Provisions for the Acquisition of Domestic Enterprises by Foreign Investors

Article 1: These Provisions have been formulated pursuant to laws and administrative regulations for foreign-invested enterprises, theCompany Law and other related laws and administrative regulations in order to promote and regulate investments in China by foreign investors, introduce advanced foreign technology and management expertise, make more effective use of foreign investment, realize the rational allocation of resources, ensure employment and safeguard fair competition and the economic security of the state.

Article 2: For the purposes of these Provisions, the phrase "acquisition of domestic enterprises by foreign investors" means a foreign investor's purchase of the equity of a shareholder in an enterprise that is not foreign-invested (a Domestic Company) or subscription to a Domestic Company's capital increase, resulting in the conversion of the Domestic Company into a newly established foreign-invested enterprise (an Equity Acquisition); or a foreign investor's establishment of a foreign-invested enterprise and purchase by agreement, through such enterprise, of the assets of a domestic enterprise and operation of such assets, or a foreign investor's purchase by agreement of the assets of a domestic enterprise and use of such assets to invest in and establish a foreign-invested enterprise to operate such assets (an Asset Acquisition).

Article 3: When a foreign investor acquires a domestic enterprise, it shall abide by Chinese laws, administrative regulations, and rules and adhere to the principles of fairness, reasonableness, compensation of equal value and good faith. It may not cause over-concentration to eliminate or restrict competition, disturb the socio-economic order or damage the public interest, or lead to losses to state-owned assets.

Article 4: A foreign investor that acquires a domestic enterprise shall satisfy the requirements of Chinese laws, administrative regulations, and rules concerning investor qualifications as well as industrial, land, environmental protection and other policies.

An acquisition may not result in a foreign investor owning all of the equity in an enterprise in an industry in which, pursuant to the Foreign Investment Industrial Guidance Catalogue, a foreign investor is not permitted to operate by way of a wholly foreign-owned enterprise. After the acquisition of an enterprise in an industry in which the Chinese party is required to have a controlling interest or a relative controlling interest, the Chinese party shall continue to have a controlling interest or relative controlling interest in the enterprise. A foreign investor may not acquire an enterprise engaged in an industry closed to foreign investors.

The existing scope of business of enterprises in which the target domestic enterprise has invested shall comply with the requirements of industrial policy on foreign investment. If it fails to comply with such requirements, it shall be revised.

Article 5: If the acquisition of a domestic enterprise by a foreign investor is to involve the transfer of state-owned assets and equity of the enterprise or matters relating to the management of state-owned equity in a listed company, the relevant provisions on the administration of state-owned assets shall be complied with.

Article 6: When a foreign investor acquires a domestic enterprise and establishes a foreign-invested enterprise, it shall obtain the approval of the examination and approval authority in accordance with these Provisions and carry out the procedures for amendment of registration or establishment registration with the registration authority.

If the target enterprise is a company listed domestically, relevant procedures shall additionally be carried out with the State Council's securities regulatory authority in accordance with the Measures for the Administration of Strategic Investments in Listed Companies by Foreign Investors.

Article 7: The parties involved in an acquisition of a domestic enterprise by a foreign investor shall pay taxes in accordance with tax laws of China and submit themselves to the supervision of the tax authorities.

Article 8: The parties involved in an acquisition of a domestic enterprise by a foreign investor shall comply with the laws and administrative regulations of China on foreign exchange control and carry out the various approval, registration, record filing and amendment procedures in relation to foreign exchange with the foreign exchange control authorities in a timely manner.

PART TWO: BASIC SYSTEM

Article 9: If the percentage of the contribution by the foreign investor to the registered capital of a foreign-invested enterprise established after an acquisition exceeds 25%, such enterprise shall be eligible for treatment as a foreign-invested enterprise.

If the percentage of the contribution by the foreign investor to the registered capital of a foreign-invested enterprise established after an acquisition is less than 25%, such enterprise shall not be eligible for treatment as a foreign-invested enterprise, unless otherwise specified in laws or administrative regulations, and the borrowing of foreign debt by such enterprise shall be handled in accordance with provisions on the borrowing of foreign debt by enterprises that are not foreign-invested. The examination and approval authority shall issue it a foreign-invested enterprise approval certificate (Approval Certificate) bearing the note "Foreign investment percentage of less than 25%". The registration authority and foreign exchange control authority shall respectively issue it a foreign-invested enterprise business licence and a foreign exchange registration certificate bearing the note "Foreign investment percentage of less than 25%".

If a Domestic Company, enterprise or natural person acquires an affiliated Domestic Company in the name of an overseas company lawfully established or controlled by it/him/her, such foreign-invested enterprise shall not be eligible for treatment as a foreign-invested enterprise unless such overseas company subscribes to a capital increase of the Domestic Company, or the overseas company increases the capital of the enterprise established after the acquisition and the amount of such capital increase accounts for 25% or more of the registered capital of the established enterprise. If the percentage of the contribution to the registered capital of the foreign-invested enterprise by a foreign investor, other than the de facto controller, established by the method herein described is greater than 25%, such enterprise shall be eligible for treatment as a foreign-invested enterprise.

