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Table of Contents
Preface and Acknowledgments . . . V List of Authors. . . VII Abbreviations. . . XIX
Chapter 1. China’s Accession to WTO . . . 1
I. Overview . . . 2
II. Main Issues . . . 4
1. Legal System . . . 4
a) Transparency . . . 5
b) Uniform Application of Law . . . 6
c) Judicial Review . . . 6
2. Trade in Goods . . . 7
a) Right to Trade and Anti‐dumping Regulation . . . 7
b) Safeguard Measures against Chinese Products . . . 9
3. Trade in Services . . . 10
a) Banking . . . 11
b) Foreign Credit Card Services . . . 12
c) Financial Data . . . 12
4. Others . . . 12
a) Public Procurement . . . 12
b) Environmental Issues . . . 13
Chapter 2. Corporations and Partnerships. . . 15
I. Overview . . . 17
II. Main Issues Regarding Corporations . . . 17
1. Sources of Law . . . 17
2. Theory of the Legal Person . . . 18
3. TheUltra ViresDoctrine . . . 18
a) Function and History . . . 18
b) TheUltra ViresDoctrine in Mainland China . . . 19
c) Remaining Relevance of the Object Clause . . . 20
4. Compulsory Provisions and their Effect . . . 20
a) How to Identify Compulsory Provisions . . . 21
b) Effect of Compulsory Provisions on the Articles of Association . . . 21
c) Effects on the Business Operation of the Company . . . 21
5. Limited Liability Companies . . . 22
a) Establishment . . . 22
(1) Shareholders . . . 22
(2) Nominal Shareholders . . . 23
(3) Registered Capital . . . 23
b) Organizational Structure . . . 24
(1) Mandatory Organs . . . 24
(2) Optional Organs . . . 25
(3) Controversial Issues . . . 25
c) Transfer of Equity . . . 26
(1) Transfer by Contract . . . 26
(2) Mandatory Equity Buyback . . . 28
(3) Succession . . . 28
d) One‐Person LLC . . . 28
(1) Special Requirements . . . 29
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6. Joint Stock Limited Companies . . . 31
a) Establishment . . . 31
b) Organizational Structure . . . 31
(1) Shareholders’General Meeting . . . 31
(2) Board of Directors . . . 32
(3) Manager(s) . . . 32
(4) Supervisory Board . . . 33
(5) Independent Directors (Listed Companies) . . . 33
c) Issue and Transfer of Shares . . . 33
7. The Legal Representative . . . 34
8. Corporate Governance . . . 35
a) Fiduciary Duties . . . 35
(1) Directors’and Senior Officers’Duty of Loyalty . . . 35
(2) Directors’and Senior Officers’Duty of Care . . . 36
(3) Supervisors’Fiduciary Duties . . . 37
(4) Controlling Shareholders’Fiduciary Duties . . . 37
b) Minority Shareholder Protection . . . 37
c) Shareholder Lawsuits . . . 38
d) Restrictions on the Provision of Security . . . 39
9. Capital Increase and Capital Reduction . . . 39
10. Dissolution and Liquidation . . . 40
11. Liability . . . 40
a) The Company . . . 40
b) Investors and Promoters . . . 41
(1) Investors of an LLC . . . 41
(2) Promoters of a JSLC . . . 42
c) Shareholders . . . 42
(1) Liability to the Company’s Creditors . . . 42
(2) Liability to Other Shareholders and/or the Company . . . 42
d)De FactoControllers . . . 43
e) Senior Officers . . . 43
f) Directors and Supervisors . . . 43
g) Inapplicability of the Business Judgment Rule . . . 44
h) Indemnification for Management’s Civil Liabilities . . . 44
III. Main Issues Regarding Partnership Enterprises . . . 45
1. Forms of Partnership Enterprises . . . 45
a) General Partnership Enterprise . . . 45
b) Limited Partnership Enterprise . . . 46
c) Special General Partnership Enterprise . . . 46
2. Basic Differences to LLCs . . . 47
3. Partners . . . 47
4. Organizational Structure, Operation . . . 49
5. Admission, Withdrawal and Removal of Partners . . . 49
6. Transfer of Shares in Property . . . 50
7. Capital Increase and Capital Reduction . . . 50
8. Dissolution and Liquidation . . . 50
9. Liability . . . 51
a) The Partnership Enterprise . . . 51
b) General Partners . . . 51
c) Limited Partners . . . 52
d) Liquidators . . . 53
IV. Relevant Laws & Regulations . . . 53
Chapter 3. Foreign Investment Law. . . 55
I. Overview . . . 55
1. Concept of Foreign Direct Investment . . . 55
