I INTRODUCTION

In mainland China, the Civil Aviation Law (CAL) is the main law regarding civil aviation. The CAL was issued by the Standing Committee of the National People's Congress and came into effect on 1 March 1996, and has general binding force. All 215 articles of the CAL are categorised in 16 chapters.

Other laws, such as the General Principles of the Civil Law, the Contract Law, the Corporate Law, the Tort Liability Law and the Criminal Law, as well as administrative regulations by the State Council and ministerial regulations by ministries and commissions of the State Council, are also important rules to which the civil aviation activities shall be subject.

The aforementioned normative laws and regulations together constitute China's civil aviation legal system.

i Civil aviation regulatory regime

As per the authorisation of the CAL and the State Council, the Civil Aviation Administration of China (CAAC) under the Ministry of Transport is the competent authority in civil aviation, responsible for:

  1. the development, implementation and supervision of strategy and planning of civil aviation industry development;
  2. the drafting of relevant laws, regulations, policies and standards;
  3. supervisions on air transport and general aviation market, civil aviation safety and ground safety, civil airport construction and safe operation;
  4. civil air traffic management; and
  5. civil aviation emergency response.

Under the CAAC, there are seven regional administrations (RAs) in China, namely in the north, east, north-east, north-west, south-west, central and southern, and Xinjiang RAs, responsible for regional issues as authorised by the CAAC.

ii Market access

China's domestic investment can go towards areas such as public air transportation, general aviation (GA), civil airports and air traffic management systems. As with some sectors, aviation enterprises shall be wholly state-owned or state-controlled (including relatively controlled). For example, Air China, China Southern Airlines and China Eastern Airlines shall remain wholly state-owned or state-controlled.

Foreign investments shall comply with Chinese laws and regulations as well as rules and policies established by related ministries and commissions of the central government, such as the Catalogue of Industries for Guiding Foreign Investment, published by the Ministry of Commerce (MOFCOM) in 2017 (the Catalogue, which may be amended from time to time) and Special Administrative Measures for Foreign Investment Access (the Negative List, which may be amended from time to time), published by the National Development and Reform Commission (NDRC) and MOFCOM. As per the Negative List, the special administrative measures for foreign investment in the aviation industry are as follows:

  1. Public air transport companies must be controlled by Chinese entities, and a single foreign investor and its affiliates shall not hold more than 25 per cent of the equity. The legal representative must be a citizen of Chinese nationality.
  2. The legal representative of a general aviation company must be a citizen of Chinese nationality. The general aviation companies for agriculture, forestry and fishery are limited to joint venture operations, and in relation to others, with Chinese parties as the controlling shareholders.
  3. The construction and operation of civil airports must be controlled by Chinese parties.
  4. Investment in air traffic control is prohibited.

The areas other than the Negative List are administered under the consistency principle for domestic and foreign investment.

iii Slots

The Methods for Management of Civil Aviation Slots, which came into effect on 1 April 2018, is the latest CAAC regulation over slots management in China. According to the Methods, the CAAC and RAs are responsible for specific coordination, allocation and supervision over the use of slots. The Methods also specify exchange and swap of slots, code sharing, joint operation, transfer, voluntary return and revocation of slots.

iv Treaty-based commitments regarding transit and traffic rights

Regarding transit and traffic rights, China joined the Convention on International Civil Aviation (the Chicago Convention) and the International Air Services Transit Agreement in 1994.

v Interests in aircraft equipment

China has joined the Cape Town Convention. Also, as per Chinese law, rights in aircraft (including civil aircraft structure, engines, propellers, radio devices and any other equipment therein) include rights of ownership, possession and mortgage as well as lien, which applies to claims for compensation for the rescue and salvage of the aircraft and claims for costs for the preservation and maintenance of aircraft. The CAAC shall be in charge of the work of the registration of rights in civil aircraft.

