No.6 Decree of the Ministry of Commerce PRC on Promulgation of the Provisions on M&A of a Domestic Enterprise by Foreign Investors

No.6 Decree of MOFCOM, 2009

To ensure the Provisions on M&A of a Domestic Enterprise by Foreign Investors coincide with the Antimonopoly Law and the Provisions of the State Council on Thresholds for Declaration of Concentrations of Undertakings, revision of the Provisions on M&A of a Domestic Enterprise by Foreign Investors have been made as follows:

1.       The original Chapter 5 Antimonopoly Review has been canceled and a new article has been added in the Supplementary Provisions as Article 51, providing: “According to the provisions of the Antimonopoly Law, where M&A of a domestic enterprise by a foreign investor meets the thresholds for declaration of the Provisions of the State Council on Thresholds for Declaration of Concentrations of Undertakings, the foreign investor shall make a declaration with the MOFCOM and shall not carry out the deal without declaration.”

The following articles and chapters shall be adjusted accordingly.

2.       The following articles have been revised as follows:

            Paragraph 4 of Article 16, i.e. “where a foreign investor merges a domestic enterprise to establish a foreign-invested enterprise and its/his contribution is less than 25% of the registered capital of the enterprise, the investor shall make its investment all in cash” shall be revised as “in case a foreign investor merges a domestic enterprise to establish a foreign-invested enterprise and its/his contribution is less than 25% of the registered capital of the enterprise, if it/he make its/his investment in cash”.

            Paragraph 1 of Article 36, i.e. “if the domestic company and the overseas company fail to go through the procedures for alteration of equity within six (6) months since issuance of the business license, the approval certificate with remarks and the approval certificate of overseas investment by Chinese enterprise shall be invalidated automatically, and the registration administrative authority shall examine and approve the registration on alteration based on the application documents for registration on equity alteration submitted by the domestic company in advance, so as to restore the equity structure of the domestic company to the status before the equity merger” shall be revised as “if the domestic company and the overseas company fail to go through the procedures for alteration of equity within six (6) months since issuance of the business license, the approval certificate with remarks and the approval certificate of overseas investment by Chinese enterprise shall be invalidated automatically. The registration administrative authority shall examine and approve the registration on alteration based on the application documents for registration on equity alteration submitted by the domestic company in advance, so as to restore the equity structure of the domestic company to the status before the equity merger”.

            The “ultimate controller” in Subparagraph 1 of Paragraph 1 of Article 42 and Subparagraph 3 of Paragraph 1 of Article 44 shall be revised as “actual controller”.

This Decree shall enter into force on the date of promulgation.

The Provisions on M&A of a Domestic Enterprise by Foreign Investors is re-promulgated according to the relevant revisions herein.

Annex: Provisions on M&A of a Domestic Enterprise by Foreign Investors

Minister: Chen Deming

June 22, 2009

Provisions on M&A of a Domestic Enterprise by Foreign Investors

Content

Chapter 1 General Provisions

Chapter 2 Basic System

Chapter 3 Approval and Registration

Chapter 4 Foreign Investors Merge Domestic Companies Using Equity as the Means of Payment

Section 1 Conditions for Equity Merger

Section 2 Application Documents and Procedures

Section 3 Special Provisions on Special Purpose Companies

Chapter 5 Supplementary Provisions

Chapter 1 General Provisions

Article 1 With a view to promoting and regulating foreign investors' investment in China, introducing advanced technologies and management experience from abroad, improving the utilization of foreign investment, rationalizing the allocation of resources, ensuring employment and safeguarding fair competition and our country's economic security, the Provisions are hereby formulated under the laws and administrative regulations governing foreign investment enterprises, the Company Law, and other relevant laws and administrative regulations..

Article 2 For the purposes of the Provisions, mergers and acquisitions of a domestic enterprise by foreign investors shall mean that foreign investors, by agreement, purchase equity interest from shareholders of domestic enterprise with no foreign investment (hereinafter referred to as the "Domestic Company") or subscribe to the increase in the registered capital of the Domestic Company with the result that such Domestic Company changes into a foreign investment enterprise (hereinafter referred to as "Equity Merger and Acquisition"); or the foreign investors establish a foreign investment enterprise and then, through such enterprise, purchase the assets of a domestic enterprise by agreement and operate such assets, or the foreign investors purchase the assets of a domestic enterprise by agreement and use such assets as investment to establish a foreign investment enterprise to operate such assets (hereinafter referred to as "Asset Merger and Acquisition").

Article 3 In mergers and acquisitions of domestic enterprises, foreign investors shall comply with the laws, administrative regulations and departmental rules and adhere to the principles of fairness, reasonableness, compensation for equal value, and honesty and good faith, and shall not create excessive concentration, eliminate or hinder competition, disturb the social economic order or harm the societal public interests, or lead to the loss of state-owned assets.

Article 4 In mergers and acquisitions of domestic enterprises, foreign investors shall comply with the requirements regarding the investors' qualifications and industrial, land and environmental protection policies as set forth in the laws, administrative regulations and departmental rules and the relevant requirements under industry policies.

