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	CIRCULAR OF THE STATE-OWNED ASSETS SUPERVISION AND ADMINISTRATION COMMISSION OF THE STATE COUNCIL ON RELEVANT ISSUES CONCERNING THE ADMINISTRATION OF THE STOCK RIGHT OF STATE-OWNED SHARES IN THE SHARE-TRADING REFORM OF LISTED COMPANIES

	(No. 246 [2005] of the State-owned Assets Supervision and Administration Commission of the State Council, September 8, 2005)


SUBJECT : STATE-OWNED SHARES; SHARE-TRADING REFORM OF LISTED COMPANIES
ISSUING DEPARTMENT : THE STATE COUNCIL OF THE PEOPLE'S REPUBLIC OF CHINA
ISSUE DATE : 09/08/2005
IMPLEMENT DATE : 09/08/2005
LENGTH : 1,650 words
TEXT :

In order to further the share-trading reform, promote the development of listed companies, protect the legitimate rights and interests of investors, especially the public investors and preserve the stability of the capital market, according to the spirit of Some Opinions of the State Council on Promoting the Reform and Opening-up As Well As the Stable Development of the Capital Market (No. 3[2004] of the State Council) and the Guiding Opinions on the Share-trading Reform of Listed Companies (No. 80 [2005] of the Securities Regulatory Commission), upon the consent of the State Council, we hereby notify the relevant issues concerning the administration of stock right of state-owned shares in the share-trading reform as follows:

1. The state-owned assets supervision and administration institutions at all levels as well as the shareholders of state-owned stocks of listed companies shall have a deeper understanding on the significance of the share-trading reform in solving the defects of the securities market mechanism, improving the corporate governance of listed companies, and promoting the rational flow of state-owned assets and shall, based on the overall situation of the reform, take effective measures and promote the sound development of the share-trading reform.

2. The state-owned assets supervision and administration institutions at all levels and the central enterprises shall, based on the basic principals of "being active, safe and orderly", earnestly formulate an overall plan for the share-trading reform of state-controlling listed companies of the enterprises concerned or in their own jurisdictions, intensify the classified guidance for shareholders of state-owned stocks and pay attention to combining the share-trading reform with the maintaining the stability of the securities market, take a good command of the reform depth, development speed and market endurance by carrying out the reform in any enterprise with mature conditions in an one-after-another manner. For a listed company that hasn't reached the mature conditions for reform, we should positively create the relevant conditions and explore the effective form of reform.

3. The shareholders of state-controlled stocks of a listed company shall, according to the laws and regulations in force and the relevant provisions on the share-trading reform, on the basis of widely soliciting the opinions of other shareholders of non-tradable stocks as well as those of tradable stocks in the A-share market, deliberate and formulate the plan of share-trading reform in line with the real situations of the listed company as well as their own, and shall conduct a comprehensive argumentation on the feasibility of the plan by himself or by employing a financial advisor. The state-owned assets supervision and administration institutions at all levels and the central enterprises shall effectively perform their obligations, offer guidance for and carry out supervision over the plan of share-trading reform as deliberated and formulated by the shareholders of state-owned stocks of listed companies, and take effective measures, intensify the internal administration, prevent moral risks so as to prevent such crimes as any fraud, insider trading and market manipulation in the name of the share-trading reform.

4. The shareholders of state-controlled shares of a listed company shall, when formulating the plan for share-trading reform, fully refer to the piloting experience of the share-trading reform and, according to the real situation of listed companies as well as share-holders of state-owned stocks, actively explore the diversified forms of the share-trading reform, encourage the combined operation of assets restructuring, and resolution of the problem of controlling shareholders' or actual controllers' occupying the capital of listed companies by means of the share-trading reform so as to elevate the quality of listed companies.

5. The shareholders of state-controlled stocks of a listed company shall, when consulting with the other shareholders of non-tradable stocks as well as those of tradable stocks in the A-share market to formulate the plan of share-trading reform, pay full attention to protecting the legitimate rights and interests of the holders of tradable stocks, take comprehensive consideration of the real situation of the holders of state-owned stocks, the profit-making capability of the listed company as well as the development potential and pay equal attention to both short-term benefits and long-term benefits. In the meantime, we should pay attention to balancing the interests of the otherholders of non-tradable stocks and uphold the principle of fully consulting the other holders of non-tradable stocks as well as the holders of tradable shares in the A-share market.

