Haworth & Lexon Law Newsletter
No.11, 2002 (Total:No.15) November 20th, 2002
Edited by Haworth & Lexon
Guidelines
Three arrows are sent together; the new way of foreign investments
State-owned High-Tech Enterprises have policy base to implement share prompting
Notice of the General Office of the State Council on the Relevant Issues concerning the Appropriate Handling of the Existing Foreign Invested Projects Guaranteeing the Fixed Return to Foreign Parties
Notice of Several Suggestions on Promoting Chain Enterprises to Develop
Notice on Dealing With Problem of Period of Guarantee Before Guarantee Law Implementing
Insurance Law of the People's Republic of China
Recently, The Notice of the Related Issues on Transfer of the State Owned Shares and the Legal Person Owned Shares in the Listed Companies to Foreign Investors, Provisional Measures on the Administration of Qualified Foreign Institutional Investors Investing in Domestic Securities and Provisional Rules on Reorganization of the State Owned Enterprises by using Foreign Fund issued in succession by relevant ministries and commissions of the State Council and will come into force from November 1, 2002, December 1, 2002 and January1,2003 respectively. The above-mentioned three regulations indicate three fields of non-negotiable stock, circulating stock and non-listed company will further open to the foreigner in China.
According to The Notice of the Related Issues on Transfer of the State Owned Shares and the Legal Person Owned Shares in the Listed Companies to Foreign Investors, it should accord with the demands for" Catalogue of Industries of the Foreign Investments" to transfer the state-owned shares of listed company and legal person owned shares to the foreigner. To the question of the transfer price, the regulation demand that generally, it should take the way of bidding publicly. The foreign businessman should pay the fee with freely convertible currency. Foreign businessman who has already made the investment within the territory of China, after verified by the administration of foreign exchange, could pay by RMB gained by investment too. As to the aspect of re-transfer of shares, it is stipulated that foreign businessman, 12 months after paying off the transfer fee, can transfer its shares again. It is also clear, after the state-owned shares of listed company and legal person shares are made over to the foreign businessman, the listed company does not enjoy the treatment of foreign-investment enterprise but still carries out the original policies.
The formal issue of Provisional Measures on the Administration of Qualified Foreign Institutional Investors Investing in Domestic Securities (QFII) is the symbol of a great step of the opening of the Chinese capital market to foreign investments. Approved by China's Securities Regulatory Commission and State Administration of Foreign Exchange, overseas fund management organization, insurance company, securities broker company and other assets management organization can buy and sell circulating stock of listed company listed in the stock exchange (except B-share), National debt, convertible bond and corporate bond and other financial instruments sanctioned by China's Securities Regulatory Commission. The provisional measures stipulate some questions in details such as qualification to applying for qualified investors, assets scale, files required, procedure of sanction, registration and settlement, investment operation, fund management and supervise management, etc, which will have a long-term impact on capital market of our country.
Provisional Rules on Reorganization of the State Owned Enterprises by using Foreign Fund make clear regulation about absorbing foreign capitals to participate in reorganization and reconstruct of non-listed state-owned enterprise. Provisional Rules require that making over the property right or the shares to foreign businessman should, according to different situations, require for suggestions of the reorganized enterprise's congress of workers or get the reorganized enterprise's shareholders' meeting's consent or the state-owned property right holder of the reorganized enterprise 's consent in advance. Enterprise's selling all or principal assets should request for agreement of enterprise's state- run property right holder or the shareholders' meeting in advance, and notify creditors. The reorganized state-owned enterprise, before utilizing foreign capitals, should check assets, define property right, financial audit, liquidate credit and debt and make assets assessment; If enterprise reorganize is carried out by way of making over the state-run property right or sell the assets, the reorganize side should have adopt bid publicly way preferentially to confirm foreign investor and transfer price. As to the procedure that state-owned enterprise should handle," Provisional Rules " stipulate clearly that reorganize side should put forward the application of reorganizing to responsible authority for economic and trade at the same level. The responsible authority accepted the application should verify according to Provisions on Guiding the Orientation of Foreign Investment and relevant laws or regulations. The authority for economic and trade should make a decision within 45 days after receiving the application material, in case of hearing needed, reply within 3 months. The agreement signed by reorganize side and foreign investor should be reported for approval according to the relevant regulations of the Ministry of Finance and come into force after sanction. Then, the both sides fulfill the examination and approval formalities in accordance with the law and regulations and enterprise's registration formalities. " Provisional Rules " makes corresponding regulation such as way of foreign investment, etc. also.
State-owned High-Tech Enterprises have policy base to implement share prompting.
August 2002, Ministry of Finance and Ministry of Science and Technology made " Instruction of the Pilot Project on State-owned High-tech Enterprise Implement Share Prompting ", and now it was transmitted by General Office of the State Council. The instruction make state-owned high-tech enterprise have policy base with the encouragement of share prompting at present, but which still only at pilot stage.
