Article 161: Upon adoption of a pertinent resolution by the general meeting, listed companies may issue corporate bonds convertible into shares. The specific method of conversion shall be stipulated in the method of offer of the corporate bonds. Any issuance of corporate bonds convertible into shares by a listed company shall be reported to the State Council’s securities regulatory authority for verification and approval.

When issuing corporate bonds convertible into shares, the words “convertible corporate bond” shall be clearly indicated on the bonds, and the amount of convertible corporate bonds shall be recorded in the corporate bond counterfoil book.

Article 162: A company that issues corporate bonds convertible into shares shall issue shares in exchange for such bonds to the bondholders in accordance with the conversion method. However, bondholders shall have an option as to whether or not to convert their bonds into shares.

Chapter VIII: Financial Affairs and Accounting of Companies

Article 163: Companies shall establish their own financial and accounting systems in accordance with laws, administrative regulations, and regulations of the finance department of the State Council.

Article 164: Companies shall prepare financial and accounting reports at the end of each fiscal year. Such reports shall be audited by an accounting firm according to the law.

Financial and accounting reports of companies shall be prepared according to laws, administrative regulations and regulations of the finance department of the State Council.

Article 165: Limited liability companies shall deliver their financial and accounting reports to each of their shareholders within the time limit specified in their articles of association.

The financial and accounting reports of companies limited by shares shall be made available at the company for the perusal of shareholders 20 days before the annual general meeting is held. Companies limited by shares that issue shares to the public shall announce their financial and accounting reports.

Article 166: When companies distribute their after-tax profits for a given year, they shall allocate 10% of profits to their statutory common reserve. Companies shall no longer be required to make allocations to their statutory common reserve once the aggregate amount of such reserve exceeds 50% of their registered capital.

If a company’s statutory common reserve is insufficient to make up its losses of the previous years, such losses shall be made up from the profit for the current year prior to making allocations to the statutory common reserve pursuant to the preceding paragraph.

Companies may, if so resolved by the board of shareholders or the general meeting, make allocations to the discretionary common reserve from their after-tax profits after making allocations to the statutory common reserve from the after-tax profits.

A company’s after-tax profits remaining after it has made up its losses and made allocations to its common reserve shall be distributed, in the case of a limited liability company, according to Article 35 hereof and, in the case of a company limited by shares, in proportion to the shareholdings of its shareholders, unless the articles of association of the company limited by shares stipulate that the profits shall not be distributed in proportion to the shareholdings.

If the board of shareholders, general meeting or board of directors violates the preceding paragraph by distributing profits to shareholders before the company has made up its losses and made allocations to the statutory common reserve, the profit distributed in violation of regulations shall be returned to the company by the shareholders.

Companies that hold the shares of their own company shall not be entitled to profit distribution.

Article 167: Companies shall enter under their capital common reserve the premiums earned from the issue of shares above par and such other revenue as the finance department of the State Council requires to be entered under the capital common reserve.

Article 168: Companies shall apply their common reserve to making up their losses, increasing their production and business operations, or increasing their capital by means of conversion. However, the capital common reserve may not be used to make up the losses of the company.

When funds from the statutory common reserve are converted to capital, the funds remaining in such reserve shall amount to not less than 25% of the increased registered capital.

Article 169: The employment and dismissal of accounting firms that handle company’s audit business by the companies shall be decided by the board of shareholders, general meeting and board of directors according to the stipulations of the company’s articles of association.

When the board of shareholders, general meeting or board of directors votes on the dismissal of accounting firms, it shall permit the accounting firm to state its opinion.

Article 170: Companies shall provide to the accounting firm they employ truthful and complete accounting vouchers, account books, financial and accounting reports and other accounting materials, and may not refuse to do so, or conceal or submit untruthful materials.

Article 171: Companies may not establish any account books in addition to those required by law.

No accounts may be opened in the name of any individual for the keeping of a company’s assets.

Chapter IX: Merger and Division, Increase and Reduction of Capital of Companies

Article 172: The merger of companies may take the form of merger by absorption or merger by new establishment.

