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People's Republic of China: What happened in 2018 and significant events in 2019

People's Republic of China: Year in Review 2018 and Year to Come 2019 summarises some of the major developments in China last year, and a selection of key changes that we anticipate over the coming year. There are links to further reading, where available.

Explore our overview of key developments below.

A selection of


developments across our key practice areas in 2018 and 2019

Significant legal and regulatory events in 2018

Explore the tabs below to review the key developments you need to be aware of from 2018


Control of local government debt: In 2018, Chinese authorities took broad measures to deleverage local governments and state owned enterprises and clean up hidden debt. These included new restrictions on: local governments granting outbound guarantees to offshore creditors; financial enterprises providing financing to local governments and their departments; enterprises counting public assets in their asset-pools for reporting purposes; and enterprises publicising misleading links to government credit (read more). However, this general policy trend was muddied in the latter half of the year, with mounting government pressure on banks to support local government bonds. This has been seen as a bid to counter economic slowdown by facilitating government spending.

Restrictions on foreign debt: Within the theme of deleveraging and strengthening the economy, Chinese authorities imposed various new foreign debt controls in 2018. In particular, insurance groups were reined in from freely providing outbound guarantees for offshore debt (read more); local government entities were banned from providing outbound guarantees from offshore debt (read more); real estate developers were restricted from using foreign debt towards real estate projects; and all domestic companies raising foreign debt were subjected to higher governance standards (read more).

Capital Markets

Shanghai-London Stock Connect: Intensive preparations for this impending link-up between the Shanghai and London stock exchanges were made in the second half of 2018 and are continuing. The scheme will enable issuers in each side’s home market to issue depositary receipts in the other market representing a portion of their listed shares held by a custodian. The first issuances under the scheme are expected to take place by the end of 2018.

China releases highly anticipated provisional Panda bond guidelines: The People’s Bank of China (“PBOC”) and the Ministry of Finance released the highly anticipated provisional Panda bond guidelines as part of their efforts to encourage more foreign issuers to participate in the China Interbank Bond Market and internationalise China’s domestic bond market by aligning it with the international bond market. One of the key aspects of the guidelines is the codification of the criteria for a direct offer of Panda bonds to qualified institutional investors, a move which will provide greater clarity to foreign issuers looking to access China’s domestic bond market through private placements of Panda bonds. However, there remain a number of areas on which further clarity and guidance from the National Association of Financial Market Institutional Investors and other regulators are expected, including the issuer eligibility criteria for foreign non-financial enterprises, the registration and issuance procedure for foreign sovereigns, international development institutions and foreign non-financial enterprises and requirements around the use and remittance of proceeds outside of China. Read more...

Chinese regulators encourage banks to issue innovative loss-absorbing bonds: Early in 2018, the PBOC and China Banking Regulatory Commission (“CBRC”, now the CBIRC) introduced significant developments in the issuance of loss-absorbing bonds by Chinese banks, although detailed rules and guidance still need to be published. The PBOC announcement relates to the issue of bonds to replenish capital by financial institutions in the banking industry. The CBRC announcement relates to the further support for the issuance of innovative capital instruments by commercial banks. Both the PBOC and CBRC announcements refer to the possibility that capital bonds with no fixed maturity could be issued by Chinese banks soon (cf. preference shares). 


Antitrust regulatory activism: 2018 saw a steady increase in the number of merger control cases reviewed by the SAMR/Ministry of Commerce, including notable remedies such as Essilor/Luxottica where only the Chinese authorities imposed remedies. Linde/Praxair was cleared with conditions following a thorough review which lasted more than a year. Sanctions against a record number of 10 cases for failure to file were imposed.


Outbound investment: In March and May, respectively, the National Development and Reform Commission (“NDRC”) published a catalogue of sensitive industries for which outbound investments would be subject to more stringent approval requirements, followed by a Q&A further defining the scope of these industries and importantly, specifying sub-sectors within each industry where the enhanced approval regime does not apply (for example, technology and logistics parks are excluded from the sensitive industry of real estate). The Q&A brings a broader range of transactions financed or secured by domestic assets or funding within the scope of the outbound investment regime.

Foreign investment reform: In July, the nationwide “negative list” of restrictions on foreign investment, and the separate list for the seven free trade zones, were updated. The two lists now have a common format for easier comparison and merge the “prohibited” and “restricted” categories into a single category of restrictions arranged by industry sector. Newly liberalised sectors include aircraft manufacturing, power grid and gas station operation, and by November, international freight forwarding agencies will no longer need to apply for a licence from the Ministry of Transport. In the free trade zones, restrictions have been further rolled back on oil and gas exploration, grain production and performing arts. A parallel negative list in the Shanghai free trade zone shows the government’s intention to regulate most services sectors where cross-border activities by foreign entities were previously not subject to approval, filing or presence requirements. 

