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Article 1. The present Provisions have been formulated on the basis of the Company Law of the People's Republic of China, the Contract Law of the People's Republic of China and other statutory provisions of the state concerning foreign investment and the administration of state-owned assets for the purpose of guiding and regulating the restructuring of state-owned enterprises with foreign investment, promoting the strategic restructuring of the state-owned economy, accelerating the pace of establishing the modern enterprise institutions in the state-owned enterprises, and for maintaining the stability of the society. Article 2. The present Provisions shall apply to the restructuring of state-owned enterprises and the enterprises in the form of companies which involve state-owned shares (except financial enterprises and listed companies) with foreign investment and to the establishment of foreign-funded enterprises in the form of companies (hereafter referred to "restructuring of state-owned enterprises with foreign investment"). Article 3. The restructuring of state-owned enterprises with foreign investment described in the present Provisions includes the following situations: (1) A state-owned enterprise is restructured into a foreign-funded enterprise when the holder of the state-owned property rights of a state-owned enterprise transfers all or part of its property rights to a foreign company, enterprise, other economic organization or individual (hereafter "foreign investor"); (2) A state-owned enterprise is restructured into a foreign-funded enterprise when the holder of the state-owned shares of a company-based enterprise transfers all or part of its shares to a foreign investor; (3) A state-owned enterprise is restructured into a foreign-funded enterprise when the creditor of the domestic state-owned enterprise transfers its credits to a foreign investor; (4) When a state-owned enterprise or a company-based enterprise consisting of state-owned shares sells all or the major part of its assets to a foreign investor, and the foreign investor establishes a foreign-funded enterprise separately with the assets it has purchased or establishes a foreign-funded enterprise jointly with the enterprise that sells the assets; and (5) A state-owned enterprise or company-based enterprise consisting of state-owned shares is restructured into a foreign-funded enterprise by absorbing the investment of a foreign investor to increase its registered capital. Article 4. The state-owned enterprises and the company-based enterprises described in Items 1, 2, 3 and 5 of the present Provisions are referred to the restructured enterprises. The state-owned property rights of a state-owned enterprise and the state-owned shares of a company-based enterprise are referred to, in general, the state-owned property rights. The holder of state-owned property rights and state-owned shares are referred to, in general, the holder of state-owned property rights. The holder of state-owned property rights refers to a department authorized by the state or an institution authorized by the state to make investments or an enterprise or any other economic organization that holders state-owned capital. The holders of state-owned property rights, the creditors of the state-owned enterprises that transfer their credits and the enterprises that sell their assets are referred to, in general, the restructuring party. Article 5. The restructuring parties shall choose those foreign investors that meet the following conditions: (1) Having the management qualifications and technical skills required by the restructured enterprise; (2) Having good business credit standing and management skills; and (3) Having good financial standing and economic strengths. The restructuring parties shall require foreign investors to propose reorganization plans that can improve the governance structure of the enterprise and promote the sustained development of the enterprise. The reorganization plans shall include elements such as the development of new products, technical innovation, corresponding investment plans, and the measures for strengthening the management of the enterprise. Article 6. The following principles shall be observed in restructuring state-owned enterprises with foreign investment: (1) Abiding by the statutory provisions of the state and safeguarding the economic security of the state; (2) Satisfying the requirements of the industrial policies of the state. Where the business scope of an enterprise (including the direct and indirect share-holding enterprises) is an industry in which foreign investment is prohibited provided in the Catalog for Guiding Foreign Investment in Industry, foreign investors may not participate in the restructuring. If it is necessary for the Chinese party to have a controlling or relatively controlling share, the Chinese party shall have a controlling or relatively controlling share after the restructuring; (3) Being favorable for the readjustment of economic structure and promoting the optimized distribution of state-owned assets; (4) Paying attention to introducing advanced technologies and management experiences, establishing a good governance structure of the company, and promoting the technological progress and industrial upgrade of the enterprise; (5) Persisting to the principles of openness, fairness, justice and honesty. State-owned assets shall be prevented from draining. One shall not avoid banks or turn banks into mere figureheads or shirk the credit of other creditors or infringe upon the lawful rights and interests of the employees, and shall protect the lawful rights and interests of foreign investors; and (6) Promoting fair competition and refraining from market monopolization. Article 7. To transfer the property rights of a state-owned enterprise or the state-owned shares of a company solely funded by the state or a limited liability company established by two or more state-owned enterprises