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October 28, 2018

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Imposing rule of law on financial practices

THE new Shanghai Financial Court heard its first case recently. The plaintiff, Shanghai-based Orient Securities, claimed that Beijing Honggao Zhongtai Investment Co pledged its shares as collateral in exchange for a loan of 110 million yuan (US$16 million) in April 2016.

Under the agreement, the investment company was to pay interest every three months and buy back the shares in April 2019. However, it didn’t pay interest in December 2017, which violated the contract, Orient Securities said.

The securities company filed a lawsuit, demanding the investment company to return the loan and offer compensation, a total of 120 million yuan.

A ruling has not yet been made. Since August 21, the court has accepted more than 1,100 cases in categories including fake statements, lending contracts, bond exchange and others. They involved nearly 14.8 billion yuan.

The court with its future location on Longyang Road will be not far from Lujiazui Financial City, the core area of the financial arm of China (Shanghai) Pilot Free Trade Zone.

It is expected to help boost the international competitiveness of Shanghai free trade zone in the financial sector and facilitate high-level international business through rule of law.

Since the establishment of China (Shanghai) Pilot Free Trade Zone in 2013, the opening of financial sector is increasing day by day.

By the end of last year, Lujiazui Financial City had nearly 800 financial institutions and more than 10 bourses at a state level.

With its fiscal revenue reaching nearly 400 billion yuan by then, the financial city has become a cluster of world-leading asset management firms’ China businesses.

More than 60 global asset management institutions, including BlackRock, Fidelity International and J.P. Morgan, jointly set up the Global Asset Management Association of Lujiazui in February.

The total assets managed by these institutions exceed US$30 trillion, accounting for 40 percent of the world’s assets management. They are building a platform to help Lujiazui Financial City form an open financial system.

In July last year, UBS Asset Management became the first international manager with a Qualified Domestic Limited Partner quota to receive a Private Fund Management license in China.

Given the license, UBS is able to provide a broad range of services to onshore and global investors, and to work more closely with subsidiaries of global firms in China to meet their domestic investment needs.

In September 2016, J.P. Morgan set up a wholly foreign-owned enterprise in Shanghai free trade zone with the first WFOE asset management license in China.

The license allows a WFOE to offer onshore fixed income, equity and multi-asset private funds to both institutional and high-net-worth investors in China.

A series of financial innovations put forward higher requirements to financial regulation and financial risks management. With the rise of Internet finance, the task is tougher and more intricate.

Connecting court rulings with financial supervision is an effective way to put financial activities under control, according to Wang Xin, head of the financial tribunal of the Pudong New Area People’s Court.

The court released a guideline in July to enhance the connection between court rulings and financial supervision to ward off activities avoiding financial supervision or covering financial risks in the name of financial innovation.

It was part of Shanghai free trade zone’s efforts to create a financial and trade regime consistent with the prevailing international rules.

Moreover, Shanghai free trade zone is promoting the introduction of internationally renowned commercial dispute resolution agencies.

Dispute resolution methods, such as negotiation, mediation, arbitration and litigation, are widely used in the settlement of international commercial disputes.

Mediation and arbitration by third-party dispute resolution agencies have been widely adopted in dealing with economic and trade disputes and investment disputes.

They play an important role in building a stable, fair and transparent rule of law business environment and become an important functional support for the construction of international trade center.

Established in 2011, the Shanghai Commercial Mediation Center has heard 597 disputes involving more than 7.6 billion yuan. More than 60 percent of the disputes were settled, among which 50 percent were financial disputes, 25 percent were about intellectual property rights and trade disputes accounted for 5 percent.

The center has 51 registered mediators, including two from overseas. All of them are legal experts, scholars, lawyers and retired judges.


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