More buybacks expected: Amendments to the Company Law in October give additional grounds for companies to redeem their shares. The buyback process is simplified and both the ceiling and holding period for the buyback shares have been extended. Listed companies are required to comply with additional disclosure procedures and conduct the buybacks in on-market transactions.

Dispute Resolution

National Supervisory Commission: China’s highest anti-corruption agency was established in March with jurisdiction over civil servants, managers of state-owned enterprises and other public entities and other personnel who perform public duties, in addition to Communist Party members. Its powers of investigation, which rank above those of criminal prosecuting authorities, include detention of suspects for up to six months without allowing them access to legal representation.

Financial Regulation

Commodity Exchange: With approval of the China Securities Regulatory Commission, Dalian Commodity Exchange launched the trading by offshore investors of iron ore futures contracts.  After the crude oil futures (on Shanghai International Energy Exchange), this marked another step towards further opening the Chinese financial market to offshore investors.  Prior to the formal launch, Linklaters represented the exchange to obtain an Automated Trading Service (ATS) licence from the Hong Kong Securities and Futures Commission.   

Bond Connect developments: After one year’s smooth operation, notable developments included true delivery-versus-payment (“DvP”) for settlement at the China Central Depository and Clearing and the expansion of eligible onshore counterparties to 10 more onshore market dealers. To better serve investors’ needs, the Shanghai Clearing House now facilitates onshore issuers to obtain ISIN for corporate bonds.

Expansion of RMB: Since June, offshore investors who carry out financial investment in PRC securities markets, the China Interbank Bond Market and other approved onshore financial markets can hedge their currency risks by entering into derivative transactions with qualified onshore banks and offshore banks.  The onshore exchange rate (between CNY and FX) which these banks offer is generally regarded by the market to be more favourable than the offshore rate (between CNH and FX).


Consolidation of regulators: The three Chinese antitrust enforcement agencies were consolidated into the new State Administration for Market Regulation (“SAMR”), while the banking and insurance regulators were consolidated into the new China Banking and Insurance Regulatory Commission (“CBIRC”). 

Restructuring and Insolvency

Debt to equity conversion: New rules in June provide for the setup of financial asset investment companies (“FAICs”) to effect “debt to equity” conversions. In a debt-for-equity swap, creditors transfer their non-performing loans to the FAICs, which will in turn convert the debts into equity stakes in the underlying debtor companies. The new rules expressly provide that foreign investors may invest in FAICs on the same basis as domestic investors, without being subject to any shareholding cap. However, the major shareholder must be a Chinese bank. A further step in opening up the market was seen in November when the NDRC announced that private equity funds, including funds established by foreign investors in the PRC, would be able to invest directly in these transactions.

TMT/Data Privacy

Personal data: Voluntary best practice guidelines on the collection, storage, use and processing of personal data came into effect from May. These require consent from individuals to be obtained in order to collect or process personal data (limited exceptions apply). Data controllers are required to conduct annual privacy impact assessments, and if they would like to transfer personal data out of the PRC, data transfer security assessments.

Cybersecurity compliance monitoring: The Ministry of Public Security (MPS) has issued guidelines for the inspection of providers and users of internet services in the PRC, which came into effect in November.  It sets out clear penalties for the offence of illegal collection and distribution of personal information by internet service providers and network users (including potential penalties of up to RMB1 million), and provides the MPS with the authority to monitor and inspect activities of internet service providers and network users. In particular, the public security authorities may carry out on-site or remote inspections to ascertain whether cybersecurity responsibilities have been fulfilled (such as the establishment of network security management rules and the adoption of prevention measures against internet intrusion).

“2018 saw many significant changes in the foreign investment and financial markets regimes in China, accompanied by various regulators tightening their approach to enforcement. Here we present a summary of the major developments, and preview key changes expected in all of our practice areas in 2019.”

William Liu, Managing Partner, China

William Liu

Significant legal and regulatory events in 2019

Explore the tabs below to review the key developments you need to be aware of in 2019


Control of local government debt: In 2019, we expect Chinese authorities to continue their balancing act between bolstering financial stability on the one hand and providing economic stimulus on the other. Negotiations for the end of the Sino-US trade war, if successful, may assist the government’s efforts to strengthen the economy. New monitoring systems are expected to be rolled out, to help curb unnecessary government debt. Nevertheless, debt supporting public infrastructure projects will likely still be encouraged, at least in the short term.

