1. Foreign Investment:
(1) Circular on Printing and Distributing the Opinions on the Enforcement of Issues Related to the Application of Laws and Regulations Governing the Administration of the Approval and Registration of Foreign Invested Companies (Decree No. 81)
Extract:
On April 24, 2006, the State Administration for Industry and Commerce (SAIC), the Ministry of Commerce, General Administration of Customs, and the State Administration of Foreign Exchange jointly issued such circular.
The promulgation of Decree No. 81 provides concrete legal grounds for enhancing the accuracy of applying related laws and regulations and their coordination, improving the efficiency of approval and registration of foreign invested companies (FICs) as well as increasing the attractiveness of China's investment facilities.
Such Decree further clarifies major changes in the said two legislations, including the incorporation of limited liability companies owned by a single legal person, means of capital contribution by shareholders, the incorporation and alteration registration, etc.
(2) Circular of the Ministry of Commerce on Certain Issues Concerning the Issuance of the Confirmation of Domestic or Foreign-Invested Projects Encouraged by the State to Foreign-Invested Enterprises (No. 201 [2006] of the Ministry of Commerce April 29, 2006)
Extract:
In order to further regulate the operational tax exemption procedures for the import equipment of the foreign-invested¡¡enterprises and clarify the specific requirements for the Confirmation of Domestic or Foreign-Invested Projects Encouraged by the State, the notice circulate a circular on the relevant issues as follows:
I. General Principles
As a general rule, the Confirmation Letters for the foreign-invested projects in the encouraged category shall be separately issued by the competent departments for development and planning, economy and trade, and foreign trade and economic cooperation, in particular, the Confirmation Letters for the foreign-invested projects in the encouraged category above the limits shall be separately issued by the National Development and Reform Commission and the Ministry of Commerce, and those under the limits shall be issued by the relevant departments under the provincial people's government in light of the current division of duties and functions and the limits of authorities.
II. Scope for the Ministry of Commerce to Issue Confirmation Letters and Import Certificates
The Conformation shall be issued to nine categories of Foreign-Invested Company.
(3) The Supplementary Provisions on the Establishment of Investment Companies by Foreign Investors (May 26, 2006)
Extract:
The Supplementary Provisions became effective on July 1, 2006. The Supplementary Provisions supplements the Provisions on the Establishment of Investment Companies by Foreign Investors (the second revised version by the MOC in 2004, the ¡°Original Provisions¡±).
In the event of any discrepancy between articles of the Original Provisions and the Supplementary Provisions, the latter shall prevail. The Supplementary Provisions adjust the capital contribution requirements applicable to foreign investors establishing investment companies. The Original Provisions required that each such capital contribution be fully paid in within two years from the day when the business license was issued.
Under the Supplementary Provisions, at least USD 30 million of the registered capital must be contributed within two years from the day when the business license is issued.
(4) Circular of the State Administration of Foreign Exchange on the Adjustment of Certain Foreign Exchange Administrative Policies of Overseas Investment (June 6, 2006)
Extract:
The Circular is intended to complete the set of policies that encourage overseas investment and to enable domestic investors to carry out multinational transactions. According to the Circular, when a domestic investor needs to use foreign currency for overseas investment, it may use its own foreign currency, use RMB to purchase foreign currency, or request for a domestic loan of foreign currency. Beginning July 1, 2006, SAFE will no longer impose quotas on its sub-bureaus with respect to the amount of foreign currency that may be purchased for the purpose of overseas investment. The Circular further provides that after submitting the application or letter of intent of an overseas investment project to SAFE or its sub-bureaus and before obtaining the official approval, a domestic investor may, subject to the approval of SAFE¡¯s sub-bureaus, use foreign currency to make external payment of upfront fees related to an overseas investment project. When doing so, it may use the foreign currency it already owns, or foreign currency purchased from or loaned by a bank.
Generally speaking, the upfront fees shall not exceed 15% of the amount of overseas investment. If a domestic investor needs to pay upfront fees in an amount that exceeds 15% of the amount of overseas investment, it must seek pre-approval from the local SAFE sub-bureau.
(5) Provisions on the Takeover of Domestic Enterprises by Foreign Investors
Extract:
On August 8, 2006, the Ministry of Commerce ("MOFCOM"), joined by the State-owned Assets Supervision and Administration Commission of the State Council, State Administration of Taxation, State Administration for Industry and Commerce, China Securities Regulatory Commission ("CSRC") and State Administration of Foreign Exchange, amended and released the Provisions for Foreign Investors to Merge and Acquire Domestic Enterprises (the "M&A Rules"). The M&A Rules, which take effect September 8, 2006, supersede the existing M&A rules in China that were in place since April 12, 2003 ¡ª the Interim Provisions for Foreign Investor.
The M&A Rules represent an important step in the further development of China¡¯s regulation of the foreign acquisition of China-based companies. In addition to the four agencies that promulgated the earlier rules, both SASAC and the CSRC joined in issuing the M&A Rules. MOFCOM will continue to be at the center of regulatory activity in this area but will now be cooperating with an even broader range of government agencies than before. It is clear from the M&A Rules that China¡¯s key government agencies are increasing their attention to M&A activities and can be expected to be even more active in monitoring.
£¨6£©Regulation of the People¡¯s Republic of China on the Administration of Foreign-funded Banks (Order of the State Council No. 478)
Extract:
The Regulation of the People¡¯s Republic of China on the Administration of Foreign-funded Banks, which was adopted at the 155th executive meeting of the State Council on November 8, 2006, is hereby promulgated and shall come into force as of December 11, 2006.
This Regulation is formulated to meet the demands for opening to the outside world and for economic development, to strengthen and improve the administration of foreign-funded banks, and to promote the steady and sound operation of the banking sector.
(7) Detailed Rules for the Implementation of the Regulations on the Administration of Foreign-funded Banks of the People¡¯s Republic of China
Extract:
The Detailed Rules is promulgated by order No.6.of the china Banking Regulatory Commission on November 24£¬2006 and shall come into force as of December 11£¬2006£®The Detailed Rules for the Implementation of the Regulations on the Administration of Foreign¡ªfunded Financial Institutions of the Peoples Republic of china is promulgated by the china Banking Regulatory Commission on July 26£¬2004 shall be abolished simultaneously.