The absorption by one company of one or more other companies shall be merger by absorption, in which case the absorbed company or companies shall be dissolved. The merger of two or more companies and establishment of a new company shall be merger by new establishment, in which case the parties to the merger shall be dissolved.

Article 173: When companies merge, the parties to the merger shall enter into a merger agreement and prepare balance sheets and schedules of property. The companies shall notify their creditors within a period of 10 days commencing from the date on which the merger resolution is passed and, within 30 days, make newspaper announcements of the merger. Such creditors may, within a period of 30 days commencing from the date of receipt of the written notification, or within a period of 45 days commencing from the date of the announcement for those who do not receive the written notification, claim full repayment or require the provision of a corresponding guarantee from the company concerned.

Article 174: When companies merge, the surviving company or the newly established company shall succeed to the claims and debts of each party to the merger.

Article 175: When a company is divided, its property shall be divided correspondingly.

When a company is to be divided, it shall prepare a balance sheet and a schedule of property. The company shall notify its creditors within a period of 10 days commencing from the date on which the division resolution is passed and, within 30 days, make newspaper announcement of the division.

Article 176: The joint and several liabilities for the debts existing before a company is divided shall be borne by the companies in existence following the division, except where the written agreement on payment of debts reached between the company and the creditors prior to the division stipulates otherwise.

Article 177: When a company needs to reduce its registered capital, it shall prepare a balance sheet and a schedule of property.

The company shall notify its creditors within a period of 10 days commencing from the date on which the resolution to reduce the registered capital is passed and, within 30 days, make newspaper announcement of the reduction. Such creditors shall, within a period of 30 days commencing from the date of receipt of the written notification, or within a period of 45 days commencing from the date of the announcement for those who do not receive the written notification, have the right to claim full repayment or require the provision of a corresponding guarantee from the company.

Article 178: When a limited liability company increases its registered capital, the capital contributions to the increase in capital subscribed for by its shareholders shall be handled in accordance with the relevant provisions hereof concerning payment of capital contributions in connection with the establishment of a limited liability company.

When a company limited by shares issues new shares to increase its registered capital, shareholders shall subscribe for the new shares in accordance with the relevant provisions hereof concerning the payment of subscription monies in connection with the establishment of a company limited by shares.

Article 179: When companies merge or a company is divided, causing some changes to relevant registered particulars, change of registration shall be handled with the company registration authority in accordance with the law. When a company is dissolved, the cancellation of registration shall be handled in accordance with the law. When a new company is established, its establishment shall be registered according to the law.

When a company increases or reduces its registered capital, it shall register the change with the company registration authority in accordance with the law.

Chapter X: Dissolution and Liquidation of Companies

Article 180: A company shall be dissolved due to the following reasons:

(I)          when the term of operation as specified in the company's articles of association expires or another cause of dissolution as specified in the company's articles of association arises;

(II)         if the board of shareholders or general meeting resolves to dissolve the company;

(III)        if dissolution is necessary as a result of the merger or division of the company;

(IV)        its business license has been revoked, or it is ordered to close down or to be revoked according to the law; or

(V)         it is ordered to be dissolved by the people’s court according to Article 183 hereof.

Article 181: A company under the circumstance stated in Item (I) of Article 180 of the Law may continue to exist by modifying its articles of association.

The modification of the company's articles of association in accordance with the preceding paragraph shall be subject to adoption, in the case of a limited liability company, by the shareholders representing more than two thirds of the voting rights or, in the case of a company limited by shares, by the shareholders that are present at the general meeting of shareholders and represent more than two thirds of the voting rights.

Article 182: Where any severe difficulty occurs to the operation management of a company, in which case the interests of the shareholders may suffer heavy losses if the company continues to exist and there is no other way to solve the problem, the shareholders representing more than ten percent of the voting rights of all the shareholders of the company may file a request with the people's court to dissolve the company.

Article 183: Where a company is dissolved under Item (I), (II), (IV), or (V) of Article 180 of the Law, a liquidation group shall be formed to commence the liquidation within 15 days after a cause of dissolution occurs. The liquidation group shall be composed of shareholders, in the case of a limited liability company; or shall be composed of directors or the candidates determined by the general meeting of shareholders, in the case of a company limited by shares. Where a liquidation group has not been formed to carry out liquidation within the specified time limit, the creditors may apply to the people's court for its designation of relevant personnel to form a liquidation group and carry out liquidation. The people's court shall accept the application, and shall, in a timely manner, organize a liquidation group to carry out liquidation.

