Financing the Underfinanced: Online Lending in China

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Komati , Luiz A. References Publications referenced by this paper. An Overview and Survey Case Study. Deer , J. Mills , K. The State of Small Business Lending. Banking Disrupted. Lessions From Peer-to-Peer Lending. Freedman , G. Financing the Underfinanced Jiazhuo G. Wang , Hongwei Xu , Jun Ma. Data is the foundation of adequate risk assessment and risk management: internet finance companies often use big data processing, and mobile payment applications to enable them to underwrite loans.

FIs can gather data and they have been doing it for decades — no question about it. But today, the approach to qualifying entities and consumers for loans used for decades is no longer adequate mainly because of cheap technology, mobile, increased mobility, transforming employment frameworks, and changing consumer behavior. While growing internet and smartphone penetration coupled with the rise of FinTech has challenged incumbents to go digital and look to incorporate innovative technologies in the way they do their businesses, the newer, nimbler business models are looking to bridge the gap in the traditional lending ecosystem by serving the underserved, thin-file customer segments such as SMEs and unbanked customers.

In his recent article, called Anyone Can Lend! An explosion of cheap technology convinced platforms that if they gathered enough data—from cash flows to zip codes to likes on Facebook—they would be able to predict the future. Facebook alone tracks 98 personal data points for each of its 2.

Facebook has admitted that it tracks people around the internet, looking at what they are looking at. No particular service of Facebook is interesting on its own. Not only can Facebook collect transactional data to evaluate your profile as a prospect for financial products but the company can also overlay it with a variety of other types of data — social, in particular— to be able to sharpen the image about any actor in its ecosystem for risk assessment. Theoretically, Facebook has everything it needs to starts extending loans within its ecosystem.

In , Facebook was granted a patent for authorizing and authenticating a user based on their social network on Facebook. It matters who your Facebook friends are. If the average credit rating of these members is at least a minimum credit score, the lender continues to process the loan application. Otherwise, the loan application is rejected. There are very few obstacles for social media platforms to get close to lending, but one is particularly important. The Federal Trade Commission has made hints that if social media platforms were to use their data for loan criteria purposes, it could then regulate the companies as a consumer-reporting agency.

The FTC could also consider expanding what constitutes criteria as well — expanding the definition to include non-specific information, like social media patterns of people in a given area. Tech behemoths Google and Amazon are poised to put competitive pressure on traditional banks in the small-business lending arena.

Determinants of Borrowers' Default in P2P Lending under Consideration of the Loan Risk Class

Mills, who served as the 23rd Administrator of the US Small Business Administration SBA , believes that the tech giants would probably push to disrupt the market and deal a blow to established lenders. If you think about what Amazon already knows about its merchants, and then you think what Google knows about everybody who is buying and selling through its platform, one can imagine a world where they have much more information about both on the credit side but also on the small business itself.

Sellers have an assessable history with Amazon. Amazon has five million sellers on its platform, most of whom are SMEs. As Ms. Huang will be also CEO and Chairwoman of our Company, she has duties of loyalty and care to us under Delaware law when there are any potential conflicts of interests between our company and Wheat. We cannot assure you, however, that if conflicts of interest arise, she will act completely in our interests or that conflicts of interests will be resolved in our favor. In addition, Ms.

Huang could violate her employment agreement with us or her legal duties by diverting business opportunities from us to others. If we cannot resolve any conflicts of interest between us and Ms. Huang, as applicable, we would have to rely on legal proceedings, which could result in the disruption of our business. Although we have previously been able to attract financing as needed, such financing may not continue to be available at all, or if available, on reasonable terms as required. Furthermore, the terms of such financing may be dilutive to existing shareholders or otherwise on terms not favorable to existing shareholders or us.

If we are unable to secure additional financing, as circumstances require, or do not succeed in meeting our sales objectives, we may be required to change or significantly reduce our operations or ultimately may not be able to continue our operations. Because of our historical accumulated deficit in working capital, among others, our independent auditor has raised substantial doubt about our ability to continue as a going concern.

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The financial statements contained elsewhere in this prospectus do not include any adjustments that might result from our inability to consummate this offering or our inability to continue as a going concern. Our limited operating history makes it difficult to evaluate our business and prospects and we may not be able to adapt to the changing market condition. Wujiang Luxiang commenced operations in October and has a limited operating history. It is difficult to evaluate our prospects, as we may not have sufficient experience in addressing the risks to which companies operating in new and rapidly evolving markets such as the microcredit industry, may be exposed.

