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CICPA Economic Law (China) study materials
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CICPA Economic Law (China) practice questions

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Question 1Role knowledge and relevant Chinese legal/financial foundations

Under the PRC Civil Code, which of the following is a unilateral civil juridical act formed through the declaration of one party, rather than a contract requiring an agreement between parties?

  1. Executing a commercial sales contract (订立买卖合同)
  2. Executing a gratuitous gift agreement (订立赠与合同)
  3. Drawing up and executing a testamentary will (立遗嘱) Correct answer.
  4. Establishing a partnership agreement (订立合伙协议)

Explanation

A will is a unilateral civil juridical act: its formation does not require a contractual agreement with a beneficiary. Formation and operative effect must be distinguished, however; its testamentary dispositions operate on death under the applicable rules. A sales, gift or partnership agreement involves agreement between parties rather than this unilateral form.

Question 2Role knowledge and relevant Chinese legal/financial foundations

Zhang, a 16-year-old high school student who is not living independently on his own labor income, independently purchased a high-end luxury watch valued at RMB 80,000 using his pocket money without his parents' prior consent. Under the PRC Civil Code, what is the legal validity of this contract before Zhang's parents are notified?

  1. The contract is completely void ab initio (自始无效).
  2. The contract is valid and fully enforceable (有效).
  3. The contract is inchoate / subject to ratification (效力待定). Correct answer.
  4. The contract is revocable at Zhang's sole discretion within 1 year (可撤销).

Explanation

Under PRC Civil Code Art. 19 and 145, a minor aged 8 or above is a person with limited capacity for civil conduct (限制民事行为能力人). Civil juridical acts performed by such a person that are purely beneficial or compatible with their age, intelligence, and mental health are valid. Other civil juridical acts are inchoate / have pending validity (效力待定) and become effective only after ratification by their statutory agent (parents). The counterparty may demand that the statutory agent ratify within 30 days; failure to respond is deemed a refusal.

Question 3Role knowledge and relevant Chinese legal/financial foundations

Company A and Company B agreed that Company A would purchase an industrial parcel from Company B on the condition that Company A obtains municipal environmental zoning clearance within six months. Company B subsequently received a higher purchase offer from Company C and deliberately submitted falsified obstruction documents to the zoning board to ensure Company A's permit was rejected. Under PRC Civil Code Article 159, what is the legal consequence of Company B's conduct?

  1. The purchase contract between Company A and Company B is void due to frustration of purpose.
  2. The suspensive condition is deemed to have been fulfilled (视为条件已成就). Correct answer.
  3. The contract automatically transforms into an unconditional lease agreement.
  4. Company A may only seek tort damages, and the condition remains unfulfilled.

Explanation

According to Article 159 of the PRC Civil Code, where a civil juridical act is subject to a condition, if a party improperly prevents the fulfillment of the condition for their own benefit, the condition shall be deemed to have been fulfilled (不正当阻止条件成就的，视为条件已成就). Conversely, if a party improperly promotes the fulfillment of a condition, the condition shall be deemed not to have been fulfilled. Because Company B maliciously obstructed the environmental permit to pursue a higher bid, the condition is legally deemed fulfilled, making the purchase contract fully binding on Company B.

Question 4Role knowledge and relevant Chinese legal/financial foundations

Under the PRC Civil Code, which of the following civil juridical acts is legally VOID ab initio (自始无效) rather than merely revocable (可撤销)?

  1. A contract entered into by an enterprise under fraudulent misrepresentation by the counterparty regarding raw material origins.
  2. A property transfer executed through malicious collusion (恶意串通) between the debtor and a third party to evade a lawful court debt enforcement. Correct answer.
  3. A sales contract concluded under major misunderstanding (重大误解) regarding the technical specification of specialized machinery.
  4. A commercial loan agreement entered into under duress (胁迫) without state security involvement.

Explanation

Under PRC Civil Code Art. 154, a civil juridical act conducted through malicious collusion (恶意串通) between the actor and the counterparty that damages the lawful rights and interests of the state, the collective, or a third party is completely VOID ab initio. In contrast, acts concluded due to fraud (Art. 148), duress (Art. 150), major misunderstanding (Art. 147), or gross unconscionability (Art. 151) are revocable civil juridical acts (可撤销民事法律行为) that remain valid until revoked by a court or arbitration tribunal.

Question 5Role knowledge and relevant Chinese legal/financial foundations

Under Article 152 of the PRC Civil Code, within what statutory timeframe must a party who entered into a contract due to major misunderstanding (重大误解) exercise their right of revocation (撤销权) before that right is permanently extinguished?

  1. Within 30 days from the date the party knew or should have known of the cause for revocation.
  2. Within 90 days from the date the party knew or should have known of the cause for revocation. Correct answer.
  3. Within 1 year from the date the party knew or should have known of the cause for revocation.
  4. Within 3 years from the date the contract was executed.

Explanation

According to Article 152 of the PRC Civil Code, the right of revocation for major misunderstanding (重大误解) must be exercised within 90 days from the date the party knew or should have known of the ground for revocation. For fraud or gross unconscionability, the period is 1 year from discovery; for duress, it is 1 year from the date the duress terminates. In all cases, the absolute maximum long-stop period is 5 years from the date the act occurred.

Question 6Role knowledge and relevant Chinese legal/financial foundations

Principal A issued a written power of attorney to Agent B stating only: 'Agent B is fully authorized to handle all commercial procurement matters for our regional branch,' without specifying the purchase cap, permitted goods, or credit limits. Agent B subsequently entered into a highly speculative RMB 10 million procurement contract with Supplier C, which Principal A refuses to honor. Under PRC Civil Code Article 165, how is civil liability allocated?

  1. The contract is completely void, and Supplier C must bear all losses independently.
  2. Principal A shall bear civil liability to Supplier C, and Agent B shall bear joint and several liability (连带责任). Correct answer.
  3. Agent B shall bear sole liability to Supplier C, and Principal A has no statutory obligation.
  4. Principal A and Supplier C must divide the contract liability equally under comparative fault.

Explanation

PRC Civil Code Art. 165 explicitly provides: 'Where the authorization in a power of attorney is not clear, the principal shall bear civil liability to the third party, and the agent shall bear joint and several liability (授权委托书授权不明的，被代理人应当向第三人承担民事责任，代理人负连带责任).' This statutory rule protects innocent commercial third parties against poorly drafted authorizations while maintaining recourse against the agent.

Question 7Role knowledge and relevant Chinese legal/financial foundations

Sales Representative Zhao was dismissed by Company X on June 1. On June 10, Zhao, still possessing expired business cards but no company seals or power of attorney, signed an equipment purchase contract in the name of Company X with Vendor Y. Vendor Y was fully aware of Zhao's dismissal. Under PRC Civil Code Article 171, what rights does Vendor Y have regarding this unauthorized agency (无权代理) act?

  1. Vendor Y has the right to demand (催告) that Company X ratify the contract within 30 days, and has the right to withdraw (撤销) the contract at any time.
  2. Vendor Y has the right to demand (催告) that Company X ratify the contract within 30 days, but does NOT have the right of withdrawal (撤销权). Correct answer.
  3. Vendor Y has no right to demand ratification, and the contract is automatically binding on Company X.
  4. Vendor Y may directly enforce the contract against Company X's shareholders.

Explanation

Under PRC Civil Code Art. 171, in unauthorized agency (无权代理), any counterparty has the right to demand (催告) that the principal ratify the act within 30 days (silence equals refusal). However, the right of withdrawal (撤销权) prior to ratification belongs STRICTLY to a good-faith counterparty (善意相对人). Because Vendor Y knew of Zhao's dismissal at the time of signing, Vendor Y is in bad faith (非善意) and therefore possesses only the demand right (催告权), not the right of withdrawal.

