Discuss about thre Regulation of Business Market Organizations.
The term ‘property’ under the PRC includes both intangible and tangible property where intangible property includes intellectual property rights such as trademarks, patents, copyrights and any other intellectual or scientific achievements. Tangible property is divided into specific properties divided into specific property and class property[1]. Class property refers to items that are identifiable like building or painting whereas specific property refers to property that has common features and is capable of being determined by types or quantities. In China, statutory provisions stipulated in the Constitution and the Civil Code regulate property law.
The concept of public interest has gained more and more popularity in China in the past decades. The notion of public interest in China is termed as ‘gongyi’ and is related to public interests and welfare. The concept of public interest appears in Chinese property laws and in several other laws and legislations as well. However, the exact meaning of the term lacks concrete definition, thus, making it difficult to describe the same. According to the Chinese law, the right of important domain cannot be exercised unless there arises any need that is related to public interest.
However, if the state must exercise eminent domain in the interest of the public, it is important that the term be defined precisely. Laws and regulation in China have failed to provide proper definition of public interest. The state has been applying a method of incomplete enumeration, which implies that actions that qualify as public interest have not been expressly provided. Eminent domain laws have been in existence in China more than half century, and though some of the laws states the types of public projects for which eminent domain is used, but a proper definition of the concept ‘public interest’ was not provided[2]. The property law in China encompasses the transfer, ownership and creation of property in the People’s Republic of China. Eminent domain is the power of government to take public land for public purpose. The law of eminent domain derives from the concept of ‘taking clause’ according to which private property cannot be used for the use of public. The government determines that it requires private land for the benefit of the public, for instance, construction of new highway.
In China, individuals are not permitted to own a land in private but may obtain land-use rights that are transferrable for years in exchange of fees. At present, the maximum period within which urban land-use rights are granted, for personal use such as housing purposes is seventy years[3]. Additionally, individuals are entitled to possess land for private purpose such as constructing residential apartments and houses on the land (home ownership). However, the individuals are not entitled to own lands for residential purposes, especially, when there are buildings already constructed on such land.
The transfer of property can be conducted through gift, sale or any other legal means. At the time of transfer of the property, the home ownership as well as land-use rights are also transferred along with the property. The transfer of property is often subjected to several restrictions, which prohibited transfer of the land-use rights. The land-use rights are prohibited when the state reclaims such land in compliance with law. The other circumstance under which the land-use rights are restricted to be transferred is when the property has not been registered properly and official document of ownership has not been obtained. It is important to register home ownership and urban land-use rights. Local authorities at conduct the registration process or above the country level and a certificate of rights and ownership are issued after registration[4].
The Constitution of PRC safeguards private property in China. Article 13 of the Constitution stipulates that the private property of citizens is unbreakable. According to the law, the state safeguards the rights of the citizens to private property and the right to legacy of the citizens of the country[5]. The Property Rights law was enacted in 2007, after the legislative debate that had been in continuance for over a decade. The comprehensive legislation on property establishes a property rights protection framework, which further safeguards immovable property and movable property. The statute discusses about the establishment, transfer, elimination and alteration of property-related ownerships rights and the registration of property rights and exercise of such rights. However, the natural resources owned by states are exempted from registration.
Moreover, in addition to the Property Rights law, various other laws regulate real property in China, which includes the following legislations. PRC law on Land Management, the Interim Regulations Concerning the Assignment and Transfer of the Right to Use State-owned Land in Urban Areas (Assignment Regulations), the Land Registration Measures and the PRC law on the Administration of Urban Real Estate (Urban Real Estate Law). According to the Land laws and the Constitution, Chinese individuals are not entitled to own natural resources and land privately[6]. According to the Constitution, the state is entitled to own the lands situated in the urban areas whereas the state or the local collectives are entitled to own the lands situated in the suburban and rural areas. However, the individuals may obtain rights to utilize the land from the state as the land-use rights under the Property Rights law is an usufructuary right that permits the right holder, to use the property and use the profit arising from such property, that is owned by another[7].
In the urban areas, the state may grant the land-use rights to the land users in exchange of fees charged paid them to the state. The state council is legally authorized to provide maximum periods for which land-use rights may be granted. Land-use rights may be granted for other purposes such as military or government use, public use, infrastructure facilities etc. When land rights are granted for these purposes, the landowners are not required to pay any compensation or fee or any other resettlement expenses. According to Article 64 of the Property Rights Law, the individuals in China are entitled to enjoy ownership of movable and immovable properties as their legitimate incomes such as production tools, raw materials, houses and articles for daily use. However, individuals are entitled to own real estate including residential apartments and houses but cannot own the land on which such building and structures are situated.