The treatment of a foreign-invested enterprise established after a foreign investor acquires a domestically listed company shall be handled in accordance with relevant state provisions.

Article 10: For the purposes of these Provisions, the term "examination and approval authority" means the Ministry of Commerce of the People's Republic of China or the provincial level department in charge of commerce (the Provincial Level Examination and Approval Authority). The term "registration authority" means the State Administration for Industry and Commerce of the People's Republic of China or the local administrations for industry and commerce authorized thereby. The term "foreign exchange control authority" means the State Administration of Foreign Exchange or its branches and sub-branches.

The Provincial Level Examination and Approval Authorities shall forward to the Ministry of Commerce for examination and approval the application documents for foreign-invested enterprises to be established after acquisitions that, pursuant to laws, administrative regulations or rules, are of a particular type or in a particular industry that requires the examination and approval of the Ministry of Commerce. The decision whether or not to grant approval shall be made by the Ministry of Commerce, in accordance with the law.

Article 11: If a Domestic Company, enterprise or natural person intends to acquire an affiliated Domestic Company in the name of an overseas company lawfully established or controlled by it/him/her, it/he/she shall report the same to the Ministry of Commerce for examination and approval.

The concerned party or parties may not use domestic investment by a foreign-invested enterprise or other means to circumvent the foregoing requirements.

Article 12: If a foreign investor acquires a domestic enterprise, and, thereby, obtains de facto control thereof, and if such acquisition involves a key industry, or factors that affect or could affect the economic security of the state, or would result in a transfer of the de facto control of a domestic enterprise that owns a well-known trademark or an old Chinese trade name, the concerned parties shall report the same to the Ministry of Commerce.

If the concerned parties fail to report the same and the acquisition has or could have a major impact on the economic security of the state, the Ministry of Commerce may, in concert with other relevant departments, demand that the concerned parties terminate the transaction, transfer relevant equity or assets or take other effective measures to eliminate the impact of the acquisition on the economic security of the state.

Article 13: If a foreign investor carries out an Equity Acquisition, the foreign-invested enterprise established after the acquisition shall succeed to the claims and debts of the acquired Domestic Company.

If a foreign investor carries out an Asset Acquisition, the domestic enterprise that sold the assets shall bear its existing claims and debts.

The foreign investor, the target domestic enterprise, creditors and/or other parties may otherwise agree on the disposal of the claims and debts of the target domestic enterprise, provided that such agreement does not prejudice the interests of a third party or the public. An agreement on the disposal of claims and debts shall be submitted to the examination and approval authority.

A domestic enterprise that sells its assets shall dispatch a notice to its creditors and publish an announcement in a provincial or higher level newspaper distributed nationally at least 15 days before the investor submits its application documents to the examination and approval authority.

Article 14: The parties to an acquisition shall determine the transaction price on the basis of the value of the equity to be transferred or the value of the assets to be sold as appraised by an asset appraisal institution. The parties to the acquisition may agree on an asset appraisal institution lawfully established in China. The asset appraisal shall be conducted in accordance with common international appraisal methods. The use of a price markedly lower than the appraisal results to transfer equity, sell assets or to transfer capital overseas in a disguised manner is prohibited.

If the acquisition of a domestic enterprise by a foreign investor will lead to a change to the equity resulting from an investment of state-owned assets or a transfer of title to state-owned assets, it shall be in compliance with provisions on the administration of state-owned assets.

Article 15: The concerned parties to an acquisition shall state whether there exists an affiliation between or among the parties to the acquisition. If two of the parties belong to one de facto controller, the concerned parties shall disclose their de facto controller to the examination and approval authority and explain the objective of the acquisition and whether the results of the appraisal are in line with the fair market value. The concerned parties may not use a trust, holding on behalf of another or other means to circumvent the foregoing requirements.

Article 16: When a foreign investor acquires a domestic enterprise and establishes a foreign-invested enterprise, it shall pay the entire amount of the consideration to the shareholder that transferred the equity or the domestic enterprise that sold the assets within three months after the date of issuance of the foreign-invested enterprise's business licence. In special circumstances requiring an extension, and subject to the approval of the examination and approval authority, the foreign investor shall pay at least 60% of the consideration within six months after the date of issuance of the foreign-invested enterprise's business licence and pay the balance in full within one year, and its share of the gains shall be proportional to the capital contribution it has actually paid in.

When a foreign investor subscribes to a capital increase of a Domestic Company, the shareholders of the limited liability company or of the domestic company limited by shares established by way of promotion shall pay in at least 20% of the registered capital increase at the time of the application for the foreign-invested enterprise business licence. The schedule for the balance of the capital contributions shall comply with the Company Law, relevant foreign investment laws and the Regulations for the Administration of Company Registration. If otherwise provided in other laws or administrative regulations, such provisions shall apply. If a company limited by shares issues new shares to increase its registered capital and shareholders subscribe for such new shares, matters shall be handled in accordance with relevant provisions on the payment of subscription moneys when establishing a company limited by shares.

