On September 29, 2013, the China (Shanghai) Pilot Free Trade Zone (FTZ) was established in the Pudong New Area, covering 120.72 km². It is a regional free trade zone established by the Chinese government. By the end of 2019, in the FTZ, (i) more than 12,000 foreign-invested enterprises had been established, and (ii) more than 2,800 overseas investment projects had been completed, with Chinese investment exceeding 90 billion U.S. dollars.
Recently, on September 21, 2022, the Shanghai Pudong New Area Primary People’s Court (“Shanghai Pudong Court”) published the document “White Paper on Commercial Litigation Involving Foreign and Foreign-Invested Enterprises,” which compiles key information on commercial litigation involving foreign-related enterprises and foreign-invested enterprises since the publication of the “Opinions of the CPC Central Committee and the State Council on Supporting the High-Level Reform and Opening-Up of the Pudong New Area and Building Pudong as a Pioneer Area for Socialist Modernization” in July 2022.
From August 2021 to July 2022, the Pudong Court in Shanghai accepted 1,301 cases involving foreign-related and foreign-invested enterprises (excluding intellectual property and financial cases) and resolved 1,305. The White Paper reveals the following:
- 361 foreign entities were involved in the cases accepted by the Court that year; among them, the number of wholly foreign-owned companies (54.59%) was slightly higher than that of mixed-ownership companies (45.41%).
- The disputes involved nationals from more than 20 countries and regions, with the United States and the United Kingdom accounting for the largest number; however, there is a growing impact from the countries participating in the “Belt and Road Initiative” (or New Silk Road) and from the member states of the Regional Comprehensive Economic Partnership (RCEP).
- The three most important areas of commercial law are those relating to goods, services, and processing, which give rise, for example, to claims regarding sales contracts, service contracts, and processing contracts.
- The number of cases resolved through mediation and/or withdrawn after mediation was greater than the number of cases resolved through trial.
The cases analyzed in the White Paper reveal the following trends:
Commercial litigation involving innovative industrial sectors—such as new electric vehicles, mobile energy, semiconductor chips, and artificial intelligence-related technology—is on the rise.
There are various types of disputes concerning the internal management of companies: investments, the validity of shareholder or board of directors’ resolutions, mergers, spin-offs, and the dissolution of companies, as well as disputes among investors
Litigation over equity incentives is increasing significantly, with disputes arising over the legal nature, interpretation, application, and valuation of such incentives;
Litigation related to new business models in the digital economy is on the rise.
The digital economy has given rise to numerous innovative business models, such as digital marketing, advertising in new media, online education and training, account management services, and the promotion of customer traffic through e-commerce, among others. Since no optimized regulations have been established in this area, the Shanghai Pudong Court listed some key issues for resolving disputes in this field: determining the validity of new types of contractual clauses, such as “exclusive agent,” “exclusive media outlet,” “non-compete,” and “valuation adjustment mechanism”; converting digital output into consideration and distinguishing the actual effect of traffic in the virtual world, etc.
Along with the White Paper, seven typical cases were published that involved issues such as the application of foreign laws to determine the validity of arbitration clauses, the application of international conventions on assistance to foreign courts in the investigation and collection of evidence, and the determination of the legal attributes of pro forma invoices in cross-border trade, etc., which, on the one hand, allows the public to gain insight into foreign-related litigation accepted by the Shanghai Pudong Court, and, on the other hand, provides cases that serve as valuable references for future similar litigation.
Author: Dan Liu