The relevant finance parties may also register their rights with the Ministry of Commerce, or the People's Bank of China (if applicable).

vi Government policy and state aid

As per the Interim Measures for the Collection, Use and Management of the Civil Aviation Development Fund by the Ministry of Finance of China, which became effective from 1 April 2012, such aviation development fund shall be collected from passengers taking flights in China as well as air transport enterprises registered and established within the territory of China and engaged in passenger and cargo transport business with China's air route resources and GA enterprises engaged in business flights. Such fund would be used in the construction of civil aviation infrastructure, regional aviation and GA development, civil aviation's energy conservation and emission reduction, research and development of key science and technology regarding civil aviation, etc.

In recent years, with the expansion of the application of the public-private partnership mechanism in public services and infrastructure construction, promoted by the NDRC, the market access for the construction and operation of the civil aviation airport has been further liberalised, and more social capital has been encouraged to engage with this area, which was previously mainly invested in by the government or state-owned enterprises.

vii Labour and employment issues

There are no specific stipulations in the CAL regarding labour and employment issues, which shall be subject to China's Labour Law, the Labour Contract Law and its Implementation Regulations. For temporary, auxiliary or substituting positions, employees could be sent to airports or airlines by labour dispatch.

II LEGAL FRAMEWORK FOR LIABILITY

The responsibilities of the public aviation transport carrier and the actual carrier are stipulated in Chapter IX, Sections 3 and 4 of the CAL. As per the CAL, a carrier should assume liability for casualties among the passengers owing to accidents on the aircraft or during their boarding or alighting. The carrier is not liable for casualties arising entirely from health reasons on the part of passengers. A carrier should assume liability for the destruction of cargo resulting from accidents during the flight. But the carrier is not liable for the destruction, loss of or damage to cargo if the loss or damage can be proved as entirely having resulted from certain factors.

Liabilities for damages to third parties on the ground are stipulated in Chapter XII of the CAL. As per the CAL, the victims of personal injury or death, or loss of property on the ground (including water surface) caused by in-flight civil aircraft or falling people or things from in-flight aircraft have the right to acquire indemnity for the damages, unless the injury or damage is not a direct result of such accident, or it is only a result of the passage of the aircraft in conformity with the state rules of air traffic.

In addition, in 1959, China joined the Convention for the Unification of Certain Rules for International Carriage by Air signed at Warsaw on 12 October 1929 (the Warsaw Convention), and in 2005 China joined the Convention for the Unification of Certain Rules for International Carriage by Air signed at Montreal on 28 May 1999 (the Montreal Convention).

i International carriage

China is a party to the following multilateral agreements relating to international carriage: the Convention on International Civil Aviation, the Warsaw Convention and its Hague Protocol, and the Montreal Convention.

In the CAL it stipulates that, as to international carriage, where contradiction appears between the CAL and the international treaties to which China is a signatory or party, provisions of international treaties shall prevail, except those on which China has made reservations.

ii Internal and other non-convention carriage

Non-convention carriage responsibilities shall be subject to those provisions regarding international transportation in the CAL and bilateral agreements by and between China and the foreign country.

iii General aviation regulation

Civil liability

For GA, the CAL only provides the civil liability for the damages of the third party on the ground caused by aircraft (including GA aircraft), and administrative and criminal responsibilities for violation of laws and endangering flight safety.

As per Article 71 of the Tort Liability Law, where a civil aircraft causes any harm to another person, the operator of the civil aircraft shall assume the tort liability, whether or not he or she is the passenger or the third party on the ground.

Administrative liability

The General Operating and Flight Rules (CCAR-91-R3) by the CAAC provide regulations on general operation and flight of civil aircraft (including rotorcraft and microlight aircraft), covering airworthiness, flight rules, maintenance, equipment, instrumentation and certification, forestry-spraying operations, etc. And as per the Rules, in the case of violation of the Rules, the CAAC has the right to order the immediate cessation of the violating activities and impose penalties such as a warning, fine, temporary suspension or revocation of licences, or a combination of these penalties.

iv Passenger rights

Regarding compensation for flight delays, in accordance with Article 126 of the CAL, the carrier should assume liability for the losses to passengers, baggage or cargo caused by delays in the air transport. But the carrier will not be liable if there is evidence that necessary measures to avoid the losses were taken by the carrier or its employees or agents, or that it is impossible to take such measures (such as those caused by bad weather or air traffic control).

