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.

Core Tip:

The “misleading sales” determined by financial regulatory authorities is not equivalent to “fraud” under civil law. People’s courts should review whether it constitutes “fraud” in accordance with the law, based on the specific circumstances of each case, the elements of fraud, and the standard of proof, rather than merely relying on the conclusion of “misleading sales” determined by regulatory investigations to revoke an already established and effective insurance contract.

Case Background:

In disputes over “policy cancellation” between the policyholder and the insurer, policyholders often allege “improper conduct” during the sales process and file complaints with financial regulatory authorities, in an attempt to pressure the insurer into achieving a full refund. Given that some insurance institutions do indeed have flaws in their sales processes, after investigation by financial regulatory authorities, a conclusion that “misleading sales” has occurred may be reached.

After obtaining the regulatory determination conclusion, policyholders usually claim that the insurer has committed fraud and request the People’s Court to revoke the insurance contract and refund the full premium in accordance with Article 148 of the Civil Code[1]. In the current context of the prevalence of “black market for policy cancellation,” some insurers, in order to avoid regulatory investigations, are forced to process full refunds, thereby suffering losses.

There is much controversy in judicial practice regarding whether the regulatory determination conclusion of “misleading sales” cited by policyholders can be accepted by the People’s Courts and used to determine fraud and revoke the insurance contract. Based on the authors’ experience in handling similar cases, this article will discuss from the perspective of insurance companies to provide references for their defense in lawsuits.

Discussion and Analysis:

  1. The Nature of the Regulatory Determination of Misleading Sales

The National Administration of Financial Regulation (NAFR), directly under the State Council, is formed on the basis of the China Banking and Insurance Regulatory Commission (CBIRC). The local regulatory bureaus function as dispatched administrative entities under the Administration. According to the Reform Plan of the Party and the State Institutions issued by the Central Committee of the Communist Party of China and the State Council in March 2023, the National Financial Regulatory Administration of China will be in charge of regulating the financial industry except the securities sector, strengthening institutional supervision, conduct supervision, functional supervision, penetrative supervision, and continuous supervision to maintain the legality and stability of the financial industry. Therefore, the National Financial Regulatory Administration of China and its local bureaus serve as administrative authorities.

Upon receipt of policyholder allegations regarding misleading sales practices during insurance contract formation, financial regulatory authorities usually issue an Investigation Opinion Letter Concerning Banking and Insurance Regulatory Violations (hereinafter referred to as the “Investigation Opinion Letter”). Such Investigation Opinion Letter routinely contains the following determination:

“Regarding the matter of misleading sales by a certain company as reflected in the letter, … after investigation, it is found that a certain company has engaged in misleading sales, in violation of Article 131(1) of the Insurance Law.”

In practice, the Opinion Letter shall include the following administrative remedy notice at the end: “If you are not satisfied with this reply, you may either apply for an administrative reconsideration to the National Financial Regulatory Administration of China within 60 days of receiving this reply letter, or file a lawsuit before the People’s Court with jurisdiction over the financial regulatory bureau’s location within six months from the date of receipt of this reply letter.”

Based on the above, in accordance with Article 18 of the Interpretation II of the Supreme People’s Court[2] on Several Issues Concerning the Application of the Insurance Law of the People’s Republic of China, the Investigation Opinion Letter issued by local financial regulatory bureaus is a public document made by administrative authorities in accordance with the law, and the People’s Courts generally accept it, unless the insurance institution provides contrary evidence to overturn the relevant determination.

II. Whether the Regulatory Determination of Misleading Sales Can Prove Fraud and Have the Evidentiary Power to Revoke the Insurance Contract

1. The Essential Difference Between Regulatory “Misleading Sales” and Civil “Fraud”

    The authors hold that while the Investigation Opinion Letter determines that the insurer engaged in misleading sales practices at the time of underwriting, such regulatory investigation opinion is formulated from the perspective of industry management, in accordance with insurance industry regulatory provisions, and with the fundamental purpose of regulating the professional behavior of insurance practitioners and maintaining the order of the insurance industry. It emphasizes the improper sales language used by insurance practitioners in the process of recommending insurance products to policyholders. It should be based on the Guidelines for the Determination of Misleading Sales of Personal Insurance and Article 165 of the Insurance Law to hold insurance institutions and agency sales institutions administratively responsible, and does not involve the evaluation of the effectiveness of the insurance contract concluded by insurance practitioners.

    Therefore, the authors further believe that the “misleading sales” determined in the Investigation Opinion Letter and the “fraud” determined in civil litigation differs in legislative purpose, legal basis, effectiveness level, elements of composition, and standard of proof, as well as legal consequences:

    DifferencesAdministrative Determination of “Misleading Sales”Civil Litigation Determination of “Civil Fraud”
    Legislative PurposeTo regulate the business conduct of insurance agents and brokers, protect the legitimate rights and interests of policyholders, insured persons, and beneficiaries, and maintain the order of the insurance industry.To implement the principle of freedom of contract, allowing the right of revocation to be exercised by the party whose expression of intent is not genuine or accurate, thereby realizing the will and interests of the revoking party and eliminating the harm caused by defective expressions of intent.
    Legal BasisGuidelines for the Identification of Misleading Sales Behavior in Life Insurance: “If a life insurance company, insurance agency, or personnel engaged in insurance sales have any of the behaviors stipulated in Articles 5 and 6 of the Guidelines, it can be determined as the behavior of ‘deceiving policyholders, insured persons, or beneficiaries’ as stipulated in Article 116 or Article 131 of the Insurance Law.”Civil Code: ” Where a party by fraudulent means induces the other party to perform a civil juristic act against the latter’s true intention, the defrauded party has the right to request the people’s court or an arbitration institution to revoke the act.”
    Effectiveness LevelDepartmental regulatory documentLaw
    Elements of CompositionIt is sufficient to have implemented the illegal behaviors stipulated in Articles 5 and 6 of the Guidelines for the Identification of Misleading Sales Behavior in Life Insurance.The following four elements must be present simultaneously: 1. The fraudulent party has the intention to defraud; 2. The fraudulent party has committed a fraudulent act; 3. The defrauded party falls into an internal error due to the fraud; 4. The defrauded party makes an erroneous expression of intent due to the internal error.  
    Standard of Proof/To reach the standard of proof that excludes reasonable doubt
    Legal ConsequencesIn accordance with Article 165 of the Insurance Law, administrative responsibility is imposed on the offender.The effectiveness of the contract concluded is negated, and the defrauded party is granted the right to revoke.

