The Aviation Law Review: China

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. The 215 articles of the CAL are categorised into 16 chapters.

Other laws, such as the Civil Code of the PRC, the Corporate 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 (MOT) is the competent authority in civil aviation responsible for:

  1. the development, implementation and supervision of strategy and the planning of civil aviation industry development;
  2. the drafting of relevant laws, regulations, policies and standards;
  3. supervision of the air transport and general aviation (GA) 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, which are responsible for regional issues as authorised by the CAAC.

ii Market access

The Foreign Investment Law and its implementing regulations came into effect as of 1 January 2020. This Law and its implementing regulations have strengthened the principles of promoting and protecting foreign investment generally in China, which may also have an impact on investment in the aviation industry.

China's domestic investment can go towards areas such as public air transportation, 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 Encouraged Foreign Investment (Year 2020) (which came into effect as of 27 January 2021) and Special Administrative Measures for Admission of Foreign Investment (Year 2020) (the Negative List, which may be amended from time to time), both published by the National Development and Reform Commission (NDRC) and Ministry of Commerce (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 GA company must be a citizen of Chinese nationality. The GA 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; and
  4. foreign investment in air traffic control is prohibited.

Areas other than those on the Negative List are administered under the consistency principle for domestic and foreign investment. Based on the same principle, the Provisions on Foreign Investment in the Civil Aviation Industry and its six supplementary provisions were abolished by the MOT, NDRC and MOFCOM on 30 December 2020.

iii Slots

The Methods for Management of Civil Aviation Slots, which came into effect on 1 April 2018, comprise the latest CAAC regulation over slots management in China. According to the Methods, the CAAC and RAs are responsible for the specific coordination, allocation and supervision of the use of slots. The Methods also specify the 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. In addition, 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 an 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, aviation development funding 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. The fund will be used in, inter alia, 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.

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, market access for the construction and operation of a 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.

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 passengers owing to accidents on an 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 a flight. However, 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 damage 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 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 (Warsaw Convention), and in 2005 joined the Convention for the Unification of Certain Rules for International Carriage by Air signed at Montreal on 28 May 1999 (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 a contradiction appears between the CAL and the international treaties to which China is a signatory or party, the 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 a foreign country.

iii General aviation regulation

Civil liability

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

As per Article 1238 of the Civil Code of the PRC, 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. However, if it can be proved that the damage was caused intentionally by the victim, the operator shall not be liable.

Administrative liability

The General Operating and Flight Rules (CCAR-91-R3) of the CAAC provide regulations on the general operation and flight of civil aircraft (including rotorcraft and microlight aircraft) covering, inter alia, airworthiness, flight rules, maintenance, equipment, instrumentation and certification, and forestry-spraying operations. And, as per the Rules, in the case of a 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 air transport. However, 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 the case of flight delays or cancellations. Carriers shall clarify their service contents in the event 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 terminal buildings and in the cabin. In particular, service dogs are allowed to accompany disabled passengers during a flight.

v Other legislation

As per the Civil Code of the PRC 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 takeoff, 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, consumers or other victims, 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.

Licensing of operations

i Licensed activities

To set up a public air transportation enterprise, an applicant must first obtain an authorisation of its preparations for establishment and, within two years thereafter, apply for an air operator's certificate (AOC) from the CAAC before it gets its company business licence from the State Administration for Market Regulation (SAMR) and starts formal operations.

To set up a GA enterprise, the applicant must apply to an RA for an AOC for GA and apply to the local SAMR for its company business licence. As to GA operation 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. It must have two or more airworthy aircraft registered in China and have qualified personnel, facilities and equipment.

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

ii Ownership rules

The Civil Aircraft Nationality Registration Ordinance of China and the Regulations on the Civil Aircraft Nationality Registration provide 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.

In December 2020, according to Article 12 of the Decision of the State Council on Amending and Abolishing Some Administrative Regulations (State Council Decree No. 732, 2020), the Regulations of the People's Republic of China on Registration of Civil Aircraft Nationality deleted the special requirements for civil aircraft nationality registration by enterprises involving foreign capital.

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 an AOC.

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

  1. obtain the operating norms for foreign air transportation carriers, as approved by the CAAC;
  2. file its security plan for the record with the CAAC; and
  3. apply for slots and the price.

As to unscheduled flights between locations in the foreign country and China, the foreign airline must obtain an AOC and get an 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.

Safety

i Incident reporting

According to the Regulations on the Reporting, Investigation and Disposition of Work Safety Accidents by the State Council and the Provisions on Civil Aircraft Incident Investigation (CCAR-395-R2) of the CAAC, where an 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 to find out the truth, the reason and the loss, to summarise lessons from the accident and to propose corrective measures. Investigations 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.

Insurance

As to insurance, the CAL only stipulates that liability insurance for a 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 proof of insurance, whether the original or a photocopy consistent with the original. However, copies of insurance policies may also be required at the sole discretion of the competent authorities.

