Narrowing the goal posts – increased regulation in Chinese football

Co-authored by Daniel Wells

The Chinese Football Association (the Chinese FA) has introduced new measures which aim to curb ‘big spending’ by Chinese clubs and promote a more sustainable model for its domestic leagues. In December 2018, Chinese FA Vice President Li Yuyi proclaimed that “if there’s only investment but no clear idea of what the long term returns are, Chinese football is not sustainable”.

The shift in emphasis towards a more sustainable domestic framework follows the Chinese Super League (CSL) club’s spending sprees in recent years, which has seen some of Europe and South America’s biggest stars snubbing elite European clubs for the Far East. In May 2017, the Chinese FA announced that all Chinese clubs paying more than US$6.63 million in transfer fees for any one foreign player will be subject to a 100% levy payable to the Chinese Football Association Youth Development Fund. Transfers for Chinese-born players over US$3m are also subject to this levy.

More recently, last December, the Chinese FA announced new regulations for all CSL, China League One and China League Two clubs imposing a salary cap of US$1.45m a year for domestic players. The regulations also aim to introduce tighter rules to limit the annual expenditure of CSL clubs. Total permitted expenditure for each club in 2019 has been  capped at US$174m, and will decrease on a year-by-year basis to US$130.5m by 2021. The regulations also seek to reduce CSL clubs’ dependence on parent companies or single shareholders. Capital injections for each CSL club will be capped at US$94.2m in 2019 and will also decrease on a year-by-year basis to US$43.4m by 2021. Further caps have been imposed on CSL player bonuses and limits placed on the ratio of salary to spending by CSL clubs.

The Chinese FA has also focused their attention on the use of so called “Ying-Yang Contracts” within the Chinese football industry. This practice, in which one form of an employee’s contract, which understates the value of the contractual agreement, is disclosed to PRC tax authorities, with another form of the contract, retained by the employee, reflecting the real value of the agreement is allegedly widespread in the industry. By the end of 2019, all CSL teams will be required to submit contracts for their players as part of a crackdown on the use on “Ying-Yang Contracts”.

The underlying rationale of the Chinese FA in implementing these changes is to create a more sustainable framework for the future. There is hope that the new regulatory regime will encourage clubs to invest more in the development of youth coaching in China rather than looking for overseas talent.

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