China Securities Regulatory Commission, Strengthening the Protection of the Rights and Interests of Public Shareholders Several Provisions

Issued: December 7 2004
Effective: as of date of issue
Applicability: The Provisions apply to listed companies whose shares are listed and traded on the Shanghai and Shenzhen Stock Exchanges (Item Six).

Main contents: Section One lists matters that require approval by more than half of the voting rights held by public shareholders present for voting before implementation or application therefor:
1) issue of additional new shares to the public (including issue of warrants of offshore-listed foreign investment shares or other types of shares), issue of convertible corporate bonds and rights issues to existing shareholders (except for shareholders with actual controlling power who have undertaken to subscribe wholly in cash before the general meeting is convened) by the listed company;
2) material asset reorganization of the listed company, in which the price premium between the total purchase price of the assets and the audited net book value of such assets amounts to 20% or more;
3) shareholders' repayment of debts owed to the listed company with the equity interest held therein;
4) offshore listing of subsidiaries of the listed company with material impact thereto; and
5) relevant matters in the development of the listed company with material impact on the rights and interests of public shareholders.

Section Two concerns improvement of the independent director system. An independent director may not be removed without legitimate cause before the expiration of his term. Section Three concerns strengthening of investor relations management, and enhancing the quality of information disclosure of listed companies. Listed companies that have not carried out any profit distribution in cash for the most recent three years may not issue additional new shares to the public, issue convertible corporate bonds or issue rights to existing shareholders (Section Four). Section Five concerns strengthening the supervision of listed companies and senior management personnel.
Related legislation: State Council, Promoting the Reform, Opening up and Stable Development of the Capital Markets Several Opinions, Jan 31 2004, CLP 2004 No.7 p75 and PRC Company Law (Amended), Oct 27 2005, CLP 2005 No.10 p21