Article 184: The liquidation group may exercise the following powers during liquidation:

(I)          to thoroughly examine the property of the company and prepare a balance sheet and a schedule of property respectively;

(II)         to notify creditors by notice or announcement;

(III)        to dispose of and liquidate relevant unfinished business of the company;

(IV)        to pay all outstanding taxes in full as well as taxes arising in the course of liquidation;

(V)         to clear the claims and debts;

(VI)        to dispose of the property remained after full payment of the company's debts; and

(VII)       to participate in civil litigation activities on behalf of the company.

Article 185: A liquidation group shall notify the creditors within a period of 10 days commencing from the date of its establishment and, within 60 days, make newspaper announcement of the liquidation. Such creditors shall, within a period of 30 days commencing from the date of receipt of the written notification, or within a period of 45 days commencing from the date of the announcement for those who do not receive the written notification, declare their claims to the liquidation group.

When declaring their claims, the creditors shall explain relevant particulars of their claims and provide supporting materials. Claims shall be registered by the liquidation group.

During the period of declaration of claims, the liquidation group may not repay the debts to the creditors.

Article 186: After a liquidation group has thoroughly examined the company's property and prepared a balance sheet and a schedule of property, it shall formulate a liquidation plan and submit the same to the board of shareholders, general meeting or the people’s court for confirmation.

The property of a company remained after the property is respectively applied to payment of the liquidation expenses, the wages, social insurance premiums and statutory compensation of staff and workers and the outstanding taxes, and to full payment of the debts of the company shall be distributed, in the case of a limited liability company, in proportion to the capital contributions of its shareholders and, in the case of a company limited by shares, in proportion to the shareholdings of its shareholders.

During liquidation, a company shall continue to exist, but it may not engage in new business activities unrelated to liquidation. Company property may not be distributed among its shareholders prior to full repayment in accordance with the stipulations of the preceding paragraph.

Article 187: If the liquidation group, having thoroughly examined the company's property and prepared a balance sheet and a schedule of property, discovers that the company's property is insufficient to pay its debts in full, it shall apply to the people's court for declaration of insolvency according to the law.

After the people's court has ruled to declare the company insolvent, the company's liquidation group shall turn over the liquidation matters to the people's court.

Article 188: Following the completion of liquidation, the liquidation group shall compile a liquidation report and submit the same to the board of shareholders, general meeting or the people’s court for confirmation, as well as to the company registration authority. In addition, the liquidation group shall apply for cancellation of the company's registration and announce the company's termination.

Article 189: Members of a liquidation group shall be devoted to their duties and perform their liquidation obligations according to the law.

Members of a liquidation group may not abuse their authority to accept bribes or other illegal income and may not seize company property.

If members of a liquidation group willfully or through gross negligence cause losses to the company or its creditors, they shall be liable for compensation.

Article 190: Where a company is declared bankrupt according to the law, it shall be subject to insolvency liquidation according to the laws on enterprise insolvency.

Chapter XI: Branches of Foreign Companies

Article 191: For the purposes of the Law, the term “foreign companies” refers to companies incorporated outside China in accordance with a foreign country’s law.

Article 192: To establish a branch in China, a foreign company shall file an application with China's competent authority and submit relevant documents such as its articles of association, the company registration certificate issued by its country, etc. Upon approval, it shall go through registration procedures with the company registration authority according to the law and obtain a business license.

Measures for examination and approval of branches of foreign companies shall be separately stipulated by the State Council.

Article 193: A foreign company that establishes a branch in China shall designate a representative or an agent in China to be responsible for such branch and shall allocate an amount of funds to such branch commensurate with the business activities in which it is to engage.

If it is necessary to prescribe a minimum amount of operating funds of branches of foreign companies, such amount shall be separately prescribed by the State Council.

Article 194: The name of a branch of a foreign company shall indicate the nationality and form of liability of such foreign company.

