Mainland China: What happened in 2020 and significant events in 2021

PRC Law: Year in Review 2020 and Year to Come 2021 summarises some of the major developments in mainland 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


law developments across key practice areas in 2020 and 2021

Significant legal and regulatory events in 2020

In 2020, mainland China continued on its path of attracting more inbound investment, while progressively liberalising its capital markets and relaxing restrictions on capital flows.


Measures stimulate economic growth following Covid-19 downturn: After the Covid-19 outbreak, the Chinese government prioritised the implementation of a variety of financial measures and other tools to ensure banks had sufficient liquidity, and to reduce interest rates. Exemptions from certain social security contributions and improvements to the efficiency of foreign exchange control and cross-border remittance of Renminbi also assisted businesses to survive the immediate commercial downturn. Having brought the virus firmly under control, China’s economy has begun a relatively fast economic rebound that is allowing regulators to look again at stimulating growth. In Shanghai, for example, the municipal government has released new foreign investment regulations, effective from 1 November, that aim to further accelerate the opening-up of the city at the heart of China’s finance sector.

Capital Markets

Final private placement rules released: In February, the China Securities Regulatory Commission (“CSRC”) finalised amendments to the private placement rules for listed companies, with the overall objective of streamlining private offering requirements in mainland China. The new rules increase the maximum discount permitted for the offering price of a private placement to 20%, shorten the lock-up period to 18 months, and offer more flexibility when setting the price reference date for placements to strategic investors. The rules also increase the maximum number of investors allowed in any offering to 35 and extend the validity period of the CSRC’s approval for a private placement to 12 months.

Reform of qualified foreign investor regime: As part of mainland China's ongoing efforts to liberalise its capital markets, the Chinese authorities released a series of regulations in 2020 to reform the country’s qualified foreign institutional investor (“QFII”) and Renminbi QFII programmes. Originally launched in 2002 and 2011 respectively, these programmes allowed foreign institutional investors to trade in the country’s stock and bond markets within certain quotas. The new rules create a unified “qualified foreign investor” (“QFI”) regime, abolish the investment quota restriction of the previous programmes, and expand the scope of permissible investments to include financial and commodity futures and options, and private investment funds. In addition, the eligibility requirement for QFIs is relaxed to allow a wider range of institutions to apply to become QFIs.

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Clarification on enforceability of keepwell undertakings: In November, the Shanghai Financial Court delivered a judgment recognising a Hong Kong High Court default judgement against CEFC Shanghai International Group in relation to claims for breach of keepwell undertakings given by CEFC to ensure that its subsidiary remained solvent with sufficient liquidity to meet its payment obligations under various bonds that the subsidiary had issued. Given keepwell deed structures are frequently used as credit enhancement for bonds involving mainland Chinese companies, the PRC court’s judgment is significant because there has remained uncertainty as to how a PRC court would treat a claim under a keepwell deed since a breach of the deed would not typically give rise to a debt claim but only a claim for damages for breach of contract. However, the PRC judgment demonstrates that, in appropriate circumstances where the mainland Chinese keepwell provider is not already insolvent, a PRC court is likely to enforce a Hong Kong court judgment which gives effect to a keepwell deed in accordance with the Arrangement on Reciprocal Recognition and Enforcement of Judgments in Civil and Commercial Matters between the Courts of the Mainland and of the Hong Kong SAR pursuant to the Choice of Court Agreements between Parties Concerned.



More clarity under the Foreign Investment Law: The new Foreign Investment Law (“FIL”) has been in force for nearly one year, with numerous foreign-invested enterprises known to have chosen to restructure their corporate governance to reflect the new requirements under the FIL (notwithstanding that the grace period for doing so does not expire until 1 January 2025). The release of various implementing rules this year has provided welcome clarity on some outstanding details under the FIL, including prescribing new reporting requirements for foreign-invested enterprises, in place of the Ministry of Commerce’s filing-based system, and measures, which from 1 October, clarify the scope of application of the administrative complaint mechanisms that are available to foreign-invested enterprises under the FIL. In addition, the PRC Supreme Court (the “SPC”) clarified that agreements governing investment into industries into which investment by foreign enterprises is restricted under the “negative list” may be held valid despite industry approvals having not been obtained, provided that necessary measures are taken to meet access requirements or the negative list is revised to remove the investment restriction.