The Rules hereof expressly provide that an initially established foreign-funded bank shall submit a summary of the information about the financial system in its home country or region and of applicable financial regulatory laws and regulations£®An initially founded representative office a foreign bank shall submit a certificate issued by a China-registered financial institution in the banking industry to support the availability of agent relationship between the restitution and the foreign bank£®
(8) Administration of Foreign-Invested Construction Project Design Enterprises (Issuing Date: January 5, 2007; Effective Date: January 5, 2007)
Extract:
In China, most construction projects are rated according to size and difficulty as Grade A, Grade B, or Grade C. Construction design and other construction-related firms receive qualification ratings on a similar scale. Construction firms must meet a different set of thresholds (such as registered capital, number of qualified architects, and completed design works) for each grade.
The Design Enterprise Implementing Rules allow foreign construction design enterprises, as well as qualified foreign architects and engineers, to establish Design Enterprises in China. Foreign investors that are involved in other industries are excluded from China¡¯s construction design market.
(9) Notice of the Ministry of Finance and the State Administration of Taxation on Adjusting the Scope of Tax Refund Policies on Purchasing Domestically Produced Equipment for Foreign-funded Projects
Extract:
The Notice confirms the scope of such tax refund policies to other recently amended and updated rules and policies. The Notice states that the following types of enterprises may be eligible for the value-added tax (¡°VAT¡±) refund benefits: (i) foreign-invested enterprises (¡°FIEs¡±) that are recognized as ordinary VAT taxpayers and (ii) enterprises that are not ordinary VAT taxpayers but are (a) FIEs engaged in transportation or normal residential building development or (b) Chinese-foreign cooperative joint ventures engaged in oceanic petroleum exploration and development (collectively, the ¡°Eligible Enterprises¡±).
The Notice provides that Eligible Enterprises may claim VAT refunds for domestically produced equipment that they purchase for foreign-invested projects that are listed in the Catalogue for the Guidance of Foreign Investment Industries or in the Catalogue of Priority Industries for Foreign Investment in the Central and Western Regions, as amended. Eligible Enterprises should manage such equipment as fixed assets.
2. Corporate:
(1) Circular of the Ministry of Finance on the Relevant Issues concerning Enterprise Accounting Treatments after the effect of the Company Law (No. 67 [2006] of the Ministry of Finance
March 15, 2006)
Extract:
To the departments (bureaus) of finance of all provinces, autonomous regions, municipalities directly under the Central Government and all the relevant ministries and commissions of and the relevant institutions directly under the State Council, and all the enterprises directly under the Central Government, the circular hereby circulate a notice on the enterprise accounting treatments as follows:
I. The capital contributions shall be subject to appraisal and pricing to verify the assets.
II. On the Disposal of the Balance of Public Welfare Funds an enterprise established according to the Company Law shall not draw public welfare funds when it distributes profits. At the same time, the State-owned enterprises and other enterprises shall abolish the system of public welfare funds simultaneously in order to keep the coherence between the accounting policies of the enterprises.
(2) Enterprise Bankruptcy Law (Issing Date: August 27, 2006)
Extract:
The Enterprise Bankruptcy Law was approved by the powerful Standing Committee of China's National People's Congress after 12 years of drafting and deliberation. The new law, to take effect June 1, 2007, will replace rules issued in 1986 that applied only to state-owned enterprises.
China's current bankruptcy rules require insolvent companies to pay off obligations to employees before they address creditors' claims. The new law, which governs both state-owned and privately owned companies, requires companies that go bankrupt to pay guarantees to creditors first, with employee salaries and other obligations paid out of what remains.
Another key provision in the new law introduces a mechanism for corporate reorganizations that could allow some troubled companies to avoid bankruptcy, and this will help to avoid social ramifications as a result of liquidation such as unemployment and loss of social wealth.
(3) Partnership Enterprise Law of the People¡¯s Republic of China (Issuing date: 08-27-2006)
Extract:
The Partnership Enterprise Law of the People's Republic of China was amended and adopted at the 23rd session of the Standing Committee of the 10th National People's Congress of the People's Republic of China on August 27, 2006. The amended Partnership Enterprise Law of the People's Republic of China is hereby promulgated and shall come into force as of June 1, 2007.
This law is formulated for the purpose of regulating the acts of partnership enterprises, protecting the legitimate rights and interests of partnership enterprises as well as their partners and creditors, maintaining the social and economic order, and promoting the development of the socialist market economy.
(4) Regulation on Trade Union Work in Enterprises
Extract:
In July, 2006, the ACFTU enacted the Regulation on Trade Union Work in Enterprises. The 60-article regulation defines the status of trade unions in enterprises, guiding principles, basic tasks, goals as well as issues relating to union construction in enterprises, trade union chairmen¡¯s terms of reference, union property, union funds and measures on protecting union cadres. The regulation has provided a policy guarantee for trade unions to carry out their work.
(5) General Rules on Enterprise Finance (Decree of the Ministry of Finance No.41)
Extract:
Under the provisions of the Reply of the State Council concerning the General Rules on Enterprise Finance and Enterprise Accounting Standards (Guo Han [1992] No.178), the Ministry of Finance amended the General Rules on Enterprise Finance (Decree No.4 of the Ministry of Finance). The amended General Rules on Enterprise Finance have been deliberated and adopted by the ministerial meeting. They are hereby promulgated and shall enter into force as of January 1, 2007.
With a view to strengthening the financial management of enterprises, regulating the financial behaviors of the enterprises, protecting the legitimate rights and interests of the enterprises and related parties and boosting the establishment of modern enterprise system, the present Rules are formulated and provides the general measure on finance of enterprises.
