Administration of the Buyback by Listed Companies of Their Public Shares Procedures (Trial Implementation)

(Issued by the China Securities Regulatory Commission on, and effective as of, June 16 2005.)

Zheng Jian Fa [2005] No.51

PART ONE: GENERAL PROVISIONS

Article 1: These Procedures have been formulated pursuant to the Company Law, the Securities Law, the Administration of the Issuing and Trading of Shares Tentative Regulations and other related laws and administrative regulations, in order to regulate buybacks by listed companies of their public shares.

Article 2: For the purposes of these Procedures, the term "buyback by listed companies of their public shares" means the act whereby listed companies buy back their public shares (Shares) and cancel them in accordance with the law in order to reduce their registered capital.

Article 3: When a listed company intends to buy back its Shares, it shall submit the record filing materials to the China Securities Regulatory Commission (the CSRC) in accordance with these Procedures.

Article 4: A Share buyback by a listed company shall be beneficial to the sustainable development of the company and may not prejudice the lawful rights and interests of the shareholders or creditors.

The directors, supervisors and senior management personnel of a listed company shall act honestly and carry out their duties diligently and faithfully during a Share buyback.

Article 5: When a listed company intends to buy back its Shares, it shall perform its information disclosure obligations in accordance with these Procedures.

The listed company and its directors shall ensure that the information that is disclosed is true, accurate, complete and free of any false or misleading statements or material omissions.

Article 6: The listed company shall engage an independent financial advisor and a law firm to issue professional opinions on matters relating to the Share buyback.

The aforementioned professional organizations shall act honestly, carry out their duties diligently and faithfully, carry out a due-diligence investigation of matters relating to the Share buyback, check the record filing materials and ensure that the documents that they issue are true, accurate and complete.

Article 7: No one may take advantage of a Share buyback by a listed company to engage in insider trading, manipulate securities prices or engage in securities fraud.

PART TWO: GENERAL PROVISIONS GOVERNING SHARE BUYBACKS

Article 8: A listed company that intends to buy back its Shares shall satisfy the following conditions:

(1) the company's stock has been listed for at least one year;

(2) the company has not committed any major violations of the law in the previous year;

(3) after the Share buyback, the listed company will have the capacity to continue operations;

(4) after the Share buyback, the spread of the listed company's equity shall, in principle, comply with listing conditions; if the company intends to halt the listing and trading of its stock through a Share buyback, it shall comply with the relevant provisions and obtain the approval of the stock exchange; and

(5) other conditions as specified by the CSRC.

Article 9: A listed company may effect a Share buyback by any of the methods set forth below:

(1) by centralized competitive trading on the stock exchange;

(2) by offer; or

(3) by another method approved by the CSRC.

Article 10: The rights attached to Shares that are bought back shall lapse on the date possession passes to the listed company's dedicated buyback account. When the listed company calculates the relevant indicators, it shall deduct from its total share capital the quantity of Shares that have been bought back.

Article 11: A listed company may not offer new shares during the Share buyback period.

A listed company may not buy back its Shares by way of centralized competitive trading within five working days prior to the disclosure of its annual or interim report or before the public disclosure of information that would have a material effect on its share price.

Article 12: If the Share buyback by a listed company results in a shareholder holding or controlling more than 30% of the company's outstanding shares, such shareholder shall not be required to perform its obligation of making a takeover offer.

PART THREE: SHARE BUYBACK PROCEDURE AND INFORMATION DISCLOSURE

Article 13: The board of directors of the listed company shall announce its Share buyback resolution and preliminary plan for the Share buyback within two working days of adopting the resolution, and issue a notice to convene a shareholders' general meeting.

The preliminary Share buyback plan shall at least include the following particulars:

(1) the objective of the Share buyback;

(2) the Share buyback method;

(3) the price or price range for the Share buyback and the price setting principles;

(4) the type and quantity of Shares to be bought back and the percentage of the total share capital for which they account;

(5) the total amount and source of the funds to be used for the buyback;

(6) the time period for the Share buyback;

(7) the anticipated change in the equity structure of the company after the buyback; and

(8) an analysis by management of the effect of the proposed Share buyback on the company's operations, finances and future growth.

Article 14: Three days prior to the shareholders' general meeting, the listed company shall post on the stock exchange's website the names of the 10 largest public shareholders, the number of shares they hold and their shareholding percentages on record on the trading day preceding the announcement of the board's Share buyback resolution and on the date of record for the shareholders' general meeting.