In the case of industries where no wholly foreign ownership is allowed under the Guidance Catalog of Foreign Investment Industries, any merger or acquisition of a domestic enterprise engaging in the industry shall not lead to the foreign investors' ownership of all equity interest in the acquired enterprise. In the case of industries which require the Chinese party to be controlling or relatively controlling, the Chinese party shall remain to be in the controlling or relatively controlling position in the acquired enterprise after any merger or acquisition of the domestic enterprise engaging in such industries. In the case of industries where operation by foreign investors is prohibited, no foreign investors may merge with or acquire any enterprise engaging in such industries.

The business scope of the enterprise previously invested by the merged domestic enterprise shall meet the relevant requirements on foreign investment industrial policies; otherwise it shall be modified accordingly.

Article 5 Where a foreign investor merges a domestic enterprise, if it involves transference of the property of state-owned assets or administration of state-owned equity in public listed companies, it shall comply with the relevant laws and regulations on the administration of state-owned assets.

Article 6 A foreign investor shall, when merging a domestic enterprise to establish a foreign-funded enterprise, be subject to the approval of the examination and approval authorities in accordance with the Provisions, and make registration of modification or establishment in the registration authority.

If the enterprise to be merged is a domestic listed company, the foreign investor shall also go through relevant procedures with the securities regulatory authority under the State Council in accordance with Administration Rules on Foreign Investors' Strategic Investment in Listed Companies.

Article 7 All parties involved in the merger of domestic enterprises by foreign investors shall pay the taxes and accept the supervision of taxation authorities in accordance with China's relevant laws and regulations on taxation.

Article 8 All parties involved in the merger of domestic enterprises by foreign investors shall comply with China's relevant laws and regulations on foreign exchange control, and shall promptly go through all procedures on approval, registration, putting on records and alteration regarding foreign exchange with the competent foreign exchange administrative authorities.

Chapter 2 Basic System

Article 9 If the contribution made by a foreign investor to the registered capital of the foreign investment enterprise established after the merger or acquisition is more than 25%, such enterprise shall be treated as a foreign investment enterprise.

If the contribution made by a foreign investor to the registered capital of the foreign investment enterprise established after the merger or acquisition is less than 25%, the enterprise shall not be treated as a foreign investment enterprise, and it shall be subject to relevant provisions on contracting a foreign loan applicable to a non-foreign investment enterprise when the enterprise intends to contract a foreign loan, unless it is otherwise provided in relevant laws and regulations. The approval authority shall, when issuing the approval certificate of foreign investment enterprise (hereinafter referred to as "Approval Certificate"), indicate on the certificate the following words: "foreign investment contribution is less than 25%". The registration administrative authority and the foreign change administrative authority shall also, when issuing the business license of foreign investment enterprise and the foreign exchange registration certificate, indicate on them the words of "The foreign investment contribution is less than 25%".

If any domestic company, enterprise or natural person merges its affiliated domestic company in the name of a company legally established or controlled by the aforesaid domestic company, enterprise or natural person in foreign countries or regions, the foreign investment enterprise established after the merger shall not be treated as a foreign investment enterprise, unless that the overseas company purchases any increased capital of domestic company, or the enterprise established after the merger by the overseas company increases capital to a proportion of 25% of its registered capital. If the contribution made by a foreign investor other than the actual controller is more than 25% of the registered capital of the enterprise established according to this paragraph, the enterprise may be treated as a foreign investment enterprise.

The foreign investment enterprise established after the merger of domestic listed companies by the foreign investor shall be treated in accordance with China's relevant laws and regulations.

Article 10 For the purposes of this Provisions, the approval authority in the present provisions shall refer to the Ministry of Commerce the People's Republic of China (hereinafter referred to as "the MOC") or the provincial department of commerce (hereinafter referred to as "the provincial approval authority"); the registration administrative authority shall refer to the State Administration for Industry and Commerce of the People's Republic of China (hereinafter referred to as "the SAIC") or its authorized local administration for industry and commerce; and the foreign exchange administrative authority shall refer to the State Administration of Foreign Exchange of the People's Republic of China (hereinafter referred to as "the SAFE") or its branches.

Where, in accordance with the laws, administrative regulations or departmental rules, a foreign-funded enterprise established after the merger belongs to the foreign investment enterprises of certain types or in certain industries that shall be approved by the MOC, the provincial approval authority shall transfer the application documents to the MOC that shall decide on whether or not to grant the approval in accordance with the law.

Article 11 If any domestic company, enterprise or natural person merges its affiliated domestic company in the name of a company legally established or controlled by the aforesaid domestic company, enterprise or natural person in foreign countries or regions, it shall be subject to the approval of the MOC.

The parties thereto shall not evade the above provision by the domestic investment of a foreign investment enterprise or by any other means.

Article 12 If foreign investors merge a domestic enterprise and obtain the actual control over the enterprise, and if such merger involves any critical industry, affects or may affect the security of national economy, or causes transference of actual control over the domestic enterprise who possesses a resound trademark or China's time-honored brand, the parties to the merger shall apply to the MOC.

