Shanghai Municipality, Acquisition of State-owned Enterprises in the Municipality by Foreign Investors Several Opinions Implementing Rules

Article 4: The term "acquisition of State-owned enterprises in the municipality by foreign investors" herein means the purchase of equity in a State-owned enterprise in Shanghai by a foreign investor, resulting in the conversion of such enterprise into a newly established foreign-invested enterprise; or the purchase of assets of a State-owned enterprise in Shanghai by a foreign investor, and the investment of such assets in the establishment of a foreign-invested enterprise.

Article 5: The term "comprehensive service window for acquisitions by foreign investors" herein means a business channel authorized by the State-owned Assets Supervision and Administration Commission of Shanghai Municipal Government, the Shanghai Foreign Investment Commission and the Shanghai Administration of Industry and Commerce, established at the Shanghai Assets and Equity Exchange and the Shanghai Technology and Equity Exchange (hereafter collectively, the Equity Exchanges) to provide parties to an acquisition services such as information and policy advice, the accepting of acquisition applications, assistance in the carrying out of asset valuation, and equity transactions.

Article 6: The duties of the comprehensive service window for acquisitions by foreign investors shall be:

1. to formulate, on a regular basis, a list of projects in which foreign investment is encouraged in Shanghai, compile the purposes of acquisitions by foreign investors, and make public announcements through relevant channels such as the information network of the Equity Exchanges and the Shanghai Foreign Investment Development Board;

2. to accept applications for acquisitions by foreign investors according to authorization, organize activities such as project promotions, matchmaking and talks, and facilitate transactions;

3. to carry out checks on aspects such as qualifications, commercial reputation, business status and financial status of foreign investors that submit a plan for an acquisition;

4. to organize intermediaries to provide the parties to a merger or acquisition related services such as market research, information consulting, asset valuation, entrustment for representation in transactions; and

5. to assist parties to acquisitions to carry out related procedures such as submission for examination and approval and changes in business registration.

Article 7: Acquisitions of State-owned enterprises in the municipality by foreign investors must, in accordance with the relevant provisions, undergo asset valuation, equity transactions, and registration of changes in equity, which are specifically to be carried out in accordance with the following procedures:

1. Application

Foreign investors submitting acquisition plans must obtain an Application Form for Acquisitions by Foreign Investors from the comprehensive service window. After the comprehensive service window has accepted such application, it must be submitted to the Shanghai Foreign Investment Commission for the record.

2. Asset Valuation

Following negotiations, the parties to an acquisition must entrust an asset valuation institution with the relevant qualifications to carry out a valuation of the assets of the State-owned enterprise being acquired, in accordance with the provisions of the relevant State and Shanghai laws and statutes. The valuation results are to be submitted to the Shanghai assets valuation centre for confirmation in accordance with provisions.

3. Entrustment and Signing Agreements

The parties to an acquisition must entrust a qualified equity brokerage to carry out the equity transaction, and sign a Contract for Entrustment of Equity Transactions in Shanghai Municipality with the equity brokerage; and the equity brokerage, in accordance with the entrustment by both parties to the acquisition and the relevant Shanghai provisions, will draft a Contract for Equity Transactions in Shanghai Municipality, and both parties to the agency transaction must sign the agreement to conclude the transaction.

4. Equity Assignment and Registration of Changes in Equity

The assignment of equity of State-owned enterprises must be carried out at the Equity Exchanges; the Equity Exchanges will carry out examination and approval of the equity transaction contract and the materials relevant thereto in accordance with the relevant State and Shanghai provisions, and issue an equity transaction certificate.

After the transaction has been concluded and the agreement signed, the State-owned enterprise being acquired must carry out the procedures for cancellation or registration of changes of State-owned equity in accordance with provisions.

Article 8: Acquisitions of State-owned enterprises in the municipality by foreign investors shall adopt market operating methods and methods such as bidding, auction or agreement to assign, and may also follow the provisions of Shanghai municipality related to equity assignment.

The transaction price of acquisitions of State-owned enterprises in the municipality by foreign investors shall be based on the price from the confirmed asset valuation results.

Article 9: After the assignment of State-owned equity, where the controlling rights to the enterprise are assigned or all or the main operating assets of an enterprise are sold to a foreign investor, the parties to the merger or acquisition must formulate an enterprise adjustment and restructuring plan and a proper employee settlement plan, to be considered and adopted at an employee representatives' meeting.

During the process of acquisition of State-owned enterprises in the municipality by foreign investors, the economic compensation required to be paid to employees of the enterprise being acquired upon dissolution of the labour relationship and termination of contract, reduction in enterprise staff or dissolution of the contract without fault, etc. shall be handled in accordance with the relevant provisions of the Shanghai Municipality, Labour Contract Regulations.

