On March 1, 2021, DAWKINS, a professional rating agency of Accurate Media, officially released the ranking of China’s top ranked law firms and top ranked lawyers in its A Client’s Guide 2022 Edition. AnJie Law Firm has made the list in 6 sectors, including VC, PE, overseas listing, consumption, high-tech and new economy. Attorney Cai Hang, partner of AnJie, is recommended in the sectors of VC, high-tech and new economy, and Attorney Guo Jinglian, partner of AnJie, is recommended in the sector of overseas listing.

China Business Law Journal, a well-known international law journal, published the Deals of the Year 2021 on February 22, 2022. With its constant reporting of the China market, China Business Law Journal selected the deals that stand out as the Deals of the Year 2021, in terms of the overall significance, complexity, and innovative nature of the deals and cases, as well as deal size.

Five projects represented by AnJie win Deals of the Year 2021 of China Business Law Journal, covering the sectors of Investment & Financing, M&A, IP, Bankruptcy Reorganization, Capital Market, New Energy, Insurance, and Internet Technology.

Founder Group’s USD11bn restructuring(CATEGORIES: Bankruptcy reorganisation)

KEY POINTS: Under the guidance of the State’s major strategies of encouraging insurance funds to support the development of the real economy and promoting the reform of university-run enterprises, an investor consortium comprising Ping An Life Insurance, Zhuhai Huafa, and Shenzhen Special Economic Zone Development Group participated in the RMB69.7 billion merger and reorganization of Founder Group and four other companies. The consolidated new Founder Group, set up with retained assets, is majority-owned by Ping An. The judicial reorganization of Founder Group is one of the largest bankruptcy cases of non-financial institutions since the founding of the People’s Republic of China, involving a massive scale of claims and touching on financial stability, which also concerns the standardization of university-run enterprises, and thus has significant social effect, making it a tough task. The restructuring was as complex as it was extensive, involving an innovative sale-based reorganization model, designed to shield investors from Founder Group’s potential debts or risks, change of actual controller of listed companies, and third-party benefit trust of property rights.AnJie law firm provides special legal services for Ping An Life Insurance, and the leading partners are lawyers Zhan Hao, Chen Jun and Song Ying.

HT Aero’s series A financingCATEGORIES: Financing; new energyn

KEY POINTS: HT Aero, an urban air mobility company and an affiliate of Chinese electric vehicle manufacturer Xpeng Motors, raised more than USD500 million in its series A financing, the largest single-tranche fundraising by far for low-altitude flying vehicle space start-ups in Asia. The company says the proceeds will be used to acquire talent and R&D.

AnJie law firm provides legal services for Wuyuan capital, and the leading partners are lawyers Cai hang and Gu Long.

Weichai’s acquisition of Lovol HeavyCATEGORIES: M&A

KEY POINTS: Weichai Power, one of the largest diesel engine suppliers in China, bought 39.31% of diversified machinery manufacturer Lovol Heavy Industry in July 2021 from Arbos Technology Group and Qingte, becoming the second-largest shareholder of Lovol Heavy after its holding company Weichai Group.

Six months earlier, aided by the Shandong provincial government, Weichai Group accomplished a strategic reorganisation of Lovol Heavy, holding about 60% of the total issued shares of the company.

AnJie law firm acts as the agent of Arbos technology group, and the leading partners are lawyers Wang Yu and Wang Xuelei.

Bilibili’s secondary Hong Kong listing(CATEGORIES: Hong Kong listing; internet

KEY POINTS: Bilibili, one of the largest video streaming websites in China, completed its secondary listing on the Hong Kong stock exchange, with a market value of USD2.5 billion. Bilibili is the first company to complete a secondary listing, following the Hong Kong Listing Rules as a “non-grandfathered Greater China issuer” with a weighted voting rights structure.

AnJie law firm acts as the legal adviser of BiliBili China, and the lead partner is lawyer Guo Jinglian.

SPC jurisdiction finding in SEP dispute(CATEGORIES: Intellectual property; jurisdiction dispute

KEY POINTS:Sharp and OPPO negotiated on the licensing of Sharp’s standard essential patents (SEPs), but no agreement was reached. Sharp then initiated a patent infringement lawsuit against OPPO in Japan and Germany, which OPPO considered violations of FRAND (fair reasonable and non-discriminatory) obligations, and therefore filed a lawsuit with the Shenzhen Intermediate People’s Court (SIPC), requesting it to make a decision on the global rate for licensing of relevant SEPs owned by Sharp to OPPO.Sharp filed a jurisdictional objection to the case.This is the first time that the Supreme People’s court has made it clear in the standard essential patent litigation that Chinese courts have jurisdiction over the dispute over the global licensing conditions of a package of standard essential patents.The two companies eventually agreed to enter into a patent licensing agreement in October 2021, and ended their global litigation.

AnJie law firm acts as sharp’s agent. At the same time, it also acts as sharp’s wholly-owned subsidiary SAIN Beiji Co., Ltd. together with another law firm. The leading partners are lawyers Liu Qinghui, Wu Li and Chen Zhixing.


Regulation continues to be tightening in the insurance industry, with lesser and lesser tolerance for violations of laws and regulations in 2022. Many new law compliance issues are emerging, such as how to understand and apply the corporate governance regulation rules, what are the challenges in compliance management, what are the employment risks and how to implement the PIPL in the insurance industry. Meanwhile, insurance claim disputes ensue from this rapid development of the insurance industry, seeing more cases of dispute over overlapping insurance, assignment of claims, subrogation of insurers, etc.

AnJie will hold an online workshop with respect to the regulatory updates in insurance compliance management and risk control and the new issues and most discussed topics in insurance litigation and arbitration cases. Insurance colleagues are welcome to join us for in-depth discussion and exchange. Looking forward to your active participation.

This workshop will have two sessions respectively on March 23 and 24, hosted by Attorneys Yu Dan and Wang Xuelei, and Attorney Zhan Hao will deliver speeches. In the Session of Most Discussed Topics concerning Insurance Law Compliance Management, Attorneys Xiang Danyang, Li Gang, Cui Yana and Yang Hongquan will make presentations. In the Session of Most Discussed Topics concerning Insurance Litigation and Arbitration, Attorneys Liu Guangfu, Qi Shengmiao, Chen Lei and Yan Bing will make presentations. AnJie Insurance Team will share its undertaking on the latest insurance regulation policies and legal issues and its analysis of the difficult dispute resolution cases handled recently.

