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Provisions on Foreign Investors' Merger with and Acquisition of Domestic Enterprises
Promulgating Institution: Ministry of Commerce

Document Number: Decree No. 6 (2009) of the Ministry of Commerce
Promulgating Date:06/22/2009
Effective Date:06/22/2009
 

Promulgating Institution: Ministry of Commerce

Document Number: Decree No. 6 (2009) of the Ministry of Commerce
Promulgating Date:06/22/2009
Effective Date:06/22/2009

Content

Chapter 1: General Provisions
Chapter 2: Fundamental Policies
Chapter 3: Approval and Registration
Chapter 4: Foreign Investors' Merger with and Acquisition of Domestic Companies with Equity Interests as the Payment Method
   Section 1  Conditions for Merging and Acquiring with Equity Interests
   Section 2  Documents and Procedures for Declaration and Application
   Section 3  Special Provisions on Special Purpose Companies
Chapter 5: Supplementary Provisions

Chapter 1: General Provisions

 Article 1    These Provisions are formulated in order to facilitate and regulate foreign investors' investment in China, introduce advanced technologies and management expertise from foreign countries, improve the level of utilization of foreign investment, realize the rational allocation of resources, ensure employment, and safeguard the fair competition and the economic safety of the State, with the laws and administrative regulations on foreign-invested enterprises ("FIEs"), the Company Law, and other relevant laws and administrative regulations.

 Article 2    For the purposes of these Provisions, "a foreign investor's merger and acquisition of a domestic enterprise" shall mean a foreign investor's purchase of any equity interests of any shareholder of an enterprise in China other than an FIE (hereinafter, "Domestic Company") or subscribe to any increased capital of a Domestic Company, thus making the Domestic Company converted to and established as an FIE (hereinafter, "M&A of Equity Interests") or making the foreign investor establish an FIE and purchase, through such enterprise, any asset of any Domestic Enterprise by an agreement and operate such asset, or the foreign investor purchase any asset of a Domestic Eenterprise by an agreement and invest, with such asset, in the establishment of an FIE to operate such asset (hereinafter, "M&A of Assets").

 Article 3    Foreign investors' merger and acquisition ("M&A") of Domestic Enterprises shall comply with the laws, administrative regulations, and rules of China and the principles of fairness, reasonableness, transaction on the basis of compensation and price-value consistency , and good faith. Such M&A shall not result in excessive concentration, nor shall they exclude or restrain competition, disrupt the social economic order, harm the social public interest, or cause the loss of any State assets.

 Article 4    Foreign investors' M&A of domestic enterprises shall comply with investor's qualification requirements set forth in the laws, administrative regulations, and rules of China and the industrial, land, environmental, and other policies.
In an industry prohibiting foreign investors from wholly owning and operating an enterprise, as specified in the Industry Catalog for Guiding Foreign Investment, no M&A shall lead to any foreign investor's holding of 100% of the equity interests in the enterprise. In an industry requiring the Chinese party to control or relatively control an enterprise, as specified in the said Catalogs, the Chinese party to an enterprise in such an industry shall, after M&A thereof, remain to take the controlling or relative controlling position therein. In an industry prohibiting foreign investors from operating any enterprise, no foreign investor shall be permitted to merge and acquire any enterprise in such an industry.
The business scope of an enterprise in which the merged and acquired domestic enterprise originally invested shall be in conformity with the requirements of the industrial policies related to foreign investment; or otherwise adjustment shall be made thereto.

 Article 5    Where a foreign investor's M&A of any domestic enterprise involves transfer of the State-owned property ownership in an enterprise or management of the equity interests in a listed company, the relevant provisions on the administration of State assets shall be observed.

 Article 6    In the event of a foreign investor's M&A of any domestic enterprise and establishment of an FIE, the approval of the relevant examination and approval authority shall be obtained in accordance with the Provisions on Foreign Investors' Merger and Acquisition of Domestic Enterprises, accompanied by completion of the formalities for change of registration or establishment registration with the relevant registration authority.
If an enterprise to be merged and acquired is a domestic listed company, the relevant formalities shall also be gone through with the securities regulatory authority under the State Council pursuant to the Administrative Measures for Foreign Investors' Strategic Investment in Listed Companies.

 Article 7    Each party involved in a foreign investor's M&A of any domestic enterprise shall pay taxes in accordance with the tax law of China, and shall be subject to the supervision of the taxation authorities.

 Article 8    Each party involved in a foreign investor's M&A of a domestic enterprise shall abide by the laws and administrative regulations of China relating to foreign exchange control, and shall go through the formalities, with the foreign exchange control authority, for verification and approval, registration, record-filing, and change in connection with foreign exchange in a timely manner.