We will continue to encounter risks and difficulties that companies at a similar stage of development frequently experience, including the potential failure to:. If we are unable to address any or all of the foregoing risks, our business may be materially and adversely affected. PRC regulation of loans to, and direct investments in, PRC entities by offshore holding companies and the unauthorized transfer of certain funds by our former chief executive officer have prevented us from using the entire proceeds from our initial public offering to increase the registered capital of Wujiang Luxiang.

As an offshore holding company with PRC subsidiaries, we may transfer funds to our PRC subsidiaries or finance our operating entity by means of loans or capital contributions. Any loans to our PRC subsidiaries, which are foreign-invested enterprises, cannot exceed statutory limits based on the difference between the amount of our investments and registered capital in such subsidiaries, and shall be registered with SAFE, State Administration of Foreign Exchange, or its local counterparts.

The Company has not been able to recover the missing funds. Our current operations in China are geographically limited to the city of Wujiang. In accordance with the PRC state and provincial laws and regulations with regard to microcredit companies, we are not allowed to make loans and provide guarantees to businesses and individuals located outside of the city of Wujiang.

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Our future growth opportunities depend on the growth and stability of the economy in the city of Wujiang. If the Jiangsu government subsidy we currently receive from the Jiangsu government for loans to farmers is not renewed, we would suffer a loss of revenues. Pursuant to certain Jiangsu government policies on promotion of rural economic reform, the interest on loans to farmers is subsidized by the government.

We also received other types of government subsidies from Jiangsu government which are, among other things, intended to incentivize microcredit companies to establish and maintain strict financial operation systems. Applicants for these subsidies are required to apply for such subsidies annually. The standards for granting this subsidy is presently flexible and the number of applicants applying for such subsidies varies from year to year. In the event our application for such subsidy in the future is not granted or the funds we receive are reduced, we would suffer loss of revenues.

Changes in the interest rates and spread could have a negative impact on our revenues and results of operations. Our revenues and financial condition are primarily dependent on interest income, which is the difference between interest earned from loans we provide and interest paid to the lines of credit we obtain from other financial institutions. A narrowing interest rate spread could adversely affect our earnings and financial conditions.

If we are not able to control our funding costs or adjust our lending interest rate in a timely manner, our interest margin will decline. Due to the restriction that our interest rate cannot be higher than three times the PBOC Benchmark Rate pursuant to certain Jiangsu banking regulations released in October , if we have to reduce the interest rate we charge the borrowers to reflect the decrease of the PBOC Benchmark Rate, our interest rate spread will be negatively affected.

As a microcredit company, our business is subject to greater credit risks than larger lenders, which could adversely affect our results of operations. There are inherent risks associated with our lending and guarantee activities, including credit risk, the risk that borrowers may not repay the outstanding loans balances in our direct loan business or that we may not recover the full amount of the payment we made to the lender in our guarantee business.

As a microcredit company, we extend credits to SMEs, farmer and individuals. These borrowers generally have fewer financial resources in terms of capital or borrowing capacity than larger entities and may have fewer financial resources to weather a downturn in the economy. Such borrowers may expose us to greater credit risks than lenders lending to larger, better-capitalized state-owned businesses with longer operating histories.

Conditions such as inflation, economic downturn, local policy change, adjustment of industrial structure and other factors beyond our control may increase our credit risk more than such events would affect larger lenders. In addition, since we are only permitted to provide financial services to borrowers located in the city of Wujiang, our ability to geographically diversify our economic risks is limited by the local markets and economies.

Also, decreases in local real estate value could adversely affect the values of the real property used as collateral in our direct loan and guarantee business. Such adverse changes in the local economy may have a negative impact on the ability of borrowers to repay their loans and the value of our collateral and our results of operations and financial condition may be adversely affected.

Our allowance for loan losses may not be sufficient to absorb future losses or prevent a material adverse effect on our business, financial condition, or results of operations. Our risk assessment procedure uses historical information to estimate any potential losses based on our experience, judgment, and expectations regarding our borrowers and the economic environment in which we and our borrowers operate.

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However, our implementation of the measurements set forth in the Provision Guidance and the Jiangsu Financial Practices, especially the Five-Tier approach in making the specific reserve, may be deemed not in compliance with the applicable banking regulations. Our loan loss reserves may not be sufficient to absorb future loan losses or prevent a material adverse effect on our business, financial condition, or results of operations.