The Supreme People’s Court of the People’s Republic of China (PRC) issued the Provisions on Several Issues Concerning the Application of the PRC Company Law (IV) (Draft for Public Consultation) (Judicial Interpretation IV) on 25 August 2017, that came into effect on September 1, 2017. These provisions are relevant to all companies, irrespective of the fact whether the company is foreign or domestically invested. The key features that have been introduced in the provisions issued by the Supreme Court include the following elements. Firstly, it has constricted the requirements on corporate resolutions to be conducted by the board of directors and the shareholders in China[8].
Secondly, it had further constricted the rights of the shareholder to inspect the company documents in the country. Thirdly, in case of any document violations, maintenance obligations or disclosure of commercial secrets, damages may be claimed from the shareholder or his accountant or lawyer, senior manager or Director of the company. Fourthly, the provision has clarified preemptive purchase rights during equity transfers, which may generate updates to existing Articles of Association and existing contracts[9]. Lastly, the provisions have further clarified the role of litigation with respect to liability claims against the supervisors, senior managers, directors and third parties of a company in China.
Judicial Interpretation IV elaborates the detailed procedure for the enforcement of shareholders’ pre-emptive rights of purchasing equity interests that is stipulated under Article 71 of the People’s Republic of China Company Law[10]. The provision states that a shareholder of a limited liability company may transfer all or part of their equity interests amongst themselves. Where equity interests of a shareholder is transferred to a person other than a shareholder, it requires more than half of the other shareholders to give consent for such transfer. The shareholders must give a written notification to the other shareholders regarding the transfer of equity interests to obtain their consent. In case, the shareholders fail to reply within 30 days of the receipt of such written notification, it shall amount to the consent of the shareholders.
Further, of more than half of the shareholders do not give their consent to such transfer, the shareholders who dissents shall purchase the equity interests, which were to be transferred. In case, they do not purchase such equity interests, it shall be considered as consent given for such transfer of equity interests. Under circumstances, where all the conditions for transferring the equity interests are equal, the other shareholders shall be given priority purchase right for the equity interests, the transfer of which has been consented by the shareholders. If two or more shareholders exercise the priority purchase right, that shall be determined by the respective purchase ratio upon consultation. In case of failure in consultation, they shall be entitled to exercise priority purchase right according to the proportion of their respective ratio of capital contribution while transferring the equity interests. However, in case, the articles of association of the company otherwise provide procedure for transfer of equity interests, such procedure shall prevail and followed[11].
The PRC Company Law briefly stipulates that the other shareholders shall be entitled to preemptive rights to acquire equity interests with respect to equal terms, if a shareholder of a limited liability company transfers his or her equity in the company. While the law stipulates that there are specific provisions under the articles of Associations of a company, such provision shall prevail, the legal provisions are simple and lack effective operability. The Judicial Interpretation IV supplements the existing laws stipulated in the Company law with respect to the re-emptive rights of purchasing equity interests of the shareholders.
Firstly, the Judicial Interpretation IV clarifies that pre-emptive rights cannot e claimed in case of inheritance unless the Articles of Associations of a company provides such right or all the shareholders consensually agree with the fact that pre-emptive rights can be claimed in case of inheritance. Secondly, it includes factors that must be taken into consideration for determining ‘under the same conditions’ under Article 71 (pre-emptive right) of the PRC Company law and should include but was not restricted to the price of equity interests to be transferred timeline and payment mode[12]. In regards to the conditions for exercising the preemptive right, the Judicial interpretation specifically states that ‘equal terms and conditions’ under the PRC Company Law shall be determine considering the factors such as transfer price of the equity, quantity of the equity, maturity and payment method. Such factors shall be applicable with respect to the written notices as well. It further stated that shareholder of a limited liability company that if the article of association of a company lays down the time within which the claim for transferring equity interests is to be made, the claim shall be within that period. If no such notice period is mentioned, the time shall remain to be thirty days.
