Announcement of the China Securities Regulatory Commission

(No. 13 [2009])

For purposes of further improving the mechanisms for the issuance of new shares and enhancing the efficiency of issuance, this Commission (CSRC) has formulated the Guiding Opinions on Further Reforming and Improving the Issuance System of New Shares, which are hereby promulgated and shall come into force on June 11, 2009.

June 10, 2009

Guiding Opinions on Further Reforming and Improving the Issuance System of New Shares

In recent years, under the correct leadership of the CPC Central Committee and the State Council, a series of significant fundamental and systematic reforms have been carried out in China’s capital market, and remarkable achievements have been made. The scale and capacity of the market has reached a new level, the market mechanisms and structure have been gradually optimized, the investors are enthusiastically entering the stock market, various enterprises are eager to make use of the capital market to improve their governance mechanisms and obtain financing, and the importance of the capital market has become increasingly prominent. To further improve the mechanisms and enhance the efficiency, it is necessary to reform and improve the issuance system of new shares to adapt to the greater development of the market. The CSRC hereby puts forward the following guiding opinions on further reforming and improving the issuance system of new shares after a broad survey and study of the relevant issues on the reform of the issuance system of shares:

I. Principles of reform, basic contents and objectives

(1) Principles of reform: adhering to the market orientation, further promoting the market pricing of new shares, focusing on developing a market constraint mechanism, promoting the issuers, investors, underwriters and other market participants to perform their respective responsibilities, and paying attention to the will of small- and medium-sized investors to participate.

(2) Basic contents: With respect to the pricing of new shares, we shall improve the quotation constraint mechanisms for price inquiry and subscription, weaken the administrative guidance, and form a further market-oriented pricing mechanism. With respect to the issuance underwriting, we shall increase the flexibility of the underwriting and allotment, streamline the underwriting mechanisms, reinforce the binding force of the buyers on sellers and the responsibilities of the underwriters in the issuance, and gradually change the situation of allotting shares in strict accordance with the amount of funds; timely adjust the policies for issuance of shares and increase the amount of tradable shares; optimize the online issuance mechanism, give proper preference to small- and medium-sized investors which intend to subscribe in the share allocation, and alleviate the situation of huge funds swarming for subscription to new shares; improve the claw-back mechanism and the mechanism of suspension of issuance. At the same time, we shall strengthen the warning of risks in subscribing to new shares and clarify risks on the issuance market.

(3) Objectives. Firstly, the market function of price discovery shall be optimized, and the mechanism of internal checks and balances between the buyers and the sellers shall be reinforced. Secondly, the effectiveness of the allotment mechanism of shares shall be enhanced, the situation of huge funds swarming for subscription to new shares shall be alleviated, and the quality and efficiency of issuance shall be improved. Thirdly, under the premise of clarifying risks, we shall give weight to the will of small- and medium-sized investors to participate, and give proper preference to the small- and medium-sized investors which intend to subscribe to new shares. Fourthly, the disclosure of risks shall be strengthened, and the awareness of risks in the primary market shall be reinforced.

II. Recent reform measures

Since the issuance system of new shares covers a wide range and has great impacts, in order to ensure the stable progress of the reform, we plans to phase in various reform measures in the manner of implementation step by step and gradual improvement. We mainly advance the following four measures at the present stage:

(1) Improving the quotation constraint mechanism for price inquiry and subscription, and forming a further market-oriented pricing mechanism. The inquiry objects shall offer true quotations, the inquiry quotation and subscription quotation shall be logically consistent, and the leading underwriter shall take measures to avoid such situations as offering a high quotation without subscription and offering a low quotation but subscribing at a higher price. The issuer and its leading underwriter shall, according to the scale of issuance and market conditions, reasonably set a minimum subscription amount for each subscription. If the final pricing is beyond the expected price, as a result of which the amount of funds raised exceeds the amount of project funds needed, the issuer shall disclose the related purposes beforehand in the prospectus.

(2) Optimizing the online issuance mechanism, and separating the subscribers in the online and offline subscription. In the issuance of each stock, any object of allotment of shares may only choose one form of subscription to new shares: either offline or online, and all objects of allotment of shares which participate in the offline quotation, subscription and allotment of this stock shall not participate in the online subscription.

(3) Setting an upper limit for a single online subscription account. The issuer and its leading underwriter shall, according to the scale of issuance and market conditions, reasonably set the subscription upper limit for a single online subscription account, which shall normally not exceed one-thousandth of the shares issued online. A single investor may only use one qualified account to subscribe to new shares.

(4) Strengthening the warning of risks in subscription to new shares to alert all participants to the market risks. The issuer and its leading underwriter shall publish a special announcement on risks in investment in new shares, so as to fully disclose the risks on the primary market and prompt the investors to make a rational judgment on the feasibility of making investment in the company. The securities institutions shall take measures to alert the investors to the risks in subscription to new shares.

Other reform measures shall be put forward at the right time based on an overall consideration of the market development speed, strength of reform and endurance of the market.

III. Effectively implementing various reform measures

The reform of the issuance system of new shares needs the close cooperation of all participants in the market. All the market participants shall raise awareness, formulate corresponding plans, carefully make deployments, and effectively implement all requirements for the reform.

The issuers shall have correct concepts of issuance and listing, actively perform the obligation of information disclosure, strengthen the management of the raised funds, enhance the business operation levels of listed companies, and safeguard the lawful rights and interest of shareholders.

The underwriters (sponsor institutions) and other securities companies shall perform their functions diligently and in good faith, and protect the long-term and fundamental interests of both buyers and sellers in the business activities. In practice, they shall make improvements and adjustments in terms of institution, personnel, system, technology, etc., and continuously improve their capacities to provide professional services.

The price inquiry objects shall play the role of a professional institution, earnestly, prudently and professionally gather, analyze and study data, make rational pricing, and form rational guidance of the market.

The investors shall pay full attention to the risk factors in the market-oriented pricing, know that some stocks may see their prices fall below the issue price after listing, tangibly increase their risk awareness, strengthen the concept of value investment and avoid speculation.

The relevant self-disciplinary organizations shall take active measures to effectively strengthen the self-disciplinary management of and services for the underwriters, price inquiry objects, objects of allotment of shares and securities companies participating in the issuance of new shares.