China Law Update

• Pages: 199-219

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199 TSINGHUA CHINA LAW REVIEW [Vol. 5:197

CHINA LAW UPDATE

I. LAWS AND REGULATIONS

A

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Securities Investment Funds Law (2012 Amendment) 1

1. Background of the 2012 Amendment

Since Law of Securities Investment Funds was promulgated in

2003, which could not adapt to the rapid development of fund

markets and satisfy the investor’s needs. With respect to the publicly

raised funds, the restrictions have greatly constrained the dynamism

of the publicly raised funds market. Moreover, the non-publicly

raised funds are out of regulate of old law, which leads to the

disorder of the private equity fund market and frequent occurrence of

infringement of investor’s rights.

The revised Law of the People’s Republic of China on Securities

Investment Funds, adopted at the 30th Session of the Standing

Committee of the Eleventh National People’s Congress of the

People’s Republic of China on December 28, 2012, and came into

effect on June 1, 2013.

2. Major Innovations of the 2012 Amendment

The 2012 Amendment has made a great number of institutional

innovation, which will play an significant part in promoting the

modernization of the investment market. Compared to the 2003 old

law, 55 articles are added as well as 3 articles are deleted in the 2012

Amendment.

First, to realize equal legal status between corporate enterprises

and partnerships enterprises, the 2012 Amendment enlarges the

organization form of fund managers, allowing fund managers can be

from companies or partnerships.2

Second, the 2012 Amendment further perfects the supervision on

publicly raised funds. The 2012 Amendment authorizes the directors,

supervisors, senior managers and other practitioners of the fund

manager of a publicly-raised fund as well as their spouses or

interested parties to investment in securities, on conditions that they

shall report to the fund manager and shall not cause conflict of

interest with the holders of fund units.

3

1 The revised Law of the Peop le's Republic of China on S ecurities Investment Fu nds, adopted at

the 30th Session of the Standing Committ ee of the Eleventh National People's Congress of the People's

Republic of China on December 28, 2012, and came into effect on June 1, 2013.[herei nafter Securities

Investment Funds Law, 2012 Amendment].

2 Id. art. 12.

3 Id. art. 18.

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2013] CHINA LAW UPDATE 200

The 2012 Amendment prohibited the fund manager of a

publicly-raised fund and any of its directors, supervisors, senior

managers and other practitioners from engaging in insider trading,

including divulging non-public information obtained by virtue of its

position, or making use of such information to engage in or explicitly

or implicitly ask others to engage in related trading activities.4

Third, the 2012 Amendment confirms the legal status of private

equity funds, and creates a series of system in Chapter 10 to regulate,

including qualified investors, fund custody, association registration

for funder manger qualification, prohibition of fund raising

advertisement and model of fund contract.

Taking the regulation of Criminal Law into account, such provision

in the 2012 Amendment realizes the organic convergence with the

Criminal Law Amendment (7).

5 Article 94 provides the

unlimited liability investors regime, allowing and encouraging part of

the fund share holders as fund managers to be responsible for the

management of private equity investment. In the event that the fund

property is insufficient to pay off the debts, such holders shall

assume unlimited joint and several liability.6

Forth, the 2012 Amendment attaches great importance to

protection of the investors’ rights and interests. Taking Article 22 for

example, it provides that the shareholders, directors, supervisors and

senior managers of the fund manager of a publicly-raised fund shall

uphold the principle of giving priority to the interests of the holders

of fund units when exercising rights or performing duties.

7

The 2012 Amendment emphasizes the independence of the fund

property, aiming at maintaining the security of fund assets and the

fundamental interests of fund holders. Article 101 requires that fund

units are independent of the proprietary assets of fund sales agencies,

fund sales payment agencies and fund unit registration institutions.

8

4 Id. art. 21.

5 Id. arts. 88-96.

6 Id. art. 94.

7 Id. art. 22.

8 Id. art. 101.