Article 15: The independent financial advisor shall conduct a due-diligence investigation of matters relating to the listed company's Share buyback, issue an independent financial advisor's report and announce the same five days prior to the shareholders' general meeting in the newspapers and periodicals designated by the CSRC.

The independent financial advisor's report shall include the following information:

(1) whether the company's Share buyback complies with these Procedures;

(2) based on the combination of such factors as the objective of the Share buyback, share price performance, an analysis of the company's estimated value, etc., an explanation of the necessity of the buyback;

(3) based on the combination of such factors as the funds required to buy back the Shares, the source of such funds, etc., an analysis of the effect of the Share buyback on the company's day-to-day operations, profitability and solvency, and an explanation of the feasibility of the buyback plan; and

(4) other matters requiring explanation.

Article 16: The shareholders' general meeting of the listed company shall hold votes on each of the following matters:

(1) the Share buyback method;

(2) the price or price range for the Share buyback and the price setting principles;

(3) the type and quantity of Shares to be bought back and the percentage they account for;

(4) the total amount of funds to be used for the buyback;

(5) the time period for the Share buyback;

(6) authorizing the board to implement the buyback plan; and

(7) other related matters.

When announcing the resolutions of the shareholders' general meeting, the listed company shall state that "this buyback plan may only be implemented after submission to the CSRC for the record and if the CSRC has no objections".

Article 17: To pass a resolution on the Share buyback at the shareholders' general meeting of the listed company, it shall require at least two-thirds of the votes of the shareholders in attendance.

Article 18: After adopting the Share buyback resolution, the listed company shall notify its creditors in accordance with the law.

Article 19: After it has notified its creditors in accordance with the law, the listed company may submit its Share buyback record filing materials to the CSRC with a copy to the CSRC's agency in the place where the listed company is located.

Article 20: The listed company's Share buyback record filing materials shall include the following documents:

(1) a Share buyback application;

(2) the board resolution;

(3) the resolution of the shareholders' general meeting;

(4) the listed company's buyback report;

(5) the independent financial advisor's report;

(6) the legal opinion;

(7) the most recent audited financial accounting statements of the listed company;

(8) the self-examination reports of the listed company's directors, supervisors and senior management personnel and of the various intermediary organizations involved in the proposed buyback in respect of their sale and purchase of the listed company's Shares in the six months prior to the adoption of the buyback resolution at the shareholders' general meeting; and

(9) other documents as specified by the CSRC.

Article 21: The listed company's buyback report shall include the following information:

(1) the matters included in the preliminary Share buyback plan as specified in Article 13 hereof;

(2) an explanation of whether the listed company's directors, supervisors or senior management personnel purchased or sold the listed company's stock in the six months prior to the announcement of the buyback resolution at the shareholders' general meeting and whether any one of them alone or jointly with any third party has engaged in insider trading or market manipulation;

(3) the conclusive opinion issued by the independent financial advisor concerning the proposed Share buyback;

(4) the conclusive opinion issued by the law firm concerning the proposed Share buyback; and

(5) other matters requiring explanation.

If the Share buyback is to be effected by way of an offer, the manner of and procedure for preliminary acceptance of the offer by shareholders, the manner of and procedure for withdrawal of the preliminary acceptance of the offer by shareholders and the name and method of contacting the securities company that shareholders may appoint to handle such matters as the preliminary acceptance, withdrawal of the preliminary acceptance, settlement, and registration of the change of ownership of the relevant Shares subject to the buyback offer shall additionally be disclosed.

Article 22: The legal opinion on the listed company's Share buyback issued by the law firm shall include the following information:

(1) whether the Share buyback by the company complies with the conditions specified in these Procedures;

(2) whether the company has carried out the statutory procedures for the Share buyback; if the approvals of other competent departments are required, whether such approvals have been obtained;

(3) whether the company has performed its relevant information disclosure obligations in respect of the Share buyback in accordance herewith;

(4) whether the source of the funds for the company's Share buyback is legal; and

(5) other matters requiring explanation.

Article 23: If the CSRC does not raise any objections within 10 working days of the date of accepting the listed company's Share buyback record filing materials, the listed company may implement the buyback plan.

If the Share buyback is to be effected by way of the centralized price competition method, the listed company shall announce its buyback report within five working days of receipt of the no objection letter from the CSRC. If the Share buyback is to be effected by way of an offer, the listed company shall, within two working days of receipt of the no objection letter from the CSRC, announce the same and shall announce the buyback report prior to implementing the buyback plan.

