According to the State Administration of Taxation, Fan had earned 30 million yuan for her work on the film Air Strike but had only declared 10 million to the authorities, thus evading 6.18 million yuan in personal income tax. Fan and her company also owed 255 million yuan in unpaid taxes.

This contract is registered with the administrative department of the construction unit. Meanwhile, a yin contract is concluded between the parties in private, usually to avoid administrative supervision and management by the relevant government authorities. The yin contract spells out the actual execution of the project.

Such contracts are also common in property transactions. The yin contract indicates the real transaction price, while a yang contract stating a lower price is produced for the transfer of title registration to enable the parties to pay less capital gains and other taxes.

Another type of yang contract is one with a higher price that is submitted to the bank to apply for a bigger mortgage. The parties may also attempt to split the full transaction price into two contracts: one sales contract – which states a low sale price for the property – and a separate contract for refurbishments and furniture.

While the use of such contracts for tax evasion or other unlawful purposes attracts administrative and possibly criminal sanctions, are yin-yang contracts unenforceable per se if a dispute arises between the contracting parties? There is no easy answer.

Under Chinese contract law, a contract established according to law becomes effective at the time of its establishment. If relevant laws and administrative regulations require the approval or registration of a contract before it comes into effect, then those provisions apply. As a general principle, a valid agreement between the parties is the genuine expression of their intention. Thus, while the yang contract may be the registered official contract, the yin contract reflects the parties’ true intention.

In judicial practice, Chinese courts have adopted a case-by-case approach to determining the validity of yin-yang contracts. For example, if the difference in the value of the two contracts is small, courts tend to recognise the validity of either. Sometimes, courts may determine the price clause to be invalid while upholding the validity of the remaining contract.

However, yin-yang contracts, which have become ubiquitous in many parts of the economy, will not disappear after the latest crackdown. One can only hope that the long-standing tacit tolerance of such practices by government authorities and courts will begin to change.

Mimi Zou is the inaugural Fangda Fellow in Chinese Commercial Law at Oxford University. She is the author of An Introduction to Chinese Contract Law