, insurance regulators has formulated corresponding regulatory rules. It is the author’s view that only non-listed joint stock limited company insurers meeting specific qualifications or conditions would be permitted to issue such convertible bonds.

VII. Enhanced Legal Liability for Directors, Supervisors, and Senior Management, and Statutory Recognition of D&O Insurance

Under the 2018 Company Law, the duty of loyalty and duty of diligence for directors, supervisors, and senior management personnel lacked detailed definition and clarity. The New Company Law addresses this gap in Article 180, which explicitly delineates the scope of these duties for directors, supervisors, and senior management personnel and extends the duties of loyalty and duty of diligenceto controlling shareholders and actual controllers when they engage in the company’s affairs. Furthermore, the New Company Law refines and expands the liability for compensation of directors, supervisors, and senior management personnel through provisions such as: Article 51, 53, 163, 211, 226, and 232.

Significantly, Article 193 of the New Company Law formally incorporates D&O Insurance into the statutory framework. (For a detailed analysis, see our prior publication: Analysis regarding the Development of D&O Liability Insurance System in China under 2023 PRC Company Law.)

Given the expanded legal liability imposed on directors, supervisors, and senior management under the New Company Law, directors, supervisors, and senior management of insurance companies must exercise heightened diligence in fulfilling their duties of loyalty and duty of diligence during the performance of their roles.

VIII. Regarding Equity/Share Transfer

1.Major Impacts on Equity Transfer in Limited Liability Companies

(1) Abolishment of the Requirement for Consent from Other Shareholders for Transfers to Third Parties

Under Article 71 of the 2018 Company Law, shareholders of a limited liability company transferring equity to third parties were required to obtain the consent of more than half of the other shareholders. However, Article 84 of the New Company Law abolishes this requirement, transfers to third parties no longer require consent from other shareholders; instead, the transferring shareholder need only notify other shareholders, who retain a right of first refusal. If other shareholders fail to respond within 30 days of receiving notice, they are deemed to have waived this right.

(2) New Procedural Requirements for Equity Transfer and Clarification of that Transferees May Exercise Shareholder Rights Upon Being Recorded in the Register of Shareholders

Article 86 of the New Company Law introduces the following provisions: “A shareholder transferring equity shall notify the company in writing to request amendment of the shareholder register. If registration changes are required, the shareholder shall also request the company to file such changes with the company registration authority. If the company refuses or fails to respond within a reasonable period, the transferor or transferee may initiate legal proceedings in court. For equity transfers, the transferee may assert shareholder rights against the company from the date of registration in the shareholder register.”

(3) Expanded Circumstances for Shareholder Repurchase Requests
Article 89 of the New Company Law expands upon Article 74 of the 2018 Company Law by adding a provision stating that if “the company’s controlling shareholder abuses shareholder rights, and thereby materially harms the interests of the company or other shareholders, the other shareholders may request the company to repurchase their equity at a fair price.”

2.Major Impacts on Share Transfer in Joint Stock Limited Companies

(1) Abolishment of the One-Year Lock-Up Period for Founders and New Restrictions on Pledgee’s Exercise of Pledge Rights over Restricted Shares During the Lock-Up Period

The New Company Law removes the one-year transfer restriction for founders under Article 141 of the 2018 Company Law. Simultaneously, Paragraph 3 of Article 160 stipulates that “if shares are pledged during the restricted transfer period prescribed by laws or administrative regulations, the pledgee may not exercise the pledge rights during the restricted transfer period.” Thus, pledgees of restricted shares cannot enforce their pledge rights during the lock-up period.

(2) New Circumstances Enabling Shareholders to Request Share Repurchases

Article 161 of the New Company Law introduces three circumstances where dissenting shareholders (who vote against the relevant shareholders resolution) may request the company to repurchase their shares at a fair price, enhancing protection for minority shareholders. This provision excludes companies with publicly issued shares.

The three circumstances under Article 161 are:①The company has failed to distribute profits for five consecutive years, despite being profitable and meeting statutory profit distribution conditions;② The company transfers its core assets;③The company’s operational term under its articles of association expires, or other dissolution triggers under the articles arise, but the shareholders’ meeting resolves to amend the articles to continue operations.

(3) Refinement of Rules on Share Inheritance for Deceased Natural Shareholders

Article 167 of the New Company Law revises Article 75 of the 2018 Company Law as follows: Upon the death of a natural person shareholder, their legal heirs may inherit the shareholder status, unless the articles of association of a joint stock limited company with transfer-restricted shares provide otherwise.

  • Key Implications of the above changes for Insurance Companies

If an insurance company’s articles of association, shareholder agreements, or other legal documents contain specific provisions on equity/share transfers, such provisions must be reviewed for compliance with the New Company Law. Provisions conflicting with the New Company Law must be amended or adjusted. In practice, insurance companies must also ensure adherence to the New Company Law’s requirements during equity/share transfers.

IX. New Restrictions on Financial Assistance

Article 163 of the New Company Law introduces restrictive provisions on companies providing financial assistance to others for acquiring shares of the company or its parent. Except for employee stock ownership plans, a company shall not provide gifts, loans, guarantees, or other financial assistance to others for obtaining shares of the company or its parent company. However, if such financial assistance is in the company’s interests and approved by a shareholders’ meeting resolution, or by a board resolution under authorization by the articles of association or the shareholders’ meeting, the total cumulative amount of financial assistance shall not exceed 10% of the total issued share capital. Furthermore, if the board of directors approves such assistance, the resolution must be passed by at least two-thirds of all directors, constituting a special resolution.

For the above financial assistance restrictions, it is advisable for insurance companies to incorporate such provisions into their articles of association, explicitly specifying whether these matters are to be reviewed by the shareholders’ meeting or the board of directors.