Where the parties thereto fail to make an application and the merger materially affects or may materially affect the security of national economy, the MOC may, together with other competent authorities, request the parties to stop the transaction, assign relevant equity or assets, or take any other effective actions, to eliminate the affect of the merger on the security of national economy.

Article 13 Where a foreign investor carries out equity merger, the foreign investment enterprise established after the merger shall succeed to the claims and debts of the merged domestic company.

Where a foreign investor carries out asset merger, the domestic enterprise that sells assets shall assume its original claims and debts.

The foreign investor, the merged domestic enterprise, the creditors and other parties may reach an agreement additionally on the disposition of the claims and debts of the merged domestic enterprise, provided that the agreement shall not damage a third person's interests or public interests. The agreement on disposition of the claims and debts shall be submitted to the approval authority.

At least fifteen (15) days prior to the submission of application documents to the approval organ by the investors, the domestic enterprise that sells assets shall notify all creditors, and shall make a public announcement on the newspaper of provincial level or above published nationwide.

Article 14 The parties to a merger or acquisition shall determine the transaction price on the basis of the result of the evaluation of the equity interest to be transferred or of the assets to be sold conducted by the asset evaluation institution. The parties to a merger or acquisition may agree on an asset evaluation institution established within the territory of China in accordance with the law. Asset evaluation shall be conducted by adopting internationally recognized evaluation methods. It is prohibited to transfer equity interest or sell assets at a price obviously lower than the evaluation result for the purpose of transferring the capital out of China in a disguised way.

When a foreign investor merges a domestic enterprise, and thus resulting in the alteration of the equity rights formed from investment of state-owned assets or transference of the property of state-owned assets, the evaluation shall be made in accordance with the relevant provisions on the administration of state-owned assets.

Article 15 The parties to a merger shall explain whether there is relationship of affiliation among the parties. If there are two parties belong to an actual controller, the parties shall disclose the actual controller to the approval authority, and shall explain its purpose of merger and whether the result of evaluation is in conformity to the reasonable market value. The parties thereto shall not evade the above provision by means of trust, custody or any other means.

Article 16 A foreign investor shall, when merging a domestic enterprise to establish a foreign investment enterprise, within three (3) months as of the day when the foreign investment enterprise is issued its business license, pay all the consideration to the shareholders who transfer the equities or to the domestic enterprise which sells the assets. In case of any particular circumstance under which the period needs to be extended, the foreign investor shall, approved by the approval authority, pay 60% or more of the consideration within six (6) months as of the day when the foreign-funded enterprise is issued its business license, and pay all the consideration within one (1) year, and the proceeds shall be distributed according to the proportion of investments it has actually contributed.

If a foreign investor purchases the increased capital of a domestic company, the shareholders of a limited liability company or a domestic joint stock company established with promoters buying out all shares issued shall, when the company is applying for a business license for foreign investment enterprise, pay more than 20% of the increased registered capital, and the time limit for payment of remaining increased registered capital shall be subject to the provisions of the Company Law of the People's Republic of China, relevant laws and regulations on foreign investment and the Regulations of the People's Republic of China on Administration of Registration of Companies, unless it is otherwise provided in other applicable laws and administrative regulations. When a joint stock company issues new shares to increase its registered capital, the shareholders may subscribe the new shares in accordance with relevant provisions on payment of capital contribution when establishment of a joint stock company.

Where a foreign investor carries out an asset merger, it shall stipulate the time limit for contribution of investments in the contract and articles of association of the foreign investment enterprise under planned establishment. Where the foreign investor establishes a foreign investment enterprise, and through which purchases the assets of a domestic enterprise and operates such assets, it shall contribute the investments equivalent to the consideration of the assets within the time limit for payment of consideration as provided for in Paragraph 1 of this Article 16; as for the remaining investments, the time limit for contribution shall be subject to relevant provisions regarding establishment of a foreign investment enterprise.

In case a foreign investor merges a domestic enterprise to establish a foreign-invested enterprise and its/his contribution is less than 25% of the registered capital of the enterprise, if it/he make its/his investment in cash, it/he shall contribute the investment within three (3) months as of the day when the foreign investment enterprise is issued its business license; or contribute all the investments in kind or in industrial properties, etc. within six (6) months as of the day when the foreign investment enterprise is issued its business license.

Article 17 The means of payment as the consideration shall conform to China's relevant laws and administrative regulations. Where a foreign investor uses the currency of RMB it lawfully owned as the means of payment, it shall be subject to the approval of the foreign exchange administrative authority. Where a foreign investor uses the equity rights it is entitled to dispose of as the means of payment, it shall be subject to the provisions Chapter Four hereof.

Article 18 After a foreign investor purchases by agreement the equity rights of a domestic company, and the domestic company has been altered to be established as a foreign investment enterprise, the foreign investment enterprise's registered capital shall be the registered capital of the original domestic company, and the investment contribution by the foreign investor shall be the proportion of the purchased equity in the original registered capital.