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a) Landmark Law on Equity Joint Venture . . . 56
b) Proliferation of FDI Regulations . . . 57
c) Recent Streamlining and Consolidation Reform . . . 59
II. Main Issues . . . 62
1. Investment Access . . . 62
a) Industry Direction and Catalogue . . . 62
b) Verification and Approval Procedures and Authorities . . . 64
2. Alternative Legal Vehicles for FDI . . . 66
a) Common Forms . . . 66
b) Alternative Forms . . . 69
c) Application of Company Law . . . 70
3. Business Regulation and Other Administrative Control . . . 72
a) Permitted Scope of Business . . . 72
b) Capital Requirement . . . 73
c) Industry‐Specific Regulations . . . 74
d) Taxation on Income . . . 75
e) Foreign Exchange Administration and Capital Transfer . . . 76
III. Concluding Remarks . . . 78
IV. Relevant Laws & Regulations . . . 79
Chapter 4. Securities. . . 81
I. Overview . . . 82
1. Introduction to Securities Regulation in China . . . 82
a) Growth of the Chinese Capital Market . . . 82
b) Creation of the Securities Regulation Framework . . . 83
2. Defining Securities . . . 84
a) Scope of Application of the Securities Law . . . 84
b) Categories of Listed Stocks . . . 87
3. Structure of Securities Markets . . . 88
a) Non‐Tradable Share Reform . . . 88
b) Emerging Multi‐Layered Markets . . . 91
II. Main Issues . . . 93
1. Securities Issuance . . . 93
a) Definition of Public Issuance . . . 93
b) The Initial Public Offering Process . . . 94
(1) Roadmap and Key Steps . . . 94
(2) Sponsorship and Book Building . . . 95
(3) Review and Approval by CSRC . . . 97
(4) Disclosure . . . 100
c) Secondary Issuances by a Listed Company . . . 101
2. Securities Trade and Takeover . . . 103
a) Stock Trade and Transfer . . . 103
(1) Securities Trading Places . . . 103
(2) Listed Trading on Stock Exchanges . . . 104
(3) Prohibitions from Trading . . . 107
(4) Brokerage Regulations . . . 108
b) Foreign Investors . . . 109
(1) Gradual Openness . . . 109
(2) Qualified Foreign Institutional Investors . . . 110
c) Stock Settlement and Clearance . . . 110
d) Takeover: Disclosure and Tender Offer . . . 112
(1) Disclosure of Interests . . . 112
(2) Tender Offer . . . 112
3. Securities Fraud Enforcement . . . 114
a) Fraudulent Disclosure . . . 114
(1) Securities Law Provisions . . . 114
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c) Market Manipulation . . . 121
III. Concluding Remarks . . . 122
IV. Relevant Laws & Regulations . . . 123
Chapter 5. Mergers and Acquisitions . . . 125
I. Overview . . . 125
1. Evolution History . . . 125
2. Fundamental Principles . . . 127
a) Compliance with Market Entry Requirements . . . 127
b) Safe‐Guarding of National Economic Security . . . 127
c) Protection of State‐Owned Assets . . . 129
d) Anti‐Monopoly Issues . . . 129
3. Approval Authorities . . . 130
II. Major Issues . . . 131
1. Applicability of M&A Regulations . . . 131
a) Applicable Scenarios . . . 132
b) Non‐Applicable Scenarios . . . 132
c) Border Line Scenarios . . . 133
d) Summary . . . 133
e) Case Study . . . 134
2. Transaction Price . . . 135
a) Legal Framework . . . 135
b) Equity/Asset Appraisal Requirement . . . 136
c) Payment of Transaction Price . . . 137
3. Equity Swap . . . 139
a) Qualification and Requirements . . . 139
b) Equity Swap Procedures . . . 141
4. Acquisition of Chinese Listed Companies . . . 142
a) Background . . . 142
b) Methods of LC Acquisition . . . 144
(1) Acquisition of Non‐Tradable Shares by Agreement . . . 144
(2) Strategic Investment in A‐Share LCs . . . 145
(3) Acquisition through QFIIs . . . 145
(4) Indirect Acquisition . . . 145
c) Strategic Investment Issues . . . 146
(1) Conditions of Strategic Investment . . . 146
(2) Requirements for Foreign Investors . . . 147
(3) Methods for Acquisition of A‐Shares . . . 148
(4) Procedure . . . 149
d) Interests Disclosure and Reporting Requirements . . . 150
(1) Transaction via Transfer by Agreement . . . 150
(2) Transaction via Acquisition by Tender Offer . . . 151
III. Concluding Remarks . . . 152
IV. Relevant Laws & Regulations . . . 152