X. Corporate Profit Distribution and Loss Recovery

  1. New Liability for illegal Profit Distributions, stipulating that in addition to returning improperly distributed profits, compensation liability shall also be assumed.
    Under Article 166(5) of the 2018 Company Law, “if a shareholders’ meeting, shareholders’ general meeting or board of directors distributes profits to shareholders in violation of the preceding paragraph before offsetting losses and allocating statutory surplus reserves, shareholders must return the improperly distributed profits to the company. The New Company Law expands liability under Article 211, in addition to returning such profits, shareholders and responsible directors, supervisors, and senior management shall bear compensation liability.
  2. New Obligation for Timely Profit Distribution by the Board
    Article 212 of the New Company Law introduces a requirement that “the board of directors shall distribute profits within six months after the shareholders’ meeting adopts a profit distribution resolution”, this clarifies the timeframe for executing profit distributions post-approval.
  3. Permitting Capital Reserves to Offset Losses
    Article 168 of the 2018 Company Law explicitly stipulates that “capital reserve shall not be used to cover the company’s losses”, the New Company Law removes this restriction. Article 214(2) of the New Company Law states: “When using reserves to offset losses, the company shall first utilize discretionary reserves and statutory reserves; if losses remain uncovered, capital reserves may be used in accordance with regulations.”
  4. Key Implications of the above changes for Insurance Companies

Insurance companies must review their articles of association to ensure provisions on profit distribution and use of capital reserves align with the New Company Law. Any conflicting clauses must be amended accordingly.

Note: This article summarizes the New Company Law’s impact on general insurance companies’ governance. Listed companies and state-invested companies should additionally consider the New Company Law’s specific provisions applicable to them. This article does not cover all changes under the New Company Law (e.g., shifts in shareholder rights and liabilities) but highlights key areas likely to significantly affect insurance company governance.

Ⅰ. Introduction

April 26, 2025, marks the 25th “World Intellectual Property Day”, and China also announced the “National Intellectual Property Week” from April 20 to April 26. In the wake of rapidly changing global situation and profound changes unprecedented in a century, China has simultaneously strengthened the protection of intellectual property and the enforcement against intellectual property criminals.

Ⅱ. Judicial Authorities of Different Levels Release Landmark Cases

During the National Intellectual Property Week, judicial authorities across the country have organized a series of press conferences, which not only disclosed data on intellectual property cases in 2024 but also released typical cases involving intellectual property. The specific information is as follows:

1. On April 21, 2025, the Supreme People’s Court (SPC) held a press conference to release the “2024 China Courts Intellectual Property Judicial Protection Report” and the 2024 People’s Court Intellectual Property Typical Cases[1].

2. On April 23, the Supreme People’s Procuratorate (SPP) held a press conference titled “High-Quality Intellectual Property Prosecution to Serve High-Level Scientific and Technological Innovation.” In 2024, the national procuratorate authorities accepted 13,486 cases for review of arrests related to intellectual property crimes and 33,805 cases for review of prosecutions. Additionally, the SPP, after research and approval by the Central Institutional Organization Office, added the designation of “Intellectual Property Prosecution Office” to the Economic Crimes Prosecution Office. Furthermore, the SPP released typical cases involving intellectual property prosecution[2].

3. On April 24, the Beijing High People’s Court released the top ten cases of intellectual property judicial protection and the top ten cases of judicial protection for trademark authorization and confirmation in 2024[3].

4. On April 18, the Beijing Procuratorate held a press conference to announce and release the bilingual version of the “Beijing Procuratorate Intellectual Property Prosecution White Paper (2024),” the typical cases of intellectual property protection by the Beijing Procuratorate in 2024, and the “Guidelines for the Beijing Procuratorate on High-Quality Development of the Copyright Industry”[4].

5. On April 23, the Shanghai High People’s Court held a press conference on intellectual property judicial protection to announce the top ten intellectual property judicial protection cases of the Shanghai courts in 2024[5].

6. On April 25, the Shanghai Procuratorate held a press conference to release the bilingual version of the “Shanghai Intellectual Property Prosecution White Paper (2024),” reporting on the criminal, civil, administrative, and public interest litigation cases involving intellectual property handled by the municipal procuratorate authorities in 2024[6].

Ⅲ. Latest Development in China’s Criminal Protection on Intellectual Property Revealed in the Press Conference

1. Exploring the Use of Compulsory Measures in Intellectual Property Criminal Cases

In criminal cases, the choice of compulsory measures, especially the arrest rate, has always been a focus of public concern. According to the data provided in the Supreme People’s Procuratorate’s “Criminal Prosecution Work White Paper (2024),” in 2024, the procuratorate authorities nationwide accepted 1,117,281 cases for review of arrests and 2,179,648[7] cases for review of prosecutions for various crimes. Thus, the average rate of cases accepted for arrest is approximately 51.26%.

However, based on the data released during the aforementioned press conference by the SPP, in 2024, national procuratorate authorities accepted 13,486 cases for review of arrests related to intellectual property crimes and 33,805 cases for review of prosecutions. The average rate of cases accepted for arrest in intellectual property crimes is approximately 39.89%, which is 11% lower than the overall average rate of acceptance for arrests.

These figures indicate that in cases involving intellectual property crimes, the arrest rate is lower than that for all criminal cases. This suggests that judicial authorities are more cautious when choosing “arrest” as the compulsory measure in intellectual property cases, striving a balance between education and punishment.

2. Establishment of the Intellectual Property Prosecution Office at the Supreme People’s Procuratorate

From the press conference by the SPP, we learnt that the Economic Crime Prosecution Office has been added with another designation as the “Intellectual Property Prosecution Office.” As early as January 1, 2019, the Supreme People’s Court has already established the Intellectual Property Court, but no corresponding action was taken within the SPP.

This year, the addition of the “Intellectual Property Prosecution Office” designation to the Economic Crime Prosecution Office not only aligns with the corresponding institution in the Supreme People’s Court, but also signals to the public that the procuratorate authorities, especially the nation’s highest procuratorate, are attaching increasingly more importance to protecting intellectual property and combating intellectual property crimes. Since this institution has just been established, we will continue to follow and analyze its subsequent operations.

3. Equal Protection of Domestic and Foreign Entities as Shown in Bilingual Documents

By reviewing information related to the National Intellectual Property Week, we can see that the procuratorate authorities in Beijing and Shanghai have released the “Intellectual Property White Paper” in both Chinese and English versions.

As the international economic situation evolves, foreign trade has deeply intertwined with various aspects of China’s economic development, which leads to rising significance of intellectual property protection, especially that of foreign entities. By releasing the “Intellectual Property White Paper” in a bilingual format, Chinese judicial authorities can better demonstrate to the world the favorable business environment in China, the welcoming attitude towards foreign investments, and that the legitimate rights and interests of foreign entities, including intellectual property, will be protected by China’s relevant authorities.