Question 8Role knowledge and relevant Chinese legal/financial foundations

Under Article 188 of the PRC Civil Code, what is the general statute of limitations (普通诉讼时效期间) for civil claims, and what is the absolute maximum limitation period (最长权利保护期间) from the date the infringement occurred?

  1. General period: 2 years; Maximum period: 10 years.
  2. General period: 3 years; Maximum period: 20 years. Correct answer.
  3. General period: 4 years; Maximum period: 20 years.
  4. General period: 5 years; Maximum period: 30 years.

Explanation

Under PRC Civil Code Art. 188, the general statute of limitations for civil claims is 3 years (三年), commencing from the date the obligee knows or should have known that their right was infringed and who the obligor is. The absolute maximum protection period is 20 years (二十年) from the date the infringement occurred. Under special circumstances, the court may extend the 20-year period upon application.

Question 9Role knowledge and relevant Chinese legal/financial foundations

Creditor K held a mature loan claim of RMB 2 million against Debtor L, with the 3-year statute of limitations set to expire on December 31, 2025. On November 15, 2025, Creditor K sent a written debt demand letter to Debtor L by registered mail, which Debtor L signed and acknowledged on November 18, 2025. Under the PRC Civil Code, what is the legal effect of this event on the statute of limitations?

  1. The statute of limitations is suspended (中止), and the remaining period is extended by 6 months after November 18.
  2. The statute of limitations is interrupted (中断), and a new 3-year statute of limitations begins running from November 18, 2025. Correct answer.
  3. The statute of limitations is permanently waived, and the claim becomes enforceable indefinitely.
  4. The demand letter has no legal effect on the statute of limitations unless confirmed by a notary or court.

Explanation

Under PRC Civil Code Art. 195, the statute of limitations is Interrupted (诉讼时效中断) where: (1) The obligee demands performance; (2) The obligor agrees to perform; (3) The obligee initiates litigation or applies for arbitration; or (4) Other acts of equivalent effect occur. Upon interruption, the elapsed time is disregarded, and a brand new 3-year statute of limitations commences from the date of the interrupting event (November 18, 2025).

Question 10Role knowledge and relevant Chinese legal/financial foundations

Under the Property Rights Part of the PRC Civil Code (民法典物权编), what is the foundational statutory principle governing the creation, alteration, and transfer of real property rights (不动产物权) versus movable property rights (动产物权)?

  1. Real property rights take effect upon contract signing; movable property rights take effect upon notarization.
  2. Real property rights take effect upon registration in the real estate register (登记生效); movable property rights take effect upon delivery (交付生效), unless provided otherwise by law. Correct answer.
  3. Both real and movable property rights take effect immediately upon full payment of the purchase price.
  4. Real property rights take effect upon physical handover of keys; movable property rights take effect upon issuance of tax invoices.

Explanation

Under PRC Civil Code Art. 209 and 224, the creation, alteration, transfer, and extinction of real property rights take legal effect upon registration in the real estate register (不动产物权经依法登记发生效力), except where law provides otherwise. The creation and transfer of movable property rights take legal effect upon physical or constructive delivery (动产物权经交付发生效力), unless statutory exceptions apply.

Question 11Role knowledge and relevant Chinese legal/financial foundations

In January 2025, Citizen Wu inherited a commercial office building following the death of his father under a valid testamentary will. Wu has not yet registered the change of title at the municipal real estate bureau. In March 2025, Wu entered into a contract to sell the office building to Buyer Zhou. Under PRC Civil Code Articles 230 and 232, which of the following statements regarding the property right is correct?

  1. Wu did not acquire ownership of the building upon his father's death because real property ownership strictly requires registration.
  2. Wu acquired ownership of the building at the time the inheritance commenced (his father's death), but he CANNOT dispose of the property right by transferring title to Zhou until Wu first completes the inheritance registration. Correct answer.
  3. Wu acquired ownership upon death and may directly register the property title transfer from his deceased father to Zhou without registering title in Wu's own name.
  4. The sales contract between Wu and Zhou is void because Wu had not registered the title.

Explanation

Under PRC Civil Code Art. 230, where a property right is acquired through inheritance, the property right takes effect at the time the inheritance commences (upon the decedent's death) without immediate registration. However, under Art. 232, where a property right acquired through non-registration means (inheritance, court judgments, de facto construction) is subsequently disposed of, the disposition shall not take property right effect unless the right is first registered in the inheritor's name (非经登记，不发生物权效力). Under Art. 215, the sales contract itself is valid.

Question 12Role knowledge and relevant Chinese legal/financial foundations

Sun leased an industrial generator belonging to Owner Meng. Without Meng's authorization, Sun falsely claimed ownership and sold the generator to Factory F for RMB 200,000 (its fair market value). Factory F inspected the machine, paid the RMB 200,000 in full, and took physical delivery of the generator without knowing of Sun's lack of authority. When Meng discovered the sale, Meng sued Factory F for recovery. Under PRC Civil Code Article 311, how should the dispute be resolved?

  1. Meng is entitled to recover the generator because Sun had no right to dispose of it (无处分权).
  2. Factory F has acquired lawful ownership of the generator under the doctrine of Bona Fide Acquisition (善意取得), and Meng can only claim damages from Sun. Correct answer.
  3. The sales contract between Sun and Factory F is void, so ownership remains with Meng.
  4. Factory F and Meng must share co-ownership of the generator in equal 50% shares.

Explanation

Under PRC Civil Code Art. 311, a transferee acquires ownership under Bona Fide Acquisition (善意取得) if all three conditions are satisfied: (1) The transferor lacked the right of disposal; (2) The transferee was in good faith (善意) at the time of transfer; and (3) The property was transferred for a reasonable market price (合理的价格) and has been delivered (for movables) or registered (for real estate). Because Factory F paid market value in good faith and took delivery, Factory F acquired title. The original owner (Meng) may only seek damages/unjust enrichment from the unauthorized transferor (Sun).

Question 13Role knowledge and relevant Chinese legal/financial foundations

A, B, and C own a commercial warehouse as tenants-in-common (按份共有), holding shares of 50%, 30%, and 20% respectively. Without any prior agreement on disposal procedures, Partner A and Partner C wish to sell the entire warehouse to an external buyer for RMB 10 million, while Partner B strongly objects. Under PRC Civil Code Article 301, is the proposed sale validly authorized?

  1. No, because the sale of co-owned property requires the unanimous consent of 100% of all co-owners.
  2. Yes, because Partner A and Partner C together hold 70% of the shares, which exceeds the statutory two-thirds (2/3) shareholding threshold. Correct answer.
  3. No, because Partner A holds only 50% and Partner B has a veto right regardless of share percentage.
  4. Yes, because any single co-owner holding more than 30% has statutory disposal authority.

Explanation

Under PRC Civil Code Art. 301, disposing of, or conducting major repairs or alterations on, real or personal property held in tenancy-in-common (按份共有) requires the consent of co-owners holding two-thirds (2/3) or more of the shares, unless otherwise agreed among co-owners. Here, A (50%) + C (20%) = 70% (which is greater than 66.67%), thereby meeting the statutory threshold. Partner B retains a statutory preemptive right (优先购买权) under equal conditions.

Question 14Role knowledge and relevant Chinese legal/financial foundations

Under Articles 366 through 371 of the PRC Civil Code, which of the following statements regarding the Usufructuary Right of Habitation (居住权) is INCORRECT?

  1. A right of habitation is created upon registration with the real estate registration authority following a written contract or testamentary gift.
  2. A right of habitation is established gratuitously by default, unless otherwise agreed by the parties in the contract.
  3. A holder of a right of habitation may freely transfer the right of habitation or bequeath it to their heirs. Correct answer.
  4. The residential property encumbered by a right of habitation may not be leased out by the habitation holder, unless otherwise agreed by the parties.