The branch of a foreign company shall keep at its office a copy of such foreign company's articles of association.

Article 195: Branches established in China by foreign companies shall not have the status of Chinese legal persons.

Foreign companies shall be civilly liable for the business activities carried out in China by their branches.

Article 196: The business activities engaged in within China by foreign companies' branches that have been established upon approval shall comply with the law of China and may not harm China's social public interests. The lawful rights and interests of such branches shall be protected by the laws of China.

Article 197: When a foreign company closes its branch in China, it shall pay its debts in full according to the law and carry out liquidation in accordance with the provisions of the Law concerning company liquidation procedure. Such foreign company may not transfer its branch's property out of China prior to full payment of its debts.

Chapter XII: Legal Liability

Article 198: If, in violation of the provisions hereof, company registration is obtained by means of reporting a false amount of registered capital or by submitting false materials or resorting to other fraudulent methods to conceal major facts, the company registration authority shall order rectification and, in the case of a company that reported a false amount of registered capital, the company shall be fined not less than 5% and not more than 15% of the false amount of registered capital and, in the case of a company that submitted false materials or resorted to other fraudulent methods to conceal major facts, the company shall be fined not less than RMB 50,000 and not more than RMB 500,000. In serious cases, the company’s registration or the business license shall be revoked.

Article 199: If promoters or shareholders of a company make false capital contributions by failing to pay or deliver or pay or deliver according to schedule monetary or non-monetary property as capital contribution, the company registration authority shall order rectification, and a fine of not less than 5% and not more than 15% of the amount of false capital contribution shall be imposed.

Article 200: If promoters or shareholders of a company surreptitiously withdraw their capital contributions after the company has been established, the company registration authority shall order rectification, and a fine of not less than 5% and not more than 15% of the amount of capital contribution withdrawn surreptitiously shall be imposed.

Article 201: If a company violates the Law by establishing account books in addition to those required by law, the finance department of the people’s government at county level or above shall order rectification, and a fine of not less than RMB 50,000 and not more than RMB 500,000 shall be imposed.

Article 202: If a company makes false record or conceals major facts in the materials provided to the relevant department in charge such as the financial and accounting reports, the relevant department in charge shall impose a fine of not less than RMB 30,000 and not more than RMB 300,000 on the personnel in charge that are directly responsible and other directly responsible personnel.

Article 203: If a company fails to make allocations to the statutory common reserve in accordance with the provisions hereof, the finance department of the people’s government at county level or above shall order the company to allocate the full amount to be allocated, and may impose a fine of not more than RMB 200,000 on the company.

Article 204: If a company, when being merged or divided, reducing its registered capital or carrying out liquidation, fails to notify its creditors or to announce the same to its creditors in accordance with the provisions hereof, the company registration authority shall order rectification, and the company shall be fined not less than RMB 10,000 and not more than RMB 100,000.

If a company in liquidation conceals its property, records false information in its balance sheet or schedule of property or distributes company property prior to full payment of its debts, the company registration authority shall order rectification, and the company shall be fined not less than 5% and not more than 10% of the amount of property concealed or the amount of company property distributed prior to full repayment of its debts. The personnel in charge that are directly responsible and other directly responsible personnel shall be fined not less than RMB 10,000 and not more than RMB 100,000.

Article 205: If a company, during the period of liquidation, engages in business activities unrelated to liquidation, the company registration authority shall issue a warning and confiscate the illegal income.

Article 206: If a liquidation group fails to submit a liquidation report to the company registration authority in accordance with the provisions hereof or if the liquidation report submitted conceals major facts or contains major omissions, the company registration authority shall order rectification.

If members of a liquidation group use their authority to engage in graft, seek illegal income or seize company property, the company registration authority shall order them to return company property, confiscate the illegal income and may impose a fine of not less than the amount of the illegal income and not more than five times of the illegal income.

Article 207: If an organization undertaking asset valuation, capital verification or other verification provides false materials, the company registration authority shall confiscate its illegal income, impose a fine of not less than the amount of the illegal income and not more than five times of the illegal income, and the relevant departments in charge may order the organization to cease business, revoke the qualification certificates of the personnel directly responsible and revoke the business license according to the law.