When a foreign investor carries out an Asset Acquisition, the investors shall specify the time limits for making the capital contributions in the contract for and the articles of association of the foreign-invested enterprise that is to be established. If a foreign-invested enterprise is to be established and the assets of a domestic enterprise are to be purchased by agreement and operated by such foreign-invested enterprise, then that part of the capital contribution that is equivalent to the consideration payable for the assets shall be paid in by the investors within the time limits for the payment of consideration specified in the first paragraph of this Article. The balance of the capital contributions shall be made in compliance with relevant provisions on capital contribution for the establishment of foreign-invested enterprises.

When a foreign investor acquires a domestic enterprise and establishes a foreign-invested enterprise, if its capital contribution accounts for less than 25% of the registered capital of the enterprise, and if the investors are to make capital contributions in the form of cash, they shall make payment in full within three months after the date of issuance of the foreign-invested enterprise's business licence; if the investors are to make capital contributions in kind or in the form of industrial property, etc., they shall make payment in full within six months after the date of issuance of the foreign-invested enterprise's business licence.

Article 17: The method used to pay the consideration for an acquisition shall comply with relevant state laws and administrative regulations. If a foreign investor is to make payment using its lawfully owned renminbi assets, the check and approval of the foreign exchange control authority shall be required. If the foreign investor is to make payment using equity in which it owns the right of disposal, matters shall be handled in accordance with Part Four hereof.

Article 18: After a foreign investor has purchased the equity of a shareholder in a Domestic Company by agreement and such Domestic Company has been converted into a foreign-invested enterprise, the registered capital of such foreign-invested enterprise shall be the registered capital of the original Domestic Company and the percentage of the foreign investor's capital contribution shall be the percentage of the original registered capital accounted for by the equity purchased by it.

If a foreign investor subscribes to a capital increase of a domestic limited liability company, the registered capital of the foreign-invested enterprise established after the acquisition shall be the sum of the original Domestic Company's registered capital and the amount of the capital increase. The foreign investor and the existing shareholders in the target Domestic Company shall determine the percentages of their respective contributions to the foreign-invested enterprise's registered capital on the basis of the appraisal of the assets of the Domestic Company.

If a foreign investor subscribes to the capital increase of a domestic company limited by shares, the registered capital shall be determined in accordance with the relevant provisions of the Company Law.

Article 19: When a foreign investor carries out an Equity Acquisition, unless otherwise specified by the state, the upper limit on the total amount of investment of the foreign-invested enterprise established after the acquisition shall be determined in accordance with the following percentages:

(1) if the registered capital is less than US$2.1 million, the total amount of investment may not exceed 10/7 of the registered capital;

(2) if the registered capital is US$2.1 million or more but less than US$5 million, the total amount of investment may not exceed 2 times the registered capital;

(3) if the registered capital is US$5 million or more but less than US$12million, the total amount of investment may not exceed 2.5 times the registered capital; and

(4) if the registered capital is US$12 million or more, the total amount of investment may not exceed 3 times the registered capital.

Article 20: If a foreign investor is to carry out an Asset Acquisition, the total investment of the proposed foreign-invested enterprise shall be determined based on the transaction price of the assets to be purchased and the actual production and business scale. The ratio of the proposed foreign-invested enterprise's registered capital and total investment shall comply with relevant provisions.

PART THREE: EXAMINATION, APPROVAL AND REGISTRATION

Article 21: When a foreign investor carries out an Equity Acquisition, the investors shall submit the documents set forth below to the examination and approval authority whose competence corresponds to the total amount of investment and enterprise type of the proposed foreign-invested enterprise and the industry it is to engage in, pursuant to laws, administrative regulations, and rules on the establishment of foreign-invested enterprises:

(1) in the case of a domestic limited liability company targeted for acquisition: the unanimous shareholders' resolution in favour of the Equity Acquisition by the foreign investor; in the case of a domestic company limited by shares targeted for acquisition: the resolution of the shareholders' general meeting in favour of the Equity Acquisition by the foreign investor;

(2) an application to convert the target Domestic Company into a newly established foreign-invested enterprise in accordance with the law;

(3) the contract for and the articles of association of the foreign-invested enterprise to be established after the acquisition;

(4) the agreement for the purchase of the equity of the shareholder in the Domestic Company or the subscription to the Domestic Company's capital increase by the foreign investor;

(5) a financial audit report for the previous financial year of the target Domestic Company;

(6) notarized and lawfully authenticated proof of identity of the investor or proof of its registration and creditworthiness;

(7) details of the enterprises invested in by the target Domestic Company;

(8) (duplicates of) the business licences of the target Domestic Company and the enterprises in which it has invested;

(9) the arrangements made for the staff and workers of the target Domestic Company; and

(10) the documents to be submitted pursuant to Articles 13, 14 and 15 hereof.

If the scope or scale of business of, or the acquisition of leaseholds by, or other matters of the foreign-invested enterprise to be established after the acquisition requires permission from other relevant government authorities, the relevant permission documents shall be submitted together with the aforementioned documents.