Registration method:
1、March 23 – Session of Most Discussed Topics concerning Insurance Law Compliance Management:

2、March 24-Session of Most Discussed Topics concerning Insurance Litigation and Arbitration:

Recently, UK legal publisher Lexology officially released the latest edition of Getting the Deal Through: Insurance Litigation 2022. The book brings together top lawyers and experts in the field of insurance litigation from 15 jurisdictions around the world to share their latest litigation experiences and predictions for the future.

AnJie Partners Zhan Hao, Wang Xuelei and Wan Jia were invited to contribute the China chapter of the book, through which the three partners introduced relevant laws and regulations on China’s insurance litigation and provided their insights on the dynamic development and trends in China’s insurance litigation.

Besides the China chapter, the book also introduces insurance litigation developments in other jurisdictions in detail, which are of high reference value for multinational insurance companies, insurance professionals and insurance litigation scholars and experts.

On January 13, 2022, The Legal 500, an international legal rankings service, released The Legal 500 Asia Pacific 2022. Among its rankings of law firms in the field of antitrust and competition, AnJie, recognized for its outstanding performance and excellent reputation in the market, scored a Tier 1 ranking.

With its abundant practice experience in areas including merger review, antitrust investigations, antitrust litigation, and antitrust compliance, AnJie has provided clients with quality legal services. AnJie has, as a result, been honored as a leading law firm in the area of antitrust and anti-unfair competition in China by a number of international legal ranking services including Chambers & Partners, Global Competition Review, Who’s Who Legal, The Legal 500, China Law and Practice, Asian Legal Business, Expert Guides, and China Law and Practice, among others. In addition, AnJie lawyers have routinely been recognized as recommended lawyers in the area of competition/antitrust by Chambers & Partners between 2012 and 2022.

What are China’s merger review priorities? [1]

China’s merger control regime has been a topic of discussion for some time now.

Some commentators interpret Chinese merger control as being influenced by political factors; namely, more than encourage competition, it is yielded by authorities to stop foreign competitors from flooding China’s market. [2]

But is that really the case?

What is the merger control regime like in China?

In China, like in the EU and the US, merger control regulates mergers, acquisitions and other transactions involving concentrations of undertakings. Since a concentration of undertakings may lead to concentration of market power, merger control is an important ex ante regulatory tool employed by antitrust authorities to keep markets healthy in many jurisdictions, and China is no exception.

If Chinese antitrust authorities decide that a concentration has the effect of eliminating or restricting competition in the relevant market, they may decide to prohibit the concentration, or more often approve it but with remedies imposed.

According to the 2008 Anti-Monopoly Law of the People’s Republic of China (“AML”), if a transaction involving a merger, acquisition (including equity or asset deals) or establishment of a joint venture meets the notification threshold prescribed by the State Council, the parties concerned must notify the State Administration for Market Regulation (“SAMR”). Otherwise, the transaction violates the AML, and SAMR may initiate an investigation and impose a penalty against the transacting entities.

To date, the notification thresholds for merger control in China are (generally) as follows[3]:

  • At least two of the concentration parties each has an annual turnover (within China and during the last fiscal year) which exceeds CNY 400 million (approx. USD 63 million); and
  • The aggregate turnover in the last fiscal year of all concentration parties exceeds
    1. (Globally) CNY 10 billion (approx. USD 1.58 billion); or
    2. (Domestically, within China) CNY 2 billion (approx. USD 315 million).

Because the determining factor is turnover, the above notification standards apply regardless of the nationality of the undertaking. In other words, a company’s status as a Chinese or foreign company is not a consideration that triggers Chinese merger control review. Merger review is also required for mergers between foreign entities operating in the PRC. For example, where an American company acquires 100% of a German company — both foreign entities in China — and either their global or Chinese turnover meets one of the standards above, the transaction must be notified to SAMR.

Failure to file a notification of concentration of undertaking renders it illegal, exposing the entities involved to regulatory penalties. Pursuant to the current AML, SAMR may decide to impose a fine of up to CNY 500,000 (approx. USD 72,000). This, limit however, may increase under the expected amendments to the AML (currently under review by the Chinese legislative branch). The penalties SAMR may impose against an illegal concentration of undertakings also include ordering the undertakings to cease the concentration, dispose of shares or assets, divest from the business, or adopt other necessary measures to restore the market situation before the concentration within a prescribed period of time. However, practically speaking, fines are the enforcement tool of choice and SAMR rarely imposes structural or behavioral remedies on illegal concentrations of undertakings. Since the introduction of AML in 2008, such remedies were imposed only in one case, namely the acquisition of China Music Corporation by Tencent Holdings Limited (who was ordered to give up its exclusive music rights to restore competition to the market).

These penalties apply without regard to the nationality of the undertaking. As in the example above, a foreign company operating in China which fails to notify a necessary transaction may be subject to such penalties even when the transaction involves only foreign-owned entities.

For concentrations falling below notification thresholds, Chinese antitrust authorities have the power to initiate an investigation if there is evidence indicating that the concentration has or is likely to have the effect of eliminating or restricting competition; additionally, undertakings may also voluntarily file notice of the concentration. Currently, under Chinese merger regulations, proactive investigation and voluntary filing are mainly used for “killer acquisitions” of startups by larger companies, especially in the Internet industry.

Chinese merger control is used to maintain domestic market competition.

Antitrust law and accompanying legislative intent vary across economic regions[4]. That said, generally speaking merger control rules are designed to prevent excessive concentration of market power within a given market. Since the implementation of the AML, Chinese antitrust authorities have published regulations, guidelines, and other documents to clarify China’s AML standards.

Accordingly, in China there usually are six main factors to be considered during the review of a concentration:

  • The market share (in the relevant market) of each undertaking involved in theconcentration and their existing control over the market;
  • Existingmarket concentration in the relevant market;
  • The effect of the concentration ofundertakings on market entry and technological progress;
  • The effect of the concentration ofundertakings on consumers and other relevant undertakings;
  • The effect of the concentration ofundertakings on the development of the national economy; and
  • Other factors affecting market competition, such as the effect of the concentration on the public interest, and whether the undertakings involved in the concentration are enterprises on the verge of bankruptcy.