The Regulations on the Management of Flight Regularity, which came into effect on 1 January 2017, apply to all Chinese carriers and foreign carriers departing from mainland China airports or with stopovers at the airports of mainland China. The Regulations set out airlines' obligations on maintaining flight regularity and providing necessary services and support to passengers in case of flight delays or cancellations. Carriers shall clarify their service contents in case of flight delays or cancellations in their General Conditions of Carriage.

In terms of the carriage of disabled persons, according to the Measures of Air Transportation of Disabled Passengers by the CAAC Transportation Department, the carrier must not refuse to carry a disabled passenger who meets the requirements for boarding, on the basis that his or her appearance or involuntary behaviour owing to his or her disability is likely to cause offence, annoyance or inconvenience to the crew or other passengers, unless otherwise stipulated in the law or for safety reasons.

Carriers, airports and airport ground service agents are required to provide necessary assistance and equipment at the terminal buildings and in the cabin. In particular, service dogs are allowed to accompany disabled passengers during the flight.

v Other legislation

As per the General Principle of the Civil Law and the Environmental Protection Law, those who cause environmental pollution shall undertake to eliminate such pollution and provide compensation to those who have suffered harm as a result of it. And according to the Law on Prevention and Control of Pollution from Environmental Noise, with the exception of take-off, landing or other situations as provided for by law, no civil aircraft may fly over urban areas of cities. The civil aviation departments shall take effective measures to mitigate environmental noise pollution. Those suffering from the hazards of environmental noise pollution shall have the right to demand the polluter to eliminate the hazards; if a loss has been caused, it shall be compensated.

As per the Consumer Rights Protection Law, where business operators (i.e., air carriers) knowingly provide defective goods or services for consumers, causing the death of, or serious health damage to, the consumers or other victims, the victims shall be also entitled to demand punitive damages of up to twice the losses suffered.

According to the Cybersecurity Law, network operators (e.g., an airline company that has its own booking website) shall not divulge, tamper with or damage the personal information they have collected, and shall not provide the personal information to others without the consent of the persons whose data is collected. However, a circumstance where the information has been processed and cannot be recovered, and thus it is impossible to match such information with specific persons, would be an exception.

III LICENSING OF OPERATIONS

i Licensed activities

To set up a public air transportation enterprise, the applicant must firstly obtain the authorisation of preparations for establishment and within two years thereafter, apply for the AOC from the CAAC before it gets its company business licence from the Administration for Industry and Commerce and starts the formal operation.

To set up a GA enterprise, the applicant must apply to an RA for an AOC for general aviation and apply to the local Administration for Industry and Commerce for its company business licence. As to GA operations requirements, the GA enterprise must be a legal person, the legal representative must be a Chinese citizen and the staff chiefly in charge shall have appropriate aviation expertise. The registered capital must comply with relevant laws and regulations and the equity fund for the GA enterprise to purchase aircraft (including facilities and equipment) must meet certain requirements (e.g., 50 million yuan for enterprises undertaking business aviation). It must have two or more airworthy aircraft registered in China and have qualified personnel, airport, facilities and equipment.

Services operated by an established public air transportation/GA enterprise requiring a licence include operation qualification of carriers, scheduled and unscheduled domestic and international air transportation, dangerous goods transportation, airport construction and operation.

In addition, based on the overall economic situation of China's civil aviation industry, the CAAC might promulgate regulatory measures over market access for a certain period of time, controlling the number of newly established aviation enterprises by raising more specific requirements.

ii Ownership rules

The Civil Aircraft Nationality Registration Ordinance of China and the Regulations on the Civil Aircraft Nationality Registration provides that civil aircraft owned by Chinese state institutions, Chinese corporations and individuals must be registered in China. Civil aircraft must not have dual nationality, and civil aircraft nationality registration must not be used as evidence of ownership.

For ownership registration, the following documents are required:

  1. the individual identification or business certificate;
  2. the nationality registration certificate; and
  3. documentary proof that the ownership has been obtained.

iii Foreign carriers

As per the Provisions on Licensing the Operation of Flight Routes by Foreign Air Transport Enterprises, if a foreign airline applies to operate a prescribed flight route between a foreign location and a location in China, it must comply with the bilateral civil air transport agreement, and must be first designated by the government of its home country through diplomatic channels, except as otherwise provided. After that, the foreign airline must apply to the CAAC for the AOC.