    Therefore, the determination of “misleading sales” as an administrative violation by insurance practitioners in the Investigation Opinion Letter does not equate to a determination that the insurance institution and its practitioners engaged in deceptive conducts at the time of concluding the insurance contract, nor does it establish fraud by the insurance institution.

    The People’s Courts should still exercise their judicial power independently to review whether the evidence provided by the policyholder can prove that “the insurance institution and its practitioners engaged in deceptive conducts, had fraudulent intent, and the policyholder entered into the insurance contract under a material misunderstanding,” and should also review whether the evidence provided by the policyholder regarding the fraudulent facts meets the “beyond reasonable doubt” standard of proof.

    2. Significant Disputes in Judicial Practice on the Relationship Between “Misleading Sales” and “Civil Fraud”

    There are significant disputes in judicial practice regarding the relationship between the regulatory determination of “misleading sales” and the establishment of civil fraud:

    Viewpoint 1: If the financial regulatory authorities determine that “misleading sales” has occurred, it indicates that the insurance company engaged in deceptive behavior at the time of underwriting, constituting fraud. Relevant judicial cases include:

    • In case (2024) YU 87 Min Zhong 1914, the Chengdu-Chongqing Financial Court held that:

     According to the facts determined in the Investigation Opinion Letter Concerning Banking and Insurance Regulatory Violations, Luo Mou indeed engaged in behaviors such as signing on behalf of others, concealing sales, failing to inform important terms, giving gifts, and fabricating the annual income of the policyholder… The National Financial Regulatory Administration of China’s Liangjiang Regulatory Bureau, which issued this evidence, is the regulatory authority of the insurance industry and has professional and authoritative judgment capabilities. Its determination based on relevant evidence is a manifestation of performing regulatory functions. In the absence of contrary evidence sufficient to overturn it, the first-instance court accepted it in accordance with the law. Accordingly, it was determined that Luo Mou, a third party, did indeed engage in concealing sales and failing to inform important terms when selling insurance products… and the Personal Insurance Contract signed between Deng Mou and a certain company was legally revoked.

    • In case (2016) Shan 01 Min Zhong 8496, the Intermediate People’s Court of Xi’an, Shaanxi Province held that:

     As a consumer, Yang Mou was entitled to make an informed decision on whether to purchase insurance products and which insurance products to purchase. The Shaanxi Regulatory Bureau of the China Banking and Insurance Regulatory Commission found that the staff of a certain company “exaggerated the future uncertain returns on the insurance product purchased by Yang Mou beyond the contractual guarantee,” this behavior violated Article 6(1) of Guidelines for the Determination of Misleading Sales of Personal Insurance, which stipulates that “life insurance companies, insurance agencies, and personnel engaged in insurance sales activities shall not engage in the following deceptive behaviors: (1) Exaggerating insurance liability or insurance product returns.” The staff member of a certain company engaged in deceptive conduct when selling the involved insurance product to Yang Mou.

    Viewpoint 2: The regulatory determination of “misleading sales” does not equate to civil fraud, and the People’s Courts should independently review based on the elements of fraud. Relevant judicial cases include:

    • In case (2023) Jing 74 Min Zhong 1338, the Beijing Financial Court held that:

    Although the Investigation Opinion Letter determined that “a certain company engaged in behaviors such as exaggerating insurance liability and returns, promoting stop sales, promising to seek improper benefits for others, irregular publicity, irregular explanation, giving benefits outside the contract, poor management of service materials, and failure to provide dividend notices,” these behaviors fall within the scope of regulation by the insurance regulatory authorities. The existence of illegal behaviors does not necessarily mean that the relevant behaviors constitute fraud against Li Mou.

    • In case (2023) Jing 0119 Min Chu 1013, the Yanqing District People’s Court of Beijing held that:

    The Investigation Opinion Letter determined that the businessperson Sun Mou engaged in irregular or improper sales behaviors during the sale of insurance, which falls within the scope of regulation by the insurance regulatory authorities. Therefore, Li Mou’s claim that the two defendants engaged in fraudulent behavior lacks rational basis and is not accepted by this court.

    • In case (2023) Lu 1002 Min Chu 5093, the Huancui District People’s Court of Weihai held that:

    Despite the Investigation Opinion Letter determined that a certain company engaged in misleading sales behavior, this opinion letter is just an industry management regulation. The “misleading sales” mentioned in it is a determination made by the CBIRC as the industry’s main department from the perspective of industry management, and it does not necessarily equate to “fraud” under civil law. Fraud requires that the defrauded party, due to the fraud, falls into a mistaken belief and, as a result, makes an erroneous expression of intent. However, in this case, the court’s investigation revealed that Qu Mou entered into a personal insurance contract in June 2017 and has continuously paid premiums for 6 years. During this period, he also added insurance premiums multiple times and received dividends, which sufficiently demonstrated that his decision to enter into the contract was made voluntarily and was not induced by fraudulent conduct.

    III. Key Points for Insurance Companies to Respond When Policyholders Demand Full Refunds Based on Regulatory Investigation Conclusions

    Given that the Investigation Opinion Letter issued by the financial regulatory authorities carries a certain degree of probative force in proving fraud, insurance companies should actively defend themselves in lawsuits: Although there may be improper sales practices, it does not lead to the policyholder falling into an erroneous understanding and enter into the insurance contract, and the conclusion of the relevant insurance contract is the true expression of the policyholder’s intent.

