Shipping 2026

CHINA Law and Practice Contributed by: John Wang, Xu Jun, Song Jia and Zhao Yuxuan, Wang Jing & Co

the lease and recover the leased asset upon default. As a result, finance leasing offers a legally reliable structure that performs a financing function compa - rable, in practical terms, to secured lending. In practice, ship finance leasing is commonly imple - mented through long-term direct lease or sale-and- leaseback arrangements, with contractual structures that emphasise ownership retention, rental certainty, comprehensive security support and asset recovery mechanisms. These features are consistently reflected in widely used industry-standard ship finance lease contracts adopted in maritime arbitration practice. By contrast, private equity has not generally emerged as a substitute for traditional bank lending or lease- based ship finance. Equity participation in the shipping sector is more often driven by investment or capital structuring considerations and is typically deployed alongside debt or lease financing rather than as a standalone vessel financing solution. Overall, the evolution of ship leasing in China repre - sents a diversification of financing channels support - ed by statute and judicial interpretation, rather than a wholesale displacement of traditional bank lending. The legal relationship between a lessor and lessee under a ship finance lease differs fundamentally from that between a lender and borrower under a tradition- al ship mortgage loan, notwithstanding their similar financing function. Under a lender/borrower structure, the borrower retains ownership of the vessel, while the lender holds a security interest by way of a ship mortgage. The lender’s protection is therefore asset-based and security-driven, and enforcement typically relies on mortgage enforcement mechanisms, including ves - sel arrest and judicial sale. The borrower’s repayment obligations arise from the loan agreement, and the lender’s remedies are primarily exercised through security realisation rather than direct recovery of pos - session. By contrast, under a lessor/lessee relationship, the lessor retains legal title to the vessel throughout the lease term, with the lessee holding only contractual

rights of possession and use. The lessee’s obligation to pay rent is generally treated as an independent and unconditional payment obligation under both the PRC Civil Code and judicial interpretation. Upon default, the lessor may terminate the lease and recover the vessel as owner, rather than as a secured creditor enforcing a mortgage. The lessors usually require the lessee to provide additional securities, which may be enforced in the same manner under ship loan. These structural differences result in distinct enforce - ment dynamics. In finance leasing, the lessor’s reme - dies are centred on contractual termination and asset repossession, supplemented by claims for unpaid rent and losses, whereas in mortgage lending, enforce - ment is focused on realisation of security interests through judicial procedures. As a result, ship finance leasing places greater emphasis on ownership reten - tion and contractual risk allocation, while traditional lending relies more heavily on registered security and priority rules. 3. Marine Casualties and Owners’ Liability 3.1 International Conventions: Pollution and Wreck Removal The following are the applicable international conven - tions and relevant laws that have been ratified by the PRC and will impact upon the liability of owners and interested parties in events of pollution and wreck removal: • International Convention for the Prevention of Pol - lution from Ships, 1973 (MARPOL), as modified by the Protocol of 1978 relating thereto and by the Protocol of 1997; • International Convention Relating to Intervention on the High Seas in Cases of Oil Pollution Casualties, 1969, and the Protocol of 1973; • Convention on the Prevention of Marine Pollution by Dumping of Wastes and Other Matter, 1972, and the 1996 London Protocol; • International Convention on Oil Pollution Prepared - ness, Response and Co-operation, 1990; • International Convention on Civil Liability for Oil Pollution Damage, 1992;

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