Explanation

Under PRC Civil Code Art. 369, a right of habitation shall not be transferred or inherited (居住权不得转让、继承). The right of habitation is strictly personal to the designated holder and extinguishes upon the expiration of the term of habitation or upon the death of the holder (Art. 370). Therefore, stating that a holder of a right of habitation may freely transfer or bequeath the right is legally incorrect.

Question 15Role knowledge and relevant Chinese legal/financial foundations

Under the PRC Civil Code, an agricultural producer or enterprise creates a Floating Mortgage (动产浮动抵押) over its present and future production equipment, raw materials, semi-finished goods, and products. At what statutory moment does the mortgaged property crystallize / become determined (抵押财产确定)?

  1. At the moment the floating mortgage contract is signed.
  2. At the moment the floating mortgage is registered with the Market Regulation authority.
  3. Upon the occurrence of statutory triggers such as debt maturity without payment, bankruptcy declaration, or events seriously endangering claim realization. Correct answer.
  4. At the end of each fiscal tax year during annual financial closing.

Explanation

Under PRC Civil Code Art. 396 and 411, a floating mortgage is established upon contract signing and perfected against third parties upon registration. However, the specific mortgaged property remains floating and crystallizes / becomes determined (确定) only upon specific statutory events under Art. 411: (1) The secured debt is not satisfied upon maturity; (2) The mortgagor is declared bankrupt or dissolved; (3) Other circumstances occur that seriously endanger the realization of the mortgage right.

Question 16Role knowledge and relevant Chinese legal/financial foundations

Under the PRC Civil Code, at what precise moment is a Pledge of Rights (权利质权) legally established / perfected when the pledged property is: (1) Accounts Receivable (应收账款), and (2) Equity in an unlisted Limited Liability Company (非上市公司股权)?

  1. Accounts receivable: upon delivery of billing invoices; Unlisted equity: upon delivery of capital contribution certificates.
  2. Accounts receivable: upon registration with the PBOC Credit Reference Center (中征网); Unlisted equity: upon registration with the State Administration for Market Regulation (SAMR / 市场监督管理部门). Correct answer.
  3. Both pledges are established immediately upon signing the pledge contracts.
  4. Accounts receivable: upon notification to the debtor; Unlisted equity: upon recording in the company's internal register of shareholders.

Explanation

Under PRC Civil Code Art. 443 and 445: (1) A pledge over equity in an unlisted company is established upon registration with the market regulation authority (市场监督管理部门办理出质登记时设立); (2) A pledge over accounts receivable is established upon registration with the People's Bank of China Credit Reference Center system (中征应收账款质押登记公示系统办理出质登记时设立).

Question 17Role knowledge and relevant Chinese legal/financial foundations

On May 1, Wholesaler A mailed a written commercial offer to Retailer B stating: 'We offer 1,000 metric tons of industrial steel at RMB 4,000/ton; reply must be received by May 10.' On May 3, the price of steel surged, and Wholesaler A immediately dispatched a revocation notice by express courier, which reached Retailer B on May 5. Retailer B mailed its acceptance letter on May 6, which reached Wholesaler A on May 8. Under PRC Civil Code Article 476, was Wholesaler A's revocation effective?

  1. Yes, because a revocation notice is valid as long as it reaches the offeree before the offeree dispatches an acceptance.
  2. No, because an offer that explicitly fixes a time limit for acceptance is legally IRREVOCABLE (不得撤销). Correct answer.
  3. Yes, because commodity price surges constitute a statutory force majeure event automatically voiding offers.
  4. No, because an offer can only be withdrawn (撤回) before it arrives, but can never be revoked under Chinese contract law.

Explanation

Under PRC Civil Code Art. 476, an offer may be revoked unless: (1) The offeror expressly specifies a time limit for acceptance or otherwise explicitly states that the offer is irrevocable; or (2) The offeree has reasonable grounds to believe that the offer is irrevocable and has made reasonable preparations for performance. Because Wholesaler A expressly set an acceptance deadline ('reply must be received by May 10'), the offer was legally irrevocable, Wholesaler A's revocation was ineffective, and Retailer B's timely acceptance formed a binding contract.

Question 18Role knowledge and relevant Chinese legal/financial foundations

Under Articles 496 through 498 of the PRC Civil Code, where a dispute arises over the interpretation of a Standard Clause (格式条款) in a commercial contract, which interpretation rule applies?

  1. The clause shall always be interpreted in favor of the party that prepared and provided the standard clause.
  2. The clause shall be interpreted according to common understanding; where there are two or more interpretations, it shall be interpreted AGAINST the party that provided the standard clause (不利于提供格式条款一方的解释). Correct answer.
  3. The clause shall be deemed completely void and deleted from the contract without any interpretation.
  4. The court must order the parties to re-negotiate the clause under mandatory mediation.

Explanation

Under PRC Civil Code Art. 498, where a dispute arises over the understanding of a standard clause, it shall be interpreted in accordance with ordinary understanding. Where there are two or more differing interpretations of a standard clause, the interpretation that is UNFAVORABLE to the party providing the standard clause shall be adopted (对格式条款有两种以上解释的，应当作出不利于提供格式条款一方的解释). Where standard terms conflict with non-standard (individually negotiated) terms, the non-standard terms prevail.

Question 19Role knowledge and relevant Chinese legal/financial foundations

Company A contracted to buy customized manufacturing equipment from Company B for RMB 5 million. The contract specified that Company A must pay a 30% advance deposit on June 1, and Company B would deliver the equipment on July 1. Company A failed to pay the advance deposit on June 1. On July 1, Company A demanded that Company B deliver the equipment. Under PRC Civil Code Article 526, what defense can Company B raise?

  1. Defense of Simultaneous Performance (同时履行抗辩权)
  2. Defense of Prior Performance (先履行抗辩权 / 后履行方的抗辩权) Correct answer.
  3. Defense of Insecurity (不安抗辩权)
  4. Defense of Permanent Extinction (消灭抗辩权)

Explanation

Under PRC Civil Code Art. 526, where the parties have mutual debts and there is an agreed order of performance, if the party obligated to perform first (Company A) fails to perform, the party obligated to perform subsequently (Company B) has the right to refuse the first party's demand for performance. This is the Defense of Prior Performance (先履行抗辩权). If the first party's performance is defective, the subsequent party may refuse corresponding performance.

Question 20Role knowledge and relevant Chinese legal/financial foundations

Equipment Seller S contracted to deliver high-precision CNC machines to Buyer B on August 1, with Buyer B scheduled to pay the full price on September 1. In mid-July, Seller S uncovered conclusive financial audits and public enforcement records proving Buyer B had completely halted operations, transferred key assets overseas, and accumulated 15 unpaid court judgments. Under PRC Civil Code Articles 527 and 528, how should Seller S properly exercise its Defense of Insecurity (不安抗辩权)?

  1. Seller S may unilaterally terminate the sales contract immediately without giving notice to Buyer B.
  2. Seller S may suspend performance (中止履行), must promptly notify Buyer B, and may terminate the contract (解除合同) only if Buyer B fails to restore solvency or provide adequate security within a reasonable period. Correct answer.
  3. Seller S must deliver the machines on August 1 as agreed and can only file a court claim after Buyer B defaults on September 1.
  4. Seller S may sell the machines to a third party without notice, and the contract automatically becomes void.