In practice, Chinese antitrust authorities apply these factors to review merger filing cases regardless if a foreign entity is involved.

In fact, in recent years Chinese antitrust authorities have shown they typically approve merger filings involving foreign entities. According to the 2020 annual report published by SAMR[5], it approved 85 merger filings for transactions between domestic and foreign entities. These approvals included 37 foreign acquisitions of domestic entities; 15 domestic acquisitions of foreign entities; and 33 joint ventures between domestic and foreign entities. For filings between foreign entities, SAMR approved 179 concentrations of undertakings.

For concentrations involving only domestic entities and no foreign entities, the numbers speak for themselves. Failure to notify typically leads to an investigation and then penalties. In 2021, SAMR published 107 penalty decisions against concentrations which failed to notify under Chinese law. Among these penalties, 105 were applied only against domestic entities (98% of all cases). In other words, domestic (and not foreign) firms overwhelmingly bear the brunt of SAMR’s merger controls and accompanying penalties.

One interpretation of these numbers is that SAMR is significantly more lenient in its application of merger control rules towards foreign investors than it is towards domestic entities. Another interpretation is that foreign investors are typically more antitrust aware (even to the point of adopting China-specific market strategies), and as such are more likely to retain experienced antitrust counsel when considering large transactions. Both theories appear to have at least some traction in academia.[6]

Merger review across different jurisdictions is mainly based on whether the transaction will raise competition concerns within the jurisdiction. As a result, the same transaction may face different competition concerns and merger decisions across different countries and areas.

For example, in 2017, Chinese antitrust authorities unconditionally approved ChemChina’s acquisition of Syngenta, a global business operating in the agrochemical sector with its headquarters in Switzerland. However, this same concentration received only conditional approval from authorities in the EU, which had major reservations about the deal’s effect on competition in the European market.

A more nuanced understanding of Chinese merger control helps better predict merger approvals

It is common for analysis surrounding Chinese developments to be overly simplified, and merger control is no exception. This includes the facially appealing but flimsy argument that Chinese merger control is a political exercise, an argument that saw its apogee after the failed acquisition of Huiyuan by Coca-Cola in 2009.

In 2009, China’s Ministry of Commerce (“MOFCOM”, the predecessor to SAMR) blocked Coca-Cola’s acquisition of Huiyuan, a popular Chinese fruit juice producer. The decision was brief, and as a result The Economist ran an article titled “Coca-Cola in China — Squeezed Out” quoting Coca-Cola as describing MOFCOM’s decision as protectionist. The Economist bemoaned the outcome as “unfortunate […]  in an industry that has no economic or national-security significance.”

This decision ignited tremendous controversy that the AML was introduced to insulate Chinese companies from overseas competition. One theory, reported as the “Huiyuan test”, emerged to describe what foreigners could expect when acquiring targets in China’s market.[7]

However, the Huiyuan merger occurred while China’s anti-monopoly regime was still in its infancy. The test, while illustrative of the controversy, wariness, and disappointment among foreign investors in response to the decision, is not particularly helpful to predict or understand which mergers will ultimately receive approval.

One insight from the Huiyuan case is that in order to better understand and predict merger results in China, adopting a European competition policy lens may be more helpful than a US lens. MOFCOM had explained that Coca-Cola’s acquisition of Huiyuan failed merger review on three major grounds. [8] According to a case study on the Huiyuan deal, two of these reasons mirror the portfolio effects theory that the European Commission employs when intervening in conglomerate merger cases (namely the Tetra Laval/Sidel and Guiness/Grand Metropolitan cases). The third reason strongly resembles another approach, also used in EU cases, to maintain a competitive market structure. [9] It is thus more likely that the Huiyuan decision reflected a divergence between US and EU approaches (with MOFCOM preferring the latter, at least during the AML’s early years) rather than a divergence between Chinese and Western approaches. With the benefit of hindsight, commentators increasingly consider the concerns following Huiyuan unjustified.[10

Moreover, with China’s increasing antitrust enforcement experience since the introduction of the AML in 2008, published decisions present specialized economic and antitrust analysis that is much closer to western standards. For example, on December 22, 2021, SAMR published the decision conditionally clearing the acquisition by SK Hynix of the NAND memory and storage business of Intel. In the decision, SAMR used the Herfindahl-Hirschman Index (HHI) to analyse the concentration level in the relevant market and the market power of the merged entity post-deal. Another example of an Chinese antitrust authority using economic tools in its decision in 2021 was the penalty imposed against Sherpa (a popular food takeout app among foreigners in Shanghai) for abuse of dominance on April 12. In  that case, the Shanghai Administration for Market Regulation published detailed reasons applying the small but significant non-transitory increase in prices (SSNIP) test to define the relevant market, and explained how the SSNIP test was applied within its monopoly theory.

Chinese merger review authorities understand that Chinese corporate champions are forged in the crucible of healthy, fair, and transparent domestic competition. In fact, the “regulatory windstorm” of 2021 against Chinese tech companies was a powerful statement to this effect. That windstorm was almost entirely directed against home-grown tech champions, particularly in the platform economy, and not foreign investors.

Allegations of protectionism against the application of competition law are common when those on the receiving end of a regulatory decision are unhappy with the result. However, the differences between Chinese merger control regulation and the US approach (which is influenced more by the Chicago school) [11] do not amount to a protectionist agenda. Overseas investors in China who spend the time and resources necessary to become more familiar with China’s regulatory concerns typically reap rewards from their efforts.

Large foreign companies active in China need to understand and become familiar with Chinese merger control

Like the EU and the US, Chinese merger control regulation is used to ensure a well-functioning market and benefit consumers. To analyze and decide whether a concentration raises concerns of eliminating or limiting competition, numerous factors may be involved, such as market share and market concentration, market competition structure, potential unilateral and coordinated effects, foreclosure and conglomerate effects, the relevant industry’s maturity, and so forth. Like in other jurisdictions, when a foreign transaction or cross-border investment raises competition concerns within the relevant market, it may be blocked or approved with conditions.

For foreign companies running merger deals in China, it is necessary to retain counsel with an in-depth understanding of Chinese merger control and to consider the potential market impacts that may result from the transaction.