    Moreover, it is suggested that insurance companies refine their defense opinions and organize evidence from the following eight aspects:

    1. Whether the insurer or its sales have provided detailed explanations to the policyholder regarding matters closely related to the policyholder and the insured, such as the name of the insurance product, the name of the insurance company, insurance liability, exclusions, insurance amount, insurance period, payment period, loss on surrender, cooling-off period, etc.
    2. Whether the policyholder has signed the Insurance Contract Receipt and confirmed that the insurer has clearly explained and interpreted the contents of the insurance contract to the policyholder.
    3. Did the insurer conduct a follow-up call with the policyholder? During the call, did the policyholder confirm that they understood the product brochure, application tips, and contract terms, especially the insurance liability and exclusions, and confirm the insurance period, payment period, and monthly premium amount?
    4. In the case of multiple insurance contracts, are the types of insurance and agency sales personnel the same?
    5. Whether the policyholder had previous multiple insurance experiences, and whether the types of insurance purchased are the same as the involved insurance.
    6. Whether the irregular sales conduct was sufficiently misleading to induce the policyholder to make an erroneous decision.
    7. Whether the policyholder has continuously paid premiums for many years, and whether they have added insurance premiums multiple times and received dividends during this period.
    8. After initially concluding the insurance contract, whether the policyholder has subsequently purchased other insurance products in the same manner.

    Conclusion:

    In recent years, malicious complaints and the “black market for policy cancellation” have seriously disrupted the normal functioning of the insurance market and the reputation of the insurance industry. The former China Banking and Insurance Regulatory Commission, the National Financial Regulatory Administration of China, and the Insurance Association of China have repeatedly carried out special actions against “black market for policy cancellation” and issued consumer risk warnings, but it is still difficult to effectively eradicate such illegal activities.

    If insurance institutions can actively and effectively defend themselves in lawsuits, it would positively influence the regulatory authorities’ efforts to combat the “black market for policy cancellation,” as well as contribute to the development of the local insurance industry and the overall order of the national insurance market.

    (Declaration: This article represents the views of the authors only and should not be regarded as a formal legal opinion or suggestion issued by Beijing AnJie Broad Law Firm. If you need to reprint or quote any content of this article, please indicate the source.)


    [1] Article 148 of the Civil Code: Where a party by fraudulent means induces the other party to perform a civil juristic act against the latter’s true intention, the defrauded party has the right to request the people’s court or an arbitration institution to revoke the act.

    [2] Article 18 of the Interpretation II of the Supreme People’s Court on Several Issues Concerning the Application of the Insurance Law of the People’s Republic of China: The people’s court shall examine a written conclusion on a traffic accident or a written conclusion on a fire, among others, made by an administrative agency in accordance with law and confirm its corresponding weight of evidence, unless it can be overturned by any evidence to the contrary.

    Following the release of the Guidelines for the Pilot Filing of Real Estate Private Investment Funds (Trial) (commonly referred to as “Circular No. 4”) by the Asset Management Association of China (AMAC) in February 2023, real estate funds have garnered significant attention in both private investment and insurance sectors. While real estate funds are not a new concept for insurance companies, uncertainties persist regarding their classification, the applicability of regulatory requirements, and how changes introduced by Circular No. 4 align with existing regulations. In this context, we aim to provide a concise overview of key practical issues related to real estate investments by insurance companies.

    I. Should an investment in a real estate fund be categorized as a real estate-related financial product or as an indirect equity investment?

    According to the Notice on Strengthening and Improving the Proportional Supervision of Insurance Fund Utilization, domestic real estate assets primarily include physical real estate, infrastructure investment plans, real estate investment plans, real estate-related insurance asset management products, and other financial instruments linked to real estate. The regulatory framework overseen by the China Banking and Insurance Regulatory Commission (“CBIRC”) does not explicitly categorize real estate funds as a distinct type of real estate-related financial product. Consequently, before 2022, the classification of real estate funds was unclear.

    Given that most insurance companies have equity investment management capabilities, and considering that the requirements for fund managers’ professional personnel and managed asset balances are relatively lower for indirect equity investments compared to real estate-related financial products, insurance companies generally classified real estate funds as indirect equity investments rather than as real estate-related financial products.

    At the end of 2021, the CBIRC clarified the nature and applicable regulatory framework for real estate funds through its official Q&A platform. According to the CBIRC’s response, “Private equity funds invested in by insurance companies, where the underlying assets are real estate, should be classified as real estate financial products and must comply with the Tentative Measures for Investment in Real Estate by Insurance Funds (“Circular No. 80”). These investments are not subject to the Interim Measures for the Administration of Insurance Funds’ Equity Investment (“Circular No. 59”).” In other words, when insurance companies invest in real estate funds, both the investors and fund managers, as well as the funds and their investment targets, must adhere to the requirements for real estate financial products outlined in Circular No. 80 and Circular No. 59. They are not required to comply with the regulations governing equity investments.

    II. Alignment Between Insurance Companies’ Investment in Real Estate Funds and the New Provisions of AMAC

    A. Are real estate funds invested by insurance companies required to be classified as “Real Estate Private Investment Funds”?

    As to whether the real estate funds invested by insurance companies must be “private equity investment funds in real estate” (“pilot funds”), Circular No. 4 and the Explanatory Notes on the Draft of the Guidelines for the Pilot Filing of Real Estate Private Investment Funds (Trial) provide a relatively clear answer.

    According to the aforementioned documents, fund managers participating in the pilot program are permitted to conduct real estate investments in accordance with Circular No. 4. For those not participating in the pilot, existing business models and filing requirements remain unchanged, allowing them to continue making equity investments in sectors like affordable housing, commercial real estate, and infrastructure under the current self-regulatory framework overseen by the AMAC. Consequently, real estate funds invested in by insurance companies are not required to be part of the pilot program.

    B. Classification of Project Types Such as Logistics Parks and Industrial Parks

    Article 2 of Circular No. 80 stipulates that insurance companies’ investments in infrastructure-related real estate must comply with the Measures for the Administration of Indirect Investment in Infrastructure Projects by Insurance Funds and related provisions, while investments in non-infrastructure real estate and related financial products are governed by Circular No. 80. This makes it necessary to distinguish between infrastructure and real estate projects. However, the CBIRC and the AMAC differ in their classification criteria. 