Article 22: The equity purchase agreement and the agreement for increasing the capital of a Domestic Company shall be governed by Chinese law and shall include the following main provisions:

(1) the particulars of the parties to the agreement, including their names and domiciles, the names, positions and nationalities of their legal representatives, etc.;

(2) the share and price of the equity to be purchased or of the capital increase to be subscribed to;

(3) the term and method of performance of the agreement;

(4) the rights and obligations of the parties;

(5) liability for breach of contract and resolution of disputes; and

(6) the date and place of execution of the agreement.

Article 23: When a foreign investor carries out an Asset Acquisition, the investors shall submit the documents set forth below to the examination and approval authority whose competence corresponds to the total amount of investment and enterprise type of the proposed foreign-invested enterprise and the industry it is to engage in, pursuant to laws, administrative regulations, and rules on the establishment of foreign-invested enterprises:

(1) the resolution in favour of the asset sale passed by the owner of the title to, or the organ of authority of, the domestic enterprise;

(2) an application for the establishment of a foreign-invested enterprise;

(3) the contract for and the articles of association of the proposed foreign-invested enterprise;

(4) the asset purchase agreement executed by the proposed foreign-invested enterprise and the domestic enterprise or by the foreign investor and the domestic enterprise;

(5) (duplicates of) the articles of association and the business licence of the target domestic enterprise;

(6) proof of the notification of, and announcement to, the creditors of the target domestic enterprise and a statement of whether the creditors have expressed an objection to the acquisition;

(7) notarized and lawfully authenticated identification documents of the investors or certificates of commencement of business and certificates of creditworthiness;

(8) the arrangements made for the staff and workers of the target domestic enterprise; and

(9) the documents to be submitted pursuant to Articles 13, 14 and 15 hereof.

If the purchase and operation of the assets of a domestic enterprise in accordance with the provisions of the preceding paragraph require permission from other relevant government authorities, the relevant permission documents shall be submitted together with the aforementioned documents.

When a foreign investor purchases the assets of domestic enterprise by agreement and uses such assets to invest in and establish a foreign-invested enterprise, it may not carry on business with such assets before the establishment of the foreign-invested enterprise.

Article 24: The asset purchase agreement shall be governed by Chinese law and shall include the following main provisions:

(1) the particulars of the parties to the agreement, including their names and domiciles, the names, positions and nationalities of their legal representatives, etc.

(2) the list and price of the assets to be purchased;

(3) the term and method of performance of the agreement;

(4) the rights and obligations of the parties;

(5) liability for breach of contract and resolution of disputes; and

(6) the date and place of execution of the agreement.

Article 25: When a foreign investor acquires a domestic enterprise and establishes a foreign-invested enterprise, the examination and approval authority shall, in accordance with the law, render its decision on whether to grant approval within 30 days after the date of receipt of the entire set of prescribed documents, unless otherwise specified in the Provisions. If it decides to grant its approval, it shall issue an Approval Certificate.

If a foreign investor is to purchase equity in a Domestic Company from a shareholder thereof by way of an agreement and the examination and approval authority decides to approve the same, it shall additionally forward copies of the approval document to the foreign exchange control authorities of the places where the transferor of the equity and the Domestic Company are located. The foreign exchange control authority of the place where the transferor of the equity is located shall carry out for the transferor, the foreign investment related foreign exchange registration procedures for foreign exchange received for the equity transfer and issue the relevant certificate. The foreign investment related foreign exchange registration certificate for foreign exchange received for an equity transfer is a valid document evidencing that the consideration for the acquisition of the equity payable by the foreign party has been paid.

Article 26: When a foreign investor carries out an Asset Acquisition, the investors shall apply for registration of establishment to the registration authority within 30 days after the date of receipt of the Approval Certificate, and obtain a foreign-invested enterprise business licence from the said administration.

When a foreign investor carries out an Equity Acquisition, the target Domestic Company shall apply for amendment of registration to its original registration authority in accordance with the Provisions and obtain a foreign-invested enterprise business licence. If its original registration authority is not competent to register the change, it shall, within 10 days after the date of receipt of the application documents, transfer the case together with the Domestic Company's registration file to the competent registration authority for handling. When applying for amendment of registration, the target Domestic Company shall submit the documents set forth below and shall be liable for their truthfulness and validity:

(1) an application for amendment of registration;

(2) the agreement under which the foreign investor purchases the equity of the shareholder in the Domestic Company or subscribes to the Domestic Company's capital increase;

(3) the company's amended articles of association or the proposed amendments to the original articles of association and the contract for the foreign-invested enterprise that needs to be submitted in accordance with the law;

(4) the foreign-invested enterprise approval certificate;

(5) the proof of the entity status or the natural person's proof of identity of the foreign investor;

(6) the amended list of directors, a document specifying the names and domiciles of the new directors and the instruments of appointment of the new directors; and

(7) other relevant documents and certificates specified by the SAIC.

The investors shall carry out registration procedures with relevant departments such as those for taxation, customs, land administration and foreign exchange control within 30 days after the date of receipt of the foreign-invested enterprise business licence.