Chapter 2: Fundamental Policies

 Article 9    Where the proportional ratio of a foreign investors' capital contribution to the registered capital of an FIE established as a result of M&A is more than 25%, the enterprise shall be entitled to the treatment for FIEs.
Where the proportional ratio of a foreign investors' capital contribution to the registered capital of an FIE established as a result of M&A is less than 25%, the enterprise shall not be entitled to the treatment for FIEs, and its borrowing of foreign debts shall be handled according to the relevant provisions on the borrowing of foreign debts by a non-FIE in China, unless otherwise provided for in the laws and administrative regulations. The examination and approval authority shall issue, to such enterprise, an Approval Certificate for a Foreign-Invested Enterprise with a note added therein meaning "foreign investment ratio is less than 25%" (hereinafter, the "Approval Certificate"). The registration administrative authority and the foreign exchange control authority shall respectively issue, to such enterprise, a Business License for a Foreign-Invested Enterprise and a Foreign Exchange Registration Certificate with a note added therein meaning "foreign investment ratio is less than 25%".
Where a company, enterprise, or natural person in China merges and acquires a Domestic Company affiliated thereto in the name of an overseas company established or controlled by that merging and acquiring party under the law,  the FIE established as a result of the M&A shall not be entitled to the treatment for FIEs, provided that the overseas company subscribes the increased capital of the Domestic Company or the overseas company makes contribution to the increased capital of the enterprise established as a result of the M&A to the extent that the increased capital accounts for 25% or more of the registered capital of the enterprise established. With respect to an FIE established in a way mentioned in this Paragraph, if the capital contribution of a foreign investor other than such FIE's actual controller accounts for more than 25% of the enterprise's registered capital, the FIE shall be entitled to the treatment for FIEs.
With respect to an FIE established as a result of a foreign investor's M&A of a domestic listed company, the treatment granted to such FIE shall be subject to the relevant provisions of the State.

 Article 10    For the purposes of these Provisions, the examination and approval authority shall be the Ministry of Commerce of the People's Republic of China ("MOFCOM") or a provincial department in charge of commerce (hereinafter, "Provincial Examination and Approval Authority"), the registration authority shall be the State Administration for Industry and Commerce of the People's Republic of China or its authorized local administration for industry and commerce, and the foreign exchange control authority shall be the State Administration of Foreign Exchange of the People's Republic of China or a branch thereof.
Where an FIE formed after M&A is an FIE under specific category or industry sector, according to the provisions of laws, administrative regulations, and rules, and shall be subject to examination and approval of the MOFCOM, the Provincial Examination and Approval Authority shall forward the application documents to the MOFCOM for its examination and approval. The MOFCOM shall decide to grant the approval or not in accordance with the law.

 Article 11    In the event of M&A by a company, enterprise, or natural person in China, in the name of a company that it has legitimately established or controls outside China, of a Domestic Company affiliated thereto, the M&A shall be submitted to the MOFCOM for examination and approval.
The parties concerned shall not evade the aforesaid requirements through domestic investment by an FIE or any other means.

 Article 12    With respect to a foreign investor's M&A of a domestic enterprise , in which case the foreign investor has obtained the actual right of control, if the M&A involves any key industry or any factor that causes or is likely to cause impact on the economic security of the State, or if the M&A causes the transfer of the actual right of control over a domestic enterprise that owns any well-known trademark or China's time-honored brands, the party concerned shall declare the same to the Ministry of Commerce.
Where the party concerned fails to file a declaration and application, and its M&A causes or is likely to cause significant impact on the economic security of the State, the MOFCOM may require, in conjunction with the relevant authorities, the party concerned to terminate the transaction or take effective measures such as transfer of the relevant equity interests, assets, etc. so as to eliminate the M&A's impact on the economic security of the State.

 Article 13    In the event of a foreign investor's M&A of Equity Interests, the FIE established as a result of the M&A shall succeed to the creditor's rights and debts of the merged and acquired Domestic Company.
In the event of a foreign investor's M&A of Assets, the domestic enterprise selling its assets shall succeed to the original creditor's rights and debts.
The foreign investor, the merged and acquired domestic enterprise, the creditors, and other parties concerned may reach a separate agreement on the disposal of the creditor's rights and debts of the merged and acquired domestic enterprise, provided that the agreement shall not harm any third person's interests or social public interest. The agreement on the disposal of the creditor's rights and debts shall be submitted to the relevant examination and approval authority.
The domestic enterprise that sells assets shall issue a written notice to the creditors and publish an announcement on a nationwide-distributed newspaper at provincial level or above at lease 15 days before the investor submits the application to the examination and approval authority.

 Article 14    The parties to an M&A shall use the evaluation results concluded by an asset evaluation agency on the value of the equity interests to be transferred or on the assets to be sold as the basis for determining the transaction price. The parties to the M&A may agree on an asset evaluation agency lawfully established in China. Internationally accepted common evaluation methods shall be adopted in asset evaluation. It is prohibited to transfer any equity interests or sell any asset at a price obviously lower than the evaluation results or transfer any capital outside China in a disguised form.
Where a foreign investors' M&A of a domestic enterprise causes change of the equity interests created from making investment with any State asset or causes transfer of the property right in any State asset, such change or transfer shall be in conformity with the relevant provisions concerning the administration of State assets.

