The Law on Asset Valuation has been adopted by the Standing Committee of the National People's Congress on... 2016 Year 7 Moon 2 Passed on the day, effective from 2016 Year 12 Moon 1 Effective from the date of promulgation, all professionals in the asset valuation industry should earnestly study and implement the Asset Valuation Law to promote the standardized and healthy development of the asset valuation industry.

The following is our understanding of the “Asset Valuation Law.”

One key understanding is that the difficulty of appraisal work has significantly increased, and so have the responsibilities and risks borne by appraisers and appraisal institutions. As a result, appraisal has become a high-risk profession and industry, requiring appraisers to practice with even greater diligence and caution.

After the Asset Valuation Law takes effect, if its requirements for valuation work are stricter than those of the current valuation standards, norms, guidelines, and guiding opinions, the requirements of the Asset Valuation Law shall be followed. For example, the current national standard “Real Estate Valuation Norms” only requires that “the collected data necessary for valuation should be examined,” whereas Article ... of the Asset Valuation Law... 13 Article [number] stipulates that appraisal professionals shall “verify and validate the authenticity, accuracy, and completeness of the documents, certificates, and materials used in appraisal activities.” Article [number] 25 The provision stipulates that appraisal professionals shall “collect proof of ownership, financial and accounting information, and other relevant materials, and conduct verification and validation thereof.”

Therefore, after the Implementation of the Asset Valuation Law, real estate appraisers must not only conduct inspections but also verify and confirm the authenticity, accuracy, and completeness of all documents, certificates, and materials used in real estate appraisal activities. Although the Asset Valuation Law also stipulates that “the client shall be responsible for the authenticity, completeness, and legality of the ownership certificates, financial accounting information, and other materials provided by it,” these are two separate matters, each party bearing its own responsibility. The failure of the client to provide truthful information does not exempt appraisers and appraisal institutions from their obligation to verify and validate such information. Moreover, the Asset Valuation Law does not require clients to be responsible for the “accuracy” of the materials they provide; the requirement for “accuracy” appears only in the provisions outlining the obligations that appraisal professionals themselves must fulfill. According to the definition provided in the "Modern Chinese Dictionary," Verification is “review and confirm,” while validation is “inspect and substantiate.” In reality, conducting verification and validation is extremely difficult.

This requirement under the Asset Valuation Law not only significantly increases the difficulty of valuation work but also substantially elevates the responsibilities of both appraisers and appraisal institutions—especially by greatly increasing the associated risks, thereby turning valuation into a high-risk profession and industry due to the potential liability for compensation. As stipulated in Article ... of the Asset Valuation Law, ... 50 Article [number] stipulates: “If an appraisal professional violates the provisions of this Law and causes losses to the client or other relevant parties, the appraisal institution where the professional is employed shall bear the compensation liability in accordance with the law. After fulfilling its compensation obligation, the appraisal institution may seek reimbursement from the appraisal professional who acted with intent or gross negligence.” Therefore, appraisers must pay particular attention to the authenticity, accuracy, and completeness of the documents, certificates, and materials used in appraisal activities. They should personally visit the site of the appraisal object and conduct verification and validation with relevant authorities, organizations, and individuals, exercising greater diligence and prudence in their appraisal work.

Second point of understanding: The Asset Valuation Law establishes the principle of setting up appraisers according to their professional categories. Real estate appraisers are appraisers belonging to the real estate professional category. Real estate appraisal services shall be undertaken by registered real estate appraisers, and real estate appraisal reports shall be signed by registered real estate appraisers.

The asset valuation referred to in the Asset Valuation Law is a broad concept that encompasses real estate price appraisal (commonly referred to as real estate valuation or property appraisal). China’s current real estate appraisal system is established under the Urban Real Estate Management Law. Article [number] of the Urban Real Estate Management Law... 34 The provision stipulates that “the State shall implement a system of real estate price appraisal.” After the Asset Valuation Law comes into effect, real estate appraisals must not only comply with the Asset Valuation Law but also with the Urban Real Estate Management Law. This is because, in matters concerning asset valuation, the Asset Valuation Law serves as the general law, while the Urban Real Estate Management Law is the special law. According to the principle that special laws take precedence over general laws, where the Urban Real Estate Management Law contains specific provisions regarding real estate appraisals, those provisions of the Urban Real Estate Management Law shall prevail. Where the Urban Real Estate Management Law does not contain specific provisions, the Asset Valuation Law shall apply.