Increases to the provision for loan losses and provision on financial guarantee services will cause our net income to decrease.

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Our business is subject to fluctuations based on local economic conditions. These fluctuations are neither predictable nor within our control and may have a material adverse impact on our operations and financial condition. The regulatory authority may also require an increase in the provision for loan losses and provision on financial guarantee services or the recognition of further loan charge-offs, based on judgments different from those of our management.

Any increase in the provision for loan losses and provision on financial guarantee services will result in a decrease in net income and may have a material adverse effect on our financial condition and results of operations. We lack significant product and business diversification. Accordingly, our future revenues and earnings are more susceptible to fluctuations than a more diversified company.

Currently, our primary business activities include offering direct loans and providing guarantee services to our customers. If we are unable to maintain and grow the operating revenues from our business or develop additional revenue streams, our future revenues and earnings are not likely to grow and could decline.

Our lack of significant product and business diversification could inhibit the opportunities for growth of our business, revenues and profits. Competition in the microcredit industry is growing and could cause us to lose market share and revenues in the future. We believe that the microcredit industry is an emerging market in China.

We may face growing competition in the microcredit industry and we believe that the microcredit market is becoming more competitive as this industry matures and begins to consolidate. We currently compete with traditional financial institutions, other microcredit companies, and some cash-rich state-owned companies or individuals that lend to SMEs.

Some of our competitors have larger and more established borrower bases and substantially greater financial, marketing and other resources than we do. As a result, we could lose market share and our revenues could decline, thereby adversely affecting our earnings and potential for growth. If we fail to remediate the material weaknesses in our internal control over financial reporting that have been identified, we may be unable to accurately report our results of operations or prevent misstatements.

Investor confidence and the market price of our Common Stock may be materially and adversely affected. Prior to our IPO, we were a private company with limited accounting personnel and other resources with which to address our internal controls and procedures. Our independent registered public accounting firm is not required to and has not conducted an audit or assessment of our internal control over financial reporting. Qin, the then CEO of the Company.

Since Mr. Qin had the sole authority to approve fund transfers, there was a lack of checks and balances over transfers. Qin with misappropriating RMB 7 million. The Company retained a local law firm to assist the Company in following up with the Police Department with regard to the development of the case and collection of the missing funds. According to the PRC counsel, if the prosecutors agree to criminally indict Mr.

Qin, there will be an accompanying civil collection suit. If the prosecutors determined not to criminally indict Mr. Qin, then the Company will initiate a civil proceeding against Mr. Qin to collect such funds. The prosecutors have not notified the Company of their decision as of the date of this prospectus.

There is no assurance that we would be able to collect the missing funds, if any. As a result of the control deficiencies in the fund transfer procedure and other material weaknesses identified, the Company concluded its internal controls over financial reporting were not effective as of December 31, Such material weaknesses may result in our inability to accurately report our financial results or prevent material misstatements.

Our business depends on the continuing efforts of members of our management. If we lose their services, our business may be severely disrupted. Our business operations depend on the continuing efforts of members of our management. If one or more of our management were unable or unwilling to continue their employment with us, we might not be able to replace them in a timely manner, or at all.

We may incur additional expenses to recruit and retain qualified replacements. Our business may be severely disrupted and our financial condition and results of operations may be materially and adversely affected. In addition, members of our management team may join a competitor or form a competing company. We may not be able to successfully enforce any contractual rights we have with our management team, in particular in China, where all of these individuals reside and where our business is operated through Wujiang Luxiang through various VIE Agreements.

As a result, our business may be negatively affected due to the loss of one or more members of our management. We require highly qualified personnel and if we are unable to hire or retain qualified personnel, we may not be able to grow effectively. Our future success also depends upon our ability to attract and retain highly qualified personnel. Expansion of our business and our management will require additional managers and employees with industry experience, and our success will be highly dependent on our ability to attract and retain skilled management personnel and other employees.

We may not be able to attract or retain highly qualified personnel. Competition for skilled personnel is significant in China. This competition may make it more difficult and expensive to attract, hire and retain qualified managers and employees. We have no insurance coverage for our lending or guarantee business or our bank accounts, which could expose us to significant costs and business disruption.