Ⅳ. Brief Analysis of New Types of Typical Criminal Cases 

For the typical cases released by various judicial authorities this time, we will only briefly analyze the new types of criminal cases among them. Therefore, we will not elaborate on the investigation, prosecution, and judgment content that are consistent with the past.

1.Unlawfully Acquiring Trade Secrets and Then Publishing Them as a Thesis Constitutes a Crime

In a trade secret infringement case released by the Supreme People’s Procuratorate, between June 2015 and December 2018, Hao X Wang worked as a software engineer at West X Company and participated in the development of the company’s “Rail Vehicle Operation Control System Equipment” project. Hao X Wang violated the company’s confidentiality regulations by stealing the design development documents, key equipment parameters, and other contents of the “Rail Vehicle Operation Control System Equipment” project through methods such as photographing with a mobile phone and copying onto a USB drive after work hours, and used them to write his master’s thesis titled “Design and Implementation of a Rail Vehicle Onboard Control System.”

From January to August 2020, Hao X Wang published this thesis on websites such as CNKI and Wanfang Data, during which time the thesis was massively viewed and downloaded, resulting in the relevant technology of West X Company research project being released into the public domain and losing its novelty. According to the audit report, from 2017 to 2019, West X Company has incurred over 2.18 million RMB in cost for research and development for the technology involved in the case.

Analysis: In traditional trade secret infringement cases, the suspect would usually profit from the illegally acquired trade secrets, thereby causing losses to the right holder. In this case, however, the suspect’s behavior after illegally acquiring the trade secrets was quite unique as he did not use the trade secrets for commercial activities but instead published them in a thesis, causing the right holder’s trade secrets to lose their novelty and become public knowledge, thus losing their market value and tradability. Consequently, the judicial authorities used the research and development costs of the trade secrets involved as the standard for determining the amount involved in the case, thereby convicting the suspect of the crime of infringing trade secrets.

2. Unlawfully Acquiring and Possessing Trade Secrets Constitutes the Crime of Infringing Trade Secrets

In the case of Guo X convicted of the crime of infringing trade secrets released by the Shanghai High People’s Court, the defendant Guo X was originally the founder of the victim company, having signed a confidentiality agreement and being responsible for the research and development of the project involved. To gain leverage during negotiations with the company and facilitate the continued use of related data after resigning, Guo X illegally copied and transmitted a large amount of confidential data, including two pieces of technical information related to the case, to his local computer and then uploaded it to his personal cloud storage.

The products associated with the trade secrets in this case were sold for a short period and in limited quantities, and production was carried out during special circumstances. Therefore, the relevant sales data failed to meet the conditions for applying the income method or market value method for evaluation. However, the victim company provided standardized and complete accounting vouchers and original documents for the research and development expenses related to the trade secrets, and thus the cost method was deemed appropriate for evaluation. The assessment also excluded and adjusted unrelated expenses, making determinations favorable to the defendant. In summary, the defendant Guo X used theft to acquire the victim company’s trade secrets, causing a total loss of 2.31 million RMB to the victim company.

Analysis: Like the first case, the suspect illegally acquired the trade secrets but did not use them for profit-making purposes and instead merely possessed the illegally acquired trade secrets. The court adopted the cost method to calculate only the expenses directly related to the research and development as the amount involved in the case, thereby determining that the defendant’s actions constituted the crime of infringing trade secrets.

3. Providing Confidential Information to Foreign Organizations as a Commercial Spy Constitutes a Crime

In the case released by the Shanghai Procuratorate, Tian X was convicted of illegally providing trade secrets to foreign organizations. From March 2022 until the case unfolded, the defendant Tian X served as a senior manager in the raw materials procurement department of the company, with access to the operational information held by Company Z. On March 10, 2024, Shanghai S Investment Consulting Co., Ltd. (hereinafter referred to as Company S), commissioned by the foreign organization M Consulting Company, invited Tian X to participate in paid consultation activities via a network platform conference call. Despite knowing that the consulting party was a foreign organization, Tian X accepted Company S’s arrangement for paid consultation activities and provided operational information such as the procurement status of silicon wafers by Company Z in 2022, illicitly gaining RMB 3,685.92. The relevant consulting records were sent to M Consulting Company via the internet. The court sentenced Tian X to one year and nine months of imprisonment and imposed a fine of RMB 50,000 for the crime of illegally providing trade secrets to foreign organizations.

Analysis: The crime of stealing, prying into, purchasing, or illegally providing trade secrets to foreign entities is a newly added crime under the “Criminal Law Amendment (XI),” and related cases are currently rare in practice. This case is one of the few publicly disclosed cases, which has significant value for studying. In this case, the suspect knowingly accepted paid consultation activities from a domestic consulting company with full knowledge that the end user of the consultation was a foreign company and provided relevant operational information of the rights holder. By emphasizing the element of “providing trade secrets to foreign entities,” the judicial authorities clarified the substantive recognition principle for “foreign institutions, organizations, and personnel,” effectively safeguarding the commercial interests of enterprises and national security.

4. “Borderline” Trademark Registration Constitutes the Crime of Counterfeiting Registered Trademarks

In the case of Hu XX counterfeiting registered trademarks released by the Shanghai Procuratorate, the defendant Hu XX operated five online clothing stores between June 2013 and October 2019. Starting in September 2017, Hu XX gradually applied to register four trademarks, including “Fa Bo Xiu,” through A Intellectual Property Agency Co., Ltd. (hereinafter referred to as Company A), all of which incorporated the registered trademark “Bo” of another party. From September 2019, Hu XX began listing various clothing items in her online stores. Instead of using her own registered trademarks in product promotions or titles, she highlighted the registered trademark “Bo” of another party by combining it with some words before and after it, misleading consumers with phrases such as”Authentic Bo Special Winter Down Jacket 2021″ and “Li Fa Bo Xiu Casual 2021 Summer Wandering Spring Knit Slim Fit Shirt.”

Analysis: Unlike the traditional act of directly counterfeiting registered trademarks, this case features a “borderline” type of trademark registration. The defendant registered trademarks containing a well-known existing trademark and then used word combinations to highlight the registered trademark of others in the name of products listed in her online store, misleading consumers and generating profits illegally. This case demonstrates the emergence of new forms of counterfeiting registered trademarks, which has been observed by the judicial authorities and would be subject to criminal measures to protect the intellectual property rights of right holders.