Authors: Hao ZHAN, Ying SONG, Libo ZHU, Yuhui YANG, Hannibal El-Mohtar

 [1] For the purpose of this article, China here refers to Mainland China which does not include Hong Kong, Macau, and Taiwan.
[2] Angela Huyue Zhang, “Problems in Following EU Competition Law: A Case Study of Coca-Cola/Huiyuan”, 3 Peking U J Leg Studies (2011) 96 at 97. Foreign multinationals were also concerned that they would be the primary targets under the AML, see ibid.
[3]  Note that turnover thresholds may change in the near future. In addition, there is a special threshold for financial sectors.
[4]  In the US, the stated objective of antitrust law is consumer welfare. See Reiter v. Sonotone Corp., 442 U.S. 330, 343 (1979) (floor debates “suggest that Congress designed the Sherman Act as a ‘consumer welfare prescription.’”) However, this stated objective has given rise to competing interpretations. See Barak Orbach, “Antitrust’s Pursuit of Purpose” Fordham L Rev vol 81 No. 5 (2013) 2151 at 2151.
In the EU, the stated objective of antitrust law is to ensure the proper functioning of the EU’s internal market. See European Parliament, “Fact Sheets: Competition Policy”, online: </www.europarl.europa.eu/factsheets/en/sheet/82/competition-policy>. See also Treaty on the Functioning of the European Union, Arts 3(3) and 101–109; Protocol No 27 on the internal market and competition; the Merger Regulation (Council Regulation (EC) No 139/2004) and its implementing rules (Commission Regulation (EC) No 802/2004);  Treaty on the Functioning of the European Union Arts 37, 106 and 345  (public undertakings), together with arts 14, 59, 93, 106–108 and 114 (public services, services of general interest and services of general economic interest).
[5] http://www.gov.cn/xinwen/2021-09/24/content_5639102.htm
[6] See Sandra Marco Colino, “The Internationalization of China’s Foreign Direct Investment Laws”, 45:2 Fordham Intl L J 275 at 288 (“the increased presence of overseas investors in China suggests that they are getting the hang of corporate negotiations in the country, and that perhaps enforcers afford them greater latitude”).
[7] Sandra Marco Colino, “The Internationalization of China’s Foreign Direct Investment Laws”, 45:2 Fordham Intl L J 275 at 284, n 40 citing David Wolf, The Huiyuan Test, Silicon Hutong (Sep. 8, 2008), http://siliconhutong.com/2008/09/08/the-huiyuan-test/ [https://perma.cc/2P4HGYJH] (quoting Steve Michael Dickinson’s China Law Blog originally published in 2008, which is no longer available). The Huiyuan test posited that:
(1) Foreigners are permitted to purchase small established Chinese companies where the government is too busy to be concerned with the management of the small company.
(2) Foreigners are permitted to purchase large established Chinese companies suffering from financial problems, provided that the foreign purchaser will restructure the company and assume the company’s obligations to workers and creditors.
(3) Foreigners are permitted to acquire a minority interest in large and successful Chinese companies, provided such investment will provide collateral benefits in the form of technology transfer or access to new markets.
(4) Foreigners are not permitted under any circumstances to purchase a majority interest in a large and successful established Chinese company.

[8] The three main reasons in the MOFCOM’s decision were:
(1) After the completion of the concentration, Coca-Cola will be able to transfer its dominant position in the carbonated soft drinks market to the juice drinks market, which would have the effect of excluding and restricting competition to the existing juice drinks enterprises and thus harm the legitimate rights and interests of beverage consumers.
(2) The brand is a key factor affecting the effective competition in the beverage market, after the completion of the concentration, Coca-Cola through the control of “Juice Source” and “Huiyuan” two well-known juice brands, the control of the juice market would be significantly enhanced, coupled with its dominant position in the carbonated beverage market and the corresponding transmission effect, the concentration would make potential competitors to enter the juice beverage market barriers significantly increased.
(3) Concentration squeezed the domestic small and medium-sized juice enterprises living space, inhibiting the ability of domestic enterprises to participate in the juice beverage market competition and independent innovation, to China’s juice beverage market effective competition pattern caused by adverse effects, is not conducive to the sustainable and healthy development of China’s juice industry.
[9] Angela Huyue Zhang, “Problems in Following EU Competition Law: A Case Study of Coca-Cola/Huiyuan”, 3 Peking U J Leg Studies (2011) 96 at 101.
[10] In addition to ibid, see Sandra Marco Colino, “The Internationalization of China’s Foreign Direct Investment Laws”, 45:2 Fordham Intl L J 275 at 285–6 (who noted that while the decision may not have “encapsulated the sophisticated theories of harm expected of well-established competition agencies”, many foreign concerns that emerged from Huiyuan were not justified).
 [11] See Richard A Posner, “The Chicago School of Antitrust Analysis” (1979) 127(4) U Penn Law Review 925; Peter M Gerhart, “The Supreme Court and Antitrust Analysis: the Near Triumph of the Chicago School” (1982) Supreme Court Rev 319; Sandra Marco Colino, “The Internationalization of China’s Foreign Direct Investment Laws”, 45:2 Fordham Intl L J 275 at 287.

For this 11th edition, the Editorial Committee received a record-breaking 1,200+ submissions during the nominations period, out of which it selected:

– 100+ Academic Articles

– 130+ Business Articles

– 42 Soft Laws

– 20 Student Papers

As a reader, you can vote online for your favorite writings in all 4 categories from today, January 19 until March 25, 2022.

The Jury voting will also take place during this period – first with the Academic Steering Committee, Business Steering Committee, and Student Committee, then with the Board. To learn more about the prominent antitrust enforcers, academics, in-house counsel, and students in the 2022 Jury, see here.

Winners will be announced by Bill Kovacic and the Board members at the Gala Dinner on April 5th, in Washington DC. Early Bird tickets for the Gala Dinner are available until February 5th.

Now in their 11th year, the Antitrust Writing Awards are the field’s largest awards for written thought. Participation in the Awards process, whether as an author, jury member, or reader, helps highlight the best antitrust ideas of the past year.

We would like to express our congratulations to all of the 2022 nominees, invite you to read their articles, and vote for your favorites, all of which you can do below.