PART FOUR: USE OF EQUITY AS THE METHOD OF PAYMENT IN THE ACQUISITION OF A DOMESTIC COMPANY BY A FOREIGN INVESTOR

Section One: Conditions for Using Equity in
an Acquisition

Article 27: For the purposes of this Part, the phrase "use of equity as method of payment in the acquisition of a Domestic Company by a foreign investor" means that a shareholder of an overseas company uses the equity it hold in the overseas company, or the overseas company uses the shares from a subsequent share offering, as the method of payment to purchase equity in a Domestic Company from shareholders thereof or shares available in a subsequent share offering by the Domestic Company.

Article 28: An overseas company as mentioned in this Part shall have been lawfully established, its place of registration shall have a sound company law system and the company and its management shall not have been subjected to penalties from the regulatory authorities during the most recent three years. With the exception of the special purpose vehicles specified in Section Three of this Part, the overseas company shall be a listed company and the place of its listing shall have a sound securities trading system.

Article 29: The equity of the domestic and overseas companies involved in the acquisition of a Domestic Company by a foreign investor using equity shall comply with the following conditions:

(1) the shareholders lawfully hold the same and may transfer the same in accordance with the law;

(2) such equity is not the subject of an ownership dispute and is not encumbered by a pledge or any other rights;

(3) the equity of the overseas company shall be listed and traded on a public and lawful securities exchange market overseas (with the exception of an over-the-counter trading market); and

(4) the trading price of the equity of the overseas company has been stable during the most recent year.

Items (3) and (4) of the preceding paragraph shall not apply to the special purpose vehicles specified in Section Three of this Part.

Article 30: If a foreign investor is to acquire a Domestic Company using equity, the Domestic Company or its shareholders shall engage an intermediary organization registered in China as a consultant (the Acquisition Consultant). The Acquisition Consultant shall conduct a due diligence investigation of the truthfulness of the acquisition application documents, the financial position of the overseas company and whether the acquisition complies with Articles 14, 28 and 29 hereof, and issue an Acquisition Consultant's report that expresses a professional opinion on each of the aforementioned items clearly.

Article 31: The Acquisition Consultant shall satisfy the following conditions:

(1) having a good reputation and relevant experience in the field;

(2) having no record of major violations of laws or regulations; and

(3) having the capacity to investigate and analyze the legal systems of the places where the overseas company is registered and listed and the overseas company's financial position.

Section Two: Documents to be Submitted
and Procedures

Article 32: When a foreign investor is to acquire a Domestic Company using equity, the same shall be reported to the Ministry of Commerce for examination and approval. In addition to the documents required in Part Three hereof, the Domestic Company must additionally submit the following documents:

(1) an explanation of changes in its equity and material changes in its assets during the most recent year;

(2) the Acquisition Consultant's report;

(3) the proof of commencement of business or proof of identity of the domestic and overseas companies and their shareholders;

(4) an explanation of the shareholdings of the overseas company's shareholders and the list of shareholders who hold 5% or more of the equity in the overseas company;

(5) the articles of association of the overseas company and an explanation of security provided by the overseas company for third parties; and

(6) an audited financial report of the overseas company for the most recent year and a report on the trading of shares of the overseas company during the most recent half year.

Article 33: The Ministry of Commerce shall examine the acquisition application within 30 days from the date of receipt of all the documents that are required to be submitted. If the application satisfies the conditions, the Ministry of Commerce shall issue an Approval Certificate bearing the note "Foreign investor to acquire Domestic Company using equity; valid for six months from the date of issuance of the business licence".

Article 34: The Domestic Company shall, within 30 days of receipt of its Approval Certificate bearing the note, carry out the procedures for the amendment of registration with the registration authority and the foreign exchange control authority that shall respectively issue it a foreign-invested enterprise business licence and a foreign exchange registration certificate bearing the note "Valid for eight months from the date of issuance".

When carrying out amendment of registration procedures with the registration authority, the Domestic Company shall submit, in advance, such documents as an equity change application signed by the legal representative of the Domestic Company, the proposed amendments to the company's articles of association and the equity transfer agreement for the purpose of restoring the equity structure.

Article 35: Within six months from the date of issuance of the business licence, the Domestic Company or its shareholders shall, in respect of matters relating to the equity in the overseas company held by it/them, carry out with the Ministry of Commerce and the foreign exchange control authority the procedures for the check, approval and registration of an overseas investment to establish an enterprise.

In addition to submitting to the Ministry of Commerce the documents required in the Provisions on Matters Relevant to the Check and Approval of the Investment in, and Establishment of, Enterprises Overseas, the concerned parties must submit the Approval Certificate bearing the note and the foreign-invested enterprise business licence bearing the note. Once the Ministry of Commerce approves the holding by the Domestic Company or its shareholders of equity in the overseas company, it shall issue an approval certificate for overseas investment by a Chinese enterprise and a clean foreign-invested enterprise approval certificate.

The Domestic Company shall, within 30 days of obtaining the clean foreign-invested enterprise approval certificate, apply to the registration authority and the foreign exchange control authority for the issuance of a clean foreign-invested enterprise business licence and foreign exchange registration certificate.