Explanation

Under PRC Civil Code Art. 527 and 528, the party obligated to perform first may exercise the Defense of Insecurity (不安抗辩权) and suspend performance if it has conclusive evidence that the other party's business has severely deteriorated or assets were transferred to evade debts. The suspending party must promptly notify the counterparty. If the counterparty provides adequate security or restores its ability to perform, performance must resume. If the counterparty fails to restore solvency and fails to provide adequate security within a reasonable time, the suspending party may terminate the contract (解除合同) and demand breach damages.

Question 21Role knowledge and relevant Chinese legal/financial foundations

Debtor D owes Creditor C a mature, liquidated debt of RMB 1 million. Debtor D holds a mature monetary claim of RMB 1.2 million against Third Party T, but Debtor D refuses to collect or sue Third Party T because D wants to prevent Creditor C from getting paid. Debtor D has no other assets. Under PRC Civil Code Articles 535 through 537, what legal remedy may Creditor C pursue?

  1. Creditor C may directly seize Third Party T's bank accounts through administrative enforcement.
  2. Creditor C may exercise the Creditor's Subrogation Right (代位权) by filing a lawsuit against Third Party T in the People's Court in Creditor C's own name, and the recovered debt directly satisfies Creditor C's claim. Correct answer.
  3. Creditor C must sue Debtor D first and cannot name Third Party T in any court proceeding.
  4. Creditor C may only petition for Debtor D's personal bankruptcy.

Explanation

Under PRC Civil Code Art. 535 and 537, where a debtor is sluggish in exercising its mature monetary claim or secondary rights against a third party (obligor), thereby endangering the realization of the creditor's mature claim, the creditor may petition the People's Court to exercise Subrogation (代位权) in the creditor's own name (以自己的名义). Under Art. 537, where the court upholds the subrogation claim, the third party shall perform the debt directly to the creditor, and the creditor's claim against the debtor is discharged to that extent.

Question 22Role knowledge and relevant Chinese legal/financial foundations

Debtor Enterprise X owed Creditor Bank Y RMB 10 million due on December 31, 2024. In October 2024, knowing it could not repay Bank Y, Enterprise X transferred an industrial facility valued at RMB 8 million to an affiliated entity, Company Z, for a nominal price of RMB 100,000. Bank Y discovered this transfer on March 1, 2025. Under PRC Civil Code Articles 538 through 542, within what timeframe must Bank Y exercise its Creditor's Revocation Right (债权人撤销权)?

  1. Within 30 days from March 1, 2025, with an absolute cutoff of 1 year from the transfer.
  2. Within 1 year from March 1, 2025 (when it knew or should have known), with an absolute cutoff of 5 years from the date of the transfer. Correct answer.
  3. Within 3 years from March 1, 2025, under the general statute of limitations.
  4. Within 2 years from the date Enterprise X defaulted on the loan.

Explanation

Under PRC Civil Code Art. 541, the Creditor's Revocation Right / Clawback (撤销权) shall be exercised within 1 year from the date the creditor knew or should have known of the cause for revocation (自债权人知道或者应当知道撤销事由之日起一年内行使). If the right is not exercised within 5 years from the date the debtor's act occurred, the revocation right is permanently extinguished (自债务人的行为发生之日起五年内没有行使撤销权的，该撤销权消灭).

Question 23Role knowledge and relevant Chinese legal/financial foundations

Commodity Trader H sold 5,000 metric tons of imported soybeans that were already being transported by ocean freight from South America to Qingdao to Buyer G. The sales contract was signed on October 10. On October 12, a catastrophic typhoon caused ocean flooding that destroyed 2,000 tons of the soybeans on board the vessel. Under PRC Civil Code Article 606, who bears the risk of loss (风险负担) for the destroyed soybeans?

  1. Seller H bears the risk because the soybeans had not yet arrived or been unloaded at Qingdao port.
  2. Buyer G bears the risk from the time of contract formation (October 10), unless the parties expressly agreed otherwise. Correct answer.
  3. The shipping carrier bears strict liability, and neither buyer nor seller bears any risk.
  4. Buyer G and Seller H must divide the loss equally under principles of fairness.

Explanation

PRC Civil Code Art. 606 specifically governs the risk of loss for goods in transit: 'Where the subject matter is sold during transit, the risk of damage to or loss of the subject matter shall be borne by the buyer from the time the contract is formed (出卖人出卖交由承运人运输的在途标的物，除当事人另有约定的以外，毁损、灭失的风险自合同成立时起由买受人承担).' Because the contract was formed on October 10 and the typhoon struck on October 12, Buyer G bears the risk of loss.

Question 24Role knowledge and relevant Chinese legal/financial foundations

Under PRC Civil Code Article 642, Seller S sold manufacturing equipment to Buyer B under a Retention of Title (所有权保留) agreement, with Buyer B scheduled to pay in 10 monthly installments of RMB 100,000 each. Buyer B paid 8 installments (RMB 800,000, or 80% of the total price) but failed to pay the final 2 installments. May Seller S repossess / retrieve (取回) the equipment from Buyer B?

  1. Yes, because Seller S retains legal title until 100% of the purchase price is paid.
  2. No, because under Article 642, the seller CANNOT repossess the subject matter if the buyer has already paid 75% or more of the total contract price. Correct answer.
  3. Yes, but only if Seller S pays Buyer B a 50% penalty.
  4. No, because title retention clauses are invalid on industrial equipment in China.

Explanation

Under PRC Civil Code Art. 642, the seller may retrieve the subject matter if the buyer fails to pay the price as agreed, disposes of the goods without authorization, or uses the goods improperly. However, Paragraph 2 of Art. 642 explicitly carves out an exception: 'Where the buyer has paid seventy-five percent (75%) or more of the total price of the subject matter, the seller shall not retrieve the subject matter (买受人已经支付标的物总价款的百分之七十五以上的，出卖人不得取回标的物).' Seller S must instead sue Buyer B for the unpaid balance (RMB 200,000) and breach damages.

Question 25Role knowledge and relevant Chinese legal/financial foundations

Under Articles 658 and 663 of the PRC Civil Code, in which of the following situations can a Donor CANCEL / REVOKE a gift (赠与) after signing a gift contract?

  1. A donor promises RMB 1 million to a disaster relief foundation in a publicly announced charity gala, but changes their mind before paying.
  2. A donor signs a notarized written gift contract to donate an apartment to a nephew, but wants to revoke before registration.
  3. A donor gifts a vehicle to a friend, and the friend subsequently commits an intentional violent crime severely injuring the donor's spouse. Correct answer.
  4. A donor executes an unnotarized gift contract to give cash to an adult child, and completes the electronic bank transfer.

Explanation

Under PRC Civil Code Art. 663, a donor enjoys Statutory Revocation (法定撤销权) where the recipient: (1) Severely infringes upon the lawful rights and interests of the donor or the donor's close relatives; (2) Fails to perform statutory maintenance obligations toward the donor; or (3) Fails to perform obligations stipulated in the gift contract. The donor may revoke within 1 year of discovery even after the property has been delivered. In contrast, Arbitrary Revocation (任意撤销权, Art. 658) before delivery does NOT apply to notarized gifts or public-interest/moral gifts (disaster relief, poverty alleviation).

Question 26Role knowledge and relevant Chinese legal/financial foundations

Landlord L leased an apartment to Tenant T for a 3-year term. One year into the lease, Landlord L decided to sell the apartment to his biological sister S without offering it to Tenant T. When Tenant T discovered the sale, Tenant T sued to invalidate the sale and claim statutory Preemptive Right (优先购买权) under PRC Civil Code Article 726. How should the court rule?

  1. Tenant T has absolute preemptive right over all buyers, so the sale to Sister S is void.
  2. Tenant T does NOT have a preemptive right because the lessor sold the premises to a close relative (近亲属), but Tenant T's existing lease remains valid and binding on Sister S under the doctrine of 'Lease Breaks Sale' (买卖不破租赁). Correct answer.
  3. Tenant T's lease is immediately terminated upon the change of ownership.
  4. Sister S may evict Tenant T immediately by paying one month's rent as compensation.