Where a foreign investor purchases the increased capital of a domestic limited liability company, the registered capital of a foreign investment enterprise established after the merger shall be the sum of the original domestic company's registered capital and the increased capital. The foreign investor and other original shareholders of the merged domestic company shall, on the basis of the asset evaluation of the domestic company, determine the proportions of their respectively contributed investments in the foreign investment enterprise's registered capital.

Where a foreign investor purchases the increased capital of a domestic joint stock company, the registered capital of a foreign investment enterprise established after the merger shall be determined in accordance with the relevant provisions in the Company Law of the People's Republic of China.

Article 19 Where a foreign investor merges a domestic enterprise by equity merger, the upper limit of the total investment amount of the foreign-funded enterprise established after the merger shall be determined according to the following proportions, unless it is otherwise provided in relevant state's laws and regulations:

(1) if the registered capital is less than USD 2,1 million, the total investment amount shall not exceed ten sevenths (10/7) of the registered capital;

(2) if the registered capital is more than USD 2,1 million but less than USD 5 million, the total investment amount shall not exceed 2 times of the registered capital;

(3) if the registered capital is more than USD 5 million but less than USD 12 million, the total investment amount shall not exceed 2.5 times of the registered capital;

(4) if the registered capital is more than USD 12 million, the total investment amount shall not exceed 3 times of the registered capital.

Article 20 Where a foreign investor merges a domestic enterprise by asset merger, it shall determine the total investment amount of the foreign investment enterprise under planned establishment according to the transaction price for purchasing the assets and the actual scale of production and operation. The proportion of the registered capital of the foreign investment enterprise under planned establishment in its total investment amount shall conform to relevant provisions.

Chapter 3 Approval and Registration

Article 21 Where a foreign investor merges a domestic enterprise by equity merger, it shall, pursuant to the total investment amount of the foreign investment enterprise under planned establishment, the type of the enterprise and the industry it engages in, submit the following documents to the approval authority with the corresponding approval power in accordance with the laws, administrative regulations and departmental rules on establishment of foreign investment enterprises:

(1) the resolution of the shareholders of the merged domestic limited liability company on unanimous consent of the foreign investor's equity merger, or resolution of the shareholders' meeting of the merged domestic stock limited company on consent of the foreign investor's equity merger;

(2) the application for the merged domestic company to be modified in accordance with the law into and be established as a foreign investment enterprise;

(3) the contract and articles of association of the foreign investment enterprise established after the merger;

(4) the agreement on the foreign investor's purchase of the shareholders' equity of the domestic company or on the subscription of the domestic company to increase capital;

(5) the financial auditing report of the merged domestic company in the previous accounting year;

(6) the identification certificate or incorporation certificate and the credit certificate of the investor notarized and attested according to law;

(7) the statement on the enterprises invested by the merged domestic company;

(8) the business licenses (duplicates) of the merged domestic company and of the enterprises it invests in;

(9) the plan for re-settlement of the merged domestic company's employees;

(10) the documents required in articles 13, 14 and 15 hereof.

Where the business scope, scale and obtainment of land use right of the foreign investment enterprise established after the merger involves permits from other relevant governmental departments, the relevant permit documents shall be submitted along with those provided for in the preceding paragraph.

Article 22 The equity purchase agreement, capital increase agreement for domestic company shall be governed by Chinese laws, and shall include the following contents:

(1) information regarding each party to the agreements, including its name, domicile, and the name, position and nationality, etc. of its legal representative;

(2) the proportions and price of the purchased equity or the capital increased from subscription;

(3) the term and method for performance of the agreements;

(4) the rights and obligations of each party to the agreements;

(5) the liabilities for breach of the agreement and settlement of disputes;

(6) the date and place for conclusion of the agreements.

Article 23 Where a foreign investor merges a domestic enterprise by asset merger, it shall, pursuant to the total investment amount of the foreign investment enterprise under planned establishment, the type of the enterprise and the industry it engages in, submit the following documents to the approval authority with the corresponding approval power in accordance with the laws, administrative regulations and departmental rules on establishment of foreign investment enterprises:

 (1) the resolution of the property holders or authority of the domestic enterprise on agreeing to sell the assets;

(2) the application for the establishment of the foreign investment enterprise;

(3) the contract and articles of association of the foreign investment enterprise to be established;

(4) the agreement concluded between the foreign investment enterprise to be established and the domestic enterprise on purchase of assets, or, the agreement concluded between the foreign investor and the domestic enterprise on assets purchase;

(5) the articles of association and business license (duplicates) of the domestic enterprise subject to the Merger and Acquisition;

(6) the evidence of notice and public announcement to creditors by the domestic enterprise subject to the Merger and Acquisition and statement on whether or not any objection being made by creditors;

(7) the identification certificate or incorporation certificate and the credit certificate of the investor notarized and attested according to law;

(8) the plan for employees re-settlement of the domestic enterprise subject to the Merger and Acquisition;

(9) the documents required to submitted in Article 13, Article 14 and Article 15 hereof.

Where the assets of the domestic enterprise purchased and operated in accordance with the preceding paragraph involves permits from other relevant governmental departments, the relevant permit documents shall be submitted along with those provided for in the preceding paragraph.