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Emergence of workforce sharing arrangements: The Covid-19 outbreak led to a sharp drop in the workload of employees of many offline merchants in mainland China, with some staff temporarily having no work until busyness levels returned. At the same time, the pandemic has driven a surge in orders on e-commerce platforms, some of which have encountered a shortage in labour. To resolve this imbalance, some e-commerce platforms have begun co-operating with offline enterprises to share employees’ time to lessen the pressure on platforms’ workforces while also reducing the labour costs of these offline enterprises. This new employment model – commonly referred to as “workforce sharing” – has become an innovative way to rebalance workforce supply and demand during the pandemic and it will be interesting to see how it influences strategic human resource management as the Chinese economy continues its recovery in 2021.

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Financial Regulation

Financial reform agenda in Greater Bay Area: In April, China released a 30-point agenda reforming cross-border capital flows, insurance business and investment channels in the Greater Bay Area, which consists of the Hong Kong and Macau Special Administrative Regions and nine cities in Guangdong Province (including Guangzhou and Shenzhen). The agenda marks a significant milestone following the publication of the outline development plan for the Greater Bay Area in 2019 and sets out more detail on the expected forthcoming reforms to cross-border financial services as China seeks to build a world-class city cluster.

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Further reforms to asset and wealth management: The CSRC’s rules regulating institutions distributing public securities investment funds came into force on 1 October, allowing the distribution of mutual funds and, if registration is completed with the Asset Management Association of China, private securities investment funds. These rules intend to standardise distribution of these investment products, including by clarifying the scope of distribution activities, the licence registration procedures and applicant qualification requirements.


More guidance to enhance antitrust enforcement: In August, mainland China’s antitrust watchdog, the State Administration for Market Regulation (“SAMR”) published four sets of antitrust guidelines to provide more clarity on certain key antitrust issues in mainland China such as leniency, exemptions to resale price maintenance, and the market share-based safe harbour. SAMR also published detailed compliance guidance to help market players establish internal compliance frameworks and identify potential areas of risk.

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Expediting review of simple cases and expanding scope of review: Alongside a notice released in April that sought to accelerate merger review processes to facilitate the resumption of production and better control Covid-19, SAMR further streamlined and expedited the merger review process as evidenced by the timeframe needed by the regulator to clear simplified case filings since the reforms were launched. Despite the disruption of Covid-19, the average review period for a simplified case over the first half of 2020 fell to an average of less than 13 days from acceptance of a case. In addition to enhanced speed, SAMR has also expanded its scope of review in 2020. Most notably, in April SAMR accepted the notification of a transaction involving a so-called variable interest entity (or “VIE”) structure for the first time, clearing the case in July, and, in June, SAMR published its first penalty decision for failure to notify an offshore merger that had no mainland China nexus.


Online application of foreign debt filing and registration: In October, China’s National Development and Reform Commission (“NDRC”) released official guidance regarding the launch of an online system to facilitate the filing and registration of foreign debt (including debt incurred offshore by mainland Chinese-controlled entities) under NDRC Circular 2044. Starting from 1 November 2020, the filing and registration application, information reporting, inquiries and feedback in respect of medium-to-long term foreign debt will be processed through that system. For filing and registration of foreign debts online, NDRC requires the original application documents to be delivered to the NDRC office after the online submission is completed. NDRC recommends that companies submit original documents no later than 45 working days before issuing any bonds or drawing down loans.

