The Chinese legal system does not, at present, impose any general prohibition on third-party funding (TPF), nor does it contain rules analogous to the common law doctrines of champerty and maintenance.

In practice, the use of third-party funding in arbitration has been widely recognised by arbitral rules and judicial practice. In recent years, major Chinese arbitral institutions have successively amended their arbitration rules to accept and proactively regulate third-party funding in arbitration, most notably the 2024 revised rules of the China International Economic and Trade Arbitration Commission (CIETAC) and Shanghai International Economic and Trade Arbitration Commission (SHIAC), and the 2026 revised rules of the Beijing Arbitration Commission/Beijing International Arbitration Center (BAC/BIAC). Chinese courts have also maintained an open attitude towards the use of TPF in arbitration. For example, in Case No (2022) Jing 04 Min Te 368, the Beijing Fourth Intermediate People’s Court expressly held that “the funding activities of the third-party funder involved in this case do not violate existing laws or arbitration rules”.

Judicial attitudes towards third-party funding in Chinese litigation, however, remain cautious. In Case No (2021) Hu 02 Min Zhong 10224, decided by the Shanghai Second Intermediate People’s Court, the court held the litigation funding agreement in question invalid on the grounds that it afforded the funder excessive control over the litigation, potentially contravening public policy and disrupting the proper order of judicial proceedings. Although China does not follow the doctrine of stare decisis, and the decision did not characterise third-party funding per se as unlawful, it nonetheless signals that funders involved in Chinese litigation proceedings must carefully assess compliance risks – particularly with respect to the limits of funder control and the independence of the funder, the funded party and legal counsel.

In terms of market development, driven by rising demand, China’s domestic third-party funding market has expanded rapidly. A growing number of local funders are now active in China- and Asia-related disputes, with HOZU Capital and Dingsong Legal Capital among the most visible participants. As TPF in China remains at an early stage and lacks comprehensive regulation or industry-wide standards, these institutions are effectively shaping market practice, guided by international norms and the relevant third-party funding rules applicable in the forum where the dispute is litigated, arbitrated or otherwise resolved. Through practical engagement, particularly in cross-border cases, Chinese local funders continue to clarify compliance expectations and operational boundaries. Several international funders, including Burford Capital, Omni Bridgeway and Deminor Litigation Funding, have also shown interest in the Chinese market, though none has established a permanent onshore presence to date.

At present, there are no laws or regulatory rules of general applicability in China that are specifically dedicated to third-party funding. Nevertheless, third-party funding activities in China must be assessed by considering the Chinese laws and regulations that may apply under specific circumstances.

In the arbitration context, leading Chinese arbitration institutions have progressively incorporated third-party funding into their general arbitral rules. For instance, Article 48 of the 2024 CIETAC Arbitration Rules expressly introduces and regulates disclosure obligations relating to third-party funding, providing that “once a third-party funding agreement is concluded, the funded party shall communicate to the Arbitration Court, without any delay, the existence of the third-party funding arrangement, the financial interest therein, the name and address of the third-party funder and other relevant information.” The SHIAC also added disclosure arrangements concerning third-party funding agreements in Article 35 of its 2024 Rules, which provides that “any party shall notify the Secretariat in writing during the arbitral proceedings of any matter that may affect the impartiality and independence of the arbitrators, including but not limited to… agreements with a non-party to finance its arbitration case…”. In addition, the BAC, in its latest Domestic and International Arbitration Rules effective as of 1 January 2026, introduced specific provisions on third-party funding disclosure, requiring that “where a third-party funding arrangement exists, a party shall submit a written notice fully disclosing: (1) the existence of the third-party funding agreement; (2) the identity of the third-party funder and its contact information; and (3) where an arbitrator has been selected or appointed, whether there is any conflict of interest between the third-party funder and the arbitrator.” Although these arbitral rules do not operate as national-wide legislation or regulation, they have, in practice, evolved into a quasi-regulatory framework governing third-party funding in Chinese arbitration, introducing meaningful guidance relating to transparency, independence and procedural fairness.