Where a foreign investor purchases the assets of a domestic enterprise by agreement and invests such assets in establishing a foreign investment enterprise, it shall not, prior to the establishment of the foreign investment enterprise, operate any business with such assets.

Article 24 The assets purchasing agreement shall be governed by the laws of China, and shall include the following contents:

(1) information of each party to the agreements, including its name and domicile, and the name, position and nationality, etc. of its legal representative;

(2) the list and price of the assets under planned purchase;

(3) the term and method for performance of the agreements;

(4) the rights and obligations of each party to the agreements;

(5) the liabilities for breach of the agreement and settlement of disputes;

(6) the date and place for conclusion of the agreements.

Article 25 Where a foreign investor merges a domestic enterprise to establish a foreign investment enterprise, the approval authority shall, unless otherwise provided for in the present provisions, decide on, in accordance with the law, whether or not to grant the approval within thirty (30) days as of the receipt of all the documents submitted. If the approval authority decides to grant the approval, it shall issue a certificate of approval.

Where the approval authority decides to approve a foreign investor to purchase by agreement the shareholders' equity of a domestic company, it shall simultaneously make copies of the relevant approval documents separately to the foreign exchange administrative authority at the equity transferor's locality and that at the domestic company's locality. The foreign exchange administrative authority at the equity transferor's locality shall issue the relevant certificate on registration of share transference foreign exchange earnings and foreign exchange from foreign investment, which is the valid document to prove that the foreign investor has paid the consideration for equity subscription.

Article 26 Where a foreign investor merges a domestic enterprise by asset merger, it shall, within thirty (30) days as of the receipt of the approval certificate of foreign investment enterprise, apply to the administrative authority of registration for making registration of establishment, and obtaining the foreign investment enterprise's business license.

Where a foreign investor merges a domestic enterprise by equity merger, the merged domestic company shall, in accordance with the present provisions, apply to the original registration administrative authority for registration of modification, and obtaining the foreign investment enterprise's business license. If the original registration administrative authority has no jurisdiction of registration, it shall, within ten (10) days as of the receipt of the application documents, transfer them to an administrative authority of registration with the jurisdiction for handling the registration, and meanwhile attach the domestic company's registration files. The merged domestic company shall, when applying for registration of modification, submit the following documents, and be responsible for their genuineness and validity:

(1) the application for registration of modification;

(2) the agreement on the foreign investor's purchase of the shareholders' equity of the domestic company or on the subscription of the domestic company to increase capital;

(3) the amended articles of association of the company or the amendment to the original articles of association, and the contract of the foreign investment enterprise that needs to be submitted in accordance with the law;

(4) the foreign investment enterprise's approval certificate;

(5) the subject qualification certificate or the natural person's identification certificate of the foreign investor;

(6) the amended name list of the board of directors, the documents stating the names and domiciles of the newly increased directors, and the documents on the positions held by the new directors;

(7) other relevant documents and certificates provided for by the State Administration for Industry and Commerce.

The investor shall, within thirty (30) days as of the receipt of the foreign investment enterprise's business license, make registration in the departments of taxation, customs, land administration and foreign exchange control, etc.

Chapter 4 Foreign Investors Merge Domestic Companies Using Equity to Pay

Section 1 Conditions for Equity Merger

Article 27 The expression of "merger of domestic company by a foreign investor using its equity to pay" mentioned in this Chapter 4 shall refer to that the shareholder of a overseas company, using its equity in the overseas company or using its increased shares of the overseas company to pay, purchases the shareholders' equity in a domestic company or purchases the increased shares of a domestic company.

Article 28 The overseas company mentioned in this Chapter 4 shall be legally established and its registration place shall have a sound legal system on company administration, and the company and its management shall have not been punished by relevant regulatory authority in recent three (3) years. Except the special purpose companies as provided for in Section Three of this Chapter Four, the oversea company shall be a public listed company, and the listing place shall have a sound management system on securities exchange.

Article 29 When a foreign investor merges a domestic company by equity merger, the equity of the domestic and overseas companies involved in the merger shall satisfy the following conditions:

(1) the equity is lawfully held by shareholders and may be assigned according to law;

(2) the equity is free from any dispute over ownership, any pledge or any other property encumbrance;

(3) the equity of the overseas company shall be listed on an overseas open and lawful securities exchange market (excluding any over-the-market counter exchange) for transaction;

(4) the transaction price of the overseas company's equity is stable in the latest one (1) year.

The preceding Item (3) and Item (4) are not applicable to the special purpose companies as provided for in Section 3 of this Chapter 4.

Article 30 When a foreign investor merges a domestic company by equity merger, the domestic company or its shareholders shall employ an intermediary authority established and registered in China to act as its consultant (hereinafter referred to as "the Merger Consultant"). The Merger Consultant shall conduct a due diligence investigation on the authenticity of application documents in the merger, the financial status of overseas company and whether the merger is compliance with the requirements provided for in Article 14, Article 28 and Article 29 hereof, and shall issue a merger consultant's report to give clear and professional advice on the above mentioned contents item by item.