Explanation

Under PRC Civil Code Art. 726, a tenant of residential premises has a preemptive right under equal conditions, EXCEPT where: (1) A co-owner exercises their preemptive right; or (2) The lessor sells the premises to a CLOSE RELATIVE (近亲属, including siblings, parents, children, spouse). Therefore, Tenant T cannot block the sale to Sister S. However, under Art. 725 ('Lease Breaks Sale' / 买卖不破租赁), the change of ownership does not affect the validity of the existing lease contract, and Sister S must honor Tenant T's remaining lease term.

Question 27Role knowledge and relevant Chinese legal/financial foundations

Under the 2023 Revised PRC Company Law (effective July 1, 2024, Article 47), what is the mandatory statutory maximum timeframe within which all shareholders of a newly established Limited Liability Company (有限责任公司) must pay their subscribed capital contributions (认缴出资额) in full?

  1. Within 2 years from the date of the company's establishment.
  2. Within 5 years from the date of the company's establishment. Correct answer.
  3. Within 10 years from the date of the company's establishment.
  4. Any timeframe agreed in the company's articles of association without statutory limitation.

Explanation

Article 47 of the 2023 Revised PRC Company Law fundamentally revised China's capital contribution regime by replacing unlimited subscribed capital terms with a mandatory 5-year paid-in deadline: 'The subscribed capital contribution amount of all shareholders of a limited liability company shall be paid in full within 5 years from the date of the company's establishment in accordance with the provisions of the articles of association (有限责任公司的注册资本为在公司登记机关登记的全体股东认缴的出资额。全体股东认缴的出资额由股东按照公司章程的规定自公司成立之日起五年内缴足).' Existing companies established before July 1, 2024 are subject to a statutory transition period to adjust their contribution schedules to within 5 years.

Question 28Role knowledge and relevant Chinese legal/financial foundations

Under Article 48 of the 2023 Revised PRC Company Law, which of the following asset classes is explicitly PERMITTED to be used by a shareholder as non-monetary capital contribution (非货币财产出资) to a company?

  1. Personal labor services (劳务)
  2. Corporate goodwill and reputation (商誉)
  3. Lawfully transferable Equity Interests in another enterprise and Creditor's Claims (股权、债权) Correct answer.
  4. Franchise operating rights (特许经营权)

Explanation

Under Article 48 of the 2023 Revised PRC Company Law, shareholders may make capital contributions in currency or with non-monetary property that can be evaluated in monetary terms and transferred in accordance with the law, such as physical objects, intellectual property rights, land use rights, EQUITY INTERESTS (股权), and CREDITOR'S CLAIMS (债权). The 2023 revision explicitly codified equity and debt-to-equity contributions at the statutory level. In contrast, labor services, credit, natural persons' names, goodwill, and franchise rights are non-transferable and prohibited as capital contributions.

Question 29Role knowledge and relevant Chinese legal/financial foundations

Under Articles 51 and 52 of the 2023 Revised PRC Company Law, where Shareholder Zhao failed to pay his scheduled registered capital contribution on time, the company issued a written demand letter. What is the statutory MINIMUM grace period that must be granted in the demand letter, and what is the legal consequence if Zhao fails to pay upon its expiration?

  1. Grace period: At least 15 days; if unpaid, Zhao is automatically expelled from China.
  2. Grace period: At least 30 days; if unpaid, Zhao's shares are transferred to the local government.
  3. Grace period: At least 60 days (宽限期自催缴书发出之日起，不得少于六十日); if unpaid, the company may issue a Forfeiture Notice (失权通知书) upon board resolution, and Zhao forfeits his unpaid equity. Correct answer.
  4. Grace period: At least 90 days; if unpaid, the company must undergo mandatory liquidation.

Explanation

Articles 51 and 52 of the 2023 Revised PRC Company Law introduced China's brand-new Shareholder Equity Forfeiture System (股东失权制度). The board of directors must verify contributions and issue a written demand specifying a grace period of NOT LESS THAN 60 DAYS (不得少于六十日). If the shareholder fails to pay upon expiry of the grace period, the company may, by resolution of the board of directors, issue a written Notice of Forfeiture (失权通知书). From the date the notice is sent, the shareholder forfeits the unpaid equity. The forfeited equity must be transferred or cancelled within 6 months.

Question 30Role knowledge and relevant Chinese legal/financial foundations

Under Article 54 of the 2023 Revised PRC Company Law, what is the rule governing the Accelerated Maturity of Capital Contributions (出资加速到期)?

  1. Capital contributions can only be accelerated if all shareholders unanimously agree in a written shareholder resolution.
  2. Where a company cannot pay off its debts that are due, the company OR the creditors of the due debts have the right to demand that shareholders whose subscribed contribution periods have not yet matured pay their contributions in advance. Correct answer.
  3. Only the People's Court during formal bankruptcy proceedings may order accelerated capital contribution.
  4. Creditors can only demand acceleration from the controlling shareholder, not minority shareholders.

Explanation

Article 54 of the 2023 Revised PRC Company Law formally established the statutory Accelerated Maturity of Capital Contributions (出资加速到期) outside bankruptcy: 'Where a company cannot pay off its debts that are due, the company or the creditors of the mature debts have the right to demand that shareholders whose subscribed capital contribution periods have not yet matured pay their capital contributions in advance (公司不能清偿到期债务的，公司或者已到期债权的债权人有权要求已认缴出资但未届出资期限的股东提前缴纳出资).' This provides a direct legal basis for creditors to recover unpaid capital without needing to file for full corporate bankruptcy first.

Question 31Role knowledge and relevant Chinese legal/financial foundations

Under Articles 69 and 121 of the 2023 Revised PRC Company Law, what major structural governance option is now available to Limited Liability Companies and Joint Stock Companies regarding the Supervisory Board (监事会)?

  1. Companies must abolish their Board of Directors and replace it with a Supervisory Board.
  2. A company may establish an Audit Committee (审计委员会) composed of directors within the Board of Directors to exercise the statutory powers of the Supervisory Board, in which case the company is NOT required to have a Supervisory Board or supervisors. Correct answer.
  3. All companies with registered capital under RMB 10 million are strictly prohibited from having any supervisors.
  4. Companies are required to outsource all supervisory functions to the local Tax Bureau.

Explanation

Articles 69 and 121 of the 2023 Revised PRC Company Law introduced a modern one-tier corporate governance option: A limited liability company or joint stock company may, in accordance with its articles of association, establish an Audit Committee (审计委员会) composed of directors within the Board of Directors to exercise the statutory functions and powers of the Supervisory Board (监事会), and in such case, the company does not need to establish a Supervisory Board or appoint a supervisor (可以不设监事会或者监事).

Question 32Role knowledge and relevant Chinese legal/financial foundations

Under Article 84 of the 2023 Revised PRC Company Law, how did the statutory procedure for transferring equity to a non-shareholder (向股东以外的人转让股权) in a Limited Liability Company change compared to the previous law?

  1. Transfers to external non-shareholders are completely prohibited under all circumstances.
  2. The requirement to obtain the consent of more than half of the other shareholders (过半数同意) was REMOVED; the transferring shareholder must notify other shareholders in writing of the transfer terms, and other shareholders have 30 days to exercise their statutory Preemptive Right (优先购买权). Correct answer.
  3. The transferring shareholder must obtain the unanimous consent of 100% of all shareholders in a physical meeting.
  4. The transfer is valid only if approved by the State Administration for Market Regulation after public auction.

