Share Pledges in China: Prospects under the New Property Law

By Wang Ling of Jun He Law Offices

The share pledge¹ is a common practice in China and is frequently used by shareholders to provide security for their obligations or indebtedness, especially in transactions like borrowing. As the largest target country of foreign direct investment, China is attracting increasing numbers of multinational investors. Many multinational corporations who are seeking syndicate borrowings use a share pledge to secure their obligations. Meanwhile, domestic companies now recognize the role of the share pledge in lending and are using it as a financing instrument.

In China, companies are normally divided into three types, from the perspective of supervision and investor nationalities: listed companies (domestic or with foreign investment); non-listed foreign-invested companies, and non-listed domestic companies. The PRC laws and regulations establish three different kinds of share pledges corresponding to these three types of companies. It is important for a lawyer engaged in PRC share pledge transactions to classify the target company correctly and apply the corresponding provisions for the share pledge.