Article 31 The Merger Consultant shall satisfy the following conditions:

(1) to be with good credit standing and experiences in relevant industries;

(2) to be without record of serious violation of law or regulation;

(3) to be with the ability to investigate and analyze the legal system in the registration and listing place of the overseas company as well as the financial status of the overseas company.

Section 2 Application Documents and Procedures

Article 32 When a foreign investor merges a domestic company by equity merger, it shall submit an application to the MOC, and the domestic company shall also submit the following documents in addition to the documents as required in Chapter 3 of the present provisions:

(1) the statement on alteration in equity and material assets of the domestic company in the latest one (1) year;

(2) the merger consultant's report;

(3) the certificate of incorporation or the identity certificate of the domestic company, overseas company involved in the merger and the shareholders of these companies;

(4) the statement on shareholding status of the shareholders of the overseas company and the name list of shareholders who hold more than 5% equityof the overseas company;

(5) the articles of association of the overseas company and statement on external guarantee provided by the overseas company;

(6) the audited financial statements of the overseas company in recent years and the statement on stock transaction in the latest half a year.

Article33 MOC shall make an examination on the merger application within thirty (30) days as of the receipt of all application documents as required, and if the application can satisfy the conditions, it shall issue a certificate therefore and indicate the following words on the certificate "a foreign investor merges a domestic company by equity merger, which is valid within six (6) months as of the issuance of the business license".

Article 34 Within thirty (30) days as of the receipt of certificate with the above mentioned indication, the domestic company shall go through the procedures on registration of alteration with the competent administrative authority of registration and the foreign exchange administrative authority, and the administrative authority of registration and the foreign exchange administrative authority shall respectively issue the business license for a foreign investment enterprise and the foreign exchange registration certificate to the domestic company, on which it shall indicated the words of "valid within eight (8) months as of its issuance".

When the domestic company goes through procedures on registration of alteration with the administrative authority of registration, it shall in advance submit the application for equity alteration, amendment to the articles of association and the agreement on equity transference signed by the legal representative of the domestic company for the purpose of restoration of equity structure.

Article 35 Within six (6) months as of the issuance of the business license, the domestic company or its shareholders shall apply to the MOC and the foreign exchange administrative authority for approval and registration of establishment of foreign investment enterprise with respect to the equity of an overseas company held by the domestic company.

In addition to the documents to be submitted to the MOC as required in the Provisions on Approval of Investment in and Establishment of Overseas Enterprises, the parties to a merger shall also submit the approval certificate and the business license of the foreign investment enterprise with the indication as mentioned above. After the equity held by a domestic company or its shareholders in an overseas company is approved by the MOC, the MOC shall issue the Approval Certificate of Overseas Investment by Chinese Enterprises to the domestic company, and shall also reissue an approval certificate for the foreign investment enterprise without the above mentioned indication.

Within thirty (30) days as of the receipt of an approval certificate for the foreign investment enterprise without indication, the domestic company shall apply to the administrative authority of registration and the foreign exchange administrative authority for re-issuance of the business license for a foreign investment enterprise and the foreign exchange registration certificate without indication.

Article 36 If the domestic company and the overseas company fail to go through the procedures for alteration of equity within six (6) months since issuance of the business license, the approval certificate with remarks and the approval certificate of overseas investment by Chinese enterprise shall be invalidated automatically. The registration administrative authority shall examine and approve the registration on alteration based on the application documents for registration on equity alteration submitted by the domestic company in advance, so as to restore the equity structure of the domestic company to the status before the equity merger.

If a foreign investor fails to merge the increased shares of a domestic company, the domestic company, before the registration administrative authority approves the registration on alteration in accordance with the preceding paragraph, shall also reduce its registered capital accordingly and make public announcement on the newspaper in accordance with the provisions of Company Law of the People's Republic of China.

If the domestic company fails to go through the procedures of registration in accordance with the preceding paragraph, the registration administrative authority shall settle it in accordance with the relevant provisions of Regulations of the People's Republic of China on Administration of Registration of Companies.

Article 37 Prior to the obtainment of the approval certificate for a foreign investment enterprise and the foreign exchange certificate without indication, the domestic company shall not distribute profits to any shareholder, or provide any guarantee to any of its affiliated company, or assign any equity to any third party, or reduce its registered capital, or make liquidation or any other matters relating to its assets.

Article 38 The domestic company and its shareholders may go through the procedures on registration of taxation alteration with the competent taxation authority with the approval certificate and the business license without indication issued by the MOC and the registration administrative authority.

Section 3 Special Provisions on Special Purpose Companies

Article 39 The "special purpose company" shall refer to an overseas company directly or indirectly controlled by a domestic company or Chinese natural person to realize the interests of a domestic company actually owned by the aforesaid domestic company or Chinese natural person by means of overseas listing.

Where the shareholders of a special purpose company use its equity in the company as the means of payment, or a special purpose company uses its increased shares as the means of payment, for the purpose of realizing oversea listing, to purchase the shareholders' equity right in a domestic company or the increased shares of a domestic company, the provisions of this Section 3 shall apply.

