Guiding Opinion on Intensifying Reform of the System for Offering of New Shares

(Promulgated by the China Securities Regulatory Commission on October 11 2010 and effective as of November 1 2010.)

Notice of the CSRC [2010] No.26

With a view to further enhancing the system for offering of new shares and reinforcing the market constraint mechanism, on June 10 2009, the China Securities Regulatory Commission (the CSRC) issued the Guiding Opinion on Further Reform and Enhancement of the System for Offering of New Shares, initiating reform of the system for offering of new shares. With regards to specific implementation, the reform is to be implemented in stages and progressively improved, and the various reform measures are to be initiated gradually in stages. The measures for the first stage of reform of the system for offering of new shares have already been put in place and the market-oriented reform direction has been widely accepted by the public. The deepening of the offering system reform has become the market consensus and the market conditions for rolling out the next round of reform measures are essentially satisfied. Following intensive study and widely listening to the opinions of market parties and based on the uniform arrangements for the reform, we hereby put forth the measures for the second stage of reform as follows:

1. Further improving the quoting, purchase and private placement constraint mechanism: in an offering of new shares by a small or medium-sized company, the offeror and its lead underwriter shall reasonably determine the quantity for each offline private placement based on the size of the offering and market conditions so as to promote careful setting of the price by price inquiry subjects. The number of institutions that are eligible for the private placement shall be determined based on the quantity of shares offered in each private placement and the shares shall be offered in favour of the finalist quotes that are at the offering price and above. If there is a relatively large number of finalist institutions, a random draw shall be conducted and the private placement shall be made based on the outcome of such random draw.

2. Expanding the range of inquiry subjects to augment the number of offline institutional investors: the lead underwriter may at its own initiative recommend a certain number of institutional investors that have relatively high pricing capabilities and a long-term investment orientation to participate in the offline price inquiry and private placement.

The lead underwriter shall formulate the principles and criteria for the recommendation of institutional investors, including requirements in respect of minimum registered capital and size of the assets under their management, requirements in respect of professional skills and investment expertise, requirements in respect of market influence and credit record, requirements in respect of business strategic relationships, encouragement of long-term holding of shares, etc. The lead underwriter shall establish a transparent recommendation decision-making mechanism. The recommendation criteria, decision-making procedure and the finalised list of institutional investors shall be submitted to the Securities Association of China for registration. The Securities Association of China may formulate guidelines to guide the registration work.

3. Enhancing the transparency of pricing information: the offeror and its lead underwriter must disclose the specific details of the quotes of the institutions that participated in the price inquiry. The lead underwriter must disclose the conclusions on the evaluated price of the offeror's shares provided to the price inquiry subjects at the roadshow stage, the price-to-earnings ratio of comparable listed companies in the offeror's industry or other equivalent indicator.

4. Improving the clawback mechanism and the offering suspension mechanism: the offeror and its lead underwriter shall reasonably design the underwriting procedure and effectively manage underwriting risks based on the size of the offering and market conditions.

When online purchases are insufficient, the shares may be re-allocated offline and made available for purchase by institutional investors participating offline. If purchases are still insufficient, the underwriting syndicate may recommend other investors to participate in the offline purchase. If valid purchases by offline institutional investors within the pre-determined limit for offline sale are insufficient, the shares may not be re-allocated online, and the offering may be suspended. If the offline quoting outcome does not meet the expectations of the offeror and lead underwriter, or if the online purchases are insufficient or if the purchases still remain insufficient after an offline re-allocation following insufficient online purchases, the offering may be suspended. The specific circumstances for suspension of the offering may be agreed upon by the offeror and the underwriters and disclosed. After the suspension of an offering, it may be re-initiated during the term of validity of the approval document following record filing with the CSRC.

Stock exchanges and securities depository and clearing institutions shall create the conditions to further narrow the period of time between the ending of a new offering of shares and their listing.

The reform of the system for offering of new shares requires the close cooperation of all market participants, and all market parties shall, in keeping with the spirit of the reform of the system for offering of new shares, unify their philosophy, enhance their understanding, plan carefully, arrange thoroughly and duly implement all the reform requirements and measures.