Further, cross-border third-party funding arrangements – including inbound funding of China-seated proceedings by foreign capital and outbound funding by China-based capital for disputes seated abroad – China’s foreign exchange regime shall be considered. Under applicable State Administration of Foreign Exchange (SAFE) rules, cross-border transactions are subject to China’s foreign exchange controls. Outward remittances of funds (eg, returns to an offshore funder) typically require supporting documentation and may be subject to review by the handling bank under SAFE rules.

Additionally, while Chinese law imposes strict market-entry requirements on financial lending, third-party funding is generally exempt due to its non-recourse nature. Given that the funder, not the claimant, bears the financial risk, the arrangement is fundamentally different from a loan. However, caution is warranted for the introduction of debt-like arrangements common in international third-party funding practices, as these may be deemed lending by Chinese regulators, potentially triggering licensing and other compliance requirements.

At present, China does not have an industry-wide third-party funding organisation nor a generally applicable, non-legal self-regulatory framework for third-party funding. Nevertheless, as noted in 1.2 Rules and Regulations on Litigation Funding, relevant non-legal rules are found in the arbitration rules of major arbitral institutions. In particular, leading institutions such as CIETAC, BAC and SHIAC expressly permit third-party funding, subject to compliance with the applicable law, and require disclosure of the funding arrangement to both the arbitral tribunal and the arbitral institution.

For the scope of the disclosure requirements, please refer to 1.6 Disclosure Requirement.

While Chinese law does not impose explicit restrictions on parties receiving third-party funding, funders should prudently evaluate special compliance obligations arising from the status of specific counterparties. While these regimes are not specifically designed for third-party funding, non-compliance may hinder the effective implementation of a funding arrangement, giving rise to regulatory scrutiny or collateral litigation.

State-Owned Enterprises as Funded Parties

For example, in China, the presence of state capital on the funded party’s side may trigger China’s legal and regulatory safeguards for state-owned assets, which funders must take into account. In particular, Article 5 of the Enterprise State-Owned Assets Law of the People’s Republic of China (effective since 2009) broadly defines “state-invested enterprises” as including wholly state-owned enterprises or companies, as well as companies with a controlling or minority state stake. To safeguard state-owned assets, such enterprises may be required to comply with substantive and procedural requirements – such as asset valuation and prescribed transaction procedures – during funding negotiations involving the transfer or disposal of state-owned assets. Relevant regulations include:

• Enterprise State-Owned Assets Law of the People’s Republic of China;
• Regulations on the Supervision and Administration of Enterprise State-Owned Assets (State Council Order No 378); and
• Measures for the Supervision and Administration of Transactions of State-Owned Assets of Enterprises (Order No 32 of the State-owned Assets Supervision and Administration Commission and the Ministry of Finance).

While these rules do not directly regulate third-party funders, non-compliance in a funding arrangement may lead to consequences such as invalidation of the funding agreement.

Listed Companies as Funded Parties

Additionally, where the funded party is a PRC-listed company, the third-party funding arrangement must be evaluated for compliance with PRC capital market laws and regulations. This includes determining whether the arrangement triggers disclosure thresholds for “major events” under the PRC Securities Law or “material contracts” under the applicable Stock Exchange Listing Rules. Although the statutory disclosure obligation rests with the listed company rather than the funder, any breach of such obligations may adversely affect the implementation of the funding arrangement and potentially trigger related, collateral litigation.

Individuals as Funded Parties

Finally, where the funded party is an individual, Chinese consumer-protection law generally does not apply, as funded parties do not obtain third-party funding to meet daily living needs. Nonetheless, core consumer-law principles – such as voluntariness, equality, fairness and good faith – remain relevant by analogy. In particular, Article 496 of the PRC Civil Code requires providers of standard-form terms to observe fairness and to reasonably highlight and explain clauses that limit liability or materially affect the other party’s interests, failing which such clauses may be unenforceable. Further, where funding relates to personal injury or personal property disputes, when setting funding terms, consideration should also be given to the principles of public order and good morals (Article 153) and fairness (Article 151) of the PRC Civil Code.