5. Stealing IELTS Questions Constitutes the Crime of Copyright Infringement

In the case of Xu X Wen and others convicted of copyright infringement released by the Shanghai High People’s Court, from March 2019 to December 2020, the defendant Xu X Wen, in collusion with Cui X Dong, Zou X, and Gu X, conspired with staffs from a logistics company handling IELTS exam papers to obtain illegal profits. Logistics staffs, including defendants Ding X Jie and Zhou X, stole the sealed exam papers boxes from logistic hubs before the IELTS exams, with Ding X Jie conspiring with defendant Li X Ming who was responsible for disabling surveillance during the theft.

In a temporarily rented accommodation, Xu X Wen, Cui X Dong, and Zou X obtained the exam papers by unsealing the boxes and photographing or copying the questions. They then repackaged the exam papers in counterfeit or original sealed bags and returned them to the logistics hub via the logistics personnel. Gu X was responsible for providing the answers, and for the essay section of the exam, Cui X Dong and others were instructed to hire writers to produce model essays. After compiling the answers and essays, Xu X Wen, Cui X Dong, Zou X, and Gu X, either individually or through defendants Xu X, Liu X, and Liang X Li, recruited students nationwide, set up pre-exam face-to-face training classes, and charged corresponding fees. On the night before the exam, they provided face-to-face training, distributing the prepared IELTS exam questions and answers to the students for them to memorize in private.

Analysis: The defendants’ actions could potentially align with the crimes of organizing exam cheating or illegally selling or providing exam questions and answers. However, these crimes are limited to “national exams” as defined by Chinese law. The peculiarity of this case is that the exam involved is the “IELTS”, an exam organized by a foreign institution and not a national exam under Chinese law, making those charges inapplicable.

After ruling out the crimes of organizing exam cheating or illegally selling or providing exam questions and answers, this case could potentially constitute the crime of infringing trade secrets or copyright. The appellate court determined that each IELTS’s questions include personalized expressions by the authors regarding the textual content and format, possessing originality in selection and arrangement, thereby qualifying as works protected under copyright law. Ultimately, the court convicted them of copyright infringement. This case also reflects the judicial authorities’ approach to handling foreign-related intellectual property crime cases, ensuring equal protection for both domestic and foreign entities, precisely convicting and sentencing the defendants through professional and meticulous analysis.

Ⅴ. New Trends in China’s Criminal Regulation of Intellectual Property from Typical Cases

1. Use of Hash Values for Fixing Electronic Evidence and Recovery of Virtual Currency Accounts

In judicial practice, an increasing number of offenders are using cryptocurrency instead of traditional cash or bank transfers in an attempt to evade legal responsibility. In the case of Wu X Feng and Shi X Yuan convicted of selling goods bearing counterfeit registered trademarks released by the Supreme People’s Procuratorate, investigative authorities strengthen communication with relevant e-commerce platforms and adopt methods such as using hash values to fix evidence and web page preservation to promptly extract and secure electronic evidence.

Similarly, in the copyright infringement case involving Kuang X, Chen XX, and others released by the Shanghai Procuratorate, the procuratorate thoroughly fulfilled their responsibilities regarding the prosecution of case-related assets. The authority focused on the payment and settlement rules, transaction models, and virtual currency wallets related to the promotion fees of the infringing private servers of the game in question. Through intensive questioning, they guided the public security authorities to retrieve screenshots of the cryptocurrency wallets involved, accurately determining the illegal gains of each defendant. By strengthening collaboration with the public security authorities, the judicial authorities enhanced legal explanations and reasoning, guided defendants to voluntarily provide account information and worked with the public security authorities to urge defendants’ family members to withdraw funds from the cryptocurrency accounts involved and voluntarily return the illegal gains.

While cryptocurrency transactions are explicitly identified as illegal in China, when criminal cases involve cryptocurrency, judicial authorities can not only use technology, such as hash values, to preserve evidence but also confiscate funds in cryptocurrency accounts. This reflects the advancement of criminal judicial technology and serves as a warning to suspects that using cryptocurrency does not exempt them from legal sanctions.

2. Inviting Technical Investigators and Specially Prosecutor Assistants to Aid in Case Handling

In intellectual property criminal cases, judicial officer often encounter highly technical issues, necessitating the assistance of individuals with specialized knowledge. For instance, in the case of Beijing Jun X Technology Co., Ltd., Sun X Ming, Hu X Wei, and others convicted of infringing trade secrets released by the Supreme People’s Procuratorate, the prosecutorial authorities invited a researcher from the Beijing Center of the Patent Examination Cooperation under the State Intellectual Property Office to serve as a technical investigator. They fully considered the expert’s professional opinions and jointly discussed the approach for examining and judging facts at the code level. Similarly, in the case of Suzhou H Electronics Technology Co., Ltd., Zhang XX, and others convicted of infringing trade secrets released by the Shanghai Procuratorate, the prosecutorial authorities appointed a specially invited prosecutor assistant with a technical background in the automotive industry to help clarify the technical information characteristics and specific operational mechanisms in the specialized field.

These cases illustrate that as science and technology develop and progress, an increasing number of high-tech enterprises face intellectual property infringement, and the infringed content is usually highly specialized. In such situations, judicial authorities would invite technical investigators or specially prosecutor assistants to help clarify technical issues in the relevant professional field, thereby accurately determining the nature of the cases. We highly appreciate this trend, as it shows that judicial authorities not only review cases from a documentary perspective but also gain a deeper understanding and comprehension of the intellectual property involved, enabling precise judgments and ensuring the conformity of crime, responsibility, and punishment.

3. Gradual Application of Criminal Incidental Civil Litigation in Intellectual Property Criminal Cases

In past judicial practices, criminal incidental civil litigation was rarely applied in monetary-related criminal cases. However, in several recently released cases, we see that intellectual property criminal cases are gradually applying criminal incidental civil litigation, further safeguarding the legitimate rights and interests of the right holders.

For example, in the series of cases released by the Shanghai Procuratorate involving Cheng X, Wang X Quan, and 14 others for counterfeiting registered trademarks, selling goods with counterfeit registered trademarks, and illegally manufacturing trademark labels, it was the first intellectual property criminal incidental civil litigation case in Shanghai to receive an effective judgment. From mediation to the fulfillment of civil compensation, the whole process was completed within one week, resolving both criminal liability and civil responsibility issues in an integrated manner.