Furthermore, Judicial Interpretation IV does not have a provision relating to the validity of the contracts that contravenes the pre-emptive rights of other shareholders. However, it clarifies that if any other shareholder challenges the validity of the contract for contravening preemptive rights shall request for purchase of the equity at issue on ‘equal terms and conditions’ at the same time[13]. However, if such shareholder challenges the validity of a contract but refuses to purchase the equity interest, his or her claim shall be dismissed by the Chinese Court. Thus, the Judicial Interpretation stated that if the preemptive right is infringed the other shareholder may file petition before the court for making claims for purchasing such equity interest relevant to the terms and conditions of the external transfer transaction.
Therefore, it can be inferred that the Judicial Interpretation IV has been a significant reform of the PRC Company Law. It is a wide-ranging piece of legal document that strikes a balance between the minority and majority shareholder and the shareholders and the other stakeholders of a company. The interpretation intends to supplement the rules already stated in the PRC with a view to fortify operability of the statute.
China has adopted the cap and trade system under the National Carbon Trading Scheme for the carbon dioxide emissions that has been implemented in 2017. This Emission-Trading Scheme (ETS) creates a carbon market, which enables the emitters to purchase and sell emission credits. This trading scheme shall assist the country to reduce emissions but permit economic freedom from the emitters to purchase or reduce emission allowances from the other emitters[14].
China’s National Development and Reform Commission (NDRC) issued the Notice of the General Office of the National Development and Reform Commission on the Pilot Trading of Carbon Emission Rights in 2011. The seven pilot programs include Guangdong, Beijing, Chongqing, Shanghai, Tianjin, Hubei and Shenzhento. The goal of carbon ETS Pilot programs is to reduce carbon intensity through market-based mechanisms. NDRC requested before the local governments where the pilot programs are situated to consider adopting procedures and regulations with the objective to establish emission caps and set up a system for allowance allocations[15]. It also required MRV systems and create a carbon exchange platform to reduce carbon intensity.
The Monitoring, Reporting and Verification (MRV) are an essential part of emission trading scheme. The mandatory participants must implement the monitoring system, report about the annual emissions and verify the report through an accredited third party within stipulated period. Each pilot entity has established its respective MRV system. A mandatory participant was required to surrender a sufficient amount of allowance that equal to the volume of its actual carbon emission.
However, despite the fact that the country has powerful leadership, it still faces a series of challenges that acts as hindrances in the setting up and implementation of the Carbon ETS[16]. Firstly, the need to build a national statutory framework to harmonize, integrate and expand the pilot programs. The Investors must have legal certainty and the presence of political stability is required to ensure that the profits earned by the country are not affected. Secondly, there is lack of transparency, which would make it difficult to build confidence in the market participants. Last but not the least, the issue relating to price volatility is the most significant issue, which arises due to over allocation of allowances that occurred in the EU ETS as well.
The Standing Committee of the National People’s Congress that is, China’s top legislature has asserted that it would conduct extensive and speedy research to develop a new corporate statutory framework[17]. One of the objectives of the Section 1 of Chapter 50 of 13th Five-year plan is to unify laws and regulations for foreign and domestic capital. The Director of the Department of Foreign Investment Administration at the Ministry of Commerce opined that it aims at revising and unifying domestic laws on foreign investments. It further stated that it would concentrate on the equal treatment of domestic and foreign investments, strengthening the security review, ensuring future reforms of foreign investments regulations[18].
The Standing Committee held that government regulators are required to act transparently and independently to ensure that all domestic enterprises including the foreign invested enterprises are entitled to equal treatment and are permitted to participate in a fair competition. The central government of China has vowed to provide wide access to investment access, unify laws and regulations on the foreign and domestic investments.
The other objective stipulated under Section 1 of Chapter 50 of the 13th Five-year Plan is to make improvements in the national security review system for foreign investment. In January 2015 the Ministry of Commerce has published a draft Foreign Investment Law (FIL) under which Chapter 4 reaffirms that China is about to apply a national security system (NSRS) to all foreign investment that either contravenes or attempts to infringe the national security[19]. In July 2015, the Standing committee of the National People’s Congress introduced the State Security Law that includes definition of state security framework and the assurance of state security, etc. Article 59 of the State Security specifically proposed to establish a state security review and an oversight mechanism with respect to foreign investment, main technologies, network information technology products, etc[20]. Furthermore, in November 2015, the Standing committee of the National People’s Congress publicized the Seed law, Article 62 of which proposed the establishment of review system about foreign investment in the Seed Industry. The ever-growing national security concern that is reflected in these legislations portrays the stability as well as the persistency of the country’s position in ensuring a comprehensive protection of the security of the nation.
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