Chapter 6. Antitrust . . . 157
I. Overview . . . 158
1. Evolution History . . . 158
2. Scope of Application . . . 159
3. State‐Owned Enterprises . . . 159
4. Enforcement Agencies . . . 160
5. Definition of Relevant Market . . . 161
a) State Council Guidelines . . . 161
b) Product Market and Geographic Market . . . 162
c) Methodology of Substitutability Analysis . . . 162
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a) Prohibitions . . . 163
b) Exemptions . . . 163
2. Abuse of a Dominant Market Position . . . 164
a) Prohibitions . . . 164
b) Market Dominance . . . 164
3. Intellectual Property Rights (IPR) . . . 165
4. Administrative Monopolies . . . 166
a) Prohibitions . . . 166
b) Enforcement . . . 166
c) Trade Associations . . . 167
5. Merger Control . . . 168
a) Government Agency . . . 168
b) Definition of Business Concentration . . . 169
c) Filing Obligation . . . 169
d) Filing Thresholds . . . 169
e) Standard of Review . . . 171
f) Filing Procedure . . . 171
g) Practice . . . 174
(1) Coca‐Cola/Hui Yuan Case . . . 174
(2) InBev/Anheuser Busch Case . . . 175
(3) Mitsubishi Rayon/Lucite Case . . . 176
6. Investigation . . . 177
a) Competence . . . 177
b) Investigation Powers . . . 178
c) Publication of Decisions . . . 178
7. Sanctions . . . 178
a) Administrative Penalties . . . 178
b) Civil Liability . . . 179
c) Criminal Penalties . . . 179
d) Leniency Rules . . . 179
III. Relevant Laws & Regulations . . . 180
Chapter 7. Secured Transactions . . . 183
I. Overview . . . 183
II. General Principles . . . 184
1. Accessoriness of Security Right to Secured Claim . . . 184
2. Liabilities of Security Grantor . . . 185
3. Secured Claim . . . 187
4. Restrictions and Limitations on Security Rights . . . 188
a) Upstream and Cross‐stream Security . . . 188
b) Creation of Security Rights in Favor of Foreign Creditors . . . 188
5. Co‐existence of Security Rights . . . 190
a) Multiple Security Rights Securing the Same Claim . . . 190
b) Security Rights in the Same Property . . . 191
III. Guarantee . . . 191
1. Guarantor . . . 191
2. Guarantee Contract . . . 192
3. Guarantor’s Liability . . . 193
a) General Scope of Guarantor’s Liability . . . 193
b) Ordinary Guarantee and Joint and Several Guarantee . . . 193
c) Maximum Amount Guarantee . . . 194
d) Guarantee Term . . . 194
e) Changes affecting the Secured Claim . . . 195
4. Guarantor’s Defences . . . 196
IV. Real Security Right . . . 196
1. Substitutes for Encumbered Asset . . . 196
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V. Charge . . . 200
1. Charged Property . . . 201
a) Chargeable Property . . . 201
b) Unity of Land Using Rights and Ownership of Building . . . 202
c) Fruits of Charged Properties . . . 202
d) Maintenance of the Charged Property . . . 202
2. Charge Contract . . . 203
3. Registration . . . 203
4. Chargee’s Rights . . . 205
a) Enforcement of Charge . . . 205
b) Ranking of Charges . . . 206
5. Transfer of Charge and Charged Property . . . 207
6. Special Forms of Charge . . . 209
a) Floating Charge . . . 209
b) Maximum Amount Charge . . . 210
VI. Pledge . . . 211
1. Pledged Property . . . 211
a) Pledgeable Assets and Rights . . . 211
b) Fruits of Pledged Assets or Rights . . . 211
2. Pledge Contract . . . 211
3. Creation of Pledge on Movable Properties . . . 211
4. Creation of Pledge on Rights . . . 212
a) Pledge on Commercial Papers . . . 212
b) Pledge of Interests in Funds and Shares in Companies . . . 214
c) Pledge of Accounts Receivable . . . 214
5. Pledgee’s Rights and Obligations . . . 215
a) Enforcement of the Pledge . . . 215
b) Maintenance of the Pledged Property . . . 216
c) Sub‐Pledge . . . 216
VII. Lien . . . 217
1. Creation of Lien . . . 217
2. Lienor’s Rights and Obligations . . . 217
a) Enforcement of Lien . . . 217
b) Maintenance of the Property Affected by the Lien . . . 218
VIII. Relevant Laws & Regulations . . . 218
Chapter 8. Bankruptcy . . . 221
I. Overview . . . 221
II. Main Issues . . . 223
1. Scope of Application . . . 223
a) Enterprise with Legal Person Status . . . 223