4. Application of the Reverse Connection of Criminal and Administrative Measures for Administrative Penalties

In the process of handling intellectual property criminal cases, when judicial authorities find that there is no need to resort to criminal measures to regulate the parties involved, or when they identify other entities requiring administrative penalties, they would use the reverse connection mechanism of criminal and administrative measures to guide the competent authorities in carrying out administrative penalties.

For instance, in the copyright infringement case of Zhang X and Sun X released by the SPP, when the procuratorate found that the case does not meet the threshold of prosecution according to law, it would continue to examine whether the non-prosecuted individual would be subject to administrative penalties. If administrative penalties are deemed necessary and prosecutorial opinions are put forward according to law, the case would be transferred to the relevant administrative authorities for administrative penalties.

 VI. Conclusion

During this year’s “National Intellectual Property Week,” within just a few days, we observed that judicial authorities at all levels released a large number of typical cases. These cases include both the types of cases that have been repeatedly emphasized in the past as priorities, as well as many new types of cases emerging.

By reviewing the highlights of press conferences and typical cases, we explore the new trends in the criminal regulation of intellectual property crimes by Chinese judicial authorities. With the passage of time and the development of science and technology, legal issues related to intellectual property will inevitably become more prevalent. We will continue to promptly follow new trends in law enforcement by judicial authorities, thereby providing more professional legal services to all clients.

Notes:

[1] https://mp.weixin.qq.com/s/exA4ZPUKArU9lSzNlzMgHQ 

[2] https://mp.weixin.qq.com/s/qbfQhh5JzNwJtYTcSP3idQ 

[3] https://mp.weixin.qq.com/s/H3-1H4tQUm1GJkWEBhcyxQ

[4] https://mp.weixin.qq.com/s/15fvUEqRimDY74w724J_ZA 

[5] https://mp.weixin.qq.com/s/IYcDv4SnhRI2VkefJZBVkA 

[6] https://mp.weixin.qq.com/s/gsU7H6waXtkJ61YubOt-BQ 

[7] https://www.spp.gov.cn/spp/xwfbh/wsfbh/202503/t20250309_688590.shtml 

Authors | Andy See, José Moscati

In April 2025, US President Trump issued Executive Orders 14257 and 14259, announcing the imposition of a 10% reciprocal tariff on several countries and regions, including Brazil, effective 5 April. An additional 10% reciprocal tariff will be applied to certain countries and regions from 9 April (notably, the reciprocal tariffs imposed on China once reached as high as 125%).[1]

As of 12 May 2025, according to the latest Joint Statement on U.S.-China Economic and Trade Meeting in Geneva, the US has committed to removing the tariffs imposed under Executive Orders 14257 and 14259 by 14 May 2025. The reciprocal tariffs on China will be temporarily adjusted to 10%, in line with those applied to other countries.

The highly volatile tariff adjustments in the United States have had a significant impact on cross-border trade in China, the European Union and other regions. Cross-border e-commerce companies in China, the US and Europe have been forced to adjust their supply chains or reconsider the proportion of their business tied to the US market. In contrast, Brazil-subject to a consistent 10% reciprocal tariff-has been much less affected by these US tariff changes.

This paper provides a brief overview of the challenges and opportunities for strengthening investment and economic ties between Brazil and China in the context of US tariffs. We have a long-standing focus on China-Brazil trade and have extensive experience advising on this issue throughout Latin America. If you have any questions regarding China-Brazil trade strategy or compliance, please feel free to contact us.

1. Strengthening China-Brazil Economic and Trade Relations Amid US Tariffs

Since 2010, the United States has been Brazil’s second largest trading partner.[2] In 2024, the US trade surplus with Brazil reached around $7 billion, with the total value of goods and services traded amounting to $28.6 billion. Given the relatively balanced trade relationship between Brazil and the US, the Trump administration has imposed a 10% reciprocal tariff on Brazil. It is impossible to predict how long this “beneficial” tariff of 10% will last. 

However, the macroeconomic conditions between the US and Brazil that create the surplus in favor of the US are unlikely to change in the short and medium terms.

Although the tariffs between Brazil and the US have has limited direct impact on Brazil, they have indirectly strengthened economic and trade relations between Brazil and China. The Chinese and Brazilian governments have held numerous discussions on cooperation. Some orders that would have gone to the US have gradually been redirected to Brazil, while China’s demand for beef and soybeans is increasingly being met by Brazil:

  • On 11 April, Mr Alckmin, Brazil’s Vice President and Minister of Development, Industry, Trade and Services, held a video call with Mr Wang Wentao, China’s Minister of Commerce, to discuss strengthening economic and trade cooperation between China and Brazil in response to the tit-for-tat tariffs imposed by the US.
  • On 17 April, Zhang Zhili, Vice Minister of Agriculture and Rural Affairs of China, led a Chinese delegation to the BRICS Working Group meeting in Brazil. The meeting focused on the export of Brazilian agricultural products to China, such as soybeans and beef, and how to address the market gap created by the US tariff hike. On the same day, Brazilian Agriculture Minister Carlos Favero said that Brazil intends to become an alternative supplier of beef to China after nearly 400 US slaughterhouses were banned from exporting to China.
  • In early April, importers from China purchased at least 40 freighters carrying 2.4 million tonnes of soybeans from Brazil. Most of these soybeans are scheduled to be shipped between May and July, accounting for about a third of China’s monthly soybean imports. On 17 April, authorities in Guangzhou, China, received a cargo ship carrying 38,000 tonnes of Brazilian soybeans.
  • In July 2025, the 17th BRICS Summit will be held in Rio de Janeiro. By then, the suspension period for US reciprocal tariffs on certain countries and regions will have expired, and it is expected that there will be further discussions and adjustments regarding economic and trade exchanges.

2. China-Brazil Trade Policy and Strategic Cooperation

2.1 Strategic Cooperation and Trade Policy

Since the founding of the People’s Republic of China, political relations between China and Brazil have been friendly and steadily strengthened. As the largest developing countries in the Eastern and Western hemispheres, since the establishment of diplomatic relations, China and Brazil have gradually elevated their cooperation to the “China-Brazil Community of Shared Destiny for Building a More Just World and a Sustainable Planet”. The major milestones in the bilateral relationship are as follows:

  • In 1974, China established diplomatic relations with Brazil.
  • In 1993, the two countries established a strategic partnership.
  • In 2012, the relationship was upgraded to a comprehensive strategic partnership.
  • In 2024, the bilateral relationship was further elevated to the “China-Brazil Community of Shared Destiny for Building a More Just World and a More Sustainable Planet”.