Explanation

Under Article 84 of the 2023 Revised PRC Company Law, the previous cumbersome requirement of obtaining the consent of 'more than half of the other shareholders' was abolished. The new streamlined statutory procedure requires the transferring shareholder to notify the other shareholders in writing of the transfer quantity, price, payment method, and deadline. Other shareholders have 30 days from receiving the written notice to exercise their statutory Preemptive Right (优先购买权) under equal conditions; failure to respond within 30 days is deemed a waiver of preemptive right.

Question 33Role knowledge and relevant Chinese legal/financial foundations

Article 152 of the 2023 Revised PRC Company Law introduced the Authorized Capital System (授权资本制) for Joint Stock Companies (股份有限公司). Under this system, what is the maximum proportion of shares that the Articles of Association or Shareholders' Meeting may authorize the Board of Directors to decide to issue within 3 years?

  1. Not exceeding 10% of the total issued shares.
  2. Not exceeding 20% of the total issued shares.
  3. Not exceeding 50% of the total issued shares (不超过已发行股份的百分之五十). Correct answer.
  4. Unlimited authorized shares without statutory cap.

Explanation

Under Article 152 of the 2023 Revised PRC Company Law, the Articles of Association or the Shareholders' Meeting of a Joint Stock Company may authorize the Board of Directors to decide on the issuance of new shares within 3 years, provided that the number of authorized shares shall NOT exceed 50% of the total issued shares (授权董事会决议发行的股份不得超过已发行股份的百分之五十). This allows joint stock companies to respond swiftly to market financing opportunities without convening time-consuming extraordinary general meetings.

Question 34Role knowledge and relevant Chinese legal/financial foundations

Under Articles 25 through 28 of the 2023 Revised PRC Company Law, in which of the following circumstances is a resolution of the Shareholders' Meeting or Board of Directors classified as NON-EXISTENT / NOT FORMED (不成立)?

  1. The substantive content of the resolution directly violates mandatory provisions of national laws or administrative regulations.
  2. The convening procedure or voting method violated the articles of association, but a meeting was held and a vote was counted.
  3. No meeting was held, or a meeting was held but no vote was taken on the resolution matter, or the required quorum / voting ratio was not reached. Correct answer.
  4. The substantive content of the resolution violates the internal articles of association without violating national laws.

Explanation

Under Article 27 of the 2023 Revised PRC Company Law, a resolution is Non-existent / Not Formed (不成立) where: (1) No meeting of the shareholders or board of directors was held; (2) A meeting was held but no resolution matter was voted on; (3) The number of attendees or voting rights present did not reach the statutory or AoA quorum; or (4) The affirmative votes did not reach the statutory or AoA threshold. In contrast: violating mandatory law makes it VOID (无效, Art. 25); procedural defects or AoA content violations make it REVOCABLE within 60 days (可撤销, Art. 26).

Question 35Role knowledge and relevant Chinese legal/financial foundations

Under Article 10 of the 2023 Revised PRC Company Law, who among the following corporate personnel may serve as the Legal Representative (法定代表人) of a company?

  1. Any member of the Supervisory Board or Chairman of the Supervisory Board.
  2. A Director or the Manager (总经理) who represents the company in executing corporate affairs in accordance with the articles of association. Correct answer.
  3. The Chief Financial Officer (财务总监) or External Independent Auditor.
  4. Any controlling shareholder holding more than 50% equity regardless of board status.

Explanation

Article 10 of the 2023 Revised PRC Company Law provides that the Legal Representative (法定代表人) of a company shall be a Director (董事) or the Manager (经理) who represents the company in executing company affairs in accordance with the provisions of the articles of association (公司的法定代表人按照公司章程的规定，由代表公司执行公司事务的董事或者经理担任). Supervisors are strictly barred from concurrently serving as legal representative, directors, or senior managers (Art. 76).

Question 36Role knowledge and relevant Chinese legal/financial foundations

Director Liu of Tech Corp discovered a lucrative government cloud contract that Tech Corp was actively developing. Liu secretly established his own personal enterprise, BidCo, used Tech Corp's proprietary technical blueprints, and won the contract for BidCo, generating RMB 5 million in net profits. Under Articles 180 and 183 of the 2023 Revised PRC Company Law, what duty did Liu breach, and what legal remedy does Tech Corp have?

  1. Liu breached the duty of loyalty by usurping a corporate business opportunity (篡夺公司商业机会), and Tech Corp has the right to Disgorge / Claim all RMB 5 million profits (归入权). Correct answer.
  2. Liu breached only an ethical guideline with no legal or financial liability.
  3. Liu breached administrative employment rules, and Tech Corp may only fine Liu RMB 10,000.
  4. Liu is exempt from liability if BidCo pays standard patent royalties to Tech Corp after the fact.

Explanation

Under Article 183 of the 2023 Revised PRC Company Law, directors, supervisors, and senior executives shall NOT take advantage of their positions to usurp business opportunities belonging to the company for themselves or others, unless they have reported to the board of directors or shareholders' meeting and obtained approval. Under Article 186, any income or profits obtained in violation of this duty shall BELONG TO THE COMPANY (所得收入应当归公司所有 / 归入权). Tech Corp is entitled to disgorge the entire RMB 5 million in profits.

Question 37Role knowledge and relevant Chinese legal/financial foundations

Under Articles 180 and 192 of the 2023 Revised PRC Company Law, what is the statutory liability of a Controlling Shareholder or De Facto Controller (控股股东、实际控制人) who does not serve as a director but directly instructs directors or senior executives to commit acts that harm the interests of the company or its shareholders?

  1. The controlling shareholder bears no liability because they are not formally registered on the Board of Directors.
  2. The controlling shareholder shall bear JOINT AND SEVERAL LIABILITY (连带责任) together with the instructed directors or senior managers. Correct answer.
  3. Only the instructed directors bear liability, while the controlling shareholder receives immunity.
  4. The company's corporate veil is automatically pierced and the company must be dissolved.

Explanation

Article 192 of the 2023 Revised PRC Company Law explicitly codifies shadow director / controlling shareholder liability: 'Where a controlling shareholder or de facto controller of a company instructs a director or senior manager to engage in activities that harm the interests of the company or shareholders, they shall bear joint and several liability with the director or senior manager (公司的控股股东、实际控制人指示董事、高级管理人员从事损害公司或者股东利益的行为的，与该董事、高级管理人员承担连带责任).' This closes the loophole where controlling owners evaded fiduciary liability by manipulating puppet board members.

Question 38Role knowledge and relevant Chinese legal/financial foundations

Article 23, Paragraph 2 of the 2023 Revised PRC Company Law codified the Horizontal Piercing of the Corporate Veil (横向穿透 / 关联公司人格否认). Under what circumstances does this rule apply?

  1. Whenever two companies have the same industry classification.
  2. Where a shareholder uses two or more companies under their control to evade debts, thereby seriously damaging the interests of creditors, EACH such company shall bear joint and several liability (连带责任) for the debts of any other such company. Correct answer.
  3. Where a parent company owns more than 50% of a subsidiary company.
  4. Whenever an enterprise enters into an cross-guarantee agreement with a commercial bank.

Explanation

Article 23, Paragraph 2 of the 2023 Revised PRC Company Law formally enacted statutory horizontal veil piercing: 'Where a shareholder uses two or more companies under its control to evade debts and seriously damages the interests of company creditors, each company shall bear joint and several liability for the debts of any other such company (股东利用其控制的两个以上公司实施前款规定行为，逃避债务，严重损害公司债权人利益的，各公司应当对任一公司的债务承担连带责任).' This allows creditors to reach sister/affiliated companies controlled by the same bad-faith owner.