6. In order to adapt to the situation and requirements of furthering the share-trading reform, the functions and duties of examination on the matters concerning the administration of the stock right of state-owned shares of listed companies as held by local state-owned enterprises or any other entity shall be exercised by the state-owned assets supervision and administration institutions at the provincial level (or the cities under separate state planning, hereinafter the same). In particular, a plan of share-trading reform of a local state-controlling listed company shall be reported to the people's government at the provincial level or of the city under separate state planning via the state-owned assets supervision and administration institution at the provincial level.

Such matters as transferring or converting state-owned stocks of listed companies, transferring agreements, swapping debts with stock rights and altering the nature of state-owned shares of listed companies as well as any other matter regarding the administration and examination of state-owned shares shall be handled according to the relevant provisions in force.

The reply of the state-owned assets supervision and administration institution at the provincial level on a plan of share-trading reform of local share-holders of state-owned shares as well as the argumentation report on the feasibility thereof shall be reported to the State-owned Assets Supervision and Administration Commission of the State Council.

7. Before a plan of share-trading reform of a state-controlled listed company is submitted to the Stock Exchange, the holders of state-owned stocks of the listed company shall obtain the agreement of the state-owned assets supervision and administration institution at or above the provincial level, as is the general principle. Before the board of directors of a listed company is entrusted to hold an assembly of the relevant shareholders in the A-share market for a plan of share-trading reform in a share-holding or state-invested listed company, all the holders of state-owned stocks shall obtain the written opinion of the state-owned assets supervision and administration institution at or above the provincial level. After the board of directors of a share-holding or state-invested listed company announces or holds an assembly of the relevant shareholders, the plan of share-trading reform shall be uniformly submitted by the largest holder of state-owned shares to the state-owned assets supervision and administration institution at or above the provincial level for approval.

8. The state-owned assets supervision and administration institution shall, before the classified voting of the relevant shareholders, carry out an examination and make a reply on the matters concerning the administration of the stock right of state-owned shares in the share-trading reform.

9. The state-owned assets supervision and administration institution shall, when replying a plan of share-trading reform concerning the state-owned shares of a listed company, examine and refer to the following materials:

(1) The application materials concerning the share-trading reform;

(2) The plan of share-trading reform and the argumentation report;

(3) A statement on the share-trading reform;

(4) The opinions of consultation with the holders of non-tradable stocks regarding the share-trading reform;

(5) The annual report of the listed company in the previous year as well as the latest quarterly report;

(6) The legal opinions; and

(7) Any other material.

The argumentation report on the share-trading reform of a listed company shall include but not limited to the following contents: the lowest proportion for holding state-owned shares and the basis thereof; the basis of the plan for the share-trading reform; the appraisal and analysis of the values of state-owned shares before and after the share-trading reform; and the effect on the interests and rights of the work staff of the listed company.

10. The state-owned assets supervision and administration institution at or above the provincial level shall, when producing the reply on the share-trading reform regarding state-owned shares, clarify the names of all holders of state-owed shares, the number of shares as held, the proportion thereof in the total stocks as well as the nature of the stock right concerned (state share or state legal-person share). In particular, an exclusively state-controlled entity that holds state-owned corporate shares shall specially indicate the name of the state-controlled entity after its own name.

11. The state-owned assets supervision and administration institutions at all levels shall, at the same time of doing a good job in the share-trading reform, actively carry out researches on the following work: firstly, when carrying out the performance assessment on the holders of state-owned shares of listed companies, we should consider setting up an indicator of market value of the controlling listed companies; secondly, we should actively study the specific measures for the stock-based incentives for the management of listed companies. For a state-controlled listed company that has completed the share-trading reform, we may pilot the stock-based incentivesfor the management personnel. The specific measures for the implementation and assessment of the stock-based incentives for the state-controlled listed companies shall be separately formulated by the State-owned Assets Supervision and Administration Commission of the State Council in collaboration with other relevant departments; thirdly, we should earnestly deliberate the effective ways of supervision and the measures after obtaining the right to trade state-owned shares.

12. The state-owned assets supervision and administration institutions at all levels and central enterprises shall effectively perform their own functions and duties, formulate an overall plan for the share-trading reform of state-controlled listed companies that meet the development requirements of the area or the enterprise concerned, and at the same time, pay attention to studying all kinds of problems arising from the share-trading reform and report the relevant information to the State-owned Assets Supervision and Administration Commission of the State Council in a timely manner.