On November 19, 2021, China State-owned Assets Supervision and Administration Commission (“SASAC”) of the State Council released the “Circular on Strengthening the Management of Financing Guarantees of Central State-owned Enterprises” (the ” Circular “) (Guo Zi Fa Cai Ping Gui [2021] No. 75)

On January 4, 2022, SASAC released an explanation to clarify the queries regarding the Circular (the “Explanation”).

Drafting Background of the Circular and the Explanation

In recent years, SASAC has attached great importance to the management of financing guarantees of central state-owned enterprises (“CSOEs”) and has successively put forward some relevant requirements in a series of documents such as the “Supplementary Notice on Strengthening the Fund Management of Central Enterprises” (Guo Zi Ting Fa Ping Jia [2012] No. 45). However, it is also found in daily supervision that some CSOEs still have problems such as excessive growth in the scale of guarantees, expansion of implicit guarantee risks, and increased risk of compensation losses.

To further strengthen the financing guarantee management of CSOEs, prevent the risk of major capital loss, and promote the high-quality development of enterprises, SASAC released the Circular, which clarified the requirements in the supervision system of financing guarantee business of CSOEs.

On January 4, 2022, to facilitate the understanding of the content and requirements of the Circular, SASAC released the Explanation.

Main Features and Contents of the Circular and the Explanation

(1) The scope of management and control is more comprehensive.

Firstly, it is highlighted that the Circular not only applies to CSOEs themselves, but also applies to CSOEs’ subsidiaries at all levels.

Secondly, in terms of management and control content, the Circular defines the scope of management to include all financing guarantees, including not only standard guarantees provided for corporate financing activities, but also implicit guarantees with guarantee effectiveness.

Specifically, the legal departments of the CSOEs needs to decide whether the joint loan contract, the margin compensation commitment, the comfort letter, the letter of support and other letters have the effect of guarantee according to the specific terms. If so, those are all implicit guarantees.

(2) The management requirements are more stringent.

Regarding the benefited parties in financing guarantees, based on the principle of “same shares, same rights” and the principle of risk-control, no guarantees of any form should be provided to companies outside the group that have no equity relations, and guarantees to high-risk subsidiaries should be strictly controlled. In principle, financing guarantees can be provided. Financing guarantees can only be provided to subsidiaries or shareholding companies that have the ability to continue operations and solvency.

Financing guarantees beyond the shareholding ratio will be strictly controlled.  CSOEs shall provide guarantees to their subsidiaries and enterprises held by them in strict accordance with their shareholding ratios therein. If it is necessary to provide a financing guarantee to a subsidiary beyond its shareholding ratio in such subsidiary, it must reported to the group’s board of directors for approval and a full and realizable counter-guarantee shall be provided by the minority shareholder or a third party through mortgage, pledge or otherwise.

Besides, the scale of financing guarantees is also strictly limited.  The total guarantee scale of a CSOEs shall not exceed 40% of the group’s consolidated net assets, and the guarantee amount of a single subsidiary (including the headquarters) shall not exceed 50% of its own net assets.

(3) The management and control methods are more detailed.

The Circular points out few important key elements in the review of illegal guarantees, including: the guarantor, the amount of guarantee, the benefited party and its operating status, the method of guarantee, the guarantee fee, and the cleanup plan for illegal guarantees and etc.

In addition, given that provision of guarantee is a major risk for CSOEs and PRC Company Law provides that guarantee shall be approved by board or shareholder meetings, the Circular stipulated that the guarantee budget need to be approved by the board or its authorized decision-making body.  However, to maximize the board’s risk control function, the enterprise guarantee system and special guarantee matters are still subject to the approval of the group’s board.

(4) The rectification and cleanup timeline is provided for illegal guarantee. 

The new illegal financing guarantee will be investigated and relevant personnel will be held liable.  The Circular requires CSOEs to rectify existing financing guarantees that are not in compliance with the Circular in three years.  The guarantees of no equity relationship arising from spin-off from the group or the disposal of equity, and the guarantees for enterprises held by it beyond its shareholding ratios therein shall be cleaned up within two years.

If you have questions about this client alert, please contact the authors listed below or the Anjie lawyer with whom you normally consult.


Jason Chan


D +86 21 231 3130

M & WeChat +86 136 8160 4177

According to Article 271 of Civil Procedure Law of the People’s Republic of China (“PRC”), parties may submit foreign-related disputes to “foreign arbitration institutions” outside Mainland China (“foreign” here encompasses Hong Kong, Macau, and Taiwan, in terms of jurisdiction only). However, the statutory law of the PRC is silent on whether parties may agree to submit non-foreign-related disputes to such foreign arbitration. In the past, the Supreme People’s Court of the PRC (“SPC”) holds that an arbitration agreement is invalid if parties agreed to submit dispute to foreign arbitration institutions or to foreign ad hoc arbitration (collectively, “foreign arbitration”, for referential purpose in this article) while the dispute is not foreign-related, which will in turn prevent the prevailing party from having the arbitral awards recognized and enforced by the PRC court. In practice, an often-seen scene is two PRC parties agree to have arbitration before a foreign arbitration institution. In such event, where the PRC court cannot find any party is foreign, the PRC court must examine specific facts in order to find out whether the underlying dispute by its nature may satisfy the requirement of “foreign-related” as to have the arbitration agreement exempted from the aforesaid prohibition. In a recent appellate proceeding for jurisdictional challenge heard by the SPC, with its ruling the SPC upheld this notion of prohibiting foreign arbitration for non-foreign-related disputes. However important questions remain unanswered. [1]


ArcSoft Corporation Limited (“ArcSoft”,the licensor) and Spreadtrum Communications (Shanghai) Co., Ltd. (“Spreadtrum”, the licensee) entered into a Software License Contract (“Contract”), effective on 1 September 2017. Article 17.2(b) of the Contract is the arbitration clause, which stipulates:

if any dispute is not resolved within the time period specified aforementioned, upon written notice by either party, such dispute shall be finally resolved through arbitration handled by a single arbitrator both parties agree on and familiar with software industry, in accordance with the arbitration rules of the Singapore International Arbitration Centre (“SIAC”) in effect at that time.”

ArcSoft is a sino-foreign joint venture incorporated in Hangzhou City, Zhejiang Province, China. Spreadtrum is a foreign-invested PRC company incorporated in the Free Trade Zone of Shanghai.