Competition

The Antimonopoly Law (AML) is the special law regulating monopolistic activities. The SAMR is responsible for the enforcement of the AML and has been promoting the revision of the AML in recent years. Monopolistic activities stipulated in the AML include monopolistic agreements between undertakings; abuse of dominant market position by undertakings; and a concentration of undertakings that has or may have an effect of eliminating or restricting competition. The SAMR proactively, and on its own initiative, investigates business operations it suspects may be monopolistic. Those who undertake monopoly behaviour may face severe punishment if they cannot be exempted according to law.

Administrative responsibilities and civil liability can be imposed for monopolistic behaviour, but no criminal liability. However, those who refuse to comply with or hinder an investigation by the antimonopoly law enforcement agencies may be held criminally responsible.

Wrongful death

Where a victim suffers bodily injury or death, the liable party shall pay for:

  1. the funeral expenses;
  2. the living expenses of the persons in need of the victim's maintenance and upbringing;
  3. the death compensation expenses;
  4. the traffic expenses and accommodation expenses paid by the victim's relatives for funeral matters, compensation for psychological damage and their loss of income resulting from missed working time; and
  5. 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.

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, disputes are to be filed with normal courts (e.g., there is no special court for civil aviation as there is for maritime 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 damage of a 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 Civil Code of the PRC.

ii Carriers' liability towards passengers and third parties

Regarding damage to a 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 damage intentionally. In addition, the third person could file a 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 themselves.

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 kilogramme for cargo; and for international transport not governed by relevant international treaties, the liability limitation for passengers is 16,600 special drawing rights (SDR) per passenger, 17 SDR per kilogramme for cargo and 332 SDR for carry-on baggage.

Liability for an injury or damage to a third person on the ground is also strict. 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 damages, unless they are not a direct result of the accident responsible for the injury or damage, or they are 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 have been caused because of intentional or significant negligence of the carrier or its employee, they may be held criminally liable.

iii Product liability

Product liability is mainly stipulated in the Civil Code of the PRC and the Product Quality 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 passengers or the aircraft owner or operator resulted from a 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, inter alia, medical expenses, loss of income, nursing care, necessary transportation and accommodation, and nutrition fees.

Where a victim becomes disabled because of an injury, the liable party shall pay:

  1. the compensation for disability;
  2. the expenses of aid for disability;
  3. the living expenses of the person in need of his or her maintenance and upbringing; and
  4. the necessary healing expenses that actually occurred for healing and nursing, continuing treatment and nursing expenses, and the follow-up treatment expenses.

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

Thus, factors that influence the level and amount of 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.

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.

Voluntary reporting

China has established a voluntary and confidential reporting system, known as the Sino confidential aviation safety reporting system (SCASS), which is run by a subordinate body of the Civil Aviation University of China. Any person may submit a report to the voluntary reporting system by letter, fax, email, online filing, phone calls or mobile apps. The legitimate rights and interests of the reporting persons are protected by relevant laws. The types of reports collected on the SCASS may include:

  1. reports on the poor operational environment of an aircraft, and the defects of equipment and facilities;
  2. reports on violations of rules or incidents due to human factors that result from carelessness or inadvertence;
  3. reports concerning difficulties in implementing standards or flight procedures; and
  4. reports on events that may affect aviation safety other than accidents, incidents or crimes.

The year in review

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

In May 2020, the MOT amended the Rules for the Qualification of Carriers for the Operation of Public Air Transport of Large Aircraft (CCAR-121-R6), adding restrictions on crew fatigue management and other amendments. In the same month, the MOT published the Rules for the Administration of Civil Aircraft Maintenance Personnel Licenses (CCAR-66-R3), which regulates the application, issuance and management activities of aircraft maintenance personnel licences.

In October 2020, the MOT issued the International Air Transport Price Management Regulations (CCAR-221), which stipulate that approval management and record management shall apply to the international aviation tariffs respectively in accordance with the air transport agreements signed between the Chinese government and foreign governments. For international tariffs that are not required to be approved or filed in these agreements, these are left to the air transport enterprises to decide on their own.

The MOT promulgated the newly revised Regulations on the Management of Business Licensing for General Aviation in August 2020. The new Regulations classify GA commercial operations into three categories in terms of their nature – passenger transportation (e.g., GA short-haul transportation and GA charter flights), the carriage of people (e.g., air medical ambulances, parachuting flights, sight-seeing flights) and other flights (e.g., GA cargo flights, pilot training, fire fighting) – replacing the former four-category commercial activities based on the registered capital size of the aviation enterprise.

Outlook

On 2 March 2021, the MOT issued the Circular on Issuing the 2021 Legislation Plan. The planned laws and administrative regulations include several aviation-related matters. To give an example, the MOT has promulgated the Provisions on Passenger Services for Public Air Transportation, which will take effect on 1 September 2021, and will further regulate the order of domestic and international passenger transportation to protect the legitimate rights and interests of passengers.

According to the Commission of Legislative Affairs of the Standing Committee of the National People's Congress, the Personal Information Protection Law and the Data Security Law are currently soliciting public opinions, which may provide clearer and stricter behavioural criteria for airlines to protect passengers' data in the near future.

Footnotes

1 Jason Jin (Jin Zhe) is a senior partner at Grandall Law Firm (Beijing).

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