Article 36: If the Domestic Company or the overseas company fails to complete the equity change procedures within six months from the date of issuance of the business licence, the Approval Certificate bearing the note and the approval certificate for overseas investment by a Chinese enterprise shall automatically become null and void and the registration authority shall approve the amendment of registration based on the application documents for the registration of the change in equity submitted in advance by the Domestic Company, restoring the Domestic Company's equity structure to the state existing prior to the Equity Acquisition.

If the subsequent offering of shares of a target Domestic Company is not realized, the Domestic Company shall, prior to the registration authority approving its amendment of registration in accordance with the preceding paragraph, reduce its registered capital by the relevant amount and announce the same in newspapers in accordance with the Company Law.

If the Domestic Company fails to carry out the relevant registration procedures in accordance with the preceding paragraph, the registration authority shall deal with the matter in accordance with the relevant provisions of the Regulations for the Administration of Company Registration.

Article 37: Until the Domestic Company has obtained the clean foreign-invested enterprise approval certificate and foreign exchange registration certificate, it may not distribute profits to its shareholders, provide security for affiliates or pay to foreign parties amounts on the capital account, such as those for an equity transfer, capital reduction, liquidation, etc.

Article 38: The Domestic Company or its shareholders shall carry out the procedures for the amendment of tax registration with the tax authorities on the strength of the clean Approval Certificate and business licence issued by the Ministry of Commerce and the registration authority.

Section Three: Specific Provisions for Special
Purpose Vehicles

Article 39: The term "special purpose vehicle" means an overseas company directly or indirectly controlled by a Domestic Company or natural person in China for the purpose of listing overseas the rights and interests it/he/she actually holds in a Domestic Company.

The provisions of this Section shall apply where the shareholders of a special purpose vehicle, for the purpose of overseas listing of the vehicle, use the equity in the company that they hold, or where a special purpose vehicle uses shares from a subsequent offering of shares, as the payment method to acquire equity in a Domestic Company from the shareholders thereof or the shares offered in a subsequent offering of shares by a Domestic Company.

If the concerned parties intend to use the overseas company that holds the rights and interests in the special purpose vehicle as the entity to be listed overseas, such overseas company shall comply with the requirements in respect of special purpose vehicles of this Section.

Article 40: The overseas listing and trading of a special purpose vehicle shall be subject to the approval of the State Council's securities regulatory authority.

The country or region where the overseas listing of a special purpose vehicle is to be carried out shall have sound legal and regulatory systems, and its securities regulatory authority shall have executed a memorandum of understanding on regulatory cooperation with the State Council's securities regulatory authority and have maintained an effective regulatory cooperation relationship.

Article 41: A Domestic Company whose rights and interests are to be listed overseas as described in this Section shall satisfy the following conditions:

(1) title thereto is unambiguous, and it is not encumbered with any title dispute or potential title dispute;

(2) it has a complete business system and good prospects as an ongoing concern;

(3) it has a sound corporate governance structure and internal management system; and

(4) it and its major shareholders have no record of major violations of laws or regulations during the most recent three years.

Article 42: If a Domestic Company wishes to establish a special purpose vehicle overseas, it shall carry out check and approval procedures with the Ministry of Commerce. When carrying out the check and approval procedures, the Domestic Company must, in addition to submitting to the Ministry of Commerce the documents required by the Provisions on Matters Relevant to the Check and Approval of the Investment in, and Establishment of, Enterprises Overseas, submit the following documents:

(1) the proof of identity of the ultimate controller of the special purpose vehicle;

(2) the business plan for the overseas listing of the special purpose vehicle; and

(3) the assessment report prepared by the Acquisition Consultant on the issue price of the shares to be listed overseas in future by the special purpose vehicle.

Once the Approval Certificate for overseas investment by a Chinese enterprise has been obtained, the founder or controller shall carry out the corresponding foreign exchange registration procedures for overseas investment with the foreign exchange control authority of the place where it is located.

Article 43: The total value of the issued shares to be listed overseas by a special purpose vehicle may not be less than the value of the corresponding equity of the target Domestic Company as appraised by the relevant Chinese asset appraisal institution.

Article 44: If the special purpose vehicle is to use equity to acquire the Domestic Company, the Domestic Company must, in addition to submitting to the Ministry of Commerce the documents required in Article 32 hereof, submit the following documents:

(1) the approval document and certificate for overseas investment to establish an enterprise issued at the time of the establishment of the special purpose vehicle;

(2) the foreign exchange registration form for overseas investment of the special purpose vehicle;

(3) the proof of identity or the proof of commencement of business and articles of association of the ultimate controller of the special purpose vehicle;

(4) the bussiness plan for the overseas listing of the special purpose vehicle; and

(5) the assessment report prepared by the Acquisition Consultant on the issue price of the shares to be listed overseas in future by the special purpose vehicle.

If the overseas company that holds the rights and interests in the special purpose vehicle is to be the entity listed overseas, the Domestic Company must additionally submit the following documents:

(1) the proof of commencement of business and the articles of association of the overseas company; and

(2) a detailed explanation of the transaction arrangement made between the special purpose vehicle and the overseas company with respect to the equity of the target Domestic Company and a detailed explanation of the discount method.