b) SOE . . . 224
c) Financial Institution . . . 226
d) Excluded Commercial Entities and Individuals . . . 226
2. Jurisdiction . . . 227
a) Territorial Jurisdiction . . . 227
b) Subject Matter Jurisdiction . . . 228
3. Bankruptcy Petition . . . 229
a) Criteria for Bankruptcy Liquidation . . . 229
b) Eligible Applicant . . . 230
(1) Debtor . . . 230
(2) Creditor . . . 231
(3) Director . . . 232
(4) Court & Regulator . . . 234
4. Bankcruptcy Commencement and Declaration . . . 234
a) Commencement . . . 234
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a) Restriction on Creditor . . . 235
b) Restriction on Debtor . . . 235
c) Restriction on Legal Proceeding . . . 236
d) Restriction on Senior Management . . . 236
6. Administrator . . . 237
a) Appointment . . . 237
(1) Types of Administrator Candidates . . . 237
(2) Selecting Mechanism . . . 238
(3) Disqualification and Replacement . . . 239
b) Powers and Duties . . . 240
c) Remuneration . . . 242
d) Relations with Creditors . . . 243
7. Creditors’Meeting . . . 244
a) Formation of the Creditors’Meeting . . . 244
b) Secured Creditors . . . 245
c) Procedure Rules of the Creditors’Meeting . . . 246
d) Powers of the Creditors’Meeting . . . 246
e) Creditors’Committee . . . 248
8. Debtor’s Assets . . . 248
a) Scope of the Debtor’s Assets . . . 249
b) Excluded Assets . . . 249
c) Unpaid Registered Capital . . . 251
d) Vulnerable Transactions . . . 251
(1) Void Transactions . . . 252
(2) Voidable Transactions . . . 252
e) Bankruptcy Set‐Off . . . 254
9. Reorganization . . . 256
a) Entry Application . . . 257
b) Management of the Debtor’s Business . . . 257
c) Stay on Claims . . . 258
d) Reorganization Plan . . . 259
e) Failure of Reorganization . . . 262
10. Priority of Claims . . . 263
a) Secured Creditors vs. Employees . . . 263
b) Other Claims . . . 264
III. Concluding Remarks . . . 265
IV. Relevant Laws & Regulations . . . 266
Chapter 9. Labor Relations and Labor Disputes. . . 269
I. Overview . . . 270
II. Main Issues of Individual Labor Law . . . 272
1. Definition of Employee and Labor Relationship . . . 272
2. Labor Contract . . . 274
a) Duty of Disclosure . . . 274
b) Data Protection . . . 276
c) Non‐Discrimination . . . 277
d) Form and Content . . . 278
e) Full‐Time Labor Contract . . . 279
f) Part‐Time Labor Contract . . . 282
g) Labor Dispatch Service . . . 282
h) Labor Conditions: Probation Period and Annual Leave . . . 284
i) Contractual Penalty in Special Cases . . . 285
j) Factual Labor Relationship . . . 287
3. Modification of a Labor Contract . . . 289
4. Termination . . . 290
a) Consensual and Mandatory Termination . . . 290
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d) Formalities . . . 294
e) Severance Payment/Damages . . . 296
III. Main Issues of Collective Labor Law . . . 298
1. Labor Union . . . 298
a) Nature . . . 298
b) Organization . . . 299
c) Basic Level Labor Union Committee . . . 299
d) Rights and Obligations of Labor Unions . . . 300
2. Enterprise Rules . . . 300
3. Collective Contracts . . . 301
a) General . . . 301
b) Parties . . . 302
c) Collective Bargaining and Collective Action . . . 302
d) Procedure . . . 304
4. Co‐Determination . . . 304
IV. Resolution of Labor Disputes . . . 306
1. Scope of Labor Disputes . . . 306
2. Basic System . . . 306
3. Mediation . . . 307
4. Arbitration and Litigation . . . 307
V. Concluding Remarks . . . 309
VI. Relevant Laws & Regulations . . . 309
Chapter 10. Intellectual Property in Transactions . . . 311
I. Overview . . . 313
1. Trademark . . . 313
a) Prerequisites for Protection . . . 313
b) Geographic Term as Trademark . . . 314
(1) Registration . . . 314
(2) Fair Use . . . 315
(3) Distinction to Geographic Indication . . . 316
c) Registration of Trademarks and Opposition Proceeding . . . 316
d) Trademark Rights . . . 317
e) Use Requirement and Defensive Trademarks . . . 317
2. Patent . . . 317
a) Prerequisites for Protection . . . 317
b) Registration of Patents . . . 318
c) Scope of Protection . . . 319
3. Copyright . . . 319
4. Trade Secrets . . . 320