The listed company shall announce the legal opinion simultaneously with its announcement of the buyback report.

Article 24: Before the listed company implements the buyback plan, it shall open with the securities depository and clearance institution a dedicated buyback account monitored by the stock exchange. Such account may only be used to buy back the company's Shares, which shall be locked and may not be sold.

Article 25: The listed company shall implement the buyback plan during the buyback period.

If the listed company still has not implemented the buyback plan three months prior to the expiration of the buyback period, the board shall announce the reason why the company has failed to effect the buyback.

Article 26: Once the buyback period expires or the buyback is completed, the company shall cease buying back its Shares, close its dedicated buyback account, announce the report on the change in the company's Shares within two working days and, within 10 days, cancel, in accordance with the law, the Shares that were bought back and carry out the procedures for the amendment of registration with the administration for industry and commerce.

PART FOUR: SPECIAL PROVISIONS FOR SHARE BUYBACKS EFFECTED BY WAY OF THE CENTRALIZED COMPETITIVE TRADING METHOD

Article 27: The listed company shall appoint, in accordance with the relevant provisions of the stock exchange and securities depository and clearance institution, a securities company qualified to engage in securities brokering to handle matters relating to its Share buyback.

Article 28: During the Share buyback period, the listed company shall, within the first three trading days of each month, announce the progress of its buyback as at the end of the preceding month, including the total number of Shares bought back, the highest and lowest prices at which they were purchased and the total amount paid.

Whenever the Shares bought back through the centralized competitive trading method account for an additional 1% of the total share capital of the listed company, the listed company shall announce the same within two trading days of the date of the occurrence thereof.

Article 29: Once the buyback period expires or the buyback is completed, the listed company shall disclose in its Share change report the total number of Shares bought back, the highest and lowest purchase prices at which they were purchased and the total amount paid.

PART FIVE: SPECIAL PROVISIONS FOR SHARE BUYBACKS EFFECTED BY WAY OF AN OFFER

Article 30: If a listed company is to effect a Share buyback by way of an offer, the offer price may not be lower than the arithmetic mean of the daily weighted average price of the said type of stock during the 30 trading days prior to the announcement of the buyback report.

Article 31: If a listed company is to effect a Share buyback by way of an offer, it shall, at the time it announces the buyback report, deposit the entire amount of the funds required for the buyback into the bank account designated by the securities depository and clearance institution.

The offer period may not be less than 30 days or more than 60 days.

Article 32: If a listed company is to effect a Share buyback by way of an offer and if the quantity of the Shares for which shareholders preliminarily accepted the offer exceeds the set quantity of Shares to be bought back, the listed company shall buy back, in the same proportion, the Shares for which the shareholders preliminarily accepted the offer. If the quantity of Shares for which shareholders preliminarily accepted the offer is less than the set quantity of Shares to be bought back, the listed company shall buy back all of the Shares for which the shareholders preliminarily accepted the offer.

Article 33: If a listed company is to effect a buyback of its domestically listed foreign-investment shares by way of an offer, it shall additionally comply with the operational rules of the stock exchange and the securities depository and clearance institution.

PART SIX: OVERSIGHT PROCEDURES AND LEGAL LIABILITY

Article 34: If a listed company fails to effect record filing in accordance with these Procedures, the CSRC shall have the authority to require it to suspend or terminate the Share buyback and impose penalties on the company and the relevant responsible persons in accordance with the law.

Article 35: If in the course of its Share buyback a listed company makes false or misleading statements or material omissions, the CSRC shall order it to rectify the matter and impose penalties on the company and the relevant responsible persons in accordance with the law.

Article 36: If anyone takes advantage of a Share buyback by a listed company to engage in fraud, manipulate the market or engage in insider trading, the CSRC shall punish him or her in accordance with the law. If a criminal offence is constituted, the case shall be transferred to the judicial authorities for investigation and handling in accordance with the law.

Article 37: If a professional organization that issued an opinion for a Share buyback by a listed company fails to perform its obligation of diligence and faithfulness, or if the professional opinion it issues contains false or misleading statements or material omissions, the CSRC shall take such procedures as a supervisory talk, issuance of a warning letter, issuance of a rectification order, etc. against the relevant professional organization and the signatories of the opinion. If the circumstances are serious, it shall suspend or revoke its/his/her/their professional qualifications.

PART SEVEN: SUPPLEMENTARY PROVISIONS

Article 38: These Procedures shall be effective as of the date of issuance.