Several Regulations Regarding the Change of Ownership Interest of the Investors in Foreign Investment Enterprises

(Promulgated May 28, 1997 by the Ministry of Foreign Trade and Economic Cooperation and State Administration for Industry and Commerce)

Article 1.

In accordance with the Company Law of the People’s Republic of China, Law of the People’s Republic of China on Chinese-Foreign Equity Joint Ventures, Law of the People’s Republic of China on Chinese-Foreign Cooperative Joint Ventures, Law of the People’s Republic of China on Wholly Foreign Invested Enterprises and other relevant laws and regulations, these Regulations have been formulated in order to promote the healthy development of foreign investment enterprises, protect the legitimate rights and interests of each of the investors and maintain social and economic order.

Article 2.

The change of Ownership Interest of the investors in foreign investment enterprises contemplated herein refers to the change in the investor or the percentage of the investor’s investment ownership (including those provided as a condition for cooperation) (hereinafter referred to as "Ownership Interest") in Chinese-foreign equity joint venture enterprises, cooperative joint venture enterprises and wholly foreign-invested enterprises (collectively, hereinafter referred to as the "Enterprises") established inside China pursuant to Chinese law, including but not limited to the change of Ownership Interest of the investor in the Enterprise arising from the following major causes:

assignment of Ownership Interest as agreed by the investors of the Enterprise;

assignment of Ownership Interest to its affiliates or other assignees by an investor of the Enterprise upon the consent of the other investors;

change of Ownership Interest of each of the investors arising from the adjustment of the registered capital of the Enterprise as agreed by the investors of the Enterprise;

assignment of its Ownership Interest as a collateral security to its creditor upon the consent of the other investors of the Enterprise, and the assignee or beneficiary has obtained such Ownership Interest pursuant to law and terms of the contract;

obtaining of the Ownership Interest of the investor by its successor, creditor or other beneficiary pursuant to law, due to the bankruptcy, dissolution, rescission, revocation or death of the investor;

the succession of the Ownership Interest of the original investor by its successor pursuant to law after merger or split of any investor of the Enterprise;

replacement of any investor or change of its Ownership Interest after the approval of the original examination and approval authority due to the failure of the investor of the Enterprise in the performance of its obligations set forth in the contract and/or articles of association of the Enterprise.

Article 3.

The investor of the Enterprise, when changing its Ownership Interest, shall observe the relevant laws and regulations of China, obtain the approval of the examination and approval authority and go through the formalities with the registration authority in the change of the filing. Any change of the Ownership Interest without the approval of the examination and approval authority shall become invalid.

Article 4.

The investor of the Enterprise, when changing its Ownership Interest, must follow the stipulations of Chinese laws and regulations on the qualification of the investor and meet the requirement of the industrial policies.

In accordance with the Directory to Industries for Foreign Investment, if it is an industry where sole foreign ownership is not allowed, the change of Ownership Interest shall not result in a situation where the foreign investor owns all of the Ownership Interest of the Enterprise. If any Enterprises becomes a wholly foreign-owned enterprise as a result of the change of the Ownership Interest, the conditions must be satisfied for the establishment of a wholly foreign-owned enterprise as stipulated in the Detailed Rules for the Implementation of the Law of the People’s Republic of China on Wholly Foreign Invested Enterprises (hereinafter referred to as "WFOE Rules").

Where State-owned assets must be the majority shareholder or in a leading position, the change of Ownership Interest shall not result in a situation where the foreign investor or non-Chinese State-owned enterprise becomes the majority shareholder or in the leading position.

Article 5.

Unless the foreign investor otherwise assigns all of its Ownership Interest to the Chinese investor, a change of Ownership Interest of the investor of the Enterprise shall not result in a situation where the percentage of investment by the foreign investor is lower than 25% of the registered capital of the Enterprise.

Article 6.

Upon the consent of other investors of the Enterprise, the investor which has made its capital contribution may, pursuant to the relevant stipulations of the Guarantee Law of the People’s Republic of China (hereinafter referred to as "Guarantee Law"), by entering into a pledge contract and subject to the approval of the examination and approval authority, pledge to the pledgee its Ownership Interest arising from its contribution. No investor shall pledge a portion of its Ownership Interest which has not been contributed. No investor shall pledge its Ownership Interest to the Enterprise itself.

During the pledge period, the investor which has made the pledge shall remain unchanged as an investor of the Enterprise, and without the consent of the pledging investor and the other investors of the Enterprise, the pledgee shall not assign the pledged Ownership Interest; and without the consent of the pledgee, the pledging investor shall not assign or re-pledge the pledged Ownership Interest.

The stipulations of the relevant laws and regulations as well as these Regulations shall be applied with respect to the rights and obligations of the pledging investor and pledgee and the contents of the pledge contract.

Article 7.

