Investment and Financing under Chinese New Normal

Investment and Financing under Chinese New Normal

After the Adoption of the Amendment of PRC Company Law in 2018

regarding repurchase of share capital in listed Chinese companies

By Hanren Xiao


On the 26th of October 2018 China has adopted a major amendment of its Company Law which is a remarkable symbol that the legislation of the Chinese capital market is gradually becoming mature.

The amendment is for the most part about share repurchase. Share repurchase refers to the situation that a company acquires the issued shares of itself – which is an internationally accepted way to accomplish merger and reorganization, optimize governance structure, and stabilize stock price. It is also the basic institutional arrangement for a company in the capital market.

Article 142 PRC Company Law is amended as follows:

“A company shall not purchase its own shares except under any of the following circumstances:

1. To decrease the registered capital of the company;

2. To merger another company holding shares of this company;

3. To use the shares for employee stock ownership plans or equity incentives;

4. It is requested by any shareholder to purchase his shares because this shareholder objects to the company’s resolution on merger or split-up made by the assembly of shareholders;

5. To use the shares for the conversion of corporate bonds issued by listed companies that can be converted into stocks;

6. For the necessity that listed companies maintain the company’s value and shareholder’s rights.

Where a company needs to purchase its own shares for any of the reasons as mentioned in Items (1), (2) of the preceding paragraph, it shall be subject to a resolution of the shareholder’s assembly. Where a company needs to purchase its own shares for any of the reasons as mentioned in Items (3), (5), (6) of the preceding paragraph, it could be subject to article of association or the authorization of shareholder’s assembly and decided by more than 2/3 of the directors present at the board meeting.

After the company purchases its own shares pursuant to the provisions of the preceding paragraph, it shall, under the circumstance as mentioned in Item (1), write them off within 10 days after the purchase; while under either circumstance as mentioned in Item (2) or (4), transfer them or write them off within 6 months; while under either circumstance as mentioned in Item(3), (5) or (6), the total number of shares of the company held by itself shall not exceed 10% of the total issued shares of the company and shall transfer them or write them off within 3 years.

A listed company that acquires shares of itself shall perform information disclosure obligations in accordance with the provisions of the PRC Security Law. The listed company shall conducted through open and centralized trading while acquiring shares of itself by under either circumstance as mentioned in Item (3), (5) or (6).

No company can accept any subject matter taking the stocks of this company as a pledge.”

The three main changes in article 142 are : First, it implements the conditions in which a share repurchase is permitted. Second, it simplifies the resolution process of share repurchase, raise the maximum amount of shares held by the company by itself and extend the period in which the company can hold the repurchased shares. Lastly, it adds regulatory rules for listed companies.

This amendment has further consolidated the basic capital market system, and is providing strong legal support for promoting the steady and strong development of the Chinese capital market. Consequences of this amendment is enormous. Firstly, it helps to improve the value of listed companies. Secondly, it helps improving the financial capital management system and further financial reform. Lastly, it is aiding the protection of rights and interests of most small and mid-size investors in China.

The China Securities Regulatory Commission (CSRC) expressed that they will take measures to strictly investigate and penalize the following illegal acts: insider trading by using share repurchase, manipulating the market, and illegal information disclosure.

Giving more possibilities on allowing the company to repurchase its shares could be more flexible to meet the practical requirements of stabilizing the stock price especially when the stock price is generally undervalued, or the price has undergone an irrational decreasing.



European Market is more attractive for Chinese investors: New rules on the review of foreign investment in the United States are in place

by Xuehan Yang


After hitting a record high in 2016, China’s overseas M&A activity has entered a “pressure period”, which can be said to be squeezed by internal and external supervision. The first wave of pressure from the foreign investment since the end of 2016 domestic tightening regulation, the second wave of the pressure from the United States, since 2017, the U.S. national security review of foreign investment heavily regulated, strengthen the Foreign Investment Risk Review Modernization Act (FIRRMA) by the national security review subject departments namely Committee on foreign investment in the United States (CFIUS) in August this year.

On October 10th America’s Treasury, the arm of CFIUS, tightened the rules further by issuing provisional rules on FIRRMA’s pilot programme.