Restrictions on foreign debt: In 2019, we expect the NDRC to continue to increase oversight over foreign debt, close loopholes and strengthen penalties for non-compliance. In particular, we may see it expand its scope to monitor short term foreign debt (i.e. debt with a tenor under 365 days) as well as the medium and long term foreign debt it currently regulates.

Capital Markets

Shanghai-London Stock Connect: We expect the launch of the scheme in 2018 to be followed in 2019 by further rules to clarify certain aspects, including fungibility, market stabilisation, cross-border conversion mechanics, and synchronisation of settlement cycles between the two exchanges (to the extent not covered by any further rules passed towards the end of 2018).

Control of local government debt: In 2019, we expect Chinese authorities to continue their balancing act between bolstering financial stability on the one hand and providing economic stimulus on the other. Negotiations for the end of the Sino-US trade war, if successful, may assist the government’s efforts to strengthen the economy. New monitoring systems are expected to be rolled out, to help curb unnecessary government debt. Nevertheless, debt supporting public infrastructure projects will likely still be encouraged, at least in the short term.

Restrictions on foreign debt: In 2019, we expect the NDRC to continue to increase oversight over foreign debt, close loopholes and strengthen penalties for non-compliance. In particular, we may see it expand its scope to monitor short term foreign debt (i.e. debt with a tenor under 365 days) as well as the medium and long term foreign debt it currently regulates.


Expected antitrust enforcement trends: In 2019 the practices of the newly formed antitrust authority will be closely watched for any common interpretive and stronger activist trends. Enforcement against missed filings and gun-jumping is expected to continue, whilst sanctions for failure to notify a purely offshore transaction with no Chinese nexus may be seen for the first time. Global trends of fortifying antitrust and foreign investment regulation may result in clearances for complex deals or transactions involving strategic or sensitive sectors becoming increasingly challenging.

Anti-monopoly law reform: Recently, there have been calls for amendments to the Anti-Monopoly Law. In 2019, the antitrust community will continue to debate the proposed changes. Fair competition review, further rules on vertical agreements and enhanced penalties for failure to notify are among those proposed to be introduced.


Foreign investment in A-share companies: A further consultation draft on strategic investments by foreign investors in A-share listed companies was published in 2018, with the final rules expected to be passed in 2019. Key proposed changes include reducing the lock-up period from three years to one and abolishing the minimum 10% of share capital for such investments.

Auto sector: The timetable has been set for the removal of foreign investment limits in the auto sector, beginning with new energy vehicles and special-purpose vehicles in 2018, then extending to commercial vehicles in 2020 and passenger vehicles (including the ability to have more than two presences) in 2022. New requirements for investments in the auto sector, to be released imminently, are expected to restrict new production capacity in complete combustible fuel vehicle projects and introduce additional criteria (including a minimum 100,000 passenger vehicles or 5,000 commercial vehicles) for complete electric vehicle projects.

Share buy-backs: In November, following the reform to the PRC Company Law, the Shanghai and Shenzhen stock exchanges issued consultation draft implementation rules for share buy-backs. The drafts further clarify that repurchases/buy-backs are “necessarily intended for preserving the value of listed companies and shareholders’ interests”. The drafts contain detailed requirements on buy-back plans and disclosure procedures, as well as measures to prevent abuse of share buy-backs. We expect the drafts to be finalised and enacted in 2019.

Foreign investment law: 2019 may see the enactment or the publication of a further consultation draft of the Draft Foreign Investment Law since the first draft was published in 2015. The new law is expected to bring “variable interest entity” structures within the scope of foreign investment regulation and harmonise the corporate governance requirements for Sino-foreign joint ventures and domestic companies. 

Foreign investment reform: In 2019, the government is expected to continue opening up the market to foreign investors and improving the foreign investment environment. A new negative list applying to foreign and domestic investors in all sectors is expected to be published in early 2019, which will entrench the principle of “investment is permitted where not prohibited”. Further, the government expects to remove, by March 2019, all restrictions on market entry by foreign investors (other than those set out in the “negative list” of restrictions on foreign investment), as well as all licensing requirements that do not appear in an approvals catalogue which will be published imminently. The services sectors, including finance, education and health, are likely to form the focus of foreign investment reform in 2019. 