Question 39Role knowledge and relevant Chinese legal/financial foundations

Shareholder Guo of an LLC voted against a shareholders' resolution approving the merger of the company with a competitor. Under Article 89 of the 2023 Revised PRC Company Law, if Guo and the company fail to reach an equity purchase agreement within 60 days from the date of the resolution, within what timeframe may Guo file a lawsuit in the People's Court to compel the company to buy back his equity?

  1. Within 30 days after the expiration of the 60-day negotiation period.
  2. Within 90 days from the date the shareholders' meeting resolution was adopted (自股东会决议作出之日起九十日内). Correct answer.
  3. Within 6 months from the date the merger was officially completed.
  4. Within 3 years under the general statute of limitations.

Explanation

Under Article 89 of the 2023 Revised PRC Company Law, where a dissenting shareholder votes against a merger, division, transfer of major assets, or failure to distribute dividends despite 5 consecutive profitable years, the shareholder may demand the company buy back its equity at a reasonable price. If no agreement is reached within 60 days from the date the resolution was passed, the shareholder may file a lawsuit with the People's Court within 90 days from the date the shareholders' resolution was adopted (自股东会决议作出之日起九十日内向人民法院提起诉讼).

Question 40Role knowledge and relevant Chinese legal/financial foundations

Article 225 of the 2023 Revised PRC Company Law introduced the Simplified Capital Reduction Procedure (简易减资制度). Which of the following conditions MUST be met for a company to utilize simplified capital reduction?

  1. The capital reduction must be used solely to distribute surplus cash reserves to controlling shareholders.
  2. The capital reduction is used strictly to MAKE UP FOR ACCUMULATED LOSSES (弥补亏损) after using statutory surplus reserves and public reserves; the company announces the reduction via the national credit system within 20 days; and the company CANNOT distribute assets to shareholders or exempt shareholders from unpaid capital obligations. Correct answer.
  3. The company must obtain written consent from 100% of all registered creditors within 10 days.
  4. Simplified capital reduction is only permitted for state-owned enterprises with total assets exceeding RMB 10 billion.

Explanation

Under Article 225 of the 2023 Revised PRC Company Law, Simplified Capital Reduction (简易减资) allows a company to reduce registered capital to make up for losses when accumulated losses cannot be covered by surplus reserves and capital reserves. Under this procedure, the company does not need to satisfy individual creditor demands for debt payoff or security, but MUST publish an announcement in a newspaper or the National Enterprise Credit Information Publicity System within 20 days. Under simplified capital reduction, the company shall not distribute funds to shareholders or exempt shareholders from contribution obligations.

Question 41Role knowledge and relevant Chinese legal/financial foundations

Under Articles 210 and 214 of the 2023 Revised PRC Company Law, what percentage of after-tax profits must a company allocate to its Statutory Surplus Reserve (法定公积金), and what is the rule when converting the statutory surplus reserve into registered capital (法定公积金转为增加注册资本)?

  1. Allocate 5% until reaching 30% of registered capital; no retention requirement upon conversion.
  2. Allocate 10% of annual after-tax profits until the accumulated reserve reaches 50% of registered capital; when converting statutory surplus reserve into capital, the remaining reserve shall NOT be less than 25% of the registered capital prior to conversion. Correct answer.
  3. Allocate 15% until reaching 100% of registered capital; conversion is prohibited.
  4. Allocate 20% of pre-tax revenue until reaching 50% of total assets; remaining reserve must be at least 50%.

Explanation

Under Article 210 of the 2023 Revised PRC Company Law, when distributing annual after-tax profits, a company shall allocate 10% of profits to the company's statutory surplus reserve until the accumulated amount reaches 50% or more of the company's registered capital. Under Article 214, when converting statutory surplus reserve into capital, the remaining reserve shall NOT be less than 25% of the registered capital before conversion (留存的该项公积金不得少于转增前公司注册资本的百分之二十五). Under the 2023 revision, capital reserve (资本公积金) may also be used to make up for losses.

Question 42Role knowledge and relevant Chinese legal/financial foundations

Under Article 232 of the 2023 Revised PRC Company Law, who serves as the statutory Liquidation Obligors (清算义务人) upon the dissolution of a company, and within what timeframe must a liquidation committee be formed?

  1. The company's largest shareholder and the tax bureau within 30 days.
  2. The company's DIRECTORS (董事为公司的清算义务人), who must form a liquidation committee to commence liquidation within 15 DAYS from the occurrence of the dissolution event. Correct answer.
  3. The company's external certified public accountant within 60 days.
  4. The local people's government within 90 days.

Explanation

Article 232 of the 2023 Revised PRC Company Law made a major statutory change by designating DIRECTORS as the statutory Liquidation Obligors (董事为公司的清算义务人) for both limited liability companies and joint stock companies. The liquidation committee shall be composed of directors, unless otherwise provided in the articles of association or shareholders' resolution. The liquidation committee must be formed to commence liquidation within 15 DAYS from the date on which the cause of dissolution occurs. Directors who fail to perform liquidation duties in a timely manner and cause losses to the company or creditors shall bear civil compensation liability.

Question 43Role knowledge and relevant Chinese legal/financial foundations

Under China's Comprehensive Registration System for Stock Issuance (全面股票发行注册制), what is the statutory division of regulatory review responsibilities between the Stock Exchanges (SSE / SZSE / BSE) and the China Securities Regulatory Commission (CSRC / 中国证监会)?

  1. The CSRC conducts all substantive reviews of financial disclosures, while stock exchanges handle only physical listing ceremonies.
  2. The Stock Exchanges perform comprehensive substantive review of issuance conditions, listing criteria, and information disclosure quality; the CSRC performs final statutory registration review and registration decisions based on the exchange's review report. Correct answer.
  3. Stock exchanges make independent, final issuance decisions with no CSRC oversight or registration involvement.
  4. Local provincial financial supervision bureaus approve IPO registrations, and the CSRC handles post-listing trading enforcement.

Explanation

Under the Comprehensive Registration-Based IPO System (全面股票发行注册制) codified under the PRC Securities Law and CSRC Registration Measures: (1) The Stock Exchanges (SSE, SZSE, BSE) conduct substantive reviews (审核) of whether the issuer meets issuance conditions, listing requirements, and information disclosure standards; (2) The CSRC performs the registration procedure (注册), verifying the exchange's review process and ensuring regulatory compliance before issuing the formal registration decision within statutory time limits.

Question 44Role knowledge and relevant Chinese legal/financial foundations

Under the revised listing criteria for the Main Board (主板) of the Shanghai and Shenzhen Stock Exchanges under the comprehensive registration system, what is the core profitability standard for an enterprise applying for an IPO under the first standard (Standard 1)?

  1. Positive net profit in the most recent single year with total revenue of at least RMB 20 million.
  2. Profitable for the most recent three consecutive years, with cumulative net profit of not less than RMB 150 million (最近三年连续盈利，且累计净利润不低于1.5亿元), net profit for the most recent year not less than RMB 100 million, and positive operating cash flow or cumulative revenue meeting regulatory thresholds. Correct answer.
  3. Cumulative revenue of RMB 500 million over 5 years regardless of profit or loss.
  4. Net asset value of at least RMB 1 billion with no historical operating record requirements.

Explanation

Under the updated Stock Exchange Main Board Listing Rules, Standard 1 (pure profitability standard) requires the issuer to be profitable for the most recent 3 consecutive fiscal years, with cumulative net profit of not less than RMB 150 million (recently raised from RMB 50M/RMB 100M under capital market quality reforms), net profit for the most recent year not less than RMB 100 million, and cumulative net cash flow from operating activities of not less than RMB 100 million or cumulative operating revenue of not less than RMB 1 billion.