or invested by two or more other state-owned investment subjects, the restructuring party shall consult, in advance, the employees congress of the restructured enterprise. To transfer the state-owned shares of a company-based enterprise, the consent of the shareholders' meeting of the restructured enterprise shall be obtained. To transfer the credit of a state-owned enterprise, the prior consent of the holder of the state-owned property rights of the restructured enterprise shall be obtained. To sell all or the major part of the assets of an enterprise, the prior consent of the holders of the state-owned property rights of the enterprise or the shareholders' meeting shall be obtained, and the creditors shall be informed. Article 8. The following requirements shall be met in the restructuring of state-owned enterprises with foreign investment: (1) Before an enterprise is restructured, the holder of the state-owned property rights shall organize the restructured enterprises to check their assets, define their property rights, and straighten out their credits and debts, shall hire eligible intermediary institutions to make financial audits, and make asset appraisals according to relevant provisions including the Measures for the Administration of the Appraisal of State-owned Assets (Order No. 91 of the State Council), and the Provisions Concerning Some Issues in the Administration of the Appraisal of State-owned Assets (Order No. 14 of the Ministry of Finance). The appraisal results shall, after being verified or put in archivist files according to relevant provisions, be used as the basis for determining the price of the state-owned property rights or assets; (2) If, after restructuring, the control of the enterprise is shifted or all or the major part of the management assets of the enterprise is sold to a foreign investor, the restructuring party and the restructured enterprise shall formulate plans for proper replacement of the employees, which shall be subject to adoption by the employees congress upon deliberation. The restructured enterprise shall clear off the various expenses such as the defaulted salaries of the employees, the unrefunded funds raised, and the due social security premiums. with the existing assets. The restructured enterprise and the employees shall be entitled to select each other. If any of the employees are to be retained, labor contracts shall be concluded anew or be altered. For those employees whose labor contracts are dissolved, economic indemnities shall be made thereto, and for the employees that are transferred to social security institutions, the social security premiums thereof shall be paid lump sum and in full amount according to law, with the money required being deducted from the net assets of the restructured enterprise before the restructuring is made or being paid in priority from the earnings of the holder of the state-owned property rights incurred from the transfer of state-owned assets; (3) Where the restructuring is made by selling assets, the credits and debts of the enterprise shall remain to be those of the original enterprise. If the restructuring is made by any other means, the credits and debts of the enterprise shall be inherited by the restructured enterprise. To transfer the state-owned property rights or assets that have been mortgaged or pledged, the relevant requirements of the Guaranty Law of the People's Republic of China shall be met. The undertaker of debts shall enter into agreements with the creditor for the settlement of relevant credits and debts; (4) The restructuring party shall publicize the information of restructuring, widely collecting foreign investors, and make investigations into the qualifications, credit standing, financial status, management capacities, guarantees for payment, qualities of the management personnel, etc. of the foreign investors. Priority shall be put on choosing the mid- and long-term investors that can bring advanced technology and management skills, and that are highly connected in industry. The restructuring parties and the foreign investors shall provide real and detailed information and materials required by the other party, may not conduct any misleading or fraudulent acts, and shall be obliged to keep secrets; and (5) Where the restructuring of an enterprise is done by way of transferring the state-owned property rights or selling assets, the restructuring party shall take priority in adopting the public bid method to determine the foreign investor and the price of transfer. If the transfer is to be made by public bid, the relevant procedures shall be followed according to law, and public announcements shall be made concerning the state-owned property rights to be transferred to the assets to be sold. If the property rights are to be transferred by agreement, it shall also be done in public. Whichever way is adopted for the transfer, the restructuring party shall enter into agreements of transfer with foreign investors according to the relevant provisions of the state and the present Provisions. The agreements of transfer shall include key elements such as the basic information about the state-owned property rights to be transferred, the replacement of employees, the settlement of credits and debts, the proportion of transfer, the price of transfer, the terms and conditions of payment, the delivery of property rights, and the reorganization of the enterprise. Article 9. The restructuring of state-owned enterprises with foreign investment shall be carried out according to the following procedures: (1) The restructuring party (in case of two or more restructuring parties, one shall be determined) shall file an application to the administrative department in charge of economy and trade on the same level. The application materials for restructuring shall include documents such as a feasibility study report, an introduction of the restructuring party and the restructured, information about the foreign investors (including the financial