After the AOC is obtained and before the actual operation, the airline must:

  1. obtain the Operating Norms for Foreign Air Transportation Carrier, as approved by the CAAC;
  2. file for record with the CAAC its security plan; and
  3. apply for slots and the price.

As to the unscheduled flights between locations in the foreign country and China, the foreign airline must obtain the AOC and get examination and approval as per the Rules on the Examination and Approval of the Operation Certification of Foreign Public Air Transportation Carriers (CCAR-119TR-R1).

In addition, foreign airlines may not engage in scheduled or unscheduled flights between two locations in China, unless for very special reasons such as rescue and relief and as approved by the CAAC.

IV SAFETY

i Incident reporting

According to the Regulations on the Reporting, Investigation and Disposition of Work Safety Accidents by the State Council, the Regulations on the Investigation into Civil Aircraft Flight Accidents and Incidents and the Regulations on the Investigation Schedule on Civil Aircrafts Incidents by the CAAC, where such incident takes place, it must be immediately reported to the relevant government departments (including the Work Safety Administration Departments and the RAs) and the police, the worker's union and the People's Procuratorate. Contingency plans must be triggered and efficient measures must be taken to prevent the accident from escalation and reduce casualties and property losses.

Afterwards, investigations must be made in a timely manner and accurately, in order to find out the truth, the reason and the loss, to summarise lessons from the accident and to propose corrective measures. Investigation into extraordinary serious accidents shall be undertaken by the State Council or its authorised department.

ii Airworthiness and maintenance

As outlined in the Regulations for the Administration of the Airworthiness of Civil Aircraft, all units or individuals that are engaged in the designing, manufacturing, use and maintenance of civil aircraft (including aircraft engines and propellers, and the same hereinafter) within China, all units or individuals that export civil aircraft to China, and all units or individuals that perform outside China maintenance services to aircraft registered in China, must abide by these Regulations. For example, with regard to the export and import of aircraft, a certificate of airworthiness for export or import must be obtained from the CAAC beforehand. As to the use of aircraft, the certificate of airworthiness issued by the CAAC must be obtained before its use, in which the type of civil aircraft, validity period, safety requirements and other conditions and restrictions are stated.

V INSURANCE

As to the insurance, the CAL only stipulates that liability insurance for the third party on the ground is universally required. In addition, other regulations require other insurance for different types of operators, for example:

  1. hull insurance, hull risk insurance and legal liability insurance are required for those carriers or operators undertaking international air transportation, according to the Regulation on Scheduled International Air Transportation; and
  2. hull insurance and legal liability insurance are required for those foreign operators undertaking unscheduled air transportation of passengers, baggage, cargo and mail, according to the Detailed Rules for the Business Licensing for Non-scheduled Flights of Foreign Air Transport Enterprises.

There is no circumstance under which the insurance obligation could be exempted except if similar government indemnity is provided and considered acceptable by the CAAC.

Generally, a certificate of insurance would be used as the proof of insurance, whether the original or a photocopy consistent with the original. But copies of the insurance policies may also be required at the sole discretion of the competent authorities.

VI COMPETITION

The Antimonopoly Law (AML) is the special law regulating monopolistic activities. The State Administration for Market Supervision (SAMS) is responsible for the enforcement of the AML.

Where the concentration of business operators satisfies a certain threshold, they must file an application to the SAMS for approval.

The competing business operators are prohibited from reaching monopoly agreements that may eliminate or restrict competition. But a monopoly agreement can be exempted if it falls into certain categories, such as improvement of technology, quality and efficiency. The SAMS proactively, and on its own initiative, investigate business operations they suspect may be monopolistic. Those who undertake monopoly agreements may face severe punishment if they cannot be exempted according to law.

In terms of monopolistic behaviours, only administrative responsibilities and civil liability can be imposed, but no criminal liability. However, those who refuse or hinder the investigation by the antimonopoly law enforcement agencies may be held criminally responsible.