ArcSoft alleged that Spreadtrum breached the Contract and ArcSoft initiated a litigation against Spectrum before Hangzhou Intermediate People’s Court (“Hangzhou Court”), rather than filing an arbitration before SIAC. In the litigation, ArcSoft sought the following reliefs,

  1. Spreadtrumshall continue to perform the Contract, by refraining from modifying the licensed software and developing the licensed software’s derivative works;
  2. Spreadtrum shall pay ArcSoft the license fees and relevant interest stipulated under the Contract as well as compensating ArcSoft’s other losses;
  3. Spreadtrum shall indemnify ArcSoft’s cost and bear the entire court fees.

Spreadtrum raised a jurisdictional objection, arguing that the Hangzhou Court did not have competent jurisdiction because, among others, the dispute shall be submitted to SIAC for arbitration. Spreadtrum further contended that, even if the dispute shall be heard by PRC courts, the proper venue shall be the court at Spreadtrum’s domicile. Among others, Spreadtrum argued that,

  1. The arbitration clause provides SIAC arbitration in Singapore, therefore the arbitration clause may be determined by Singaporean law, under which the arbitration clause is valid.
  2. The disputed Contract is foreign-related. Therefore, the requirement for foreign-related elements is satisfied and the arbitration clause is valid. Because, among others,
  • both parties are foreign-invested companies, especially because Spreadtrum incorporated in the Free Trade Zone of Shanghai;
  • the Contract provides that the territory of licensing for the licensed software is the entire globe;
  • the Contract stipulates that it is governed by U.S. laws;
  • the majority of the subject matter under the Contract is the underlying software’s intellectual property rights held by ArcSoft in and protected by the laws of different countries;
  • Spreadtrum’s products incorporated with the licensed software are mostly distributed in overseas.

On December 3, 2020, Hangzhou Court made a ruling (2020) Zhe 01 Zhi Min Chu No.406, dismissing the jurisdictional objection. Spreadtrum appealed to the SPC.


Does the dispute have foreign-related element so that the arbitration clause is valid?

pinions of the Courts

Hangzhou Court held that,

  1. The Parties here are companies incorporated in and residing in Mainland China. The Parties failed to satisfy the SPC’s rule that parties may submit dispute to foreign arbitration institution if any party is a non-PRC party or such party resides outside the PRC.
  2. The main subject matter of the Contract is licensing of the software, in consideration of which Spreadtrum shall pay license fees. The licensed software was developed in Mainland China, and its copyright is owned by ArcSoft. Therefore, the subject matter does not involve foreign-related elements;
  3. The disputed Contract was also signed and performed in Mainland China. Even assuming Spreadtrum’s products incorporated with the software were mainly distributed in overseas, such distribution does not affect the basic relationship between the parties which is software licensing;
  4. Therefore, neither of the Parties, the subject matter of the Contract, nor the legal fact that creates, alters or terminates the legal relationship, involves foreign-related elements. Hence, the arbitration clause is invalid.

The SPC held that, among others,

  1. Article 271 of Civil Procedure Law allows parties to submit “disputes occurred in foreign-related economy and trade, shipment and maritime matters” to overseas arbitration. Article 128 paragraph 2 of the Contract Lawallows “parties to foreign-related contracts” to initiate arbitration overseas. The PRC law has not permitted parties to submit disputes to foreign arbitration institutions if the dispute does not have foreign-related element. Given the parties are both PRC parties, the Court shall identify whether the disputed contract has foreign-related elements.
  2. The parties here are all PRC entities, the disputed Contract was signed in Mainland China and the subject matter thereunder is located in Mainland China. The legal facts whichcreate, alter or terminate the legal relationship between the parties lack foreign-related element. Therefore, the arbitration clause in the disputed Contract is an arbitration clause concluded by PRC parties which provides foreign-seated arbitration for disputes which lack foreign-related elements. Hence the arbitration clause is invalid, and the PRC court has competent jurisdiction over this case.

The SPC then dismissed Spreadtrum’s appeal and sustained Hangzhou Court’s ruling.

According to PRC court’s rulings and the SPC’s public comments, parties are prohibited from submitting non-foreign-related disputes to foreign arbitration institutions or to ad hoc arbitrations seated in foreign jurisdictions (“foreign arbitration” for referential purpose in this article). However, several issues cry out for clearer answers.

  1. The basis of prohibiting foreign arbitration for non-foreign-related disputes is unclear.

Article 271 of the Civil Procedure Law (“CPL”) provides that parties may submit foreign-related disputes to foreign arbitration. However, under the PRC law, there is no explicit prohibition barring parties from resolving non-foreign-related disputes through foreign arbitration. This prohibition rooted in PRC courts’ rulings. According to the PRC court’s rationale in published rulings, this is an implied prohibition embedded in Article 271 of CPL. PRC courts’ rationale is, given the PRC law does not expressively permit PRC parties to submit non-foreign-related disputes to foreign arbitration, then submitting non-foreign-related disputes to foreign arbitration shall be deemed as prohibited.

There are quite a number of published cases, in which the PRC courts relied on such implied prohibition and deemed arbitration agreements invalid. These cases are of diverse types of proceedings, such as jurisdictional challenge, independent application seeking court’s declaration on the arbitration agreement’s validity, and application for recognition and enforcement of foreign arbitral award.

A well-known case is Chao Lai Xin Sheng v. Suo Wang Zhi Xin, 2013-Er-Zhong-Min-Te No. 10670, decided by Beijing 2nd Intermediate People’s Court in 2014 after obtaining the SPC’s approval.[2] In this case, two PRC companies submitted dispute to Korean Commercial Arbitration Board (KCAB). The disputed contract does not specify the governing law. When the winning party applied for recognition and enforcement of the award in China, the PRC court held that the governing law of the disputed contract and the arbitration agreement therein shall be PRC law, “regardless the parties had chosen or not,” and the PRC court dismissed the application for recognition and enforcement on the ground of Article V.1(a) of the New York Convention, by holding that the arbitration agreement is invalid. In particular, the court held that the underlying arbitration agreement is invalid “according to the law which the parties subjected to the arbitration agreement”.

