State Council Reform and Acquisition of Non-floating Shares in Listed Companies

By Jonathan Zhou, Fangda Partners, Shanghai

On November 11 2002, the China Securities Regulatory Commission (CSRC), the Ministry of Finance (MOF) and the State Economy and Trade Commission (SETC) jointly issued the Issues Relevant to the Transfer of State-owned Shares and Legal Person Shares in Listed Companies to Foreign Investors Circular (the Joint Circular). The Joint Circular sets out the approval requirements for foreign investors to acquire state-owned shares and legal person shares in Chinese listed companies (Non-floating Shares). According to the Joint Circular, the acquisition of Non-floating Shares should be subject to: (i) approval from the SETC on industry policies and enterprise restructuring; or approval of the State Council, if the deals are significant; (ii) MOF approval as to the administration on transfer of state assets; (iii) registration with the State Administration of Foreign Exchange (SAFE) in relation to foreign capital used for acquisition purposes; and (iv) registration with the State Administration of Industry and Commerce (SAIC) and the securities clearing company for change of title of the shares to be acquired.

Six months after the Joint Circular was issued, the National People's Congress approved the reform plan for the State Council. As a result, the SETC no longer exists. The State Asset Administration Commission (SAAC) has been established to undertake administration functions in respect of state assets, which were formerly undertaken by the MOF. Also, the Ministry of Commerce (MOFCOM) has been established to undertake the functions of the former Ministry of Foreign Trade and Economic Cooperation (MOFTEC) and some of the functions of the SETC.