Article 45: Once the Ministry of Commerce has preliminarily examined and approved the documents specified in Article 44 hereof, it shall issue a letter of approval in principle. The Domestic Company shall then submit the listing application documents to the State Council's securities regulatory authority on the strength of the letter of approval. The State Council's securities regulatory authority shall decide whether or not to grant its approval within 20 working days.

Once the Domestic Company has obtained approval, it shall collect its Approval Certificate from the Ministry of Commerce. The Ministry of Commerce shall issue it an Approval Certificate bearing the note "Equity held by an overseas special purpose vehicle; valid for one year from the date of issuance of the business licence".

If the acquisition is to result in a change in the equity of the special purpose vehicle or other such matters, the Domestic Company or natural person that holds equity in the special purpose vehicle shall, with respect to relevant matters of the special purpose vehicle, carry out with the Ministry of Commerce on the strength of the Approval Certificate bearing the note the procedures for the amendment of the approval of the overseas investment to establish an enterprise, and carry out with the foreign exchange control authority of the place where it/he/she is located the procedures for the amendment of the foreign exchange registration for overseas investment.

Article 46: The Domestic Company shall, within 30 days from the date of receipt of the Approval Certificate bearing the note, carry out the procedures for the amendment of registration with the registration authority and the foreign exchange control authority that shall respectively issue it a foreign-invested enterprise business licence and a foreign exchange registration certificate bearing the note "Valid for 14 months from the date of issuance".

When carrying out the procedures for the amendment of registration with the registration authority, the Domestic Company shall submit, in advance, such documents as an equity change application signed by the legal representative of the Domestic Company, the proposed amendments to the company's articles of association and the equity transfer agreement for the purpose of restoring the equity structure.

Article 47: The Domestic Company shall, within 30 days of the date of completion of the overseas listing of the special purpose vehicle or of the overseas company affiliated with the special purpose vehicle, report to the Ministry of Commerce on the overseas listing and its proceed repatriation plan, and apply for the issuance of a clean Approval Certificate. Additionally, the Domestic Company shall, within 30 days of the date of completion of the overseas listing, report to the State Council's securities regulatory authority on the overseas listing and submit the relevant documents for the record. Furthermore, the Domestic Company shall submit its proceed repatriation plan to the foreign exchange control authority, which shall supervise the implementation thereof. Within 30 days after obtaining the clean Approval Certificate, the Domestic Company shall apply to the registration authority and the foreign exchange control authority for the issuance of a clean foreign-invested enterprise business licence and foreign exchange registration certificate.

If the Domestic Company fails to report to the Ministry of Commerce by the aforementioned deadline, its Approval Certificate bearing the note shall automatically become null and void, its equity structure shall revert to the state existing prior to the Equity Acquisition and it shall carry out the procedures for the amendment of its registration in accordance with Article 36 hereof.

Article 48: The proceeds from the overseas listing of the special purpose vehicle shall be repatriated back to, and used in, China in accordance with the repatriation plan submitted to the foreign exchange control authority for the record and current foreign exchange control provisions. The proceeds may be repatriated by any of the following methods:

(1) providing a commercial loan to the Domestic Company;

(2) establishing a new foreign-invested enterprise in China; or

(3) acquiring a domestic enterprise.

The repatriation of the overseas financing proceeds from the special purpose vehicle under the aforementioned circumstances shall comply with laws and administrative regulations of China on the administration of foreign investment and foreign debt. If the repatriation of the overseas financing proceeds from the special purpose vehicle results in the Domestic Company or natural person increasing its/his/her holding of the rights and interests in the special purpose vehicle, or in an increase in the net assets of the special purpose vehicle, the concerned party or parties shall truthfully disclose the same and carry out the approval procedures. Once the examination and approval procedures have been completed, the relevant amendment of foreign investment related foreign exchange registration and overseas investment registration procedures shall be carried out.

The foreign exchange income obtained by the Domestic Company or natural person from the special purpose vehicle in the form of profits, dividends or through a capital change shall be repatriated within six months from the date of receipt. Profits or dividends may be credited to a current account related foreign exchange account or be settled. Foreign exchange proceeds from a change in capital may, subject to the approval of the foreign exchange control authority, be retained in a dedicated capital account related account opened for that purpose or, alternatively, may be settled.

Article 49: If the Domestic Company fails to obtain the clean Approval Certificate within one year from the date of issuance of its business licence, the Approval Certificate bearing the note shall automatically become null and void, and the procedures for the amendment of registration shall be carried out in accordance with Article 36 hereof.

Article 50: If, after the completion of the overseas listing of the special purpose vehicle and the Domestic Company has obtained the clean Approval Certificate and business licence, the concerned party or parties continue(s) to use the shares of such company as a payment method to acquire Domestic Companies, Sections One and Two of this Part shall apply.