 Article 15    The parties concerned to a merger and acquisition shall explain whether there is any affiliated relationship among themselves. If two of the parties belong to the same actual controller, the parties concerned shall disclose their actual controller to the relevant examination and approval authority, and shall explain whether the objectives of the merger and acquisition and the evaluation results are in compliance with the fair market value. The parties concerned shall not evade the aforesaid requirements through trust, having others hold equity interests on behalf of such party, or other means.

 Article 16    In the event of a foreign investor's merger and acquisition of a domestic enterprise and establishment of an FIE, the foreign investor shall, within three months of the date of issuance of the Business License for a Foreign-Invested Enterprise, pay up the consideration in full amount to the shareholders transferring the equity interests or the domestic enterprise selling the assets. Where extension of the time limit is required due to special circumstances, the foreign investor shall, subject to the approval of the relevant examination and approval authority, pay at least 60% of the total consideration within six months of the date of issuance of the Business License for a Foreign-Invested Enterprise and pay up the consideration in full amount within one year, and shall distribute the revenues according to the proportional ratio of the actual paid-in capital.
In the event of a foreign investor's subscription of the increased capital of a Domestic Company, the shareholders of a limited liability company or of a domestic joint stock company established by means of sponsorship  shall, at the time when the company applies for issuance of a Business License for a Foreign-Invested Enterprise, pay up at least 20% of the newly increased registered capital. The time limit for capital contribution of the remaining portion shall be subject to the provisions of the Company Law, the laws related to foreign investment, and the Administrative Regulations on Company Registration. Where other laws and administrative regulations specify otherwise, such other provisions shall prevail. Where a joint stock company issues new shares for the purpose of increasing the registered capital, the shareholders' subscription of the new shares shall be in conformity with the provisions concerning payment of shares in the case of establishment of a joint stock company.
In the event of a foreign investor's M&A of Assets, the investor shall specify the time limit for capital contribution in the contract and article's of association of the FIE to be established. In the case of establishment of an FIE and acquisition, by agreement, and operation of any assets of a domestic enterprise through such FIE, the foreign investor shall pay up the capital contribution in an amount the same as the consideration for such assets within the time limit for payment of the consideration as specified in Paragraph 1, and the payment of the remaining portion of the capital contribution shall be in conformity with the provisions related to capital contribution concerning establishment of an FIE. Where a foreign investor merges with and acquires a domestic enterprise and establishes an FIE, and the proportional ratio of the foreign investor capital contribution is less than 25% of the registered capital thereof, the capital contribution shall be paid up within three months of the issuance of the FIE's business license, if the investor pays its capital contribution is in cash; or otherwise shall be paid up within six months of the issuance of the FIE's business license, if the investor pays its capital contribution in form of physical item, industrial property right, etc.

 Article 17    The methods for payment of the consideration for M&A shall be in compliance with the provisions of the relevant laws and administrative regulations of the State. Where a foreign investor makes the payment with any Renminbi asset that it has lawfully gained, the verification and approval of the foreign exchange control authority shall be obtained. Where a foreign investor makes the payment with any equity interests to which the disposal right owned by such investor, Chapter 4 hereof shall apply.

 Article 18    Where a foreign investor purchases the equity interests of the shareholders of a Domestic Company, and the Domestic Compay is converted into and established as an FIE, the registered capital of such FIE shall be the registered capital of the original Domestic Compay, and the proportional ratio of the foreign investor's capital contribution shall be the proportional ratio of the equity interests that it has purchased to the original registered capital.
Where a foreign investor subscribes the increased capital of a domestic limited liability company, the registered capital of the FIE established as a result of the merger and acquisition shall be the sum total of registered capital of the original Domestic Company and the increased capital. The foreign investor and the original other shareholders of the merged and acquired Domestic Company shall determine the proportional ratio of their respective capital contribution to the registered capital of the FIE on the basis of the evaluation of the assets of the Domestic Company.
Where a foreign investor subscribes the increased capital of a domestic limited liability company, the registered capital shall be determined in accordance with the relevant provisions of the Company Law.

 Article 19    In the event of a foreign investor's M&A of Equity Interests, the ceiling of the total investment of an FIE established as a result of the merger and acquisition shall be determined based on the following ratios, unless otherwise specified in the provisions of the State:
(1) The total investment shall not exceed 10/7 times the registered capital if the registered capital is not more than USD2.1 million;
(2) The total investment shall not exceed 2 times the registered capital if the registered capital is above USD2.1 million and not more than USD5 million;
(3) The total investment shall not exceed 2.5 times the registered capital if the registered capital is above USD5 million and not more than USD12 million;
(4) The total investment shall not exceed 3 times the registered capital if the registered capital is above USD12 million.

 Article 20    In the event of a foreign investor's M&A of Assets, the total investment of an FIE to be established shall be determined based on the asset transaction price and the actual production operation scale. The ratio of the total investment to the registered capital of the FIE to be established shall be in compliance with the relevant provisions.