    For example, regarding logistics parks, the CBIRC stated in an October 2022 response that under the Tentative Measures for Investment in Real Estate by Insurance Funds, insurance companies may invest in qualified real estate-related financial products. Investments in logistics properties through private equity funds must comply with Circular No. 80 and other regulatory provisions.” This indicates that the CBIRC classifies logistics parks as non-infrastructure real estate, whereas Circular No. 4 includes storage and logistics projects, ports, and industrial parks under infrastructure. If insurance companies invest in infrastructure projects like ports as defined by Circular No. 4, whether this constitutes an investment in real estate financial products remains unclear. 

    C. Debt-to-Equity Ratio for Insurance Companies Investment in Real Estate Funds

    1. From the perspective of insurance fund regulation, are investments in real estate funds required to comply with the 40% cap on debt investments?

    According to Circular No. 59, “If an insurance company invests in real estate through the equity of a project company, the project company may use its own assets as collateral for financing, such as obtaining loans from its insurance company shareholders, provided that the financing amount does not exceed 40% of the total project investment.”

    In our view, based on a literal interpretation, this provision primarily applies to cases where insurance funds make direct equity investments in real estate project companies. Investments made through funds do not necessarily fall under this framework.

    2. For insurance companies’ investment in pilot funds, debt-to-equity ratio restrictions may no longer apply under specific conditions

    Under Circular No. 4, a fund providing loans to its invested enterprises must comply with the following requirements:

    • The fund contract must explicitly allow such loans, and the necessary decision-making procedures must be followed.
    • The loan’s maturity date must not extend beyond the fund’s liquidation date.
    • If the fund includes individual investors, it must hold at least 75% equity in the invested enterprise, with the equity contribution accounting for no less than one-third of the total investment (i.e., the maximum equity-to-debt ratio can reach 1:2).
    • If the fund consists solely of institutional investors, it must either hold at least 75% equity in the invested enterprise or hold at least 51% equity while the enterprise provides guarantees. In such cases, the debt investment amount may be determined by the fund contract.

    Thus, if a real estate fund invested by insurance companies has only institutional investors and meets the investment ratio requirements and other stipulated provisions, the debt investment ratio is unrestricted. 

    3. Insurance funds’ investment in non-pilot funds remain subject to the 20% debt investment cap

    According to the Several Provisions on Strengthening the Regulation of Private Investment Funds, private funds engaging in lending activities must adhere to the following rules:

    • The maturity date of such loans must not exceed the exit date of the corresponding equity investment.
    • The fund’s assets used for lending must be limited to 20% of the total contributed capital.
    • The loan term must be restricted to one year or less.

    Therefore, if insurance companies invest in non-pilot funds, those funds must still comply with the above restrictions.

    In today’s ever-changing digital ecosystem, the proliferation of false information and even malicious contents has emerged as one of the most pressing challenges to the cyberspace integrity.  In recent years, China’s internet regulator and judicial authorities have put efforts in regulating and monitoring malicious network contents. 

    I. Administrative Approach & Latest Initiative

    On April 15, 2025, the Cyberspace Administration of China (the “CAC”) has launched a nationwide campaign to crack down on malicious marketing in the short video sector.  This three-month initiative, so-named “Clear and Bright·Crackdown on Malicious Marketing Chaos in the Short-Video Field” (the “CAC’s Initiative”), aims to foster a healthier and more trustworthy online environment.

    The campaign will target the following four categories of misconduct.

    1. Malicious staged fake scenarios:

    • Fabricating pitiable personas, claiming false identity of new occupations group and staging emotionally manipulative content to exploit public sympathy for financial gain
    • Fabricating elite personas or dramatic life stories and exaggerating “rags-to-riches” narratives to gain attention, internet traffic and profit
    • Writing fake tragic scripts under the guise of promoting rural development or poverty alleviation

    2. Dissemination of false information:

    • Deceptive editing through “cut-and-paste” or “quoting out of context”
    • Exaggerating family conflicts, workplace disputes or violent incidents to incite social anxiety and provoke group antagonism
    • Using deepfakes and altered audio or visuals to fabricate stories
    • Pseudo-scientific popularization or interpreting content, or fake experts or impersonate academic or professional institutions to maliciously fabricate and disseminate misleading information concerning economic, legal, historical, medical and other professional fields

    3. Violations of public order and social morality:

    • Harassing strangers during outdoor “pickup” or street interviews
    • Soft-pornography through suggestive titles, attire, or gestures, etc.

    4. Improper diversion of internet traffic:

    • Use of gimmicks such as “emotional communication”, “traditional Chinese culture”, “traditional Chinese medicine for health cultivation” and ‘getting rich quickly” to lure the irrational consumption of specific groups such as the elderly
    • Use of exaggerated and sensational “Title Party” copywriting such as “exposing industry secrets”, “exposing industry insiders”, “reporting industry fraud” and “I was blocked by the industry” to attract internet fans
    • Publish of false contents like “anti-counterfeiting”, “evaluation” and “shop exploration” content which mislead users’ awareness of relevant brand image, commodity quality and service level

    The CAC has outlined the following enforcement approaches targeting the foregoing misbehaviors.

    1. Platform accountability: requiring short video service platform to enhance content moderation, strengthen content review mechanisms, improve recommendation algorithms and traffic distribution systems, and ensure users have access to clear channels for reporting problematic content

    2. Severe penalties: committing to strict punishment for problematic platforms and accounts, including public exposure of representative cases for deterrent effect

    3. Sustainable governance: emphasizing long-term governance through improved labeling, monetization controls, and reporting channels to curb malicious marketing

    Notably, the CAC’s Initiative builds upon some earlier regulations like the Provisions on the Governance of Network Information Content Ecology which first prohibited fraud of internet traffic and fake account registration.[1]  The goal is to protect the legitimate rights and interests of netizens and promote the healthy and orderly development of the industry. 

    It is widely noted that China is home to a vast short video market.  As of June 2024, the number of short video users reached 1.05 billion, accounting for 95.5 percent of the country’s total internet population.[2]  The timing of the CAC’s Initiative reflects regulators’ recognition of short-video platforms’ growing influence, particularly their role in shaping and remodeling user behavior, political opinions, and social values, as well as the increasing malicious marketing practices in the short video sector.  For instance, on April 10, 2025, police in Chengdu, Sichuan province, detained two short video account operators after multiple videos went viral showing men confessing romantic feelings to other men on the Chengdu subway.   Authorities further found that the creators were not genuinely interested in men and that the content was largely fabricated to generate online traffic.  Police warned that fabricating content for online traffic in ways that violate laws and regulations will be punished.[3]  By targeting specific manipulation tactics rather than content viewpoints, therefore, the campaign aims to restore authenticity to online discourse while preserving legitimate expression. 