Question 45Role knowledge and relevant Chinese legal/financial foundations

Listed Company L plans a Private Placement of Shares to Specific Targets (向特定对象发行股票 / 定向增发). Under CSRC Registration Measures, what is the statutory Pricing Floor (定价基准) and the mandatory Lock-up Period (限售期) for: (1) General financial institutional investors, and (2) The controlling shareholder / actual controller?

  1. Pricing floor: Not lower than 90% of the 20-day average; Lock-up: 12 months for all investors.
  2. Pricing floor: Not lower than 80% of the average stock trading price over the 20 trading days prior to the pricing benchmark date (不低于定价基准日前20个交易日公司股票均价的80%); Lock-up: 6 MONTHS for general investors, and 18 MONTHS for the controlling shareholder / actual controller. Correct answer.
  3. Pricing floor: Net asset value per share; Lock-up: 36 months for general investors, 5 years for controlling shareholders.
  4. Pricing floor: Closing price on the date of issuance; Lock-up: 30 days for all participants.

Explanation

Under CSRC Measures for the Administration of Securities Issuance and Registration by Listed Companies: (1) The issue price in a private placement shall NOT be lower than 80% of the average stock price over the 20 trading days preceding the pricing benchmark date; (2) General institutional and individual investors are subject to a 6-MONTH lock-up period (六个月内不得转让); (3) Controlling shareholders, actual controllers, or their controlled affiliates, as well as strategic investors approved by the board, are subject to an 18-MONTH lock-up period (十八个月内不得转让).

Question 46Role knowledge and relevant Chinese legal/financial foundations

Under Article 15 of the PRC Securities Law, which of the following is a MANDATORY statutory condition for an enterprise to publicly offer Corporate Bonds (公开发行公司债券)?

  1. The issuer must have total assets of at least RMB 10 billion.
  2. The average annual distributable profits for the most recent three years must be sufficient to pay the interest on the corporate bonds for ONE YEAR (最近三年平均可分配利润足以支付公司债券一年的利息). Correct answer.
  3. The issuer must be a state-owned enterprise with AAA credit rating.
  4. The bond issue amount must not exceed 10% of the company's net assets.

Explanation

Under Article 15 of the PRC Securities Law, public offering of corporate bonds requires: (1) A sound and well-functioning organizational structure; (2) The average annual distributable profits of the company for the last three years are sufficient to pay one year's interest on the corporate bonds (最近三年平均可分配利润足以支付公司债券一年的利息); (3) The raised funds must be used for purposes determined by the prospectus, strictly in line with national industrial policies; (4) Other statutory requirements.

Question 47Role knowledge and relevant Chinese legal/financial foundations

Under the Administrative Measures for the Major Asset Restructuring of Listed Companies (上市公司重大资产重组管理办法), an asset acquisition or disposal by a listed company triggers the statutory threshold for a Major Asset Restructuring (重大资产重组) if the transaction meets which of the following criteria?

  1. Total assets purchased or sold reach 10% or more of the listed company's audited total assets.
  2. The total assets, operating revenue, OR net assets (and exceeding RMB 50 million) of the purchased/sold assets reach FIFTY PERCENT (50%) or more of the corresponding audited figures of the listed company in the most recent fiscal year. Correct answer.
  3. The transaction involves any transaction amount exceeding RMB 10 million.
  4. The transaction causes the company's CEO to resign.

Explanation

Under Article 12 of the Major Asset Restructuring Measures, a transaction constitutes a Major Asset Restructuring (重大资产重组) if the assets purchased or sold meet ANY of the following 3 tests: (1) Total assets reach 50% or more of the listed company's latest audited total assets; (2) Operating revenue generated by the subject assets in the latest fiscal year reaches 50% or more of the listed company's audited operating revenue; (3) Net assets purchased/sold reach 50% or more of the listed company's latest audited net assets AND exceed RMB 50 million. Such restructuring requires special resolution approval by two-thirds (2/3) of voting rights present at the shareholders' meeting.

Question 48Role knowledge and relevant Chinese legal/financial foundations

Under the PRC Securities Law and CSRC Restructuring Measures, what constitutes a Backdoor Listing / Restructuring for Listing (借壳上市 / 重组上市)?

  1. Any asset acquisition where a listed company purchases equipment worth more than RMB 100 million from a bank.
  2. Where a listed company undergoes a CHANGE OF CONTROL (控制权发生变更), and within 36 MONTHS of that change, purchases assets from the new controller or affiliates whose total assets, net assets, revenue, or issued shares reach ONE HUNDRED PERCENT (100%) or more of the listed company's metrics. Correct answer.
  3. Where a company issues convertible bonds to foreign private equity funds.
  4. Where a listed company delists from the main board and lists on the National Equities Exchange and Quotations (NEEQ / 新三板).

Explanation

Under Article 13 of the Major Asset Restructuring Measures, a Backdoor Listing (重组上市 / 借壳上市) occurs when: (1) The control of the listed company has changed; AND (2) Within 36 months from the date of the change of control, the listed company acquires assets from the acquiring party or its affiliates where the total assets, net assets, operating revenue, net profit, or issued shares reach 100% or more of the listed company's latest audited figures. The acquired business must meet all substantive IPO financial and governance criteria.

Question 49Role knowledge and relevant Chinese legal/financial foundations

Investor Zhang acquired voting shares in Listed Company T on the secondary market. On Tuesday morning, Zhang's shareholding reached exactly 5% of Listed Company T's total issued shares. Under Article 63 of the PRC Securities Law, what statutory disclosure and trading restriction obligations apply to Zhang?

  1. Zhang may continue buying shares without any disclosure until reaching 30%.
  2. Zhang must submit a written report to the CSRC and the stock exchange, notify the listed company, and make a public announcement within THREE DAYS (3日内), and CANNOT buy or sell shares of Listed Company T during that 3-day period and within 3 DAYS after the report and announcement are made. Correct answer.
  3. Zhang must immediately sell all shares exceeding 4.99% within 24 hours.
  4. Zhang must launch a mandatory full takeover bid within 7 days.

Explanation

Under Article 63 of the PRC Securities Law, when an investor's shareholding in a listed company reaches 5%, the investor must report to the CSRC and the stock exchange, notify the listed company, and make a public announcement within 3 days. The investor is strictly barred from buying or selling shares of that listed company during the 3-day period and for 3 days after making the report and announcement (在上述期限内，不得再行买卖该上市公司的股票). Subsequent 5% changes trigger identical report and 3-day trading freeze rules; 1% changes require notification and announcement by the next trading day without a trading freeze.

Question 50Role knowledge and relevant Chinese legal/financial foundations

Acquirer A holds 30% of the voting shares of Listed Company B and intends to continue acquiring shares through a Tender Offer (要约收购). Under Articles 65 through 75 of the PRC Securities Law, which of the following statements regarding the tender offer is INCORRECT?

  1. Acquirer A may choose to make a General Tender Offer (全面要约) for all shares or a Partial Tender Offer (部分要约, with proposed shares not less than 5%).
  2. The statutory tender offer period (收购期限) shall not be less than 30 days and shall not exceed 60 days.
  3. During the tender offer period, Acquirer A may unilaterally WITHDRAW the tender offer (撤销收购要约) at any time if market stock prices decline. Correct answer.
  4. In the last 15 days of the offer period, accepting shareholders shall not withdraw their pre-accepted shares, unless a competing offer appears.

Explanation

Under Article 68 of the PRC Securities Law, during the term of a takeover offer, the acquirer shall NOT withdraw its takeover offer (在收购要约约定的承诺期限内，收购人不得撤销其收购要约). Once an offer is publicly launched, the acquirer is legally bound to purchase all tendered shares under the terms of the offer. Therefore, claiming that the acquirer may unilaterally withdraw the offer if market prices decline is legally incorrect.