3. Merger & Acquisition
(1) Notice on Relevant Issues of Foreign Investors to Establish Foreign Funded Advertisement Enterprises through Equity Shares Merger and Acquisition
In accordance with Decree No.8 of State Administration for Industry and Commerce and Decree No.3 of Ministry of Foreign Trade and Economic Cooperation, , related matters on foreign investors to establish foreign funded advertisement enterprises through equity shares merger and acquisition are now announced as follows:
i. Foreign investors may establish Sino-foreign cooperative advertisement enterprises by purchasing part of the equity shares of domestic enterprises.
ii. Both the domestic investors and foreign investors shall conform to conditions of Article 9 and Article 10 of Regulations on Advertisement.
iii. Foreign investors shall go through formalities of examination and approval and registration in line with regulations of Article 6 and Article 7 of Regulations on Advertisement.
iv. Applicants shall submit related documents and go through formalities of examination and approval in line with Regulations on Advertisement and related rules on merger and acquisition.
(2) Measures for the Administration of the Takeover of Listed Companies
Extract:
China Security Regulatory Commission (CSRC) promulgated the Measures for the Administration of the Takeover of Listed Companies on August 1, 2006. The former measures have been revised, according to which material changes have taken place to the system of takeover of listed companies.
The new measures changed the means of tender offer from compulsory general tender offer to tender offer at purchasers¡¯ option, which reduces the takeover cost of purchaser.
Moreover, such measures further specify the manipulability of tender offer. For example, in accordance with Article 35 of the Measures, the offered price for the purchasing shares shall not be lower than the highest price at which the purchaser obtains such shares within 6 months prior to the indicating announcement date.
(3) Notice on Relevant Matters on the Transfer of Enterprises¡¯ State-owned Property (Issuing Date: December 31, 2006Effective Date: December 31, 2006)
Extract:
The State-owned Assets Supervision and Administration Commission of the State Council (¡°SASAC¡±) published the Circular on Relevant Matters on the Transfer of Enterprises¡¯ State-owned Property (the ¡°State-owned Property Circular¡±) on its website on January 26, 2007. According to the circular, however, the rules have been in effect since December 31, 2006.
The State-owned Property Circular repeats and emphasizes a number of regulations and requirements in the Interim Measures on the Administration of Transfer of Enterprises¡¯ State-owned Property, which were issued by the same two governmental agencies in 2004 (the ¡°2004 Measures¡±). Future transactions will be under tighter supervision by local and central SASAC branches and the 61 certified property rights exchanges (¡°Exchange¡± or ¡°Exchanges¡±), such as the Shanghai United Asset and Equity Exchange that are located in large cities throughout China.
4. Finance & Taxation
(1) Circular on Securitization of Credit Assets of Financial Institutions (Issuing Date: February 20, 2006)
Extract:
The Ministry of Finance and the SAT issued a Circular on 20 February 2006 to clarify various tax policies related to the securitization of credit assets of financial institutions (Caishui [2006] 5).
When a promoter entrusts credit assets to a trustee institution, no stamp duty will be levied on the trust contract between the parties. When a trustee institution entrusts a loan service institution to manage credit assets, no stamp duty will be levied on the contract between the parties.
During the securitization period, when the promoter and trustee institution sign a contract with the capital custodian institution, security registration institution or other institutions that provide credit asset securitization services of credit assets, no stamp duty will be levied on the promoter or trustee institution.
(2) Circular clarifying a number of issues relating to the Joint Annual Examination of Foreign Invested Enterprises (Issuing Date: February 28, 2006)
Extract:
The Circular specifically addresses the time for the joint annual inspection of WFOE in 2006 and the new report that is required to be used during the inspection.
The official period for the joint annual inspection of WFOE is 1 March through 30 April 2006. Each department involved in the inspection should endeavor to improve the coordination and cooperation among the various government agencies involved with a view to ultimately improving administration.
(3) Guidance on Interest Article in Tax Treaties (Issuing Date: March 1, 2006)
Extract:
The Notice (Guoshuihan [2006] 229) provides guidance on the collection of tax on interest as provided in China's various tax treaties.
If interest income received by the central bank, state-owned financial institutions and other organizations in the relevant contracting state is exempt from tax in China under an applicable treaty, the bank (organizations) may apply for the exemption to the tax authorities in the location from which the interest income is derived after each loan contract is signed.
(4) Detailed Rules on Adjustment of Consumption Tax Items and Rates (Effective Date: April 1, 2006)
Extract:
The Chinese Ministry of Finance and the State Administration of Taxation have jointly issued a circular on adjustment and improvement of the consumption tax policy. The circular becomes effective on April 1, 2006.
The circular says that approved by the State Council, the country adjusts items and rates of consumption tax and the relevant policy in order to meet the needs of development of the social and economic situation, and further improve the consumption tax system.
(5) Interim Provisions on the Vehicles and Vessels Tax (Issuing Date: December 29, 2006)
Extract:
As of January 1, 2007, China has also unified its tax policy on vehicles and vessels. The new regulations require all individuals and entities, including WFOE and foreign enterprises, to pay the same vehicle and vessel taxes.
Original vehicles and vessels license plate taxes on foreign enterprises, as well as vehicles and vessels use taxes on Chinese individuals and entities, are all cancelled. The previous system gave preferential treatment to foreign investment, with license plate tax rates for WFOE being lower than taxes on Chinese individuals and entities.
(6) Interim Provisions on the Urban Land Use Tax (Amending Date: December 31, 2006)
Extract:
As of January 1, 2007, China has significantly raised its land use tax rates, requiring foreign-invested enterprises and foreign enterprises to pay at higher rates.
New rates are three times higher than the old rates, which were set in 1988. The new rates included as follows:
i. 1.5 to 30 RMB per square meter in large cities;
ii. 1.2 to 24 RMB per square meter in mid-sized cities;
iii. 0.9 to 18 RMB per square meter in small cities; and
iv. 0.6 to 12 RMB per square meter in counties, townships, and mining areas.
Moreover, specific tax rates will be determined by competent authorities according to local situation.
(7) Interim Measures on Awarding Tipp-offs against Tax-related Illegal Acts of Taxpayers (Decree of the State Administration of Taxation and the Ministry of Finance No. 18)
Extract:
The Interim Measures on Awarding Tipp-offs against Tax-related Illegal Acts of Taxpayers have been deliberated and adopted by the State Administration of Taxation and the Ministry of Finance. They are hereby promulgated and shall go into effect as of March 1, 2007.