    II. Judicial Approach & Landmark Case Overview

    The first case in terms of resolving the dispute in relation to manipulating the “internet water army”, was selected as one of the Top Ten Cases of the People’s Courts in 2024 (the “2024 Case”).  In this case, a series of innovative legal application standards and liability determination schemes are put forward, which further activates the public interest litigation system and sparks in-depth discussion on the governance of “dissemination of false information on the internet” through artificial or technical intervention.

    From September 2019 to May 2022, a Chinese citizen whose family name is Yang (“Yang”) used the platform developed by several companies registered by him and further recruit many part-time workers to act as the “internet water army”.  By manipulating the “internet water army”, he engaged in paid business like conducting positive praise, forwarding and commenting on the publicity of film and television works, online videos, game works and commodities designated by customers, and publishing specific contents of specific works and commodities on relevant network platforms according to customer requirements without verifying the authenticity of information.  Yang and his companies also deleted posts by means of “complaint and reporting” on the information publishing platform to reduce the spreading of negative information for specific works and commodities.  Yang and his companies have preserved more than 1,200 internet accounts and fabricated more than 240,000 pieces of information through the business model like “forwarding positive praise” and “direct distribution”, the revenue generated from which reached more than RMB 8.96 million.  In the meanwhile, they have fabricated more than 1,200 pieces of information through “complaint and reporting” mechanism, the revenue generated from which reached more than RMB190,000.  Moreover, Yang and his companies provide paid deletion services for the purpose of making profits, and their acts of disrupting market order have been found to constitute the crime of illegal business operation by the court’s criminal judgment, and they shall be investigated for criminal responsibility.

    The People’s Procuratorate of Binjiang District, Hangzhou City, Zhejiang Province, also filed a civil public interest lawsuit against Yang and his companies on the grounds of network tort liability disputes.  After a public hearing, Hangzhou Internet Court held that the act of disseminating false information on the internet constitutes not only the act of disseminating fabricated, fictitious and distorted information, but also the act of interfering with the presentation of information by means of artificial or technical means, such as traffic fraud, false registered accounts and manipulation of user accounts.  The acts of the defendants have disrupted the network public opinion environment and the order of internet integrity, destroyed the operation order of relevant industries and markets, damaged the public’s right to know and choose, and should bear relevant civil tort liability.  Hangzhou Internet Court finally ordered the defendants to apologize publicly in the state-level media, delete the false information that had been published, cancel false accounts of the “internet water army” up to more than 1,200, and ordered compensation for public interest damages totaling RMB1 million, given the tort nature, duration, scope of impact, harm and other factors.

    Notably, this civil judgment complemented the prior criminal convictions for the paid takedown services, demonstrating a multi-pronged legal approach.  According to the Decision of the Standing Committee of the People’s Congress of Zhejiang Province on the Governance of False Information on the Internet, the prosecutorial authorities should explore and develop the path of public interest litigation in the field of network false information governance.[4]  To tackle the 2024 Case, judicial authorities intervene in the cyberspace governance by means of “public interest litigation”, which expands the path of monitoring false information spread on the internet.

    In the 2024 Case, the court has also clarified several issues concerning the internet disinformation.  Firstly, it determines that the network false information refers to the information presented in the form of words, numbers, images, audio and video or symbols, which is inconsistent with the facts or fabricated, disturbs the political, social and economic order or infringes on the legitimate rights and interests of others.[5]  The court expansively interpreted “false information” including not just factually inaccurate content but also “artificially manipulated data fraud”.

    Secondly, the court emphasized the cumulative societal harm of such operations, noting that while individual consumers might suffer small losses, the aggregate damage to public interests was substantial. The judgment identified social harms caused by network false information, which encompasses (i) damaging the interests of individual personality, (ii) destroying the trust and stability of the network society, (iii) destroying the ecological order of network information content, and (iv) disrupting the normal operation order of the market.[6]

    Last but not the least, the calculation of damage of compensation in the judgement merits our attention.  Rather than merely considering direct quantifiable losses in general civil tort disputes, the court calculated the damage of compensation based on multiple factors including duration, social impact, profits, and costs associated with governing and repairing the damaged network ecology. 

    III. Key Takeaways for Internet Platform Compliance Practice

    The evolving regulatory landscape, exemplified by the 2024 Case and the CAC’s Initiative, creates both risks and responsibilities for businesses operating online. Companies should (i) understand the full spectrum of potential legal liabilities including civil liability, administrative penalties and even the criminal liabilities in severe situations caused by acts relating to the internet disinformation and (ii) implement robust compliance programs to mitigate exposure to misbehaviors pursuant to relevant laws and regulations.  We present the following measures for business parties’ consideration:

    1. Marketing authenticity protocols:

    • Prohibit paid or incentivized reviews lacking clear disclosure
    • Establish verification systems for user-generated content claiming product experience
    • Maintain clear and complete archives of promotional collaborations with influencers

    2. Algorithmic governance:

    • Avoid engagement metrics manipulation through artificial boosting
    • Ensure recommendation algorithms don’t preferentially amplify paid/promoted content
    • Implement safeguards against “filter bubbles” that might reinforce false narratives

    3. Partner/vendor due diligence:

    • Conduct due diligence through third-party marketing firms experienced in compliance practices
    • Monitor affiliate networks that may involve in prohibited tactics like use of “internet water army”
    • Include anti-disinformation clauses in collaboration agreement/vendor contracts

    4. Employee training:

    • Educate staff on laws and regulations on a regular basis
    • Establish whistleblower channels for reporting concerns
    • Conduct regular audits of marketing practices

    5. Crisis preparedness:

    • Develop response plans for inadvertent disinformation incidents
    • Designate compliance officers who are familiar with ever-evolving governance standards
    • Maintain documentation for demonstrating good-faith compliance efforts

    In addition, regarding various industrial sectors, business parties should take industry-specific considerations into account.  For instance, companies engaged in e-commerce should conduct scrutiny on review systems and product claims, while entertainment companies should put efforts on risks brought by artificial popularity metrics and fan mobilization. 