Chapter 3: Examination, Approval, and Registration

 Article 21    In the event of a foreign investor's M&A of Equity Interests, the investor shall, according to the total investment, enterprise type, and industry involved for the FIE formed after the M&A, and pursuant to the laws, administrative regulations, and rules regarding FIEs, submit the following documents to the examination and approval authority having the corresponding authority:
(1) Resolution of the shareholders of the merged and acquired limited liability company in China regarding their unanimous consent to such foreign investor's M&A of Equity Interests, or resolution of the general board of shareholders of the merged and acquired joint stock company in China regarding their consent to such foreign investor's M&A of Equity Interests;
(2) Written application for converting the merged and acquired Domestic Company and re-establishing it as an FIE in accordance with the law;
(3) Contract and articles of association of the FIE formed as a result of the M&A;
(4) Agreement on the foreign investor's purchase of the equity interests held by the shareholders of the Domestic Company or subscription for the increased capital of the Domestic Company;
(5) Financial audit report of the merged and acquired Domestic Company for the previous fiscal year;
(6) Notarized and legally authenticated identity certification documents or  registration certification and credit worthiness certificate documents of the investor;
(7) Description of the status of the enterprise(s) in which that Domestic Company has invested;
(8) (Duplicate of) the business licenses of the merged and acquired Domestic Company and the enterprise(s) in which that company has invested;
(9) Employee arrangement plan for the merged and acquired Domestic Company; and
(10) Documents to be submitted as required in Articles 13, 14, and 15 hereof.
Documents regarding the business scope, scale, acquisition of the land use right, etc. of the FIE formed as a result of the M&A shall also be submitted, together with the relevant approval documents, if approval of any other relevant government authority is required.

 Article 22    An equity purchase agreement or a Domestic Company's capital increase agreement shall be governed by the law of China and shall contain the following primary contents:
(1) Information of the parties thereto, including their names and domiciles, as well as the names, titles, and nationalities, etc. of their legal representatives;
(2) Shares and price of the equity interests to be purchased or of the increased capital to be subscribed;
(3) Time limit and method for performance of the agreement;
(4) Rights and obligations of the parties thereto;
(5) Liability for breach of contract and dispute resolution; and
(6) Time and place of execution thereof.

 Article 23    In the event of a foreign investor's M&A of Assets, the investor shall, according to the total investment, enterprise type, and industry involved for the FIE to be formed, and pursuant to the laws, administrative regulations, and rules regarding FIEs, submit the following documents to the examination and approval authority having the corresponding authority:
(1) Resolution of the property right owners or governing body of the domestic enterprise regarding their consent to sale of the assets;
(2) Written application for establishing the FIE;
(3) Contract and articles of association of the original FIE;
(4) Asset purchase agreement executed between the FIE to be formed and the domestic enterprise or between the foreign investor and the domestic enterprise;
(5) (Duplicate of) the articles of association and business license of the merged and acquired domestic enterprise;
(6) Certification of the notice or announcement of the merged and acquired domestic enterprise to the creditors and description of whether or not the creditors have submitted any objection;
(7) Notarized and legally authenticated identity certification documents or  registration certification or certificate authorizing commencement of business and the relevant credit worthiness certificate documents of the investor;
(8) Employee arrangement plan for the merged and acquired Domestic Company; and
(9) Documents to be submitted as required in Articles 13, 14, and 15 hereof.
Where purchase and operation of any assets of a domestic enterprise pursuant to the provisions in the preceding paragraph requires approval of any other relevant government authority, the relevant approval documents shall also be submitted.
Where a foreign investor purchases the assets from a domestic enterprise by agreement and invests in and establishes an FIE with such assets, the foreign investor shall not carry out any business activity with such assets prior to the establishment of the FIE.

 Article 24    An asset purchase agreement shall be governed by the law of China and shall contain the following primary contents:
(1) Information of the parties thereto, including their names and domiciles, and the names, titles, and nationalities, etc. of their legal representatives;
(2) List and prices of the assets to be purchased;
(3) Time limit and method for performance thereof;
(4) Rights and obligations of the parties thereto;
(5) Liability for breach of contract and dispute resolution; and
(6) Time and place of the execution thereof.


 Article 25    With respect to a foreign investor's M&A of a domestic enterprise  and establishment of an FIE, the examination and approval authority shall, within 30 days of receiving all the documents required to be submitted, decide whether to grant the approval or not in accordance with the law, unless otherwise provided for in the Provisions on Foreign Investors' Merger and Acquisition of Domestic Enterprises. In the case of decision on granting the approval, the examination and approval authority shall issue the Approval Certificate.
Where the examination and approval authority decides to approve a foreign investor's purchase of the equity interests held by the shareholders in a Domestic Company by agreement, the relevant approval document shall respectively be forwarded to the transferor of the equity interests and the foreign exchange administrative authority at the place where the Domestic Company is located at the same time.
The foreign exchange administrative authority at the place where the transferor of the equity interests is located shall handle the foreign exchange registration concerning foreign investment for receipt of foreign exchange funds due to equity transfer  and issue the relevant certification which is a valid document showing that payment of the consideration for acquiring the equity interests paid-up by the foreign party is in place.