5. Domain Name . . . 321
6. Enforcement . . . 322
a) Administrative and Criminal Enforcement, Customs Protection . . . 322
b) Litigation . . . 322
c) Arbitration . . . 322
II. Main Issues . . . 323
1. Protection of Unregistered Trademarks . . . 323
a) Well‐Known Marks . . . 323
(1) Extended Scope of Protection . . . 323
(2) Criteria of Well‐Known Trademarks . . . 324
(3) Authorities and Proceedings for the Recognition . . . 325
(4) Foreign Trademark Owners . . . 326
b) Agency Marks . . . 328
c) Other Types of Preemptive Registrations . . . 329
d) Protection under Anti‐Unfair Competition Law . . . 330
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b) Use of Trade Name as Trademark . . . 330
(1) Terminologies . . . 330
(2) Special Problem in China–Trademark for Retail and Wholesale Services . . . . 331
c) Conflict between Trademark and Trade Name in its Ordinary Use . . . 332
(1) Trade Name is Registered Prior to the Trademark . . . 332
(2) Trade Name is Registered after the Trademark . . . 332
d) Two Conflicting Trade Names . . . 332
e) Offshore Shadow Companies . . . 333
f) Remedy . . . 334
3. (Multiple) Assignment andBona FideAcquisition . . . 335
a) Trademark . . . 335
b) Patent . . . 338
c) Copyright . . . 338
4. Licensing . . . 338
a) Trademark License . . . 338
(1) Recordal of License . . . 338
(2) Third Party in Good Faith . . . 339
(3) Multiple Licensing . . . 339
(4) Recordal Procedure . . . 340
b) Patent License and Technology Transfer . . . 341
(1) Domestic Licensing vs. Cross‐Border Technology Transfer . . . 341
(2) Formation, Approval and Recordal . . . 341
(3) Warranty and Disclaimers of Warranty . . . 342
(4) Obligation to Exploit . . . 343
(5) Obligation to Maintenance of the Patent . . . 343
(6) Anti‐monopoly Requirements on Licensing Agreement . . . 344
c) Copyright License . . . 344
d) General Terms . . . 344
(1) Choice of Law . . . 344
(2) Right to Sublicense . . . 345
(3) Assignability of License . . . 345
(4) License in Bankruptcy . . . 345
(5) Termination . . . 346
e) Exhaustion and Parallel Import . . . 346
f) Original Equipment Manufacturer (OEM) . . . 346
g) Survival of License in the Event of Assignment . . . 347
5. Security Interest in Intellectual Property . . . 348
a) Status Quo . . . 348
b) Creation of Security Interest in IP assets . . . 349
c) Enforcement of Security Interest in IP assets . . . 349
6. IPR as Contribution in Kind and R&D Center in China . . . 350
7. IPR in Employment Contracts . . . 350
III. Relevant Laws & Regulations . . . 351
Chapter 11. Outbound Investment from China . . . 355
I. Overview . . . 355
1. Recent Development . . . 355
2. Types of Outbound Investors . . . 355
a) State‐Owned Enterprises (SOEs) . . . 355
b) Private Companies and Foreign Invested Enterprises (FIEs) . . . 356
c) Individuals . . . 356
d) Qualified Domestic Institutional Investors (QDIIs) . . . 356
e) Sovereign Funds . . . 356
II. Main Issues . . . 358
1. General Approval Requirements for Outbound Direct Investment . . . 358
a) State Council/National Development and Reform Commission (NDRC) Rules . . . . 358
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d) SASAC Rules . . . 363
e) Rules on Outbound Direct Investment by Individuals . . . 364
2. Industry‐Specific Rules for Outbound Direct Investment . . . 364
3. Outbound Securities Investment . . . 366
a) Rules on QDIIs . . . 366
b) Rules on Outbound Securities Investment by Individuals . . . 367
III. Concluding Remarks . . . 368
IV. Relevant Laws & Regulations . . . 369
Chapter 12. Offshore Investment Vehicles. . . 373
I. Overview . . . 373
II. Main Issues . . . 375
1. General Procedure . . . 375
2. SPV . . . 378
a) SPV in General . . . 378
b) SPV for Red‐Chip Listing . . . 379
3. Inbound Acquisition . . . 380
a) FIE Status . . . 380
b) Disclosure Rules . . . 380
4. CSRC Approval . . . 381
a) Scope of Authority . . . 381
b) Nature of Approval . . . 382
III. Concluding Remarks . . . 382
IV. Relevant Laws & Regulations . . . 383
Index . . . 385
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