Currently, there are no judicial precedents in China where a litigation funding agreement from another jurisdiction has been ruled invalid. However, under Articles 4 and 5 of the Law of the PRC on the Application of Laws to Foreign-Related Civil Relations, Chinese courts may override parties’ choice of foreign law as governing law in a third-party funding agreement under enumerated circumstances. Specifically, if the application of foreign law would harm China’s “social and public interests” or violate “mandatory provisions of Chinese law regarding the foreign-related civil relations”, Chinese law will be applied regardless of the parties’ choice of governing law. According to judicial interpretations from the Supreme People’s Court, matters involving national sovereignty, security or financial stability are considered “mandatory provisions” that trigger this override.

In light of the aforesaid public policy exception, any terms that grant a funder the power to divest or severely restrict a party’s right to control their own litigation face a substantial risk of being voided for violating the principle of “public order and sound customs” under the PRC Civil Code. Furthermore, provisions that conflict with mandatory Chinese regulations, such as foreign exchange controls, are susceptible to being ruled invalid. The PRC Civil Code also enshrines the “Principle of Fairness” and, therefore, should a funding agreement be deemed “manifestly unfair” – for instance, if a funder exploits a counterparty’s distress or lack of judgment – its enforceability may be denied.

Litigation

In litigation, Chinese law does not require the automatic disclosure of third-party funding, nor does it mandate disclosure upon an opponent’s request. Unless the court explicitly orders production – typically to verify standing or identify the real party in interest – litigants are under no general obligation to disclose funding arrangements.

Nevertheless, Chinese courts possess broad authority to request information from litigants. Should a court determine that a third-party funding arrangement is materially relevant to the adjudication of a case, the parties and their counsel are duty-bound to comply with the disclosure order. Failure to do so may lead to procedural sanctions, such as judicial admonition or fines.

While Chinese law remains silent on the specific scope of disclosure for funding arrangements in litigation, courts rarely require the production of the funding agreement sua sponte unless it is deemed essential. In practice, if the court mandates disclosure, the funded party may request protective measures, including:

• restricting access to a designated circle of individuals bound by confidentiality undertakings;
• limiting the examination of confidential materials to the hearing itself while prohibiting copying or photography; and
• redacting sensitive portions to protect data security without compromising the court’s ability to adjudicate the dispute.

Arbitration

Unlike litigation, disclosure of third-party funding has matured into a standard procedural expectation in arbitration. While China lacks a unified statute in its arbitration-related laws mandating disclosure, leading Chinese arbitration institutions have adopted specific rules governing the timing and scope of funding-related disclosure. Although requirements vary by institution, the scope of disclosure can include:

• the existence of the funding arrangement;
• the identity of the funder and its ultimate beneficial owners; and
• the funder’s specific economic interest in the arbitral outcome.

Notably, these rules do not directly require the production of the funding agreement itself or the disclosure of its specific commercial terms.

The primary objective of such third-party funding disclosure mandates in arbitration is to facilitate conflict-of-interest checks and provide additional safeguard to arbitral institutions’ and tribunals’ independence and impartiality.

Regarding funder transparency and financial capacity, there are currently no specific regulatory requirements under Chinese law targeting third-party funders. Nor has China established any unified industry-wide self-regulatory rules in this regard.

In practice, however, transparency has been mandated indirectly by the compliance obligations of the funded parties. In particular, although China’s Anti-Money Laundering (AML) Law does not expressly designate third-party funders as obliged entities, many recipients of third-party funding – such as law firms and financial institutions – are themselves under stringent AML obligations. When receiving funding or handling related transactions, these funded parties are required by law to conduct know-your-customer (KYC) due diligence on the source of funds and a funder’s ultimate beneficial owners (UBO), to mitigate money-laundering risks and ensure asset security. As a result, conducting KYC due diligence and disclosing the UBO’s identity and the legality of its capital sources has, in effect, become a market reality for Chinese funders.