27 industries facing scrutiny over new U.S. regulations

The interim rules mainly involve two changes. One is to expand CFIUS’s jurisdiction to cover non-controlling and non-passive investments, such as those in key technology sectors, that are subdivided. Second, for the trade of key technologies in the industry covered by the pilot program, a simple and mandatory declaration procedure must be added. A declaration of no more than 5 pages of basic information about the transaction must be submitted 45 days before the expected completion date of the transaction. Failure to do so could result in fines of up to the value of the transaction.

According to information released by the U.S. Treasury Department, the pilot program covers 27 industries, including aircraft manufacturing, aircraft engine and parts manufacturing, computer storage equipment, radio, television and wireless communication equipment, as well as biotechnology research and development, semiconductor and related equipment manufacturing.

The pilot program is scheduled to start November 10. In a statement, the Treasury Department said CFIUS would take public opinion on the interim rules into account in formulating its final rules. CFIUS is also drafting detailed FIRRMA legislation that will be fully implemented in February 2020.


Chinese buyers are looking into new markets in northern and eastern Europe

Chinese investors have been looking to Europe and other unconventional markets for some time amid a tightening regulatory environment in the US.

Germany is a major destination for Chinese investment in the EU, however, the German government is considering further lowering the 25% reporting threshold for non-EU companies buying stakes in German companies to 15% this year, with a need to keep a close eye on key investments in defense, infrastructure and IT.

A similar national-security review framework for foreign investment is also in the pipeline in Britain, amid signs that more Chinese buyers are looking for targets in unconventional markets.

But markets like northern and eastern Europe may not yet have a similar framework. So this might be a good chance for more and more Chinese investors to invest in Netherlands, Finland or other European countries.


Dutch litigation in English,  the Netherlands Commercial Court (NCC)

Dutch litigation in English, the Netherlands Commercial Court (NCC)

Dutch litigation in English, the Netherlands Commercial Court (NCC)

On January 1st 2019 the Amsterdam state court will inaugurate a chamber specialized in international commercial litigation conducted entirely in the English language called the Netherlands Commercial Court (NCC). With this, the Netherlands is a frontrunner in a European trend including France, Germany and Belgium, akin to already operative similar courts in Singapore and London.

The main characteristics of the NCC are, summarized: only commercial disputes are eligible and must to some degree contain a cross-border element, the parties can have every nationality even Dutch on both sides, a jurisdiction clause choosing the NCC must either form part of their contract or be agreed upon after the dispute has arisen, the judges are all professional judges and proven skilled in international legal matters and recruited from all Dutch courts, Amsterdam will be the venue for all cases in first instance and in appeal (the NCCA), the communication and filings are processed completely digitally (in English), EU attorneys are admitted to plead before the NCC provided they register through a Dutch attorney and are in command of English, the court dues are fixed at a level of € 15,000 in first instance, € 7,500 for injunctions and € 20,000 in appeal, the attorneys legal cost awards are categorized, the Dutch Code of Civil Procedural law applies save jointly adopted other rules such as the International Bar Association’s rules of Evidence and the court applies every governing law that either the parties have jointly chosen or follows from Dutch private international law.

The target workload of 50 to 100 cases per annum within 3 years seems ambitious but viable if the NCC succeeds in convincing the legal industry, attorneys and in-house counsels to systematically adopt NCC forum clauses when drafting international contracts. The advantage NCC has over international arbitration is that it is bound to be more time/cost efficient and its court awards are easily enforceable throughout the EU under the 2012 Recast Brussels Regulation and further world-wide under the 1971 Hague Convention on Enforcement of foreign civil and commercial judgments, once recast. The NCC caters for not only the multinational corporates and international operating banks but also for smaller cross-border trading companies, investors and non-profit organizations. After all, the Dutch economy has a predominant international focus where English is the common language.

Wintertaling is actively monitoring the evolution of the NCC in order to facilitate clients to use this brand new option for dispute resolution.

Find here the Dutch article of de Rechtspraak.

Questions can be referred to Bart Kasteleijn, Edo Smid and Martin Poelman.

How can Chinese technology innovation change the business model in Europe?