 Article 26    In the event of a foreign investor's M&A of Assets, the investor shall, within 30 days of its receipt of the Approval Certificate, applies to the relevant registration administrative authority for establishment registration and collects its business license for an FIE.
In the event of a foreign investor's M&A of Equity Interests, the merged and acquired Domestic Company shall, pursuant to these Provisions, applies to its original registration administrative authority for change of registration and collects its Business License for a Foreign-Invested Enterprise. Where the original registration administrative authority is not authorized with registration jurisdiction, such authority shall, within ten days of its receipt of the application documents, forward them to a registration administrative authority with such registration jurisdiction, accompanied by submitting the registration file of such Domestic Company. When applying for change of registration, the merged and acquired Domestic Company shall submit the following documents and shall be responsible for the truthfulness and validity thereof:
(1) Written application for change of the registration;
(2) Agreement on the foreign investor's purchase of the equity interests held by the shareholders of the Domestic Company or subscription for the increased capital of the Domestic Company;
(3) Amended articles of association or any amendment to the original articles of association of, and the contract of, the FIE, which are required to be submitted under the law;
(4) Approval Certificate for a Foreign-Invested Enterprise;
(5) Subject qualification certification of the foreign investor or the identity certification thereof in the case of a natural person;
(6) Revised name list of the members of the board of directors, documents indicating the names and domiciles of the newly added directors, and documents on the appointment of such newly added directors; and
(7) Any other relevant document and certificate to be submitted as required by the State Administration for Industry and Commerce.
Within 30 days of the date of issuance of the Business License for a Foreign-Invested Enterprise, the investor concerned shall go through the registration formalities with the taxation, Customs, land administration, foreign exchange control, and other relevant departments.

Chapter 4: Foreign Investors' Merger with and Acquisition of Domestic Companies with Equity Interests as the Payment Method

Section 1: Conditions for Merging and Acquiring with Equity Interests

 Article 27    For the purposes of this Chapter 4, "a foreign investor's merger and acquisition of a Domestic Company by paying the acquisition price with equity interests " shall mean, in the case of a shareholder of an overseas company, the shareholder's payment of the acquisition price with the equity interests held by that shareholder in the overseas company, or in the case of an overseas company, its payment of the acquisition price with its additionally issued shares, in order to acquire the equity interests held by any shareholder in a Domestic Company or acquire any additionally issued shares of a Domestic Company.

 Article 28    An overseas company referred to in this Chapter shall be legally established, and there shall be a well-developed company law system in the place of its registration. The company and its management shall be free of any regulatory authority's penalties in the latest three-year period. Except for a special purpose company referred to in Section 3 of this Chapter, such an overseas company shall be a listed company, and there shall be a well-developed securities exchange system in the place of the market where the company is listed.

 Article 29    With respect to a foreign investor's M&A of a Domestic Company, the equity interests in the overseas company and the Domestic Company involved therein shall meet the following conditions:
(1) They are legally held by the shareholders and transferable under the law;
(2) They are free of any ownership dispute and free of any pledge or other right restrictions;
(3) The equity interests in the overseas company shall be listed for exchange on an overseas securities exchange market that is open and lawful (excluding Over-The-Counter markets);
(4) The exchange price of the equity interests in the overseas company for the latest one-year period shall be steady.
Items (3) and (4) of the preceding paragraph are not applicable to special purpose companies.

 Article 30    In the event of a foreign investor's M&A of a Domestic Company with equity interests, the Domestic Company or its shareholders shall engage an intermediary agency registered in China to be the adviser thereof (hereinafter, "M&A Adviser"). The M&A Adviser shall conduct due diligence on the truthfulness of the information in the M&A application documents, the financial status of the overseas company, and the compliance of the M&A with the requirements set forth in Articles 14, 28, and 29 hereof, and shall issue an M&A Adviser report, expressly addressing its professional opinions on each of the aforesaid matters.

 Article 31    An M&A Adviser shall meet the following conditions:
(1) With good reputation and relevant professional experience;
(2) Without any record of severe violation of laws or provisions; and
(3) With capabilities to carry out study and analysis on the law system of the place where the overseas company is registered and of the place where the company is listed on the market and on the company's financial status.

Section 2: Documents and Procedures for Declaration and Application

 Article 32   A foreign investor's M&A of a Domestic Company with equity interests shall be reported to the Ministry of Commerce for examination and approval, and the Domestic Company shall submit, in addition to the documents required for examination and approval and for registration, the following documents:
(1) Description of the change of equity interests and significant change of assets of the Domestic Company in the latest one-year period;
(2) M&A Adviser report;
(3) Certificates authorizing commencement of business or identity certification documents of the domestic and overseas companies involved and their shareholders;
(4) Description of the equity interests held by the shareholders in the overseas company and the name list of the shareholders holding 5 % or more of the equity interests in the overseas company;
(5) Articles of association of the overseas company and description of the external guaranty; and
(6) Audited financial report of the overseas company for the latest one-year period and report on the stock exchange for the latest half-year period.