We do not maintain any credit insurance, business interruption insurance, general third-party liability insurance, nor do we maintain key-man life insurance or any other insurance coverage except the mandatory social insurance for the employees of Wujiang Luxiang. If we incur any loss that is not covered by our loss reserve, our business, financial condition and results of operations could be materially and adversely affected.

We maintain our cash with various banks. Our cash accounts are not insured or otherwise protected. Should any bank or trust company holding our cash deposits become insolvent, or if we are otherwise unable to withdraw funds, we could lose the cash on deposit with that particular bank or trust company. Our financial leasing business is currently on hold.

We do not currently have further funds to deploy in the financial leasing business and plan to hold off expansion of the leasing business until otherwise determined by the management based on the economic environment and other considerations. Even if we decide to resume the financial leasing business, we may not be able to develop our financial leasing business as planned and generate significant revenues.

The revenue and income potential of our proposed financial leasing business is unproven and the lack of operating history makes it difficult to evaluate the future prospects of this business. We have no experience in the equipment leasing and financing business and our knowledge of the Chinese financial leasing market is limited. None of the PFL management has any prior experience in the operation or management of equipment financing and leasing.

Our knowledge of the Chinese financial leasing industry and market is very limited.

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We may not be able to work with equipment providers to successfully purchase qualified equipment identified by our customers on terms acceptable to us. We may not be able to establish sound financial modeling in the calculation of the interest rate and residual value. Such inexperience and lack of active knowledge may lead to failure of our financial leasing business.

Lack of knowledge of financial leasing benefits among potential customers may make it difficult for us to market our services. We may need to invest a tremendous amount of time and effort toward lease education so that potential customers can fully appreciate the flexibility leasing offers to deploy their assets.

Failure in such education may make it difficult for us to market our financial leasing services.

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A protracted economic downturn may cause an increase in defaults under our leases and lower demand for the commercial equipment we lease. A protracted economic downturn, similar to the one China experienced in recent years, could result in a decline in the demand for some of the types of equipment or services we finance, which could lead to a decline in originations. A protracted economic downturn may slow the development and continued operation of small commercial businesses, which is one of the primary markets for the commercial equipment leased by us.

In addition, a protracted downturn could result in an increase in delinquencies and defaults by our lessees and other obligors, which could have an adverse effect on our cash flow and earnings. These factors could have a material adverse effect on our business, financial condition and results of operations. Our allowance for lease credit losses may prove to be inadequate to cover future credit losses. We will maintain an allowance for credit losses on our leases, at an amount we believe is sufficient to provide adequate protection against losses on the leases. We cannot be sure that our allowance for credit losses will be adequate over time to cover losses caused by adverse economic factors, or unfavorable events affecting specific leases, industries or geographic areas.

Losses in excess of our allowance for credit losses may have a material adverse effect on our business, financial condition and results of operations. We are vulnerable to changes in the demand for the types of equipment we plan on leasing or price reductions in such equipment. Our leasing portfolio will be comprised of a wide variety of equipment including, but not limited to, public transportation vehicles such as subway cars, trains, buses, medical equipment, equipment used in textile production and agricultural equipment.

Reduced demand for financing of the types of equipment we lease could adversely affect our lease origination volume, which in turn could have a material adverse effect on our business, financial condition and results of operations. Technological advances may lead to a decrease in the price of these types of equipment and a consequent decline in the need for financing of such equipment. These changes could reduce the need for outside financing sources that would reduce our lease financing opportunities and origination volume in such products.

In the event that demand for financing the types of equipment that we lease declines, we will need to expand our efforts to provide lease financing for other products. We may face growing competition, which could cause us to lower our lease rates, hurt our origination volume and strategic position and adversely affect our financial results.

The Chinese financial leasing industry is becoming competitive in recent years. We will compete for customers with a number of international, national, regional and local banks and finance companies and financial leasing companies. Our competitors also include equipment manufacturers that lease or finance the sale of their own products. Our competitors include larger, more established companies, some of which may possess substantially greater financial, marketing and operational resources than us, including lower cost of funds and access to capital markets and other funding sources which may be unavailable to us.

If a competitor was to lower its lease rates, we could be forced to follow such trend or be unable to retain origination volume, either of which would have a material adverse effect on our business, financial condition and results of operations. If PFL were to lose key personnel, its operating results may suffer. The success of our financial leasing business depends to a large extent upon the abilities and continued efforts of senior management.