reports for the recent three years that have been audited by certified accountants and the market shares of the products or services of the enterprises in the same industry in China in which they have are of practical control), the plans for restructuring (including the replacement of employees, the settlement of debts and credits, and the plan for enterprise reorganization), the scope of business and share-holding structure of the enterprise after reorganization (including the enterprises that it directly or indirectly has shares). The administrative department of economy and trade that accepts the application shall conduct the examinations within the power stipulated in the Provisions Guiding the Orientation of Foreign Investment and other relevant statutory provisions. The restructuring of a centrally-governed enterprise or any of the enterprises wholly owned thereby or which it controls shall be subject to the examination of the administrative department of economy and trade under the State Council if the restructured enterprise directly or indirectly holds the shares of any listed company, and if the total assets of the restructured enterprise is no less than 30 million US dollars. If the restructuring may lead to market monopolization and thus hampering fair competition, a hearing shall be made prior to the examination. The administrative department of economy and trade shall, within 45 days after receiving the application materials for restructuring, give a reply whether to approve or not. Where it is necessary to hold a hearing, it shall give a reply whether to approve or not within three months. Where there are different provisions by the state concerning the change of the nature of the state-owned shares held by the restructured enterprise or the enterprise which it directly or indirectly has shares resulting from use of foreign investment or the transfer of property rights of the holder of state-owned shares in listed companies, such provisions shall apply; (2) The transfer agreements entered into between the restructuring party and foreign investors shall be subject to approval according to the relevant provisions of the Notice of the Ministry of Finance on Distributing the Interim Measures for the Administration of the State-owned Capital and Finance of Enterprises (No. 325 [2001]). The transfer agreements shall not take effect until approval has been granted. The agreements of transfer shall be accompanied by documents such as the registration certificate of state-owned property rights, the verification or archivist filing of the auditing reports and asset appraisal reports of the restructured enterprise, plans for the replacement of employees, agreements of credit and debt, plans for the reorganization of the enterprise, the relevant resolutions of the restructuring party and the restructured enterprise, the opinions or resolutions of the employees congress of the restructured enterprise, etc.; (3) The restructuring party or the restructured enterprise shall go through the procedures of examination and approval of foreign-funded enterprises by presenting its application for restructuring and the approval documents of the agreements of transfer. If the enterprise after restructuring becomes a stock-limited company, it shall go through the procedures according to the relevant provisions of the Company Law of the People's Republic of China; (4) The enterprise after restructuring or the investors shall file registration with the original registration authority that has the power to register foreign-funded enterprises or the registration organ of the place where it is situated that has the power to register foreign-funded enterprises according to the statutory provisions concerning registration by presenting the approval documents described in Items 1 and 3 of the present Article. If the enterprise after restructuring becomes a stock-limited company, it shall go through the procedures according to the relevant provisions of the Company Law of the People's Republic of China; (5) The restructuring party shall complete the delivery of state-owned property rights and the change of ownership according to the relevant provisions by presenting the application for restructuring, the approval documents of the agreements of transfer, registration certificates of foreign investment and foreign exchange, and other relevant documents, and shall entrust certified accountants to issue asset appraisal reports. If the land used by the enterprise after restructuring was allocated by the state, it shall be subject to the examination and approval of land use rights and complete the procedures of transfer of land use rights; (6) The foreign exchange earnings of the restructuring party obtained from the transfer of state-owned property rights or credits or from the sale of assets shall be settled by presenting the application for restructuring, the approval documents of the agreements of transfer and other relevant documents to the foreign exchange administration for approval. If the restructured enterprise is reorganized by absorbing the investment of foreign investors so as to increase its registered capital, it may, upon the approval of the foreign exchange administration concerned, open a capital account of foreign exchange so as to retain the foreign exchange capital invested by foreign investors; and (7) The application for restructuring, agreements of transfer and the corresponding approval documents of the enterprises which are below the limited amount and subject to the examination and approval of the administrative department of economy and trade and the administrative department of public finance of the local place but which concern any of the key enterprises of the state and whose debt-equity conversion has been approved by the state or of the enterprises which fall into the restricted industries provided in the Catalog for Foreign Investment in Industry shall be submitted to the administrative department of economy and trade under the