VII WRONGFUL DEATH

Where the victim suffers bodily injury or death, the liable party shall pay for the funeral expenses, the living expenses of the persons in need of the victim's maintenance and upbringing, the death compensation expenses, the traffic expenses and accommodation expenses paid by the victim's relatives for funeral matters, compensation for psychological damages and their loss of income resulting from missed working time, and other reasonable expenses. The death compensation shall be based on the average annual disposable income of the urban residents or net income of the rural residents in the previous year at the locality of the court seized of the case.

VIII ESTABLISHING LIABILITY AND SETTLEMENT

i Procedure

In China, aviation-related disputes are solved by litigation or arbitration (where a binding arbitration agreement exists) according to the Civil Procedure Law and the Arbitration Law. In the case of litigation, such disputes are to be filed with normal courts (e.g., there is no special court for civil aviation as there is for maritime-related disputes). Generally speaking, a first-instance trial takes place and any party that disagrees with the first-instance judgment can file an appeal with the superior court. The second-instance judgment is the final judgment. Normally, the first-instance trial shall take place within six months, which can be extended by another six months in special cases, and the second-instance trial should last no longer than three months.

In the case of arbitration, an arbitration award is final and binding. The timelines of arbitrations are subject to rules of the arbitration organisation.

The limitation of action, as per the CAL, is two years, counting from the day of arrival of the aircraft, or its scheduled arrival, or the termination of the shipment. The compensation claim time limit for injury and damages of the third person on the ground is two years, counting from the day the injury or damage occurs, and it should not exceed three years under any circumstances. With regard to other types of action that are outside the ambit of the CAL, the time limitation shall be three years generally, according to the General Provisions of the Civil Law, which came into effect as of 1 October 2017.

ii Carriers' liability towards passengers and third parties

Regarding damage to the third person on the ground, the operator shall be responsible. The registered owner shall be deemed to be the operator, unless proved otherwise. Employees or agents shall not be responsible, unless they are proved to have caused the damages intentionally. In addition, the third person could file the lawsuit against the insurer or guarantor if the operator is bankrupted.

Carriers' liability towards passengers is strict liability. A carrier should assume liability for casualties among the passengers owing to accidents on the aircraft or during their boarding or alighting, unless the casualties arise entirely from health reasons on the part of passengers or their intention. A carrier should assume liability for the destruction, loss or damage of the carry-on articles of passengers owing to accidents on the aircraft or during their boarding or alighting, unless they have resulted entirely from the natural properties, quality or defects itself.

As to the limitation of liabilities, for domestic transportation, the liability limitation for passengers is 400,000 yuan per passenger, 3,000 yuan for carry-on baggage and 100 yuan per kilogram for cargo; and for international transport, the liability limitation for passengers is 16,600 special drawing rights (SDR) per passenger, 17 SDR per kilogram for cargo and 332 SDR for carry-on baggage.

The liability for the injury or damages to the third person on the ground is also strict. The victims of personal injury or death or loss of property on the ground (including water surface) caused by in-flight civil aircraft or falling people or things from in-flight aircraft have the right to acquire indemnity for the damages, unless it is not a direct result of the accident responsible for the injury or damage, or it is only a result of the passage of the aircraft in the air in conformity with the state rules of air traffic. There is no such liability limitation.

Normally, the carrier bears civil liability. However, if extraordinary loss or casualty has been caused because of intention or significant negligence of the carrier or its employee, they may be held criminally liable.

iii Product liability

Product liabilities are mainly stipulated in the General Principles of Civil Law, the Product Quality Law and the Tort Liability Law. Under these laws, the manufacturer is obliged to compensate for injury or damage arising from defective products. Therefore, in air transport, if the loss of or damage to the passengers or the aircraft owner or operator resulted from the defect of the aircraft or its parts, the manufacturer of the aircraft or its parts shall be responsible for compensation. In addition, if the manufacturer knows of the defect and still sells the aircraft or part to the owner, the owner or the passenger could request punitive compensation, the standard of which is yet to be stipulated by law.

iv Compensation

For loss of or damage to property, the liable party shall compensate the loss.