As for the current qualifications for real estate appraisers, Article ... of the Urban Real Estate Management Law... 59 A special provision states: “The State shall implement a qualification certification system for real estate appraisal professionals.” Moreover, despite the State Council having canceled numerous professional qualifications in recent years, the qualification for practicing as a real estate appraiser has nevertheless been retained. Consequently, the qualification for real estate appraisers remains currently classified as a “market-access type professional qualification” under national regulations, and the examination for this qualification will continue to be conducted according to existing practices.

Asset Valuation Law Article 28 Article [number] stipulates that “when an appraisal agency undertakes statutory appraisal services, it shall assign at least two appraisers belonging to the corresponding professional category to handle the assignment; and the appraisal report shall be signed by at least two appraisers who have undertaken the assignment.” Therefore, in light of the provisions of both the Urban Real Estate Management Law and the Asset Appraisal Law, a registered real estate appraiser is an appraiser belonging to the real estate professional category. Consequently, whenever an appraisal agency undertakes any appraisal service involving real estate—whether statutory or non-statutory—it must assign at least two registered real estate appraisers to handle the assignment, and the appraisal report must be signed by at least two registered real estate appraisers who have undertaken the assignment.

Third point of understanding: Under the sector-specific regulatory oversight, there are no stipulations regarding the names, specialties, or geographical scopes of appraisal agencies. This has raised the minimum number of appraisers required for appraisal agencies, thereby fostering free competition among them and enabling them to grow stronger and bigger.

With regard to the four main entities in the valuation industry—namely, the valuation administrative authorities, valuation industry associations, appraisers, and valuation institutions—the Asset Valuation Law provides specific, specialized regulations for the first three categories. For instance, it stipulates that the relevant valuation administrative authorities shall carry out supervision and management according to their respective duties and responsibilities; nationwide valuation industry associations shall be established based on professional fields; and appraisers shall conduct valuation activities according to their respective professional categories. However, the law uniquely fails to provide any specialized regulations for valuation institutions themselves, nor does it specify requirements regarding the names or geographical scope of these institutions. As long as a valuation institution has a certain number of appraisers (among which, if it is organized as a corporation, it must have... 8 Above the name, a partnership form should be established. 2 (above a certain threshold), register with the administration for industry and commerce and file a record with the relevant assessment administrative authority before commencing assessment services. Furthermore, Article ... of the Asset Valuation Law... 22 Article [number] stipulates: “The client has the right to independently select an appraisal agency that complies with the provisions of this Law; no organization or individual may illegally restrict or interfere.” Article [number] 42 Article [number] stipulates: “The administrative department responsible for assessment shall not, in violation of the provisions of this Law, impose restrictions on the business activities legally conducted by assessment agencies.”; Article [number] 43 The provision stipulates that administrative authorities “shall not use their official positions to solicit business for assessment agencies.”

From the above-mentioned provisions, it is clear that: first, they are conducive to the development of large appraisal firms; second, they are also beneficial to the development of the original asset appraisal institutions. The reason these provisions favor the development of large appraisal firms is that currently most small and medium-sized appraisal firms suffer from an insufficient number of appraisers. 8 To survive, these appraisal agencies will have to either increase the number of appraisers, merge or consolidate with other firms, or restructure themselves into partnership forms. However, each of these options comes with its own set of challenges. For instance, the current pool of appraisers is limited, making it difficult to recruit new ones. As for partnership-based appraisal firms—given that such firms would be held jointly and severally liable—their existence is virtually nonexistent at present, and it’s uncertain whether they’ll be willing to adopt this structure in the future. The more likely scenario is merger or consolidation, but even that won’t be easy: it would require finding partners who share the same vision and values, and it might also mean having to make compromises and concessions along the way.

The reason it is said to be conducive to the development of the original asset appraisal institutions is that, regardless of whether an appraisal institution was formerly an original asset appraisal firm, a real estate appraisal firm, or a land appraisal firm, there are no longer any restrictions—such as on name, specialty, or geographic scope—among them, allowing them to compete freely. However, since most people typically fail to realize that the “asset appraisal” referred to in the Asset Appraisal Law is no longer the narrowly defined asset appraisal of the past, and because the term “asset appraisal company” gives the impression that such firms can handle all types of appraisal services, the original asset appraisal institutions enjoy an advantage in terms of their names. These institutions, as long as they hire appraisers from relevant professional categories and register with the corresponding administrative appraisal authorities, can relatively easily engage in appraisal services such as real estate appraisal and land appraisal. By contrast, real estate appraisal firms and land appraisal firms find it considerably more difficult to carry out the original asset appraisal business.