At the same time, despite the absence of statutory capital requirements for funders, a funder that lacks sufficient financial resources and thereby causes disruption to legal or arbitral proceedings faces significant legal risks, including early termination or rescission of the funding agreement and liability for breach of contract. Consequently, maintaining robust financial standing has become a standard market practice for Chinese funders to ensure the continued validity and enforceability of their funding arrangements.

Chinese law imposes no specific prohibitions on portfolio financing or asset monetisation. In practice, Chinese banks and asset management companies (AMCs) frequently aggregate debt claims into portfolios and sell them in “packages” to assignees – including non-financial entities – to facilitate liquidity, financing or risk transfer.

As for legal consequences, while an assignment of claims only binds the debtor upon formal notice, failure to give such notice does not invalidate the underlying contract. Given the scale of Non-Performing Asset (NPA) divestments, individual service is often impracticable. Consequently, where debtors or guarantors are unreachable, notification requirements may be satisfied via public announcement.

From a tax perspective, there is no specialised regime for litigation funding portfolios. The tax treatment of such transactions generally follows rules applicable to the substantive nature of the transactions, such as asset transfers or financial services, which potentially triggers corporate income tax (CIT), value added tax (VAT) and stamp duty. Additionally, cross-border funding arrangements may implicate foreign exchange controls and applicable tax treaties.

Litigation

As third-party funders are generally not parties to litigation, Chinese courts lack statutory authority to order non-parties to bear adverse costs, nor do judges have the power – unlike in certain common law jurisdictions – to issue adverse costs orders directly against funders. Whether a funder bears any related costs depends on the contractual arrangements between the funder and the funded party (for example, whether the scope of funding covers adverse costs or the opposing party’s reasonable expenses), rather than on any judicial order.

With respect to court costs, Chinese litigation practice follows the basic principle that the losing party shall, in principle, bear the litigation costs, except where the winning party voluntarily assumes relevant costs and expenses. Where a party partially prevails and partially loses, the court will determine the proportion of costs to be borne by each party based on the specific circumstances of the case and has broad discretion in this regard. Under Chinese law, “litigation costs” is a broad concept, generally including the case acceptance fee payable upon filing, as well as procedural costs such as preservation, appraisal and enforcement fees. For property-related cases, the case acceptance fee is calculated and paid on a progressive, ad valorem basis based on the claimed amount; for non-property cases, fees are usually charged on a per-case basis.

The above “loser pays” principle primarily applies to statutory litigation costs and does not automatically extend to attorneys’ fees. Chinese law does not recognise a general “costs follow the event” rule as found in some common law jurisdictions. Unless the law expressly provides otherwise for specific types of cases (such as certain intellectual property or unfair competition disputes), or the parties have expressly agreed in a contract that the breaching or losing party shall bear reasonable enforcement or legal costs, attorneys’ fees are generally borne by each party itself, regardless of the case outcome.

Even where a contract clearly provides that the losing party shall bear attorneys’ fees, the prevailing party must still submit evidence such as the legal services agreement, invoices and proof of actual payment, and the court will typically assess and adjust the amount of attorneys’ fees taking into account factors such as:

• the complexity of the case;
• the actual workload of the lawyers; and
• the fairness of the contractual provisions.

In practice, the amount ultimately supported is often significantly lower than the attorneys’ fees actually incurred.

Arbitration

Similar to litigation, given that third-party funders are not parties to arbitration, arbitral tribunals under Chinese law have no explicit legal basis to directly order third parties to bear any costs. Nevertheless, an arbitral tribunal may order the losing party to bear adverse costs. In such circumstances, if, pursuant to the relevant funding agreement, a third-party funder provides financial support to the losing party, the funder may be required to bear the relevant costs vis-à-vis the funded losing party in accordance with the contractual arrangements.

An arbitral tribunal may order the losing party to bear arbitration costs and/or attorneys’ fees depending on the parties’ agreement and the applicable arbitration rules. For example, according to SHIAC arbitration rules, the arbitral tribunal has discretion to determine the allocation of arbitration costs (including reasonable attorneys’ fees and other related expenses), considering the following:

• cause of the dispute;
• outcome of the case;
• complexity of the case;
• actual workload of the parties and their representatives; and
• amount in dispute.