For the purpose of encouraging tip-offs against tax-related illegal acts, these Measures are constituted according to the related provisions in the Law of the People's Republic of China on Administering Tax Levy and the Detailed Rules for the Implementation.
These Measures shall go into effect as of March 1, 2007. The Measures on Awarding Tip-offs against Tax-related Illegal Cases printed and distributed by the State Administration of Taxation on December 15, 1998 shall be concurrently abolished.
(8) Notice on Relevant Taxation Policies for Accelerating the Development of Venture Capital Enterprises (Issuing Date: February 7, 2007)
Extract:
Ministry of Finance and State Administration of Taxation jointly issued this Notice in order to clarify the tax holidays and exemptions that are available to both Chinese and enterprises.
The Notice provides that 70 percent of VC investment in small-to mid-sized high-tech enterprises may be deducted from a VC firm¡¯s taxable income.
(9) Enterprise Income Tax Law (Issuing Date: March 16, 2007, Effective Date: January 1, 2008)
Extract:
The law, which sets unified income tax rate for domestic and foreign companies at 25 percent, is due to take effect on January 1, 2008.
¡¡Currently, the actual average income tax burden on Chinese companies is 25 percent, while that on foreign enterprises is 15 percent. Many people think such a policy forces domestic businesses to face tougher competition since China's accession to the World Trade Organization (WTO) in 2001.
Meanwhile, a five-year transitional period has been offered to offset the impact on foreign companies, according to the law. Although, the income tax rate will be gradually increased to the 25 percent during this period, and old foreign enterprises can still enjoy tax breaks within a regulated time limit as before; i.e. the 25-percent tax rate is still favorable compared with those in some countries and regions.
(10) Circular on the Adjustment of Pre-Tax Deduction Standards for Advertising Expenses of Garment Manufacturing Enterprises
Extract:
The circular raises the annual deductible limit from 2% to 8% of sales. Such circular also provides that advertising expenses amounting to 8% of sales (business) revenue actually incurred by garment manufacturing enterprises in the current tax year that meet the requirements of Article 41 of the Measures for Enterprise Income Tax Pre-Tax Deductions are tax deductible, and any amount above this limit may be carried forward without timeline to subsequent years.
According to Article 41 of the above measures, advertising expenses declared by a taxpayer must meet the following requirements:
i. The advertisements are produced by professional companies approved by industry and commerce departments;
ii. The expenses are actually paid and invoiced; and
iii. The advertisements are disseminated through regular media.
5. Insurance
(1) Notice on Relevant Issues Relating to the Adjustment of Foreign Exchange Policies on Part of the Insurance Businesses (Issuing Date: May 23, 2006)
Extract:
According to the Notice, each domestic insurance company that operates foreign exchange insurance business, as well as each branch thereof, shall make the following adjustments to their foreign exchange policies regarding the insurance contracts that satisfy the conditions set forth in Articles 33 and 34 of the Interim Provisions on Foreign Exchange Control of Insurance Business (No. 95 [2002] of SAFE).
(2) Regulations on Compulsory Insurance regarding the Liability in Traffic Accident of Motor Vehicles (Issuing Date: March 21, 2006; Effective Date: July 1, 2006)
Extract:
This Regulation prescribed the scope for application of these Regulations. It also stipulated that the organ engaging in supervision over insurance under the State Council shall implement supervision over compulsory insurance business concerning the liability in traffic accident of motor vehicles by insurance companies according to law.
Moreover, it provided that any unit or individual may not be engaged in the compulsory insurance business concerning the liability of traffic accident of motor vehicles without authorization.
(3) Measures for the Administration of Representative Agencies in China of Foreign Insurance Organizations (Decree of China Insurance Regulatory Commission No.5, 2006)
Extract:
The Measures for Administration of Representative Agencies in China of Foreign Insurance Organizations was deliberated and adopted at the chairman's executive meeting of the China Insurance Regulatory Commission on June 12, 2006 and is promulgated hereby. It shall take effect as of August 1, 2006.
This Measure has been formulated pursuant to the Insurance Law of the People's Republic of China for the purpose of strengthening the administration of representative agencies in China of foreign insurance organizations and matching the need of opening the Chinese insurance market to the outside world.
(4)Provisions for the Administration of the Post-holding Qualifications of Directors and Senior Managers of Insurance Companies (Decree of China Insurance Regulatory Commission No. 4)
Extract:
The Provisions for the Administration of the Post-holding Qualifications of Directors and Senior Managers of Insurance Companies, which have been deliberated and adopted by the executive meeting of the chairmen of China Insurance Regulatory Commission on June 12, 2006, are hereby promulgated and shall come into force as of August 1, 2006.
The present Provisions are formulated in order to enhance and perfect the administration of the directors and senior managers of insurance companies, safeguard the stable business operations of insurance companies and promote the sound development of the insurance industry.
(5) Measures for the Administration of Health Insurance (2006)
Extract:
The Measures, effective September 1, 2006, mark the first set of rules regulating China's health insurance sector. Arising from China's WTO commitments, foreign insurance providers have been authorized to write health insurance policies in China since December 2004.
The Measures require that life insurance companies and health insurance companies seeking to offer health insurance apply to the CIRC for approval. In that regard, the Measures distinguish between "health insurance" and "medical insurance."
(6) Administrative Measures for Securities Investment in the Territory of Qualified Foreign Institutional Investors
Extract:
Administrative Measures for Securities Investment in the Territory of Qualified Foreign Institutional Investors reviewed and adopted at the 170th Chairman's Meeting of China Securities Regulatory Commission, 4th Governor's Meeting of the People's Bank of China, and the 5th Commissioner's Meeting of the State Administration of Foreign Exchange, is now promulgated and shall enter into force as of 1 September 2006.
This set of measures is formulated in line with related laws and regulations to govern the investment behaviors of qualified foreign institutional investors in the domestic securities markets of China and promote the development of the securities market in China.
According to such measures, QFII shall appoint domestic commercial banks as custodian to hold in custody the assets and appoint domestic securities firms to manage the domestic securities trading activities.