    Both the CAC’s Initiative and the 2024 Case serve as a reminder that compliance is about avoiding penalties as well as maintaining the integrity of network ecology.  As courts increasingly recognize the societal costs of information pollution, businesses contributing to or insufficiently preventing such harm may face reputational and legal consequences.  This governance approach combining clear prohibitions, platform accountability, and public education, offers a model for addressing the internet disinformation without undue censorship.  As the legal consequences for information pollution grow more severe, legal and ethical information practices must become core to corporate strategy.  The emerging legal environment, therefore, presents both risks and opportunities for businesses.  Those who prioritize authentic engagement, transparent metrics, and rigorous compliance will not only avoid regulatory action but also earn consumers’ trust. 


    [1] See article 24 of the Provisions on the Governance of Network Information Content Ecology.

    [2] See Xinhua Agency, China to crack down on malicious short video content, China Daily (April 15, 2025).

    [3] See a warning notice issued by Chengdu Public Security Bureau Rail Transit Branch on April 10, 2025.

    [4] See paragraph 2, article 18 of Decision of the Standing Committee of the People’s Congress of Zhejiang Province on the Governance of False Information on the Internet.

    [5] See Chen Zengbao, Judicial Response to False Information on the Internet — — Reflections on the First Case of Manipulating “Internet Water Army”, Digital Law, No. 5, 2024.

    [6] See supra note 5.

    On January 3, 2025, the Ministry of Public Security held a press conference in Beijing to report the results of the special crackdown on insurance fraud crimes jointly conducted by the Ministry of Public Security and the National Financial Regulatory Administration and announced ten typical cases. This special crackdown has launched more than 40 nationwide campaigns, filing and investigating over 1,400 insurance fraud cases, dismantling more than 300 professional criminal gangs, with the total amount involved exceeding RMB 1.5 billion, fully reflecting the determination and effectiveness of the police in combating insurance fraud crimes[1].

    This article will focus on the legal provisions of insurance fraud and the ten typical cases announced by the Ministry of Public Security, summarizing the constitutive elements and common case scenarios of insurance fraud, and analyzing the focus of the special crackdown for reference by relevant practitioners.

    I. Legal Provisions on Insurance Fraud

    Insurance fraud is stipulated in Article 198 Criminal Law under Chapter 3 “Crimes of Disrupting the Order of the Socialist Market Economy”, Section 5 “Financial Crimes”. Therefore, the legal interests protected by this crime are the market economic order in the insurance field and the property rights of the insurer. Specifically, insurance fraud includes the following main constituents:

    1. Objective Behavior

    Article 198 of the Criminal Law stipulates the following five types of insurance fraud:

       (1) Fabricating insurance objects,

       (2) Fabricating false causes for the occurrence of insurance accidents or exaggerating the extent of losses,

       (3) Fabricating insurance accidents that have not occurred,

       (4) Intentionally causing property loss insurance accidents,

       (5) Intentionally causing the death, disability, or illness of the insured.

    In addition, appraisers, certifiers, and property assessors who intentionally provide false certificates to support others to defraud shall be treated as accomplices for insurance fraud.

    2. Subject

    The subjects of insurance fraud include individuals and companies. The insured, the policyholder, and the beneficiary can all constitute crimes.

    3. Amount

    This case is an amount-based crime. Cases involving amounts over RMB 50,000 should be filed and prosecuted[2]. The standards for “large amounts”, “huge amounts”, and “particularly huge amounts” need to be judged in conjunction with the provisions of provincial high courts and procuratorates.

    Some provincial high courts have established special amount standard for insurance fraud. For example, Jiangsu provincial rules provide that the amount standard for “large amounts”, “huge amounts” and “particularly huge amounts” for insurance fraud shall be below RMB 100,000, between RMB 100,000-1,000,000, and over RMB 1,000,000[3]. Guangdong, Zhejiang, Tianjin provincial rules provide that the amount standard shall be below RMB 100,000, between RMB 100,000 to 500,000, and over RMB 500,000 respectively[4]. Companies committing insurance fraud would be subject to an amount standard 5 times greater than individual cases.

    II. Typical Case Analysis

    The ten typical cases of insurance fraud announced by the Ministry of Public Security share the characteristics of professionalism, gang involvement, and full industry coverage. Not only are traditional insurance types such as personal injury insurance and car insurance involved, but also new insurance types such as employer liability insurance, group accident insurance, freight insurance, goods return insurance, and agricultural insurance suffer fraudulent claims. Some crimes have established internal organization, connecting the entire chain of insurance claims, with internal and external collusion. This indicates that with the development of the social economy, the methods of insurance fraud crimes are also “advancing with the times”.

    Through the analysis of the above typical cases, we summarize the following new forms of insurance fraud for your reference:

    1. Using Luxury Cars and High-Grade Car Coats to Fabricate Accidents and Defraud Insurance Money

    Many car owners invest heavily in changing the color of their vehicles or purchasing high insurance for luxury cars. Criminals manipulate such luxurious behaviors, buying second-hand luxury cars as prop cars at low prices, creating traffic accidents in places without surveillance at night (Zhejiang Province Hou et al. Suspected of Car Insurance Fraud), or conspiring with car repair shops to fabricate repair receipts and payment records for high-grade car coats to defraud insurance money (Guangdong Province Luo et al. Suspected of Car Coats Insurance Fraud).

    Unlike traditional car insurance repeated claims, this type of luxury car insurance may stipulate a higher compensation amount in the insurance contract. Also, there do exist luxurious consumption behaviors in luxury car market, making the fraudulent behaviors highly concealed. Criminals can fabricate a few accidents and defraud huge insurance amounts. The abovementioned car coat insurance fraud case involved an amount of over RMB 9 million, manifesting the seriousness of such fraud.