Where a party to the merger takes an overseas company, as the subject of overseas listing, the overseas company shall meet the relevant requirements on special purpose companies as provided for in this Section 3.

Article 40 Where a special purpose company to be listed overseas, the listing shall be proved by the securities regulatory authority under the State Council.

The country or region where the special purpose company is listed shall have a sound legal and regulatory system, and the securities regulatory authority of such country or region has concluded a memorandum of understanding on cooperation in regulation with the securities regulatory authority under the State Council, and has kept the effective relationship of cooperation in regulation.

Article 41 A domestic company whose shares are listed overseas as mentioned in this Section Three shall meet the following conditions:

(1) to be with a clear ownership and is free from any dispute or potential dispute over its equity;

(2) to be with a complete business operation system and good sustainable business capacity;

(3) to be with a sound corporate governance structure and internal management system;

(4) the company and its major shareholders have no record of material violation of laws or regulations in recent three (3) years.

Article 42 Where a domestic company intends to establish a special purpose company overseas, it shall submit an application to the MOC for approval. When submitting the application, in addition to the documents to be submitted to the MOC as required in the Provisions on Approval of Investment in and Establishment of Overseas Enterprises, the domestic company shall also submit the following documents to the MOC:

(1) the identity certificate of the actual controller of the special purpose company;

(2) the business proposal for overseas listing of the special purpose company;

(3) The evaluation report made by the Merger Consultant on the potential issuing price of shares when the special purpose company is listed overseas.

Upon obtainment of the approval certificate of overseas investment by Chinese enterprises, the promoter or the controller shall apply to the foreign exchange administrative authority of its locality for the corresponding registration of foreign exchange in overseas investment.

Article 43 The total value of shares of the special purpose company to be issued overseas shall not be less than the total value of share right of the merged domestic company as evaluated by a corresponding asset valuation institution in China.

Article 44 Where a special purpose company merges a domestic company by equity merger, the domestic, in addition to the documents to be submitted to the MOC as required in Articles 32 hereof, shall also submit the following documents:

(1) the approval documents and certificates for investment in and establishment of overseas enterprises when setting up the special purpose company;

(2) the registration form of foreign exchange in overseas investment for the special purpose company;

(3) the identity certificate or incorporation certificate and articles of association of the actual controller of the special purpose company;

(4) the business proposal for overseas listing of the special purpose company;

(5) the evaluation report made by the Merger Consultant on the potential issuing price of shares when the special purpose company is listed overseas.

If an overseas company holding the equity of a special purpose company is the subject of overseas listing, the domestic company shall also submit the following documents:

(1) the incorporation certificate and articles of association of the overseas company;

(2) the detailed statement on the transaction arrangement and evaluation method for the equity of the merged domestic company between the special purpose company and the overseas company.

Article 45 If the MOC approves the documents as provided for in Article 44 hereof in the preliminary examination, it shall issue a letter of reply in principle, and the domestic company may use this letter of reply to submit the documents for application of public listing to the securities regulatory authority under the State Council. The securities regulatory authority under the State Council shall decide on whether approve it or not within twenty (20) business days.

After the obtainment of approval, the domestic company shall apply to the MOC for the approval certificate. The MOC shall issue an approval certificate indicated with the following words to the domestic company: "Holding share right by an overseas special purpose company, valid within one (1) year as of the issuance of the business license".

Where the equity or any other matters of a special purpose company is changed due to the merger, the domestic company or natural person who holds the share right of the special purpose company shall use the approval certificate for a foreign investment enterprise with the above mentioned indication to go through the procedures with the MOC on approval of alteration in the enterprise invested and established overseas with respect to the relevant matters of the special purpose company, and shall apply to the foreign exchange administrative authority of its locality for alteration in registration of foreign exchange in overseas investment.

Article 46 Within thirty (30) days as of the receipt of certificate with the above mentioned indication, the domestic company shall go through the procedures on registration of alteration with the competent registration administrative authority and the foreign exchange administrative authority, and the registration administrative authority and the foreign exchange administrative authority shall respectively issue the business license for a foreign investment enterprise and the foreign exchange registration certificate to the domestic company, on which it shall indicated the words of "valid within fourteen (14) months as of its issuance".

When the domestic company goes through procedures on registration of alternation with the registration administrative authority, it shall in advance submit the application for equity alternation, amendment to the articles of association and the agreement on equity transference signed by the legal representative of the domestic company for the purpose of restoration of equity structure.

Article 47 Within thirty (30) days after the special purpose company or an overseas company have affiliation relationship with the special purpose company has completed the overseas listing, the domestic company shall report the situation of overseas listing and the proposal of financing income retrieval to the MOC, and shall apply to the MOC for re-issuance of an approval certificate for foreign investment enterprises without indication. Furthermore, within thirty days as of the completion of overseas listing, the domestic company shall report the situation of overseas listing and submit relevant documents for reference to the securities regulatory authority under the State Council. The domestic company shall also submit the proposal of financing income retrieval to the foreign exchange administrative authority, and the foreign exchange administrative authority shall supervise over the implementation of this proposal. Within thirty (30) days as of the receipt of an approval certificate for foreign investment enterprises without indication, the domestic company shall apply to the registration administrative authority and the foreign exchange administrative authority for re-issuance of the business license for foreign investment enterprises and the foreign exchange registration certificate without indication.