Over the past two years, economic and trade cooperation between China and Brazil has entered a new phase. In March 2023, Brazil and China agreed to eliminate the US dollar as an intermediary currency and instead settle trade in their local currencies.

At the same time, within the framework of their strategic cooperative relationship as a community of shared destiny, China and Brazil have signed agreements or memorandums of cooperation in various sectors, including agriculture and livestock, agricultural products and technology, mineral energy, bio-economy, ecological transformation, green development, digital economy, artificial intelligence, and the photovoltaic industry.[3]These developments have significantly advanced bilateral economic and trade relations, benefiting technology companies that provide innovative solutions for fundamental industries such as mining and agriculture, as well as for consumer electronics, represented by smart terminals and smart homes, and digital technologies, including new energy vehicles, artificial intelligence, and e-commerce.

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Table 1: Key Bilateral Agreements and Memorandums Between China and Brazil

2.2. Current Status of China–Brazil Trade

China is Brazil’s largest trading partner, while Brazil is China’s ninth largest. It is also the first Latin American country whose trade volume with China exceeds USD 100 billion. Since overtaking the United States as Brazil’s top trading partner in 2009, China has invested more than USD 70 billion in Brazil. Meanwhile, Brazil’s cumulative investment in China has exceeded USD 100 billion since 2018.

Over the past decade, bilateral trade between China and Brazil has maintained an impressive average annual growth rate of 10%, despite the overall downturn in global trade. According to data from China’s General Administration of Customs, trade between the two countries reached approximately RMB 1.34 trillion (USD 188.17 billion) in the first 12 months, up 4.6% year-on-year.

Overall, Brazil is one of the few countries with an apparent trade surplus with China, with a surplus of RMB 313.02 billion[4] (USD 44,018.5 million)[5].

The main aspects of China-Brazil bilateral trade in 2024 are outlined below:

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Table 2: Comparison of China-Brazil Economic and Trade Advantages

2.2.1. Brazil’s Core Exports to China: Soybeans, Oil, Meat, and Ore

According to China’s General Administration of Customs, China’s total imports from Brazil in 2024 amounted to RMB 825.84 billion (USD 116.09 billion), down 4.4% from the previous year.[6] However, in 2025, driven by changes in the international environment, Brazil’s exports of soybeans, oil and meat to China began to rise again.

  • Soybeans: According to ComexVis, the Brazilian government’s official foreign trade data platform, Brazil’s soybean exports reached $8.7 billion in the first three months of 2025, with a total volume of about 22.18 million tonnes. Of this, about 16.99 million tonnes were exported to China, accounting for 76.6% of Brazil’s total soybean exports during this period..
  • Oil: China is the largest destination for Brazil’s oil exports. According to data from the Brazilian government, China accounted for 44% of Brazil’s oil exports in 2024, followed by the United States (13%) and Spain (11%). From January to March 2025, China received approximately 40% of Brazil’s quarterly oil exports. Over the past decade, the value of Brazil’s crude oil exports to China has increased nearly fivefold.
  • Meat: (i) Beef: On 17 April, the BRICS Working Group meeting advanced the process of qualifying Brazilian slaughterhouses to export beef to China. Following the disqualification of nearly 400 US slaughterhouses from exporting to China, Brazil aims to become a key alternative supplier to meet China’s beef demand. Previously, the Chinese government had rejected export applications from 28 Brazilian plants due to technical and health concerns. (ii) Pork: The United States is the third-largest supplier of pork to the Chinese market, after Spain and Brazil. Amid the US-China trade war, Brazil, as a major commodity exporter, is positioned to potentially replace the US as the leading supplier to the Chinese market.
  • Ore: According to official Brazilian data released on April 16th, China imported $331 million worth of copper products from Brazil in the first three months of this year, marking a sharp 180% increase compared to the same period last year. The Chinese market now accounts for 35% of Brazil’s total copper exports, making it the top destination for Brazilian copper.

2.2.2.  China’s Core Exports to Brazil: Technology Products, Fertilizers, Heavy Machinery, Light Industry, and Consumer Goods

According to statistics from the China General Administration of Customs, in 2024, China’s total exports to Brazil reached RMB 512.82 billion (USD 72.08 billion), representing a 23.3% increase compared to the same period last year.[7] In recent years, Chinese exports have had a significant impact on Brazil’s science and technology sector, agriculture, as well as both heavy and light industries.

  • Technology Industry: China exports a wide range of technology products to Brazil, including mobile phones, telecommunications equipment, transformers, and integrated circuits. These products have played a vital role in supporting the development of Brazil’s high-tech industries.
  • Agriculture, Fertilizers, and Organic Chemicals: China’s imports of phosphorus-, nitrogen-based fertilizers from Brazil surged by 625% to 265,000 tons, setting a new quarterly record. Meanwhile, organic chemicals exported from China to Brazil are extensively used in the pharmaceutical, agrochemical, and manufacturing sectors, serving as essential raw materials for Brazilian industry.
  • Heavy Industry, Automobiles, Machinery, and Energy: In the first half of 2024, new energy vehicles (NEVs) manufactured in China accounted for 91% of all NEVs imported into Brazil—meaning 9 out of every 10 NEVs sold in Brazil were made in China. From January to March 2025, Brazil’s imports of solar panels from China increased by 13%, marking a new record for that period. Additionally, in February 2025, Brazil purchased an oil drilling platform from China to support its infrastructure development.
  • Light Industry and Consumer Goods: China’s market share in Brazil’s light industry and consumer goods sector continues to expand. Products such as plastic goods, electrical appliances, luggage, toys, sporting goods, clothing, hats, wigs, scarves, ornaments, and other small commodities are increasingly popular among Brazilian consumers.