 Article 33   Within 30 days of receiving all the documents required to be submitted, the Ministry of Commerce shall examine and verify the application for merger and acquisition, and shall issue the Approval Certificate to the applicant if the conditions are met, accompanied by adding a note in the Approval Certificate with the words meaning "a foreign investor's merger and acquisition of a Domestic Company with equity interests, which shall be valid for six months from the issuance of the business license".

 Article 34    The Domestic Company concerned shall, within 30 days of its receipt of the approval certificate with a note added therein, go through the formalities for change of registration with the relevant registration administrative authority and foreign exchange control authority, and the said authorities shall respectively issue, to the company, the Business License for a Foreign-Invested Enterprise and the Foreign Exchange Registration Certificate added with a note meaning "valid for eight months as from the date of issuance".
When going through the formalities for change of registration with the relevant registration administrative authority, the Domestic Company shall submit, in advance, a written application for change of equity interests signed by the legal representative of the Domestic Company for the purpose of restoring the equity structure, the amendment to the company's articles of association, the equity transfer agreement, and other documents.

 Article 35    Within six months of the issuance of the business license, the Domestic Company or any of its shareholders concerned shall, in respect of the matters related to holding of equity interests by such company or shareholder in an overseas company, apply to the MOFCOM and the foreign exchange control authority for going through the formalities for verification and approval, and for registration, on outbound investment and establishment of an enterprise outside China.
In addition to the documents to be submitted as required by the Provisions on Matters to be Verified and Approved Concerning Outbound Investment and Establishment of Enterprises Outside China, a party concerned shall also submit, to the MOFCOM, its Approval Certificate for a Foreign-Invested Enterprise with a note added therein and its Business License for a Foreign-Invested Enterprise with a note added therein. The MOFCOM shall, after its verification and approval on holding of equity interests by such Domestic Company or shareholder in an overseas company, issue an approval certificate for a Chinese enterprise's outbound investment, and issue an Approval Certificate for a Foreign-Invested Enterprise without a note as a replacement.
The Domestic Company shall, within 30 days of obtaining the Approval Certificate for a Foreign-Invested Enterprise without a note, apply to the relevant registration administrative authority and foreign exchange control authority for issuance of a Business License for a Foreign-Invested Enterprise and Foreign Exchange Registration Certificate without a note as a replacement.

 Article 36    If the domestic and overseas companies concerned fail to complete, within six months of issuance of the business license, the formalities for change of equity interests, their approval certificates with a note added therein and the certificate for a Chinese enterprise's outbound investment shall automatically become invalid. The relevant registration administrative authority shall, under such circumstances, verify and approve the change of registration in accordance with the application documents for change of equity interests, which are submitted in advance by the Domestic Company, and shall cause the Domestic Company to restore the equity structure to the state before the M&A of Equity Interests.
Where the merged and acquired Domestic Company fails to issue new shares, the Domestic Company shall, before the relevant registration administrative authority verifies and approves the change of registration according to the preceding paragraph, decrease the corresponding registered capital and make an announcement in newspapers pursuant to the provisions of the Company Law.
Where the Domestic Company fails to go through the relevant registration formalities according to the preceding paragraph, the relevant registration administrative authority shall handle the case in accordance with the relevant provisions of the Administrative Regulations on Company Registration.

 Article 37    Before obtaining an Approval Certificate for a Foreign-Invested Enterprise and Foreign Exchange Registration Certificate without a note, the Domestic Company concerned shall not distribute profits to its shareholders or provide guaranty for any of its affiliated companies, nor shall it make external payment for equity transfer, capital decrease, liquidation, or other capital items.

 Article 38    A Domestic Company or the shareholders thereof shall go through the formalities for change of taxation registration with the relevant taxation authority, by presenting the approval certificate and business license without a note as issued by the Ministry of Commerce and the relevant registration administrative authority.

Section 3: Special Provisions on Special Purpose Companies

 Article 39    A special purpose company ("SPC") refers to an overseas company directly or indirectly controlled by a Domestic Company or natural person for the purpose of the overseas listing of the interests actually held by such Domestic Company or natural person in a Domestic Company.
Where an SPC purchases, for the purpose of overseas listing, any equity interests held by the shareholders of a Domestic Company or any shares additionally issued by a Domestic Company, and the price is paid by the SPC's shareholders with their equity interests therein or by the SPC with its additionally issued shares, the provisions of this Section shall apply.
Where the party concerned uses an overseas company that holds any interests in an SPC as the subject for overseas listing , the overseas company shall meet the relevant requirements for an SPC as set forth in this Section.

 Article 40    Overseas listing of a SPC shall be subject to the approval of the securities regulatory authority under the State Council.
The country or region where a SPC is to be listed shall have well-developed law and regulatory system, and the securities regulatory authority of that country or region shall have entered into a memorandum of understanding on regulatory cooperation with the securities regulatory authority under the State Council and maintain an effective regulatory cooperation relationship therewith.