How can Chinese technology innovation change the business model in Europe?—using Alipay & Tencent WeChat Pay as examples

With the new round of technology revolution and industry transformation, e-commerce has gradually become the highlight and new growth all around the world. In China, the pace of development of e-commerce has speeded up much faster for nearly 20 years from the establishment of e-commerce enterprise Alibaba in 1998. In 2016, the transaction volume of e-commerce in China was equivalent to 35% of the GNP and reached as high as 26.1 trillion RMB, while the electronic payment industry, which supports the service industry, has reached as much as 5.5 trillion US dollars. By contrast, the amount in the U.S.A was only 112 billion US dollars, a 50 times difference between the two countries.  In the Netherlands, the e-commerce was worth 20.16 billion euros in 2016.

In China, there are two e-commerce juggernauts taking up at least 90% of the internet payment market: Alipay and Tencent WeChat Pay. Alipay, as a third party payment platform, was founded in 2004. As of the second quarter of 2014, it has become the biggest mobile payment service provider in the world. Alipay’s payment services include online secured transaction, payment, transfer, credit card repayment and mobile phone recharge, as well as providing services for a number of industries such as retail department stores, movie theaters, supermarket chains and taxis. It also provides wealth management services such as Yu’E Bao which is a new money market fund  of Alibaba. Users can save their money in this fund and make some profits.

How could Alipay achieve such a success? The main three reasons are as follows: operation model, profit model and safety model. As a credit guarantee platform, the essence of its operation is based on Alipay being a credit intermediary. Before buyers confirm the receipt of qualified goods online, Alipay is responsible for keeping the payment for both buyers and sellers. In other words, it is a kind of escrow service. This payment model effectively solves the payment and credit bottlenecks in the current development of e-commerce. In the meantime, benefiting from this mechanism, there are deposits of enormous sums of money in the accounts of Alipay. Due to the fact that payment for goods is normally settled in weeks, or even in months, huge interest income is stacked up in Alipay. In addition, as a third-party payment platform, Alipay charges service fees to customers according to the commission rate paid to banks . Also, Alipay earns on-line advertising revenues and charges for value-added financial services, all of which form the source of revenue for Alipay. To ensure security of electronic users and payment, Alipay uses mobile phone dynamic passwords, digital certificates, treasure orders, payment shields, third-party certificates, and even smile-technology with facial recognition of identity authentication.

The second giant is WeChat Pay. Its strategy is using offline payments combining with online payments to seize the mobile payment market. WeChat Pay invented its own special technology to secure account safety: Users only need to tether a bank card with the WeChat app to complete the certification. Once the keywords are entered into the phone, the payment is done. Besides, WeChat Pay also uses QR code technology to provide scan payment meaning users can pay just through scanning the QR Code using their own mobile phone. Moreover, there are other kinds of payment channels including the WeChat public number and WeChat App to make users more convenient to pay. People can also enjoy services like WeChat red envelope, voucher, e-coupon etc.

At the same time, the e-pay industry in Europe seems stagnated. Traditional e-pay dominates the whole market. When people in Europe are doing e-transactions like shopping online, they still need to pay through complicated and tedious steps. Users cannot scan QR codes to complete the payment, which has become part of Chinese people’s daily life. In Europe, people cannot go out without bringing either bank debit and/or credit card or cash, let alone borrowing money, managing money, purchasing movie tickets and even choosing seating, all through one single App. In this respect, the e-pay market in Europe has a huge opportunity for improvement.

In 2015, the European Parliament passed the second Payment Services Directive (EU) 2015/2366 (“PSD II”) which aims at completing the payment system of Europe and providing better experience and protection for consumers. A leading research analyst firm in this industry, Juniper Research has defined that PSD II will be the next beacon in the field of Fintech. This Directive is bound to be revolutionary for the future of payment systems for consumers and change financial business models in Europe.

Furthermore in the Netherlands, there is a payment platform called Adyen which plans to list on the Euronext stock market listing in June 2018. This platform was founded in 2006 and surpassed €100 billion in processed volume in 2017. It has the similar system as Alipay to some extent where it enables merchants to accept payments in a single system, enables revenue growth online, on mobile devices and at the point of sale.[1] Also Adyen has expanded its partnership with Alipay in 2017 in order to make global retailers more easily accept non-cash payments from Chinese customers in stores.[2]

Facing this context of economic transformation and technology revolution, Europe could learn from the evolution China has gone through in e-payment and will continue to refine in the near future.

By Hanren Xiao

Hanren Xiao is an associate with the Wintertaling China Desk.


[1] see the official website of Adyen <>

[2] more details see the link <>