If an organization undertaking asset valuation, capital verification or other verification provides a report containing serious omissions due to negligence, the company registration authority shall order rectification. If the circumstances are relatively serious, it shall be fined not less than the amount of the revenue obtained and not more than five times of the revenue obtained and, in addition, the relevant departments in charge may order the organization to cease business, revoke the qualification certificates of the personnel directly responsible and revoke the business license according to the law.

If the valuation result, certificate of capital verification or other verification issued by an organization undertaking asset valuation, capital verification or other verification is proved to be false, thereby causing losses to the creditors of a company, the organization shall bear the liability for compensation to the extent of the amount of the false valuation or verification unless it is able to prove that it is not at fault.

Article 208: If the company registration authority grants registration to an application for registration that does not satisfy the conditions set forth herein, or does not grant registration to an application for registration that satisfies the conditions set forth herein, administrative sanctions shall be given to the personnel in charge that are directly responsible and other directly responsible personnel according to the law.

Article 209: If the superior authorities of the company registration authority force the company registration authority to grant registration to an application for registration that does not satisfy the conditions set forth herein or not to grant registration to an application for registration that satisfies the conditions set forth herein, or if they cover up an illegal registration, administrative sanctions shall be given to the personnel in charge that are directly responsible and other directly responsible personnel according to the law.

Article 210: If an entity that has not been registered according to the law as a limited liability company or company limited by shares passes itself off as a limited liability company or company limited by shares, or an entity that has not been registered according to the law as the branch of a limited liability company or company limited by shares passes itself off as the branch of a limited liability company or company limited by shares, the company registration authority shall order rectification or close down the entity, and may impose a fine of not more than RMB 100,000.

Article 211: If a company, without proper reason, fails to commence business within six months following its establishment or, after having commenced business, voluntarily suspends business for more than six months, its business license may be revoked by the company registration authority.

If a change occurs in a particular of company registration and the relevant change is not registered in accordance with the provisions hereof, the company registration authority shall order registration within a time limit and, if registration is not carried out within such time limit, a fine of not less than RMB 10,000 and not more than RMB 100,000 shall be imposed.

Article 212: If a foreign company violates the provisions hereof by establishing a branch in China without authorization, the company registration authority shall order rectification or shut down the branch, and may impose a fine of not less than RMB 50,000 and not more than RMB 200,000.

Article 213: If serious illegal acts that harm State security and social and public interests are carried out in the name of the company, the business license shall be revoked.

Article 214: Companies that violate the provisions hereof shall assume civil liability for compensation and be subject to fines, and in case that such company's property is insufficient to pay such compensation and fine, it shall first assume civil liability for compensation.

Article 215: Where the provisions hereof are violated and a crime is constituted, such crime shall be subject to criminal prosecution according to the law.

Chapter XIII: Supplementary Provisions

Article 216: The meanings of the following terms in the Law are defined as follows:

(I)         “senior officers” refer to the manager, deputy manager and person in charge of financial affairs of a company and, in the case of a listed company, the secretary to the board of directors and other personnel specified in the articles of association.

(II)         “controlling shareholder” refers to the shareholder whose capital contribution accounts for 50% or more of the total capital of a limited liability company or whose shareholding accounts for 50% or more of the total share capital of a company limited by shares; or the shareholder whose capital contribution or shareholding is less than 50% but whose voting rights pursuant to such capital contribution or shareholding are sufficient to have a major impact on the resolutions of the board of shareholders or general meeting.

(III)        “de facto controller” refers to a person who, although is not a shareholder of the company, is capable of actually controlling the conduct of the company through investment relations, agreements or other arrangements.

(IV)        “affiliation” refers to the relationship between the controlling shareholder, de facto controller, director, supervisor or senior officers of a company and an enterprise directly or indirectly controlled by him as well as any other relationship that may lead to a transfer of the interests of the company. However, there shall be no affiliation between State-controlled enterprises merely due to the fact that the State has a controlling interest in them.

Article 217: The Law shall apply to foreign-funded limited liability companies and companies limited by shares. Where laws on foreign investment have other stipulations, such stipulations shall apply.

Article 218: The Law shall come into force as of January 1, 2006.