(7) Measures for the Administration of Establishment of Overseas Insurance Institutions by Insurance Companies
Extract:
The Measures became effective September 1, 2006, and is the regulations that evidence the growing maturity of China's domestic insurance sector and the need to regulate investment by PRC entities in the foreign insurance market.
The Overseas Insurance Establishment Regulations provides the establishment of "overseas insurance institutions", which include the establishment of overseas branches, companies and intermediary institutions and the acquisition of 20 percent or more of the voting capital of existing foreign insurance companies or insurance intermediaries.
The Measures empowers the CIRC to supervise the domestic insurer's conduct in establishing any overseas insurance institution or in taking over any foreign target institution.
(8) Measures for the Administration of Investment into Overseas Insurance Enterprises by Non-Insurance Institutions
Extract:
The Measure is the rules as to solvency and internal control systems for applications for establishing branch offices overseas, but such Measures do not include minimum asset value or foreign exchange reserve requirements.
In order to purchase a foreign insurance company or intermediary, the applicant must submit, inter alias, its financial statements and audited foreign exchange balance sheet.
The Measures also detail the CIRC filing requirements for domestic insurers with respect to their overseas institutions; these include the filing of management results, financial statements and solvency status. The regulations also require that all "important affiliated transactions" must be reported (within 15 days) to the CIRC.
(9) The Notice on Strengthening the Information Disclosure Work for the Reinsurance Transactions Between Foreign-funded Insurance Companies and Their Associated Company
Extract:
On November 17, 2006, the China Insurance Regulatory Commission (¡°CIRC¡±) issued the Notice on Strengthening the Information Disclosure Work for the Reinsurance Transactions between Foreign-funded Insurance Companies and Their Associated Companies (Bao Jian Fa [2006] No. 116). The Notice intends to regulate the reinsurance transactions between a foreign-funded insurance company and its associated company
6. Real Estate
(1) Opinions of the Ministry of Construction and Other Ministries on Adjustment of the Composition of Residential Units and Stabilization of the Price of Residential Units (Guo Ban Fa [2006] No. 37)
Extract:
On May 24, 2006, the State Council of the PRC issued a notice to implement such Opinion. In the notice, the State Council instructed the ministries and provincial and local governments to implement the MOC Opinions as well as the central government¡¯s real estate policies. The stated objective of the MOC Opinions is to curb real estate speculation, stabilize housing prices and cool down the growth of investment in the real estate market.
The Opinion provides that all local (municipal and county-level) governments are required to set construction targets for ordinary commodity premises, economically affordable premises, and low rent residential premises in their 11th five-year plans. The local governments must announce their construction plans before the end of September 2006.
(2) Opinions on Regulating the Entry into and the Administration of Foreign Investment in the Real Estate Market (Issuing Date: July 12, 2006)
Extract:
The Opinions constitute a compilation of both old and new rules relating to the PRC real estate sector. We attach a full English translation of these regulations for your perusal. For your easy reference, we also highlight below some of the key changes pursuant to the Opinions and what they may mean for a foreign investor when evaluating an investment in the PRC real estate.
The Opinions provide that a foreign invested real estate company regardless of size must have registered capital of not less than 50% of its total investment amount, effectively tightening applicable debt-to-equity rules.
(3) Notice on Standardizing Foreign Exchange Management on the Real Estate Market (Issuing Date: September 1, 2006)
Extract:
China's State Administration of Foreign Exchange and the Ministry of Construction have jointly issued the Circular on Standardizing Foreign Exchange Management on the Real Estate Market for regulating foreign exchange management of overseas housing purchasers buying commodity housing in China.
In order to implement the Proposals for Standardization of Access to and Management of Foreign Funds of the Real Estate Market (Jianzhufang (2006) No. 171), and promote a healthy development of the real estate market, the following is the Circular on Foreign Exchange Management Concerning the Standardization of Access to and Management of Foreign Funds on the Real Estate Market:
1. Branches and representative office set up in China by overseas institutions and organs shall go through the following procedures for purchase of self-use commodity housing in real needs in places where they are registered:
2. Those remitting housing purchase funds from the overseas shall submit an application to designated foreign exchange banks with the various documents
3. Overseas branches and representative offices in China, and overseas individuals who cannot complete the transaction on commodity housing for certain reasons shall return the housing purchase funds in RMB to exchange it into foreign exchange and remit it overseas.
(4) Circular of Ministry of Construction and People's Bank of China on Strengthening the Administration of Real Estate Agents
Extract:
According to the circular, an information disclosure system will be implemented on all real estate agents across the nation. The circular provides that real estate agents and the guarantee bodies for their transactions will have to file records with the real estate administration authorities within 30 days after they have been issued a business license. The authorities should then make public the name, address, legal representative and registered capital of the agents without delay for reference by consumers.
The circular also requires real estate agents use the sample real estate agent contracts provided by the authorities or their industry associations for their transactions.
(5) The Real Rights Law of People¡¯s Republic of China (adopted and promulgated by Fifth Session of the Tenth National People¡¯s Congress on 16 March 2007)
Extract:
In accordance with the Constitution Law, the present Law is enacted with a view to maintaining the basic economic system of the state, protecting the socialist market economic order, clearly defining the attribution of the rules, bringing into play the utilities of the safeguarding the real right of the right holder.
This law doesn¡¯t protect private properties only, and it has nothing to do with privatization. The law actually applies to tangible assets, and the most important thing about it is that it protects all assets without bias, no matter if they are state-owned, group-owned or private. Such protection extended to all assets, as long as they are acquired without violating the laws. The law¡¯s fairness also demonstrates itself in that it protects people¡¯s property, with no consideration about the differencing their positions in society, or the amount of their properties.
Moreover, the new law has strengthened protection for private businesses and property, sparking thoughts that the law is providing extra protection to private property.
7. Intellectual Property
(1) Provisions for Drug Insert Sheets and Labels (Issuing Date: March 15, 2006)
Extract:
The new regulation clarify types of information to be included in drug package inserts and indicate that even the smallest packaging unit of drugs for consumer sales must include package inserts.
(2) Regulations for Settling Disputes over Domain Names
Extract:
As a document regulating the settlement of disputes over Internet domain names, the new Regulations of China Internet Network Information Center for Settling Disputes over Domain Names took effect as of March 17, 2006.