Article V.1 (a) of the New York Convention reads,

“1. Recognition and enforcement of the award may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the competent authority where the recognition and enforcement is sought, proof that:

  • The parties to the agreement referred to in article II were, under the law applicable to them, under some incapacity, or thesaid agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the country where the award was made; or”

Therefore, in the context of Article V.1 (a) of the New York Convention three types of laws may be applied in determining the arbitration agreement’s validity,

  • The law applicable to the parties, under which they are under some incapacity;
  • The law which the parties subjected to the arbitration agreement;
  • The law at the seat of the arbitration.

The PRC court’s rationale in Chao Lai Xin Sheng v. Suo Wang Zhi Xin is intriguing, since it established a notion that, in the context of Article V.1(a) of the New York Convention, “the law to which the parties have subjected to the arbitration agreement” may refer to a law not chosen by the parties, and such unchosen law may override the arbitration agreement’s governing law chosen by the parties. To date, Chao Lai Xin Sheng v. Suo Wang Zhi Xin is the only publicized PRC court ruling where the PRC court refused to recognize and enforce foreign arbitral award by holding that the arbitration agreement is invalid since foreign arbitration for non-foreign-related disputes is prohibited under the PRC law. In Chao Lai Xin Sheng v. Suo Wang Zhi Xin, if the parties explicitly agreed on the governing law of the arbitration agreement, the outcome in the PRC court’s ruling might be different, and we expect to witness such a case in the future.

  1. The test for identifying “foreign-related elements” is to be further clarified and unified.

Beside the applicability of prohibition of foreign arbitration for non-foreign-related disputes, the key issue is how to determine a dispute is foreign-related or not.

As to the definition of “foreign-related elements”, both Article 522 of the SPC’s Interpretation on Civil Procedural Law and Article 1 of the SPC’s 1st Interpretation on the Law on the Application of Law in Foreign-Related Civil Legal Relationship provide that a case may be deemed foreign-related, if any of the following elements exists:

  • Any parties or both parties are foreign citizen, foreign legal person or other entities, or, individual without nationality;
  • Any party or both parties resides outside the territory of the PRC;
  • The subject matter is outside the territory of the PRC;
  • The legal facts which create, alter or terminate civil relations occurred within the territory of the PRC;
  • Other circumstance based on which it can be found that foreign-related civil relationship exists. (emphasis added)

The underlined three criteria above are abstract. Hence PRC courts may reach different conclusions depending on various fact matrix, and in practice they did so. To date, the SPC has not published a clear guidance or a representative case which may clarify on the interpretation and application of this test.

In a case decided by Beijing 4th Intermediate People’s Court (docket number: (2018) Jing 04 Min-Te No.145) [3], the court held that the requirement is satisfied as foreign-related element exists. The disputed contract is a product purchase contract concluded between two PRC companies, which provides ICC arbitration in Hong Kong. The court found that the origin of the products is Germany, and the transaction involves the buyer’s taking of delivery in Germany. The court consequently found that the requirement of foreign-related element is satisfied because the products as the subject matter of the contract are outside the territory of the PRC, hence the arbitration agreement is valid.

In a case decided by Shanghai Maritime Court in 2018 (docket number: (2017)-Hu-72-Min-Te No.181) [4], the court held that the arbitration agreement in a shipbuilding contract concluded by PRC parties is valid, which provides arbitration in London. The court found that the disputed ship has various connections with foreign jurisdictions, including that the parties agreed that the ship is to comply with the standard of and registered with the American Bureau of Shipping, and they further agreed that Marshall Islands shall be the ship’s flag country, and the buyer shall set up a foreign subsidiary to be assigned with the shipbuilding contract. The court ruled that the arbitration agreement is valid on the ground of “other circumstance based on which it can be found that foreign-related civil relationship exists.”

However, in ArcSoft v. Spreadtrum here the disputed contract is a software licensing agreement. Hangzhou Court found that the underlying software was developed by ArcSoft in Mainland China, and its intellectual property right is held by PRC parties. Hangzhou Court further held that, even assuming Spreadtrum’s products incorporated with the software were mainly distributed in overseas, such distribution does not affect the basic relationship between the parties which is software licensing. The SPC directly gave its conclusion that there is no foreign-related element, without giving any discussion on the specific case facts. Spreadtrum had argued in the proceedings that the disputed Contract involves ArcSoft’s intellectual property held by ArcSoft in overseas therefore the underlying contract is foreign-related. Speadtrum had further argued that the scope of licensing stipulated in the Contract is the entire globe. Neither Hangzhou Court nor the SPC responded to these two arguments. Perhaps, if the courts reached a finding that the Contract deals with ArcSoft’s copyright to the licensed software and such copyright is registered in overseas, the courts may conclude that the subject matter of the Contract is in foreign countries and consequently they would hold that the Contract is foreign-related. With respect to identifying what “the legal facts that create, alter or terminate civil relations” are in the case, and whether such legal facts occurred in foreign jurisdictions, Hangzhou Court and the SPC did not give any explanation either.

The notion under the PRC law on prohibiting foreign arbitration for non-foreign-related matters is still controversial. However, it remains the prevailing attitude in practice which may result in refusal of recognition and enforcement of foreign arbitral awards. We look forward to further development on this issue in legislation and judicial practice in the PRC.

[1] The SPC’s ruling of ArcSoft v. Spreadtrum can be found here: https://wenshu.court.gov.cn/website/wenshu/181107ANFZ0BXSK4/index.html?docId=b0a3613dc00a4583b219ad5f0124cf9c

[2] The ruling of Chao Lai Xin Sheng v. Suo Wang Zhi Xin can be found here:


[3] The ruling of (2018) Jing 04 Min-Te No.145 (Jing-Jin Electric v. SEMIKRON Electronics (Zhu Hai)) can be found here:


[4] The ruling of (2017)-Hu-72-Min-Te No.181 (Mekers v. Shanghai BESTWAY, Jiangsu Dajin) can be found here: https://wenshu.court.gov.cn/website/wenshu/181107ANFZ0BXSK4/index.html?docId=3bf1a11336f7478b863eaa7800f7b380


In China, workplace accidents and deaths have steadily declined since the mid 2000s[1]. Although rarer than before, regretfully, workplace accidents causing death in China continue to occur on average 75 times per day[2].