 Article 41    A Domestic Company in which rights and interests are to be listed on an overseas market, as referred to in this Section, shall satisfy the following conditions:
(1) It has a clear property ownership and free of any existing or potential property ownership dispute;
(2) It has a complete business system as well as sound and sustainable business operation capability;
(3) It has a sound corporate governance structure and internal management system; and
(4) The company and its major shareholders have no record of any serious violation of laws or regulations in the latest three years.

 Article 42    A Domestic Company's establishment of a SPC outside China shall be subject to application for going through the formalities for verification and approval with the Ministry and Commerce. When going through the formalities for verification and approval, the Domestic Company shall submit to the Ministry of Commerce the following documents, in addition to the documents required to be submitted under the Provisions on Matters to be Verified and Approved Concerning Outbound Investment and Establishment of Enterprises Outside China:
(1) Identity certification documents of the actual controllers of the SPC;
(2) Business plan for the overseas listing of the SPC; and
(3) Assessment report issued by a merger and acquisition adviser on the offering price of the shares for future listing of the SPC on an overseas market.
After obtaining the approval certificate for outbound investment by a Chinese enterprise, the founder or controller shall apply to its local foreign exchange control authority to go through the corresponding formalities for foreign exchange registration for outbound investment.

 Article 43    The total offering value of the shares of a SPC for its overseas listing shall be no less than the value of the corresponding equity interests in the merged and acquired Domestic Company, as evaluated by a relevant asset evaluation agency of China.

 Article 44    Where a SPC merges and acquires a Domestic Company with equity interests, the Domestic Company shall submit to the Ministry of Commerce the following documents, in addition to the documents required to be submitted under Article 32 hereof :
(1) Approval document and approval certificate for outbound investment and establishment of overseas enterprises at the time when the SPC is established;
(2) Outbound investment and foreign exchange registration form of the SPC;
(3) Identity certification documents of the actual controllers or certificate authorizing commencement of business and articles of association of the SPC;
(4) Business plan for the overseas listing of the SPC; and
(5) Assessment report issued by a merger and acquisition adviser on the offering price of the shares for future listing of the SPC on an overseas market.
Where an overseas company that holds any interests in an SPC is used as the subject for overseas listing,  the Domestic Company shall also submit the following documents:
(1) Certificate authorizing commencement of business and articles of association of the overseas company; and
(2) Transaction arrangement between the SPC and the overseas company concerning the equity interests in the merged and acquired Domestic Company and the detailed description of the discount method.

 Article 45    Where the MOFCOM approves, through preliminary examination, the documents to be submitted as required by Article 44 hereof, and issues a letter of in-principle approval , the Domestic Company shall submit the documents of listing application to the securities regulatory authority under the State Council, by presenting the said letter of approval. The securities regulatory authority under the State Council shall, within 20 working days, decide whether to grant the approval or not after verification.
After obtaining an approval after verification, the Domestic Company shall apply to the MOFCOM for collection of the Approval Certificate. The MOFCOM shall issue an approval certificate with a note meaning "with equity interests held by an overseas SPC and the certificate valid for one year from the date of issuance" added therein.
Where merger and acquisition causes change in the equity interests in a SPC or in other matters, the Domestic Company or natural person that holds the equity interests in the SPC shall, by presenting the Approval Certificate for a Foreign-Invested Enterprise with a note added therein, go through, with the MOFCOM, the formalities for change of approval on outbound investment and establishment of enterprises in connection with the matters related to the SPC and go through, with the relevant local foreign exchange control authority, the formalities for change of foreign exchange registration for outbound investment.

 Article 46    A Domestic Company shall, within 30 days of its receipt of the approval certificate with a note added therein, go through the formalities for change of registration with the relevant registration administrative authority and foreign exchange control authority, and such authorities shall respectively issue, to the company, a Business License for a Foreign-Invested Enterprise and Foreign Exchange Registration Certificate with a note meaning "valid for 14 months from the date of issuance" added therein.
When going through the formalities for change of registration with the relevant registration administrative authority, the Domestic Company shall submit, in advance, a written application for change of equity interests signed by the legal representative of the Domestic Company for the purpose of restoring the equity structure, the amendment to the company's articles of association, the equity transfer agreement, and other documents.