    2. Using E-commerce Platform Return and Exchange Rules to Defraud Insurance Money

    Many large e-commerce platforms provide insurance services such as freight insurance and goods return insurance to compensate for the cost of goods returns and repairs after online shopping. However, criminals exploit the loopholes in such insurance claims, using new insurance types or “extended warranty replacement” rules, playing various roles in different places to fabricate returns and exchanges to defraud insurance money (Fujian Province Cai X Wen Suspected of New Types of Insurance Fraud).

    This case shows that insurance fraud has closely followed the development of the insurance industry, exploiting claim loopholes in new types of insurance to defraud insurance payouts. Such new types of insurance are typically provided by insurance companies affiliated with e-commerce platforms who may lack sufficient experience in dealing with insurance fraud. Following the pursuit of efficient claim reviews driven by the service-oriented mindset of e-commerce platforms, these insurance companies could easily fall into the traps set by criminals.

    3. Using Employee Injury to Defraud Insurance Money

    Employer liability insurance is a kind of commercial insurance that covers the legal liabilities of employers to employees[5]. The insured are usually employees in high-risk industry, and the employers desire to limit their liability in the case of work-related injuries.

    However, the compensation for employer liability insurance usually relies on the compensation agreement reached between the employer and the employee, which leaves room for criminal behaviors. Some criminals exploit existing work injury incidents and induce employees to sign deceptive compensation agreements to defraud insurance payouts (Jiangsu Certain Plastics Company Suspected of Employer Liability Insurance Fraud). Others use low premiums as bait to induce high-risk industry companies to authorize the criminals to purchase employer liability insurance on their behalf. In the case of an incident, the criminals fabricate compensation agreements, receipts, or exaggerate losses and make repeated claims to defraud payouts (Anhui Lu et al. Suspected of Employer Liability Insurance Fraud). Some criminals even maliciously exploit injured employees after handling claims, embezzling and withholding the compensation funds, which seriously infringed the rights and interests of the insured and beneficiaries (Sichuan Du et al. Suspected of Employer Liability Insurance and Group Accident Insurance Fraud).

    4. Defrauding Insurance Premiums Under the Pretext of Free Insurance

    To promote insurance products, insurance companies usually agree to certain commission rewards for insurance brokerage companies. Some insurance brokerage companies exploit loopholes in contract terms, making false promises and recruiting members under the disguise of first year premium free. Later, the criminals provide the initial premium by themselves and induce the members to fabricate policyholder information and insurance intentions by recommending 30-year term life insurance to their family, friends, and acquaintances. In doing so, criminals exploit the “first-year commission higher than the first-year premium” clause in the brokerage cooperation agreement with the life insurance company to defraud high commissions. The amount involved is as high as RMB 1.2 billion (Beijing Certain Insurance Brokerage Company Suspected of Insurance Commissions Fraud).

    5. Repeated Insurance and Claims Exploiting Data Policy of Insurance Companies

    Two typical cases involving personal accident insurance fraud exploited the lack of data sharing between different insurance companies. Criminals repeatedly purchase personal accident insurance from multiple insurance companies, fabricating hospitalization records, medical records, or accidents to defraud claim payments (Shanghai Li X Hong et al. Suspected of Personal Injury Insurance Fraud, Shandong Hou X et al. Suspected of Personal Injury Insurance Fraud). These cases took advantage of the loopholes in insurance companies’ review processes for small claims, using repeated insurance and repeated claims to defraud substantial compensation payments.

    6. Agricultural Insurance Fraud

    With the development of modern agriculture, some large farms may insure their livestock. After insuring with multiple insurance companies, criminals intentionally cause the death of the livestock and conspire with the insurance company’s claims adjusters to fabricate inspection sites, defrauding agricultural insurance compensation (Xinjiang Zhang et al. Suspected of Agricultural Insurance Fraud).

    III. Focus of Insurance Fraud Crackdown

    Through the analysis of the above cases, we can find that the focus of the police authority in combating insurance fraud crimes mainly includes the following aspects:

    1. Focus on Cracking Down Gang-related and Professional Insurance Fraud

    The ten cases announced are all committed by organized groups, covering the entire process of insurance underwriting, brokerage, and claims handling. Criminals designed meticulous schemes to target every stage of the insurance claims process. Some cases involve collusion with employees of the insurance industry to jointly defraud claim payments.

    As criminal activities cover the entire insurance claims process, the materials submitted to insurance companies for claims are usually complete and comprehensive, significantly concealing the criminal activities and increasing the difficulty of the insurance companies to review these fraudulent claims.

    In response, the public security authorities, in coordination with financial regulatory departments, have organized industry-wide inspections and efficient collaboration. They have established over 500 cooperation mechanisms and built more than 220 integrated anti-fraud collaboration platforms, providing strong support in information sharing, lead coordination, and case investigation[6]. These efforts have effectively enhanced the efficiency and capability in investigating organized and professional insurance fraud cases.

    2. Expanding the Scope to Cover All Insurance Types

    Apart from traditional personal accident insurance and auto insurance, the special crackdown also focuses on innovative insurance such as employer liability insurance, freight insurance, goods return insurance, and agricultural insurance, as well as fraudulent activities by insurance brokerage companies to obtain commissions.

    Driven by the need to promote their products, insurance companies may prioritize claims efficiency or sales performance over strict review standards, consequently falling into the scam of the criminals. Therefore, public security authorities and financial regulatory departments work closely together, keeping track of the latest developments in the insurance industry, and precisely targeting frauds related to innovative insurance products and high commissions. This effectively purifies the insurance market environment and maintains the order of the financial market.

    3. Using High-Tech Means to Crack Down on Repeated Claims

    The announced cases of personal accident insurance fraud involved multiple policies and repeated claims. Criminals exploited the lack of information sharing between small and medium-sized insurance companies or internet insurance companies to defraud claim payments, a situation that can be accurately identified through big data screening.

    Li Youxiang, Director of the Inspection Bureau of the National Financial Supervision and Administration, stated at the Ministry of Public Security’s press conference that the Financial Supervision Administration will establish an anti-fraud action plan of “data aggregation—big data modeling—clue identification.” This will guide financial regulatory departments at all levels to strengthen the construction of collaboration mechanisms with public security authorities, refine collaboration content, and solidify the foundation for the coordination of administrative and criminal enforcement, continuously improving the insurance fraud risk management system. This indicates that financial regulatory departments will further employ technology to enhance the ability to identify criminal clues, providing significant support and assistance to public security authorities in combating insurance fraud crimes[7].