The Regulation provide that disputes that will be accepted for consideration are limited to those over CN domain names and Chinese domain names that have been registered for less than two years and are under the management of China Internet Network Information Center.
(3) Interim Rules for Administration of National High-tech Industry Development Projects
Extract:
In order to promote the independent innovation capability and speed up the development of high-tech industry, the National Development and Reform Commission (¡°NDRC¡±) promulgated the Interim Rules for Administration of National High-tech Industry Development Projects on February 28, 2006. The Rules takes effect as of April 1, 2006.
The Rules comprise of seven chapters with 43 clauses. Such Rules provides that NDRC will be responsible for organizing the high-tech projects. In addition, the Rules also provides the conditions and procedures of application for national high-tech projects and relevant examination and approval procedures, as well as the upper limit of funds of high-tech projects; national subsidies for single national high-tech project to be granted in a lump sum.
(4) Detailed Rules on the Printing and Distribution of Package Inserts for Chemical Drugs and Biological Products (Issuing Date: May 10, 2006)
Extract:
The Detailed Rules are intended to implement the Provisions for Drug Package Inserts and Labels by providing specific templates to facilitate the printing and distribution of the recently standardized drug package inserts.
Moreover, the Detailed Rules further specify a format for package labeling of drugs that are for external use only; namely inclusion of the word ¡°external¡± in white lettering over a red background on the outside of the package. The ¡°external¡±mark should also appear on the package insert, where it may be printed in a single color. Any drug registered with the SFDA after June 1,
2006 must have a package insert that accords with the specified format and bears the officially recorded approval date.
(5) Circular on the Fee Schedule and Related Issues for Audio and Video Counterfeit Marks (Issuing Date: June 5, 2006)
Extract:
The National Development and Reform Commission (¡°NDRC¡±) and the Ministry of Finance
(¡°MOF¡±) jointly issued the Notice on the Fee Schedule and Related Issues for Audio and Video Counterfeit Marks.
Circular provides that: The Cultural Market Development Centre of the Ministry of Culture (¡°CMDC¡±) is authorized to collect fees for audio and video product counterfeit marks. The fee standard is RMB 0.022 per mark; the CMDC shall apply to the NDRC to obtain a fee collection license. When collecting fees, the CMDC shall provide uniform invoices printed by the MOF; and the CMDC shall not increase the number of charged items, widen the scope of charges, raise the standard charges or collect any other surcharges without authorization. The MOF¡¯s price control and finance departments shall strictly supervise and inspect these matters.
(6) Notice of Strengthening Administration of Foreign Investment in Operation of Value-Added Telecom Business (Issuing Date: July 13, 2006)
Extract:
The Notice provides new restrictions on internet and wireless content providers in China, which represent a significant segment of the China-related companies that have obtained PE/VC financing in recent years, and an overwhelming majority of those which have been the subject of high-profile mergers and acquisitions and NASDAQ initial public offerings.
(7) Intellectual Property Rights Protection Action Guidelines
Extract:
This plan to combat intellectual property rights (IPR) violations was unveiled by the State Council to add more muscle to existing regulations and tackle the issue right down to the street level.
This new guideline provides that governments should assume a greater sense of responsibility and accountability; and IPR protection must be ranked high on the agendas of governments at various levels; and integrated into their overall plans for social and economic development," the guidelines say.
In addition, if serious offences are uncovered, relevant officials must be held responsible; and "severe punishment" meted out to those who are involved or cover up infringements.
(8)Circular of Ministry of Culture Regarding to Printing and Distributing the 2006 Audio-visual Market Rectification Plan
Extract:
In order to effectively restrain infringement and piracy, safeguard the intellectual property right, and protect the lawful rights and interests of copyrights holders, the Ministry of Culture decides to conduct rectification of the audio-visual market with the emphasis on ¡°Sunshine Campaign¡±, and issue the Circular of Ministry of Culture of Printing and Distributing the 2006 Audio-visual Market Rectification Plan.
The Circular expressly provides that its goal is to restrain the tendency of rampancy of infringement and piracy in audio-visual products to increase the market share of legitimate audio-visual products.
Moreover, the Circular also provides that by rectifying the markets mainly in several big cities, relevant departments should join forces to crack down circulation networks and illegal dens of illegal audio-visual products, endeavor to seek a law-enforcement model to crack down infringement and piracy, and establish gradually a long-term effective mechanism of network management.
£¨9£©Opinions on the Development and Management of Network Music
Extract:
To further strengthen the management of music distributed through different kinds of networks, the Ministry of Culture (MOC) recently issued a set of opinions on the development and management of network music.
The opinions clarify for the first time that network music covers all kinds of music products distributed by wired or wireless means such as the internet and mobile telecommunications networks. Network music is characterized by music which is produced, distributed and consumed in digitalized format.
The opinions further explained that "network" refers not only to the internet but also to various other IP-based, intelligent networks with interactivity capabilities such as telecommunications networks, mobile internet, cable TV networks, satellite communications, microwave communications and optic-fiber communications.
8. Security & Futures Trading
(1) Administrative Measures Concerning Strategic Investment of Foreign Investors in Listed Companies
Extract:
The Measures are formulated by the Ministry of Commerce, China Securities Regulatory Commission, State Administration of Taxation, State Administration for Industry and Commerce and State Administration of Foreign Exchange was promulgated on December 31, 2005, and shall take effect in 30 days after the date of promulgation.
The Measures have been promulgated the requirements of the Guiding Opinions on Split Equity Structure Reform of Listed Companies and pursuant to relevant laws and regulations of the state concerning supervision over foreign investment and listed companies and the Provisional Rules on Acquisition of Enterprises in the Territory by Foreign Investors, with a view to standardizing the strategic investment of foreign investors in A?share listed companies (hereinafter referred to as listed companies) after the split equity structure reform, safeguarding the order on the securities market, letting in advanced management skills, technology and capital from outside the territory, improving the governance structure of listed companies and protecting the legitimate rights and interests of listed companies and their shareholders.