The authority for the examination and approval of any change of Ownership Interest by the investors to the Enterprise shall be the examination and approval authority of the establishment of such Enterprises. If the Chinese investor to a Sino-foreign equity joint venture or a cooperative joint venture incurs any changes to their Ownership Interest resulting the enterprise to become a wholly-foreign owned enterprise, and if such enterprise engages in the industries where restrictions are imposed on the establishment of wholly foreign-owned enterprises as set forth in Article 5 of "Detailed Rules on Foreign Investment", then, the change of Ownership Interest of the Chinese investor to such enterprise shall be subject to the approval of the Ministry of Foreign Trade & Economic Cooperation ("MOFTEC").

If the Enterprise incurs major Ownership Interest changes due to an increase in registered capital, thus causing its total investment to exceed the approval power threshold of the original examination and approval authority, then, such major Ownership Interest changes of the investors to the Enterprise shall, in line with the approval power threshold and the relevant regulations, be submitted for approval to the higher-level examination and approval authorities.

The authority for the registration of any changes of Ownership Interest by the investors to the Enterprise shall be the original registration authority. With respect to any Ownership Interest changes approved by MOFTEC, formalities shall be undertaken to register such changes with the State Administration for Industry and Commerce or the original registration authority upon authorization thereby.

Article 8.

In case of any Ownership Interest changes by the Chinese investor who invests with State-owned assets, a relevant State-owned assets appraisal agency must be engaged to appraise the value of such Ownership Interest subject to changes before the administrative departments of State-owned assets confirm such appraisal. The confirmed appraisal result shall be the basis for fixing the price for such Ownership Interest changes.

Article 9.

If a change of Ownership Interest is required due to the reasons described under Article 2 (1) and (2) hereof, the Enterprise shall submit to the examination and approval authority the following documents:

the investor’s letter of application for Ownership Interest changes;

the original contract and articles of association of the Enterprise, together with any amendments made thereto;

copies of the approval certificate and business license of the Enterprise;

resolution of the Board of Directors of the Enterprise regarding Ownership Interest changes by the investors;

The Board of Directors’ new member list after the investors to the Enterprise make Ownership Interest changes;

any Ownership Interest transfer agreements entered into between the transferor and the transferee and which have been executed or acknowledged in other written form by other investors;

other documents required to be submitted to the examination and approval authority.

Article 10.

Ownership Interest transfer agreements shall mainly include the following:

name, address and the legal representative of the transferor and the transferee, along with the name, title and nationality of such legal representatives;

percentage and price of the Ownership Interest to be transferred;

closing deadline and method of the Ownership Interest to be transferred;

the rights and obligations of the transferee pursuant to the contract and articles of association of the Enterprise;

liabilities for breach of contract;

applicable laws and settlement of disputes;

effectiveness and termination of the agreements;

date and place of execution of the agreements.

Article 11.

If any Ownership Interest change is required due to reasons described under Article 2 (3), such change shall conform to the relevant specific regulations of MOFTEC and the State Administration for Industry and Commerce. The Enterprise shall, in addition to submitting the documents described under Article 9 (1), (2), (3), (4) and (5), submit the Ownership Interest agreements entered into by the investors to the examination and approval authority.

Article 12.

After the execution of an Ownership Interest pledge contract between an Enterprise investor and a pledgee, the following documents shall be submitted for review to the examination and approval authority which approved the establishment of such Enterprise:

resolutions of the Board of Directors of the Enterprise and other investors approving the pledge of its Ownership Interest by the pledgor;

the pledge contract executed by the pledging investor and the pledgee;

the investment certificate of the pledging investor; and

the investment verification report for the Enterprise issued by the accountant registered in China and his/her accounting firm.
The examination and approval authority shall, within 30 days upon receiving all the documents set forth in the foregoing section, decide whether or not to approve the documents

The Enterprise shall, within thirty (30) days after it obtains the approval from the examination and approval authority regarding the pledge of the Ownership Interest by its pledging investor, handle the procedures for filing with the original registration authority in virtue of the relevant written approval.

Any pledge which fails to go through the examination and approval process and filing procedures as set forth in this Article shall become invalid.

Article 13.

If in accordance with the provisions of the Guarantee Law, the pledged Ownership Interest upon transfer is owned by the pledgee or other beneficiaries, in addition to the documents required in Article 9 (1), (2), (3) and (5), the Enterprise shall also submit to the examination and approval authority valid documents certifying the title of the pledgee or other beneficiaries to the Ownership Interest of the original investor. The examination and approval authority shall go through the reviewing process on the basis of the above documents and documents described in Article 12 hereof as well as the relevant laws and regulations.

Article 14.

Where the Ownership Interest needs to be changed due to the reasons set forth in Article 2 (5) and (6) hereof, in addition to the documents required in Article 9 (1), (2), (3) and (5), the Enterprise shall also submit to the examination and approval authority valid documents certifying the title of the new owner of the Ownership Interest to the Ownership Interest of the original investor.

