New market for the Shanghai Stock Exchange: In January, the Shanghai Stock Exchange launched the Sci-Tech innovation board (“STAR Market”). The STAR Market focuses on supporting enterprises in new and innovative industries, and allows businesses that are unprofitable, or with weighted voting rights structures, to go public. A widened price fluctuation range of 20% operates, with no limits on price fluctuation for the first five trading days. On 22 July 2019, trading commenced on this market, on which UBS was the first foreign underwriter to complete an offering.

More foreign participation in mainland China's bond market: In September, the rules on foreign institutional investors trading on the interbank bond market were relaxed, allowing the transfer of bond investments and cash balances between an investor’s accounts opened under the qualified foreign institutional investor (“QFII”) scheme and its RMB counterpart scheme as well as those directly opened in the interbank bond market. The record-filing procedures in the different markets were also streamlined.

(R)QFII investors no longer subject to SAFE-determined quotas: In September, the State Administration of Foreign Exchange (“SAFE”) announced that it would be revising the relevant regulations of the QFII programme to remove individually assigned quotas and total overall caps on institutional investors. Similar restrictions under the Renminbi QFII programme will be removed at the same time.

Shanghai-London Stock Connect: June saw the official launch of the Stock Connect scheme between the Shanghai and London stock exchanges, which allows eligible companies listed on both exchanges to issue depositary receipts in each other’s market. A-share listed Huatai Securities is the first issuer to list global depositary receipts (GDRs) under the scheme, raising US$1.69bn in what was London’s largest GDR offering since 2012.

Monopolistic behaviour sanctioned: The antitrust watchdog further toughened its stance against monopolistic conduct, by levying fines on the total turnover of the companies concerned rather than the turnover directly affected by the sanctioned conduct. Through various newly-issued implementation rules, and the procedural rules which consolidate and unify the settled view and practice, the authority is better positioned and equipped for more robust enforcement after the recent institutional reshuffle.

Merger control review process streamlined: 2019 saw continued progress in streamlining and expediting the merger review process. Cases reviewed under the simplified procedure are generally cleared within one or two months and clearance of offshore deals with no mainland China nexus take an even shorter time to obtain. Meanwhile, complex cases with potential competition concerns still receive close scrutiny, with “pull and refile” to buy more review time not uncommon. The proposed joint venture between Zhejiang Garden Biochemical and Royal DSM took 552 days to obtain clearance - the longest review period to be seen thus far.

Shareholder protection enhanced: The Supreme People’s Court’s April judicial interpretation on the application of the Company Law (i) gives shareholders increased powers to obtain compensation for and take action against related party transactions, (ii) sets a 1-year time limit for profit distribution resolutions to be performed, and (iii) provides more flexibility to courts to refuse compensation to directors validly removed from office, and to uphold settlements between deadlocked shareholders aimed at avoiding company liquidations. 

Investments by foreign invested enterprises: In October, SAFE released reforms that will facilitate foreign invested enterprises in non-investment sectors in making equity investments with their registered capital. Such FIEs will no longer be required to have the word “investment” in their business scope, which was in practice very difficult to obtain, in order to be eligible to make equity investments.

More flexibility for backdoor listings: In October, the rules on material asset restructurings by A-share listed companies were revised, reducing the look-back period from 60 months to 36 months and removing the profit test as one of the trigger thresholds for requiring CSRC approval of a backdoor listing. Amid the slowing economy, the revisions should make it easier for A-share listed companies to raise finance and undergo transformations by acquiring high quality assets and businesses from their controlling shareholders.

Foreign investment catalogue: The investment authorities updated the negative list in July, with the goal of eliminating, by the end of 2019, all market-entry restrictions on foreign investment outside the negative list. Previous restrictions in the list in oil and gas, cinemas, infrastructure and freight forwarding were among those to be removed in this revision. The government also significantly expanded the list of industries eligible for preferential policy treatment, with a focus on high-end manufacturing, advanced services and labour-intensive industries. Read more...

Hong Kong SAR-Mainland mutual judicial assistance: In April, the Hong Kong Government and the Mainland Supreme People’s Court signed the Arrangement Concerning Mutual Assistance in Court-ordered Interim Measures in Aid of Arbitral Proceedings by the courts of the two territories (the “Arrangement”). The Arrangement, which became effective in October, allows parties to arbitral proceedings seated in Hong Kong SAR to apply, at any time before an arbitral award is made, to Mainland courts for interim measures including property preservation, evidence preservation and conduct preservation. Equally, any party to arbitral proceedings in Mainland may apply to the Hong Kong SAR courts for interim measures pursuant to Hong Kong law — a remedy that is already available to parties to foreign-seated arbitral proceedings. Read more...

Hong Kong-Mainland mutual enforcement: In February, the Hong Kong Government and the Mainland Supreme People’s Court signed an agreement for reciprocal enforcement of civil and commercial judgments under both PRC and Hong Kong law. The agreement, which became effective in October, extends the pre-existing reciprocal enforcement mechanism to include injunctions and specific performance and does away with the requirement of the parties’ advance agreement to submit to the exclusive jurisdiction of a Mainland or Hong Kong court. Certain matters, including personal bankruptcy and corporate insolvency, are not covered by the agreement. Read more...

Prohibition on gender discrimination: On 18 February 2019, nine central government authorities jointly issued a circular promoting the employment of females and putting an express ban on gender discrimination during recruitment. Employers are not permitted to check marital or child rearing status during job interviews. Pregnancy tests in any pre-employment medical check are also now prohibited. A fine of RMB 10,000 to 50,000 may be imposed on employers whose job advertisements contain gender discrimination.

Relaxation of restrictions in banking and insurance sectors: In September, the China Banking and Insurance Regulatory Commission relaxed several key restrictions on the operations of foreign-funded banks and foreign bank branches, including business scope restrictions, track record, prudential and capital requirements. Another set of reforms makes it possible for a broader range of insurance and financial institutions to invest in foreign-funded insurance companies. Read more...

Clarifications around foreign debt registration: In February, the National Development and Reform Commission (“NDRC”) released an official announcement regarding its requirement to register foreign debt (including debt incurred offshore by PRC-controlled entities) under NDRC Circular 2044. It observed that certain enterprises had been failing to comply with this requirement and reiterated the need to do so. It also clarified that local enterprises may register their foreign debt directly with central NDRC, rather than dealing with its regional branches. Previously, there had been some concerns that local NDRCs were taking differing approaches to registration, particularly in relation to offshore loans.