PART FIVE: ANTI-MONOPOLY INVESTIGATION

Article 51: When a foreign investor's acquisition of a domestic enterprise involves any of the following circumstances, the investors shall report the same to the Ministry of Commerce and the State Administration for Industry and Commerce:

(1) any of the parties to the acquisition had a turnover in the Chinese market during the current year exceeding Rmb1.5 billion;

(2) the foreign investor acquired more than 10 enterprises in related industries in China in one year;

(3) any of the parties to the acquisition already controls not less than 20% of the Chinese market; or

(4) the acquisition will cause the Chinese market share of any of the parties thereto to reach 25%.

At the request of a competing domestic enterprise or the relevant functional authority or trade association, if the Ministry of Commerce or the State Administration for Industry and Commerce is of the opinion that the acquisition by the foreign investor would involve a very large market share or that other important factors that would affect market competition, etc. are present, it may nevertheless require the foreign investor to file a report, even if the criteria in the preceding paragraph are not met.

The aforementioned "any of the parties to the acquisition" includes affiliates of the foreign investor.

Article 52: If the acquisition of a domestic enterprise by a foreign investor involves any of the circumstances specified in Article 51 hereof and the Ministry of Commerce and the State Administration for Industry and Commerce are of the opinion that it may result in over-concentration, thereby harming legitimate competition and damaging the interests of consumers, they shall, within 90 days after the date of receipt of the entire set of prescribed documents, jointly, or after consultations, individually convene the relevant authorities, agencies, enterprises and other materially interested parties for the purpose of conducting hearings and decide, in accordance with the law, whether to grant their approval.

Article 53: If a foreign acquisition is characterized by any of the circumstances set forth below, the acquiring party shall submit the acquisition plan to the Ministry of Commerce and the State Administration for Industry and Commerce, before it publicly announces such plan or at the same time as it submits the same to the authority in charge in the country where it is located. The Ministry of Commerce and the State Administration for Industry and Commerce shall examine whether such acquisition will result in over-concentration in the domestic market, thereby harming legitimate competition and damaging the interests of consumers, and render their decision on whether to give their consent:

(1) any of the parties to the foreign acquisition has assets in China valued at not less than Rmb3 billion;

(2) any of the parties to the foreign acquisition had a turnover in the Chinese market during the current year of not less than Rmb1.5 billion;

(3) any of the parties to the foreign acquisition and its affiliates already control not less than 20% of the Chinese market;

(4) the foreign acquisition will cause the Chinese market share of any of the parties to the foreign acquisition and its affiliates to reach 25%; or

(5) the foreign acquisition will cause the number of foreign-invested enterprises in related industries in China in which any of the parties to the foreign acquisition has a direct or indirect equity interest to exceed 15.

Article 54: If an acquisition is characterized by any of the circumstances set forth below, any of the parties to the acquisition may apply to the Ministry of Commerce and the State Administration for Industry and Commerce for exemption from examination:

(1) it can improve the conditions for fair market competition;

(2) it will restructure a loss-making enterprise and ensure employment;

(3) it will introduce advanced technology, bring in management talent and can enhance the international competitiveness of the enterprise; or

(4) it can improve the environment.

PART SIX: SUPPLEMENTARY PROVISIONS

Article 55: These Provisions shall apply to the acquisition of domestic enterprises by companies with an investment nature established in China in accordance with the law by foreign investors.

Where a foreign investor purchases equity in a foreign-invested enterprise in China from the shareholders thereof or subscribes to the capital increase of a foreign-invested enterprise in China, current laws and administrative regulations on foreign-invested enterprises and relevant provisions on changes in the equity of the investors of foreign-invested enterprises shall apply. Where such laws, administrative regulations or provisions are silent, matters shall, mutatis mutandis, be handled in accordance with these Provisions.

Where a foreign investor merges or takes over a domestic enterprise through a foreign-invested enterprise established by it in China, relevant provisions on the merger and division of foreign-invested enterprises and relevant provisions on domestic investment by foreign-invested enterprises shall apply. Where such provisions are silent, matters shall, mutatis mutandis, be handled in accordance with these Provisions.

Where a foreign investor acquires a limited liability company in China and converts it into a company limited by shares, or where such Domestic Company is a company limited by shares, relevant provisions on the establishment of foreign-invested companies limited by shares shall apply. Where such provisions are silent, these Provisions shall apply.

Article 56: When an applicant or submitter submits documents, it shall classify such documents in accordance with these Provisions and include a document list therewith. All documents required to be submitted shall be in Chinese.

Article 57: A Chinese natural person who is a shareholder of a Domestic Company that is acquired using equity may, subject to approval, continue to serve as a Chinese party investor in the foreign-invested enterprise established after the change.

Article 58: A change in the nationality of a natural person shareholder of a Domestic Company shall not change the corporate nature of such company.

Article 59: The working personnel of relevant government authorities shall act with dedication in their positions, perform their duties and responsibilities in accordance with the law, may not utilize the advantages of their positions for improper gains and shall bear an obligation of confidentiality in respect of the trade secrets that they learn.

Article 60: The acquisition by investors from the Hong Kong Special Administrative Region, the Macao Special Administrative Region and Taiwan of enterprises elsewhere in China shall, mutatis mutandis, be handled in accordance with these Provisions.

Article 61: These Provisions shall be effective as of September 8 2006.