State Council and the administrative department of finance under the State Council for archivist purposes. Article 10. Foreign investors shall pay for the prices of transfer or make their contributions with freely convertible currencies remitted from beyond the territory or any other lawful property rights. They may also pay for the prices of transfer or make their contributions with the net profits of RMB obtained from their investment within the territory of China or with any other lawful property rights subject to the approval of the foreign exchange administration. The lawful property rights mentioned above shall include: (1) The properties obtained by foreign investors from the liquidation, transfer of equity, advance reclaim of investment or reduction of registered capital of any other foreign-funded enterprises established within the territory of China; (2) The state-owned property rights or assets of any state-owned enterprise or company-based enterprises that consist of state-owned equity purchased by foreign investors; (3) The credits of the creditors of any of the state-owned enterprises purchased by foreign investors; and (4) Any other contribution provided by any law or regulation. Certified accountants shall, when appraising the assets of foreign investors and issuing asset appraisal reports, observe the procedures of asset appraisal provided in the Notice of the Ministry of Finance and the State Administration of Foreign Exchange on Further Enhancing the Asset Appraisal of Foreign-funded Enterprises and Perfecting the Registration of Foreign Capital and Foreign Exchanges (No. 1017 [2002] of the Ministry of Finance). Article 11. If the restructuring is to be conducted by way of transfer, the foreign investor shall, as a general rule, pay off the total value within three months as of the day when the foreign-funded enterprise obtained its business license. If it find it difficult, it shall pay off no less than 60% of the total value within six months as of the day when it obtained its business license, and shall provide surety according to law for the balance which shall be paid off within one year. Article 12. If, after the transfer of state-owned property rights, the control of the enterprise shifts, or if all or the major part of the management assets are sold to any foreign investor, the restructuring party shall be entitled, before the foreign investor pays off the total value, get to know and supervise the production and management as well as the financial situation of the enterprise after restructuring, and the foreign investor and the enterprise after restructuring shall provide corresponding conveniences. Foreign investors may not, before establishing any foreign-funded enterprises with the purchased assets mentioned above, engage in any business operations. Article 13. State-owned property rights and the earning from the transfer of assets shall be collected by the restructuring party, and shall be managed and used according to the relevant provisions of the administrative department of finance under the State Council. Article 14. The net profits shared by foreign investors from the enterprise after restructuring, the incomes obtained from the transfer of equity, the capital obtained from the enterprise at the expiration of the term of operation of upon termination of the enterprise, and any other lawful earnings may be remitted out of the territory according to law. They may also be used for reinvestment within the territory upon the approval of the foreign exchange administration concerned. Article 15. In the process of restructuring state-owned enterprises with foreign investment, the tax policies shall be the provisions in the laws and administrative regulations of the state concerning taxation, and the fee-collecting policies shall be the Notice Concerning the Reduction and Exemption of Relevant Fees in the Restructuring and Reorganization of Enterprises issued by the State Development Planning Commission, the State Economic and Trade Commission, the Ministry of Government Supervision, the Ministry of Finance, the State Auditing Administration, and the Malpractice Redressing Office of the State Council (No. 1077 [1998] of the State Development Planning Commission). Article 16. In case any of the employees of the restructuring party or the restructured enterprise infringes upon the lawful rights and interests of the state, creditor or employees by overstepping his authority, neglecting his duties or conspiring with foreign investors or embezzles or takes bribes, he shall be given an administrative punishment or sanction by competent departments. If any crime has been constituted, he shall be subject to criminal liabilities. Article 17. In case any of the functionaries of the government organs in charge of examination and approval violates any of the present Provisions by unlawfully granting approval or seeking private benefits in the process of examination and approval so that the lawful rights and interests of the state, creditor or employees are infringed upon, the persons who are held to be directly responsible and the persons in-charge shall be subject to taking criminal liabilities according to the authority of the administration of cadres. If any crime is constituted, the offender shall be subject to criminal liabilities. Article 18. The present Provisions shall be applicable by reference to the investors from the Hong Kong Special Administrative Region, the Macao Special Administrative Region and Taiwan and the already established foreign-funded enterprises in their participation in the restructuring of state-owned enterprises. Article 19. The power to interpret the present Provisions shall remain with the State Economic and Trade Commission, the Ministry of Finance, the State Administration for Industry and Commerce, and the State Administration of Foreign Exchange. Article 20. The present Provisions shall come into force as of January 1, 2003. |
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