(2) Measures for the Administration of Stock Incentive Plans of Listed Companies (Effective Date: January 1, 2006)
Extract:
This Measure applies to domestic companies listed on the Shanghai and Shenzhen Stock Exchanges. The Measure clarifies the recipients, which includes directors, supervisors, senior management, personnel possessing key technology and other individuals specified by the company.
The Measure also provides that number of shares allocated to a plan may not exceed 10% of the company¡¯s total share capital and no more than 1% of the company¡¯s total share capital may be issued to a single individual, unless otherwise approved through special resolution.
(3) Notice on Related Issues When Foreign Strategic Investors Open A share Accounts (Issuing Date: February 14, 2006)
Extract:
A notice is issued hereby which covers matters relating to foreign investors and investors from the Hong Kong Special Administrative Region, the Macao Administrative Region and the Taiwan region (hereinafter referred to as investors) acquiring A?shares through strategic investment in listed companies and handling the procedures to open a securities accounts for A?shares (hereinafter referred to as securities accounts) and share registration for the purpose of implementing the related stipulations of the Measures for the Administration of Strategic Investment in Listed Companies Made by Foreign Investors.
The notice provides that for lawful holdings of A?shares of a listed company, the investor shall file an application for opening a securities account directly with the Shanghai and Shenzhen branches of this Corporation. When applying to open the account, the investor shall submit following documents:
the investors valid certification document for commercial registration and its duplicate, or other document able to prove the establishment of the organization that has the same legal effect as the document for commercial registration and its duplicate.
(4) Rules on Access Prohibition of the Securities Market
Extract:
In an effort to uphold the order of the securities market, protect investors' legal rights and public interests, as well as promote the healthy and steady development of the market, the China Securities Regulatory Commission (CSRC) prohibits seven types of personnel from accessing the market starting from July 10. The new Rules will replace the Provisional Rules on Access Prohibition of the Securities Market issued by CSRC on 3 March 1997.
Under the new rules, the following seven types of people who violate the relevant laws, administrative rules or CSRC regulations may be denied access to the securities market depending on the seriousness of their violations:
1. Directors, supervisors and senior management of issuers and listed companies; other parties with the obligation to disclose information or their directors, supervisors and senior management;
2. Controlling shareholders and de facto controllers of issuers and listed companies; directors, supervisors and senior management of issuers, controlling shareholders and de facto controllers of listed companies;
3. Directors, supervisors and senior management of securities companies, and heads of their internal business departments and branch offices, or other personnel engaged in securities trading;
4. Controlling shareholders and de facto controllers of securities companies; directors, supervisors and senior management of controlling shareholders and de facto controllers of securities companies;
5. Personnel in securities services firms including directors, supervisors, senior management; de facto controllers of securities services firms; directors, supervisors and senior management of de facto controllers of securities services firms;
6. Directors, supervisors and senior management of securities investment fund managers and securities investment fund custodians, and heads of their internal business departments and branch offices; or other personnel engaged in the securities investment fund business;
7. Other people found guilty by CSRC of breaching the relevant laws, administrative rules and CSRC regulations.
(5) Measures for the Administration of Securities Issuance by Listed Companies
Extract:
This set of Measures has been formulated for the purposes of regulating the issuance of securities by listed companies, protecting the lawful rights and interests of investors and the interests of the general public, pursuant to the Securities Law and the Corporation Law. This set of Measures shall come into force as of May 8, 2006. Measures for the Administration of Listed Companies Issuing New Shares (CSRC Decree No. 1), Notice on Doing a Good Job on the Issuance of News Shares by Listed Companies (CSRC Document [2001] No. 43), Notice on Relevant Requirements for Listed Companies to Issue New Shares (CSRC Document [2002] No. 55) Notice on Doing a Good Job on the Issuance of Convertible Corporate Bonds by Listed Companies (CSRC Document [2001] No. 115) shall be annulled at the same time.
The Measures provides that listed company shall have a complete and well-operated organization and operate soundly and meet the governmental requirements
(6) Administrative Measures for Securities Investment in the Territory of Qualified Foreign Institutional Investors (Issuing Date: August 24, 2006)
Extract:
Such measure is reviewed and adopted at the 170th Chairman's Meeting of China Securities Regulatory Commission, 4th Governor's Meeting of the People's Bank of China, and the 5th Commissioner's Meeting of the State Administration of Foreign Exchange, and shall enter into force as of 1 September 2006.
This set of measures is formulated in line with related laws and regulations to govern the investment behaviors of qualified foreign institutional investors in the domestic securities markets of China and promote the development of the securities market in China.
The Measure provides that QFII shall appoint domestic commercial banks as custodian to hold in custody the assets and appoint domestic securities firms to manage the domestic securities trading activities. Moreover, QFII shall abide by the laws, regulations, and other relevant rules of the People's Republic of China.
(7) Circular of the China Securities Regulatory Commission on Implementing the ¡°Administrative Measures for Securities Investment in the Territory of Qualified Foreign Institutional Investors" (CSRC Document No.176, 2006)
Extract:
This Circular is notified hereby as follows for the purpose of further improving the pilot work on qualified foreign institutional investors ("QFII"). This Circular shall be implemented as of September 1, 2006.
The Circular clarifies the asset scale and other requirements, which shall be met in applying for the qualification of QFII.
Moreover, the circular also provide the applicant document as follows:
(1) the application form; (2) a sheet about the basic information of the principal person in charge; (3) a document laying out the investment plans;(4) a statement of the capital sources;(5) a statement on whether or not it has received any material penalty from the supervision authorities in the latest three years;(6) the business license (duplicate) issued by the home country or region; (7) the financial business license (duplicate) issued by the supervision authority of the home country or region; (8) the articles of association (duplicate) of the company; (9) the draft of the custodial agreement signed by the custodian; (10) the audited financial statements for the latest three accounting years; (11) other documents as required by the CSRC.
(8) Regulation on the Administration of Futures Trading
Extract:
These set of Provisions would take effect on April 15. The Provision provides that firms with at least 30 million Yuan (3.88 million U.S. dollars) of registered capital will be able to apply for futures trading licenses, though it remains unclear when the products themselves will be introduced.
