In the News: US Export Restrictions; ChiNext Registration IPO; and New Evidence Rules

The Trump administration believes that exports of sensitive technology to China are likely to be used for bolstering the Chinese military even if the exports are ostensibly for civilian end-use, due to China's purported fusion of civilian and military technologies. The Chinese government included military-civilian fusion in its five-year plan released in 2016. Further restrictions on U.S. exports to China is also expected, for example the tightening of rules surrounding foreign-made items subject to U.S. jurisdiction under the De Minimis Rule, Washington-based F. Amanda DeBusk and other partners at Dechert wrote in a client alert. Another avenue through which restrictions might be tightened is the expansion of the Foreign Direct Product Rule, whereby foreign-made items derived from U.S.-origin technology subject to national security control are subjected to U.S. jurisdiction, the partners wrote. 

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ChiNext to trial registration-based IPO system

China's ChiNext board will launch a trial for a registration-based initial public offering (IPO) system. The China Securities Regulatory Commission (CSRC) and the Shenzhen Stock Exchange (SZSE) issued new proposed rules on Apr. 27, which would see pre-profit startups listed on the Shenzhen tech board for the first time.

CSRC Vice Chairman Li Chao said that ChiNext's registration-based system will largely mirror that of Shanghai's STAR board, which became the first such system in mainland China when it launched in 2019. According to the new rules, startups wishing to list on ChiNext will register with the CSRC and be reviewed by the SZSE. The registration will then be approved or not within 20 business days. On the other hand, the new rules increase requirements for investors on ChiNext, including a new minimum average daily capital requirement of 100,000 RMB ($14,000) for the first 20 trading days.

Foreign investors and domestic startups have long called for China's stock exchanges to be more market-oriented due to perceived inefficiencies in the traditional IPO system. Currently, China's main exchanges in Shanghai and Shenzhen both have approval-based systems where the CSRC vets every application from startups wishing to list on the exchanges, a process that can take several years to complete. Shanghai's STAR board launched last year ushered in mainland China's first registration-based system. The newly amended PRC Securities Law (中华人民共和国证券法), which came into effect in March, paves the way for a full roll-out of the registration-based system across the entire A-share market, although no timetable has been provided for the main exchanges yet. 

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New evidence rules for civil litigation takes effect

China's new rules regarding evidence for civil litigation came into effect on May. 1. In late December, the Supreme People's Court (SPC) promulgated amendments to its Provisions on Evidence in Civil Procedures (最高人民法院关于民事诉讼证据的若干规定) for the first time since it came into effect in 2002. A major part of the updated provisions is the increased role of electronic data evidence and the specification of regulations surrounding how electronic data will be examined.

Article 142 of the new Provisions groups electronic data into five categories: information on online platforms such as a website; online communications such as emails; electronic records such as online transactions; digital files such as digital images; and other information stored or processed digitally. Article 93 deals with the authentication of electronic data, whereby the court will examine such data according to seven factors, including the reliability of the hardware and software systems in which data is stored.

A part of the new Provisions relevant to the ongoing coronavirus pandemic is the provision that parties to civil litigation are not required to present evidence to prove a fact that is widely known. This is likely to prove beneficial for parties who wish to plead force majeure in China on the back of any pandemic-related disruption, as the provision removes most notarization and legalization requirements for proving the pandemic's disruption to their operations, which is widely known, says Timothy Blakely, managing partner of Morrison & Foerster's Hong Kong office. However, parties to arbitrations should bear in mind that the new rules give facts ascertained in a binding arbitral award less value than facts ascertained in a binding judgment, where previously they were given the same value, Herbert Smith Freehills' Shanghai-based partners Cathy Liu and Helen Tang highlighted in a client alert. 

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