Conversion of Non-listed Foreign Investment Shares into B Shares

By Christophe Han, Llinks Law Office, Shanghai

Shares in listed companies in China are divided into two distinct types: listed shares and non-listed shares. As such, public offerings and listings, among the common exit mechanisms for investors in the international capital markets, probably do not mean that the promoting shareholders of Chinese listed companies can release their investment by listing their shares on stock exchanges. However, there has been an exemption given by regulators to B share foreign-invested companies since 2000. Since then, it has been seen that foreign parties to foreign-invested enterprises (FIEs) have released their equity after the IPO; this is especially true since the B share market was opened to domestic investors last year. Now the authorities are seeking stronger regulation over foreign participation exits through listing and circulation of non-listed foreign investment shares.

On August 16 2002, the Ministry of Foreign Trade and Economic Cooperation (MOFTEC) issued the Questions Relevant to the Conversion of Non-listed Foreign Investment Shares of Foreign-invested Companies Limited by Shares into B Shares for Circulation Supplementary Circular (the Supplementary Circular).