    IV. Summary

    Our team has also handled multiple insurance fraud-related cases. For example, a foreign enterprise and a Chinese company conducted “trade in name, financing in reality” transactions while taking out trade credit insurance. When the counterparty failed to repay, the foreign enterprise applied for trade credit insurance claims, obtaining huge insurance compensation. The court ruled that the foreign enterprise knowingly fabricated insurance objects, committing insurance fraud.

    We advise all companies to pay special attention to whether the insurance types match, whether the insurance content is genuine, and whether the claims are legal and compliant when insuring and claiming, to avoid falling into the scope of criminal regulation of insurance fraud.

    Through the above analysis, we can find that insurance fraud has severely disrupted the order of the financial market. The organized and professional nature of such crimes not only causes significant losses to insurance companies but also affects the legitimate claims of ordinary policyholders. Our team will promptly track typical cases and enforcement updates related to insurance fraud to provide you with more professional legal services.


    [1] The Ministry of Public Security held a press conference to report on the effectiveness of the joint deployment of the Ministry of Public Security and the State Administration of Financial Supervision to carry out special measures to crack down on insurance fraud, https://www.mps.gov.cn/n2254536/n2254544/n2254552/n9908722/index.html

    [2] Article 51, Supreme People’s Procuratorate and Ministry of Public Security Regulation on the Filing and Prosecution Standard for Criminal Cases within the Jurisdiction of Public Security.

    [3] See Jiangsu Provincial High People’s Court, Jiangsu Provincial People’s Procuratorate, Jiangsu Provincial Department of Public Security released Meeting Minute for Enhancing Management of Economic Crimes.

    [4] See Guangdong Provincial High People’s Court Guiding Opinion on Relevant Specific Issues Relating to Managing Crimes of Disrupting the Order of the Socialist Market Economy; Zhejiang Provincial High People’s Court Opinion on the Sentencing Conditions and Amount Standard for Certain Crimes; Tianjin Municipal High People’s Court, Tianjin Municipal People’s Procuratorate, Tianjin Municipal Department of Public Security, Tianjin Municipal Department of Justice released Opinion on the Amount Execution Standard and Sentencing Conditions Standard for Certain Crimes under the Criminal Law.

    [5] Employer Liability Insurance Disputes: Can Third Party Claim Insurance Pay?, wechat public account “Shanghai High Court” article published on March 6, 2025.

    [6] Ibid. at n 1.

    [7] Ibid.

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

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

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

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

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

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

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

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

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

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

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

    III. Risks of Price Maintenance in the Pharmaceutical Distribution Sector

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

    V. Determination of Excessive pricing in the Pharmaceutical Sector

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

    No.Case NameRelevant MarketParties InvolvedType of BehaviorPenalty
    1Abuse of market dominance by Jiangxi Xiangyu Pharmaceutical Co., Ltd. (2024)China-wide Iodized Oil Active Pharmaceutical Ingredient (API) MarketDistributorUnfairly High PriceFines: 4% of 2019 sales of the party involved
    2Abuse of market dominance by Shanghai No.1 Biochemical & Pharmaceutical and Others (2023)China-wide Injectable Polymyxin B Sulphat MarketWuhan Huihai, Wuhan Kede and Minkang: API distributors Shanghai B&P: Formulation ManufacturerUnfairly High PriceConfiscation of illegal gains; Fines: 8% of 2022 sales of Wuhan Huihai and Wuhan Kede; 3% of 2022 sales of Minkang Pharmaceutical and Shanghai B&P
    3Abuse of market dominance by Tianjin Jinyao Pharmaceuticals Co., Ltd. (2023)China-wide Carmustine Injection MarketManufacturerUnfairly High PriceConfiscation of illegal gains; Fines: 2% of 2019 sales
    4Abuse of market dominance by Northeast Pharmaceutical Group Co., Ltd. (2023)China-wide Levocarnitine API MarketManufacturerUnfairly High PriceFines: 2% of 2018 sales
    5Abuse of market dominance by Nanjing Ningwei Pharmaceutical Co., Ltd. (2021)China-wide Chlorpyrifos API MarketDistributorUnfairly High Price, Imposing Unreasonable ConditionsConfiscation of illegal gains; Fines: 4% of 2019 sales
    6Abuse of market dominance by Shangqiu Xinxianfeng Pharmaceutical Co., Ltd. (2021)China-wide Phenol API MarketDistributorUnfairly High PriceConfiscation of illegal gains; Fines: 1% of 2016 sales
    7Abuse of market dominance by Shandong Kanghui Pharmaceutical Co., Ltd. et al. (2020)China-wide Injectable Calcium Gluconate API MarketDistributorUnfair High Price, Imposing Unreasonable ConditionsConfiscation of illegal gains; Fines:10%, 9%, and 7% of 2018 sales respectively
    8Abuse of market dominance by Hunan Erkang Pharmaceutical Management Co., Ltd. and Others (2018)China-wide Chlorpheniramine API MarketHunan Erkang: Distributor Henan Jiushi: ManufacturerUnfairly High Price, Tying, Refusal to TradeConfiscation of illegal gains; Fines: 8%, 4% of 2017 sales of the respective parties involved
    9Abuse of market dominance by Tianjin Handwei Pharmaceutical Co., Ltd. and Others (2017)China-wide Pharmaceutical Grade Isoniazid API MarketManufacturerUnfairly High Price, Refusal to TradeFines: 2% of 2016 sales in the relevant market

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

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

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

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

    VI. Patent Hopping May Also Constitute Abuse of Market Dominance

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

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

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

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

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

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

    VII. Collective Abuse of Dominance Requires Caution

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

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

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

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

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

    Tracey Tang and Art Dicker

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

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

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

    Transparency  and Fair Competition when Using Algorithms  

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

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

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

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

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

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

    Data Protection and Privacy

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

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

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

    Copyrights

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

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

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

    Enforcement and Penalties

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

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

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

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

    Going Forward

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

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

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

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