Dispute Resolution

Financial crime: 2019 may see increased focus by authorities on financial crime. The trend of prosecuting high-ranking executives (such as Huarong chairman Lai Xiaomin, senior management of various banks and chairmen/vice-chairmen of financial regulators) is expected to continue. CSRC is expected to continue its trend of imposing maximum penalties and lifetime bans for market misconduct and transferring more cases to the police for criminal investigation. 


Collection of social security funds to be stepped up: The Central Committee of the Communist Party of China and the General Office of the State Council have decreed that from 1 January 2019, all social insurance funds will only be collected by local tax administrations. This is expected to lead to much stronger enforcement, compared with the previous practice of collection by local social insurance fund administrations. Overzealous enforcement may be a concern, such as the example of a local Changzhou company in August being ordered to pay ten years’ outstanding contributions totalling approximately RMB 1.8 million. Yet the authorities have also urged localities to put enforcement of overdue contributions on hold, and given assurance that contribution rates will be simultaneously lowered. In November, 28 government departments announced their intention to combat non-compliance in future social security contribution. Sharing of information on non-compliant companies among these departments is likely to create problems for persistent offenders.

HMT Residents: Following the removal in 2018 of work permit requirements for Hong Kong, Macau and Taiwan (“HMT”) residents, a consultation draft rule that will apply the PRC social security regime to HMT residents is expected to be passed in 2019. Employers will be required to make contributions for HMT residents employed, though they are expected to be permitted to opt out from participating in the pensions and unemployment insurance schemes if they have joined social security or provident fund schemes in their home jurisdiction.

Real estate

Land reform: Following two years of consultation, 2019 may see reform enabling collective land to be used for non-agricultural purposes, which will allow such land use rights to be leased, transferred or rented in order to ensure that land in urban and rural areas can be transacted on the same basis. The launch of a pilot programme in 13 cities this year is a promising sign that transactions in collective land may be expedited on a nationwide basis through the decentralisation of approval powers and doing away with the compulsory acquisition process in limited circumstances.

TMT/Data Privacy

Personal data: Guidelines for the conduct of privacy impact assessments are expected to come into force in 2019. These will require data controllers to conduct overall assessment of risk levels based on the impact of their operations to data subjects’ interests and the likelihood of data breaches occurring. Additional evaluation guidelines apply to cross-border data transfers, data anonymisation/de-identification, processing, transfer, sharing and disclosure arrangements and the impact of data breaches. In addition, a draft standard was published in November, which broadly specifies the security measures data controllers and collectors will need to make to their IT systems and networks in order to ensure the safety of personal data in the collection, storage, use and administration process. These guidelines are intended to be used by cybersecurity authorities in supervising and monitoring compliance with personal data protection rules.

E-commerce: China’s new e-commerce law will come into force on 1 January 2019. It subjects e-commerce platforms to wide-ranging obligations, including information retention and filings with authorities, monitoring the health and safety of the products/services supplied and policing IP infringements by on-platform vendors. The new law tracks the EU approach in requiring vendors to provide a “no profiling” option as an alternative to products being offered to users based on automated analysis of their preferences.

Financial Regulation

Financial services: In April 2018, the China Securities Regulatory Commission (“CSRC”) permitted foreign majority ownership of securities companies, with full liberalisation of foreign ownership caps to occur by 2020. This was followed, in August 2018, by removal of all limits on foreign shareholding in financial asset management companies and Chinese-funded commercial banks. Foreign majority ownership of life insurance joint ventures is expected to be introduced in 2020, with all foreign ownership caps removed by 2022. The framework for dealing with foreign investors’ applications for majority ownership will be progressively revamped, with new rules on equity investments in securities companies expected to be published in 2019.

Anti-money laundering and counter-terrorist financing (“AML/CFT”): Rules for the PBOC’s online AML/CFT platform linking service providers who use internet and communications technology to provide financial and information services will come into effect from 1 January 2019. These service providers, including CBIRC-regulated entities, will be required to establish AML/CFT departments and AML/CFT internal control policies, with responsibility for implementation resting with the legal representative. Service providers will be subject to AML/CFT inspections by the PBOC and required to monitor transactions for involvement with terrorist organisations that appear in lists published by the government, financial regulators and the United Nations (“UN”) Security Council. For banks specifically, from 2019: (i) boards are likely to assume responsibility and have to designate a senior manager for AML/CFT; and (ii) other expected AML/CFT requirements include UN sanctions resolutions, annual AML/CFT audits and completing AML/CFT evaluation before establishing new branches, undertaking new business lines or introducing new IT systems.

Explore our Year in Review 2018 and Year to Come 2019 series across 20+ jurisdictions and a number of topics.

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