2.3 Brazil’s Tariff Policy Toward China

The Brazilian government’s trade policy towards imports changes according to its national interest (such as employment and inflation rates and also the lobby of local and international player). In recent years, the tariffs on specific products have changed and many tariff concessions and conveniences have been cancelled. Instead, Brazil has introduced or strengthened various import barriers, such as increased tariffs, anti-dumping duties, automobile import taxes, and the reduction or elimination of tax exemptions for small parcels, as outlined below:

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Table 3: Brazil’s Tariff policies Toward China

3. Opportunities and Challenges in China–Brazil Trade

China-Brazil economic, trade and investment cooperation continues to deepen, industrial endowments are mostly complementary (a notable exception is the area of steel where both countries competes). Whilst Brazil competes with the US agricultural and mineral exports, and the degree of development strategy is constantly rising, which has laid a solid foundation for bilateral industrial cooperation. However, Brazil is a large, multicultural, complex country with unique challenges and opportunities. Some of which we will describe below.

3.1 Opportunities: Favorable Policies and Complementary Strengths

Against the background of favorable policies, China has been Brazil’s largest trading partner for 15 years in a row, and Brazil is also the first Latin American country whose exports to China have exceeded 100 billion US dollars. The two sides have a large space for industrial cooperation and complementary advantages, do not compete in the international market on their exports, nor have conflicting interests in the geopolitical agenda, and this is unlikely to change in the next several decades

3.1.1. Policy Advantages

With the integration of the Belt and Road Initiative and Brazil’s development strategy, China and Brazil have signed a series of cooperation memoranda in areas such as economy, trade, finance, science and technology, infrastructure and environmental protection, providing policy support for the expansion of bilateral trade. Promoting local currency settlement further reduces transaction costs and exchange rate risks, enhances trade efficiency and strengthens enterprises’ willingness to engage in cross-border trade.

3.1.2. Complementary Strengths

Currently, oil, soybeans and meat are Brazil’s core export products to China, and China has a high import demand for these commodities. Brazil is also a leading player on bioeconomy (most of the cars produced in Brazil in the last 30 years run on both, gasoline or biofuel, 49,1% of the energy consumed in Brazil comes from renewable sources). However, ineffective and scarce infrastructure in a country that has the size of a continent creates challenges and costs on the movement of goods, distribution, and treatment of water and energy. On one hand, these deficiencies create difficulties in the implementation of productive hubs, but on the other hand, they create investment opportunities to build and explore the highly necessary infrastructure.

3.2. Challenges

Under the US tariff policy, strengthening economic and trade ties between China and Brazil presents both opportunities and challenges. For Chinese enterprises, investing in Brazil or engaging in economic and trade activities involves navigating various obstacles, including shifts in the international landscape (particularly China-Brazil relations), changes in local Brazilian policies, and other external conditions.

3.2.1. Shifting Global Trade Environment

At present, the United States regards Latin America as a “backyard” at the global strategic level, a term that was considered offensive by the Brazilian diplomacy with the aggravation that during the 60´s the US government, under the “backyard” policy, sponsored a right-wing military coup that lasted 20 years in Brazil costing some lives and ruined the country economy. Facing the deepening cooperation between China and Brazil and other countries in the region, the United States has taken more and more targeted measures against China, which may interfere with China-Brazil and China-Latin America cooperation for a long time.

At the same time, external factors such as the global economic slowdown, rising trade protectionism, and geopolitical conflicts may have negative impacts-disrupting global supply chains and increasing trade barriers-thereby affecting the stability of China-Brazil relations. For instance, China-Brazil shipping relies heavily on the Panama Canal, with 90% of soybean product shipments passing through this route. The United States’ influence over the Panama Canal also introduces a degree of uncertainty into China-Brazil trade.

3.2.2. Brazil’s Industrial Policy

Brazilian economy has strong state influence, which balances the private sector interests, the political and social agendas. It has a tradition of protecting local production and restricting its markets; the degree of protection varies with the time, political force in power and economic conditions. The government has tools to impose restrictions and incentives on trade through regulatory taxes and incentives. This may be perceived as lack coherence but considering and understanding the forces behind the policies it is possible to navigate through the different scenarios successfully and many foreign companies flourished in Brazil.

Examples of these protective measure are in January 2023, Brazil resumed the automobile import tax by 10% and plans to gradually increase it to 35% by mid-2026. The goal of such policy is twofold, protect the industry that is already established (composed by multinational players organized in individual or collective lobbying groups such as ANFAVEA) and create incentives for the industries to establish local assembly facilities, the regulations related to incentives and taxes on the automative industries (such as Decree. Nº 12.435, DE 15 DE ABRIL DE 2025 and the Gecex-Camex decision to increase the taxes on electric cars) does not single out Chinese products and it applies to all equally, regardless the nationality. Companies reacted with different strategies, for example, FORD motors closed its local automotive assembly facilities (which were later bought by Chinese and Korean car manufacturers) and moved the production to Argentina. Similarly, to protect the development of textile industries, Brazil has also imposed higher tariffs on products that China competes with. For example, in October 2024, Brazil implemented a new tax policy, canceled the original favorable policies, and imposed tariffs and anti-dumping duties on many goods from China.

As per the examples above, the Brazilian economic model has similarities to the European and Chinese models, where the government has tools and uses them to regulate the market. It is highly advisable to understand these tools and policies and lobbies behind the scenes to work in the Brazilian market. So what is the difference between what the US is doing now and what Brazil have been doing for decades? The difference is the speed and radical shift of policies that we are seeing in the US. China, Brazil and Europe took decades to build and negotiate their programs under the scrutiny of international organizations such as World Trade Organization – WTO, and the industries had time to understand and adapt to it, whilst the US is adopting extremely high tariffs, disregarding previous arrangements, on a radical shift, creating uncertainty. Important to mention also that, the US economy, after the second world war -WWII, under a liberal approach on imports, grew much faster and much stronger than the Brazilian economy. The Brazilian economy grew less with the trade barriers, and it did not develop the local industry as planned (there are exceptions, such as the commercial airplane manufacturer Embraer that relied).

Whether it is due to regime change or the demand that Brazil’s domestic industrial development excludes foreign competition, it may bring about policy changes, which will require the ability and know-how to navigate through and may restrict the sustainable development of the booming China-Brazil economic cooperation.

3.2.3.  Brazil’s Structural Constraints

At present, Brazil’s local industry development foundation is the strongest in Latin America, but weak when compared to China, US and Europe, the production and export structure are highly dependent on the export of agricultural and mineral products, and the industrial base and transportation infrastructure to undertake China’s industry are insufficient. For example:

Brazil’s ports and canals and other logistics infrastructure are not strong enough to effectively support the logistics needs of cross-border trade. At present, major ports in Brazil have started expansion plans, such as Porto do Acu in Rio de Janeiro and in the Santo´s Port, but ports are known bottlenecks to Brazilian trade.