China does not have a general security for costs regime equivalent to that found in some common law jurisdictions, which requires one party to provide security for its counterparties’ potential legal expenses. Consequently, courts lack the authority to specifically require a party to provide security for the legal or court fees mentioned in 2.1 Adverse Costs.

However, under Chinese law, any application for certain types of injunctive relief (including property or conduct preservation) must be supported by adequate security. The purpose of this security is to ensure the applicant can indemnify the other party if the preservation application proves erroneous and causes loss. It is not intended to cover court fees or legal costs incurred during the proceedings, nor is it equivalent to “security for costs” in the common law sense. In practice, providing security for preservation is often a prerequisite for the court to freeze a defendant’s assets, seize property or take other injunctive measures.

In arbitration proceedings, parties may similarly apply for interim measures to preserve their rights or evidence, pursuant to the applicable arbitration rules or at the tribunal’s directions. If the tribunal grants such measures, it generally can require the applicant to provide security. While it cannot be excluded that such arbitration rules may in the future pave the way for seeking security for legal fees, current arbitral practice in China remains focused on mitigating the specific risks associated with erroneous interim measures, rather than as a form of general security for legal fees and arbitration costs.

Finally, whether in litigation or arbitration, a third-party funder cannot be ordered directly to provide security unless it becomes a party under exceptional circumstances. In practice, any funding of security turns on the funding agreement.

In the current Chinese dispute resolution landscape, After-the-Event (ATE) Insurance – as understood internationally to cover the risk of paying an opponent’s legal fees and court costs upon losing a case – is still in the early stages of development and is not yet widely utilised. In Chinese litigation and arbitration, the legal expense insurance products commonly available on the market typically cover the insured’s own legal fees, court filing fees and other reasonable legal expenses, rather than the adverse costs of the opposing party. Due to high premium costs and complex risk-pricing mechanisms, these insurance products have not yet achieved broad market acceptance.

On the other hand, the most mature and widely used litigation insurance in China is Litigation Property Preservation Liability Insurance (LPPLI). Unlike ATE insurance, LPPLI does not cover adverse costs; instead, it serves as a substitute for cash or physical collateral when applying for property preservation. Its function is specific: if a preservation order is wrongfully issued, the insurer then covers the resulting damage to the defendant/respondent. LPPLI is now a standardised tool in Chinese dispute resolution, extensively used for asset freezing and seizures both before and during litigation.

Meanwhile, for cross-border arbitrations seated outside China involving Chinese funded parties, third-party funders typically assist the funded party in securing ATE insurance arrangements that align with international market standards to hedge against the risk of potential adverse cost awards.

Beyond standard hourly billing, the Chinese legal market widely utilises alternative fee arrangements (AFAs), such as:

• fixed fees;
• capped hourly rates;
• contingency fees; and
• hybrid “fixed-plus-contingency” or success-fee structures.

Out of respect for party autonomy, Chinese courts generally uphold these arrangements provided they do not contravene mandatory legal provisions.

Nevertheless, the Chinese Ministry of Justice has issued detailed regulations governing the contingency fee model. By imposing restrictions on its scope, contractual terms, fee caps, and disclosure requirements, these rules are purported to safeguard the public interest and protect the rights of vulnerable groups.

In particular, under the rules, contingency fees are strictly prohibited in criminal, administrative and mass-tort cases, as well as livelihood-related disputes such as marriage, inheritance, labour and social security. Fees are subject to a degressive cap based on the amount-in-controversy: the rate is capped at 18% for the first CNY1 million and scales down through multiple tiers to a 6% limit for any portion exceeding CNY50 million. To protect client autonomy, lawyers may not restrict clients’ statutory rights in a lawsuit, including the right to appeal or settle, in ways such as imposing punitive punishment if the client exercises such rights. Furthermore, lawyers must use a formal written contract to conspicuously disclose fee limits and risks, ensuring informed consent.

Chinese law contains no general prohibition against lawyers sharing legal fees with third parties. Nevertheless, depending on the specific commercial arrangement, such agreements between lawyers and third parties may still be subject to certain restrictions.