The loss of the services of one or more of the key members of our senior management before we are able to attract and retain qualified replacement personnel could have a material adverse effect on the development and success of our financial leasing business. Recently proposed accounting changes may negatively impact the demand for equipment leases. In September , the Boards reached tentative decisions regarding sale and leaseback transactions and other lease accounting issues. The Boards issued revised exposure draft in May , with a day comment period.

As part of the deliberation process, the Boards reviewed nearly comment letters and held public roundtable meetings and preparer workshops. A key issue raised by stakeholders in this process was the front-loading of expense recognition for lessees in the proposal. The Boards have tentatively agreed to change the expense recognition pattern and income statement presentation for certain leases.

If these accounting changes are adopted in a form that makes equipment leasing less attractive to small business owners, it could result in a reduction in the demand for equipment leases, and could have an adverse effect on our results of operations and financial condition. Risks Relating to Doing Business in China. PRC regulation of loans to, and direct investments in, PRC entities by offshore holding companies may delay or prevent us from using proceeds from financing activities to make loans or additional capital contributions to our PRC operating subsidiaries.

Any loans to our PRC subsidiaries, which are foreign-invested enterprises, cannot exceed statutory limits based on the difference between the amount of our investments and registered capital in such subsidiaries, and shall be registered with SAFE, or its local counterparts. Furthermore, any capital increase contributions we make to our PRC subsidiaries, which are foreign-invested enterprises, shall be approved by MOFCOM, or its local counterparts. We may not be able to obtain these government registrations or approvals on a timely basis, if at all. If we fail to receive such registrations or approvals, our ability to provide loans or capital to increase contributions to our PRC subsidiaries may be negatively affected, which could adversely affect our liquidity and our ability to fund and expand our business.

We are a holding company and all of our operations are entirely conducted in the PRC. Although the PRC economy has grown in recent years, such growth may not continue. A slowdown in overall economic growth, an economic downturn or recession or other adverse economic developments in the PRC may materially reduce the demand for our direct lending, guarantee and financial leasing services and may have a materially adverse effect on our business.

While the PRC economy has grown significantly over the past few decades, this growth has remained uneven across different periods, regions and economic sectors. Any actions and policies adopted by the PRC government could negatively impact the Chinese economy, which could materially adversely affect our business. Substantial uncertainties and restrictions with respect to the political and economic policies of the PRC government and PRC laws and regulations could have a significant impact upon the business we may be able to conduct in the PRC and accordingly on the results of our operations and financial condition.

Our business operations may be adversely affected by the current and future political environment in the PRC. The Chinese government exerts substantial influence and control over the manner in which we must conduct our business activities. Our ability to operate in China may be adversely affected by changes in Chinese laws and regulations. Under the current government leadership, the government of the PRC has been pursuing economic reform policies that encourage private economic activities and greater economic decentralization.

However, the government of the PRC may not continue to pursue these policies, or may significantly alter these policies from time to time without notice. There are substantial uncertainties regarding the interpretation and application of PRC laws and regulations, including, but not limited to, the laws and regulations governing our business, or the enforcement and performance of our arrangements with borrowers in the event of the imposition of statutory liens, death, bankruptcy or criminal proceedings.

Only after did the Chinese government begin to promulgate a comprehensive system of laws that regulate economic affairs in general, deal with economic matters such as foreign investment, corporate organization and governance, commerce, taxation and trade, as well as encourage foreign investment in China. Although the influence of the law has been increasing, China has not developed a fully integrated legal system and recently enacted laws and regulations may not sufficiently cover all aspects of economic activities in China.

Also, because these laws and regulations are relatively new, and because of the limited volume of published cases and their lack of force as precedents, interpretation and enforcement of these laws and regulations involve significant uncertainties. New laws and regulations that affect existing and proposed future businesses may also be applied retroactively. In addition, there have been constant changes and amendments of laws and regulations over the past 30 years in order to keep up with the rapidly changing society and economy in China. Because government agencies and courts provide interpretations of laws and regulations and decide contractual disputes and issues, their inexperience in adjudicating new business and new polices or regulations in certain less developed areas causes uncertainty and may affect our business.

Consequently, we cannot clearly foresee the future direction of Chinese legislative activities with respect to either businesses with foreign investment or the effectiveness on enforcement of laws and regulations in China. The uncertainties, including new laws and regulations and changes of existing laws, as well as judicial interpretation by inexperienced officials in the agencies and courts in certain areas, may cause possible problems to foreign investors.