For personal injury, the liable party shall compensate medical expenses, loss of income, nursing care, necessary transportation and accommodation, and nutrition fees, etc.

Where the victim becomes disabled because of an injury, the liable party shall pay the compensation for disability, expenses of aid for disability, the living expenses of the person in need of his or her maintenance and upbringing, the necessary healing expenses that actually occurred for healing and nursing, continuing treatment, nursing expenses, and the follow-up treatment expenses.

Compensation for spiritual damages shall also be paid, but the amount will be subject to court decision.

Thus, factors that influence the level and amount of the compensation include the severity of injury, the victim's income and the living standards where the victim lives.

Furthermore, for those injured or deceased victims who have paid social insurance in China (social medical insurance included), they can get compensation from China's social insurance fund, which shall be entitled to recovery from any liable third party.

IX DRONES

The CAAC has promulgated a series of regulations and normative documents to implement better overall management of drone operations, including the Regulations on Real-name Registration of Civil Unmanned Aerial Vehicles, Management Procedures for Trial Operation of Specific Types of UAVs (Interim), etc, in which the real-name registration system for drones has been established and training for drone operators and certification management has been carried out.

To provide a legislative framework for the supervision of drones, the Civil Aviation Law was amended on 29 December 2018 with the addition of Article 214, authorising the State Council and the Central Military Commission to develop dedicated regulations for drones.

X THE YEAR IN REVIEW

In the past year, some events of far-reaching significance have taken place, in particular the following:

  1. The CAAC is encouraging the development of GA and a series of regulations regarding the development of GA were revised or issued in 2018 to simplify the airworthiness approval procedures, streamline the application procedures for the approval of commercial transport operation of small aircraft and reduce certain requirements.
  2. On 12 October 2018, the CAAC reissued a special paper on low-altitude airspace, the Overall Plan for the Development of Low-Altitude Flight Service Support System, to resolve current issues in low-altitude airspace management. These include the construction of low-altitude flight service support systems, the upgrading of service support capacity, and effective development and utilisation of low-altitude airspace.
  3. The revised Regulations on the Allocation and Use of International Aviation Rights Resources were implemented on 1 October 2018. The revised Regulations clarify that international routes are clarified as Class1 or Class 2. Different conditions are imposed on different air routes. On Class 1 international routes, the Regulations do not limit the number of designated carriers, flight schedules, operating frequencies or capacity arrangements. Competition will be gradually introduced into Class 2 international long-haul passenger routes. For Class 2 international long-haul passenger routes already operated by existing air transport enterprises, a new carrier can be added only if required standards are met. This will gradually break the monopoly of one carrier for one long-haul international route and encourage more carriers to fly these routes.
  4. The Programme of Flight Slot Resource Allocation for Operation Transfer to Beijing Daxing International Airport and Beijing 'One City Two Airports' Operation and the Programme of Resource Coordination during the Phase of Operation Transfer of the 'Two Airports in One City' of Beijing, issued on 3 January 2019, have planned the operation of the 'Two Airports in One City' scheme for Beijing. Chinese and foreign airlines that are willing to be transferred to Daxing International Airport according to the requirements will be given priority to adjust the slots structure and obtain new slots accordingly, so as to encourage airlines to transfer to Daxing International Airport as soon as possible.

XI OUTLOOK

In the near future, special attention should be paid to the following:

  1. In order to become more open to the rest of the world, actively promote foreign investment, protect the legitimate rights and interests of foreign investors, and regulate the administration of foreign investment, the 13th National People's Congress passed the Foreign Investment Law on 15 March 2019. The Law will take effect on 1 January 2020 and will replace the three currently effective laws on foreign investment, namely the Law on Chinese-Foreign Equity Joint Ventures, the Law on Wholly Foreign-Owned Enterprises and the Law on Chinese-Foreign Contractual Joint Ventures. The State Council plans to amend relevant supporting regulations and policies to ensure the implementation of the Law.
  2. The Ministry of Transport is drafting the Transport Law as the fundamental and comprehensive law regulating transport activities.

Footnotes

1 Gao Feng is a senior partner at Grandall Law Firm (Beijing).