 Article 47    A Domestic Company shall, within 30 days of completion of the overseas listing of the SPC or the overseas company affiliated with the SPC, report the information on the overseas listing and the plan for transferring back the proceeds gained from financing to the Ministry of Commerce, and apply for the issuance, as a replacement, of an Approval Certificate for a Foreign-Invested Enterprise without a note added therein. At the same time, the Domestic Company shall, within 30 days of the completion of the overseas listing, report the information on the overseas listing to the securities regulatory authority under the State Council and provide the relevant documents for record. The Domestic Company shall also submit the plan for transferring back the proceeds gained from financing to the relevant foreign exchange control authority for such authority's supervision and implementation. The Domestic Company shall, after obtaining the approval certificate without a note added therein, file an application within 30 days with the relevant registration administrative authority and foreign exchange control authority for issuance, as a replacement, of a Business License for a Foreign-Invested Enterprise and the Foreign Exchange Registration Certificate without a note added therein.
If the Domestic Company fails to report to the Ministry of Commerce within the aforesaid time limit, the company's approval certificate with a note added therein shall automatically become invalid, and the equity structure of the company shall restore to its state before the merger and acquisition. Under such circumstances, the company shall also go through the formalities for change of registration in accordance with Article 36 hereof.

 Article 48    The proceeds gained by a SPC from financing through overseas listing shall be transferred back for use in China, in accordance with the transfer plan that is submitted for the relevant foreign exchange control authority for record and the current prevailing provisions on foreign exchange control. The proceeds gained from financing may be transferred back to China through the following methods:
(1) Provision of commercial loans to domestic companies;
(2) Establishment of new FIEs in China; and
(3) Merger and acquisition of domestic companies.
The aforesaid forms of transferring back of the proceeds gained by an SPC from financing shall be in conformity with the laws and administrative regulations of China concerning foreign investment and foreign debt administration. Where the transferring back of the proceeds gained by an SPC from financing causes increase of the interests held by any Domestic Company and natural person in the SPC or increase of the net assets of the SPC, the party concerned shall accurately disclose and report such situation for approval, and shall go through the corresponding formalities for foreign exchange registration for foreign investment and change of registration for outbound investment after completion of the examination and approval formalities.
The profits or dividends gained by any Domestic Company and natural person from the SPC and their foreign exchange proceeds gained from the SPC through capital change shall be transferred back to China within six months of receipt thereof. The profits or dividends may be recorded under the foreign exchange current account or enter into foreign exchange settlement. The foreign exchange proceeds gained through capital change may be retained through opening an account designated for capital, subject to verification and approval of the relevant foreign exchange control authority, or enter into foreign exchange settlement upon verification and approval of the relevant foreign exchange control authority.

 Article 49    Where a Domestic Company is not able to obtain, within one year of the date of issuance of its business license, an approval certificate without a note added therein, its approval certificate with a note added therein shall then become invalid automatically, and the formalities for change of registration shall be gone through according to Article 36 hereof.

 Article 50    Where a SPC has completed the overseas listing and obtained an approval certificate and business license without a note, and the party concerned merges and acquires a Domestic Company thereafter through payment of the price with such company's shares, the provisions of Sections 1 and 2 of this Chapter shall be applicable.

Chapter 5: Supplementary Provisions


 Article 51    In accordance with the provisions of the Anti-Monopoly Law, where the foreign investors that merge and acquire domestic enterprises reach the threshold for declaration specified in the Provisions of the State Council on the Thresholds for Declaring Concentration of Business Operators, the foreign investors shall make declaration with the Ministry of Commerce in advance and shall not conduct any transaction without declaration.

 Article 52    Where an investment company established by a foreign investor in China in accordance with the law merges and acquires any domestic enterprise, these Provisions shall apply.
Where a foreign investor purchases equity interests held by shareholders of an FIE in China or subscribes the increased capital of an FIE in China, the existing laws and administrative regulations regarding FIEs and the relevant provisions on change of equity interests held by investors of an FIE shall apply. In the absence of such provisions, these Provisions shall apply as the reference.
Where a foreign investor merges or acquires any domestic enterprise through any FIE that it has established in China, the provisions regarding merger and division of an FIE and those regarding an FIE's investment in China shall apply. In the absence of such provisions, these Provisions shall apply as the reference.
Where a foreign investor merges or acquires a domestic limited liability company and converts it into a joint stock company, or merges or acquires a Domestic Company which is a joint stock company, the provisions regarding establishment of foreign-invested joint stock companies shall apply. In the absence of such provisions, these Provisions shall apply.

 Article 53    The person who files an application or declaration shall, in submitting documents, classify the documents according to these Provisions and attach a document list thereto. All documents required to be submitted shall be prepared in Chinese language.

 Article 54    A Chinese natural person shareholder of a merged and acquired Domestic Company may, subject to approval, continue to be the Chinese investor of the FIE established as a result of the change.

 Article 55    Change of the nationality of a natural person shareholder of a Domestic Company shall not render the change of the enterprise nature of the company.

 Article 56    The staff of relevant government agencies must be devoted to their duties and exercise their power of office in a lawful manner, and shall not seek undue benefit by making use of their duties. They shall also be obligated to keep confidential any trade secrets in their knowledge.

Article 57    Where an investor from the Hong Kong Special Administrative Region, the Macau Special Administrative Region, or the Taiwan region merges with or acquires any enterprise in another region, the Provisions on Foreign Investors' Merger with and Acquisition of Domestic Enterprises shall apply as the reference.

Article 58    These Provisions shall take effect as of 8 September 2006.