Our microcredit business is subject to extensive regulation and supervision by state, provincial and local government authorities, which may interfere with the way we conduct our business and may negatively impact our financial results. We are subject to extensive and complex state, provincial and local laws, rules and regulations with regard to our loan and guarantee operations, capital structure, allowance for loan losses, among other things. These laws, rules and regulations are issued by different central government ministries and departments, provincial and local governments while enforced by different local authorities in the city of Wujiang.

In addition, it is not clear whether microcredit companies are subject to certain banking regulations the state-owned and commercial banks are subject to, including the regulation with regard to loan loss reserves. Therefore, the interpretation and implementation of such laws, rules and regulations may not be clear and occasionally we have to depend on oral inquiries with local government authorities.

As a result of the complexity, uncertainties and constant changes in these laws, rules and regulation, including changes in interpretation and implementation of such, our business activities and growth may be adversely affected if we do not respond to the changes in a timely manner or are found to be in violation of the applicable laws, regulations and policies as a result of a different position from ours taken by the competent authority in the interpretation of such applicable laws, regulations and policies.

Lack of financial leasing regulations could negatively impact our business. Currently, there is no uniform equipment title registration process and system in China, as each municipality adopts different procedures. Loss of ownership to the leased equipment will have a negative effect on our financial position. We did not make any contributions within the three-month period since we expected to fund such contribution with the proceeds from the follow-on offering. In October , we contributed substantially all of the net proceeds raised in the follow-on offering to the registered capital requirement of PFL.

In addition, the new PRC Company Law that became effective on March 1, , radically changed the registered capital requirements, including deleting the requirement to contribute the registered capital within certain time frames and the minimum registered capital requirement. However, it is unclear whether PFL will be subject to the loosened registered capital requirements under the new PRC Company Law and, as a result, be exempted from contributing the remainder of the registered capital within two years after the business license is granted.

All of our current officers and almost all of our directors reside outside the United States and most of the assets of those persons are located outside of the United States. It may be difficult for the stockholders to conduct due diligence on the Company or such directors in your election of the directors and attend shareholders meeting if the meeting is held in China.

We plan to have one shareholder meeting each year at a location to be determined, potentially alternating between United States and China. As a result of all of the above, our public shareholders may have more difficulty in protecting their interests through actions against our management, directors or major shareholders than would shareholders of a corporation doing business entirely or predominantly within the United States. Stockholders may experience difficulties in affecting service of legal process, enforcing foreign judgments or bringing original actions in China based upon United States laws, including the federal securities laws or other foreign laws against us or our management.

Substantially all of our operations are conducted in China, and all of our assets are located in China. A majority of our officers are nationals or residents of the PRC and a substantial portion of their assets are located outside the United States. As a result, Dacheng Law Firm, our counsel as to PRC law, advised us that it may be difficult for a shareholder to effect service of process within the United States upon these persons, or to enforce judgments against us which are obtained in United States courts, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States.

PRC courts may recognize and enforce foreign judgments in accordance with the requirements of the PRC Civil Procedures Law based either on treaties between China and the country where the judgment is made or on principles of reciprocity between jurisdictions. China does not have any treaties or other form of reciprocity with the United States that provide for the reciprocal recognition and enforcement of foreign judgments. In addition, according to the PRC Civil Procedures Law, courts in the PRC will not enforce a foreign judgment against us or our directors and officers if they decide that the judgment violates the basic principles of PRC laws, national sovereignty, security or public interest.

As a result, it is uncertain whether and on what basis a PRC court would enforce a judgment rendered by a court in the United States. Dacheng Law Firm also advised us that in the event that shareholders originate an action against a company without domicile in China for disputes related to contracts or other property interests, the PRC courts may accept a course of action if a the disputed contract was concluded or performed in the PRC, or the disputed subject matter is located in the PRC, b the company as defendant has properties that can be seized within the PRC, c the company has a representative organization within the PRC, d the parties choose to submit to jurisdiction of the PRC courts in the contract, or e the contract is executed or performed within the PRC.

The action may be initiated by the shareholder through filing a complaint with the PRC courts. The shareholder may participate in the action by itself or entrust any other person or PRC legal counsel to participate on behalf of such shareholder. Foreign citizens and companies will have the same right as PRC citizens and companies in an action unless such foreign country restricts the rights of PRC citizens and companies.