According to this Instruction, only solely state-owned Company or state holding Co., Ltd., Limited Company (except the listed company) which already regarded as new high-tech enterprise can participate in the pilot project. And, the instruction has also stipulated some unalterable conditions to pilot enterprises, such as" Every year's research and develop fee account for more than 5% of that year's sales amount in the past three years"; "Increment of net assets from after-tax profit account for more than 30% of enterprise's total net assets in the past 3 years. ", etc
The Instruction made a definition to the object of the share prompting encouragement. As to the form that share prompting encouragement, instruction provides 3 kinds: rewarding share prompting (enterprise can reward scientific and technical personnel who makes outstanding contributions in enterprise by way of share prompting according to certain net assets), sale of share and holding shares with technology, and at the same time, it allow some pilot enterprise probe encouragement way of share option. Besides, Instruction order that pilot enterprise's stock held by relevant personnel can' t be transferred within fixed time, but it doesn't express clearly the exact time limit and just point out the time of managerial personnel's holding stock should not be shorter than the term of his office.
In addition, the Instruction clarify these questions: the procedure of applying for share prompting encouragement, governing department etc, and require pilot enterprise, before implement share prompting encouraging, must carry on assets assessment in order to define state-owned share and the increment of net assets of the past 3 years.
Although the Instruction allows that those scientific research institution which have finished the transformation to company and their controlling high-tech enterprise can consult and apply for the pilot project, generally speaking, the instruction just apply state-owned high-tech enterprise's encouragement because of involving state-owned rights and interests, value preserving and appreciation problem. To non-state-owned company, it can carry out the project after getting empower according to articles of association of company.
Since this Instruction is made only jointly by Ministry of Finance with Ministry of Science and Technology, while any involving share change need to be registered, so it could be said a shortcoming of lacking of corresponding regulation about how to change in the administration for industry and commerce.
General Office of the State Council transmits " Notice of Several Suggestions on Promoting Chain Enterprises to Develop " promulgated jointly by the State Economic and Trade Commission and System Reform Office of the State Council on September 27, 2002. The notice requires every area, every department to take the practical measure to promote the development of chain enterprises further. The notice especially proposes creating good external environment for development of chain operation: First of all, it should simplify administration's examination and approval procedures. Chain enterprises setting up wholly-owned or controlling home-delivery center and shop can hold file that general headquarters provided, apply to the local administration for industry and commerce for registration directly and exempt from the procedure of passing and sanction of industry and commerce registration. Secondly, it can be paid tax in unison to promote chain enterprise's trans-regional development. The chain enterprises accord with the certain conditions can be paid the value-added tax in unison by the general headquarters. Straight-shop that set up trans-regionally, if only operation under the leadership of general headquarters, linking with computer of general headquarters, and purchasing, providing, delivering, checking and calculating with unified standard by the general headquarters, and without balance account, not work out financial statement and account book, the general headquarters can pay the corporate income tax in unison. Thirdly, it should reduce the repeated inspection to chain enterprise and manage to charge strictly. The notice require administration for industry and commerce, administrative for environmental protection, administration for quality testing, and department of city management and department of price management administer according to law, strengthen coordination, pursue joint inspection to reduce bull and repeated inspection to chain enterprise.
The Supreme People's Court issued" Notice on Dealing With Problem of Period of Guarantee Before Guarantee Law Implementing " on August 1 2002. The notice clarify how to confirm period of guarantee before Guarantee Law implementing. The Notice stipulate, when there is no agreement or there is unclear agreement on period of guarantee among the guarantee contract before Guarantee Law coming into force, if the creditor already assert his right to the debtor during limitation of action and make principal debt not exceed limitation of action, but not assert right to guarantor, the creditor can be, in 6 months (from August 1, 2002 to January 31, 2003) from the date on which this notice is issued, assert the right to the guarantor. If he fails to do so on the expiration of the time limit, the guarantor does not bear responsibility again. But as to the final case, retrial case and the case that principal debt has already exceeded limitation of action, the Notice couldn't be suitable.
October 28 2002,Standing Committee of the 9th National People's Congress revised " Insurance Law of the People's Republic of China" which is adopted in 1995. The new insurance law divides into 8 chapters and 158 articles, will come into force on January 1, 2003. This modification has reflected the following characters: Firstly, it pays more attention to the protection of the insured, the assured and the beneficiary, increase regulation of "result of verification notify the assured or the beneficiary" in original article 23. Secondly, it strengthens further the supervision of solvency of insurance company, etc, that is, the supervision and administration organization of the insurance has the right to inquire insurance company's deposit in financial institution etc. Thirdly, it reflects the character of standardizing the insurance activity further, for example, arranges the honest and trust principle in general provisions, increase the regulation of regulating the behavior of insurance agent and insurance broker. Last but not least the clause not accorded with our country's promises of entering the WTO are revised. This modification will promote further the healthy fast development of the insurance of our country and development and perfection of the insurance market.able.