Oftentimes, such fatal accidents immediately result in a shutdown order from the local municipal safety bureau (a “Stop-work Order”) to prevent further harm.

Stop-work Orders can cause a worksite to completely cease operations for weeks or even months while the safety bureau investigates the accident, leading to lost operating time.

The losses from this down-time can reach dollar amounts in the tens of millions. This is especially common in manufacturing and construction industries after a fatal equipment malfunction.

Whether such losses are covered by Business Interruption (“BI”) insurance, is the central question in many property insurance disputes.

Stop-Work Orders

Intended to uncover additional workplace hazards and prevent further harm, the site of an accident is cordoned off and access restricted upon issuance of a Stop-work Order. Stop-work Orders are typically issued by local safety bureaus pursuant to the Work Safety Law of the People’s Republic of China (“Work Safety Law”).

Under Chinese law, any accident resulting in a workplace fatality is grounds for a Stop-work Order. They are commonly issued in response to occurrences which meet the statutory definition for an “accident”. Per the Regulations on the Reporting, Investigation and Disposition of Work Safety Accidents, the death or injury of a worker, or losses amounting to RMB 10 million yuan, meet this definition.

BI Insurance

Because Stop-work Orders interrupt business for weeks or even months, they frequently lead to BI claims.

BI insurance is commonly purchased by the policyholder as additional coverage to property damage insurance.

However in the PRC insurance market, BI policies cannot be purchased independently. Instead, they can only be purchased together with property damage polices, such as property all-risks insurance or property comprehensive insurance.

Therefore, a given BI policy usually specifies that in order to be triggered, a threshold level of physical damage must first be met. Among such formulations are clauses stipulating “this policy only provides coverage directly resulting from physical loss or damage to the insured property as described in the property damage policy.” A serious workplace accident is usually a sufficient trigger, especially when it involves damaged equipment or facilities.

However, when an additional event such as a Stop-work Order is factored in, determining the period of liability becomes very difficult.

Is the insurer liable only for the time lost from restoring property due to physical loss or damage caused by the accident (EG: replacing broken equipment, a few days or weeks), or is the insurer instead liable for time lost due to the Stop-work Order (potentially months)?

In some cases, the difference between the two periods of liability can vary the insured’s insurance benefit by tens of millions of dollars.

The answer almost always lies in contractual interpretation.

In the US, in many cases, losses resulting from a Stop-work Order following an accident are not covered by BI property insurance. When the policy includes the following proviso, that losses be “directly resulting from physical loss or damage”, time lost due to a Stop-work Order is not factored into the benefit. Instead, such language limits the period of liability to the time needed to repair or replace broken equipment. That down-time time will be included, but any additional losses due a Stop-work Order will not.

The reasoning is simple: people are not property. Stop-work Orders result directly from hazards or harms to people, not property. They are issued to prevent harms to human life, upon the occurrence of a workplace accident or death, and only rarely due to damage to equipment or facilities. That is also why extensions to BI losses which clearly cover Stop-work Orders, such as “Denial of Access,” and “Civil Authority Order” extensions, are commonly offered by property insurers.

However, in some cases, a policy features subtle words or formulations which include losses resulting from a Stop-work Order within a BI clause’s scope of coverage, even absent an extension.

In some cases, just two words make the difference between a modest benefit and a potential windfall for the insured. Losses from the Stop-work Order are not included when the policy ends the period of liability upon the damaged property being restored to the “same or equivalent physical conditions that existed prior to the damage.”

However, adding two simple words to the policy, “physical and operating conditions,” can broaden the scope of coverage to include a Stop-work Order. This is because while restoring “physical conditions” refers strictly to repairing or replacing damaged property, restoring “operating conditions” extends to restoring the work site to the state it was in prior to the accident.

Proximate Cause in China

What about the role of causation in such clauses? In the absence of compelling contractual wording like that shown in the paragraph above, the scope of coverage for BI losses will depend on judicial findings of proximate cause.

Even though the principle of proximate cause is not clearly defined in the Insurance Law of the People’s Republic of China, it has been broadly accepted as a fundamental principle of insurance law and applies when assessing causation for insurance claims.

Proximate cause refers to, within the chain of causation between risk and damage, the most direct, effective and decisive cause which plays a fundamental, traceable and dominant role in causing the damage to occur[3]. When the proximate cause falls within the insurance policy’s coverage, the insurer must bear liability and pay the benefit. However, when an intervening event “breaks” the chain of causation, the policy will not cover that secondary event’s resulting losses.

Under the circumstances described, a Stop-work Order will be seen as breaking the chain of causation and its resulting losses will not be covered by BI insurance. This is because while a physical accident is the most “fundamental, traceable, and dominant” cause for losses resulting from property damage, a Stop-work Order is, as a government directive, only a cause of non-property damage, which is generally outside the scope of coverage.


When a policy requires that losses be “directly resulting from physical loss or damage”, insurers are not liable for time lost due to a Stop-work Order. Under such a policy, the Stop-work Order — under the principle of proximate cause in China — is an intervening event which “breaks” the chain of causation. Accordingly, BI insurance will not cover that secondary event’s resulting losses. Without an applicable “Denial of Access” or “Civil Authority Order” extension, such policies will not cover Stop-work Order losses.

However, in some cases, a policy includes subtle words or formulations which incorporate losses resulting from a Stop-work Order within a BI clause’s scope of coverage, even absent an extension. In some cases, just two words (see “operating conditions” example, above) make the difference between a modest or fulsome insurance benefit.

Whether insurer or insured, retaining experienced counsel to review a new policy’s BI clause before concluding it can save valuable time, effort, and resources before an accident occurs.

 [1] China Labour Bulletin, “How China outsourced work-related accidents and deaths”, 16 January 2018, online: <clb.org.hk/content/how-china-outsourced-work-related-accidents-and-deaths>.

[2]  National Bureau of Statistics of China, “2020 Statistical Bulletin of the National Economic and Social Development of the People’s Republic of China” (Feb 28, 2021), online: <www.stats.gov.cn/tjsj/zxfb/202102/t20210227_1814154.html>.

[3]  Under Article of the National Standard of the People’s Republic of China GB / T 36687-2018 Insurance Terminology, Proximate Cause means “the most fundamental, traceable and dominant cause of the loss. Note: Not necessarily the closest cause in time or space to the loss.”