Where the domestic company fails to report to the MOC within the above mentioned time limit, the approval certificate with indication issued for the domestic company shall be automatically invalidated, and the equity structure of the domestic company shall be restored to the status before the share right merger, and the domestic company shall go through the procedures on registration of alteration in accordance with Article 36 hereof.

Article 48 The financing income of a special purpose company from overseas listing shall be retrieved and used inside the territory of China in accordance with the proposal of financing income retrieval filed with the foreign exchange administrative authority and with the current effective laws and regulations on foreign control. The financing income may be retrieved into the territory of China by any of the following means:

(1) to provide commercial loans to the domestic company;

(2) to establish a new foreign investment enterprise inside the territory of China;

(3) to merge a domestic enterprise.

The retrieval of overseas financing income of a special purpose company by any of the above mentioned means shall be subject to the relevant laws and administrative regulations of China on foreign investment and overseas debt administration. Where the retrieval of overseas financing income of a special purpose company causes the share right held by a domestic company and natural person in the special purpose company to be increased or causes the net assets value of the special purpose company to be increased, the parties thereto shall disclose the fact and submit an application for approval. After the obtainment of approval, the parties thereto shall go through the procedures on registration of foreign exchange in overseas investment and registration of alteration in overseas investment.

If a domestic company and natural person gain any profits, dividends from the special purpose company or gain foreign exchange income from the alteration in capital, it shall retrieve such profits, dividends or income into the territory of China within six (6) month as of its gaining. The profits and dividends may be accrued to the foreign exchange under current account or be settled as foreign exchange. With respect to the foreign exchange income from the alteration in capital, upon approval of the foreign exchange administrative authority, it may be deposited in a special account for capital item, or may be settled as foreign exchange upon approval of the foreign exchange administrative authority.

Article 49 If the domestic company fails to obtain an approval certificate without indication within one (1) year as of the issuance of the business license, the approval certificate with indication shall be invalidated automatically, and the domestic company shall go through the procedures on registration of alteration in accordance with Article 36 hereof.

Article 50 After the special purpose company has completed its overseas listing and the domestic company has obtained the approval certificate without indication and the business license, if the parties thereto continue to merge a domestic company using the share right of the special purpose company as the means of payment, it shall be subject to the provisions of Section 1 and Section 2 of this Chapter 4.

Chapter 5 Supplementary Provisions

Article 51 According to the provisions of the Antimonopoly Law, where M&A of a domestic enterprise by a foreign investor meets the thresholds for declaration of the Provisions of the State Council on Thresholds for Declaration of Concentrations of Undertakings, the foreign investor shall make a declaration with the MOFCOM and shall not carry out the deal without declaration.

Article 52 An investment company which is established by a foreign investor inside the territory of China in accordance with the law shall be governed by the present provisions to merge a domestic enterprise.

Where a foreign investor purchases the equity of a domestic foreign investment enterprise or subscribes the increased capital of a domestic foreign investment enterprise, it shall be subject to the current laws, administrative regulations on foreign investment enterprises and the relevant provisions on alteration in investors' share right of foreign investment enterprises. If there is no such applicable provision, it shall be handled by reference to the present provisions.

Where a foreign investor merges or acquire a domestic enterprise by its foreign investment enterprise established in China, it shall be subject to the relevant provisions on merger and division of foreign investment enterprises, and the relevant provisions on domestic investment by foreign investment enterprises. If there is no such applicable provision, it shall be handled by reference to the present provisions.

Where a foreign investor merges a domestic limited liability company and reauthorizes it into a joint stock company, or the domestic company is a joint stock company, it shall be subject to the relevant provisions on establishment of foreign investment joint stock companies. If there is no such applicable provision, it shall be subject to the present provisions.

Article 53 The applicant or reporter shall sort relevant documents and attach a file list thereof in accordance with the present provisions. All the documents to be submitted shall be in Chinese.

Article 54 A Chinese natural person shareholder of the domestic company merged by equity merger, upon approval, may continue to be the Chinese investor in the foreign investment enterprise established after the merger.

Article 55 If the nationality of a natural person shareholder of the domestic company is changed, the nature of the company will not be affected therefore.

Article 56 The personnel of relevant governmental agencies must be faithful to their duties, perform their responsibilities according to law, and shall not seek any unlawful interests by taking advantage of their positions, and shall be liable to keep the confidentiality of any business secret.

Article 57 The mergers by investors from Hong Kong Special Administrative Region, Macau Special Administrative Region and Taiwan Region of the enterprises in other regions inside the territory shall be handled by referring to the present provisions.

Article 58 The present provisions shall enter into force as of September 8, 2006.
 
 
  Ministry of Commerce PRC 2009-06-22