China - Market Insights

Companies operating in China increasingly face risks arising from management or key employee misconduct, including the diversion of corporate opportunities, commercial bribery, and the misuse of confidential business information. In recent years, China has strengthened its legal framework governing such conduct and expanded the enforcement mechanisms available to address corporate wrongdoing. Notably, Amendment XII to the Criminal Law of the People’s Republic of China (“Amendment XII”) clarifies that certain breach-of-duty offences — previously associated mainly with state-owned enterprises — may also apply to personnel of private and foreign-invested companies. At the same time, developments under the Anti-Unfair Competition Law of the People’s Republic of China (AUCL) and Provisions on the Protection of Trade Secrets have reinforced regulatory and civil enforcement against commercial bribery and trade secret infringement. Together, these developments reflect a broader trend toward heightened scrutiny of internal corporate misconduct in China, prompting companies and practitioners to consider how criminal, administrative, and civil enforcement mechanisms may interact in addressing such risks.

Expansion of criminal liability for management misconduct

A notable development in China’s white-collar enforcement landscape is the expansion of criminal liability for management misconduct under Amendment XII. Historically, several offences relating to breaches of fiduciary duty were primarily applied to personnel of state-owned enterprises. This created a gap where comparable misconduct within private or foreign-invested companies was not always subject to the same level of criminal scrutiny.

The Amendment clarifies that similar acts of internal corruption or breach of loyalty within private and foreign-invested enterprises may also constitute criminal offences under the Criminal Law of the People’s Republic of China. In particular, the revised provisions highlight several categories of management misconduct that may trigger criminal liability, including:

• illegally engaging in competing business activities by operating businesses that compete with the employer while using one’s managerial authority or access to corporate resources;
• illegally seeking benefits for relatives or associates, such as diverting corporate opportunities or transactions to affiliated parties; or
• abusing managerial authority in the disposal of corporate assets or equity, including converting shares or selling corporate assets at unfairly low prices to favored parties.

These revisions reflect a broader policy trend toward strengthening corporate governance and protecting the legitimate interests of enterprises across all sectors of the Chinese market.

Recent enforcement practice illustrates how the amended provisions are beginning to be applied to misconduct within private enterprises. A representative case released by the Supreme People’s Procuratorate of the People’s Republic of China involved the general manager of a private lighting company in Shanghai who secretly established a competing enterprise and diverted customer orders to the new entity. During the relevant period, the competing company reportedly generated sales of more than RMB 37 million, while the original company suffered losses exceeding RMB 2 million. The court found that the executive had abused his managerial authority to operate a competing business and transfer corporate opportunities and ultimately convicted him under the amended provisions. The court imposed a term of imprisonment, a monetary fine, and ordered the return of illicit gains to the victim company.

This case provides an important market signal. Conduct such as management self-dealing, diversion of corporate opportunities, and breaches of non-competition obligations within private enterprises may now give rise to criminal liability where the conduct causes significant harm to the company. For foreign-invested companies operating in China, the expanded enforcement framework not only increases potential criminal exposure for senior management but also reflects a growing willingness by authorities to apply white-collar criminal provisions to internal misconduct in the private sector.

Administrative enforcement against commercial bribery and management misconduct

While criminal enforcement plays an important role in addressing serious cases of management misconduct, not all improper conduct meets the threshold for criminal prosecution. In practice, administrative enforcement has become an important regulatory tool in China’s competition regime, particularly in cases involving commercial bribery or unfair competition, and is increasingly relevant when companies confront internal misconduct.

Recent legislative developments further strengthen this framework. The revised AUCL, which took effect on 15 October 2025, enhances regulatory oversight of commercial bribery and clarifies the scope of parties subject to administrative liability. Under Article 8 of the revised law, business operators are prohibited from offering money, property, or other benefits in order to obtain transaction opportunities or competitive advantages. The prohibition applies to bribery involving:

• employees of a transaction counterparty;
• intermediaries entrusted to handle relevant business matters; or
• individuals capable of influencing transactions through authority or influence.

Importantly, the revised provision also expressly prohibits these individuals from accepting bribes, thereby bringing the receiving side of commercial bribery within the scope of administrative supervision.

The revised law also introduces clearer individual liability. Under Article 24, where commercial bribery occurs:

• The legal representative, principal person in charge, and directly responsible personnel of a company may face administrative penalties.
• Individuals who accept bribes may be subject to confiscation of illegal gains and fines of up to RMB 1 million.

These developments highlight an important compliance issue for companies confronting potential management misconduct. In administrative investigations, regulators often focus on whether the improper conduct in question can be attributed to the company itself or to specific individuals acting without proper authorization. As a result, internal investigations frequently need to clarify the roles of management personnel and determine whether the conduct was endorsed, organized, or tolerated by the enterprise.

Civil litigation for corporate loss recovery arising from management misconduct

In addition to criminal and administrative enforcement, civil litigation plays an important role in addressing management misconduct and recovering corporate losses. Civil actions are particularly relevant where internal misconduct results in financial harm, diversion of corporate opportunities, or the misuse of confidential business information. In recent years, Chinese courts have increasingly recognized such disputes under general civil liability principles, including claims relating to breach of fiduciary duties and infringement of corporate business interests.

Recent regulatory developments have also strengthened the civil protection of trade secrets. The Provisions on the Protection of Trade Secrets, which took effect on 1 June 2026, provide more detailed guidance on the identification and protection of trade secrets. Notably, the rules clarify that emerging forms of business information — such as algorithms, interim research results, and experimental data — may qualify as protected trade secrets where they possess commercial value and are subject to reasonable confidentiality measures.

The new provisions also refine the scope of infringement in the digital environment. Conduct such as unauthorized electronic access, data extraction, or other forms of digital intrusion may constitute trade secret misappropriation. In addition, third parties may face liability where they know or should have known that the information was improperly obtained from employees, former employees, or business partners but nonetheless acquire, disclose, or use the information.

From a practical perspective, civil litigation is often pursued alongside other enforcement mechanisms. Compared with criminal proceedings, civil actions provide companies with greater procedural control and a more direct path to recovering economic losses. However, evidentiary challenges frequently arise in cases involving internal misconduct, particularly where key evidence is controlled by the wrongdoer. As a result, some companies may pursue parallel strategies, including administrative complaints, to leverage regulatory investigative powers and facilitate evidence gathering before or during civil proceedings.

Coordinating criminal, administrative and civil strategies

Recent legal developments suggest that China’s response to corporate misconduct is becoming increasingly multi-layered, with criminal, administrative, and civil mechanisms operating in parallel.

A key trend in China is the broader application of criminal liability to misconduct within private and foreign-invested enterprises. Following the expansion of offences under Amendment XII, conduct such as management self-dealing, diversion of corporate opportunities, or operating competing businesses may face criminal scrutiny where it causes significant harm to the company. At the same time, administrative enforcement remains central: investigations under the AUCL continue to play a prominent role in cases involving commercial bribery or unfair competition and often help clarify the factual background of suspected misconduct. Civil litigation has also become an increasingly important avenue for companies seeking to recover losses arising from internal wrongdoing.

These developments underscore the importance of effective internal governance and compliance frameworks, including:

• clear anti-bribery and conflict-of-interest policies;
• oversight of business expenses and third-party engagements; and
• internal reporting mechanisms to detect misconduct at an early stage.

For enterprises operating in China, the increasing interaction between criminal, administrative, and civil mechanisms highlights the need for a proactive approach to managing internal misconduct risks. Companies are paying closer attention to governance structures, compliance controls, and internal investigation processes to mitigate potential exposure and respond effectively when issues arise.