Adjusting macro-prudential parameter for cross-border financing: In March, the State Administration of Foreign Exchange and the People's Bank of China (“PBOC”) issued a joint notice to increase the level of the macro-prudential parameter from 1 to 1.25. In line with wider government policy shifts, this increase to the parameter, used in calculating the foreign debt quota available to a mainland Chinese corporate or financial institution under the PBOC’s foreign debt quota regime, seeks to encourage more cross-border finance into mainland China.

Private lending interest reform: In August, the SPC revised certain rules concerning the application of law in the trial of private lending cases. Under the new principles, PRC courts will support lenders’ claims in respect of interest payments provided that the agreed annual interest rate does not exceed four times the Loan Prime Rate (“LPR”) on one-year loans released by the National Interbank Funding Centre. Compared to the previous limit of between 24% and 36%, the SPC has effectively lowered the upper limit on private lending interest rates. For instance, the one-year LPR issued on 20 November was 3.85%, resulting in a ceiling under the new rules of 15.4% per annum.

Significant legal and regulatory events in 2021

In 2021, mainland China is expected to continue with market-based reform and eliminating procedural intervention in a broad range of regulatory areas. These reforms, together with the new Foreign Investment Law and Civil Code, aim to improve the process of doing business.

Constitutional principles

New Civil Code to be launched: After extensive deliberation by Beijing’ legislature, mainland China’s new Civil Code (“Code”) will come into effect from 1 January 2021. The Code will to some degree affect all contracts governed by PRC law. Key changes include additional stipulations on termination, third-party rights and obligations, and finance-related provisions. Notably, the Code also includes a new section on factoring-related contracts, which is expected to have material implications on these financial services in mainland China. More implementing rules and judicial interpretations are expected in order to clarify the Code’s broad principles but all parties doing business in mainland China will need to monitor developments and consider restructuring contracts to the extent that they would be affected by the changes introduced by the Code.

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Data Protection

Data security and management to be reshaped: The draft Data Security Law and draft Personal Information Protection Law were published for public comment in July and October 2020, respectively. Together with the PRC Cybersecurity Law, these rules will serve as the basic law for data regulation in mainland China, with the former new law focusing on data security and the latter on personal data protection. While both draft laws acknowledge the need for data systems that promote expansion of the digital economy, the October draft contains potentially burdensome data export restrictions and a steep increase in financial penalties for non-compliance with its requirements. Some commentators expect that both laws will be officially promulgated in the first half year of 2021, but no date has yet been set publicly by the authorities.

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Increased supervision of data collection by mobile apps: Misuse of personal data by mobile applications has been a growing concern for mainland Chinese cybersecurity regulators. The Basic Specification for Collecting Personal Information in Mobile Internet Applications was released for public consultation earlier this year and sets out the clear expectation of the government for how mainland China’s three million apps may collect the personal data of its residents. The specification provides 18 principles, such as data collection minimisation, and is expected to transform the practice of data collection by mobile apps in the future, alongside the increasing trend towards enforcement action by regulators (including removal of apps from mainland China’s app stores) where there is clear non-compliance by app operators with existing laws.


Continued liberalisation of foreign investment: Although the FIL has set out a clearer framework for foreign investment into mainland China, further detailed rules and regulations are expected to flesh out the high-level provisions of the FIL over the course of 2021. For example, although the treatment of VIE structures was mentioned in the consultation draft of the FIL, the final form of the FIL is silent on VIE structures, so these continue to carry uncertainty as vehicles for foreign investment. New waves of reform are also anticipated in the general foreign investment regime, defining a path to full implementation of the FIL by 2025.

New Export Law expected to bite: Mainland China’s first comprehensive Export Control Law took effect from 1 December 2020. The new law establishes mainland China’s first integrated export control regime to regulate the export of military and dual-use products, nuclear materials and goods, and other technologies and services for national security and public policy reasons. It also sets out detailed rules on export qualifications and an export licensing regime. While implementation rules will likely be published next year, particularly in the current geopolitical environment, an increase in regulatory enforcement relating to exports from mainland China is expected in 2021 and beyond.