In case of any change to the investors of the Enterprise due to the provisions of Article 2 (5) and (6) hereof, if the other investors of the Enterprise do not agree to continue the operation, they may apply to the original examination and approval authority for the termination of the contract and the articles of association of the original Enterprise. Upon the termination thereof, the person who has obtained the Ownership Interest shall have right to join the liquidation committee and participate in the distribution of the assets of the Enterprise remaining after the liquidation; if the person who has obtained the Ownership Interest does not agree to continue operation, upon the unanimous agreement of the other investors of the Enterprise, he may assign his Ownership Interest to the other investors of the Enterprise or any third party in accordance with these Regulations.

Article 15.

If the investor needs to be replaced or the Ownership Interest needs to be changed due to the reasons set forth in Article 2 (7) hereof, the non-defaulting investor shall be entitled to unilaterally apply to the examination and approval authority for such changes. In addition to the documents required in Article 9 (1), (2), (3) and (5), the Enterprise shall also submit to the examination and approval authority the following documents:

the investment verification report for the Enterprise issued by the accountant registered in China and his/her accounting firm; and
the documents certifying the non-faulting party notifying the defaulting party to make or make in full its capital contributions.
If any new investor intends to make investment, the certificate for legal business operation of the new investor and a letter of credit standing shall be submitted to the examination and approval authority. If the defaulting party has made partial contribution in accordance with the provisions of the original contract and the articles of association of the Enterprise, relevant documents regarding the clearance by the Enterprise of the partial contribution made by the defaulting party shall also be submitted to the examination and approval authority.

Article 16.

In case of any change to the Ownership Interest of the Chinese investor who made the investment with State-owned assets, the Enterprise must also submit the following documents to the examination and approval authority:

opinion of the competent department of the Chinese investor on the change of the Ownership Interest of the Enterprise;

asset appraisal report on the Ownership Interest to be changed issued by a State-owned asset appraisal authority; and

letter of confirmation issued by the State-owned asset administration department on the above asset appraisal report.
Article 17.

The examination and approval authority shall, within 30 days upon receiving all the documents required to be submitted, decide whether or not to approve the documents.

The Enterprise shall, within 30 days after the examination and approval authority grants the approval of the change of the Ownership Interest of the Enterprise, go through the formalities with the examination and approval authority for the change of the Certificate of Approval of Foreign Investment Enterprises.

The Chinese investor who has obtained all of the Ownership Interest of the Enterprise shall, within 30 days after the approval of the change of the Ownership Interest of the Enterprise is granted by the examination and approval authority, return to the examination and approval authority for cancellation the Certificate of Approval of Foreign Investment Enterprises. The examination and approval authority shall, within 15 days upon the cancellation of the Certificate, send a notice to the original registration organization of the Enterprise regarding the cancellation of the Certificate of Approval of the Foreign Investment Enterprises.

Article 18.

The Enterprise shall, within 30 days upon the change or cancellation of the Certificate of Approval of Foreign Investment Enterprises, apply to the registration organization for the change of registration in accordance with the Regulations of the People’s Republic of China on the Administration of Registration of the Enterprise Legal Person and the Regulations of the People’s Republic of China on the Administration of Company Registration. Failing that shall result in corresponding penalty by the registration organization according to relevant regulations.

Article 19.

When applying for a change of the registration of the Ownership Interest, the Enterprise shall submit to the registration organization the relevant documents submitted to examination and approval authority, the approved document of the examination and approval authority and the other documents required by the registration organization.

If the investor needs to be replaced or the Ownership Interest needs to be changed due to the reasons set forth in Article 2 (7) hereof, in addition to the documents set forth in Article 15 hereof, the Enterprise shall also submit to the registration organization the document appointing the new members of the Board of Directors of the Enterprise, their ID certificates as well as the resolution of the new Board of Directors.

If the Chinese investor of the Enterprise obtains all of the Ownership Interest of the Enterprise because of the change of the investor’s Ownership Interest, the Enterprises shall, when applying for change of registration, submit relevant documents to the registration organization as required for the established of the type of the proposed enterprise. Upon the approval of the registration organization, the Business License of the People’s Republic of China of Enterprise Legal Person will be revoked and the Business License of the Enterprise Legal Person will be issued instead.

Article 20.

The agreement of Ownership Interest transfer as well as the agreement of amendment to the original contract and the articles of association shall be effective as of the date of the approval of the change of the Certificate of Approval of Foreign Investment Enterprises. After such agreements become effective, the investors of the Enterprise shall be entitled to the relevant rights and undertake relevant obligations according to the contract and the articles of association as amended.

Article 21.

The assignment of the shares not publicly listed of foreign investment shareholding limited companies shall be implemented with reference to these Regulations except otherwise stipulated by laws and regulations.

Article 22.

The change of the Ownership Interest of the Enterprise invested by companies, enterprises, and other economic organizations as well as individuals of Hong Kong, Macao and Taiwan in other parts of China shall be implemented with reference to these Regulations.

Article 23.

These Regulations shall be implemented as of the date of promulgation.