Of course, whether the above-mentioned situation will actually occur still depends on whether the existing approval processes for qualifications and licenses—or disguised forms of such approvals—of appraisal agencies can continue to be carried out. Even if they can continue, it remains to be seen whether the requirements regarding the number of appraisers at appraisal agencies need to be revised. Moreover, when appraisal agencies file their records with the relevant administrative authorities responsible for appraisal, whether these authorities will impose filing conditions or even engage in disguised forms of qualification licensing—this is something that awaits clarification and explanation from the legislative bodies and the relevant administrative authorities responsible for appraisal. But regardless of the outcome, any approval processes for qualifications and licenses of appraisal agencies established without a legal and regulatory basis simply should not be allowed, especially those conducted by industry associations. This is because, under the Asset Valuation Law, what industry associations are permitted to do in this regard mainly includes “publishing the list of appraisal agencies that have joined the association,” “establishing credit files for members, recording in these files members’ compliance with laws, administrative regulations, and appraisal standards, and making this information publicly available,” and “conducting regular inspections of appraisal reports issued by members and administering rewards and punishments to members in accordance with the articles of association.”

Fourth point of understanding: The term “asset appraiser” has become a generic designation for various types of appraisers and valuers today, divided into different specialized categories. There is no longer an asset appraiser who can engage in all kinds of appraisal services.

The term “asset valuation” as used in the Asset Valuation Law refers to a broad concept, and an “asset valuer (shortened to ‘valuator’)” is also a broadly defined asset valuer—not the narrowly defined asset valuation and narrowly defined asset valuers previously under the jurisdiction of the Ministry of Finance. Furthermore, Article ... of the Asset Valuation Law... 8 The article explicitly stipulates that “the State shall determine the professional categories of appraisers based on the needs of economic and social development.” Article ... 28 The regulation stipulates: “When an assessment agency undertakes statutory assessment services, it shall assign at least two appraisers belonging to the corresponding professional category to carry out the work, and the assessment report must be signed by at least two appraisers who have undertaken the assignment.” Thus, it is clear that asset appraisers can only operate legally if they are categorized into different professional groups.

The reason why asset appraisers are categorized into different professional specialties is dictated by the nature of the appraisal industry itself. After all, asset appraisal involves assessing the value of the appraisal object—a task that is inherently inseparable from the “object” itself. When conducting an appraisal, one must first and foremost take the “object” into account and possess a keen ability to “recognize its true worth.” If even the authenticity and quality of the appraisal object are difficult to discern, it becomes utterly impossible to accurately assess its value—let alone conduct an objective, reasonable, and precise appraisal. In reality, it’s simply unrealistic for any single individual to possess the specialized knowledge and practical experience necessary to “recognize the worth” of a wide variety of appraisal objects, such as real estate, machinery and equipment, intangible assets, mining rights, used motor vehicles, jewelry and jade, antiques, and works of art. Moreover, one of the fundamental professional ethics that all professional services—including asset appraisal—must adhere to worldwide is the requirement of having the appropriate professional competence—a principle often summarized by the saying: “Don’t take on a job you can’t handle with your own skills.”

Therefore, just as teachers are categorized by the subjects they teach, physicians by their specialized fields of diagnosis and treatment, and lawyers by their areas of expertise, designers, too, should be categorized according to their specific specialties—such as fashion design, architectural design, automotive design, or aircraft design. If an asset appraiser fails to categorize themselves by specialty or if their specialization categories are not specific and clearly defined—resulting in what might be called a “generalist appraiser”—their professionalism, professional image, and standing will be significantly undermined. After all, a teacher who attempts to teach courses ranging from Chinese language and literature to mathematics, foreign languages, music, and dance is typically suited only for teaching young children in kindergarten or lower-grade elementary students.

Therefore, whether from the perspective of legal provisions or from the standpoint of the appraisal industry’s development and the appraisers’ own professional needs, the current narrowly defined category of asset appraisers should not be confused with the broadly defined category of asset appraisers as referred to in the Asset Appraisal Law. It is no longer appropriate to use the term “asset appraiser” in a general or vague manner; rather, asset appraisers should identify their own “professional categories.” It is precisely for these reasons that the Asset Appraisal Law explicitly stipulates that asset appraisers must be categorized according to their respective specialties.