CHINA LAW DIGEST NEWSLETTER
Vol. 1, No.10 - December 13, 2002
TOPICS THIS ISSUE:
- Interim Regulations on Utilization of Foreign Investment to Reorganize State Owned Enterprises
- Notice on Transfer of State-Owned Shares and Legal Person Shares of Public Listed Companies to Foreign Investors
- Interim Regulations on Qualified Overseas Institutional Investors Investing in Onshore Securities
- Regulations on Foreign Investment Construction Companies
- Regulations on Foreign Investment Construction Project Design Companies
Interim Regulations on Utilization of Foreign Investment to Reorganize State Owned Enterprises
Issue Date: November 8, 2002
Issuing Authority: State Economic and Trade Commission, Ministry of Finance, State Administration of Industries and Commerce and State Administration of Foreign Exchange
Effective Date: January 1, 2003
Summary:
The Regulations specifies requirements and procedures to reorganize state-owned enterprises and companies with state-owned shares (jointly referred to as SOEs but excluding financial institutions and public listed companies) by utilizing foreign investment.
The Regulations list five alternative ways of using foreign capital; including SOEs selling the whole or part of the SOE to foreign investors, transferring all or part of state-owned shares to foreign investors, creditors of a SOE assigning their claims against the SOE to foreign investors, selling whole or part of the assets of the SOE to foreign investors and foreign investors subscribing to the increased shares of a SOE.
To reorganize SOEs, foreign investors shall first follow the requirements established in the Foreign Investment Industry Guide Catelogue. Foreign investors shall also fulfill asset evaluation of the SOE and make reasonable redundancy plan that may be acceptable to the employees.
The authorities now pay more attention to the effects of reorganization on market competition. The Regulations require that the reorganization of SOEs shall not lead to monopoly of the market. When applying to the competent authorities for the reorganization, the reorganized SOE shall submit information on the foreign investor including market percentage of the foreign investor in China.
Notice on Transfer of State-Owned Shares and Legal Person Shares of Public Listed Companies to Foreign Investors
Issue Date: November 1, 2002
Issuing Authority: China Securities Regulatory Commission, Ministry of Finance, State Economic and Trade Committee
Effective Date: November 1, 2002
Summary:
The Notice provides general principles in transferring state owned shares and legal person shares of public listed companies to foreign investors.
Foreign investors shall follow the requirements established in Foreign Investment Industry Guide Catalogue. The transfer price shall primarily be based on public bids. In the event that the transfer will lead to the reorganization of the enterprise, the State Economic and Trade Committee shall be in charge of the approval. If the transfer relates to management of state-owned shares, the Ministry of Finance shall be in charge of the approval with major events to be reported to the State Council.
Article 9 of the Notice, however, is not in compliance with the Foreign Investment Industry Guide Catalogue by providing that the public listed company does not enjoy the preference treatments of foreign invested companies after the transfer of shares to foreign investors.
Interim Regulations on Qualified Overseas Institutional Investors Investing in Onshore Securities
Issue Date: November 5, 2002
Issuing Authority: China Securities Regulatory Commission, People's Bank of China
Effective Date: December 1, 2002
Summary:
The Regulations lift the ban on foreign investment in the area of China securities. Qualified overseas institutional investors (Qualified investors) refer to the overseas fund management institutions, insurance companies and securities companies and other asset management companies, which have been approved by China Securities Regulatory Commission (CSRC) to invest in China securities market and obtain quota approval from the State Foreign Exchange Administration.
Qualified investors shall entrust an onshore commercial bank as trustee to hold the trusted assets and entrust onshore securities companies to conduct securities transactions in China. The Regulations set up high criteria for being qualified as Qualified investors. Qualified investors are required to make commitment that they will not withdraw capital within the approved period of time.
For the purpose of bringing in long-term investment, overseas companies engaging in pension-fund, insurance fund and mutual fund with good market standing will be given priority consideration.
Qualified investors may invest in stocks (excluding B shares), government bonds and company bonds that are publicly traded in the China securities market. Since China has not open up free exchange under capital account, the Regulations put tight controls on how the Qualified investors shall manipulate their special Renminbi account in their trustee banks and on how their principals can be wired out of China.
Regulations on Foreign Investment Construction Companies
Issue Date: September 27, 2002
Issuing Authority: Ministry of Construction, Ministry of Foreign Trade and Economics Cooperation
Effective Date: December 1, 2002
Summary:
The Regulations replace the rules on foreign invested construction companies of 1995. Foreign investors may set up equity joint ventures, cooperation joint ventures and wholly foreign-owned construction company in China. The capital contribution of Chinese parties in a joint venture construction company may not be less than 25% of the registered capital.
The establishment of foreign invested construction companies involves the approval from competent foreign trade and economics authorities for company set up and the approval from state construction administration authorities for qualification levels of the company.
Wholly foreign-owned construction companies can only undertake those projects such as projects that are wholly invested by foreign investment or funds donated by foreign parties; projects that are funded by international financial institutions and granted through international bidding; Sino-foreign joint construction projects with foreign investment equals to or exceeds 50%; and those projects that can not be conducted by Chinese construction companies due to technology insufficiency.
Regulations on Foreign Investment Construction Project Design Companies
Issue Date: September 27, 2002
Issuing Authority: Ministry of Construction, Ministry of Foreign Trade and Economics Cooperation
Effective Date: December 1, 2002
Summary:
The Regulations replace the rules on Sino-foreign joint venture construction project design companies of 1992. Foreign investors are now open to set up wholly foreign owned construction project design companies ("WFOE") as well as equity and cooperation joint venture construction project design companies ("JVs") in China. The capital contribution of Chinese parties in a joint venture construction project design company may not be less than 25% of the registered capital.
To set up a foreign investment construction project design company, in addition to obtaining approval from the competent foreign trade and economics authorities, qualification levels of the design company shall also be obtained from the competent state construction administration authorities. The Regulations set up different scenarios with regard to the number of construction specialists for WFOEs and JVs. It also requires that the construction specialists in WFOEs shall live in China for no less than 6 accumulative months.
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The China Law Digest News is intended to be used for news purposes only. It should not be taken as comprehensive legal advice, and Lehman, Lee & Xu will not be held responsible for any such reliance on its contents.