Article 10: After the acquiring enterprise has obtained an equity transaction certificate, the relevant materials of both parties to the transaction shall, with the assistance of the comprehensive service window for acquisitions by foreign investors, be submitted to the Shanghai Municipal Foreign Investment Commission for examination and verification. The following materials must be submitted:

- application for the acquisition project;

- approval documents for equity assignment by the enterprise being acquired;

- contract, articles of association and appendices of the post-acquisition foreign-invested enterprise;

- the agreement for the foreign investor to purchase the equity of or subscribe to a capital increase in the State-owned enterprise;

- equity transaction certificate;

- financial and auditing report for the recent financial year of the State-owned enterprise being acquired;

- asset valuation report and confirmation opinion of the enterprise being acquired;

- the business licences of the State-owned enterprise being acquired and the enterprises in which it has invested;

- the identification certificate or certificate of commencing business and credit certification of the foreign investor;

- the explanation of the status of the enterprises in which the State-owned enterprise being acquired has invested;

- the employee resettlement plan of the State-owned enterprise being acquired; and

- other materials that must be provided.

Within 10 working days of receiving the materials sent for examination, the Shanghai Foreign Investment Commission shall issue approval documents and an approval certificate to those that meet requirements.

Article 11: Following examination and approval by the Shanghai Foreign Investment Commission, the parties to the acquisition shall apply to carry out procedures for change in registration with the administrative department for industry and commerce within the stipulated period.

1. The party being acquired shall carry out the procedures for changing domestic investment to foreign investment with their original registration department, to which the following materials must be submitted:

- application for a change in registration of an enterprise legal person;

- application;

- official reply of the Shanghai Foreign Investment Commission;

- original and duplicate of the business licence, and IC card; and

- other materials that must be provided.

2. The party being acquired must also apply to carry out the procedures for change in registration with the foreign investment registration department, to which the following materials must be submitted:

- application for the change in (record filing of) registration of a foreign-invested enterprise;

- approval certificate for a change in enterprise name (except where the name is not changed);

- official reply and approval certificate of the shanghai foreign investment commission;

- equity transaction certificate and equity transaction contract;

- valuation report and confirmation opinion for the State-owned enterprise being acquired;

- registration certificate for commencing business of the acquiring enterprise;

- bank credit certificate of the foreign investor;

- enterprise contract and articles of association;

- documents appointing the members of the board of directors;

- photocopies of the identification documents of the directors;

- the certificates for use of the residential, production or business sites (property ownership certificate, land use certificate or a lease agreement with a lease term of at least one year); and

- other materials required to be provided.

3. After the administrative department for industry and commerce has received the materials for the establishment registration or change in registration of the parties to the acquisition, it shall, in accordance with the provisions, issue a business licence within 10 working days.

Article 12: The parties being acquired must, within 30 days of the issuance of the business licence, carry out the procedures for relevant changes in rights or certificates with the relevant departments such as taxation, customs, banks, real property, foreign exchange administration and public utility, etc.

Article 13: Enterprises in which the actual capital contributions by the foreign party exceed 25% (including 25%) of the enterprise's registered capital after the State-owned enterprise has been acquired by the foreign investor shall be entitled to the preferential treatment for Sino-foreign equity joint ventures.

Where the actual capital contributions of the foreign party are less than 25% of the registered capital, the approval authority and registration authority shall mark the words "foreign investment ratio lower than 25%" on the approval certificate and business licence issued to the foreign-invested enterprise.

Article 14: Where a foreign-invested enterprise is established after acquisition of a State-owned enterprise in the municipality by a foreign investor, the foreign investor must, within three months of the date on which the foreign-invested enterprise's business licence is issued, pay the full price to the shareholder assigning the equity or the enterprise in Shanghai selling the assets; where an extension is required under special circumstances, following approval by the examination and approval authority, 60% or more of the full price must be paid within six months of the date on which the foreign-invested enterprise business licence is issued, and the full price must be paid within one year; and profits shall be allocated in proportion to the actual paid capital contributions.

In respect of foreign-invested enterprises established by acquisitions of State-owned enterprises in the municipality by foreign investors, where the foreign investor's ratio of capital contributions is lower than 25% and the investors' contributions are made in cash, the foreign investor must pay up in full within three months of the date on which the business licence of the foreign-invested enterprise is issued.

The methods for paying the transaction price must comply with relevant State laws, statutes and provisions. Where the foreign investor uses the shares for which it has disposal rights or its lawfully owned renminbi assets as a method of payment, the approval of the foreign exchange administration department is required.

Article 15: During the process of acquisition of a State-owned enterprise in the municipality by a foreign investor, the relevant taxation, fee collection, etc. policies shall be carried out in accordance with the relevant State and Shanghai laws, statutes and provisions.

Article 16: Where relevant personnel of the enterprise being acquired or personnel in the government departments responsible for examination and approval act ultra vires, neglect their duties, or privately collaborate, engage in corruption or bribery with foreign investors, and such act harms the lawful rights and interests of the State, creditors or employees, the relevant government departments shall impose an administrative fine or penalties in accordance with law; where a crime is constituted, criminal liability shall be pursued in accordance with the law.

Article 17: Acquisitions of State-owned enterprises in the municipality by enterprises or other economic organizations, or individuals from the Hong Kong, Macao or Taiwan region shall, mutatis mutandis, be handled in accordance with these Implementing Rules.

Article 18: The State-owned Assets Supervision and Administration Commission of Shanghai Municipal Government, the Shanghai Foreign Investment Commission and the Shanghai Administration of Industry and Commerce shall be responsible for the interpretation of these Implementing Rules.

Article 19: These Implementing Rules shall be effective as of the date of issue.