Audit and Accounting Standards
The Ministry of Finance (MOF) promulgated the Basic Accounting Standard, which is based on International Accounting Standards (IAS). The Chinese Institute of Certified Public Accountants (CICPA), a subsidiary of MOF, is governed by the Certified Public Accountants (CPA) Law, which sets out CPA qualification procedures.
The seven-member Chinese Accounting Standards Committee advises MOF on accounting standards issues. CPA auditors must be CICPA members. A license is required to audit securities-related businesses. The National Audit Office of the People's Republic of China (PRC) audits public sector organizations. It is also responsible for leading, developing, and supervising the auditing profession.
Bankruptcy
A revised Enterprise Bankruptcy Law (EBL) took effect in the People’s Republic of China (PRC) on 1 June 2007, replacing the bankruptcy rules for state-owned enterprises (SOEs) adopted in 1986. The new law was approved by the National People’s Congress in August 2006 to provide a more relevant legal structure as the PRC continues its shift to a market economy.
Prior to the new legislation, there was no unified bankruptcy law. The 1986 Law of the People’s Republic of China on Enterprise Bankruptcy (Trial Implementation) only applied to SOEs. Other bankruptcies fell under Chapter 19 of the Civil Procedure Law of 1991. Liquidation procedures are covered by PRC Company Law amendments.
The 1986 bankruptcy rules prioritized payments to employees over creditors. The new law uses credit guarantees to repay creditors first, while assets not earmarked as credit guarantees compensate laid-off workers. The revised EBL applies to all enterprises, both state-owned and private, and covers foreign companies. Links to PRC laws and regulations related to bankruptcy are provided below. There is no full-text English version of the amended EBL available online.
Contracts Law
The World Bank's Doing Business Survey assesses data on contract enforcement. The results for the People's Republic of China (PRC) can be viewed at the World Bank website, which is linked below.
The Contract Law stipulates that contracts among investors, financial institutions, and corporate issuers on the bond market fall into three categories: (i) trading trust contracts, (ii) agency appointment contracts, and (iii) contracts for lending. Investor rights to compensation are determined according to the category in which the contract falls. The web link below details the liabilities and remedies available for breach of contract.
Prevention of Fraud
The China Securities Regulatory Commission (CSRC) has jurisdiction over securities and futures fraud. In addition to the Securities Law, a number of new regulations apply.
The China Banking Regulatory Commission (CBRC) combats financial crimes in the banking sector.
Ethics
The Securities Law of the People’s Republic of China (PRC) is the basis for defining standard practices for share issuance and trading, as well as codes of conduct and penalties for violations within securities markets. The law aims to protect investors against unethical activities such as insider trading, market manipulation, and fraud.
CSRC and the Securities Association of China (SAC) were established in accordance with the Securities Law. CSRC, as a regulatory authority, sets qualification criteria and the code of conduct for those engaged in the securities business. SAC, on the other hand, is a self-regulating organization for the securities market, supervising members’ conduct and imposing sanctions on members who violate securities laws or regulations. The Securities Law requires all securities companies in the PRC to join SAC.
The CSRC must approve rules and guidelines governing securities trading at the Shenzhen and Shanghai stock exchanges. The exchanges are mandated to impose disciplinary sanctions on any person engaged in securities trading in violation of trading rules.