Reform of national security review: Many countries are tightening their approach towards foreign investment in response to the Covid-19 pandemic. Although the Chinese government is expected to continue loosening its oversight of foreign investment more generally, 2021 is likely to see further development of China’s national security review regime relating to foreign investment. In particular, a new review regime is expected to be released to replace the current rules which are seen as out-of-step with China’s commercial and technological development as these rules mainly focus on military-related business.

Intellectual Property

Increased supervision of data collection by mobile apps: Misuse of personal data by mobile applications has been a growing concern for mainland Chinese cybersecurity regulators. The Basic Specification for Collecting Personal Information in Mobile Internet Applications was released for public consultation earlier this year and sets out the clear expectation of the government for how mainland China’s three million apps may collect the personal data of its residents. The specification provides 18 principles, such as data collection minimisation, and is expected to transform the practice of data collection by mobile apps in the future, alongside the increasing trend towards enforcement action by regulators (including removal of apps from mainland China’s app stores) where there is clear non-compliance by app operators with existing laws.

Enhanced protection of trade secrets expected: Following the September publication by the SPC of two judicial interpretations providing guidance on civil and criminal litigation relating to trade secrets under PRC law (in particular, how to better identify trade secrets for civil claims, clarification on seeking civil injunctions on infringing behaviours and the prescribed methodology for determining and calculating compensation amounts and case values in civil and criminal cases, respectively), in the same month, SAMR published the draft Regulation on Trade Secret Protection for public consultation. As it looks to make the overall business environment more robust, it is expected that the central Chinese authorities will seek to strengthen the protection of business secrets during 2021, including the civil, criminal and administrative aspects.

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Financial Regulation

Further reforms to asset and wealth management: Various draft rules relating to asset and wealth management business have been released this year for public consultation, including proposals to significantly amend the regime governing securities and funds’ investment advisory business and permit other types of qualified asset management institutions (including the asset management subsidiaries of securities companies and the wealth management subsidiaries of banks) to be eligible to apply for mutual fund management licences. While there is no clear indication on timing from the regulators, the market expects these draft rules to be finalised in 2021.


Further antitrust guidance on API: In 2021, SAMR is expected to finalise the active pharmaceutical ingredients (“API”) antitrust guidelines which are currently under public consultation. It is expected to help further antitrust oversight relating to API and proposes several rules more stringent than generally applicable antitrust rules. This guidance is also the second sector-specific guidance after the auto guidelines, echoing SAMR’s focus in recent years on areas directly relevant to consumer welfare and close monitoring of the API area.

Merger control and national security implicated by geopolitical tensions amid the Covid-19 pandemic: Political wrestling intertwined with geopolitical tensions amid the ongoing Covid-19 pandemic may further impact the predictability of merger control timelines, especially of transactions that are significant, complex, high profile and/or in sensitive sectors. On top of the uncertainty of national security reviews, multinational companies are expected to have to deploy more time and resources to properly take these factors into consideration in the planning and structuring of their deals in 2021.

Arbitration and Disputes

Supplemental Arrangement Concerning Mutual Enforcement of Arbitral Awards between the Mainland and the Hong Kong SAR (the “Supplemental Arrangement”): On 27 November 2020, the Supplemental Arrangement was signed. After implementation, if an award debtor has assets in the Mainland as well as in Hong Kong, the award creditor may file applications for recognition and enforcement of the award with the relevant courts of the two places concurrently. This is a major improvement from the existing Arrangement, under which enforcement applications cannot be made to the courts of both Hong Kong and the Mainland concurrently. Only when recovery at one place is insufficient to satisfy the total amount awarded can the award creditor apply to the courts of the other place for enforcement. The Supplemental Arrangement also empowers the enforcing court to grant freezing orders and injunctions against the award debtor prior to the court accepting the enforcement application.

Download your copy of the report:

Year in Review 2020 and Year to Come 2021 - PRC law


Mainland China YIR YTC PDF

Read also our Year in Review 2020 and Year to Come 2021 - Hong Kong SAR guide

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