Another example is Brazil’s current production and export structure. Since the agricultural and mineral products are highly developed, the technical development level and scale of high-tech industries and technical talents still need to be improved. Although the Brazilian government has formulated a series of policies to develop emerging industries and “re-industrialization”, there is an obvious gap between its industrial base, policy support ability and policy objectives, and its financing ability is limited, or it affects the cooperation between China and Brazil in science and technology industry in terms of setting restrictive cooperation conditions.

Additionally, Brazil has structural problems that needs to be considered too:

  • Complex Legal and Tax Scenarios: Taxes in Brazil are highly complex, rules overlap between and within the three levels of public administration (Federal, State and Municipal). Companies have large accounting, legal and tax departments to handle the bureaucracy and litigation generated by the complexity. Nevertheless, the Brazilian congress approved a tax reform (EC 132/2023) that will simplify the taxes related to consumption (an IVA will replace and aggregate taxes related to services and goods), but the transition period will be long, from 2026 to 2033, and other taxes are still to be simplified.
  • Labor Regulations and Shortage of Skilled Manpower: Brazilian labor regulations are less restrictive than European regulations but more restrictive than US and Chinese regulations. Litigation between employees and employers has reduced drastically in the past 10 years due to legal reform but it still not rare. Taxes and mandatory contributions raise labor costs, while inefficient education make it difficult to find skilled workers.
  • Public Security: Brazil ranks 132 on the Global Peace Index (GPI) among 163 countries. Brazil is among the 25% worst countries in terms of violence. Nevertheless, this figure represents a national average for a country that is larger than continental Europe; some regions are relatively safe, while others are not. Organized crime operates in some areas but most activities simply do not cross paths with them.
  • Corruption: Brazil holds an intermediate position in terms of corruption perception index (CPI), 104 among 180 countries, but again, it is a country average, and it is perfectly possible and advisable to operate within the boundaries of the law, but caution is advisable when dealing with unknown parties.
  • Contractual and Commercial Law: Brazilian courts and the rule of law is present when enforcing contracts in Brazil and judiciary system is reliable, however, the decision making process is relatively slow, it is not uncommon for a court decision, considering appeals, to take 7 years, nevertheless, the cost to litigate in Brazil is much cheaper than the US or European countries, arbitration can be considered on more complex contracts where speed in the decision is necessary. 

Summary

The strategy to protect and foster local industry and jobs used to justify the current US tariff policy have precedents in other countries, however, no one has ever seen these sorts of policies done in such a short timeframe, unilaterally, without the support of solid academic studies and proof to be working well in the economy. The fact that the reciprocal tariffs on China will be temporarily adjusted to 10% is a reflection of rationality and sound economic judgement.

In fact, the original intention of the Trump administration was to bring the value chain back to the US. However, due to high labour costs, an underdeveloped supply chain and an uncertain political environment in the US, most companies have not considered moving production there. Instead, they have sought to shift capacity to other countries that offer greater economic value.

The deepening cooperation between China and Brazil reflects the inherent dynamics of global trade. This growing partnership not only strengthens bilateral ties, but also promotes broader economic cooperation among developing countries. It enables more emerging economies to participate in the international division of labour and share the benefits of globalisation.

For companies involved in China-Brazil trade, we recommend closely monitoring international developments and policy changes between the two countries. Companies should proactively adapt to Brazil’s investment and trade environment, assess both the opportunities and challenges of entering specific industry sectors, and prepare risk management strategies in advance. Where necessary, companies should also consult professional institutions to help design and analyse their overall structure, business models and trade strategies.

We have long been concerned about the trade between China and Brazil and have rich experience in consulting Latin America, the opinions in this article reflect the points of view of the authors with first-hand experience in the topic. If you have any questions regarding strategy or compliance in China–Brazil trade, please feel free to contact us.

Explanatory note:

[1] Certain countries and regions may re-impose tariffs in excess of 10% after a 90-day moratorium.

[2] The United States was Brazil’s largest trading partner until 2010, when China overtook the US to become Brazil’s largest trading partner.

[3] See Relations between China and Brazil, from the Official website of the Ministry of Foreign Affairs of China:https://www.fmprc.gov.cn/web/gjhdq_676201/gj_676203/nmz_680924/1206_680974/sbgx_680978/ 

[4] See Table of the total value of import and export commodities by major countries (regions) in December 2024 (RMB) , from the official website of China General Administration of Customs:http://www.customs.gov.cn/customs/302249/zfxxgk/2799825/302274/302275/6312779/index.html

[5] See Table of the total value of import and export commodities by major countries (regions) in December 2024 (US dollars), from the official website of China General Administration of Customs:  http://www.customs.gov.cn/customs/302249/zfxxgk/2799825/302274/302275/6312783/index.html

[6] See Table of the total value of import and export commodities by major countries (regions) in December 2024 (RMB), from the official website of China General Administration of Customs: http://www.customs.gov.cn/customs/302249/zfxxgk/2799825/302274/302275/6312779/index.html

[7] See Table of main countries (regions) in import and export commodities in December 2024 (RMB), from the official website of China General Administration of Customs: http://www.customs.gov.cn/customs/302249/zfxxgk/2799825/302274/302275/6312779/index.html 

[8] The policy of increasing automobile import tax prompted Brazilian importers to “grab” imported cars in a short period of time, and Chinese manufacturers rushed to ship cars to Brazil before the tax increase. This led to the special phenomenon that more than 70,000 unsold Chinese electric vehicles piled up at Brazilian ports in December 2024. Meanwhile, it’s worth mentioning that the tariffs apply to all imported cars, not only to Chinese vehicles, and it is in line with the Brazilian policy to create incentives for the automotive industry to produce and assemble vehicles in Brazil. This policy is several decades old. Chinese manufacturers, such as BYD and GWM, are establishing local facilities to avoid such taxes, creating further opportunities for their supply chains to develop locally. US, European, Japanese, and Korean companies, such as General Motors, FIAT, VW, Renault, Nissan, Honda, Mitsubishi, and Hyundai, have produced cars in Brazil under this regime for decades.