For instance, under Articles 26 and 47 of the PRC Lawyers Law, law firms and lawyers are strictly prohibited from paying referral fees to solicit business. Consequently, when a case is referred to a lawyer by a third-party funder, the lawyer may not compensate that funder for the referral under any guise, including, but not limited to, “referral”, “origination” or “consulting” fees. Further, in practice, “consulting fees” calculated as a percentage of legal fee income or lacking evidence of actual services are subject to strict judicial scrutiny.

Chinese law strictly prohibits non-lawyers or non-law-firm legal entities – including third-party funders– from holding equity or partnership interests in a law firm, whether through direct or nominee (undisclosed) arrangements. In particular, pursuant to Articles 14 to 18 of the PRC Lawyers Law and relevant provisions in the Ministry of Justice’s Measures for the Administration of Law Firms, the founders or partners of a law firm must be licensed attorneys with three to five years’ practice experience. Although regulations in certain Free Trade Zones permit specific non-lawyer professionals to join partnerships in an individual capacity as “specialised professionals”, these exceptions do not extend to legal entities such as third-party funding institutions.

Chinese law does not prohibit third-party capital providers from providing financing to law firms, and there are currently no specific regulatory provisions governing such arrangements. Nevertheless, financing by third-party funders to lawyers or law firms remains subject to applicable Chinese regulations depending on the specific context of the transaction. For instance, if funding is structured as a loan and is deemed as a “private lending” between private parties, then pursuant to Article 25 of the Supreme People’s Court’s Judicial Interpretation on Private Lending, the interest charged by the lender must not exceed four times the one-year Loan Prime Rate (LPR) at the time of the contract’s formation (approximately 14% as of late 2025); any portion exceeding this limit will generally not be upheld by the courts. Furthermore, if a third-party funder is deemed to be engaged in “regular lending business”, it may be required to obtain a corresponding financial licence; otherwise, the loan agreement may be declared void.

The characterisation of third-party funding returns under Chinese tax law is inherently complex. There are currently no uniform or explicit tax regulations or official rulings defining whether funder’s returns should be classified as interest income, service fees or capital gains. In practice, such determination often requires a case-by-case assessment by the tax authorities based on the specific transaction structure, contractual arrangements and fund flows, applying the principle of “substance over form”.

Generally, the corporate income tax (CIT) rate is 25% of net income. If the returns are subject to value added tax (VAT) for the sale of services, a 6% VAT rate typically applies. For offshore funders (non-resident enterprises), such returns derived from within China are generally subject to withholding tax (WHT). The applicable rate is determined by the relevant bilateral tax treaty; in the absence of a treaty, the withholding tax rate is typically 10%. See 4.3 Withholding on Payments to Offshore Jurisdictions for further details on this.

In China, the legal fees paid by a client to a lawyer are subject to a 6% VAT (or 3% if the law firm is classified as a small-scale taxpayer). If the client qualifies as a “general taxpayer”, they may request a special VAT invoice from the law firm, which allows them to deduct the tax amount as input tax. To effectuate this deduction, the client must obtain a compliant invoice from the lawyer, and the law firm must be qualified to issue such compliant invoices and have completed the corresponding registrations.

The payment of investment returns under a third-party funding agreement from China to an entity established in an offshore jurisdiction generally requires the fulfilment of corresponding Chinese tax compliance obligations – which may include the payment of withholding tax (WHT) – prior to the actual outward remittance (including the processing of foreign exchange transfers through a bank).

Excluding the benefits of bilateral tax treaties, the statutory withholding tax rate under Chinese tax law for relevant income derived from China by non-resident enterprises is 20%, which in practice is typically reduced to 10%. However, if the third-party funder is established in a jurisdiction that has signed a double tax agreement (DTA) with China, and provided that DTA conditions are met, in terms of criteria including the “beneficial owner” test, the applicable WHT rate for the investment returns may be further reduced to below 10%. The specific rate depends on the terms of the applicable DTA and the tax authorities’ characterisation of the nature of the income.