The Provision also clarifies that futures trading companies will be required to establish internal control mechanisms to ensure they meet the targets and will issue reports on their risk management practices, to be audited annually by qualified accountants.
Financial futures have been banned in China since a scandal in 1995, but the government has been preparing a regulatory framework for the introduction of stock-index futures and other financial derivatives.
(9) Regulation on the Prohibition of Speculation for Listed Company
Extract:
China Securities Regulatory Commission (CSRC) recently has issued a new regulation which prevents listed companies investing funds raised through the sale of stocks and bonds in securities transactions, such as stocks and related derivatives, and tradable bonds.
The regulation provides that financing is the basic function of the securities market. Fund raising from the securities market is intended to gain more capital for the listed companies to achieve a better performance while at the same time offering more returns to the investors.
The new ruling also requires listed companies to improve its methods of storing and using the raised funds and to disclose information in a timely fashion.
9. Trade & Industry
(1) Notice of Ministry of Commerce on Entrusting Provincial Level Authorities of Commerce to Examine and Administer Foreign-Invested Non-Vessel-Operating Carriers (Issuing Date: January 22, 2006)
Extract:
In order to simplify the procedures for examination of contracts and articles of association of foreign-invested enterprises, enhance efficiency and speed up the work of foreign capital introduction in service trade fields, the related issues on entrusting all provincial level authorities of commerce to examine and administer foreign-invested non-vessel-operating carriers, this Notice is issued on simplifying the administrative examination and approval system.
This Notice entrusted the provincial level authorities of commerce and the administrative commissions of state-class economic and technology development zones with the work to examine and administer foreign-invested non-vessel-operating carriers
(2) Measures on Punishment for Issuing Export Invoices at Artificially Low Prices
Extract:
The Measures provide that MOFCOM, General Administration of Customs (GAC) and SAT will jointly carry out investigations on such acts and MOFCOM will make the preliminary rulings. Within seven days upon receipt of a preliminary ruling, the foreign trade operator concerned may submit an objection to MOFCOM in the form of written materials. It may also request a hearing to be held on the case.
According to the Measures, all first-time offenders will be given a warning. Any enterprise that commits the same act again within two years after receiving a warning will be punished with a fine of no more than Rmb30, 000 in addition to another warning. Enterprises whose illegal activities have seriously affected Chinas foreign trade order will be prohibited from conducting any foreign trade operation for at least one year and no more than three years.
(3) Notice on Expediting the Restructuring of Industries with Excess Capacity
Extract:
This Notice is issued to resolve the problem resulting from over-investment in sectors such as iron and steel, aluminum electrode, acetylene, iron alloy and coke over the past few years. The major concern of such Notice is coordinating industrial policies with polices governing credit, land use, construction, environmental protection and safety.
According to the Notice, the major task for restructuring the industries with excess capacity this year is to strengthen compliance with industrial policy in the areas of credit, land use, construction, environmental protection and safety, continue to keep tabs on fixed asset investment, and guard against a rebound in investment.
(4) Notice on Eradicating Unauthorized Certification Activities
Extract:
The General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ) and the National Regulatory Commission for Certification and Accreditation (NRCCA) have recently issued a joint Notice through the mainland.
According to the Notice, no legal persons or other entities (including enterprises, organizations and social groups) may carry out certification of any product, service or management system without the authorizations of NRCCA.
The Notice also provides that legal persons or other entities shall not carry out the quality management system, environment management system, occupational health and safety management system without the approval of NRCCA.
(5) Opinions on the Administration of Decentralizing the Registration of Individual Businesses
Extract:
The State Administration for Industry and Commerce issued a set of opinions on the administration of decentralizing the registration of individually-owned businesses in April, 2006. The opinions allowed individually-owned businesses to register at the local industry and commerce administration offices.
The opinions provide that municipal industry and commerce administration bureaus may designate qualified local industry and commerce offices to handle and approve the establishment and the alteration and cancellation of registration of individually-owned businesses.
10. Miscellaneous
(1) Measures for the Administration of Lawyers' Service Charges
Extract:
The National Development and Reform Commission and the Ministry of Justice recently issued such Measures, which will take effect on 1 December 2006.
The Measures strictly provides the fee-charging services and charging procedures. The Measures also stipulate that law firms can only charge for legal services, fees paid for clients and travel expenses for out-of-town investigations, and may not charge fees in any other names.
Moreover, according to such Notice, if there are disputes over charges, law firms should negotiate for settlement with their clients. Should negotiations fail, the case may be referred to the departments concerned or to the people's court.
(2) Customs Administrative Measures of PRC Concerning Origin of Import Goods Enjoying Special Preferential Tariff Treatment (Issuing Date: May 31, 2006)
Extract:
The Customs Administrative Measures of PRC Concerning Origin of Import Goods Enjoying Special Preferential Tariff Treatment have been deliberated and adopted at the executive meeting of the General Administration of Customs on May 30, 2006 and are for promulgation hereby and for implementation as of July 1, 2006. The PRC Customs Stipulations on Implementing the _PRC Goods Origin Rules on Granting Special Preferential Treatment to Least Developed Nations in Africa' promulgated by the General Administration of Customs on December 30, 2004 (Decree No.123) shall be abolished at the same time.
These Measures have been formulated pursuant to the PRC Customs Law, the PRC Regulations on Origin of Import and Export Goods, the country's rules on origin of goods enjoying special preferential tariff treatment and related laws and administrative regulations, with a view to correctly determining the origin of import goods enjoying special preferential tariff treatment and promoting economic and trade activities between China and related countries.
(3) Measures on Governing the Market of Processed Oils (Issuing Date: December 4, 2006)
Extract:
Measures Governing the Market of Processed Oils reviewed and adopted unanimously by the ministerial official of the Ministry of Commerce on 4 December 2006 shall enter into force as of 1 January 2007.
This set of measures is formulated in line with the Decision of the State Council on Establishing Administrative Licenses for Projects on which Administrative Examination and Approval is Required (Decree No. 412 of the State Council) and related laws and administrative regulations, to strengthen supervision and administration over the market of processed oils, standardize operations regarding processed oils, protect the market order of processed oils, and safeguard the lawful benefits of operators and consumers of processed oils.
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